UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 Or 15(d) Of The Securities Act Of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
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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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
Common Stock: $0.001 par value: 84,004,913 shares outstanding as of April 15, 2005 (latest practicable date).
FINANCIAL TELECOM LIMITED (USA), INC.
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Condensed Notes -
Quarter Ended March 31, 2005 2
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Default Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
FINANCIAL TELECOM LIMITED (USA), INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 (UNAUDITED)
(STATED IN U.S. DOLLARS)
ASSETS MARCH 31,
2005
(UNAUDITED)
Current assets
Cash and cash equivalents $ 173,607
Trade receivables 34,029
Prepayments and other current assets 12,983
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Total current assets 220,619
Long term investment 645,187
Fixed assets, net 1,129
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TOTAL ASSETS $ 866,935
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade payables and accrued liabilities $ 310,430
Deferred revenue 31,512
Due to related parties 23,553
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Total current liabilities 365,495
Stockholders' equity
Common stock: $0.001 par value; 500,000,000 shares authorized
and issued and outstanding shares: 81,496,031
Common stock 81,496
Additional paid-in capital 3,762,199
Stock subscriptions 232,820
Accumulated other comprehensive loss (23)
Accumulated deficit (3,575,052)
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Total stockholders' equity 501,440
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 866,935
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(SEE CONDENSED NOTES TO THE FINANCIAL STATEMENTS.)
FINANCIAL TELECOM LIMITED (USA), INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
2005 2004
------------ ------------
Service fee income $ 78,712 $ 76,511
Costs of sales 41,197 73,440
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Gross profit 37,515 3,071
Operating expenses
General and administrative expenses 99,661 71,373
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Operating loss (62,146) (68,302)
Other income (expense)
Other income 18,597 --
Interest expense -- (10,152)
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Total other income (expense) 18,597 (10,152)
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Net loss before minority interest and taxes (43,549) (78,454)
Minority interest -- (31,663)
Provision for income taxes -- --
------------ ------------
Net loss (43,549) (110,117)
Foreign currency translation loss (23) --
------------ ------------
Total comprehensive loss $ (43,572) $ (110,117)
============ ============
Loss per share $ (0.0006) $ (0.0073)
============ ============
Weighted average shares outstanding 73,753,063 15,100,000
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(SEE CONDENSED NOTES TO THE FINANCIAL STATEMENTS.)
FINANCIAL TELECOM LIMITED (USA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD ENDED MARCH 31
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (43,549) $(110,117)
Adjustments to reconcile net loss to net cash flows used in
operating activities
Depreciation 423 1,932
Compensation cost for options issued for services rendered 4,553 --
Gain on waive off debt (18,597) --
Expense satisfied by stock subscription 14,600 --
Minority interest -- 31,663
Changes in assets and liabilities
(Increase)/decrease in trade receivables (6,280) 3,698
(Increase) in other current assets (12,983) (14,034)
(Decrease)/increase in trade and other payables (278,833) 32,480
Increase in deferred revenue 15,384 1,160
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Net cash used in operating activities (325,282) (53,218)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock 216,980 --
Advances from related parties -- 28,361
Repayments to related parties (21,113) (24,135)
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Net cash flows provided by financing activities 195,867 4,226
Foreign currency effect on cash (23) --
DECREASE IN CASH AND CASH EQUIVALENTS (129,438) (48,992)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 303,045 52,245
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CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 173,607 $ 3,253
========= =========
CASH PAID FOR INTEREST -- $ 10,152
CASH PAID FOR INCOME TAXES -- --
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Investment by issuance of common stock $ 645,187 --
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Common stock issued to settle debts $ 414,206 --
========= =========
Stock subscriptions for services rendered $ 14,600 --
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Compensation cost for options issued for services rendered $ 4,553 --
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SEE CONDENSED NOTES TO THE FINANCIAL STATEMENTS.
4
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FINANCIAL TELECOM LIMITED (USA), INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2005
ACCUMULATED
COMMON COMMON ADDITIONAL OTHER
STOCK STOCK PAID-IN STOCK ACCUMULATED COMPREHENSIVE
(SHARES) (AMOUNT) CAPITAL SUBSCRIPTIONS DEFICIT INCOME(LOSS) TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2004 48,668,704 $ 48,669 $ 2,514,100 $ 849,406 $(3,531,503) $ -- $ (119,328)
Common stock issued
to acquire investments
in other companies 12,173,338 12,173 633,014 -- -- 645,187
Common stock issued for cash 17,359,440 17,359 199,621 (216,980) -- -- 0
Common stock issued to
settle debt 3,294,549 3,295 410,911 (414,206) -- -- 0
Common stock subscriptions
in lieu of directors' fee -- -- -- 12,600 -- -- 12,600
Common stock subscriptions
in lieu of service rendered -- -- -- 2,000 -- -- 2,000
Compensation cost for options
issued for services rendered -- -- 4,553 -- -- -- 4,553
Foreign currency translation loss -- -- -- -- -- (23) (23)
Net loss -- -- -- -- (43,549) -- (43,549)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 2005 81,496,031 $ 81,496 $ 3,762,199 $ 232,820 $(3,575,052) $ (23) $ 501,440
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SEE CONDENSED NOTES TO THE FINANCIAL STATEMENTS.
5
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FINANCIAL TELECOM LIMITED (USA), INC.
CONDENSED NOTES - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
Financial Telecom Limited (USA), Inc. ("the Company", "We" or "us") 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. Through our wholly-owned subsidiaries, we provide financial advisory, financial information and direct investment to corporations in Mainland China, Hong Kong and certain Southeast Asian countries.
The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of our management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results for the entire year. These condensed financial statements and accompanying notes should be read in conjunction with our annual financial statements and the notes thereto for the year ended December 31, 2004, included in our Annual Report on Form 10KSB, filed with the Securities and Exchange Commission.
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, we have a negative working capital and a significant accumulated deficit. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financing requirements, and the success of our future operations. We may 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 our business. There is no assurance that such additional funds will be available to us on acceptable terms, if at all. Should we be unable to continue as a going concern, we may have to cease our operations. We believe that actions presently taken to revise our operating and financial requirements provide the opportunity for us to continue as a going concern. Our ability to achieve these objectives cannot be determined at this time.
THE FOLLOWING IS A SUMMARY OF SIGNIFICANT RELATED PARTY PURCHASE TRANSACTIONS, WHICH WERE CARRIED OUT IN THE NORMAL COURSE OF THE COMPANY'S BUSINESS:
2005 2004
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Bowland International Limited
Loan interest expense $ -- $ 10,152
Rental charge for leased office space $ 5,307 $ 8,912
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Bowland International Limited is a related company with a common director. Loan interest in 2004 was calculated at prime rate plus 3% per annum.
AMOUNTS DUE TO RELATED PARTIES ARE UNSECURED, INTEREST-FREE, HAVE NO FIXED TERMS OF REPAYMENT, AND CONSISTED OF THE FOLLOWING AT MARCH 31 2005:
Due to a former minority shareholder $ 23,077
Due to a director 476
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$ 23,553
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Basic loss per share is based on the weighted average number of common shares
outstanding and diluted loss per share is based on the weighted average number
of common shares outstanding and dilutive common stock equivalents. Earnings
(loss) per share is calculated by dividing the net profit (loss) for the period
by the weighted average shares outstanding during the period. All loss per share
amounts in these financial statements are basic loss per share as defined by
SFAS No. 128, "Earnings Per Share." Diluted weighted average shares outstanding
exclude the potential common shares from options outstanding because to do so
would be antidilutive.
During the three months ended March 31, 2005, we operated in two principal segments: merchant banking service and financial data service. Before 2005, we generated our income mainly from financial data service.
We do not allocate any general and administrative expenses or assets to our operating segments as we do not use this information to measure the performance of the sectors.
Income performance in the three months ended March 31, 2005 is as follows:
Merchant banking Financial data
services service Total
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Service fee income $ 32,260 46,452 78,712
Costs of sales $ 10,753 30,444 41,197
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Gross profit $ 21,507 16,008 37,515
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Income performance in the three months ended March 31, 2004 is as follows:
Merchant banking Financial data
services service Total
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Service fee income $ -- 76,511 76,511
Costs of sales $ -- 73,440 73,440
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Gross profit $ 3,071 3,071
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STOCK SUBSCRIPTIONS
Stock subscriptions represent the following:
(i) PROCEEDS FROM THE SALE OF COMMON STOCK - $500,000
Pursuant to a Stock Sale Agreement dated November 24, 2004, we sold 40,000,000 shares of our restricted common stock at $0.0125 per share to Allura Film Partners, Inc., an unrelated party, for gross proceeds of $500,000 without warrants. We received cash proceeds of $283,020 in December 2004. We received the balance of $216,980 in January 2005 and issued 17,539,440 shares.
(ii) SETTLEMENT OF DEBT - $632,426
In December 2004, we reached debt settlement agreements with certain creditors, including our previous and current directors, to convert their debts into our restricted common stock. The number of shares to be issued in the first installment was calculated based on: (i) the average closing price ($0.128) of our common stock traded on the Over-the Counter Bulletin Board ("OTCBB") in the last 10 trading days in December 2004 or (ii) at an agreed 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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In accordance with the settlement agreements, we issued 3,294,549 shares to settle debts in the amount of $414,206 in March 2005 under the first installment. The balance of $218,220 is payable over the remaining 3 quarters in 2005. The number of shares to be issued will be based on the average closing price of our common stock on the OTCBB of each quarter. In April 2005, we issued 699,424 shares to settle debts of $72,740 (see Note 6).
(iii) SUBSCRIPTION IN LIEU OF DIRECTORS' FEE $12,600
In March 2005, we reached agreements with our directors for the payment of their fees by our restricted common stock on a quarterly basis calculated at the average closing share price on the OTCBB of each quarter. Each director is paid a basic fee of $500 per month and an additional fee of $600 for each meeting attended. In April 2005, we issued 121,252 shares to settle fees due of $12,600 (see Note 6).
(iv) SUBSCRIPTION IN LIEU OF SERVICE RENDERED $2,000
In March 2005, we reached an agreement with Avalon Partners ("Avalon") to conduct certain investor relations work for us for a term of twelve (12) months commencing March 15, 2005 and terminating March 16, 2006. The agreement is cancelable at any time by either party after the first quarter for any reason in writing via email or fax. According to the agreement, we agreed to compensate Avalon for services rendered the sum of $3,000 per month and 50,000 shares of our restricted common stock per month. We accrued the amount of 25,000 shares at $0.08 per share, which represents the fair market value of the services rendered during the period.
STOCK ISSUANCE
Apart from the shares subscription as mentioned above, in February 2005, we issued an aggregate of 12,173,338 shares of our common stock as consideration for ownership interests in various entities and as consideration for the purchase of convertible notes pursuant to certain option agreements as follows:
o On December 14, 2004, we entered into an Option Agreement ("Longterms Agreement") with all of the shareholders ("Longterms Shareholders") 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 Longterms Agreement, we have the option to acquire from the Longterms Shareholders 19% of the total equity interest of Longterms at a purchase price of $130,474. On February 21, 2005, we exercised our option under the Longterms Agreement to purchase such 19% equity stake from the Longterms Shareholders and the purchase price for such equity stake was satisfied by our issuing to the Longterms Shareholders 2,461,773 shares of our common stock. On the same date, we also exercised our option under the Longterms Agreement to purchase a non-interest bearing convertible note from the Longterms Shareholders. Payment for the purchase was by the issuance of 2,073,072 shares of our common stock. On or before December 14, 2014, we can convert the note, without payment of any additional consideration, into 16% of Longterms' entire equity interest as of the date of the Option Agreement or, at our election, $109,873 in cash to be paid to us by the Sellers.
o On January 5, 2005, we entered into an Option Agreement ("JCL Agreement"), with all of the shareholders (the "JCL Shareholders") 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 JCL Agreement, we have the option to acquire from the JCL Shareholders 19% of the total equity interest of JCL for a purchase price of $155,697. On February 21, 2005, we exercised our option under the JCL Agreement to purchase such 19% equity stake from the JCL Shareholders and the purchase price for such equity stake was satisfied by our issuing to the JCL Shareholders 2,937,677 shares of our common stock. On the same date, we also exercised our option under the JCL Agreement to purchase a non-interest bearing convertible note from the JCL Shareholders. Payment of the purchase was by the issuance of 1,700,761 shares of our common stock. On or before January 5, 2015 we can convert the note, without any additional consideration, into 11% of the entire equity interest of JCL as of the date of the JCL Agreement or, at our election, $90,140 in cash to be paid to us by the Sellers.
o On January 20, 2005, we entered into an Option Agreement ("Qianhou Agreement") with all the shareholders (the "Qianhou Shareholders") 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, we have the option to acquire from the Qianhou Shareholders 19% of the total equity interest of Qianhou for a purchase price of $86,316. On February 21, 2005, we exercised our option under the Qianhou Agreement to purchase such 19% equity stake from the Qianhou Shareholders and the purchase was satisfied by our issuing to the Qianhou Shareholders 1,628,601 shares of our common stock. On the same date, we exercised our option under the Qianhou Agreement to purchase a non-interest bearing convertible note from the Qianhou Shareholders. Payment of the purchase was by the issuance of 1,371,454 shares of our common stock. On or before January 20, 2015, we can convert the note, without any additional consideration, into 16% of the entire equity interest of Qianhou as of the date of the Qianhou Agreement or, at our election, $72,687 in cash to be paid to us by the Sellers.
We account for investments in companies in which the company has less than a 20% interest at cost. Dividends received from those companies are included in other income. Dividends received in excess of the company's proportionate share of accumulated earnings are applied as a reduction of the cost of the investment.
STOCK OPTION
According to the independent contractor agreements we signed with Mr. Sam Chong Keen, Info Media Company and China Digital Distribution Limited ("CDDL"), we agreed to grant share options to these parties to purchase our restricted common stock as compensation for services rendered upon the successful introduction of business and clients to us and to stimulate their future commitment to us to service these respective clients. During the first quarter of 2005, CDDL successfully introduced to us 3 clients, which are Longterms, JCL, and Qianhou. According to the service contracts signed with Longterms, JCL and Qianhou, we will provide financial and investment services to these three companies over a ten year period. CDDL will render services to these clients and will be compensated based on the payments collected from these clients. On February 21, 2005, we granted CDDL options to purchase up to 1,278,200 of our restricted common stock at an exercise price of $0.105. The number of options granted was computed based on the total shares issued in connection with each deal multiplied by the average share price of 30 trading days before completion. According to the contractor agreement, after each first three anniversary of the granting date, CDDL is entitled to exercise one third of the option shares at any time during the next three years. Additionally, should the client end the service contract with the Company within three years from the granting date, the remaining unexercised option shares will be cancelled. None of the parties are considered related parties to the Company as defined by SFAS No. 57, "Related Party Disclosures."
Pursuant to EITF 96-18 "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," the fair value of equity instruments issued (options in this case) for services rendered are recognized in the same period and in the same manner as if the Company had paid cash. .
(i) In April 2005, we issued an aggregate of 121,152 restricted shares of our common stock as payment of directors' fees of $12,600 for the first quarter of 2005.
(ii) In April 2005, we issued an aggregate of 699,424 restricted shares of our common stock as settlement our debts of $72,740.
(iii) On March 25, 2005, we entered into a Sales and Purchase Agreement ("Enjoy Agreement"), with all of the shareholders (the "Enjoy Shareholders") of Enjoy Media Holding Limited ("Enjoy Media") to acquire from the Enjoy Shareholders 19.5% of the total equity interest of Enjoy Media for a consideration of $82,727. On April 8, 2005, we completed the purchase of such 19.5% equity stake from the Enjoy Shareholders and the purchase price was satisfied by our issuing to the Enjoy Shareholders 1,688,306 shares of our common stock. The common shares issued to the Enjoy Shareholders are restricted under the Securities Act of 1933, as amended, and are subject to transfer restrictions thereunder. According to the agreement signed with CDDL, CDDL was granted options on April 8, 2005, to purchase up to 168,831 shares of our restricted common stock at an exercise price of $0.10. CDDL can exercise one third of its options during the three years from one year after the granting date, one third during the three years from two years after the granting date, and one third during the three years from three years after the granting date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's discussion and analysis of results of operations and financial condition ("MD&A") is provided as a supplement to the accompanying financial statements and footnotes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The MD&A is organized as follows:
o CAUTION CONCERNING FORWARD-LOOKING STATEMENTS AND RISK FACTORS. This section discusses how certain forward-looking statements made by us throughout the MD&A and in the financial statements are based on our present expectations about future events and are inherently susceptible to uncertainty and changes in circumstances.
o OVERVIEW. This section provides a general description of our business, as well as recent developments that we believe are important in understanding the results of operations and to anticipate future trends in those operations.
o RESULTS OF OPERATIONS. This section provides an analysis of our results of operations for the quarter ended March 31, 2005 compared to the results of the quarter ended March 31, 2004. A brief description is provided of transactions and events, including related party transactions that impact the comparability of the results being analyzed.
o LIQUIDITY AND CAPITAL RESOURCES. This section provides an analysis of our financial condition and cash flows as of and for the quarter ended March 31, 2005 and March 31, 2004.
o CRITICAL ACCOUNTING POLICIES. This section provides an analysis of the significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
The following discussion should be read in conjunction with our 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," 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. We do 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) our inability 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 our filings with the Securities and Exchange Commission.
Our wholly-owned subsidiary, Financial Telecom Limited ("FTLHK"), was established in 1983. It was the first company in Hong Kong to provide real-time financial information services using a wireless network for the dissemination of data. Through FTLHK, we generate revenue through the provision of financial information services and the sale of technical analysis software and related Internet and telephone services.
Due to the recession in 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 the sudden acute respiratory syndrome (SARS) in the first half of 2003. Because of these negative factors and the 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.
In the first quarter of 2005, to augment our marketing and promotion efforts, we have appointed independent contractors to help us to locate prospective clients for our merchant banking services. We also appointed an investor relations firm to enhance our market visibility and company image.
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.
COMPARISON OF THE QUARTER ENDED MARCH 31, 2005 AND MARCH 31, 2004
We started to provide merchant banking and financial advisory services in the first quarter of 2005. Before 2005, we generated most of our income from the provision of financial data services.
NET SALES AND COST OF SALES. We recorded net sales of $78,712 in the first quarter of 2005, a slight increase of 3% as compared to $76,511 in the same period in 2004. Net sales in the first quarter of 2005 consisted primarily of income from financial advisory services sector and financial data services sector. Net sales in the first quarter of 2004 only included sales from the financial data services sector, which consisted mainly of real-time financial data services, rental of equipment, consultancy fee income and data compilation. The service fee in the first quarter of 2005 included investment and financial advisory service income of $32,260 and data compilation fee of $46,452. The income from financial data services sector had in fact declined by 39% as compared to the same period of 2004. The significant drop of sales in this sector is due to the phase-out of the real-time financial data services beginning in October 2004.
Cost of sales in the first quarter of 2005 included the costs paid to the independent contractor who had successfully introduced to us the clients and assisted in closing the transactions. Cost of sales in the same period in 2004 included cost of capacity associated with the acquisition of data-feed from various data sources 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 the three months ended March 31, 2005 was $41,197, a 44% decline, as compared to $73,440 for the same period in 2004. The decline of cost of sales is mainly due to the higher gross margin of investment and financial advisory services sector as compared to the gross margin of financial data services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses ("SG&A") expenses amounted to $99,661 for the first quarter of 2005, an increase of $28,288 compared to $71,373 for the same period in 2004. The increase in SG&A is partly due to the higher professional and consultancy fees incurred in connection with the listing of our shares on the OTCBB, and other fees incurred to promote our newly launched financial advisory services.
INTEREST EXPENSE. Interest expense during the three months ended March 31 2004 represents payment of interest on loans from FTLHK's former shareholders and related parties. In accordance to the settlement agreements with these lenders, interest will not be accrued on these loans from January 2005 onward.
OTHER INCOME. In the first quarter of 2005, we re-negotiated with certain companies which provided professional service to us. As a result, these companies agreed to waive a total of $18,597 of the fee payables to them. This amount was recorded as other income.
Our principal capital requirements during 2004 and 2005 are to satisfy ordinary operating expenditures and professional fees relating to our application for listing of our common stock at the OTCBB. We continue 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 raised $500,000 pursuant to an agreement dated November 24, 2004, with Allura Film Partners, Inc. for the sale and purchase of 40,000,000 of our common stock at $0.0125 per share. The proceeds from this transaction are being used for our operating expenditures and repayment of certain debts. 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 a net loss of $43,549 for the three months ended March 31, 2005. In addition, our cash flows from operations were inadequate to meet our monthly expenses. Our ability to continue as a going concern depends on the success of our plan to seek funding sources and the success of our future operations.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004
OPERATING ACTIVITIES. The net cash used for operating activities was $325,282 during the three months ended March 31, 2005, compared to $53,218 in the same period in 2004. The net cash used during the three months ended March 31, 2005 was primarily a result of the net loss of $43,549, offset by for equity issued for services rendered of $19,153, depreciation of $423 and liabilities written off of $18,597 and a decrease in trade and other payables of $278,833. The net cash used during the same period in 2004 was a result of the net loss of $110,117, offset by non-cash items totaling $33,595 and changes in working capital accounts totaling $23,304.
INVESTING ACTIVITIES. During the three months ended March 31, 2005 and 2004, no cash inflow or outflow from investing activities was recorded. Our investment in the various companies was satisfied by the issuance of our common stock as described in the previous section of this report.
FINANCING ACTIVITIES. The net cash provided in financing activities was $195,867 during the three months ended March 31, 2005, compared to $4,226 during the same period on 2004. During the three months ended March 31, 2005, the cash inflow provided to us from financing activities was proceeds from sale of common stock of $216,980 offset by repayment to directors of $21,113. During the same period of 2004, the cash generated from financing activities are the advances from related parties of $28,361, off set by repayment to related parties of $24,135.
Our discussion and analysis or plan of operation are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:
REVENUE RECOGNITION
Revenue is recognized when the following criteria are met: persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. Amounts received from customers in advance of revenue recognition are deferred and classified on the balance sheet as "deferred revenue."
TRADE RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
We present trade receivables, 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 our customer base. We review a customer's credit history before extending credit. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. There are currently no allowances for doubtful accounts as of March 31, 2005, as management does not deem any of the accounts are uncollectible.
INCOME TAXES
We account for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS" No. 109), "Accounting for Income Taxes," whereby deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred income tax assets to the amount expected to be realized.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date, that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission ("SEC") reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to us, including our consolidating subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared.
Additionally, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
1. Pursuant to a Stock Sale Agreement dated November 24, 2004, we sold 40,000,000 shares of our restricted common stock at $0.0125 per share to Allura Film Partners, Inc. (Allura), an unrelated party, for gross proceeds of $500,000 without warrants. We received cash proceeds of $283,020 during December 2004. We received the remaining funds of $216,980 in January 2005. On January 3, 2005, we issued 40,000,000 shares to Allura and several other parties according to Allura's instruction. However, we booked 22,460,560 shares issuance in December 2004 and booked 17,539,440 shares issuance in January 2005 to reflect the actual cash received.
The shares were exempt from registration pursuant to Sections 4(2) under the Securities Act. No underwriting or other commissions were paid in connection with the issuance of these shares.
2. In December 2004, we reached debt settlement agreements with certain creditors, including our previous and current directors, to convert their debts into our restricted common stock in four quarterly installments. The number of shares issued under the first installment was calculated based on either: (i) the average closing price ($0.128) of our common shares traded on the OTCBB in the last 10 trading days in December 2004 or (ii) at an agreed price of $0.04 per share.
In March 2005, we issued an aggregate of 3,294,549 shares dated January 3, 2005 to settle debts of $414,206, payable under the first installment mentioned above. The number of shares to be issued for this purpose will be based on the average closing price of our common shares on the OTCBB in the last 30 days of each quarter.
The shares were exempt from registration pursuant to Sections 4(2) under the Securities Act. No underwriting or other commissions were paid in connection with the issuance of these shares.
3. On February 21, 2005, we exercised our option under the Option Agreement with the shareholders of Shanghai Longterms Technology Ltd and issued 4,534,845 of our restricted shares of common stock at $0.053 per share. The issuance was exempted from registration under the Securities Act of 1933, as amended, pursuant to Rule 903 thereunder as a sale by the issuer in an offshore transaction.
4. On February 21, 2005, we exercised our option under the Option Agreement with the shareholders of Beijing JCL Technology Commerce Ltd and issued an aggregate of 4,638,438 our restricted shares of common stock at $0.053 per share. The issuance was exempted from registration under the Securities Act of 1933, as amended, pursuant to Rule 903 thereunder as a sale by the issuer in an offshore transaction.
5. On February 21, 2005, we exercised our option under the Option Agreement with Shanghai Qianhou Computer Technology Ltd and issued an aggregate of 3,000,055 of our restricted shares of common stock at $0.053 per share. The issuance was exempted from registration under the Securities Act of 1933, as amended, pursuant to Rule 903 thereunder as a sale by the issuer in an offshore transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following list describes the exhibits filed as part of this Report on Form 10-QSB.
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.
10.9(3) Sales and purchase agreement dated March 25, 2005 between
Fintel Group Limited and shareholders of Enjoy Media Holdings
Limited
14.1(2) Code of Ethics
21.1(2) Subsidiaries of the registrant
24.1(3) Power of Attorney
31.1(3) 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(3) 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(3) 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) Incorporated herein by reference to the registrant's Annual Report on Form
10-KSB (File No. 000-50760) filed on March 31, 2005.
(3) Filed herewith
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: April 29, 2005
By: /s/ David Chen
-----------------------------------
David Chen, Chief Executive Officer
Date: April 29, 2005
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EXHIBIT 10.9
THIS CONTRACT FOR SALE AND PURCHASE OF
CERTAIN INTEREST IN THE REGISTRED CAPITAL OF
ENJOY MEDIA HOLDINGS LIMITED
PAVLOVA LIMITED
ASIA TIMES LIMITED
LU YONGCHAO
CHEN ZHONGWEN
AND
Fintel Group Ltd.
MARCH 25, 2005
THIS CONTRACT is dated the March 25, 2005.
BETWEEN:
1) Pavlova Limited, Registry No.: 577781, Address: Room 203, 139-141, Wai Yip
Street, Kwun Tong, Kowloon, Hong Kong
2) Asia Times Limited, Registry No.:574814, Address: Room 203, 139-141, Wai
Yip Street, Kwun Tong, Kowloon, Hong Kong
3) Lu Yongchao, Passport No.: G10438026, Address: Room 2608, Floor 11, East
New World, No. 158 ZhongShan West Road GuangZhou, China
4) Chen Zhongwen, Passport No.: G01371891, Address: Room 703, No.7, HaiYin
Garden, DaShaTou 4 Road, Guangzhou, Guangdong, China (Pavlova Limited, Asia
Times Limited, Lu Yongchao and Chen Zhongwen ) are hereinafter collectively
referred to as the "Vendors" and each individually referred to as the
"Vendor"); and
5) Fintel Group Ltd., a company incorporated in HONG KONG with its registered
office situate at 306, Hang Bang Center, 28 Shanghai St., Kowloon, Hongkong
(the "Purchaser").
WHEREAS:
(A) Enjoy Media Holdings Limited (the "Company") is a company with limited
liability incorporated in the British Virgin Islands and has as at the date
hereof a net asset of RMB2,000,000 and its office address is Room 203, Siu
Fat Industrial Building, 139-141 Wai Yip Street, Kwun Tong, Kowloon, Hong
Kong.
(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) The Vendors have agreed to sell and the Purchaser has agreed to purchase
certain interests in the registered capital of the Company, the aggregate
of which represents 19.5% of the entire interest in the registered capital
of the Company (the "Sale Interests") in accordance with the terms and
conditions of this Contract.
(D) The Purchaser procures that Fintel Company shall allot and issue the new
restricted shares which are calculated by RMB 682,500 equal to US$
82,727(1US$=RMB8.25) / 50% of the average share price of 30 business days
before Completion and are restricted according to Rule 144 promulgated
under the U.S Securities Act and which symbol is FLTL.OB in the
Over-the-Counter Bulletin Board ("OTCBB") of the United States.
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 sale and purchase of the Sale
Interest, as amended or supplemented from time to
time;
"BUSINESS DAY" From Monday to Friday except British Virgin Island's
public holidays;
"SALE INTERESTS" 19.5% of the entire interest in the registered
capital of the Company to be sold by the Vendors to
the Purchaser, in which 10.101% of the entire
interest in the registered capital of the Company is
sold by Pavlova Limited to the Purchaser and 1.175%
of the entire interest in the registered capital of
the Company is sold by Asia Times Limited to the
Purchaser and 7.049% of the entire interest in the
registered capital of the Company is sold by Lu
Yongchao to the Purchaser and 1.175% of the entire
interest in the registered capital of the Company is
sold by Chen Zhongwen to the Purchaser;
"FINTEL COMPANY" Financial Telecom Limited (USA) Inc., a company
incorporated under the laws of the state of XXXX,
United States, the shares of which are currently
listed on the Over-the-Counter Bulletin Board
("OTCBB") of the United States (OTCBB Symbol:
FITG.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 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;
"RESTRICTED TRADING a period of twelve (12) & twenty-four (24) &
PERIOD" thirty-six (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" completion of the sale and purchase of the Sale
Interests 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 3.1, 3.2 and 3.4 have
been fulfilled or waived by the Purchaser;
"LONG STOP DATE" Within six months after the date of this Contract;
"THE DATE OF THE February 28, 2005.
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BALANCE SHEET"
2. SALE AND PURCHASE OF THE SALE INTERESTS
2.1 Subject to the terms and conditions of this Contract, each of the Vendors, agrees to sell and the Purchaser agrees to purchase the Sale Interests which is beneficially held by each of the Vendors, in which 10.101% of the entire interest in the registered capital of the Company is sold by Pavlova Limited to the Purchaser and 1.175% of the entire interest in the registered capital of the Company is sold by Asia Times Limited to the Purchaser and 7.049% of the entire interest in the registered capital of the Company is sold by Lu Yongchao to the Purchaser and 1.175% of the entire interest in the registered capital of the Company is sold by Chen Zhongwen to the Purchaser. The consideration for Sale Interests is the Consideration Shares. From the date of this Contract, the Purchaser is the beneficial owner of the Sale Interests with all rights now or hereafter attaching thereto.
2.2 Subject to Clause 2.1 of this Contract, on the Date of the Balance Sheet, the Company`s net assets which are audited by independent third party CPA are RMB2,000,000.
2.3 After the date of this Contract, The Vendors will not assume any debts and any other duties regards to the Sale Interests, which exist after the date of this Contract and will not have any creditor's rights and any other rights regards to the Sale Interests, which exists after the date of this Contract. After the date of this Contract, The Purchaser will assume any debts and any other duties regards to the Sales Interests, which exist after the date of this Contract and will have any creditor's rights and any other rights regards to the Sale Interests, which exists after the date of this Contract.
3. COMPLETION
3.1 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 sale and purchase of the Sale Interests from the relevant British Virgin Islands' 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) In relation to Clause 3.2 (a), 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.
(c) 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 documentsi(cent)letters and material which the Purchaser may require;
(d) 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) amending the constitution of the Company according to the Purchaser;
(e) 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..
3.2 On Completion, The Vendors shall meet the following requirements:
a) The Purchaser having completed its due diligence (including without limitation, legal, financial and commercial aspects) in respect of the Company and its subsidiaries referred to in Clause 3.1 and the results of which are, in the absolute opinion of the Purchaser, satisfactory and acceptable to the Purchaser in all respects;
b) 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) this Contract.
c) 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;
d) 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.
3.3 When any of the conditions set out in the Clause 3.1 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 3.1, the Purchaser shall procure Fintel Company to allot, issue and credit the Consideration Shares to the Vendors as fully paid.
3.4 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 3.1; 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 3.2 from the date of this Contract to the Completion Date.
3.5 The Completion Date is not later than the Long Stop Date, otherwise, any of Parties can terminate this Contract.
3.6 Clauses 5 to Clause 13 shall survive the Completion.
4. CONSIDERATION
4.1 The Consideration for the sale and purchase of the Sale Interests shall be the sum of RMB682,500 equal to US$ 82,727(1USD=RMB8.25) which shall be satisfied by the Purchaser in the following manner:
i. RMB682,500, being payment and consideration for 19.5% of the entire equity interest in the registered capital of the Company , shall be satisfied by the Purchaser procuring the Fintel Company to allot, issue and credit the Consideration Shares to the Vendors in the Relevant Proportions as fully paid; The Purchaser shall not be obliged to complete the purchase of any of the Sale Interests unless the purchase of all the Sale Interests 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
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 British Virgin Islands' relevant laws and the Company's constitution amended under Clause 3.1 of this Contract.
5.2 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 British Virgin Islands' relevant laws 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 British Virgin Islands' relevant laws 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 company with limited liability duly established and validly existing under the laws of British Virgin Islands 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 3.1(C), 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 British Virgin Islands' 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. Every financial year the Vendors and the Purchaser shall hire the qualified and licensed CPA to audit the Company.
9. On Completion Date, the audited net assets of the Company( the " Audited net assets) is not less than the net assets on the Date of the Balance Sheet(the "Promised net assets").
10. 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, penality 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.
11. 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.
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 fulfilled 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 7.1 and cause the Purchaser's economic loss and expenses (including the legal fees), the Vendors shall bear the responsibilities thus caused.
8.3. Should the Vendors break the warranties regulated in Clause 7.1, the Vendors shall pay back to the Purchaser with the difference of Audited net assets and Promised net assets.
9. PRICE ADJUSTMENT
9.1 If the 12 months, 24 months and 36 months of Restricted Trading Period are over, the value of the freely transferable Consideration Shares which the Vendors or their designated persons are owner, that is the freely transferable Consideration Shares x the average price of 30 trading days before the end of Restricted Trading Period, is less than the twice of the value of the freely transferable Consideration Shares on Completion Date, the Vendors inform the Purchaser in written note(the Vendors' note) and ask the Purchaser execute the following price adjustments. The Purchaser shall choose one of the following ways to execute the price adjustments within 30 business days after the Vendors' note.
A) to pay back cash according to the following formula: the Cash paid back = the twice of the value of freely transferable Consideration Shares on Completion Date -(the freely transferable Consideration Shares x the average price of 30 trading days before the Restricted Trading Period(including the ending day of the Restricted Trading Period));
B) procure the Fintel Company issue and allot new restricted shares of the Fintel Company in the name of the Vendors or their nominees, which are restricted according to Rule 144 promulgated under the U.S Securities Act and are calculated by the Cash paid back / the average share price of 30 business days before the Restricted Trading Period(including the ending day of the Restricted Trading Period).
9.2 If the value of the freely transferable Consideration Shares on the ending days of the Restricted Trading Period and the days that the Vendors sell is more than twice of the value of the freely transferable Consideration Shares on Completion, the Purchaser shall have the rights to share 50% of difference.
9.3 If the Company is listed in any security exchange board after within 12 months after the Completion, the Clause 9 of the Contract shall be not valid.
10. TERMINATION AND AMENDMENTS
10.1 The Vendors and the Purchaser can agree in writing to terminate this Contract after negotiations.
10.2 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.
11. CONFIDENTIALITY AND ANNOUNCEMENTS
11.1. 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.
11.2. 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.
12. GOVERNING LAW AND JURISDICTION
12.1. This Agreement shall be governed by and construed in accordance with the laws of Hong Kong.
12.2. 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.
13. MISCELLANEOUS
13.1. 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.
13.2. Any variation to this Agreement shall be binding only if recorded in a document signed by all the parties hereto.
13.3. The obligations, liabilities (including without limitation, breach of Warranties) and undertakings of the Vendors shall be joint and several.
13.4. This Agreement shall be binding upon and ensure for the benefit of the successors of the parties but shall not be assignable.
13.5. 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.
13.6. 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.
13.7. 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
PAVLOVA LIMITED
ASIA TIMES LIMITED
LU YONGCHAO
CHEN ZHONGWEN
THE PURCHASER
FINTEL GROUP LTD.(STAMP)
AUTHORIZATION
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-QSB 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-QSB 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 April 29, 2005
------------------------ Director
David Chen
/s/ Stephen Tang President and Chairman April 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-QSB 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 45 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: April 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-QSB 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 45 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: April 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 Quarterly
Report of the Company on Form 10-QSB for the quarter ended March 31 2005 as
filed with the Securities and Exchange Commission (the "10-QSB Report") that:
(1) the 10-QSB 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-QSB Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Financial Telecom Limited (US), Inc.
Date: April 29, 2005 By: /s/ David Chen
--------------
David Chen
Chief Executive Officer
Date: April 29, 2005 By: /s/ Stephen Tang
----------------
Stephen Tang
President and Chairman
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