<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
Commission File No.
0-24441
ASPAC COMMUNICATIONS , INC.
-----------------
(Exact name of registrant as specified in its charter)
Delaware 95-4652797
------------------------------- -------------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
21221 S. Western Avenue, Suite 215
Torrance, California 90501
-----------------------------------------------------------
(Address of Principal Executive Offices including Zip Code)
Registrant's telephone number, including Area Code: 310/328-7666
Securities to be Registered Under Section 12(b) of the Act: None
Securities to be Registered Under Section 12(g) of the Act: Common Stock,
$.0001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Aggregate market value of voting stock held by non-affiliates of the registrant
at December 31, 1999: Currently there is no public market for these securities.
Number of shares of common stock outstanding at December 31, 1999: Common Stock
- - 20,126,264
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
------
December 31, 1999 September 30, 1999
----------------- ------------------
(USD) (USD)
-----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash 0 7,005
Prepaid expenses 4,517 5,820
Other receivable 0 405
-------- --------
TOTAL CURRENT ASSETS 4,517 13,230
PROPERTY AND EQUIPMENT 37,461 39,714
OTHER ASSETS
Deferred offering cost 12,500 12,500
Organization costs 1,620 1,755
Other assets 11,107 10,607
-------- --------
TOTAL OTHER ASSETS 25,237 24,862
TOTAL ASSETS 67,205 77,806
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accrued expenses 71,959 61,276
Accrued salaries 161,379 128,798
Advisory service agreement payable 30,000 30,000
Line of Credit 173,551 111,946
Bank Loan payable 4,757 --
Notes payable - related parties 0 260,000
Notes payable - unrelated parties 0 255,000
Loan Payable - employees 5,500 18,120
-------- --------
TOTAL CURRENT LIABILITIES 447,146 865,140
STOCKHOLDER'S DEFICIENCY
Preferred stock, $0.0001 par value
20,000,000 shares authorized -- --
Common stock, $0.0001 par value,
100,000,000 shares authorized,
20,126,264 shares issued and outstanding 2,013 2,008
Additional paid-in capital 419,517 93,592
Accumulated deficit during development stage (801,588) (882,934)
Accumulated other comprehensive income (loss) 117 --
-------- --------
TOTAL STOCKHOLDER'S DEFICIENCY (379,941) (787,334)
TOTAL LIABILITIES AND
STOCKHOLDER'S DEFICIENCY 67,205 77,806
======== ========
</TABLE>
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM SEPTEMBER 26,1997
(INCEPTION) TO DECEMBER 31, 1999
--------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
COMMON ADDITIONAL DURING OTHER
STOCK PAID-IN DEVELOPMENT COMPREHENSIVE
SHARES AMOUNT CAPITAL STAGE INCOME TOTAL
---------- ------ ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Common stock issuance 40,000 $ 4 $ 96 $ - $ - $ 200
Net loss from September 26,
1997 (Inception) to
September 30, 1997 - - - (161,697) - (161,697)
---------- ------ -------- ----------- ------------- ---------
Balance at
September 30, 1997 40,000 4 196 (161,697) - (161,497)
Common stock issuance 17,980,000 1,798 88,102 - - 89,900
Common stock issuance to
consultants for future
services to be rendered 2,000,000 200 (200) - - -
Net loss for the year ended
September 30, 1998 - - - (234,599) - (234,599)
---------- ------ -------- ----------- ------------- ---------
Balance at
September 30, 1998 20,020,000 2,002 88,098 (396,296) - (306,196)
Common stock issuance to
officers 55,000 6 5,494 - - 5,500
Net loss for the year ended
September 30, 1999 - - - (486,638) - (486,638)
---------- ------ -------- ----------- ------------- ---------
Balance at
September 30, 1999 20,075,000 2,008 93,592 (882,934) - (787,334)
Common stock issuance in
exchange for loan conversion 51,264 5 325,925 - - 325,930
Net income for the quarter ended
December 31, 1999 81,346 117 81,346
---------- ------ -------- ----------- ------------- ---------
Balance at
December 31, 1999 20,126,264 2,013 419,517 (801,471) 117 (379,941)
========== ====== ======== =========== ============= =========
</TABLE>
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998,
AND FOR THE PERIOD
FROM SEPTEMBER 26, 1997 (INCEPTION) TO DECEMBER 31, 1999
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Oct. 1, 1999 Oct. 1, 1998 Sept. 26, 1997
To To (Inception) to
December 31, 1999 December 31, 1998 Dec.31, 1999
----------------- ----------------- --------------
<S> <C> <C> <C>
NET SALES $ - $ - $ -
----------- ----------- -----------
OPERATING EXPENSES
Salaries 67,127 35,500 402,536
Lease expenses 25,429 5,265 111,029
Legal and professional fees 11,958 24,107 88,463
Consulting fees 4,400 - 35,414
Travel & Entertainment 12,431 8,555 53,710
Depreciation 2,383 675 8,970
Amortization of organization costs 135 135 1,080
Research & development 2,177 - 2,177
General office expense 20,228 10,644 137,636
----------- ----------- -----------
Total operating expenses 146,268 84,881 841,015
LOSS FROM OPERATIONS (146,268) (84,881) (841,015)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Registration costs-withdrawn Form S-1 - - (158,650)
Interest expense (10,672) (3,483) (43,379)
Interest income 0 50 906
Other income 325 899 2,589
-------- ----------- -----------
Total other income (expense) (10,347) (2,534) (198,534)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (156,615) (87,415) (1,039,549)
EXTRAORDINARY GAIN ON
EXTINGUISHMENTS OF DEBT 237,961 - 237,961
NET INCOME (LOSS) DURING
DEVELOPMENT STAGE $ 81,346 $ (87,415) $ (801,588)
=========== =========== ===========
Foreign Exchange Translation Gain 117 117
TOTAL COMPREHENSIVE INCOME (LOSS) 81,463 (801,471)
NET INCOME (LOSS) PER COMMON SHARE $ 0.0041 $ (0.0044) $ (0.0424)
=========== =========== ===========
WEIGHTED AVERAGE BASIC AND DILUTED
NUMBER OF SHARES 20,070,329 20,020,000 18,908,761
=========== =========== ===========
</TABLE>
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS FROM OCTOBER 1, 1999 TO DECEMBER 31, 1999
AND SEPTEMBER 26, 1997 (INCEPTION) TO DECEMBER 31, 1999
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Oct. 1, 1999 Oct. 1, 1998 Sept. 26, 1997
To To (Inception) to
December 31, 1999 December 31, 1998 Dec.31, 1999
----------------- ----------------- --------------
(US$) (US$) (US$)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) 81,346 (87,415) (801,588)
Adjustment to reconcile net income
(loss) to net cash
used in operating activities:
Depreciation 2,383 675 9,455
Amortization 135 135 1,080
Accrued interest on extinguished debt 7,821 -- 7,821
Gain on extinguishment of debt (237,961) (237,961)
Write off registration costs -- -- 120,000
Issuance of common stock for services -- -- 5,500
Changes in assets and liabilities
(increase) decrease in:
Prepaid expenses 1,302 (2,985) (4,518)
Other receivable 405 -- 0
Deferred offering cost -- -- (12,500)
Other assets (500) -- (11,107)
Increase (decrease) in:
Account payable & accrued expenses 72,382 29,658 262,456
-------- ------- --------
Net cash used in operating activities (72,687) (59,932) (661,362)
CASH FLOWS FROM INVESTING ACTIVITES:
Purchase of property and equipment (133) -- (46,919)
Organizational costs -- -- (2,700)
Payments under advisory service agreement -- -- (90,000)
-------- ------- --------
Net cash used in investing activities (133) 0 (139,619)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes and Loans payable 4119 60,000 549,394
Line of Credit 61,696 -- 173,642
Proceeds from sale of common stock -- -- 90,100
Repayment of advances -- -- (12,155)
-------- ------- --------
Net cash provided by financing
activities 65,815 60,000 800,981
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,005) 68 0
======== ======= ========
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 7,005 4,648 -
======== ======= ========
CASH AND CASH EQUIVALENTS -
END OF PERIOD 0 4,716 0
======== ======= ========
</TABLE>
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - NONCASH TRANSACTION:
- -----------------------------------------------------------------------
The company incurred debt in the total amount of $162,500 under a securities
advisory service agreement and related stock subscription agreement and a legal
advisory service agreement. At December 31, 1999, the unpaid portion of this
debt amounted to $30,000. The company converted its notes payable of $527,000
and accrued interests of these notes in the amount of $36,890 into 51,264 shares
of its common stock on December 31, 1999.
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMEN STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(UNAUDTED)
----------
NOTE 1 - BASIS OF PRESENTATION
- -------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
The Company is operating as a Development Stage Company and intends to
develop interactive broadband Internet access and related value added
services in the Far East including the People's Republic of China. The
Company is also considering operating in other parts of the world,
including the United States.
For further information, refer to the consolidated financial statements and
footnotes included in the company's Form 10-KSB for the year ended
September 30, 1999.
NOTE 2 - PRINCIPLE OF CONSOLIDATION
- ------------------------------------
The consolidated financial statements include the accounts of ASPAC
Communications, Inc., its Beijing Representative Office and its inactive
subsidiary, ASPAC Holdings, Inc. All significant inter-company balances and
transactions have been eliminated in consolidation
The Company maintains a Beijing Representative Office. All balances and
transactions as of and for the three-month period ended December 31, 1999
are translated at the exchange rate in effect at the balance sheet date and
at the average exchange rate for the period presented, respectively.
NOTE 3 - NOTES PAYABLE
- -----------------------
On December 31, 1999, the holders of the notes payable agreed to surrender
the notes for conversion of the principal aggregated to $527,000 and the
accrued interest aggregated to $36,870, into 51,264 shares of the Company's
common stock at an exchange rate of $11 for one share of common stock. The
conversion of the related party notes is an extinguishment of related party
debt, accounted for as a credit to equity while the conversion of the
unrelated party notes is accounted for as a gain on extinguishment of debt
computed as the difference between the $11 conversion price and the
concurrent $1.50 private placement offering price (See Note 10) which gain
aggregated $237,961 at the conversion date.
NOTE 4 - LOAN PAYABLE - LINE OF CREDIT
- ---------------------------------------
On March 31, 1999 the Company obtained a line of credit for up to
approximately $362,000 with an unrelated party. The term is two years and
outstanding balances under the line of credit accrued interest at a rate of
8% per annum with principal and accrued interest due upon demand. The
Company may repay all outstanding amounts at anytime without penalty, in
cash or common stock of the Company, at a conversion rate to be determined
and agreed by both parties. The outstanding balance as of December 31,
1999 totaled $173,551. In substance, this line of credit is not a
convertible debt since there is no fixed or indexed conversion rate.
Therefore there is no consideration of this debt in the computation of
earnings per share.
<PAGE>
NOTE 5 - RELATED PARTIES
- ------------------------
As discussed in the supplemental disclosure to the consolidated cash flow
statements and Note 4 and Note 6, certain issuance of common stock in
connection with debt conversion to related parties occurred on December 31,
1999.
NOTE 6 - COMMON STOCK
- ---------------------
During the three months ended December 31, 1999, the Company and all
holders of the Company's promissory notes entered into Debt Conversion
Agreement to convert all note principal and accrued interests into shares
of common stock of the Company at an exchange rate of $11.00 per share of
common stock. At the date of conversion, the amount of principal of the
promissory notes was $527,000 and the accrued interest was $36,890 (See
Note 4). As a result, the principal and accrued interest were converted
into 51,264 shares of the Company's common stock. The shares were
subsequently issued to note holders on March 28, 2000.
NOTE 7 - SINO-FOREIGN JOINT VENTURE CONTRACT
- ---------------------------------------------
On December 31, 1999, the Company entered into a Sino-foreign Joint Venture
Contract (the "Contract") with the China Education and Research Network
Center ("CERNET") and the Beijing Sino-Tech Science and Technology
Development Center ("Sino-Tech") to establish a Sino-foreign Joint Venture
Company named YeeYoo Network Technology Co., Ltd. ("YeeYoo"). The Contract
specifies the purpose of the Joint Venture Company being the development of
wireless broadband high speed access equipment, the development and sales
of internet and networking products, the development and sale of software,
the investment and development of internet network and the development of
the internet technology and its application services. According to the
terms of the Contract, the total capital investment is expected to be
$10,000,000 and the total registered capital is $5,000,000, of which the
Company, CERNET and Sino-Tech, respectively shall contribute $3,500,000,
$1,000,000 and $500,000, respectively, accounting for 70%, 20% and 10% of
the registered capital, respectively. In addition to this capital
investment, the responsibilities of the Company include, among others,
assisting and introducing opportunities in obtaining modern management
techniques to YeeYoo, to assist YeeYoo in raising necessary funds for its
business development and assisting YeeYoo in the management of its
operations. In addition, three of the five directors of the YeeYoo shall
be appointed by the Company. The duration of the Joint Venture is
stipulated to be 30 years and can be extended one year before the
termination of the Contract. This contract supercedes all prior letters of
intent and agreements with the same parties.
On April 18, 2000, the Company entered into an Agreement with CERNET (see
Note 11(H)), which changed the Company's holding of YeeYoo equity to 65%
and reduced the Company's commitment to invest in YeeYoo's registered
capital to $3.25 million. At the same time, CERNET's obligation to invest
in the registered capital increased to $1.25 million, accounting for 25% of
the equity, with Sino-Tech's obligation and equity share remain unchanged.
NOTE 8 - COOPERATION AGREEMENT WITH JOINT VENTURE PARTNERS
- ----------------------------------------------------------
On December 31, 1999, the Company entered into a Cooperation Agreement (the
"Agreement") with the China Education and Research Network Center
("CERNET") and the Beijing Sino-Tech Science and Technology Development
Center ("Sino-Tech"), established within the framework of the Sino-foreign
Joint Venture Contract (see Note 7) The Agreement lists additional
responsibilities for the parties to the Sino-foreign Joint Venture
Contract. The additional responsibilities of the Company agreed upon in
the Agreement consist of the Company's assistance to YeeYoo to raise
necessary funding for the business development of YeeYoo and, in
cooperation with CERNET and Sino-Tech, the Company's best effort to assist
YeeYoo to list its common stock on the New York Stock Exchange or the
NASDAQ. The term of the Agreement shall be the same as the duration of the
Joint Venture.
<PAGE>
NOTE 9 - NETWORK OPERATING AGREEMENT WITH SINO-TECH
- ----------------------------------------------------
On December 31, 1999, the Company's joint venture, YeeYoo (see Note 7)
entered into a Network Operating Agreement (the "Agreement") with Sino-
Tech. The Agreement specifies the services Sino-Tech shall provide to
YeeYoo which include the preparation of a feasibility study and cost-
benefit analysis for the joint venture, advising all parties to the JV and
the JV, once established, of all legal issues associated with the JV and
recommending actions to solve any related problems, the daily operation of
the joint venture, and providing all equipment and technical supports for
the joint venture. The term of the Agreement extends over the same period
as the Sino-foreign Joint Venture Contract but may be terminated earlier by
either party to this Agreement. YeeYoo may terminate the Agreement when the
joint venture is authorized to operate under Chinese Law at 15 days'
written notice. Sino-Tech may terminate the Agreement in case the payment
of the agreed fees is 60 days overdue and such default is not resolved
within 30 days of written notice of Sino-Tech. As consideration for the
services provided, Sino-Tech shall receive RMB 500,000 per year.
(Approximately $60,460 at December 31, 1999.) The first annual payment is
scheduled to be made within 30 days after the JV has started operations.
Subsequent payments shall be made semiannually. In case YeeYoo terminates
the Agreement under Chinese laws, Sino-Tech still has to be compensated for
the outstanding portion of the annual payment.
NOTE 10 PRIVATE PLACEMENT
- --------------------------
During November 1999, and updated in December 1999, the Company issued a
private placement memorandum, pursuant to Rule 506 of Regulation D of the
Securities Act of 1933, as amended, to offer a minimum of 3,000 units and a
maximum of 4,000 units of common stock to accredited investors. Each unit
consists of 1,000 shares of the Company's common stock. The purchase price
for each unit is $1,500 or $1.50 per share. The Company's net proceeds
after placement discount and commissions but before offering expenses are
estimated to be 90% of the amount raised. As of the date of this report,
subscriptions for 3000 units or $4,500,000 have been received and fully
paid. The funds received have been deposited to an escrow account for the
benefit of the investors and distributed subject to stipulated milestones.
On January 7, 2000, $1,000,000 before offering expense and related
commissions was released to the Company based on the first milestone of
executing the Joint Venture Contract (See Note 7) and on April 7, 2000,
$3,500,000 before offering expenses and related commission was released to
the Company based on the second milestone of obtaining certain wireless
frequency channel usage rights in the People's Republic of China (see Note
11(F)). The offering was closed on March 31, 2000.
NOTE 11 - SUBSEQUENT EVENTS
- ---------------------------
(A) Reorganization with USA International Chemical, Inc.
--------------------------------------------------------
On March 30, 2000, the Company reached Plan and Agreement of Reorganization
("Reorganization") with USA International Chemical, Inc., a Delaware
corporation publicly traded on the OTC Bulletin Board ("USXC"). Under the
Reorganization, USXC will acquire from ASPAC shareholders all outstanding
common stocks of the Company and will issue one share of USXC's common
stock for each one share of ASPAC common stock acquired. As a result, the
current shareholders of the Company will own approximately 93% of the
outstanding common stock of USXC after the closing of the Reorganization
("Closing"). At the Closing, all officers and directors of USXC will
resign and the current officers and directors of ASPAC will take their
respective office in USXC. It is anticipated the closing of the
Reorganization ("Closing") will take place on May 4, 2000.
(B) 2000 Stock Option Plan
--------------------------
On January 31, 2000, the Board of Directors adopted the 2000 Stock Option
Plan (the "Plan"). The Plan is for a period of five years and is
authorized to grant options for up to one million shares of the Company's
common stock. As of the date of this report, 495,000 shares of options
have been granted to its officers, directors, consultants and employees.
Stock options issued to employees for the quarter ended March 31, 2000 were
accounted for under APB 25 and accordingly, no compensation expense has
been recorded. Stock options to consultants were issued on March 31, 2000
and in accordance with SFAS 123 , the resulting consulting expense will be
recognized in future periods.
<PAGE>
(C) Employee Agreement
----------------------
On January 31, 2000, the Company and the Chairman, previously the President
of the Company, executed an Amendment to the Employment Agreement in which
the Chairman agreed to a reduction of his current salary to $60,000
starting on February 1, 2000 in an effort to maintain the operating expense
of the Company during its development stage to a minimum. All other points
and commitments of the original Agreement remain intact under the same
terms and conditions.
(D) Stock Option Agreements
---------------------------
On January 31, 2000, the Company executed Incentive Stock Option Agreements
with Jeffrey G. Sun, the Chief Executive Officer of the Company, and Steve
Li Chen, the Vice Chairman of the Company, granting each options to
purchase one million shares of the Company's common stock at the purchase
price of $1.50 per share. The options are subjected to a 5-year vesting
provision with 20% vested on each anniversary of the date of grant until
fully vested.
(E) Operating Lease Agreement
-----------------------------
On March 3, 2000, the Company signed a three-year lease agreement with
Starwood/SVP L.L.C. ("Starwood"). The lease with Starwood is for an office
space in Torrance, California starting on April 1, 2000 and at the rate of
$4,225.75 per month. The lease can be extended for another three years
after its expiration.
(F) Cooperation Agreement with Beijing Tianxin Chinsi Electronic
----------------------------------------------------------------
Technology, Ltd.
----------------
On April 6, 2000, the Company reached a Cooperation Agreement with Beijing
Tianxin Chinsi Electronic Technology, Ltd. ("Chinsi") , a communication
technology development company in the PRC. The Company agrees to issued
30,000 shares of its common stock to Chinsi in exchange for certain
wireless frequency usage rights to conduct initial trials of the Company's
broadband Internet services in Beijing.
(G) Warrant Issuance
--------------------
On April 7, 2000, the Company issued warrants to its private placement
offering investors to purchase an aggregate 180,000 shares of the Company's
common stock at the price of $1.275 per share. The warrants are
immediately exercisable and will expire on April 7, 2003.
(H) Agreement with CERNET
-------------------------
On April 18, 2000, the Company reached an Agreement with CERNET. In this
Agreement, the Company agrees to issued 1,000,000 shares of its common
stock and transfer 5% of its equities in the Joint Venture to CERNET in
exchange for technical support, joint marketing efforts, and network
infrastructure development.
<PAGE>
PART II - MANAGEMENT'S DISCUSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operation for the Three Months Ended December 31, 1999 as Compared to
- --------------------------------------------------------------------------------
the Three Months Ended December 31, 1998:
- -----------------------------------------
Operating expenses increased 72% from $84,881 during the three months ended
December 31, 1998 to $146,268 during the three months ended December 31, 1999.
The increase primarily due to the increase in salaries, rent, office supplies &
expenses, travel &entertainment, and auto expenses relating to the establishment
of the Beijing Liaison Office on March 1, 1999.
The Company recorded a net income of $81,346 for the three months ended December
31, 1999 as compared to a net loss of $87,415 for the three months ended
December 31, 1998. The net income is primarily an effect of $237,961
extraordinary gain on extinguishments of debt recorded in the quarter ended
December 31, 1999. Excluding the extraordinary item, the Company would have a
net loss of $156,615, which is 72% increase from the same period last year. The
increase in the net loss before extraordinary items primarily relates to the
Company's continuing development activities in line with the proposed joint
venture projects and the establishment of the Company's Beijing Liaison Office.
Liquidity and Capital Resources and Certain Events Subsequent to September 30,
- ------------------------------------------------------------------------------
1999
- ----
The Company has not generated cash flow from operations to date. The Company's
current cash flow from operations is not capable of supporting existing business
operations in its present form. Since the beginning of its operation, the
Company has financed its development stage activities primarily through equity
investments and loans from its founding stockholders.
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 and Internet networks and organizational
activities. To date, no revenues were generated from operation, and there is no
guarantee the Company will ever achieve profitable operations.
During the three months ended December 31, 1999 and December 31, 1998, the
Company received net cash of $65,815 and $60,000 from its financing activities,
respectively. The sources of these amounts were from (i) the receipt of
shareholder and officer loans and advances of $22,257 and $60,000 during the
three months ended December 31, 1999 and 1998, respectively; (ii) withdrawal of
$61,696 from a line of credit during the three months ended December 31, 1999;
and (iii) repayment of shareholder and officer advances in the amount of $18,138
during the three months ended December 31, 1999.
During November 1999, and updated in December 1999, the Company issued a private
placement memorandum, pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended, to offer a minimum of 3,000 units and a maximum of 4,000
units of common stock to accredited investors. Each unit consists of 1,000
shares of the Company's common stock. The purchase price for each unit is
$1,500 or $1.50 per share. The Company's net proceeds after placement discount
and commissions but before offering expenses are estimated to be 90% of the
amount raised. As of the date of this report, subscriptions for 3000 units or
$4,500,000 have been received and fully paid. The funds received have been
deposited to an escrow account for the benefit of the investors and distributed
subject to stipulated milestones. On January 7, 2000, $1,000,000 before offering
expense and related commissions was released to the Company based on the first
milestone of executing the Joint Venture Contract and on April 7, 2000,
$3,500,000 before offering expenses and related commission was released to the
Company based on the second milestone of obtaining certain wireless frequency
channel usage rights in the People's Republic of China. The offering was closed
on March 31, 2000.
During the three months ended December 31, 1999, the Company and all holders of
the Company's promissory notes entered into Debt Conversion Agreement to convert
all note principal and accrued interests into shares of common stock of the
Company at an exchange rate of $11.00 per share of common stock. At the date of
conversion, the amount of principal of the promissory notes was $527,000 and the
accrued interest was $36,890. As a result, the principal and accrued interest
were converted into 51,264 shares of the Company's common stock. The shares
were subsequently issued to note holders on March 28, 2000.
<PAGE>
The Company currently has a commitment to invest $3.25 million pursuant to the
Joint Venture Contract it entered with CERNET and Sino-Tech, dated December 31,
1999, and the Agreement with CERNET dated April 18, 2000, in exchange of 65% of
the equity in the Joint Venture. The Company will continue to evaluate possible
acquisitions of or investments in businesses, products, and technologies that
are complimentary to those of the Company, which may require the use of cash.
The Company believes that existing cash, investments and borrowings available
under its credit facilities will be sufficient for at least the next 9 months;
however, the Company may sell additional equity or debt securities or seek
additional credit facilities if it believes such actions would be a better way
to fund acquisition-related or other costs. Sales of additional equity or
convertible debt securities would result in additional dilution to the Company's
stockholders. The Company may need to raise additional funds sooner in order to
support more rapid expansion, develop new or enhanced services or products,
respond to competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities. The Company's
future liquidity and capital requirements will depend upon numerous factors,
including the success of the service offered by the Company and its Joint
venture and competing technological and market developments.
The Company's proposed business operations in China are subject to significant
risks. These risks include, but are not limited to, the limited precedent for
the establishment of Sino-foreign cooperative joint ventures for the purpose of
engaging in the telecommunication and Internet industry in China, government
restrictions on foreign business ventures in China, government regulation of
foreign currency exchange and the general political environment in China.
The Company's successful transition from a development stage company to
profitable operations is dependent upon obtaining adequate financing to fund
current operations and the development of proposed joint ventures. The Company
will continue to seek funds in the form of line of credit and/or equity and debt
securities from third party sources as well as from its existing stockholders.
Subsequent Events
- -----------------
In December 1999, the Company received subscription of 3,000 units, representing
3,000,000 shares, of the Company's common stock relating to its private
placement offering. The total subscription amount of $4.5 million was fully
paid in January 2000 and the entire amount was deposited to an escrow account
for the benefit of the investors and distributed subject to stipulated
milestones. On January 7, 2000, $1,000,000 before offering expense and related
commissions was released to the Company based on the first milestone of
executing the Joint Venture Contract and on April 7, 2000, $3,500,000 before
offering expenses and related commission was released to the Company based on
the second milestone of obtaining certain wireless frequency channel usage
rights in the People's Republic of China. The offering was closed on March 31,
2000.
On March 30, 2000, the Company signed Plan and Agreement of Reorganization
("Reorganization") with USA International Chemical, Inc., a Delaware corporation
publicly traded on the OTC Bulletin Board ("USXC"). Under the Reorganization,
USXC will acquire from ASPAC shareholders all outstanding common stocks of the
Company and will issue one share of USXC's common stock for each one share of
ASPAC common stock acquired. As a result, the current shareholders of the
Company will own approximately 94% of the outstanding common stock of USXC after
the closing of the Reorganization ("Closing"). At the Closing, all officers and
directors of USXC will resign and the current officers and directors of ASPAC
will take their respective office in USXC. It is anticipated the closing of the
Reorganization ("Closing") will take place on or before April 30, 2000.
On January 31, 2000, the Board of Directors adopted the 2000 Stock Option Plan
(the "Plan"). The Plan is for a period of five years and is authorized to
grant options for up to one million shares of the Company's common stock. As
of the date of this report, 475,000 shares of options has been granted to its
officers, directors, consultants and employees.
On January 31, 2000, the Company and its Chairman, previously the President of
the Company, executed an Amendment to the Employment Agreement in which the
Chairman agreed to a reduction of his current salary to $60,000 starting on
February 1, 2000 in an effort to maintain the operating expense of the Company
during its development stage to a minimum. All other points and commitments of
the original Agreement remain intact under the same terms and conditions.
<PAGE>
On January 31, 2000, the Company executed Incentive Stock Option Agreements with
Jeffrey G. Sun, the Chief Executive Officer of the Company, and Steve Li Chen,
the Vice Chairman of the Company, granting each options to purchase one million
shares of the Company's common stock at the purchase price of $1.50 per share.
The options are subjected to a 5-year vesting provision with 20% vested on each
anniversary of the date of grant until fully vested. The optionee may exercise
the options, in whole or in part, any time during the period five years from the
dated the options become vested.
On April 18,2000, the Company reached an Agreement with CERNET. In this
Agreement, the Company agrees to issued 1,000,000 shares of its common stock and
transfer 5% of its equities in the Joint Venture to CERNET in exchange for
technical support, joint marketing efforts, and network infrastructure
development.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 28, 2000 ASPAC COMMUNICATIONS, INC.
By: /s/ Jeffrey G. Sun
______________________
Jeffrey G. Sun
Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
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