SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
TELECOM COMMUNICATIONS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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TELECOM COMMUNICATIONS, INC.
ROOM 1602, 16/F, 5-9 OBSERVATORY COURT, TST,
HONG KONG, CHINA
Dear Shareholder:
You are cordially invited to attend an Annual Meeting of the stockholders
of Telecom Communications, Inc. (the "Company") to be held on February 28, 2005,
at 10:00 a.m. (HKT) at Platino Room Lobby Floor, The Empire Hotel Kowloon, 62,
Kimberley Road, TST, Hong Kong, China.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) to reincorporate the Company in the State of Delaware;
(ii) to approve a reverse split on a 1 to 2 basis of the issued and outstanding
shares of common stock of the Company; and (iii) to elect a board of directors.
The Board of Directors believes that reincorporation of the Company in the
State of Delaware will provide added flexibility for both the management and
business of the Company as more fully described further in the proxy statement
and that the increase in the number of shares of Common Stock will be beneficial
to the Company by providing it with the flexibility to respond to future
business opportunities and needs as they arise. The purpose of the reverse split
is to have a more manageable number of shares and to increase the price per
share.
The Board of Directors unanimously recommends that stockholders vote FOR
each of the proposals described in the Proxy Statement.
This proxy statement and the accompanying proxy are first being mailed to
stockholders on or about January 13, 2005. Your prompt submission of a proxy
card will be greatly appreciated.
Sincerely,
/s/ Shanhe Yang
---------------
Name: Shanhe Yang
Title: Chief Executive Officer
Room 1602, 16/F, 5-9 Observatory Court, TST
Hong Kong, China
January 13, 2005
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TELECOM COMMUNICATIONS, INC.
ROOM 1602, 16/F, 5-9 OBSERVATORY COURT, TST,
HONG KONG, CHINA
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on February 28, 2005
To Our Stockholders:
You are cordially invited to attend an Annual Meeting of stockholders (the
"Annual Meeting") of Telecom Communications, Inc., an Indiana Corporation (the
"Company"), which will be held at Platino Room Lobby Floor, The Empire Hotel
Kowloon, 62, Kimberley Road, TST, Hong Kong, China on February 28, 2005 at 10:00
a.m. (HKT), for the following purposes:
1. To consider and approve the reincorporation of the Company in the
State of Delaware and adopt a new charter and bylaws as part of the
merger; and
2. To effectuate a reverse split of the outstanding shares of common
stock on a two to one basis; and
3. To elect a board of directors; and
4. Such other business as may properly come before the Annual Meeting of
Stockholders or any adjournment thereof.
Only holders of shares of Common Stock, $.001 par value (the "Common
Stock"), of the Company of record at the close of business on January 13, 2005,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournment or postponement thereof.
By Order of the Board of Directors,
/s/ Lijian Deng
---------------
Name: Lijian Deng
Title: Corporate Secretary
January 13, 2005
Room 1602, 16/F, 5-9 Observatory Court, TST
Hong Kong, China
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE.
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TELECOM COMMUNICATIONS, INC.
ROOM 1602, 16/F, 5-9 OBSERVATORY COURT TST,
HONG KONG, CHINA
---------------------
PROXY STATEMENT
January 13, 2005
---------------------
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Telecom Communications, Inc., an Indiana corporation (the
"Company"), which will be held at Platino Room Lobby Floor, The Empire Hotel
Kowloon, 62, Kimberley Road, TST, Hong Kong, China on February 28, 2005 at 10:00
a.m., (HKT) and any adjournment or postponement thereof. This Proxy Statement
and accompanying proxy are first being mailed to stockholders on or about
January 13, 2005. This Proxy Statement and the accompanying proxy card are
furnished in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") for use at the Annual Meeting, or at any
adjournment or postponement thereof, for the purposes set forth in the
accompanying notice of Annual Meeting.
PURPOSE OF THE ANNUAL MEETING; VOTING RIGHTS
At the Annual Meeting, action will be taken on the following proposals:
o Proposal 1 - To consider and approve the reincorporation of the
Company in the State of Delaware (the "Reincorporation Proposal) and
to adopt a new certificate of incorporation and bylaws as part of the
merger. Proposal 1 requires the affirmative vote of a majority of the
outstanding shares of Common Stock;
o Proposal 2 - To authorize the Board of Directors to amend the Articles
of Incorporation (the "Company's Articles") to effectuate a reverse
split of the outstanding shares of common stock of the Company on a 1
to 2 basis. If Proposal 2 is approved, a reverse split would be
adopted regardless of whether the Reincorporation Proposal is
approved. If the Reincorporation Proposal is approved, Proposal 2 will
require the affirmative vote of a majority of the outstanding shares
of Common Stock. If the Reincorporation Proposal is not approved,
Proposal 2 will require the affirmative vote of a majority of votes
cast as is required under Indiana law; and
o Proposal 3 - To elect directors to serve on the Board of Directors for
a term of one year expiring at the 2006 annual meeting of stockholders
or until their successors are duly elected. The 5 directors receiving
the most number of votes shall be elected.
SUMMARY OF THE REINCORPORATION PROPOSAL
The Board proposes, in Proposal 1 below, to reincorporate the Company in
the State of Delaware. Currently, the Company is an Indiana corporation.
This summary highlights selected information about the reincorporation
proposal and may not contain all of the information that is important to you. To
better understand the reincorporation proposal and for a complete description of
the legal terms of the reincorporation, you should read this entire proxy
statement carefully, as well as those additional documents to which we have
referred you.
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PRINCIPAL TERMS
o In order to reincorporate as a Delaware company, the Company will
organize a Delaware company and will own all of its stock. The Company
will then merge into its new Delaware subsidiary, and the Delaware
company will be the company that survives the merger. The surviving
company's name will remain "Telecom Communications, Inc." ("Telecom
Delaware").
o Telecom Delaware will succeed to all of the rights, properties and
assets and assume all of the liabilities of the Company, which will
cease to exist as a result of the merger. The principal offices,
business, management and capitalization of Telecom Delaware will
remain the same as those of the Company.
o Upon the effectiveness of the merger, every two (2) shares of Common
Stock of the Company will automatically be converted into one (1)
share of common stock in Telecom Delaware. The existing stock
certificates of the Company (the Indiana corporation) will serve as
valid stock certificates for Telecom Delaware until replaced.
o Upon its reincorporation in Delaware, the Company become subject to
the corporate laws of the State of Delaware and will no longer be
subject to the corporate laws of the State of Indiana.
o Although your rights as a stockholder will be governed by the laws of
the State of Delaware, the certificate of incorporation and bylaws of
Telecom Delaware will be substantially the same as the current
articles of incorporation and bylaws of the Company. The only material
change in the certificate of incorporation of Telecom Delaware from
the current articles of incorporation of the Company is an increase in
the number of authorized shares of Common Stock from 80,000,000 to
300,000,000.
RECOMMENDATION OF THE COMPANY'S BOARD
o The Board of Directors has unanimously approved the proposed
reincorporation of the Company in the State of Delaware and has
determined that the reincorporation is in the best interests of the
Company's stockholders. The Board of Directors unanimously recommends
that you vote FOR the reincorporation proposal.
VOTE REQUIRED/CONDITIONS
o The approval of a majority of the outstanding shares of Common Stock
of the Company is required to approve the reincorporation proposal.
However, before the reincorporation becomes effective, the Board of
Directors may decide not to cause the reincorporation to occur if, for
any reason, the Board of Directors determines that the reincorporation
is no longer in the best interests of the Company.
FINANCIAL CONDITION OF TELECOM DELAWARE
o Prior to the consummation of the merger with the Company, Telecom
Delaware will have no material assets and no business operations and
will be formed solely for the purpose of the reincorporation.
o Upon consummation of the merger, Telecom Delaware will succeed to all
of the rights, properties and assets and assume all of the liabilities
of the Company by operation of law, and its financial statements will
be substantially identical to the Company's financial statements, the
only difference being those appropriate to reflect the Company's new
corporate identity.
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HOW TO VOTE
o Shares held directly in your name as the "Shareholder Of Record" may
be voted in person at the Annual Meeting. If you choose to do so,
please bring the enclosed proxy card or proof of identification. Even
if you currently plan to attend the Annual Meeting, we recommend that
you also submit your proxy as described below so that your vote will
be counted if you later decide not to attend the meeting. Shares held
in street name may be voted in person by you only if you obtain a
signed proxy from the record holder giving you the right to vote the
shares.
o Whether you hold shares directly as the shareholder of record or
beneficially in street name, you may direct your vote without
attending the meeting. You may vote by granting a proxy or, for shares
held in street name, by submitting voting instructions to your broker
or nominee. Please refer to the instructions included on your proxy
card or, for shares held in street name, the voting instruction card
included by your broker or nominee.
REVOKING YOUR PROXY
o You may revoke your proxy at any time before it is voted by any one of
the following actions: (1) executing and returning a proxy bearing a
later date to the company secretary at the Company's principal
offices; (2) giving notice of such revocation to the Company
secretary; or (3) by attending the meeting and voting in person.
APPRAISAL RIGHTS NOT AVAILABLE
o Appraisal rights will not be available to stockholders who dissent
from the reincorporation merger.
STOCKHOLDERS OF TELECOM COMMUNICATIONS, INC.
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 31, 2004, information known
to us relating to the beneficial ownership of shares of common stock by: each
person who is the beneficial owner of more than five percent of the outstanding
shares of common stock; each director; each executive officer; and all executive
officers and directors as a group.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
Under the securities laws, a person is considered to be the beneficial
owner of securities that can be acquired by him within 60 days from the date of
this filing upon the exercise of options, warrants or convertible securities. We
determine beneficial owner's percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of the date of this
filing, have been exercised or converted. As of December 31, 2004 there were
70,188,000 shares of our common stock issued and outstanding.
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Title of Class Beneficial Owner Number of Shares Percent of Class
-------------- ---------------- ---------------- ----------------
Common Taikang Capital 20,000,000 28.5%
Managements Corporation
Common Lijian Deng 20,089,000(1) 14.4%
Common Shanhe Yang 20,089,000(2) 14.4%
Common Lirong Liu 20,089,000(3) 14.4%
Common Gary Lam 100,000(4) 0.1%
Directors and executive 10,589,000 15.09%
officers as a group (4
persons)
Common Bloomen Limited 6,000,000 8.55%
Common Telecom Value Added Inc. 6,000,000 8.55%
Common Deng Chi Yuan 5,000,000 7.12%
----------
1) Consists of (i) 200,000 shares held directly by Ms. Deng (ii)(a)
9,889,000 shares of common stock plus (ii)(b) shares of common stock
underlying warrants held indirectly by Auto Treasure Limited pursuant
to 51% co-ownership of all shares of Auto Treasure Limited, and
assumes Auto Treasure Limited does not exercise its right to purchase
10,000,000 shares at an exercise price of $2.00 pursuant to warrant
issued by the Company, which vested as of March 16, 2006.
2) Consists of 200,000 shares held directly by Mr. Yang (i) 9,889,000
plus (ii) warrants held indirectly by Auto Treasure Limited pursuant
to 51% co-ownership of all shares of Auto Treasure Limited, and
assumes Auto Treasure Limited does not exercise its right to purchase
10,000,000 shares at an exercise price of $2.00 pursuant to warrant
issued by the Company, which vested as of March 16, 2006.
3) Consists of 200,000 shares held directly by Ms. Liu (i) 9,889,000 plus
(ii) warrants held indirectly by Auto Treasure Limited pursuant to 51%
co-ownership of all shares of Auto Treasure Limited, and assumes Auto
Treasure Limited does not exercise its right to purchase 10,000,000
shares at an exercise price of $2.00 pursuant to warrant issued by the
Company, which vested as of March 16, 2006.
4) Consists of 100,000 shares held directly by Mr. Lam.
(b) Changes in Control
We know of no contractual arrangements which may at a subsequent date
result in a change of control in the Company.
INCORPORATION BY REFERENCE
A copy of the Annual Report on Form 10-KSB of Telecom Communications, Inc.
for the year ended September 30, 2004, previously filed with the United States
Securities and Exchange Commission, including the financial statements and
related notes thereto and the report of independent auditor, is attached to this
Proxy Statement as Attachment E.
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PROXY INFORMATION
Your vote is important. Stockholders may sign, date and mail their proxies
to the Company. A shareholder of the Company who has submitted a proxy may
revoke it at any time before it is voted, but only by executing and returning to
Room 1602, 16/F, 5-9 Observatory Court, TST, Hong Kong, China, Attention: Ms.
Ivy Tang, a proxy bearing a later date, by giving notice of revocation to the
Company Secretary, or by attending the meeting and voting in person. Attendance
at the meeting does not, by itself, revoke a proxy.
The Company may send only one copy of the Proxy Statement to multiple
stockholders that share the same address. Upon written or oral request, the
Company will promptly supply such stockholders additional copies of the Proxy
Statement. Such requests should be made by contacting the Company at Room 1602,
16/F, 5-9 Observatory Court, TST, Hong Kong, China, Attention: Investor
Relations. If stockholders sharing the same address are receiving multiple
copies of annual reports or proxy statements, such stockholders can request
delivery in the future of only a single copy of the annual reports or proxy
statements by contacting the Company at the above address.
The approximate date on which the Proxy Statement and form of proxy are
intended to be mailed to stockholders on or about January 25, 2005.
STOCKHOLDERS ENTITLED TO VOTE, OUTSTANDING SHARES AND QUORUM
Holders of record of the Common Stock at the close of business on January
24, 2005 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. On December 31, 2004, there were 70,188,000 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on each matter
brought before the Annual Meeting. The presence in person or by proxy of holders
of a majority of the issued and outstanding Common Stock will constitute a
quorum at the Annual Meeting. If a quorum should not be present, the Annual
Meeting may be adjourned from time to time until a quorum is obtained.
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PROPOSAL 1
REINCORPORATION OF THE COMPANY IN THE STATE OF DELAWARE AND LIMITATION OF
DIRECTOR LIABILITY
The Board has unanimously approved the Reincorporation Proposal and
recommends that the stockholders approve and adopt the related Merger (as
hereinafter defined). The Reincorporation Proposal will be effected by merging
(the "Merger") the Company with and into its wholly-owned subsidiary
incorporated in the State of Delaware ("Telecom Delaware") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") entered into between the
Company and Telecom Delaware (the "Reincorporation"). The form of Merger
Agreement is included as Exhibit A to this Proxy Statement.
Telecom Delaware will be newly incorporated in Delaware solely for the
purpose of effecting the Reincorporation, and the Company will be its sole
stockholder. Telecom Delaware will have no material assets and no business
operations prior to the Merger. In the Reincorporation, the Company will merge
with and into Telecom Delaware, and Telecom Delaware will be the Company
surviving the Merger and will maintain the name "Telecom Communications, Inc."
The address of the principal executive offices of the surviving Company will be
the same as the current principal executive offices of the Company.
If the merger is approved a provision eliminating the personal liability of
directors other than as required under Delaware law, will be included in the
Delaware Certificate of Incorporation.
REASONS FOR THE REINCORPORATION
The Board believes that the Reincorporation will provide added flexibility
for both the management and business of the Company. Delaware is recognized both
domestically and internationally as a favorable legal and regulatory environment
within which to operate. Such an environment should enhance the Company's
operations and its ability to effect acquisitions and other transactions. For
many years, Delaware has followed a policy of encouraging incorporation in that
state and, in furtherance of that policy, has adopted comprehensive, modern and
flexible corporate laws which are periodically updated and revised to meet
changing business needs. In addition, the Delaware courts have developed
considerable expertise in dealing with corporate issues, and a substantial body
of case law has developed in the construction of Delaware law, resulting in
greater predictability with respect to corporate legal affairs. As such, various
major companies have either incorporated or have subsequently reincorporated in
Delaware.
THE MERGER
The Reincorporation will be effected through the Merger. As a result of the
Merger, the Company will be reincorporated as a new Delaware Company that will
succeed to all of the rights, properties, assets and liabilities of the Company.
The terms and conditions of the Merger are set forth in the Merger Agreement,
and the summary of the terms and conditions of the Merger set forth below is
qualified by reference to the full text of the Merger Agreement included as
Exhibit A to this Proxy Statement. Following the Reincorporation, the
composition of the Board of Directors of the Company will remain the same, and
the rights of stockholders and the Company's corporate affairs will be governed
and controlled by the General Company Law of the State of Delaware (the "DGCL")
and the certificate of incorporation and bylaws of Telecom Delaware, rather than
by the Indiana Business Corporation Law (the "IBCL") and the Company's Articles
and the Company's bylaws (the "Company's Bylaws", respectively). Set forth
below, under the heading "Delaware and Indiana Corporate Laws," is a comparison
of the material rights of stockholders and matters of corporate governance
before and after the Reincorporation. The forms of the Delaware Certificate, and
bylaws (the "Delaware Bylaws") of Telecom Delaware are included as Exhibit B and
Exhibit C to this Proxy Statement, respectively. The summary of the Delaware
Certificate and the Delaware Bylaws set forth below is qualified by reference to
the full text of the Delaware Certificate and Delaware Bylaws. The Company's
Articles and Company's Bylaws and the Delaware Certificate and the Delaware
Bylaws are available upon request by stockholders of the Company at the
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principal offices of the Company located at Room 1602, 16/F, 5-9 Observatory
Court, TST, Hong Kong, China.
Upon the effectiveness of the Merger, and without any action on the part of
the Company or the holder of any securities of the Company, every two (2) shares
outstanding of Common Stock of the Company will be automatically converted into
one (1) share of common stock, $.001 par value, of Telecom Delaware, with any
fractional shares being rounded up to the nearest whole number. Until replaced
by new stock certificates, each outstanding certificate representing shares of
Common Stock of the Company will be deemed for all corporate purposes to
evidence ownership of shares of Common Stock of Telecom Delaware, subject to the
split discussed above.
Consummation of the Merger is subject to the approval of the Company's
stockholders. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, whether or not present at the Annual
Meeting, who are entitled to vote at the Annual Meeting are required for the
approval and adoption of the Reincorporation Proposal. The Merger is expected to
become effective as soon as practicable after shareholder approval is obtained
and all other conditions to the Merger have been satisfied, including the
receipt of all consents, orders and approvals necessary for consummation of the
Merger. Prior to its effectiveness, however, the Merger may be abandoned by the
Board if, for any reason, the Board determines that consummation of the Merger
is no longer advisable.
Dissenters' rights are not available to stockholders of the Company with
respect to the proposed Merger.
ACCOUNTING TREATMENT OF THE REORGANIZATION
The Reincorporation will have no accounting implications on the historical
financial statements of the Company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Company intends the Merger to be a tax free "reorganization" within the
meaning of the Internal Revenue Code of 1986, as amended. If the Merger
qualifies as a reorganization, then the material federal income tax consequences
of the Reincorporation will be as follows:
o no gain or loss will be recognized by holders of Company common stock;
o each shareholder of Telecom Delaware will have the same tax basis in
his Telecom Delaware common stock as he had in the Company common
stock immediately prior to the reincorporation;
o the holding period of the Telecom Delaware common stock will include
the period during which a shareholder held Company common stock prior
to the Reincorporation, provided such shareholder held the Company
common stock as a capital asset at the time of the Reincorporation;
o neither the Company nor Telecom Delaware will recognize gain or loss
as a result of the Reincorporation; and
o Telecom Delaware will succeed, without adjustment, to the tax
attributes of the Company.
The Company has not requested a ruling from the IRS or received an opinion
of counsel with respect to the federal income tax consequences of the
Reincorporation. The foregoing summary of federal income tax consequences is
included for general information only and does not address all income tax
consequences to all of the Company's shareholders. The Company's shareholders
are urged to consult their own tax advisors as to the specific tax consequences
of the Reincorporation, including the application and effect of state, local and
foreign income and other tax laws.
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DELAWARE AND INDIANA CORPORATE LAWS
The following discussion includes a summary of the material differences
between the rights of the Company's stockholders before and after the
Reincorporation. In most cases, the rights of stockholders before and after the
Reincorporation are substantially similar, with changes having been made to the
corporate charter documents to maintain this substantial similarity. In other
cases, there are differences that might be considered material, and these
differences may be understood from the following comparison.
Board of Directors. Article 3 of the Company's Bylaws provides that the
number of directors (never less than 1 or more than 5) will be fixed from time
to time or in the manner provided in the Company's Bylaws. Each director is
entitled to serve for the longer of the term for which he was elected or until
his successor is elected and qualified. Directors may be removed for cause by a
vote of the majority in numbers of shares of the Stockholders entitled to vote
at a shareholder meeting called for that purpose.
The Delaware Certificate and the Delaware Bylaws will provide for the same
number of directors with one (1) year terms as is provided for in the Company's
Articles and Company's Bylaws. The Delaware Bylaws will provide that the number
of directors will be not less than 1 and not more than 5. Directors may only be
removed for cause by a vote of the majority in numbers of shares of the
Stockholders entitled to vote at a shareholder meeting called for that purpose.
Authorized Shares
The Company's Articles currently authorize 100,000,000shares of capital
stock, consisting of 80,000,000 shares of Common Stock and 20,000,000 shares of
Preferred Stock. As of December 31, 2004, there were 70,188,000 shares of Common
Stock outstanding.
Subject to shareholder' approval of Proposal 1, the authorized number of
shares of Common Stock will be increased: the authorized number of shares of
capital stock of the Company will increase from 100,000,000 to 350,000,000, the
number of authorized shares of Common Stock of the Company will increase from
80,000,000 to 300,000,000 and the authorized number of preferred stock will
increase from 20,000,000 to 50,000,000.
Limitation Of Director Liability
The Company's Articles and the Company's Bylaws do not contain a specific
exculpatory provision regarding director liability. Under Section 23-1-35-1 of
the IBCL, directors are required to discharge their duties: (i) in good faith;
(ii) with the care an ordinarily prudent person in a like position would
exercise under similar circumstances; and (iii) in a manner the directors
reasonably believe to be in the best interests of the Company. However, this
section also provides that a director is not liable for any action taken as a
director, or any failure to act, unless the director has breached or failed to
perform the duties of the director's office in compliance with that section and
the breach or failure to perform constitutes willful misconduct or recklessness.
The Delaware Certificate will provide that directors of Telecom Delaware
will not be liable personally to Telecom Delaware or Telecom Delaware's
stockholders for monetary damages for breach of fiduciary duty as a director
except for liability arising out of (a) any breach of the director's duty of
loyalty to Telecom Delaware or the stockholders, (b) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) payment of a dividend or approval of a stock redemption or repurchase
in violation of Section 174 of the DGCL, or (d) any transaction from which the
director derived an improper personal benefit. This provision, which is
substantially similar to Section 23-1-35-1 of the IBCL that is currently
applicable to the Company, protects Telecom Delaware directors against personal
liability for monetary damages from breaches of their duty of care. Under
Delaware law, absent adoption of the aforementioned provision in the Delaware
Certificate, directors can be held liable for gross negligence in connection
with decisions made on behalf of the Company in the performance of their duty of
care, but may not be liable for simple negligence.
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Indemnification
Under Sections 23-1-37-8, et seq., of the IBCL and as mandated by Article 8
of the Company's Articles, directors, officers and other employees and
individuals shall be indemnified against expenses, judgments, fines and actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
if they (i) acted in good faith and (ii) in the case of conduct in their
official capacity with the Company, they reasonably believed their conduct was
in the best interests of the Company or, in the other cases, if they reasonably
believed their conduct was at least not opposed to the best interest of the
Company, and (iii) regarding any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful or if they had reasonable
cause to believe their conduct was lawful. To the extent that an officer or
director otherwise eligible to be indemnified is wholly successful, on the
merits of any claim or otherwise, in the defense of any proceeding,
indemnification for expenses actually and reasonably incurred is mandated by the
IBCL, unless limited by articles of incorporation. A claim, action, suit or
proceeding includes any claim, action, suit or proceeding that a person is
threatened to be made a party to, or is involved in, because he is or was a
director, officer or employee of the Company or of any subsidiary of the Company
(or was serving at the request of the Company as a director, officer, trustee,
employee or agent of another entity) while serving in such capacity. In
addition, the Company's Bylaws provide for advancement of expenses to any person
indemnified pursuant to the Company's Bylaws.
Under Section 145 of the DGCL, directors, officers, employees and other
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company, including
derivative actions (a "Company Action")) if they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the Company, and, regarding any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of Company Actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions.
The DGCL further requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the Company. To the extent that a director or officer is otherwise eligible
to be indemnified is successful on the merits of any claim or defense described
above, indemnification for expenses (including attorneys' fees) actually and
reasonably incurred is mandated by the DGCL.
The provisions regarding indemnification in the Delaware Certificate and
Delaware Bylaws will be substantially similar to the Company's Articles and
Company's Bylaws. The Delaware Certificate and Delaware Bylaws will also provide
that Telecom Delaware will indemnify, to the fullest extent authorized by the
DGCL, each person who was or is made party to, is threatened to be made a party
to, or is involved in, any action, suit or proceeding because he is or was a
director or officer of Telecom Delaware, or of any subsidiary of Telecom
Delaware, while serving in such capacity, against all expenses, liabilities or
loss incurred by such person in connection therewith. The right to
indemnification is not exclusive of any other right which any person may have or
acquire under any statute, any provision of the Delaware Certificate or the
Delaware Bylaws, or otherwise.
Anti-takeover Statutes/Provisions
Chapter 43 of the IBCL prohibits any business combination, such as a merger
or consolidation, between an Indiana corporation with 100 or more stockholders
with shares of its stock registered under the federal securities laws or which
makes an election under the IBCL, and an "interested shareholder" (which is
defined generally as any owner of 10% or more of the Company's outstanding
voting stock) for five years after the date on which such shareholder became an
interested shareholder unless the business combination or the stock acquisition
which caused the person to become an interested shareholder was approved in
advance by the Company's board of directors. This provision of the IBCL is
effective even if all parties should subsequently decide that they wish to
engage in the business combination. Following the five-year moratorium period,
the Indiana corporation may engage in certain business combinations with an
interested shareholder only if, among other things, (a) the business combination
is approved by the affirmative vote of the holders of a majority of the
outstanding voting shares not beneficially owned by the interested shareholder
proposing the business combination or (b) the business combination meets certain
criteria designed to ensure that the remaining stockholders receive fair
consideration for their shares.
13
Chapter 42 of the IBCL contains a "control share acquisition" provision
which effectively denies voting rights to shares of an "issuing public Company"
acquired in control share acquisitions unless the grant of such voting rights is
approved by a majority vote of disinterested stockholders. The Company's Bylaws
provide that IBCL 23-1-42 does not apply to control share acquisitions of shares
of the Company.
The Company's Articles include the Anti-Takeover Provision, which is
described under Delaware and Indiana Corporate Laws -- Authorized Shares and
which serves a function substantially similar to that of Chapter 43 of the IBCL.
The Delaware Certificate will contain an identical provision.
Section 203 of the DGCL ("Section 203") is similar, but not identical, to
Chapter 43 of the IBCL. Section 203, which applies to Telecom Delaware,
regulates transactions with major stockholders after they become major
stockholders. Section 203 prohibits a Delaware Company from engaging in mergers,
dispositions of 10% or more of its assets, certain issuances of stock and other
transactions ("business combinations") with a person or group that owns 15% or
more of the voting stock of the Company (an "interested stockholder") for a
period of three years after the interested stockholder crosses the 15%
threshold. These restrictions on transactions involving an interested
stockholder do not apply if (a) before the interested stockholder owned 15% or
more of the voting stock, the board of directors approved the business
combination or the transaction that resulted in the person or group becoming an
interested stockholder, (b) in the transaction that resulted in the person or
group becoming an interested stockholder, the person or group acquired at least
85% of the voting stock other than stock owned by directors who are also
officers and certain employee stock plans, or (c) after the person or group
became an interested stockholder, the board of directors and at least two-thirds
of the voting stock other than stock owned by the interested stockholder
approves the business combination at a meeting. The restrictions contained in
Section 203 do not apply to Telecom Delaware in connection with the Merger
because, under Section 203(b)(4), such restrictions generally do not apply where
a Company does not have a class of voting stock that is (i) listed on a national
securities exchange; (ii) authorized for quotation on the Nasdaq Stock Market;
or (iii) held of record by more than 2,000 stockholders. The Delaware
Certificate will contain the Anti-Takeover Proposal currently contained in the
Company's Articles.
The DGCL does not have a statute that is similar to the Indiana control
share acquisitions statute that the Company has opted out of.
Preferred Stock
The Company's Articles authorize the Board to determine the preferences,
limitations and relative rights of any class or series of Company preferred
stock prior to issuance. Each class or series must be designated with a
distinguishing designation prior to issuance.
The Delaware Certificate will also authorize the Board to determine the
preferences, limitations and relative rights of any class or series of Company
preferred stock prior to issuance.
Cumulative Voting
Section 23-1-30-9 of the IBCL and Section 214 of the DGCL provide that
cumulative voting rights, in respect of the election of directors, will only
exist if provided for in the Company's articles/certificate of incorporation.
Neither the Company's Articles nor the Delaware Certificate provide for
cumulative voting rights in the election of directors.
Action Without a Meeting
Under Section 23-1-29-4 of the IBCL, any action required or permitted to be
taken at a stockholders' meeting may be taken without a meeting only by the
unanimous written consent signed by all of the stockholders entitled to vote on
such action.
14
Section 228 of the DGCL permits any action required or permitted to be
taken at a stockholders' meeting to be taken by written consent signed by the
holders of the number of shares that would have been required to effect the
action at an actual meeting of the stockholders at which all shares were present
and voted. Section 228 of the DGCL will govern stockholders rights in Telecom
Delaware.
ANNUAL MEETINGS
Section 23-1-29-2 of the IBCL requires a Company with more than 50
stockholders to hold an Annual Meeting when called by its board of directors or
the person or persons (including, but not limited to, stockholders or officers)
specifically authorized to do so by the articles of incorporation or bylaws. The
Company's Bylaws provide that an Annual Meeting may be called by the president,
the Board or as otherwise may be required by law.
Section 211(d) of the DGCL authorizes the board of directors or those
persons authorized by the Delaware Certificate or by-laws to call an Annual
Meeting of the Company's stockholders. The Delaware Bylaws provide that an
Annual Meeting may be called by the president, the Board or as otherwise may be
required by law.
Voting, Appraisal Rights and Corporate Reorganizations
The IBCL requires a majority vote of stockholders to approve a plan of
merger or share exchange unless the articles of incorporation or board requires
a greater vote. Section 23-1-44-8 of the 10 IBCL does not provide for
dissenters' rights for a merger or plan of share exchange by a Corporation the
shares of which are (a) registered on a United States securities exchange
registered under the Exchange Act, or (b) traded on NASDAQ or a similar market.
The DGCL generally requires a majority vote of stockholders to approve a
merger, sale of assets or similar reorganization transaction. Section 262 of the
DGCL does not provide for dissenters' rights of appraisal for (a) the sale,
lease or exchange of all or substantially all of the assets of a Corporation,
(b) a merger by a Corporation, the shares of which are either listed on a
national securities exchange or held by more than 2000 stockholders if such
stockholders receive shares of the surviving Company or of a listed or widely
held Company, or (c) certain mergers not requiring stockholder approval.
Amendment to Certificate/Articles of Incorporation
Except as otherwise provided in the IBCL, an amendment to the articles of
incorporation must be approved by (i) a majority of the stockholders with
dissenter's rights on such amendment and (ii) a majority of the votes cast when
a quorum is present. See Delaware and Indiana Corporate Laws - Board of
Directors and Anti-takeover Statutes/Provisions.
The DGCL provides that an amendment to the certificate of incorporation
becomes effective upon the approval of a majority of the outstanding stock
entitled to vote. The Delaware Certificate will require the affirmative vote of
three-fourths of the voting power of all of the then outstanding capital stock
of the Company to approve (i) the provisions governing the number and term of
directors and (ii) the Anti-Takeover Provision, as is currently required by the
Company's Articles. For all other matters, the Delaware Certificate requires
approval of a majority of the outstanding stock entitled to vote in order to
approve an amendment to the Delaware Certificate.
Amendment to Bylaws
IBCL Section 23-1-39-1 provides that only the Board may approve or repeal
bylaws unless a Corporation's articles of incorporation provide otherwise.
Section 109 of the DGCL places the power to adopt, approve or repeal bylaws
in the Company's stockholders, but permits the Company, in its certificate of
incorporation, also to vest such power in the board of directors. Although the
Board will be vested with such authority pursuant to the Delaware Certificate,
the stockholders' power to adopt, approve or repeal by-laws will remain
unrestricted.
15
Preemptive Rights
IBCL Section 23-1-27-1 provides that the stockholders of a Corporation do
not have a preemptive right to acquire a Company's unissued shares except to the
extent the articles of incorporation so provide.
Under Section 102 of the DGCL, no statutory preemptive rights will exist,
unless a Delaware Certificate specifies otherwise. The Delaware Certificate will
not provide for any such preemptive rights.
Dividend Rights
The IBCL does not permit dividend distributions if, after giving effect to
the proposed dividend, (a) the Company would be unable to pay its debts as they
become due in the usual course of business, or (b) the Company's total assets
would be less than the sum of its total liabilities plus (unless the articles of
incorporation permit otherwise) the amount that would be needed, if the Company
were to be dissolved at the time of distribution, to satisfy the preferential
rights (if any) of stockholders whose preferential rights are superior to those
of stockholders receiving the distribution.
Delaware corporations may pay dividends out of the excess of the net assets
of the Company (the "Surplus") less the consideration received by the Company
for any shares of its capital stock (the "Capital") or, if there is no Surplus,
out of net profits for the fiscal year in which declared and/or the preceding
fiscal year. Section 170 of the DGCL also provides that dividends may not be
paid out of net profits if, after the payment of the dividend, Capital is less
than the Capital represented by the outstanding stock of all classes having a
preference upon the distribution of assets.
REASONS FOR THE ELIMINATION OF LIABILITY
Under the IBCL, which governs the Company today, directors are not liable
for any action taken as a director unless the director has breached his or her
duties and such breach constitutes willful misconduct or recklessness. There is
no requirement under Indiana law that the Company's Articles or the Company's
Bylaws contain any provision regarding such elimination; rather, directors are
granted such rights as a matter of Indiana law.
However, if the stockholders approve the Reincorporation Proposal, and the
Company is reincorporated in the State of Delaware, the directors are not
automatically given the same type of protection with respect to liability as a
matter of Delaware law. The DGCL requires the Delaware Certificate to include a
provision eliminating directors' liability in order to achieve that result. The
Board believes that if the Reincorporation Proposal is approved, the rights of
directors with respect to liability under Indiana law should remain
substantially similar under Delaware law after the Reincorporation. In order to
maintain directors' rights under Delaware law, the Delaware Certificate must
include a provision eliminating personal liability for directors. The Board
believes that the elimination of the personal liability of directors in
accordance with Delaware law will also ensure that the Company continues to be
able to attract and retain the best directors.
CURRENT RIGHTS OF DIRECTORS UNDER INDIANA LAW
Under Section 23-1-35-1 of the IBCL, directors are required to discharge
their duties: (i) in good faith; (ii) with the care an ordinarily prudent person
in a like position would exercise under similar circumstances; and (iii) in a
manner the directors reasonably believe to be in the best interests of the
Company. However, this section also provides that a director is not liable for
any action taken as a director, or any failure to act, unless the director has
breached or failed to perform the duties of the director's office in compliance
with that section and the breach or failure to perform constitutes willful
misconduct or recklessness.
DIFFERENCES IN RIGHTS OF DIRECTORS UNDER DELAWARE AND INDIANA LAW
Under Delaware law, absent adoption of a provision eliminating liability
for directors, directors can be held liable for gross negligence in connection
with decisions made on behalf of a Company in the performance of their duty of
care. Under Indiana law, only directors whose acts rise to the standard of
willful misconduct or recklessness can be held liable for their acts. Subject to
16
shareholder approval of this proposal, the Delaware Certificate will provide
that directors of Telecom Delaware will not be liable personally to Telecom
Delaware or Telecom Delaware's stockholders for monetary damages for breach of
fiduciary duty as a director except for liability arising out of (a) any breach
of the director's duty of loyalty to Telecom Delaware or the stockholders, (b)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) payment of a dividend or approval of a stock
redemption or repurchase in violation of Section 174 of the DGCL, or (d) any
transaction from which the director derived an improper personal benefit. This
provision protects Telecom Delaware directors against liability for monetary
damages from breaches of their duty of care in substantially the same way as
directors under Indiana law are protected. Although the Delaware Certificate
will provide Telecom Delaware directors with protection from certain awards of
monetary damages for breaches of their duty of care, it does not eliminate the
director's duty of care. Accordingly, such provision has no effect on the
availability of certain equitable remedies, such as an injunction, based upon a
director's breach of his duty of care. This provision does not apply to officers
of Telecom Delaware who are not directors of Telecom Delaware.
INCREASE IN THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
If the shareholders approve the Reincorporation Proposal, the increase in
authorized shares of Common Stock will be effected through the filing of a
Certificate of Ownership and Merger with the Secretary of State of the State of
Delaware, which incorporates the Certificate of Incorporation of Telecom
Delaware attached hereto as Exhibit B. If the Reincorporation Proposal is not
approved by shareholders, the Company plans to file a certificate of Amendment
to the Company's Articles described above, as soon as practicable following the
Annual Meeting, to be effective upon such filing.
The Company's Articles currently authorize 100,000,000 shares of capital
stock, consisting of 80,000,000 shares of Common Stock. As of December 31, 2004,
there were 70,188,000 shares of Common Stock outstanding.
REASONS FOR INCREASING THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The additional shares of Common Stock authorized upon adoption of this
proposal will be available for issuance from time to time as determined by the
Board, without further action by the stockholders and without first offering the
shares to the stockholders. The proposed increase will ensure that a sufficient
number of shares will be available, if needed, for issuance in connection with
any possible future actions approved by the Board, including, among others,
stock splits, stock dividends, acquisitions, financings, rights offerings,
employee benefit programs or other corporate purposes, or upon exercise of stock
options or warrants. The Board believes that the availability of the additional
shares for such purposes without delay or necessity for a special stockholder's
meeting (except as may be required by applicable law or regulatory authorities
or by the rules of any stock exchange on which the Company's securities may be
listed) will be beneficial to the Company by providing it with the flexibility
required to respond to future business opportunities and needs as they arise.
The availability of additional authorized Common Stock will also enable the
Company to act promptly when the Board determines that the issuance of
additional shares of Common Stock is advisable. Assuming the approval by
stockholders of this proposal, there will be 229,812,000 authorized and unissued
shares of Common Stock that are not reserved for any specific use and are
available for future issuance.
ANTI-TAKEOVER EFFECT
An increase in the number of shares of Common Stock that the Company is
authorized to issue could have a potential anti-takeover effect with respect to
the Company, although the Company's management (the "Management") has not
proposed the increase for that reason and does not presently anticipate using
the additional authorized shares for such a purpose. The potential anti-takeover
effect of the proposed amendment arises because the Company could issue
additional shares of Common Stock, up to the total authorized number, thereby
diluting the stockholdings and related voting rights of then existing
stockholders in proportion to the number of any additional shares issued.
In addition, the power of the Board, under both the Company's Articles and
the Delaware Certificate, to issue Preferred Stock with voting or other powers,
preferences and rights may be used to impede or discourage a takeover attempt.
Generally, the issuance of Preferred Stock could (a) result in a class of
securities outstanding which will have certain preferences regarding
17
distributions in a liquidation over the Common Stock and might provide for
certain rights (whether general, special, conditional or limited) that could
dilute the voting rights of Common Stock and (b) result in dilution of the net
income per share and net book value per share relating to Common Stock. Further,
the issuance of any additional shares of Common Stock, pursuant to any
conversion rights granted holders of any Preferred Stock, may also result in
dilution of the voting rights, net income per share and net book value of Common
Stock.
VOTES REQUIRED
The affirmative vote of a majority of outstanding stock entitled to vote is
required to approve the reincorporation proposal.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
REINCORPORATION PROPOSAL.
18
PROPOSAL 2
REVERSE SPLIT OF COMMON STOCK, ISSUED AND OUTSTANDING
The Company's Board of Directors proposes a reverse split of its
outstanding shares of common stock on the basis of two (2) shares for each one
(1) share held by each holder, with all fractional shares rounded up to the
next whole number. The effective date of the reverse split on the OTC Bulletin
Board shall be determined by the Company's Chief Executive Officer. In the event
that any shares of preferred stock, or any options, are outstanding as of the
record date of the reverse split, then the shares of common stock issued upon
conversion of such preferred stock and the shares of common stock issuable upon
exercise of such options, shall be reduced by the same factor of 2:1, with any
and all fractions being rounded up to the next whole share number.
The Company's Board of Directors also is proposing an increase in the
Company's authorized shares of common stock to 300 million shares of common
stock to take effect with the reverse split.
VOTES REQUIRED
If Proposal 2 is approved, a reverse split of the issued and outstanding
Common Stock of the Company may be effected regardless of whether the
Reincorporation Proposal is approved. If the Reincorporation Proposal is
approved, Proposal 2 will require the affirmative vote of a majority of the
outstanding shares of Common Stock. If the Reincorporation Proposal is not
approved, Proposal 2 will require the affirmative vote of a majority of votes
cast, provided a quorum (50% of the outstanding shares of Common Stock) is
present as is required under Indiana law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF A
REVERSE SPLIT OF COMMON STOCK, ISSUED AND OUTSTANDING.
19
PROPOSAL 3
ELECTION OF DIRECTORS
INFORMATION ABOUT NOMINEES
Five directors will be elected at the Meeting. The Company currently has
five directors, all of whom are Management nominees. Each nominee is currently a
member of the current Board of Directors.
The enclosed proxy, unless otherwise specified, will be voted to elect as
directors the nominees named below. Each director elected at the Annual Meeting
will serve until the next Annual Meeting of Stockholders and until his successor
is duly elected and qualified. All nominees have consented to serve as
directors. If a nominee should not be available for election as contemplated,
the Management proxy holders will vote for a substitute designated by the
current Board of Directors.
The following table sets forth certain information, as of the Record Date,
concerning the nominees for election as directors of the Company. For
information as to the shares of the Common Stock held by each nominee, see the
section "Securities Ownership of Certain Beneficial Holders and Management"
elsewhere in this Proxy Statement.
The principal occupations and brief summary of the background of each
Director and executive officer of the Company during the past 5 years is as
follows:
GUOSHENG LIU, CHAIRMAN
Mr. Liu has more than 35 years experience in Chinese news process and
media industry in China. He obtained his Master degree from Chinese Academy of
Social Science. Prior to this, Mr. Liu had served Heilongjiang Daily as reporter
for 7 years. After his graduation from the Chinese Academy of Social Science,
Mr. Liu worked for People's Daily as Senior Reporter for the period 1981-2003.
He has an extensive relationship with the media industry and government bodies.
SHANHE YANG, CEO, PRESIDENT AND DIRECTOR
Mr. Yang joined the company in 1999 and has extensive management
experience in multimedia industry in China. Mr. Yang is responsible for planning
analysis and researching and developing of software products, as well as
responsible for technical support, alliance's networking developing, and
business development. He holds a post in various kinds of business categories,
such as technical support, training, marketing and management. The main
developing direction is Internet and mobile network business application. Prior
to joining the group, Mr. Yang has engaged in enterprise's information system
and electronic business system development in Shenzhen, Guangdong. Mr. Yang was
trained as a computer network engineer in Beijing University of Post and the
Company.
LIJIAN DENG, CONTROLLER, SECRETARY AND DIRECTOR
Ms. Deng joined the company in 1994. Ms. Deng has been responsible for
management of the export department and has been accumulating administration
operation experience for 10 years in international trade and corporate
management. Ms. Deng attended an advanced study in FUDAN University Shanghai
prior to joining the Company.
GARY LAM, CFO
Mr. Lam joined the company in late 2003 and he has over 16 years of
extensive experience in treasury management. Mr. Lam is an affiliated member of
the Hong Kong Securities Institute. Mr. Lam was appointed as director of Renren
Holdings Limited (a public company in HK) during May 2001-September 2002.
20
LIRONG LIU, CHIEF INFORMATION OFFICER AND DIRECTOR
Ms. Liu joined the company in 2004. She spent 4 years in broadcasting
and communications after graduation from college. Prior to joining the group, s.
Liu had worked for various foreign conglomerates in the electronics industry in
Zhuhai where she had served in different departments. With more than four years
experience in Internet and the virtual media market, Ms Liu was recognized as an
outstanding information/content integration professional when she worked for
Aixi Software Limited before joining the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than 10% of
a class of the Company's equity securities which are registered under the
Securities Exchange Act to file with the commission initial reports of ownership
and reports of changes of ownership of such registered securities. Such
executive officers, directors and greater than 10% beneficial owners are
required by Commission Regulation to furnish the Company with copies of all
Section 16(a) forms filed by such reporting persons. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and on representations that no other reports were required, no person required
to file such a report failed to file on a timely basis during the most recent
fiscal year or prior fiscal years.
AUDIT COMMITTEE
We do not have an audit committee. The entire Board of Directors serves as
the audit committee. Because of the small size of the Company and the risk
attendant to a small public company, we are currently unable to attract an audit
committee financial expert to our Board of Directors.
REPORT OF THE BOARD OF DIRECTORS WITH REGARD TO THE 2004 AUDIT
The following Report of the Board of Directors does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent we specifically incorporate this
Report by reference therein.
In January 2005, a written charter of the Audit Committee of the Board of
Directors was approved by the full Board.
As set forth in more detail in the charter, the Audit Committee's primary
responsibilities fall into three broad categories:
a. the Committee is charged with monitoring the preparation of quarterly
and annual financial reports by our Management, including discussions
with our Management and the outside auditors about draft annual
financial statements and key accounting and reporting matters;
b. the Committee is responsible for matters concerning the relationship
between us and the outside auditors, including their appointment or
removal; reviewing the scope of their audit services and related fees,
as well as any other services being provided to us; and determining
whether the outside auditors are independent (based in part on the
annual letter provided to us pursuant to Independence Standards Board
Standard No. 1); and
c. the Committee oversees Management's implementation of effective
systems of internal controls, including review of policies relating to
legal and regulatory compliance, ethics and conflicts of interests.
The Board has implemented procedures to ensure that during the course
of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Board's charter.
21
During fiscal year 2005, the Board will continue to meet quarterly with the
outside auditors to review the quarterly results. The Board will meet with
the outside auditors to review and approve the planning of the annual audit and
will also meet at the conclusion of the annual audit to review the results
thereof.
In overseeing the preparation of our financial statements, the Board met
with both Management and the outside auditors to review and discuss all
financial statements prior to their issuance and to discuss significant
accounting issues. Management advised the Board that all financial statements
were prepared in accordance with generally accepted accounting principles, and
the Board discussed the statements with both Management and the outside
auditors. The Board's review included discussion with the outside auditors of
matters required to be discussed pursuant to Statement on Auditing Standards No.
61 (Communication With Audit Committees).
With respect to our independent registered public accounting firm, the
Board, among other things, discussed matters relating to its independence,
including the disclosures made to the Board as required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
On the basis of these reviews and discussions, the Board of Directors
approved the inclusion of our audited financial statements in our Annual Report
on Form 10-KSB for the fiscal year ended September 30, 2004 for filing with the
Securities and Exchange Commission.
The Audit Committee
COMPENSATION COMMITTEE
We do not have a compensation committee. The entire Board of Directors
serves as the compensation committee. There are no other committees of the Board
of Directors.
THE REPORT OF THE BOARD OF DIRECTORS ON COMPENSATION
The following Report of the Board of Directors does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent we specifically incorporate this
Report by reference therein.
In January 2005, a written charter of the Audit Committee of the Board of
Directors was approved by the full Board.
As set forth in more detail in the charter, the Audit Committee's primary
responsibilities are as set forth below:
It is the duty of the Compensation Committee to develop, administer and
review our compensation plans, programs, and policies; to monitor the
performance and compensation of executive officers; and to make appropriate
recommendations and reports to the Board of Directors relating to executive
compensation.
Our compensation program is intended to motivate, retain and attract
Management, thus linking incentives to financial performance and creating
enhanced stockholder value. The program's fundamental philosophy is to tie the
amount of compensation "at risk" for an executive to his or her contribution to
our success in achieving superior performance objectives.
The compensation program consists of two components: (1) a base salary as
set forth in each executive's employment agreement, and (2) the potential for an
annual cash and/or stock option bonus equal to a percentage of the executive's
22
base salary, depending upon the satisfaction of certain general performance
criteria established by the Compensation Committee for each position and
evaluated at the end of each fiscal year. The criteria may relate to overall
Company performance, the individual executive's performance, or a combination of
the two, depending upon the particular position at issue. The second component
constitutes the "at risk" portion of the compensation program.
Summary Compensation Table
The following table sets forth information relating to all compensation
awarded to, earned by or paid by us during the past three fiscal years to: (a)
our Chief Executive Officer; and (b) each of our executive officers who earned
more than $100,000 during the last three fiscal periods ended September 30,
2004, 2003 and 2002:
Annual Compensation Long-Term Compensation
--------------------------------------------- ----------------------------------------
Securities
Other Annual Restricted Underlying
Name and Principal Fiscal Bonus Compensation Stock Options SAR All Other
Position Year Salary ($) ($) ($) Awards ($) (#) Compensation
------------------ ------ ---------- ----- ------------ ---------- ----------- ------------
Shanhe Yang 2004 $ 124,000 $ - $ - $ - - -0-
Chief Executive 2003 $ - $ - $ - $ - - -0-
Officer, President 2002 $ - $ - $ - $ - - -0-
and Director
Lijian Deng 2004 $ 124,000 $ - $ - $ - - -0-
Controller, 2003 $ - $ - $ - $ - - -0-
Secretary 2002 $ - $ - $ - $ - - -0-
and Director
Lirong Liu 2004 $ 124,000 $ - $ - $ - - -0-
Chief Information 2003 $ - $ - $ - $ - - -0-
Officer and 2002 $ - $ - $ - $ - - -0-
Director
Option Grants In Last Fiscal Year
None
Aggregated Option/Sar Exercises In Last Fiscal Year And Fiscal Year-End
Option/Sar Values
None
TERM OF OFFICE
The term of office of the current directors shall continue until new
directors are elected or appointed.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Management
officers. The compensation of the employment has been disclosed above. There are
no employment contract established with employees in China as it is not common
to have employment contract in China for non-management employee.
23
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
There are no compensatory plans or arrangements, including payments to
be received from the Company, with respect to any person named in the Summary
Compensation Table set out above which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of such person's employment with the Company or its subsidiaries, or
any change in control of the Company, or a change in the person's
responsibilities following a change in control of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 30, 2004, information known
to us relating to the beneficial ownership of shares of common stock by: each
person who is the beneficial owner of more than five percent of the outstanding
shares of common stock; each director; each executive officer; and all executive
officers and directors as a group.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
Under the securities laws, a person is considered to be the beneficial
owner of securities that can be acquired by him within 60 days from the date of
this filing upon the exercise of options, warrants or convertible securities. We
determine beneficial owner's percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of the date of this
filing, have been exercised or converted. As of December 30, 2004, there were
70,188,000 shares of our common stock issued and outstanding.
(d) Changes in Control
We know of no contractual arrangements which may at a subsequent date
result in a change of control in the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related transaction: A consultancy fee expense of $37,179 was paid to Grace
Motion Inc. The director of this company is Mr. Gary Lam.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Summary
Compensation Table set out above which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of such person's employment with the Company or its subsidiaries, or
any change in control of the Company, or a change in the person's
responsibilities following a change in control of the Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
We indemnify to the fullest extent permitted by, and in the manner
permissible under the laws of the State of Indiana, any person made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he/she is or
was a director or officer of our Company, or served any other enterprise as
director, officer or employee at our request. Our board of directors, in its
discretion, shall have the power on behalf of the Company to indemnify any
person, other than a director or officer, made a party to any action, suit or
proceeding by reason of the fact that he/she is or was our employee.
24
OTHER MATTERS
The Company knows of no other business to be acted upon at the Annual
Meeting. However, if any business is properly presented at the Annual Meeting,
it is intended that the persons named in the enclosed Proxy, or their
substitutes, will vote such Proxy in accordance with their judgment on such
matters.
STOCKHOLDERS PROPOSALS
Proposals of stockholders intended to be presented at the February 28,
2005 Annual Meeting and included in the Company's 2006 Proxy Statement must be
in writing and received by the Company Secretary at the Company's principal
executive offices, Telecom Communications, Inc. Room 1602, 16/F, 5-9 Observatory
Court, TST, Hong Kong, China, by February 11, 2005.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED IF YOU DO NOT PLAN TO ATTEND THE
ANNUAL MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. IN THE EVENT
YOU ARE ABLE TO ATTEND, WE WILL, IF YOU REQUEST, CANCEL THE PROXY.
SOLICITATION AND OTHER MATTERS
The cost of soliciting proxies will be paid by the Company. In addition to
solicitations by mail, some directors, officers and regular employees of the
Company, without extra remuneration, may conduct solicitations by telephone,
facsimile and personal interview. The Company will reimburse brokerage firms and
other custodians, nominees and fiduciaries for reasonable expenses incurred by
them in sending proxy material to the beneficial owners of Common Stock. As of
the date of this Proxy Statement, the Board of the Company has no knowledge of
any matters to be presented for consideration at the meeting other than those
referred to above. However, persons named in the accompanying form of proxy will
have the authority to vote such proxy as to any other matters which do properly
come before the meeting and as to matters incidental to the conduct of the
meeting, according to their discretion.
Sincerely,
/s/ Shanhe Yang
---------------
Name: Shanhe Yang
Title: Chief Executive Officer
Room 1602, 16/F, 6-9 Observatory Court, TST
Hong Kong, China
January 15, 2005
25
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
TELECOM COMMUNICATIONS, INC., INDIANA
AND
TELECOM COMMUNICATIONS, INC., DELAWARE
AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), dated as of January
13, 2005, between Telecom Communications, Inc. ("Telecom Delaware"), and Telecom
Communications, Inc. an Indiana corporation ("Telecom Indiana"), pursuant to
Section 253 of the Delaware General Corporation Law (the "DGCL") and Section
23-1-40-7 of the Indiana Business Corporation Law (the "IBCL").
W I T N E S S E T H:
WHEREAS, Telecom Delaware is a corporation duly organized and in good
standing under the laws of the State of Delaware;
WHEREAS, Telecom Indiana is a corporation duly organized and in good
standing under the laws of the State of Indiana;
WHEREAS, the Board of Directors of Telecom Delaware and the Board of
Directors of Telecom Indiana have determined that it is advisable and in the
best interests of each of them that Telecom Indiana merge with and into Telecom
Delaware upon the terms and subject to the conditions herein provided;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, the parties hereto agree as follows:
ARTICLE 1: Merger. Upon the filing of a Certificate of Ownership and Merger
with the Secretary of State of the State of Delaware and the Articles of Merger
with the Secretary of the State of Indiana (the "Effective Time"), Telecom
Indiana shall be merged (the "Merger") with and into Telecom Delaware, and
Telecom Delaware shall be the corporation surviving the Merger (hereinafter
referred to as the "Surviving Corporation").
ARTICLE 2: Directors, Officers and Governing Documents. The directors of
the Surviving Corporation from and after the Effective Time shall be the
directors of Telecom Indiana immediately prior to the Effective Time. The
officers of the Surviving Corporation immediately after the Effective Time shall
be the officers of Telecom Indiana immediately prior to the Effective Time.
These officers and directors shall hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation. At the
Effective Time, the existing Certificate of Incorporation and Bylaws of Telecom
Delaware shall be the same as the Surviving Corporation in the forms attached
hereto as Annex A and B.
ARTICLE 3: Name. The name of the Surviving Corporation shall be: Telecom
Communications, Inc.
ARTICLE 4: Effect of Merger on Shares of Stock of Telecom Indiana. At the
Effective Time, each share of common stock, with $0.001 par value, of Telecom
Indiana outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock, with $0.001 par value, of the
Surviving Corporation with fractional shares being rounded up to the next whole
number of shares. At the Effective Time, each issued and outstanding share of
stock of Telecom Indiana shall be canceled, without the payment of consideration
therefor.
ARTICLE 5: Effect of the Merger. The Merger shall have the effect set forth
in Section 259 of the DGCL.
ARTICLE 6: Approval. The Plan of Merger herein made and approved shall be
submitted to the shareholders of Telecom Indiana and Telecom Delaware,
respectively for their approval or rejection in the manner prescribed by the
provisions of the IBCL and shall be approved in the manner prescribed by the
GCL.
ARTICLE 7: Authorization. The Board of Directors and the proper officers of
Telecom Indiana and of the Surviving Corporation, respectively, are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Agreement and Plan of Merger or
of the merger herein provided for.
ARTICLE 8: Further Assurances. From time to time, as and when required by
the Surviving Corporation or by its successors and assigns, there shall be
executed and delivered on behalf of Telecom Indiana such deeds and other
instruments, and there shall be taken or caused to be taken by the Surviving
Corporation all such further and other actions, as shall be appropriate or
necessary in order to vest, perfect or confirm in the Surviving Corporation the
title to and possession of all property, interests, assets, rights, privileges,
immunities, powers and authority of Telecom Indiana, and otherwise to carry out
the purposes of this Merger Agreement. The officers and directors of the
Surviving Corporation are fully authorized, on behalf of the Surviving
Corporation or Telecom Indiana, to take any and all such actions and to execute
and deliver any and all such deeds, documents and other instruments.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the undersigned have executed this Merger Agreement as
of the date first above written.
TELECOM COMMUNICATIONS, INC.
an Indiana Corporation
By:
--------------------------------------
Name: Lijian Deng
Title: Corporate Secretary
TELECOM COMMUNICATIONS, INC.
a Delaware corporation
By:
--------------------------------------
Name: Lijian Deng
Title: Corporate Secretary
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
TELECOM COMMUNICATIONS, INC.
THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify as follows:
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is Telecom Communications, Inc., (hereinafter,
the "Corporation").
ARTICLE II
REGISTERED OFFICE; REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New
Castle, Delaware 19808. The name of its registered agent at that address is
Corporation Service Company.
ARTICLE III
PURPOSE; TERM OF EXISTENCE
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware. The period during which the Corporation shall continue is
perpetual.
ARTICLE IV
CAPITAL STOCK
(1) The amount of total authorized capital stock of this Corporation shall
be 350,000,000 shares, divided as follows: (i) 300,000,000 shares of Common
Stock, with $0.001 par value (the "Common Stock"), and (ii) 50,000,000 shares of
Preferred Stock with $0.001 par value (the "Preferred Stock").
(2) The Preferred Stock may be issued from time to time as herein provided
in one or more series. The Board of Directors shall have the full authority to
determine and state the designations and the relative rights (including, if any,
par value, conversion rights, participation rights, voting rights, dividend
rights, and stated, redemption and liquidation values), ranking preferences,
limitations and restrictions of each such series by the adoption of resolutions
prior to the issuance of each such series authorizing the issuance of such
series. All shares of Preferred Stock of the same series shall be identical with
each other in all respects, except will respect to the right to receive
dividends which may vary depending on the date of purchase.
ARTICLE V
DIRECTORS
SECTION A. NUMBER; TERM
The maximum number of directors shall be defined by the Board of Directors
in accordance with the Bylaws and the minimum number of directors shall be
three.
SECTION B. QUALIFICATIONS
Directors need not be stockholders of the Corporation.
SECTION C. VACANCIES
Subject to the rights, if any, of the holders of shares of any class or
series of Preferred Stock then outstanding to elect directors under specified
circumstances as may be required by the DGCL or applicable regulations of any
exchange on which the Corporation's capital stock may be listed, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, or removal shall be filled by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the director's term.
No decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
SECTION D. BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend, change,
add to or repeal the Bylaws of the Corporation.
SECTION E. LIMITED LIABILITY
No director shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or modification of
this section by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
2
ARTICLE VI
PROVISIONS FOR REGULATIONS OF
BUSINESS AND CONDUCT OF AFFAIRS OF THE CORPORATION
SECTION A. MEETINGS
Meetings of the stockholders and the directors of this Corporation may be
held either within or without the State of Delaware, and at such place as the
Bylaws shall provide or, in default of such provisions, at such place as the
Board of Directors shall designate.
SECTION B. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the DGCL, as the same may be amended and supplemented, indemnify
each person who is or was a director, officer, manager, or employee of the
Corporation, or of any other corporation, partnership, joint venture, limited
liability company, trust or other enterprise which he is serving or served in
any capacity at the request of the Corporation, from and against any and all
liability and reasonable expense, as and when incurred, that may be incurred by
him in connection with or resulting from any claim, actions, suit or proceeding
(whether actual or threatened, brought by or in the right of the corporation of
such other corporation, partnership, joint venture, limited liability company,
trust or other enterprise, or otherwise, civil, criminal, administrative,
investigative, or in connection with an appeal relating thereto), in which he
may become involved, as a party or otherwise, by reason of his being or having
been a director, officer, manager, or employee of the Corporation or of such
other corporation, partnership, joint venture, limited liability company, trust
or other enterprise or by reason of any past or future action taken or not taken
in his capacity as such director, officer, manager, or employee, whether or not
he continues to be such at the time such liability or expense is incurred,
provided that a determination is made by the Corporation in accordance with
Delaware law that such person acted in good faith and in a manner he reasonably
believed to be in the best interests of the Corporation or at least not opposed
to the best interests of such other corporation, partnership, joint venture,
limited liability company, trust or other enterprise, as the case may be, and,
in addition, in any criminal action or proceedings, had reasonable cause to
believe his conduct was lawful or no reasonable cause to believe that his
conduct was unlawful. The termination of a proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the person did not meet the standard of
conduct described in the previous sentence. Notwithstanding the foregoing, there
shall be no indemnification (a) as to amounts paid or payable to the Corporation
or such other corporation, partnership, joint venture, limited liability
company, trust or other enterprise, as the case may be, for or based upon the
director, officer or employee having gained in fact any personal profit or
advantage to which he was not legally entitled; (b) as to amounts paid or
payable to the Corporation for an accounting of profits in fact made from the
purchase or sale of securities of the corporation within the meaning of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any state statutory law; or (c) with respect to matters as to
which indemnification would be in contravention of the laws of the State of
Delaware or of the United States of America whether as a matter of public policy
or pursuant to statutory provisions.
3
The name and mailing address of the sole Incorporator of the Corporation is
Lijian Deng, Corporate Secretary, c/o Telecom Communications, Inc., Room 1602,
16/F, 5-9 Observatory Court, TST, Hong Kong, China.
IN WITNESS WHEREOF, Telecom Communications, Inc. has caused this
Certificate of Incorporation to be duly executed by its duly authorized officer
this 14th day of January 2005.
/s/ Lijian Deng
---------------------------------
Name: Lijian Deng
Title: Corporate Secretary
4
EXHIBIT C
BYLAWS
OF
TELECOM COMMUNICATIONS, INC.
ARTICLE ONE
CAPITAL STOCK
-------------
Section A. Classes of Stock. The capital stock of the corporation shall
consist of shares of such kinds and classes, with such designations and such
relative rights, preferences, qualifications, limitations and restrictions,
including voting rights, and for such consideration as shall be stated in or
determined in accordance with the Certificate of Incorporation and any amendment
or amendments thereof, or the Delaware General Corporation Law (the "DGCL").
Consistent with the DGCL, capital stock of the corporation owned by the
corporation may be referred to and accounted for as treasury stock.
Section B. Certificates for Shares. All share certificates shall be
consecutively numbered as issued and shall be signed by the president or a vice
president and the corporate secretary or any assistant secretary of the
corporation.
Section C. Transfer of Shares. The shares of the capital stock of the
corporation shall be transferred only on the books of the corporation by the
holder thereof, or by his attorney-in-fact, upon the surrender and cancellation
of the stock certificate, whereupon a new certificate shall be issued to the
transferee. The transfer and assignment of such shares of stock shall be subject
to the laws of the State of Delaware. The Board of Directors shall have the
right to appoint and employ one or more stock registrars and/or transfer agents
in the State of Delaware or in any other state.
ARTICLE TWO
STOCKHOLDERS
------------
Section A. Annual Meetings. The regular annual meeting of the stockholders
of the corporation shall be held on such date within a reasonable interval after
the close of the corporation's last fiscal year as may be designated from time
to time by the Board of Directors, for the election of the directors of the
corporation, and for the transaction of such other business as is authorized or
required to be transacted by the stockholders.
Section B. Special Meetings. Special meetings of the stockholders may be
called by the Board of Directors or upon the request to the president of the
Corporation by holders of not less than 10% of all of the outstanding shares of
the corporation entitled to vote at a stockholders meeting.
Section C. Time and Place of Meetings. All meetings of the stockholders
shall be held at the principal office of the corporation or at such other place
within or without the State of Delaware and at such time as may be designated
from time to time by the Board of Directors.
Section D. Notice of Stockholders. Notice of Stockholders shall be mailed
or delivered to stockholders not less than ten (10) nor more than sixty (60)
days before the date of the meeting. No business may be transacted at an Annual
Meeting of Stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the Annual Meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the Annual Meeting by any stockholder of the corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section D of this Article Two and on the record date for
the determination of stockholders entitled to vote at such Annual Meeting, and
(ii) who complied with the notice procedures set forth in this Section D of this
Article Two.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the secretary of
the corporation. To be timely, a stockholder's notice to the secretary must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than ninety (90) days nor more than one hundred and twenty
(120) days prior to the anniversary date of the immediately preceding the Annual
Meeting of stockholders; provided, however, that in the event that the Annual
Meeting is called for a date that is not within thirty (30) days before or after
such anniversary date, notice by the stockholder in order to be timely must be
so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the Annual Meeting was
mailed; and (b) in the case of a Special Meeting of Stockholders called for the
purpose of electing directors, not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the Special Meeting
was mailed. In no event shall the public announcement of an adjournment of an
Annual Meeting or Special Meeting for the purpose of electing directors commence
a new time period for the giving of a stockholder's notice as described above.
To be in proper written form, a stockholder's notice to the secretary must
set forth as to each matter such stockholder proposes to bring before the Annual
Meeting (i) a brief description of the business desired to be brought before the
Annual Meeting and the reasons for conducting such business at the Annual
Meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the corporation which are
owned beneficially or of record by such stockholders, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal, and (v) a
representation that such stockholder intends to appear in person or by proxy at
the Annual Meeting to bring such business before the meeting.
If the chairman of an Annual Meeting determines that business was not
properly brought before the Annual Meeting in accordance with the foregoing
procedures, the chairman shall declare to the meeting that the business was not
properly brought before the meeting and such business shall not be transacted.
Section E. Quorum Requirements for Stockholder Meetings. A majority of the
shares entitled to vote present, in person or represented by proxy, shall
constitute a quorum for the transactions of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are announced at
2
the meeting at which the adjournment is taken. When a quorum is present at any
meeting, a majority in interest of the stock there represented shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of this corporation's certificate of incorporation or Bylaws,
or by the laws of Delaware, a larger or different vote is required, in which
case such express provision shall govern the decision or such question.
Section F. Voting and Proxies. Every stockholder entitled to vote at a
meeting may do so either in person or by proxy appointment made by an instrument
in writing subscribed by such stockholder which proxy shall be filed with the
secretary of the meeting before being voted. Such proxy shall entitle the
holders thereof to vote at any adjournment of such meeting, but shall not be
valid after the final adjournment thereof. No proxy shall be valid after the
expiration of three (3) years from the date of its execution, unless the said
instrument expressly provides for a longer period.
Section G. Written Consent of Stockholders. Any action required or
permitted to be taken by the holders of the issued and outstanding stock of the
Corporation at an annual or special meeting of stockholders duly called and held
in accordance with law, the Certificate of Incorporation of the corporation and
these By-Laws, may in lieu of such meeting, be taken by the consent in writing
executed by stockholders holding the number of shares necessary to approve such
action.
ARTICLE THREE
DIRECTORS
---------
Section A. Number and Terms of Office. The business of the corporation
shall be controlled and managed in accordance with the DGCL by a Board of up to
nine directors. The number of directors to be fixed from time to time by
resolution adopted by a majority of the Board of Directors then in office.
Directors need not be stockholders or residents of this State, but must be of
legal age. They shall be elected by a plurality of the votes cast at the annual
meetings of the stockholders or at a special meeting of the stockholders called
for that purpose. Each director shall hold office until the expiration of the
term for which he is elected, and thereafter until his successor has been
elected and qualified.
Section B. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the corporation, except as may be otherwise provided in the
Certificate of Incorporation, including the right of holders of preferred stock
of the corporation to nominate and elect a specified number of directors in
certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any Annual Meeting of Stockholders, or at any Special
Meeting of Stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof), or (b) by any stockholder of the corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this Section B
of this Article Three and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section B of this Article Three.
3
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the secretary of the corporation. To be timely, a
stockholder's notice to the secretary must be delivered to or mailed and
received at the principal executive offices of the corporation (a) in the case
of an Annual Meeting, not less than ninety (90) days nor more than one hundred
and twenty (120) days prior to the anniversary date of the immediately preceding
Annual Meeting of Stockholders; provided, however, that in the event that the
Annual Meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the Annual Meeting was
mailed; and (b) in the case of a Special Meeting of Stockholders called for the
purpose of electing directors, not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the Special Meeting
was mailed. In no event shall the public announcement of an adjournment of an
Annual Meeting or Special Meeting commence a new time period for the giving of a
stockholder's notice as described above.
To be in proper written form, a stockholder's notice to the secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section B
of this Article Three, except as may be otherwise provided in the Certificate of
Incorporation of the Corporation. If the chairman of the meeting determines that
a nomination was not made in accordance with the foregoing procedures, the
chairman shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
Section C. Employee Directors. An employee director, other than the chief
executive officer, shall immediately resign from the Board of Directors at the
time of any reduction in responsibility or upon termination of employment for
4
whatever reason, unless the Board of Directors determines otherwise. A director
who was chief executive officer of the corporation and whose employment was
terminated for whatever reason, other than retirement, shall resign immediately
from the Board of Directors upon such termination, unless the Board of Directors
determines otherwise.
Section D. Meetings. The annual meeting of the Board of Directors shall be
held immediately after the adjournment of the annual meeting of the
stockholders, at which time the: (i) officers of the corporation shall be
elected, (ii) the membership of committees of the Board of Directors shall be
elected and (iii) the election of the Chairman of the Board of Directors and any
other Board positions. The Board may also designate more frequent intervals for
regular meetings. Special meetings may be called at any time by the chairman of
the Board, chief executive officer, president, or any director. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting in such manner shall constitute presence in person at
such a meeting.
Section E. Notice of Directors' Meetings. The annual and all regular Board
meetings may be held without specific prior notice of the date, time, place or
purpose of the meeting, as long as such dates have been previously established.
Special meetings shall be held upon notice sent by any usual means of
communication not less than twenty-four (24) hours before the meeting noting the
date, time and place of the meeting. The notice need not describe the purposes
of the special meeting. Attendance by a director at a meeting or subsequent
execution or approval by a director of the minutes of a meeting shall constitute
a waiver of any defects in notice of such meeting.
Section F. Quorum and Vote. The presence of a majority of the directors
shall constitute a quorum for the transaction of business. A meeting may be
adjourned despite the absence of a quorum, and notice of an adjourned meeting
need not be given if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken, and if the period of
adjournment does not exceed thirty (30) days in any one adjournment. The vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board, unless the vote of a greater number is required
by the Certificate of Incorporation, these Bylaws, or by the laws of Delaware.
Section G. Committees of the Board of Directors . The Board of Directors,
by a resolution adopted by a majority if its members, may designate an executive
committee, an audit committee, and other committees, and may delegate to such
committee or committees any and all such authority as it deems desirable.
Section H. Removal of Directors. Any or all of the directors may be
removed at any time for "cause" by the affirmative vote of the holders of
66-2/3% or more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class). Cause for purposes of these Bylaws shall be: (i) any
fraudulent or dishonest act or activity by the director; or (ii) behavior
materially detrimental to the business of the Corporation.
5
Section I. Chairman of the Board. The chairman of the Board shall be
chosen from among the directors and shall preside at all meetings of the Board
of Directors and stockholders. He shall confer from time to time with members of
the Board and the officers of the corporation and shall perform such other
duties as may be assigned to him by the Board. Except where by law the signature
of the president is required, the chairman of the Board shall possess the same
power as the president to sign all certificates, contracts, and other
instruments of the corporation which may be authorized by the Board of
Directors.
Section J. Time and Place of Meetings. All meetings of the Board of
Directors shall be held at the principal office of the corporation, or at such
other place within or without the State of Delaware and at such time as may be
designated from time to time by the Board of Directors.
Section K. Vacancies. Except as otherwise provided in the Certificate of
Incorporation or in the following paragraph, vacancies occurring in the
membership of the Board of Directors, from whatever cause arising may be filled
by vote of a majority of the remaining directors, although less than a quorum is
present, or such vacancies may be filled by the shareholders.
Section L. Action by Written Consent of Directors. Any action required or
permitted to be taken by the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board or of the committee consent
in writing to the adoption of resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or of the committee
shall be filed with the minutes of the proceedings of the Board or committee,
and such action shall be as valid and effective as any action taken at a regular
or special meeting of the directors.
Section M. Dividends. The Board of Directors may declare dividends from
time to time upon the capital stock of the Corporation in accordance with the
DGCL.
Section N. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE FOUR
OFFICERS
--------
Section A. Election and Term of Office. The officers of the corporation
shall be elected by the Board of Directors at the regular annual meeting of the
Board, unless the Board shall otherwise determine, and may consist of a chief
executive officer, chief operating officer, president, one or more vice
presidents (any one or more of whom may be designated "corporate," "executive,"
"senior," "group" or other functionally described vice president), a corporate
secretary, a chief financial officer, a treasurer and one or more assistant
secretaries and assistant treasurers. Each officer shall continue in office
until his successor shall have been duly elected and qualified or until removed
in the manner hereinafter provided. Vacancies occasioned by any cause in any one
or more of such offices may be filled for the unexpired portion of the term by
the Board of Directors at any regular or special meeting of the Board.
6
Section B. Chief Executive Officer. The Board may designate a chief
executive officer, who shall be the most senior officer of the Company, and
report directly to the Board of Directors. The chief executive officer shall
have the full authority to operate the Company on a day-to-day basis subject to
the supervision of the Board of Directors. All officers of the Company shall be
subject to the authority of the chief executive officer.
Section C. The President. The president and his duties shall be subject to
the control of the Board of Directors, except, if someone has been designated
chief executive officer, in such event, the president shall be subject to the
control of the chief executive officer. The president shall have the power to
sign and execute all deeds, mortgages, bonds, contracts and other instruments of
the corporation as authorized by the Board of Directors, except in cases where
the signing and execution thereof shall be expressly designated by the Board of
Directors or by these bylaws to some other officer, official or agent of the
corporation. The president shall perform all duties incident to the office of
president and such other duties as are properly required of him by the bylaws.
Section D. The Vice Presidents. The vice presidents shall possess the same
power as the president to sign all certificates, contracts and other instruments
of the corporation which may be authorized by the Board of Directors, except
where by law the signature of the president is required. All vice presidents
shall perform such duties as may from time to time be assigned to them by the
Board of Directors, the chairman of the board, the chief executive officer or
the president, as applicable.
Section E. The Corporate Secretary. The corporate secretary of the
corporation shall:
(1) Keep the minutes of the meetings of the stockholders and the Board of
Directors in books provided for that purpose.
(2) See that all notices are duly given in accordance with the provisions
of these bylaws and as required by law.
(3) Be custodian of the records and of the seal of the corporation and see
that the seal is affixed to all documents, the execution of which on behalf of
the corporation under its seal is duly authorized in accordance with the
provisions of these bylaws.
(4) Keep a register of the post office address of each stockholder, which
shall be furnished to the corporate secretary at his request by such
stockholder, and make all proper changes in such register, retaining and filing
his authority for all such entries.
(5) See that the books, reports, statements, certificates and all other
documents and records required by law are properly kept, filed and
authenticated.
(6) In general, perform all duties incident to the office of corporate
secretary and such other duties as may from time to time be assigned to him by
the Board of Directors.
(7) In case of absence or disability of the corporate secretary, the
assistant secretaries, in the order designated by the chief executive officer,
shall perform the duties of corporate secretary.
7
Section F. The Treasurer. The treasurer of the corporation shall:
(1) Give bond for the faithful discharge of his duties if required by the
Board of Directors.
(2) Have the charge and custody of, and be responsible for, all funds and
securities of the corporation, and deposit all such funds in the name of the
corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of these bylaws.
(3) At all reasonable times, exhibit his books of account and records, and
cause to be exhibited the books of account and records of any corporation a
majority of whose stock is owned by the corporation, to any of the directors of
the corporation upon application during business hours at the office of this
corporation or such other corporation where such books and records are kept.
(4) Render a statement of the conditions of the finances of the corporation
at all regular meetings of the Board of Directors, and a full financial report
at the annual meeting of the stockholders, if called upon so to do.
(5) Receive and give receipts for monies due and payable to the corporation
from any source whatsoever.
(6) In general, perform all of the duties incident to the office of
treasurer and such other duties as may from time to time be assigned to him by
the Board of Directors.
(7) In case of absence or disability of the treasurer, the assistant
treasurers, in the order designated by the chief executive officer, shall
perform the duties of treasurer.
Section G. Chief Operating Officer. The Board of Directors shall designate
the authority and duties of the chief operating officer at the time of
appointment and such authority and duties may change or limit the authority and
duties of all other officers, except for the chief executive officer.
Section H. Chief Financial Officer. The Board of Directors shall designate
the authority and duties of the chief financial officer at the time of
appointment and such authority and duties may change or limit the authority and
duties of all other officers, except for the chief executive officer.
ARTICLE FIVE
CORPORATE SEAL
--------------
The corporate seal of the corporation shall be a round, metal disc with the
words "Telecom Communications, Inc." around the outer margin thereof, and the
words "Incorporated January 13, 2005", in the center thereof, so mounted that it
may be used to impress words in raised letters upon paper.
8
ARTICLE SIX
INDEMNIFICATION
---------------
Section A. Indemnification. The corporation shall, to the fullest extent
permitted by the provisions of Section 145 of the DGCL, indemnify each person
who is or was a director, officer, manager or employee of the corporation, or of
any other corporation, partnership, joint venture, limited liability company,
trust or other enterprise which he is serving or served in any capacity at the
request of the corporation, from and against any and all, liability and
reasonable expense, as and when incurred, that may be incurred by him in
connection with or resulting from any claim, actions, suit or proceeding
(whether actual or threatened, brought by or in the right of the corporation or
such other corporation, partnership, joint venture, limited liability company,
trust or other enterprise, or otherwise, civil, criminal, administrative,
investigative, or in connection with an appeal relating thereto), in which he
may become involved, as a party or otherwise, by reason of his being or having
been a director, officer, manager or employee of the corporation or of such
other corporation, partnership, joint venture, limited liability company, trust
or other enterprise or by reason of any past or future action taken or not taken
in his capacity as such director, officer, manager or employee, whether or not
he continues to be such at the time such liability or expense is incurred, to
the fullest extent permitted by the DGCL as the same now exists or may hereafter
be amended (but in the case of any such amendment only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
the DGCL permitted the corporation to provide prior to such amendment).
Any indemnification pursuant to this Article Six shall be (unless ordered
by a court) paid by the corporation within sixty (60) days of such request,
unless the corporation shall have determined by (a) the Board of Directors,
acting by a quorum consisting of directors who are not parties to or who have
been wholly successful with respect to such claim, action, suit or proceeding,
(b) outside legal counsel engaged by the corporation (who may be regular counsel
of the corporation) and who delivers to the corporation its written opinion, or
(c) a court of competent jurisdiction, that indemnification is not proper under
the circumstances because such person has not met the necessary standard of
conduct in accordance with DGCL; provided, however, that following a Change in
Control of the Corporation, with respect to all matters thereafter arising out
of acts, omissions or events prior to the Change in Control of the Corporation
concerning the rights of any person seeking indemnification hereunder, such
determination shall be made by special independent counsel selected by such
person and approved by the corporation (which approval shall not be unreasonably
withheld), which counsel has not otherwise performed services (other than in
connection with similar matters) within the five years preceding its engagement
to render such opinion for such person or for the corporation or any affiliates
(as such term is defined in Rule 405 under the Securities Act of 1933, as
amended) of the corporation (whether or not they were affiliates when services
were so performed) ("Independent Counsel"). Unless such person has theretofore
selected Independent Counsel pursuant to this Article Six, Section A and such
Independent Counsel has been approved by the corporation, legal counsel approved
by a resolution or resolutions of the Board of Directors prior to a Change in
Control of the Corporation shall be deemed to have been approved by the
Corporation as required. Such Independent Counsel shall determine as promptly as
practicable whether and to what extent such person would be permitted to be
indemnified under applicable law and shall render its written opinion to the
Corporation and such person to such effect; provided that such independent
9
counsel shall find that the standard for indemnification has been met by such
person unless indemnification is clearly precluded under these Bylaws or the
DGCL. The corporation agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such Independent Counsel
against any and all expenses, claims, liabilities and damages arising out of or
relating to this Article Seven or its engagement pursuant hereto.
For purposes of this Article Six, a "Change in Control of the Corporation"
shall be deemed to have occurred upon the first to occur of the following
events:
(i) any "person," as such term is used in Sections 13 (d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
the corporation, any trustee or other fiduciary holding securities under an
employee benefit plan of the corporation or any subsidiary of the corporation,
or any corporation owned, directly or indirectly, by the stockholders of the
corporation in substantially the same proportions as their ownership of stock of
the corporation), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
corporation representing 30 percent or more of the combined voting power of the
corporation's then outstanding securities;
(ii) at any time during any period of two consecutive years,
individuals, who at the beginning of such period constitute the Board of
Directors, and any new director (other than a director designated by a person
who has entered into an agreement with the corporation to effect a transaction
described in subsection (i), (iii) or (iv) of this Section 7.4) whose election
by the Board of Directors or nomination for election by the corporation's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors at the beginning of the period or whose election or nomination for
election was previously so approved cease for any reason to constitute at least
a majority thereof;
(iii) the stockholders of the corporation approve a merger or
consolidation of the corporation with any other corporation, other than (1) a
merger or consolidation which would result in the voting securities of the
corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50 percent of the combined voting power of the
voting securities of the corporation or such surviving entity outstanding
immediately after such merger or consolidation or (2) a merger or consolidation
effected to implement a recapitalization of the corporation (or similar
transaction) in which no person acquires 50 percent or more of the combined
voting power of the corporation's then outstanding securities; or
(iv) the stockholders of the corporation approve a plan of complete
liquidation of the corporation or an agreement for the sale or disposition by
the corporation of all or substantially all of the corporation's assets.
Section B. Expenses. Expenses, including reasonable attorneys' fees,
incurred by a person referred to in Section A of this Article Six in defending,
investigating or otherwise being involved in a proceeding shall be paid by the
corporation in advance of the final disposition of such proceeding, including
any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or
10
on behalf of such person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the corporation.
Section C. Right of Claimant to Bring Suit. If a claim for indemnification
is not paid in full by the corporation within sixty (60) days after a written
claim has been received by the corporation or if expenses pursuant to Section B
hereof have not been advanced within ten (10) days after a written request for
such advancement accompanied by the Undertaking has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim or the advancement of
expenses. (If the claimant is successful, in whole or in part, in such suit or
any other suit to enforce a right for expenses or indemnification against the
corporation or any other party under any other agreement, such claimant shall
also be entitled to be paid the reasonable expense of prosecuting such claim.)
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required Undertaking has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL for the corporation to indemnify the claimant for
the amount claimed. After a Change in Control, the burden of proving such
defense shall be on the corporation, and any determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant had not met the applicable standard of conduct
required under the DGCL shall not be a defense to the action nor create a
presumption that claimant had not met such applicable standard of conduct.
Section D. Non-Exclusivity of Rights. The rights conferred on any person
by this article shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement vote of stockholders or disinterested directors
or otherwise. The Board of Directors shall have the authority, by resolution, to
provide for such other indemnification of directors, officers, employees or
agents as it shall deem appropriate.
Section E. Insurance. The corporation may purchase and maintain insurance
to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, limited
liability company, trust or other enterprise against any expenses, liabilities
or losses, whether or not the corporation would have the power to indemnify such
person against such expenses, liabilities or losses under the DGCL.
Section F. Enforceability. The provisions of this Article Six shall be
applicable to all proceedings commenced after its adoption, whether such arise
out of events, acts, omissions or circumstances which occurred or existed prior
or subsequent to such adoption, and shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person. This Article Six shall be deemed to
grant each person who, at any time that this Article Six is in effect, serves or
agrees to serve in any capacity which entitles him to indemnification hereunder
rights against the corporation to enforce the provisions of this Article Six,
and any repeal or other modification of this Article or any repeal or
modification of the DGCL or any other applicable law shall not limit any rights
of indemnification then existing or arising out of events, acts, omissions,
circumstances occurring or existing prior to such repeal or modification,
including, without limitation, the right to indemnification for proceedings
commenced after such repeal or modification to enforce this article with regard
11
to acts, omissions, events or circumstances occurring or existing prior to such
repeal or modification.
Section G. Severability. If this Article Six or any portion hereof shall
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer of the
corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the corporation, to the full extent permitted by any
applicable portion of this Article Six that shall not have been invalidated and
to the full extent permitted by applicable law.
ARTICLE SEVEN
AMENDMENTS
----------
Section A. By Shareholders. These by-laws may be amended at any meeting of
shareholders by vote of the shareholders holding a majority of the outstanding
stock entitled to vote, present either in person or by proxy, provided notice of
the amendment is included in the notice or waiver of notice of such meeting.
Section B. By Directors - . The Board of Directors may from time to time
by the vote of a majority of the directors then in office make, adopt, amend,
supplement or repeal by-laws (including by-laws adopted by the shareholders of
the Corporation), but the shareholders of the Corporation may from time to time
specify provisions of the by-laws that may not be amended or repealed by the
Board of Directors.
12
CERTIFICATION
I hereby certify that these Bylaws were adopted by the Board of Directors
on January 13, 2005.
------------------------------------
Name: Lijian Deng
Title: Corporate Secretary
13
EXHIBIT D
UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS
OF
TELECOM COMMUNICATIONS, INC.
The undersigned, being all of the Directors of TELECOM COMMUNICATIONS,
INC., an Indiana corporation (the "Corporation"), acting pursuant to Section
23-1-34-2 of the Indiana Business Corporation Law, do hereby waive all notice of
the time, place and purposes of a meeting of the Board of Directors of the
Corporation and hereby unanimously consent and agree to the adoption of the
following resolutions:
RESOLVED, that an Annual Meeting of Stockholders (the "Meeting") of
the Corporation be held on February 28, 2005, at 10:00 a.m. (HKT) at
Platino Room Lobby Floor, The Empire Hotel Kowloon, 62, Kimberley
Road, TST, Hong Kong, China;
RESOLVED, that the stockholders of record at the close of business on
January 24, 2005 (the "Record Date"), be entitled to receive notice of
and to vote at the Meeting and that the proper officers of the
Corporation be, and they hereby are, directed to instruct the
Corporation's transfer agent, Corporation Service Company, not to
close the books of the Corporation in connection with the transfer of
the Common Stock, $0.001 par value, (the "Common Stock") of the
Corporation, but for the purpose of determining the stockholders
entitled to receive notice of and to vote at the Meeting, to prepare a
list of the stockholders at the close of business on the Record Date
and to send notice to such stockholders of the time, place and
purposes (as set forth below) of the Meeting;
RESOLVED, that the purposes of the Meeting shall be as follows:
1. To approve a change in the state of incorporation of the
Corporation from Indiana to Delaware, to be effected by a merger of
the Corporation with and into Telecom Communications, Inc., a Delaware
corporation ("Telecom Delaware"); and
2. To approve the Board of Directors to effect a reverse split
of its outstanding shares of common stock on the basis of one (1)
share for each two (2) shares held by each holder, with all
fractional shares rounded up to the next whole number;
3. To elect Guosheng Liu, Lijian Deng, Shanhe Yang, Gary Lam and
Lirong Liu as Directors; and
4. To transact such other business as may properly come before
the Meeting or any adjournment thereof.
RESOLVED, that Eric Tang be, and he hereby is, designated as Inspector
of Election at the Meeting;
RESOLVED, that the Corporation solicit proxies for the Meeting and
that Lisa Peng and Jason Chen be, and each of them hereby is,
constituted as a proxy for management's solicitation of proxies at the
Meeting;
RESOLVED, that the Corporation prepare, file and distribute the
appropriate proxy statement and annual report to stockholders in
connection with the Meeting, such proxy statement and annual report to
comply with the provisions of the Securities Exchange Act of 1934, as
amended;
RESOLVED, that since the proposed date and time for the Meeting is
tentative, based upon the clearance of the Corporation's preliminary
proxy materials by the Securities and Exchange Commission, the
management of the Corporation has the right to adjust the date and
time of the Meeting based upon such clearance;
RESOLVED, that, subject to approval by its shareholders, the
Corporation enter into an Agreement and Plan of Merger (the "Merger
Agreement") between the Corporation and Telecom Communications, Inc.,
a Delaware corporation ("Telecom Delaware") pursuant to which the
Corporation will merge with and into Telecom Delaware with Telecom
Delaware to be the surviving corporation, subject to the conditions
therein, and the existing Certificate of Incorporation and Bylaws of
Telecom Delaware be the surviving documents and the proper officers of
the Corporation be, and each of them hereby is, authorized and
directed to execute and deliver in the name and on behalf of the
Corporation, the Merger Agreement and a Certificate of Merger in such
form as such officer, by his execution and delivery thereof, shall
approve;
RESOLVED, that, subject to approval by its shareholders, the
Corporation effect a reverse split of its outstanding shares of common
stock on the basis of one (1) share for each two (2) shares held by
each holder, with all fractional shares rounded up to the next whole
number; and
RESOLVED, that the proper officers of the Corporation be, and they
hereby are, authorized and directed to take all such further action
2
and to execute and deliver all such instruments and documents in the
name and on behalf of the Corporation and under its corporate seal or
otherwise, and to pay such expenses and fees, as in their judgment
shall be necessary, proper or advisable in order to fully carry out
the intent and to accomplish the purposes of the foregoing
resolutions, and each of them.
This Consent may be executed in counterparts, including by facsimile, each
of which shall be deemed an original, and all of which shall constitute a single
instrument.
IN WITNESS WHEREOF, the undersigned Directors have executed this Consent as
of the 13th of January, 2005.
---------------------------------- ----------------------------------
Shanhe Yang Lijian Deng
---------------------------------- ----------------------------------
Lirong Liu Gary Lam
----------------------------------
Guosheng Liu
3
EXHIBIT E
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-62236
TELECOM COMMUNICATIONS, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Indiana 35-2089848
------------------------ ----------------------------
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
Room 1602, 16/F., 5-9 Observatory Court, TST, Hong Kong
-----------------------------------------------------------
(Address of principal executive offices)
(852) 2782 0983
-----------------------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the
Securities Exchange Act of 1934:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None
Securities registered under Section 12(g) of the
Securities Exchange Act of 1934: None; report is filed pursuant to section 15D
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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 an
amendment to this Form 10-KSB. [ X ]
State issuer's net revenues for its most recent fiscal year: $1,431,473
State the aggregate market value of the voting stock held by non-affiliates of
the registrant on December 1, 2004 computed by reference to the closing bid
price of its Common Stock as reported by the OTC Bulletin Board on that date
($0.70 per share): $27,999,300 million.
Transitional Small Business Disclosure Format (check one): Yes [ ] No[X]
Number of shares of common stock outstanding as of December 1, 2004: 70,188,000
Number of shares of preferred stock outstanding as of December 1, 2004: None
2
TELECOM COMMUNICATIONS, INC.
FORM 1O-KSB
TABLE OF CONTENTS
Page
PART I.........................................................................1
ITEM 1. DESCRIPTION OF BUSINESS............................................1
ITEM 2. PROPERTIES........................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............13
PART II.......................................................................13
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS...........................................13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS........16
ITEM 7. FINANCIAL STATEMENTS..............................................23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..........................................24
ITEM 8A. CONTROLS AND PROCEDURES...........................................24
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT................ 25
ITEM 10. EXECUTIVE COMPENSATION............................................27
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................30
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..................................30
Form 8-K dated July 22, 2004...............................................31
Form 8-K dated July 22, 2004...............................................31
Form 8-K dated August 16, 2004.............................................31
Form 8-K dated September 17, 2004..........................................31
Form 8-K dated October 7, 2004.............................................32
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............................32
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Telecom Communications Inc. was incorporated on January 6, 1997 in the State of
Indiana under the corporate name MAS Acquisition XXI Corp. Prior to December 21,
2000, we were a blank check company seeking a business combination with an
unidentified business. On December 21, 2000, we acquired Telecom Communications
of America, a sole proprietorship doing business in Los Angeles, California
since August 15, 1995, and changed our name to Telecom Communications Inc. In
connection with this acquisition, Aaron Tsai, our former sole officer and
director was replaced by Telecom Communications of America's owners and
associates. We issued 9,000,000 shares of our common stock or 90% of our total
outstanding common stock after giving effect to the acquisition. MAS Capital
Inc. returned 7,272,400 shares of common stock for cancellation without any
consideration.
On September 30, 2003, Telecom Communications, Inc. (the "Company" or "Telecom")
consummated a Stock Purchase Agreement (the "Stock Purchase Agreement") with
Arran Services Limited ("Arran") and its sole shareholder, Mr. Fred Chi Yuan
Deng, for the acquisition of all of the capital stock of Arran, a British Virgin
Islands corporation. In exchange for the capital interest, Mr. Deng and his
designate received a total of 23,800,000 shares of Telecom common stock,
representing approximately 64% of the outstanding shares of Telecom.
On September 30, 2003, Telecom discontinued its operations in the U.S.
On the closing of the Stock Purchase Agreement, Mr. Deng was elected chairman
and CEO of the Company. In addition, Mr. Ou Zhixiong, and Ms. Lijian Deng were
elected as directors of the Company. In connection with the acquisition, Mr. Tak
Hiromoto resigned as chairman and CEO of Telecom, but continued as President and
as a director of Telecom. Ms. Elizabeth Hiromoto continued as a director and
Secretary of Telecom. On December 31, 2003, Mr. Tak Hiromoto and Ms. Elizabeth
Hiromoto resigned as director, President and Secretary, respectively. Mr. Fred
Deng was appointed as President while Ms. Lijian Deng was appointed as
Secretary.
The Company sold its 80% ownership in StarEastNet to a third party investor for
a consideration of $200,000 in cash on November 20, 2003. StarEastNet's business
model had not been profitable in the past several years and Management believed
it would not help the Company in the long run, as the Company shifted its core
business to wireless short/multimedia messaging services.
On March 16, 2004, Telecom acquired the remaining 20% interest of IC Star MMS
Limited ("IC Star") not owned by Arran from Auto Treasure Holdings Limited, a
company wholly owned by the majority shareholders of the Company, for the
consideration of 9,889,000 shares of Telecom common stock and warrants to
purchase 10,000,000 shares of Telecom common stock at $2 per share.
On April 16, 2004, Telecom Communications, Inc., through Arran, sold its 60%
beneficial share ownership in Panyu No. 6 Construction Company Limited ("Panyu")
to a related party [Aries Vision Technology Limited ("Aries"), a limited
liability company incorporated in the British Virgin Islands] for the
consideration of $2,580,390.
On June 6, 2004, Telecom entered into a subscription agreement (the
"Subscription Agreement") with Taikang Capital Managements Corporation
("Taikang"), under which the Company has agreed to issue and sell to Taikang in
a private placement, certain promissory notes each having a maturity date as set
forth therein, in the total aggregate principal amount of $1,000,000, bearing
interest at a rate of 6% per annum (the "Notes"). Taikang converted $500,000 of
the Notes into 2,500,000 shares of Telecom common stock with par value $0.001 on
July 22, 2004. On July 22, 2004, Telecom entered into a stock purchase agreement
with Taikang, for the purchase of 7,500,000 shares of the Company's common
stock, par value $.001 per share for an aggregate purchase price of $1,500,000.
On July 22, 2004, Deng Chi Yuan (Fred Chi Yuan Deng), the majority shareholder
of Telecom then entered into stock purchase agreements (the "Agreements") with
each of three (3) accredited investors, under which he agreed to sell shares of
the Company's common stock, $.001 par value (the "Common Stock"), at a price
equal to $.16 per share (the "Shares"). Pursuant to the Agreements, 6,000,000
Shares were purchased by Telecom Value Added, Inc.; 6,000,000 Shares were
purchased by Bloomen Limited; and 5,800,000 Shares were purchased by Bon Air
Group Limited, respectively. In a concurrent transaction, Deng transferred 51
shares (51% percent of the outstanding shares) of Auto Treasure Holdings
Limited, a company which holds approximately 16% of all the Company's issued and
outstanding shares, as well as warrants exercisable to purchase 10,000,000
shares of Common Stock to key officers of the Company.
On October 7, 2004, Telecom entered into a stock purchase agreement with
Taikang, an affiliate of the Company, for the purchase of 10,000,000 shares of
the Company's common stock, par value $.001 per share for an aggregate purchase
price of $2,000,000.
Overview
Telecom is a Total Solutions Provider that offers Integrated Communications
Network Solutions and is a leading Internet and telecommunications value-added
service provider doing business through 2 major wholly-owned subsidiaries, Arran
Services Limited ("Arran") and Alpha Century Holdings Limited ("Alpha"), both
are limited companies incorporated in the British Virgin Islands.
Arran was founded on December 3, 2001 and commenced its operations in January
2003. Arran, through its acquisition of 60% ownership in Panyu No. 6
Construction Company Limited ("Panyu") in January 2003, is engaged in the
construction of communication infrastructure and residential and commercial
buildings. The participation in communication infrastructure construction,
through regular construction companies, allows the Company to leverage its
strength of content development in delivering its services to broader
communities. Network infrastructure has always been considered the necessary
fundamental necessity for telecommunication industry. Arran, through its
wholly-owned subsidiary IC Star MMS Limited ("IC Star"), is also a content
provider focused on design and development of entertainment content. IC Star has
contracted with more than 2000 websites and collected all of their Internet and
mobile phone users to be the online/offline members. ICStarMMS.com, through IC
China network, links entertainment and lifestyle information to local
2
communities by Short Message Service, Multimedia Messaging Service or other
wireless devices to mobile subscribers across China.
Alpha was formed in December 2003 to hold certain assets of the Company and
commenced operations in providing Total Solutions System to its clients. It
offers integrated communications network solutions and Internet content service
in universal voice, video and data web, and mobile communication for interactive
media applications, technology and content leader in interactive multimedia
communications, develops, markets and sells universal media software solutions
for enterprise-wide deployment of integrated communication and media
application.
INDUSTRY BACKGROUND
INTRODUCTION OF MOBILE BUSINESS
The Internet and world-wide web have introduced a new set of business
challenges. It offers no time constraints or geographical boundaries, and opens
up more communication, interaction and transaction channels than ever before.
Fixed line Internet access has propelled many "bricks-and-mortar" companies into
the Internet age. The convergence of wireless devices and the Internet create
the second wave of change across industries.
Mobile business represents the convergence of mobile telephony and Internet
technologies and a removal of the limitation or restrictions that exist today in
the "wired" world. It is characterized by its ability to deliver multiple
information types from multiple devices over multiple networks to users with
multiple needs, as demonstrated in the following table:
---------------------------------------------------------------------------------------------
SERVICES DEVICES COMMUNICATION TECHNOLOGY APPLICATION/CONTENTS
---------------------------------------------------------------------------------------------
Communications PC FIXED Information Portal
Information Hand-Held Device o Analogue Phone Infrastructure
Finance Data-Enabled Mobile o ISDN Applications
Commerce Phone o Broadband End User Applications
Advertising (ADSL, XDSL) E-Markets
Entertainment ITV MOBILE Legacy
Set-Top Box o 2G (e.g. GSM)
Internet-Capable o 2.5G (e.g. GRPS)
Console o 3G (e.g. UMTS)
Home PC Substitute SHORT RANGE
Screen Phone o Blue Tooth
o 802.11
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
NETWORK TECHNOLOGIES
GSM - GSM (Global System for Mobile Communication) operates in the 900 MHz and
the 1800 MHz (1900MHz in the US) frequency bands and is the prevailing mobile
standard in Europe and most of the countries in the Asia Pacific region. It
provides simple wireless voice transmission and minimal data services.
3
GPRS - GPRS (General Packet Radio Service) is a packet switched wireless
protocol as defined in the GSM standard that offers instant access to data
networks. It permits a fast transmission speed of up to 115 Kbps. The advantage
of GPRS is that it provides an " always on" connection (i.e. instant IP
connectivity) between the mobile terminal and the network. GPRS is the first
transport mode to allow full instant Internet access and will enable a wide
range of applications.
3G - 3rd Generation (3G) is the generic term for the next big step in mobile
technology development. It is a new generation of mobile communication service
that has surpassed the limited services of the existing voice communication with
higher speed of transmission and bandwidth. It can be used to transmit text,
digitized voice, video and multimedia data at a rate up to 2 Mbps in a fixed or
stationary wireless environment and 384-Kbps in a mobile environment.
SERVICE TECHNOLOGIES
SMS - SMS (Short Message Service) has provided the ability to send and receive
text message to and from mobile phones. Each message can contain up to 160
alphanumeric characters. About 90% of SMS message are voice mail notifications
or simple person-to-person messaging. The remaining are various information
services, such as news, stock prices, sports, weather, horoscopes, jokes, etc.
In addition, SMS e-mail notification, SMS chat and downloading of ringing tones
have also have been offered. SMS is an ideal technology for pushing information
from one-to-one or one-to-few.
WAP - WAP (Wireless Application Protocol) is an open, global standard for mobile
solutions, including connecting mobile terminals to the Internet. WAP based
technology permits the design of interactive, real-time mobile services for
smart phones or communicators. The advantage of WAP is that it is user friendly
and much easier to receive and react to information on a mobile telephone.
MMS - MMS (multimedia messaging service) is one of the recent developments in
mobile messaging. MMS provides automatic and immediate delivery of personal
messages. Unlike the SMS however, MMS allows mobile phone users to enhance their
messages by incorporating sound, images, and other rich content, transforming it
into a personalized visual and audio message. With MMS, it is not only possible
to send your multimedia messages from one phone to another, but also from phone
to email, and vice versa. This feature dramatically increases the possibilities
of mobile communication, both for private and corporate use.
TELECOMMUNICATIONS IN CHINA
The telecommunications industry in China has experienced rapid growth in recent
years. According to the Ministry of Information Industry, the total number of
wireless access lines in service increased from 108.8 million at the end of
1999 to 249.9 million by the end of September 2003, representing a compound
annual growth rate of 24.6%. As the result of the increasing demand for
information demand and technology development, the market for data communication
and Internet services in China also experienced a rapid growth during the same
period. The number of Internet users in China increased from 8.9 million at the
end of 1999 to 53.8 million at the end of September 2003, representing a
compound annual growth rate of 60%.
4
According to Strategy Analytics, an independent international research and
consulting firm, there will be approximately 1.5 billion mobile phone
subscribers by 2004 in developed markets. In addition, Strategy Analytics
reports that cellular data services will become more important in the future and
will account for approximately 36% of total mobile revenue in 2010.
MOBILE DATA USAGE
China's mobile phone users sent 90 billion short messages last year, accounting
for about a quarter of the total in the world. A latest survey conducted by
Kongzhong.com, a value-added mobile service provider based in Beijing, showed
about 40% of users between 18 and 60 have used the SMS service. Approximately
57% are using SMS to chat and play online games, ranking first among all
applications. Other major applications of SMS include online news, financial
information, handset pictures and ring tone downloads. Subscription services
account for a large share of mobile data's increased popularity. The new
services are being aggressively promoted by service providers, including the
listed Internet portals Sohu.com, Sina.com and Netease.com and many smaller
players. Dating services and games with cash prizes have emerged as leading
drivers of mobile data use. Long offered on mainstream Internet sites, their
mobile incarnations generally require customers to subscribe, driving up revenue
for service providers.
The most significant growth for the sector, however, is likely to come from
increased SMS usage by existing SMS users. China Mobile's "Monternet" and
Unicom's "Uni-Info" mobile data revenue-sharing schemes are now well established
with consumers and with third party service providers that offer content. With
the models in place and revenue sharing between operators and service providers
now taking place, the structure is positioned to scale as new service providers
attract more SMS usage with a diversity of new content and services targeting
the growing base of mobile subscribers.
DRIVERS OF SMS GROWTH IN CHINA
--------------------------------------------------------------------------------
Ease of Use No need to register, no complicated set up required
--------------------------------------------------------------------------------
Low Price RMB 0.1/message for contract subscribers;
RMB 0.15/message for pre-paid
--------------------------------------------------------------------------------
Viral Marketing Friends send to friends, teaching each other how to
send and receive
--------------------------------------------------------------------------------
Always On Service is available whenever and wherever the
mobile phone is turned on
--------------------------------------------------------------------------------
5
According to WTO accords, foreign firms are now permitted to invest in service
providers, further boosting China's SMS market. Service providers and the
operators themselves are actively exploring cross-media SMS events that bridge
television and print media together with SMS. SMS interconnection between China
Mobile and Unicom networks in 2002 and 2003 was also a major driver of SMS
growth.
THE WARMING UP OF MMS
According to www.thefeature.com, building on the success of SMS messaging in
China with 90 billion SMS messages sent in 2002, analysts are expecting MMS to
be a huge phenomenon in the wireless communication scene. Three factors are
expected to drive the mass adoption of MMS. Firstly, half of the nation-wide
subscriber base changes mobile handsets yearly. Color-screen handsets from both
foreign and domestic manufacturers are just being introduced and are expected to
generate significant sales among early adopters this year. Secondly, the
introduction of new GPRS- and MMS-based services that will fully utilize the
features on those new handsets, has led many to believe that 2.5 G is almost
assured of success in China. Thirdly, to encourage Internet service providers to
develop more MMS content, China Mobile raised the revenue share ratio, and now
85% of the MMS revenue goes to the Internet service providers, while the company
takes the remaining 15%. This compares favorably to the 80:20 revenue share
ratio for plain -text SMS services.
Gartner Dataquest predicts that SMS traffic will peak around 2003 before it is
to be overtaken by multimedia messaging traffic. MMS revenue will double from
the current $13.4 billion to around $22.3 billion by 2006. Other analysts are
even more bullish, Ovum says that by 2007, the MMS market will be worth around
$70 billion.
THE GROWTH OF MOBILE AND TELECOMMUNICATIONS VALUE-ADDED SERVICES IN CHINA
Mobile subscribers in China are increasingly using their mobile handsets to
access a wider range of value-added services, including instant message,
information services and games applications. Both China Mobile and China Unicom
have assisted the growth of value-added services by launching its Monternet
platform and Uni-Info platform to expand their mobile data services. Both
companies adopted similar business models of partnering with Internet content
and service providers who developed mobile content and data services while
mobile operators provide the transmission network, billing systems, and fee
collection services for the service providers based on revenue sharing
arrangements.
Compared to mobile voice communications, mobile data communications is still at
an early stage in China, accounting for only 9.4% of total mobile revenues in
2002, according to Pyramid Research. We believe that telecommunications
operators in China will continue to develop mobile network infrastructure which
will provide new opportunities for the growth of mobile value-added services and
applications as well as stimulate the market demand for these services.
The following shows the forecast for the growth of the mobile data services
industry in China from 2002-2007:
6
----------------------------------------------------------------------------------------------------------
US$ million 2002A 2003E 2004E 2005E 2006E 2007E CAGR (02-07)
----------------------------------------------------------------------------------------------------------
Value-added service &
SMS revenues
2,521 3,882 5,871 8,426 11,658 15,219 43.3%
----------------------------------------------------------------------------------------------------------
GPRS revenues 25 70 237 463 1,044 2,066 141.8%
----------------------------------------------------------------------------------------------------------
A: actual data
E: estimated data
CAGR: Compound Average Growth Rate
Source: Pyramid Research
PRODUCTS AND SERVICES
General Construction and Network Infrastructure Construction - Through its
construction company in Guangzhou, the [Group] provides general construction to
residential community, commercial, cultural and digital community. Construction
includes setting up of broadband and fiber cable system over communities,
LAN/WAN and Wi-Fi, internet/intranet/TV and wireless data communications network
infrastructure. This operation ceased in April 2004 due to the disposal of the
subsidiary. However, the participation in this operation had expanded the
Company's network connection and client base in China.
My Star Friends - We have created the original Star SMS/MMS called "My Star
Friends" community. It allowed subscribers to communicate with [the Star] by
SMS/MMS using service provider's platform.
Entertainment News - Via the platform of service providers and mobile operators,
subscribers can receive the latest entertainment news about Asia stars.
Total Solutions -Information Manager System & SMS/MMS Call Center CRM System -
Total Solution system offered integrated communications network solutions and
Internet content service in voice, data and video through mobile and Internet
network with interactive media applications. Telecom, through IC Star and Alpha
delivered the Information Manager System advantage and services of providing
consistent, quality customer care and infortainment support services. In
addition, it offers the client high-value, low-cost sales and service solutions
using the highly scalable interactive MMS response (IMR), interactive voice
responses (IVR) and speech recognition solutions, combined with an extensive
network of Asia contract centers for live operator support and provide their
clients opt-in subscriptions of Short Message Services (SMS) and Multimedia
Message Services (MMS). It offers corporations advanced Internet and wireless
capabilities without the need of the installation of expensive hardware at
customer locations. Each user gets a unique code number and an associated web
7
page to manage incoming and outgoing short messages, multimedia messages, phone
calls, voice mails and emails with one single common interface. The Total
Solution also allows simple, rapid administration of a company's telecom
services, including adding new customers and moving telephone number locations
online (VoIP) without the cost of a telecom support department. Users can
consolidate their multiple phone numbers (office, home, mobile) with a single
personal telephone number so callers reach them wherever they are. Further, a
virtual SMS/MMS number handles all incoming faxes plus a unified virtual mailbox
conveniently manages voicemail and faxes like e-mail.
Search Engine Optimization for mobile phone (SEO4Mobile) - SEO4Mobile offers
wireless mobile phone providers the ability to use a short message service (SMS)
search feature. Users who enter a relevant keyword or keyword phrase, along with
a geographic identifier, can send searches to mobile operator via an SMS and
receive a multimedia response that has been processed through a search engine on
the Internet. By specifically laying out a separate search SMS for the
geographic portion, SEO4Mobile helps structure the search in a simple and
efficient way for the searcher. SEO4Mobile will then parse out its advertiser
keyword ads that have a local identifier as it sends them to its distribution
partners, thereby returning targeted results for mobile searches.
AdMaxB2Search - The Advertiser maximum bid listing system for mobile phone
service providers is developed for small to mid-sized businesses that want to
offer valuable advertising content to SEO4Mobile users quickly and simply,
without impacting their design or operations. Through a step-by-step,
wizard-driven set up, advertisers and partners of Telecom can log in to an
Intranet site to bid on listing and directory functionality or upload a link
over the Internet to a website of advertising distributors. With all their
network distribution partners, users of AdMaxB2Search will share a percentage of
the revenue earned by distributors when their users search for an ad and are
sent to that SEO4Mobile. Advertisers who use this service will be given access
to SEO4Mobile service providers and their users through search engine
optimizers.
BUSINESS STRATEGIES
Our goal is to be the leading Internet and telecommunications value-added
content provider in China. We have expanded our connection to local communities
by participating in the telecommunication infrastructure industry through Panyu
No. 6 Construction Company which we sold in April 2004. Our strong client/user
database, through IC China network, and valuable entertainment and lifestyle
information data, are the fundamental strengths of Telecom. We believe our large
user base through contracting with various service providers in China, is one of
the important business drivers as it provides us with the opportunity to market
and deliver our value-added services and products. Our distinctive entertainment
information database also provides us the opportunity to distribute
online/offline content such as music, video and other forms of multimedia
content through mobile operators to the end-users.
In order to leverage our strong user database and information content, we have
sought appropriate software to enhance the value of our resources. We believe
the integration of our user database, information content and appropriate
software shall lead us to penetrate into the value-added content provider market
rapidly. To satisfy a low cost objective for a growing company, we rely on third
8
party software at this stage rather than maintain a research & development
department for the creation of software. We will continue to expand our client
database by entering into cooperation agreements with local Chinese service
providers. We intend to develop and enrich our content from self production and
internal efforts and cooperation with third-party content providers. We will
also seek mobile operators and mobile phone manufacturers who will bundle our
products like SEO4Mobile into mobile phones. We will enter into strategic
relationships with various enterprise software providers in China with which we
co-market, and bundle or distribute our Total Solutions with their products.
IC STAR MMS LIMITED
IC Star is a China-based local information and services affiliate network. It
has contracted with more than 2,000 websites and collected all of their internet
and mobile phone users to be the online/offline members. It began operations in
December 1999 as an internet alliance concept focused on providing solutions to
Chinese city local content providers wishing to publish their news across China.
In May 2000, IC Star launched our affiliate network, then called goongreen.org,
offering Chinese-language local news, information and community features such as
publishing services targeted at online users in China. In October 2002, IC Star
expanded its affiliate network by partnering with Aixi Software Limited, a
leading network Internet/Intranet development Company with offices in Guangzhou,
China and 6 distinct web sites targeting Chinese community users, education
users and business users in China. ICStarMMS.com, through IC China network,
links lifestyle infotainment with local communities across China. It has created
the original Star SMS/MMS called "My Star Friends" community. It allowed
subscribers of the contracted Service Providers to communicate with the [Star]
by SMS/MMS through China Mobile's network. In January 2003, we continued our
network and entertainment content expansion by the acquisition of
stareastnet.com a leading entertainment and life information destination web
site targeting Chinese users in greater China. As previously discussed, on
December 31, 2003 the Company acquired the remaining interests of IC Star it did
not already own. Today, we operate IC Star web sites to provide Chinese content
and services that speak directly to the audience of each region, enriching the
online experience of their users.
ALPHA CENTURY HOLDINGS LIMITED
Alpha was established in December 2003 as an investment holding company having
interest in Huiri Electric (Panyu) Limited, a company in China with limited
turnover on trading business. Alpha also holds certain assets for the group such
as computer equipment and developing software. It signed contracts with clients
by offering communications networks from IC Star's data base and content plus
Alpha's asset to form integrated Total Solution. Alpha has developed products
like Information Manager System, SMS/MMS Call Center System, SEO4Mobile, and the
latest AdMaxB2Search.
RISK FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS
Our future results of operations involve a number of risks and uncertainties.
With any business undertaking and their inherent unforeseeable risk in
conducting business, the following paragraphs discuss a number of risks that
could impact the Company's financial condition and results of operations.
9
(a) Country risk
Currently, the Company's revenues are derived from sale of its contents,
software and services to customers in the Peoples Republic of China (PRC). The
Company hopes to expand its operations to countries outside the PRC, however,
such expansion has not yet commenced and there are no assurances that the
Company will be able to achieve such an expansion successfully. Therefore, a
downturn or stagnation in the economic environment of the PRC could have a
material adverse effect on the Company's financial condition.
(b) Products risk
Our revenue-producing operations are limited and the information available about
us makes an evaluation of us difficult. We have conducted limited operations and
we have little operating history that permits you to evaluate our business and
our prospects based on prior performance. You must consider your investment in
light of the risks, uncertainties, expenses and difficulties that are usually
encountered by companies in their early stages of development, particularly
those engaged in international commerce. In addition to competing with other
telecommunication and web companies, the Company could have to compete with
larger US companies who have greater funds available for expansion, marketing,
research and development and the ability to attract more qualified personnel if
access is allowed into the PRC market. If US companies do gain access to the PRC
markets in general, it may be able to offer products at a lower price. There can
be no assurance that the Company will remain competitive should this occur.
(c) Exchange risk
The Company generates revenue and incurs expenses and liabilities in Chinese
renminbi, Hong Kong dollars and U.S. dollars. As a result, the Company is
subject to the effects of exchange rate fluctuations with respect to any of
these currencies. Since 1994, the official exchange rate for the conversion of
renminbi to U.S. dollars has generally been stable and the renminbi has
appreciated slightly against the U.S. dollar. However, given recent economic
instability and currency fluctuations in the world, the Company can offer no
assurance that the renminbi will continue to remain stable against the U.S.
dollar or any other foreign currency. The Company's results of operations and
financial condition may be affected by changes in the value of renminbi and
other currencies in which its earnings and obligations are denominated. The
Company has not entered into agreements or purchased instruments to hedge its
exchange rate risks, although the Company may do so in the future.
(d) Our future performance is dependent on our ability to retain key
personnel
Our future success depends on the continued services of executive management in
China. The loss of any of their services would be detrimental to us and could
have an adverse effect on our business development. We do not currently maintain
key-man insurance on their lives. Our future success is also dependent on our
ability to identify, hire, train and retain other qualified managerial and other
employees. Competition for these individuals is intense and increasing.
(e) Our business depends significantly upon the performance of our
subsidiaries, which is uncertain.
10
Currently, a majority of our revenues are derived via the operations of our
subsidiaries. Economic, governmental, political, industry and internal company
factors outside our control affect each of our subsidiaries. If our subsidiaries
do not succeed, the value of our assets and the price of our common stock could
decline. Some of the material risks relating to our partner companies include:
- Our subsidiaries are located in China and have specific risks associated
with that; and
- Intensifying competition for our products and services and those of our
subsidiaries, which could lead to the failure of some of our subsidiaries.
(f) A visible trading market for our common stock may not develop.
Our common stock is currently traded on the Over-the-Counter Bulletin Board
under the symbol "TCOM". The quotation of our common stock on the OTCBB does not
assure that a meaningful, consistent and liquid trading market currently exists.
We cannot predict whether a more active market for our common stock will develop
in the future. In the absence of an active trading market:
- investors may have difficulty buying and selling or obtaining market
quotations; and
- market visibility for our common stock may be limited; and
- a lack of visibility for our common stock may have a depressive effect on
the market price for our common stock.
(g) Liability risk
We act as a total solution provider on our contracted projects. Insurance
companies in China offer limited business insurance products. As a result, we do
not have any business liability or disruption insurance coverage for our
operations in China, and our coverage may not be adequate to compensate for all
losses that may occur, particularly with respect to loss of business and
reputation. Any business disruption litigation or natural disaster could expose
us to substantial costs and losses.
OTHER RISK FACTORS
There are several risks and uncertainties, including those relating to the
Company's ability to raise money and grow its business and potential
difficulties in integrating new acquisitions, especially as they pertain to
foreign markets and market conditions. These risks and uncertainties can
materially affect the results predicted. Other risks include the Company's
limited operating history, the limited financial resources, domestic or global
economic conditions, activities of competitors and the presence of new or
additional competition, and changes in Federal or State laws and conditions of
equity markets.
The Company's future operating results over both the short and long term will be
subject to annual and quarterly fluctuations due to several factors, some of
which are outside the control of Telecom. These factors include but are not
limited to fluctuating market demand for our services, and general economic
conditions.
11
GOVERNMENTAL REGULATION
Effect of Probable Governmental Regulation on the Business
As we expand our efforts to develop new products and services, we will have to
remain attentive to relevant federal and state regulations. We intend to comply
fully with all laws and regulations, and the constraints of federal and state
restrictions could impact the success of our efforts.
As our services are available in multiple states and foreign countries, these
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state and foreign country. New legislation or
the application of laws and regulations from jurisdictions in this area could
have a detrimental effect upon our business. We cannot predict the impact, if
any, that future regulatory changes or developments may have on our business,
financial condition, or results of operation.
The PRC government heavily regulates its Internet and value-added
telecommunications services sectors, including content restrictions on the
Internet and value-added telecommunications services and the licensing and
permit requirements for companies in the said industry. Because these laws and
regulations and the legal requirements with regard to the Internet and
value-added telecommunications services are relatively new, their interpretation
and enforcement involve significant uncertainty. It has created substantial
uncertainties regarding the legality of existing and future operations and
activities of the Internet and telecommunications service in China, including
our business. In some cases, our current and previous services or business could
be deemed to be in violation of PRC laws or regulations, in which case we may be
subject to fines or other penalties and/or may have to cease such business or
services.
COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Our business is not subject to regulation under the state and federal laws
regarding environmental protection and hazardous substances control. We are
unaware of any bills currently pending in Congress that could change the
application of such laws so that they would affect us.
COMPETITION
The market for Internet and value-added telecommunications services in PRC is
competitive and the competition is expected to increase in the future when the
market matures and is opened. As the industry is relatively new and is growing
rapidly, the basis of competition may shift, offering opportunities for new
competitors to enter the market. In addition, as China opens its value-added
telecommunications service market to foreign investors, we may face increased
competition from international competitors with experience developed in overseas
markets and significantly greater financial, technical and marketing resources
than we have. Such competitors could also attempt to increase their presence in
our markets by forming strategic alliances with other competitors, by offering
new or improved products or by increasing their efforts to gain and retain
market share through competitive pricing. As a result, our competitors may be
able to adapt more quickly to changes in customer needs or to devote greater
resources than we can to the sales of our real estate projects. Currently, our
main competitors in the overall Internet and value-added telecommunications
services market in China are local Internet portals such as Sina.com and
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Sohu.com We believe our niche in the integrated total solution offering software
with entertainment and lifestyle online/offline information, plus our client
database has provided us a better position in the specialized Internet and
value-added communications services market in China at the moment. However, as
the market for Internet and value-added telecommunications services matures,
price competition and ability to develop better products has intensified and is
likely to continue to intensify. Such competition has adversely affected, and
likely will continue to adversely affect, our gross profits, margins and results
of operations. There can be no assurance that we will be able to continue to
compete successfully with existing or new competitors.
EMPLOYEES
We believe that the success of our business will depend, in part, on our ability
to attract, retain and motivate highly qualified sales, technical and management
personnel, and upon the continued service of our senior management personnel. As
of the date of this annual report, we have 20 full-time employees. We consider
our employee relations to be good and we have never experienced any work
stoppages. We cannot assure you that we will be able to successfully attract,
retain and motivate a sufficient number of qualified personnel to conduct our
business in the future.
ITEM 2. PROPERTIES
The Company leases an office at Room 1602, Honkwok TST center, 5-9 Observatory
Court, TST Kowloon, Hong Kong with approximately 120 square meters. The lease
was signed in May 2003 and expires in April 2005 with current rent payment of
$1,175 per month. Huiri Electric (Panyu) Limited leases an office at #62
Cunqiandajie Daping Shiqiao Panyu Guangzhou GD.511490 China. The rent is under
negotiation with the landlord.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote during the year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
MARKET INFORMATION
Our common stock is currently traded on a limited basis on the Over-the Counter
Bulletin Board under the symbol "TCOM". The quotation of our common stock on the
OTCBB does not assure that a meaningful, consistent and liquid trading market
currently exists. We cannot predict whether a more active market for our common
stock will develop in the future. In the absence of an active trading market:
13
- Investors may have difficulty buying and selling or obtaining market
quotations;
- Market visibility for our common stock may be limited; and
- A lack of visibility of our common stock may have a depressive effect on
the market price for our common stock.
The reported high and low sale prices for the common stock are shown below for
the periods indicated. The prices reflect inter-dealer prices, without retail
mark-up, markdown or commissions, and may not always represent actual
transactions. As of September 30, 2004, we had approximately 190 stockholders of
record.
Period High Low
Quarter ended December 31, 2003 $2.64 $0.40
Quarter ended March 31, 2004 $0.98 $0.52
Quarter ended June 30, 2004 $0.73 $0.17
Quarter ended September 30, 2004 $0.34 $0.09
On December 1, 2004, TCOM was quoted at $0.70 per share.
DIVIDENDS
There are no present material restrictions that limit the ability of the Company
to pay dividends on common stock or that are likely to do so in the future. The
Company has not paid any dividends with respect to its common stock, and does
not intend to pay dividends in the foreseeable future.
THE APPLICATION OF THE "PENNY STOCK REGULATION" COULD HARM THE MARKET PRICE OF
OUR COMMON STOCK
Our common stock currently trades on the OTC Bulletin Board. Since our common
stock continues to trade below $5.00 per share, our common stock is considered a
"penny stock" and is subject to SEC rules and regulations, which impose
limitations upon the manner in which our shares can be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
associated risks. Under these regulations, certain brokers who recommend such
securities to persons other than established customers or certain accredited
investors must make a special written suitability determination regarding such a
purchaser and receive such purchaser's written agreement to a transaction prior
to sale. These regulations have the effect of limiting the trading activity of
our common stock and reducing the liquidity of an investment in our common
stock.
Stockholders should be aware that, according to the Securities and Exchange
Commission Release No. 34- 29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. These patterns include:
- Control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer;
14
- Manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
- "Boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
- Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
- The wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along with
the inevitable collapse of those prices with consequent investor losses.
Furthermore, the "penny stock" designation may adversely affect the development
of any public market for the Company's shares of common stock or, if such a
market develops, its continuation. Broker-dealers are required to personally
determine whether an investment in "penny stock" is suitable for customers.
Penny stocks are securities (i) with a price of less than five dollars per
share; (ii) that are not traded on a "recognized" national exchange; (iii) whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed
stocks must still meet requirement (i) above); or (iv) of an issuer with net
tangible assets less than $2,000,000 (if the issuer has been in continuous
operation for at least three years) or $5,000,000 (if in continuous operation
for less than three years), or with average annual revenues of less than
$6,000,000 for the last three years.
Section 15(g) and Rule 15g-2 of the Exchange Act require broker-dealers dealing
in penny stocks to provide potential investors with a document disclosing the
risks of penny stocks and to obtain a manually signed and dated written receipt
of the document before effecting any transaction in a penny stock for the
investor's account. Potential investors in the Company's common stock are urged
to obtain and read such disclosure carefully before purchasing any shares that
are deemed to be "penny stock."
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any
investor for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for the Company's stockholders to resell their shares to third parties
or to otherwise dispose of them.
15
FUTURE SALES OF LARGE AMOUNTS OF COMMON STOCK COULD ADVERSELY EFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE CAPITAL.
Future sales of our common stock by existing stockholders pursuant to Rule 144
under the Securities Act of 1933, or following the exercise of future option
grants, could adversely affect the market price of our common stock. Our
directors and executive officers and their family members are not under lockup
letters or other forms of restriction on the sale of their common stock. The
issuance of any or all of these additional shares upon exercise of options will
dilute the voting power of our current stockholders on corporate matters and, as
a result, may cause the market price of our common stock to decrease. Further,
sales of a large number of shares of common stock in the public market could
adversely affect the market price of the common stock and could materially
impair our future ability to generate funds through sales of common stock or
other equity securities.
RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This periodic report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management. Statements in this
periodic report that are not historical facts are hereby identified as "forward-
looking statements" for the purpose of the safe harbor provided by Section 21E
of the Exchange Act and Section 27A of the Securities Act.
Prospective shareholders should understand that several factors govern whether
any forward -looking statement contained herein will be or can be achieved. Any
one of those factors could cause actual results to differ materially from those
projected herein. These forward - looking statements include plans and
objectives of management for future operations, including plans and objectives
relating to the products and the future economic performance of the Company.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions, future
business decisions, and the time and money required to successfully complete
development projects, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although we
believe that the assumptions underlying the forward - looking statements
contained herein are reasonable, any of those assumptions could prove inaccurate
and, therefore, there can be no assurance that the results contemplated in any
of the forward - looking statements contained herein will be realized. Based on
actual experience and business development, the Company may alter its marketing,
capital expenditure plans or other budgets, which may in turn affect the our
results of operations. In light of the significant uncertainties inherent in the
16
forward-looking statements included therein, the inclusion of any such statement
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
The following analysis of the results of operations and financial condition of
the Company should be read in conjunction with the financial statements of
Telecom Communications, Inc. for the year ended September 30, 2004 and notes
thereto contained in this Report on Form 10-KSB of Telecom Communications, Inc.
OVERVIEW
We are a leading value-added information service provider for China and the
global Chinese community. Our specialized product Total Solutions System offers
integrated communications network solutions and Internet content service in
universal voice, video, data, web and mobile communication for interactive media
applications and technology and content leaders in interactive multimedia
communications. Telecom develops, markets and sells a universal media software
solution for enterprise-wide deployment of integrated voice, video, data, web,
and mobile communication for media applications. Designed around Telecom's
Internet content and database and integrated into the Information Manager System
and SMS/MMS Call Center CRM System core software, the Total Solutions
application facilitates the collaboration of key business processes such as,
corporate and marketing communications, membership distance interactive program,
product development, customer relationship management and content management by
allowing dispersed enterprise users to collaborate in real time with multimedia
message services.
Our business model is built on the integration of strong entertainment and
lifestyle content, our network database and the application of technology. Our
network database was established by signing contracts with strategic partners
and collecting all of their Internet and mobile phone users to be the
online/offline members in China. We also established the network database from
the construction company that we previously owned, Panyu No. 6 Construction
Company Limited ("Panyu"), that provided network construction and general
construction to the region. Our content was built through our business alliance
in which IC Star (formerly known as Sino Super Ltd.) (http://www.ICSTARMMS.com),
one of our subsidiaries and a network services provider based in Hong Kong,
links entertainment and lifestyle information to local communities across China.
IC Star, which was originally created as the Star SMS /MMS called "My Star
Friends" community, was first invented as a SMS/MMS interactive between IC Star
and fans in the world. By integrating the network database and content into a
software that TCOM sources from the market, we can leverage the functions of the
software and target it to various industries.
We believe that we are one of the leading Internet and value-added
telecommunications services providers specializing in entertainment and
lifestyle content in China. Since the launch of our Total Solutions -
Information System and the SMS/MMS CRM in July, we have signed various contracts
with clients which showed customer acceptance. It proved that our expectation on
the reception of the integrated Internet and value-added telecommunication
service is on the right track. We will target the enterprise multimedia
communications market in China where we believe there is significant growth
potential. Our latest products SEO4Mobile (Search Engine Optimization for mobile
phones) and AdMaxB2Search have proved our strength in innovative and creative
value-added service. As a result, three contracts have been signed with business
partners.
17
One of our subsidiaries, IC Star MMS Ltd., or ICStar (formerly known as Sino
Super Ltd.),a network services company based in Hong Kong, began operations in
December 1999 with an Internet alliance concept focused on providing solutions
to Chinese city local contents providers wishing to publish their news across
China. In May 2000, ICStar launched our affiliate network, then called
goongreen.org, offering Chinese-language local news, information and community
features such as publishing services targeted at online users in China. In
October 2002, ICStar expanded its affiliate network by partnering with Aixi
Software Limited, a leading network Internet/Intranet development company with
an office in Guangzhou China and 6 distinct web sites targeting Chinese
community users, education users and business users in China. In January 2003,
we continued our network expansion and entertainment content provided by the
acquisition of stareastnet.com, a leading entertainment and life information
destination web site targeting Chinese users in greater China. Today, ICStarMMS
web sites serves local Chinese communities with its enriched and diversified
content focused on entertainment and life-style information.
We will derive our revenues from the offering of our products Total Solutions
System - Information Manager System, SMS/MMS CRM System, SEO4Mobile and
AdMaxB2Search. Revenues are derived principally from providing integrated
solutions and the AdMaxB2Search platform by entering into business contracts
with enterprises for a fixed monthly fee.
BUSINESS PARTNERSHIP DEVELOPMENTS
---------------------------------
On October 26, 2004, IC Star (http://www.icstarmms.com) entered into a
cooperation agreement with Baidu.com (http://www.baidu.com), the number one
Chinese internet search engine. Under the agreement, IC Star will work with
Baidu.com to develop Short Messaging Service (SMS), Multimedia Messaging Service
(MMS), and other wireless contents such as artist profiles and gaming. Baidu
will provide the technical platform and take part in promoting this new
operation to its users that have 60 million keyboard resolutions every day.
On November 1, 2004, Telecom reached an agreement with Aries and Gold Swallow
Shop Limited to form Animation Studio, a joint venture to create, develop and
produce computer generated or flash animated feature films, videos and
multimedia content, and to develop and distribute digital videos and other
products based on the content and program. Aries is currently in production on
animated feature films to be broadcast on the Cartoon Channel in China during
the second quarter of 2005. Gold Swallow Shop has investments to develop related
software and run a distribution chain of home videos, music and games software
in China. Gold Swallow develops home videos and distributes products that ignite
customers to become better and more active participants in the China experience.
In addition to the joint venture, TCOM will be granted a first right for
exclusive arrangement wireless value-added service of all products and contents
developed by the joint venture from time to time.
On November 15, 2004, IC Star, entered into a cooperation agreement with the
wireless business division of Beijing eLong Information Technology Limited, a
company of eLong Inc. (Nasdaq: LONG) (http://www.elong.com), the leading online
travel service provider and community in China. Under the agreement, IC Star
will utilize the best of its pool of celebrity and artistic resources, in
conjunction with eLong's development of Short Messaging Service (SMS),
Multimedia Messaging Service (MMS) and Coloring Ring Back Tone service. eLong
will provide the technical platform and promote these new services to its users.
18
Since October 2003, the Company or its subsidiaries, through our strategic
partner--Aixi Software Ltd., has signed contracts with various service providers
in China in order to expand our network database. The service providers include:
Shanghai Linktone
Founded in October 1999, Linktone has emerged as an acknowledged leader in
China's fast-growing wireless services sector. By developing a wide range of
attractive content and applications for the paying end user, and by establishing
nearly nationwide coverage through China's mobile operators, China Mobile and
China Unicom, Linktone has enjoyed substantial, sustained growth in its user
base and revenues. Linktone's current focus on Short Messaging Services (SMS)
allows potential access to virtually all of China's 185 million GSM subscribers,
among users of SMS, and familiarity with its functions, which continue to
increase rapidly month to month. Linktone's consumer services focus on
entertainment, messaging and personalized information.
Linktone has also established itself as a provider of innovative enterprise
solutions. In May 2002, Linktone partnered with McDonald's Corporation (China)
to launch a first of its kind, nationwide SMS promotion for the 2002 World Cup
Tournament in Japan and Korea. Linktone has also worked to promote feature
films, television programs, major entertainment events, and consumer goods.
Although SMS remains Linktone's core focus, the Company has developed offerings
for the mobile operators that include WAP over GPRS, WAP over CDMA, EMS, MMS,
location-based and cell-broadcasting content and applications, as well as a
number of products, scheduled for release later this year, for China Mobile's
new 2.5G GPRS network. Linktone's headquarters are located in Shanghai, and the
company maintains regional offices in Beijing, Guangzhou, Fuzhou, Qingdao and
Xian.
5Wan.com
5wan International (http://www.5wan.com) concentrates on tens of millions cell
phone users by offering humanization, high technology, and mobile entertainment.
In China, 5wan has already launched several WAP games, and achieved great
success. Their first release was the first role play WAP game - "SYZF" 5wan
then introduced the release of the first multi-person SMS game - "king of
fighter."
5wan's products and services are based on WAP, SMS, GPRS, Java and MPEG4. Also,
5wan is the first software developer to pass the Ericsson GPRS test. Ericsson
(ERICY) has already used 5wan's game software in its application integration,
recommended formally by China Mobile (CHL).
3721 Inter China Network Software Co. Ltd
3721 Inter China Network Software Co. Ltd (www.3721.com) was acquired by Yahoo!
Holdings (Hong Kong) Ltd., a wholly owned subsidiary of Yahoo!, Inc. Under the
agreements, the partners started to market ICStar short messages service (SMS),
Multimedia Messages Services (MMS), ring tones, broadband to its own
multi-millions users. ICStar will provide entertainment information celebrities
as its core competency and other wireless contents such as wall paper and
19
gaming. Both companies will work together to provide better customer preferred
type of wireless/Internet products and services to lead a new trend of
entertainment era in China.
Tencent Company Limited
Tencent is one of the first Internet Instant Messaging (IM) software developers
in China, and a leading provider for Internet and mobile value-added services
with a focus on IM and related value-added services. Its holding company,
Tencent Holdings Limited, has been listed on the Hong Kong Stock Exchange since
June 2004. Tencent was founded in November 1998 in Shenzhen, China. In February
1999, Tencent launched its first IM software--"Tencent QQ." Over the past five
years, Tencent has strived to pursue technological advancement while maintaining
a steady high growth in users. The vast community of Tencent QQ users
demonstrates Tencent's technological strength in operating massive online
application systems and IM-related applications.
Tencent users can communicate real time with each other via their IM platform
with their PCs, mobile and fixed line phones, as well as various terminal
devices. Not only can users communicate via text, images, audio, video and
email, but they also have access to various Internet services and mobile
value-added services designed to enhance the community experience, including
mobile games, dating, content downloads and other entertainment services.
Under the agreements, the partners started to market IC Star's and Alpha's short
messages service (SMS), Multimedia Message Services, ring tones, and broadband
to their own multi-millions of users. IC Star will provide entertainment
information celebrities as its core competency and other integrated contents.
Both companies will work together to provide better customer preferred types of
wireless/Internet products and services and lead a new trend of offering
Total Solutions to corporations through wireless and Internet communications in
China.
Impact of Inflation
We believe that inflation has had a negligible effect on operations during the
period. We believe that we can offset inflationary increases in the cost of
sales by increasing sales and improving operating efficiencies.
Trends, Events, and Uncertainties
Demand for the Company's products will be dependent on, among other things,
market acceptance of the Company's concept, the quality of its products and
general economic conditions, which are cyclical in nature. Inasmuch as a major
portion of the Company's activities is the receipt of revenues from the sales of
20
its products, the Company's business operations may be adversely affected by the
company's competitors and prolonged recessionary periods.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2004 COMPARED THE YEAR ENDED SEPTEMBER 30, 2003
Revenue for the year ended September 30, 2004 was $1,431,473. $834,752 was
generated from our IC Star subsidiary doing business in telecommunication
add-value service through SMS and MMS in a profit sharing model. $596,721 was
generated from Alpha doing business in Total Solutions commencing from September
2004. We did not have revenues for the year ended September 30, 2003. The
Company recognizes revenue when there is persuasive evidence of an arrangement,
delivery has occurred, the fee is fixed or determinable, collectibility is
reasonably assured, and there are no substantive performance obligations
remaining.
For the year ended September 30, 2004, costs of sales amounted to $685,958 for
48% of net revenues and consists of direct material or contents and labor costs
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and depreciation costs as well as local taxes
incurred. These costs are directly attributable to our contractual projects.
For the year ended September 30, 2004, we incurred operating expenses of
$2,618,084 as compared to $488,568 for the year ended September 30, 2003. For
the year ended September 30, 2004, operating expenses consisted of salaries of
$436,329, consultancy fee of $1,306,000, depreciation expenses of $262,027 and
other selling, general and administrative expenses of $613,728. For the year
ended September 30, 2003, operating expenses consisted of settlement expense
related to settlement of a lawsuit of $400,000, and other selling, general and
administrative expenses of $88,568.
For the year ended September 30, 2004, we incurred interest income of $45 and no
interest expense. A total of $753,695 was recorded as the Company recognized
other income consisting primarily of the settlement of a liability and the
received payment and sale proceeds from the sale of a subsidiary in November
2003. Acquisition cost of $8,126,917 for the additional 20% of IC Star was
arrived at from the issuance of common shares.
For the year ended September 30, 2004, we recorded minority interest expense of
$35,824 related to the allocation of profits to our minority interest holder.
For the year ended September 30, 2004, we recorded a net income of $518,360 from
discontinued operations, which was net of income tax of $89,076, and a loss on
the sale of the discontinued operations of $138,277.
OVERALL
We reported a net loss for the year ended September 30, 2004 of $8,901,487. This
translates to an overall per-share loss of $.19 for the year ended September 30,
2004.
21
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had a cash balance of $325,131 held in Hong Kong, the
Special Administrative Region of The People's Republic of China, and $11,576
held in PRC. We currently have no cash positions in the United States. We have
been funding our operations from the receipt of customer deposits on our
construction projects and receipt of sales proceeds of disposal of subsidiaries.
We also funded our operation by issuing common stock for a consideration of
$2,000,000 on July 22, 2004
Management has invested substantial time evaluating and considering numerous
proposals for possible acquisition or combination developed by management or
presented by investment professionals, the Company's advisors and others. We
continue to consider acquisitions, business combinations, or start up proposals,
which could be advantageous to shareholders. No assurance can be given that any
such project acquisition, or combination will be concluded.
At September 30, 2004, our Company had stockholders equity of $2,660,641. Our
Company's future operations and growth will likely be dependent on our ability
to raise capital for expansion and to implement our strategic plan.
Net cash provided by operating activities was $562,741 for the year ended
September 30, 2004 and was attributable to our net loss $8,901.487 offset by
non-cash activity such as depreciation on discontinued/continued operation of
$469,100, loss on disposal of equipment of $150,310, minority interest of
$310,489, acquisition cost of $8126,917 and common stock issued for service of
$1,740,000 as well as gain on disposal of subsidiary of $61,723. We may continue
to use cash in our operations due to the continuing implementation of our
business model and increased expenses from costs associated with being a public
company.
Net cash used in investing activities for the year ended September 30, 2004 was
$1,780,239 compared to net cash provided by investing activities of $159,718 for
the year ended September 30,2003. For the year ended September 30, 2004, we
received $200,000 of cash from the disposal of a subsidiary, which was off set
by sales proceeds on disposal of the subsidiary net of cash in the amount
of $1,343,810, and capital expenditures of $636,429.
Net cash provided by financing activities was $393,180 for the year ended
September 30, 2004. Net cash provided by financing activities consisted of
proceeds from related party loans of $69,117, proceeds from loans payable of
$304,063 and proceeds from the issuance of common stock accounted for $20,000. .
Our future growth is dependent on our ability to raise capital for expansion,
and to seek additional revenue sources. If we decide to pursue any acquisition
opportunities or other expansion opportunities, we may need to raise additional
capital, although there can be no assurance such capital- raising activities
would be successful.
22
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements:
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This statement applies to
costs associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
No. 144. These costs include, but are not limited to, termination benefits
provided to current employees that are involuntarily terminated under the terms
of a benefit arrangement that, in substance, is not an ongoing benefit
arrangement or an individual deferred compensation contract, costs to terminate
a contract that is not a capital lease and costs to consolidate facilities or
relocate employees. This statement does not apply to costs associated with the
retirement of a long-lived asset covered by SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement was adopted effective January 1, 2004,
and it did not have an impact on the Company's current financial position or its
results of operations.
On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The Company adopted the required disclosure
provisions of SFAS No. 148 effective January 1, 2003, and its application did
not have an impact on the Company's current financial position or its results of
operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how companies classify and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
companies to classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective
beginning with the second quarter of fiscal 2004. This statement was adopted
effective January 1, 2004, and it did not have an impact on the Company's
current financial position or its results of operations.
ITEM 7. FINANCIAL STATEMENTS
See "Index to Financial Statements" for the financial statements included in
this Form 10-KSB.
23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Robert G. Ercek, CPA resigned as independent certified public accountant and
independent auditor on December 31, 2003. His report on our financial statements
for the years ended September 30, 2002 and 2001 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles other than the uncertainty
related to our ability to continue as a going concern through September 30,
2002. During the fiscal years ended September 30, 2002 and 2001, there were no
disagreements with Robert G. Ercek, CPA on any matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which, if not resolved to the satisfaction of Robert G. Ercek, CPA, would have
caused it to make reference to the subject matter of the disagreement in
connection with its report on these financial statements for those periods.
Sherb and Company, LLP ("Sherb"), was retained as independent certified
accountants and independent auditor in December 2003 and resigned on April 12,
2004. Its report on our financial statements for the years ended September 30,
2003 and the subsequent interim period through April 11, 2004, did not contain
an adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles other than the
uncertainty related to our ability to continue as a going concern. There were no
disagreements between Telecom and Sherb on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to Sherb's satisfaction, would have caused
Sherb to make reference to the subject matter of the disagreement in connection
with their reports on these financial statements for those periods.
On April 12, 2004, Livingston, Wachtell & Co., LLP ("LWC"), was retained as
independent certified accountants and independent auditor and resigned on
September 17, 2004. LWC's reports on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion, disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope or accounting
principles. During the Company's two most recent fiscal years and through
September 17, 2004, there were no disagreements with LWC on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
LWC, would have caused it to make reference to the subject matter of the
disagreements in connection with its report. No reportable events of the type
described in item 304(a)(1)(iv)(B) of Regulation S-B occurred during the two
most recent fiscal years.
Effective September 17, 2004, Child, Sullivan & Company was appointed as the new
independent registered public accounting firm for the Company.
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of the Chief Executive Officer
and Chief Financial Officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")). Based on this evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
24
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. There was no
change in the Company's internal control over financial reporting during the
Company's most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions held and ages of our executive
officers and directors.
NAME AGE POSITION
62 Chairman of the Board
Guosheng Liu
30 CEO, President and Director
Shanhe Yang
31 Controller, Secretary and Director
Lijian Deng
24 Chief Information Officer and Director
Lirong Liu
48 CFO and Director
Gary Lam
25
GUOSHENG LIU, CHAIRMAN
----------------------
Mr. Liu has more than 35 years experience in Chinese news process and media
industry in China. He obtained his Master degree from Chinese Academy of Social
Science. Prior to this, Mr. Liu had served Heilongjiang Daily as reporter for 7
years. After his graduation from the Chinese Academy of Social Science, Mr. Liu
worked for People's Daily as Senior Reporter for the period 1981-2003. He has
an extensive relationship with the media industry and government bodies.
SHANHE YANG, CEO, PRESIDENT AND DIRECTOR
----------------------------------------
Mr. Yang joined the Company in 1999 and has extensive management experience in
multimedia industry in China. Mr. Yang is responsible for planning analysis and
researching and developing of software products, as well as responsible for
technical support, alliance's networking developing, and business development.
He holds a post in various kinds of business categories, such as technical
support, training, marketing and management. The main developing direction is
Internet and mobile network business application. Prior to joining the group,
Mr. Yang has engaged in enterprise's information system and electronic business
system development in Shenzhen, Guangdong. Mr. Yang was trained as a computer
network engineer in Beijing University of Post and Telecom.
LIJIAN DENG, CONTROLLER, SECRETARY AND DIRECTOR
-----------------------------------------------
Ms. Deng joined the company in 1994. Ms. Deng has been responsible for
management of the export department and has been accumulating administration
operation experience for 10 years in international trade and corporate
management. Ms. Deng attended an advanced study in FUDAN University Shanghai
prior to joining the Company.
GARY LAM, CFO
-------------
Mr. Lam joined the Company in late 2003 and has over 16 years of extensive
experience in treasury management. Mr. Lam is an affiliated member of the Hong
Kong Securities Institute. Mr. Lam was appointed as director of Renren Holdings
Limited (a public company in HK) during May 2001-September 2002.
LIRONG LIU, CHIEF INFORMATION OFFICER AND DIRECTOR
--------------------------------------------------
Ms. Liu joined the Company in 2004. She spent 4 years in broadcasting and
communications after graduation from college. Prior to joining the group, Ms.
Liu had worked for various foreign conglomerates in the electronics industry in
Zhuhai where she had served in different departments. With more than four years
experience in Internet and the virtual media market, Ms. Liu was recognized as
an outstanding information/content integration professional when she worked for
Aixi Software Limited before joining our Company.
AUDIT COMMITTEE
---------------
We do not have an audit committee. The entire Board of Directors serves as the
audit committee. Because of the small size of the Company and the risk attendant
to a small public company, we are currently unable to attract an audit committee
26
financial expert to our Board of Directors. There are no other committees of the
Board of Directors.
Code of Ethics
--------------
See Exhibit 14 for the Company's Code of Ethics.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received during
each of the Company's last three completed fiscal years by the President and
Secretary/ Treasurer of the Company.
Summary Compensation Table
The following table sets forth information relating to all compensation awarded
to, earned by or paid by us during the past three fiscal years to: (a) our Chief
Executive Officer; and (b) each of our executive officers who earned more than
$100,000 during the last three fiscal periods ended September 30, 2004, 2003 and
2002:
Annual Compensation Long-Term Compensation
----------------------- ------- ----------------------------- ------------- -------------------------------- -------------------
Name and Principal Fiscal Salary ($) Bonus ($) Other Restricted Securities All Other
Annual
Compensation Stock Awards Underlying
Position Year ($) ($) Options SAR (#) Compensation
----------------------- ------- --------------- ------------- ------------- --------------- ---------------- -------------------
Shanhe Yang 2004 $ 124,000 $ - $ - $ - - -0-
Chief Executive 2003 $ - $ - $ - $ - - -0-
Officer, President 2002 $ - $ - $ - $ - - -0-
and Director
Lijian Deng 2004 $ 124,000 $ - $ - $ - - -0-
Controller, Secretary 2003 $ - $ - $ - $ - - -0-
and Director 2002 $ - $ - $ - $ - - -0-
Lirong Liu 2004 $ 124,000 $ - $ - $ - - -0-
Chief Information 2003 $ - $ - $ - $ - - -0-
Officer and Director 2002 $ - $ - $ - $ - - -0-
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
None
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
-------------------------------------------------------
None
TERM OF OFFICE
--------------
The term of office of the current directors shall continue until new directors
are elected or appointed.
EMPLOYMENT AGREEMENTS
---------------------
The Company has entered into employment agreements with management officers. The
terms of the employment have been disclosed above. There are no employment
27
contract established with our employees in China as it is not common to have
employment contract in China for non-management employee.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT
-----------------------------------------------------------
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Summary
Compensation Table set out above which would in any way result in payments to
any such person because of his or her resignation, retirement or other
termination of such person's employment with the Company or its subsidiaries, or
any change in control of the Company, or a change in the person's
responsibilities following a change in control of the Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
We indemnify to the fullest extent permitted by, and in the manner permissible
under the laws of the State of Indiana, any person made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he/she is or was a
director or officer of our Company, or served any other enterprise as director,
officer or employee at our request. Our board of directors, in its discretion,
shall have the power on behalf of the Company to indemnify any person, other
than a director or officer, made a party to any action, suit or proceeding by
reason of the fact that he/she is or was our employee.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth, as of [December 20], 2004, information known to
us relating to the beneficial ownership of shares of common stock by: each
person who is the beneficial owner of more than five percent of the outstanding
shares of common stock; each director; each executive officer; and all executive
officers and directors as a group.
We believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them
except as stated therein.
Under the securities laws, a person is considered to be the beneficial owner of
securities that can be acquired by him within 60 days from the date of this
filing upon the exercise of options, warrants or convertible securities. We
determine beneficial owner's percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of the date of this
filing, have been exercised or converted. As of December 20, 2004, there were
70,188,000 shares of our common stock issued and outstanding.
The following table sets forth, as of [December 20], 2004, information known to
us relating to the beneficial ownership of shares of common stock by: each
person who is the beneficial owner of more than ten percent of the outstanding
shares of common stock; each director; each executive officer; and all executive
officers and directors as a group.
28
We believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them
except as stated therein.
Name and address of
Title of Class beneficial owner Number of Shares Percent of Class
--------------------------------------------------------------------------------
Common Taikang Capital 20,000,000 28.5%
Managements
Corporation
Common Lijian Deng 20,089,000(1) 14.4%
Common Shanhe Yang 20,089,000(2) 14.4%
Common Lirong Liu 20,089,000(3) 14.4%
Common Gary Lam 100,000(4) 0.1%
Directors and executive officers 10,589,000 15.09%
as a group (4 persons)
----------
(1) Consists of (i) 200,000 shares held directly by Ms. Deng (ii)(a) 9,889,000
shares of common stock plus (ii)(b) shares of commonstock underlying
warrants held indirectly by Auto Treasure Limited pursuant to 51%
co-ownership of all shares of Auto Treasure Limited, and assumes Auto
Treasure Limited does not exercise its right to purchase 10,000,000 shares
at an exercise price of $2.00 pursuant to warrant issued by the Company,
which vested as of March 16, 2006.
(2) Consists of 200,000 shares held directly by Mr. Yang (i) 9,889,000 plus
(ii) warrants held indirectly by Auto Treasure Limited pursuant to 51%
co-ownership of all shares of Auto Treasure Limited, and assumes Auto
Treasure Limited does not exercise its right to purchase 10,000,000 shares
at an exercise price of $2.00 pursuant to warrant issued by the Company,
which vested as of March 16, 2006.
(3) Consists of 200,000 shares held directly by Ms. Liu (i) 9,889,000 plus (ii)
warrants held indirectly by Auto Treasure Limited pursuant to 51%
co-ownership of all shares of Auto Treasure Limited, and assumes Auto
Treasure Limited does not exercise its right to purchase 10,000,000 shares
at an exercise price of $2.00 pursuant to warrant issued by the Company,
which vested as of March 16, 2006.
(4) Consists of 100,000 shares held directly by Mr. Lam
(b) Changes in Control
We know of no contractual arrangements which may at a subsequent date result in
a change of control in the Company.
29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
An officer of the Company or companies owned by this officer advanced funds to
the Company for working capital purposes. At September 30, 2004, the Company
owed this officer or his companies $165,343. The advances are non-interest
bearing and are payable on demand and are shown as a current liability.
On April 16, 2004, the Company sold its 60% interest in Panyu to Aries Vision
Technology Limited ("Aries"), a related party, for approximately $2,580,390.
Approximately $2,095,128 is payable to the majority shareholder and the
remaining $483,234 to Arran. Loss on disposal amounted to $138,277.
On May 3, 2004, Alpha Century Holdings Limited ("ACH"), a wholly owned
subsidiary of Telecom Communications, Inc., (the "Company") entered into the
Software ASP Reseller Agreement (the "Agreement") with Taikang Capital
Managements Corporation d/b/a Taikang Insurance Agencies Managements in China
("Taikang"). Subsequent to the signing of the Agreement, Taikang became an
affiliate of the Company on July 22, 2004, as a result of entering into a stock
purchase agreement with the Company.
Grace Motion, Inc. a company in which a director of the Company has a beneficial
interest, was paid a consulting fee amounting to US $37,180.
The Company advance $5,327 to a company in which a shareholder of the Company
has a beneficial interest. The advances are non-interest bearing and are payable
on demand.
A personal guarantee was granted from Mr. Gary Lam for the lease of an
automobile for $76,923.
TO BE INPUT
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Our financial statements follow the signature page starting on page F-1
3.1 Articles of Incorporation as amended and bylaws are incorporated by
reference to Exhibit No. 3 of Form SB-2 as amended filed November 28, 2001.
(1)
3.11 Certificate of Incorporation of MAS Acquisition XXI Corp. (1)
30
3.2 Articles of Amendment of the Article of Incorporation -
MAS Acquisition XXI Corp. (1)
3.5 By-laws (1)
10.1 Standard Office Lease Gross (1)
10.2 Standard Industrial/Commercial Multi-Tenant Lease (1)
10.3 Amendment to Lease (1)
10.4 Consulting Agreement between Telecom Communications Inc. and GreenTree
Financial Group, Inc. (1)
10.5 Inter-Tel.net Agreement (1)
14 Code of Ethics
31.1 Certification of CEO pursuant to section 302 of the Sarbanes-Oxley Act
of 2002.*
31.2 Certification of CFO pursuant to section 302 of the Sarbanes-Oxley Act
of 2002.*
32.1 Certification of CEO pursuant to section 906 of the Sarbanes-Oxley Act
of 2002.*
32.2 Certification of CFO pursuant to section 906 of the Sarbanes-Oxley Act
of 2002.*
(1) Incorporated by reference to exhibits filed with our registration
statement on form SB-2/A file on 11/28/01.
(*) Filed herewith
(b) Reports on Form 8-K
Form 8-K dated July 22, 2004;
Form 8-K dated July 22, 2004;
Form 8-K dated August 16, 2004;
Form 8-K dated September 17, 2004; and
31
Form 8-K dated October 7, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed by the Company's auditors for professional services
rendered in connection with the audit of the Company's annual consolidated
financial statements for fiscal 2004 and 2003 and reviews of the consolidated
financial statements included in the Company's Forms 10-KSB for fiscal 2004 and
2003 were approximately $50,000 and $30,000, respectively.
AUDIT-RELATED FEES
The Company's auditors did not bill any additional fees for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's financial statements and are not reported under "Audit
Fees" above.
TAX FEES
The aggregate fees billed by the Company's auditors for professional services
for tax compliance, tax advice, and tax planning were $0 and $0 for fiscal 2004
and 2003, respectively.
ALL OTHER FEES
The aggregate fees billed by the Company's auditors for all other non-audit
services rendered to the Company, such as attending meetings and other
miscellaneous financial consulting, in fiscal 2004 and 2003 were $0 and $0,
respectively.
32
TELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Financial Statements:
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-18
CHILD, SULLIVAN & COMPANY
A PROFESSIONAL CORPORATION OF CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
1284 W. FLINT MEADOW DR., SUITE D, KAYSVILLE, UT 84037
PHONE: (801) 927-1337 FAX: (801) 927-1344
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Stockholders
Telecom Communications, Inc.
We have audited the accompanying consolidated balance sheet of Telecom
Communications Inc. and Subsidiaries as of September 30, 2004, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. 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 audits.
We conducted our audit in accordance with generally accepted auditing standards
as established by the AICPA's Auditing Standards Board and in accordance with
the standards of the Public Company Accounting Oversight Board (United States of
America). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 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 Telecom
Communications, Inc. and Subsidiaries as of September 30, 2004, and the results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
Child, Sullivan and Company
Salt Lake City, Utah
F-2
TELECOM COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
September 30,
2 0 0 4
-------
Assets
------
Current assets
Cash and cash equivalents $ 336,707
Accounts receivable 568,294
Due from a related party 5,327
Prepaid expenses and other current assets 94,025
------------
Total current assets 1,004,353
Property, plant and equipment, net 2,208,625
------------
Total assets $ 3,212,978
============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Accounts payable and accrued expenses 356,994
Due to a related party 165,343
------------
Total current liabilities 552,337
------------
Stockholders' equity
Preferred stock ($.001 Par Value: 20,000,000 Shares Authorized;
no shares issued and outstanding) -
Common stock ($.001 Par Value: 80,000,000 Shares Authorized
60,188,000 shares issued and outstanding) 60,188
Additional paid in capital 12,039,406
Accumulated other comprehensive income 133
Accumulated deficit (9,439,086)
------------
Total stockholders' equity 2,660,641
------------
Total liabilities and stockholders' equity $ 3,212,978
============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
TELECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
September 30,
-------------
2 0 0 4 2 0 0 3
------- -------
Net Revenues 1,431,473 -
Cost of sales (685,958) -
-------------- ------------
Gross profit 745,515 -
------------- ------------
Operating expenses:
Selling, general and administrative 2,618,084 488,568
------------- ------------
(Loss) from operations (1,872,569) (488,568)
-------------- -------------
Other Income (Expense):
Interest income 45 -
Other income 553,695 -
Gain on disposal of a subsidiary 200,000 -
Acquisition costs (8,126,917) -
-------------- ------------
Total Other (Expense) (7,373,177) -
-------------- ------------
(Loss) from continuing operations (9,245,746) (488,568)
before minority interest
Minority interest in income of subsidiary (35,824) -
-------------- ------------
(Loss) from continuing operations (9,281,570) (488,568)
Income from discontinued operations,
net of income tax of $89,076 518,360 40,068
Loss on sale of discontinued operations (138,277) --
-------------- ------------
Net Income (Expense) $ (8,901,487) $ (448,500)
============== =============
Income per Common Share -
Discontinued Operations $ 0.01 $ -
Loss per Common Share - Continuing
Operations $ (0.20) $ (0.01)
-------------- -------------
Total loss per Common Share -
Basic & diluted $ (0.19) $ (0.01)
============== =============
Weighted Average Common Share
utstanding - Basic & diluted 45,919,882 37,299,000
============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
TELECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED SEPTEMBER 30, 2003 AND 2004
Common Stock Accumulated
$.001 Par Value Additional Other Total
--------------- Paid In Comprehensive Accumulated Comprehensive Stockholders'
Number of Amount Capital Income(Loss) Deficit Income(Loss) Equity
--------- ------ ------- ------------ ------- ------------ ------
Shares
------
Balance, September 30, 2002 23,800,000 23,800 $ - $ - $ (23,800) $ $ -
Recapitalization of company 13,499,000 13,499 - (65,299) (51,800)
Other comprehensive loss:
Net loss (448,500) (448,500) (448,500)
Comprehensive income - unrealized loss
on foreign currency translation (7,166) (7,166) (7,166)
Total comprehensive loss - - - (455,666) - - -
---------- ------ ---------- ------------ ---------- ----------- -----------
Balance, September 30, 2003 37,299,000 37,299 - (537,599) (7,166) (507,466)
Shares issued in acquisition 9,889,000 9,889 8,312,406 8,322,295
Shares issued for services 3,000,000 3,000 1,737,000 1,740,000
Shares Issued for debt conversion 2,500,000 2,500 497,500 500,000
Shares Issued for software 7,500,000 7,500 1,492,500 1,500,000
Other comprehensive loss:
Net loss (8,901,487) (8,901,487) (8,901,487)
Comprehensive income - unrealized gain
on foreign currency translation 7,299
Total comprehensive loss - - - (8,894,188) - 7,299 7,299
---------- ------ ---------- ------------ ---------- ----------- -----------
Balance, September 30, 2004 60,188,000 60,188 12,039,406 (9,439,086) 133 2,660,641
---------- ------ ---------- ------------ ---------- ----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
TELECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
September 30,
-------------
2 0 0 4 2 0 0 3
------- -------
Cash flows from operating activities
Net loss (8,901,487) (448,500)
Adjustments to reconcile net loss to net cash provided
by operating activities :
Depreciation - continuing operations 262,027 136,863
Depreciation - discontinued operations 207,073 -
Loss on disposal of equipment 150,310 -
Minority interest 310,489 37,471
Acquisition cost 8,126,917 -
Impairment of goodwill - 32,181
Common Stock issued for services 1,740,000 -
Gain on disposal of subsidiary (200,000) -
Loss on disposal of subsidiary 138,277 -
Changes in operating assets and liabilities :
Accounts receivable 1,010,260 (604,390)
Inventory of real estate held for sale (33,965) (1,551)
Costs and estimated earnings in excess of billings
on uncompleted contracts (3,043,649) 309,171
Retention receivables (669,995) -
Due from related party (4,153) (25,261)
Prepaid and other current assets 425,069 (44,658)
Other assets 11,983 (26,099)
Accrued payable and accrued expenses 762,494 (218,482)
Customer deposits 233,351 627,960
Billings in excess of costs and estimated earnings on 37,740 125,249
uncompleted contract
-------------------------
Net cash provided by(used in) operating activities 562,741 (100,046)
-------------------------
Cash flows from investing activities
Proceeds from sales of discontinued operations 200,000 -
Sales proceeds of disposal of subsidiary net of cash (1,343,810) -
Cash acquired in acquisition - 219,321
Capital expenditure (636,429) (59,603)
-------------------------
Net cash flows provided by (used in) investing activities (1,780,239) 159,718
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
TELECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from financing activities
Due to related party 69,117 64,046
Proceeds from loan payable 304,063 1,090,682
Proceeds from issuance of common stock 20,000 -
-------------------------
Net cash flows provided by financing activities: 393,180 1,154,728
Effect of exchange rate changes in cash 5,590 (58,965)
-------------------------
Net increase (decrease) in cash (818,728) 1,155,435
Cash - beginning of year 1,155,435 -
-------------------------
Cash - end of period 336,707 1,155,435
=========================
Supplemental disclosure of cash flow information:
Non cash investing and financing activities:
Common stock issued for acquisition of software $ 1,500,000 $ -
=========================
Common stock issued for recapitalization $ - $ 217,597
=========================
Acquisition details:
Fair value of assets acquired $ - $ 9,743,773
=========================
Liabilities assumed $ - $ 9,743,773
=========================
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
1. BUSINESS DESCRIPTION AND ORGANIZATION
THE COMPANY
Telecom Communications, Inc. (the "Company" or "Telecom") was incorporated on
January 6, 1997 in the State of Indiana under the corporate name MAS Acquisition
XXI Corp. Prior to December 21, 2000, the Company was a blank check company
seeking a business combination with an unidentified business. On December 21,
2000, the Company acquired Telecom Communications of America, which was a sole
proprietorship conducting business as a provider of long distance telephone
carriers to individuals. This acquisition gave the Company the ability to
provide low cost access to long distance carriers for individuals needing to
call Latin and South America. The Company's long distance business operated over
the Internet. In addition, the Company also provided various services such as
check cashing, money wiring, the sale of bus tokens and passes, and the sale of
California lottery tickets. Upon making this acquisition, the Company changed
its name to Telecom Communications, Inc.
ACQUISITION OF THE OPERATING SUBSIDIARY AND THE SHARE EXCHANGE
In September 2003, the Company discontinued its above operations and on
September 30, 2003, Telecom consummated a Stock Purchase Agreement with Arran
Services Limited ("Arran") and its sole shareholder (the "majority
shareholder"), for the acquisition of all of the capital stock of Arran, a
British Virgin Islands corporation. In exchange for the capital interest, the
majority shareholder and his designate received a total of 23.8 million shares
of Telecom's common stock, representing approximately 64% of the outstanding
shares of Telecom. On the closing of the Stock Purchase Agreement, the majority
shareholder was elected chairman and CEO of the Company.
Telecom conducts all of its business in China through Arran's subsidiary IC Star
MMS Limited ("IC Star"). IC Star (formerly known as Sino Super Limited) was an
80% owned China-based local information and services affiliate network.
Established in December 1991, IC Star links entertainment and lifestyle
information to local communities across China.
On March 16, 2004, the Company acquired from Auto Treasure Holdings Limited, an
entity 100% owned by the majority shareholder, the remaining 20% interest of IC
Star for a consideration of 9,889,000 shares of Telecom common stock and
10,000,000 warrants to purchase 10,000,000 shares of Telecom common stock at $2
per share. As a result, as of March 16, 2004, Telecom owned 100% of IC Star.
This transfer was deemed to be a transfer between entities under common control
and was therefore recorded on the Company's records at its historical cost
basis. In connection with the new issuance of 9,889,000 shares of Telecom common
stock and 10,000,000 warrants (expire March 15, 2006), the excess of the
purchase consideration of $8,322,295 over the book value of the net assets of
$195,378 acquired amounted to $8,126,917 and was recorded in the consolidated
F-8
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
statement of operations as acquisition expense. On December 15, 2003, the
Company formed Alpha Century Holdings Limited ("Alpha") which is a wholly owned
subsidiary registered in the British Virgin Islands and was formed for
investment holdings. On March 31, 2004, Arran sold its interest in Huiri
Electric (Panyu) Limited ("Huiri") to Alpha for approximately $13,000.
Panyu No.6 Construction Company ("Panyu"), was a 60% owned subsidiary located in
Guangzhou, China, and its business was an integrated construction company. Panyu
is focused on both general construction as well as the construction of network
infrastructure for residential, industrial, cultural and commercial building
communities. The Company sold Panyu on April 16, 2004 (refer to note 5). For the
year ended September 30, 2003, all operating activity and financial results of
the Company are related to Panyu. Panyu's operating results for the years ended
September 30, 2004 and 2003 are shown as Discontinued Operations.
CONTROL BY PRINCIPAL STOCKHOLDERS
The directors, executive officers and their affiliates or related parties, own
beneficially and in the aggregate, the majority of the voting power of the
outstanding shares of the common stock of the Company. Accordingly, the
directors, executive officers and their affiliates, if they voted their shares
uniformly, would have the ability to control the approval of most corporate
actions, including increasing the authorized capital stock of the Company and
the dissolution, merger or sale of the Company's assets or business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements of the Company, include the accounts of
Telecom, Arran, Alpha, IC Star and Huiri. The consolidated statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. All significant intercompany transactions have been
eliminated.
The Company has determined Hong Kong dollars to be the functional currency of IC
Star, and the People's Republic of China Chinese Yuan Renminbi, to be the
functional currency of Panyu. There were no material gains or losses or effect
of exchange rate changes on cash recognized as a result of translating foreign
currencies to the U.S. dollars due to the stability of the currency. No
assurance however, can be given as to the future valuation of the foreign
currencies and how further movements in the foreign currencies could affect
future earnings of the Company.
The balance sheets of all foreign subsidiaries were translated at period end
exchange rates. All of the Company's material long-lived assets are located in
F-9
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
the People's Republic of China at September 30, 2004. Expenses were translated
at exchange rates in effect during the year, substantially the same as the
period end rates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONT'D)
CASH AND CASH EQUIVALENTS
For purpose of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at time of purchase
to be cash equivalents.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts represents the Company's best
estimate of the amount of probable credit losses in the existing accounts
receivable balance. The Company determines the allowance for doubtful accounts
based upon historical write-off experience and current economic conditions. The
Company reviews the adequacy of its allowance for doubtful accounts on a regular
basis. Receivable balances past due over 90 days, which exceed a specified
dollar amount, are reviewed individually for collectibility. Account balances
are charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The Company does
not have any off-balance sheet credit exposure related to its customers.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the expected useful life of the asset. The Company
generally uses the following depreciable lives for its major classifications of
property and equipment:
DESCRIPTION USEFUL LIVES
----------------- ------------
COMPUTER HARDWARE 3 YEARS
COMPUTER SOFTWARE 3 YEARS
F-10
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONT'D)
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived tangible assets and definite-lived intangible assets are reviewed for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. The Company uses an
estimate of undiscounted future net cash flows of the assets over the remaining
useful lives in determining whether the carrying value of the assets is
recoverable. If the carrying values of the assets exceed the expected future
cash flows of the assets, the Company recognizes an impairment loss equal to the
difference between the carrying values of the assets and their estimated fair
values. Impairment of long-lived assets is assessed at the lowest levels for
which there are identifiable cash flows that are independent from other groups
of assets. The evaluation of long-lived assets requires the Company to use
estimates of future cash flows. However, actual cash flows may differ from the
estimated future cash flows used in these impairment tests.
RELATED PARTY AND STOCKHOLDERS' LOANS
The caption "Due to related party" are loans that are unsecured, non-interest
bearing and have no fixed terms of repayment, and therefore, are deemed payable
on demand.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
SIGNIFICANT ESTIMATES
Several areas require management's estimates relating to uncertainties for which
it is reasonably possible that there will be a material change in the near term.
The more significant areas requiring the use of management estimates related to
valuation of the useful lives of the Company's equipment and valuation of tax
and other contingent liabilities and the valuation of the stock warrants and
options issued and outstanding.
F-11
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONT'D)
LOSS PER SHARE
Basic loss per common share ("LPS") is calculated by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share are calculated by adjusting the weighted average
outstanding shares, assuming conversion of all potentially dilutive stock
options.
REVENUE RECOGNITION
The Company recognizes revenue when there is persuasive evidence of an
arrangement, delivery has occurred, the fee is fixed or determinable,
collectibility is reasonably assured, and there are no substantive performance
obligations remaining.
FOREIGN CURRENCY TRANSLATION
Transactions and balances originally denominated in U.S. dollars are presented
at their original amounts. Transactions and balances in other currencies are
converted into U.S. dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation," and are included in
determining net income or loss.
For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues,
expenses and cash flows are translated at the average exchange rate for the
period to approximate translation at the exchange rate prevailing at the dates
those elements are recognized in the financial statements. Translation
adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are included in determining comprehensive
loss.
The functional currency of the Company's Chinese subsidiary, IC Star, is the
Hong Kong dollar (HKD), and for its subsidiary, Panyu No. 6 Construction Company
Limited, Chinese Renminbi (RMB), is the local currency. The financial statements
of the subsidiaries are translated to United States dollars using year-end rates
of exchange for assets and liabilities, and average rates of exchange for the
period for revenues, costs, and expenses. Net gains and losses resulting from
foreign exchange transactions are included in the consolidated statements of
operations. The cumulative translation adjustment and effect of exchange rate
changes for the year ended September 30, 2004 was $7,299.
F-12
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
COMPREHENSIVE LOSS
Comprehensive loss includes changes to equity accounts that were not the result
of transactions with shareholders. Comprehensive loss is comprised of net loss
and other comprehensive income and loss items. The Company's comprehensive
income and losses generally consist of changes in the fair value of changes in
the cumulative foreign currency translation adjustment.
INCOME TAXES
Income taxes are accounted for under the asset and liability method in
accordance with SFAS No. 109 "Accounting for Income Taxes". Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance to the extent that the
recoverability of the asset is not considered to be more likely than not. The
Company did not provide any current or deferred income tax provision or benefit
for any periods presented to date because it has experienced a net operating
loss since inception and other than the net operating loss, has no other
deferred tax assets or liabilities.
STOCK-BASED COMPENSATION
The Company accounts for stock options issued to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for
Stock-Based Compensation -Transition and Disclosure", which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied. The Company accounts for stock options
and stock issued to non-employees for goods or services in accordance with the
fair value method of SFAS 123.
F-13
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
3. PROPERTY AND EQUIPMENT
Property and equipment, which is located in China, consisted of the following at
September 30, 2004:
Computer hardware 451,521
Computer software 1,980,000
---------
2,431,521
Less: accumulated depreciation (222,896)
---------
2,208,625
=========
4. RELATED PARTY TRANSACTIONS
An officer of the Company or companies owned by this officer advanced funds to
the Company for working capital purposes. At September 30, 2004, the Company
owed this officer or his companies $165,343. The advances are non-interest
bearing and are payable on demand and are shown as a current liability.
On April 16, 2004, the Company sold its 60% interest in Panyu to Aries Vision
Technology Limited ("Aries"), a related party, for approximately $2,580,390.
Approximately $2,095,128 is payable to the majority shareholder and the
remaining $483,234 to Arran. Loss on disposal amounted to $138,277.
On May 3, 2004, Alpha Century Holdings Limited ("ACH") a wholly owned subsidiary
of Telecom Communications, Inc., (the "Company") entered into the Software ASP
Reseller Agreement (the "Agreement") with Taikang Capital Managements
Corporation d/b/a Taikang Insurance Agencies Managements in China ("Taikang").
Subsequent to the signing of the Agreement, Taikang became an affiliate of the
Company on July 22, 2004, as a result of entering into a stock purchase
agreement with the Company. Grace Motion, Inc. a company in which a director of
the Company has a beneficial interest, was paid a consulting fee amounting to US
$37,180.
A personal guarantee was granted from an officer for the lease of an automobile
for $76,923.
The Company advanced $5,327 to a company in which a shareholder of the Company
has a beneficial interest. The advances are non-interest bearing and are payable
on demand.
5. LEASE OBLIGATIONS
Operating Leases
Lessee Costs - In the normal course of business, the Company leases office space
and data centers under noncancelable operating lease agreements. The Company
F-14
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
rents office space, primarily for regional sales administration offices, in
commercial office complexes that are conducive to administrative operations. The
majority of the Company's data centers are leased in different locations to
computer servers storage with hosting and facility services. These operating
lease agreements generally contain renewal options that may be exercised at the
Company's discretion after the completion of the base rental term. In addition,
many of the rental agreements provide for regular increases to the base rental
rate at specified intervals, which usually occur on an annual basis. At
September 30, 2004, the Company had operating leases that have remaining terms
of one year. The following table summarizes the Company's future minimum lease
payments under operating lease agreements at September 30, 2004 :
YEAR ENDED
SEPTEMBER 30,
-----------------------------
2005 $17,036
=======
The Company recognizes lease expense on a straight-line basis over the life of
the lease agreement. Contingent rent expense is recognized as it is incurred.
Total rent expense in continuing operations from operating lease agreements was
$27,699 and $ 5,400, for fiscal years 2004 and 2003.
6. CONTINGENT LIABILITIES
During the year, the Company was involved in a lawsuitt brought by third parties
claiming for unspecified damages for alleged breach of contract and an
injunction to restrain them from using items with entertainment content. The
Company intends to contest the claims strongly and, while the final outcome of
the proceedings is uncertain, it is the management's opinion that the ultimate
liability, if any, will not have a material impact upon the Company's financial
position. Accordingly, no provision for these claims has been made in the
accompanying financial statements.
7. STOCK TRANSACTIONS
On July 22, 2004, the Company entered into a stock purchase agreement (the
"Purchase Agreement") with Taikang Capital Managements Company ("Taikang"),
under which the Company has agreed to issue and sell to the purchasers in a
private placement 7,500,000 shares of the Company's Common Stock, par value
F-15
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
$.001 per share for an aggregate purchase price of $1,500,000.Simultaneous with
this transaction, Taikang converted the $500,000 Convertible Promissory Note
into 2,500,000 shares of Common Stock. On April 12, 2004, the Company issued
2,600,000 shares at market price of $.62 to the various employees and
consultants resulting in an expense of $1,612,000. On June 17, 2004, the Company
issued 400,000 shares at a market price of $.32 to a consultant resulting in an
expense of $128,000. Total shares issued for services rendered was 1,740,000.
8. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes."
Income tax expense is based on reported income before income taxes. Deferred
income taxes reflect the effect of temporary differences between assets and
liabilities that are recognized for financial reporting purposes and the amounts
that are recognized for income tax purposes. In accordance with SFAS No. 109,
"Accounting for Income Taxes", these deferred income taxes are measured by
applying currently enacted tax laws.
There are net operating loss carryforwards allowed under the Hong Kong and
China's governments' tax systems. In China, the previous five years net
operating losses are allowed to be carried forward five years to offset future
taxable income. In Hong Kong, prior years net operating losses can be carried
forward indefinitely to offset future taxable income. The Company has available
approximately $ 49,037 of unused operating loss carryforwards and based on a 30%
tax rate has a deferred tax asset of approximately $14,711. The Company recorded
a valuation allowance for the same amount at September 30, 2004.
The company will withhold and pay income taxes on its employees' wages, which
funds the Chinese government's sponsored health and retirement programs of all
the employees.
9. DISCONTINUED OPERATIONS
During the year, the Company sold the operations of Panyu. Under the provisions
of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
the financial results of these operations were classified as discontinued
operations in the accompanying consolidated statements of operations, net of
tax, in 2004. The net income (loss) from discontinued operations consisted of
the following during the year:
F-16
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
Total pre-tax profit from discontinued
operations 607,436
Total income tax provision from discontinued
operations (89,076)
-----------
Income from discontinued operations, net of
income tax $ 518,360
===========
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This statement applies to
costs associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
No. 144. These costs include, but are not limited to, termination benefits
provided to current employees that are involuntarily terminated under the terms
of a benefit arrangement that, in substance, is not an ongoing benefit
arrangement or an individual deferred compensation contract, costs to terminate
a contract that is not a capital lease and costs to consolidate facilities or
relocate employees. This statement does not apply to costs associated with the
retirement of a long-lived asset covered by SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement was adopted effective January 1, 2004,
and it did not have an impact on the Company's current financial position or its
results of operations.
On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB Opinion No. 25. The Company adopted the required disclosure
provisions of SFAS No. 148 effective January 1, 2003, and its application did
F-17
TELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
not have an impact on the Company's current financial position or its results of
operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how companies classify and measure certain financial
instruments with characteristics of both liabilities and equity. It requires
companies to classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective
beginning with the second quarter of fiscal 2004. This statement was adopted
effective January 1, 2004, and it did not have an impact on the Company's
current financial position or its results of operations.
11. CAPITAL COMMITMENT
As of the balance sheet date, the Company has a capital commitment on a purchase
of motor vehicles for an aggregate purchase price of USD $84,617.
12. SUBSEQUENT EVENTS
On October 7, 2004, Telecom entered into a stock purchase agreement with
Taikang, an affiliate of the Company, for the purchase of 10,000,000 shares of
the Company's common stock, par value $.001 per share for an aggregate purchase
price of $2,000,000.
F-18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the registrant caused this report to be signed on its behalf by the
undersigned and duly authorized on December 29, 2004.
Telecom Communications, Inc..
By: /s/ Shanhe Yang
-------------------------------------
Shanhe Yang
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
TELECOM COMMUNICATIONS, INC.
Date: December 29, 2004 By: /s/ Guosheng Liu
------------------------------------
Guosheng Liu
Chairman of the Board
Date: December 29, 2004 By: /s/ Shanhe Yang
------------------------------------
Shanhe Yang
CEO, and President
Date: December 29, 2004 By: /s/ Lijian Deng
------------------------------------
Lijian Deng
Secretary , Treasurer and Director
Date: December 29, 2004 By: /s/ Gary Lam
------------------------------------
Gary Lam
Principal Financial and Accounting
Officer
Date: December 29, 2004 By: /s/Lirong Liu
------------------------------------
Lirong Liu
Chief Information Officer and
Director
EXHIBIT F
PLEASE MARK YOUR [X] VOTES AS IN THIS EXAMPLE.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder(s). If no direction is made, this proxy will be
voted FOR the proposals 1, 2 and 3.
FOR AGAINST ABSTAIN
1. Proposal to approve the reincorporation of the
Company in the State of Delaware and adopt a new
charter and bylaws as part of the merger. [ ] [ ] [ ]
2. Proposal authorize the Board of Directors to effectuate
a reverse split of the outstanding shares of common
stock on a two to one basis. [ ] [ ] [ ]
3. Proposal to election of five persons nominated by the
Board of Directors to serve as Directors as indicated
below: [ ] [ ] [ ]
FOR all nominees listed below: [ ] (except as indicated)
WITHHOLD AUTHORITY to vote for all nominees listed below: [ ]
NOMINEES: Guosheng Liu, Lijian Deng, Shanhe Yang, Gary Lam and Lirong Liu.
(INSTRUCTION: To withhold authority to vote for any individual nominee or
nominees, write such nominee's or nominees' name(s) in the space
provided below.)
Please sign exactly as name appears at left. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Note: Please sign name exactly as your name appears on the Stock Certificate.
When signing as attorney, executor, administrator, trustee, or guardian, please
give full title. If more than one trustee, all should sign. All joint owners
must sign.
____________________________________________
____________________________________________
Signature (if held jointly) Date
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
The Board of Directors recommends a vote FOR proposals 1, 2, and 3 above.
1
TELECOM COMMUNICATIONS, INC.
ROOM 1602, 16/F, 5-9 OBSERVATORY COURT, TST,
HONG KONG, CHINA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING ON February 28, 2005.
The undersigned hereby appoints [ ] and [ ], and each or
any of them as Proxies, with full power of substitution, to vote all shares of
Telecom Common Stock entitled to be voted by the undersigned for Proposal 1, 2
and 3 referred to on the reverse side of this Proxy Card and described in the
Proxy Statement, and on any other business as properly may come before the
Annual Meeting of Shareholders on February 28, 2005, or any adjournment thereof.
This proxy will be voted as directed. If no direction is given, this proxy will
be voted FOR Items 1, 2 and 3.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND MAIL PROMPTLY IN THE ENCLOSED
ENVELOPE.
---------------------
SEE REVERSE SIDE
---------------------
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT
Please sign, date and return your proxy in the enclosed envelope.
2