<PAGE>
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, 1999
OR
( ) 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.
0-24441
ASPAC COMMUNICATIONS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4652797
-------------------------------- -----------------------------------
(State or Other Jurisdiction of I.R.S. EmployerIdentification Number
Incorporation or Organization)
</TABLE>
2049 Century Park East, Suite 1200
Los Angeles, California 90067
-------------------------------------------------
(Address of Principal Executive Offices including Zip Code)
310/712-3288(Registrant's telephone number, including Area Code)
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
The issuer's revenues for the fiscal year ended September 30, 1999 were zero.
Aggregate market value of voting stock held by non-affiliates of the registrant
at September 30, 1999: Currently there is no public market for these
securities.
Number of shares of common stock outstanding at September 30, 1999: Common
Stock - 20,312,014
Except for the historical information contained herein, the matters discussed
in this Report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive, governmental,
international and technological factors affecting the Company's revenues, joint
ventures, operations, markets and prices, and other factors discussed in this
Report.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company is a Delaware corporation headquartered in Los Angeles,
California. The Company is a development stage company organized to develop,
finance, and invest in telecommunication and Internet related projects primarily
in the People's Republic of China ("PRC" or "China"). The Company was
incorporated in 1994 in the State of Delaware and started limited operation in
September 1997. After conducting numerous feasibility studies in the past two
years, including regional telephone and wireless communications projects, the
Company has set its focus on Internet Service Provider ("ISP") and Internet e-
commerce projects in China. The tremendous market potential of the Internet
market in China, the relatively wide open competitive landscape, and the
pacesetting experience from the U.S. Internet market are the fundamentals for
the Company's renewed focus. The Company intends to establish a joint venture
to develop a wireless broadband Internet access network in the PRC in
cooperation with established ISPs and authorized Internet network operators in
the PRC. In connection with this business plan, on December 31, 1999, the
Company entered into a Sino-Foreign Joint Venture Contract (the "JV Contract")
with China Education and Research Network Center ("CERNET") and Beijing Sino-
Tech Science and Technology Development Center ("Sino-Tech"), and a Cooperation
Agreement with CERNET and Sino-Tech to develop a wireless broadband Internet
access network and related value-added services. See "Current Operations -
Joint Venture with CERNET and Sino-Tech". Under the JV Contract, the Company
will hold 70% equity interest of the joint venture (the "Joint Venture") while
CERNET and Sino-Tech will hold 20% and 10%, respectively.
China Internet Market
The Company has set its business focus to capitalize on the growth of the
Chinese Internet market, which is among the world's fastest growing and most
under-penetrated Internet markets. Due to the importance of a well-developed
information and communications infrastructure to China's continuing economic
development, the PRC government has targeted communications network development
as a high priority in the country's economic reform program. It is expected that
by the end year 2000, China's Internet users will grow to 22 million, a 200%
increase from 1999.
The Internet was first introduced to China at the end of 1995. While the
industry is growing rapidly, it is still in an early stage of development.
Currently, there are five established national ISPs, namely CHINANET, Golden
Bridge Information Network ("GBNET"), and China Science and Technology Network
("CSTNET"), CERNET and the newly formed UNINET. CHINANET and GBNET are under the
direct supervision of the Ministry of Information Industry. CSTNET is
administered by the Ministry of Science and Technology to promote Internet usage
by scientific research institutes. CERNET is under the supervision of the
Ministry of Education with a mandate to link all schools and universities in
China. By the end of 1999, the number of China's Internet users has reached 8
million, a 280%
<PAGE>
increase from 1998. CHINANET and GBNET have about 5 million combined subscribers
at the end of 1999, with CHINANET being the larger of the two. CERNET is the
second largest ISP in China with about 2 million users at the end of 1999.
CSTNET is limited in network geographic coverage and consumer presence. UNINET
is a division recently formed by China United Telecommunication Corporation,
known as China Unicom, to aim for the national ISP market. So far, the
activities of UNINET are in the formation stage. Presently, only these five
national ISPs are licensed for direct international connections. As a result,
they are the only gateway to China for global Internet links. In addition to the
five national ISPs, there are also about 200 small and local ISPs throughout
China.
Although Chinese regulation currently prohibit direct foreign
operation of communications networks, including ISP networks, the regulatory
environment has shown recent indications of continuing a policy of partial
deregulation. Pending China's successful entry into the World Trade
Organization (the "WTO"), the Chinese government has announced its intension to
permit of up to 50% of direct foreign ownership in the operation of
communications networks. While there can be no assurance that this policy and
other deregulation policy will be legally effective, the Company believes that
it is well-positioned to benefit from such deregulation, if such deregulation
were to occur in the future.
Current Operations
The Company has entered into a JV Contract and certain other contracts
concerning the establishment of the joint venture in the PRC to develop a
wireless broadband Internet access network and related value-added service. The
Company has also begun discussions regarding the usage right of certain
frequency channels to be used in the joint venture. The agreements relating to
the Joint Venture in the PRC are subject to the fulfillment of significant
conditions, including the completion of substantial financing and the receipt of
approvals and permits from PRC governmental agencies, there can be no assurances
that the Company will ever be able to implement its business plan. The
discussions regarding certain frequency usage rights are in a preliminary stage
and there is no assurance that the Company will finalize these discussions or
that agreements will be reached or conducted on any favorable terms to the
Company.
Joint Venture with CERNET and Sino-Tech.
On January 5, 1999, the Company signed a Letter of Intent with China
Education and Research Network ("CERNET"), and Beijing Sino-Tech Science and
Technology Development Center (formerly under the translated name "Beijing
Xintaike Technology Development Center") to cooperate and provide satellite and
fiber optic long distance backbone connections to the CERNET network. This
Letter of Intent was superseded by the Cooperation Agreement executed by the
Company, CERNET and Sino-Tech on March 29, 1999.
On March 29, 1999, the Company executed a Cooperation Agreement with
CERNET and Sino-Tech to cooperatively and jointly invest to provide services for
a nationwide Internet access and service network and its communication lines
infrastructure in the PRC. This Cooperation Agreement was superseded by the
Sino-Foreign Joint Venture Contract executed by the three parties on December
31, 1999.
On December 31, 1999, the Company executed a Cooperation Joint Venture
Contract (the "JV Contract") and certain peripheral agreement with CERNET and
Sino-Tech to set up a Joint Venture to engage in the developing of a wireless
Internet access network and related value-added services in the PRC. The total
registered capital of the Joint Venture is $5,000,000, in which the Company will
contribute $3.5 million in exchange for 70% of the Joint Venture's equity.
CERNET and Sino-Tech will contribute $1 million and $0.5 million in exchange for
20% and 10% of the Joint Venture's equity, respectively. The registered capital
will be used for the Joint Venture's initial equipment purchase, software and
portal development, and working capital. The Joint Venture intends to raise
addition capital in the future through local or overseas financing for further
business expansion. In the JV Contract and its peripheral agreements, the
Company agrees to provide assistance in the joint venture's future fundraising
while CERNET and Sino-Tech agree to provide technical support, advice on PRC
legal and regulatory issues, an international link of 5Mbps in bandwidth, etc.
to the Joint Venture.
<PAGE>
CERNET is one of the five ISPs in China that are licensed for inter-
provincial and international connections. Established in 1994, it was founded by
the prestigious Tsinghua University and nine other major universities under the
direct supervision of the Ministry of Education. It is a not-for-profit
organization with a mandate to link all universities and schools in China. The
founders of CERNET are widely respected as pioneers of the Internet in China.
Presently, CERNET has deployed a nationwide TCP/IP network utilizing frame relay
and E-1 satellite links for its backbone. The network consists of 7 regional
nodes and 438 Point-of-Presence (POPs) geographically dispersed among 70 major
metropolitan areas and cities throughout China. This network is controlled and
monitored around the clock by a fault-tolerant IBM computer system with 27
parallel processors. It is presently providing ISP services for over 500
universities and research institutes. By the end of 1999, CERNET has two (2)
million users, primarily students and faculty members. Due to its close ties to
the science and technology communities in China, many globally prominent high-
tech companies have engaged CERNET in the form of technology alliances or other
licensing agreements. These companies include IBM, CISCO, Nortel Networks, SUN
Micro, 3Com, etc.
The other Joint Venture partner, Sino-Tech, is a private corporation
founded and under the auspices of the State Planning Commission of China. It
provides high-tech consulting services for the commercialization of advanced
research and development projects among various industrial and high-tech
agencies. Since its establishment in 1995, Sino-Tech has successfully entered
into multiple joint ventures with leading hi-tech companies.
Discussions Concerning Certain Frequency Usage Rights.
The Company is currently under discussion with certain Chinese entities for
usage right of certain frequency channels to be used in the Company and the
Joint Venture's wireless Internet access project. The frequency channels under
discussion consist of a minimum of 24Mhz in bandwidth in the 1.9Ghz to 3.6Ghz
range. The Company anticipates that a definitive agreement will be reached with
the parties by June 2000.
Joint Venture with China United Telecommunications Corporation ("China Unicom").
The Company, after conducting numerous feasibility studies during the past
two years, has concluded to set its focus on wireless broadband Internet Service
Provider ("ISP") and Internet e-commerce project in the PRC, and as a result,
has put on hold its discussions with China United Telecommunications
Corporation, Hebei Branch ("Hebei Unicom") located in Shijiazhuang, Hebei
Province, China of possible participation in the construction and development of
wire-line and wireless telephone networks in Hebei Province in the China.
Joint Venture with Beijing Chinsi Electronic Co. Ltd.
Due to the ongoing discussions on the joint venture with CERNET and Sino-
Tech to develop a wireless broadband ISP network and related value-added
services, See "Current Operation - Joint Venture with CERNET and Sino-Tech, the
Preliminary Cooperation Agreement with Beijing Chinsi Electronic Technology Co.,
Ltd. (formerly under the translated name of Beijing Chinsi Electronic Co., Ltd.
or Beijing Change Electronic Co., Ltd.) dated September 30, 1998, was rescinded
on March 19, 1999.
Pending Merger with IDN Telecom, Inc., a California Telecommunications Company.
On November 9, 1998, the Company executed a Agreement and Plan of
Reorganization (the "Agreement") with IDN Telecom, Inc. ("IDN"), a California
corporation. The effective date of the Agreement was November 12, 1998 and the
closing date of the Agreement was March 31, 1999, which could be accelerated or
extended with both parties' consents. If due diligence was completed to the
Company's satisfaction, the Company agreed to issue, upon closing of the
Agreement, 20,030,000 shares of common stock of the Company to IDN's current
shareholders in exchange for 100 percent of IDN's common stocks outstanding.
After a careful due diligence review and analysis of IDN's representations
and financial information, the Company decided on February 11, 1999 to rescind
the Agreement, effective immediately. The officers of the Company resigned as
unpaid officers and advisors of IDN and from IDN's Board of Directors.
<PAGE>
Set up of Beijing Liaison Office.
To better facilitate negotiations and communications with the Joint Venture
partners and other business contacts in China, the Company set up a Beijing
Liaison Office on March 1, 1999. As of the date of this report, the Beijing
Liaison Office employs 14 employees.
Business Plan
The objective of the Company is to become a recognized leader by supplying
innovative, value-added Internet interactive communication and on-line services
to the general consumer and corporate markets in the Far East, including China.
To meet this objective, the Company, along with the joint venture, plans to
deploy Multichannel Multipoint Distribution System ("MMDS") technology that will
deliver wireless broadband digital transmission for the "last mile" access to
customers.
MMDS Technology. MMDS technology was originally utilized by the wireless
---------------
cable industry in the U.S. for the broadcast of television and pay-per-view
programs. As a result of major pushes by long-distance telephone carriers to
access the last mile without the incumbent local carriers, the FCC approved the
use of this technology for two-way data transmission and high-speed Internet
connection in early 1999.
A typical MMDS system consists of a headend station communicating to end
users. Digital data transmission is within a frequency spectrum of 2.5-2.7 GHz
which is typically partitioned in 6 MHz intervals for about 33 discrete channels
in the United States. A frequency spectrum of 3.4Ghz to 3.6Ghz has been
tentatively assigned by the Chinese government for the MMDS digital data
transmission. Typically, a single MMDS channel of 6Mhz will support a data
transfer rate of 25-40 Mbps for downstream data; however, sectorization and
orthogonal polarization techniques can increase the system throughput several
folds. As a result of this tremendous bandwidth, applications such as high-speed
Internet connections, voice over IP, video conferencing, and audio/video
Webcasting, etc. can be offered to business and consumers effectively and cost
competitively. On the subscriber end, each transverter and associated wireless
cable modem can be installed as a localized "hub" which connects to a local area
network (LAN) so that a single system can service a large number of users within
a building. Therefore, the installation cost per subscriber can be driven down
to a competitive level similar to the current PC modems.
Each MMDS system can transmit data in a prescribed radius (typically 35
miles) determined by the broadcast power output levels. The deployment of a
headend station involves the installation of a headend transverter with
associated wireless cable modem/router equipment and antenna. This headend,
serving as a "wireless POP", is usually situated on a tower located either on
top of a high-rise building or a visible mountain top, since direct line-of-
sight is critical for microwave transmission. For "shadow areas" where line-of-
sight is obstructed, a MMDS repeater can be utilized to extend the geographical
coverage. MMDS has been reliably deployed by the wireless cable industry during
the past few years. Under conditions of extremely heavy rain and fog where MMDS
microwave signal may be subject to absorption effects, additional power output
for the transmitter can usually compensate for such signal degradation.
The Company believes this technology is particularly well suited for China
where the "last mile" access to customers is the biggest challenge for any
communication service. Getting a telephone line to the end user is still a
costly and time consuming experience, such that a 3 to 6-month waiting period is
still common. MMDS eliminates the need for this local telephone hook-up to
access the Internet by bypassing any requirements to rely on telephone
connections. This represents significant savings to customers who currently have
to pay telephone charges on top of Internet access fees.
In addition, compared to conventional landline networks which require a
significant amount of labor and capital investments in cables and trenching, the
MMDS system is inexpensive, easier to install, takes less time to deploy, and
poses minimal disruption to the community. The infrastructure payback and
revenue realization can be immediate due to its rapid deployment and scaleable
system architecture with service coverage flexibly expanded based on customer
demands. In densely populated areas, which is very common in China, high-speed
transmission can be
<PAGE>
distributed conveniently and through the use of inexpensive LANs among each
group of buildings to achieve efficient "last mile" access to customers. CERNET
has been using digital wireless technology for about two years. The accumulated
experience will be fully applicable for the deployment of MMDS technology.
Overall, the Company believes that MMDS technology could provide cost efficient
broadband access for business and consumers in underdeveloped markets such as
China.
Portal and E-Commerce. In addition to the wireless broadband strategy, the
----------------------
Company and the joint venture also plan to launch portal and e-commerce Web
sites. The goal is take full advantage of its MMDS broadband network to add a
new dimension to the Web content. It is the Company's intention to feature
services such as distance learning, academic advancement, career development,
financial gains, and personal networking, and other multimedia features on its
Web sites.
Acquisition of Existing Telecommunications Systems and Purchases of
-------------------------------------------------------------------
Equipment. In addition to constructing or developing its own Internet systems
- ---------
by itself or in joint venture with others, the Company may acquire existing
Internet systems. It is possible that the consideration paid for the
acquisition of existing Internet 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.
Effects Of Government Regulations On The Business
The Company's proposed operations are subject to all of the risks inherent
in the establishment of a new business enterprise, including the limited
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.
<PAGE>
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:
Political and Economic Matters. The business, prospects, and results of the
------------------------------
Company's operations may be adversely affected by significant political,
economic, and social developments in the Peoples Republic of China ("China" or
the "PRC"). Since 1978, the PRC has changed gradually from a centrally planned
economy into a more market-oriented, socialist economy. Sino-foreign joint
ventures provide a critical impetus for these changes and pose a challenge to
the state-owned sector. There have been calls to place more focus on the state
sector, but at present the government is continuing to extend incentives such as
duty-free capital equipment imports and beneficial tax policies to Sino-foreign
joint ventures.
State planning remains an important characteristic of China's macro
economy. The government continues to influence the economy by implementing
five-year plans that outline economic and production goals for the country.
Since many reforms are experimental in nature and are subject to adjustments or
refinements, there may be adverse effects on the Company's development from such
reforms or any repeal of such reforms. Also, a political response to any social
disruption may affect the Company's operating results.
In recent years, the PRC has enjoyed rapid economic growth, but growth
rates have not been uniform. In May 1993, in an effort to control inflation and
achieve coordinated economic development, the government adopted macro economic
policies designed to tighten money supply and restrain growth. China imposed
restrictions on lending and fixed asset investments, and raised interest rates
on bank loans and deposits. More recently, deflation has replaced inflation.
In order to stimulate the economy, the government cut interest rates once in
1996, twice in 1997, and twice in 1998. While current State economic policy
provides a favorable environment for business activity, an overheating or
slowdown in the economy could provoke government measures that may have a
negative impact on the Company's performance.
The success of the Company's Internet venture in China is also subject to
the effects of the political relationship between the PRC and the United States.
As indicated by continuing disputes about Taiwan and the recent
<PAGE>
accidental bombing of the Chinese embassy in Belgrade, this relationship is
fragile and subject to changes caused by events beyond the control of the
Company. Any change or deterioration of the relationship between China and the
United States could have a material adverse effect upon the Company and its
financial condition.
Legal System. The Chinese 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. The
Chinese government has not published definitive regulations or policies with
respect to such matters as the permissible percentage of foreign investment and
permissible rates of equity returns. Statements regarding these evolving
policies have been conflicting, and any such policies, as administered, are
likely to be the subject of 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. It is the Management's intention to 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 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 official currency of
-------------------------
the PRC, is not freely convertible and strong control is maintained by the State
over foreign currency reserves. Currently, the RMB is convertible only under
the current account, permitting transactions such as trade and profit
repatriation, but investment and speculative currency trading is not possible
due to strict control over the capital account.
Approval for foreign 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 RMB into
foreign currency to enable it to comply with foreign currency payment
obligations the Company may have.
On January 1, 1994, the People's Bank of China introduced a managed
floating exchange rate system based on market supply and demand and proposed to
establish a unified foreign exchange inter-bank market among designated banks.
Since then, the RMB to U.S. Dollar exchange rate has been stable and, despite
the recent devaluation of regional currencies, the PRC Government continues to
reiterate its intention not to devalue the RMB. There can be no certainty,
however, that exchange rates will not become volatile or that the RMB will not
depreciate against the U.S. Dollar. Exchange rate fluctuations and/or RMB
devaluation may adversely affect the Company's financial performance and may
have an adverse effect on the value, translated into U.S. Dollars, of the
Company's fixed assets and earnings.
PRC Regulation of the Telecommunications Industry. While no comprehensive
-------------------------------------------------
law governing the telecommunications industry exists, the Ministry of
Information Industries (the "MII") regulates the telecommunications industry,
including the Internet industry, in China. The MII regulates entry into the
telecommunications industry, the scope of permissible business, interconnection
and transmission line arrangements, technology and equipment standards, and
other aspects of China's telecommunications industry. Such regulation may
limit the Company's flexibility to respond to certain development opportunities.
In addition, changes in the regulations
<PAGE>
or policies governing such regulatory framework could have an adverse effect on
the Company. The Company may have to obtain certain licenses from the MII 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, may be subject to regulation
by the State Planning Commission, the MII, 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 (the MII's predecessor) 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.
Competition
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 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.
<PAGE>
Limited Telecommunications Industry Experience. The Company's Management
----------------------------------------------
has limited experience in owning, constructing, developing or managing Internet
systems. 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 the Chinese Internet joint venture,
and will likely need to obtain additional funds in order to fully develop this
project. 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. As of the date of this Memorandum, 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 may 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 venturers. There can be no assurances that any sources of
financing will be available from existing shareholders or sources external to
the Company on terms favorable to the Company or at all.
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, including the Internet 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.
<PAGE>
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.
Employees
As of September 30, 1999, the Company has 16 full time employees, 2 of whom
are employed in the Los Angeles office and 14 are employed in the Beijing
Liaison Office. Several management candidates have agreed to joint he Company,
its Beijing Liaison office, Board of Directors of the Company, and the joint
venture pending successful conclusion of the employment or engagement
agreements.
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. 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 which includes
access to conference room facilities shared with other business tenants.
The lease with Barrister Executive Suite will terminate on March 31, 2000. The
Company is intends to lease an office space of 2,400 square feet located in
Torrance, California after the termination of the current lease.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company's management is not aware of any litigation pending or
threatened by or against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCK HOLDER MATERS
(a) Market Information. There is currently no trading market for the
Company's Common Stock and there has been no trading market to date. 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.
As of January 19, 2000, the authorized capital stock of the Company
consisted of 100,000,000 shares of common stock, par value $0.0001 per share
(the "Common Stock") and 20,000,000 shares of preferred stock, par value
$0.0001 per share (the "Preferred Stock"). As of January 19, 2000, there were
issued and outstanding 20,312,014 shares of Common Stock. 18,257,014 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"), 2,000,000
shares of the Common Stock were issued pursuant to Rule 701 of the Rules, and
55,000 shares were issued pursuant to a registration statement on Form S-8.
The Company is currently offering for sale a minimum of 3,000 units (the
"Units") and a maximum of 4,000 Units at a purchase price of $1,500 per Unit for
proceeds of a minimum $4,500,000 and a maximum $6,000,000 (the "Offering")
pursuant to Regulation D, Rule 506 under the Securities Act of 1933, as amended
(the "1933 Act"). Each Unit consists of 1,000 shares of the Company's common
stock, $0.0001 par value per share. The sales price of the Units has been
arbitrarily determined by the Company and does not necessarily bear any
relationship to the Company's book value, assets, past operating results,
financial condition, generally accepted accounting principles, or any other
established criteria of value.
As of the date of this report, the Company has received subscription of
3,000 Units from various accredited investors and the full subscription price of
$4,500,000 has been deposited to the escrow account managed independently of the
Company. Pursuant to the escrow instruction, $1,000,000 has been released to
the Company upon the execution of the JV Contract with CERNET and Sino-Tech.
The balance of the funds held in escrow account will be released to the Company
upon receipt by the Company or the joint venture of the usage rights of certain
MMDS wireless frequency channels in China.
237,014 shares of the Company's common stock have been issued in connection
with the investment in the Offering following the escrow's first release of the
$1,000,000 to the Company. The balance of the invested shares will be issued
after the full release of funds from the escrow to the Company.
(b) Holders. There are 61 holders of the Company's Common Stock
(c) Dividends. The Company has not paid any dividends to date, and has no
plans to do so in the immediate future.
<PAGE>
ITEM 6. PLAN OF OPERATION
The disclosure herein contains certain forward-looking statements that
involve risks and uncertainties, including statements regarding the Company's
strategy, planned operations, financial performance, and revenue sources. The
Company's actual results could differ materially from the results anticipated in
these forward-looking statements as a result of certain factors set forth under
"Risk Factors" below.
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.
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 operation.
During the years ended September 30, 1999 and September 30, 1998, the
Company received net cash of $425,066 and $267,745 from its financing
activities, respectively. The sources of these amounts were from (i) the
receipt of shareholder and officer loans and advances of $313,120 and $190,000
during the years ended September 30, 1999 and 1998, respectively; (ii)
withdrawal of $111,946 from a line of credit during the year ended September 30,
1999; (iii) the sale of $89,900 in Common Stock during the years ended
September 30, 1998; and (iv) repayment of shareholder and officer advances in
the amount of $12,155 during the year ended September 30, 1998.
The Company is currently offering a maximum of $6,000,000 and a minimum of
$4,500,000 of common stocks through a private placement (the "Offering")
pursuant to Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended (the "1933 Act"). The Offering consists of a minimum of 3,000
units and a maximum of 4,000 units of securities of the Company (the "Units"),
at a purchase price per Unit of $1,500. Each Unit consists of 1,000 shares of
the Company's common stock, $0.0001 par value per share (the "Common Stock").
As of the date of this report, 3,000 Units has been subscribed and the full
subscription price of $4,500,000 has been deposited to the escrow account until
such time as certain escrow release milestones occur. As of the date of this
report, $1,000,000 has been released to the Company pursuant to the escrow
instruction after the Company's signing of the Joint Venture Contract with
CERNET and Sino-Tech on December 31, 1999. The balance of the fund held in such
escrow account shall be released to the Company upon the receipt by the Company
or the Joint Venture of the usage rights of certain MMDS wireless frequency
channels in China. Should the Joint Venture fail to obtain the usage rights of
MMDS wireless frequency channels as needed no later than six (6) months from the
date of the execution of the Joint Venture Agreement ("Escrow Deadline") (and
unless extended by the Company), the escrow shall be closed and the balance of
the funds held in the escrow account at such time shall be distributed to
investors in the Offering on a pro-ratio basis based on the amount of investment
from each individual investor. The Escrow Deadline may be extended for an
additional six (6) months from the Escrow Deadline with the approval of a
majority vote of the investors contributing to the escrow through the Offering
at the time of close of escrow. This Offering will terminate upon the earliest
of: (i) acceptance by the Company of subscriptions for the entire Offering
amount and receipt of the proceeds by the Company, (ii) termination of the
Offering by management in its discretion, or (iii) March 31, 2000 unless
extended by management, but in no case beyond June 30, 2000.
In November 1999, the Company received $12,000 in loans from an individual
in the form of a promissory note dated November 1, 1999. The note is
established for a term of one year, 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.
In January 2000, all holders of the Company's notes payable agreed to
surrender the notes for conversion of the principal and the accrued interest in
the total amount of $563,890.05 into shares of the Company's common stock at an
exchange rate of $11.00 per share of common stock.
<PAGE>
The Company currently has a commitment to invest $3.5 million pursuant to
the Joint Venture Contract it entered with CERNET and Sino-Tech, dated December
31, 1999, in exchange of 70% 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. See the Risk Factor "Possible Need for Additional Financing to
Commence or Continue Operation."
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.
ITEM 7. FINANCIAL STATEMENTS
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
None.
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 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.
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------
<S> <C> <C>
Marc F. Mayeres 58 President
Amy Ming Zhang 28 Corporate Secretary
Liancheng Ji 60 Director
</TABLE>
Marc F. Mayeres, 58, has served as President of the Company since November,
1997 and was elected as the Chairman and the Acting CFO on January, 2000. Mr.
Mayeres has over 35 years of experience in senior financial management for
various multinational corporations, including The Quaker Oats Company and
Whirlpool Corporation, etc. During his tenure, he was responsible for financial
management, strategic planning, project management, mergers and acquisitions,
and global funding strategies. Immediately prior to joining ASPAC in 1997, he
was CFO of Thomsen Putzmeister, a subsidiary of German conglomerate Putzmeister
Werk AG. Mr. Mayeres has dual Bachelor degrees in Accounting and Chemistry
obtained in Belgium.
Amy Ming Zhang, 28, serves as Secretary of the Company since September
1997. Ms. Zhang is an expert in the regulations, opportunities, and the current
status of the telecommunication industry of China. In her current capacity and
prior position as an executive of America Catch, Inc., a subsidiary of Beijing
Catch Telecommunications Group, she has reviewed and overseen the feasibility
studies for scores of Chinese telecommunications investment projects. She
received her BA degree in Accounting from the University of Kentucky in 1994.
Liancheng Ji, 60, serves as a Director of the Company. Since 1994, Mr. Ji
holds various senior position in China Unicom, the second largest
telecommunications provider in China, including Vice President of Paging
Division, Senior Engineer and Vice President of Hebei Branch, President of
Beijing Branch. From 1990 to 1994, Mr. Ji was the Vice President of Beijing
Catch Telecommunication Group, a well-known wireless telecommunication service
provider in China. From 1967 to 1989, Mr. Ji was the Senior Engineerand Senior
Operating Officer of China Institute of Electronic System Engineering. Mr. Ji
received his BS degree in Telecommunication Engineering from China Northwestern
Electronic Engineering University.
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 salary of the President of
the Company was agreed at $100,000 per year starting august, 1998 with $3,500
paid monthly and the balance deferred until 60 days after the Company begun
public trading of its securities or at such other date as mutually agreed by
both parties. The Company provides health insurance for its employees and
officers. No officer of the Company receives a salary and/or bonus in excess of
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
--------------------------------- --------------------------------------
STOCK OPTIONS/
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(#) AWARDS SARS(#)
<S> <C> <C> <C> <C> <C> <C>
Marc F. Mayeres(1) 1998 49,600 (2) 7,000 (1) -- -- --
President
1999 42,000 (2) -- 30,000 (3) -- --
</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".
(3) On March 25, 1999, the Company issued 30,000 shares of its common stock to
Mr. Mayeres and 25,000 shares of its common stock to Ms. Amy Zhang for
recognition of their services performed and the expectation of continued
services to the Company. Such shares were issued pursuant to a
registration statement on Form S-8.
<PAGE>
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.
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>
Name and Address Amount and Nature Percentage of
Title of Class of Beneficial Owner of Beneficial Owner Class Owned (1)
<S> <C> <C> <C>
Common Finhorn Enterprises Limited (2) 12,320,000 60.65%
Stock c/o East Asia Corporate Services Limited
Columbus Centre Building
Wickhams Cay
PO Box 901
Road Town, Tortola, B.V.I.
Common Serenadia Investment Limited (3) 4,000,000 19.69%
Stock c/o AMS Financial Services Limited
P.O. Box 116, Road Town, Tortola
British Virgin Islands
Common Marc F. Mayeres, President 30,000 0.15%
Stock 30902 Clubhouse Drive, #44F
Laguna Niguel, California 92677
Common Amy Ming Zhang, Secretary 25,000 0.12%
Stock 3701 Glendon Avenue
Los Angeles, California 90034
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Common Liancheng Ji, Director -0- 0%
Stock Building #2
Shizipuo Dongli
Dongcheng District
Beijing, China
Common All Officers, Directors 55,000 0.27%
Stock and Shareholders as a Group
(3 Persons)
</TABLE>
________________
(1) Based on 20,312,014 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 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 1, 1999, the loan was further extended for an additional year 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 October 1,
1999, the loan was further extended for an additional year 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 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. The notes were extended on May 28, July 29, November
8, and November 8, 1999, respectively, for a one year period at a 7% annual
interest rate.
On September 15, 1998, the Company borrowed $9,000 from Amy Ming Zhang, the
secretary of the Company, 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. The loan was extended for a one year period at a 7%
annual interest rate on September 14, 1999.
On January 6, 2000, the Company obtained written consent from all of its
note holders to convert the notes payable in a total amount of $563,890.05,
including principle and accrued interest, to common stock shares of the Company
at a conversion price of $11 per share.
<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:
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
10.9 Joint Venture Contract with China Education and Research Network
Center and Beijing Sino-Tech Science & Technology Development
Center
24.2* Letter from Former Accountant
27 Financial Data Schedule
- ---------------
* 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.
<PAGE>
** Previously filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1998.
(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
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASPAC COMMUNICATIONS, INC.
By: /s/ Marc F. Mayeres
--------------------
Marc F. Mayeres
President
Date: January 28, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Liancheng Ji Director January 28, 2000
- ----------------
Liancheng Ji
<PAGE>
ASPAC COMMUNICATIONS, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
--------
F-1 - INDEPENDENT AUDITORS' REPORT
F-2 - CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER
30, 1999
F-3 - CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED SEPTEMBER 30, 1999 AND 1998 AND
FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1999
F-4 - CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' DEFICIENCY FOR THE PERIOD FROM
SEPTEMBER 26, 1997 (INCEPTION) TO SEPTEMBER
30, 1999
F-5 - F-6 - CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED SEPTEMBER 30, 1999 AND 1998 AND
FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1999
F-7 - F-25 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS
OF SEPTEMBER 30, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of:
Aspac Communications, Inc.
We have audited the accompanying consolidated balance sheet of Aspac
Communications, Inc. and Subsidiary (a Development Stage Company) as of
September 30, 1999 and the related consolidated statements of operations,
changes in stockholders' deficiency and cash flows for the two years ended
September 30, 1999 and 1998 and for the period from September 26, 1997
(inception) to September 30, 1999. 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, 1999, and the results of
their operations and their cash flows for the two years ended September 30,
1999 and 1998 and for the period from September 26, 1997 (inception) to
September 30, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14, the Company
has accumulated losses of $882,934 and a working capital deficiency of $851,910
at September 30, 1999 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 14. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
January 13, 2000
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
------------------
ASSETS
------
1999
----
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 7,005
Prepaid expenses 5,820
Other receivable 405
TOTAL CURRENT ASSETS 13,230
---------
PROPERTY AND EQUIPMENT 39,714
---------
OTHER ASSETS
Organization costs, net 1,755
Deferred offering cost 12,500
Other assets 10,607
---------
TOTAL OTHER ASSETS 24,862
---------
TOTAL ASSETS $ 77,806
- ------------ =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C>
Accounts payable and accrued expenses $ 61,276
Accrued salaries 128,798
Advisory services agreement payable 30,000
Notes payable - related parties 260,000
Notes payable - unrelated parties 255,000
Loan payable - employee 18,120
Line of credit 111,946
---------
TOTAL CURRENT LIABILITIES 865,140
---------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value
20,000,000 shares authorized, none
and outstanding -
Common stock, $0.0001 par value,
100,000,000 shares authorized,
20,075,000 shares issued and
outstanding 2,008
Additional paid-in capital 93,592
Deficit accumulated during
development stage (882,934)
---------
TOTAL STOCKHOLDERS' DEFICIENCY (787,334)
---------
TOTAL LIABILITIES AND STOCKHOLDERS'
- -----------------------------------
DEFICIENCY $ 77,806
- ----------- =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
AND FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1999
---------------------------------
<TABLE>
<CAPTION>
Sept. 26,1997
(Inception) to
1999 1998 Sept. 30,1999
-------------- -------------- --------------
NET SALES $ - $ - $ -
-------------- -------------- -------------
<S> <C> <C> <C>
OPERATING EXPENSES
Salaries 215,035 115,314 335,409
Depreciation expense 3,959 2,510 6,587
Amortization expense 540 405 945
Consulting fees 29,014 2,000 31,014
Lease expense 64,030 19,820 85,600
Legal and professional fees 45,296 31,209 76,505
Travel and entertainment 36,755 4,523 41,278
General and administrative 69,843 42,797 117,409
----------- ----------- -----------
Total Operating Expenses 464,472 218,578 694,747
----------- ----------- -----------
LOSS FROM OPERATIONS (464,472) (218,578) (694,747)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Registration costs-
withdrawn Form S-1 - (8,650) (158,650)
Interest income 50 856 906
Interest expense (24,472) (8,235) (32,707)
Other income 2,256 8 2,264
----------- ----------- -----------
Total Other (Expense) (22,166) (16,021) (188,187)
----------- ----------- -----------
NET LOSS DURING
- ---------------
DEVELOPMENT STAGE $ (486,638) $ (234,599) $ (882,934)
- ------------------ =========== =========== ===========
NET LOSS PER COMMON SHARE
- BASIC AND DILUTED (0.0242) (0.0134) (0.0474)
=========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -
BASIC AND DILUTED 20,056,315 17,464,000 18,632,837
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<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 SEPTEMBER 30, 1999
---------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON STOCK PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------ ------ -------- ------------- -----
<S> <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 issued 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 issued
for services 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)
- ------------------- ========== ====== ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
AND FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1999
---------------------------------
<TABLE>
<CAPTION>
Sept. 26, 1997
(Inception) to
1999 1998 Sept. 30, 1999
---- ---- --------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $(486,638) $(234,599) $(882,934)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation 3,959 2,510 7,072
Amortization 540 405 945
Write off of registration
costs - - 120,000
Issuance of common stock
for services 5,500 - 5,500
Changes in assets and
liabilities
(Increase) in:
Prepaid expenses (2,416) (3,404) (5,820)
Other receivables (405) - (405)
Deferred offering cost (12,500) - (12,500)
Other assets (7,975) (232) (10,607)
Increase in:
Accounts payable and
accrued expenses 141,924 41,081 190,074
--------- --------- ---------
Net cash used in
operating activities (358,011) (194,239) (588,675)
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property
and equipment (34,698) (6,358) (46,786)
Organizational costs - (2,700) (2,700)
Payments under stock
subscription agreement (30,000) (60,000) (90,000)
--------- --------- ---------
Net cash used in
investing activities (64,698) (69,058) (139,486)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Notes and loans payable 313,120 190,000 545,275
Line of credit 111,946 - 111,946
Proceeds from sale
of common stock - 89,900 90,100
Repayment of advances - (12,155) (12,155)
--------- --------- ---------
Net cash provided by
financing activities 425,066 267,745 735,166
--------- --------- ---------
</TABLE>
F-5
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
AND FOR THE PERIOD FROM SEPTEMBER 26, 1997
(INCEPTION) TO SEPTEMBER 30, 1999
---------------------------------
<TABLE>
<CAPTION>
Sept. 26, 1997
(Inception) to
1999 1998 Sept. 30, 1999
---- ---- ---------------
<S> <C> <C> <C>
INCREASE IN CASH AND
CASH EQUIVALENTS 2,357 4,448 7,005
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 4,648 200 -
------ ------ ------
CASH AND CASH EQUIVALENTS -
- -------------------------
END OF PERIOD $7,005 $4,648 $7,005
- -------------- ====== ====== ======
</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, 1999 and 1998, the unpaid portion of this debt amounted to $30,000
and $60,000, respectively.
During 1999, the Company issued as additional compensation to two officers of
the Company, 55,000 shares of common stock for services valued at $0.10 per
share based upon the Board of Directors estimate of the fair market value of the
stock at the issuance date.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
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 Internet access network 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.
On October 10, 1997, Aspac Holdings, Inc., a wholly owned subsidiary of
the Company was incorporated under the laws of the Cayman Islands. As of
the date of this report, the subsidiary has had no ongoing activities with
the exception of the incurrance of organization costs.
In March 1999, the Company established a representative office known as
ASPAC Beijing in the People's Republic of China to facilitate negotiations
with potential Chinese joint venture partners. The Company is currently in
the process of registering this Beijing Office with the relevant Chinese
authorities.
(B) Principles of Consolidation
--------------------------------
The accompanying consolidated financial statements include the accounts of
the Company, including its representative office ASPAC Beijing established
in the People's Republic of China, and Aspac Holdings, Inc., a wholly
owned subsidiary of the Company. All significant intercompany balances and
transactions have been eliminated in consolidation.
F-7
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- -------------------------------------------------------------
(C) Basis of Presentation
--------------------------
The financial statements are prepared in accordance with Generally
Accepted Accounting Principles in the United States of America.
Adjustments are made to translate the financial statements of the Beijing
representative office to United States Generally Accepted Accounting
Principles and United States dollars. The functional currency of the
Beijing Division is the Renminbi ("RMB"). The financial statements are
expressed in United States dollars.
(D) 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.
(E) 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.
(F) 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-8
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- -------------------------------------------------------------
(G) Organization Costs
-----------------------
Organization costs are being amortized on a straight-line basis over a
period of 5 years.
(H) Earnings per Share
-----------------------
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 Earnings per Share. Basic loss per
share is computed by dividing the net loss for the period by the weighted
average number of shares outstanding during the period. Diluted earnings
(loss) per share is computed by dividing the net income (loss) for the
period by the weighted average number of shares outstanding during the
period including common stock equivalents. There were no common stock
equivalents outstanding at September 30, 1999 and 1998. Accordingly, a
reconciliation of basic to diluted loss per share is omitted since diluted
loss per share equals basic loss per share at September 30, 1999 and 1998.
(I) Foreign Currency Translation
---------------------------------
The functional currency of the Beijing representative office is the
Renminbi ("RMB"). Financial statements for this division are translated
into United States dollars at year-end exchange rates as to assets and
liabilities and weighted average exchange rates as to revenues and
expenses. The Bank of China introduced a managed floating exchange rate
system in 1994. Despite devaluation of regional currencies, the People's
Republic of China has decided not to devalue the RMB. Therefore the RMB to
United States dollar exchange rate has been stable and has not changed
during the entire fiscal year ended September 30, 1999.
(J) Comprehensive Income (Loss)
--------------------------------
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statement of Financial
F-9
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- -------------------------------------------------------------
(J) Comprehensive Income (Loss) - (Cont'd)
-------------------------------------------
Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement
No. 130"). Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components, and is effective for
fiscal years beginning after December 15, 1997.
Since the RMB to United States dollar exchange rate remained unchanged
during the Company's fiscal year ended September 30, 1999, there have not
been any foreign currency translation gains (losses) resulting from the
translation of the financial statements of the Beijing division to United
States dollars. Consequently, the financial statements do not include
Other Comprehensive Income (Loss) in the Statement of Operations nor
Accumulated Other Comprehensive Income (Loss) in the Stockholders'
Deficiency Section of the Balance Sheet or in the Statement of
Stockholders' Deficiency.
(K) 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 enactment 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, 1999
------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- -------------------------------------------------------------
(L) Recent Accounting Pronouncements
-------------------------------------
The Financial Accounting Standards Board has issued several new accounting
pronouncements. 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. Statement No. 132, "Employers' Disclosures About
Pensions and Other Post-retirement Benefits" revises employers' disclosure
requirements about pension and other post-retirement benefit plans and is
effective for fiscal years beginning after December 15, 1997. Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" as
amended by Statement No. 137, establishes accounting and reporting
standards for derivative instruments and related contracts and hedging
activities. This statement is effective for all fiscal quarters and fiscal
years beginning after June 15, 2000. The Company believes that its
adoption of these pronouncements will not have a material effect on the
Company's financial position or results of operations.
(M) Reclassification
---------------------
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
F-11
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 2 - PROPERTY AND EQUIPMENT
- --------------------------------
Property and equipment at September 30, 1999 consisted of the following:
<TABLE>
<S> <C>
Furniture and equipment $28,181
Automobiles 18,120
-------
46,301
Less accumulated depreciation (6,587)
-------
$ 39,714
========
</TABLE>
Depreciation expense for the year ended September 30, 1999 and 1998
was $3,959 and $2,510, respectively.
NOTE 3 - ORGANIZATION COSTS
- ----------------------------
Organization costs at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Organization costs $ 2,700
Less accumulated amortization (945)
--------
$ 1,755
========
</TABLE>
Amortization expense, based on an estimated useful life of five years, for
the year ended September 30, 1999 and 1998 was $540 and $405,
respectively.
NOTE 4 - ACCRUED SALARIES
- --------------------------
Accrued salaries represent current year unpaid salaries. Of the total
amount of accrued salaries, 68% is due to the President of the Company in
accordance with his employment agreement (See Note 9(B)).
NOTE 5 - ADVISORY SERVICE AGREEMENT PAYABLE
- --------------------------------------------
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
F-12
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 5 - ADVISORY SERVICE AGREEMENT PAYABLE (CONT'D)
- -----------------------------------------------------
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, 1999, the Company has paid $120,000 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) was accounted for as registration costs and expensed
in the statement of operations because the Form S-1 Registration Statement
was subsequently withdrawn.
NOTE 6 - NOTES PAYABLE
- -----------------------
(A) Notes Payable - Related Parties
-----------------------------------
The following schedule reflects notes payable to related parties at
September 30, 1999. All of the notes have been issued with a term of one
year.
Note payable, interest at 7% per annum,
due on October 1, 1999, unsecured (See below) $ 60,000
Note payable, interest at 5% per annum
through October 26, 1998, note extended
for one year, interest at 7% per
annum through October 26, 1999, due on
October 26, 1999, unsecured (See below) 100,000
Note payable, interest at 5% per annum
through May 31, 1999, note extended
for one year, interest at 7% per
annum through May 31, 2000, due on
May 30, 2000, unsecured 10,000
F-13
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 6 - NOTES PAYABLE - (CONT'D)
- ----------------------------------
(A) Notes Payable - Related Parties - (Cont'd)
----------------------------------------------
Note payable, interest at 5% per annum
through July 31, 1999, note extended
for one year, interest at 7% per
annum through July 31, 2000, due on
July 31, 2000, unsecured 21,000
Note payable, interest at 5% per annum
through September 14, 1999, note extended
for one year, interest at 7% per
annum through September 14, 2000, due on
September 14, 2000, unsecured 9,000
Note payable, interest at 5% per annum
due on October 31, 1999, unsecured 30,000
Note payable, interest at 5% per annum
due on November 11, 1999, unsecured 30,000
-------
260,000
Less current portion 260,000
=======
$ -
=========
The notes maturing on October 1, 1999 and October 26, 1999, have been
subsequently extended for another one-year period and bear interest at
7% per annum per the agreements.
(B) Notes Payable - Unrelated Parties
-------------------------------------
The following schedule reflects notes payable to unrelated parties at
September 30, 1999. All of the notes have been issued with a term of one
year.
F-14
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 6 - NOTES PAYABLE - (CONT'D)
----------------------------------
(B) Notes Payable - Unrelated Parties - (Cont'd)
------------------------------------------------
Note payable, interest at 5% per annum
through September 29, 1999, note extended
for one year, interest at 7% per
annum through September 29, 2000, due on
September 29, 2000, unsecured 20,000
Note payable, interest at 5% per annum
due on January 31, 2000, unsecured 15,000
Note payable, interest at 5% per annum
due on February 15, 2000, unsecured 30,000
Note payable, interest at 5% per annum
due on February 29, 2000, unsecured 25,000
Note payable, interest at 5% per annum
due on March 30, 2000, unsecured 15,000
Note payable, interest at 5% per annum
due on April 30, 2000, unsecured 20,000
Note payable, interest at 5% per annum
due on May 15, 2000, unsecured 2,000
Note payable, interest at 5% per annum
due on May 31, 2000, unsecured 5,000
Note payable, interest at 5% per annum
due on June 1, 2000, unsecured 10,000
Note payable, interest at 5% per annum
due on June 15, 2000, unsecured 30,000
Note payable, interest at 5% per annum
due on June 30, 2000, unsecured 13,000
F-15
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 6 - NOTES PAYABLE - (CONT'D)
----------------------------------
(B) Notes Payable - Unrelated Parties - (Cont'd)
------------------------------------------------
Note payable, interest at 5% per annum
due on August 15, 2000, unsecured 35,000
Note payable, interest at 5% per annum
due on August 30, 2000, unsecured 20,000
Note payable, interest at 5% per annum
due on September 29, 2000, unsecured 15,000
-------
255,000
Less current portion 255,000
-------
$ -
===========
The notes maturing on October 31, 1999 and November 11, 1999, have
been subsequently extended for another one-year period and bear
interest at 7% per annum per the agreements.
Accrued interest of $29,069 on the notes payable due to related and
unrelated parties has been included in accrued expenses at September
30, 1999.
In January 2000 the holders of all the above notes agreed to convert
them together with the accrued interest to the Company's common stock.
(See Note 15(F))
NOTE 7 - LOAN PAYABLE - EMPLOYEE AND LINE OF CREDIT
----------------------------------------------------
(A) Loan Payable - Employee
----------------------------
The loan payable of $18,120 is due to an employee of the Company and
is related to the purchase of an automobile from the same employee.
The loan is unsecured, non-interest bearing and due on demand (See
Note 2).
F-16
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 7 - LOAN PAYABLE - EMPLOYEE AND LINE OF CREDIT - (CONT'D)
---------------------------------------------------------------
(B) 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 September 30, 1999 totaled $111,946. 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.
NOTE 8 - RELATED PARTIES
-------------------------
The notes payable and certain salaries are owed to related parties at
September 30, 1999. (See Notes 4, 6 and 7).
As discussed in the supplemental disclosure to the consolidated cash
flow statements and Note 10 (C), certain non-cash issuance of common
stock to related parties occurred during 1999.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
(A) 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 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.
F-17
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONT'D)
------------------------------------------------
(A) Consulting Agreements - (Cont'd)
-------------------------------------
The stock was recorded at a value of $0.0001 per share during 1998.
(B) 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, 1999 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
disability as defined in the Agreement.
(C) Operating Lease Agreement
-----------------------------
The Company leases two corporate office spaces and one automobile
under operating leases. Both office leases extend over a period of
less than one year and are therefore not included in the presentation
below. The car lease has a remaining term through the year 2000.
Future minimum lease payments for the operating lease are as follows
at September 30, 1999:
F-18
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES - (CONT'D)
--------------------------------------------------
(C) Operating Lease Agreement - (Cont'd)
----------------------------------------
Years
-----
Ending Amount
------ -----------
2000 21,744
2001 5,436
----------
$ 27,180
==========
Lease expense for the years ended September 30, 1999 and 1998
aggregated $64,030 and $19,820, respectively.
NOTE 10 - COMMON STOCK
------------------------
(A) 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 and an amount of $8,650 was transferred from the
common stock account to the additional paid in capital account.
(B) 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 and 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 amounts
in this report reflect this stock split and the reverse stock split
discussed in Note 10 (A) above.
F-19
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 10 - COMMON STOCK - (CONT'D)
----------------------------------
(C) Common Stock Issuance
--------------------------
During the year ended September 30, 1999, 30,000 and 25,000 shares,
respectively were issued to the President of the Company and the
Corporate Secretary of the Company, respectively. These shares were
issued for services and valued at an estimated fair value of $.10 per
share at the time of issuance as determined by the Board of Directors
of the Company. A S-8 registration statement was filed for the 55,000
shares issued.
NOTE 11 - PRELIMINARY COOPERATION AGREEMENT WITH FUTURE JOINT
-----------------------------------------------------------------
VENTURE PARTNERS
----------------
On September 30, 1998, the Company executed a Preliminary Cooperation
Agreement (the "Agreement") with a Chinese Company to establish a
Joint Venture Company ("JV") in order to develop a nationwide Internet
network in the Peoples Republic of China. This Agreement was
terminated on March 19, 1999.
NOTE 12 - LETTER OF INTENT - FIBER OPTIC LINE LEASE
----------------------------------------------------
On March 30, 1999, the company signed a Letter of Intent with the
China Railroad Communication Center to lease a 2 Mbps, expandable to
622 Mbps, fiber optic line to connect four major cities in China for
RMB 1,755,420, equivalent to US $211,752 per year. The leased line
will be used to expand the backbone capacity of a proposed joint
venture for wireless communication services between these four major
cities. The Company plans to start this lease whenever such capacity
expansion is necessary after the establishment of the joint venture
described in Note 15 (A).
NOTE 13 - RESCISSION OF 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 was
November 12, 1998 and the closing date of the
F-20
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 13 - RESCISSION OF AGREEMENT AND PLAN OF REORGANIZATION
-------------------------------------------------------------
Agreement was to be March 31, 1999. If due diligence was completed to
the Company's satisfaction, the Company agreed to issue 20,030,000
shares of common stock of the Company's common stock to IDN's current
shareholders in exchange for 100 percent of IDN's common stock
outstanding.
After a careful due diligence review and analysis of IDN's
representations and financial information, the Company decided on
February 11, 1999, to rescind the Agreement, effective immediately.
The officers of the Company resigned as unpaid officers and advisors
of IDN and from IDN's Board of Directors.
NOTE 14 - 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 incurred a net loss of $486,638 and negative cash flows from
operating activities of $358,011 during 1999, and had a working
capital deficiency of $851,910 and an accumulated deficit of $882,934
at September 30, 1999. The Company will be required to make
significant expenditures in connection with its operations and its
Joint Venture Project (see Note 15 (A)). 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.
The Company is in the process of raising approximately $4,500,000 in a
private placement during its fiscal year 2000 (See Note 15 (D)). As
of the date of this report, the Company has received, as non-
refundable investments under this offering approximately $1,000,000
before legal fees and commissions. In January 2000, holders of the
Company's notes payable agreed to surrender the notes for conversion
of the principal and the accrued interest into shares of the Company's
common stock. As
F-21
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 14 - GOING CONCERN - (CONT'D)
----------------------------------
a result, the working capital deficiency will be reduced by $563,890.
Management of the Company believes that actions presently being taken
to obtain additional funding provide the opportunity for the Company
to continue as a going concern.
NOTE 15 - SUBSEQUENT EVENTS
----------------------------
(A) 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.
F-22
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 15 - SUBSEQUENT EVENTS (CONT'D)
-------------------------------------
(B) 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 15 (A)). 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.
(C) Network Operating Agreement with Sino-Tech
-----------------------------------------------
On December 31, 1999, the Company's joint venture, YeeYoo (see Note 15
(A)), 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
F-23
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
(C) Network Operating Agreement with Sino-Tech
-----------------------------------------------
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 $60,400 at September 30, 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.
(D) Private Placement
----------------------
During November 1999, as 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 offer will terminate on or before March 31, 2000, unless extended
by the Company to a date not later than June 30, 2000. 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. Fully paid subscriptions consist of 400 units at
$600,000 and partially paid subscriptions consist of 2600 units for
$3,900,000 of which $1,000,000 has been received. The funds received
are held in an escrow account for the benefit of the investors and
distributed subject to stipulated milestones. As of the date of this
report, approximately $1,000,000 before offering expense and related
commissions has been released to the Company based on the first
milestone of executing the Joint Venture Contract (See Note 15(A)).
The remaining milestones relate to the Company or its joint venture
obtaining certain wireless frequency channel usage rights in the
People's Republic of China. Should the joint venture fail to obtain
the usage rights as needed by June 30, 2000, unless extended for
F-24
<PAGE>
ASPAC COMMUNICATIONS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
------------------------
NOTE 15 - SUBSEQUENT EVENTS - (CONT'D)
---------------------------------------
(D) Private Placement - (Cont'd)
---------------------------------
an additional six months by the Company as authorized by a majority
vote of the private placement investors, the escrow shall be closed
and all the remaining escrow funds shall be returned on a pro-rata
basis to the investors. The Company will account for the common stock
issued under the private placement as refundable common stock until
such time as funds are released from escrow to the Company.
(E) Note Payable
-----------------
In November 1999, the Company received $12,000 in loans from an
unrelated party in the form of a promissory note dated November 1,
1999. The note is established for a term of one year, 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.
(F) Conversion of Payable Notes
---------------------------------
In January 2000 the holders of the notes payable (See Note 6) and
subsequent note payable (See Note 15 (E)) agreed to surrender the
notes for conversion of the principal and the accrued interest into
shares of the Company's common stock at an exchange rate of
approximately $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 15(D))
which gain aggregated approximately $230,000 at the conversion date.
F-25
<PAGE>
EXHIBIT 10.9
Sino-Foreign Joint Venture Contract
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS
I. CONTRACTING PARTIES
II. ESTABLISHMENT OF SINO-FOREIGN JOINT VENTURE COMPANY
III. SCOPE AND SCALE OF OPERATION
IV TOTAL CAPITAL INVESTMENT AND REGISTERED CAPITAL
V. RESPONSIBILITIES OF THE PARTIES
VI. BOARD OF DIRECTORS
VII. OPERATION MANAGEMENT
VIII. LABOR MANAGEMENT
IX TAX, FINANCE AND AUDICCOUNTING
X. INSURANCE
XI. CONFIDENTIALITY
XII. TERM OF CONTRACT
XIII. TERMINATION AND CLOSE OF ACCOUNTS
XIV BREACH OF CONTRACT
XV. FORCE OF MAJEURE
XVI. RESOLUTION OF DISPUTES
XVII. GOVERNING LAW
XVIII EFFECTIVENESS AND OTHERSMISCELLANEOUS
IXX LANGUAGE
</TABLE>
DEFINITIONS
The following terms should contain the following meanings unless otherwise
defined in this Contract:
0.01 "Party A"
<PAGE>
Beijing Sino-Tech Science and Technology Development Center, a limited
liability corporation legally registered in the People's Republic of
China, located at #26, 4th Street, Chuangye Zhong Lu, Shangdi Information
Industry Base, Haidian District, Beijing, 100085, P. R. China.
0.02 "Party B"
China Education and Research Network Center, a non-for-profit organization
legally registered in the People's Republic of China, or its wholly owned
subsidiary, located at Central Building #224, Tsinghua University,
Beijing, 100084, P. R. China.
0.03 "Party C"
ASPAC Communications, Inc., a Delaware corporation, located at 2049
Century Park East, Suite 1200, Los Angeles, California, 90067, U. S. A.
0.04 "Contract"
Refers to the Sino-foreign Cooperative Joint Venture Contract entered
between Party A, Party B and Party C on December 31, 1999.
0.05 "PRC" or "China"
Refers to the People's Republic of China.
0.06 "Approval Authorities"
Refers to People's Republic of China's Ministry of Foreign Trade and
Economic Cooperation or State Counsel authorized organizations.
0.07 "Articles"
Refers to Articles of Association of the Sino-foreign Joint Venture
company, formed by Party A, Party B and Party C based on this Contract.
0.08 the "Company"
Refers to the Sino-Foreign Joint Venture company, a limited liability
corporation, formed by Party A, Party B and Party C based on this
Contract.
0.09 "Effective Date"
Refers to the effective date of this Contract, which is the date that the
Approval Authority approves this Contract and the Articles.
0.10 "Board"
Refers to the Board of Directors of the Company.
0.11 "Executive Officers"
Refers to General Manager, Vice General Manager and other officers
appointed by the Board of Directors.
0.12 "One Party", "All Parties" or "Three Parties"
One Party refers to one of Party A, Party B and Party C. All Parties or
Three Parties refers to all parties, i.e. Party A, Party B and Party C.
0.13 the "Project"
Refers to the development of a nationwide Internet access and service
network.
0.14 "Renminbi" ("RMB")
Refers to the official currency used in the PRC.
0.15 "Administration of Foreign Exchange"
Refers to the PRC State Administration of Foreign Exchange and/or its
local branch.
<PAGE>
0.16 "Administration of Industry and Commerce"
Refers to the PRC State Administration of Industry and Commerce and/or its
local branch.
0.17 "U.S. Dollar" (US$)
Refers to the official currency used in the United States of America.
0.18 "Employees"
Refers to the Company's employees besides Executive Officers.
JOINT VENTURE CONTRACT
In accordance with "The law of the People's Republic of China on Sino-Foreign
Joint Venture" and other related laws and regulations of the People's Republic
of China (the "PRC"), Beijing Sino-Tech Science and Technology Development
Center ("Party A"), China Education and Research Network Center or it wholly
owned subsidiary (CERNET) ("Party B"), and ASPAC Communications, Inc. ("Party
C") agreed to form a Sino-foreign Joint Venture ("SFCJV") company and enter into
the following Sino-foreign Joint Venture Contract ( the "Contract").
I. CONTRACTING PARTIES
1.01 Parties
--------
A. Party A: Beijing Sino-Tech Science & Technology Development Center
Legal Representative: Xu, Yawen
Title: General Manager
Nationality:
Chinese Fax Number: (8610) 62983428
B. Party B: China Education and Research Network Center (CERNET) or its
wholly owned subsidiary
Legal Representative: Wu, Jian Ping
Title: Director, and Director of The Specialist Committee
Nationality: Chinese
Fax Number: (8610) 62785933
C. Party C: ASPAC Communications, Inc.
Legal Representative: Marc F. Mayeres
Title: President
Nationality: U.S. Citizen
Fax Number: (001-310) 712-3286
1.02 Representations and Warranties:
-------------------------------
Upon the Contract's signing date and Effective Date, Party A, Party B, and
Party C respectively represent and warrant to each other that:
(1) the respective party is legally established in conformity with the
registered country's laws and regulations and is in good standing.
(2) the respective party has full power, all necessary authorities and
approvals, and is competent to execute this Contract and to perform
its obligations hereunder and to consummate each responsibility
contemplated hereby.
<PAGE>
(3) the respective party has taken all necessary actions to authorize the
signing and execution of this Contract. The representative of the
respective party that signs this Contract is fully authorized with
letter of Authorization or other similar document, and has the power
to sign for the party and to bind the party under this Contract.
(4) execution and performance of this contract does not and will not
constitute a default under or a violation of the respective party's
Articles, Business License, By- laws or any law, statute, regulation,
authority or approval, or any other instrument to which the
respective party or the other party may be bound subject under any
contract or agreement.
(5) to the best knowledge of each respective party, there is no pending
or actual law suit, arbitration, or legal, administrative, or other
proceeding, or governmental investigation against or affecting the
respective party or by any means affecting the respective party's
ability to sign and execute this Contract hereby.
II. ESTABLISHMENT OF SINO-FOREIGN
JOINT VENTURE COMPANY
2.01 Establishment of the Company
----------------------------
The Three Parties agree to establish a Joint Venture company (the
"Company") with limited liability in the PRC under The Law of People's
Republic of China on Sino-Foreign Joint Venture Enterprises and other
related regulations as well as stipulations in this Contract upon the
Effective Date of this Contract.
2.02 The Company's name and Location
-------------------------------
(1) Name: The Company's name in Chinese is:
[_][_][_][_][_][_][_][_][_][_][_][_](to be confirmed). The Company's name
in English is: YeeYoo Network Technology Co., Ltd. (to be confirmed).
(2) Address: The Company's legal location is: Haidian District, Beijing,
PRC.
2.03 Governing Laws and Regulations
------------------------------
Activities of the Company shall be in accordance with all PRC laws,
decrees and regulations.
2.04 Beginning of Operation
----------------------
The Company is a limited liability company. All parties shall undertake
the liability of the Company subject to their investment amount. All
parties agree to share risks and rewards, profits and losses of the
Company based on each party's share ownership ratio in the registered
capital of the Company. The Company shall start operation upon issuance of
its Business License.
III. SCOPE AND SCALE OF OPERATION
3.01 Scope and Scale of the Company
------------------------------
The Company is engaged in:
(a) The development of Wireless broadband high speed access equipment.
(b) Internet and networking products development and sales.
(c) Software development and sales.
(d) The investment and development of Internet network.
(e) The development of the Internet technology and its application
services.
IV. TOTAL CAPITAL INVESTMENT AND REGISTERED CAPITAL
4.01 Total Capital Investment
------------------------
<PAGE>
The total capital investment of the Company for this Project is initially
expected to be Ten Million Dollars (US$ 10,000,000).
4.02 Total Registered Capital
------------------------
The total registered capital of the Company is Five Million Dollars
(US$5,000,000). In which: Party A shall contribute Five Hundred Thousand
Dollars (USD$500,000), accounting for 10% of the registered capital; Party
B shall contribute One Million Dollars (US$1,000,000), accounting for 20%
of the registered capital; Party C shall contribute Three Million Five
Hundred Thousand Dollars (US$3,500,000), accounting for 70% of the
registered capital.
4.03 Contribution and Conditions for Co-operation
--------------------------------------------
(1) Conditions for co-operation to be provided by Party A shall include:
Party A shall contribute a sum of capital equivalent to Five Hundred
Thousand Dollars (US$ 500,000) to the Company towards registered
capital, accounting for 10% of the total registered capital. The
contribution by Party A shall be in cash or tangible or intangible
assets agreed by the Three Parties.
(2) Conditions concerning Party B's investment co-operation shall
include:
Party B shall contribute a sum of capital equivalent to One Million
Dollars (US$ 1,000,000) to the Company towards registered capital,
accounting for 2015% of the total registered capital. The
contributions by Party B shall be cash or tangible or intangible
assets agreed by the Three Parties.
(3) Conditions for co-operation to be provided by Party C shall include:
Party C shall contribute a sum of capital equivalent to Three Million
Five Hundred Fifty Thousand Dollars (US$ 3,500,000) to the Company
towards registered capital, accounting for 705% of the total
registered capital. The contributions by Party C shall be in US
Dollars.
4.04 Certificate of Investment
-------------------------
The investment payments toward the registered capital from the Three
Parties shall be certified by a certified public accountant agreed by the
Three Parties. After receiving a satisfactory certificate recording such
investment, the Company shall issue a Certificate of Investment, including
the amount and share ownership of the registered capital, signed by the
Chairman of the Company to the Three Parties within thirty (30) days. A
copy of the Certificate of Investment shall be submitted to and filed with
the Approval Authority.
4.05 Equity Sharing
--------------
Equities of the Company shall be distributed in percentage as follows:
Party A: 10% Party B: 20% Party C: 70%
4.06 Transfer of Rights and Equities
-------------------------------
Before One Party (the "Transferor) wishes to transfer, in whole or part,
its shares in the Company to a third party, the Transferor must obtain
written consent from the other Two Parties and the approval from the Board
of Directors and the Approval Authority. The other Two Parties have the
right of first refusal to purchase the shares that the Transferor wishes
to transfer. After receiving approval from the Approval Authority and when
transferring shares according to stipulations stated above, the Company
shall proceed with Change of Registration with the Administration of
Industry and Commerce.
4.07 Addition to Registered Capital
------------------------------
The registered capital may be increased from time to time, within the
duration of the co-operation, subject to the approval of the Board of
Directors (the "Board") and the Approval Authority. The contribution from
All Parties to increase the registered capital pursuant to the funding
plan shall be
<PAGE>
pro rata in accordance with the share ratio of each party at the time of
such capital increase. If One Party declines to increase the registered
capital, the other parties then have the first right of refusal to
increase the whole or a portion of the amount of the increase in
registered capital which is rejected by the other party. The rights and
obligations of each party shall also be adjusted pursuant to the new share
ownership ratio. Upon receiving approval from the Approval Authority, the
Company shall proceed the registration process with the Administration of
Industry and Commerce. Party A and Party B have the right to invest their
portion of the addition to the registered capital with tangible or
intangible assets that are agreed by the Three Parties.
V. RESPONSIBILITIES OF THE PARTIES
5.01 Responsibilities of Party A
---------------------------
In addition to other obligations stipulated under this Contract, Party A
shall be responsible for the following matters:
(1) Being in charge of applying from the competent authorities of the
PRC, for the approval of the establishment and registration of the
Company, and business license, etc. Assisting the Company in applying
for and obtaining Preferential Taxation, Tariff Reduction and
Exemption, and other preferential investment treatments that are
obtainable under PRC laws.
(2) Assisting the Company in obtaining equipment, materials, as well as
office equipment and materials within the PRC.
(3) Assisting the Company in recruiting qualified Executive Officers and
Employees in China. Arranging transportation for imported equipment.
(4) Assisting the Company in applying for import licenses for necessary
machinery equipment, goods and materials.
(5) Assisting the foreign employees of the Company in obtaining all
necessary entry visas and work permits. Arranging meals,
accommodations, office spaces, local transportation, and emergency
medical treatments for expatriate personnel of the Company. All out
of pocket costs for the above mentioned matters shall be the
responsibility of the Company
(6) Assisting the Company and its foreign employees in opening bank
accounts denominated in both RMB and convertible currencies.
(7) Assisting Chinese employees of the Company in obtaining necessary
exit and entry permits and Visas for their overseas trips required by
the Company's activities and operations.
(8) Assisting and cooperating with the Company to carry out the Company's
products and services on CERNET's and other networks' infrastructure.
(9) Handling all other matters appointed by the Company.
5.02 Responsibilities of Party B
---------------------------
In addition to other obligations stipulated under this Contract, Party B
shall still be responsible for the following matters:
(1) Providing technical support for the on-going operations of the
Company;
(2) Providing the network platform for the Company;
(3) Assisting and cooperating with the Company to carry out the Company's
services on CERNET's and other network's infrastructure;
<PAGE>
(4) Assisting the Company in obtaining related information resources;
(5) Assisting the Company in operation and maintenance of the Internet
network;
(6) Providing the technical training programs for the Company;.
(7) Handling other matters appointed by the Company.
5.03 Responsibilities of Party C
---------------------------
In addition to other obligations stipulated under this Contract, Party C
shall still be responsible for the following matters:
(1) Assisting and introducing to the Company opportunities in obtaining
modern management techniques.
(2) Assisting the Company, along with Party A, in obtaining necessary
foreign entry visa and working permits required by the Company's
activities and operation.
(3) Assisting the Company in recruiting qualified foreign employees and
consultants when necessary.
(4) Assisting the Company in the management of its operations and
introducing to the Company advanced and efficient management
techniques.
(5) Assisting the Company raise necessary funds for its business
development.
VI. BOARD OF DIRECTORS
6.01 Composition of Board of Directors
---------------------------------
(1) The date that the Company obtains its Business License shall be
considered as date that the Board is established.
(2) The Board of Directors (the "Board") shall consist initially of five
Directors. One Director shall be appointed by Party A, one Director
shall be appointed by Party B and three Directors shall be appointed
by Party C. Each of the Three Parties shall notify the other parties
of the names of its appointed Directors.
(3) Each Director's term of office is three years, renewable with
consecutive appointment from the original appointing party. Vacancies
in the Board resulting from a Director's retirement, resignation,
illness, incapacity, death or the original appointing party's removal
of the Director shall be replaced by appointment from the original
appointing party. The replacement Director shall serve out the term
of his predecessor. All Parties have the right to replace their
appointed Directors.
(4) Chairman of the Board (the "Chairman") shall be jointly appointed by
Party C and Vice Chairman of the Board (the "Vice Chairman") shall be
appointed by Party B. Chairman is the legal representative of the
Company.
6.02 Board of Directors Meeting and Authorities
------------------------------------------
(1) The Board represents the highest authority in the Company.
<PAGE>
(2) The Board may hold its meetings in locations as the Three Parties
from time to time may determine. All Directors shall be given written
notices for the Board meeting (all Directors must receive such
notices no less than 15 days before the meeting). Notice of Board
meeting shall state agenda of the meeting, all related information
and documents, and time and place of the meeting.
(3) The Board meeting shall be held at least once a year and shall be
hosted by the Chairman. If more than 1/3 of the Directors submit
written request of a Board meeting to the Chairman, the Chairman may
call for a temporary Board meeting. Minutes of the Board meetings
shall be recorded and kept in the Company file.
(4) If Director(s) cannot be present in person to attend the Board
meeting, he/she (they) can delegate representative(s) to participate
with written consent(s). Such representative(s) shall be provided
with the same rights as Director(s). Absence or delegation of
Director(s) shall be considered as waiver of such rights.
(5) Participation of 2/3 of Directors then in office either by presence
in person or delegation shall constitute a quorum for all purposes in
any Board meeting. Each participating Director (including Chairman
and Vice-Chairman), either in person or by delegation, shall have one
voting right.
(6) The following matters must be unanimously approved by all Directors
prior to adoption of resolution:
(i) Amendment of By-Laws;
(ii) Mergers, separations, and changes in the form of organization;
(iii) Dissolution of the Company;
(iv) Mortgage of the Company's assets;
(v) Other matters agreed by Three Parties that must be unanimously
approved by all Directors in a Board meeting prior to adoption
of resolution.
(7) The following matters must be approved by majority of Directors prior
to adoption of resolution:
(i) Approval of the Company's business plan, budget and final
accounting;
(ii) Acquisition, significant expansion, discontinuation or
dissolution of any business;
(iii) Increase or decrease of the Company's registered capital;
(iv) Decisions regarding the Company's sinking fund, business
development fund, employee fringe benefits and rewards fund,
and any other Company funds' fiscal distribution.
(v) Employment terms and conditions for Executive Officers and
Employees.
(8) All other matters that need Board meeting's resolution could be
proposed in an appropriate Board meeting and could be approved by
simple majority's affirmative votes by Directors in presence or in
delegation.
(9) All actions to be taken by the Board may be taken without a meeting
if majority of the Board members consent thereto in writing, and the
writing or writings shall be filed with the minutes of the
proceedings of the Board. Such action shall hold the same authority
as if it was unanimously approved by all members in a Board meeting.
(10) The Board will provide complete and accurate minutes for all Board
meetings (including copy of the notices of Board meetings) and all
businesses transacted during Board meetings in both Chinese and
English. Minutes of Board meeting shall be distributed to all members
of the Board as quickly as possible as permitted by practicable
situations (but no later than 21 days after the meeting). A Director
who proposes any change or addition to the Minutes shall
<PAGE>
present to the Chairman or the Vice-Chairman in writing for such
change and addition within two (2) weeks of receipt of the Minutes.
Minutes of Board meeting shall be finalized by Chairman and Vice-
Chairman within forty five (45) days after such meeting, and shall be
signed by all Directors within two (2) weeks after receipt of the
finalized Minutes.
(11) Members of the Board are not compensated for serving as Directors.
However, the Company shall be responsible and shall reimburse
Directors for all reasonable expenses occurred when performing their
Director duties.
VII. OPERATION MANAGEMENT
7.01 Organizations of Management
----------------------------
The Company adopted a management system that under the supervision of the
Board, all Executive Officers are responsible to the Board. The Company
assigns one General Manager, several Vice General Managers and other
Executive Officers determined by the Board. General Manager shall be
nominated by Party C and approved by Board of Directors while the Vice
General Manager shall be nominated by the General Manager and approved by
the Board of Directors. Other appointment and removal of Executive
Officers shall be determined by the General Manager and reported to
majority votes of the Board. General Manager and Vice General Managers can
only be removed from duty by Board Resolutions.
7.02 Duties and Authorities of General Manager and Vice General Manager
------------------------------------------------------------------
The Company assigns a General Manager who will be in charge of the
management of the daily operation of the Company. The General Manager is
responsible to the Board and performs all businesses and duties directed
by the Board. A Vice General Managers shall operate in coordination with
the General Manager, and shall report and be responsible to the General
Manager. The General Manager and the Vice General Managers shall consult
and discuss with each other and consolidate opinions when executing the
operating policies, operating programs, and implementing plans of the
Company. The General Manager and the Vice General Managers shall devote
their full attentions to perform their duties, and all other duties listed
under the Company's By-Laws. The General Manager and the Vice General
Manager shall neither engage in or carry on as other business entity's
employee, nor participate in any business entity that is in competition
with any business carried on from the Company.
7.03 Engagement of General Manager and Vice General Manager
------------------------------------------------------
The General Manager and the Vice General Managers shall be engaged by the
Board. The Board reserves the right to terminate employment by Board
Resolution if the General Manager or the Vice General Managers are found
not qualified for the job duties or committed an act of fraud or gross
negligence. Any damages occurred to the Company's business or goodwill
shall be the responsibility of the General Manager or the Vice General
Managers as permitted by the governing laws.
VIII. LABOR MANAGEMENT
8.01 Guidance and Principles
-----------------------
The Board shall prepare employment plans, in accordance with "Regulations
Regarding Labor Management of Sino-Foreign Joint Ventures in the People's
Republic of China", regarding the recruiting, engaging, firing, salary,
insurance, welfare, and other benefit of the Company's officers and
employees, with the final terms to be specified in the labor contract
between the Company and the Company's labor union or each individual. Such
labor contracts shall be filed with local labor management department
8.02 Employees
---------
After the establishment of the Company, employees shall be hired by the
Company according to executed employment agreements. Such employment
agreements shall specify the employment,
<PAGE>
duties and benefits (including confidentiality and non-compete
obligations). The Board shall approve common structures, clauses, and
terms defined in the employment agreement.
8.03 Executive Officers
------------------
(1) Executive Officers shall be employed by the Company based on
individual employment agreements.
(2) The employment, compensations, insurance, and benefits, and travel
accommodation standards of Executive Officers shall be determined by
the Board.
8.04 Compliance with Regulations of Labor Protection
-----------------------------------------------
The Company shall comply with the PRC government's rules and regulations
regarding labor protection, and shall ensure safety and civilized
operations. The workers' compensation insurance of the Company's employees
shall comply with related governing PRC regulations.
IX. TAX, FINANCE AND AUDICCOUNTING
9.01 Tax
---
The Company shall pay taxes pursuant to the relevant PRC laws and
regulations. The Company shall use its best efforts to apply for and to
obtain local and national Preferential Taxation and Reduced Taxation
Benefits available for foreign invested enterprise. The Company's
employees, either domestic or expatriate, shall pay income tax to the
State in accordance to the "Individual Income Tax Law of the PRC".
9.021 Accounting System
-----------------
The fiscal year of the Company shall be based on a calendar year system.
Each fiscal year shall begin on the first day of January and end on the
last day of December in that year. The Company shall record its accounting
records in Chinese the PRC and one foreign language agreed by the Three
Parties.
9.03 Audit
-----
The Company shall engage an independent PRC certified public accountant(s)
agreed by the Three Parties to audit the Company's financial statements in
accordance with related rules and regulations. The audit report shall be
submitted to the Board and the General Manager. Each of the Three Parties,
separate or together, may invite an accountant or an accounting firm to
check the Company's accounting and financial records at any time at its
own expenses. The Company and its employees shall provide the necessary
assistance and convenience for that accountant.
9.04 Financial Statements
--------------------
During the first quarter of each fiscal year, the General Manager shall
supervise the preparation of the previous year's balance sheet, income
statement, plan for profit distribution and other financial statements and
shall submit such statements to the Board for examination.
9.05 Bank Accounts and Management of Foreign Exchange
------------------------------------------------
The Company shall separately establish bank accounts denominated in RMB
and foreign currency in the Bank of China or other bank(s) appointed by
the Administration of Foreign Exchange or the Board. The Company shall
handle matters relating to foreign currency exchange in accordance with
PRC regulations of foreign exchange management.
X. INSURANCE
10.01 Insurance
---------
The Company shall obtain its property insurance, transportation insurance
and other types of insurance from a PRC or an international insurance
company. Such insurance shall be quoted in
<PAGE>
RMB and/or foreign currencies based on specific situations. The type of
insurance and insured amount shall be decided by the Board in accordance
with applicable PRC laws and regulations.
XI. CONFIDENTIALITY
11.01 Confidentiality
---------------
(1) Within the duration of the Contract, One Party can disclose
confidential and special information to the other Two Parties of the
Contract. In addition, the Three Parties can from time to time, when
appropriate, obtain confidential and special information regarding
the Company's operation throughout the co-operation duration.
Similarly, the Company can from time to time, when appropriate,
obtain confidential and special information of the Three Parties.
Within the duration of the Contract and five (5) years after its
termination, each party that is in receipt of information mentioned
above shall:
(i) keep confidentiality of such information;
(ii) not disclose such information to anyone or any entity, except
to Directors, senior officers or other employees who shall know
such information in order to carry out the contract functions;
(iii) not use such information for any other purposes except for
business matters specified in this Contract.
(2) The obligation concerning confidentiality mentioned above does not
apply to any part of the information specified below:
(i) information with written records that already known by the
receiving party before receiving the confidential information;
(ii) confidential information has already been known (or become
known) to the public, and this situation is not a result of the
negligence or breach of contract of the receiving party;
(iii) confidential information obtained by receiving party from a
third party that does not have the obligation to keep this
information in confidence;
(iv) confidential information the receiving party develops by itself
under conditions not violating this Contract;
(v) information that receiving party is obligated to disclose under
law or valid orders issued by any government department; and
(vi) Information that One Party is obligated to provide to
prospective investors or cooperating partners in order to seek
investors or carry out businesses for the Company.
(3) The confidentiality clause and rights and obligations thereunder
shall remain valid within five (5) years after termination of this
Contract, even if the Company is terminated, dissolved, or closed
accounts.
XII. DURATION OF CO-OPERATION
12.01 Duration of Co-operation
------------------------
The Company's duration of co-operation is 30 years from the date the
Company obtains its business license.
12.02 Extension of Duration of Co-operation
-------------------------------------
The Board shall decide on the extension of the co-operation duration one
year before the termination of the Contract. If extension is elected by
the Board, Application for Extension shall be presented to the Ministry
of Foreign Trade and Economy or its authorized approval authority at
least 6 months before termination of the Contract.
XIII. TERMINATION AND CLOSE OF ACCOUNT
<PAGE>
13.01 Reasons for Termination
-----------------------
(1) expiration of co-operation duration;
(2) the Company is unable to continue operation due to serious loss from
operation;
(3) the Company is unable to continue operation due to One Party's
default of the Contract or Articles;
(4) the Company is unable to continue operation due to serious loss from
natural disaster, war or other events of Force Majeure;
(5) the Company does not achieve its operating goal, and has no future
prospects;
(6) the Company's bankruptcy;
(7) the Company receives Order to Dissolve issued by Court or authority
in charge.
13.02 Notice Procedures
-----------------
If One Party issues notice of termination based on conditions specified
in 14.01 (1) or (3), the Three Parties shall negotiate and use best
efforts to eliminate the reason for termination stated in the notice
within one month after the notice's issuance. If the matter cannot be
resolved in satisfaction by the Three Parties within one month after the
negotiation started, or the receiving Two Parties of the notice refuses
to negotiate within period specified above, then the issuing party of the
notice may give a written termination notice to the other party to
terminate this Contract, and such termination notice shall become
effective with Approval Authority's approval. If other conditions
specified in 13.01 occur, the Board may present Application to Dissolve
to Approval Authority to terminate the Contract.
13.03 Close of Accounts or Bankruptcy Close of Accounts
-------------------------------------------------
(1) If the Contract is terminated due to conditions specified in [13.01
(1) through (5)], the Company's tangible assets shall be estimated
by and accounted under the supervision of the Accounts Closing
Committee formed under PRC law. Any remaining assets after the
Company's payment off all debts shall be distributed to all co-
operating parties according to each party's investing proportion.
(2) If the Company is closing of accounts due to bankruptcy, the
Company's assets shall be used with priority to pay off expenses in
the following order:
(i) necessary expenses associated with bankrupt assets'
management, liquidations and distributions;
(ii) legal expenses associated with the bankruptcy law suit;
(iii) other expenses.
After all expenses associated with bankruptcy are paid off,
the Company shall use the remaining assets to pay off other
liabilities in the following order
(i) any accrued but unpaid employees' wages, salaries, and
workers' compensation insurance;
(ii) any tax liabilities;
(iii) any other creditors.
If the bankrupt assets are insufficient to satisfy expenses or
liabilities under the same class, the assets shall be distributed
proportionally.
XIV. BREACH OF CONTRACT
14.01 Penalties for Breach of Contract
--------------------------------
(1) If a party violated this Contract, and as a result, this Contract
cannot be performed or fully performed, the party in default shall
bear the penalties for breach, and if the party in default cannot
correct its non-compliance within thirty (30) days after the its
receipt of notice from the other party requesting its correction of
defaulting actions, then the observant party has the right to issue
written Breach of Contract Notice to the party in default to
terminate the entire or partial Contract. All damages resulting from
such action shall be the responsibility of party in default.
<PAGE>
(2) If One Party violates its obligation in providing funds in term of
time and amount as agreed by the Three Parties and specified in
other legal documents related to the Project, and does not correct
its non-compliance within 30 days from the occurrence of such non-
compliance, then the other Two Parties, while ensuring its right to
adopt other remedial measures for the non-compliance of party in
default shall not be eroded, has the right to issue written Breach
of Contract Notice to the party in default to terminate the entire
or partial Contract. All direct economic damages resulting from such
action shall be the responsibility of the party in default.
XV. FORCE MAJEURE
15.01 Force Majeure
-------------
(1) "Force Majeure" refers to events that are unforeseeable,
uncontrollable and unavoidable to the Three Parties. Such events
shall include but not be limited to earthquakes, typhoons, floods,
fires, strikes, and government injunctions;
(2) When the obligations of a party under this Contract cannot be
performed or extended to perform in full or in part as a result of
an event of Force Majeure, that party should be exempted from
liability. The injured party should timely inform the other Two
Parties and provide written information on such event in detail
within 15 days of its occurrence, and valid documents of the reasons
for the delay in implementing or for being unable to implement the
Contract. These documents should be produced by the government
authorities in charge of the area of the event.
(3) At the time of the occurrence of the event of Force Majeure, the
Three Parties should immediately enter into consultations to seek a
rational way, and try their best efforts to reduce the effects
arising from the event of Force Majeure.
XVI. RESOLUTION OF DISPUTES
16.01 The Three Parties agree that they will try their best efforts, through
consultation, to solve all disputes between them occurring because of the
Contract or in relationship with the Contract. Such consultation shall
proceed following the Three Parties' true intentions when they execute
this Contract.
16.02 The Three Parties agree that if they cannot solve the above mentioned
disputes through consultations within 30 days from the occurrence, then
they should submit such disputes to China International Economic and
Trade Arbitration Committee or other international arbitration committee
agreed by the Three Parties to be arbitrated in accordance with the
arbitration rules of the committee. The arbitral decisions are final and
have the restraint power to both of the Three Parties.
16.03 During the process of arbitration, the Contract and the operation under
the Contract shall be performed continuously, except for the dispute part
currently under arbitration.
XVII. GOVERNING LAW
17.01 The formation, interpretation, and execution under this Contract shall be
governed by the laws of China.
17.02 If, after this Contract becomes effective, there are changes in PRC laws,
rules or regulations, and if such changes bring negative and substantial
effects to One Party's economic benefits, then the Three Parties should
immediately consult and try their best efforts to make necessary
adjustments to ensure each party's economic benefits obtained from this
Contract after the changes to be no less than what it could obtain before
the occurrence of changes in laws, rules or regulations or amendment or
interpretation.
<PAGE>
XVIII. EFFECTIVENESS AND OTHERSMISCELLANEOUS REGULATIONS
18.01 Any amendments or modifications of this Contract shall become valid only
after the Three Parties sign a written amendment agreement and such
agreement gets approved by Approval Authorities. Within the framework of
this Contract, the Three Parties agree to sign supplement agreements,
including Network Cooperating Agreement, Network Operating Agreement,
etc. as the addendum of this Contract, which shall be equally authentic
as this Contract.
18.02 This Contract and its addendum shall be effective upon signature of all
signing parties.
18.03 Any notice or written communication from One Party to the other Two
parties, include but not limited to any letter or notice sent in
accordance with this Contract's stipulations, shall be sent by air
certified mail or facsimile (and confirmed by fax journal report) to the
address or fax number specified in 2.01. Any notice or communication sent
in accordance with this Contract's stipulation, if by air mail, then
twelve (12) date after the envelope's stamp date shall be deemed to be
the receiving date; if by facsimile, then two (2) business days after the
sending date shall be deemed to be the receiving date. All notices and
communications shall be sent to the address or fax number listed in 2.01
until the party concerned sends written change of address notification to
the other party.
IXX. LANGUAGE
19.01 This Contract is written in both Chinese and English, which are equally
authentic. If there is any difference between the two versions, the
Chinese version shall be taken as the ruling version.
Party A: Party B:
Beijing Sino-Tech Science & Technology China Education and Research
Development Center Network Center
Signature: /s/ Yawen Xu Signature: /s/ Jianping Wu
------------- ----------------
Yawen Xu Jianping Wu
Date: December 31, 1999 Date: December 31, 1999
Party C:
ASPAC Communications, Inc.
Signature: /s/ Marc F. Mayeres
--------------------
Marc F. Mayeres
Date: December 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPT. 30, 1999
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> SEP-30-1998 SEP-30-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 7,005 4,686
<SECURITIES> 0 0
<RECEIVABLES> 405 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,230 8,052
<PP&E> 46,301 11,603
<DEPRECIATION> (6,587) (2,628)
<TOTAL-ASSETS> 77,806 21,954
<CURRENT-LIABILITIES> 865,140 328,150
<BONDS> 0 0
0 0
0 0
<COMMON> 2,008 2,002
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 77,806 21,954
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 464,472 218,578
<OTHER-EXPENSES> (2,256) 8,642
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24,422 7,379
<INCOME-PRETAX> (486,638) (234,599)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (486,638) (234,599)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (486,638) (234,599)
<EPS-BASIC> (0.024) (0.013)
<EPS-DILUTED> (0.024) (0.013)
</TABLE>
