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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
(_) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission File No. 000-24441
ASPAC COMMUNICATIONS , INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4652797
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(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
2049 Century Park East, Suite 1200
Los Angeles, California 90067
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(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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB
YES X NO
Aggregate market value of voting stock held by non-affiliates of the registrant
at January 11, 1999: Currently there is no public market for these securities.
Number of shares of common stock outstanding at September 30, 1998: Common
Stock - 20,020,000
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company was incorporated in the State of Delaware on June 1, 1994. The
Company has limited operations and no revenue to date. Since inception, the
principal activity of the Company has been directed to its organizational
efforts. As of the date hereof, the Company has hired a full-time President and
has entered into certain preliminary discussions for the participation in
telecommunication projects. The Company has not entered into any definitive
agreements except the Agreement and Plan of Reorganization with IDN Telecom,
Inc. executed on November 9, 1998. See "ITEM 1, Pending Merger with IDN
Telecom, Inc., a California Telecommunications Company". Start-up costs
incurred by the Company have been provided by the initial sale of certain
securities of the Company and by loans from its current shareholders and one of
its officers. 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.
The Company intends to engage in the development, acquisition and possible
sale of telecommunications and Internet services to offer a broad range of local
and regional, international, and enhanced telecommunication and Internet
services including but not limited to wireless and fixed line telephone service,
and ISP, ICP services to individuals, business and residential customers. The
Company intends to concentrate its services in the Far East, including China,
and in the United States. The Company may locate existing telecommunications or
Internet systems which it may acquire as part of the development of its
operating network. The Company intends to offer local and international calling
services, as well as customized telecommunications and Internet services to its
clients.
The Company may determine to raise funds in order to develop
telecommunication systems. Management may use various methods to raise such
funds including debt obligations such as loans from banks or other sources of
debt securities and/or investors' equity. If financing is arranged, of which
there can be no assurance, Management anticipates that repayment of debt and
debenture obligations will be made from earnings from operations or sales of the
telecommunications and Internet systems and/or equity interest in the Company.
The Company has not established any ratio governing its equity to debt limits
nor any limit upon the debt which may be incurred.
On November 6, 1997, the Company entered into an employment agreement with
Marc F. Mayeres to serve as President of the Company. On August 3, 1998, the
Company extended such employment with Mr. Mayeres for an additional three years.
See "EXECUTIVE COMPENSATION-Employment Agreements". The Company has entered
into loan agreements with certain shareholders for payment of certain expenses.
There is no written agreement pursuant to which the current shareholders must
make additional loans or purchase additional stock, although the Company has
received the verbal commitment from Finhorn Enterprises Limited to financially
assist the Company.
Current Operations
The Company has begun discussions regarding several opportunities for
participation in developing certain telecommunication networks. These
discussions are all in the preliminary stages and potential investors should be
alerted that there is no assurance that the Company will finalize any of these
discussions or that agreements will be reached or conducted on any of the terms
outlined below.
Joint Venture with China United Telecommunications Corporation ("China
Unicom"). The Company is currently in discussion with China United
Telecommunications Corporation, Hebei Branch ("Hebei Unicom") located in
Shijiazhuang, Hebei Province, China and its affiliates for possible
participation in the construction and development of wire-line and wireless
telephone networks in Hebei Province in China. Hebei Unicom is an authorized
public telephone operator in China. Liancheng Ji, the director of the Company,
was Vice President of Hebei Unicom until January, 1998 and is now Vice-President
of China Unicom, Paging Division. On February 10, 1998, the Company and Hebei
Unicom executed a preliminary letter of intent to participate in a cooperative
joint venture for the construction, development and servicing of a 200,000-
subscriber wire-line telephone network. This project would constitute the first
phase of a 2,000,000-subscriber wire-line telephone project in the Hebei
Province. Pursuant to the letter of intent, the Company and Hebei Unicom agree
to finalize the terms, participation arrangement, and capital contributions of
each party as discussions progress. The letter of intent specifies that no
agreement has been reached and that any such
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agreement would be subject to receipt of necessary company, governmental,
regulatory and other approvals. The letter of intent is preliminary only and
there is no assurance that any discussions will be continued or pursued. The
letter of intent does not provide any guarantees or penalties if either party
does not continue the discussions described therein. During September, 1998, Ms.
Zhang, the secretary of the Company, visited the Beijing office of Hebei Unicom
to discuss proposed terms of the joint venture with the officers of Hebei
Unicom. As of the date hereof, such terms continue to be discussed and no final
agreement has been reached.
The present negotiations anticipate that upon establishment of the joint
venture with Hebei Unicom, the Company will be responsible for contributing a
pro-rata amount of capital (approximately $2,100,000) based on its joint venture
equity percentage, which under current negotiations would be 70%. The majority
shareholder of the Company, Finhorn Enterprises Limited, has agreed to arrange
the financing for the Company's initial investment in the joint venture. Any
additional required capital will be arranged through financing with local banks
or other local financing sources. No such additional financing has been
arranged and there is no assurance that any such financing will be available
when, and if, required.
The possible telecommunication construction and development in the Hebei
Province would be an expansion of the existing current wire-line and wireless
telephone network. The current wire-line telephone penetration rate in Hebei
Province is only 5.3 per 100 capita and the penetration rate for wireless
telephone is 0.52 per 100. These penetration rates are below the international
standards for developed and developing countries and the Company believes that
there is a great demand for immediate increase in network capability and
services.
The Company anticipates that any joint venture agreed to with Hebei Unicom
would continue for approximately 25 years, a customary duration. The Company
anticipates that in addition to its capital contribution it may be responsible
for constructing and developing the telephone expansion network and would also
assisting in obtaining equipment, goods and materials not available in China;
introducing and overseeing modern and efficient operating and management
techniques; recruiting qualified foreign personnel and international
consultants; and assisting in raising capital for the network construction.
However, no agreement has been reached or finalized and there is no assurance
that any agreement will be reached or that the if reached will be finalized or
approved.
Joint Venture with Beijing Chinsi Electronic Co. Ltd. On September 30,
1998, the Company signed a Preliminary Cooperation Agreement with Beijing Chinsi
Electronic Co., Ltd. (formerly under the translated name of Beijing Change
Electronic Co., Ltd.) to jointly construct and develop a nationwide internet
network to provide access to the World Wide Web, electronic mail transfer,
business and individual web pages, search engines, news and updates, on-line
shopping, and other services as customarily available by an internet service
provider. Beijing Chinsi Electronic Co., Ltd. is a high-tech company
specialized in research and development of telecommunications equipment,
including paging, data transmission and wireless receiving equipment. The terms
of the joint venture are in discussion and no final agreement has been reached.
The present negotiations anticipate that upon establishment of the joint venture
with Beijing Chinsi Electronic Co., Ltd., the Company will be responsible for
contributing approximately $7,000,000. The majority shareholder of the Company,
Finhorn Enterprises Limited., has agreed to arrange the financing for the
Company's initial investment in the joint venture. Any additional required
capital will be arranged through financing with local banks or other local
financing sources. No such additional financing has been arranged and there is
no assurance that any such financing will be available when, and if, required.
Joint Venture with CERNET. On January 5, 1999, the Company signed a
Letter of Intent with China Education and Research Network ("CERNET"), and
Beijing Xintaike Technology Development Center to cooperate and provide
satellite and fiber optic long distance backbone connections to the CERNET
network. CERNET is the first network established in China with international
internet connections. With over 500 universities and research institutes
connected to the network, CERNET has over 300,000 users and is one of the four
largest internet network approved by the Chinese Government. It is specified in
the Letter of Intent that the three parties will form a joint venture company to
implement the project and the Company will be entitled to 70% of the equity and
future profits of the joint venture company. The Company agrees to invest
US$600,000 to the joint venture's preparation committee as the project initial
investment within 10 days of the satisfactory completion of the feasibility
study report and the signing of the definitive cooperation agreement. The
majority shareholder of the Company, Finhorn Enterprises Limited., has agreed to
arrange the financing for the Company's initial investment in the joint venture.
Any additional required capital will be arranged through financing with other
financing sources. No such additional financing has been arranged and there is
no assurance that any such financing will be available when, and if, required.
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Pending Merger with IDN Telecom, Inc., a California Telecommunications
Company. The Company is in discussions for merger or stock acquisition with IDN
Telecom, Inc. ("IDN"), a California-based company specializing in research and
development of advanced telecommunication equipment and systems. The technology
developed by this company would allow the Company to build advanced and cost-
efficient telecommunication networks. The officers of the Company have become
unpaid officers and advisors to IDN Telecom, Inc. They have also been appointed
to IDN Telecom's board of directors. As of the date hereof, the officers of the
Company have assisted IDN Telecom, Inc. in preparing a financial review and
financial options regarding possible terms and structure of a business
combination. On November 9, 1998, the Company executed an Agreement and Plan of
Reorganization with IDN, subject to fulfillment of certain conditions, and if
such conditions are fulfilled to close on March 31, 1999, which can be
accelerated or extended with both party's consents. Upon closing of the
Agreement, the Company will issue 20,030,000 shares of common stock of the
Company to IDN's current shareholders in exchange for 100 percent of IDN's
common stock outstanding. If the closing occurs on this transaction, the
Company will file a Form 8-K discussing the terms thereof and including
financial statements of IDN Telecom, Inc., but there is no assurance that such
closing will occur.
Business Plan
The Company plans to seek opportunities for the development and
construction of telecommunications and Internet networks either by itself or in
cooperation with other entities. The Company intends to establish and develop,
either through construction and development or through acquisition of existing
systems, one or more telecommunications and/or Internet networks consisting of
fixed and/or cellular line services to be selected in specific target areas in
the Far East, including China, and, if the opportunity is available, in the
United States.
The Company intends to establish a network communication system for
business and residential subscribers to provide intraconnection between cellular
and fixed line services and to provide subscribers with capability to make
domestic and international long distance calls. The Company plans to establish
and offer nationwide an Internet access system in China and anticipates that its
network systems will interconnect with the MPT Systems which will allow the
Company's subscribers to communicate with fixed line and cellular users of other
networks and to make and receive domestic and international long distance calls.
The Company anticipates that it will commence operations by entering into
joint venture relationships with other established telecommunication companies,
either in the United States or elsewhere, for the initial development and
construction of telecommunication and Internet networks or for the expansion and
improvement of existing network. The Company anticipates that it will
participate in a series of such joint ventures while, if funds are available
therefor, initiating telecommunications projects in which it is the sole
participant. The Company anticipates that as it participates in a growing
number of such projects, it will be able to develop, in China initially,
compatible telecommunications systems and Internet access to a wide variety of
geographic locations.
The Company anticipates that it will be able to work with the MPT and its
agents to establish an interconnection arrangement to allow the Company to
utilize the existing MPT network equipment and connections. Fees charged for
such usage will be passed to the customer as part of the utilization tariff.
The Company intends to utilize current computer systems to provide network
operation management, customer service and marketing. The Company intends to
construct its own transceiver station sites or to lease such sites from the MPT
or third-party owners or acquire receiving stations already existing.
The Company intends to focus on controlling costs and providing efficient
operations through the use of advanced management information systems and by
retaining and attracting qualified personnel. The Company intends to focus on
marketing its telecommunications system in its selected target areas. The
Company intends to offer subscribers certain value added services such as call
forwarding, call waiting, conference calling, facsimile transmission services,
and modem access to the Internet and World Wide Web. The Company will develop
its value added services package as it identifies its target market and the
demographics therein.
The Company's principal business objective is to provide telecommunications
systems, including cellular, fixed line and Internet services, to residential
and businesses customers in countries in the Far East, including China,
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and in the United States. The Company intends to reach its objectives through
the development of its telecommunication network and/or by the acquisition of
existing telecommunication networks, or both.
Employees
As of January 11, 1999, the Company has two full time employees. The
Company intends to hire additional personnel as the development of the Company's
business continues and makes such action appropriate. The Company's employees
are not represented by a labor union and are not covered by a collective
bargaining agreement. The Company believes that its relations with its
employees are good.
Effects of Government Regulations on Business and Certain Risk Factors
The Company's proposed operations are subject to all of the risks inherent
in the establishment of a new business enterprise, including the absence of an
operating history. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with a new business and the
competitive environment in which the Company will operate. No assurance can be
given that the operations of the Company will result in any revenues or that the
Company will be profitable.
Enforceability of Certain Civil Liabilities
The Company's sole director resides outside the United States. The Company
anticipates that a substantial portion of the assets that may be developed or
acquired by it will be located outside the United States and, as a result, it
may not be possible for investors to effect service of process within the United
States upon such person, or to enforce against the Company's assets or against
such person judgments obtained in United States courts predicated upon the
liability provisions, and most particularly the civil liability provisions, of
the United States securities laws or state corporation or other law.
Investment in Far East Generally
The Company anticipates that it will initially focus its development
efforts on telecommunication projects and opportunities located in China and the
Far East. Because of government controls and lack of established information
systems, information regarding projects in which the Company may participate
located in China and the Far East will be difficult for United States investors
to obtain and investors will be unable to track the progress of the Company. In
addition, if the Company begins operations in China or the Far East it will be
subject to the risks incident to the ownership and operation of businesses
therein. These risks include, among others, the risks of internal political or
civil unrest, war, or government restrictions. These risks are dynamic and
difficult to quantify. The Company will be subject to the risks normally
associated with changes in general national economic conditions or local market
conditions, competition, patronage, changes in market rates, and the need to
periodically upgrade and replace equipment to maintain desirability, and to pay
the costs thereof. Although many of the governments of the countries of the Far
East have liberalized policies on international trade, foreign ownership and
development, investment, and currency repatriation, increasing both
international trade and investment accordingly, such policies might change
unexpectedly. The Company will be effected by the rules and regulations
regarding foreign ownership of real and personal property, including
telecommunication switching stations, land lines and other property. Such rules
may change quickly and dramatically which may have an adverse impact on
ownership and may result in a loss without recourse of property or assets of the
Company. In July, 1997, the control of Hong Kong was transferred from Great
Britain to China. As a result, Hong Kong is still in a period of transition.
It is uncertain what changes may result from such transition in regard to
business, foreign property ownership, restrictions on development, taxes or
other factors.
Investment in China in Particular
Because the operations of the Company are expected to be based to a
substantial extent in China, the Company will be subject to the rules and
restrictions governing China's legal and economic system as well as general
economic and political conditions in that country. These include the following:
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Political and Economic Matters. Under its current leadership, the
government of the People's Republic of China ("PRC") has been pursuing economic
reform policies, which include the encouragement of private economic activity
and greater economic decentralization. There can be no assurance, however, that
the Chinese government will continue to pursue such policies, or that such
policies will be successful if pursued. Changes in policies made by the Chinese
government may result in new laws, regulations, or the interpretation thereof,
confiscatory taxation, restrictions on imports, currency devaluation or the
expropriation of private enterprise which may, in turn, adversely affect the
Company. Furthermore, business operations in China can become subject to the
risk of nationalization, which could result in the total loss of ownership and
control of any assets or operations that may be developed by the Company in
China. Also, economic development may be limited by the imposition of austerity
measures intended to reduce inflation, the inadequate development of an
infrastructure, and the potential unavailability of adequate power and water,
transportation, communication networks, raw materials and parts, etc.
Legal System. The PRC's legal system is a civil law system based on
written statutes. Unlike the common law system in the United States, decided
legal cases in the PRC have little value as precedents. Furthermore, the PRC
does not have a well-developed body of laws governing foreign enterprises.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published, statements regarding these evolving
policies have been conflicting, and any such policies, as administered, are
likely to be subject to broad interpretation and modification, perhaps on a
case-by-case basis. As the legal system in the PRC develops with respect to
such new forms of enterprise, foreign investors may be adversely affected by new
laws, changes in existing laws (or interpretation thereof) and the preemption of
provincial or local laws by national laws. The Company's operations in China,
if any are developed of which there can be no assurance, will be subject to
administrative review and approval by various national and local agencies of the
PRC government. Management intends that the Company's operations will comply
with applicable administrative requirements; however, there is no assurance that
the Company will be able to timely obtain the necessary administrative approvals
for any projects that the it determines to develop.
Inflation/Economic Policies. In recent years, the Chinese economy has
experienced periods of rapid growth and high rates of inflation, which have,
from time to time, led to the adoption by the PRC government of various
corrective measures designed to regulate growth and contain inflation. In 1995,
China's overall inflation rate was estimated to be 14.8%, compared to 21.4% in
1994 and 13.2% in 1993. High inflation has in the past and may in the future
cause the PRC government to impose controls on prices, or to take other action
which could inhibit economic activity in China, which in turn could affect the
Company's development or operations.
Foreign Currency Exchange. The Renminbi ("Rmb"), the currency of China, is
not a freely convertible currency. Both conversion of Rmb into foreign
currencies and the remittance of Rmb abroad are subject to the PRC government
approval. The Company intends to develop telecommunication systems in the Far
East including China and anticipates that initially it may earn revenues, if
any, and incur costs, in Rmb.
Prior to January 1, 1994, Rmb earned within China were not freely
convertible into foreign currencies except with government permission, at rates
determined at swap centers, where the exchange rates often differed
substantially from the official rates quoted by the People's Bank of China. On
January 1, 1994, the People's Bank of China introduced a managed floating
exchange rate system based on the market supply and demand and proposed to
establish a unified foreign exchange inter-bank market among designated banks.
In place of the official rate and the swap center rate, the People's Bank of
China publishes a daily exchange rate for Rmb based on the previous day's
dealings in the inter-bank market. It is expected that swap centers will be
phased out. However, the unification of exchange rates does not imply full
convertibility of Rmb into United States Dollars or other foreign currencies.
Payment for imported materials and remittance of earnings outside of China are
subject to the availability of foreign currency which is dependent on the
foreign currency denominated earnings of the entity or allocated to the Company
by the government at official exchange rates.
Approval for exchange at the exchange center is granted to enterprises in
China for valid reasons such as purchases of imported goods and remittance of
earnings. While conversion of Rmb into dollars or other foreign currencies can
generally be effected at the exchange center, there is no guarantee that it can
be effected at all times. There is still uncertainty as to how foreign
enterprises will be treated under this new system or whether the system will be
changed again in the future. In the event of shortages of foreign currency, the
Company may be unable to convert sufficient Renminbi into foreign currency to
enable it to comply with foreign currency payment obligations it may have.
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PRC Regulation of the Telecommunications Industry. The Ministry of Posts
and Telecommunications (which is currently being reformed to be part of the
Ministry of Information Industry)(the "MPT") regulates the telecommunications
industry in China. The MPT directly or indirectly regulates entry into the
telecommunications industry, scope of permissible business, interconnection and
transmission line arrangements, technology and equipment standards, and other
aspects of the Chinese telecommunications industry. Such regulation may limit
the Company's flexibility to respond to certain development opportunities. In
addition, changes in the regulations or policies governing such regulatory
framework could have an adverse effect on the Company. The Company may have to
obtain certain licenses, if required, from the MPT in order to commence its
proposed business. There is no assurance that it will be able to obtain such
licenses, or if obtained, that they will not be untimely revoked or suspended.
The rates that the Company will be permitted to charge for telecommunications
services, if any are developed, are subject to regulation by the State Planning
Commission, the MPT, and relevant Provincial Price Bureaus. Once authorized by
such regulatory agencies, there can be no assurance that changes in the tariffs
and rates would not have a material adverse effect on any Company business and
results of operations, if any had been developed.
Chinese Restrictions on Foreign Joint Ventures
On September 1, 1993, the MPT promulgated the "Interim Regulations on
Approving and Administrating the Operation of Liberalized Telecommunication
Services" (the "Interim Regulations") which specify that foreign parties,
including Sino-Foreign joint ventures (SFJV") may not invest in, own or
participate in operating telecommunications system in China. While foreign
investment, ownership and operation of telecommunications in China is
prohibited, there is no prohibition on foreign investment enterprises
participating in building, transferring ownership of, maintaining and servicing
telecommunications networks in China (referred to as "BTSM"). BTSM is an
acceptable method of a foreign company participating in the Chinese
telecommunications network. The joint venture transactions currently being
negotiated by the Company fall within the BTSM model. However such transactions
will need approval by the Chinese government. Management believes that such
approval will be obtained without difficulty but there can be no assurance that
the Chinese government will not revise its position on the BTSM joint venture
model and refuse approval. Such refusal would severely restrict the Company's
ability to enter into joint ventures in China.
The State Council of China recently approved in principle to ban Chinese-
Chinese-foreign joint ventures ("CCFJV") which are created when a foreign
company forms a joint venture with a Chinese company, creating a Chinese entity
in principle, which in turn forms a new joint venture with a Chinese telecom
operator. This complex structure has been used as a way to circumvent China's
ban on foreign participation in the operation of telephone networks. The recent
approvals by the State Council reaffirm the Interim Regulations on the use of
this structure and foreign entities' participation in telephone network
operation. The recent State Council action does not impact on the Company's
proposed transactions as the Company intends to participate in the construction,
management and profit sharing, not operation, of the telephone systems utilizing
the BTSM model. However, there can be no assurance that the State Council or
other agency may not in the future restrict or prohibit the BTSM model or other
type of transaction contemplated by the Company. Any such action would severely
impact on the Company's ability to pursue its business in China.
Success of Plan of Operations and Shareholder Information Dependent on
Management
The ability of the Company to successfully effect its business objectives
and to develop, construct, manage and acquire telecommunication systems and
Internet networks will be largely dependent upon the efforts of its Management
including Mr. Marc F. Mayeres, President of the Company and Liancheng Ji, a
director of the Company. As the Company anticipates operations in China and
elsewhere in the Far East, shareholders may have difficulty in obtaining
information from sources other than the Company, including foreign local or
national government agencies, about the Company's activities and development of
its projects in China or such other countries in the Far East. Shareholders will
be dependent upon Management for reports of the Company's development and
activities and expenditure of proceeds. The Company has entered into an
employment agreement with Mr. Mayeres. The Company has not obtained any "key
man" life insurance on the lives of any of its officers or the director. The
loss of the services of the key executives or director could have a material
adverse effect on the Company's ability to successfully achieve its business
objectives. The officers of the Company will work full time on the development
and operations of the Company. Mr. Liancheng Ji will devote such time as a
director as reasonably necessary to assist the Company in developing its
telecommunications systems and Internet network in China and elsewhere in the
Far East.
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Limited Telecommunications Industry Experience
The Company's Management has limited experience in owning, constructing,
developing or managing telecommunications and Internet systems although the sole
director of the Company has both education and experience in such areas and has
worked in the telecommunications field in the Far East for over 30 years.
Although the Company plans to hire consultants, and professional operating
technicians and specialists, there can be no assurance that these professionals
will be available on terms acceptable to the Company.
In order to supplement the business experience of Management, the Company
may employ accountants, technical experts, appraisers, attorneys, or other
consultants or advisors in China, the Far East or the United States.
Furthermore, it is anticipated that such persons may be engaged by the Company
on an independent basis without a continuing fiduciary or other obligation to
the Company. As of the date hereof, the Company has entered into agreements
with two consultants to recommend to the Company applicable telecommunications
technologies and to assist the Company in locating joint venture partners. See
"ITEM 10. EXECUTIVE COMPENSATION"
Possible Need for Additional Financing to Commence or Continue Operations
The Company will be limited in implementing its business plan for the
development, construction and management of telecommunication and Internet
systems and for the acquisition of existing telecommunication systems and will
likely need to obtain additional funds in order to develop such
telecommunications or Internet systems. The Company may seek additional sources
of capital, including an offering of its equity securities, an offering of debt
securities or obtaining financing through a bank or other entity. The Company
has not established a limit as to the amount of debt it may incur nor has it
adopted a ratio of its equity to a debt allowance.
If the Company needs to obtain additional financing, there is no assurance
that financing will be available, from any source, or that it will be available
on terms acceptable to the Company, or that any future offering of securities
will be successful. The Company could suffer adverse consequences if it is
unable to obtain additional capital when needed. The pace of the Company's
development of telecommunication and Internet systems and the possible
acquisition of existing systems is directly related to the amount of capital
available to the Company for such purposes.
Competition from Other More Established Entities
The Company will be a small participant in the telecommunications industry
and it will face competition from well financed entities already established and
actively engaged in related or identical projects to those in which the Company
plans to participate. Many of such entities have significantly greater
financial resources, technical expertise and managerial capabilities than the
Company and, consequently, the Company may be at a competitive disadvantage.
Special Note Regarding Forward-Looking Statements
This Annual Report contains forward-looking statements and information that
is based upon management's beliefs and assumptions, as well as information
currently available to management. When used in this document the words
"anticipates," "estimates ," "believes," "expects," "intend" and similar
expressions are intended to identify forward-looking statements. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements or expectations expressed or implied by
such forward-looking statements. The Company disclaims any obligation to update
any such factors or to announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future development.
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OTHER BUSINESS CONSIDERATIONS
Computer Systems Redesigned for Year 2000
Many existing computer programs use only two digits to identify a year in such
program's date field. These programs were designed and developed without
consideration of the impact of the change in the century for which four digits
will be required to accurately report the date. If not corrected, many computer
applications could fail or create erroneous results by or following the year
2000 (the "Year 2000 problem"). Many of the computer programs containing such
date language problems have been corrected by the companies or governments
operating such programs. In acquiring any existing telecommunication system or
Internet network, the Company will consider the existence of a date language
problem and the costs to correct such problem as one of the factors in
determining whether such acquisition would be appropriate. Management does not
know what steps, if any, have been taken by the governments in the countries in
the Far East, particularly China, to correct or address such date language
problem or if any such steps are required. Many foreign countries, including
China, have not disclosed their anticipated Year 2000 problems nor any steps to
correct such problems. It is impossible to predict what the severity or scope
of the date language problem will be in such countries or what technology will
be available at that time to correct such problems. The Company anticipates
that it will be leasing some telecommunication equipment, including switching
stations, landlines, etc., from the PRC and interconnecting with the
telecommunications systems now operated by the PRC and that any failure of the
PRC's computer systems or telecommunication delivery systems due to such
computer date language problem could have a severe impact on any operations of
the Company that have been developed. Management does not believe that either
IDN Telecom, Inc. or Hebei Unicom, Inc., the companies with which the Company is
in discussions for possible business transactions, have assessed the Year 2000
problem nor implemented any remedial measures. Such failure to address the Year
2000 problem could have severe consequences on the business operations of those
companies.
Telecommunications in General
The global market for telecommunications services is undergoing significant
deregulation and reform. The Company believes that the industry is being shaped
by the (i) deregulation and privatization of telecommunication markets
worldwide; (ii) diversification of services through technological innovation;
and (ii) globalization of major carriers. It is anticipated that the industry
generally will experience considerable growth in terms of traffic volume and
revenue and development of new markets. According to the International
Telecommunication Union ("ITU"), a worldwide telecommunications organization
under the auspices of the United Nations, the international telecommunications
industry accounted for $52.8 billion in revenues and 60.3 billion minutes of use
in 1995. The ITU projects that international telecommunications revenues will
approach $76 billion by the year 2000 with the volume of traffic expanding to
107.0 billion minutes of use.
Telecommunications Industry in China
According to the PRC Ministry of Posts and Telecommunications (the "MPT"),
with a population of 1,198,000,000 in 1994 China had 27,300,000 fixed line
telephone subscribers (2.17% penetration) and 1,570,000 cellular subscribers
(.13% penetration). By 1996 with a population of 1,226,000,000 (2.28% growth)
the telecommunications usage doubled to 54,950,000 fixed line telephone
subscribers (4.49% penetration) and 6,950,000 cellular subscribers (.57%
penetration). As the Chinese economy shifts from a centrally planned economy to
a more market-oriented economy, the telecommunications industry has become one
of the fastest developing industries in China. Although the Chinese
telecommunications network has become one of the largest in the world in terms
of number of subscribers, the penetration rates remain relatively low indicating
significant potential for further rapid growth. The Company believes that the
market will be driven by the demand for telecommunication services from the
increase of world-competitive businesses and industries and from individual
personal use.
<PAGE>
The Ministry of Posts and Telecommunications and Government Regulation
The PRC has developed its Ninth Five-Year Plan in which development of the
telecommunications industry in China will continue to be a high priority for the
government. The Five-Year Plan's goal is to double, by the year 2000, China's
telecommunications capacity and business volume from that of 1995. The MPT
System has primary responsibility for implementing the plan in regard to the
telecommunications industry. The MPT System has historically regulated all
public telecommunications services in China. The MPT directly or indirectly
regulates entry into the telecommunications industry, scope of permissible
business, interconnection and transmission line arrangements, technology and
equipment standards, and other aspects of the Chinese telecommunications
industry. The Company believes that such emphasis on growth of the
telecommunications industry, coupled with Management's familiarity with working
with the MPT, will facilitate the obtaining of support for development of the
Company's operations from the MPT.
Acquisition of Existing Telecommunications Systems and Purchases of Equipment
In addition to constructing or developing its own telecommunications and
Internet systems by itself or in joint venture with others, the Company may
acquire existing telecommunications systems. It is possible that the
consideration paid for the acquisition of existing telecommunications systems,
if any such acquisitions are made of which there can be no assurance, and/or the
purchase of telecommunications and Internet equipment, if any such purchases are
made of which there can be no assurance, or the payment for services of
technicians, professionals or employees, if any such services are used of which
there can be no assurance, may consist in whole or in part of the Company's
Common Stock, although the Company may also use cash and/or debt. If the
Company were to issue substantial additional securities for acquisitions, such
issuance may dilute the value of the shares currently held by shareholders and
might have an adverse effect on any trading market that may develop in the
Company's securities in the future. If the Company were to incur indebtedness
that substantially changed the capital structure of the Company, the Company's
shareholders would most likely be exposed to a greater risk of loss of their
investment in the Company.
Securities issued in any such transaction are likely to rely on exemptions
from registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of such a transaction, the
Company may agree to register the securities either at the time the transaction
is consummated or at specified times thereafter. The issuance of substantial
additional securities and their potential sale into any trading market which may
develop in the Common Stock may have a depressive effect on such market.
Business Environment for Operations
The Company believes that the Far East, including Hong Kong and China, has
a vigorous economy. Foreign investment in the Far East has grown considerably in
the last 10 years. China has allowed the establishment of foreign private
enterprise and has encouraged development of China as a manufacturing and
business center. However, China remains a Communist country with tight
governmental controls. There can be no assurance of the government's continued
encouragement or permission of private investment in China. Nor can there be
any assurance as to continued ownership of businesses by foreign entities in
China.
<PAGE>
Competition
There are a great number of participants in the telecommunications and
Internet services field. Some of the participants are large international
corporations that have substantial resources and technical expertise while there
are also many start-up companies. All these companies will compete with the
Company for acquisition of existing telecommunications systems and for
development of new markets. Although the market penetration of
telecommunications services in China is small, the Company anticipates that many
international and start-up firms will begin entering the Chinese
telecommunications market. The Company will be a small participant. In view of
the Company's limited financial resources and limited Management experience, the
Company may be at a competitive disadvantage compared to the Company's
competitors. Management believes that the close familiarity of certain of its
officers and director with business and economic conditions in China and other
areas in the Far East and elsewhere, and knowledge of the Chinese language, as
well as the familiarity of certain of its officers and director with the United
States, the English language and, generally, the American and international
business communities, will be useful in meeting such competition.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is qualified to do business in California and the United States
offices of the Company are located at 2049 Century Park East, Suite 1200, Los
Angeles, California 90067. Its telephone number is 310/712-3288 and its fax
number is 310/712-3286. The Company has entered into a lease agreement with
Barrister Executive Suites, Inc., an unaffiliated office-suite rental company,
for its office suite at a rent of $1,755 per month and is provided access to
conference room facilities shared with other business tenants. The Company does
not believe that it currently needs additional space.
ITEM 3. LEGAL PROCEEDINGS
There is no litigation pending or threatened by or against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 23, 1998, the Company's stockholders adopted the following
resolutions, a one-for-twenty five reverse stock split, by unanimous written
consent:
"Each share of Common Stock, $.0001 par value per share, of the
Corporation outstanding or held in treasury immediately prior to this
Amendment to Article Four of the Corporation's Restated Certificate of
Incorporation becoming effective (the "Old Common Stock") shall, without any
action on the part of the respective holders thereof, be reclassified as and
changed into one-twenty-fifth of a share of New Common Stock of the
Corporation, so that each twenty-five shares of Old Common Stock of the
Corporation held by a shareholder of the Corporation or in treasury shall be
reclassified as and changed into one share of New Common Stock. No
fractional shares of New Common Stock shall be issued upon such
reclassification and conversion, and the number of shares of New Common
Stock to be issued shall be rounded up to the nearest whole share.
The capital of the Corporation attributable to the shares of New
Common Stock into which the Old Common Stock shall be reclassified and
changed in the aggregate shall be the same as the capital of the Corporation
attributable to the shares of Old Common Stock so reclassified and changed.
Each stock certificate that, immediately prior to the time that the
foregoing becomes effective represents shares of Old Common Stock shall,
from and after the time that the foregoing amendment becomes effective,
automatically and without the necessity of presenting the same for exchange,
represent the same number of shares of New Common Stock as shall be
determined hereby."
<PAGE>
On May 25, 1998, the Company's stockholders adopted the following
resolutions, a five-for-one forward stock split, by unanimous written consent:
"Each share of Common Stock, $.0001 par value per share, of the Company
outstanding or held in treasury immediately prior to this Amendment to
Article Four of the Company's Restated Certificate of Incorporation becoming
effective (the "Old Common Stock") shall, without any action on the part of
the respective holders thereof, be reclassified as and changed into five
share of New Common Stock of the Company, so that each one shares of Old
Common Stock of the Company held by a shareholder of the Company or in
treasury shall be reclassified as and changed into five share of New Common
Stock.
The capital of the Company attributable to the shares of New Common
Stock into which the Old Common Stock shall be reclassified and changed in
the aggregate shall be the same as the capital of the Company attributable
to the shares of Old Common Stock so reclassified and changed. Each stock
certificate that, immediately prior to the time that the foregoing becomes
effective represents shares of Old Common Stock shall, from and after the
time that the foregoing amendment becomes effective, automatically and
without the necessity of presenting the same for exchange, represent the
same number of shares of New Common Stock as shall be determined hereby."
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCK HOLDER MATERS
(a) Common Equity. As of January 11, 1999, the authorized capital stock of
the Company consisted of 100,000,000 shares of common stock, par value $0.001
per share (the "Common Stock") and 20,000,000 shares of preferred stock, par
value $0.001 per share (the "Preferred Stock"). As of January 11, 1999, there
were issued and outstanding 20,020,000 shares of Common Stock. 18,020,000
shares of the Common Stock were issued pursuant to Rule 144 of the General Rules
and Regulations of the Securities and Exchange Commission (the "Rules") and
2,000,000 shares of the Common Stock were issued pursuant to Rule 701 of the
Rules.
(b) Market Price. There is no trading market for the Company's Common Stock
at present and there has been no trading market to date. There is no assurance
that a trading market will ever develop or, if such a market does develop, that
it will continue. The Company has retained Corporate Relations & Management,
Inc., Salt Lake City, Utah, as a consultant to manage the Company's interface
with the brokerage community and to assist and advise the Company on its
application to the NASD OTC Bulletin Board. The Company has filed an
application for quotation on the NASD OTC Bulletin Board through J. Alexander
Securities.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for purposes relevant to the
Company, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience and objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
<PAGE>
In order to qualify for listing on the Nasdaq SmallCap Market, a company
must have at least (i) net tangible assets of $4,000,000 or market
capitalization of $50,000,000 or net income for two of the last three years of
$750,000; (ii) public float of 1,000,000 shares with a market value of
$5,000,000; (iii) a bid price of $4.00; (iv) three market makers; (v) 300
shareholders and (vi) an operating history of one year or, if less than one
year, $50,000,000 in market capitalization. For continued listing on the Nasdaq
SmallCap Market, a company must have at least (i) net tangible assets of
$2,000,000 or market capitalization of $35,000,000 or net income for two of the
last three years of $500,000; (ii) a public float of 500,000 shares with a
market value of $1,000,000; (iii) a bid price of $1.00; (iv) two market makers;
and (v) 300 shareholders.
At such time as the Company may qualify, if ever, the Company may apply for
listing of its securities in the over-the-counter ("OTC") market if the Company
does not meet the qualifications for listing on the Nasdaq SmallCap Market. The
OTC market differs from national and regional stock exchanges in that it (1) is
not cited in a single location but operates through communication of bids,
offers and confirmations between broker-dealers and (2) securities admitted to
quotation are offered by one or more broker-dealers rather than the "specialist"
common to stock exchanges. The Company may apply for listing on the NASD OTC
Bulletin Board or may offer its securities in what are commonly referred to as
the "pink sheets" of the National Quotation Bureau, Inc. To qualify for listing
on the NASD OTC Bulletin Board, an equity security must have one registered
broker-dealer, known as the market maker, willing to list bid or sale quotations
and to sponsor the company for listing on the Bulletin Board. See ITEM 5(b).
If the Company is unable to satisfy the requirements for quotation on the
Nasdaq SmallCap Market or becomes unable to satisfy the requirements for
continued quotation thereon, and trading, if any, is conducted in the OTC
market, a shareholder may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities.
(c) Holders. There are six holders of the Company's Common Stock.
(d) Dividends. The Company has not paid any dividends to date, and has no
plans to do so in the immediate future.
(e) Transfer Agent. The transfer agent for the Company is U. S. Stock
Transfer Corp., 1745 Gardena Ave. Glendale, CA 91204-2991, (818) 502-1404.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table provides a summary of selected financial data for the
Company
FISCAL YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
(in thousands except per share data)
<S> <C> <C>
Operating Revenue $ - $ -
Net Loss During Development Stage $ (235) $ (161)
Net Loss Per Common Share $(0.0134) $(4.0424)
Total Assets $ 22 $ 8
Total Liabilities $ 328 $ 169
</TABLE>
<PAGE>
The following table provides the consolidated statement of operation for
the fiscal years ended September 30,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
OPERATING REVENUE - -
OPERATING EXPENSES:
Salaries 115,314 5,060
Payroll taxes 7,173 605
Legal and professional fees 31,209 -
Rent 19,820 1,750
Other taxes 7,728 900
Other expenses 7,000 -
Parking fees 5,870 -
Insurance 5,684 -
Travel and entertainment 4,532 -
Telephone expenses 4,343 1,200
Office supplies and expenses 4,156 2,064
Depreciation 2,510 118
Consulting fees 2,000 -
Payroll Processing 598 -
Amortization of organization costs 405 -
Bank charges 245 -
Total Operating Expenses 218,578 11,697
LOSS FROM OPERATIONS (218,578) (11,697)
OTHER INCOME (EXPENSE)
Registration cost-withdrawn form S-1 (8,650) (150,000)
Interest income 856 -
Interest expense (8,235) -
Other income 8 -
Total Other Income (Expense) (16,021) (150,000)
NET LOSS DURING
DEVELOPMENT STAGE (234,599) (161,697)
NET LOSS PER COMMON SHARE (0.0134) (4.0424)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 17,464,055 40,000
</TABLE>
<PAGE>
Liquidity and Capital Resources and Certain Events Subsequent to September 30,
1998
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 development stage activities primarily
through equity investments and loans from its founding stockholders.
Results of Operations:
Fiscal year ended September 30, 1997 compared to Fiscal year ended September 30,
1998:
The Company started its operation on September 26, 1997 with the fiscal
year ended at September 30, 1997. As such, no accurate and comprehensive
comparison between the Company's 1997 and 1998 operating results is available.
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 operation, and there is no guarantee the Company
will ever achieve profitable operation.
During the years ended September 30, 1998 and September 30, 1997, the
Company received net cash of $267,745 and $42,355 from its financing activities,
respectively. The sources of these amounts were from (i) the sale of $89,900
and $200 in Common Stock during the years ended September 30, 1998 and 1997,
respectively, (ii) the receipt of shareholder and officer loans and advances of
$190,000 and $42,155 during the years ended September 30, 1998 and 1997,
respectively, (iii) repayment of shareholder and officer advances in the amount
of $12,155 during the year ended September 30, 1998. 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.
ITEM 7. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The financial statements required by this item 7 are attached hereto as
"Exhibit (a) (1)" and incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company originally engaged John C. MacLean, CPA, Bowie, Maryland, to
prepare the initial audit for the Company. Because Mr. MacLean's schedule
became too full to provide time to continue to service the Company and to travel
to California, the Company engaged the accounting firm of Weinberg & Company,
Boca Raton, Florida. No report contained any adverse opinion or disclaimer of
opinion and no disagreements existed with the former accountant.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
All directors of the Company hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. The By-laws
permit the Board of Directors to fill any vacancy and such director
<PAGE>
may serve until the next annual meeting of shareholders or until a successor is
elected and qualified. Officers are appointed by and serve at the discretion of
the Board of Directors, subject to the rights of the officers under their
respective employment agreement, if any. There are no family relationships among
any of the Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ----- ---------------------
<S> <C> <C>
Marc F. Mayeres 57 President
Amy Ming Zhang 26 Corporate Secretary
Liancheng Ji 59 Director
</TABLE>
Marc F. Mayeres, 57, has served as President of the Company since November,
1997. Since November 1, 1997, Mr. Mayeres has been the unpaid president of IDN
Telecom, Inc., a privately-held California telecommunications research company.
Mr. Mayeres serves primarily as a consultant to IDN Telecom usually at non-
business hours and anticipates no reduction in the time spent on business of the
Company. From 1996 to 1997, Mr. Mayeres was Vice President of Finance &
Administration and Chief Financial Officer of Thomsen Machinery, Inc., Gardena,
California. Thomsen Machinery, Inc. is a subsidiary of Putzmeister Werk AG
Germany, an international supplier of industrial and commercial cement and
concrete pumping equipment. From 1994-1995, Mr. Mayeres served as a business
consultant, including developing accounting systems and preparing feasibility
studies regarding certain proposed corporate activities. From 1992-1994, Mr.
Mayeres was Vice President and Treasurer-Worldwide of SPI Pharmaceuticals, Inc.,
Costa Mesa, California. SPI Pharmaceuticals has over 3200 employees worldwide
with 7 subsidiaries. Mr. Mayeres handled worldwide treasury functions including
the global cash management, foreign exchange management, banking contracts and
negotiations, fund sourcing, international refinancings, and repatriation of a
$7.5 million dividend from Yugoslavia. From 1989 to 1991, Mr. Mayeres was
Director of International Finance for Whirlpool Corporation, Benton Harbor,
Michigan. The Whirlpool Corporation has approximately 16,000 employees with 31
subsidiaries. From 1967 to 1989, Mr. Mayeres was employed by The Quaker Oats
Company, Chicago, Illinois in several positions, culminating from 1983 to 1989
as Director of International Finance. The Quaker Oats Company has approximately
9,000 employees with 28 subsidiaries. Mr. Mayeres received his Chartered
Accountant degree from the Belgian College of Chartered Accountants in Antwerp,
Belgium in 1967 and the equivalent of a Bachelors of Science Degree in Chemistry
from the Catholic University of Louvain, Louvain, Belgium, in 1962.
Amy Ming Zhang, 26, serves as Secretary of the Company since September
1997. Ms. Zhang, a resident of Los Angeles, was born in Hunan, China and is
fluent in Chinese and English. Ms. Zhang is a Certified Public Accountant
candidate and received her Bachelor of Science in Accounting from the University
of Kentucky in December, 1994. From 1995-1997 was employed by America Catch,
Inc., Los Angeles, California, a wholly-owned subsidiary of Beijing Catch
Telecommunication Group, as the Assistant to the President. America Catch's
primary business is to seek investment opportunities in the United States and to
expand its Beijing business and operations in the United States.
Liancheng Ji, 59, serves as a Director of the Company. Mr. Ji is a citizen
of China and resides in Beijing, China. Since January, 1998, Mr. Ji has been
Vice President of China Unicom, Paging Division. China Unicom is the second
largest telecommunications provider in China. From 1995 to 1998, Mr. Ji was the
Senior Engineer and Vice President of Hebei United Telecommunications, Inc.
("Hebei Unicom"), Hebei Province, China which specializes in telecommunication
projects in Beijing and Hebei Province. Hebei Unicom is the Hebei branch of
China Unicom. The Company has entered into a letter of intent with Hebei Unicom
regarding preliminary discussions for entering into a joint venture for the
development of a wire-line telephone network. From 1994-1995 Mr. Ji was the
president of Beijing United Telecommunications, Inc., the Beijing branch of
China Unicom, specializing in telecommunication projects in Beijing. From 1990-
1994, Mr. Ji was the Vice President of Beijing Catch Telecommunication Group
which is the third largest telecommunication service provider in China. From
1967 to 1989, Mr. Ji was the Senior Engineer and Senior Operating Officer of
China Institute of Electronic System Engineering. Mr. Ji received his Bachelor
of Science degree in Telecommunication Engineering from China Northwestern
Electronic Engineering University.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Officers and directors receive compensation as determined by the Company
from time to time by vote of the Board of Directors. Such compensation might be
in the form of stock options. The Secretary of the Company receives a salary of
$3,500 per month but has agreed to defer payment of such if requested by the
Company in order to minimize cash requirements. The President of the Company
received a signing bonus of $7,000 which was paid $5,000 in November, 1997 and
$2,000 in January, 1998, in exchange for 90 days of consulting services.
Beginning February, 1998, the President received $7,000 per month but he has
agreed to defer $3,500 per month. The following table sets forth the total
compensation paid or accrued by the Company on behalf of the President of the
Company during fiscal year 1997 and 1998. The Company commenced paying salaries
in September, 1997. The Company provides health insurance for its employees and
officers. No officer of the Company receives a salary and/or bonus in excess of
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER LONG-TERM ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS COMPENSATION COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Marc F. Mayeres(1) 1997 (1) -- -- -- --
President
1998 49,600 (2) $7,000 (1) -- -- --
</TABLE>
(1) Mr. Mayeres employment began on November 6, 1997 and he received a $7,000
signing bonus in exchange for 90 days of consulting services, paid $5,000
in 1997 and $2,000 in 1998. Commencing February, 1998, Mr. Mayeres
receives $7,000 per month of which he has agreed to defer $3,500 per month.
(2) See "Employment Agreements".
Employment Agreements
On November 6, 1997, the Company entered into an employment agreement with
Mr. Marc F. Mayeres to serve as President of the Company. Effective August 6,
1998, the Company entered into a revised three-year employment agreement with
Mr. Mayeres. The terms of the revised agreement require the full-time services
of Mr. Mayeres to the activities of the Company and provide for compensation at
the rate of $100,000 per year, payable $3,500 monthly, with the remainder
deferred until 60 days after the Company has begun public trading of its
securities or at such other date as mutually agreed by both parties. The
agreement provides for medical insurance and payment of expenses incurred on
behalf of the Company.
Payment of Fees to Directors, Advisors and Affiliates
Under certain circumstances, the Company may pay fees to individuals or
entities who are directors, advisors or affiliates of the Company. In the event
that an unsalaried affiliate arranged financing, or identified a subsequently
acquired telecommunications system or available equipment or otherwise in an
arms length transaction that ordinarily would generate a "finders" fee, such a
fee, calculated in a reasonable and customary manner, might be paid. In
general, an "affiliate", as defined under federal securities law, is any person
directly or indirectly controlling, controlled by, or under common control with,
such other person, including any officer, director, partner or employee of such
other person. No such payments have been made or incurred to date by the
Company to its director.
Consulting Agreements
On May 15, 1998, the Company entered into a two-year agreement with Li-Ping
Wang pursuant to which Ms. Li-Ping will provide the Company with assistance in
(i) obtaining a 200,000 line wire-line or 100,000 line wireless
telecommunication project or a 10-province paging network and (ii) locating a
joint venture partner for such project and (iii) identifying local financing for
such project. As consideration for such services the Company issued to Ms. Li-
Ping 1,000,000 (post-forward stock split) shares of its Common Stock and may
elect to issue incentive bonus options at some future time.
On May 21, 1998, the Company entered into a four-year agreement with Lei He
pursuant to which Mr. Lei will provide the Company with assistance in locating
opportunities in China for investment in applicable telecommunications
technology for development of the Company's market and identification of
potential local joint
<PAGE>
venture partners. As consideration for such services the Company issued to Mr.
Lei 1,000,000 (post-forward stock split) shares of its Common Stock and may
elect to issue incentive bonus options at some future time.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of the date hereof
regarding the beneficial ownership of the Company's Common Stock by each officer
and director of the Company and by each person who owns in excess of five
percent of the Company's Common Stock. Each shareholder has sole investment
power and sole voting power over the securities listed.
<TABLE>
<CAPTION>
Shares of Common Stock Percentage of Shares
Name, Position and Address Beneficially Owned Of Class Owned (1)
- -------------------------- ------------------ --------------
<S> <C> <C>
Finhorn Enterprises Limited (2) 12,320,000 61.53%
c/o East Asia Corporate Services Limited
Columbus Centre Building
Wickhams Cay
PO Box 901
Road Town, Tortola, B.V.I.
Serenadia Investment Limited (3) 4,000,000 19.98%
c/o AMS Financial Services Limited
P.O. Box 116, Road Town, Tortola
British Virgin Islands
Marc F. Mayeres, President -0- 0%
30902 Clubhouse Drive, #44F
Laguna Niguel, California 92677
Amy Ming Zhang, Secretary -0- 0%
3701 Glendon Avenue
Los Angeles, California 90034
Liancheng Ji, Director -0- 0%
Building #2
Shizipuo Dongli
Dongcheng District
Beijing, China
All Officers, Directors -0- 0%
and Shareholders as a Group
(3 Persons)
</TABLE>
________________
(1) Based on 20,020,000 shares of common stock outstanding.
(2) A British Virgin Islands corporation engaged in investing in
telecommunication networks and telecommunication-related companies. None
of the officers of the Company nor its director or any other shareholder
are affiliated with this company.
(3) A British Virgin Islands corporation engaged in researching and developing
telecommunication equipment and investing in telecommunication networks.
None of the officers of the Company nor its director or any other
shareholder are affiliated with this company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On October 2, 1997, Finhorn Enterprises Ltd., a shareholder of the Company,
loaned the Company $60,000 repayable in 12 months at an annual interest rate of
5%. The loan is renewable upon the expiration of the one-year term for another
year at a 7% annual interest rate. The Company anticipates that it will repay
the loan from revenues
<PAGE>
generated from operations or, if no revenues have been generated from operations
at such time that the loan is payable, then the Company will be required to
locate alternate methods of financing including, possibly, debt or equity
offerings of its securities. On October 2, 1998, the loan was extended for a one
year period at a 7% annual interest rate.
On October 27, 1997, the Company borrowed an additional $100,000 from
Finhorn Enterprises Limited on the same terms as the earlier loan. Proceeds
from both loans, aggregating $160,000, are for the payment of expenses including
legal fees, and initial working capital. On October 27, 1998, the loan was
extended for a one year period at a 7% annual interest rate.
On June 1, 1998, August 1, 1998, November 1, 1998, and November 12, 1998,
the Company borrowed $10,000, $21,000, $30,000 and $30,000, respectively, from
Finhorn Enterprises Limited repayable in repayable in 12 months at an annual
interest rate of 5% and renewable upon the expiration of the one-year term for
another year at a 7% annual interest rate. On September 15, 1998, and on
September 30, 1998, the Company borrowed $9,000 and $20,000 from Amy Ming Zhang,
the secretary of the Company, and Global Bridge Profits, Ltd., respectively,
repayable in 12 months at an interest rate of 5% and renewable upon the
expiration of the one-year term for another year at a 7% annual interest rate
Finhorn Enterprises Limited has agreed to arrange sufficient funding for the
Company's operating expenses, including providing loans or arranging loans from
other sources. The President of the Company has agreed to defer part of his
salary until sixty days after the Company starts public trading of its
securities or such other date as may be agreed to by the parties.
<PAGE>
PART IV
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K AND SUPPLEMENTAL INFORMATION
(a)(1) FINANCIAL STATEMENTS
Reports of Independent Auditors
Consolidated Balance Sheet
Consolidated Statement of Changes in Stockholders' Deficiency
Consolidated Statement of Operations
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) EXHIBITS
The following exhibits, which are furnished with this Annual Report or
incorporated herein by reference, are filed as part of this Annual Report:
<TABLE>
<C> <S>
3.1* Restated Certificate of Incorporation and amendment
3.2 * By-laws
10.1* Lease Agreement
10.2* Employment agreement with Marc F. Mayeres
10.3* Promissory Note with Finhorn Enterprise Limited
10.4* Letter of Intent with Hebei Unicom
10.5* Consulting Agreement with Li-Ping Wang
10.6* Consulting Agreement with Lei He
10.7* Preliminary Cooperation Agreement with Beijing Chinsi Electronic
Co., Ltd.
10.8** Letter of Intent with China Education and Research Network and
Bejing Xintaike Technology Development Center
24.1** Consent of Accountant
24.2* Letter from Former Accountant
27** Financial Data Schedule
</TABLE>
- ---------------
* Previously filed in Exhibits to Form 10-SB/A #1 filed with Securities and
Exchange Commission on November 4, 1998 (file no. 000-24441) and incorporated
herein by reference.
** Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, California on the 11/th/ day of January, 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 Annual Report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Liancheng Ji Director January 11 , 1999
- ----------------------------- ---
Liancheng Ji
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
-----------------------------
F-2 - F-3 - INDEPENDENT AUDITORS' REPORT
F-4 - CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER
30, 1998 AND 1997
F-5 - CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' DEFICIENCY FOR THE PERIOD FROM
SEPTEMBER 26, 1997 (INCEPTION) TO SEPTEMBER
30, 1998
F-6 - CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND
FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1998
F-7 - F-8 - CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED SEPTEMBER 30,1998 AND 1997 AND FOR
THE PERIOD FROM SEPTEMBER 26, 1997 (INCEPTION)
TO SEPTEMBER 30, 1998
F-9 - F-16 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS
OF SEPTEMBER 30, 1998 AND 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of:
Aspac Communications, Inc.
We have audited the accompanying consolidated balance sheets of Aspac
Communications, Inc. and Subsidiary (a Development Stage Company) as of
September 30, 1998 and 1997 and the related consolidated statements of
operations, changes in stockholders' deficiency and cash flows for years then
ended and for the period from September 26, 1997 (inception) to September 30,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aspac
Communications, Inc. and Subsidiary as of September 30, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended and for
the period from September 26, 1997 (inception), to September 30, 1998, in
conformity with generally accepted accounting principles.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11, the Company
has accumulated losses of $396,296 and a working capital deficiency of $320,098
at September 30, 1998 and anticipates recurring losses in connection with
continuing expenses. Realization of certain assets is dependent upon the
Company's ability to meet its future financing requirements, and the success of
future operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 11. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
December 23, 1998
(except as to Note 12(B)
which is as of January 5, 1999)
F-3
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
---------------------------
<TABLE>
<CAPTION>
ASSETS
----------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 4,648 $ 200
Prepaid expenses 3,404 -
--------- ---------
TOTAL CURRENT ASSETS 8,052 200
--------- ---------
PROPERTY AND EQUIPMENT
Furniture and equipment 11,603 5,245
Less: accumulated depreciation 2,628 118
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 8,975 5,127
--------- ---------
OTHER ASSETS
Organization costs, net 2,295 -
Other assets 2,632 2,400
--------- ---------
TOTAL OTHER ASSETS 4,927 2,400
--------- ---------
TOTAL ASSETS $ 21,954 $ 7,727
- ------------ ========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses 48,150 $ 7,069
Advisory services agreement payable 60,000 120,000
Loan and advances from officers and
future shareholders 220,000 42,155
--------- ---------
TOTAL CURRENT LIABILITIES 328,150 169,224
--------- ---------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value
20,000,000 shares authorized - -
Common stock, $0.0001 par value,
100,000,000 shares authorized,
20,020,000 and 40,000 shares
issued and outstanding in 1998
and 1997, respectively 2,002 4
Additional paid-in capital 88,098 196
Accumulated deficit during
development stage (396,296) (161,697)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY (306,196) (161,497)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
- -----------------------------------
DEFICIENCY $ 21,954 $ 7,727
- ----------- ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1998
---------------------------------
<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)
------ ------- --------- ---------
Balance at
September 30, 1997 4 196 (161,697) (161,497)
Common stock issuance 1,798 88,102 - 89,900
Common stock issued 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)
- ------------------- ====== ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1998
---------------------------------
<TABLE>
<CAPTION>
Sept. 26,1997
(Inception) to
1998 1997 Sept. 30,1998
------------ ----------- ---------------
<S> <C> <C> <C>
NET SALES $ - $ - $ -
----------- --------- -----------
OPERATING EXPENSE
Salaries 115,314 5,060 120,374
Payroll taxes 7,173 605 7,778
Legal and professional
fees 31,209 - 31,209
Rent 19,820 1,750 21,570
Other taxes 7,728 900 8,628
Other expenses 7,000 - 7,000
Parking fees 5,870 - 5,870
Insurance 5,684 - 5,684
Travel and entertainment 4,523 - 4,523
Telephone expenses 4,343 1,200 5,543
Office supplies and
expenses 4,156 2,064 6,220
Depreciation 2,510 118 2,628
Consulting fees 2,000 - 2,000
Payroll processing 598 - 598
Amortization of
organization costs 405 - 405
Bank charges 245 - 245
----------- --------- -----------
Total Operating Expenses 218,578 11,697 230,275
----------- --------- -----------
LOSS FROM OPERATIONS (218,578) (11,697) (230,275)
----------- --------- -----------
OTHER INCOME (EXPENSE)
Registration costs-
withdrawn Form S-1 (8,650) (150,000) (158,650)
Interest income 856 - 856
Interest expense (8,235) - (8,235)
Other income 8 - 8
----------- --------- -----------
Total Other Income
(Expense) (16,021) (150,000) (166,021)
----------- --------- -----------
NET LOSS DURING
- ---------------
DEVELOPMENT STAGE $ (234,599) $(161,697) $ (396,296)
- ----------------- =========== ========= ===========
NET LOSS PER COMMON SHARE (0.0134) (4.0424) (0.0230)
=========== ========= ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 17,464,055 40,000 17,228,595
=========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1998
---------------------------------
<TABLE>
<CAPTION>
Sept. 26, 1997
(Inception) to
1998 1997 Sept. 30, 1998
----------- ----------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $(234,599) $(161,697) $(396,296)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation 2,510 118 3,113
Amortization 405 - 405
Write off of registration
costs - 120,000 120,000
Changes in assets and
liabilities
(Increase) in:
Prepaid expenses (3,404) - (3,404)
Other assets (232) - (232)
Increase in:
Accounts payable and
accrued expenses 41,081 7,069 48,150
--------- --------- ---------
Net cash used in
operating activities (194,239) (34,510) (228,264)
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property
and equipment (6,358) (5,245) (12,088)
Organizational costs (2,700) - (2,700)
Payments under stock
subscription agreement (60,000) - (60,000)
Increase in other assets - (2,400) (2,400)
--------- --------- ---------
Net cash used in
investing activities (69,058) (7,645) (77,188)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Loan and advances 190,000 42,155 232,155
Proceeds from sale
of common stock 89,900 200 90,100
Repayment of advances (12,155) - (12,155)
--------- --------- ---------
Net cash provided by
financing activities 267,745 42,355 310,100
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE PERIODS FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1998
---------------------------------
<TABLE>
<CAPTION>
Sept. 26, 1997
(Inception) to
1998 1997 Sept. 30, 1998
---------- ---------- --------------
<S> <C> <C> <C>
INCREASE IN CASH AND
CASH EQUIVALENTS 4,448 200 4,648
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 200 - -
---------- ---------- ----------
CASH AND CASH EQUIVALENTS -
- -------------------------
END OF PERIOD $ 4,468 $ 200 $ 4,648
- -------------- ========== ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NONCASH TRANSACTION:
- -----------------------------------------------------------------------
The company incurred debt in the total amount of $150,000 under a securities
advisory service agreement and related stock subscription agreement. At
September 30, 1998 and 1997, the unpaid portion of this debt amounted to $60,000
and $120,000, respectively.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
(A) Business Activity
Aspac Communications, Inc. (formerly known as TPG Management
Corporation) was incorporated in the State of Delaware on June 1,
1994. On September 26, 1997 the Corporation's name was changed to
Aspac Communications, Inc. (the Company). Prior to September 26, 1997,
no stock had ever been issued in the Company and it was dormant.
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.
On November 9, 1998, the Company executed an Agreement and Plan of
Reorganization with a California corporation involved with
telecommunications equipment and systems (See Note 12).
(B) Principles of Consolidation
The accompanying consolidated financial statements includes the
accounts of Aspac Holdings, Inc., a wholly owned subsidiary of the
Company incorporated on October 10, 1997 under the laws of the Cayman
Islands. All significant intercompany balances and transactions have
been eliminated in consolidation. As of the date of this report, the
subsidiary has had no ongoing activities with the exception of
establishment of a bank account and the incurrance of organization
costs.
(C) Use of Estimates
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- -------------------------------------------------------------
(D) Cash and Cash Equivalents
For purposes of the statement of cash flow, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
(E) Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated economic useful lives of 3 to
7 years. Expenditures for maintenance and repairs are charged to
expense as incurred. Major improvements are capitalized.
(F) Organization Costs
Organization costs are being amortized on a straight-line basis over a
period of 5 years.
(G) Earnings Per Share
Net loss per common share is computed by dividing net loss by the
weighted average common shares outstanding during the year as defined
by Financial Accounting Standards, No. 128, "Earnings Per Share". The
assumed exercise of common share equivalents was not utilized since
the effect was anti-dilutive.
(H) Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future
tax consequences, SFAS 109 generally considers all expected future
events other than enactments of changes in the tax law or rates. The
Company's available deferred tax asset of approximately $135,000,
arising from the accumulated operating loss carryforwards, has not
been reflected in the financial statements because a deferred tax
valuation allowance has been recorded for the entire amount. The
Company's net operating losses expire beginning in year 2017.
F-10
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- -------------------------------------------------------------
(I) New Accounting Pronouncements
The Financial Accounting Standards Board has issued several new
accounting pronouncements. Statement No. 129, "Disclosure of
Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure, is
effective for financial statements for periods ending after December
15, 1997 and has been adopted by the Company as of December 31, 1997.
Statement No. 130, "Reporting Comprehensive Income" establishes
standards for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after December
15, 1997. Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial
statements for periods beginning after December 15, 1997. The Company
believes that its future adoption of Statements 130 and 131 will not
have a material effect on the Company's financial position or results
of operations.
NOTE 2 - NOTES PAYABLE
- -----------------------
On October 2, 1997, October 27, 1997, June 1, 1998, August 1, 1998,
and September 30, 1998 current shareholders of the Company executed
five promissory notes for $60,000, $100,000, $10,000, $21,000, and
$20,000, respectively. The $60,000 Note included $30,000 that had been
advanced prior to September 30, 1997 in connection with a payment
under the stock purchase subscription agreement (Note 3), with the
balance of the note proceeds deposited directly into the Company's
bank accounts. The proceeds from all other notes were deposited in
their entirety in 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 dates, the
interest rate will increase to 7% per annum.
F-11
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 2 - NOTES PAYABLE - (CONT'D)
- ----------------------------------
On September 15, 1998, a current officer of the Company executed a
promissory note for $9,000. The note proceeds were deposited in its
entirety in the Company's bank accounts. The note is for a one-year
period, can be prepaid or extended, and bears interest at 5% per
annum. If the note is extended past the maturity date, the interest
rate will increase to 7% per annum.
A corporate creditor of four of the promissory notes aggregating
$191,000 at September 30, 1998 is also a 61% common stockholder of the
Company at September 30, 1998.
The October 2, 1997 and October 27, 1997 notes were subsequently
extended for a one-year period and bear interest of 7% per annum per
the note agreements.
NOTE 3 - INVESTMENT IN TPG CAPITAL CORPORATION
- -----------------------------------------------
On September 26, 1997, the Company entered into an agreement with
First Agate Capital Corporation, a non-related company, to provide
advisory and other services generally related to the filing of a Form
S-1 Registration Statement with the Securities and Exchange
Commission. As consideration for the services to be provided, the
Company entered into a Subscription Agreement to purchase 30,000
shares of common stock of TPG Capital Corporation (a 6.2241%
interest), a nonrelated Delaware Corporation that is related to First
Agate Capital through a common principal, in the amount of $150,000.
As of September 30, 1998, the Company has paid $90,000 toward this
Agreement, and the remainder of the Company's liability under this
Agreement has been recorded as a current liability. The total cost of
this agreement ($150,000) has been accounted for as registration costs
and expensed in the statement of operations because the Form S-1
Registration Statement was subsequently withdrawn (See Note 4).
NOTE 4 - FORM S-1 REGISTRATION STATEMENT
- -----------------------------------------
On October 23, 1997, as amended on December 10, 1997, the Company
filed a Form S-1 Registration Statement under the Securities Act of
1933 for the sale of 450,000 shares of common stock at a proposed
offering price of $20.00 per share. This Registration Statement was
never declared effective. On March 16, 1998, the Company filed a
second amendment to the Form S-1 Registration Statement changing the
number of shares being offered from 450,000 to 900,000 and the per
share offering price from $20 to $10. The S-1 Registration Statement
was withdrawn on June 10, 1998 and the related registration costs were
expensed.
F-12
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 5 - REVERSE STOCK SPLIT
- -----------------------------
On February 23, 1998 the Board of Directors approved and the
shareholders consented to a one-for-twenty five reverse stock split of
the Company's issued and outstanding common stock. As a result of the
reverse stock split, the Company's quantity of outstanding common
stock was reduced to 3,604,000 from 90,100,000, and an amount of
$8,650 was transferred from the common stock account to the additional
paid in capital account. (See Note 6 for subsequent five-for-one stock
split).
NOTE 6 - FIVE-FOR-ONE STOCK SPLIT
- ----------------------------------
On May 26, 1998, the board of directors approved and the shareholders
consented to a five-for-one stock split of the Company's issued and
outstanding common stock. As a result of the stock split, the
Company's outstanding common shares were increased to 18,020,000 from
3,604,000. An amount of $1,641 was transferred from the additional-
paid-in-capital account to the common stock account. All share
quantities and per share amount in this report reflect this stock
split and the reverse stock split discussed in Note 5 above.
Concurrent thereto, an additional 2,000,000 shares were issued for
consulting services (See Note 8).
NOTE 7 - JOINT VENTURES
- ------------------------
On February 10, 1998 the Company signed a letter of intent to enter
into one or more cooperative joint venture agreements with a domestic
corporation currently operating in China. The Director of the Company
is an employee of the joint venture partner. The joint ventures will
allow the Company to participate in the construction, development, and
providing of services for a 200,000 subscriber wire-line telephone
network, which constitutes the first phase of a 2,000,000 subscriber
wire-line telephone project, and other projects in China. Under mutual
intentions expressed in the letter of intent, the Company or its
wholly owned subsidiary and the other party to the joint venture will
form one or more Sino-foreign cooperative joint ventures and
contribute pro-rata capital contributions in the form of cash and/or
tangible assets, as agreed by both parties. As of the date of this
report, no funds had been advanced.
F-13
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 7 - JOINT VENTURES - (CONT'D)
- -----------------------------------
On September 30, 1998, the Company executed a Preliminary Cooperation
Agreement to enter into a Sino-foreign joint venture with a Chinese
corporation currently operating in China. The joint venture will allow
the Company or its wholly owned subsidiary and/or its participating
strategic partner(s) to participate in the construction and
development of a nationwide internet network in China and other
telecommunication projects as well as research, development, and
manufacturing of telecom equipment when opportunity rises. Under this
Preliminary Cooperation Agreement, the Company will contribute capital
equivalent to seven million dollars to the joint venture company
towards its registered capital, accounting for 70 percent of the total
registered capital of the joint venture company. The contribution will
be in cash or tangible assets approved by the two parties. As of the
date of this report, no funds had been advanced, and the agreement may
be cancelled.
NOTE 8 - CONSULTING AGREEMENTS
- -------------------------------
On May 15, 1998 and May 21, 1998, the Company entered into two
consulting agreements terminating on May 15, 2000 and May 21, 2002,
respectively, whereby the consultants will advise and assist the
Company with respect to certain matters involving opportunities for
investment in the People's Republic of China. As consideration for the
services provided, the Company granted each consultant 1,000,000
shares of the Company's common stock in addition to reasonable out-of-
pocket expenses. (See Note 6)
NOTE 9 - EMPLOYMENT AGREEMENTS
- -------------------------------
On August 3, 1998, the Company extended a previously existing
employment agreement (the "Agreement") with the President of the
Company. Under the Agreement (i) the term of the Agreement is for the
three years commencing August 6, 1998, (ii) the executive shall be
paid an annual salary of $100,000 with participation in future stock
options programs at amounts to be determined by the Company's Board of
Directors, (iii) $4,833 of the total monthly salary is to be deferred
until a date to be determined and agreed by both parties. As of
September 30, 1998 and December 1998 the salary was still being
deferred, (iv) the Agreement may be terminated by the Company for
"good cause" as defined in the Agreement, and (v) employment and all
benefits under the Agreement shall terminate upon the President's
death or total disablement as defined in the Agreement.
F-14
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 10 - FILING UNDER RULE 15c2-11
- -----------------------------------
In September 1998 the Company filed a Form 211, Issuer Information and
Disclosure Statement pursuant to Rule 15c2-11 of the Securities
Exchange Act of 1934, as amended, to allow its stock to be quoted on
the OTC Bulletin Board.
NOTE 11 - GOING CONCERN
- -----------------------
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As such, they do not
include adjustments relating to the recoverability of recorded asset
amounts and classification of recorded assets and liabilities. The
Company has accumulated losses of $396,296 and a working capital
deficiency of $320,098 at September 30, 1998 and will be required to
make significant expenditures in connection with continuing
operations. The Company's ability to continue its operations is
dependent upon its raising of capital through debt or equity financing
in order to meet its working capital needs.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern, and if substantial additional funding
is not acquired or alternative sources developed, management will be
required to curtail its operations.
One of the Company's shareholders and current creditor has verbally
agreed to provide additional funds to the Company through stock
purchases or loans, or by securing third party financing for the
Company until the Company is able to generate funds through operations
or alternative financing sources (See Note 12).
In November 1998, the Company received $60,000 in loans from a current
creditor and shareholder in the form of two promissory notes for
$30,000 each dated November 1, 1998 and November 12, 1998. The 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.
NOTE 12 - SUBSEQUENT EVENTS
- ---------------------------
(A) Agreement and Plan of Reorganization
On November 9, 1998, the Company executed an Agreement and Plan of
Reorganization (the "Agreement") with IDN Telecom, Inc. ("IDN"), a
California corporation. The effective date of the Agreement is
November 12, 1998 and
F-15
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND 1997
---------------------------------
NOTE 12 - SUBSEQUENT EVENTS - (CONT'D)
- --------------------------------------
the closing date of the Agreement is March 31, 1999, which can be
accelerated or extended with both party's consents. Upon closing of
the Agreement, the Company will issue 20,030,000 shares of common
stock of the Company to IDN's current shareholders in exchange for 100
percent of IDN's common stock outstanding.
IDN Telecom, Inc. designs, develops, manufactures, markets, and
supports a family of high performance, multi-service
telecommunications equipment and systems that enable public and
private network operators to provide cost-effective high speed,
enhanced data, voice and image communications services. The majority
of sales to date have been in China and the Far East.
(B) Letter of Intent
On January 5, 1999, the Company entered into a letter of intent to
form a joint venture with two companies incorporated in the People's
Republic of China to provide satellite long distance backbone
connections and develop and provide fiber optic long distance backbone
connections to the China Education and Research Network (CERNET), and
to cooperate in developing network technology and its enhancement and
network applications. Under the terms of the letter of intent the
Company has agreed to make an initial investment of $600,000 in the
joint venture. The Company will enter into a cooperation agreement
which may require an additional investment to obtain a 70% interest in
the joint venture.
F-16
<PAGE>
EXHIBIT 10.8
Letter of Intent
The Letter of Intent set forth, as of January 5, 1999, certain intentions
for cooperation between ASPAC Communications, Inc. a company incorporated in
Delaware ("Party A"), China Education and Research Network ("Party B",
"CERNET"), and Beijing Xintaike Technology Development Center ("Party C").
NOW THEREFORE, the three parties hereby agree as follows:
1. Scope of Cooperation
(a) Party A, B and C will cooperate to provide satellite long distance
backbone connections to the CERNET network
(b) Party A, B and C agree to cooperate in developing network
technology and its enhancement, and network applications.
(c) Party A, B and C agree, to develop and provide fiber optic long
distance backbone connection to the CERNET network.
2. Structure of Cooperation
(a) To ensure the proper start of the cooperation project, all parties
agree to establish a joint venture company to be responsible for
the implementation of the project. Equity and future profits of
the joint venture company shall be distributed in the following
percentage:
Party A: 70% Party B: 20% Party C: 10%
(b) Upon signing of the Letter of Intent, the parties agree to form a
preparation committee. Duties of the preparation committee shall
include the following:
(i) preparing the feasibility study report
(ii) drafting the cooperation agreement, Articles of
Incorporation and Bylaws of the joint venture
(Full details regarding the establishment of the preparation
committee will be discussed and agreed upon in a meeting to take
place in January 1999 in Los Angeles.)
3. Responsibilities of the parties
(a) Within 10 days of the satisfactory completion of the tasks
specified in [2 (b)] and the signing of the cooperation agreement,
Party A agrees to invest US$ 600,000 to the preparation committee
as the project initial investment.
(b) Subject to the competitiveness of the price, Party B agrees to
fully utilize the joint venture's satellite transmission resources
and sign a long term lease agreement of not less than 12 years to
lease the satellite long distance backbone connections from the
joint venture company.
<PAGE>
(c) Party C agrees to be responsible for the registration of the joint
venture company, cooperate with the project development,
implementation, equipment operation and maintenance.
4. Terms of Cooperation
(a) Duration of the Joint Venture is initially set to be 30 years.
(b) The parties commit to sign a cooperation agreement, to be drafted
by the preparation committee, to complete and finalize all details
and further discussions of the Joint Venture in addition to this
Letter of Intent.
5. Others
(a) This Letter of Intent, the cooperation agreement to be signed in
the future and all related businesses, activities shall be carried
on in accordance with People's Republic of China and United States
laws and regulations.
(b) This Letter of Intent is effective upon signatures of all parties.
In case of discrepancy between this Letter of Intent and the
cooperation agreement, the cooperation agreement shall be deemed
accurate and final.
(c) This Preliminary Agreement has six sets of original copies with
two sets to be held by each party. The parties may sign
Supplements to the Letter of Intent, which shall be deemed
original and all of which together with the Letter of Intent shall
constitute one instrument.
Party A
ASPAC Communications, Inc.
/s/ Signature
- ------------------------------
Party B
China Education and Research Network
/s/ Signature
- -------------
Party C
Beijing Xintaike Technology and Development Center
/s/ Signature
- -------------
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Form 10-KSB Annual Report of Aspac
Communication, Inc.,for the year ended September 30, 1998, our report dated
December 23, 1998 (except as to Note 12(b) which is as of January 5, 1999),
relating to the financial statements of Aspac Communications, Inc. which appear
in such Form 10-KSB.
WEINBERG & COMPANY, P.A.
Certified Public Accountants
Boca Raton, Florida
January 13, 1999
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
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