**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-KSB**

 

**ý****ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For theyear ended December 31, 2002**

 

**OR**

 

**o****TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from                 to               **

 

**CommissionFile Number: 000-32621**

 

**INTAC INTERNATIONAL, INC.**

(Exact name of SmallBusiness Issuer in its charter)

 

| **NEVADA**                                                                             |   | **98-0336945**                     |
|----------------------------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                       |   | (IRS Employer  Identification No.) |
|                                                                                   |   |                               |
| **Units 3-5, 17/F., Clifford Centre  778-784 Cheung Sha Wan Road  Kowloon, Hong Kong** |   | **N/A**                            |
| (Address of principal  executive offices)                                              |   | (Zip Code)                         |

 

(Issuer’s telephone number,including area code) **011 (852) 2385-8789**

 

Securities registeredpursuant to Section 12(b) of the Exchange Act: **None**

 

Securities registeredunder Section 12(g) of the Exchange Act

**Common Stock, par value $.001**

 

Check whether the Issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the past 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

ý   Yes    o   No

 

Check if there is no disclosure of delinquent filersin response to Item 405 of Regulation S-B is not contained in this form, and nodisclosure will be contained, to the best of the Registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-KSB or any amendment to this Form 10-KSB ý.

 

The Issuer’s revenues for its most recent fiscal yearwere $84,835,480.

 

The aggregate market value of the voting common equityheld by non-affiliates of the Registrant on March 28, 2003 was $36,378,261based on the average of the Registrant’s bid and ask price on the OTC BulletinBoard. Shares held by non-affiliates were determined by beneficial ownershiprules adopted pursuant to Section 13 of the Exchange Act, and exclude stockowned by directors, officers and ten-percent stockholders, some of which maynot be held to be affiliates upon judicial determination.

 

The number of shares of the Registrant’s common stock,$0.001 par value per share, outstanding as of March 28, 2003 was 19,189,455.

** **

**DOCUMENTSINCORPORATED BY REFERENCE**

 

The information required by Part III of this Report,to the extent not set forth herein, is incorporated by reference from theRegistrant’s definitive information statement to be filed with the Commissionwithin one hundred (120) days following the Registrant’s fiscal year end, or onor before April 30, 2003.

 

Transitional Small Business Disclosure Format oYes ý No

 

 

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**TABLE OF CONTENTS**

 
| PART I                             |                                                                                                              |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                              |
| ITEM 1                             | DESCRIPTION  OF BUSINESS                                                                                          |
| ITEM 2                             | DESCRIPTION  OF PROPERTY                                                                                          |
| ITEM 3                             | LEGAL  PROCEEDINGS                                                                                                |
| ITEM 4                             | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                              |
|                               |                                                                                                              |
| PART  II                           |                                                                                                              |
|                               |                                                                                                              |
| ITEM 5                             | MARKET  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                         |
| ITEM 6                             | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                   |
| ITEM 7                             | FINANCIAL  STATEMENTS                                                                                             |
| ITEM 8                             | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |
|                               |                                                                                                              |
| PART  III                          |                                                                                                              |
|                               |                                                                                                              |
| ITEM 9                             | DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)  OF THE EXCHANGE ACT |
| ITEM 10                            | EXECUTIVE  COMPENSATION                                                                                           |
| ITEM 11                            | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                  |
| ITEM 12                            | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   |
| ITEM 13                            | EXHIBITS  AND REPORTS ON FORM 8-K                                                                                 |
| ITEM 14                            | CONTROLS  AND PROCEDURES                                                                                          |
|                               |                                                                                                              |
| SIGNATURES                         |
|                               |                                                                                                              |
| INDEX TO EXHIBITS                  |
|                               |                                                                                                              |
| CONSOLIDATED  FINANCIAL STATEMENTS |

 

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**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

“Forward-looking” statements have been includedthroughout this report on Form 10-KSB (this “Report”). These statementsdescribe our attempt to predict future events, such as our plans for futureexpansion, our ability to achieve satisfactory operating performance, theviability of our business model, our expansion into other businesses andpursuit of other business opportunities, and our intent to focus our businessoperations in specific geographic markets. The words “may,” “will,” “expect,”“believe,” “plan,” “intend,” “anticipate,” “estimate,” “continue,” and similarexpressions, as well as discussions of our strategy and pending transactions, areintended to identify forward-looking statements. Although we believe that theseforward-looking statements are based on reasonable assumptions, we can give noassurance that our expectations will in fact occur and caution that actualresults may differ materially from those in the forward-looking statements. Theimportant factors listed in the section entitled “Business Risk Factors,” aswell as any cautionary language in this Report, provide examples of risks,uncertainties and events that may cause our actual results to differ materiallyfrom the expectations described in any forward-looking statements. You shouldbe aware that the occurrence of the events described in these factors andelsewhere in this Report could have an adverse effect on our business, resultsof operations or financial condition. You should also be aware that the“forward-looking” statements are subject to a number of risks, assumptions anduncertainties, such as:

 

•                  our ability to obtain immediateadditional working capital, the lack of which would likely have a significantnegative impact on our current level of operations;

 

•                  our ability to raise additionalcapital in order to take advantage of our strategic alliances and tosuccessfully execute our expansion plan;

 

•                  the low-margin nature of ourdistribution businesses and the increased expense structure assumed by us as aU.S. public company;

 

•                  our status as an early-stage companywith an evolving, unproven and unpredictable business model;

 

•                  changes in general business conditionsor distribution channels in the wireless handset or automobile industries, andour ability to react to these changes;

 

•                  the impact of competition in thewireless handset distribution and automobile distribution industries, as wellas in industries that we may operate in the future;

 

•                  our ability to continue to sellproducts outside of traditional distribution channels;

 

•                  the anticipated benefits of ourindustry contacts and strategic relationships;

 

•                  our ability toestablish and take advantage of contacts and strategic relationships;

 

•                  our ability to continue to purchasesufficient inventory on terms favorable to us;

 

•                  political and economic events andconditions in China and other geographic markets in which we operate;

 

•                  the results of our intendeddiversification into other industries and geographic regions;

 

•                  our relatively few number of currentsuppliers and customers;

 

•                  our lack of supply contracts with ourvendors or distribution contracts with our customers;

 

•                  our anticipated rise in operatingexpenses;

 

•                  the concentration of a significantportion of our wireless handset distribution business with a few largecustomers;

 

•                  the highly competitive and constantlychanging nature of the international wireless and automobile distribution industries;

 

•                  our ability to react to marketopportunities;

 

•                  the advent ofnew technology;

 

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•                  complex regulations that apply to usas an operating company in China and elsewhere;

 

•                  changes in interest rates, foreigncurrency fluctuations and capital market conditions, particularly those thatmay affect the availability of credit for our products and services; and

 

•                  other factors including thosedetailed under the heading “Business Risk Factors”

 

You should not unduly rely on these forward-lookingstatements, which speak only as of the date of this filing. Except as requiredby law, we are not obligated to publicly release any revisions to theseforward-looking statements to reflect events or circumstances occurring afterthe date of this filing or to reflect the occurrence of unanticipated events.All subsequent written and oral forward-looking statements attributable to us,or persons acting on our behalf, are expressly qualified in their entirety bythe forward-looking statements set forth in this Report.

 

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**PART I**

 

**ITEM 1****-DESCRIPTION OF BUSINESS**

 

**OVERVIEW**

 

INTAC International, Inc. is a U.S. holding companyfocused on the exploitation of strategic business opportunities available inChina and the Asia-Pacific Rim. Throughout this Report, references to “INTAC,” “Company,” “we,” “us,”and “our” refer to INTAC International, Inc. and its operating subsidiaries.  The Company currently maintains offices inChina (Hong Kong, Beijing and Tianjin), Germany (Frankfurt) and the UnitedStates (Dallas, Texas).  During theperiod reported, the Company’s principal operations involved the distributionof premium brand wireless handsets from manufacturers and other distributors tonetwork operators, agents, resellers, dealers and retailers and, to a muchlesser extent, automobile distribution from Europe into mainland China.

 

In October of 2001, we acquired all of the outstandingshares of INTAC International Holdings Limited, a Hong Kong corporation(“Holdings”), and its wholly owned subsidiary, New Tech Handels GmbH, a Germancorporation (“New Tech”). In 2002, Holdings incorporated two wholly ownedsubsidiaries; Global Creative International Limited, a Hong Kong corporation(“Global Creative”) and INTAC Telecommunications Limited, a Hong Kongcorporation (“Telecommunications”). Today, these subsidiaries operate our telecommunications wirelesshandset distribution segment (the “Wireless Handset Distribution Segment”).Through these subsidiaries, we distribute wireless handset products to mobilecommunications equipment wholesalers, agents, retailers and other distributorsworldwide.

 

INTAC’s strategy is to sign long-term cooperativeagreements with strategic Chinese business partners in the telecommunicationsfield in order to gain access to their production facilities, their sales anddistribution networks, as well as their post sales service and supportorganizations.  INTAC believes that itcan bring overseas technology and expertise to these domestic Chinese entitiesand greatly improve their performance.

 

Through our wholly owned subsidiaries FUTAC GroupLimited INTAC, a British Virgin Islands corporation (“FUTAC”), incorporated in2002, and Auto Mobile Trading Company Limited, a China corporation (“AutoMobile Trading”), incorporated in 2002, we also operate our automobiledistribution segment (the “Automobile Distribution Segment”).  Through these subsidiaries we distributeluxury automobiles from Europe to mainland China, and we expect to partner withexisting Chinese car dealers and distributors to further develop this businesssegment.

 

In addition, we continually evaluate investmentopportunities in other business segments within China, the Asia-Pacific Rimand, to a lesser extent, Europe. Our entry into these new business segments iscontingent upon our identifying both favorable investment opportunities andstrategic partners with expertise in such business segments.

 

We continue to needimmediate additional working capital without which would likely have asignificant negative impact on our current level of operations.  On February 10, 2003, we signed an exclusiveagreement with T-Mobile, under which T-Mobile will sell to us the handsets itobtains through its trade-in program in Germany.  Under this agreement, we have made commitments to purchase allhandsets T-Mobile receives through this trade-in program and plan to distributethe handsets into the Asia-Pacific Rim. The quantities and values cannot be estimated until the programcommences; however, we believe that at least an additional $1 million ofworking capital will be required in order for us to realize the full economicbenefit of this program.  Without thisadditional capital, we will be required to discount our sales prices to ourcustomers or distributors, or extend terms which will reduce our overall profitmargins on this product line.

 

We are currently attempting to obtain additionalfinancing through the issuance of debt, equity, other securities or acombination thereof. In addition, we may seek to obtain a working capital orother traditional loan facility from a bank or other lending source. As of thedate of this Report, we do not have any financing arrangements, nor do we haveany commitments to obtain such an arrangement with any bank or other thirdparty. If we raise capital by issuing equity or convertible debt securities,the percentage ownership of our stockholders will be reduced. Any newsecurities may have rights, preferences or privileges senior to those of ourcommon shareholders.

 

In addition to our current obligations, we continue tonegotiate other strategic agreements and business alliances many of which willbe dependent upon our obtaining additional working capital, or whose value willbe materially less to the Company if we do not have the financial resources tofully exploit such opportunities.

 

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For example, we havenon-binding letters of intent and are currently negotiating definitiveagreements with:

 

i)                 China PutianCorporation (“Putian”), the largest telecommunication equipment manufacturingcompany owned by the Chinese government, for a strategic alliance to introduceadvanced technologies and product designs into China through Putian’sproduction facilities and distribution networks; and

 

ii)              China UnitedTelecommunications Corporation (“China Unicom”), a state-ownedtelecommunications service provider in China, for a strategic alliance tobecome an authorized reseller of wireless mobile services offered by theChengdu Branch of China Unicom in the Sichuan Province in mainland China.

 

Our stock currently trades in the United States on theNational Association of Securities Dealers’ Over-the-Counter Bulletin Board, aninter-dealer quotation service (“OTCBB”), under the symbol “INTN” and in Europeon the Frankfurt Stock Exchange under the symbol “WKN 805768.”

 

**GENERALBACKGROUND**

 

We were incorporated under the name “CommodoreMinerals, Inc.” under the laws of the State of Nevada on September 20, 2000, asa developmental stage corporation. Our initial business operations concentratedon mineral exploration. Although we never conducted any mineral explorationactivities directly, we partnered with others in mineral exploration activities.

 

On September 28, 2001, Mr. Wei Zhou acquired acontrolling interest in us by purchasing 7,000,000 shares of our stock in aprivate transaction with one of the organizers of Commodore Minerals, Inc.(“Commodore”). On October 13, 2001, we entered into a reorganization agreementwith Holdings and the shareholders of Holdings, including Mr. Zhou (the“Reorganization Agreement”), pursuant to which Mr. Zhou and the othershareholders of Holdings conveyed their stock in Holdings to us in exchange forthe issuance of an aggregate of 5,000,000 shares of our common stock (the“Reorganization”). Pursuant to that transaction, Holdings became our whollyowned subsidiary and New Tech, previously a subsidiary of Holdings, became ourindirect subsidiary. For more detailed information on the change of control,please see our Current Report on Form 8-K, filed with the U.S. Securities andExchange Commission (“SEC”) on October 15, 2001. For accounting purposes, theReorganization was treated as a recapitalization of Holdings, with the effectthat our consolidated financial statements reflect the historic businessoperations of Holdings.

 

Upon the consummation of the Reorganization Agreement,we became a distributor of wireless handsets in the global wirelesstelecommunications marketplace. Our customers include wholesalers, agents,retailers and other wireless equipment distributors worldwide. During the yearended December 31, 2002, we distributed substantially all of our wirelesshandset products into Hong Kong, although we also distributed into other partsof the Asia-Pacific Rim and Europe. We generally do not sell our products toend-users. We distribute wireless handsets manufactured by major mobilecommunications equipment manufacturers including Siemens, Samsung, Nokia,Motorola and Ericsson. We currently maintain operations and sales offices inFrankfurt, Germany, and Hong Kong, Beijing, and Tianjin, China.

 

Our founder and Chief Executive Officer has over sixyears of experience in supply channel and distribution channel development forthe wireless handset industry. We believe that we have developed a distributionsystem that allows us to capture an increasingly larger portion of theexpanding worldwide wireless handset market without incurring significant addedinfrastructure cost.

 

Whereasour objective in 2002 was to focus on our core distribution business andestablish customer relationships, our objective in 2003 is to continue toexpand our distribution business and improve gross profit margins.  In 2003, we also expect to take advantage ofco-operative agreements we have established with Chinese state-ownedenterprises which have lower cost structures and liberal import quotas formanufacturing and distributing cellular phones in China.  These strategic partnerships could possiblygenerate significant revenue and further contribute to our long term goal ofbecoming a wireless service provider in China. Establishing contractual relationships with Chinese telecommunicationsenterprises might also lead to opportunities to work with Chinese enterprisesin other fields of interest.

 

We are an early stage company, with a very limited operating historyupon which investors and others can evaluate our Company, our current businessand our prospects. See “Business Risk Factors - We are an early stage companyand therefore our business and prospects are difficult to evaluate.”

 

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**BUSINESSSTRATEGY**

 

Ourprimary business strategy involves participating in selective business opportunitiesin the Asia-Pacific Rim, with particular emphasis on China. Our initialbusiness activities have focused on distribution opportunities in the wirelesshandset and automobile industries.

 

TheCompany’s objective in 2002 was to build our distribution channels andestablish customer relationships. In 2003, we will continue to maintain anddevelop our distribution business and establish strategic partnerships withChina-based companies resulting in significantly increased margins.  We currently have four major opportunitiesto significantly expand our business in 2003:

 

•                  growing thecurrent mobile handset distribution business which is currently limited by ouramount of working capital;

 

•                  purchasingrefurbished mobile handsets under an exclusive agreement with T-Mobile, underwhich T-Mobile will sell to us the handsets it obtains through its trade-inprogram in Germany;

 

•                  partneringto manufacture wireless handsets in China through a strategic relationship withChina Putian Corporation (a major Chinese manufacturer of Telecommunicationsequipment); and

 

•                  becoming thefirst foreign reseller of telecommunications services in China through astrategic relationship with China United Telecommunications Corporation;

 

Eachof these opportunities represents significant growth potential and improvedmargin potential above that of the current distribution model. Taken together,they would strengthen the position of INTAC in the Chinese telecommunicationsmarket.  However, without additionalcapital, we will not be able to take advantage of these opportunities.

 

We anticipate continuing to apply the same “efficientdistribution” strategy that we use for our wireless handset business to theautomobile business segment, and we expect to partner with existing Chinese cardealers and distributors to develop this business segment. As with our wirelesshandset business segment, we believe that our efficient distribution-premisedbusiness model will allow us to operate with greater flexibility than ourcompetitors in the Automobile Distribution Segment.

 

We expect to realize higher gross margins whileunder-pricing our competitors because we do not anticipate adding additionallayers of distribution (i.e., middlemen). Currently, we believe ourcompetitors, particularly our Hong Kong competitors, have two or more layers ofdistribution, each of which adds to the final cost of the product to theultimate consumer.

 

In addition, to the extent that our business model canbe readily applied outside of our primary target geographical region, we willalso pursue opportunities in other regions. Our primary focus of pursuingbusiness opportunities in China and nearby areas is intended to capitalize oncurrent inefficiencies in the distribution of products into China, our ability toleverage our business relationships in China, and our ability to quickly reactto changing marketing conditions to take advantage of windows of opportunity invarious business segments.  We limit ourexposure to excess inventory by only sourcing products once we have determinedthere is a definitive market and we have a firm order.

 

**EfficientDistribution Strategy**

 

In our Wireless Handset Distribution Segment andAutomobile Distribution Segment, we are pursuing an “efficient distribution”strategy that we believe provides us with a competitive advantage in thesemarkets. We believe that each of these markets is characterized by multipledistribution levels that add costs to the ultimate consumer without providingcorresponding value added services or product distinction. By reducing thenumber of distribution layers between the manufacturer and the retaildistributors, we are able to compete based upon price with other distributionnetworks. Within the Wireless Handset Distribution Segment we also have an establishedcustomer base, which at this time has increasing volume demands which webelieve we are prepared to meet.  Wehave strong and trusted relationships with our customers with a reputation forreliability, low cost, experience and trust.

 

In addition, we seek to take advantage of windows ofopportunity to acquire other complimentary products at discounted prices thatmay become available from time to time.

 

We believe that our ability to take advantage ofperceived inefficiencies in the distribution markets for the wireless handsetand automobile industries will provide us with the following competitiveadvantages:

 

•                                          Focuson Best Selling Products. In our distribution business, we have establishedrelationships with industry leaders, including network operators, largeretailers and other worldwide distributors. Through these relationships, weexpect to receive up-to-date industry information regarding trends in consumerbuying patterns. This information should enable us to trade in only those modelsthat we believe are the most popular among end-users, thereby reducing ourinventory risk and increasing the number of inventory turns per month whencompared to that of our competitors.

 

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•                                          Abilityto Quickly Modify Inventory Mix. We differ from other distributors in that wedo not stock continuing lines. Although we attempt to offer a consistentavailability of inventory, we purchase a variety of makes and models to takeadvantage of promotional and other discount opportunities. As a result, we canoffer a higher proportion of low cost inventory than our competitors. Webelieve that this strategy permits us to be more flexible in our inventorypurchases than we would be if governed by certain manufacturers’ distributionagreements.

 

•                                          Reputationas a “Best Source” Provider. In our wireless handset business, we competeprimarily on price and availability. We are capable of shipping orders for asfew as 100 wireless handset units, although our average order is much larger.Accordingly, we believe we are well positioned to serve the growingunaffiliated retailer base. Further, we believe that our ability to quicklysource mobile telecommunications equipment at favorable prices provides us witha key competitive advantage as a secondary supplier to the operator-affiliatedretailers.

 

•                                          Exploitationof the Spot Market. As a participant in the “spot market” for wirelesshandsets, there is no set price to us for the purchase of inventory. Thepricing is usually negotiated for each transaction based on the current marketprices for similar equipment, the location of the equipment, the number ofhandsets to be moved, the cost and effort anticipated in packing and shippingthe units, and other relevant factors. Likewise, we determine our sellingprices on the basis of current market conditions, the number of items we haveon hand, target profit margins for various products and other relevantfactors.  Consequently, unlike other distributorswho buy and sell equipment at predetermined prices or formula, we operate on anopportunity basis, buying and selling inventory during periods of marketopportunity.

 

Our system of efficient distribution involvessubstantial risk. Our business model is based on a belief in the future of thewireless handset industry that is contrary to the generally held belief thatsuch industry is shifting away from pure distribution services to a mix ofdistribution services and ancillary services, such as logistics services. Wecannot provide any assurance that our model will prove successful or will leadto the achievement of our objectives. If we are unable to implement ourbusiness model effectively, our business, results of operations and financialcondition would be materially adversely affected.

 

**GrowthStrategy**

 

According to International Data Group, the estimatednumber of mobile telephone subscribers in China is approaching 200 millionwhich according to J. P. Morgan Chase will expand to almost 300 million by theend of 2005.  We expect to capitalize onour existing presence in China and the Asia-Pacific Rim to successfully expandour distribution channels in China. Our objective is to continue to expand ourposition in the industry and to enhance our operating performance.  We intend to pursue this objective byimplementing the following growth strategies:

 

•                                          Continueto expand on our core competencies. We intend to improve on our system ofefficient distribution for wireless handsets. We do not currently intend tomigrate toward a mix of product sales and accessory sales, nor do we expect tobegin providing distribution services or other ancillary logistics services. Webelieve that our approach will provide us with greater flexibility to meet thedemands of our customers, while at the same time providing us with theopportunity to grow a worldwide distribution network without significant addedinfrastructure cost.

 

•                                          Capitalizeon our existing geographic footprint. We believe that the rapidly expandinggrowth in mobile telephone subscribers in the China and the Asia-Pacific Rimhas been caused by:

 

•                                          thelack of available landline service in China;

 

•                                          thesheer size of the population of China, being the most populous nation in theworld; and

 

•                                          therecent dramatic, economic growth in the region.

 

•                                          Capitalizeon management’s experience.  We believeour Company and management team has the expertise to take advantage of thegrowing economy and the business opportunities we perceive as existing in therapidly expanding field of telecommunication services in China.  The Company and its management team intendto use its flexibility, agility, entrepreneurial expertise, quick decisionmaking ability and speed-to-market to further our goals and objectives.

 

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•                                          Pursuestrategic alliances with major players in the telecommunications industry inChina and the Asia-Pacific Rim.   Wehave advanced our strategic objectives by:

 

•                                          Signingan exclusive agreement with T-Mobile on February 11, 2003, valid through December31, 2004, under which T-Mobile will sell to us the handsets it obtains throughits trade-in program in Germany for distribution into the Asia-Pacific Rim;

 

•                                          Activelynegotiating with China Putian Corporation (“Putian”), the largesttelecommunication equipment manufacturing company owned by the Chinesegovernment, for a strategic alliance to introduce advanced technologies andproduct designs into China through Putian’s production facilities anddistribution networks.  We are in theprocess of finalizing a definitive agreement with Putian; and

 

•                                          Pursuinga definitive agreement with China United Telecommunications Corporation (“ChinaUnicom”), a state-owned telecommunications service provider in China, for astrategic alliance to become an authorized reseller of wireless mobile servicesoffered by the Chengdu Branch of China Unicom in the Sichuan Province inmainland China.  In addition, we intendto capitalize on this expanded market for its wireless handset products bycross-selling the handset with the wireless service offering.  We currently do not intend to pursue thisopportunity until the latter part of 2003.

 

•                                          Expandour global sales capabilities. We target our customers predominantly throughdirect sales channels complemented by a range of external alliances andchannels.  We believe that in additionto expanding our presence in the markets currently served, we must also expandinto other world markets. To expand our global reach, we are implementing a programto further integrate additional wholesalers, agents, retailers and otherwireless equipment distributors into our wireless product distribution channel.

 

•                                          Complementour existing business with selective strategic acquisitions. In order to growinto a leading worldwide provider of wireless handsets, we believe thatexpansion through acquisitions, as well as internal growth will benecessary.  Accordingly, we expect topursue the acquisition of companies that sell products and services that eithercomplement or expand our existing business. We may also expand to otherbusinesses or opportunities in areas or industries that we believe presentattractive opportunities for our stockholders but which are outside of purehandset distribution. We believe that significant acquisition opportunities existand that our willingness to retain existing management will make us anattractive acquiring party.

 

**GeographicFocus**

 

In December of 2001, China entered the World TradeOrganization (“WTO”).  Membership in theWTO represents the culmination of a decade-long shift from a centrally plannedeconomy to a market economy.  With itsentry into the WTO, China embarked on an ambitious series of steps to reformits trade and business environment. For example, China has undertaken majorchanges in import and export rights; however, until the reform has beencompleted and come into effect, trading rights will remain the subject ofgovernment approval. We have leveraged our contacts in China to allow us totake advantage of emerging opportunities in the wake of these reforms. We willcontinue to develop strategic contacts in the region as the plan forliberalizing Chinese distribution services continues to follow the newopen-door growth pattern.

 

China’s WTO membership has fundamentally redefinedChina’s relations with other countries, especially with the United States, itsmost significant export market, as well as its neighbors throughout Asia. WTOmembership has allowed China to defend its trade interests using the WTOdispute-settlement system. Chinese exporters have benefited from the certaintythat their trading partners must comply with WTO rules. For example, WTOmembers can no longer discriminate against Chinese products in their homemarkets. China’s membership into the WTO has made it more attractive to foreigninvestors, and foreign investments have resulted in more high-paying jobs, moregovernment tax receipts, more technology transfers and, ultimately, moreconsumer spending. China’s WTO commitments have facilitated increasedcompetition in every sector of the economy. As a result of increased tradingopportunities, Chinese consumers are expected to benefit from the increasedcompetition encouraging a larger range of choices, lower prices, and higherquality in consumer products and sources. The combination of reduced tradebarriers and the increase in the standard of living in China has and shouldcontinue to significantly increase the demand for consumer products andservices in China, including wireless handsets and automobiles.

 

We believe that these continuing reforms in China willenable us to participate in various investment opportunities in China. Ourfirst entry into the Chinese distribution market was accomplished in October of2001 through our acquisition of operating subsidiaries that distribute premiumbrand wireless handset products to mobile communications equipment wholesalers,agents, retailers and other distributors into Hong Kong and mainland China (andthroughout the world). In early 2002, we began importing and distributingautomobiles into mainland China. The automobiles are imported primarily fromEurope and Asia, and are resold to dealers and other distributors in “freetrade” zones within China. We are establishing strategic alliances and are

 

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considering strategic partnerships that have and willcontinue to allow us to participate in China’s expanding markets. Although wewould prefer to partner with a local company with experience within specificgeographic markets within China, we may, if the right opportunity is presented,elect to pursue development opportunities within China on our own.

 

**THEWIRELESS TELECOMMUNICATIONS INDUSTRY**

 

**TheChinese Market**

 

**General.**The Chinese Ministry of Information Industry (the “MII”) estimated the numberof installed handsets to have been 25 million in 1998, 43 million in 1999, 85million in 2000, and 130 million in 2001. With the International Data Group estimating 200 million in 2003, thisrepresents an annual growth rate of approximately 68%. In December of 2002,China was reported to have surpassed the United States to become the largestmarket for wireless communications, with more than 200 million subscribers anda population of 1,300 million.  With theincreasing income per capita for Chinese nationals and the rapid growth of theChinese Economy, there is a huge market potential.

 

**GrowthPotential**.  Since theearly 1990s, the telecommunications market in China has grown approximately 20%per year. The break-up of China Telecom into fixed-line, mobile, satellite andpaging entities and the transfer of the paging section to China Unicomintroduced competition into the services market.  The Chinese Central Government is also considering the entry ofnew telecommunications operators. These competing companies will seek the bestquality products at the lowest price, possibly leading to increased equipmentsales opportunities for foreign and domestic firms.  Although China Mobile and Unicom have dominated the market,competition between them has already lowered the cost of services considerably.

 

China’s MII is expected to digitize public and privatenetworks; build a nationwide broadband network using fiber optic cable,microwave and satellite systems; expand the nationwide Global System for MobileCommunication (“GSM”) mobile network and deploy Code Division Multiple Access(“CDMA”) systems; improve management and billing systems; and promote Internetusage, especially electronic commerce.

 

Already one of the largest in the world, China’stelecommunications sector is expected to continue expanding in the comingdecades.  China’s level of economicdevelopment is still far behind the developed world. Though we anticipateChina’s telecommunications sector to be large in aggregate, it is still smallon a per capita base, which implies the huge growth potential for China’stelecommunications sector. The current trend of robust economic growth, weexpect, will remain at least for another decade. We anticipate growth drivendemand for telecommunications services will increase continuously. The EconomicAnalytical Unit of the Australian Department of Foreign Affairs and Tradereported that the number of telephone lines in China will reach 370 million in2010 and 1 billion in 2020 and that the number of mobile phone subscribers willreach 250 million by 2004 and 300 million by the end of 2005. At present,development in China’s telecommunications sector is uneven with both regionaland urban-rural imbalances. Reforms and China’s WTO membership will lead tofurther deregulation and hence increasing competition in the telecommunicationssector.

 

In early 1999, the MII introduced a telecommunicationsproduct licensing system, which requires the issuance of a license for alltelecommunications equipment before being marketed in China. The MII encouragesoperators to purchase domestically manufactured products to support nationaltelecommunications manufacturers. Greater flexibility is sometimes shown toforeign companies that have exclusive technology or are willing to invest inpriority areas, such as rural inland China. In addition, China has committed topermitting foreign interests to own up to 50% of Chinese telecom companiesunder its WTO obligations.  This hasprovided further impetus for growth.

 

China Unicom, the only carrier licensed to build andoperate the CDMA system, completed its first phase of CDMA networks coveringall 31 provinces and municipalities in China during 2001.  They reported earlier this year that they expectedto complete their upgrade to CDMA 1X by the end of the year with their networkcapacity suitably increased with enhanced coverage.  Emphasis is to be placed on fully leveraging the advantage ofCDMA 1X technology in providing a variety of mobile data service atmedium-to-high speed.  As of June 2002,China Unicom had 34 million GSM and CDMA subscribers, adding 7 million during2002 with expectation of a greater level of growth in the second half of theyear. By its estimate, the subscribers of China Unicom’s CDMA networks willreach 50 million in 2003. As a result, CDMA handsets will be much needed tomeet the demand, and the potential market in China for CDMA handsets alonecould reach over $1 billion by 2003.

 

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**Growthin the Industry**

 

Growth in the number of wireless handset users in theAsia-Pacific Rim has been fueled by several factors, including:

 

•                                          expansionof network operators into previously unserved areas, particularly in portionsof the Asia-Pacific Rim;

 

•                                          thelack of land line expansion plans;

 

•                                          increasedderegulation of the Asia-Pacific Rim;

 

•                                          availabilityof appropriate additional wireless spectrum;

 

•                                          convergenceof Internet, voice, data and other technologies;

 

•                                          theincreasing size of the population;

 

•                                          increasingconsumer demand for advances in wireless technologies and handsetfunctionality; and

 

•                                          decreasingconsumer prices for handsets and wireless service.

 

China Mobile launched a cell phone-based datacommunications service using the General Packet Radio Service (“GPRS”) formaton May 17, 2002. The new service enables users to download news, games, maps,weather forecasts and other information on cell phones. Third-generation (“3G”)mobile telecommunications promises a new line of broadband services such asreal-time video transmission and fast Internet service.  The homegrown Time Division - SynchronousCode Division Multiple Access (“TD-SCDMA”), together with the US-based CDMA2000 and Europe-based WCDMA (wideband CDMA), are the three major internationalstandards for 3G mobile telecommunications. The introduction of 3G technology has further fueled the quantity ofwireless handsets being sold.  This isalso expected to lead to an increase in the number and quality of refurbishedcell phones.

** **

**IndustryChallenges**

 

Despite the increasing demand for wireless handsets,numerous factors have converged in recent years to create new challenges fortraditional wireless equipment distributors. These factors include thefollowing:

 

Increasing Number of Equipment Manufacturers andAvailable Models. Originally, there were relatively few manufacturers of mobilecommunications equipment. However, within the last several years, numerousother companies, including those that have historically manufactured consumerelectronics (such as Haier), have also entered the market. In addition, astechnology has expanded and features have been added, the number of availablemodels per manufacturer has also increased. We expect both of these trends tocontinue as the demand for wireless handsets continues to increase. We believethat because many traditional distributors attempt to inventory a commerciallyadequate supply of handsets for each manufacturer by model, they areexperiencing greater costs and higher inventory risk. Further, we believe thatthese distributors tend to turn their inventory fewer times per month.

 

Lack of Brand Loyalty. Competition among handsetmanufacturers is intense, resulting in constant changes in market share betweenmanufacturers. Although the industry remains largely dominated by three vendors(specifically, Nokia, Motorola and Siemens), numerous smaller manufacturershave entered the market, further increasing the competition amongmanufacturers. We believe that consumer handset selection is based less on brandname loyalty and more on features and functionality, size and appearance,pricing and incentives and perceived technological advancement, especially inthe Asia-Pacific Rim. We also believe this trend will continue. Accordingly, wecontend that those distributors having long-term distribution agreements withvendors and manufacturers or agreements containing “minimum commitments” willfind it more difficult to react to consumer preference changes.

 

Unaffiliated and Operator-Affiliated Retailer Base.Because of the strong growth in worldwide users of mobile communications, thenumber of retail locations selling wireless handsets is also increasing. Webelieve that many of these locations are unaffiliated with a network operatorand are generally free to purchase inventory from any entity they desire. Weexpect that this trend has been fueled somewhat by the number of repeat usersdesiring to purchase new equipment but who do not desire to switch theirexisting service provider. Many of these retailers, or the distributors thatserve them, generally desire to purchase in smaller quantities not readilyavailable from traditional distributors. In addition, we recognize that thevast majority of operator-affiliated retailers must rely on secondary sourcesof supply. In either case, we believe that the purchasing agents in thesesituations are motivated to buy from a distributor on the basis of price andavailability and, to a lesser extent, on the basis of a prior businessrelationship. Consequently, we expect that those distributors that compete on abasis other than price, availability and relationship

 

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will find it increasingly difficult to reach theunaffiliated retailer and operator-affiliated base.

 

Price Volatility. Over the last several years, pricesfor wireless handsets have become increasingly volatile. This volatility isdue, among other things, to increased supply into the various sales channels, alarger number of manufacturers, and a slow-down in the economy generally. As aconsequence of this volatility, a “spot market” has developed in which largequantities of inventory can be purchased and sold at the then prevailing marketprice. Prices for equipment can vary as much as 10% from one day to the next.Traditional distributors often find it difficult to participate or benefit fromthis spot market due to their contractual arrangements with the manufacturers.

 

**TraditionalResponse to Industry Challenges**

 

In response to the industry challenges, many distributorshave expanded their focus to provide ancillary products (such as accessories)and ancillary services (such as warehousing, customized packaging, “inventorymanagement,” and other “logistics services”) to their customers. Manytraditional distributors believe that ancillary products and services carry ahigher gross margin than merely the distribution of wireless handsets. At thesame time, many large network operators and manufacturers are embracing themove to an outsourced solution for their distribution needs because of theirability to shift to the distributor:

 

•                                          thesignificant initial and continuing costs of maintaining warehouse facilitiesand providing logistics services;

 

•                                          therisks associated with inventory management and storage; and

 

•                                          theother efficiency issues associated with maintaining an infrastructure that mustexpand and contract to meet consumer demand.

 

Similar to other distribution industries that havemigrated to a “full service” approach, we believe that handset distributors arefacing increasing costs for personnel, IT infrastructure, warehouse facilitiesand general overhead. We believe that as wireless equipment manufacturerscontinue to migrate toward a mix of products and services, traditionaldistributors will find it increasingly difficult to efficiently integrate andmanage these separate operations into a cost-effective solution for theircustomers. Consequently, we expect that as revenues for full servicedistributors increase, their expected efficiencies of scale may not.

 

**AUTOMOBILEDISTRIBUTION INDUSTRY**

 

With China’s entry into the WTO we expect and haveseen demand for foreign automobiles increase. We are applying the same “efficient distribution” strategy that we usefor our wireless handset business to this business segment, and we expect topartner with existing Chinese car dealers and distributors to develop thisbusiness segment. As with our wireless handset business segment, we believethat our efficient distribution-premised business model will allow us tooperate with greater flexibility at modest risk in the Automobile DistributionSegment.

 

Our vehicles are placed on display and distributedthrough China’s free trade zones, initially Tianjin. This particular free tradezone was initially selected to test the business model because of itsgeographic location and advantages. In 2002, we established a separate Chinesesubsidiary for this region, INTAC Auto Mobile Trading Company Limited. Thissubsidiary operates in the Tianjin free trade zone, services the northernregions of China and distributes mainly European-made vehicles, such as Volvoand BMW. In addition, each subsidiary will be able to cross-sell the other’sproducts depending on the requests of the dealers with whom the Companyanticipates partnering.

 

Participating car dealers pick up the vehicles andobtain the necessary permits and quotas from the Chinese government.  They are also responsible for paying anycustoms duties, value-added-taxes and other charges prior to the vehicles beingdelivered to them by us. We utilize third-party shipping companies for deliverylogistics and warehousing of products prior to delivery to the dealers. Weincur only nominal warehouse or storage charges as the shipping companiesreceive their revenues mainly for shipping and delivery of the product.

 

We realize higher gross margins while under-pricingour competitors because we do not anticipate adding additional layers ofdistribution (i.e., middlemen). Currently, we believe our competitors,particularly our Hong Kong competitors, have two or more layers ofdistribution, each of which adds to the final cost of delivery of the vehicle.

 

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**BUSINESSRISK FACTORS**

 

Readers of this Report should consider carefully thefollowing business risk factors in evaluating our Company and its prospects.Any of the following risks, as well as other risks and uncertainties that arenot yet identified or that we currently believe are immaterial, could harm ourbusiness, financial condition and operating results, and could result in thecomplete loss of any investment.

 

**RisksRelated To Our Business**

 

*We willneed immediate additional working capital without which would likely have asignificant negative impact on our current level of operations.*

 

We continue to need immediate additional workingcapital the lack of which would likely have a significant negative impact onour current level of operations.  OnFebruary 10, 2003, we signed an exclusive agreement with T-Mobile, under whichT-Mobile will sell to us the handsets it obtains through its trade-in programin Germany.  Under this agreement, wehave made commitments to purchase all handsets T-Mobile receives through thistrade-in program and plan to distribute the handsets to the Asia-PacificRim.  The quantities and values cannotbe estimated until the program commences; however, we believe that at least anadditional $1 million of working capital will be required in order for us torealize the full economic benefit of this program.  Without this additional capital, we will be required to discountour sales prices to our customers or distributors or extend terms which willreduce our overall profit margins on this product line.  The lack of sufficient capital to fulfillour contractual obligations to purchase the refurbished handsets from T-Mobilecould result in the termination of this agreement.  In addition, our inventory purchases generally require thepayment in full of the purchase price of the inventory prior to its delivery.Therefore, our ability to grow our business and acquire additional inventory isdependent upon increasing our working capital resources. Our automobiledistribution business will result in significantly increased working capitalrequirements dependent on the sales activity of the business. We expect to makean initial deposit for all vehicles when ordered (which we expect will beoffset by customer deposits), and to make full payment for all vehicles upondelivery to us from the manufacturer. After our payment for the vehicles, weexpect that it will take an estimated four to six weeks before we sell thevehicles and receive payment for the order. Therefore, we will need to financethe inventory during this period. Also in some cases, we will give minimalcredit terms to customers for the balance outstanding, only if they haveestablished and good payment history with us. Generally our customers will pay within a few days of receiving andinspection of the product.  Our businessmodel generally requires a deposit by the customer. To the extent we are unableto increase our working capital assets, we will not be able to significantlyincrease our inventory purchases or fund the increased customer balancesoutstanding and accordingly, the growth of our sales could be restricted.  Further, we may expand to other geographicmarkets, and the start-up costs for distribution and other marketing channelsin new geographic markets will require additional capital.  In addition to our current obligations, wecontinue to negotiate other strategic agreements and business alliances many ofwhich will be dependent upon our obtaining additional working capital, or whosevalue will be materially less to the Company if we do not have the financialresources to fully exploit such opportunities. We do not currently have any lending arrangements with any banks orother third parties, nor do we have any commitments to obtain such anarrangement. We cannot assure you that additional financing will be availableon favorable terms, or at all. If funds are not available when required for ourworking capital needs or other transactions, our ability to carry out ourbusiness plan could be adversely affected, and we may be required to scale backour growth and operations to reflect the extent of available funding. If we areable to arrange for credit facilities from lenders, the debt instruments arelikely to include limitations on our ability to incur other indebtedness, topay dividends, to create liens, to sell or purchase our capital stock, to sellassets or to make acquisitions or enter into other transactions. Suchrestrictions may adversely affect our ability to finance our future operationsor capital needs or to engage in other business activities. If we raiseadditional funds by issuing equity or convertible debt securities, thepercentage ownership of our stockholders will be reduced. These securities mayhave rights, preferences or privileges senior to those of our commonstockholders. In addition, we may seek to obtain a working capital or othertraditional loan facility from a bank or other lending source.  If we are unable to obtain substantialincreases in our working capital resources, our ability to increase ourrevenues and profits will be materially and adversely affected.

 

*We arean early stage company and therefore our business and prospects are difficultto evaluate.*

 

Our operating companies commenced operations from 2000 through2002.  New Tech commenced initialoperations in 2000, Holdings and FUTAC commenced initial operations in 2001,and Global Creative, Telecommunications, and Auto Mobile Trading commencedinitial operations in 2002. Consequently, we are an early stage company, with a very limitedoperating history upon which investors and others can evaluate our Company, ourcurrent business and our prospects. In addition, we only launched ourautomobile distribution business in the first quarter of 2002. Our prospectsmust be considered in light of the many risks, uncertainties, expenses, delays,and difficulties frequently encountered by companies in their early stages ofdevelopment. Some of the risks and difficulties we expect to encounter includeour ability to:

 

•                                          obtainimmediate additional working capital, the lack of which would likely have asignificant negative impact

 

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on our current level ofoperations;

 

•                                          raiseadditional capital in order to take advantage of our strategic alliances and tosuccessfully execute our expansion plan;

 

•                                          managethe increased expense structure assumed by us as a U.S. public company;

 

•                                          managethe anticipated rise in operating expenses;

 

•                                          manageand implement successfully new business strategies;

 

•                                          adaptand successfully execute our evolving and unpredictable business model;

 

•                                          continueto sell products outside of traditional distribution channels;

 

•                                          establishand take advantage of contacts and strategic relationships;

 

•                                          adaptto our intended diversification into other industries and geographic regions;

 

•                                          continueto purchase sufficient inventory on terms favorable to us;

 

•                                          predictthe level of refurbished mobile phones to be purchased from T-Mobile;

 

•                                          manageour inventory costs and obsolescence risks;

 

•                                          manageand adapt to rapidly changing and expanding operations;

 

•                                          implementand improve operational, financial and management systems and processes;

 

•                                          respondeffectively to competitive developments;

 

•                                          attract,retain and motivate qualified personnel; and

 

•                                          manageeach of the other risks set forth below.

 

Because of our lack of operating history and the earlystage of our development, we have limited insight into trends and conditionsthat may exist or might emerge and affect our business, especially therefurbished market where we have very minimal history. We cannot be certainthat our business strategy will be successful or that we will successfullyaddress these risks.

 

*Ourefficient distribution business model may not be successful which could resultin the need to quickly change our growth strategy or business plan.*

 

Our “efficient distribution” business model ispremised upon our ability to acquire inventory in bulk at competitive pricesand quickly resell the products into other geographic markets. We are a puredistribution business, and we do not currently offer any additional services orproduct enhancements to accompany the sale of our inventory. To the extent thatcustomer preferences dictate that additional services or product enhancementsare required to successfully compete in the wireless products industry, we maybe forced to quickly change our business plan. While we attempt to distinguishourselves based upon price and our ability to adapt to changes in markettrends, many of our competitors couple their distribution of wirelesscommunications products with product enhancements and services.

 

*Ourexperience or ability to capitalize on any agreement or intent and our abilityto realize the potential benefits.*

 

We have no proven historyof capitalizing on any strategic agreement such as the exclusive agreement withT-Mobile.  There are also no guaranteesof the quantities that will become available or the capital required to fulfillour contractual obligation to purchase the refurbished handsets from T-Mobilebeing made available.  As a result, wemay not be able to meet our obligation under the terms of the agreement whichmay result in the termination of this agreement.  We have no definitive agreement with Putian or China Unicom, nordo we have any history with them or any assurance we could successfullymaintain such a relationship if we were to enter into such an agreement.

 

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*We donot have any definitive customer contracts for the refurbished wirelesshandsets promised by the T-Mobile agreement, which renders our distributionchannel particularly unstable.*

 

We do not have any definitive agreements with ourcustomers for delivery of refurbished wireless handsets, and instead we willsell our inventory at sales prices that fluctuate frequently.  Accordingly, our customers are notcontractually obligated to buy from us in the future, which might require us tosell such products at below market prices.

 

*We donot maintain sufficient redundant sources of supply at this time.*

 

We have historically purchased substantially all ofthe handsets resold by us from only a few wholesalers. Although we intend toseek out and obtain additional sources of supply in the near future, we do notcurrently have any commitments of supply for any new premium wireless handsets.Accordingly, we are currently dependent on our existing few suppliers toprovide us with adequate inventories. To the extent that any manufacturers ordistributors to existing or future suppliers terminate or modify the terms oftheir relationships with our suppliers to discourage resales by us, oursuppliers may cease providing products to us at the favorable pricing that wecurrently enjoy. Any decrease in our number of suppliers, or in the termsavailable from them, could cause us to purchase inventory at higher prices.

 

*Ourfive largest customers represent a majority of our business and our successdepends, in significant part, on our ability to retain them as customers.*

 

Our largest customers represent a majority of ourbusiness. For the year ended December 31, 2002, our five largest customersrepresented 50.2% of our business. We do not maintain contracts with these orany other of our customers. If any one or more of these customers were toreduce or stop purchasing products from us prior to the time that we were ableto obtain significant additional customers, our business, operating results andfinancial condition would be materially adversely affected. We cannot assureyou that any of our principal customers will be customers of ours in futureperiods.

 

*We aresubject to risks of customers defaulting on payments due.*

 

We generally receive payment from our customers withina few days of the customer receiving and inspecting the product.  In addition, we generally require a depositby the customer; however, in some cases, we will give minimal credit terms tocustomers for the balance outstanding if they have an established and goodpayment history with us.  However, weremain susceptible to companies that do not pay their outstanding balances due,for reasons beyond our control.

 

*Ourthree largest suppliers represent a majority of our purchases and our successdepends, in significant part, on our ability to maintain them as suppliers.*

 

Our largest suppliers represent a majority of ourpurchases. For the year ended December 31, 2002, our three largest suppliers ofwireless handsets accounted for approximately 53% of our productpurchases.  At present, we seek toconcentrate purchases with selected suppliers to ensure access to high-qualityproducts on advantageous terms; although we believe we will need redundantsources of supply in the future. Because product availability is unpredictable,a strong base of vendor relationships will be important to our success. Wemaintain ongoing contact through telephone calls with our vendors to learn whenproducts will become available, at what prices product is moving and whichmodel numbers are the most sought after by consumers. Loss of our ability topurchase product from these suppliers, or the failure by these or other suppliersto supply competitive products on a timely basis and on favorable terms, or atall, would have a material adverse effect on our business and operations.

 

*We donot have any vendor or customer contracts for new premium wireless handsets,which renders our supply and distribution channels particularly unstable.*

 

We do not have any long-term agreements with oursuppliers of new premium handsets, and instead we acquire our inventorypursuant to purchase orders at prices that fluctuate frequently. In addition,we resell our inventory to various retail and wholesale distributors based uponpurchase orders at varying prices, and we do not have any long-term contractswith any of our customers. Accordingly, our suppliers are not contractuallyobligated to sell to us in the future, and our customers are not contractuallyobligated to buy from us in the future.

 

*Ourbusiness operates on a low-margin basis, and our margins may be reduced in thefuture.*

 

Our business operates on a high-volume, low-marginbasis. Our ability to generate sales is based upon our having an adequatesupply of products. The gross margins that we realize on sales of wirelesshandsets could be reduced due to increased competition or a growing industryemphasis on cost containment. In addition, we expect our operating expenses toincrease significantly as we

 

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expand into new geographic markets and incuradditional personnel, legal, accounting and other costs associated withoperating as a public company. Therefore, our future profitability will dependon our ability to increase sales to cover our additional expenses. We may notbe able to substantially increase sales rates. Even if our sales rates doincrease, the gross margins that we receive from our sales may not besufficient to make our future operations profitable.

 

*We aresubject to risks of inventory price declines and obsolescence.*

 

We purchase inventory at prices that fluctuateregularly, sometimes daily, based upon market conditions. Although we typicallylocate a buyer for all or some portion of a supply order prior to effecting apurchase from our suppliers, we necessarily assume inventory, price erosion andobsolescence risks for all unsold or unallocated products. These risks areespecially significant with wireless telephone products because they generallyare characterized by rapid technological change and obsolescence which affectscustomer demand. Our success will depend on our ability to purchase inventoryat attractive prices relative to its resale value and our ability to turn ourinventory rapidly through sales. Our initial operations have focused primarilyon wholesale distribution networks, which generally have a shorter inventorycycle than retail sales. If we pay too much or hold inventory too long, we maybe forced to sell our inventory at a discount or at a loss or write down itsvalue.

 

*We area small player in a highly competitive environment.*

 

We compete with numerous well-established companies,many, if not most, of which are larger and have greater capital and managementresources than we do. In certain markets, we face competition frommanufacturers of products that we resell and from our own suppliers. We competeprimarily on the basis of price, inventory availability, delivery time and ourcustomer relationships. To the extent our competitors market the same orsimilar products and have superior financial resources, those competitors willbe better able to withstand substantial price competition and to implement extensivepromotional programs. We expect price competition to increase in the future.Because of this intense competition, wholesale distributors, including ourCompany, generally operate with low gross margins. Our ability to remaincompetitive will be largely dependent on our ability to control costs andprotect profit margins, and to anticipate and respond to various factorsaffecting the industry. These factors include new products introductions;changes in consumer preferences, demographic trends, international, national,regional and local economic conditions; and discount pricing strategiesimplemented by competitors. In addition, our business plan could be adverselyaffected if product manufacturers elect to market wireless products directly toconsumers rather than through distribution networks. The trend for direct salesby manufacturers to end-users has accelerated in the European Union, thereforereducing the margins and business opportunities for companies like ours thatresell a manufacturer’s products. In addition, we face competition from networkoperators that discount the price of wireless communications products inconnection with promotional efforts to sell wireless communications services.No assurance can be given that we will compete successfully in the wholesaledistribution market, particularly as we enter into new international markets.

 

*Thegrowth we seek is rare.*

 

Substantial future growth will be required in orderfor us to realize our business objectives. Growth of this magnitude is rare,especially in weakened economic periods such as that currently experiencedthroughout the world. To the extent we are capable of growing our business asnecessary, we expect that such growth will place a significant strain on ourmanagerial, operational and financial resources. We must manage our growth, ifany, through appropriate systems and controls in each of these areas. We mustalso establish, train and manage a larger work force. If we do not manage thegrowth of our business effectively, our revenues and profits could bematerially and adversely affected.

 

*Mr.Zhou controls our management and the outcome of any stockholder vote.*

 

As of the date of this report, Mr. Zhou had votingpower with respect to 11,950,000 shares, or 62.3%, of our common stock. As aresult, Mr. Zhou controls all matters requiring stockholder approval, includingthe election of directors and approval of significant corporate transactions,such as mergers, consolidations, sales of substantially all of our assets or atransaction that could result in our Company ceasing to be publicly held. Mr.Zhou is also our Chief Executive Officer and a director of our Company.

 

*Wedepend, almost entirely, on the services of Mr. Zhou.*

 

Our success is substantially dependent on the effortsof Wei Zhou, our Chief Executive Officer. Mr. Zhou is our founder and the keycontact with all of our most significant suppliers and customers. Therefore, weare almost entirely dependent on his services. The loss or interruption of thecontinued full-time service of Mr. Zhou would materially and adversely affectour business. We do not maintain key man insurance on the life of Mr. Zhou. Tosupport our anticipated growth, we will be required to effectively recruit,develop and retain additional qualified management. If we are unable to attractand retain such necessary personnel, it could have a materially adverse effecton our growth.

 

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*If weexperience problems in our distribution operations, we could lose customers.*

 

In addition to inventory suppliers, we depend onseveral other third parties over whom we have limited control, including, inparticular, freight forwarding companies and common carriers. We have nolong-term relationships with any of these parties. We are, therefore, subjectto risks, including risks of employee strikes and inclement weather, whichcould result in failures by such parties to provide services to us in a timelymanner, which could damage our reputation.

 

*Becauseof factors unique to us and our forecast of anticipated financial performance,the market price of our common stock is likely to be particularly volatile.*

 

Because of the manner in which we became a publiccompany (there are relatively few number of shares available for resale on theOTCBB), the early stage of our business and numerous other factors, the tradingprice of our common stock is likely to experience significant fluctuations inthe future. In addition, actual or anticipated variations in our quarterly operatingresults; the introduction of new services, products or technologies by oursuppliers or our competitors; changes in conditions or trends in the wirelesstelecommunications industry; changes in governmental regulation; or changes insecurities analysts’ estimates of our future performance or that of ourcompetitors or our industry in general, all could affect future stockperformance. From time to time, we also may publicly forecast anticipatedperformance goals, and our failure to meet such expectations could adverselyaffect our future stock performance. Investors should not consider acquiringour common stock to the extent they are unable to absorb a complete loss oftheir investment.

 

*Ourcommon stock is subject to the “penny stock” rules, which may make it a lessattractive investment.*

 

Our common stock currently trades on the OTC BulletinBoard. Although we intend to file an application to list our stock on theNasdaq Stock Market’s National Market or SmallCap Market within the next year,we may not meet the initial listing standards for either of these markets forsome time, if at all. Therefore, we cannot provide any assurances that a liquidtrading market will exist at the time any investor desires to dispose of anyshares of our common stock. In addition, our common stock may at any time besubject to the so-called “penny stock” rules that impose additional salespractice requirements on broker-dealers who sell such securities to personsother than established customers and accredited investors. An accreditedinvestor is generally defined as an investor with a net worth in excess of $1million or annual income exceeding $200,000 (or $300,000 together with aspouse). For transactions covered by the penny stock rules, a broker-dealermust make a suitability determination for the purchase and must have receivedthe purchaser’s written consent to the transaction prior to sale. Consequently,both the ability of a broker-dealer to sell our common stock and the ability ofholders of our common stock to sell their securities in the secondary marketmay be adversely affected. The Securities and Exchange Commission has adoptedregulations that define a “penny stock” to be an equity security that has amarket price of less than $5.00 per share, subject to certain exceptions. Forany transaction involving a penny stock, unless exempt, the rules require thedelivery, prior to the transaction, of a disclosure schedule relating to thepenny stock market. The broker-dealer must disclose the commissions payable toboth the broker-dealer and the registered representative, current quotationsfor the securities and, if the broker-dealer is to sell the securities as amarket maker, the broker-dealer must disclose this fact and the broker-dealer’spresumed control over the market. Finally, monthly statements must be sentdisclosing recent price information for the penny stock held in the account andinformation on the limited market in penny stocks. As a result of theadditional suitability requirements and disclosure requirements imposed by the“penny stock” rules, an investor may find it more difficult to dispose of ourcommon stock.

 

**RisksRelated To Our Industry**

 

*Newtechnologies may reduce the demand for our products.*

 

The technology relating to wireless handsets changes rapidly,and industry standards are constantly evolving, resulting in productobsolescence and short product life cycles. If other companies develop andcommercialize new technologies or products in related market segments thatcompete with existing wireless technologies, it could materially change thetypes of products that we may be required to offer or result in significantprice competition. Notwithstanding our efficient distribution strategy, productobsolescence could result in significantly increased inventories of our unsoldproducts. Furthermore, if we elect to stock our inventories in the future withany of these technologies and products, we will run the risk that our existingcustomers and consumers may not be willing, for financial or other reasons, topurchase new equipment necessary to utilize these new technologies. There is noassurance that new technologies will not reduce the demand for our products.

 

*We maybecome subject to suits alleging medical risks associated with our wirelesshandsets.*

 

Lawsuits or claims have been filed or made againstmanufacturers of wireless handsets over the past years alleging possiblemedical risks, including brain cancer, associated with the electromagneticfields emitted by wireless communications handsets. There has been only limitedrelevant research in this area, and this research has not been conclusive as towhat effects, if any,

 

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exposure to electromagnetic fields emitted by wirelesshandsets has on human cells. Substantially all of our revenues are derived,either directly or indirectly, from sales of wireless handsets. Because of ourparticipation in the distribution of wireless handsets, we may become subjectto lawsuits filed by plaintiffs alleging various health risks from ourproducts. If any future studies find possible health risks associated with theuse of wireless handsets or if any damages claim against us is successful, itwould likely have a material adverse effect on our business. Even an unsubstantiatedperception that health risks exist could adversely affect our ability or theability of our customers to market wireless handsets.

 

**RisksAttributable To International Operations**

 

*We aresubject to risks of currency fluctuations and exchange restrictions.*

 

Currency fluctuations, devaluations and exchangerestrictions may adversely affect our liquidity and results of operations. Asubstantial portion of our business currently involves the purchase of wirelesstelephones in Europe for resale in the Asia-Pacific Rim. We attempt to managethe risk of foreign currency devaluation by holding wireless telephone productsthat are not allocated to a particular customer in inventory for a short time(typically less than 30 days) and by requiring our customers to pay cash (inlocal currency) for the full price of an order upon delivery. However, ourinventory cycle for our automobile distribution segment is expected to increaseto 60 days. To the extent that our inventory cycle increases, the risks of currencyfluctuations decreasing our gross margins on sales of our products willincrease. In addition, in some countries, local currencies may not be readilyconverted into Euros or U.S. dollars (or other “hard currencies”) or may onlybe converted at government-controlled rates, and, in some countries, thetransfer of hard currencies offshore has been restricted from time to time.

 

*Ourindustry depends upon the development and expansion of wireless communicationssystems.*

 

The expansion of our business in international marketsin many cases is dependent upon the activation and expansion of wirelesscommunications systems by wireless carriers and upon the quality of thosesystems. The failure of wireless carriers to activate or expand sufficientwireless communications systems in foreign countries could inhibit our growth.Similarly, the failure of foreign governments to authorize the installation ofwireless communications systems, or an unexpected change in government policyrelated to the installation of wireless communications systems, couldmaterially and adversely affect our revenues and profits.

 

*Ourinternational operations subject us to other significant risks.*

 

Our international operations expose us to a widevariety of other risks including increased credit risks, customs duties, importquotas and other trade restrictions, potentially greater inflationarypressures, shipping delays, the risk of failure or material interruption ofwireless systems and services, possible wireless product supply interruptionand potentially significant increases in wireless product prices. Changes mayoccur in foreign trade and investment laws in the territories and countrieswhere we operate. U.S. laws and regulations relating to investment and trade inforeign countries could also change to our detriment. Any of these factorscould materially and adversely affect our revenues and profits. We are subjectto risk of political instability and trade sanctions within China

 

China has traditionally been a closed market with strictpolitical controls. As China shifts to a market economy, growing economic andsocial freedoms may conflict with the more restrictive political andgovernmental policies. In addition, democratic countries throughout the worldhave, from time to time, attempted to use economic and other sanctions toachieve political or social change in other countries. In addition, the Chinesegovernment has continuously failed to recognize the independence of Taiwan and,from time to time, has threatened military action in the region when Taiwaneseindependence has been asserted. Each of these factors could result in economicsanctions, economic instability, the disruption of trading and war within Chinaand the Asia-Pacific Rim, any of which could result in our inability to conductbusiness operations in China. Because a substantial majority of our business iscurrently within China, the disruption of distribution channels into Chinawould have a material and adverse consequence to us.

 

Further risks relating to international operationsinclude, but are not restricted to, unexpected changes in legal and regulatoryrequirements, changes in tariffs, exchange rates and other barriers, politicaland economic instability, possible effects of war and acts of terrorism, difficultiesin account receivable collection, difficulties in managing distributors orrepresentatives, difficulties in staffing and managing internationaloperations, difficulties in protecting the Company’s intellectual propertyoverseas, seasonality of sales and potentially adverse tax consequences. Any ofthese factors could materially and adversely affect our revenues and profits.

 

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**THEPRODUCTS WE DISTRIBUTE**

 

We distribute wireless handsets manufactured by majormobile communications equipment manufacturers including Siemens, Samsung,Nokia, Motorola and Ericsson. For the year ended December 31, 2002 and for theperiod from inception to December 31, 2001, a substantial majority of totalhandset sales were products manufactured by Nokia, Motorola, Siemens andSamsung.

 

Our wireless handset products are compatible with mostnetwork operators, as well as analog and digital standards and other developingtechnologies. All of our handsets come fully packaged in their originalcontainers and carry the manufacturer’s original warranty. We have notpreviously experienced any appreciable amount of warranty related issues.

 

We distribute automobiles from time to time throughfree-trade zones from various European and Asian manufacturers. The automobileproducts that we distribute are determined based upon available pricing,perceived demand, relative exchange rates, and production and quotalimitations.

 

With the signed exclusive agreement with T-Mobile, andthrough their trade-in program set to commence in Germany, we expect to expandinto the distribution of refurbished phones in 2003.

 

**OURSUPPLY CHANNEL**

 

Handsets are available to us at low prices for avariety of reasons, including our ability to quickly move large quantities ofwireless handsets, the inability of a vendor to sell sufficient product throughregular channels, the cancellation of orders placed by other distributors andthe termination of business by a manufacturer or wholesaler. Currently, ouraccess to sources of equipment is based primarily on relationships which we andour management have established over approximately the last six years. Othersources of product include other distributors, network operators andindependent brokers. We receive information about new sources of products fromprior contacts, online resources, advertising and industry publications. OurChief Executive Officer currently handles all inventory procurement and has themost significant industry contacts. As yet, we have not been able to purchaseinventory directly from a manufacturer. We currently do not have any supplyagreements or authorized distribution agreements with any manufacturers orother vendors and, therefore, all of our inventory is purchased on the “spotmarket,” mainly from other wholesalers. We expect that we will begin purchasinga larger portion of our inventory from network operators and manufacturers inthe future, although there can be no assurances in this regard. Our experiencehas indicated that network operators and other wholesalers look favorably upona distribution channel that enables them to dispose of significant quantitiesof merchandise quickly without affecting their traditional sales channels.However, this situation could change if manufacturers or our suppliers decideto discourage the use of our distribution channels.

 

Consistent with our goalof pursuing strategic alliances, we have signed an exclusive agreement withT-Mobile under which T-Mobile will sell to us the handsets it obtains throughits trade-in program in Germany for distribution into the Asia-Pacific Rim.

 

We also hope to finalizea definitive agreement with Putian, the largest telecommunication equipmentmanufacturing company owned by the Chinese government, for a strategic allianceto introduce advanced technologies and product designs into China throughPutian’s production facilities and distribution networks.  Further, through a strategic alliance, wealso hope to capitalize on the expanding market for wireless mobile services andwireless handset products by cross-selling the handset with the wirelessservice offered by the Chengdu Branch of China Unicom, a state-ownedtelecommunications service provider in China. We anticipate the need for immediate additional financing to takeadvantage of, and successfully execute these strategic alliances.

 

During the year ended December 31, 2002, we madepurchases from more than ten suppliers, substantially all of which are otherwholesalers. Our three largest suppliers of wireless handsets accounted forapproximately 53% of our product purchases for the year ended December 31,2002.  At present, we seek toconcentrate purchases with selected suppliers to ensure access to high-qualityproducts on advantageous terms; although, we believe we will need redundantsources of supply in the future. Because product availability is unpredictable,a strong base of vendor relationships will be important to our success. Wemaintain ongoing contact through telephone calls with our vendors to learn whenproducts will become available, at what prices product is moving and whichmodel numbers are the most sought after by consumers. Loss of our ability topurchase product from these suppliers, or the failure by these or othersuppliers to supply competitive products on a timely basis and on favorableterms, or at all, would have a material adverse effect on our business andoperations.

 

We believe that the relationships with our suppliersare generally good; however, we have from time to time experienced inadequateproduct supply. Any future failure or delay by our suppliers in supplying uswith products on favorable terms would severely diminish our ability to obtainand deliver products to our customers on a timely and competitive basis.

 

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The market for wireless handset products ischaracterized by rapidly changing technology and frequent new productintroductions, often resulting in product obsolescence or short product lifecycles. Our success depends in large part on our ability to anticipate andadapt our business to such technological changes. There can be no assurancesthat we will be able to identify, obtain and resell products necessary toremain competitive or that competitors or manufacturers of wireless handsetswill not market products that have perceived advantages over our products orthat render the products sold by us as obsolete or less marketable. We maintainsome investment in product inventory and, therefore, we are subject to therisks of inventory obsolescence and excessive inventory levels. We attempt tolimit these risks by managing inventory turns. Because of our internationaloperations, our inventory is also exposed to certain political and economicrisks.

 

We do not currently have any established relationshipwith automobile manufacturers, although we are attempting to developrelationships in this industry segment. Demand for imported automobiles will beinfluenced by consumer preference, relative exchange rates between the exportingand importing countries, production limitations of certain manufacturers, thepresence of other distribution channels between the manufacturer and theimporting country, and the pricing offered to us by the manufacturer. We do nothave any supply contracts with any automobile suppliers and, therefore, cannotdetermine whether we will be able to obtain automobiles on a competitive basis,if at all. In addition, China imposes import quotas on various manufacturersand countries for automobiles, and therefore our ability to deliver automobilesinto China may be restricted by the use of quota requirements.

 

**OURDISTRIBUTION CHANNEL**

 

During the year ended December 31, 2002, aggregaterevenues generated from our five largest customers accounted for approximately 50.2%of our total revenues.  These customerswere Mr. Lam, 238 Telecom Limited, Chun Wah Trading Limited, AscotDistribuzione SRL, and Wai Luen International Trading Limited, and represented13.3%, 12.1%, 9.2%, 8.6%, and 7.0% of our total revenue, respectively.

 

Products are generally delivered by common carriers toour warehouse facilities in Hong Kong or Frankfurt or designated freightforwarders. Thereafter, we inspect, count and prepare the orders for shipmentor pick up by the customers.

 

We do not generally maintain inventory for a longperiod of time. Instead, we generally seek to have a buyer for our inventoryprior to the time an order is placed with a vendor. The time between acustomer’s purchase order and the completion of the sale of that item isgenerally less than 10 days. Although we assume certain inventory and pricerisk associated with selling these products, we believe our ability to sell ourinventory quickly through our distribution channels and our system of efficientdistribution minimizes the risk. To date, our expenses resulting fromwrite-downs of excess inventory have not been material.

 

We generally sell our products pursuant to a customerpurchase order and subject to our confirmation containing terms and conditions.Because orders are generally not accepted unless they can be filled within afew days of receipt, backlog is generally not material to our business.

 

We expect to distribute automobiles through thefree-trade zone in Tianjin, China through Chinese car dealers and distributors.These Chinese car dealers will be required to obtain the necessary permits andquotas from the Chinese government and will be responsible for paying anycustoms duties, value-added taxes and other charges prior to the vehicles beingdelivered to them by us. We expect to utilize third-party shipping companiesfor delivery logistics and warehousing of products prior to delivery to thedealers.

 

**SALESAND MARKETING**

 

Our sales and marketing efforts for wireless handsetsare coordinated in Hong Kong, Frankfurt and Beijing by a manager for eachparticular office. As with our automobile distribution segment, our sales andmarketing efforts are coordinated in Hong Kong, and Tianjin by a manager foreach particular office.  These managers,who report directly to our Chief Executive Officer, spend substantially all oftheir time developing and maintaining relationships with our customers andsuppliers. Inside each office, our sales force (which is, in the aggregate 10full time personnel at the time of this Report) operates on a named accountbasis rather than by geography, which allows us to maintain a single point ofcontact for each customer. In addition to our inside sales force, we alsoengage non-employee, commissioned sales agents to sell our products. Ourlargest accounts are handled directly by Mr. Zhou, our Chief Executive Officer.Our outside sales agents are compensated on a Commission Program that isdesigned to reward account profitability and promote sales growth into newgeographic regions.

 

As we attempt to expand our sales, marketing andprocurement efforts into additional worldwide markets, we face a number ofchallenges, including the difficulties and costs associated with the following:

 

•                  creatingnew supply and customer relationships;

 

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•                  recruitingskilled sales personnel; and

 

•                  managingand staffing a larger, more geographically diverse operation.

 

We cannot be certain that one or more of these factorswill not harm our future efforts to expand globally.

 

During the first quarter of 2002, we began selling ourautomobiles to dealers and distributors through free-trade zones in China. Oursales and marketing efforts for automobiles are coordinated in Beijing by salespersons who report directly to our Chief Executive Officer. Our automobilesales force currently consists of 2 full-time sales personnel. We expect oursales and procurement personnel serving the automotive distribution segment toincrease as we expand this business segment.

 

**SEASONALITY**

 

We are aware that handset sales are influenced by anumber of seasonal factors including customer buying patterns, productpromotions, availability of distribution channels, holidays and product supplyand pricing, and as a result, we adjust buying to reflect the anticipated levelof sales activity. While we have no experience regarding the seasonality ofautomobile buying patterns within China, automobile sales are typicallyseasonal, and fluctuate based upon the release of new product lines, generallyin the fall, and year-end tax and other incentive programs offered bymanufacturers. Annual WTO-imposed tariff reductions may also affect theseasonality of our sales, in that customs may defer purchases at year end toreceive the benefit of reduced tariffs in the following year. In addition, wealso expect that our sales will be influenced by cyclical economic conditionsin the different countries in which we operate. An economic downturn in one ofour principal markets could materially and adversely affect our revenues andprofits.

 

**COMPETITION**

 

Competition among wireless handset distributors isintense and is expected to increase significantly in the future. Barriers toentry are relatively insubstantial. We compete primarily on the basis of:

 

•                  price;

 

•                  inventoryavailability;

 

•                  deliverytime; and

 

•                  ourcustomer relationships.

 

Many of our existing and potential competitors,including traditional distributors, have longer operating histories, largercustomer bases, direct contractual relationships with manufacturers and otherhighly desirable vendors, greater name recognition and significantly greaterfinancial, personnel and marketing resources than we do. Such competitors cangenerally undertake more aggressive pricing policies, move more inventories,and make more attractive offers to customers, distribution partners andsuppliers than we can. Additionally, substantially all of our existing andprospective customers have established long-standing relationships with one ormore of our competitors or potential competitors. Consequently, we cannot becertain that we will be able to expand our customer list or retain our currentcustomers. We may not be able to compete successfully against our current orfuture competitors and competition could materially and adversely affect ourrevenues and profits.

 

Our competitors include:

 

**InAsia-Pacific Rim**

 

Government-owned distributors that have retailoutlets;

 

First Mobile;

 

Global Tech Holdings; and

 

Numerous other smaller distributors, resellers and agents.

 

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**InEurope**

 

Brightpoint;

 

Cellstar;

 

Wireless handset manufacturers that sell directly intoour distribution channel; and

 

Numerous other small distributors, resellers andagents.

 

The competition in the automobile distributionindustry is also intense and growing as the demand for foreign automobilesgrows and the opportunities presented by this emerging industry becomes moreapparent. We compete primarily on the basis of:

 

•                  price;

 

•                  inventoryavailability;

 

•                  deliverytime;

 

•                  ourcustomer relationships; and

 

•                  ourmanufacturer relationships.

 

We expect to continue to encounter intensecompetition, including competitors who have in the past entered into jointventures with automobile manufacturers in order to bypass import quotarestrictions. Companies such as Taikwoo Enterprises Ltd. will compete directlywith us and have a longer operating history in the free trade zones andexisting relationships with Chinese dealers. We anticipate being able tocompete with these more established competitors due mainly to our manufacturingrelationships, our efficient distribution business model and our ability todeliver automobiles at a lower cost as a result of less distribution layers.Many of our existing and potential competitors, including traditionaldistributors, have longer operating histories, larger customer bases, directcontractual relationships with manufacturers and other highly desirablevendors, greater name recognition and significantly greater financial,personnel and marketing resources than we do. These competitors can generallymove more inventories and make more attractive offers to customers,distributions partners and suppliers than we can.

 

**EMPLOYEES**

 

At the time of this report, we had 21 full-timeemployees, including 10 in sales and marketing, 1 in warehouse and distributionservices and 10 in general and administrative functions. In addition, weroutinely engage up to 10 part-time employees to assist with peak demands inour warehouse and distribution operations.

 

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**ITEM 2****-DESCRIPTION OF PROPERTY**

 

As of March 31, 2003, we leased approximately 9,361square feet for our operations. Our current leased properties are:

 
| **Location**                       |   | **Size**     |   | **Description** |   | **Expiration  of Lease** |
|------------------------------------|--------|--------------|--------|-----------------|--------|--------------------------|
|                               |   |         |   |            |   |                     |
| Cheung Sha Wan, Kowloon, Hong Kong |   | 1833 sq.ft.  |   | Headquarters    |   | March 2004               |
| Kwun Tong, Kowloon, Hong Kong      |   | 918 sq.ft.   |   | Warehouse       |   | March 2003               |
| Frankfurt, Germany                 |   | 3,000 sq.ft. |   | Office          |   | January 2004             |
| Beijing, China                     |   | 3,000 sq.ft. |   | Office          |   | December 2003            |
| Tianjin, China                     |   | 340 sq.ft.   |   | Office          |   | March 2003               |
| Dallas, Texas                      |   | 270 sq.ft.   |   | Office          |   | Month to month           |

 

Our current total leaseobligations are U.S. $105,772.

 

In addition to our leased facilities, we alsofrequently utilize the storage capabilities of our vendors andfreight-forwarders. We believe that the terms we receive for storage space fromthose parties is comparable to, or better than, the terms we could obtain foradditional leased facilities.

 

**ITEM 3****- LEGALPROCEEDINGS**

 

We are not a party to any pending legal proceedings,nor is our property subject to such proceedings, as of the date of this report.

 

**ITEM 4****-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None

 

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**PART II**

 

**ITEM 5****- MARKETFOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

Our common stock became eligible for trading on theNASD’s Over-the-Counter Bulletin Board, an inter-dealer quotation service(“OTCBB”) on June 20, 2001 under the symbol “CERL.” Effective October 4, 2001,we changed our trading symbol on the OTCBB to “INTN” and we continue to tradeunder that symbol on the OTCBB. Effective October 18, 2001, our common stockwas approved for listing and began trading on the Frankfurt Stock Exchangeunder the symbol WKN 805768. Prior to October 4, 2001, there was no significanttrading in, or market for, our common stock.

 

The following table sets forth the high and low bidprices for our stock on the OTCBB for the quarterly periods indicated. Such pricesreflect inter-dealer prices, without retail markup, markdown or commission, andmay not necessarily represent actual transactions.

 
|               |   | **BID PRICE** |   |
|--------------------|--------|---------------|--------|
| **QUARTER ENDING** |   | **LOW**       |   | **HIGH** |   |
|               |   |          |   |   |   |
| March 31, 2002     |   | $             | 5.00   |   | $ | 8.00 |   |
|               |   |          |   |   |   |
| June 30, 2002      |   | $             | 5.00   |   | $ | 8.70 |   |
|               |   |          |   |   |   |
| September 30, 2002 |   | $             | 3.50   |   | $ | 6.50 |   |
|               |   |          |   |   |   |
| December 31, 2002  |   | $             | 3.60   |   | $ | 5.45 |   |

 

The closing price for our common stock on March 28,2003 was $5.30.

 

The OTCBB is a regulated quotation service forsubscribing members that displays real-time quotes, last sales prices andvolume information for over-the-counter equity securities. OTCBB securities arelimited to the securities of issuers that are current in their reports filedwith the U.S. Securities and Exchange Commission, although no other maintenancestandards are imposed.

 

We have not paid any cash dividends on our commonstock and we do not anticipate declaring dividends in the foreseeable future.We intend to retain future earnings for reinvestment in our business.

 

As of March 28, 2003 there were approximately 10holders of record of our common stock holding an aggregate of 19,189,455shares.

 

Our common stock is subject to the so-called “pennystock” rules that impose additional sales practice requirements onbroker-dealers who sell such securities to persons other than establishedcustomers and accredited investors. As a result of these additionalrequirements, an investor may find it more difficult to dispose of our commonstock. See “Business Risk Factors - Our common stock is subject to the ‘pennystock’ rules which may make it a less attractive investment.”

 

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**EQUITYCOMPENSATION PLAN INFORMATION**

 

The following table sets forth information withrespect to the Company’s compensation plan under which equity securities of theCompany are authorized for issuance.

** **
| **Plan Category**                                           |   | **Number of  securities to be  issued upon exercise of  outstanding options, warrants  and rights** |   | **Weighted-average  exercise  price of outstanding options,  warrants and rights** |   | **Number of  securities  remaining available for future  issuance under equity  compensation plans  (excluding securities reflected  in the second column)** |      |
|-------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                        |   |                                                                                                |   |                                                                               |   |                                                                                                                                                         |      |
| Equity compensation  plans approved by security holders     |   | 300,000                                                                                             |   | $                                                                                  | 3.50   |                                                                                                                                                         | 2,200,000 |   |
| Equity compensation  plans not approved by security holders |   | —                                                                                              |   | —                                                                             |   | —                                                                                                                                                       |      |
| Total                                                       |   | 300,000                                                                                             |   | $                                                                                  | 3.50   |                                                                                                                                                         | 2,200,000 |   |

 

**RECENTSALES OF UNREGISTERED SECURITIES**

 

During the year ended December 31, 2002 and the periodended December 31, 2001, we issued and sold unregistered securities in thetransactions described below:

 

•                  OnOctober 13, 2001, we issued an aggregate of 5,000,000 shares to Wei Zhou, ourcurrent Chief Executive Officer and a director, and Ms. Yip Yin Kwan, a formerstockholder of one of the INTAC Operating Companies, in connection with theacquisition of the INTAC Operating Companies. This transaction was exempt fromthe registration requirements of the Securities Act under Section 4(2) orRegulation D promulgated thereunder.

 

•                  OnOctober 25, 2001, we issued 545,455 shares of our common stock to a singleprivate investor for $3,000,002 (or approximately $5.50 per share). Thistransaction was exempt from the registration requirements of the Securities Actunder Section 4(2) or Regulation D promulgated thereunder.

 

•                  OnAugust 12, 2002, a private investor acquired 50,000 shares of the Company’scommon stock in a private placement effected pursuant to Section 4(2) of theSecurities Act of 1933, as amended. This transaction resulted in net proceedsto the Company of approximately $220,000 (or $4.40 per share).

 

•                  OnDecember 21, 2002, a private investor acquired 50,000 shares of the Company’scommon stock in a private placement effected pursuant to Section 4(2) of theSecurities Act of 1933, as amended. This transaction resulted in net proceedsto the Company of approximately $250,000 (or $5.00 per share).

 

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**ITEM 6****-MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

 

**OVERVIEW**

 

We were incorporated under the name “CommodoreMinerals, Inc.” under the laws of the State of Nevada on September 20, 2000, asa developmental stage corporation. Our initial business operations concentratedon mineral exploration. Although we never conducted any mineral explorationactivities directly, we partnered with others in mineral explorationactivities.

 

On September 28, 2001, Mr. Zhou acquired a controllinginterest in us by purchasing 7,000,000 shares of our stock in a privatetransaction with one of the organizers of Commodore Minerals, Inc.(“Commodore”). On October 13, 2001, we entered into a Reorganization Agreementwith INTAC International Holdings Limited (“Holdings”) and the shareholders ofHoldings, including Mr. Zhou, pursuant to which Mr. Zhou and the othershareholders of Holdings conveyed their stock in Holdings to us in exchange forthe issuance of an aggregate of 5,000,000 shares of our common stock (the“Reorganization”). Pursuant to that transaction, Holdings became our whollyowned subsidiary and New Tech, previously a subsidiary of Holdings, became ourindirect subsidiary. For more detailed information on the Change of Control,please see our Current Report on Form 8-K, filed with the U.S. Securities andExchange Commission (“SEC”) on October 15, 2001.  For accounting purposes, the Reorganization was treated as arecapitalization of Holdings, with the effect that our historical financialstatements reflect the business operations of Holdings.

 

Our revenue for the year ended December 31, 2002 and theperiod ended December 31, 2001 were derived from the distribution of premiumbrand wireless handset products to mobile communication equipment wholesalers,agents, retailers and other distributors in Europe and Asia and, to a muchlesser extent, automobile distribution from Europe into mainland China. Ourpercentage revenue by geographic sector was:

 
|   |   | **2002** |   | **2001** |   |
|--------|--------|----------|--------|----------|--------|
|   |   |     |   |     |   |
| Europe |   | 24.6     | %      | 22.6     | %      |
| Asia   |   | 75.4     | %      | 77.4     | %      |
| Total  |   | 100.0    | %      | 100.0    | %      |

 

Our cost of goods sold is comprised of the cost of thewireless handset products or automobiles we distribute.

 

Distribution expenses relate to costs attributable to the distributionof our products, such as freight costs.

 

Our selling, general and administration expenses arecomprised of sales expenses, together with commission expense, includingcommissions payable to sales staff; and general and administrative expenses,which consists primarily of compensation and related expenses for ouradministrative and accounting staff, occupancy costs and legal, accounting andconsulting fees.

 

The following is a presentation of the results for theyear ended December 31, 2002 and the period ended December 31, 2001 and shouldbe read in conjunction with the annual audited consolidated financialstatements and related notes contained herein.

 

**PLAN OFOPERATION**

 

This Report contains forward-looking statements thatinvolve risks and uncertainties. Our actual results could differ materiallyfrom those anticipated in forward-looking statements for many reasons,including the risks described in “Business Risk Factors” and elsewhere in thisfiling. See “Cautionary Statement Regarding Forward-Looking Statements.” Youshould read the following discussion with our consolidated financial statementsand related notes included elsewhere in this Report.

 

**Overview**

 

Our primary activities since inception have included:

 

•                  developingour business model and other organizational matters;

 

•                  developingand implementing relationships with suppliers of quality products;

 

•                  enteringinto distribution relationships;

 

•                  buildingstrategic relationships with Chinese companies;

 

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•                  buildingour infrastructure; and

 

•                  developingour plan to access the U.S. capital markets.

 

Accordingly, the revenue and income potential of ourbusiness model is unproven, and our limited operating history makes itdifficult to evaluate our prospects. You must consider our prospects in lightof the risks, expenses and difficulties frequently encountered by companies intheir early stage of development. Such risks for us include, but are notlimited to, an evolving and unpredictable business model and management ofgrowth. To address these risks, we must, among other things, maintain andexpand our customer base, implement and successfully execute our business andmarketing strategy, continue to develop and enhance our supplier relationshipsand attract, retain and motivate qualified personnel. We cannot assure you thatwe will be successful in addressing such risks, and our failure to do so couldhave a material adverse effect on our business, prospects, financial conditionand results of operations.

 

We operate through seven****direct and indirectwholly-owned subsidiaries, including:

 

•                  INTAC International Holdings Limited,a Hong Kong corporation formed on January 3, 2001, which acts as the primarydistributor of telecommunications products into the Asia-Pacific Rim;

 

•                  New Tech Handels GmbH, a Germancorporation formed on January 20, 2000 and acquired by Holdings in October2001, which acts as our primary purchasing agent and distributor of productsinto Europe;

 

•                  INTAC Holdco Corp., a Delawarecorporation formed on October 10, 2001, which holds certain of the shares ofINTAC International Holdings Limited;

 

•                  FUTAC Group Limited, a British VirginIslands corporation formed on January 2, 2002, which imports automobiles fordistribution into mainland China;

 

•                  Global Creative InternationalLimited, a Hong Kong corporation formed on March 15, 2002, which acts as adistributor of refurbished telecommunications products into the Asia-PacificRim;

 

•                  INTAC Telecommunications Limited, aHong Kong corporation formed on March 8, 2002, which acts as a distributor oftelecommunications products into the Asia-Pacific Rim; and

 

•                  INTAC Auto Mobile Trading CompanyLimited, a China corporation formed on April 9, 2002, which imports automobilesfor distribution into mainland China.

** **

**Our12-Month Plan**

 

Our plan of operation for the upcoming 12 months callsfor the following:

 

•                  immediately raising additional debtor equity financing, or a working capital or other traditional loan facilityfrom a bank or other lending source as needed to fund current and futureoperations and expansion plans, and to provide necessary additional workingcapital;

 

•                  eliminating the Company’s cash burnand positioning the Company to operate profitably;

 

•                  implementing our recently executed,exclusive agreement with T-Mobile on February 11, 2003, valid through December31, 2004, under which T-Mobile will sell to us the handsets it obtains throughits trade-in program in Germany for distribution into the Asia-Pacific Rim;

 

•                  actively negotiating with Putian, thelargest telecommunication equipment manufacturing company owned by the Chinesegovernment, for a strategic alliance to introduce advanced technologies andproduct designs into China through Putian’s production facilities anddistribution networks.  We are in theprocess of finalizing a definitive agreement with Putian;

 

•                  pursuing a definitive agreement withChina Unicom, a state-owned telecommunications service provider in China, for astrategic alliance to become an authorized reseller of wireless mobile servicesoffered by the Chengdu Branch of China Unicom in the Sichuan Province inmainland China.  In addition, we intendto capitalize on this expanded market for its

 

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wireless handset products by cross-selling the handset with thewireless service offering.  We currentlydo not intend to pursue this opportunity until the latter part of 2003;

 

•                  establishing additional sources ofsupply;

 

•                  further developing our network ofwholesalers, agents, retailers and other distributors worldwide, particularlyin the Asia-Pacific Rim;

 

•                  assuming the availability of workingcapital, management and other resources, locating additional suitableinvestment opportunities;

 

•                  developing a suitable managerial,operational and financial infrastructure to support possible growth;

 

•                  recruiting sales personnel to furtherexpand our global reach; and

 

•                  evaluating the operating performanceof the automobile distribution segment begun in the first quarter of 2002 anddetermining whether to devote further resources thereto.

 

We continue to need immediate additional workingcapital, the lack of which will likely have a significant negative impact onour current level of operations. During 2003, we intend to seek additionalworking capital through the issuance of debt, equity, other securities or acombination thereof.  In addition, wemay seek to obtain a working capital or other traditional loan facility from abank or other lending source. As of the date of this Report, we do not have anyfinancing arrangements, nor do we have any commitments to obtain such anarrangement with any bank or other third party. We believe that a reduction inoperations combined with our cash on hand will be sufficient to permit us tocontinue as a going concern for at least the next 12 months assuming that weachieve our estimated reduction in operating expenses and maintain revenuelevels comparable to the prior year; are able to discount our sales prices toour customers or distributors or extend terms, in order to fulfill ourobligations under our existing agreement with T-Mobile; limit additionalcontractual commitments, such as entering into the proposed agreements withPutian and China Unicom; and take no action to grow our business, takeadvantage of our strategic alliances or generally execute our expansionplans.  However, no assurances can begiven that these assumptions will prove accurate. Our inability to obtainadditional acceptable financing would likely have a significant negative impacton our operations. There can be no assurances that we will be able to obtainadditional financing on terms which are acceptable to us.

 

In addition to our current obligations, we continue tonegotiate other strategic agreements and business alliances many of which willbe dependent upon our obtaining additional working capital, or whose value willbe materially less to the Company if we do not have the financial resources tofully exploit such opportunities.

 

Our forecast of the period of time through which ourfinancial resources will be adequate to support our operations under ourcurrent plan of operation is a forward-looking statement that is subject torisks and uncertainties, and we may be required to raise additional capitalprior to that time and afterwards.

 

We expect to increase the number of full or part-timepersons employed by us by approximately 5 by the end of 2003.  These are expected to be additional salesand/or administrative persons to work out of our Tianjin office.

 

**CRITICALACCOUNTING POLICIES**

 

The consolidated financial statements are prepared inaccordance with accounting principles generally accepted in the United States,which require the Company to make estimates and assumptions.  The Company’s significant accountingpolicies and methods used in the preparation of the consolidated financialstatements are discussed in note 1 of the notes to the consolidated financialstatements.  The Company believes thatof its significant accounting policies, the following may involve a higherdegree of judgment and complexity:

 

•                  Revenuerecognition;

 

•                  Concentrationof credit risk and accounts receivable;

 

•                  Inventory;

 

•                  Assetimpairment;

 

•                  Foreigncurrency exchange; and

 

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•                  Intangibleassets and goodwill.

 

**RevenueRecognition:** We expect to generate future revenues primarilyfrom the distribution of wireless handsets and automobiles into China. Inaddition to China, we plan to distribute these products into Europe and otherAsia-Pacific Rim countries.

 

Our wireless handset and automobile revenues aregenerally generated from a quick turn of product. We recognize revenue upondelivery of product to our customers. They are sold “as is” and we do notprovide the servicing of the wireless accounts or automobiles, nor do wereceive any usage revenue.

 

**Concentrationof Credit Risk and Accounts Receivable:** Generally ourcustomers will pay within a few days of receiving and inspecting theproduct.  Our business model generallyrequires a deposit by the customer; however, in some cases, we will giveminimal credit terms to customers for the balance outstanding if they have anestablished and good payment history with us.

 

We establish an allowance for doubtful accounts basedupon factors surrounding the credit risk of specific customers.

 

**Inventories:**  Generally, we do not maintain any inventoryof wireless handsets; however, due to the timing of the inventory beingreceived and then being shipped to customers, we may hold inventory for aminimal time period, commonly a few days. We purchase products only upon the receipt of an order. Once an order isreceived, we solicit additional orders to gain greater discounts frommanufacturers. Aggregate orders are then delivered in bulk to be allocatedamong customers. Our business model generally requires a deposit by thecustomer.

 

We do not maintain an inventory of vehicles and modelthis vehicle sales process the same as the wireless handsets.  However, we may hold inventory for a minimaltime period, commonly a few days.

 

Inventories for wireless handsets are stated at thelower of cost and net realizable value, calculated on the first-in, first-outbasis, and are comprised of finished goods. Net realizable value is determined on the basis of anticipated salesproceeds less estimated costs for selling expenses.  Inventories for vehicles are stated at the actual amount paid tomanufacturers or market, if lower.

 

**AssetImpairment:** We review long-lived assets for impairment whenevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. If impairment indicators are present and the estimatedfuture undiscounted cash flows are less than the carrying value of thelong-lived assets, the carrying value is reduced to the estimated fair value asmeasured by the discounted cash flows. We have not experienced any events orchanges that would indicate that the carrying amounts of any of our assets maynot be recoverable.

 

**ForeignCurrency Exchange:** We are subject to fluctuations in foreigncurrencies, as customer orders may require multi-currency product and deliverytransactions before the sale is complete. Additionally, a period of up to threemonths’ time may lapse between when an order is placed until revenue and costsare recognized. We do not engage in hedging activities nor in financialderivatives.

 

The functional currency of the Company is the HongKong dollar (“HK$”). The accompanying consolidated financial statements havebeen expressed in United States dollars, the reporting currency of the Company.

 

Reported assets and liabilities of INTAC’s foreignsubsidiaries have been translated at the rate of exchange at the end of eachreporting period. Revenues and expenses have been translated at the weightedaverage rate of exchange in effect during the respective reporting period.Gains and losses resulting from translation are accumulated in othercomprehensive income (loss) in stockholders’ equity.

 

Realized and unrealized translation gain (loss) oncurrency transactions between foreign entities is included in other income(expense) in the statements of operations. Effective July 1, 2002, the Company changed the recording of unrealizedtranslation gains and losses on an intercompany account to reflect thelong-term nature of this balance. Previously, unrealized translation gains and losses were recorded to thestatements of operations.  The effect ofthis change in the six months ended December 31, 2002 was an unrealized loss onforeign currency translation of $130,631 recorded to other comprehensive income(loss) in stockholders’ equity.

 

**IntangibleAssets and Goodwill:** We assess the impairment of identifiableintangibles and goodwill whenever events or changes in circumstances indicatethat the carrying value may not be recoverable. Factors that we considerimportant which could trigger an impairment review include the following:

 

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•                  significantunderperformance relative to expected historical or projected future operatingresults;

 

•                  significantchanges in the manner or use of the acquired assets or the strategy for ouroverall business;

 

•                  significantnegative industry or economic trends;

 

•                  significantdecline in stock price for a sustained period; and

 

•                  ourmarket capitalization relative to net book value.

 

If we determine that the carrying value ofidentifiable intangibles and goodwill may not be recoverable based upon theexistence of one or more of the above indicators of impairment, we assesswhether the carrying value of the asset is greater than the undiscounted futureoperating cash flow of the acquired operations. Any impairment is measuredbased on a projected discounted cash flow method using a discount ratereflecting our average cost of funds. Net intangible assets and goodwillamounted to $59,021 as of December 31, 2002.

 

In 2002, Statement of Financial Accounting Standards (“SFAS”)No. 142, “Goodwill and Other Intangible Assets” became effective, and as aresult, we do not amortize goodwill. In lieu of amortization, we were requiredto perform an initial impairment review of goodwill in 2002 and an annualimpairment review thereafter. SFAS No. 142 requires us to test goodwill forimpairment at a level referred to as a reporting unit. Goodwill is consideredimpaired and a loss is recognized when its carrying value exceeds its impliedfair value. We may use a number of valuation methods including quoted marketprices, discounted cash flows and revenue multiples. We completed our initialimpairment review during the first half of 2002. Any transitional impairmentloss, which could be significant, must be recognized as the cumulative effectof a change in accounting principle in our statements of operations.  No impairment charge has been made in theyear ended December 31, 2002 and the period ended December 31,2001.

 

**RESULTSOF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 AND FOR THE PERIOD JANUARY3, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2001**

 

**Revenue:**  Revenue for the year ended December 31,2002, was $84.8 million as compared to $24.3 million for the same period in2001. The increase is due to substantially increased sales volume and nomaterial increased sales prices. This revenue was comprised of the distributionof wireless handsets ($83.5 million) and the distribution of automobiles ($1.3million).

 

Technology and new business alliances have enabled theCompany to achieve substantial growth during the year.  In addition, although currently onlyrepresenting a small percentage of total revenues, we began distributingvehicles into specified free-trade zones in mainland China during 2002 which ispositively affecting gross revenues for the year.

** **

**Cost ofGoods Sold:**Cost of goods sold for the year ended December31, 2002, was $83.1 million, as compared to $23.7 million in the same period in2001. The increase is due to higher sales activity and the resultant effects onmargins.

** **

**GrossProfit:** Gross profit as a percentage of revenue was 2.0% forthe year ended December 31, 2002, as compared to 2.5% for the same period in2001. The decrease is due to increased market competition and the attendanteffect on profit margins.

 

**Operating Expenses:**  Distribution expenses were $399,620 or 0.5%of revenue for the year ended December 31, 2002, as compared to $117,939 or0.5% of revenue for the same period in 2001. Distribution expenses relate to costs attributable to the distribution ofour products. These expenses will continue to increase relative to revenuegrowth; however, we expect these expenses to remain at approximately 0.5% ofrevenue.

 

Selling, general and administrative expenses were $2.3million for the year ended December 31, 2002, as compared to $594,380 for thesame period in 2001. The increase in costs was due to the build up of staffingfor future growth, the costs associated with being a publicly held company andthe opening of new offices needed for growth. These costs are expected toincrease as we build the infrastructure of the Company relative to our businessplan; however, they are not expected to increase in proportion to the increasein revenue.

 

We anticipate that our operating expenses willincrease in future periods, as we increase sales and marketing operations,develop new distribution channels, and fulfill our obligations as a reportingcompany under the Exchange Act. Our limited operating history makes itdifficult for us to predict future operating results and, accordingly, therecan be no assurance that we will achieve or sustain revenue growth or reachprofitability.

 

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**Foreigncurrency exchange gain:** Foreign currency exchange gain was $182,555 for the year ended December31, 2002, as compared to none for the same period in 2001. The increase was dueto the unrealized translation gains on an intercompany account between Holdingsand New Tech which was insignificant in the prior year.  Effective July 1, 2002, the Company changedthe recording of unrealized translation gains and losses on an intercompanyaccount between Holdings and New Tech by recording gains and losses directly tostockholders’ equity to reflect the long-term nature of this balance.  Previously, unrealized translation gains andlosses were recorded in the statements of operations.  The effect of this change during the six months ended December31, 2002, was to exclude an unrealized loss on foreign currency translation of$130,631 from the statement of operations. This amount is included in other comprehensive income (loss) instockholders’ equity.

 

**Lossfrom operations:**  Weincurred a loss from operations of $1.0 million for year ended December 31,2002, as compared to a loss from operations of $106,303 for the same period in2001.  The increase in the loss fromoperations was due to the decrease in the gross margin and the increase inoperating expenses.

** **

**Netloss:**  We incurred anet loss of $776,755 for year ended December 31, 2002, as compared to a netloss of $127,554 for the same period in 2001.** **The increase in the net loss was primarily due to thedecrease in the gross margin and the increase in operating expenses.

** **

**LIQUIDITYAND CAPITAL RESOURCES**

 

**General**

 

We maintained cash of $589,572 as of December 31,2002, and working capital of $1.4 million as of that date.

 

As of December 31, 2002, trade accounts receivable,inventories, and deposits paid were $730,504, $1,140,506 and $1,197,428respectively, compared to December 31, 2001, balances of $224,149, $820 and$255,097, respectively.  As of December31, 2002, trade accounts payable was $1,964,035, compared to December 31, 2001balance of $74,035.  Each of theseincreases was due to the timing of product sales and the receipt of the relateddeposits from customers, inventory and making of the payments to suppliers inrelation to the year end.  Thesebalances are likely to vary at any point in time due to the short term salescycle.

 

Working capital (measured by current assets lesscurrent liabilities) at December 31, 2002, was $1,368,659, and at December 31,2001, was $2,080,021.  This decrease wasprimarily due to cash used in operations for the year ended December 31, 2002.

 

For the year ended December 31, 2002, cash used inoperating activities totaled $922,572. The use of funds was primarily due to anet loss plus an increase in trade accounts receivable, inventories, anddeposits paid, partially offset by a decrease in foreign sales tax receivable,as well as an increase in deposits received and trade accounts payable andaccrued expenses.  For the period endedDecember 31, 2001, cash used in operating activities amounted to $1.0 millionwhich was primarily due to the net loss of the Company, and an increase intrade accounts receivable.

 

For the year ended December 31, 2002, cash used ininvesting activities amounted to $443,817. The use of funds was for thepurchases of equipment and other assets. For the period ended December 31,2001, cash used in investing activities amounted to $327,054.  The use of funds was for the purchase of NewTech Handels GmbH and Commodore, net of cash and cash equivalents acquired, andthe purchases of equipment and other assets.

 

For the year ended December 31, 2002, cash provided byfinancing activities amounted to $696,988 which was due to an increase in theadvance from a shareholder and the proceeds from the issuance of 100,000 commonstock shares in two private placement transactions. For the period endedDecember 31, 2001, cash provided by financing activities amounted to $2,635,575and was a result of the proceeds from the issuance of 545,455 common stockshares and by an increase in the advance from a shareholder offset by adistribution to a shareholder.

 

We continue to need immediate additional workingcapital, the lack of which will likely have a significant negative impact onour current level of operations.  Thisadditional immediate financing is needed to grow our business, take advantageof our strategic alliances and successfully execute our expansion plans.  Growing our business requires additionalworking capital.  Our inventorypurchases, including purchases of wireless handsets and automobiles, generallyrequire full payment for the products prior to delivery.  Also in some cases, we will give minimalcredit terms to customers for the balance outstanding, if they have anestablished and good payment history with us. Our inability to obtain additional acceptable financing would likelyhave a significant negative impact on our growth plans.

 

On February 10, 2003, wesigned an exclusive agreement with T-Mobile, under which T-Mobile will sell tous the handsets it obtains through its trade-in program in Germany.  Under this agreement, we have made commitmentsto purchase all handsets T-Mobile receives through this trade-in program andplan to distribute the handsets into the Asia-Pacific Rim.  The quantities and

 

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values cannot beestimated until the program commences; however, we believe that at least anadditional $1 million of working capital will be required in order for us torealize the full economic benefit of this program.  Without this additional capital, we will be required to discountour sales prices to our customers or distributors or extend terms which willreduce our overall profit margins on this product line. The lack of sufficientcapital to fulfill our contractual obligations to purchase the refurbishedhandsets from T-Mobile could result in the termination of this agreement.

 

In addition to our current obligations, we continue tonegotiate other strategic agreements and business alliances many of which willbe dependent upon our obtaining additional working capital, or where value willbe materially less to the Company if we do not have the financial resources tofully exploit such opportunities.

 

For example, we have non-binding letters of intent andare currently negotiating definitive agreements with;

 

i)                                         ChinaPutian Corporation (“Putian”), the largest telecommunication equipmentmanufacturing company owned by the Chinese government, for a strategic allianceto introduce advanced technologies and product designs into China throughPutian’s production facilities and distribution networks; and

 

ii)                                      ChinaUnited Telecommunications Corporation (“China Unicom”), a state-ownedtelecommunications service provider in China, for a strategic alliance tobecome an authorized reseller of wireless mobile services offered by theChengdu Branch of China Unicom in the Sichuan Province in mainland China.

 

In order to meet minimum capitalization requirementsfor INTAC Automobile Trading Company Limited, which is our subsidiary domiciledin China, the Company will be required to make a capital contribution to thissubsidiary of $850,000 by April 9, 2003. The non-payment of this capital contribution would result in thecancellation of this subsidiary’s business license in China.  As this subsidiary has not commenced operations,its dissolution would not have a material adverse effect on the Company or theCompany’s plans to distribute automobiles into China.  As of the date of this report, the Company has not determinedwhether to meet this minimum capitalization requirement or to dissolve thissubsidiary.

 

We are currently attempting to obtain additionalfinancing through the issuance of debt, equity, other securities or acombination thereof.  In addition, wemay seek to obtain a working capital or other traditional loan facility from abank or other lending source. Unless the Company is able to significantlyimprove its operating performance, additional outside financing will bedifficult to obtain on acceptable terms, if at all. As of the date of thisReport, we do not have any financing arrangements, nor do we have anycommitments to obtain such an arrangement with any bank or other third party.If we raise capital by issuing equity or convertible debt securities, thepercentage ownership of our stockholders will be reduced. Any new securitiesmay have rights, preferences or privileges senior to those of our commonshareholders.

 

We believe that areduction in operations combined with our cash on hand will be sufficient topermit us to continue as a going concern for at least the next 12 monthsassuming that we achieve our estimated reduction in operating expenses andmaintain revenue levels comparable to the prior year; are able to discount oursales prices to our customers or distributors or extend terms, in order tofulfill our obligations under our existing agreement with T-Mobile; limit additionalcontractual commitments, such as entering into the proposed agreements withPutian and China Unicom; and take no action to grow our business, takeadvantage of our strategic alliances or generally execute our expansion plans.  However, no assurances can be given thatthese assumptions will prove accurate. Our inability to obtain additionalacceptable financing would likely have a significant negative impact on ouroperations. There can be no assurances that we will be able to obtainadditional financing on terms which are acceptable to us.

 

**WirelessHandset Distribution Segment**

 

We require additional immediate financing to maintainour current core business of our Wireless Handset Distribution Segment,although we believe that growth in this area is restricted mainly by availableworking capital. We have an established customer base, which at this time hasapparent increasing volume demands which we are preparing to meet.  We have a strong and trusted relationship withour customers. With our reputation for reliability, low cost, experience andtrust, the Company’s established customer base prefers to do as much sourcingas possible through us.  Sales couldincrease significantly if the Company is able to secure substantial additionalfunding as we would be able to potentially fully exploit strategic agreementsand business alliances, and finance additional inventory purchases.

 

Generally, we do not maintain any inventory ofwireless handsets; however, due to the timing of the inventory being receivedand then being shipped to customers, we may hold inventory for a minimal timeperiod, commonly a few days.  Wepurchase products only upon the receipt of an order.  Once an order is received, we are typically required to pay forthe inventory by the wire transfer of funds. Therefore, to the extent that ourworking capital resources are insufficient to prepay for an inventory order,our ability to procure inventory will be adversely impacted.

 

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Generally, our customers will pay within a few days ofreceiving and inspecting the product. Our business model generally requires a deposit by the customer, howeverin some cases we will give minimal credit terms to customers for the balanceoutstanding if they have an established and good payment history with us.  However, we usually receive payment from ourcustomer within ten (10) days of the date of our payment for the inventory. Webelieve that because of the arrangement that we prepay for inventory orders forwireless handsets, our future growth in this area is only limited by theavailable capital to finance the sales.

 

**Refurbished Handsets**

 

The Company signed an exclusive agreement with T-Mobile on February 11,2003, valid through December 31, 2004, under which T-Mobile will sell to theCompany the handsets it obtains through its trade-in program in Germany, atwhich time we will distribute the handsets into the Asia-Pacific Rim.  The margins the Company expects to achieveon the resale of these refurbished handsets are between 25%-40%.  Under this agreement, we have madecommitments to purchase all handsets T-Mobile receives through this trade-inprogram.  The quantities and values cannot be estimated until the program commences; however, we believe that anadditional $1 million of working capital will be sufficient for us to realizethe full economic benefit of this program. However, without this additional capital we will be required to discountour sales price to our customers or distributors to extend terms which willreduce our overall profit margins on this product line.  The lack of sufficient capital to fulfillour contractual obligations to purchase the refurbished handsets could resultin the termination of this agreement.

** **

**China Putian**

 

During 2002, we signed a non-binding letter of intentwith China Putian for cooperation on the development, manufacture anddistribution of new handsets in China. Under the proposed terms of the agreement, China Putian would utilizeour international distribution networks to launch its products into Europeanmarkets. We would also introduce advanced technologies and product design intoChina through China Putian’s production facilities and distribution networks,making use of their import quotas to take advantage of the China market.  We are in the process of finalizing adefinitive agreement with China Putian. This agreement is expected to be non-exclusive and have a duration ofthree years.  In keeping with the Company’s goal toincrease margins in 2003, the margins the Company expects to achieve on thesale of these handsets are approximately 5%-6%, compared to 2% currently.  We believe that throughout the nexttwelve months, we will need approximately $5.7 million of additional capital tofund this preliminary agreement. We may seek to satisfy this capital needthrough obtaining financing through manufacturers, banks or non-traditionallending sources, or from the sale of additional equity interests. We cannotassure you that such financing will be available on terms acceptable to us, ifat all.

 

**China Unicom**

 

During 2002, we signed a non-binding letter of intentto pursue a strategic alliance with China Unicom.  Under the terms of the letter of intent, we will become anauthorized reseller of wireless mobile services (both GSM and CDMA) offered bythe Chengdu Branch of China Unicom in the Sichuan Province in mainlandChina.  This agreement would make us thefirst non-Chinese reseller of China Unicom wireless services.  In addition, we would be able to capitalizeon this expanded market for our wireless handset products by cross-selling themwith this wireless service offering.  Webelieve that throughout the next twelve months, we will need approximately$12.1 million of additional capital to fund this exclusive agreement. We mayseek to satisfy this capital need through obtaining financing throughmanufacturers, banks or non-traditional lending sources, or from the sale ofadditional equity interests. We cannot assure you that such financing will beavailable on terms acceptable to us, if at all.

 

**AutomobileDistribution Segment**

 

We also require immediate additional financing tomaintain our automobile distribution segment. Because of the higher cost ofautomobiles relative to wireless handsets, we will need significant additionalcapital to expand this business segment. Typically, the delivery cycle for anorder of automobiles is approximately four months.  Upon the placement of an order, we expect to place a 30% depositwith the manufacturer, which is offset by a non-refundable deposit of 15% fromour customer. We are required to make full payment upon delivery from themanufacturer, after which it takes us approximately four weeks to ship theautomobiles to the China free-trade port for resale. Our customers areresponsible for payment at the time of delivery, although we are responsiblefor the automobile during transit and in the event that a customer declines toaccept delivery. If a customer were to decline delivery, the customer wouldforfeit their deposit and we would then attempt to re-sell the automobileinventory through the China free-trade port. Thus far we have not experiencedany significant amount of declined deliveries. We may seek to satisfy any additional financing by obtaining financingthrough manufacturers, banks or non-traditional lending sources, or from thesale of additional equity interests. We cannot assure you that such financingwill be available on terms acceptable to us, if at all.

 

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**AdditionalBusiness Opportunities**

 

For us to continue our expansion into additionalbusiness segments and to take advantage of emerging opportunities in China, weexpect to seek additional financing through the issuance of debt, equity, othersecurities or a combination thereof. In addition, we may seek to obtain aworking capital or other traditional loan facility from a bank or other lendingsource.  Furthermore, we expect topartner with existing Chinese companies and entrepreneurs to minimize ourcapital requirements and investment risks. There is no assurance that we willbe able to continue to fund our capital needs or maintain adequate liquidity toimplement our business plan and take advantage of investment opportunities.

 

During 2003, we intend to seek additional financingthrough the issuance of debt, equity, other securities or a combinationthereof.  In addition, we may seek toobtain a working capital or other traditional loan facility from a bank orother lending source.  We do notcurrently have any financing arrangements, nor do we have any commitments toobtain such an arrangement with any bank or other third party.  We continue to need immediate additionalworking capital, the lack of which will likely have a significant negativeimpact on our current level of operations. We believe that a reduction in operations combined with our cash on handwill be sufficient to permit us to continue as a going concern for at least thenext 12 months assuming that we achieve our estimated reduction in operatingexpenses and maintain revenue levels comparable to the prior year; are able todiscount our sales prices to our customers or distributors or extend terms, inorder to fulfill our obligations under our existing agreement with T-Mobile;limit additional contractual commitments, such as entering into the proposedagreements with Putian and China Unicom; and take no action to grow ourbusiness, take advantage of our strategic alliances or generally execute ourexpansion plans.  However, no assurancescan be given that these assumptions will prove accurate. Our inability toobtain additional acceptable financing would likely have a significant negativeimpact on our operations. There can be no assurances that we will be able toobtain additional financing on terms which are acceptable to us.

 

In addition to our current obligations, we continue tonegotiate other strategic agreements and business alliances many of which willbe dependent upon our obtaining additional working capital, or whose value willbe materially less to the Company if we do not have the financial resources tofully exploit such opportunities.

 

Our forecast of the period of time through which ourfinancial resources will be adequate to support our operations under ourcurrent plan of operation is a forward-looking statement that is subject torisks and uncertainties, and we may be required to raise additional capitalprior to that time and afterwards.

 

**ContractualObligations**

 

The Company’s contractual obligations as of December31, 2002, are summarized below and relate to lease commitments undernon-cancelable operating leases of the Company’s office facilities:

 
| **Year ending December 31,** |   |   |    |
|------------------------------|--------|--------|---------|
| 2003                         |   | $      | 95,801  |   |
| 2004                         |   | 9,971  |    |
| thereafter                   |   | — |    |
|                         |   | $      | 105,772 |   |

 

For the year ended December 31, 2002 and period endedDecember 31, 2001, rental expenses which are included in selling, general andadministrative expense amounted to $101,291 and $25,321 respectively.

 

**Off –Balance Sheet Arrangements**

 

The Company has no off-balance sheet arrangements thathave or are reasonably likely to have a current or future effect on theCompany’s financial condition, changes in financial condition, revenues orexpenses, results of operations, liquidity, capital expenditures or capitalresources that is material to investors.

 

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**RECENTACCOUNTING PRONOUNCEMENTS**

 

In June 2001, the FASB issued SFAS No. 142 (“SFAS142”), “Goodwill and Other Intangible Assets,” which requires that goodwill andcertain other intangible assets having indefinite useful lives no longer beamortized to earnings, but instead be subject to periodic testing forimpairment at least annually. Intangible assets with determinable useful liveswill continue to be amortized over their respective estimated useful lives andreviewed for impairment in accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of”. The Company adopted SFAS 142 beginning January 1, 2002.Unamortized goodwill was $59,021 at December 31, 2002 and 2001.

 

In October 2001, the FASB issued SFAS No. 144 (“SFAS144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” whichreplaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets andfor Long-Lived Assets to Be Disposed Of.” The Company adopted SFAS 144 infiscal year 2002. The adoption of this standard had no material effect on theCompany’s financial condition, cash flows or results of operations.

 

In December 2002, FASB issued SFAS No. 148 (“SFAS148”), “Accounting for Stock-Based Compensation-Transition and Disclosure-anamendment of FASB Statement No. 123.” This statement amends SFASNo. 123, “Accounting for Stock-Based Compensation,” to provide alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation. In addition, SFASNo. 148 amends the disclosure requirements of SFAS No. 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results. This statement is effective for fiscalyears ending after December 15, 2002. The Company has adopted the disclosure requirements of SFAS No. 148and the adoption of this standard had no material effect on its financialcondition, cash flows or results of operations.

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We may be affected by fluctuations in the translationof foreign currency. Currently, our primary currency risk arises from ourpurchase of inventory and distribution of products in different geographicregions with constantly changing relative exchange rates. As the cycle betweenour purchases and ultimate resale of the inventory lengthens, our risks offoreign currency changes will increase. Most of our banking accounts are heldin Euros and Hong Kong dollars, and significant changes in the exchange ratiosof these currencies to the markets in which we purchase and sell inventorycould affect our ability to operate in those markets. We do not use anyderivative financial instruments to mitigate any of our currency risks. We donot currently have any credit facilities and therefore we are not subject toany risks associated with interest rate changes.

 

**ITEM 7****- FINANCIALSTATEMENTS**

 

The information required by this item is set forth inthe Company’s Consolidated Financial Statements and Notes thereto beginning atpage F-1 of this report.

 

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**ITEM 8****- CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

Effective October 13, 2001, we dismissed Morgan &Company, Chartered Accountants (“Morgan”) as our independent accountants, andselected KPMG LLP as our independent accountants to audit our consolidatedfinancial statements for the period ending December 31, 2001.

 

Our board of directors recommended and approved thechange in our independent accountants. Morgan audited our financial statementsfor the period from inception (September 20, 2000) to November 30, 2000 and forthe period from December 1, 2000 through September 30, 2001. We elected tochange our independent accountants upon our acquisition of INTAC InternationalHoldings Limited, a Hong Kong corporation, controlled by Wei Zhou, whichfollowed Mr. Zhou’s acquisition of control of our Company on October 1, 2001.

 

Morgan’s reports did not contain any adverse opinionor a disclaimer of opinion, and were not qualified or modified as to certainty,audit scope or accounting principles. Since inception, there were nodisagreements with Morgan on any matter of accounting principles or practices,financial statement disclosure, or auditing scope or procedure whichdisagreements, if not resolved to the satisfaction of Morgan, would have causedMorgan to make reference to the subject matter of the disagreement inconnection with its report.

 

On October 13, 2001, we selected KPMG LLP as ourindependent accountants to audit our consolidated financial statements for theperiod ending December 31, 2001.

 

On April 25, 2002, the Registrant filed a report onForm 8-K advising that KPMG LLP, its principal accountants, had resignedeffective April 18, 2002.  TheRegistrant’s Board of Directors began interviewing potential replacementsimmediately.

 

On May 15, 2002, after considering numerous potentialreplacement candidates, the Registrant’s Board of Directors approved KingGriffin & Adamson P.C. (“KGA”) as the Registrant’s certifying accountants.

 

Prior to the appointment of KGA, the Registrant neverconsulted KGA regarding any matter concerning (i) the application of accountingprinciples to any specific transaction, either completed or proposed, or thetype of audit opinion that might be rendered on the Registrant’s financialstatements, nor was any written or oral advice provided that KGA concluded wasan important factor considered by the Registrant in reaching a decision as toan accounting, auditing or financial reporting issue, or (ii) any matter whichwas the subject of a disagreement with KPMG LLP, the prior certifyingaccountant or any matter requiring disclosure under the rules pertaining to theuse of Form 8-K (“Reportable Events”). Other than as reported in its Form 8-K filed on April 25, 2002, therewere no disagreements with KPMG LLP on any matter affecting the Registrant’sconsolidated financial statements or any other Reportable Events.

 

On March 1, 2003, the Registrant filed a report onForm 8-K advising that, King Griffin & Adamson P.C., its principalaccountants, had resigned to allow its successor entity, KBA Group LLP, to beengaged as the Registrant’s independent accountants.

 

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**PART III**

 

**ITEM 9****-DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITHSECTION 16(a) OF THE EXCHANGE ACT**

 

The information regarding directors and executiveofficers is incorporated herein by reference from the section entitled“Directors and Executive Officers” of our Definitive Information Statement (the“Information Statement”) to be filed pursuant to Regulation 14C of theSecurities and Exchange Act of 1934, as amended. The Information Statement isanticipated to be filed within 120 days after the end of our fiscal year endedDecember 31, 2002, or on or before April 30, 2003.

 

**ITEM10****- EXECUTIVE COMPENSATION**

 

Information regarding executive compensation isincorporated herein by reference from the section entitled “ExecutiveCompensation” of the Information Statement.

 

**ITEM11****- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Information regarding security ownership of certainbeneficial owners and management is incorporated herein by reference from thesection entitled “Beneficial Ownership of Shares” of the Information Statement.

 

**ITEM12****- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Information regarding certain relationships andrelated transactions is incorporated herein by reference from the sectionentitled “Certain Relationships and Related Transactions” of the InformationStatement.

 

**ITEM 13****- EXHIBITSAND REPORTS ON FORM 8-K**

 

(a)   Exhibits.

 
| 2.1    |   | Agreement and Plan of Reorganization, dated October  13, 2001, by and between Commodore Minerals, Inc., INTAC Holdco Corp., Wei Zhou  and Yip Yin Kwan. (filed as Exhibit 2.1 to Current Report on Form 8-K dated  October 13, 2001, filed with the Commission on October 30, 2001 (the  “Reorganization Form 8-K”) and incorporated herein by reference). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 2.2    |   | Stock Purchase Agreement, dated September 28, 2001,  by and between Wei Zhou and Grayson Hand (filed as Exhibit 2.2 to  Reorganization Form 8-K and incorporated herein by reference).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1    |   | Amended and Restated Articles of Incorporation  (filed as Exhibit 3.1 to Current Report on Form 8-K/A dated October 13, 2001,  filed with the Commission on December 26, 2001 and incorporated herein by  reference).                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.2    |   | Amended and Restated Bylaws (filed as Exhibit 3.2 to  Current Report on Form 8-K dated October 1, 2001, filed with the Commission  on October 15, 2001 and incorporated herein by reference).                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1   |   | Lease agreement by and between INTAC International  Holdings, Ltd. and Realty Star Development Limited dated March 13, 2002  (filed as Exhibit 10.7 to Form 10-Q on May 20, 2002 and incorporated herein  by reference).                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2   |   | Employment Agreement by and between the Registrant  and J. David Darnell dated as of June 11, 2002 (Filed as Exhibit 10.1 to  Form 10-Q on August 20, 2002 and incorporated herein by reference).                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | T-Mobile agreement (a translation of which is filed  herewith).                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 21.1   |   | List of Subsidiaries (filed herewith).                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 99.1   |   | Certification of Wei Zhou, President and Chief  Executive Officer (filed herewith).                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 99.2   |   | Certification of J. David Darnell, Senior Vice  President and Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                              |

 

(b)   Reports onForm 8-K

 

37

----

 

On January 29, 2002, wefiled a Current Report on Form 8-K in connection with a press release regardingour revenues for 2001, our projected revenues for 2002, and our expanded focuson strategic investment opportunities in China.

 

On April 25, 2002, wefiled a Current Report on Form 8-K in connection with the resignation of ourindependent public accountants, KPMG LLP.

 

On May 16, 2002, we filed a Current Report on Form 8-K in connectionwith the retention of King, Griffin and Adamson P.C. as our independent publicaccountants.

 

On December 20, 2002 we filed a Current Report on Form 8-K inconnection with the expansion of the board of directors from three members tofive, and appointed Mr. Theodore P. Botts and Dr. Heinz-Gerd Stein to fill thevacancies created by the newly created directorships.  Mr. Botts and Dr. Stein, as well as continuing  director Hans Schuld, are each an independentdirector both under the criteria set forth in Section 301 of the Sarbanes-OxleyAct of 2002 (“Sarbanes-Oxley”) as well as under the rules set forth by theNational Association of Security Dealers.

 

**ITEM 14****- CONTROLSAND PROCEDURES**

 

Based on their evaluationof the Company’s disclosure controls and procedures as of a date within 90 daysof the filing of this Report, the Chief Executive Officer and Chief FinancialOfficer have concluded that such controls and procedures are effective.

 

There were no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect such controls subsequent to the date of evaluation.

 

38

 

In accordance with Section 13 or 15(d) of the ExchangeAct, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| Date:  | March 31, 2003 | INTAC INTERNATIONAL, INC. |
|--------|----------------|---------------------------|
|   |           |                      |
|   |           | By: /s/ Wei Zhou          |   |
|   |           |                      |
|   |           |                      | Wei Zhou, President, Chief Executive |
|   |           |                      | Officer and Director (Principal  Executive Officer) |
|        |                |                           |  |  |

 

 

In accordance with the requirements of the SecuritiesExchange Act, this report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated.

 
| **Name**                 |   | **Title** |                                                | **Date** |
|--------------------------|--------|-----------|-----------------------------------------------------|----------|
|                     |   |      |                                                |     |   |
| /s/ Wei Zhou             |   |      | President, Chief Executive Officer and              |     | March 31, 2003 |
|                     |   |      | Director (Principal Executive Officer)              |     |   |
| Wei Zhou                 |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
| /s/ J. David Darnell     |   |      | Senior Vice President & Chief Financial Officer |     | March 31, 2003 |
|                     |   |      | and Director (Principal Financial Officer)          |     |   |
| J. David Darnell         |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
| /s/ Hans Schuld          |   |      | Director                                            |     |   |
|                     |   |      |                                                |     | March 31, 2003 |
| Hans Schuld              |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
| /s/ Theodore P. Botts    |   |      | Director                                            |     |   |
|                     |   |      |                                                |     | March 31, 2003 |
| Theodore P. Botts        |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
|                     |   |      |                                                |     |   |
| /s/ Dr. Heinz-Gerd Stein |   |      | Director                                            |     |   |
|                     |   |      |                                                |     | March 31, 2003 |
| Dr. Heinz-Gerd Stein     |   |      |                                                |     |   |

 

39

----

 

I, Wei Zhou, certify that:

 

1.             Ihave reviewed this annual report on Form 10-KSB of INTAC International, Inc.

 

2.             Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.             Theregistrant’s other certifying officers and I am responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated 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’sdisclosure controls and procedures as of a date with 90 days prior to thefiling date of this annual report (the “Evaluation Date”); and

 

c) presented in this annual report our conclusionsabout effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.             Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weakness in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.             Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Dated:     March 31, 2003 |                                   |
|----------------------------------------------------|----------------------------------------|
|                                               |                                   |
|                                               |                                   |
|                                               |                                   | /s/ Wei Zhou |   |
|                                               | Wei Zhou                               |   |
|                                               | President and Chief  Executive Officer |   |

 

40

----

 

I, J. David Darnell, certify that:

 

1.             Ihave reviewed this annual report on Form 10-KSB of INTAC International, Inc.

 

2.             Basedon my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this annual report;

 

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

4.             Theregistrant’s other certifying officers and I am responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated 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’sdisclosure controls and procedures as of a date with 90 days prior to thefiling date of this annual report (the “Evaluation Date”); and

 

c) presented in this annual report our conclusionsabout effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.             Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weakness in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.             Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Dated:     March 31, 2003 |                                               |                 |
|----------------------------------------------------|----------------------------------------------------|----------------------|
|                                               |                                               |                 |
|                                               |                                               |                 |
|                                               |                                               | /s/ J. David Darnell |   |
|                                               | J. David Darnell                                   |                 |   |
|                                               | Senior Vice President  and Chief Financial Officer |                 |   |

 

41

----

 

**INDEX TOEXHIBITS**

 

Exhibits

 
| 2.1    |   | Agreement and Plan of Reorganization, dated October  13, 2001, by and between Commodore Minerals, Inc., INTAC Holdco Corp., Wei  Zhou and Yip Yin Kwan. (filed as Exhibit 2.1 to Current Report on Form 8-K  dated October 13, 2001, filed with the Commission on October 30, 2001 (the  “Reorganization Form 8-K”) and incorporated herein by reference). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 2.2    |   | Stock Purchase Agreement, dated September 28, 2001,  by and between Wei Zhou and Grayson Hand (filed as Exhibit 2.2 to  Reorganization Form 8-K and incorporated herein by reference).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1    |   | Amended and Restated Articles of Incorporation  (filed as Exhibit 3.1 to Current Report on Form 8-K/A dated October 13, 2001,  filed with the Commission on December 26, 2001 and incorporated herein by  reference).                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.2    |   | Amended and Restated Bylaws (filed as Exhibit 3.2 to  Current Report on Form 8-K dated October 1, 2001, filed with the Commission  on October 15, 2001 and incorporated herein by reference).                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1   |   | Lease agreement by and between INTAC International  Holdings, Ltd. and Realty Star Development Limited dated March 13, 2002  (filed as Exhibit 10.7 to Form 10-Q on May 20, 2002 and incorporated herein  by reference).                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2   |   | Employment Agreement by and between the Registrant  and J. David Darnell dated as of June 11, 2002 (Filed as Exhibit 10.1 to  Form 10-Q on August 20, 2002 and incorporated herein by reference).                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | T-Mobile agreement (a translation of which is filed  herewith).                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 21.1   |   | List of Subsidiaries (filed herewith).                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 99.1   |   | Certification of Wei Zhou, President and Chief  Executive Officer (filed herewith).                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                 |
| 99.2   |   | Certification of J. David Darnell, Senior Vice  President and Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                              |

 

42

----

 

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

 

 
| INDEPENDENT AUDITORS’  REPORT OF KBA GROUP LLP                          |
|------------------------------------------------------------------------------|
|                                                                         |
| INDEPENDENT AUDITORS’ REPORT OF KPMG LLP                                |
|                                                                         |
| CONSOLIDATED BALANCE SHEETS                                                  |
|                                                                         |
| CONSOLIDATED  STATEMENTS OF OPERATIONS                                       |
|                                                                         |
| CONSOLIDATED  STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS |
|                                                                         |
| CONSOLIDATED  STATEMENTS OF CASH FLOWS                                       |
|                                                                         |
| NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS                                  |

 

F-1

----

 

**INDEPENDENTAUDITORS’ REPORT**

 

The Board of Directors and Stockholders

 

INTAC International, Inc.:

 

We have audited the accompanying consolidated balancesheet of INTAC International, Inc. and subsidiaries as of December 31, 2002,and the related consolidated statements of operations, stockholders’ equity andcomprehensive loss, and cash flows for the year ended December 31, 2002. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audit.

 

We conducted our audit in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of INTAC International, Inc. and subsidiaries as of December 31, 2002and the results of their operations and their cash flows for the year endedDecember 31, 2002 in conformity with accounting principles generally acceptedin the United States of America.

 

 
| /s/ KBA Group LLP             |   |
|-------------------------------|--------|
| Dallas, Texas  March 14, 2003 |   |

 

F-2

----

 

**INDEPENDENT****AUDITORS’REPORT**

 

The Board of Directors and Stockholders

 

INTAC International, Inc.:

 

We have audited the accompanying consolidated balancesheet of INTAC International, Inc. (formerly known as Commodore Minerals, Inc.)and subsidiaries as of December 31, 2001, and the related consolidatedstatements of operations, stockholders’ equity and comprehensive loss, and cashflows for the period from January 3, 2001 (date of inception) to December 31,2001. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audit.

 

We conducted our audit in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of INTAC International, Inc. and subsidiaries as of December 31, 2001and the results of their operations and their cash flow for the period fromJanuary 3, 2001 (date of inception) to December 31, 2001 in conformity withaccounting principles generally accepted in the United States of America.

 
| Dallas, Texas  |   |         |
|----------------|--------|--------------|
| April 10, 2002 |   | /s/ KPMG LLP |   |

 

F-3

----

 

**INTAC INTERNATIONAL, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

(expressed in U.S.dollars)

 
|                                                                                                                                    |   | **December 31,** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|-----------|
|                                                                                                                                    |   | **2002**         |      | **2001** |   |
| Assets                                                                                                                                  |   |             |      |   |   |
| Current assets                                                                                                                          |   |             |      |   |   |
| Cash and cash  equivalents                                                                                                              |   | $                | 589,572   |   | $ | 1,258,973 |   |
| Trade accounts  receivable (net of allowance for doubtful accounts of $2,521 in 2002)                                                   |   | 730,504          |      | 224,149 |   |
| Inventories                                                                                                                             |   | 1,140,506        |      | 820 |   |
| Foreign sales tax  receivable                                                                                                           |   | 534,116          |      | 728,506 |   |
| Deposits paid                                                                                                                           |   | 1,197,428        |      | 255,097 |   |
|                                                                                                                                    |   |             |      |   |   |
| Total current assets                                                                                                                    |   | 4,192,126        |      | 2,467,545 |   |
|                                                                                                                                    |   |             |      |   |   |
| Equipment, net                                                                                                                          |   | 348,649          |      | 44,106 |   |
| Other assets                                                                                                                            |   | 120,753          |      | 51,850 |   |
| Goodwill                                                                                                                                |   | 59,021           |      | 59,021 |   |
|                                                                                                                                    |   |             |      |   |   |
| Total assets                                                                                                                            |   | $                | 4,720,549 |   | $ | 2,622,522 |   |
|                                                                                                                                    |   |             |      |   |   |
| Liabilities and  Stockholders’ Equity                                                                                              |   |             |      |   |   |
| Current liabilities                                                                                                                     |   |             |      |   |   |
| Trade accounts payable                                                                                                                  |   | $                | 1,964,035 |   | $ | 74,035 |   |
| Accrued expenses                                                                                                                        |   | 335,716          |      | 218,318 |   |
| Due to shareholder                                                                                                                      |   | 281,279          |      | 55,573 |   |
| Income taxes payable                                                                                                                    |   | 39,598           |      | 39,598 |   |
| Deposits received                                                                                                                       |   | 202,839          |      | — |   |
|                                                                                                                                    |   |             |      |   |   |
| Total current  liabilities                                                                                                              |   | 2,823,467        |      | 387,524 |   |
|                                                                                                                                    |   |             |      |   |   |
| Stockholders’ equity                                                                                                               |   |             |      |   |   |
| Preferred stock,  10,000,000 shares authorized;  none issued and outstanding                                                            |   | —           |      | — |   |
| Common stock, $0.001  par value,  100,000,000 shares authorized; 19,189,455 and 19,089,455 shares issued and  outstanding, respectively |   | 19,189           |      | 19,089 |   |
| Additional paid-in  capital                                                                                                             |   | 3,330,468        |      | 2,763,346 |   |
| Accumulated deficit                                                                                                                     |   | (1,324,309       | )         | (547,554 | ) |
| Notes receivable from  shareholder                                                                                                      |   | —           |      | (1,282 | ) |
| Accumulated other  comprehensive income (loss)                                                                                          |   | (128,266         | )         | 1,399 |   |
|                                                                                                                                    |   |             |      |   |   |
| Total stockholders’  equity                                                                                                        |   | 1,897,082        |      | 2,234,998 |   |
|                                                                                                                                    |   |             |      |   |   |
| Total liabilities and  stockholders’ equity                                                                                        |   | $                | 4,720,549 |   | $ | 2,622,522 |   |

 

See accompanyingnotes to consolidated financial statements.

 

F-4

----

 

**INTAC INTERNATIONAL, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(expressed in U.S.dollars)

 
|                                                     |   | **For the year ended  December 31, 2002** |       | **For the period from  January 3, 2001 (Date  of Inception) to  December 31, 2001)** |   |
|----------------------------------------------------------|--------|-------------------------------------------|------------|--------------------------------------------------------------------------------------|--------|
|                                                     |   |                                      |       |                                                                                 |   |
| Revenues                                                 |   | $                                         | 84,835,480 |                                                                                 | $      | 24,333,589 |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Cost of goods sold                                       |   | 82,180,018                                |       | 19,992,493                                                                           |   |
| Cost of goods sold -  related parties                    |   | 935,922                                   |       | 3,735,080                                                                            |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Total cost of goods  sold                                |   | 83,115,940                                |       | 23,727,573                                                                           |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Gross profit                                             |   | 1,719,540                                 |       | 606,016                                                                              |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Operating expenses                                       |   |                                      |       |                                                                                 |   |
| Distribution expenses                                    |   | 399,620                                   |       | 117,939                                                                              |   |
| Selling, general and  administrative expenses            |   | 2,321,776                                 |       | 594,380                                                                              |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Total operating  expenses                                |   | 2,721,396                                 |       | 712,319                                                                              |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Loss from operations                                     |   | (1,001,856                                | )          | (106,303                                                                             | )      |
|                                                     |   |                                      |       |                                                                                 |   |
| Other income (expenses)                                  |   |                                      |       |                                                                                 |   |
| Foreign currency  exchange gain                          |   | 182,555                                   |       | —                                                                               |   |
| Interest income  (expense), net                          |   | (8,636                                    | )          | 1,027                                                                                |   |
| Other income                                             |   | 51,182                                    |       | 17,320                                                                               |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Total other income (expenses)                            |   | 225,101                                   |       | 18,347                                                                               |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Loss before income  taxes                                |   | (776,755                                  | )          | (87,956                                                                              | )      |
|                                                     |   |                                      |       |                                                                                 |   |
| Income taxes                                             |   | —                                    |       | 39,598                                                                               |   |
|                                                     |   |                                      |       |                                                                                 |   |
| Net loss                                                 |   | $                                         | (776,755   | )                                                                                    | $      | (127,554 | ) |
|                                                     |   |                                      |       |                                                                                 |   |
| Net loss per share –  basic and diluted             |   | $                                         | (0.04      | )                                                                                    | $      | (0.02 | ) |
|                                                     |   |                                      |       |                                                                                 |   |
| Weighted average shares  outstanding - basic and diluted |   | 19,109,455                                |       | 8,087,082                                                                            |   |

 

See accompanying notes toconsolidated financial statements.

 

F-5

----

 

**INTAC INTERNATIONAL, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS**

(expressed in U.S.Dollars)

 
|                                                         |       | **Common Stock** |   | **Additional  Paid-in  Capital** |   | **Notes  Receivable  Shareholder** |   |
|--------------------------------------------------------------|------------|------------------|--------|----------------------------------|--------|------------------------------------|--------|
|                                                         |       |             |   |
|                                                         | **Shares** |             | **$**  |                             |   |                               |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Balance at January 3,  2001                                  |       | —           |   | $                                | — |                               | $      | — |   | $ | — |   |
| Issuance of common  shares at inception                      |       | 5,000,000        |   | 1,282                            |   | —                             |   | (1,282 | ) |
| Distribution to  shareholder                                 |       | —           |   | —                           |   | —                             |   | — |   |
| Shares exchanged on  acquisition of Commodore Minerals, Inc. |       | (5,000,000       | )      | (1,282                           | )      | —                             |   | — |   |
| Effect of  recapitalization and merger                       |       | 18,544,000       |   | 18,544                           |   | (236,111                           | )      |   |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Issuance of common  stock                                    |       | 545,455          |   | 545                              |   | 2,999,457                          |   | — |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Comprehensive loss                                           |       |             |   |                             |   |                               |   |   |   |
| Net loss                                                     |       | —           |   | —                           |   | —                             |   | — |   |
| Foreign currency  translation                                |       | —           |   | —                           |   | —                             |   | — |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Total comprehensive  loss                                    |       |             |   |                             |   |                               |   |   |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Balance at December 31,  2001                                |       | 19,089,455       |   | 19,089                           |   | 2,763,346                          |   | (1,282 | ) |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Issuance of common  stock                                    |       | 100,000          |   | 100                              |   | 469,900                            |   | — |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Proceeds from  shareholder receivable                        |       | —           |   | —                           |   | —                             |   | 1,282 |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Compensation in  connection with restricted stock award      |       | —           |   | —                           |   | 97,222                             |   | — |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Comprehensive loss                                           |       |             |   |                             |   |                               |   |   |   |
| Net loss                                                     |       | —           |   | —                           |   | —                             |   | — |   |
| Foreign currency  translation                                |       | —           |   | —                           |   | —                             |   | — |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Total comprehensive  loss                                    |       |             |   |                             |   |                               |   |   |   |
|                                                         |       |             |   |                             |   |                               |   |   |   |
| Balance at December 31,  2002                                |       | 19,189,455       |   | $                                | 19,189 |                               | $      | 3,330,468 |   | $ | — |   |

 

See accompanying notes toconsolidated financial statements.

 

F-6

----

 

**INTAC INTERNATIONAL, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ANDCOMPREHENSIVE LOSS**

(expressed in U.S.Dollars)

 
|                                                         |   | **Accumulated  Deficit** |       | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total  Stockholders’  Equity** |   |
|--------------------------------------------------------------|--------|--------------------------|------------|------------------------------------------------------|--------|---------------------------------------|--------|
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Balance at January 3,  2001                                  |   | $                        | —     |                                                 | $      | —                                |   | $ | — |   |
| Issuance of common  shares at inception                      |   | —                   |       | —                                               |   | —                                |   |
| Distribution to  shareholder                                 |   | (420,000                 | )          | —                                               |   | (420,000                              | )      |
| Shares exchanged on  acquisition of Commodore Minerals, Inc. |   | —                   |       | —                                               |   | (1,282                                | )      |
| Effect of  recapitalization and merger                       |   | —                   |       | —                                               |   | (217,567                              | )      |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Issuance of common  stock                                    |   | —                   |       | —                                               |   | 3,000,002                             |   |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Comprehensive loss                                           |   |                     |       |                                                 |   |                                  |   |
| Net loss                                                     |   | (127,554                 | )          | —                                               |   | (127,554                              | )      |
| Foreign currency  translation                                |   | —                   |       | 1,399                                                |   | 1,399                                 |   |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Total comprehensive  loss                                    |   |                     |       |                                                 |   | (126,155                              | )      |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Balance at December 31,  2001                                |   | (547,554                 | )          | 1,399                                                |   | 2,234,998                             |   |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Issuance of common  stock                                    |   | —                   |       | —                                               |   | 470,000                               |   |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Proceeds from  shareholder receivable                        |   | —                   |       | —                                               |   | 1,282                                 |   |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Compensation in  connection with restricted stock award      |   | —                   |       | —                                               |   | 97,222                                |   |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Comprehensive loss                                           |   |                     |       |                                                 |   |                                  |   |
| Net loss                                                     |   | (776,755                 | )          | —                                               |   | (776,755                              | )      |
| Foreign currency  translation                                |   | —                   |       | (129,665                                             | )      | (129,665                              | )      |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Total comprehensive  loss                                    |   |                     |       |                                                 |   | (906,420                              | )      |
|                                                         |   |                     |       |                                                 |   |                                  |   |
| Balance at December 31,  2002                                |   | $                        | (1,324,309 | )                                                    | $      | (128,266                              | )      | $ | 1,897,082 |   |

 

See accompanying notes toconsolidated financial statements.

 

F-7

----

 

**INTAC INTERNATIONAL, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(expressed in U.S. dollars)

 
|                                                                         |   | **For the year ended  December 31, 2002** |     | **For the period from  January 3, 2001 (Date  of Inception) to  December 31, 2001** |   |
|------------------------------------------------------------------------------|--------|-------------------------------------------|----------|-------------------------------------------------------------------------------------|--------|
|                                                                         |   |                                      |     |                                                                                |   |
| CASH FLOW FROM  OPERATING ACTIVITIES:                                        |   |                                      |     |                                                                                |   |
| Net loss                                                                     |   | $                                         | (776,755 | )                                                                                   | $      | (127,554 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                                      |     |                                                                                |   |
| Depreciation of  equipment                                                   |   | 70,371                                    |     | 7,026                                                                               |   |
| Compensation in  connection with restricted stock award                      |   | 97,222                                    |     | —                                                                              |   |
| Other comprehensive  income (loss)                                           |   | (129,665                                  | )        | 1,399                                                                               |   |
| Changes in operating  assets and liabilities                                 |   |                                      |     |                                                                                |   |
| Trade accounts  receivable                                                   |   | (506,355                                  | )        | (1,008,274                                                                          | )      |
| Inventories                                                                  |   | (1,139,686                                | )        | (820                                                                                | )      |
| Foreign sales tax  receivable                                                |   | 194,390                                   |     | —                                                                              |   |
| Deposits paid                                                                |   | (942,331                                  | )        | —                                                                              |   |
| Trade accounts payable  and accrued expenses                                 |   | 2,007,398                                 |     | 78,675                                                                              |   |
| Deposits received                                                            |   | 202,839                                   |     | —                                                                              |   |
|                                                                         |   |                                      |     |                                                                                |   |
| Net cash used in  operating activities                                       |   | (922,572                                  | )        | (1,049,548                                                                          | )      |
|                                                                         |   |                                      |     |                                                                                |   |
| CASH FLOW FROM  INVESTING ACTIVITIES:                                        |   |                                      |     |                                                                                |   |
| Purchase of equipment                                                        |   | (374,914                                  | )        | (45,619                                                                             | )      |
| Purchase of other  assets                                                    |   | (68,903                                   | )        | (51,850                                                                             | )      |
| Acquisition of New  Tech, net of cash acquired                               |   | —                                    |     | (21,574                                                                             | )      |
| Acquisition of  Commodore, net of cash acquired                              |   | —                                    |     | (208,011                                                                            | )      |
|                                                                         |   |                                      |     |                                                                                |   |
| Net cash used in  investing activities                                       |   | (443,817                                  | )        | (327,054                                                                            | )      |
|                                                                         |   |                                      |     |                                                                                |   |
| CASH FLOW FROM  FINANCING ACTIVITIES:                                        |   |                                      |     |                                                                                |   |
| Proceeds from issuance of  common stock                                      |   | 470,000                                   |     | 3,000,002                                                                           |   |
| Distribution to  shareholder                                                 |   | —                                    |     | (420,000                                                                            | )      |
| Borrowings from  shareholder, net of note receivable repayment               |   | 226,988                                   |     | 55,573                                                                              |   |
|                                                                         |   |                                      |     |                                                                                |   |
| Net cash provided by  financing activities                                   |   | 696,988                                   |     | 2,635,575                                                                           |   |
|                                                                         |   |                                      |     |                                                                                |   |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                        |   | (669,401                                  | )        | 1,258,973                                                                           |   |
|                                                                         |   |                                      |     |                                                                                |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                            |   | 1,258,973                                 |     | —                                                                              |   |
|                                                                         |   |                                      |     |                                                                                |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                  |   | $                                         | 589,572  |                                                                                | $      | 1,258,973 |   |
|                                                                         |   |                                      |     |                                                                                |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                           |   |                                      |     |                                                                                |   |
|                                                                         |   |                                      |     |                                                                                |   |
| Cash paid for interest                                                       |   | $                                         | 8,636    |                                                                                | $      | — |   |
|                                                                         |   |                                      |     |                                                                                |   |
| Cash paid for taxes                                                          |   | $                                         | —   |                                                                                | $      | — |   |

 

See accompanying notes toconsolidated financial statements.

 

F-8

----

 

**INTAC INTERNATIONAL, INC. AND SUBSIDIARIES**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.  GENERAL AND SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

(a)        Descriptionof Business and Basis of Presentation

 

INTAC International, Inc. (“INTAC” or the “Company”)is a U.S. holding company focused on the exploitation of strategic businessopportunities available in China and the Asia-Pacific Rim.  The Company currently maintains offices inChina (Hong Kong, Beijing and Tianjin), Germany (Frankfurt) and the UnitedStates (Dallas, Texas).  During theperiods reported, the Company’s principal operations involved the distributionof premium brand wireless handsets from manufacturers and other distributors tonetwork operators, agents, resellers, dealers and retailers and, to a muchlesser extent, automobile distribution from Europe into mainland China.

 

In October 2001, INTAC (formerly known as CommodoreMinerals, Inc.) effected a reverse merger by acquiring all of the outstandingshares of INTAC International Holdings Limited (“Holdings”), a Hong Kongcorporation, and its wholly owned subsidiary, New Tech Handels GmbH (“NewTech”), a German corporation. Holdings was deemed to be the acquiring entity.The transaction has been reflected in the accompanying consolidated financialstatements as (1) a recapitalization of Holdings (consisting of a 500-for-onestock split and change in par value) and (2) an issuance of shares by Holdingsin exchange for all of the outstanding shares of Commodore Minerals, Inc.

 

The consolidated financial statements have beenprepared in accordance with generally accepted accounting principles in theUnited States of America (“USGAAP”). In the opinion of management, alladjustments necessary for a fair presentation have been included.

 

(b)        Principlesof Consolidation

 

The accompanying consolidated financial statementsinclude the financial statements of the Company and its wholly ownedsubsidiaries, INTAC International Holdings Limited, New Tech Handels GmbH,INTAC Holdco Corp., FUTAC Group Limited, Global Creative International Limited,INTAC Telecommunications Limited and INTAC Auto Mobile Trading CompanyLimited.  All intercompany balances andtransactions have been eliminated in consolidation.

 

Certain prior year balances have been reclassified toconform to the current year presentation.

 

(c)        Liquidity

 

As of December 31, 2002, the Company has anaccumulated deficit of $1,324,309 primarily due to distributions made to itsprincipal shareholder and net losses from operations. The Company raised equityfinancing of $3,000,002 in October 2001, $220,000 in August 2002 and $250,000in December 2002.

 

The Company is currently attempting to obtainadditional financing through the issuance of debt, equity, other securities ora combination thereof.  In addition, theCompany may seek to obtain a working capital or other traditional loan facilityfrom a bank or other lending source. Unless it is able to significantly improveits operating performance, additional outside financing will be difficult toobtain on acceptable terms, if at all. As of the date of this Report, theCompany does not have any financing arrangements, nor any commitments to obtainsuch an arrangement with any bank or other third party. If the Company raisescapital by issuing equity or convertible debt securities, the percentageownership of our stockholders will be reduced. Any new securities may haverights, preferences or privileges senior to those of our common shareholders.

 

The Company believes thata reduction in operations combined with cash on hand will be sufficient topermit the Company to continue as a going concern for at least the next 12months assuming that the Company achieves estimated reductions in operatingexpenses and maintains revenue levels comparable to the prior year; are able todiscount sales prices to customers or distributors or extend terms, in order tofulfill obligations under an existing agreement with a major wireless carrier;limit additional contractual commitments; and take no action to grow thebusiness, take advantage of the Company’s strategic alliances or generallyexecute its expansion plans.  However,no assurances can be given that these assumptions will prove accurate. TheCompany’s inability to obtain additional acceptable financing would likely havea significant negative impact on the operations. There can be no assurancesthat the Company will be able to obtain additional financing on terms which areacceptable to it.

 

F-9

----

 

(d)        Cashand Cash Equivalents

 

For purposes of the statement of cash flows, theCompany considers all highly liquid investments with original maturities ofthree months or less to be cash equivalents.

 

The Company maintains its cash in high qualityfinancial institutions and does not believe any undue risk is associated withits cash balances.

 

(e)        Concentrationof Credit Risk and Accounts Receivable

 

The Company establishes an allowance for doubtfulaccounts receivable based upon factors surrounding the credit risk of specificcustomers.  The Company’s accountsreceivable are not collateralized.  AtDecember 31, 2002, an allowance of $2,521 was recorded which reflectsmanagement’s estimate of the potential bad debts.

 

(f)         Inventories

 

Inventories for wireless handsets are stated at thelower of cost and net realizable value, calculated on the first-in, first-outbasis, and are comprised of finished goods. Net realizable value is determined on the basis of anticipated salesproceeds less estimated costs for selling expenses.  Inventories for vehicles are stated at the actual amount paid tomanufacturers or market, if lower.

 

(g)        Depositsand Other Receivables

 

Deposits and other receivables are payments made tosuppliers for down payments for wireless handsets and vehicles.

 

(h)        Equipment

 

Equipment is stated at cost less accumulateddepreciation and any provisions for impairment losses required reflectingrecoverable amounts.  Cost representsthe purchase price and any directly attributable costs of bringing the asset toworking condition for its intended use. Repairs and maintenance are expensed as incurred.  Betterments and capital improvements arecapitalized and depreciated over the remaining useful life of the relatedasset.

 

Depreciation is calculated to write off the cost of fixed assets overtheir estimated useful live, on the straight line method, at the followingannual rates:

 
| Furniture and fixtures |   | 20 | % |
|------------------------|--------|----|---|
| Leasehold improvements |   | 20 | % |
| Motor vehicles         |   | 30 | % |

 

(i)         Goodwill

 

The Company recorded goodwill of $59,021 relating to the New Tech acquisition in 2001 (see note 2).  As the goodwill was established in connection with an acquisition completed after June 30, 2001, in accordance with SFAS No. 142 "Goodwill and Intangible Assets", no amortization was recorded during 2001.  Beginning in 2002, amortization is no longer required.  In accordance with the accounting rules contained in SFAS No. 142, the Company reviews goodwill periodically for impairment.  Impairment is reviewed annually and when events or circumstances indicate that goodwill may be impaired.  Impairment is measured as the amount by which the Company’s value exceeds the fair value.  Should impairment be indicated, the impaired amount will be charged to expense.

 

(j)         DepositsReceived

 

Deposits received are payments received from customersfor down payments for wireless handsets and vehicles.

 

F-10

----

 

(k)        RevenueRecognition

 

Revenue is recognized when goods are delivered at thecustomers’ premises, which is taken to be the point in time where the customerhas accepted the goods and the related risks and rewards of ownership. Certainsales arrangements provide the Company the right to receive a contingentpayment based on sales made by the customers. Contingent payment revenue forthese arrangements is recognized on a cash basis.

 

Receipts of cash in advance of shipment or deliveryare recorded as deposits received.

 

(l)         IncomeTaxes

 

Income taxes are accounted for under the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities, and theirrespective tax bases and operating loss and tax credit carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the period in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date.

 

(m)       ForeignCurrency Translation

 

The functional currency of the Company is the HongKong dollar (“HK$”). The accompanying consolidated financial statements havebeen expressed in United States dollars, the reporting currency of the Company.

 

Reported assets and liabilities of INTAC’s foreignsubsidiaries have been translated at the rate of exchange at the end of eachperiod. Revenues and expenses have been translated at the weighted average rateof exchange in effect during the respective period. Gains and losses resultingfrom translation are accumulated in other comprehensive income (loss) instockholders’ equity.

 

Realized and unrealized translation gain (loss) on currencytransactions between foreign entities is included in other income (expense) inthe accompanying statements of operations. Effective July 1, 2002, the Company changed the recording of unrealizedtranslation gains and losses on an intercompany account between Holdings andNew Tech by recording gains and losses directly to stockholders’ equity toreflect the long-term nature of this balance. Previously, unrealized translation gains and losses were recorded in thestatements of operations.  The effect ofthis change during the six months ended December 31, 2002 was to exclude anunrealized loss on foreign currency translation of $130,631 from the statementof operations.  This amount is includedin other comprehensive income (loss) in stockholders’ equity.

 

(n)        NetLoss Per Share – Basic and Diluted

 

Basic loss per share is calculated by dividing netloss by the weighted-average number of common shares outstanding during theperiod. The diluted earnings per share is calculated by dividing net loss by theweighted-average number of common shares and dilutive potential common shares,if any, outstanding during the period. Stock options granted under the terms of the “2001 Long Term IncentivePlan” and the restricted stock award (to the extent not vested) were notincluded in the computation of diluted loss per share because their effects areanti-dilutive at December 31, 2002.  Nostock options or restricted stock awards were granted during 2001.

 

F-11

----

 

(o)        SegmentReporting

 

SFAS No. 131 “Disclosures about Segments of anEnterprise and Related Information”, established standards for reportinginformation about operating segments in financial statements. Operatingsegments are defined as components of an enterprise about which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker, or decision making group, in deciding how to allocateresources and assessing performance.

 

The Company iscurrently considered to be comprised of two reportable segments:  (i) distribution of wireless handsetsand (ii) distribution of automobiles. The Company measures segment profit (loss) as operating profit (loss)before depreciation.  As used herein,the measure of segment profit (loss) is not intended as either a substitute orreplacement for operating income (as reported according to USGAAP), as ameasure of the financial results of operations or cash flows from operations(as presented according to USGAAP).

 

(p)        Impairmentof Long-Lived Assets and Long-Lived Assets to be Disposed of

 

The Company accounts for long-lived assets inaccordance with the provisions of SFAS No. 144 (SFAS 121 in fiscal 2001),“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of”. This Statement requires that long-lived assets and certainidentifiable intangibles be reviewed for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to future net cash flow expectedto be generated by the asset. If such assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carryingamount of the assets exceeds the fair value of the assets. Assets to bedisposed of are reported at the lower of the carrying amount or fair value lesscosts to sell.

 

(q)        Use ofEstimates

 

Management of the Company has made a number ofestimates and assumptions relating to the reporting of assets and liabilitiesand the disclosure of contingent assets and liabilities to prepare theseconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America. Actual results could differfrom those estimates.

 

(r)         StockOption Plans and Stock-Based Compensation

 

The Company applies the intrinsic value-based methodof accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25,“Accounting for Stock Issued to Employees,” and related interpretations, inaccounting for its fixed plan stock options. As such, compensation expensewould be recorded on the date of grant only if the current market price of theunderlying stock exceeded the exercise price. Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” asamended by SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure-an amendment of FASB StatementNo. 123,” established accounting and disclosure requirements using a fairvalue-based method of accounting for stock-based employee compensation plans.As allowed by SFAS No. 123 (as amended), the Company has elected to continue toapply the intrinsic value-based method of accounting described above, and hasadopted the disclosure requirements of SFAS No. 123 (as amended).

 

For purposes of proforma disclosure, the estimatedfair value of the option is amortized to expense over the option’s vestingperiod.  Had the Company determinedcompensation based on the fair value at the date of grant for its options underSFAS No. 123 (as amended), net loss and net loss per share would have beenincreased as follows:

 
|                                                                                                    |   | **Year ended  December 31, 2002** |     |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                                                    |   |                              |     |
| Net loss, as  reported                                                                                  |   | $                                 | (776,755 | ) |
| Deduct:  Total stock-based employee compensation  expense determined under fair value based method |   | (83,914                           | )        |
| Pro forma net  loss                                                                                     |   | $                                 | (860,669 | ) |
|                                                                                                    |   |                              |     |
| Net loss per  share:                                                                                    |   |                              |     |
| Basic and  diluted —                                                                               |   |                              |     |
| As reported                                                                                             |   | $                                 | (0.04    | ) |
|                                                                                                    |   |                              |     |
| Proforma                                                                                                |   | $                                 | (0.05    | ) |

 

(s)        Commitmentsand Contingencies

 

Liabilities for loss contingencies arising fromclaims, assessments and litigation and other sources are recorded when it isprobable that a liability has been incurred and the amount of the assessmentcan be reasonably estimated. In the opinion of management, after consultationwith legal counsel, there are no claims, assessments and litigation against theCompany.

 

F-12

----

 

(t)         FairValue of Financial Instruments

 

The carrying amounts of trade accounts receivable,foreign sales tax receivable, deposits paid and received, trade accountspayable and accrued expenses at December 31, 2002 and 2001 approximate theirfair values because of the short maturity of these instruments.

 

**2.  BUSINESS COMBINATIONS**

 

**NEW TECHACQUISITION**

 

On September 1, 2001, Holdings acquired all of theoutstanding shares of New Tech from a related party (see note 6). The resultsof New Tech have been included in the consolidated financial statements sincethat date. New Tech is incorporated and domiciled in Germany and is adistributor of wireless handset products. The aggregate purchase price was$22,441, which was paid in cash. The net purchase price of $21,574 was net ofcash on hand at New Tech of $867.

 

The following table summarizes the estimated fairvalue of the assets acquired and liabilities assumed as of the date ofacquisition.

 
| Current assets other than deferred tax asset |   | $        | 200,345 |   |
|----------------------------------------------|--------|----------|---------|--------|
| Property and equipment                       |   | 5,513    |    |
| Total assets acquired                        |   | 205,858  |    |
| Current liabilities                          |   | (242,438 | )       |
| Net liabilities assumed                      |   | $        | (36,580 | )      |

 

The excess of the purchase price over the fair value of the net liabilities assumed represents goodwill.

 

**RECAPITALIZATIONAND MERGER**

 

On October 13, 2001, Commodore Minerals, Inc. (aninactive public company), effected a reverse merger with Holdings. Forfinancial reporting purposes, Holdings was deemed to be the acquiring entity.The transaction has been reflected in the accompanying consolidated financialstatements as (1) a recapitalization of Holdings (consisting of a 500-for-onestock split and change in par value) and (2) an issuance of shares by Holdingsin exchange for all of the outstanding shares of Commodore Minerals, Inc. Legaland professional fees of $220,976 were charged to additional paid-in capital ascosts of the recapitalization and merger. Included in paid-in capital is thenet working capital liability of $1,591 from Commodore Minerals, Inc.

 

The following unaudited pro forma financialinformation presents the combined results of operations as if the 2001acquisition and merger had occurred as of January 3, 2001 (the inception dateof Holdings), after giving effect to certain adjustments, including ongoingoperations. The unaudited pro forma results do not necessarily representresults that would have occurred if the 2001 acquisition had taken place on thebasis assumed above, nor are they indicative of the results of future combinedoperations.

 
|                                         |   | **For the period from  January 3, 2001 (Date  of Inception) to  December 31, 2001)** |       |
|----------------------------------------------|--------|--------------------------------------------------------------------------------------|------------|
|                                         |   |                                                                                 |       |
| Revenue                                      |   | $                                                                                    | 24,942,334 |   |
|                                         |   |                                                                                 |       |
| Net loss                                     |   | $                                                                                    | (294,312   | ) |
|                                         |   |                                                                                 |       |
| Net loss per share –  basic and diluted |   | $                                                                                    | (0.01      | ) |

 

F-13

----

 

**3.  EQUIPMENT, NET**

 

As of December 31, 2002 and 2001, equipment consistedof the following:

 
|                                 |   | **2002** |    | **2001** |   |
|--------------------------------------|--------|----------|---------|----------|--------|
|                                 |   |     |    |     |   |
| Furniture and fixtures               |   | $        | 92,761  |     | $      | 51,132 |   |
| Leasehold improvements               |   | 20,513   |    | —   |   |
| Motor vehicles                       |   | 312,773  |    | —   |   |
| Less:  Accumulated depreciation |   | (77,397  | )       | (7,026   | )      |
|                                 |   | $        | 348,649 |     | $      | 44,106 |   |

 

**4.  INVENTORIES**

 

As of December 31, 2002 and 2001, inventoriesconsisted of the following:

 
|              |   | **2002** |      | **2001** |   |
|-------------------|--------|----------|-----------|----------|--------|
|              |   |     |      |     |   |
| Wireless Handsets |   | $        | 638,541   |     | $      | 820 |   |
| Vehicles          |   | 501,965  |      | —   |   |
|              |   | $        | 1,140,506 |     | $      | 820 |   |

 

**5.  CONCENTRATION OF RISKS**

 

Two customers each accounted for more that 10% of theCompany’s sales for the year ended December 31, 2002, as follows:

 
| **Company**         |   | **Sales percentage** |   |
|---------------------|--------|----------------------|--------|
|                |   |                 |   |
| Mr Lam              |   | 13                   | %      |
| 238 Telecom Limited |   | 12                   | %      |

 

The Company’s productsuppliers are concentrated in three vendors for the year ended December 31,2002, as follows:

 
| **Company**                             |   | **Purchase percentage** |   |
|-----------------------------------------|--------|-------------------------|--------|
|                                    |   |                    |   |
| Deutsche Telekom                        |   | 29                      | %      |
| Wai Luen International  Trading Company |   | 14                      | %      |
| Michel Communication GmbH               |   | 11                      | %      |

 

Three customers each accounted for more that 10% ofthe Company’s sales for the period ended December 31, 2001, as follows:

 
| **Company**             |   | **Sales percentage** |   |
|-------------------------|--------|----------------------|--------|
|                    |   |                 |   |
| 238 Telecom Limited     |   | 22                   | %      |
| Sparkle Trading Company |   | 13                   | %      |
| Mr. Poon Trading        |   | 11                   | %      |

 

The Company’s productsuppliers are concentrated in two vendors for the period ended December 31,2001, as follows:

 
| **Company**                                              |   | **Purchase percentage** |   |
|----------------------------------------------------------|--------|-------------------------|--------|
|                                                     |   |                    |   |
| Mega Full Trading  Company                               |   | 31                      | %      |
| Tai Pan Trading GmbH  (“Tai Pan”) (see note 7) |   | 26                      | %      |

 

Accounts receivables are carried net of an appropriateallowance for doubtful accounts.

 

F-14

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**6.  INCOME TAXES**

 

Income tax expense reported in the consolidatedstatements of operations for the year ended December 31, 2002 and the periodended December 31, 2001, is attributable to operations and consists of currenttax expense of $0 and $39,598, respectively. Deferred tax assets at December31, 2002 of $401,304 consist principally of the income tax benefit from netoperating losses generated for U.S., Hong Kong and German income tax reportingpurposes.  The tax benefit from each taxjurisdiction has been fully reserved through a valuation allowance as theability of the Company to generate taxable income to utilize these losses isuncertain.

 

The net operating losses available to offset futuretaxable income in the U.S., Hong Kong, and Germany are $913,464, $40,884 and$88,944, respectively.  The netoperating losses generated in the U.S. expire in 2022 if not utilized.  The net operating losses generated in HongKong expire in 2007 if not utilized. The net operating losses generated in Germany have no expiration dateand carry forward indefinitely.  Nodeferred tax expense/benefit has been provided for the period ended December31, 2001 as the amount of temporary differences was immaterial.

 

The Company is subject to income taxes on incomearising in or derived from the tax jurisdiction in which it is domiciled andoperates.  During the year endedDecember 31, 2002, the Company’s taxable income is attributable to its Germanand Hong Kong operations.  Accordingly,during the year ended December 31, 2002, the Company is subject to German taxesof 26% or the estimated assessable profit, and is subject to Hong Kong profitstax at 16% on the estimated assessable profit. The Company generated taxable losses for U.S. income tax reportingpurposes.  During the period endedDecember 31, 2001, the Company’s taxable income is solely attributable to itsHong Kong operations. Accordingly, during 2001 the Company is subject to HongKong profits tax at 16% on the estimated assessable profit.

 

Income tax expense attributable to loss fromoperations for the year ended December 31, 2002 differed from the amountscomputed by applying the U.S. income tax rate of 34% to the tax loss fromoperations as indicated in the table below. Additionally, during the period ended December 31, 2001, income taxexpense attributable to loss from operations differed from the amounts computedby applying the Hong Kong profit tax rates of 16% to pre-tax loss fromoperations as indicted in the table below:

 
|                                               |   | **2002** |     | **2001** |   |
|----------------------------------------------------|--------|----------|----------|----------|--------|
|                                               |   |     |     |     |   |
| Computed  “expected” tax expense         |   | $        | (264,097 | )        | $      | (14,072 | ) |
| Rate differences                                   |   | 46,051   |     | —   |   |
| Non-deductibility  of acquisition related expenses |   | —   |     | 57,225   |   |
| Interest income  exempt from tax                   |   | —   |     | (2,365   | )      |
| Change in  valuation allowance                     |   | 220,646  |     | —   |   |
| Other                                              |   | (2,600   | )        | (1,190   | )      |
|                                               |   | $        | —   |     | $      | 39,598 |   |

 

The tax effects of temporary differences that giverise to significant portions of the deferred tax assets at December 31, 2002,are presented below:

 
|                              |   | **2002** |    |
|-----------------------------------|--------|----------|---------|
| Deferred tax  assets:             |   |     |    |
| Net operating  loss carryforwards |   | $        | 373,342 |   |
| Depreciation of  fixed asset      |   | 27,962   |    |
| Total gross  deferred tax assets  |   | 401,304  |    |
| Less valuation  allowance         |   | (401,304 | )       |
| Net deferred tax  assets          |   | $        | —  |   |

 

F-15

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**7.  RELATED PARTY TRANSACTIONS**

 

(a)           Asof December 31, 2002 and 2001, the Company’s majority shareholder, Mr. Wei Zhouwas the beneficial owner of 62.3% and 62.6% respectively, of the Company’sissued outstanding ordinary shares.

 

(b)           Mr.Zhou is the President, Treasurer and Director of the Company. As of December31, 2002 and 2001, Mr. Zhou had made advances to the Company amounting to$281,279 and $55,573, respectively. On September 21, 2001, Mr. Zhou received adistribution of the profit of $290,759 and an additional distribution of$129,241 from the Company.  Thedistributions to Mr. Zhou totaling $420,000 were used to acquire on September30, 2001, a controlling interest (51.7%) in Commodore Minerals, Inc.(“Commodore”), a company incorporated in the State of Nevada, United States ofAmerica. The distributions have been accounted for as a reduction ofstockholders’ deficit in the accompanying consolidated financial statements.Such additional distribution will be offset against retained earnings upon thegeneration of sufficient net income in future periods.

 

(c)           OnAugust 31, 2001, INTAC acquired all of the outstanding shares of New Tech, anentity whose controlling interest (80%) was held by Ms Yiling Huang, the wifeof Mr. Zhou. The remaining 20% minority interest was held by an independentthird party.

 

(d)           Priorto August 31, 2001, Mr. Zhou held a 50% equity interest in Tai Pan, a principalsupplier of the Company. On August 31, 2001, Mr. Zhou sold his 50% equityinterest in Tai Pan to his wife, Ms Yiling Huang. During the year endedDecember 31, 2002 and the period ended December 31, 2001, total cost ofgoods sold relating to products supplied by Tai Pan was $935,922 and$3,735,080, respectively.

 

(e)           TheCompany issued 10,000 HK$1 ordinary shares to a shareholder for $1,282, whichwas paid during the year ended December 31, 2002. At December 31, 2001, $1,282of notes receivable from the shareholder is accounted for as a reduction ofstockholders’ equity in the accompanying consolidated financial statements.

 

F-16

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**8.  STOCKHOLDERS’ EQUITY**

 

(a) COMMON STOCK

 

On October 25, 2001, the Company issued 545,455 sharesof common stock to a single private investor for $3,000,002 (or approximately$5.50 per share). This transaction was exempt from the registrationrequirements of the Securities Act under Section 4(2) or Regulation Dpromulgated thereunder.

 

On August 12, 2002, a private investor acquired 50,000shares of the Company’s common stock in a private placement effected pursuantto Section 4(2) of the Securities Act of 1933, as amended. This transactionresulted in net proceeds to the Company of approximately $220,000 (or $4.40 pershare).

 

On December 21, 2002, a private investor acquired50,000 shares of the Company’s common stock in a private placement effectedpursuant to Section 4(2) of the Securities Act of 1933, as amended. Thistransaction resulted in net proceeds to the Company of approximately $250,000(or $5.00 per share).

 

(b) PREFERRED STOCK

 

On November 28, 2001, the Company authorized10,000,000 shares of blank check preferred stock. The terms and characteristicsof the preferred stock are to be established at a future date prior to theirissuance.

 

(c) STOCK OPTIONS AND STOCK AWARDS

 

On November 28, 2001, INTAC adopted a stock purchaseplan entitled “2001 Long Term Incentive Plan” to attract, retain and motivateits management and other persons, to encourage and reward their contributionsto the performance of the Company and to align their interests with theinterests of the Company’s shareholders. The Company has authorized 2,500,000shares to be available for grant as part of the long term incentive plan.  No options were issued in 2001.

 

On July 29, 2002, the Company made the following stockoption grant and restricted stock award to its Senior Vice President and ChiefFinancial Officer:  (i) a stock optionto purchase 300,000 shares of the Company’s common stock at an exercise price of$3.50 per share representing the market value on the date of grant under theCompany’s “2001 Long Term Incentive Plan” and (ii) a restricted stock award of200,000 shares of the Company’s common stock. This stock option and restricted stock award vest in three equal annualinstallments on the first three anniversary dates of the date of grant.  The total market value of the stock awardtotaled $700,000 at the date of grant. This amount is being amortized and expensed over the three year vestingperiod.  The Company’s amortization inconnection with the stock award resulted in a non-cash compensation charge of$97,222 during the year ended December 31, 2002.  At December 31, 2002, no options are exercisable and all optionsexpire, if unexercised, on July 29, 2009.

 

The per share fair value of the stock options grantedin 2002, estimated on the date of grant using the Black-Scholes options pricingmodel, was $2.01.  The fair value of theoption grant is estimated on the date of grant using the following assumptions:no dividend yield; expected volatility of 86%; risk-free interest rate of 4.7%;and expected life of three years.

 

F-17

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**9.  SEGMENT REPORTING**

 

The Company iscurrently considered to be comprised of two reportable segments:  (i) distribution of wireless handsetsand (ii) distribution of automobiles. The Company measures segment profit (loss) as operating profit (loss)before depreciation.  Information regardingoperating segments as of and for the year ended December 31, 2002 and, asof and for the period ended December 31, 2001, is presented in the followingtables:

 
|                                   |   | **Revenues** |       | **Segment  loss** |   |
|----------------------------------------|--------|--------------|------------|-------------------|--------|
| Year Ended  December 31, 2002          |   |         |       |              |   |
| Wireless handset  distribution segment |   | $            | 83,535,285 |              | $      | (957,120 | ) |
| Automobile  distribution segment       |   | 1,300,195    |       | 25,635            |   |
| Total                                  |   | $            | 84,835,480 |              | $      | (931,485 | ) |
|                                   |   |         |       |              |   |
| Period Ended  December 31, 2001        |   |         |       |              |   |
| Wireless handset  distribution segment |   | $            | 24,333,589 |              | $      | (99,277 | ) |
| Automobile  distribution segment       |   | —       |       | —            |   |
| Total                                  |   | $            | 24,333,589 |              | $      | (99,277 | ) |

 

A reconciliationfrom the segment information to the net loss for the year endedDecember 31, 2002 and the period ended December 31, 2001, is as follows:

 
|                             |   | **2002**   |     | **2001** |   |
|----------------------------------|--------|------------|----------|----------|--------|
|                             |   |       |     |     |   |
| Segment loss                     |   | $          | (931,485 | )        | $      | (99,277 | ) |
| Depreciation                     |   | (70,371    | )        | (7,026   | )      |
|                             |   | (1,001,856 | )        | (106,303 | )      |
| Other income                     |   | 233,737    |     | 17,320   |   |
| Interest income  (expense) (net) |   | (8,636     | )        | 1,027    |   |
| Income tax  expense              |   | —     |     | (39,598  | )      |
| Net loss                         |   | $          | (776,755 | )        | $      | (127,554 | ) |

 

Total assets for the operating segments at December 31, 2002 and2001, are as follows:

 
|                                   |   | **2002** |      | **2001** |   |
|----------------------------------------|--------|----------|-----------|----------|--------|
|                                   |   |     |      |     |   |
| Wireless handset  distribution segment |   | $        | 3,845,175 |     | $      | 2,622,522 |   |
| Automobile  distribution segment       |   | 875,374  |      | —   |   |
| Total                                  |   | $        | 4,720,549 |     | $      | 2,622,522 |   |

 

F-18

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The percentage of total revenue based upon thedestination of the sale by geographic sector:

 
|   |   | **2002** |   | **2001** |   |
|--------|--------|----------|--------|----------|--------|
|   |   |     |   |     |   |
| Europe |   | 24.6     | %      | 22.6     | %      |
| Asia   |   | 75.4     | %      | 77.4     | %      |
| Total  |   | 100.0    | %      | 100.0    | %      |

 

The percentage of total revenue based upon the originof the sale by geographic sector:

 
|   |   | **2002** |   | **2001** |   |
|--------|--------|----------|--------|----------|--------|
|   |   |     |   |     |   |
| Europe |   | 43.5     | %      | 11.5     | %      |
| Asia   |   | 56.5     | %      | 88.5     | %      |
| Total  |   | 100.0    | %      | 100.0    | %      |

 

**10.  COMMITMENTS AND CONTINGENCIES**

 

At December 31, 2002, the total future minimum leasepayments under non-cancelable operating leases of the Company’s office facilitiesare as follows:

 
| 2002       |   | $      | 95,801  |   |
|------------|--------|--------|---------|--------|
| 2003       |   | 9,971  |    |
| thereafter |   | — |    |
|       |   | $      | 105,772 |   |

 

For the year ended December 31, 2002 and the periodended December 31, 2001, rental expense which is included in selling, generaland administrative expense amounted to $101,291 and $25,321, respectively.

 

In order to meet minimum capitalization requirementsfor its wholly owned subsidiary domiciled in China, the Company will berequired to make a capital contribution to this subsidiary of $850,000 by April9, 2003.  The non-payment of thiscapital contribution would result in the cancellation of this subsidiary’sbusiness license in China.  As thissubsidiary has not commenced operations, its dissolution would not have amaterial adverse effect on the Company or the Company’s plans to distributeautomobiles into China.  As of the dateof this report, the Company has not determined whether to meet this minimumcapitalization requirement or to dissolve this subsidiary.

 

F-19

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**11.  IMPACT OF NEW ACCOUNTING STANDARDS**

 

In June 2001, the FASB issued SFAS No. 142 (“SFAS142”), “Goodwill and Other Intangible Assets,” which requires that goodwill andcertain other intangible assets having indefinite useful lives no longer beamortized to earnings, but instead be subject to periodic testing forimpairment at least annually. Intangible assets with determinable useful liveswill continue to be amortized over their respective estimated useful lives andreviewed for impairment in accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of”. The Company adopted SFAS 142 beginning January 1, 2002.Unamortized goodwill was $59,021 at December 31, 2002 and 2001.

 

In October 2001, the FASB issued SFAS No. 144 (“SFAS144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” whichreplaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets andfor Long-Lived Assets to Be Disposed Of.” The Company adopted SFAS 144 infiscal year 2002. The adoption of this standard had no material effect on theCompany’s financial condition, cash flows or results of operations.

 

In December 2002, the FASB issued SFAS No. 148(“SFAS 148”), “Accounting for Stock-Based Compensation-Transition andDisclosure-an amendment of FASB Statement No. 123.” This statement amendsSFAS No. 123, “Accounting for Stock-Based Compensation,” to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,SFAS No. 148 amends the disclosure requirements of SFAS No. 123 torequire prominent disclosures in both annual and interim financial statementsabout the method of accounting for stock-based employee compensation and theeffect of the method used on reported results. This statement is effective forfiscal years ending after December 15, 2002.  The Company has adopted the disclosure requirements of SFASNo. 148 and the adoption of this standard had no material effect on itsfinancial condition, cash flows or results of operations.

 

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