June 15, 2007
By EDGAR Transmission and by Courier
Mr. Larry Spirgel
Assistant Director
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Mail Stop 3720
| Re: | Telecom Communications, Inc. |
Form 10-QSB for Fiscal Quarter Ended June 30, 2006 File No. 333-62236 Filed: August 21, 2006 |
Form 10-KSB for Fiscal Year Ended September 30, 2006 Filed: February 5, 2006 |
On behalf of Telecom Communications, Inc. (“Telecom” or the “Company”), we hereby submit Telecom’s responses to the comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), as discussed in the conference call held on May 31, 2007, regarding the above referenced Forms 10-QSB and 10-KSB.
1. Recalculation of the Acquisition Cost of Subaye.com, included in Property, Plant and Equipment
Pursuant to the issues raised by the Staff during the May 31, 2007 conference call, the Company has prepared the following changes to the Form 10-QSB for the fiscal quarter ended June 30, 2006 and the Form 10-KSB for the fiscal quarter ended February 5, 2006. The proposed changes are to (i) the valuation of the common & preferred stock of HRDQ issued and (ii) the elimination of negative goodwill and will be incorporated in the amended filings upon completion of review by the Staff.
Re: Form 10-QSB for Fiscal Quarter Ended June 30, 2006
The journal entries for the adjustment to the issuance price of HRDQ and the elimination of the negative goodwill are provided by the Company below.
As Previous Reported June 30, 2006 | Restatement Adjustment June 30, 2006 | As Restated June 30, 2006 | |||||||||
| (1) | HRDQ issued a $1,000,000 note, payable to Alpha for Subaye.com | $ | 1,000,000 | $ | 1,000,000 | ||||||
| (2) | HRDQ issued 2,024,192 shares at $0.52 to TCOM (Alpha) which is a VIE and it remained $0.52 as the issuance price | 1,060,000 | 1,060,000 | ||||||||
| (3) | HRDQ issued 798,747 shares of common stock at $0.52 to CDN which is being adjusted to $1.96 per share for accounting calculation | 415,348 | 1,150,196 | 1,565,544 | |||||||
| (4) | HRDQ issued 500,000 common stock at $2.20 to Top rider to raise funds to pay CDN which is being adjusted to $1.96 per share for accounting calculation | 1,100,000 | (120,000 | ) | 980,000 | ||||||
| (5) | HRDQ issued 200,000 shares of preferred stock at $3.30 per share to Top rider to raise funds to pay CDN which is being adjusted to $3.90 per share for accounting calculation (1 preferred stock can exchange for 2 common stock) | 660,000 | 120,000 | 780,000 | |||||||
| (6) | Accounts payable owed to CDN | 190,800 | 190,800 | ||||||||
| $ | 4,426,148 | $ | 1,150,196 | $ | 5,576,344 | ||||||
| Less: Elimination of the negative goodwill to the amount of the web site | (a) (720,436 | ) | (b) 720,436 | - | |||||||
| Subaye.com - cost of website | $ | 3,705,712 | $ | 1,870,632 | $ | 5,576,344 | |||||
| Add: other website | 500,000 | 500,000 | |||||||||
| The total amount of web site recorded in property plant and equipment in footnote no. 3 | $ | 4,205,712 | $ | 6,076,344 | |||||||
The Company reported to us that the negative goodwill is being eliminated because the acquisition of Subaye.com was a transaction between entities under common control.
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Re: Form 10-KSB for Fiscal Year Ended September 30, 2006
As Previous Reported September 30, 2006 | Restatement Adjustment September 30, 2006 | As Restated September 30, 2006 | |||||||||
| (1) | HRDQ issued USD 1,000,000 note payable to Alpha for the website | $ | 1,000,000 | $ | 1,000,000 | ||||||
| (2) | HRDQ issued 2,024,192 shares at $0.52 to TCOM (Alpha) which is VIE and it remained $0.52 as the issuance price | 1,060,000 | 1,060,000 | ||||||||
| (3) | HRDQ issued 798,747 common stock at $1.96 to CDN | 1,565,544 | 1,565,544 | ||||||||
| (4) | HRDQ issued 500,000 common stock at $1.96 to Top rider to raise funds to pay CDN | 980,000 | 980,000 | ||||||||
| (5) | HRDQ issued 200,000 preferred stock at $3.92 to Top rider to raise funds to pay CDN (1 preferred stock can exchange for 2 common stock) | 780,000 | 780,000 | ||||||||
| (6) | Accounts payable owed to CDN | 190,800 | 190,800 | ||||||||
| $ | 5,576,344 | $ | 5,576,344 | ||||||||
| Less: Elimination of the negative goodwill to the amount of the web site | (c) (889,816 | ) | (d) $889,816 | - | |||||||
| Subaye.com - cost of website | 4,686,528 | $ | 5,576,344 | ||||||||
| Add: other web site | 333,332 | 333,332 | |||||||||
| The total costs of website recorded in property plant and equipment in footnote no. 10 | 5,019,860 | 5,909,676 | |||||||||
According to Telecom, the credit amount of (c) $889,816 was incorrectly classified as negative goodwill and incorrectly charged against the cost of the acquisition of Subaye.com on the Form 10-KSB of September 30, 2006, since the transaction was between entities under common control.
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2. Recalculation of Minority Interests
Re: Form 10-QSB for Fiscal Quarter Ended June 30, 2006
According to Telecom, the recalculation of the website cost and the elimination of negative good will described in Section 1 above results in a recalculation of the Minority Interest as described below. In the Form 10-QSB/A for fiscal quarter ended June 30, 2006, the Minority Interest will be the actual capital contribution by the minority stockholders to HRDQ and the actual capital contribution by the 200,000 Series A Convertible Preferred stock outstanding in HRDQ.
Minority Interest shown at consolidated balance sheet comprise of: | As Previous Reported June 30, 2006 | Restatement Adjustment June 30, 2006 | As Restated June 30, 2006 | |||||||
| (1) MI of common stocks | $ | 885,594 | 1,670,535 | (e) $ 2,556,129 | ||||||
| (2) MI of preferred stocks | 214,391 | 565,609 | 780,000 | |||||||
| (3) Loss of HRDQ shared by minority shareholders | -- | (f) | -- | |||||||
| Total | $ | 1,099,985 | $ | 3,336,129 | ||||||
(e) the actual capital contribution by the minority stockholders to HRDQ comprises of:
Name of shareholders | No of shares hold by shareholders | Share Price | Total Amount Contributed By Shareholders | |||||||
Common stock | ||||||||||
| Founder | 440,880 | 0.02 | $ | 8,818 | ||||||
| CDN | 798,747 | (*) 1.96 | 1,567,311 | |||||||
| Top Rider | 500,000 | 1.96 | 980,000 | |||||||
(**) 1,739,627 | $ | 2,556,129 | ||||||||
(f) there is no profit or loss shared by the minority interest for the fiscal quarter ended June 30, 2006.
(*) to 2 decimal places
(**) M.I. represented 1,739,627/3,763,819 = 46% equity interest of HRDQ that is not owned by the Company and is shown as “Minority interests in consolidated statements.”
Re: Form 10-KSB for Fiscal Year Ended September 30, 2006
Similarly, according to the Company, in the Form 10-KSB/A for fiscal year ended September 30, 2006, the Minority Interest will be the actual capital contribution by the minority stockholders to HRDQ and the actual capital contribution by the 200,000 Series A Convertible Preferred stock outstanding in HRDQ and the share of loss/profit of HRDQ.
Minority Interest shown at consolidated balance sheet comprise of: | As Previous Reported September 30, 2006 | Restatement Adjustment September 30, 2006 | As Restated September 30, 2006 | |||||||
| (1) MI of common stocks | $ | 1,666,313 | $ | 889,816 | $ | 2,556,129 | ||||
| (2) MI of preferred stocks | 780,000 | 780,000 | ||||||||
| (3) Loss of HRDQ shared by minority shareholders | (74,821 | ) | (74,821 | ) | ||||||
| Total | $ | 2,371,492 | 3,261,308 | |||||||
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3. Restated Consolidated Balance Sheets as of June 30, 2006
As Previously Reported June 30, 2006 | Restatement Adjustment June 30, 2006 | As Restated June 30, 2006 | ||||||||
| Current Assets: | ||||||||||
| Cash | $ | 852,405 | $ | $ | 852,405 | |||||
| Accounts receivable - related company | 480,000 | 480,000 | ||||||||
| - others, less allowance for bad debts of $355,650 | 2,968,213 | 2,968,213 | ||||||||
| Due from related companies | 238,443 | 238,443 | ||||||||
| Deferred stock-based compensation-current portion | 3,272,059 | (g) (3,272,059 | - | |||||||
| Payment in advance | 3,597,853 | 3,597,853 | ||||||||
| Prepaid expenses | 279,251 | 279,251 | ||||||||
| Other current assets | 458,118 | 458,118 | ||||||||
| Total Current Assets | 12,146,342 | 8,874,283 | ||||||||
| Software acquisition cost | 3,000,000 | 3,000,000 | ||||||||
| Property, plant and equipment, net | 6,725,852 | (h) 1,870,632 | 8,596,484 | |||||||
| Deferred stock-based compensation-non-current portion | 865,833 | (g) (865,833 | - | |||||||
| Intangible assets - Goodwill | - | (h) 368,719 | 368,719 | |||||||
| Total Assets | $ | 22,738,027 | $ | $ | 20,839,486 | |||||
| Current liabilities: | $ | 1,536,293 | $ | $ | 1,536,293 | |||||
| Accounts payable | 74,737 | 74,737 | ||||||||
| Accrued expenses | 57,513 | 57,513 | ||||||||
| Due to related companies | 108,912 | 108,912 | ||||||||
| Total Current Liabilities | 1,777,455 | 1,777,455 | ||||||||
| Minority interest in consolidated subsidiaries | 1,099,985 | (h) 2,236,144 | 3,336,129 | |||||||
| Commitments and contingencies (Note 12) | ||||||||||
| Stockholders’ Equity | ||||||||||
| Preferred stock ($0.001 Par Value: 50,000,000 shares authorized; | ||||||||||
| no shares issued and outstanding) | ||||||||||
| Common stock ($0.001 Par Value: 300,000,000 shares authorized; | ||||||||||
| 97,088,000 shares issued and outstanding) | 89,188 | 89,188 | ||||||||
| Additional paid in capital | 13,683,489 | 13,683,489 | ||||||||
| Deferred stock-based compensation | (g) (4,137,892 | (4,137,892 | ) | |||||||
| Accumulated other comprehensive income | 249 | (h) 3,207 | 3,456 | |||||||
| Retained earnings | 6,087,661 | 6,087,661 | ||||||||
| Total Stockholders’ Equity | 19,860,587 | 15,725,902 | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | 22,738,027 | $ | $ | 20,839,486 | |||||
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| (g) | Pursuant to the SEC comments received dated August 30, 2006 after the Company’s filing, Telecom incorrectly classified the deferred stock-based compensation-current portion of $3,272,059 under current assets and deferred stock-based compensation-non current portion of $865,833 under other assets. The Company will reclassify the entire amount of deferred stock-based compensation under stockholders’ equity. According to the Company, this had no material impact on our prior earnings reported. |
| (h) | Due to recalculation of share price described above, the Company has made the following adjustment entries: |
| Dr: Property, plant and equipment (from change of the price for preferred stock) | 120,000 | ||||||
| Dr: Property, plant and equipment (from change of the price for common stock) | 1,030,196 | ||||||
| Dr: Property, plant and equipment (from reversal of the entry of the negative goodwill) | 720,436 | ||||||
| Dr: Panyu Goodwill (from reversal of the entry of Panyu goodwill) | 368,719 | ||||||
| Cr: Minority interest in consolidated subsidiaries | 2,236,144 | ||||||
| Cr: Accumulated other comprehensive income | 3,207 |
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4. Restated Consolidated Balance Sheet as of September 30, 2006
As Previously Reported September 30, 2006 | Restatement Adjustment September 30, 2006 | As Restated September 30, 2006 | ||||||||
| Current Assets: | ||||||||||
| Cash | $ | 1,211,542 | $ | $ | 1,211,542 | |||||
| Accounts receivable - related company | 840,000 | 840,000 | ||||||||
| - others, less allowance for bad debts of $883,220 | 3,524,929 | 3,524,929 | ||||||||
| Due from related companies | 247,833 | 247,833 | ||||||||
| Prepaid expenses | 2,546,955 | 2,546,955 | ||||||||
| Other current assets | 253,029 | 253,029 | ||||||||
| Total Current Assets | 8,624,288 | 8,624,288 | ||||||||
| Property, plant and equipment, net | 10,625,907 | (d) $889,816 | 11,515,723 | |||||||
| Intangible assets | 2,824,051 | 2,824,051 | ||||||||
| Total Assets | $ | 22,074,246 | $ | $ | 22,964,062 | |||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 4,120,721 | $ | $ | 4,120,721 | |||||
| Accrued expenses | 83,857 | 83,857 | ||||||||
| Due to related companies | 57,854 | 57,854 | ||||||||
| Total Current Liabilities | 4,262,432 | 4,262,432 | ||||||||
| Total Liabilities | 4,262,432 | 4,262,432 | ||||||||
| Minority interest in consolidated subsidiaries | 2,371,492 | (d) $889,816 | 3,261,308 | |||||||
| Commitments and contingencies (Note 12) | ||||||||||
| Stockholders’ Equity | ||||||||||
| Preferred stock ($0.001 Par Value: 50,000,000 shares authorized; | - | - | ||||||||
| no shares issued and outstanding) | ||||||||||
| Common stock ($0.001 Par Value: 300,000,000 shares authorized; | 97,088 | 97,088 | ||||||||
| 97,088,000 shares issued and outstanding) | ||||||||||
| Additional paid in capital | 15,893,589 | 15,893,589 | ||||||||
| Deferred stock-based compensation | (3,089,863 | ) | (3,089,863 | ) | ||||||
| Accumulated other comprehensive income | 247 | 247 | ||||||||
| Retained earnings | 2,539,261 | 2,539,261 | ||||||||
| Total Stockholders’ Equity | 15,440,322 | 15,440,322 | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | 22,074,246 | $ | $ | 22,964,062 | |||||
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5. Audit of Panyu M&M
The Company has indicated to us that it has determined that an audit of Panyu M&M is necessary and has begun the audit.
If you would like to discuss any of the responses to the Staff’s comments or if you would like to discuss any other matters, please contact Robert Shin at (212) 536-4885.
| Sincerely, | ||
| | | |
| By: | /s/ Robert Shin | |
Robert Shin | ||
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