<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File No.
0-24441
ASPAC COMMUNICATIONS,INC.
-----------------------------
(Exact Name of registrant as specified in its charter)
Delaware 95-4652797
-------------------------------- -----------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
2049 Century Park East, Suite 1200
Los Angeles, California 90067
------------------------------------------------------------
(Address of Principal Executive Offices including Zip Code)
Registrant's telephone number, including Area Code: 310/712-3288
Securities to be Registered Under Section 12(b) of the Act: None
Securities to be Registered Under Section 12(g) of the Act: Common Stock,
$.0001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Aggregate market value of voting stock held by non-affiliates of the registrant
at August 27, 1999: Currently there is no public market for these securities.
Number of shares of common stock outstanding at June 30, 1999: Common Stock -
20,075,000
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
June 30, 1999 September 30, 1998
------------- ------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 6,801 $ 4,648
Prepaid expenses 3,500 3,404
------------- ------------------
TOTAL CURRENT ASSETS 10,301 8,052
PROPERTY AND EQUIPMENT
Furniture and equipment 17,461 11,603
Less: accumulated depreciation 4,890 2,628
------------- ------------------
TOTAL PROPERTY AND EQUIPMENT 12,571 8,975
OTHER ASSETS
Deferred Offering Cost 12,500 --
Organization costs 1,890 2,295
Other assets 9,975 2,632
------------- ------------------
TOTAL OTHER ASSETS 24,365 4,927
------------- ------------------
TOTAL ASSETS $ 47,237 $ 21,954
============= ==================
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accrued expenses $ 116,628 $ 48,150
Advisory service agreement payable 30,000 60,000
Legal Service Fee Payable 6,500 --
Loan payable 75,392 --
Notes payable 432,000 220,000
------------- ------------------
TOTAL CURRENT LIABILITIES 660,520 328,150
STOCKHOLDER'S DEFICIENCY
Preferred stock, $0.0001 par value
20,000,000 shares authorized -- --
Common stock, $0.0001 par value,
100,000,000 shares authorized,
20,075,000 shares issued and outstanding 2,008 2,002
Additional paid-in capital 88,092 88,098
Accumulated deficit during development stage (703,383) (396,296)
------------- ------------------
TOTAL STOCKHOLDER'S DEFICIENCY (613,283) (306,196)
------------- ------------------
TOTAL LABILITIES AND
STOCKHOLDER'S DEFICIENCY $ 47,237 $ 21,954
============= ==================
</TABLE>
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 26,1997
(INCEPTION) TO JUNE 30,1999
---------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Common stock issuance $ 4 $ 196 $ -- $ 200
Net loss from September 26,
1997 (Inception) to
September 30, 1997 -- -- (161,697) (161,697)
------ ---------- ----------- ----------
Net loss from September
26, 1997 (Inception)
to September 30, 1998 -- -- (396,296) (396,296)
------ ---------- ----------- ----------
Common stock issuance 1,789 88,102 -- 89,900
Common stock issuance to
consultants for future
services to be rendered 200 (200) -- --
Net loss for the year ended
September 30, 1998 -- -- (234,599) (234,599)
------ ---------- ----------- ----------
Balance at
September 30, 1998 2,002 88,098 (396,296) (306,196)
Common stock issuance to
officers 6 (6) -- --
Net loss from
October 1, 1998 to
June 30, 1999 -- -- (307,087) (307,087)
------ ---------- ----------- ----------
BALANCE AT
- ----------
JUNE 30, 1999 $2,008 $ 88,092 $ (703,383) $ (613,283)
============= ====== ========== =========== ==========
</TABLE>
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Sep. 26, 1997
Three Months Ended Nine Month Ended (Inception) to
Jun. 30, 1999 Jun. 30, 1998 Jun. 30, 1999 Jun. 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ -- $ -- $ -- $ --
------------- ------------- ------------- -------------
OPERATION EXPENSES
Salaries $ 53,570 $ 31,500 $ 130,668 $ 251,042
Rent 16,268 4,955 30,470 52,040
Office supplies & expenses 3,870 356 11,743 17,963
Payroll taxes 1,606 1,098 5,421 13,199
Payroll process 92 84 424 1,022
Telephone expenses 3,782 803 6,443 11,986
Parking fees 1,780 1,850 5,330 11,200
Insurance 2,228 2,042 6,109 11,793
Other taxes -- -- 1,078 9,706
Legal and professional fees 1,826 9,248 38,472 69,680
Consulting fees 17,129 -- 18,819 20,819
Travel & entertainment 10,596 1,044 24,703 29,226
Auto expenses 3,614 -- 3,614 3,614
Depreciation 867 675 2,262 4,890
Amortization of organization costs 135 135 405 810
Bank charges 134 13 239 486
Other expenses 3,531 1,645 6,486 13,485
------------- ------------- ------------- -------------
Total operating expenses 121,028 55,448 292,686 522,961
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (121,028) (55,448) (292,686) (522,961)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Registration costs-withdrawn Form S-1 -- -- -- (158,650)
Interest income -- 44 50 906
Other income 5 8 919 927
Interest expense (6,565) (2,000) (15,370) (23,605)
------------- ------------- ------------- -------------
Total other income (expense) (6,560) (1,948) (14,401) (180,422)
------------- ------------- ------------- -------------
NET LOSS DURING DEVELOPMENT
STAGE $ (127,588) $ (57,396) $ (307,087) $ (703,383)
============= ============= ============= =============
NET LOSS PER COMMON SHARE $ (0.0064) $ (0.0031) $ (0.0153) $ (0.0381)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES 20,075,000 18,811,209 20,039,542 18,450,678
============= ============= ============= =============
</TABLE>
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Sep. 6, 1997
Three Months Ended Nine Month Ended (Inception) to
Jun. 30, 1999 Jun. 30, 1998 Jun. 30, 1999 Jun. 30, 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) $ (127,588) $ (57,396) $ (307,087) $ (703,383)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation 867 675 2,262 5,565
Amortization 135 135 405 810
Write off registration Costs -- -- -- 120,000
Changes in assets and liabilities
(Increase) decrease in:
Prepaid expenses -- 774 (96) (3,500)
Deferred offering cost (12,500) -- (12,500) (12,500)
Other assets -- -- (7,343) (7,575)
Increase (decrease) in:
Accrued expenses 13,486 20,384 68,477 116,627
Legal service fee payable 6,500 -- 6,500 6,500
------------- ------------- ------------- --------------
Net cash used in operating activities (119,100) (35,428) (249,382) (477,645)
------------- ------------- ------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITES:
Purchase of property and equipment (4,046) -- (5,857) (17,946)
Organizational costs -- -- -- (2,700)
Payments under advisory service agreement -- -- (30,000) (90,000)
Increase in other assets -- -- -- (2,400)
------------- ------------- ------------- --------------
Net cash used in investing activities (4,046) -- (35,857) (113,046)
------------- ------------- ------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings 125,046 10,000 287,392 519,547
Proceeds from sale of common stock -- -- -- 90,100
Repayment of advances -- -- -- (12,155)
------------- ------------- ------------- --------------
Net cash provided by financing activities 125,046 -- 287,392 597,492
------------- ------------- ------------- --------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,900 (25,428) 2,153 6,801
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 4,901 26,942 4,648 --
------------- ------------- ------------- --------------
CASH AND CASH EQUIVALENTS -
- --------------------------------------------
END OF PERIOD $ 6,801 $ 1,514 $ 6,801 $ 6,801
- -------------------------------------------- ============= ============= ============= ==============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NONCASH TRANSACTION:
- -----------------------------------------------------------------------
The company incurred debt in the total amount of $162,500 under a securities
advisory service agreement and related stock subscription agreement and a legal
advisory service agreement. At June 30, 1999, the unpaid portion of this debt
amounted to $36,500.
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMEN STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
-------------------
(UNAUDTED)
----------
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for the
interim period are not necessarily indicative of the results to be expected
for the year.
The Company is operating as a Development Stage Company and intends to
develop and/or construct telecommunication and internet networks in the Far
East including the People's Republic of China. The Company is also
considering operating in other parts of the world, including the United
States.
For further information, refer to the consolidated financial statements and
footnotes included in the company's Form 10-KSB for the year ended
September 30, 1998.
NOTE 2 - PRINCIPLE OF CONSOLIDATION
- -----------------------------------
The consolidated financial statements include the accounts of ASPAC
Communications, Inc., its Beijing Liaison Office and its inactive
subsidiary, ASPAC Holdings, Inc. All significant inter-company balances and
transactions have been eliminated in consolidation
The Company maintains a Beijing Liaison Office. All balances and
transactions as of and for the three-month period ended June 30, 1999 are
translated at the exchange rate in effect at the balance sheet date and at
the average exchange rate for the period presented, respectively.
NOTE 3 - NOTES PAYABLE
- ----------------------
On May 1, May 16, June 1, June 2, and June 16, 1999, a current shareholder
of the Company executed five promissory notes for $20,000, $2,000, $5,000,
and $10,000, respectively. The note proceeds were deposited in their
entirety into the Company's bank accounts. All notes are for a one-year
period, can be prepaid or extended, and bear interest at 5% per annum. If
the notes are extended past the maturity date, the interest rate will
increase to 7% per annum. On October 2 and October 27, 1997, June 1, August
1, September 15, September 30, November 1, and November 12, 1998, February
1, February 16, March 1, and March 31, 1999, current shareholders of the
Company had also executed eight promissory notes for $60,000, $100,000,
$10,000, $21,000, $9,000, $20,000, $30,000, $30,000, $15,000, $30,000,
$25,000, and $15,000, respectively, having the same terms and conditions as
the new notes. Therefore, as of June 30, 1999, notes payable aggregated
$432,000.
NOTE 4 - COOPERATION AGREEMENT WITH POTENTIAL JOINT VENTURE PARTNERS
- --------------------------------------------------------------------
On March 29, 1999, the Company executed a Cooperation Agreement with
Beijing Sino-Tech Science & Technology Development Center ("Sino-Tech") and
China Education and Research Network ("CERNET") to cooperatively and
jointly invest to provide services for a nationwide Internet access and
service network and its communication lines infrastructure in the People's
Republic of China. The three parties agreed to set up a Sino-foreign
cooperative joint venture to develop the above mentioned nationwide
Internet project,
<PAGE>
in which the Company will hold 75% of the equity interest. Under this
Cooperation Agreement, the Company is responsible to invest US$300,000 as
part of the initial setup capital of the joint venture, while Sino-Tech and
CERNET will provide office facilities, equivalent to US$100,000 at market
value to the joint venture. The three parties further agreed that in the
event that the three parties decide not to enter into a more definite Joint
Venture Agreement, the office facilities provided by Sino-Tech and CERNET
shall be returned and any fund invested by the Company through that date
shall be refunded.
As of the date of this report, no funds have been advanced to the joint
venture's setup capital and an amendment to the Cooperation Agreement is in
a process of being negotiated. The three parties have preliminarily agreed
to reduce the Company initial investment to the setup capital to
RMB1,500,000 (equivalent to US$176,471) with the remaining balance of
US$123,529 or its RMB equivalence to be invested at a date to be decided by
all parties.
NOTE 5 - LINE OF CREDIT
- -----------------------
On March 1, 1999, the Company obtained a line of credit in the amount of
RMB3,000,000, equivalent of US$361,446, from a Chinese entity. The line
will be used to fund the operation of the Company's Beijing Liaison Office
and the initial investment into the joint venture's setup capital. The
annual interest rate on the outstanding balance of the line of credit is
8%. The Company has withdrawn RMB472,023.51, equivalent of US$56,870 and
RMB130,645.74, equivalent of US$15,740 from the line of credit during the
quarter ended June 30, 1999 and March 31, 1999, respectively. The accrued
interest expense on the outstanding balance of the line of credit is
RMB7,333, equivalent of US$884, and RMB435, equivalent of US$52, for the
quarter ended June 30, 1999 and March 31, 1999.
NOTE 6 - SUBSEQUENT EVENTS
- --------------------------
On July 1 and August 15, 1999, a current shareholder of the Company
executed two promissory notes for the amount of $13,000 and $35,000,
respectively. The note proceeds were deposited in their entirety into the
Company's bank account. Both notes are for a one-year period, can be
prepaid or extended, and bear interest at 5% per annum. If the notes are
extended past the maturity date, the interest rate will increase to 7% per
annum.
The Company is in a process of preparing a private placement offering. The
maximum and minimum offering of the private placement are expected to be
$15,000,000 and $6,000,000, respectively. As of the date of this report,
the offering memorandum and subscription agreement have not been finalized
and the offering price is still to be determined. The deferred offering
cost in the amount of $12,500 and legal service fee payable in the amount
of $6,500 have been included in the balance sheet.
The Company has received verbal agreement from all of its current holders
of the Company's promissory notes that the notes, totaling $432,000, will
be converted to common stock of the Company with a conversion price
preliminarily set at $11.00 per share. The Company is in the process of
preparing the debt conversion documents.
<PAGE>
PART II - MANAGEMENT'S DISCUSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operation for the Three Months Ended June 30, 1999 as Compared to the
- --------------------------------------------------------------------------------
Three Months Ended June 30, 1998:
- ---------------------------------
Operating expenses increased 118% from $55,448 during the three months ended
June 30, 1998 to $121,028 during the three months ended June 30, 1999. The
increase primarily due to the increase in salaries, rent, office supplies &
expenses, travel &entertainment, and auto expenses relating to the establishment
of the Beijing Liaison Office on March 1, 1999.
The Company's net loss increased from $57,396 during the three months ended June
30, 1998 to $127,588 during the three months ended June 30, 1999. The increase
in net loss primarily relates to the Company's continuing development activities
in line with the proposed joint venture projects and the establishment of the
Company's Beijing Liaison Office.
Liquidity and Capital Resources and Certain Events Subsequent to March 31, 1999
- -------------------------------------------------------------------------------
The Company has not generated cash flow from operations to date. The Company's
current cash flow from operations is not capable of supporting existing business
operations in its present form. Since the beginning of its operation, the
Company has financed its U.S. development stage activities primarily through
equity investments and loans from its founding stockholders. The Company's
operation in China, including its Beijing Liaison Office, is financed through a
RMB3,000,000 line of credit obtained from a Chinese entity.
Since the Company started its operation of September 26, 1997, the Company
devotes substantially all of its efforts to developing joint ventures to
establish telecommunications networks and organizational activities. To date, no
revenues were generated from operations, and there is no guarantee the Company
will ever achieve profitable operations.
During the three months ended June 30, 1999, the Company received net cash of
$125,046 from its financing activities. The primary sources of this amount
include (i) five promissory notes executed by one of the Company's current
shareholders on May 1, May 16, June 1, June 2, and June 16, 1999 for $20,000,
$2,000, $5,000, $10,000 and $30,000, respectively; (ii) RMB472,023.51,
equivalent of US$56,870, withdrawn from the RMB3,000,000 line of credit in
China. As of June 30, 1999, the Company has seventeen promissory notes from its
current shareholders and one of its officers aggregate to $432,000, and has
withdraw RMB602,669.25, equivalent of US$72,611, from its RMB3,000,000 line of
credit in China.
The Company has obtained a verbal agreement and understanding from one of its
shareholders, Finhorn Enterprises Limited, that such shareholder will
financially assist the Company through loans or stock purchases or securing
third-party financing for the Company. At the same time, the Company will also
seek funds in the form of lines of credit and/or equity and debt offerings to
third parties as well as its existing shareholders to finance its operations and
capital requirement for its prospective joint ventures. There can be no
assurances that any sources of financing will be available from existing
shareholders or external sources on terms favorable to the Company or at all or
that the business of the Company will ever achieve profitable operations. In the
event the Company does not receive any such financing or generate profitable
operations, management's options will be to suspend or discontinue its business
activity in its present form.
The Company's proposed business operations in China are subject to significant
risks. These risks include, but are not limited to, the limited precedent for
the establishment of Sino-foreign cooperative joint ventures for the purpose of
engaging in the telecommunication and Internet industry in China, government
restrictions on foreign business ventures in China, government regulation of
foreign currency exchange and the general political environment in China.
The Company's successful transition from a development stage company to
profitable operations is dependent upon obtaining adequate financing to fund
current operations and the development of proposed joint ventures. The Company
will continue to seek funds in the form of line of credit and/or equity and debt
securities from third party sources as well as from its existing stockholders.
<PAGE>
Subsequent Events
- -----------------
On July 1 and August 15, 1999, a current shareholder of the Company executed two
promissory notes for the amount of $13,000 and $35,000, respectively. The note
proceeds were deposited in their entirety into the Company's bank account. Both
notes are for a one-year period, can be prepaid or extended, and bear interest
at 5% per annum. If the notes are extended past the maturity date, the interest
rate will increase to 7% per annum.
The Company is in a process of preparing a private placement offering. The
maximum and minimum offering of the private placement are expected to be
$15,000,000 and $6,000,000, respectively. As of the date of this report, the
offering memorandum and subscription agreement have not been finalized and the
offering price is still to be determined. The deferred offering cost in the
amount of $12,500 and legal service fee payable in the amount of $6,500 have
been included in the balance sheet.
The Company has received verbal agreement from all of its current holders of the
Company's promissory notes that the notes, totaling $432,000, will be converted
to common stock of the Company with a conversion price preliminarily set at
$11.00 per share. The Company is in the process of preparing the debt conversion
documents.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: August 26, 1999 ASPAC COMMUNICATIONS, INC.
By: /s/ Marc F. Mayeres
--------------------
Marc F. Mayeres
President
Pursuant to the requirements of the Securities Act of 1934, as amended, this
Form has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Liancheng Ji Director August 26, 1999
- ----------------
Liancheng Ji
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 6,801 4,648
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,301 8,052
<PP&E> 17,461 11,603
<DEPRECIATION> 4,890 2,628
<TOTAL-ASSETS> 47,237 21,954
<CURRENT-LIABILITIES> 660,520 328,150
<BONDS> 0 0
0 0
0 0
<COMMON> 2,008 2,002
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 47,237 21,954
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 121,028 55,448
<OTHER-EXPENSES> (5) (8)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,565 1,956
<INCOME-PRETAX> (127,588) (57,396)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (127,588) (57,396)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (127,588) (57,396)
<EPS-BASIC> (0.006) (0.003)
<EPS-DILUTED> (0.006) (0.003)
</TABLE>
