U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30,2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
COMMISSION FILE NUMBER 333-62236
TELECOM COMMUNICATIONS, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Indiana 35-2089848
------- ----------
(State or other jurisdiction of (IRS Employer identification
incorporation or organization) No.)
827 S. Broadway, Los Angeles, CA 90014
--------------------------------------
(Address of principal executive offices)
(213) 489-3486
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section13
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 [ ]
Number of shares of common stock outstanding as of
May 18, 2002: 10,000,000
TELECOM COMMUNICATIONS INC.
FORM 10-QSB
QUARTERLY PERIOD ENDED June 30,2002
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets
June 30,2002 (Unaudited) and September 30, 2002...................3
Statements of Operations (Unaudited)
For the Three and Nine Months Ended June 30, 2002 and 2001.....4
Statement of Cash Flows (Unaudited)
For the Nine Months Ended June 30, 2002 and 2001...............5
Notes to Consolidated Financial Statements...............................6-9
Item 2 - Management's Discussion and Analysis and Plan of Operation....10-14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings................................................15
Item 2 - Changes in Securities and Use of Proceeds........................15
Item 3 - Defaults 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.................................15
Signatures................................................................16
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ITEM 1. FINANCIAL STATEMENTS
TELECOM COMMUNICATIONS INC.
BALANCE SHEETS
AT JUNE 30, 2002 (UNAUDITED) AND SEPTEMBER 30, 2001
(Unaudited)
June 30, 2002 September 30, 2001
ASSETS
---------------------------------------
Current Assets
---------------------------------------
Cash in banks (note 4) $ 9,888 $ 25,920
Inventory (note 5) 4,000 4,000
TOTAL CURRENT ASSETS 13,888 29,920
-------- ----------
PROPERTY AND EQUIPMENT, NET 0 0
---------------------------------------
TOTAL ASSETS $ 13,888 $ 29,920
========= ==========
LIABILITIES & STOCKHOLDERS' EQUITY
---------------------------------------
CURRENT LIABILITIES
----------------------------------------
Income taxes payable (note 14) $ 6,152 $ 21,026
-------- ---------
TOTAL CURRENT LIABILITIES 6,152 21,026
-------- ----------
STOCKHOLDERS' EQUITY (NOTE 15)
-----------------------------------------
COMMON STOCK ($.001 PAR VALUE,
80,000,000
SHARES AUTHORIZED:
10,000,000 ISSUED AND OUTSTANDING) $ 10,000 $ 10,000
Preferred stock ($.001 par value, 20,000,000
shares authorized 0 0
non issued and outstanding)
additional paid-in-capital 0 0
Retained earnings $ (2,264) $ (1,106)
TOTAL STOCKHOLDERS' EQUITY 7,736 8,894
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,888 $ 29,920
========= =========
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TELECOM COMMUNICATIONS INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
INCOME (NOTE 2):
------------------
Phone calls $ 48,930 $ 40,026 $ 118,725 $ 127,313
Lotto tickets (net) 912 517 4,342
4,632
Bus tokens 90,565 112,980 286,016 400,048
Bus passes 1,568 10,197 5,225 38,829
Checks cashed (net) 2,868 4,887 7,061
8,000
Money Grams (net) 1,024 2,049 4,410 6,428
---------- ------------ ---------- ----------
TOTAL 145,867 170,656 425,779 585,250
---------- ------------ ----------- ----------
COST OF GOODS SOLD
------------------
Phone call costs 30,576 26,166 64,004 61,178
Bus token costs 83,319 100,650 261,304 368,934
Bus pass costs 1,490 8,943 4,989 37,295
TOTAL COST OF SALES 115,385 135,759 330,297 467,407
---------- ----------- ------------ -------------
GROSS PROFIT $ 30,482 $ 34,897 $ 95,482 $ 117,843
---------- ----------- ------------ ------------
OPERATING EXPENSES:
------------------
General & administrative $ 19,184 $ 33,905 $ 70,160 $ 62,854
TOTAL EXPENSES 19,184 33,905 70,160 62,854
--------- ----------- ----------- -------------
OPERATING INCOME 11,298 992 25,322 54,989
--------- ----------- ----------- -------------
INCOME TAX (PROVISION)
BENEFIT 2,713 241 6,152 13,862
----------- ----------- ----------- ----------
NET INCOME $ 8,585 $ 751 $ 19,170 $ 41,127
----------- ----------- ----------- ------------
Net income per common share
basic & fully diluted $ ** $ ** $ ** $ **
----------- ----------- ----------- ------------
Weighted average common
shares outstanding 10,000,000 10,000,000 10,000,000 10,000,000
----------- ----------- ----------- ------------
** Less than $.01
-4-
TELECOM COMMUNICATIONS INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001
CASH FLOWS FROM OPERATING ACTIVITIES: 2002 2001
--------------------------------------------------------------------------------
Net income $19,170 $41,127
Adjustments to reconcile net income to net
cash used in operating activities:
Common stock issued for services 0 0
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 6,152 13,862
----------- ------------
NET CASH PROVIDED BY (USED IN)
Operating activities 25,322 54,989
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
SHAREHOLDER DISTRIBUTIONS 0 0
Net cash used in financing activities 0 0
Net cash used in investing activities (29,216) (54,204)
Net increase (decrease) in cash and cash equivalents ( 3,894) 785
CASH AND CASH EQUIVALENTS:
------------------------------------
Beginning of period 13,782 2,443
------------- -----------
ENDING CASH BALANCE $ 9,888 $ 3,228
------------- -----------
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TELECOM COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for the interim financial information and pursuant to the rules and
regulations of the securities and exchange commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments consisting only of normal recurring
accruals considered necessary to fairly present the company's financial
position at June 30, 2002. The results of operations for the three and nine
month periods ended June 30, 2002 and 2001, and the cash flows for the nine
months ended June 30, 2002 and 2001. The results for the period ended June
30, 2002, are not necessarily indicative of the results to be expected for
the entire fiscal year ending September 30, 2002.
NOTE 1. ABOUT THE COMPANY
Telecom Communications of America was founded as a sole proprietorship in
1995 by Michelle Hiromoto with the assistants and management of her father
Tak Hiromoto. The purpose of the company was to provide low cost access to
long distance carriers for individuals needing to call Latin and South
America. The company operates on the Internet as opposed to using
conventional long distance carriers to facilitate lower costs that are
passed on to the customers. Many of the extra fees that are found in
conventional long distance systems are avoided this way. In addition the
company also provides various services such as check cashing, money wiring,
the sale of bus tokens and passes, and tickets from California Lottery known
as Lotto.
NOTE 2. REVENUE RECOGNITION
SAB 101 identifies basic criteria that must be met for revenue recognition.
There must be the following items: A. Persuasive evidence of an arrangement
exists; B. Delivery has occurred or service has been rendered. C. The
seller's price to the buyer is fixed or determinable; D. Collectability is
reasonably assured. Except for check cashing, all transactions are done on a
cash basis with fixed prices made clear to the buyer prior to the
transaction. All products are paid for immediately upon receipt or
completion of phone calls. All monies received are not refundable. EITF
99-19 requires that sales recognized on a gross basis be for an item or
service where the merchant takes total risk for the product or service as
opposed to an agent relationship wherein earnings are simply a commission
received as a representative who bears no risk. Phone calls, Bus Passes, and
Tokens, are reported at gross while Lotto Tickets, Money Grams and Check
Cashing are reported at net. Checks cashed are limited to local individuals
known by the owners as local employees with two types of I.D. required. On
one occasion $5,000 worth of checks did bounce which were later determined
to be counterfeit.
This incident was isolated and has not been repeated because of the controls
being used. For this reason bad checks are minimal. All cashed checks are
deposited the same evening and clear the next day so there are no material
receivables. There is a fee of 1.7% of the amount cashed.
NOTE 4. BANKING POLICY
Funds are kept in two banks so no more than $100,000 is in any one account.
NOTE 5. INVENTORY VALUATION
The average inventories on any given day are as follows:
Bus Passes $ 500
Bus Tokens 2,000
Lotto Scratcher 1,500
---------
Total $ 4,000
==========
NOTE 6. RECEIVABLES
There are no receivables as all business is done for cash. See Note 2.
-6-
NOTE 7. ASSETS
All capitalized assets are fully depreciated while new ones are currently
being leased.
NOTE 8. LIABILITIES
There are no loans outstanding and no material payables other than income
taxes accrued. See Note 14.
NOTE 9. LOANS AND LEASES
Although no loans are outstanding, the Company does have a computer lease
requiring a monthly payment of $911.00. This lease is good through July 1,
2003. Although there is a purchase option at the end of the lease for $3,600
this is not small enough to be considered a bargain purchase option which
would require lease capitalization Statement No. 13 which requires
capitalization and depreciation of certain leases. No capitalization of the
lease will be done. The Company is also leasing its occupancy through
December 31, 2003. Both obligations are broken down as follows:
Computer Lease
Balance on 07/01/2001 through 09/30/2001 $ 2,733
Balance on 10/01/2001 through 09/30/2002 10,932
Balance on 10/01/2002 through 07/01/2003 8,199
______ $ 21,864
Total ==========
Occupancy Lease
Balance on 07/01/2001 through 09/30/2001 $ 5,400
Balance on 10/01/2001 through 09/30/2002 22,300
Balance on 10/01/2002 through 09/30/2003 23,500
Balance on 10/01/2003 through 12/31/2003 6,000
__________ $57,200
Total ===========
NOTE 10. RELATED PARTY TRANSACTIONS
There have been no related party transactions.
NOTE 11. LITIGATION
There is no litigation at this time either threatened or pending.
NOTE 12. PRE-PAID ITEMS AND DEPOSITS
There are no large deposits on any assets or prepaid insurance.
NOTE 13. PAYROLL
Prior to incorporation there were no payrolls as ownership took draws as any
sole proprietorship does. After incorporation the officers will be paid as
professional, independent contractors. Therefore, there are no payroll tax
issues to be concerned about at this time.
NOTE 14. INCOME TAX PROVISION
Provision for income taxes is based on corporate rates for both state and
federal taxes. Corporate rates are used for the statements prior to
incorporation for consistency. The rates are calculated as follows: Federal
rates:
The first $50,000 @ 15% percent.
The next $25,000 @ 25% percent.
The balance @ 35% percent.
State rates:
California rate of 9.3%.
-7-
NOTE 15. INCORPORATION
On December 21, 2000, the Company was acquired by MAS Acquisition XXI Corp.
Following APB No. 16, this type of acquisition is commonly called a "reverse
merger" wherein the smaller private operating company, Telecom
Communications of America, merges into a non-operating shell corporation,
MAS Acquisition XXI Corp., which had no assets, resulting in the
owner's/manager's, Tak Hiromoto continuing to have effective operating
control of the new combined company, Telecom Communications, Inc. The
shareholders of the former shell only continue as passive investors. The
accounting was accomplished by adjusting the balance sheet into a corporate
style as opposed to a sole proprietorship with simple recognition of the
assets and liabilities as they were in the former financial statements of
the sole proprietorship. The equity section is adjusted by taking all
owner's capital and reclassifying it as Additional Paid in Capital. The
Common Stock issued is recognized at its par value of .001 as per the
offering. Ten million shares were issued totaling $10,000 but no cash was
received. The offsetting entry is to reduce Additional Paid in Capital by
the $10,000. The financial statements presented here represent the
activities of the smaller operating company.
As mentioned, ten million shares have been issued at a par value of .001. A
total of 100 million shares are authorized with 80 million as common shares
and 20 million as preferred. The preferred stock will not be convertible so
once issued no dilution of Earnings per Share will be needed. The company
intends to raise additional capital through the issuance of stock to enable
it to expand. Management estimates that $50,000 is needed to move forward
the first year. Of the ten million shares issued, nine million were issued
to Tak Hiromoto. He then transferred one million shares to Herman Alexis &
Co., Inc. for assisting the company. The remaining one million shares are
broken down with 977,500 owned by MAS Capital, Inc. and the remaining 22,400
owned by a large number of small investors.
NOTE 16. FACILITATION OF MERGER
The joining of the companies was accomplished by an introduction to MAS
Acquisition XXI Corp. by Herman Alexis & Co., Inc. to the Hiromotos. Neither
party knew each other before this introduction.
NOTE 17. GOING CONCERN As mentioned in Note 15, management estimates that
$50,000 is needed to effectively expand and operate the company for the
first year. Although the company has operated successfully for seven years,
ownership draws have produced a capital deficiency that raises substantial
doubt about the company's ability to continue as a going concern. The future
is unpredictable. The financial statements are presented on the going
concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. The company's ability to
continue as a going concern must be considered in light of the problems,
expenses, and complications frequently encountered by entrance into
established markets and the competitive environment in which the company
operates. The financial statements prepared here have not been adjusted to
reflect possible future events and their effect on the recoverability and
classification of assets or the amounts and classification of assets or the
amounts and classification of liabilities that may result from the possible
inability of the company to continue as a going concern.
NOTE 18. EARNINGS PER SHARE
The company calculates net income or Earnings per Share as required by SFAS
No. 128. Earnings per share are calculated by dividing net income by the
average number of outstanding shares. No shares are convertible so dilution
is not an issue.
The following represents the calculation of earnings per share:
For the three months ended For the six months ended
June 30 June 30
BASIC & DILUTED* 2002 2001 2002 2001
---------------- ------- ------- ------ -------
Net income $8,585 $751 $19,170 $41,127
Less preferred stock dividends -- -- -- --
Net income $8,585 $751 $19,170 $41,127
Weighted average number
of common shares 10,000,000 10,000,000 10,000,000 10,000,000
---------- ------------ ---------- -----------
Basic & diluted earnings per share
$ ** $ ** $ ** $ **
========= ========= ========= =========
*There were no common stock equivalents for either period presented.
** Less than $.01
-8-
NOTE 19. DEFERRED TAXES
According to SFAS 109, the objectives of accounting for income taxes are to
recognize (a) the amount of taxes payable or refundable for a current year
and (b) deferred tax liabilities and assets for the future tax consequences
of events that have been recognized in an enterprise's financial statements
or tax returns. A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary differences and carry
forwards. Measurements of current and deferred tax liabilities and assets
are based on provisions of the enacted tax law. The effects of future
changes in tax laws or rates are not anticipated. If a tax deferral occurs,
the measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, are not
expected to be realized. At this time, there are no such deferrals. See Note
14 for calculations of current tax year liabilities based on existing rates.
NOTE 20. SEGMENT REPORTING
Currently the company reports only one segment on the financial statements,
as there is only one central location of business and not multiple locations
or departments. SFAS 131 defines an operating segment, in part, as a
component of an enterprise whose operating results are regularly reviewed by
the chief operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance. The chief operating
decision maker is not necessarily a single person, but is a function that
may be performed by several persons.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
With the exception of historical facts stated herein, the matters discussed
in this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Readers of this report
are cautioned not to put undue reliance on "forward looking" statements,
which are by their nature, uncertain as reliable indicators of future
performance. The Company disclaims any intent or obligation to publicly
update these "forward looking" statements, whether as a result of new
information, future events, or otherwise.
DESCRIPTION OF BUSINESS
Business Development
Telecom Communications Inc. was incorporated on January 6, 1997 in the State
of Indiana under the corporate name MAS Acquisition XXI Corp. Prior to
December 21, 2000, we were a blank check company seeking a business
combination with unidentified business. On December 21, 2000, we acquired
Telecom Communications of America which was a sole proprietorship doing
business in Los Angeles, California since August 15, 1995 and changed our
name to Telecom Communications Inc. In connection with this acquisition,
Aaron Tsai, our former sole officer and director was replaced by Telecom
Communications of America's owners and associates. We issued 9,000,000
shares of our common stock or 90% of our total outstanding common shares
after giving effect to the acquisition. MAS Capital Inc. returned 7,272,400
shares of common stock for cancellation without any consideration.
Our principal executive offices are located at 827 S. Broadway, Los Angeles,
CA 90014. Our telephone number is (213) 489-3486.
Overview
Our main business is to provide low cost telephone calls over the Internet
to individuals and businesses. Our services enable our customers to make low
cost telephone calls over the Internet using the traditional telephone. In
September 1999, we introduced a service that enables international and
domestic calls to be made over the Internet using traditional telephones.
Long distance calls made using our services are often substantially less
expensive than long distance calls routed over traditional voice network.
Following illustrate a typical cost for our customers. In summary, our cost
of 9.5 cents per minute compared with 17 cents per minute using traditional
phones taking in considerations for the monthly basic service charges for
the traditional phone services.
Illustration: (based on telephone services in our area)
Our cost per minute = 9.5
Traditional phone services cost per minute = 7 cents (without basic fees)
Assumptions: Residential long distance charge for the month is $10.78 for
154 minutes (domestic call). Customer is using plans such as MCI 7 Cents
anytime residential plan.
Additional costs for Traditional long distance charges:
MCI 7 Cents anytime residential plan 6.95
12% Federal Excise Tax 1.32
40% State & Local Taxes 4.36
.004% Federal, State & Local Surcharges 0.04
25% Federal Universal Service Fee 2.61
.23% CA High cost Fund-B Surcharges 0.25
.005% CA Universal Life Tel Service Surcharges 0.05
.003% CA Relay Service and Communication Device Fund 0.03
.006% CA 911 Local 0.07
--------
TOTAL $15.68
To calculate traditional phone cost, we took the traditional long distance
charges for the month of $10.78 plus the monthly fees of $15.68 and divide
the result by 154 minutes which gives 17 cents per minute.
$10.78 + $15.68 = $26.46 divided by 154 minutes = 17 cents.
In this illustration, our customers would save 7.5 cents per minute using
our services. The basic fees may very for different areas and we do not have
that information at this time. For International calls, you have a higher
savings due to higher tariff on traditional phone calls.
We intend to expand our business through acquisitions. Currently, we have
one telephone calling center with one server located in Los Angeles,
California.
-10-
We have only a limited operating history upon which you can evaluate our
business and prospects. We have achieved limited profitability, and expect
to continue to achieve limited profitability in the year 2001 and subsequent
fiscal periods. We will need to significantly increase our revenues in order
to achieve greater profitability, which may not occur. Even if we do achieve
greater profitability, we may be unable to sustain or increase profitability
on a quarterly or annual basis in the future.
Industry Background
The Internet is experiencing unprecedented growth as a global medium for
communications and commerce. Internet telephony has emerged as a low cost
alternative to traditional long distance calls. Internet telephone calls are
less expensive than traditional domestic and international long distance
calls primarily because these calls are carried over the Internet and
therefore bypass a significant portion of local and international long
distance tariffs. The fees and tariffs that are eliminated for our services
can be itemized as follows:
* Calling Plans Charge
* Carrier Access Charge
* Federal Excise Tax
* State and local Tax
* Federal, State and local surcharge
* Federal Universal Service fee
* California High Cost Fund-B surcharge
* California Universal Lifeline Telephone Service surcharge
* California Relay Service and Common Device fund
* California 911 Local charge
The technology by which Internet phone calls are made is also more
cost-effective than the technology by which traditional long distance calls
are made. The growth of Internet telephony has been limited to date due to
poor sound quality attributable to technological issues such as delays in
packet transmission and network capacity limitations. However, recent
improvements in packet-switching technology, new software algorithms and
improved hardware have substantially reduced delays in packet transmissions.
Products and Services
Presently, we have one telephone calling center located in Los Angeles,
California. This center has 6 phone booths each with its own traditional
telephone set, table and chair. Phone calls made from these booths are
routed through our computer server and Internet connection to a third party
servers which provide the interconnection to their established network which
enables telecommunications over Internet Protocol (IP) data networks using
their software, hardware and related components. The third party providing
this service is Inter-Tel.net, Inc. with whom Telecom has a contractual
agreement.
We do not rely solely on customers visiting our telephone calling center. We
also have 24 phone lines attached to our server which enables customers
accessing our services using telephones away from our location by calling in
to our telephone calling center to be re-routed to our Internet connections.
In addition, the following products and services are also offered at our
telephone calling center:
* Money wiring service
* Check cashing
* Sales of Lotto tickets
* Automatic Telling Machine (ATM)
* Faxing services
* Sales of telephone cards
Business Strategies
We hope to grow rapidly through franchising our existing operations and
through acquisitions. We have not made any specific business plan for
franchising our existing operations and we have no prior experience in
franchising. Currently, we do not have prospective franchisees or
acquisition targets that are targeted for acquisitions.
Key elements of the company's business strategy are:
* Acquiring and consolidating geographically disparate and usually smaller
independent Internet Telephone Service Providers.
* Developing and offering additional value-added products and services to
customers. For example, offering long distance international calls over the
Internet using cellular phones.
* Selling franchises of our telephone calling center concept throughout the
West Coast and in other areas of high concentration of immigrants.
* Building customer loyalty and gaining market share through brand
recognition.
* Expansion of our sales and marketing operation.
-11-
Marketing Strategy
We currently market our products in several areas. Our marketing efforts
include newspaper advertisements and advertisements in publications that
potential customers from Latin American countries are likely to see. Other
advertising such as flyers targeting a particular market segment are
developed to compliment and expand the impact of our marketing program.
Our marketing strategy for the future will consist of using medias designed
to reach mass audiences such as audio spot advertisements, video clips and
banner advertising on the Internet as well as advertising targeted toward
specific markets using radio, television and other publications.
Competition
We have nearly two years of experience building and fine tuning Internet
based telephone call services using traditional telephones at a calling
center environment. We believe we have the ability to deploy information
technology at a faster rate and with fewer errors than new entrants into
this field. We have basic billing capabilities to accommodate the more
complex commercial transactions in which we intend to engage in the future.
We already have in place network management tools and a secure web site
capable of taking new account orders in real-time. With our billing package,
we can bill customers for their telephone calls at any interval that they
desire. We can send out bills on a weekly, bi-weekly or monthly basis. Many
Commercial transactions need to be billed differently. We use an internal
billing system that was designed for our telephony system. The transactions
that we intend to bill for are charges that would normally appear on the
telephone bill. We will be offering long distance telephone service to our
commercial as well as our retail customers. We can bill for transactions by
time of day, date, even charge a surcharge on holidays.
We believe our competitive strength is the ability to build a bridge for a
segment of the urban population to access Internet based telephone
communication services. We also believe we can move faster than larger
telephone companies in identifying and taking advantage of market
opportunities as Internet based telephone communication services continues
to evolve at a rapid pace.
Long Distance Market
The long distance telephony market and, in particular, the Internet
telephony market, is highly competitive. There are several large and
numerous small competitors and we expect to face continuing competition
based on price and service offerings from existing competitors and new
market entrants in the future. The principal competitive factors in the
market include price, quality of service, breadth of geographic presence,
customer service, reliability, network capacity and the availability of
enhanced communications services. Our competitors include AT&T, MCI
WorldCom, Sprint, Net2Phone and other telecommunications carriers.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry
than we have. As a result, certain of these competitors may be able to adopt
more aggressive pricing policies, which could hinder our ability to market
our Internet telephony services.
Web-Based Internet Telephony Services
As consumers and telecommunications companies have grown to understand the
benefits that may be obtained from transmitting voice over the Internet, a
substantial number of companies have emerged to provide voice over the
Internet. In addition, companies currently in related markets have begun to
provide voice over the Internet services or adapt their products to enable
voice over the Internet services. These related companies may potentially
migrate into the Internet telephony market as direct competitors or could
become competitors if we move towards their current markets through our
stated intention to grow by acquisition.
Internet Telephony Service Providers
During the past several years, a number of companies have introduced
services that make Internet telephony services available to businesses and
consumers. AT&T Jens (a Japanese affiliate of AT&T), deltathree.com (a
subsidiary of RSL Communications), I-Link, iBasis (formerly known as VIP
Calling), ICG Communications, IPVoice.com, ITXC and OzEmail (which was
acquired by MCI WorldCom) provide a range of voice over the Internet
services. These companies offer PC-to-phone or phone-to-phone services which
could be adapted to provide a similar service to the services we offer.
Some, such as AT&T Jens and OzEmail, offer these services within limited
geographic areas.
-12-
Intellectual Property
We do not currently own or hold any patents, trademarks, licenses,
franchises concessions, royalty agreements or labor contracts.
Government Regulation
Regulation of Internet Access Service
We provide Internet access, in part, by using telecommunications services
provided by carriers. Terms, conditions and prices for telecommunications
service are subject to economic regulation by State and Federal agencies.
We, as an Internet Access Provider, are not currently subject to direct
economic regulation by the Federal Communications Commission (FCC) or any
State regulatory body other than the type and scope of regulation that is
applicable to businesses generally.
In April 1998 the FCC reaffirmed that Internet Access Providers should be
classified as unregulated "Information Service Providers" rather than
regulated "Telecommunication Providers" under the terms of the Federal
Telecommunication Act of 1996. As a result, we are not subject to Federal
regulations that apply to telephone companies and similar carriers simply
because we provide our services using telecommunications service provided by
a third party carrier. To date, no State has attempted to exercise economic
regulations over Internet Access Providers.
Governmental regulatory approaches and policies to Internet Access Providers
and others that use the Internet to facilitate Data and Communication
Transmissions are continuing to develop and in the future we could be
exposed to regulation by the FCC or other Federal agencies or by State
regulatory agencies or bodies. For example, the FCC has expressed an
intention to consider whether to regulate providers of voice and fax service
that employ the Internet or Internet Packet Switching as "Telecommunications
Providers" even though Internet access itself would not be regulated. The
FCC is also considering whether providers of Internet based telephone
services should be required to contribute towards the Universal Service
Fund, which subsidizes telephone service for rural and low income consumers,
or should pay carrier access charges on the same basis as applicable to
regulated telecommunications providers. To the extent that we engage in the
provision of Internet or Internet Protocol base telephone or fax service, we
may become subject to regulations promulgated by the FCC or State with
respect to such activities. We cannot assure potential investors that such
regulations would not adversely affect our ability to offer certain enhanced
business services in the future.
- Regulation of Internet Content
Due to the increase in popularity and use of the Internet by broad segments
of the population it is possible that laws and regulations may be adopted
with respect to web site content, privacy pricing, encryption standards,
consumer protection, electronic commerce, taxation, copyright infringement
and other intellectual property issues. We cannot predict the effect, if
any, that any future regulatory changes or developments may have on the
demand for our access or enhanced business service.
Employees
We believe that the success of our business will depend, in part, on our
ability to attract, retain and motivate highly qualified sales, technical
and management personnel, and upon the continued service of our senior
management personnel. As of the date of this registration statement, we have
two full- time and three-part time employees. Two full-time employees are
responsible for management and marketing, one part-time employee is
responsible for book keeping and sales, two other part-time employees are
responsible for sales and other day to day operations. The three part-time
employees are sons and daughter of Mr. Tak Hiromoto and Mrs. Elizabeth
Hiromoto. We consider our employee relations to be good and we have never
experienced any work stoppages. We can not assure you that we will be able
to successfully attract, retain and motivate a sufficient number of
qualified personnel to conduct our business in the future.
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RESULTS OF OPERATIONS
Net Income
The Company had a net increase of $8,585 for the three months ended June 30,
2002 versus a net increase of $751 for the same period ended June 30, 2001,
an increase of $7,834. The change in net income for the period was
primarily attributable to an increase in phone calls during the quarter.
The Company had net income of $19,170 for the nine months ended June 30,
2002, versus net income of $41,127 for the same period ended June 30, 2001,
a decrease of $21,957. The change in net incoe for the period was primarily
attributable to a decrease in gross profit.
Sales
Revenue was $145,867 for the three months ended June 30, 2002, versus
$170,656 for the three months ended June 30, 2001, a decrease of $24,789 or
14%. Revenues were $425,779 for the nine months ended June 30, 2002 and
$585,250 for the nine months ended June 30, 2001.
Expenses
Total expenses were $70,160 for the three months ended June 30, 2002, versus
$62,854 for the three months ended June 30, 2001.
Liquidity and Capital Resource
One June 30, 2002, the Company had cash of $9,889 and working capital of
$7,736. This compares with cash of $3,228 and a working capital deficit of
$6,634 at June 30, 2001.
Cash provided by financing activities totaled $-0- for the six months ended
December 31, 2001 as compared with net cash used in financing activities of
$20,203 for the six months ended December 31, 2000. Cash used in financing
activities during 2001 consisted solely of shareholder distributions.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
During February 2002, the Company located a market maker to submit a filing
with the National Association of Security Dealers to quote the Company's
common stock on the Over-the-Counter Bulletin Board. However, there can be
no assurance that a market maker will be established or maintained.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELECOM COMMUICATIONS, INC.
Date: August 8, 2002 /s/ Tak Hiromoto
President and Director
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