UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number: 000-50760
Nevada 58-2670972
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(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
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Issuer's telephone number (852) 2868 0668
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 disclosure of delinquent filers in response to item 405 of Regulation S-B is not 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 any amendment to this Form 10-KSB. [ ]
State the aggregate market value of voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: As of March 29, 2005, $7,903,905.
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [x].
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of March 29, 2005, there were 81,496,031 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
TABLE OF CONTENTS
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PART I
Item 1 Description of Business 4
Item 2 Description of Properties 12
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for Common Equity and Related Stockholders Matters 13
Item 6 Management's Discussion and Analysis or Plan of Operation 15
Item 7 Financial Statements 18
Item 8 Changes in and Disagreement with Accountants on Accounting
and Financial Disclosures 18
Item 8A Controls and Procedures 19
Item 8B Other Information 19
PART III
Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 19
Item 10 Executive Compensation 22
Item 11 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 23
Item 12 Certain Relationships and Related Transactions 24
Item 13 Exhibits and Reports on Form 8-K 25
Item 14 Principal Accountant Fees and Services 26
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Some of the statements contained in this Form 10-KSB are forward looking statements, including but not limited to those specifically identified as such, that involve risks and uncertainties. The statements contained in this Form 10-KSB that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this Form 10-KSB are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important factors that may cause actual results to differ from expectations include those discussed in "Risk Factors".
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Financial Telecom Limited (USA), Inc. ("the Company", "we" or "us"), through its wholly-owned subsidiaries, provides financial advisory, financial information and direct investment to corporations in Mainland China, Hongkong and certain South-east Asian countries.
Financial Telecom Limited (FTLHK), a wholly-owned subsidiary of ours, is a private company limited by shares incorporated in Hong Kong in 1983. FTLHK is principally engaged in the business of providing financial information to institutional and retail investors. FTLHK was the first company in Hong Kong to provide real-time financial information services using a wireless network for the dissemination of data. FTLHK generates revenue through the provision of financial information services and the sale of technical analysis software. In view of the keen competition in the financial data service industry in Hongkong, in the 4th quarter of 2004, we decided to gradually terminate some of FTLHK's online services by transferring its customers to another financial data vendor in Hongkong. In return, FTLHK receives re-current commissions.
In November 2004, in line with the our new strategy to diversify into financial advisory and direct investment services targeting small-to-medium enterprises (SMEs) and to strengthen its management team, our Board of Directors appointed Mr. David Chen to be our CEO. We appointed Mr., Sam Chong Keen, who is based in Singapore, as our Managing Director. We also employed Mr. Richard Yan as our Financial Controller.
Our new business strategy aims to assist the our clients to build leverage-able assets and derive realizable wealth through sound strategic planning, balanced financial and risk management structure and professional operational management. Our objective is to provide value adding services to our clients' owners and senior management. In November 2004, we started offering investment banking and financial advisory services to SME's in Mainland China, Hongkong and Singapore. We have also made direct investment in some selected companies.
To facilitate the implementation of the new strategy, we formed two new wholly-owned subsidiaries, namely, Fintel Group Limited (Fintel) and Digital Financial Services Limited (Digital) on September 13, 2004. Both companies are Hongkong registered private companies limited by shares. Fintel is the holding company for our direct investments in investee companies. Digital is engaged in the business of providing financial advisory service to our clients.
As of the date of this Annual Report, Digital has concluded financial advisory contracts with 3 Chinese companies with estimated annual income of $193,556. Fintel invested in these 3 companies. Their combined total net assets is $1,960,456 as of June 30, 2004.
We are located at 306, Hang Bong Commercial Center, 28 Shanghai Street, Kowloon, Hong Kong. We also maintain an office in China with address at 1701 Haitong Securities Tower, 689 Guangdong Road, Shanghai. Our corporate website is at www.fintel.com.
CURRENT PRODUCTS AND SERVICES
One of our subsidiaries, FTLHK, had been providing real time financial data services under the service names of Sinobull Link, EFT Finance, Fintel Data Feed and Spider Link Pro. These services provided real-time quotes on Hong Kong stocks, futures, market indices, international Forex, precious metals and financial news. In October 2004, most of these services were terminated and the customers transferred to another data vendor in Hongkong. FTLHK is paid re-current commissions derived from such transfer. FTLHK continues to provide financial data compilation service to corporate customers.
In line with the new strategy to diversify into merchant banking service, we now provide to SME's in Mainland China, Hongkong and some South-east Asian countries strategic financial advisory, corporate re-structuring and public listing services. We also invest in expansion stage companies with a view to maximize our return from the investment when the investee companies go for public listing.
MARKETING STRATEGY
For the merchant banking services by Digital, promotion is mostly through direct marketing of our management team. Currently, Digital is establishing a network of partners in China, Hongkong and Singapore who are mostly professionals in accounting and corporate services for the generation of potential business. We are now discussing with international public relation firms on the provision of services to us to enhance our market visibility.
FTLHK has been promoting its services through direct marketing, advertisement, seminars and road shows. FTLHK will not put in any resources to promote or market its remaining services.
INDUSTRY OVERVIEW
Financial Information
The financial information market in Hong Kong can broadly be divided into two major segments based on the target audience and the content provided. The first segment, served by international data vendors such as Reuters and Bloomberg, is comprised of financial institutions and large corporations that require services providing a wide spectrum of financial data. The second segment, much larger in terms of number of subscribers, is comprised of retail investors such as individuals, brokerage firms and small to medium size companies that are more focused on the local stock market. FTLHK's services targeted this second segment of retail investors.
Merchant Banking
The merchant banking services basically focuses on the SME's. The target market is further refined to include only those privately owned enterprises in technology, media & marketing, manufacturing, and consumer service.,
China is presently one of the fastest growing economies in the world. The private sector accounts for over 55% of GNP and 35% of fixed asset investment. There are over 3 million privately owned enterprises with registered capital of RMB400 billion. (On December 31, 2004, the exchange rate was RMB 8.276 to US Dollar 1.0.)
Technology
China's technology sector has developed rapidly since 1980. According to the statistics released by the China Technology Market Association, more than 26,000 technology related contracts were registered in China in 2003 with a total transaction value of $120 Million. Presently, over 1 million people are engaged in the technology industry.
China is now one of the leading manufacturers of television sets, computer monitors, personal computers, mobile phones and electronic components and parts. She is gradually moving up to more advance products such as computer chips and network switches. Industrial automation is another high growth area. Annual investment is expected to reach $1.2 billion.
Media and marketing
With a more open economic policy, China is de-regulating its media industry. Joint ventures and mergers between domestic and foreign companies are noticeably increasing. In 2003, advertising spending in China was about $6.2 billion, a 39% increase over 2002.
Manufacturing
China is the 4th largest manufacturing base in the world after US, Japan and Germany. It employs about half of the country's urban work force. According to China's National Bureau of Statistics, the manufacturing sector recorded a total production value of $6.7 billion in the first 8 months in 2004, an increase of 15.9% over the same period in 2003. About 40% of GNP is contributed by the manufacturing sector.
Consumer service
With the rapid development of China's economy and increase in per capita income, consumerism is receiving more attention from the public, corporations and government authorities. Consumer service is one of the priorities of corporations. This is a relatively new areas and the business potential is significant. Industries relating to the provision of consumer service such as logistics, packaging, communication, training and so on will all be benefited.
SUPPLIERS AND CUSTOMERS
FTLHK relied on exchanges and banks for the provision of financial data for dissemination to its customers. Equipment and systems were sourced from computer and system vendors. Since FTLHK had terminated most of its data services and does not intend to put in more resources into new products and services, the reliance on these data sources and equipment and system suppliers will be reduced to an insignificant level. FTLHK serves mainly institutional and individual investors.
The merchant banking service does not specifically depend on suppliers. However, Digital, our financial advisory subsidiary, works closely with funding sources such as venture capital firms. Digital also cooperates with legal and accounting firms in the provision of its service to clients. Digital offers its services mainly to privately owned SME's in Mainland China, Hongkong and some South-east Asian countries.
RESEACH AND DEVELOPMENT
To augment our merchant banking service, we actively research on new developments in the US and Chinese financial markets. Our research work focuses on new regulations, public policies, industry trends and financial market performance which are important to us in providing professional financial advisory services to our clients.
FTLHK stopped its research and development activities in 2004 in view of the unfavorable market outlook.
GOVERNMENT REGULATION
We do not require any government approval for our current information service. There is no special approval or licensing requirement for the provision of financial advisory service in Hongkong. Contracts on financial advisory services to clients in China, Hongkong and other countries are signed by our subsidiaries registered in Hongkong and no government approval is required,
We are not aware of any current and potential government regulations that will materially affect our business. We are not aware of any environmental issues of our business under existing laws of Hongkong.
INTELLECTUAL PROPERTY
Our subsidiary, FTLHK, owns the intellectual property rights to its i-Server Data protocol, I-Link, Fintel Pro and Fintel online. Because these intellectual property rights have not been registered, they are vulnerable to infringement.
EMPLOYEES
We currently have seven employees, six of whom are on full-time basis.
AVILABLE INFORMATION
We maintain our corporate web site at http://www.fintel.com. We make information
on our business and operation available free-of-charge on our web site. Our
annual report on Form 10-K, our quarterly reports on Form 10-Q, our current
reports on Form 8-K and any amendments to reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available at
www.sec.gov after they are electronically filed with or furnished to the
Securities and Exchange Commission (SEC). You can find information on our stock
transfer agent, legal counsels and independent accountants on our corporate web
site.
RISK FACTORS
In addition to other information in this report, you should carefully consider the following risks and the other information in evaluating our business. The risks described below are not the only ones facing the Company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition and results of operations could be materially and adversely affected by each of these risks. Such an adverse effect could cause the market price of our common stock to decline, and you could lose all or part of your investment.
BECAUSE WE HAVE A LIMTIED REPORTING HISTORY, THERE MAY NOT BE SUFFICIENT INFORMATION FOR YOU TO EVALUTAE OUR FUTURE GROWTH
We filed our registration statements and started filing our other reports in 2004. We have a short filing and reporting history. There can be insufficient information for investors to evaluate our business, operation, management capability and prospects. Our new merchant banking service should be considered in light of the risks and uncertainties inherent in and encountered by companies in early stage of development in new and fast changing markets.
BECAUSE WE ARE A NEW REPORTING COMPANY, WE MAY NOT HAVE ADEQUATE KNOWLEDGE IN FULFILLING OUR REPORTING AND LEGAL REQURIEMENTS
We have a short reporting and filing history. We have limited knowledge and skills in meeting the reporting and filing requirements imposed by the relevant government authorities, exchange, regulatory bodies and organizations. We may not be able to seek professional advice on these requirements in a timely manner as and when necessary. The failure in observing and complying with the relevant laws and regulations can adversely affect our operations, our share price and the continual trading of our shares.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING TO FUND OUR OPERATING LOSSES, OUR FINANCIAL PERFORMANCE WILL BE MATERIALLY ADVERSELY AFFECTED.
We suffered substantial operating loss in 2003 and 2004. In addition, our working capital and equity remains in deficit, which indicate that the working capital is not adequate to meet our minimum monthly capital expenses. Our ability to continue as a going concern depends on the success of our plan to seek funding sources. We plan to approach funding sources such as lenders interested in funding our working capital requirements and investors interested in purchasing our stock. We have not secured any commitments to provide such financing and there can be no assurance that any such financing will be available when needed or, if available, will be on terms acceptable to us. In the event such financing is not obtained, our operations will be materially adversely affected and may have to be substantially reduced or ceased. Any equity financing will be dilutive to our existing shareholders and debt financings, if available, will likely impose restrictive covenants upon us.
DEPENDANCE ON KEY PERSONNEL
We are highly dependent on the services and management ability of Mr. Stephen Tang, our President, and Mr. David Chen, our CEO, as well as other principal members of our management team. Our ability to maintain the current operation and to achieve our desired growth will depend upon our ability to maintain our current management leadership. Competition in our industry for executive level personnel is strong and there can be no assurance that we will be able to hire, motivate and retain highly effective executive employees.
UNSUCCUSSFUL NEW OPERATION STRATEGY
We have decided to diversify into providing financial and management consulting services. Although we believe that we have sufficient experience and knowledge to conduct such new services, our limited resources may materially affect the results of the new strategy. Furthermore, investors, as well as customers may not change their initial view on us, which may significantly adverse our designed prospects.
CONTINUED OR WORSENING UNFAVORABLE CONDITIONS IN THE ECONOMY AND THE FINANCIAL MARKETS MAY HAVE A SIGNIFICANT ADVERSE AFFECT ON OUR BUSINESS.
Our business is generally dependent upon the health of the economy and the financial markets. As a provider of financial information, financial advisory service and direct investment, we, like other financial services businesses, is directly affected by economic and political conditions, broad trends in business and finance. Downturn in the economy in Asia or any of its major countries will affect the demand for merchant banking services. The Hong Kong securities market is characterized by considerable fluctuation and downturns in this market has harmed FTLHK, and could continue to do so in the future.
RISK OF CHANGES IN TECHNOLOGY MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our success depends on its ability to develop and provide new products and services. The delivery of products and services online is, and will continue to be, characterized by rapidly changing technology, evolving industry standards, changes in customer requirements and frequent new service and product introductions. Our future success will depend, in part, on our ability to effectively use leading technologies, enhance current services, develop services that meet changing customer requirements and influence and respond to changing industry standards and other technological changes in a timely and cost-effective manner. There can be no assurance that we will respond to these changing technological conditions in a satisfactory manner. The development of new, technologically advanced products and services is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. We cannot provide any assurance that we will be able to identify, develop, market, support or manage the transition to new or enhanced products or services successfully. Our business, results of operations and financial condition would be materially adversely affected if it were to be unsuccessful, or incur significant delays, in developing and introducing new products, services or enhancements.
OUR COMPETITORS MAY DEVELOP PRODUCTS OR TECHNOLOGY THAT PLACES OURS AT A SIGNIFICANT DISADVANTAGE.
Our business is in industries and markets that are highly competitive. There is keen competition in the financial advisory and financial information service industry. Many international merchant banks and financial institutions have already established a strong foothold in markets we plan to target. Some of our competitors have greater financial, technical, marketing and other resources than us. These competitors may be able to respond more quickly to new or changing opportunities, technologies and customer requirements than us and may be able to undertake more extensive promotional activities, offer more attractive terms to customers and adopt more aggressive pricing policies than us.. We expect competition to continue and intensify in the future. There can be no assurance that we will be able to compete effectively with current or future competitors or that the competitive pressures faced by us will not have a material adverse effect on our business, financial condition and operating results.
WE HAVE LIMITED MARKETING AND SALES CAPABILITIES AND MAY BE UNABLE TO EXPAND SUCCESSFULLY.
Our operating results will depend to a large extent on our ability to increase our customer base and brand awareness and to execute our new strategy to diversify into merchant banking services. Although our management has experience in merchant banking and financial services, there is no assurance that our management will be able to cope with the fast changing market and customer needs.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND MAINTAINING A FOREIGN SUBSIDIARY.
We are located in Hong Kong and provide our services in Mainland China, Hong Kong and some South-east Asian countries. Risks arising from international business include:
o General economic and political conditions in the markets;
o Potential increased costs associated with overlapping tax structures;
o Potential trade restrictions and exchange controls;
o More limited protection for intellectual property rights in some countries;
o Difficulties and costs associated with staffing and managing foreign operations;
o Unexpected changes in regulatory requirements;
o Difficulties of compliance with a variety of foreign laws and regulations; and
o Longer accounts receivable cycles in foreign countries.
Our subsidiaries' business is occasionally conducted in Hong Kong Dollars, RMB and some other Asian currencies rather than in U.S. Dollars, which is our reporting currency. We recognize currency gains or losses arising from its operations in the period incurred. As a result, currency fluctuations between the U.S. Dollar and the Hong Kong Dollar, RMB and other Asian currencies have caused and will continue to cause foreign currency transaction gains and losses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the variability of currency exposures and the potential volatility of currency exchange rates.
INTERNAL POLITICAL RISKS
Our operations and assets in China are subject to political and economic uncertainties. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition. The Chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.
NON-RENEWAL OF BUSINESS LICENSES.
In order to expand into and continue to operate our business in Mainland China, we will require business licenses. This requires review and approval of our activities by various national and local agencies of the Chinese government. There can be no assurance that the current Chinese government, or successors, will continue to approve of our activities or grant or renew our licenses. Our inability to obtain needed approvals or licenses would have a material adverse effect on our business, financial condition and results of operations.
LACK OF REMEDIES AND IMPARTIALITY UNDER CHINESE LEGAL SYSTEM.
China has a civil law system based on written statutes in which judicial decisions have little precedence value. The Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to
resolve commercial disputes is unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination.
FOREIGN CORRUPT PRACTICES ACT.
The Company is subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in China. We have attempted to implement safeguards to prevent losses from such practices and to discourage such practices by our employees and agents. There is no assurance, however, that we will not suffer such losses or that our employees or other agents will not engage in such conduct for which we might be held responsible.
OUR STOCK PRICE IS HIGHLY VOLATILE.
Our stock price has fluctuated dramatically. There is a significant risk that the market price of the common stock will decrease in the future in response to any of the following factors, some of which are beyond our control:
o variations in our quarterly operating results;
o announcements that our revenue or income are below expectations;
o general economic slowdowns;
o changes in market valuations of similar companies;
o sales of large blocks of our common stock;
o fluctuations in stock market prices and volumes, which are particularly common among highly volatile securities.
IMPACT DUE TO SEVERE ACUTE RESPIRATORY SYNDROME (SARS).
The outbreak of SARS in Asia in early 2003, following official acknowledgement of the disease by the authorities in April 2003, had impacted severely economic and business activities in the region. There can be no assurance that new SARS cases will not recur. The crisis of outbreak of bird flu or other epidemics is another unknown factor which may cause strong impact on the global economic growth. If this happens, our business and financial position will be adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
Our executive office is located at 306, Hang Bong Commercial Center, 28 Shanghai Street, Kowloon, Hong Kong. The Company leases 918 square feet for approximately $1,769 per month ($21,228 per year) for its principal offices in Kowloon, Hongkong. The lease will expire in February 2006 and is renewable upon the mutual consent of the owner and the Company.
We also lease our operation office in Shanghai, located at 1701, Haitong Securities Tower, 689, Guangdong Road, Shanghai, China. The total office area is 1,808 square feet. The rental is $1,212 per month ($14,544 per year). The lease will expire in November 30, 2005 and is renewable upon the mutual consent of the owner and the Company.
We do not own nor has investment in any real estates.
ITEM 3. LEGAL PROCEEDINGS
>From time to time, we and our subsidiaries may be involved in litigation relating to claims and obligations arising out of our operations. As of February 28, 2005, we are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Trading of our common stock at the Over-The-Counter Bulletin Board ("OTC BB") commenced on 2 November 2004 under ticker symbol: FLTL.OB. The following table sets forth the range of high and low market price for the common stock during the quarter ended December 31, 2004:
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Quarter ended High Low
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31 December 2004 US$0.60 UD$0.03
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The above prices were obtained from Finance.Yahoo.com. The prices shown in the above table represent inter-dealer quotations without retail mark-up, mark-down or commission, and may not necessarily represent the actual transactions.
HOLDERS
As of December 31, 2004, there were approximately 800 holders of record of our common stocks based on the record provided by our transfer agent, Signature Stock Transfer Inc. One holder, CEDE & Co, holds our common stocks on behalf of approximately 8,000 shareholders in street names.
DIVIDENDS
We have never paid a dividend on our common stock and do not anticipate paying any dividends in the foreseeable future. It is the current policy of our board of directors to retain any earnings to finance operations and expansion of our business. The payment of future dividends is at the discretion of our board of directors and will depend upon our future earnings, if any, our capital requirements, financial condition and other relevant factors.
EQUITY TRANSACTIONS DURING THE FISCAL YEAR
Pursuant to a Stock Purchase Agreement by and between FTLHK and the Hartcourt Companies Inc. ("Hartcourt") dated August 19, 1999, Hartcourt acquired 4,964,990 ordinary shares of FTLHK, representing 58.6% of the share capital of FTLHK. In September 2003, FTLHK repurchased 3,427,349 shares and 92,000 shares of the ordinary shares of FTLHK from Bowland International Limited ("Bowland") and Tang Wing On (Tang), respectively. As a result of this repurchase, Hartcourt became the sole shareholder of FTLHK. Bowland and Tang were granted one year options, expiring on September 1. 2004, to either (i) purchase a proportionate number of new shares of the Company's common stock or (ii) the option of converting amounts owed to them in lieu of purchasing a proportionate number of new shares.. On August 23, 3004, Bowland and Tang informed us of their intention to convert the amounts due to them into common stock of the Company. Accordingly, on November 16, 2004, we issued 10,424,470 shares to Bowland and parties nominated by Bowland and 278,674 shares to Tang's nominated party.
The Company was incorporated in Nevada on April 28, 2003 with Hartcourt owning 100,000 common shares, representing all of our issued and outstanding share capital. On September 10, 2003, we entered into a Share Exchange Agreement with Hartcourt, pursuant to which we purchased from Hartcourt 4,964,990 shares of common shares of FTLHK, representing all of the issued and outstanding common shares of FTLHK and assumed certain obligations of FTLHK pertaining to Hartcourt. As consideration for the transaction, we issued to Hartcourt 15,000,000 of our common shares. As a result of such share exchange, FTLHK became our wholly-owned subsidiary. Hartcourt owned 15,100,000 of our common shares, being our entire share capital.
On 26 October 2004, Hartcourt filed a DEF 14C announcing its intention to distribute all the 15,100,000 common shares to holders of Hartcourt common stock on a pro-rata basis. In accordance to the filed DEF 14C, Hartcourt distributed to each record holder on October 25, 2004 (the "Record Date"), 0.087965218 share of our common stock for each share of Hartcourt common stock owned on the Record Date.
On December 31, 2004, FTLHK purchased from Nice Voice Investment Holdings Limited 48 shares in Fintel Wireless Internet Limited (FWI) for zero consideration. With the 51 shares it already holds in FWI, FTLHK is now the sole shareholder of FWI. FWI was in the business of providing wireless financial data service. FWI has been a dormant company after it stopped providing the financial data service in 2002.
The following information sets forth the outstanding shares we sold or issued without registration under the Securities Act of 1933 (the "Securities Act"). All transactions were effected in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act for transactions not involving a public offering. There were no underwriters in any of these transactions.
All the transaction hereunder were entered between the Company and accredited investors as defined in Section 4(2) of the Securities Act or sophisticated investors that possessed sufficient knowledge and experience in financial and business matters to be able to evaluate the merits and risks of the investment and who were allowed access to our books and records.
On November 16, 2004, we issued 10,424,470 shares to Bowland and parties nominated by Bowland and 278,674 shares to Tang's nominated party to settle the outstanding advance due to them of US$481,573 and US$12,874 respectively.
On November 24, 2004, we entered into a Share Purchase Agreement to sell 40,000,000 restricted common shares to Allura Film Partners, Inc. ("Allura") at US$0.0125 per share for gross proceeds of US$500,000 without warrants. As of December 31, 2004, we received from Allura $283,020 of the gross proceeds. On January 2, 2005, we received the balance of the consideration and issued 40,000,000 shares to Allura and parties nominated by Allura.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS
The following discussion should be read in conjunction with the Company's financial statements and the notes thereto and the other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words "believes," "anticipates," "expects," "plans", "intends" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected due to a number of factors beyond our control. The Company does not undertake to publicly update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. You are also urged to carefully review and consider our discussions regarding the various factors, which affect our business, included in this section and elsewhere in this report.
Factors that might cause actual results, performance or achievements to differ materially from those projected or implied in such forward-looking statements include, among other things: (i) the impact of competitive products; (ii) changes in law and regulations; (iii) limitations on future financing; (iv) increases in the cost of borrowings and unavailability of debt or equity capital; (v) the inability of the Company to gain and/or hold market share; (vi) managing and maintaining growth; (vii) customer demands; (viii) market and industry conditions, (ix) the success of product development and new product introductions into the marketplace; (x) the departure of key members of management; as well as other risks and uncertainties that are described from time to time in the Company's filings with the Securities and Exchange Commission.
OVERVIEW
The Company's wholly-owned subsidiary, FTLHK, was established in 1983 by a group of professionals in the financial service industry. It was the first company in Hong Kong to provide real-time financial information services using a wireless network for the dissemination of data. The Company, through FTLHK, generates revenue through the provision of financial information services and the sale of technical analysis software and related Internet and telephone services.
With the recession in the Hong Kong and the depressed stock market, FTLHK had suffered a significant drop in revenue in 2002. The situation was further aggravated by the outbreak of sudden acute respiratory syndrome (SARS) in the first of half of 2003. In 2004, FTLHK's business was still declining, in spite of the recovery of the Hong Kong stock market.
PLAN OF OPERATION
Due to keen competition in the financial data service industry, in November 2004, we decided to diversify into the provision of financial and investment advisory services to SME's in Mainland China, Hongkong and some South-east Asian countries. To pursue this new strategy, we employed David Chen as our CEO. He currently holds office in Shanghai, China. Together with Stephen Tang, our President, in Hongkong and our newly appointed Managing Director, Sam Chong Keen, in Singapore, we have set the geographic platform to implement our new business strategy. We have also employed Richard Yan to be our Financial Controller to set up and maintain our control and reporting systems.
We are gradually terminating our on-line financial data services. To save on operating costs, we have terminated our data supply arrangements with our data sources in October, 2004.
RESULTS OF OPERATIONS
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
NET SALES AND COST OF SALES. We recorded net sales of $287,974 in 2004, compared to $373,476 in 2003. Net sales in 2004 consisted primarily of real-time financial data services and rental of equipment. The 23% drop in sales in 2004
when compared to 2003 was mainly due to the price-cutting among competitors and competition from substitution financial data services, such as internet stock trading service. Meanwhile, FTLHK's limited resources could not satisfy the diversified demands of its customers, which resulted in the reduction of its customer base.
Cost of sales included cost of capacity associated with the acquisition of financial data from the various data sources (including the Honk Kong Stock Exchange, the Future Exchange of Hong Kong, Bank of China and other international data vendors) and communication network rental necessary to provide real-time broadcasting and on-demand multimedia content delivery services via different connection topology. Cost of sales for 2004 was $238,070 as compared to $288,424 for 2003, a decrease of 17% attributable to the decline in sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") expenses amounted to $544,382 in 2004 compared
to $235,238 in 2003, an increase of 131%. The increase in SG&A is primarily due
to the increase in professional fee and consulting fee related to our
application for the listing of our common stock at the Over-the-Counter Bulletin
Board (OTCBB). Such professional and consulting fees amounted to $213,084 in
2004 representing 39% of the total SG&A. We also accrued our directors' fee, in
the total amount of $81,533 in the 4th quarter of 2004. If these two items were
excluded, the regular SG&A expenses in 2004 was $249,765, close to the 2003
level.
OTHER INCOME. In 2003, FTLHK wrote back certain long outstanding payables and as a result, it recorded other income in the amount of $54,202.
LOSS ON WRITTEN OFF GOODWILL. In November 2004, FTLHK purchased the 49% interest in Fintel Wireless Internet Limited ("FWI") from Nice Voice limited with zero consideration. After the share purchase, FWI became a wholly-owned subsidiary of FTLHK. Derived from this acquisition, FTLHK incurred a goodwill of $117,022. As the goodwill is not considered recoverable, we decided to write it off in 2004.
INTEREST EXPENSE. Interest expense was $59,662 in 2004, an increase of 54% from $38,856 in the previous year. Interest expense represents payment of interest on loans from FTLHK's former shareholders and related parties. In 2004, we negotiated with certain lenders on the repayment of the loans by issuance of our common shares. As a condition for their agreeing to such repayment arrangement the lenders required that interest be paid on the loans. As a result, the interest expense in 2004 increased by a substantial amount.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements during 2004 were to satisfy ordinary operating expenditures and professional fees relating to our application for listing of our common stock at the OTCBB. We plan to approach funding sources such as lenders interested in lending funds to us to meet our working capital
requirements and investors interested in purchasing our stock. We have concluded in November 24, 2004 an agreement with Allura Film Partners, Inc. for the sale and purchase of 40,000,000 of our common stock for a total consideration of $500,000. The proceeds from this transaction will be used for our operating expenditures. There is no assurance, however, that we will be able to secure similar funding or investment in the future.
As shown in the accompanying financial statements, we incurred net losses of $688,247 and $72,782 for the years ended December 31, 2004 and 2003 respectively. In addition, our cash inflow from operation is not adequate to meet our minimum monthly expenses. Our ability to continue as a going concern depends on the success of our plan to seek funding sources.
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003
OPERATING ACTIVITIES. The net cash used for operating activities was $260,164 in 2004, compared to $195,597 in 2003. The net cash out flow during 2004 was primarily a result of the net loss of $688,247 offset by non-cash items totaling $121,709 and changes in working capital accounts totaling $306,374. The net cash out flow during 2003 was a result of the net loss of $72,782 added by non-cash items totaling $53,786 and changes in working capital accounts totaling $69,029.
INVESTING ACTIVITIES. In 2004 and 2003, no cash inflow or outflow from investing activities was recorded.
FINANCING ACTIVITIES. The net cash provided in financing activities was $510,964 in 2004, compared to $244,017 in 2003. In 2004, the cash inflow provided to us from financing activities was advances from related parties in the amount of $227,944 and proceeds from sale of common stock of $283,020. In 2003, the only item that generated cash inflow to us from financing activities was advances from related parties in the amount of $244,017.
CHANGE IN ACCOUNTING PRINCIPLES
None
ITEM 7 FINANCIAL STATEMENTS
Our financial statements, together with our independent auditors' report thereon begin on page F-1 of this report.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have not had any changes in or disagreements with our accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Clancy and Co., P.L.L.C.'s report on our financial statements for the years ended December 31, 2004, 2003 and 2002, did not contain
any adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit scope, or accounting principles, however it was modified to include an explanatory paragraph regarding our ability to continue as a going concern.
ITEM 8A CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report (the "Evaluation Date"), have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective and designed to ensure that material information relating to us would be made known to them by others within the Company. During the period covered by this Annual Report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 8B OTHER INFORMATION
None.
PART III
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 sets forth certain information about our directors and executives:
NAME AGE PRINCIPAL POSITION ---- --- ------------------ Stephen Tang 53 Chairman, President David Chen 36 Director, CEO Richard Yan 31 Director William Huang 38 Director Jimmy Lui 58 Director Li Wai Kong 47 Director Sam Chong Keen 52 Managing Director |
MR. STEPHEN TANG: Mr. Tang has served as the President and as a director of the Company since April 28, 2003. He has substantial working experience in merchant banking and financial services in major Asian countries and has been involved in the development and implementation of consumer electronics for over twenty years. From 1985 until 2002, Mr. Tang held the position of Chief Executive Officer of FTLHK. Mr. Tang's contributions include development of new and innovative products and creation of strategic alliances in China, Taiwan, Korea and the United States. Mr. Tang holds a Master's degree in Business Administration from the Asian Institute of Management in Manila. He is a Trustee of the AIM Scientific Foundation in the Philippines and the Hon. Treasurer of the Hongkong Federation of Information Technology.
DAVID Y. CHEN: Mr. Chen joined the Company as CHIEF EXECUTIVE OFFICER on November 17, 2004. Mr. Chen brings with him over 13 years of managerial experience and success. He was the former Chairman and CEO of the Hartcourt Companies Inc. (OTCBB: HRCT) and CEO of V2 Technology, a leading videoconferencing technology company. Previous positions he held included Marketing Director of Time Warner's CNN Asia Pacific unit, Sales Director of Turner Broadcasting Systems Asia, and Managing Director of HelloAsia Inc. Mr. Chen holds a Bachelor of Economic degree from Monash University of Australia.
MR. RICHARD YAN: Mr. Yan has served as the Company's director since April 28, 2003. Mr. Yan was the Financial Controller of the Hartcourt Companies Inc. (OTCBB: HRCT). Prior to joining Hartcourt in September 2002, he served as the Assistant Manager of KPMG Financial Advisory Services in Shanghai for three years, where he worked on due diligence, asset valuation work, financial analysis and business plans for M&A transactions. During the five years he was at KPMG, Mr. Yan was also a Management Consultant and Audit Manager. Mr. Yan is a Certified Public Accountant, and received his Bachelor's degree in 1997 from Shanghai Jiaotong University. Mr. Yan is currently working towards a Masters of Business Administration degree from the same university.
MR. WILLIAM HUANG: Mr. Huang joined the board of director of the Company on November 17, 2004. Mr. Huang is the Chairman and CEO of Global Data Solutions Ltd, a venture capital backed company offering disaster recovery and business continuity services as well as other technology solutions to China's financial industry. His previous technical and management experiences include Vice President of Business Development for StockStar.com , China 's online stock trading and financial information portal, General Manager of ego365.com, an online commerce network for food stuff, and Marketing Director of China for International Distillery Venture. Mr. Huang holds a Bachelor of Science degree from Shanghai University of Science and Technology.
JIMMY LUI:, Mr. Lui was appointed a director of the Company on November 17, 2004. Mr. Lui is the Chairman of Crown Star Consultant Limited, a Hong Kong consulting firm in the business of management consulting and software development. He is also the Managing Director & CEO of Kum Shing Asia Infrastructure Co., Ltd., a Hong Kong-based company focusing on construction and engineering contracting business in Asia . He previously worked for China Light and Power, one of the two electricity supply companies in Hongkong, for 22 years,. His other experiences included Vice President and Chief Financial Officer of Utility Consulting International in Cupertino, California USA , CellNet Field Operations and Planning Manager of Domestic Automation Company in San Carlos, California USA . Mr. Lui actively participated in the affairs of the Council of the Association of Electricity Supply Industry in East Asia and Western Pacific (AESIEAP). He founded the AESIEAP Technical Committee in 1998 and has since been elected its Chairman.
MR. LI WAI KONG: Mr. Li was appointed a director of the Company on March 1st, 2004. Mr. Li is the Project Director of Technicon Engineering Limited, a leading engineering firm providing a comprehensive turnkey package in building services engineering in Hong Kong and Mainland China. Technicon Engineering Limited serves both the public and private sectors with services that include electrical service, air-conditioning and refrigeration, fire service and plumbing and draining services. Mr. Li has been with Technicon Engineering Limited for twenty-two years and is responsible for the company's project management and oversight of its administrative functions. Mr. Li holds a master's degree in Engineering Management from the University of Technology in Sydney, Australia.
SAM CHONG KEEN. Mr. Sam Chong Keen is our Managing Director in Singapore. He is the co-Founder and CEO of Megatalk Pte Ltd, a telecom services company. Previously, he was Executive Vice-Chairman and CEO of Lion Teck Chiang Ltd and Managing Director of Lion Asiapac Ltd. Both companies are listed on the Main Board of the Singapore Stock Exchange (SGX). He was the Managing Director of Comfort Group Ltd and concurrently the Managing Director of Vicom Ltd where he took both companies public in 1994 and 1995 respectively. He joined the Singapore administrative service in 1978 and was transferred in 1979 to the Singapore National Trades Union Congress to manage its commercial ventures till 1987. He was also concurrently appointed by the Singapore government as the Political Secretary to the Minister for Education from 1988 to 1991 and has served on various government boards and committees. He holds Bachelor of Arts (Engineering Science and Economics) (Honors) and Master of Arts degree from Oxford University as well as Diploma from the Institute of Marketing, United Kingdom.
ELECTION AND TERM
Directors are elected to a one year term at each annual meeting of the Company's shareholders.
AUDIT COMMITTEE
The Company's audit committee is comprised of Mr. Jimmy Lui and Mr. Li Wai Kong. The Company's Board of Directors has determined that both Mr. Lui and Mr. Li constitute independent directors.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers and holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of ours, as well as to furnish us with copies of all such filings.
As of February 28, 2005, Mr. Stephen Tang, Mr. Jimmy Liu and Mr. Richard Yan have filed their respective Form 5's under Section 16(a) of the Exchange Act.
CODE OF ETHICS
Our code of ethics, which is applicable to our directors and principal officers, is filed as an exhibit to this Form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
None of our employees' or executive officers' total annual salary and bonus exceeds $100,000. Similarly, none of FTLHK's employees' or executive officers' compensation exceeded $100,000 or would have exceeded $100,000 on an annualized basis, for any of the fiscal years ended December 31, 2004 and 2003, other than as set forth below.
The following tables sets forth, for the fiscal year ended December 31, 2004, all compensation earned for services rendered to the Company, in all capacitates, by the individuals performing similar and related duties to those performed by a chief executive officer.
COMPANY SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
LONG-TERM
COMPENSATION
AWARDS
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS
-------- ---- --------- -------- ------------ -------
$60,000 in the Company's shares (1)
Stephen Tang, President 2004 $30,000 in cash (2) $- $- $-
2003 $60,000 in the Company's shares (1) $- $- $-
David Chen, CEO 2004 $30,000 in cash (2) $- $- $-
2003 $- $- $- $-
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(1) Mr. Tang's compensation was $5,000 in the Company's shares per month for services as President from May 1 2003 to October 31 2004. A total of 966,169 common shares were issued to Mr. Tang on January 3, 2005 as compensation for his service in 2004 and the year before.
(2) Starting November 1, 2004, both Mr. Tang and Mr. Chen are compensated $30,000 in cash annually for their services to the Company. Their service contracts will expire on October 31 2005.
DIRECTOR COMPENSATION
In 2004, our directors received a monthly fee of $1,000 satisfied by the issuance of our restricted common stock on a quarterly basis calculated at the average share price during the same period. Our directors do not receive any cash compensation.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners
The following table sets forth information as of December 31, 2004 with respect to persons known to us to be the beneficial owners of more than 5% of its voting
securities
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER OF SHARES (2) CLASS
------------------------------------ ---------------- ----------
Allura Film Partners, Inc 22,640,560 46.52%
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(b) Security ownership of management
The following table shows the number of shares and percentage of all shares of the Company's common stock outstanding as of December 31, 2004 held by (i) each director, (ii) each executive officer of the Company, and (iii) all directors and executive officers as a group. The following table does not reflect the impact of fractional shares.
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER OF SHARES (2) PERCENT OF CLASS ------------------------------------ ---------------- ---------------- Stephen Tang (Director, President) 2,425,315(3) 4.98% Richard Yan (Director) 3,509 0.01% Jimmy Lui (Director) 28,158 0.06% Officers & Directors as a Group 2,456,978 5.04% |
(1) Unless otherwise indicated, each of these holders has an address of c/o of Financial Telecom Limited (USA), Inc., 306 Hang Bong Commercial Center, 28 Shanghai Street, Kowloon Hong Kong.
(2) For purposes of above tables, beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. The Company's common stocks subject to options, warrants or other rights to purchase that are currently exercisable or are exercisable within 60 days after December 31, 2004 are deemed outstanding for purposes of computing the percentage ownership of the persons holding such options, warrants or other rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(3) Of which 2,424,470 shares are held through Bowland International Limited.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
None.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED TRANSACTION IN 2003
On September 1, 2003, Hartcourt, Bowland, Tang Wing On and the Company entered into an agreement for the purchase of FTLHK shares. Pursuant to the terms of the agreement, we purchased from Hartcourt all the issued shares of FTLHK and assumed certain obligations of FTLHK pertaining to Hartcourt, Bowland and Mr. Tang. As a result, the amount due to Hartcourt was assumed by us and in turn we waived such obligation from FTLHK in the amount of $697,566. In exchange for the waiver of amount due to Hartcourt, we issued 15,000,000 shares of common stock to Hartcourt.
Hartcourt was our sole shareholder before it distributed its entire shareholding in us to its shareholders on October 25, 2004. Hartcourt was a shareholder of FTLHK. Bowland and Tang Wing On were shareholders of FTLHK.
RELATED TRANSACTION IN 2004
On November 16, 2004, we issued 10,424,470 restricted common shares to Bowland International Limited ("Bowland") and parties nominated by Bowland to off-set the loan of $481,573. Mr. Stephen Tang is a director and a shareholder of Bowland.
RELATED TRANSACTION IN 2005 PRIOR TO 10K REPORTING DATE
In 2004, we accrued $81,534 as directors' compensation for the years 2004 and 2003. On January 2, 2005, we issued 636,978 restricted shares of common stock to the directors as compensation for their services in 2003 and 2004. The shares issued to each director did not exceed the amount of $60,000 in value.
On January 3, 2005, we issued 966,169 restricted shares of common stock to Mr. Stephen Tang as compensation for his services rendered FTLHK in 2003 and 2004 in the amount of $123,670.
On January 3, 2005, we issued 492,626 restricted common shares to Bowland as repayment of loan and payment of rental and interest outstanding, in the amount of $63,056. We will issue to Bowland the same amount of shares in the 2nd, 3rd and 4th quarter of 2005 to settle the remaining loan and rental outstanding, in the total amount of $189,169.
The following table summaries the key related parties of the Company:
PARTY RELATION WITH THE COMPANY
----- -------------------------
2005 BEFORE 10K 2004 2003
--------------- ---- ----
Bowland One of its director is One of its director is 40.4% shareholder of
also a director of the also a director of the FTLHK-
Company Company
Stephen Tang Director Director Director
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ITEM 13. EXHIBITS
a) The following list describes the exhibits filed as part of this Annual Report on Form 10-KSB.
Exhibit
Number Description of Document
3.1 (1) Articles of Incorporation of Financial Telecom Limited (USA),
Inc.
3.2 (1) Amended and Restated Bylaws of Financial Telecom Limited (USA),
Inc.
10.1 (1) Agreement between Hong Kong Futures Exchange Limited and
Financial Telecom Limited
10.2 (1) Market Service Datafeed Agreement between Stock Exchange
Information Services Limited and Financial Telecom Limited
10.3 (2) Option agreement dated December 14, 2004 between Fintel Group
Limited and shareholders of Shanghai Longterms Technology
Limited.
10.4 (2) Option agreement dated January 5, 2005 between Fintel Group
Limited and shareholders of Beijing JCL Technology Commerce
Limited.
10.5 (2) Option agreement dated January 20, 2005 between Fintel Group
Limited and shareholders of Shanghai Qianhou Computer Technology
Limited.
10.6 (2) Independent contractor agreement between Fintel Group Limited and
Mr. Sam Chong Keen.
10.7 (2) Independent contractor agreement between Fintel Group Limited and
Info Media Company.
10.8 (2) Independent contractor agreement between Fintel Group Limited and
China Digital Distribution Limited.
14.1 (2) Code of Ethics
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21.1 (2) Subsidiaries of the registrant
23.1 (2) Consent of Independent Auditor
24.1 (2) Power of Attorney
31.1 (2) Certification of David Chen, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 (2) Certification of Stephen Tang, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1 (2) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
(1) Incorporated herein by reference to the registrant's initial Registration Statement on Form 10-SB (File No. 000-50760) filed on May 13, 2004.
(2) Filed herewith
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
For year ended December 31, 2004, Clancy and Co., P.L.L.C., our independent auditor, billed the fees set forth below.
2004 2003 and 2002
---- -------------
Audit Fees $20,550 $11,250
Audit-Related Fees - -
Tax Fees - -
All Other Fees - -
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The increase in audit fee was due to the fact that we begin to file our quarterly reports (10QSB) in 2004 and incurred additional auditors' fee in connection to the review of the quarterly reports by our auditors.
For year ended December 31, 2004, we paid CCIF CPA Limited, our Hongkong auditors, fees set forth below.
2004 2003 and 2002
---- -------------
Audit Fees $7,692 $8,333
Audit-Related Fees - -
Tax Fees - -
All Other Fees - -
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
FINANCIAL TELECOM LIMITED (USA), INC.
By: /s/ Stephen Tang
------------------------------------
Stephen Tang, President
Date: March 29, 2005
By: /s/ David Chen
------------------------------------
David Chen, Chief Executive Officer
Date: March 29, 2005
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FINANCIAL TELECOM LIMITED (USA), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm......................F-2 Consolidated Balance Sheet...................................................F-3 Consolidated Statements of Operations .......................................F-4 Consolidated Statements of Changes in Stockholders' Deficiency...............F-5 Consolidated Statements of Cash Flows .......................................F-6 Notes to Consolidated Financial Statements ..................................F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Financial Telecom Limited (USA), Inc.
We have audited the accompanying consolidated balance sheet of Financial Telecom Limited (USA), Inc., a Nevada Corporation, and Subsidiaries (the "Company") as of December 31, 2004, and the related consolidated statements of operations, changes in stockholders' deficiency, and cash flows for years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards established by the Public Company Accounting Oversight Board. 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 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 consolidated financial position of the Company as of December 31, 2004, and the consolidated results of its operations and its cash flows for the period indicated in conformity with generally accepted accounting principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has limited capital resources and recurring net losses resulting in a significant accumulated deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 29, 2005
FINANCIAL TELECOM LIMITED (USA), INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
Current assets
Cash and cash equivalents $ 303,045
Trade receivables 27,749
Stock subscription receivable 216,980
-------------
Total current assets 547,774
Fixed assets, net 1,552
-------------
TOTAL ASSETS $ 549,326
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current liabilities
Trade payables and accrued liabilities $ 607,860
Deferred revenue 16,128
Due to related parties 44,666
-------------
Total current liabilities 668,654
Stockholders' deficiency
Common stock: $0.001 par value; 500,000,000 shares
authorized and 48,668,704 shares issued and outstanding 48,669
Additional paid-in capital 2,514,100
Stock subscriptions 849,406
Accumulated deficit (3,531,503)
-------------
Total stockholders' deficiency (119,328)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 549,326
=============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
FINANCIAL TELECOM LIMITED (USA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
2004 2003
------------ ------------
Service fee income $ 287,974 $ 373,476
Costs of sales 238,070 288,424
------------ ------------
Gross profit 31,904 85,052
Operating expenses
General and administrative expenses 544,382 235,238
------------ ------------
Operating loss (512,478) (150,186)
Other income (expense)
Other income - 54,202
Write off goodwill - disposal of subsidiary (117,022) -
Interest expense (59,662) (38,856)
------------ ------------
Total other income (expense) (176,684) 15,346
------------ ------------
Net loss before minority interest and taxes (689,162) (134,840)
Minority interest 915 62,058
Provision for income taxes - -
------------ ------------
Net loss $ (688,247) $ (72,782)
============ ============
Loss per share $ (0.04) $ (0.02)
============ ============
Weighted average shares outstanding 16,558,270 4,602,840
============ ============
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
FINANCIAL TELECOM LIMITED (USA), INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------------------------------------------
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN TREASURY STOCK ACCUMULATED
(SHARES) (AMOUNT) CAPITAL STOCK SUBSCRIPTIONS DEFICIT TOTAL
-----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 8,484,339 $1,087,736 $ - $ - $ - $(2,770,474) $(1,682,738)
Purchase own shares (3,519,349) (451,198) 451,199 (1) - - -
Recapitalization
Acquisition of FTL net
book value 100,000 100 (100) - - - -
Retire old shares of
FTL HK (4,964,990) (636,538) 636,537 1 - - -
Conversion of debt to
equity 15,000,000 15,000 682,566 - - - 697,566
Net loss - - - (72,782) (72,782)
-----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 15,100,000 15,100 1,770,202 - - (2,843,256) (1,057,954)
Conversion of debt to
equity 10,703,144 10,703 483,744 - - - 494,447
Fractional shares issued 225,000 225 (225) - - - -
Common stock for cash 22,640,560 22,641 260,379 - - - 283,020
Stock subscriptions to
settle debt - - - - 632,426 - 632,426
Stock subscriptions for
cash - - - - 216,980 - 216,980
Net loss - - - - - (688,247) (688,247)
-----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 48,668,704 $ 48,669 $2,514,100 $ - $ 849,406 $(3,531,503) $ (119,328)
=====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
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FINANCIAL TELECOM LIMITED (USA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (688,247) $ (72,782)
Adjustments to reconcile net loss to net cash flows used
in operating activities
Depreciation 5,602 8,272
Write off goodwill - disposal of subsidiary 117,022 -
Minority interest (915) (62,058)
Changes in assets and liabilities
(Increase) decrease in trade receivables (1,864) (25,885)
(Increase) decrease in other current assets 416 1,850
Increase (decrease) in trade and other payables 330,998 (30,673)
Increase (decrease) in deferred revenue (23,176) (14,321)
------------ ------------
Net cash used in operating activities (260,164) (195,597)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock 283,020 -
Advances from related parties 227,944 244,017
------------ ------------
Net cash flows provided by financing activities 510,964 244,017
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 250,800 48,420
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 52,245 3,825
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 303,045 $ 52,245
============ ============
CASH PAID FOR INTEREST AND INCOME TAXES - -
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debt to equity $ 494,447 -
============ ============
Stock subscriptions - obligation to issue shares for
debt settlements $ 632,426 -
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
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FINANCIAL TELECOM LIMITED (USA), INC.
NOTE 1 - ORGANIZATION / SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Financial Telecom Limited (USA), Inc. (the "Company" or "FTL") was incorporated on April 28, 2003, under the laws of the State of Nevada, with an authorized capital of 500,000,000 shares of $0.001 par value common stock. Upon incorporation, 100% of the outstanding shares (100,000 shares) were held by The Hartcourt Companies, Inc. ("Hartcourt"), a public company incorporated and listed on the Over-The-Counter Bulletin Board ("OTCBB") in the United States of America.
On September 10, 2003, FTL purchased from Hartcourt all of the outstanding shares of common stock of Financial Telecom Limited ("FTL HK"), a private Hong Kong company organized in 1983, and assumed certain obligations of FTL HK pertaining to Hartcourt. As consideration for the transaction, the Company issued to Hartcourt 15,000,000 shares of the Company's common stock and FTL HK became a wholly-owned subsidiary. The transaction was accounted for as a recapitalization of FTL, which continues as the reporting entity for legal purposes and FTL HK, which continues as the accounting acquirer for accounting purposes.
On October 26, 2004, Hartcourt filed a DEF 14C with the Securities and Exchange Commission announcing its intention to distribute all the 15,100,000 common shares to holders of Hartcourt common stock on a pro-rata basis. In accordance with the filed DEF 14C, Hartcourt distributed to each record holder on October 25, 2004 (the "Record Date") 0.087965218 shares of the Company's common stock for each share of Hartcourt common stock owned on the Record Date. Additionally, on October 25, 2004, the Company issued an additional 225,000 fractional shares to complete the spin-off.
In November 2004, FTL HK purchased the remaining 49% interest in Financial Wireless International Limited ("FWI") from Nice Voice Investment Holdings limited with zero consideration. After the share purchase, FWI became a wholly-owned subsidiary of FTL HK. Goodwill resulting from the acquisition totaled $117,022 and was fully written off due to impairment.
The Company, through its subsidiaries, is principally engaged in the provision of telecommunication and financial quotation services and is headquartered in Hong Kong.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries. The results of subsidiaries acquired or disposed of during the periods presented are consolidated from or to their effective dates of acquisition or disposal. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate
outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
Fair value of financial instruments - For certain of the Company's financial instruments, including cash and cash equivalents, current receivables and payables, and amounts due to related parties, the carrying amounts approximate fair values due to their short maturities.
Related party transactions - A related party is generally defined as (i) any person that holds 10% or more of the Company's securities and their immediate families, (ii) the Company's management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Cash and cash equivalents - The Company considers all short-term, highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of credit risk - The Company's concentration of credit risk is represented by the following: (i) the Company's main operating unit derives revenues principally from services provided in the Hong Kong market; (ii) the Company has two customers that each individually accounted for more than 10% of income; and (iii) 95% of the balance in trade receivables represents two customers.
Fixed assets - Fixed assets, stated at cost, are depreciated over the estimated useful lives of the assets using the straight-line method. Remaining depreciable assets are being depreciated over three years. Significant improvements and betterments are capitalized. Routine repairs and maintenance are expensed when incurred. Gains and losses on disposal of fixed assets are recognized in the statement of operations based on the net disposal proceeds less the carrying amount of the assets. Depreciation expense charged to operations for 2004 was $5,602 (2003: $8,272).
Long-lived assets - Long-lived assets, such as fixed assets, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Revenue recognition - Revenues are recognized when the services are performed.
Allowance for doubtful accounts - The Company presents accounts receivable, net of allowances for doubtful accounts, to ensure accounts receivable are not overstated due to uncollectibility. The allowances are calculated based on detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company's customer base. The Company reviews a customer's credit history before extending credit. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. There is no provision for doubtful accounts included in these financial statements.
Advertising costs - Advertising costs are expensed as incurred and were immaterial to the overall financial statements for both periods presented.
Income taxes - The Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.
Comprehensive income - The Company includes items of other comprehensive income by their nature in a financial statement and displays the accumulated balance of other comprehensive income separately in the equity section of the balance sheet.
Foreign currency translation - The reporting currency used in the preparation of these consolidated financial statements is U.S. dollars. Local currencies are the functional currencies for the Companies subsidiaries. For the purpose of consolidation, assets and liabilities of subsidiaries with functional currencies other than U.S. dollars are translated into U.S. dollars at the applicable rates of exchange in effect at the balance sheet date and income and expense items are translated into U.S. dollars at the average applicable rates during the year. Translation gains and losses resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income within stockholders' equity as cumulative translation adjustments. Gains and losses resulting from foreign currency transactions are included in results of operations.
Earnings per share - Basic earnings per share ("EPS") is calculated using net earnings (loss) (numerator) divided by the weighted-average number of shares outstanding (denominator) during the reporting period. Diluted EPS includes the effect from potential dilutive securities and is equal to basic loss per share for all periods presented because there are no potential dilutive securities. All per share and per share information is adjusted retroactively to reflect stock splits and changes in par value.
Recent accounting pronouncements - The Financial Accounting Standards Board issued the following new accounting pronouncements during 2004:
In March 2004, the EITF reached consensus on EITF Issue No. 03-6, "Participating Securities and the Two Class Method under FASB Statement No. 128" ("EITF 03-6"). EITF 03-6 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in the dividends and earnings of the company when, and if, it declares dividends on its common stock. EITF 03-6 also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-6 is effective for fiscal periods beginning after March 31, 2004 and requires retroactive restatement of prior earning per share amounts. This statement does not affect the Company.
In June 2004, the FASB issued EITF Issue No. 02-14, "Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock." EITF Issue No. 02-14 addresses whether the equity method of accounting applies when an investor does not have an investment in voting common stock of an investee but exercises significant influence through other means. EITF Issue No. 02-14 states that an investor should only apply the equity method of accounting when it has investments in either common stock or in-substance common stock of a corporation, provided that the investor has the ability to exercise significant influence over the operating and financial policies of the investee. The accounting provisions of EITF Issue No. 02-14 are effective for the reporting period beginning after September 15, 2004. This statement does not affect the Company.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after November 23, 2004. This statement does not affect the Company.
In December 2004, the FASB issued a revision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." SFAS 123R is effective for interim reporting period that begins after June 15, 2005. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on the Company's consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67," which discusses the accounting and reporting of real estate time-sharing transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005, and restatement of previously issued financial statements is not permitted. This statement does not affect the Company.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged and provided an exception to the basic measurement
principle (fair value) for exchanges of similar productive assets. That
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. This Statement eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance--that is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. The provisions of
this Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005, applied prospectively. This statement
does not affect the Company.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has limited capital resources and recurring net losses resulting in a significant accumulated deficit. The Company is subject to a number of business risks affecting companies at a
similar stage of development, including competition from companies with greater resources and alternative technologies, the ability to obtain financing to fund future operations, dependence on new product introductions in a rapidly changing technological environment, dependence on a limited number of customers, dependence on key employees and the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements, and the success of its future operations.
To meet these objectives, at year end the Company raised $500,000 pursuant to a private offering of its common stock. Additionally, certain directors have agreed to provide adequate funds for the Company to meet its obligations as they become due. The Company may also seek additional equity and raise funds through private or public equity investment in order to support existing operations and expand the range and scope of its business. There is no assurance that such additional funds will be available for the Company on acceptable terms, if at all. Should the Company be unable to continue as a going concern, it may have to cease operations. Management believes that actions presently taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company's ability to achieve these objectives cannot be determined at this time.
NOTE 3 - STOCKHOLDERS' EQUITY TRANSACTIONS
CONVERSION OF DEBT TO EQUITY
Pursuant to a Stock Purchase Agreement by and between FTL HK and the Hartcourt
Companies Inc. ("Hartcourt") dated August 19, 1999, Hartcourt acquired 4,964,990
ordinary shares of FTL HK, representing approximately 59% of the share capital
of FTL HK. In September 2003, FTL HK repurchased 3,427,349 shares and 92,000
shares of the ordinary shares of FTL HK from Bowland International Limited
("Bowland") and Tang Wing On ("Tang"), respectively. As a result of this
repurchase, Hartcourt became the sole shareholder of FTL HK. Bowland and Tang
were granted one year options, expiring on September 1, 2004, to either (i)
purchase a proportionate number of new shares of the Company's common stock or
(ii) the option of converting amounts owed to them in lieu of purchasing a
proportionate number of new shares. Bowland and Tang both exercised their option
available to convert loans payable to them for the issuance of the Company's
restricted common stock. Accordingly, the Company issued 10,703,144 shares of
restricted common stock to convert $494,447 in loans payable to equity.
FRACTIONAL SHARES
As a result of Hartcourt's spin-off of its subsidiary, the Company issued an additional 225,000 shares of its common stock resulting from fractional shares.
STOCK SUBSCRIPTIONS
Stock subscriptions totaling $849,406 represent the following:
(I) PROCEEDS FROM THE SALE OF COMMON STOCK - $500,000
Pursuant to a Stock Sale Agreement dated November 24, 2004, the Company sold 40,000,000 shares of its restricted common stock at $0.0125 per share to Allura Film Partners, Inc. (an unrelated party) for gross proceeds of $500,000 without warrants. The Company received cash proceeds of $283,020 during December 2004 and received the remaining funds, $216,980, in January 2005.
(II) SETTLEMENT OF DEBT - $632,426
In December 2004, the Company reached debt settlement agreements with certain creditors, including previous and current directors of the Company, to convert their debts into the issuance of the Company's restricted common stock payable in four quarterly installments. The number of shares to be issued under the first installment was calculated either (i) based on the average closing price ($0.128) of the Company's shares traded at the OTCBB in the last 10 trading days in December 2004 or (ii) at an agreed upon conversion price of $0.04 per share. The debts to be converted are as follows:
Loans payable, rental and accrued
interest - related parties $ 551,111
Accounts payable and accrued liabilities 81,315
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$ 632,426
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Subsequent to year end, the Company issued 3,294,549 shares during March 2005, payable under the first installment. The remaining balance of shares are payable ratably over the remaining quarters in 2005 and the number of shares to be issued will be based on the average closing price of the Company's shares as quoted on the OTCBB in the previous 30 days before the issuance. (See Note 8)
NOTE 4 - RELATED PARTY TRANSACTIONS
THE FOLLOWING IS A SUMMARY OF SIGNIFICANT RELATED PARTY PURCHASE TRANSACTIONS, WHICH WERE CARRIED OUT IN THE NORMAL COURSE OF THE COMPANY'S BUSINESS:
2004 2003
------------------------
Bowland International Limited
Loan interest expense $ 43,568 $ 38,856
Rental charge for leased office space $ 21,552 $ 24,615
Management fee $ 43,785 $ 43,785
Topomedia International Limited
Rental charge for leased office space $ 10,615 $ 14,462
Interest expense $ 2,464 -
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Both entities are related companies with a common director. Loan interest was charged at prime rate plus 3% per annum. (See Note 3)
AMOUNTS DUE TO RELATED PARTIES ARE UNSECURED, INTEREST-FREE, HAVE NO FIXED TERMS OF REPAYMENT, AND CONSISTED OF THE FOLLOWING AT DECEMBER 31:
Due to a former minority shareholder $ 23,077
Due to directors 21,588
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$ 44,665
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NOTE 5 - FIXED ASSETS
Fixed assets consist of the following:
Office equipment $ 60,581
Furniture and equipment 21,417
Computer and transmission equipment 52,842
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Total 134,840
Less accumulated depreciation 133,288
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Net book value $ 1,552
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NOTE 6 - INCOME TAXES
No provision for U.S. federal income tax has been provided for in the financial statements as the parent company had a loss position. No provision for Hong Kong profits tax has been provided for in the financial statements as the Company's subsidiary operations had no assessable profits for the year.
THE FOLLOWING TABLE RECONCILES THE STATUTORY RATES TO THE COMPANY'S EFFECTIVE RATE:
2004 2003
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U.S. statutory rate 34.0% 34.0%
Hong Kong profits tax 17.5 17.5
Change in valuation allowance (51.5) (51.5)
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- -
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There is no current or deferred tax expense for the periods presented due to the Company's loss position. The Company has fully reserved for any benefits of these losses because the Company believes sufficient uncertainty exists regarding the realizability of the net operating loss carryforwards and other timing differences for the periods presented.
THE COMPONENTS OF NET DEFERRED INCOME TAX ASSET CONSISTED OF THE FOLLOWING:
2004 2003
---------- ----------
Deferred tax assets
U.S. Federal net operating loss carryforwards $ 112,000 $ -
Hong Kong net operating loss carryforwards 776,000 740,000
Deductible temporary differences 4,000 5,000
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892,000 745,000
Less valuation allowance 892,000 745,000
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Net deferred income tax asset - -
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The net increase in the valuation allowance for 2004 was approximately $147,000 (2003: $77,000). The Company has U.S. federal net operating loss carryforwards of approximately $300,000 that expire in 2024 and Hong Kong net operating loss carryforwards of approximately $4,900,000 that have no expiration date.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company is committed under various noncancelable operating leases which expire through February 2006. Rent expense charged to operations for 2004 was approximately $33,000 (2003: $40,000). Future minimum rental commitments under noncancelable leases are as follows-2005: $35,000 and 2006: $2,000.
NOTE 8 - SUBSEQUENT EVENTS
THE COMPANY ISSUED THE FOLLOWING SHARES OF COMMON STOCK SUBSEQUENT TO YEAR END:
(i) In January 2005, the Company completed the sale of 40,000,000 shares of common stock for cash consideration of $500,000 and issued an additional 17,359,440 shares of common stock.
(ii) In February 2005, the Company issued an aggregate of 12,173,338 shares of its common stock as consideration for an equity interest in various entities and as consideration for the purchase of convertible notes pursuant to certain Option Agreements as follows:
o On December 14, 2004, the Company entered into an Option Agreement ("Agreement"), with all of the shareholders (the "Sellers") of Shanghai Longterms Technology Ltd. ("Longterms"). Longterms is a privately held company organized under the laws of the People's Republic of China. Pursuant to the terms of the Agreement, the Company had the option to acquire from the Sellers 19% of the total equity interest of Longterms for a purchase price of $130,474. On February 21, 2005, the Company exercised its option under the Agreement to purchase such 19% equity stake from the Sellers and by mutual agreement the purchase price for such equity stake was satisfied by the Company issuing to the Sellers 2,461,773 shares of its common stock in lieu of the cash purchase price. Also on February 21, 2005, the Company exercised an option under the Agreement to purchase a non-interest bearing convertible note from the Sellers. The note was purchased for 2,073,072 shares of the Company's common stock. At any time on or before December 14, 2014, the note is convertible by the Company without the payment of any additional consideration into 16% of the entire equity interest of Longterms as of the date of the Agreement or, at the Company's election, $109,873 in cash to be paid to the Company by the Sellers.
o On January 5, 2005, the Company entered into an Option Agreement ("Agreement"), with all of the shareholders (the "Sellers") of Beijing JCL Technology Commerce Ltd. ("JCL"). JCL is a privately held company organized under the laws of the People's Republic of China. Pursuant to the terms of the Agreement, the Company had the option to acquire from the Sellers 19% of the total equity interest of JCL for a purchase price of $155,697. On February 21, 2005, the Company exercised its option under the Agreement to purchase such 19% equity stake from the Sellers and by mutual agreement the purchase price for such equity stake was satisfied by the Company issuing to the Sellers 2,937,677 shares of its common stock in lieu of the cash purchase price. Also on February 21, 2005, the Company exercised an option under the Agreement to purchase a non-interest bearing convertible note from the Sellers. The note was purchased for 1,700,761 shares of the Company's common stock. At any time on or before January 5, 2015 the note is convertible by the Company without the payment of any additional consideration into 11% of the entire equity interest of JCL as of the date of the Agreement or, at the Company's election, $90,140 in cash to be paid to the Company by the Sellers.
o On January 20, 2005, the Company entered into an Option Agreement ("Agreement"), with all of the shareholders (the "Sellers") of Shanghai Qianhou Computer Technology Ltd. ("Qianhou"). Qianhou is a privately held company organized under the laws of the People's Republic of China. Pursuant to the terms of the Agreement, the Company had the option to acquire from the Sellers 19% of the total equity interest of Qianhou for a purchase price of $86,316. On February 21, 2005, the Company exercised its option under the Agreement to purchase such 19% equity stake from the Sellers and by mutual agreement the purchase price for such equity stake was satisfied by the Company issuing to the Sellers 1,628,601 shares of its common stock in lieu of the cash purchase price. Also on February 21, 2005, the Company exercised an option under the Agreement to purchase a non-interest bearing convertible note from the Sellers. The note was purchased for 1,371,454 shares of the Company's common stock. At any time on or before January 20, 2015 the note is convertible by the Company without the payment of any additional consideration into 16% of the entire equity interest of Qianhou as of the date of the Agreement or, at the Company's election, $72,687 in cash to be paid to the Company by the Sellers.
(iii) In March 2005, the Company issued 3,294,549 shares to settle debts. The Company's Board of Directors authorized the issuance of restricted common stock to settle outstanding fees and financial obligations to certain creditors, including all previous and current directors of the Company. The remaining balance of shares are payable ratably over the remaining quarters in 2005 and the number of shares to be issued will be based on the average closing price of the Company's shares as quoted on the OTCBB in the previous 30 days before the issuance. (See Note 3)
AS OF THE DATE OF ISSUANCE OF THESE FINANCIAL STATEMENTS, TOTAL SHARES ISSUED AND OUTSTANDING ARE 81,496,031.
EXHIBIT 10.3
THE OPTION CONTRACT
LU ZHAO HUI
CHEN YU MIN
AND
Fintel Group Ltd.
DECEMBER 14, 2004
THIS CONTRACT is dated December 14, 2004.
BETWEEN:
1) Lu Zhao Hui - ID No. 342523197101190039, Address: 1706, No.18, XiangJiang Building, Lane 1265, ZhongShan Xi Road, Shanghai, China
2) Chen Yu Min, ID No. 310105197308184419, Address: 1706, No.18, XiangJiang Building, Lane 1265, ZhongShan Xi Road, Shanghai, China (Lu Zhao Hui and Chen Yu Min) are hereinafter collectively referred to as the "Vendors" and each individually referred to as the "Vendor"); and
3) Fintel Group Ltd., a company incorporated in HONG KONG with its registered office situate at 306 Hang Bong Commercial Centre, 28 Shanghai Street, Kowloon, HongKong and its principal office situate as same (the "Purchaser").
WHEREAS:
(A) Shanghai Longterms Technology Co., Ltd (the "Company") is a domestic
joint venture company with limited liability incorporated in the PRC
and has as at the date hereof a registered capital of RMB 5 million
and a net asset of RMB5,665,317.
(B) As at the date of this Contract, the Purchaser is a wholly owned
subsidiary of Financial Telecom Limited (USA) Inc. (the "Fintel
Company"), the shares of which are currently listed on the
Over-the-Counter Bulletin Board ("OTCBB") of the United States (OTCBB
Symbol: FLTL.OB).
(C) Another wholly owned subsidiary of the Fintel Company has signed the
long term service agreement with the Vendors, which stipulates that
the wholly owned subsidiary shall provide the Vendors with the long
term financial and management service. In order to stimulate the
wholly owned subsidiary and improve its service quality, the Vendors
have agreed to empower the Option to the Purchaser and the Purchaser
has agreed to accept the Option according to the terms and conditions
of this Contract. Please see Clause 1 of this Contract for the
definition of Option.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises and agreements contained herein, the terms and conditions hereby are agreed upon by the Parties in this Contract:
1. INTERPRETATION
1.1 In this Contract (including the Recitals), unless the context otherwise requires, the following words and expressions shall have the following meanings ascribed to each of them below:
"CONTRACT" this Contract for the Option Contract, as
amended or supplemented from time to time;
"BUSINESS DAY" From Monday to Friday except PRC's public holidays;
"OPTION" Within one year after this Contract is signed by
Parties, The Purchaser is entitled to purchase Sale
Interests according to Clause 4.1 of this Contract and
purchase the Transferable Note according to Clause 2.6
and 4.1 of this Contract;
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"THE TERM OF OPTION" One year after this Contract is signed by Parties.
"SALE INTERESTS" 19% of the entire interest in the registered capital of
the Company to be sold by the Vendors to the Purchaser
according to Option of this Contract, in which 9.5% of
the entire interest in the registered capital of the
Company to be sold by Lu Zhao Hui to the Purchaser and
9.5% of the entire interest in the registered capital
of the Company to be sold by Chen Yu Min to the
Purchaser;
"FINTEL COMPANY" Financial Telecom Limited (USA) Inc., a company
incorporated under the laws of the state of Nevada,
United States, the shares of which are currently listed
on the Over-the-Counter Bulletin Board ("OTCBB") of the
United States (OTCBB Symbol: FLTL.OB).
"CONSIDERATION SHARES" New restricted shares of the Fintel Company to be
allotted and issued in the name of the Vendors or their
nominees for the consideration of Sale Interests and
the Transferable Note according to Clause 4.1, which
are restricted according to Rule 144 promulgated under
the U.S Securities Act and are calculated by the
Consideration regulated in Clause 4.1 /50% of the
average share price of 30 business days before
Completion;
"TRANSFERABLE NOTE" The debt certificate issued by the Vendors to the
Purchaser. After the Vendors are satisfied by the
consideration from the Purchaser according to Clause
4.1 of this Contract, they shall owe the Purchaser the
debt of USD 109,873 without interests and pay off the
debt of USD 109,873 after ten years from the issuing
date of the debt certificate. During the Term of
Transferable Note, the Purchaser shall be entitled to
execute the right to change the Vendors' debt to 16% of
the entire interest in the registered capital of the
Company according to Clause 2.6 and 2.7 of this
Contract.
"THE TERM OF Within ten years after the issuing date of the
TRANSFERABLE NOTE" Transferable Note.
"RESTRICTED TRADING a period of twelve (12) & twenty-four (24) & thirty-six
PERIOD" (36) months from the date on which the Consideration
Shares being allotted and issued to the Vendors or
their nominees; twelve months for 1/3 of the
Consideration Shares, twenty-four months for another
1/3 of the Consideration Shares, thirty-six months for
another 1/3 shares of the Consideration Shares;
"COMPLETION" The execution of Option in accordance with the terms
and conditions of this Contract including the
completion of the sale and purchase of the Sale
Interests and the issuing of the Transferable Note and
the satisfaction of the Consideration in accordance
with the terms and conditions of this Contract;
"COMPLETION DATE" the date falling on the 5th Business Day after the
conditions set out in Clause 3.2 , 3.3 have been
fulfilled or waived by the Purchaser and the Vendors
according to Clause 3.5;
"THE DATE OF THE 30 June, 2004.
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BALANCE SHEET"
2. OPTION
2.1 Subject to the terms and conditions of this Contract, each of the
Vendors, agrees to empower the Option to the Purchaser and the
Purchaser agrees to accept the Option.
2.2 Subject to Clause 2.1 of this Contract, when the Purchaser get the
Option, the Vendors shall give and shall procure that the Purchaser
and/or any persons authorized by it in writing will be given such
access to the premises and all books, documents, title deeds, records,
returns, approvals, correspondence and accounts of the Company and its
subsidiaries and all such information relating to the Company as may
be reasonably requested by or on behalf of the Purchaser to undertake
and conduct a full due diligence (including but without limitation, in
all legal, financial and commercial aspects) against the Company and
be permitted to take copies of any such books, documents, title deeds,
records and accounts and that the directors and employees of the
Company shall be instructed to give promptly all such information and
explanations to any such persons as aforesaid as may be requested by
it or them. The Purchaser shall complete its due diligence (including
without limitation, legal, financial and commercial aspects) in
respect of the Company and its subsidiaries and the results of which
are, in the absolute opinion of the Purchaser, satisfactory and
acceptable to the Purchaser in all respects. on the Date of the
Balance Sheet, the Company`s net assets which are audited by
independent third party CPA are RMB 5,665,317.
2.3 Within the Term of Option, the Vendors shall not sell Sale Interests
to any third party and not make guarantee, and/or pledge and/or
mortgage or any other types of rights and/or benefit on Sale Interests
without the Purchaser's written agreement.
2.4 If the Purchaser does not execute Option in accordance with Clause 2.5
and 2.6 and 2.7 of this Contract during the Term of Option, Option
shall be cancelled.
2.5 During the Term of Option, if the Purchaser executes Option, it shall
send the written note ("Option Note") to the Vendors and inform them
Completion Day and that it shall own Sale Interests and Transferable
Note.
2.6 On Completion Day, if the Vendors don't issue the written Transferable
Note, the Purchaser automatically receives all the rights of
Transferable Note. The Vendor warrants as follow:
i. the Purchaser may send the written note ("Information of
Transferable Note") to the Vendors during the Term of
Transferable Note and inform them to get rid of the debt of the
Transferable Note instead that they shall transfer 16% of the
entire interest in the registered capital of this Company to the
Purchaser in the consideration of RMB1.
ii. The Vendors shall transfer 16% of the entire interest in the
registered capital of this Company to the Purchaser under the
Chinese registration law according to Information of Transferable
Note and the Purchaser's or its designated third party shall
become the owner in the registry office.
2.7 The unconcerned matters in relation to the execution of Transferable
Note shall be considered by other clauses of this Contract.
2.8 After the date of the Option Note, The Vendors will not assume any
debts and any other duties regards to the Sale Interests, which exist
after the date of the Option Note and will not have any creditor's
rights and any other rights regards to the Sale Interests, which
exists after the date of the Option Note. After the date of the Option
Note, The Purchaser will assume any debts and any other duties regards
to the Sales Interests, which exist after the date of the Option Note
and will have any creditor's rights and any other rights regards to
the Sale Interests, which exists after the date of the Option Note.
3. COMPLETION
3.1 The Completion Day is the date of the Option Note.
3.2 On Completion, The Vendors shall meet the following requirements:
(a) The Vendors shall get all necessary consents permits and approval
(whether governmental, regulatory or otherwise) as may be required in
respect of the transferring of the Sale Interests from the relevant
PRC governmental authorities, including but not limited to the
ratification from the PRC foreign trade economic bureau or the
provincial foreign trade economic department and the Vendors shall
inform the Purchaser all the relevant letters, the ratification
documents and other relevant documents;
(b) Each of the Vendors shall jointly and/or severally (as the case may
be) deliver or procure the delivery to the Purchaser of all the
following:
(i) all constitutional documents, contracts, minute books and records
(which shall be written up to date as at Completion);
(ii) copies of the business license, the name of the shareholders, the
copies of the shareholders' identity card, the structure of the
shareholding and financial statements of the Company;
(iii) other documents, letters and material which the Purchaser
may require;
(c) The Vendors shall hold a shareholder meeting approving the following items according to the Purchaser's requirements:
(i) the sale and purchase of the Sale Interests;
(ii) the Transferable Note;
(iii) amending the constitution of the Company according to the
Purchaser;
(d) The Vendors shall complete the change procedures regards to the Sale Interests in relevant Commercial and Industrial bureau and inform the Purchaser all the relevant letters, ratification documents and other relevant documents regards to the above the change procedures..
3.3 On Completion, The Vendors shall meet the following requirements:
a) If so required, passing of necessary resolutions by shareholders of
the Purchaser at a shareholder meeting approving (i) the purchase of
the Sale Interests from the Vendors and (ii) the Transferable Note
(iii) this Contract.
b) The Purchaser shall procure that the directors of the board of Fintel
Company make the resolutions and approve: the allotment and issue of
the Consideration Shares to the Vendors credited as fully paid;
c) the Purchaser having obtained a legal opinion issued by a qualified
lawyer (acceptable by the Purchaser) in respect of:
(i) the legality and validity of this Contract and the transactions
contemplated herein;
(ii) the completion of all necessary procedures and obtaining of all
necessary approvals regarding the sale and purchase of the Sale
Interests;
(iii) no change in the permitted scope business of the Company after
the transfer of the Sale Interests;
(iv) all other matters reasonably requested by the Purchaser.
3.4 When any of the conditions set out in the Clause 3.2 has been satisfied by the Vendors, unless that the Purchaser may by notice in writing inform the Vendors to waive any of the conditions set out in Clause 3.5, the Purchaser shall procure Fintel Company to allot, issue and credit the Consideration Shares to the Vendors as fully paid.
3.5 From the date of this Contract to the Completion Date, the Purchaser has the rights at any time in writing to inform the Vendors to waive any of the conditions set out in Clauses 3.2; the Vendors also have the rights at any time in writing to inform the Purchaser to waive any of the conditions set out in Clause 3.3 from the date of this Contract to the Completion Date.
3.6 Clauses 5 to Clause 13 shall survive the Completion.
4. CONSIDERATION
4.1 The Consideration for the transferring of the Sale Interests and the issuing of the Transferable Note shall separately be RMB1,576,410 equal to US$130,474 (1USD=RMB8.25) and RMB906,450 equal to USD 109,873(1USD=RMB8.25) respectively, which shall be satisfied by the Purchaser in the following manner:
i. the Purchaser procuring the Fintel Company to allot, issue and credit the Consideration Shares to the Vendors in the Relevant Proportions as fully paid on Completion; The Purchaser shall not be obliged to complete the purchase of any of the Sale Interests and the Transferable Note unless the purchase of all the Sale Interests and the Transferable Note is completed simultaneously.
4.2 The Vendors shall notify the Purchaser in writing at least ten (10) Business Days before the Completion Date of the name(s) and other particulars of the registered holder(s) of the Consideration Shares and the board lot denomination of the share certificate(s) in respect of the Consideration Shares to be issued to them or their nominee(s) and all necessary information and details as is reasonably required to enable the share registrars of the Fintel Company to issue the definitive share certificates for such Consideration Shares upon Completion.
4.3 The Vendors understand that the Consideration Shares will not be registered under the U.S. Securities Act. The Vendors also understand that the Consideration Shares are being allotted and issued pursuant to an exemption from registration contained in the U.S. Securities Act based in part upon the Vendors' representations contained in this Contract. The Vendors hereby represent and warrant as follow:
(a) Vendors bear economic risk: the Vendors have substantial
experience in evaluating and investing in private placement
transactions of securities in companies similar to the Purchaser
so that it is capable of evaluating the merits and risks of its
investments in the Purchaser and have the capacity to protect its
own interests. The Vendors are able to bear the economic risk of
this investment;
(b) Acquisition for own account: the Vendors are acquiring the
Consideration Shares for their respective own account for
investment only, and not with a view towards their distribution;
(c) Vendors can protect their interest: the Vendors represent that by
reason of their management, business or financial experience, the
Vendors have the capacity to protect their own interests in
connection with the transactions contemplated in this Contract.
Further, the Vendors are aware of no publication of any
advertisement in connection with the transactions contemplated in
this Contract;
(d) Company information: the Vendors have had an opportunity to
discuss the Purchaser's business, management and financial
affairs with directors, officers and management of the Purchaser
and have had the opportunity to review the Purchaser's operations
and facilities. The Vendors have also had the opportunity to ask
questions of and receive answers from the Purchaser and its
management regarding the terms and conditions of this investment;
Purchaser will provide balance sheet and income statement to
Vendors.
(e) Rule 144: The Vendors have been advised or are aware of the
provisions of Rule 144 promulgated under the U.S. Securities Act,
which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions;
(f) Legends: The Vendors understand and agree that the Purchaser will
cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Consideration Shares, together with
any other legends that may be required by state or federal
securities laws, or by the Articles of Association and Bye laws
of the Company, or by any other agreement between the Vendors and
the Purchaser or between the Vendors and any third party: THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
4.4 The Purchaser agrees that upon expiry of the Restricted Trading Period, upon presentation of the Consideration Shares to Purchaser, under the terms and conditions of this Contract, Purchaser will commerce within 7 business days all necessary formalities and registration procedures as may be required under the U.S. Securities Act and the applicable State securities law to enable the Consideration Shares becoming freely transferable and resalable.
5. THE SHAREHOLDERS MEETING, BOARD AND MANAGEMENT OF THE COMPANY AFTER THE SALE AND PURCHASE OF SALE INTERESTS
5.1 The shareholders meeting which is formed by all shareholders shall be
the highest power organization of the Company. The way and the
procedures of discussing business in the shareholders meeting and the
scope of power of the shareholders meeting shall be ruled by "the
company law of the People's Republic of China" and the Company's
constitution amended under Clause 3.1 of this Contract.
5.2 After the sale and purchase of Sale Interest, The Company shall set up
the Board, the members of the Board are not more than 5 people and the
Purchaser has the rights to designate 1 director in the Board. The
business and operations of the Group shall be managed by the Board.
5.3 The Chairman of the Board and the legal representative of the Company
shall be nominated and appointed by the Board.
5.4 The financial controller and/or the chief financial officer of the
Company shall be nominated and appointed by the Board.
5.5 The scope of the power, the rules and the way of discussing the
business in the Board and the matters which are not concerned in
Clause 5 are ruled by "the company law of the People's Republic of
China" and the Company's constitution amended under Clause 3.1 of this
Contract.
5.6 The General Manager takes charge of the Company under the leading of
the Board. The scope of the power, the rules and the way of discussing
the business of the General Manager are ruled by "the company law of
the People's Republic of China" and the Company's constitution amended
under Clause 3.1 of this Contract.
6. DISPOSAL OF CONSIDERATION SHARES
Each of the Vendors agrees and acknowledges that the Consideration Shares are subject to the United States Securities and Exchange Commission ("SEC") Rule 144 and in particular, hereby jointly and severally undertakes to and covenants with the Purchaser and the Fintel Company that it will not, during the Restricted Trading Period, dispose of (including without limitation by the creation of any option, charge or other Encumbrance or rights over or in respect of) any of the Consideration Shares or any interests therein owned by it/him/her or in which it/he/she is, directly or indirectly, interested immediately after Completion.
7. WARRANTIES
7.1 THE WARRANTIES FROM THE VENDORS
1. The Company is a domestic joint venture company with limited liability
duly established and validly existing under the laws of the PRC and
has the corporate powers and authorizes to carry on the business
presently carried on by it and to own and hold the assets used
therewith. Each member of the Company are duly established and validly
existing under the laws of the place of its incorporation and has the
corporate powers and authorizes to carry on the business presently
carried on by it and to own and hold the assets used therewith.
2. The facts and information set out in the recitals and Clause 2.2, the
Schedules and all documents attached are true and all information
which has been provided in writing to the Purchaser or its
representatives or advisers by the Vendors or by any Director, officer
or other official of the Company by its professional advisers or other
agents was when given and is now true and accurate in all material
respects. There is no fact or matter which has not been disclosed
which renders any such information untrue, inaccurate or misleading or
the disclosure of which might reasonably affect the willingness of a
willing purchaser to purchase the Sale Interests in accordance with
the provisions of this Agreement.
3. The information disclosed to the Purchaser or its representatives or
professional advisers, by the Vendors and the directors, officers or
other officials of the Company regarding its current status or
prospects comprises all information which is material for the
reasonable assessment of the financial and trading prospects of the
Company or its subsidiaries as a whole.
4. The copy of the memorandum and articles of association of the Company
which have been provided to the Purchaser are true and complete in all
respects and have embodied in them or annexed to them a copy of every
such resolution and agreement required by law to be annexed thereto
and the Company has at all times carried on its business and affairs
in all respects in accordance with its respective memorandum and
articles of association and all such resolutions and agreements.
5. The Sale Interests at the date of this Agreement are fully paid up and
are legally owned by the Vendors. There is not any guarantees ,
mortgages or pledges and other forms of third party's benefit on, over
or affecting the Sale Interests.
6. The accounting systems of the Company and its subsidiaries comply with
`the Accounting Law of the People's republic of China' and other
relevant accounting regulations and laws. All the books of the account
of the Company and its subsidiaries are true and accurate in all
material respects and there is no loss at the Date of the Balance
Sheet of the Company;
7. At the Date of the Balance Sheet and the future, the Vendors shall
disclose a true and fair view of the assets and liabilities of the
Company and its subsidiaries and its profits for the financial year
ended on such date and the future;
8. The Company and its subsidiaries have paid all the taxes before the
Completion or will pay all the taxes according to the tax laws and
regulations and disclose all tax evasion or legally tax evasions or
other tax problems which can seriously affect the Purchaser's intent
to purchase the Sale Interests. The Company and its subsidiaries
haven't or will not pay any fine, penalty and interests according to
the tax laws, regulations and rules. The Company and its subsidiaries
have not in the last 3 years been the subject of a discovery, audit or
investigation by any Taxation authority and there are no facts which
are likely to cause a discovery, audit or investigation to be made.
9. The Vendors covenant and undertake that prior to Completion and
without the prior written consent of the Purchaser, the Vendors shall
procure that the Company and its subsidiaries shall not:
a. incur any expenditure on capital account or enter into any option
in respect of any part of its assets;
b. dispose of or agree to dispose of or grant any option in respect
of any part of its assets;
c. borrow any money or make any payments out of or drawings on its
bank account(s) other than routine payments;
d. enter into any unusual or abnormal contract or commitment;
e. make any loan;
f. enter into any leasing, hire, purchase or other agreement or
arrangements for payment on deferred terms;
g. declare, make or pay any dividend or other distribution or do or
suffer anything which may render its financial position less
favourable than as at the date of this Agreement;
h. grant or issue or agree to grant or issue any mortgages, charges,
debentures or other securities or give or agree to give any
guarantees or indemnities;
i. make any change in the terms and conditions of employment or
pension benefits of any of its directors or employees or employ
or terminate (other than for good cause) the employment of any
person;
j. create, issue or grant any option in respect of any class of
share or loan capital or agree so to do;
k. in any other way depart from the ordinary course of its
respective day-to-day business either as regards the nature scope
or manner of conducting the same;
l. voluntarily contravene or fail to comply with any material
obligation, statutory or otherwise; and m. do anything whereby
its financial position will be rendered less favourable than at
the date hereof.
10. After the date of the Contract, the Vendors required by the Purchaser shall hire the qualified and licensed CPA to audit the Company at each financial year.
7.2 THE WARRANTIES FROM THE PURCHASER
1. The Company is a company duly established and validly existing under the laws of the Hongkong and has the corporate powers and authorises to carry on the business presently carried on by it and to own and hold the assets used therewith.
The Fintel Company is a listed company duly established and validly existing under the laws of USA.
2. The Purchaser procure that Fintel Company will issue the Consideration Shares according to the terms and conditions of this Contract.
8. THE LIABILITIES OF THE BREACH OF THE CONTRACT
8.1. The Vendors and Purchaser shall fulfill the Contract properly and in time, Should all or part of this Contract be unable to be fulfilled owing to the fault of one party, the breaching party shall bear the responsibilities thus caused.
8.2. Should the Vendors break the warranties regulated in Clause 8.1 and cause the Purchaser's economic loss and expenses (including the legal fees), the Vendors shall bear the responsibilities thus caused.
9. TERMINATION AND AMENDMENTS
9.1. The Vendors and the Purchaser can agree in writing to terminate this Contract after negotiations. 9.2. The Vendors and the Purchaser can terminate this Contract according to the following conditions:
1. Should this Contract be unable to be fulfilled materially due to
the Force Majeure, the Vendors and the Purchaser have the rights
to terminate this Contract without any liabilities.
2. Should one party be unable to fulfil this Contract improperly and
cause to break this Contract fundamentally, the party who abides
by this Contract has the rights to terminate this Contract, the
breaching party shall bear the responsibilities thus caused.
3. Other conditions regulated by the relevant laws.
10. CONFIDENTIALITY AND ANNOUNCEMENTS
10.1. Each of the parties undertakes to the others that it will not, at any
time after the date of this Agreement, divulge or communicate to any
person other than to its professional advisers, or when required by
law or any rule of any relevant stock exchange body or regulatory
authorities, or to its respective officers or employees whose province
is to know the same any confidential information concerning the
business, accounts, finance or contractual arrangements or other
dealings, transactions or affairs of any of the others which may be
within or may come to its knowledge and it shall use its best
endeavours to prevent the publication or disclosure of any such
confidential information concerning such matters.
10.2. No public announcement or communication of any kind shall be made in
respect of the subject matter of this Agreement unless specifically
agreed between the parties or unless an announcement is required
pursuant to the applicable laws and the regulations or the
requirements of any relevant stock exchange or any other regulatory
body or authority. Any announcement by any party required to be made
pursuant to any relevant laws or regulation or the requirements of the
relevant stock exchange or any other regulatory body or authority
shall be issued only after such prior consultation with the other
party as is reasonably practicable in the circumstances.
11. GOVERNING LAW AND JURISDICTION
11.1. This Agreement shall be governed by and construed in accordance with
the laws of Hong Kong.
11.2. Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach termination or invalidity thereof, shall be
settled firstly by friendly negotiations ; In case no settlement can
be reached through consultations, the disputes shall be submitted to
the jurisdictional Court in HongKong.
12. MISCELLANEOUS
12.1. This Contract constitutes the entire agreement between the parties
hereto with respect to the matters dealt with herein and supersedes
all previous agreements, arrangements, statements, understandings or
transactions between the parties hereto in relation to the matters
hereof and the parties acknowledge that no claim shall arise in
respect of any agreement so superseded.
12.2. Any variation to this Agreement shall be binding only if recorded in
a document signed by all the parties hereto.
12.3. The obligations, liabilities (including without limitation, breach of
Warranties) and undertakings of the Vendors shall be joint and
several.
12.4. This Agreement shall be binding upon and ensure for the benefit of
the successors of the parties but shall not be assignable.
12.5. All provisions of this Agreement, in so far as the same shall not
have been performed at Completion, shall remain in full force and
effect notwithstanding Completion.
12.6. If any provision of this Agreement shall be held to be illegal or
unenforceable, the enforceability of the remainder of this Agreement
shall not be affected.
12.7. The Purchaser shall not be responsible for any government fees and
tax and other additional expenses(including lawyer fees) caused by the
Vendors according to this Contract
IN WITNESS WHEREOF THIS CONTRACT HAS BEEN DULY EXECUTED BY ALL PARTIES HERETO THE DAY AND YEAR FIRST ABOVE WRITTEN.
THE VENDORS
THE PURCHASER
FINTEL GROUP LTD.(STAMP)
AUTHORIZATION
EXHIBIT 10.4
THE OPTION CONTRACT
SONG LIN
AND
Fintel Group Ltd.
JANUARY 5, 2005
THIS CONTRACT is dated January 5, 2005.
BETWEEN:
1) Song Lin, ID No. 110105690625611, Address: No. 7, Unit 1, 6th Floor,
Area 4, Gao Jia Yuan, Chao Yang Ditrict, Beijing, China, (hereinafter
referred to as the "Vendor"); and
2) Fintel Group Ltd., a company incorporated in HONG KONG with its
registered office situate at 306 Hang Bong Commercial Centre, 28
Shanghai Street, Kowloon, HongKong and its principal office situate as
same (the "Purchaser").
WHEREAS:
(A) Beijing JCL Technology Commerce Ltd. (the "Company") is a domestic
joint venture company with limited liability incorporated in the PRC
and has as at the date hereof a registered capital of RMB 6,600,000
and a net asset of RMB6,760,523.
(B) As at the date of this Contract, the Purchaser is a wholly owned
subsidiary of Financial Telecom Limited (USA) Inc. (the "Fintel
Company"), the shares of which are currently listed on the
Over-the-Counter Bulletin Board ("OTCBB") of the United States (OTCBB
Symbol: FLTL.OB).
(C) Another wholly owned subsidiary of the Fintel Company has signed the
long term service agreement with the Vendor, which stipulates that the
wholly owned subsidiary shall provide the Vendor with the long term
financial and management service. In order to stimulate the wholly
owned subsidiary and improve its service quality, the Vendor have
agreed to empower the Option to the Purchaser and the Purchaser has
agreed to accept the Option according to the terms and conditions of
this Contract. Please see Clause 1 of this Contract for the definition
of Option.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises and agreements contained herein, the terms and conditions hereby are agreed upon by the Parties in this Contract:
1. INTERPRETATION
1.1 In this Contract (including the Recitals), unless the context otherwise requires, the following words and expressions shall have the following meanings ascribed to each of them below:
"CONTRACT" this Contract for the Option Contract, as
amended or supplemented from time to time;
"BUSINESS DAY" From Monday to Friday except PRC's public holidays;
"OPTION" Within one year after this Contract is signed by
Parties, The Purchaser is entitled to purchase Sale
Interests according to Clause 4.1 of this Contract and
purchase the Transferable Note according to Clause 2.6
and 4.1 of this Contract;
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"THE TERM OF OPTION" One year after this Contract is signed by Parties.
"SALE INTERESTS" 19% of the entire interest in the registered capital of
the Company to be sold by the Vendors to the Purchaser
according to Option of this Contract, in which 9.5% of
the entire interest in the registered capital of the
Company to be sold by Lu Zhao Hui to the Purchaser and
9.5% of the entire interest in the registered capital
of the Company to be sold by Chen Yu Min to the
Purchaser;
"FINTEL COMPANY" Financial Telecom Limited (USA) Inc., a company
incorporated under the laws of the state of Nevada,
United States, the shares of which are currently listed
on the Over-the-Counter Bulletin Board ("OTCBB") of the
United States (OTCBB Symbol: FLTL.OB).
"CONSIDERATION SHARES" New restricted shares of the Fintel Company to be
allotted and issued in the name of the Vendors or their
nominees for the consideration of Sale Interests and
the Transferable Note according to Clause 4.1, which
are restricted according to Rule 144 promulgated under
the U.S Securities Act and are calculated by the
Consideration regulated in Clause 4.1 /50% of the
average share price of 30 business days before
Completion;
"TRANSFERABLE NOTE" The debt certificate issued by the Vendors to the
Purchaser. After the Vendors are satisfied by the
consideration from the Purchaser according to Clause
4.1 of this Contract, they shall owe the Purchaser the
debt of USD 90,140 without interests and pay off the
debt of USD 90,140 after ten years from the issuing
date of the debt certificate. During the Term of
Transferable Note, the Purchaser shall be entitled to
execute the right to change the Vendors' debt to 11% of
the entire interest in the registered capital of the
Company according to Clause 2.6 and 2.7 of this
Contract.
"THE TERM OF Within ten years after the issuing date of the
TRANSFERABLE NOTE" Transferable Note.
"RESTRICTED TRADING a period of twelve (12) & twenty-four (24) & thirty-six
PERIOD" (36) months from the date on which the Consideration
Shares being allotted and issued to the Vendors or
their nominees; twelve months for 1/3 of the
Consideration Shares, twenty-four months for another
1/3 of the Consideration Shares, thirty-six months for
another 1/3 shares of the Consideration Shares;
"COMPLETION" The execution of Option in accordance with the terms
and conditions of this Contract including the
completion of the sale and purchase of the Sale
Interests and the issuing of the Transferable Note and
the satisfaction of the Consideration in accordance
with the terms and conditions of this Contract;
"COMPLETION DATE" the date falling on the 5th Business Day after the
conditions set out in Clause 3.2 , 3.3 have been
fulfilled or waived by the Purchaser and the Vendors
according to Clause 3.5;
"THE DATE OF THE 30 June, 2004.
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BALANCE SHEET"
2. OPTION
2.1 Subject to the terms and conditions of this Contract, each of the
Vendor, agrees to empower the Option to the Purchaser and the
Purchaser agrees to accept the Option.
2.2 Subject to Clause 2.1 of this Contract, when the Purchaser get the
Option, the Vendor shall give and shall procure that the Purchaser
and/or any persons authorized by it in writing will be given such
access to the premises and all books, documents, title deeds, records,
returns, approvals, correspondence and accounts of the Company and its
subsidiaries and all such information relating to the Company as may
be reasonably requested by or on behalf of the Purchaser to undertake
and conduct a full due diligence (including but without limitation, in
all legal, financial and commercial aspects) against the Company and
be permitted to take copies of any such books, documents, title deeds,
records and accounts and that the directors and employees of the
Company shall be instructed to give promptly all such information and
explanations to any such persons as aforesaid as may be requested by
it or them. The Purchaser shall complete its due diligence (including
without limitation, legal, financial and commercial aspects) in
respect of the Company and its subsidiaries and the results of which
are, in the absolute opinion of the Purchaser, satisfactory and
acceptable to the Purchaser in all respects. on the Date of the
Balance Sheet, the Company`s net assets which are audited by
independent third party CPA are RMB 6,760,523.
2.3 Within the Term of Option, the Vendor shall not sell Sale Interests to
any third party and not make guarantee, and/or pledge and/or mortgage
or any other types of rights and/or benefit on Sale Interests without
the Purchaser's written agreement.
2.4 If the Purchaser does not execute Option in accordance with Clause 2.5
and 2.6 and 2.7 of this Contract during the Term of Option, Option
shall be cancelled.
2.5 During the Term of Option, if the Purchaser execute Option, it shall
send the written note ("Option Note") to the Vendor and inform them
Completion Day and that it shall own Sale Interests and Transferable
Note.
2.6 On Completion Day, if the Vendor doesn't issue the written
Transferable Note, the Purchaser automatically receives all the rights
of Transferable Note. The Vendor warrants as follow:
i. The Purchaser may send the written note ("Information of
Transferable Note") to the Vendor during the Term of Transferable
Note and inform them to get rid of the debt of the Transferable
Note instead that they shall transfer 11% of the entire interest
in the registered capital of this Company to the Purchaser in the
consideration of RMB 1.
ii. The Vendor shall transfer 11% of the entire interest in the
registered capital of this Company to the Purchaser under the
Chinese registration law according to Information of Transferable
Note and the Purchaser's or its designated third party shall
become the owner in the registry office.
2.7 The unconcerned matters in relation to the execution of Transferable
Note shall be considered by other clauses of this Contract.
2.8 After the date of the Option Note, The Vendor will not assume any
debts and any other duties regards to the Sale Interests, which exist
after the date of the Option Note and will not have any creditor's
rights and any other rights regards to the Sale Interests, which
exists after the date of the Option Note. After the date of the Option
Note, The Purchaser will assume any debts and any other duties regards
to the Sales Interests, which exist after the date of the Option Note
and will have any creditor's rights and any other rights regards to
the Sale Interests, >which exists after the date of the Option Note.
3. COMPLETION
3.1 The Completion Day is the date of the Option Note.
3.2 On Completion, The Vendor shall meet the following requirements:
(a) The Vendor shall get all necessary consents permits and approval
(whether governmental, regulatory or otherwise) as may be
required in respect of the transferring of the Sale Interests
from the relevant PRC governmental authorities, including but not
limited to the ratification from the PRC foreign trade economic
bureau or the provincial foreign trade economic department and
the Vendor shall inform the Purchaser all the relevant letters,
the ratification documents and other relevant documents;
(b) Each of the Vendor shall jointly and/or severally ( as the case
may be ) deliver or procure the delivery to the Purchaser of all
the following:
(i) all constitutional documents, contracts, minute books and
records (which shall be written up to date as at
Completion);
(ii) copies of the business license, the name of the
shareholders, the copies of the shareholders' identity card,
the structure of the shareholding and financial statements
of the Company;
(iii) other documents, letters and material which the
Purchaser may require;
(c) The Vendor shall hold a shareholder meeting approving the
following items according to the Purchaser's requirements:
(i) the sale and purchase of the Sale Interests;
(ii) the Transferable Note;
(iii) amending the constitution of the Company according to the
Purchaser;
(d) The Vendor shall complete the change procedures regards to the
Sale Interests in relevant Commercial and Industrial bureau and
inform the Purchaser all the relevant letters, ratification
documents and other relevant documents regards to the above the
change procedures..
3.3 On Completion, The Vendor shall meet the following requirements:
a) If so required, passing of necessary resolutions by shareholders
of the Purchaser at a shareholder meeting approving (i) the
purchase of the Sale Interests from the Vendor and (ii) the
Transferable Note (iii) this Contract.
b) The Purchaser shall procure that the directors of the board of
Fintel Company make the resolutions and approve: the allotment
and issue of the Consideration Shares to the Vendor credited as
fully paid;
c) the Purchaser having obtained a legal opinion issued by a
qualified lawyer (acceptable by the Purchaser) in respect of:
(i) the legality and validity of this Contract and the
transactions contemplated herein;
(ii) the completion of all necessary procedures and obtaining of
all necessary approvals regarding the sale and purchase of
the Sale Interests;
(iii) no change in the permitted scope business of the Company
after the transfer of the Sale Interests;
(iv) all other matters reasonably requested by the Purchaser.
3.4 When any of the conditions set out in the Clause 3.2 has been
satisfied by the Vendor, unless that the Purchaser may by notice in
writing inform the Vendor to waive any of the conditions set out in
Clause 3.5, the Purchaser shall procure Fintel Company to allot, issue
and credit the Consideration Shares to the Vendor as fully paid.
3.5 From the date of this Contract to the Completion Date, the Purchaser
has the rights at any time in writing to inform the Vendor to waive
any of the conditions set out in Clauses 3.2; the Vendor also have the
rights at any time in writing to inform the Purchaser to waive any of
the conditions set out in Clause 3.3 from the date of this Contract to
the Completion Date.
3.6 Clauses 5 to Clause 13 shall survive the Completion.
4. CONSIDERATION
4.1 The Consideration for the transferring of the Sale Interests and the
issuing of the Transferable Note shall separately be RMB1,284,499
equal to USD 155,697 (1USD=RMB8.25) and RMB743,657 equal to USD 90,140
(1USD=RMB8.25) which shall be satisfied by the Purchaser in the
following manner:
i. the Purchaser procuring the Fintel Company to allot, issue and
credit the Consideration Shares to the Vendor in the Relevant
Proportions as fully paid on Completion; The Purchaser shall not
be obliged to complete the purchase of any of the Sale Interests
and the Transferable Note unless the purchase of all the Sale
Interests and the Transferable Note is completed simultaneously.
4.2 The Vendor shall notify the Purchaser in writing at least ten (10)
Business Days before the Completion Date of the name(s) and other
particulars of the registered holder(s) of the Consideration Shares
and the board lot denomination of the share certificate(s) in respect
of the Consideration Shares to be issued to them or their nominee(s)
and all necessary information and details as is reasonably required to
enable the share registrars of the Fintel Company to issue the
definitive share certificates for such Consideration Shares upon
Completion.
4.3 The Vendor understands that the Consideration Shares will not be
registered under the U.S. Securities Act. The Vendor also understand
that the Consideration Shares are being allotted and issued pursuant
to an exemption from registration contained in the U.S. Securities Act
based in part upon the Vendor' representations contained in this
Contract. The Vendor hereby represent and warrant as follow:
(a) Vendor bear economic risk: the Vendor have substantial experience
in evaluating and investing in private placement transactions of
securities in companies similar to the Purchaser so that it is
capable of evaluating the merits and risks of its investments in
the Purchaser and have the capacity to protect its own interests.
The Vendor are able to bear the economic risk of this investment;
(b) Acquisition for own account: the Vendor are acquiring the
Consideration Shares for their respective own account for
investment only, and not with a view towards their distribution;
(c) Vendor can protect their interest: the Vendor represent that by
reason of their management, business or financial experience, the
Vendor has the capacity to protect their own interests in
connection with the transactions contemplated in this Contract.
Further, the Vendor are aware of no publication of any
advertisement in connection with the transactions contemplated in
this Contract;
(d) Company information: the Vendor have had an opportunity to
discuss the Purchaser's business, management and financial
affairs with directors, officers and management of the Purchaser
and have had the opportunity to review the Purchaser's operations
and facilities. The Vendor have also had the opportunity to ask
questions of and receive answers from the Purchaser and its
management regarding the terms and conditions of this investment;
Purchaser will provide balance sheet and income statement to
Vendor.
(e) Rule 144: The Vendor have been advised or are aware of the
provisions of Rule 144 promulgated under the U.S. Securities Act,
which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions;
(f) Legends: The Vendor understand and agree that the Purchaser will
cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Consideration Shares, together with
any other legends that may be required by state or federal
securities laws, or by the Articles of Association and Bye laws
of the Company, or by any other agreement between the Vendor and
the Purchaser or between the Vendor and any third party: THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
4.4 The Purchaser agrees that upon expiry of the Restricted Trading Period, upon presentation of the Consideration Shares to Purchaser, under the terms and conditions of this Contract, Purchaser will commerce within 7 business days all necessary formalities and registration procedures as may be required under the U.S. Securities Act and the applicable State securities law to enable the Consideration Shares becoming freely transferable and resalable.
5. THE SHAREHOLDERS MEETING, BOARD AND MANAGEMENT OF THE COMPANY AFTER THE SALE AND PURCHASE OF SALE INTERESTS
5.1 The shareholders meeting which is formed by all shareholders shall be
the highest power organization of the Company. The way and the
procedures of discussing business in the shareholders meeting and the
scope of power of the shareholders meeting shall be ruled by "the
company law of the People's Republic of China "and the Company's
constitution amended under Clause 3.1 of this Contract.
5.2 After the sale and purchase of Sale Interest, The Company shall set up
the Board, the members of the Board are not more than 5 people and the
Purchaser has the rights to designate 1 director in the Board. The
business and operations of the Group shall be managed by the Board.
5.3 The Chairman of the Board and the legal representative of the Company
shall be nominated and appointed by the Board.
5.4 The financial controller and/or the chief financial officer of the
Company shall be nominated and appointed by the Board.
5.5 The scope of the power, the rules and the way of discussing the
business in the Board and the matters which are not concerned in
Clause 5 are ruled by "the company law of the People's Republic of
China" and the Company's constitution amended under Clause 3.1 of this
Contract.
5.6 The General Manager takes charge of the Company under the leading of
the Board. The scope of the power, the rules and the way of discussing
the business of the General Manager are ruled by "the company law of
the People's Republic of China" and the Company's constitution amended
under Clause 3.1 of this Contract.
6. DISPOSAL OF CONSIDERATION SHARES
Each of the Vendor agrees and acknowledges that the Consideration Shares are subject to the United States Securities and Exchange Commission ("SEC") Rule 144 and in particular, hereby jointly and severally undertakes to and covenants with the Purchaser and the Fintel Company that it will not, during the Restricted Trading Period, dispose of (including without limitation by the creation of any option, charge or other Encumbrance or rights over or in respect of) any of the Consideration Shares or any interests therein owned by it/him/her or in which it/he/she is, directly or indirectly, interested immediately after Completion.
7. WARRANTIES
7.1 THE WARRANTIES FROM THE VENDOR
1. The Company is a domestic joint venture company with limited
liability duly established and validly existing under the laws of
the PRC and has the corporate powers and authorizes to carry on
the business presently carried on by it and to own and hold the
assets used therewith. Each member of the Company are duly
established and validly existing under the laws of the place of
its incorporation and has the corporate powers and authorizes to
carry on the business presently carried on by it and to own and
hold the assets used therewith.
2. The facts and information set out in the recitals and Clause 2.2,
the Schedules and all documents attached are true and all
information which has been provided in writing to the Purchaser
or its representatives or advisers by the Vendor or by any
Director, officer or other official of the Company by its
professional advisers or other agents was when given and is now
true and accurate in all material respects. There is no fact or
matter which has not been disclosed which renders any such
information untrue, inaccurate or misleading or the disclosure of
which might reasonably affect the willingness of a willing
purchaser to purchase the Sale Interests in accordance with the
provisions of this Agreement.
3. The information disclosed to the Purchaser or its representatives
or professional advisers, by the Vendor and the directors,
officers or other officials of the Company regarding its current
status or prospects comprises all information which is material
for the reasonable assessment of the financial and trading
prospects of the Company or its subsidiaries as a whole.
4. The copy of the memorandum and articles of association of the
Company which have been provided to the Purchaser are true and
complete in all respects and have embodied in them or annexed to
them a copy of every such resolution and agreement required by
law to be annexed thereto and the Company has at all times
carried on its business and affairs in all respects in accordance
with its respective memorandum and articles of association and
all such resolutions and agreements.
5. The Sale Interests at the date of this Agreement are fully paid
up and are legally owned by the Vendor. There is not any
guarantees , mortgages or pledges and other forms of third
party's benefit on, over or affecting the Sale Interests.
6. The accounting systems of the Company and its subsidiaries comply
with `the Accounting Law of the People's republic of China' and
other relevant accounting regulations and laws. All the books of
the account of the Company and its subsidiaries are true and
accurate in all material respects and there is no loss at the
Date of the Balance Sheet of the Company;
7. At the Date of the Balance Sheet and the future, the Vendor shall
disclose a true and fair view of the assets and liabilities of
the Company and its subsidiaries and its profits for the
financial year ended on such date and the future;
8. The Company and its subsidiaries have paid all the taxes before
the Completion or will pay all the taxes according to the tax
laws and regulations and disclose all tax evasion or legally tax
evasions or other tax problems which can seriously affect the
Purchaser's intent to purchase the Sale Interests. The Company
and its subsidiaries haven't or will not pay any fine, penalty
and interests according to the tax laws, regulations and rules.
The Company and its subsidiaries have not in the last 3 years
been the subject of a discovery, audit or investigation by any
Taxation authority and there are no facts which are likely to
cause a discovery, audit or investigation to be made.
9. The Vendor covenant and undertake that prior to Completion and
without the prior written consent of the Purchaser, the Vendor
shall procure that the Company and its subsidiaries shall not:
a. incur any expenditure on capital account or enter into any
option in respect of any part of its assets;
b. dispose of or agree to dispose of or grant any option in
respect of any part of its assets;
c. borrow any money or make any payments out of or drawings on
its bank account(s) other than routine payments;
d. enter into any unusual or abnormal contract or commitment;
e. make any loan;
f. enter into any leasing, hire, purchase or other agreement or
arrangements for payment on deferred terms;
g. declare, make or pay any dividend or other distribution or
do or suffer anything which may render its financial
position less favourable than as at the date of this
Agreement;
h. grant or issue or agree to grant or issue any mortgages,
charges, debentures or other securities or give or agree to
give any guarantees or indemnities;
i. make any change in the terms and conditions of employment or
pension benefits of any of its directors or employees or
employ or terminate (other than for good cause) the
employment of any person;
j. create, issue or grant any option in respect of any class of
share or loan capital or agree so to do;
k. in any other way depart from the ordinary course of its
respective day-to-day business either as regards the nature
scope or manner of conducting the same;
l. voluntarily contravene or fail to comply with any material
obligation, statutory or otherwise; and
m. do anything whereby its financial position will be rendered
less favourable than at the date hereof.
10. After the date of the Contract, the Vendor required by the Purchaser shall hire the qualified and licensed CPA to audit the Company at each financial year.
7.2 THE WARRANTIES FROM THE PURCHASER
1. The Company is a company duly established and validly existing under
the laws of the Hongkong and has the corporate powers and authorises
to carry on the business presently carried on by it and to own and
hold the assets used therewith. The Fintel Company is a listed company
duly established and validly existing under the laws of USA.
2. The Purchaser procure that Fintel Company will issue the Consideration
Shares according to the terms and conditions of this Contract.
8. THE LIABILITIES OF THE BREACH OF THE CONTRACT
8.1. The Vendor and Purchaser shall fulfill the Contract properly and in
time, Should all or part of this Contract be unable to be fulfilled
owing to the fault of one party, the breaching party shall bear the
responsibilities thus caused.
8.2. Should the Vendor break the warranties regulated in Clause 8.1 and
cause the Purchaser's economic loss and expenses (including the legal
fees), the Vendor shall bear the responsibilities thus caused.
9. TERMINATION AND AMENDMENTS
9.1. The Vendor and the Purchaser can agree in writing to terminate this
Contract after negotiations.
9.2. The Vendor and the Purchaser can terminate this Contract according to
the following conditions:
1. Should this Contract be unable to be fulfilled materially due to
the Force Majeure, the Vendor and the Purchaser have the rights
to terminate this Contract without any liabilities.
2. Should one party be unable to fulfil this Contract improperly and
cause to break this Contract fundamentally, the party who abides
by this Contract has the rights to terminate this Contract, the
breaching party shall bear the responsibilities thus caused.
3. Other conditions regulated by the relevant laws.
10. CONFIDENTIALITY AND ANNOUNCEMENTS
10.1. Each of the parties undertakes to the others that it will not, at any
time after the date of this Agreement, divulge or communicate to any
person other than to its professional advisers, or when required by
law or any rule of any relevant stock exchange body or regulatory
authorities, or to its respective officers or employees whose province
is to know the same any confidential information concerning the
business, accounts, finance or contractual arrangements or other
dealings, transactions or affairs of any of the others which may be
within or may come to its knowledge and it shall use its best
endeavours to prevent the publication or disclosure of any such
confidential information concerning such matters.
10.2. No public announcement or communication of any kind shall be made in respect of the subject matter of this Agreement unless specifically agreed between the parties or unless an announcement is required pursuant to the applicable laws and the regulations or the requirements of any relevant stock exchange or any other regulatory body or authority. Any announcement by any party required to be made pursuant to any relevant laws or regulation or the requirements of the relevant stock exchange or any other regulatory body or authority shall be issued only after such prior consultation with the other party as is reasonably practicable in the circumstances.
11. GOVERNING LAW AND JURISDICTION
11.1. This Agreement shall be governed by and construed in accordance with the laws of Hong Kong. 11.2. Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach termination or invalidity thereof, shall be settled firstly by friendly negotiations; In case no settlement can be reached through consultations, the disputes shall be submitted to the jurisdictional Court in HongKong.
12. MISCELLANEOUS
12.1. This Contract constitutes the entire agreement between the parties
hereto with respect to the matters dealt with herein and supersedes
all previous agreements, arrangements, statements, understandings or
transactions between the parties hereto in relation to the matters
hereof and the parties acknowledge that no claim shall arise in
respect of any agreement so superseded.
12.2. Any variation to this Agreement shall be binding only if recorded in
a document signed by all the parties hereto.
12.3. The obligations, liabilities (including without limitation, breach of
Warranties) and undertakings of the Vendor shall be joint and several.
12.4. This Agreement shall be binding upon and ensure for the benefit of
the successors of the parties but shall not be assignable.
12.5. All provisions of this Agreement, in so far as the same shall not
have been performed at Completion, shall remain in full force and
effect notwithstanding Completion.
12.6. If any provision of this Agreement shall be held to be illegal or
unenforceable, the enforceability of the remainder of this Agreement
shall not be affected.
12.7. The Purchaser shall not be responsible for any government fees and
tax and other additional expenses(including lawyer fees) caused by the
Vendor according to this Contract
IN WITNESS WHEREOF THIS CONTRACT HAS BEEN DULY EXECUTED BY ALL PARTIES HERETO THE DAY AND YEAR FIRST ABOVE WRITTEN.
THE VENDOR
THE PURCHASER
FINTEL GROUP LTD.(STAMP)
AUTHORIZATION
EXHIBIT 10.5
THE OPTION CONTRACT
LU ZHAO HUI
CHEN YU MIN
AND
Fintel Group Ltd.
JANUARY 20, 2005
THIS CONTRACT is dated January 20, 2005.
BETWEEN:
1) Lu Zhao Hui, ID No. 342523197101190039, Address: 1706, No. 18,
XiangJiang Building, Lane 1265, ZhongShan xi Road, Shanghai, China
2) Chen Yu Min, ID No. 310105197308184419, Address: 1706, No. 18,
XiangJiang Building, Lane 1265, ZhongShan xi Road, Shanghai, China (Lu
Zhao Hui and Chen Yu Min) are hereinafter collectively referred to as
the "Vendors" and each individually referred to as the "Ventor); and
3) Fintel Group Ltd., a company incorporated in HONG KONG with its
registered office situate at 306 Hang Bong Commercial Centre, 28
Shanghai Street, Kowloon, HongKong and its principal office situate as
same (the "Purchaser").
WHEREAS:
(A) Shanghai Qianhou Computer Technolcogy Ltd. (the "Company") is a
domestic joint venture company with limited liability incorporated in
the PRC and has as at the date hereof a registered capital of RMB 1
million and a net asset of RMB3,747,926.
(B) As at the date of this Contract, the Purchaser is a wholly owned
subsidiary of Financial Telecom Limited (USA) Inc. (the "Fintel
Company"), the shares of which are currently listed on the
Over-the-Counter Bulletin Board ("OTCBB") of the United States (OTCBB
Symbol: FLTL.OB).
(C) Another wholly owned subsidiary of the Fintel Company has signed the
long term service agreement with the Vendor, which stipulates that the
wholly owned subsidiary shall provide the Vendor with the long term
financial and management service. In order to stimulate the wholly
owned subsidiary and improve its service quality, the Vendor have
agreed to empower the Option to the Purchaser and the Purchaser has
agreed to accept the Option according to the terms and conditions of
this Contract. Please see Clause 1 of this Contract for the definition
of Option.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises and agreements contained herein, the terms and conditions hereby are agreed upon by the Parties in this Contract:
1. INTERPRETATION
1.1 In this Contract (including the Recitals), unless the context otherwise requires, the following words and expressions shall have the following meanings ascribed to each of them below:
"CONTRACT" this Contract for the Option Contract, as
amended or supplemented from time to time;
"BUSINESS DAY" From Monday to Friday except PRC's public holidays;
"OPTION" Within one year after this Contract is signed by
Parties, The Purchaser is entitled to purchase Sale
Interests according to Clause 4.1 of this Contract and
purchase the Transferable Note according to Clause 2.6
and 4.1 of this Contract;
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"THE TERM OF OPTION" One year after this Contract is signed by Parties.
"SALE INTERESTS" 19% of the entire interest in the registered capital of
the Company to be sold by the Vendors to the Purchaser
according to Option of this Contract, in which 9.5% of
the entire interest in the registered capital of the
Company to be sold by Lu Zhao Hui to the Purchaser and
9.5% of the entire interest in the registered capital
of the Company to be sold by Chen Yu Min to the
Purchaser;
"FINTEL COMPANY" Financial Telecom Limited (USA) Inc., a company
incorporated under the laws of the state of Nevada,
United States, the shares of which are currently listed
on the Over-the-Counter Bulletin Board ("OTCBB") of the
United States (OTCBB Symbol: FLTL.OB).
"CONSIDERATION SHARES" New restricted shares of the Fintel Company to be
allotted and issued in the name of the Vendors or their
nominees for the consideration of Sale Interests and
the Transferable Note according to Clause 4.1, which
are restricted according to Rule 144 promulgated under
the U.S Securities Act and are calculated by the
Consideration regulated in Clause 4.1 /50% of the
average share price of 30 business days before
Completion;
"TRANSFERABLE NOTE" The debt certificate issued by the Vendors to the
Purchaser. After the Vendors are satisfied by the
consideration from the Purchaser according to Clause
4.1 of this Contract, they shall owe the Purchaser the
debt of USD 72,687 without interests and pay off the
debt of USD 72,687 after ten years from the issuing
date of the debt certificate. During the Term of
Transferable Note, the Purchaser shall be entitled to
execute the right to change the Vendors' debt to 16% of
the entire interest in the registered capital of the
Company according to Clause 2.6 and 2.7 of this
Contract.
"THE TERM OF Within ten years after the issuing date of the
TRANSFERABLE NOTE" Transferable Note.
"RESTRICTED TRADING a period of twelve (12) & twenty-four (24) & thirty-six
PERIOD" (36) months from the date on which the Consideration
Shares being allotted and issued to the Vendors or
their nominees; twelve months for 1/3 of the
Consideration Shares, twenty-four months for another
1/3 of the Consideration Shares, thirty-six months for
another 1/3 shares of the Consideration Shares;
"COMPLETION" The execution of Option in accordance with the terms
and conditions of this Contract including the
completion of the sale and purchase of the Sale
Interests and the issuing of the Transferable Note and
the satisfaction of the Consideration in accordance
with the terms and conditions of this Contract;
"COMPLETION DATE" the date falling on the 5th Business Day after the
conditions set out in Clause 3.2 , 3.3 have been
fulfilled or waived by the Purchaser and the Vendors
according to Clause 3.5;
"THE DATE OF THE 30 June, 2004.
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BALANCE SHEET"
2. OPTION
2.1 Subject to the terms and conditions of this Contract, each of the
Vendor, agrees to empower the Option to the Purchaser and the
Purchaser agrees to accept the Option.
2.2 Subject to Clause 2.1 of this Contract, when the Purchaser get the
Option, the Vendor shall give and shall procure that the Purchaser
and/or any persons authorized by it in writing will be given such
access to the premises and all books, documents, title deeds, records,
returns, approvals, correspondence and accounts of the Company and its
subsidiaries and all such information relating to the Company as may
be reasonably requested by or on behalf of the Purchaser to undertake
and conduct a full due diligence (including but without limitation, in
all legal, financial and commercial aspects) against the Company and
be permitted to take copies of any such books, documents, title deeds,
records and accounts and that the directors and employees of the
Company shall be instructed to give promptly all such information and
explanations to any such persons as aforesaid as may be requested by
it or them. The Purchaser shall complete its due diligence (including
without limitation, legal, financial and commercial aspects) in
respect of the Company and its subsidiaries and the results of which
are, in the absolute opinion of the Purchaser, satisfactory and
acceptable to the Purchaser in all respects. on the Date of the
Balance Sheet, the Company`s net assets which are audited by
independent third party CPA are RMB 3,747,926.
2.3 Within the Term of Option, the Vendor shall not sell Sale Interests to
any third party and not make guarantee, and/or pledge and/or mortgage
or any other types of rights and/or benefit on Sale Interests without
the Purchaser's written agreement.
2.4 If the Purchaser does not execute Option in accordance with Clause 2.5
and 2.6 and 2.7 of this Contract during the Term of Option, Option
shall be cancelled.
2.5 During the Term of Option, if the Purchaser execute Option, it shall
send the written note ("Option Note") to the Vendor and inform them
Completion Day and that it shall own Sale Interests and Transferable
Note.
2.6 On Completion Day, if the Vendor doesn't issue the written
Transferable Note, the Purchaser automatically receives all the rights
of Transferable Note. The Vendor warrants as follow:
i. The Purchaser may send the written note ("Information of
Transferable Note") to the Vendor during the Term of Transferable
Note and inform them to get rid of the debt of the Transferable
Note instead that they shall transfer 16% of the entire interest
in the registered capital of this Company to the Purchaser in the
consideration of RMB 1.
ii. The Vendor shall transfer 16% of the entire interest in the
registered capital of this Company to the Purchaser under the
Chinese registration law according to Information of Transferable
Note and the Purchaser's or its designated third party shall
become the owner in the registry office.
2.7 The unconcerned matters in relation to the execution of Transferable
Note shall be considered by other clauses of this Contract.
2.8 After the date of the Option Note, The Vendor will not assume any
debts and any other duties regards to the Sale Interests, which exist
after the date of the Option Note and will not have any creditor's
rights and any other rights regards to the Sale Interests, which
exists after the date of the Option Note. After the date of the Option
Note, The Purchaser will assume any debts and any other duties regards
to the Sales Interests, which exist after the date of the Option Note
and will have any creditor's rights and any other rights regards to
the Sale Interests, >which exists after the date of the Option Note.
3. COMPLETION
3.1 The Completion Day is the date of the Option Note.
3.2 On Completion, The Vendor shall meet the following requirements:
(a) The Vendor shall get all necessary consents permits and approval
(whether governmental, regulatory or otherwise) as may be
required in respect of the transferring of the Sale Interests
from the relevant PRC governmental authorities, including but not
limited to the ratification from the PRC foreign trade economic
bureau or the provincial foreign trade economic department and
the Vendor shall inform the Purchaser all the relevant letters,
the ratification documents and other relevant documents;
(b) Each of the Vendor shall jointly and/or severally ( as the case
may be ) deliver or procure the delivery to the Purchaser of all
the following:
(i) all constitutional documents, contracts, minute books and
records (which shall be written up to date as at
Completion);
(ii) copies of the business license, the name of the
shareholders, the copies of the shareholders' identity card,
the structure of the shareholding and financial statements
of the Company;
(iii) other documents, letters and material which the
Purchaser may require;
(c) The Vendor shall hold a shareholder meeting approving the
following items according to the Purchaser's requirements:
(i) the sale and purchase of the Sale Interests;
(ii) the Transferable Note;
(iii) amending the constitution of the Company according to the
Purchaser;
(d) The Vendor shall complete the change procedures regards to the
Sale Interests in relevant Commercial and Industrial bureau and
inform the Purchaser all the relevant letters, ratification
documents and other relevant documents regards to the above the
change procedures..
3.3 On Completion, The Vendor shall meet the following requirements:
a) If so required, passing of necessary resolutions by shareholders
of the Purchaser at a shareholder meeting approving (i) the
purchase of the Sale Interests from the Vendor and (ii) the
Transferable Note (iii) this Contract.
b) The Purchaser shall procure that the directors of the board of
Fintel Company make the resolutions and approve: the allotment
and issue of the Consideration Shares to the Vendor credited as
fully paid;
c) the Purchaser having obtained a legal opinion issued by a
qualified lawyer (acceptable by the Purchaser) in respect of:
(i) the legality and validity of this Contract and the
transactions contemplated herein;
(ii) the completion of all necessary procedures and obtaining of
all necessary approvals regarding the sale and purchase of
the Sale Interests;
(iii) no change in the permitted scope business of the Company
after the transfer of the Sale Interests;
(iv) all other matters reasonably requested by the Purchaser.
3.4 When any of the conditions set out in the Clause 3.2 has been
satisfied by the Vendor, unless that the Purchaser may by notice in
writing inform the Vendor to waive any of the conditions set out in
Clause 3.5, the Purchaser shall procure Fintel Company to allot, issue
and credit the Consideration Shares to the Vendor as fully paid.
3.5 From the date of this Contract to the Completion Date, the Purchaser
has the rights at any time in writing to inform the Vendor to waive
any of the conditions set out in Clauses 3.2; the Vendor also have the
rights at any time in writing to inform the Purchaser to waive any of
the conditions set out in Clause 3.3 from the date of this Contract to
the Completion Date.
3.6 Clauses 5 to Clause 13 shall survive the Completion.
4. CONSIDERATION
4.1 The Consideration for the transferring of the Sale Interests and the
issuing of the Transferable Note shall separately be RMB712,106
equal to USD 86,316 (1USD=RMB8.25) and RMB599,668 equal to USD 72,687
(1USD=RMB8.25) which shall be satisfied by the Purchaser in the
following manner:
i. the Purchaser procuring the Fintel Company to allot, issue and
credit the Consideration Shares to the Vendor in the Relevant
Proportions as fully paid on Completion; The Purchaser shall not
be obliged to complete the purchase of any of the Sale Interests
and the Transferable Note unless the purchase of all the Sale
Interests and the Transferable Note is completed simultaneously.
4.2 The Vendor shall notify the Purchaser in writing at least ten (10)
Business Days before the Completion Date of the name(s) and other
particulars of the registered holder(s) of the Consideration Shares
and the board lot denomination of the share certificate(s) in respect
of the Consideration Shares to be issued to them or their nominee(s)
and all necessary information and details as is reasonably required to
enable the share registrars of the Fintel Company to issue the
definitive share certificates for such Consideration Shares upon
Completion.
4.3 The Vendor understands that the Consideration Shares will not be
registered under the U.S. Securities Act. The Vendor also understand
that the Consideration Shares are being allotted and issued pursuant
to an exemption from registration contained in the U.S. Securities Act
based in part upon the Vendor' representations contained in this
Contract. The Vendor hereby represent and warrant as follow:
(a) Vendor bear economic risk: the Vendor have substantial experience
in evaluating and investing in private placement transactions of
securities in companies similar to the Purchaser so that it is
capable of evaluating the merits and risks of its investments in
the Purchaser and have the capacity to protect its own interests.
The Vendor are able to bear the economic risk of this investment;
(b) Acquisition for own account: the Vendor are acquiring the
Consideration Shares for their respective own account for
investment only, and not with a view towards their distribution;
(c) Vendor can protect their interest: the Vendor represent that by
reason of their management, business or financial experience, the
Vendor has the capacity to protect their own interests in
connection with the transactions contemplated in this Contract.
Further, the Vendor are aware of no publication of any
advertisement in connection with the transactions contemplated in
this Contract;
(d) Company information: the Vendor have had an opportunity to
discuss the Purchaser's business, management and financial
affairs with directors, officers and management of the Purchaser
and have had the opportunity to review the Purchaser's operations
and facilities. The Vendor have also had the opportunity to ask
questions of and receive answers from the Purchaser and its
management regarding the terms and conditions of this investment;
Purchaser will provide balance sheet and income statement to
Vendor.
(e) Rule 144: The Vendor have been advised or are aware of the
provisions of Rule 144 promulgated under the U.S. Securities Act,
which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions;
(f) Legends: The Vendor understand and agree that the Purchaser will
cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Consideration Shares, together with
any other legends that may be required by state or federal
securities laws, or by the Articles of Association and Bye laws
of the Company, or by any other agreement between the Vendor and
the Purchaser or between the Vendor and any third party: THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
4.4 The Purchaser agrees that upon expiry of the Restricted Trading Period, upon presentation of the Consideration Shares to Purchaser, under the terms and conditions of this Contract, Purchaser will commerce within 7 business days all necessary formalities and registration procedures as may be required under the U.S. Securities Act and the applicable State securities law to enable the Consideration Shares becoming freely transferable and resalable.
5. THE SHAREHOLDERS MEETING, BOARD AND MANAGEMENT OF THE COMPANY AFTER THE SALE AND PURCHASE OF SALE INTERESTS
5.1 The shareholders meeting which is formed by all shareholders shall be
the highest power organization of the Company. The way and the
procedures of discussing business in the shareholders meeting and the
scope of power of the shareholders meeting shall be ruled by "the
company law of the People's Republic of China "and the Company's
constitution amended under Clause 3.1 of this Contract.
5.2 After the sale and purchase of Sale Interest, The Company shall set up
the Board, the members of the Board are not more than 5 people and the
Purchaser has the rights to designate 1 director in the Board. The
business and operations of the Group shall be managed by the Board.
5.3 The Chairman of the Board and the legal representative of the Company
shall be nominated and appointed by the Board.
5.4 The financial controller and/or the chief financial officer of the
Company shall be nominated and appointed by the Board.
5.5 The scope of the power, the rules and the way of discussing the
business in the Board and the matters which are not concerned in
Clause 5 are ruled by "the company law of the People's Republic of
China" and the Company's constitution amended under Clause 3.1 of this
Contract.
5.6 The General Manager takes charge of the Company under the leading of
the Board. The scope of the power, the rules and the way of discussing
the business of the General Manager are ruled by "the company law of
the People's Republic of China" and the Company's constitution amended
under Clause 3.1 of this Contract.
6. DISPOSAL OF CONSIDERATION SHARES
Each of the Vendor agrees and acknowledges that the Consideration Shares are subject to the United States Securities and Exchange Commission ("SEC") Rule 144 and in particular, hereby jointly and severally undertakes to and covenants with the Purchaser and the Fintel Company that it will not, during the Restricted Trading Period, dispose of (including without limitation by the creation of any option, charge or other Encumbrance or rights over or in respect of) any of the Consideration Shares or any interests therein owned by it/him/her or in which it/he/she is, directly or indirectly, interested immediately after Completion.
7. WARRANTIES
7.1 THE WARRANTIES FROM THE VENDOR
1. The Company is a domestic joint venture company with limited
liability duly established and validly existing under the laws of
the PRC and has the corporate powers and authorizes to carry on
the business presently carried on by it and to own and hold the
assets used therewith. Each member of the Company are duly
established and validly existing under the laws of the place of
its incorporation and has the corporate powers and authorizes to
carry on the business presently carried on by it and to own and
hold the assets used therewith.
2. The facts and information set out in the recitals and Clause 2.2,
the Schedules and all documents attached are true and all
information which has been provided in writing to the Purchaser
or its representatives or advisers by the Vendor or by any
Director, officer or other official of the Company by its
professional advisers or other agents was when given and is now
true and accurate in all material respects. There is no fact or
matter which has not been disclosed which renders any such
information untrue, inaccurate or misleading or the disclosure of
which might reasonably affect the willingness of a willing
purchaser to purchase the Sale Interests in accordance with the
provisions of this Agreement.
3. The information disclosed to the Purchaser or its representatives
or professional advisers, by the Vendor and the directors,
officers or other officials of the Company regarding its current
status or prospects comprises all information which is material
for the reasonable assessment of the financial and trading
prospects of the Company or its subsidiaries as a whole.
4. The copy of the memorandum and articles of association of the
Company which have been provided to the Purchaser are true and
complete in all respects and have embodied in them or annexed to
them a copy of every such resolution and agreement required by
law to be annexed thereto and the Company has at all times
carried on its business and affairs in all respects in accordance
with its respective memorandum and articles of association and
all such resolutions and agreements.
5. The Sale Interests at the date of this Agreement are fully paid
up and are legally owned by the Vendor. There is not any
guarantees , mortgages or pledges and other forms of third
party's benefit on, over or affecting the Sale Interests.
6. The accounting systems of the Company and its subsidiaries comply
with `the Accounting Law of the People's republic of China' and
other relevant accounting regulations and laws. All the books of
the account of the Company and its subsidiaries are true and
accurate in all material respects and there is no loss at the
Date of the Balance Sheet of the Company;
7. At the Date of the Balance Sheet and the future, the Vendor shall
disclose a true and fair view of the assets and liabilities of
the Company and its subsidiaries and its profits for the
financial year ended on such date and the future;
8. The Company and its subsidiaries have paid all the taxes before
the Completion or will pay all the taxes according to the tax
laws and regulations and disclose all tax evasion or legally tax
evasions or other tax problems which can seriously affect the
Purchaser's intent to purchase the Sale Interests. The Company
and its subsidiaries haven't or will not pay any fine, penalty
and interests according to the tax laws, regulations and rules.
The Company and its subsidiaries have not in the last 3 years
been the subject of a discovery, audit or investigation by any
Taxation authority and there are no facts which are likely to
cause a discovery, audit or investigation to be made.
9. The Vendor covenant and undertake that prior to Completion and
without the prior written consent of the Purchaser, the Vendor
shall procure that the Company and its subsidiaries shall not:
a. incur any expenditure on capital account or enter into any
option in respect of any part of its assets;
b. dispose of or agree to dispose of or grant any option in
respect of any part of its assets;
c. borrow any money or make any payments out of or drawings on
its bank account(s) other than routine payments;
d. enter into any unusual or abnormal contract or commitment;
e. make any loan;
f. enter into any leasing, hire, purchase or other agreement or
arrangements for payment on deferred terms;
g. declare, make or pay any dividend or other distribution or
do or suffer anything which may render its financial
position less favourable than as at the date of this
Agreement;
h. grant or issue or agree to grant or issue any mortgages,
charges, debentures or other securities or give or agree to
give any guarantees or indemnities;
i. make any change in the terms and conditions of employment or
pension benefits of any of its directors or employees or
employ or terminate (other than for good cause) the
employment of any person;
j. create, issue or grant any option in respect of any class of
share or loan capital or agree so to do;
k. in any other way depart from the ordinary course of its
respective day-to-day business either as regards the nature
scope or manner of conducting the same;
l. voluntarily contravene or fail to comply with any material
obligation, statutory or otherwise; and
m. do anything whereby its financial position will be rendered
less favourable than at the date hereof.
10. After the date of the Contract, the Vendor required by the Purchaser shall hire the qualified and licensed CPA to audit the Company at each financial year.
7.2 THE WARRANTIES FROM THE PURCHASER
1. The Company is a company duly established and validly existing under
the laws of the Hongkong and has the corporate powers and authorises
to carry on the business presently carried on by it and to own and
hold the assets used therewith. The Fintel Company is a listed company
duly established and validly existing under the laws of USA.
2. The Purchaser procure that Fintel Company will issue the Consideration
Shares according to the terms and conditions of this Contract.
8. THE LIABILITIES OF THE BREACH OF THE CONTRACT
8.1. The Vendor and Purchaser shall fulfill the Contract properly and in
time, Should all or part of this Contract be unable to be fulfilled
owing to the fault of one party, the breaching party shall bear the
responsibilities thus caused.
8.2. Should the Vendor break the warranties regulated in Clause 8.1 and
cause the Purchaser's economic loss and expenses (including the legal
fees), the Vendor shall bear the responsibilities thus caused.
9. TERMINATION AND AMENDMENTS
9.1. The Vendor and the Purchaser can agree in writing to terminate this
Contract after negotiations.
9.2. The Vendor and the Purchaser can terminate this Contract according to
the following conditions:
1. Should this Contract be unable to be fulfilled materially due to
the Force Majeure, the Vendor and the Purchaser have the rights
to terminate this Contract without any liabilities.
2. Should one party be unable to fulfil this Contract improperly and
cause to break this Contract fundamentally, the party who abides
by this Contract has the rights to terminate this Contract, the
breaching party shall bear the responsibilities thus caused.
3. Other conditions regulated by the relevant laws.
10. CONFIDENTIALITY AND ANNOUNCEMENTS
10.1. Each of the parties undertakes to the others that it will not, at any
time after the date of this Agreement, divulge or communicate to any
person other than to its professional advisers, or when required by
law or any rule of any relevant stock exchange body or regulatory
authorities, or to its respective officers or employees whose province
is to know the same any confidential information concerning the
business, accounts, finance or contractual arrangements or other
dealings, transactions or affairs of any of the others which may be
within or may come to its knowledge and it shall use its best
endeavours to prevent the publication or disclosure of any such
confidential information concerning such matters.
10.2. No public announcement or communication of any kind shall be made in respect of the subject matter of this Agreement unless specifically agreed between the parties or unless an announcement is required pursuant to the applicable laws and the regulations or the requirements of any relevant stock exchange or any other regulatory body or authority. Any announcement by any party required to be made pursuant to any relevant laws or regulation or the requirements of the relevant stock exchange or any other regulatory body or authority shall be issued only after such prior consultation with the other party as is reasonably practicable in the circumstances.
11. GOVERNING LAW AND JURISDICTION
11.1. This Agreement shall be governed by and construed in accordance with the laws of Hong Kong. 11.2. Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach termination or invalidity thereof, shall be settled firstly by friendly negotiations; In case no settlement can be reached through consultations, the disputes shall be submitted to the jurisdictional Court in HongKong.
12. MISCELLANEOUS
12.1. This Contract constitutes the entire agreement between the parties
hereto with respect to the matters dealt with herein and supersedes
all previous agreements, arrangements, statements, understandings or
transactions between the parties hereto in relation to the matters
hereof and the parties acknowledge that no claim shall arise in
respect of any agreement so superseded.
12.2. Any variation to this Agreement shall be binding only if recorded in
a document signed by all the parties hereto.
12.3. The obligations, liabilities (including without limitation, breach of
Warranties) and undertakings of the Vendor shall be joint and several.
12.4. This Agreement shall be binding upon and ensure for the benefit of
the successors of the parties but shall not be assignable.
12.5. All provisions of this Agreement, in so far as the same shall not
have been performed at Completion, shall remain in full force and
effect notwithstanding Completion.
12.6. If any provision of this Agreement shall be held to be illegal or
unenforceable, the enforceability of the remainder of this Agreement
shall not be affected.
12.7. The Purchaser shall not be responsible for any government fees and
tax and other additional expenses(including lawyer fees) caused by the
Vendor according to this Contract
IN WITNESS WHEREOF THIS CONTRACT HAS BEEN DULY EXECUTED BY ALL PARTIES HERETO THE DAY AND YEAR FIRST ABOVE WRITTEN.
THE VENDOR
THE PURCHASER
FINTEL GROUP LTD.(STAMP)
AUTHORIZATION
EXHIBIT 10.6
INDEPENDENT CONTRACTOR AGREEMENT
This Agreement is entered into by and between:
1. FINTEL Group Ltd, a Hongkong corporation, located at Suite 308, Hang Bong Centre, 28 Shanghai Street, Kowloon, Hongkong, (herein referred to as "FINTEL"); and
2. Mr. Sam Chong Keen, a Singaporean Citizen, Passport No. S0141198E residing at 18 Angullia Park, #02-02 Angullia Mansions, Singapore 239973, herein referred to as "EXECUTIVE".
WHEREAS:
FINTEL agrees to employ the services of EXECUTIVE and EXECUTIVE accepts to provide his services to FINTEL, under the following terms and conditions.
3. TERM: The term of this agreement is one (1) years, starting November 1st, 2004 through October 30th, 2005;
4. DUTIES: The services provided by EXECUTIVE will be as follows: (a) locating potential clients (b) handling the negotiation (c) concluding the transaction (d) servicing the clients' needs and (e) ensuring the performance of the obligations of client and FINTEL. Additional duties might be required as agreed by both parties. EXECUTIVE will devote the best efforts in and to the faithful performance of the duties assigned by FINTEL.
5. COMPENSATION:
In consideration of the services to be rendered by EXECUTIVE as assigned by
FINTEL, FINTEL shall pay an annual compensation and benefits based on the
net income generated by EXECUTIVE per each client, not withstanding the
termination of this contract, as follows:
a) Cash payment is calculated at 33.33% of the net income received by FINTEL as a result of EXECUTIVE's services. The payments will be made according to the schedule of payments actually received by FINTEL;
b) In addition, EXECUTIVE will be issued an option to purchase FINTEL restricted common shares at the closing price of FINTEL on the date of issuance, which is around the date of closing the deal. The amount of shares will equal to the amount in US dollar of the total value of consideration in the transaction. For example, if EXECUTIVE closes a 2 million USD deal and the market price of FINTEL on the date of issuance is $0.20, he will be awarded a total of 2 million shares at the exercise price of $0.20 a share;
c) The option shall satisfy a vesting period before it can be exercised. The vesting period for the first one third of options is one year from date of issuance, two years for the second one third of options and three years for the third one third options. The option will be valid for a 3 year period from the end of respective vesting period. Should the client ends the service contract with Fintel before the vesting period is over, the remaining unvested options will be cancelled. For example, if the client ends the service contract in the second year, the remaining two third of the options will be cancelled. Should the client ends the service contract in the fourth year, no options will be cancelled regardless the options are exercised;
d) EXECUTIVE will be entitled to reimbursement for all reasonable expenses incurred by him in connection with the performance of his duties, upon presentation of expense reports according to FINTEL's corporate regulation regarding expenses.
e) EXECUTIVE will be entitled to participate and receive extra benefits as other FINTEL employees in a similar executive position, and in accordance with the benefit plans or programs set forth by the Board of Directors in the past, now or in the future.
6. TERMINATION: FINTEL or EXECUTIVE may terminate this Agreement unilaterally by giving advance notice to the other party 60 days in advance. EXECUTIVE shall be entitled to all accrued compensation and benefits prorated to the date of termination.
7. COVENANT NOT TO COMPETE: EXECUTIVE agrees that during the term of his employment, he will not, directly or indirectly, have any ownership interest of five percent or more in a corporation, firm, trust, association or other entity which is in competition with FINTEL
8. INDEPENDENT CONTRACTOR. It is expressly agreed that EXECUTIVE is acting as an independent contractor in performing its services hereunder. FINTEL shall carry no workers compensation insurance or any health or accident insurance on EXECUTIVE. FINTEL shall not pay any contributions to social security, unemployment insurance, any withholding taxes nor provide any other contributions or benefits that might be customary in an employer-employee relationship.
9. PROPRIETARY INFORMATION
a) For purposes of this Agreement, "proprietary information" shall mean
any information relating to FINTEL'S business that has not previously
been publicly released by FINTEL; and shall include, but not limited
to, inventions, computer codes, software, note, written concepts,
drawings, designs, plans, proposals, marketing and sales plans,
financial information, customer information and other date, methods,
concepts, ideas reasonably related to FINTEL'S business.
b) EXECUTIVE agrees to regard and preserve as confidential all
proprietary information obtained during or prior to his employment
term. EXECUTIVE will not use this information for his benefit or
purpose nor disclose same to others.
c) EXECUTIVE agrees not to remove from FINTEL'S premises, except in
pursuing his employment duties or by written consent of the Board of
Directors, any documents or objects containing proprietary information
EXECUTIVE recognizes that all such documents or objects, whether
developed by him or others are the exclusive property of FINTEL.
d) All client information and correspondences during the employment
period shall be considered property of FINTEL and EXECUTIVE must
promptly return to FINTEL upon termination of this agreement.
EXECUTIVE will not be bound by the foregoing limitation in the event
(i) the Information is otherwise disseminated and becomes public
information or (ii) EXECUTIVE is required to disclose the Information
pursuant to a subpoena or other judicial order.
10. NOTICES: Any notices required or permitted to be given here under shall be in writing and shall be delivered by prepaid registered or certified mail, return receipt requested. The address for notices shall be the same as per the first paragraph of this Agreement.
11. GOVERNING LAW; ENTIRE AGREEMENT:
This Agreement shall be construed according to the laws of Hong Kong; and
constitutes the entire understanding between the parties, superseding and
replacing all prior understandings and agreements. This Agreement cannot be
changed, amended or terminated except by written agreement signed by both
parties. If any of the provisions of this Agreement is invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement on the 1st day of November, 2004 in Hongkong .
FINTEL GROUP LTD. EXECUTIVE: By: ----------------------------------- ----------------------------- Date Signed:________________ Date Signed:_______________ |
EXHIBIT 10.7
INDEPENDENT CONTRACTOR AGREEMENT
This Agreement is entered into by and between:
1. FINTEL Group Ltd, a Hong Kong corporation, located at Suite 308, Hang Bong Centre, 28 Shanghai Street, Kowloon, Hongkong, or its designated affiliates (herein referred to as "FINTEL"); and
2. Info Media Company, a Hong Kong company, located at 14-I, 127 King's Road, Hong Kong, herein referred to as "CONTRACTOR".
WHEREAS:
FINTEL agrees to employ the services of CONTRACTOR and CONTRACTOR accepts to provide his services to FINTEL, under the following terms and conditions.
3. TERM: The term of this agreement is one (1) years, starting January 1st, 2005 through December 31st, 2005;
4. DUTIES: The services provided by CONTRACTOR will be as follows: (a) locating potential clients (b) handling the negotiation (c) concluding the transaction (d) servicing the clients' needs and (e) ensuring the performance of the obligations of client and FINTEL. Additional duties might be required as agreed by both parties. CONTRACTOR will devote the best efforts in and to the faithful performance of the duties assigned by FINTEL.
5. COMPENSATION:
In consideration of the services to be rendered by CONTRACTOR as assigned
by FINTEL, FINTEL shall pay an annual compensation and benefits based on
the net income generated by CONTRACTOR per each client, not withstanding
the termination of this contract, as follows:
a) Cash payment is calculated at 33.33% of the net income received by FINTEL as a result of CONTRACTOR's services. The payments will be made according to the schedule of payments actually received by FINTEL;
b) In addition, CONTRACTOR will be issued an option to purchase FINTEL restricted common shares on the same date as the issuance of shares per completion of the deal. The amount of option shares will equal to the total shares issued for the deal multiplied by the average share price of 30 trading days before completion (in USD) or the closing price on the date of completion, whichever is higher. For example, if CONTRACTOR signed a deal to issue two million shares and the average price of 30 trading days before completion is 0.21 and the price on the date of completion is 0.19, CONTRACTOR will be awarded a total of 0.42 million option shares at the exercise price of $0.21 a share, which is higher of the average closing price of 30 trading days and the closing price on the date of completion;
c) The option shall satisfy a vesting period before it can be exercised. The vesting period for the first one third of options is one year from date of issuance, two years for the second one third of options and three years for the third one third options. The option will be valid for a 3 year period from the end of respective vesting period. Should the client ends the service contract with Fintel before the vesting period is over, the remaining unvested options will be cancelled. For example, if the client ends the service contract in the second year, the remaining two third of the options will be cancelled. Should the client ends the service contract in the fourth year, no options will be cancelled regardless the options are exercised;
d) CONTRACTOR will be entitled to reimbursement for all reasonable expenses incurred by him in connection with the performance of his duties, upon presentation of expense reports according to FINTEL's corporate regulation regarding expenses.
e) CONTRACTOR will be entitled to participate and receive extra benefits as other FINTEL employees in a similar CONTRACTOR position, and in accordance with the benefit plans or programs set forth by the Board of Directors in the past, now or in the future.
6. TERMINATION: FINTEL or CONTRACTOR may terminate this Agreement unilaterally by giving advance notice to the other party 60 days in advance. CONTRACTOR shall be entitled to all accrued compensation and benefits prorated to the date of termination.
7. COVENANT NOT TO COMPETE: CONTRACTOR agrees that during the term of his employment, he will not, directly or indirectly, have any ownership interest of five percent or more in a corporation, firm, trust, association or other entity which is in competition with FINTEL
8. INDEPENDENT CONTRACTOR. It is expressly agreed that CONTRACTOR is acting as an independent contractor in performing its services hereunder. FINTEL shall carry no workers compensation insurance or any health or accident insurance on CONTRACTOR. FINTEL shall not pay any contributions to social security, unemployment insurance, any withholding taxes nor provide any other contributions or benefits that might be customary in an employer-employee relationship.
9. PROPRIETARY INFORMATION
a) For purposes of this Agreement, "proprietary information" shall mean any information relating to FINTEL'S business that has not previously been publicly released by FINTEL; and shall include, but not limited to, inventions, computer codes, software, note, written concepts, drawings, designs, plans, proposals, marketing and sales plans, financial information, customer information and other date, methods, concepts, ideas reasonably related to FINTEL'S business.
b) CONTRACTOR agrees to regard and preserve as confidential all proprietary information obtained during or prior to his employment term. CONTRACTOR will not use this information for his benefit or purpose nor disclose same to others.
c) CONTRACTOR agrees not to remove from FINTEL'S premises, except in pursuing his employment duties or by written consent of the Board of Directors, any documents or objects containing proprietary information CONTRACTOR recognizes that all such documents or objects, whether developed by him or others are the exclusive property of FINTEL.
d) All client information and correspondences during the employment
period shall be considered property of FINTEL and CONTRACTOR must
promptly return to FINTEL upon termination of this agreement.
CONTRACTOR will not be bound by the foregoing limitation in the event
(i) the Information is otherwise disseminated and becomes public
information or (ii) CONTRACTOR is required to disclose the Information
pursuant to a subpoena or other judicial order.
10. NOTICES: Any notices required or permitted to be given here under shall be in writing and shall be delivered by prepaid registered or certified mail, return receipt requested. The address for notices shall be the same as per the first paragraph of this Agreement.
11. GOVERNING LAW; ENTIRE AGREEMENT:
This Agreement shall be construed according to the laws of Hong Kong; and
constitutes the entire understanding between the parties, superseding and
replacing all prior understandings and agreements. This Agreement cannot be
changed, amended or terminated except by written agreement signed by both
parties. If any of the provisions of this Agreement is invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement on the 1st day of January, 2005 in Hong Kong .
FINTEL GROUP LTD. CONTRACTOR: By: ----------------------------------- ----------------------------- Date Signed:________________ Date Signed:_______________ |
EXHIBIT 10.8
INDEPENDENT CONTRACTOR AGREEMENT
This Agreement is entered into by and between:
1. FINTEL Group Ltd, a Hongkong corporation, located at Suite 308, Hang Bong Centre, 28 Shanghai Street, Kowloon, Hongkong, or its designated affiliates, herein referred to as "FINTEL"; and
2. China Digital Distribution Limited, a BVI corporation, located at Kingston Chamber, P.O. Box 173, Road Town, Tortola, British Virgin Island, herein referred to as "CONTRACTOR".
WHEREAS:
FINTEL agrees to employ the services of CONTRACTOR and CONTRACTOR accepts to provide his services to FINTEL, under the following terms and conditions.
3. TERM: The term of this agreement is one (1) years, starting January 1st, 2005 through December 31st, 2005;
4. DUTIES: The services provided by CONTRACTOR will be as follows: (a) locating potential clients (b) handling the negotiation (c) concluding the transaction (d) servicing the clients' needs and (e) ensuring the performance of the obligations of client and FINTEL. Additional duties might be required as agreed by both parties. CONTRACTOR will devote the best efforts in and to the faithful performance of the duties assigned by FINTEL.
5. COMPENSATION:
In consideration of the services to be rendered by CONTRACTOR as assigned
by FINTEL, FINTEL shall pay an annual compensation and benefits based on
the net income generated by CONTRACTOR per each client, not withstanding
the termination of this contract, as follows:
a) Cash payment is calculated at 33.33% of the net income received by FINTEL as a result of CONTRACTOR's services. The payments will be made according to the schedule of payments actually received by FINTEL;
b) In addition, CONTRACTOR will be issued an option to purchase FINTEL restricted common shares on the same date as the issuance of shares per completion of the deal. The amount of option shares will equal to the total shares issued for the deal multiplied by the average share price of 30 trading days before completion (in USD) or the closing price on the date of completion, whichever is higher. For example, if CONTRACTOR signed a deal to issue two million shares and the average price of 30 trading days before completion is 0.21 and the price on the date of completion is 0.19, CONTRACTOR will be awarded a total of 0.42 million option shares at the exercise price of $0.21 a share, which is higher of the average closing price of 30 trading days and the closing price on the date of completion;
c) The option shall satisfy a vesting period before it can be exercised. The vesting period for the first one third of options is one year from date of issuance, two years for the second one third of options and three years for the third one third options. The option will be valid for a 3 year period from the end of respective vesting period. Should the client ends the service contract with Fintel before the vesting period is over, the remaining unvested options will be cancelled. For example, if the client ends the service contract in the second year, the remaining two third of the options will be cancelled. Should the client ends the service contract in the fourth year, no options will be cancelled regardless the options are exercised;
d) CONTRACTOR will be entitled to reimbursement for all reasonable expenses incurred by him in connection with the performance of his duties, upon presentation of expense reports according to FINTEL's corporate regulation regarding expenses.
e) CONTRACTOR will be entitled to participate and receive extra benefits as other FINTEL employees in a similar CONTRACTOR position, and in accordance with the benefit plans or programs set forth by the Board of Directors in the past, now or in the future.
6. TERMINATION: FINTEL or CONTRACTOR may terminate this Agreement unilaterally by giving advance notice to the other party 60 days in advance. CONTRACTOR shall be entitled to all accrued compensation and benefits prorated to the date of termination.
7. COVENANT NOT TO COMPETE: CONTRACTOR agrees that during the term of his employment, he will not, directly or indirectly, have any ownership interest of five percent or more in a corporation, firm, trust, association or other entity which is in competition with FINTEL
8. INDEPENDENT CONTRACTOR. It is expressly agreed that CONTRACTOR is acting as an independent contractor in performing its services hereunder. FINTEL shall carry no workers compensation insurance or any health or accident insurance on CONTRACTOR. FINTEL shall not pay any contributions to social security, unemployment insurance, any withholding taxes nor provide any other contributions or benefits that might be customary in an employer-employee relationship.
9. PROPRIETARY INFORMATION
a) For purposes of this Agreement, "proprietary information" shall mean any information relating to FINTEL'S business that has not previously been publicly released by FINTEL; and shall include, but not limited to, inventions, computer codes, software, note, written concepts, drawings, designs, plans, proposals, marketing and sales plans, financial information, customer information and other date, methods, concepts, ideas reasonably related to FINTEL'S business.
b) CONTRACTOR agrees to regard and preserve as confidential all proprietary information obtained during or prior to his employment term. CONTRACTOR will not use this information for his benefit or purpose nor disclose same to others.
c) CONTRACTOR agrees not to remove from FINTEL'S premises, except in pursuing his employment duties or by written consent of the Board of Directors, any documents or objects containing proprietary information CONTRACTOR recognizes that all such documents or objects, whether developed by him or others are the exclusive property of FINTEL.
d) All client information and correspondences during the employment
period shall be considered property of FINTEL and CONTRACTOR must
promptly return to FINTEL upon termination of this agreement.
CONTRACTOR will not be bound by the foregoing limitation in the event
(i) the Information is otherwise disseminated and becomes public
information or (ii) CONTRACTOR is required to disclose the Information
pursuant to a subpoena or other judicial order.
10. NOTICES: Any notices required or permitted to be given here under shall be in writing and shall be delivered by prepaid registered or certified mail, return receipt requested. The address for notices shall be the same as per the first paragraph of this Agreement.
11. GOVERNING LAW; ENTIRE AGREEMENT:
This Agreement shall be construed according to the laws of Hong Kong; and
constitutes the entire understanding between the parties, superseding and
replacing all prior understandings and agreements. This Agreement cannot be
changed, amended or terminated except by written agreement signed by both
parties. If any of the provisions of this Agreement is invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement on the 1st day of January, 2005 in Hong Kong .
FINTEL GROUP LTD. CONTRACTOR: By: ----------------------------------- ----------------------------- Date Signed:________________ Date Signed:_______________ |
EXHIBIT 14.1
CODE OF ETHICS AND CONDUCT FOR
DIRECTORS, OFFICERS AND EMPLOYEES
OF FINANCIAL TELECOM LIMITED (USA), INC.
It is the policy of Financial Telecom Limited (USA), Inc., a Nevada corporation (the "Company"), that the directors, officers and employees of the Company and of each of its subsidiaries (collectively, the "Company") adhere to the following principles governing their professional and ethical conduct in the fulfillment of their respective responsibilities:
1. Each director, officer and employee shall act with honesty and integrity and in an ethical manner. Each director, officer and employee shall endeavor to deal fairly with the Company's customers, suppliers, competitors and employees.
2. Each director, officer and employee shall avoid conflicts of interest between his or her personal, private interests and the interests of the Company and seek to avoid the appearance of such conflicts of interest. A conflict of interest may arise when an individual takes actions or has interests that make it difficult to perform his or her Company work objectively and effectively, or when an individual uses his or her position at the Company for improper personal benefit. Actual and potential conflicts of interest must be promptly called to the attention of the Chief Executive Officer or Chief Financial Officer of the Company. Any transactions or relationships of a director or executive officer potentially involving any such conflict of interest shall be prohibited except with the prior written consent of the Audit Committee of the Company's Board of Directors. Any such conflicts of interest or potential conflicts of interest shall be resolved in an ethical manner with due consideration being given to the legitimate interests of the Company.
3. Each director, officer and employee shall perform his or her responsibilities and duties in such a manner as to ensure that periodic reports required to be filed with the Securities and Exchange Commission and other public communications made by the Company, including press releases and spoken statements, contain information that is full, fair, accurate, timely and understandable.
4. Each director, officer and employee shall comply with the laws of all U.S. and non-U.S. governmental entities applicable to the Company, and the rules and regulations of agencies having jurisdiction over the Company, including, but not limited to, the laws pertaining to insider trading of Company securities.
5. Each director, officer and employee shall act in good faith, responsibly, with due care and diligence, without misrepresenting or omitting material facts or allowing his or her independent judgment to be compromised.
6. Each director, officer and employee shall respect the confidentiality of information acquired in the course of the performance of his or her responsibilities, except when authorized by persons with appropriate authority or legally obligated to disclose such information. No director, officer or employee shall use confidential information acquired in the course of the performance of his or her responsibilities for improper personal advantage. The prohibitions of this paragraph are intended to be in addition to, and not in limitation of, any other obligations of confidentiality a director, officer or employee owes to the Company.
7. Each director, officer and employee shall proactively attempt to promote ethical behavior among his or her subordinates and peers.
8. Each director, officer and employee shall use Company assets and resources employed by or entrusted to him or her in a responsible manner for legitimate business purposes and not for improper personal advantage.
9. No director, officer or employee shall exploit corporate opportunities or compete with the Company.
Any violation or potential violation of this code by a director or executive officer should be promptly reported to the Chief Executive Officer or Chief Financial Officer of the Company, who will report all such reported violations and potential violations to the Audit Committee of the Board of Directors of the Company. Any such violation or potential violation also may be reported directly to the Audit Committee or any member thereof, or to any executive officer within
the Company that the person reporting deems to be appropriate. There will be no reprisals for reporting an actual or possible violation of this code provided the reporting person is not a party to or responsible for (alone or with others) the violation. With respect to directors and executive officers, the Audit Committee shall have the power and authority to monitor compliance with this code, investigate potential or alleged violations of the code, make determinations (including acting on requests for waivers from the provisions hereof) and make recommendations to appropriate executive officers or to the Board of Directors with respect to penalties and consequences for violations of this code. The appropriate executive officers of the Company and, in the case of violations or alleged violations by executive officers of the Company, the Board of Directors of the Company are authorized to take appropriate disciplinary action, including dismissal of the offender (after opportunity to be heard). If, in the determination of the Board of Directors with the assistance of counsel, any violation amounts to, or potentially amounts to, illegal activity, the Company may report the violation to appropriate authorities.
Any violation or potential violation of this code by an employee, other than a director or executive officer, should be promptly reported to the Chief Executive Officer or Chief Financial Officer of the Company or to any executive officer within the Company that the person reporting deems to be appropriate. Employees who violate this code may be subject to disciplinary action (after opportunity to be heard). It is also important to understand that violation of certain of the policies set forth in this code may subject the individual employee to civil liability and damages, regulatory sanction and/or criminal prosecution. There will be no reprisals for reporting an actual or possible violation of this code provided the reporting person is not a party to or responsible for (alone or with others) the violation.
Each director and executive officer of the Company shall be required, on an annual basis, to acknowledge and certify as to his or her compliance with this code to the Audit Committee.
Any waivers of this code for directors and executive officers of the Company must be approved by the Board of Directors of the Company and must be promptly disclosed (including the reasons for the waiver) in the Company's public filings in accordance with law and SEC and Nasdaq rules. In addition, substantive amendments to this code must be promptly disclosed in the Company's public filings in accordance with law and SEC rules.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF
DIRECT AND INDIRECT SUBSIDIARIES ORGANIZATION OWNERSHIP
-------------------------------- ------------ ---------
Fintel Group Limited Hong Kong 100%
Digital Financial Services Limited Hong Kong 100%
Financial Telecom Limited Hong Kong 100%
Fintel Wireless Internet Limited Hong Kong 100%
Fintel Investment Consultancy Management (Shanghai) China 100%
Inc.
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EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Chen and Stephen Tang, jointly and severally, as his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-KSB and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS FROM 10-KSB HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David Chen Chief Executive Officer and March 29, 2005
---------------------- Director
David Chen
/s/ Stephen Tang President and Chairman March 29, 2005
----------------------
Stephen Tang
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EXHIBIT 31.1
302 CERTIFICATION
I, Mr. David Y. Chen, certify that:
1. I have reviewed this transition report on Form 10-KSB of Financial Telecom Limited (USA), Inc;
2. Based on my knowledge, this transition report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this transition report;
3. Based on my knowledge, the financial statements, and other financial information included in this transition report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this transition
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
transition report (the "Evaluation Date"); and
c. presented in this transition report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this transition report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 29, 2005 By: /S/ David Y. Chen
--------------------------
David Y. Chen
Chief Executive Officer
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EXHIBIT 31.2
302 CERTIFICATION
I, Mr. Stephen Tang, certify that:
1. I have reviewed this transition report on Form 10-KSB of Financial Telecom Limited (USA), Inc;
2. Based on my knowledge, this transition report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this transition report;
3. Based on my knowledge, the financial statements, and other financial information included in this transition report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this transition
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
transition report (the "Evaluation Date"); and
c. presented in this transition report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this transition report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 29, 2005 By: /S/ Stephen Tang
--------------------------
Stephen Tang
President and Chairman
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EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350,
CHAPTER 63 OF TITLE 18, UNITED STATES CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of Title 18, United States Code), the
undersigned officers of Financial Telecom Limited (USA), Inc., a Nevada
corporation (the "Company"), does hereby certify with respect to the Annual
Report of the Company on Form 10-KSB for the year ended December 31 2004 as
filed with the Securities and Exchange Commission (the "10-KSB Report") that:
(1) the 10-KSB Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the 10-KSB Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Financial Telecom Limited (US), Inc.
Date: March 29, 2005 By: /s/ David Chen
--------------------------------
David Chen
Chief Executive Officer
Date: March 29, 2005 By: /s/ Stephen Tang
--------------------------------
Stephen Tang
President and Chairman
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