U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO_____
COMMISSION FILE NUMBER: 000-24985
TECHEDGE, INC.
----------------------------------------------------
(Exact name of small business issuer in its charter)
DELAWARE 04-3703334
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 WOOD AVENUE SOUTH, 7F
ISELIN, NEW JERSEY 08830
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER:
732-632-9896
-------------------------
(Former Name and Address)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES |X| NO |_|
There were 80,000,000 shares of the Company's common stock outstanding on August
13, 2004.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION............................................... 1
ITEM 1. FINANCIAL STATEMENTS.............................................. 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..... .........................12
ITEM 3. CONTROLS AND PROCEDURES...........................................14
PART II. OTHER INFORMATION...................................................15
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.................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................16
SIGNATURES....................................................................17
i
PART I. FINANCIAL INFORMATION
ITEM 1. STATEMENTS
INDEX
Financial Statements Page
Unaudited Consolidated Balance Sheet as of June 30, 2004................................... F-1
Unaudited Consolidated Statements of Operations for the three months ended June 30, 2004 and
2003 and for the period from September 13, 2000 (date of inception) through June 30, 2004 F-2
Unaudited Consolidated Statements of Operations for the six months ended June 30, 2004 and
2003 and for the period from September 13, 2000 (date of inception) through June 30, 2004 F-3
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and
2003 and for the period from September 13, 2000 (date of inception) through June 30, 2004 F-4
Notes to Unaudited Consolidated Financial Statements........................................ F-5 - F-11
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 360,236
Accounts receivable, net of bad debt reserve of $14,326 27,694
Due from related party 48,672
Prepaid expenses and other current assets 106,042
------------------
Total Current Assets 542,644
Property and equipment, net of accumulated depreciation of $299,717 269,887
Investment in unconsolidated subsidiary 359,497
Other assets 40,983
------------------
Total Assets 1,213,011
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 451,949
Due to officers 570,692
------------------
Total Current Liabilities 1,022,641
------------------
Commitments and contingencies --
Stockholders' Equity:
Common Stock, stated value $.0001, 100,000,000
shares authorized; 80,000,000 shares issued and outstanding 8,000
Additional paid-in capital 4,852,370
Deficit accumulated during development stage (4,673,262)
Accumulated other comprehensive income 3,262
------------------
Total Stockholders' Equity 190,370
------------------
Total Liabilities and Stockholders' Equity $ 1,213,011
==================
See notes to the consolidated financial statements
F-1
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
AND FOR THE PERIOD FROM
SEPTEMBER 13, 2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(UNAUDITED)
THREE MONTHS ENDED FOR THE PERIOD FROM
JUNE 30, SEPTEMBER 13, 2000
---------------------------- (DATE OF INCEPTION)
2004 2003 TO JUNE 30, 2004
------------ ------------ --------------------
Revenues $ 78,850 $ 122,506 $ 1,002,569
Cost of Sales 41,260 47,120 508,646
------------ ------------ ------------
Gross Profit 37,590 75,386 493,923
Costs and expenses:
Research and development 104,168 110,787 1,394,782
General and administrative (including
stock-based compensation of
$0, $0, and $13,611, respectively) 364,183 240,046 3,537,159
Depreciation and Amortization 19,830 10,822 222,590
------------ ------------ ------------
Total costs and expenses 488,181 361,655 5,154,531
------------ ------------ ------------
Loss from operations (450,591) (286,269) (4,660,608)
------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- (39,338)
Gain (Loss) on foreign currency 1,037 -- (6,181)
Interest income 322 13,373 32,865
------------ ------------ ------------
Total other income (expense) 1,359 13,373 (12,654)
------------ ------------ ------------
Net Loss $ (449,232) $ (272,896) $ (4,673,262)
Unrealized gain on foreign
currency translation, net of tax -- -- 3,262
------------ ------------ ------------
Comprehensive Loss $ (449,232) $ (272,896) $ (4,670,000)
============ ============ ============
Loss Per Common Share, basic and diluted $ (0.02) $ (0.03) $ (0.47)
============ ============ ============
Weighted Average Common Shares
Outstanding, basic and diluted 22,769,231 8,000,000 9,846,154
============ ============ ============
See notes to the consolidated financial statements
F-2
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
AND FOR THE PERIOD FROM
SEPTEMBER 13, 2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(UNAUDITED)
SIX MONTHS ENDED FOR THE PERIOD FROM
JUNE 30, SEPTEMBER 13, 2000
---------------------------- (DATE OF INCEPTION)
2004 2003 TO JUNE 30, 2004
------------ ------------ --------------------
Revenues $ 158,029 $ 249,565 $ 1,002,569
Cost of Sales 77,398 97,080 508,646
------------ ------------ ------------
Gross Profit 80,631 152,485 493,923
------------ ------------ ------------
Costs and expenses:
Research and development 187,314 245,510 1,394,782
General and administrative (including
stock-based compensation of
$0, $0, and $13,611, respectively) 560,151 398,606 3,537,159
Depreciation and Amortization 48,009 25,344 222,590
------------ ------------ ------------
Total costs and expenses 795,474 669,460 5,154,531
------------ ------------ ------------
Loss from operations (714,843) (516,975) (4,660,608)
------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- (39,338)
Gain (Loss) on foreign currency (2,031) (2,380) (6,181)
Interest income 2,681 13,643 32,865
------------ ------------ ------------
Total other income (expense) 650 11,263 (12,654)
------------ ------------ ------------
Net Loss $ (714,193) $ (505,712) $ (4,673,262)
------------ ------------ ------------
Unrealized gain on foreign
currency translation, net of tax 3,526 -- 3,262
------------ ------------ ------------
Comprehensive Loss $ (710,667) $ (505,712) $ (4,670,000)
============ ============ ============
Loss Per Common Share, basic and diluted $ (0.05) $ (0.06) $ (0.47)
============ ============ ============
Weighted Average Common Shares Outstanding, basic and
diluted 15,384,615 8,000,000 9,846,154
============ ============ ============
See notes to the consolidated financial statements
F-3
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
AND FOR THE PERIOD FROM
SEPTEMBER 13, 2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(UNAUDITED)
SIX MONTHS ENDED FOR THE PERIOD FROM
JUNE 30, SEPTEMBER 13, 2000
-------------------------- (DATE OF INCEPTION)
2004 2003 TO JUNE 30, 2004
----------- ----------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (714,193) $ (505,712) $(4,673,262)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 56,508 36,206 304,044
Loss on unconsolidated subsidiary -- -- 39,339
Provision for doubtful accounts -- -- 14,326
Loss on foreign currency exchange 3,526 165 3,262
Stock-based compensation -- -- 13,611
Changes in operating assets and liabilities:
Accounts receivable (4,126) 4,527 (42,020)
Due from related parties (7,090) 9,640 (48,672)
Prepaid expenses and other current assets (46,376) (55,554) (106,042)
Other assets (9,653) 8,388 (40,983)
Accounts payable and accrued expenses (22,287) 326,417 447,165
----------- ----------- -----------
Net cash used in operating activities (743,691) (175,923) (4,089,232)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated subsidiary -- (137,252) (398,836)
Proceeds from (repayments of) officers' advances (73,297) (35,750) 570,692
Purchase of property and equipment (38,406) (2,589) (231,188)
----------- ----------- -----------
Net cash used in investing activities (111,703) (175,591) (59,332)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement of common stock 504,000 -- 508,800
Net proceeds from private placement of preferred stock -- -- 4,000,000
----------- ----------- -----------
Net cash provided by financing activities 504,000 -- 4,508,800
----------- ----------- -----------
Net increase (decrease) in cash (351,394) (351,514) 360,236
Cash and Cash Equivalents, beginning of period 711,630 1,411,805 --
----------- ----------- -----------
Cash and Cash Equivalents, end of period $ 360,236 $ 1,060,291 $ 360,236
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Income taxes paid $ 500 $ 750 $ 2,173
=========== =========== ===========
See notes to the consolidated financial statements
F-4
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
These financial statements should be read in conjunction with a reading of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2003, and the Form 8-K/A filed on August 9, 2004.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles applicable to
interim financial information and with the requirements of Form 10-QSB and Item
310 of Regulation S-B of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. Interim results are not necessarily indicative of results
for a full year. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial position and the results of
operations and cash flows for the interim periods have been included.
On June 9, 2004, Techedge, Inc., a Delaware company (the "Company"), acquired
all of the issued and outstanding stock of China Quantum Communications, Ltd., a
Cayman Islands company ("CQ"), pursuant to a Share Exchange Agreement, dated as
of June 9, 2004, by and among the Company, the shareholders of the Company, CQ
and the shareholders of CQ listed on the Exchange Agreement.
Pursuant to the Exchange Agreement, CQ became a wholly-owned subsidiary of the
Company, and in exchange for the CQ shares, the Company issued 72,000,000 shares
of its common stock to the shareholders of CQ, representing approximately 90% of
the Company's outstanding stock at the time.
For accounting purposes, because Techedge, Inc. had become a shell company, the
Merger was treated as a recapitalization of Techedge, Inc. As such, the
historical financial information prior to the merger is that of China Quantum
Communications, Ltd. and subsidiaries.
LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS
Through June 30, 2004 the Company had incurred development stage losses totaling
$4,673,262, and net cash used in operating activities of $3,920,817. At June 30,
2004 the Company had $360,236 of cash and cash equivalents and $27,694 of net
trade receivables to fund short-term working capital requirements.
The Company's ability to continue as a going concern and its future success is
dependent upon its ability to raise capital in the near term to: (1) satisfy its
current obligations, (2) continue its research and development efforts, and (3)
the successful wide scale development, deployment and marketing of its products.
F-5
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. STOCKHOLDERS' EQUITY
On May 17, 2004, the Company filed an Amended Certificate of Incorporation with
the Delaware Secretary of State in order to increase the authorized shares of
the Company's common stock from 25,000,000 to 100,000,000 and authorize up to
1,000,000 shares of a new class of undesignated Preferred Stock ("Preferred
Stock") which will allow the Board of Directors of the Company to issue, without
further stockholder action, one or more series of Preferred Stock. The par value
of both the common and preferred shares is $.0001.
On May 21, 2004, the Company filed a Schedule 14f-1 with the SEC, indicating in
part, that in accordance with the Share Exchange Agreement ("Agreement"), the
membership of the Company's Board of Directors would change entirely and at the
same time, a change in control of the Company would occur.
On June 4, 2004, prior to the merger with Techedge, Inc., China Quantum
Communications, Ltd. sold 2,520,000 shares of common stock in a private
placement for proceeds of $504,000.
On June 9, 2004 Techedge, Inc. completed the merger with a China Quantum
Communications, Ltd. Pursuant to the agreement, China Quantum Communications,
Ltd. exchanged all of their outstanding preferred and common shares (5,013,600
and 49,308,800, respectively) for 72,000,000, or 90%, of the outstanding shares
of the Techedge, Inc.
3. RELATED PARTY TRANSACTIONS
The Company records material related party transactions. The Company incurs
costs for certain administrative expenses from a related party. Those charges
are included in general and administrative expenses. The Company also provides
services to a related party and those amounts are included in revenue. Following
is a summary of transactions and balances with affiliates for three and six
months ended June 30, 2004 and 2003:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2004 2003 2004 2003
------- ------- ------- -------
Revenues from related party $ 33 $ 33 $ 65 $ 65
General and administrative expenses to related party $ 3,721 $ 2,121 $ 7,370 $ 4,242
Due from related party $48,672 $ -- $48,672 $ --
Amounts due to officers consist of advances from the Company's CEO to fund the
Company's operations. It also includes compensation deferred by the Company's
CEO and CFO. No written repayment agreements exist with either officer. Amounts
are unsecured, non-interest bearing and due upon demand.
F-6
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements of Techedge,
Inc. (the "Company") have been prepared to indicate how the financial statements
of the Company might have looked if the Merger with China Quantum
Communications, Ltd. and transactions related to that Merger had occurred as of
the beginning of the period presented.
The pro forma condensed statements of operations have been prepared using the
unaudited historical financial statements of the Company and China Quantum
Communications, Ltd. as of and for the three and six months ended June 30, 2004.
For accounting purposes, because the Company had become a shell company, the
Merger will be treated as a recapitalization of Techedge, Inc.
The pro forma condensed financial statements should be read in conjunction with
a reading of the historical financial statements of the Company and China
Quantum Communications, Ltd. The pro forma condensed financial statements are
presented for illustrative purposes only and are not intended to be indicative
of actual financial condition or results of operations had the Merger been in
effect during the periods presented, or of financial condition or results of
operations that may be reported in the future.
F-7
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Techedge, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the Three Months Ended June 30, 2004
HISTORICAL
-------------------------------
CHINA QUANTUM PRO FORMA
TECHEDGE, COMMUNICATIONS, ---------------------------------
INC. LTD. ADJUSTMENTS NOTES COMBINED
------------ ------------ ------------ ----- ------------
Revenues $ -- $ 78,850 $ -- $ 78,850
Cost of Sales -- 41,260 -- 41,260
------------ ------------ ------------ ------------
Gross Profit -- 37,590 -- 37,590
------------ ------------ ------------ ------------
Costs and expenses:
Research and development -- 104,168 -- 104,168
General and administrative 14,936 364,183 -- 379,119
Depreciation and Amortization -- 19,830 -- 19,830
------------ ------------ ------------ ------------
Total costs and expenses 14,936 488,181 -- 503,117
------------ ------------ ------------ ------------
Loss from operations (14,936) (450,591) -- (465,527)
------------ ------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- -- --
Loss on foreign currency -- 1,037 1,037
Interest income (expense), net -- 322 -- 322
------------ ------------ ------------ ------------
Total other income (expense) -- 1,359 -- 1,359
------------ ------------ ------------ ------------
Net Loss $ (14,936) $ (449,232) $ -- $ (464,168)
------------ ------------ ------------ ------------
Unrealized gain (loss) on foreign
currency translation, net of tax -- -- -- --
------------ ------------ ------------ ------------
Comprehensive Loss (14,936) (449,232) -- (464,168)
============ ============ ============ ============
Loss Per Common Share, basic and diluted (0.02)
============
Weighted Average Common Shares Outstanding,
basic and diluted 22,769,231
============
F-8
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Techedge, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the Three Months Ended June 30, 2003
HISTORICAL
-------------------------------
CHINA QUANTUM PRO FORMA
TECHEDGE, COMMUNICATIONS, ---------------------------------
INC. LTD. ADJUSTMENTS NOTES COMBINED
------------ ------------ ------------ ----- ------------
Revenues $ -- $ 122,506 $ -- $ 122,506
Cost of Sales -- 47,120 -- 47,120
------------ ------------ ------------ ------------
Gross Profit -- 75,386 -- 75,386
------------ ------------ ------------ ------------
Costs and expenses:
Research and development -- 110,787 -- 110,787
General and administrative 13,036 240,046 -- 253,082
Depreciation and Amortization -- 10,822 -- 10,822
------------ ------------ ------------ ------------
Total costs and expenses 13,036 361,655 -- 374,691
------------ ------------ ------------ ------------
Loss from operations (13,036) (286,269) -- (299,305)
------------ ------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- -- --
Loss on foreign currency -- -- -- --
Interest income (expense), net -- 13,373 -- 13,373
------------ ------------ ------------ ------------
Total other income (expense) -- 13,373 -- 13,373
------------ ------------ ------------ ------------
Net Loss $ (13,036) $ (272,896) $ -- $ (285,932)
------------ ------------ ------------ ------------
Unrealized gain (loss) on foreign
currency translation, net of tax -- -- -- --
Comprehensive Loss $ (13,036) $ (272,896) $ -- $ (285,932)
============ ============ ============ ============
Loss Per Common Share, basic and
diluted $ (0.04)
============
Weighted Average Common Shares
Outstanding, basic and diluted 8,000,000
============
F-9
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Techedge, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the Six Months Ended June 30, 2004
HISTORICAL
-------------------------------
CHINA QUANTUM PRO FORMA
TECHEDGE, COMMUNICATIONS, ---------------------------------
INC. LTD. ADJUSTMENTS NOTES COMBINED
------------ ------------ ------------ ----- ------------
Revenues $ -- $ 158,029 $ -- $ 158,029
Cost of Sales -- 77,398 -- 77,398
------------ ------------ ------------ ------------
Gross Profit -- 80,631 -- 80,631
------------ ------------ ------------ ------------
Costs and expenses:
Research and development -- 187,314 -- 187,314
General and administrative 14,936 560,151 -- 575,087
Depreciation and Amortization -- 48,009 -- 48,009
------------ ------------ ------------ ------------
Total costs and expenses 14,936 795,474 -- 810,410
------------ ------------ ------------ ------------
Loss from operations (14,936) (714,843) -- (729,779)
------------ ------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- -- --
Loss on foreign currency -- (2,031) (2,031)
Interest income (expense), net -- 2,681 -- 2,681
------------ ------------ ------------ ------------
Total other income (expense) -- 650 -- 650
------------ ------------ ------------ ------------
Net Loss $ (14,936) $ (714,193) $ -- $ (729,129)
------------ ------------ ------------ ------------
Unrealized gain (loss) on foreign
currency translation, net of tax -- 3,526 -- 3,526
------------ ------------ ------------ ------------
Comprehensive Loss $ (14,936) $ (710,667) $ -- $ (725,603)
============ ============ ============ ============
Loss Per Common Share, basic and
diluted $ (0.05)
============
Weighted Average Common Shares
Outstanding, basic and diluted 15,384,615
============
F-10
TECHEDGE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Techedge, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the Six Months Ended June 30, 2003
HISTORICAL
-------------------------------
CHINA QUANTUM PRO FORMA
TECHEDGE, COMMUNICATIONS, ---------------------------------
INC. LTD. ADJUSTMENTS NOTES COMBINED
------------ ------------ ------------ ----- ------------
Revenues $ -- $ 249,565 $ -- $ 249,565
Cost of Sales -- 97,080 -- 97,080
------------ ------------ ------------ ------------
Gross Profit -- 152,485 -- 152,485
------------ ------------ ------------ ------------
Costs and expenses:
Research and development -- 245,510 -- 245,510
General and administrative 15,098 398,606 -- 413,704
Depreciation and Amortization -- 25,344 -- 25,344
------------ ------------ ------------ ------------
Total costs and expenses 15,098 669,460 -- 684,558
------------ ------------ ------------ ------------
Loss from operations (15,098) (516,975) -- (532,073)
------------ ------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- -- --
Loss on foreign currency -- (2,380) (2,380)
Interest income (expense), net -- 13,643 -- 13,643
------------ ------------ ------------ ------------
Total other income (expense) -- 11,263 -- 11,263
------------ ------------ ------------ ------------
Net Loss $ (15,098) $ (505,712) $ -- $ (520,810)
------------ ------------ ------------ ------------
Unrealized gain (loss) on foreign
currency translation, net of tax -- -- -- --
Comprehensive Loss $ (15,098) $ (505,712) $ -- $ (520,810)
============ ============ ============ ============
Loss Per Common Share, basic and
diluted (0.07)
============
Weighted Average Common Shares
Outstanding, basic and diluted 8,000,000
============
F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including our statements
regarding factors increases in Packet8 sales and marketing expenditures,
commitment of resources, and reduction in operating costs and the possible
further reduction of personnel and suspension of salary increases and capital
expenditures. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. For example,
words such as "may," "will," "should," "estimates," "predicts," "potential,"
"continue," "strategy," "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
our good faith assumptions being incorrect, our business expenses being greater
than anticipated due to competitive factors or unanticipated development or
sales costs; revenues not resulting in the manner anticipated due to a continued
slow down in technology spending, particularly in the telecommunications market;
our failure to generate investor interest or to sell certain of our assets or
business segments. The forward-looking statements may also be impacted by the
additional risks faced by us as described in this Report, including those set
forth under the section entitled "Factors that May Affect Future Results." All
forward-looking statements included in this Report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements.
CRITICAL ACCOUNTING POLICIES
See "Summary of Significant Accounting Policies" for Audited Financial
Statements December 31, 2003 in our Form 8-K/A filed on August 9, 2004 for our
critical accounting policies. These policies include revenue recognition,
determining our allowance for doubtful accounts receivable, accounting for cost
of revenue and valuation of long-lived assets. No significant changes in our
critical accounting policies have occurred since December 31, 2003.
BUSINESS OVERVIEW
The Company develops and provides advanced VoIP services to business and
residential customers in the U.S. and China, with focus on the development &
deployment of IP based Personal Communication Service (IP-PCS), a regional
wireless VoIP service delivered on unlicensed low power PCS frequency through
IP-enabled transceiver and call management platform, operating on an advanced
multi-service global communication service management system. Through wholly
owned subsidiaries in the United States and China, the Company has established
operational infrastructure, telephony origination and termination relationships,
Internet services and wireless technology partnerships, and network support and
customer service centers in both countries and started limited offering of VoIP
services to business and residential customers in the United States.
The following discussion should be read in conjunction with our condensed
consolidated financial statements and the notes thereto:
RESULTS OF OPERATIONS
REVENUES
The Company is in the development stage, and has not yet initiated sales from
its major product, IP-PCS service. Current revenues are from limited offering of
VoIP services to business and residential customers. Such revenues are not
significant as we continued to focus on new IP- PCS service development.
The Company generated $78,850 and $158,029 of revenues during the three-month
and six-month periods ended June 30, 2004, respectively, and generated $122,506
and $249,565 of revenues for the comparable periods in 2003, respectively. The
decrease in VoIP service revenues is due to reduced marketing and sales
activities, and significant rate cuts in response to continued price
depreciation among competitors.
12
No customer represented greater than 10% of our total revenues for the quarter
ended June 30, 2004.
COST OF REVENUES & GROSS MARGIN
The cost of service revenues consists of costs primarily associated with network
operations and related personnel, telephony origination and termination services
provided by third party carriers, and indirect costs associated with purchasing,
scheduling and quality assurance.
The cost of revenues decreased to $41,260 and $77,398 for the three-month and
six-month periods ended June 30, 2004, respectively, and from $47,120 and
$97,080 for the comparable periods in 2003, respectively, primarily due to
decrease in variable cost as revenues decreased, including telephony origination
and termination cost.
Gross Margin decreased to $37,590 and $80,631 for the three-month and six-month
periods ended June 30, 2004, respectively, and from $75,386 and $152,485 for the
comparable periods in 2003, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel for service
design, implementation, and testing, and equipment costs associated with IP-PCS
service development. R&D Expenses are $104,168 and $187,314 for the three-month
and six-month periods ended June 30, 2004, respectively, and $110,787 and
$245,510 for the comparable periods in 2003, respectively. Research and
development costs, including software development costs, are expensed as
incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of personnel and
related overhead costs for sales, marketing, finance, legal, human resources and
general management. Such costs also include sales commissions, trade show,
advertising and other marketing and promotional expenses.
Selling, general and administrative expenses increased to $364,183 and $560,151
for the three-month and six-month periods ended June 30, 2004, respectively, and
from $240,046 and $398,606 for the comparable periods in 2003, respectively. The
significant increase is primarily due to legal and accounting expenses
associated with the merger of Techedge Inc. and China Quantum Communications,
Ltd.
OTHER INCOME (EXPENSE)
Other income decreased to $1,359 and $650 for the three-month and six-month
periods ended June 30, 2004, respectively, and from $13,373 and $11,263 for the
comparable periods in 2003, respectively. The decrease is primarily due to a
decrease in interest income.
INCOME TAXES
No tax provision has been recorded for the three or six months ended June 30,
2004, as the result of the cumulative operating loss generated by the Company.
Interim income tax provisions are based upon management's estimate of taxable
income and the resulting consolidated effective income tax rate for the full
year. As a result, such interim estimates are subject to change as the year
progresses and more information becomes available.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND CASH EQUIVALENTS As of June 30, 2004, the Company had cash and cash
equivalents of $360,236 and working capital of $(479,997) as compared to
$506,407 and $(778,431), respectively, at March 31, 2004.
13
WORKING CAPITAL The Company's working capital increased to $(479,997) at June
30, 2004, as compared to $(778,431) at March 31, 2004. The increase in working
capital reflects an increase in current assets primarily resulting from the
Company's completion of a $504,000 private placement, and a decrease in current
liabilities from $1,380,443 at March 31, 2004 to $1,022,641 at June 30, 2004.
The majority of the Company's current liabilities are non-secured loans from and
deferred payrolls due to the officers of the Company.
NET CASH USED IN OPERATING ACTIVITIES Net cash used in operating activities was
$743,691 for the six months ended June 30, 2004 as compared to $175,923 for the
six months ended June 30, 2003.
NET CASH USED IN INVESTING ACTIVITIES Net cash used in investing activities for
the six months ended June 30, 2004 was $111,703, as compared to $175,591 for the
six months ended June 30, 2003.
NET CASH PROVIDED BY FINANCING ACTIVITIES Net cash provided by financing
activities for the six months ended June 30, 2004 was $504,000 from issuance of
common stock, as compared to $0 for the six months ended June 30, 2003.
ISSUANCE OF COMMON STOCK On June 9, 2004, Techedge Inc. issued 72,000,000 shares
of common stock in exchange for 100% of the capital stock of China Quantum
Communications, Ltd, bringing total outstanding shares to 80,000,000. Please see
Form 8-K/A filed on August 9, 2004 for detailed information.
CURRENCY EXCHANGE FLUCTUATIONS For the purpose of funding operations of its
Chinese subsidiary, the Company has implemented simple currency hedging against
fluctuations in the Chinese Renminbi to United States dollar exchange rate.
NEED FOR CURRENT FINANCING The Company's ability to continue as a going concern
and its future success is dependent upon its ability to raise capital in the
near term to: (1) satisfy its current obligations, (2) continue its wireless
VoIP service development efforts, and (3) the successful wide scale deployment
and marketing of its services. Management estimates that the Company will need
additional capital to continue its operations either through external
independent or related party funding, revenues from sales, further expense
reductions or some combination thereof.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including our principal executive officer and the principal accounting officer,
the Company 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, the Company's principal executive officer and principal accounting
officer concluded as of the Evaluation Date that the Company's 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 the Company, 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 the Company's 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.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 4, 2004, China Quantum Communications, Ltd., a Cayman Islands
company that was acquired by the Company ("CQ"), sold a total of 2,520,000 of
its ordinary shares, nominal value $0.0001 per share, to the following
individuals: Guifen Zheng (435,000 shares), Ailian Wu (500,000 shares), Daofeng
Shi (1,175,000 shares) and Tiffany Ding (410,000 shares). The ordinary shares
were sold to the investors by means of a private placement in reliance upon an
exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act") either under Section 4(2) of the Securities Act, with respect
to purchasers who were U.S. persons, or Regulation S under the Securities Act,
with respect to purchasers who were non-U.S. persons. The total offering price
was $504,000. CQ did not use an underwriter, so no underwriting discounts or
commissions were paid.
As was reported by the Company on its Form 8/K, filed on June 16, 2004, on
June 9, 2004, the Company acquired all of the issued and outstanding shares of
capital stock of CQ pursuant to a Share Exchange Agreement, dated as of June 9,
2004, by and among the Company, CQ, the shareholders of the Company listed
therein and the shareholders of CQ listed therein (the "Exchange Agreement").
Pursuant to the Exchange Agreement, CQ became a wholly-owned subsidiary of the
Company, and in exchange for 100% of the shares of capital stock of CQ, the
Company issued 72,000,000 shares of its common stock to the shareholders of CQ,
representing approximately 90% of the Company's outstanding stock at the time.
The issuance by the Company of shares of its common stock to the shareholders of
CQ was made in reliance upon an exemption from registration under the Securities
Act either under Section 4(2) of the Securities Act, with respect to
shareholders of CQ who were U.S. persons, or Regulation S under the Securities
Act, with respect to shareholders of CQ who were non-U.S. persons. The Company
did not pay any underwriting discounts or commissions in connection with the
transactions set forth in the Exchange Agreement. CQ paid a fee of $150,000 to
an entity that advised it in connection with the Exchange Agreement. The
shareholders of CQ who received shares of the Company's common stock pursuant to
the Exchange Agreement and the number of shares of common stock received by each
is set forth below:
SHAREHOLDER SHARES OF COMMON STOCK ISSUED
SB China Holdings Pte Ltd 11,928,935
UTStarcom, Inc. 11,928,935
PZW Family LLP 18,556,209
Peter Wang 2,319,517
Kin Shing Li 2,982,216
Hangzhou Joray Electronics Co., 1,325,469
Ltd
MAC Wireless/PW LLC 3,976,336
Pacific Century Fund LLC 15,481,112
Guoying Wei 41,904
Bigtime Management Limited 119,306
Tiffany Ding 543,464
Guifen Zheng 576,513
Daofeng Shi 1,557,385
Ailian Wu 662,699
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8/K
Form 8/K with report date of June 14, 2004, filed on June 16, 2004.
16
SIGNATURES
Pursuant to 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 hereunto duly authorized.
TECHEDGE, INC.
By: /s/ Peter Wang
-------------------------------------
Name: Peter Wang
Title: Chief Executive Officer
Dated: August 13, 2004
17