As filed with the Securities and Exchange Commission on June 13, 2005
Registration No. 333-
- --------------------------------------------------------------------------------
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TECHEDGE, INC.
(Name of Small Business Issuer in its Charter)
Delaware 4813 04-3703334
(State or Jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
Incorporation or Organization) Code Number) Identification No.)
33 Wood Avenue South, 7F, Iselin, NJ 08830
(732) 632-9896
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
----------------
Peter Wang, Chief Executive Officer
33 Wood Avenue South, 7F
Iselin, NJ 08830
(732) 632-9896
(Name, Address and Telephone Number of Agent for Service)
----------------
With a copy to:
Steven E. Siesser, Esq.
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
(973) 597-2500
---------------
Approximate date of proposed sale to the public: From time to time after
this registration statement becomes effective.
If this Form is filed to register securities for an offering to be made on
a continuous or delayed basis, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Amount Proposed Maximum Proposed
Title of Each Class of to be Aggregate Offering Maximum Aggregate Amount of
Securities to be Registered Registered Price Per Security Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock ($.0001 par value) 2,794,118 shares(1)(2) $0.725 (3) $2,025,735.55 $238.43
==================================================================================================================================
(1) Includes the registration for resale of (i) 2,000,000 shares issued or to be
issued pursuant to a Subscription Agreement, dated as of April 29, 2005 and
amended as of May 27, 2005 (as amended, the "Purchase Agreement"), (ii) 694,118
shares issuable upon exercise of warrants issued or to be issued to investors
pursuant to the Purchase Agreement and (iii) 100,000 shares issued pursuant to a
Consulting Services Agreement dated as of March 15, 2005.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, the
Registrant is also registering such additional indeterminate number of shares as
may become necessary to adjust the number of shares as a result of a stock
split, stock dividend or similar adjustment of the outstanding common stock of
Techedge, Inc.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended, based
on the average of the closing bid and asked prices on June 8, 2005, as reported
by the OTC Bulletin Board.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 13, 2005
PRELIMINARY PROSPECTUS
2,794,118 SHARES
TECHEDGE, INC.
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of
Techedge, Inc. identified in this prospectus of 2,794,118 shares of our common
stock, certain of which stockholders purchased or have agreed to purchase
2,000,000 shares of our common stock in a private offering and 694,118 shares of
our common stock are issuable upon the exercise of warrants issued or to be
issued in connection with such offering and certain of which stockholders
received 100,000 shares of our common stock in exchange for the provision of
consulting services. No securities are being offered or sold by us pursuant to
this prospectus. We will not receive any of the proceeds from the sale of these
shares by the selling stockholders.
The selling stockholders identified in this prospectus, or their pledgees,
donees, transferees or other successors-in-interest, may offer the shares from
time to time through public or private transactions at prevailing market prices,
at prices related to prevailing market prices or at privately negotiated prices.
We do not know when or in what amounts a selling stockholder may offer shares
for sale. The selling stockholders may sell some, all or none of the shares
offered by this prospectus.
Our common stock is quoted on the OTC Bulletin Board ("OTCBB") under the
trading symbol "TEDG." The last reported bid price for our common stock on the
OTCBB on June 10, 2005, was $0.65 per share.
Investing in our common stock involves risk. You should carefully consider
the risk factors beginning on page 4 of this prospectus before purchasing shares
of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2005
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY............................................................1
RISK FACTORS..................................................................4
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE
INHERENTLY UNCERTAIN.......................................................10
USE OF PROCEEDS..............................................................11
PRICE RANGE OF OUR COMMON STOCK..............................................11
DIVIDEND POLICY..............................................................11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................12
BUSINESS.....................................................................17
MANAGEMENT...................................................................23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................33
DESCRIPTION OF CAPITAL STOCK.................................................34
SELLING STOCKHOLDERS.........................................................36
VALIDITY OF COMMON STOCK.....................................................39
EXPERT.......................................................................39
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.................................................39
WHERE YOU CAN FIND ADDITIONAL INFORMATION....................................39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE.....................F-1
This prospectus contains service marks, trademarks and
tradenames of Techedge, Inc.
-i-
PROSPECTUS SUMMARY
This summary highlights material information about us that is described
more fully elsewhere in this prospectus. It may not contain all of the
information that you find important. You should carefully read this entire
document, including the "Risk Factors" section beginning on page 4 and our
financial statements and their related notes to those statements appearing
elsewhere in this prospectus before making a decision to invest in our common
stock. Unless otherwise indicated in this prospectus or the context otherwise
requires, references to "we," "us" or "our company" refer to Techedge, Inc. and
its subsidiaries and not to the selling stockholders.
Overview
Techedge, Inc. is a mobile voice over Internet protocol, or VoIP, solution
provider. We have developed network services for carriers combining matured
wireless products with advanced VoIP technology. We are primarily focused on
providing low cost mobile VoIP products and services and carving a niche in
providing enabling technology to communications service providers targeting
underserved markets in the United States. Our goal is to help communications
service providers in these markets minimize infrastructure investment and create
new sources of revenue with products that are easy to deploy, scalable and cost
effective.
We have developed an IP-PCS product, consisting of hardware and software,
that uses Personal Handyphone System, or PHS, mobile telephone technology on
unlicensed Personal Communication Service, or PCS, frequencies, 1920MHz to
1930MHz, to wirelessly transmit phone calls and other data. We have
substantially completed development of our IP-PCS product and are engaged in
efforts to commercialize this product. We are in the development stage, and have
not yet initiated sales of our principal product, IP-PCS systems and solutions.
In addition, through our subsidiary, Quantum Communications Inc., we
provide limited VoIP and value-added communications services, such as
long-distance service, toll-free service, conferencing service, virtual number
service, to selected business and residential customers, using the platform and
network developed for our IP-PCS product. These services have been marketed
primarily to Chinese commercial and residential users in the U.S. and to
U.S.-based businesses with Chinese operations.
Company History
Techedge was incorporated in Delaware in July 2002 to serve as the
successor to the business and interests of BSD Development Partners, LTD., or
BSD. BSD was a Delaware limited partnership formed in 1997 for the purpose of
investing in the intellectual property of emerging and established companies.
BSD realized net proceeds of $1,319,500 from a private placement to accredited
investors in early 1998. In December 2000, BSD's partnership agreement was
amended to permit the general partner, in its sole discretion, to merge BSD into
a corporation. BSD merged with Techedge in September 2002. From September 2002
until June 2004, Techedge endeavored to continue the business of BSD.
On June 9, 2004, we acquired all of the issued and outstanding stock of
China Quantum Communications, Ltd., or CQCL, pursuant to a share exchange
agreement dated as of that date, by and among Techedge, certain of our
stockholders, CQCL and its shareholders, to whom we refer to as the "CQCL
shareholders". Pursuant to the share exchange agreement, we issued 72,000,000
shares of our common stock to the CQCL shareholders in exchange for all of the
capital stock of CQCL held by them, thereby increasing our total outstanding
shares of common stock from 8,000,000 shares to 80,000,000 shares. As a result
of the exchange, the CQCL shareholders acquired 90% of our issued and
outstanding shares of common stock on a post-exchange basis.
-1-
As part of this transaction, our then existing directors and officers
resigned as directors and officers of Techedge and were replaced by directors
and officers designated by CQCL. Following the closing of the share exchange,
our current directors were appointed.
Following the acquisition of CQCL, we refocused our business efforts on
developing and providing our IP-PCS product. We have continued operating CQCL's
communications service business through CQCL and CQCL's wholly-owned
subsidiaries, China Quantum Communications Inc., a Delaware corporation, and
Guang Tong Wang Luo (China) Co. Ltd. (or Quantum Communications (China) Co.,
Ltd.), a Chinese company.
As a result of the share exchange, although Techedge is the parent
company, the financial information included in this prospectus for periods prior
to the share exchange relates to CQCL as it is the acquirer for accounting
purposes.
Principal Executive Office
Our principal executive offices are located at 33 Wood Avenue South, 7F,
Iselin, New Jersey 08830. Our telephone number at that address is (732)
632-9896. Our principal corporate website is www.techedgeinc.net. Information
contained on or accessed through our website is not intended to constitute and
shall not be deemed to constitute part of this prospectus.
-2-
The Offering
Common stock being offered by selling
stockholders.......................... 2,794,118 shares
OTCBB Symbol.......................... TEDG
Risk factors.......................... The securities offered by this
prospectus are speculative and involve a
high degree of risk and investors
purchasing securities should not
purchase the securities unless they can
afford the loss of their entire
investment. See "Risk Factors" beginning
on page 4.
-3-
RISK FACTORS
An investment in our common stock is speculative and involves a high
degree of risk and uncertainty. You should carefully consider the risks
described below, together with the other information contained in this
prospectus, including the consolidated financial statements and notes thereto of
our company, before deciding to invest in our common stock. The risks described
below are not the only ones facing our company. Additional risks not presently
known to us or that we presently consider immaterial may also adversely affect
our company. If any of the following risks occur, our business, financial
condition and results of operations and the value of our common stock could be
materially and adversely affected.
Risks Related to Our Business
We have reported losses from operations in every year of our operating history.
We have never generated profits from operations in any year. At March 31,
2005, we had an accumulated deficit of $6.0 million. We will need to
significantly increase our annual revenue to achieve profitability. We may not
be able to do so. Even if we do achieve profitability, we cannot assure you that
we will be able to sustain or increase profitability on a quarterly or annual
basis in the future.
We have incurred significant expenses in the past. For example for the
twelve months ended December 31, 2004, we incurred research and development and
general and administrative expenses of $1.51 million. We incurred approximately
$636,000 of additional research and development and general and administrative
expenses during the three months ended March 31, 2005. Although we cannot
quantify the amount, we expect expenses to continue to increase for the
remainder of 2005 and to continue to incur losses.
We may not be able to obtain sufficient funds to grow our business.
We are a development stage company. Due to the nature and the stage of our
company, we require additional capital to fund some or all of the following:
o Commercialization of our IP-PCS products and services;
o Marketing and sales expenses targeting urban ethnic and rural market
segments;
o IP-PCS system upgrade and enhancement;
o Working capital;
o Unanticipated opportunities;
o Strategic alliances;
o Potential acquisitions;
o Changing business conditions; and
o Unanticipated competitive pressures.
-4-
There can be no assurance that we will be able to raise such capital on
favorable terms or at all. If we are unable to obtain such additional capital,
we may be required to reduce the scope of our business, which could have a
material adverse effect on our business, financial condition and results of
operations.
If our customers are unable to generate sales of services using our
products and to manage delivery of these services to their customers, we may be
unable to sell our products.
Our future success depends, in part, on wireless communications service
providers, which are our customers, generating revenue from the sale of mobile
telephone services delivered using our products. Sales of our IP-PCS product may
decline or be delayed if our customers do not successfully introduce commercial
services derived from our mobile VoIP service delivery platform or if our
customers do not generate revenue from these services sufficient to realize an
attractive return on their investment in our IP-PCS product. Our ability to
generate future revenue also depends on whether wireless communications service
providers successfully sell and deliver services using our IP-PCS product to
their customers.
If our IP-PCS product does not rapidly achieve market acceptance, we may be
unable to achieve profitability.
Our IP-PCS product offers a new approach for delivering wireless
communications services by companies which may not perceive our products as
being superior to existing wireless communications technologies. If wireless
communications service providers do not accept our IP-PCS service delivery
platform as a method for delivering mobile VoIP communications services to their
customers, our ability to increase our revenue, achieve profitability and
continue operations would be harmed.
Our products are technically complex and may contain errors or defects that are
not found until our products are put to full use by our customers. Errors or
defects in our products could seriously harm our reputation and our ability to
sell our products
Our products are more complicated than most networking products. They can
be adequately tested only when put to full use in very large and diverse
networks with high amounts of traffic. Because no customer has yet put our
products to full use, we are currently unable to assess the likelihood or
magnitude of this risk. Errors or defects in our products could result in:
o Loss of customers and failure to attract new customers or achieve
market acceptance; and
o Increased service and warranty costs.
A failure of our contract manufacturers or our sole source and limited source
suppliers to meet our needs would seriously harm our ability to timely fill
customer orders.
We use third-party contract manufacturers to produce our IP-PCS service
delivery product. If any of these manufacturers terminates its relationship with
us or is unable to produce sufficient quantities of our products in a timely
manner and at satisfactory quality levels, our ability to fill customer orders
on time, our reputation and our operating results would suffer. Our contract
manufacturers do not have a long-term obligation to supply products to us.
Qualifying new contract manufacturers and starting volume production is
expensive and time consuming and would disrupt our business.
We purchase key components for our IP-PCS product, including PHS base
stations and handsets, VAS Servers, IP gateways, WiMax, pre-WiMax and other
broadband networking devices, from third-party suppliers. We do not have
long-term supply contracts for these components. If our supply of these
components is interrupted, we may be unable to locate an alternative source in a
timely manner or at favorable prices. Interruption or delay in the supply of
these components could cause us to lose sales to existing and potential
customers.
-5-
Our business may be affected by rate cuts and increased usage of cellular
telephones.
Our regional mobile VoIP solution, IP-PCS, is expected to enable service
providers to offer competitive prepaid wireless rates and direct dial
international rates, as compared to those offered by cellular service operators.
Significant cuts in cellular telephone rates, including direct dial
international rates, could result in more cellular customers, and increasing
usage of cellular services by existing users, thereby reducing or eliminating
the need for these customers to purchase IP-PCS services from IP-PCS operators.
We cannot predict how this development would impact our business. If IP-PCS
rates and service enabled by our products are not attractive enough to compete
with cellular telephone usage, our business, financial condition and results of
operations may be materially and adversely affected.
If any of our significant suppliers were to terminate their relationships with
us or compete against us, our revenue and market share will likely be reduced.
Many of our suppliers also have significant development and marketing
relationships with our competitors and have significantly greater financial and
marketing resources than we do. If they develop and market products in the
future in competition with us, or form or strengthen arrangements with our
competitors, our revenue and market share will likely be reduced.
Our compliance with the Sarbanes-Oxley act and SEC rules concerning internal
controls may be time consuming, difficult and costly for us.
Although individual members of our management have experience as officers
of publicly-traded companies, that experience came prior to the adoption of the
Sarbanes-Oxley Act of 2002. It may be time consuming, difficult and costly for
us to develop and implement the internal controls and reporting procedures
required by the Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls and other finance staff in order to develop and
implement appropriate internal controls and reporting procedures. If we are
unable to comply with the internal controls requirements of the Sarbanes-Oxley
Act, we may not be able to obtain the independent accountant certifications that
the Sarbanes-Oxley Act requires publicly-traded companies to obtain.
If we do not effectively manage our growth, integrate newly hired key personnel
and hire additional personnel, our operations will suffer.
The growth of our operations places a significant strain on our management
systems and resources. If we do not effectively manage our growth and improve
our financial and managerial controls and systems, we may be unable to provide
adequate service and support to our customers and our operations will suffer. We
plan to hire additional employees this year, but we may be unable to hire and
retain the type and number that we need.
The long sales cycle for our IP-PCS product, as well as the expectation that
customers will sporadically place large orders, may cause our revenue and
operating results to vary significantly from quarter to quarter, and the price
of our stock to decline.
A customer's decision to purchase our IP-PCS product involves a
significant commitment of its resources and a lengthy evaluation, testing and
product qualification process. Communications service providers and other
customers with complex networks usually expand their networks in large
increments on a periodic basis. We may receive purchase orders for significant
dollar amounts on an irregular and unpredictable basis. These events may cause
our revenue and operating results to vary significantly and unexpectedly from
quarter to quarter, which could cause our stock price to decline.
-6-
Risks Related to Our Industry
Competition could reduce our market share and decrease our revenue and margin.
The market for telecommunications services is extremely competitive.
Mobile VoIP is an emerging technology that is attracting many new entrants as
our potential competitors. These entrants are using a range of wireless
technologies, including PCS, Wi-Fi, and other wireless technologies. Many of our
competitors have a superior presence in the overall telecommunications markets
that we serve, are larger than Techedge and have substantially greater
financial, technical, distribution and marketing resources than Techedge. We may
not be able to compete successfully with these companies. If we do not succeed
in competing with these companies, we will lose customers and our revenue will
be substantially reduced, and our business, financial condition and results of
operations may be materially and adversely affected.
Some of our larger competitors have pre-existing relationships involving a
range of product lines with the wireless service providers who are the principal
potential customers for our IP-PCS product. These competitors may offer vendor
financing, which we do not offer, undercut our prices or use their pre-existing
relationships with our customers to induce them not to use our IP-PCS product.
Pricing pressures and increasing use of VoIP or wireless technology may lessen
our product's competitive pricing advantage.
The success of our future operations will depend, in part, on our IP-PCS
product's ability to provide low cost local and long distance telephone services
and achieve cost savings by using VoIP technology, as compared to carrying calls
over traditional networks. In recent years, the price of telephone service has
fallen to historic lows. The price of telephone service may continue to fall for
various reasons, including the adoption of VoIP technology by various
communications carriers. Some providers of traditional long distance services
are offering unlimited or nearly unlimited use of some of their services for an
attractive monthly rate. This development may reduce the price of local and long
distance calls to a point where our customers no longer have a price advantage
when using our solutions. We would then have to rely on factors other than price
to differentiate our product and service offerings, such as regional wireless
access and mobility. The decrease in pricing power and gross margin from our
customers may materially and adversely affect our solutions' competitiveness,
and affect our sales and margin.
We may not be able to keep pace with rapid technological changes in the
communications industry.
The market for wireless infrastructure equipment is subject to rapid
technological change, the adoption of new standards, frequent new product
introductions and changes in customer and end user requirements. We cannot
predict the effect of technological changes on our business. We expect that new
services and technologies will emerge in the market in which we compete. These
new services and technologies may be superior to the products and technologies
that we use, or these new services may render our products and technologies
obsolete. To be successful, we must adapt to our rapidly changing market by
continually improving and expanding the scope of products we offer and by
developing new products and technologies to meet customer needs. Our success
will depend, in part, on our ability to respond to technological advances and
emerging industry standards on a cost effective and timely basis. If we are
unable to do so, our business, financial condition and results of operations may
be materially and adversely affected.
-7-
Unauthorized use of our intellectual property by third parties may damage our
brand.
We rely on trademark and copyright law, trade secret protection and
confidentiality agreements with our employees, customers, partners and others to
protect our intellectual property rights. Despite our precautions, it may be
possible for third parties to obtain and use our intellectual property without
authorization. Furthermore, the laws of some foreign countries may not protect
intellectual property rights to the same extent as do the laws of the United
States. It may be difficult for us to enforce certain of our intellectual
property rights against third parties who may have acquired intellectual
property rights by filing unauthorized applications in foreign countries to
register the trademarks that we use because of their familiarity with our
operations. Since Internet related industries such as ours are exposed to the
intellectual property laws of numerous foreign countries and trademark rights
are territorial, there is uncertainty in the enforceability and scope of
protection of our trademarks. The unauthorized use of our intellectual property
by third parties may damage our brand and may have a material adverse effect on
our business, financial condition and results of operations.
Defending against intellectual property infringement claims could be expensive
and could disrupt our business.
We cannot be certain that our products and services do not or will not
infringe upon valid patents, trademarks, copyrights or other intellectual
property rights held or claimed by third parties. We may be subject to legal
proceedings and claims from time to time relating to the intellectual property
of others in the ordinary course of our business. We may incur substantial
expenses in defending against those third-party infringement claims, regardless
of their merit. Successful infringement claims against us may result in
substantial monetary liability or may materially disrupt the conduct of our
business.
Federal and state regulations may be passed that could harm our business.
Use of the Internet and private IP networks providing voice communications
services is a relatively recent market phenomena. Although the provision of such
services is largely unregulated in the United States, the United States Congress
is considering several bills that would, if passed, impose new and additional
regulations on providers of VoIP services, including customers using our IP-PCS
solutions to deliver mobile VoIP services. Our ability to provide VoIP
communications solutions with attractive rates to service providers arises in
large part from the fact that VoIP services are currently not subject to the
same regulation as traditional telephony. Because their services are currently
not regulated to the same extent as traditional telephony, VoIP providers are
currently avoiding paying charges that traditional telephone companies must pay.
Local exchange carriers are lobbying the Federal Communications Commission, or
FCC, and the states to regulate VoIP on the same basis as traditional telephone
services. The FCC and several states are examining this issue. If the FCC or any
state determines to regulate VoIP, they may impose surcharges, taxes or
additional regulations upon providers of Internet telephony. These surcharges
could include access charges payable to local exchange carriers to carry and
terminate traffic, contributions to the Universal Service Fund or other charges.
Regulations requiring compliance with the Communications Assistance for Law
Enforcement Act, or provision of the same type of 911 services as required for
traditional telecommunications providers could also place a significant burden
on us depending on the technical changes required to accommodate the
requirements from our customers. The imposition of any such additional fees,
charges, taxes and regulations on IP communications services could materially
limit or eliminate for our customers the perceived competitive pricing advantage
delivered by our IP-PCS products and services.
Our ability to provide cost-effective IP-PCS products to wireless service
providers also may be affected by FCC regulations on the use of previously
unlicensed PCS spectrums, which our products use.
-8-
More aggressive regulation of the Internet in general, and Internet
telephony providers and services specifically, could increase our customers'
costs of doing business and prevent our products from delivering the desired
services profitably over the Internet, which could adversely affect our customer
base and our revenue.
Risks Related to Our Capital Structure
Insiders have substantial control over us, and they could delay or prevent a
change in our corporate control even if our other stockholders wanted it to
occur.
Our executive officers, directors, and principal stockholders who hold 5%
or more of the outstanding common stock and their affiliates beneficially owned
as of May 31, 2005, in the aggregate, approximately 81% of our outstanding
common stock. These stockholders will be able to exercise significant control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This could delay
or prevent an outside party from acquiring or merging with us even if our other
stockholders wanted it to occur.
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely continue to
be highly volatile, as is the stock market in general, and the market for OTC
Bulletin Board quoted stocks in particular. Some of the factors that may
materially affect the market price of our common stock are beyond our control,
such as changes in financial estimates by industry and securities analysts,
conditions or trends in the VoIP and wireless communications industries,
announcements made by our competitors or sales of our common stock. These
factors may materially adversely affect the market price of our common stock,
regardless of our performance.
In addition, the public stock markets have experienced extreme price and
trading volume volatility. This volatility has significantly affected the market
prices of securities of many companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of our common stock.
Our common stock may be considered a "penny stock" and may be difficult to sell.
The SEC has adopted regulations which generally define a "penny stock" to
be an equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock is less than $5.00 per share and, therefore, it
may be designated as a "penny stock" according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to
sell our common stock and may affect the ability of investors to sell their
shares.
Future sales of our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock in the public
market could cause a decrease in the market price of our common stock. At May
31, 2005, we had 81,455,000 shares of common stock outstanding. Substantially
all of our outstanding shares either are eligible for resale to the public
without restriction pursuant to Rule 144(k) or are eligible for resale to the
public pursuant to Rule 144. At May 31, 2005, options to purchase 4,266,684
shares of our common stock were outstanding of which 4,122,685 were vested, and
warrants or other rights to purchase 639,118 shares of our common stock were
outstanding. We may also issue additional shares of stock in connection with our
business and may grant additional stock options to our employees, officers,
directors and consultants under our stock option plans or warrants to third
parties. If a significant portion of these shares were sold in the public
market, the market value of our common stock could be adversely affected.
-9-
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE
INHERENTLY UNCERTAIN
This prospectus, including the sections entitled "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis or Plan of Operation,"
"Business," and elsewhere in this prospectus contains forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you
can identify forward-looking statements by terminology such as "indicates,"
"may," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
caution you not to place undue reliance on these statements, which speak only as
of the date of this prospectus. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results.
-10-
USE OF PROCEEDS
All of the net proceeds from the sale of the shares offered pursuant to
this prospectus will go to the stockholders who offer and sell them. We will not
receive any proceeds from the sale of shares by the selling stockholders. A
portion of the shares offered pursuant to this prospectus are issuable upon the
exercise of warrants. If these warrants are fully exercised, we will receive
gross proceeds of approximately $520,589, which will be used for general
corporate purposes, including working capital. The actual allocation of proceeds
realized from the exercise of these warrants will depend upon the amount and
timing of such exercises, our operating revenues and cash position at such time
and our working capital requirements. There can be no assurances that any of the
outstanding warrants will be exercised.
PRICE RANGE OF OUR COMMON STOCK
Since June 17, 2004, our common stock has been listed on the OTCBB under
the trading symbol "TEDG." On June 10, 2005, the last reported bid price of our
common stock on the OTCBB was $0.65 per share. On April 8, 2005, there were
approximately 133 holders of record of our common stock. High and low bid prices
of our common stock since June 17, 2004, as reported on the OTCBB are set forth
in the table below:
Fiscal Year Ended December 31, 2004:
HIGH LOW
---- ---
First Quarter.............................. N/A N/A
Second Quarter............................. $1.15 $1.01
Third Quarter.............................. $1.50 $0.35
Fourth Quarter............................. $1.01 $0.51
Fiscal Year Ended December 31, 2005:
First Quarter.............................. $1.15 $0.74
Second Quarter
through June 10, 2005)..................... $1.04 $0.35
Such quotations reflect inter-dealer prices without retail markup, markdown, or
commission, and may not necessarily represent actual transactions.
DIVIDEND POLICY
To date, we have not paid any dividends on our common stock and we do not
intend to pay dividends for the foreseeable future, but intend instead to retain
earnings, if any, for use in our business operations. The payment of dividends
in the future, if any, will be at the sole discretion of our board of directors
and will depend upon our debt and equity structure, earnings and financial
condition, need for capital in connection with possible future acquisitions and
other factors, including economic conditions, regulatory restrictions and tax
considerations. We cannot guarantee that we will pay dividends or, if we pay
dividends, the amount or frequency of these dividends.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
The following discussion contains forward-looking statements and involves
numerous risks and uncertainties, including, but not limited to, those described
in the "Risk Factors" section of this prospectus. Actual results may differ
materially from those contained in any forward-looking statements. The following
discussion should be read in conjunction with our financial statements and notes
thereto included elsewhere in this prospectus.
OVERVIEW
Techedge is a mobile voice over Internet protocol, or VoIP, solution provider.
Techedge has developed network services for carriers combining matured wireless
products with advanced VoIP technology. Techedge is primarily focused on
providing low cost mobile VoIP products and services and carving a niche in
providing enabling technology to communications service providers targeting
underserved markets in the United States. We are in the development stage, and
have not yet initiated sales from our principal product, IP-PCS systems and
solutions. We have substantially completed development of our initial product
offering and are engaged in efforts to initiate commercialization of this
product. We are headquartered in New Jersey, with research and development and
support centers in both the United States and China.
On June 9, 2004, Techedge acquired all of the issued and outstanding stock of
CQCL pursuant to a share exchange agreement dated as of that date, by and among
Techedge, certain of its stockholders, CQCL and the CQCL shareholders. Pursuant
to the share exchange agreement, Techedge issued 72,000,000 shares of its common
stock to the CQCL shareholders in exchange for all of the capital stock of CQCL,
thereby increasing Techedge's total outstanding shares of common stock from
8,000,000 shares to 80,000,000 shares. As a result of the exchange, the CQCL
shareholders acquired 90% of Techedge's issued and outstanding shares of common
stock on a post-exchange basis.
For accounting purposes, because Techedge had become a shell company prior to
the share exchange, the share exchange was treated as a recapitalization of
CQCL. As such, the historical financial information prior to the share exchange
is that of CQCL and its subsidiaries. Historical share amounts have been
restated to reflect the effect of the share exchange.
The following discussion should be read in conjunction with our condensed
consolidated financial statements and the notes thereto:
CRITICAL ACCOUNTING POLICIES
See "Summary of Significant Accounting Policies" in the Notes to Consolidated
Financial Statements December 31, 2004 appearing elsewhere in this prospectus
for our critical accounting policies. These policies include revenue
recognition, determining our allowance for doubtful accounts receivable,
accounting for cost of revenue, valuation of long-lived assets and research and
development costs. No significant changes in our critical accounting policies
have occurred since December 31, 2004.
RESULTS OF OPERATIONS
In these discussions, most percentages and dollar amounts have been
rounded to aid presentation. As a result, all such figures are approximations.
-12-
Three Months Ended March 31, 2005, Compared to the Three Months Ended March 31,
2004
Revenues
Current revenues are from limited sales of VoIP and value added communications
services to business and residential customers. Such revenues are not
significant as we continue to focus on the commercialization of our initial
IP-PCS product and development of additional IP- PCS systems and solutions.
Revenue decreased to $66,503 in the 1st quarter of 2005 from $79,179 in the 1st
quarter of 2004. The decrease in VoIP service revenues is due to reduced
marketing and sales activities, and significant rate cuts in response to
continued price reductions among competitors.
No customer represented more than 10% of our total revenues for the 1st quarter
of 2005 or 2004.
Comprehensive Loss
Comprehensive loss increased to $(625,373) in the 1st quarter of 2005 from
$(261,435) in the 1st quarter of 2004. The increase in loss is due to decreased
revenues, and an increase in legal, accounting, finance, and research and
development expenses.
Cost of Revenues and 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 was $36,887 in the 1st quarter of 2005, compared to $36,138
in the 1st quarter of 2004.
Gross margins decreased to $29,616 in the 1st quarter of 2005 from $43,041 in
the 1st quarter of 2004, primarily due to a temporary increase in variable cost
including termination cost as revenues decreased.
Research and Development Expenses
Research and development ("R&D") expenses consist primarily of personnel for
system design, implementation, and testing, and equipment costs associated with
IP-PCS systems and solutions development. R&D expenses increased to $198,024 in
the 1st quarter of 2005 from $83,146 in the 1st quarter of 2004. R&D costs,
including software development costs and system integration costs, are expensed
as incurred.
General and Administrative Expenses
General and administrative ("G&A") 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.
G&A expenses increased to $438,060 in the 1st quarter of 2005 from $195,968 in
the 1st quarter of 2004. We experienced a significant increase in legal,
accounting, finance, and Securities and Exchange Commission, or SEC, filing fees
associated with becoming a publicly traded firm as a result of Techedge's
acquisition of China Quantum Communications, Ltd., or CQCL, in June 2004, offset
by a significant decrease in marketing and sales expenses. We anticipate that
G&A expenses will increase as we seek to commercialize our IP-PCS systems and
solutions.
-13-
Other Income (Expense)
Other income was $167 in the 1st quarter of 2005 compared to a loss of $(709) in
the 1st quarter of 2004.
Income Taxes
No tax provision has been recorded for 2005 or 2004, as a result of the
cumulative operating losses we have generated.
Year Ended December 31, 2004 (Fiscal 2004) Compared to Year Ended December 31,
2003 (Fiscal 2003)
Revenues
Current revenues are from limited sales of VoIP and value added communications
services to business and residential customers. Such revenues are not
significant as we continue to focus on the commercialization of our initial
IP-PCS product and development of additional IP-PCS systems and solutions.
Revenue decreased to $312,899 in 2004 from $437,361 in 2003. The decrease in
VoIP service revenues is due to reduced marketing and sales activities, and
significant rate cuts in response to continued price reductions among
competitors.
No customer represented greater than 10% of our total revenues for 2004 or 2003.
Comprehensive Loss
Comprehensive loss increased to $(1,448,884) in 2004 from $(1,066,997) in 2003.
The increase in loss is due to decreased revenues, and an increase in research
and development expenses.
Cost of Revenues and 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 $156,676 in 2004 from $180,981 in 2003,
primarily due to decrease in variable cost as revenues decreased, including
telephony origination and termination cost.
Gross margins decreased to $156,223 in 2004 from $256,380 in 2003.
Research and Development Expenses
R&D expenses consist primarily of personnel for system design, implementation,
and testing, and equipment costs associated with IP-PCS systems and solutions
development. R&D expenses were $432,144 in 2004 and $386,775 in 2003. R&D costs,
including software development and system integration costs, are expensed as
incurred.
-14-
General and Administrative Expenses
G&A 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.
G&A expenses increased to $1,081,465 in 2004 from $861,422 in 2003. We
experienced a significant increase in legal, accounting, and SEC filing fees
associated with becoming a publicly traded firm as a result of Techedge's
acquisition of CQCL in June 2004, offset by a significant decrease in marketing
and sales expenses. We anticipate that G&A expenses will increase as we seek to
commercialize our IP-PCS systems and solutions.
Other Income (Expense)
Other income decreased to $(12,291) in 2004 from $1,977 in 2003. The decrease is
primarily due to a decrease in interest income caused by lower cash on hand.
Income Taxes
No tax provision has been recorded for 2004 or 2003, as a result of the
cumulative operating losses we have generated.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents; working capital deficit. As of March 31, 2005, we had
cash and cash equivalents of $37,532 and a working capital deficit of
$(1,121,611), as compared to $54,876 and $(1,094,470), respectively, at December
31, 2004. The increase in our working capital deficit reflects a decrease in
current assets and an increase in current liabilities. Our current liabilities
of $1,619,319 include $1,001,942 in non-secured loans from and deferred
compensation due to our officers which are payable on demand.
Net cash provided by operating activities. Net cash used in operating activities
was $388,181 in the 1st quarter of 2005, as compared to net cash provided of
$48,599 in the 1st quarter of 2004.
Net cash used in investing activities. Net cash used in investing activities was
$16,663 in the 1st quarter of 2005, as compared to $182,801 in the 1st quarter
of 2004.
Net cash provided by financing activities. Net cash provided by financing
activities was $387,500, including $260,000 through issuance of common stock,
and $127,500 from officers' advances in the 1st quarter of 2005, as compared to
$70,085 net cash used in financing activities in the 1st quarter of 2004.
Capital stock transactions. On May 6, 2004, the CQCL board of directors approved
the purchase and cancellation of 4,320,000 ordinary shares from a related party
for an aggregate price of $432. On June 4, 2004, CQCL sold 2,520,000 ordinary
shares in a private placement for proceeds of $504,000. On June 9, 2004,
Techedge acquired CQCL through a share exchange. Pursuant to the share exchange
agreement, the shareholders of CQCL exchanged all of their outstanding preferred
shares and ordinary shares (5,013,600 and 49,308,800, respectively) for
72,000,000 shares of Techedge's common stock, representing approximately 90% of
the Company's outstanding shares of common stock following the share exchange.
In February 2005, Techedge completed a private placement of 260,000 shares of
common stock aggregating $260,000 at a price of $1.00 per share.
-15-
Currency exchange fluctuations. For the purpose of funding operations of our
Chinese subsidiary, we have implemented simple currency hedging against
fluctuations in the Chinese Renminbi to United States dollar exchange rate.
Need for current financing. Our ability to continue as a going concern is
dependent upon our ability to raise capital in the near term to: (1) satisfy our
current obligations, and (2) continue our mobile VoIP system and solution
development and commercialization efforts. Furthermore, our future success will
depend on our ability to successfully market and sell our IP-PCS products and
solutions. We do not have sufficient capital to fund our operations at the
current level unless we receive additional capital either through external
independent or related party funding, revenues from sales, further expense
reductions or some combination thereof.
SUBSEQUENT EVENTS
In April 2005, we completed a private placement of 95,000 shares of common stock
at a purchase price of $1.00 per share, or gross proceeds of $95,000, and, for
no additional consideration, a cashless 2-year warrant to purchase an additional
95,000 shares at an exercise price of $1.50 per share. A value of $36,770 of the
proceeds has been allocated to the warrant.
In April 2005, we completed a private placement (the "April Investor Placement")
of 367,647 of common stock at a purchase price of $0.68 per share, or gross
proceeds of $250,000, and, for no additional consideration, a cashless 5-year
warrant to purchase an additional 147,059 shares at an exercise price of $1.10
per share. A value of $71,470 of the proceeds has been allocated to the warrant.
In May 2005, we completed a private placement (the "May Investor Placement") of
367,647 of common stock at a purchase price of $0.68 per share, or gross
proceeds of $250,000, and, for no additional consideration, a cashless 5-year
warrant to purchase an additional 147,059 shares at an exercise price of $1.10
per share. A value of $68,240 of the proceeds has been allocated to the warrant.
On May 27, 2005, we entered into an amendment regarding the subscription
agreement governing the April Investor Placement and the May Investor Placement.
Pursuant to the terms of the amended subscription agreement, the per share sale
price of our common stock was reduced to $0.50 per share, such that we sold
500,000 shares in each of the April Investor Placement and the May Investor
Placement for an aggregate purchase price of $250,000 in each instance, and the
exercise price of the warrants that we had previously issued was reduced to
$0.75 per share. Under the amended subscription agreement the investor in each
of the April Investor Placement and May Investor Placement agreed to purchase at
a second closing an additional 500,000 shares of common stock for a purchase
price of $0.50 per share, or $250,000 in the aggregate, and warrants to purchase
an additional 200,000 shares of common stock at an exercise price of $0.75 per
share, which warrants will be exercisable at any time through the close of
business on the fifth anniversary of their date of issue.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
RECENT ACCOUNTING PRNOUCEMENTS
In December 2004, the FASB issued SFAS Statement No. 123(R) on Share-Based
Payments which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This statement is effective for public entities that file as small
business issuers as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005.
-16-
BUSINESS
Business Overview
Techedge is a mobile voice over Internet protocol, or VoIP, solution
provider. We have developed network services for carriers combining matured
wireless products with advanced VoIP technology. We are primarily focused on
providing low cost mobile VoIP products and services and carving a niche in
providing enabling technology to communications service providers targeting
underserved markets in the United States. We are in the development stage, and
have not yet initiated sales from our principal product, IP-PCS systems and
solutions. We have substantially completed development of our initial product
offering and are engaged in efforts to initiate commercialization of this
product. We are headquartered in New Jersey, with research and development and
support centers in both the United States and China.
Company History
Techedge was incorporated in Delaware in July 2002 to serve as the
successor to the business and interests of BSD Development Partners, LTD., or
BSD. BSD was a Delaware limited partnership formed in 1997 for the purpose of
investing in the intellectual property of emerging and established companies.
BSD realized net proceeds of $1,319,500 from a private placement to accredited
investors in early 1998. In December 2000, BSD's partnership agreement was
amended to permit the general partner, in its sole discretion, to merge BSD into
a corporation. BSD merged with Techedge in September 2002. From September 2002
until June 2004, Techedge endeavored to continue the business of BSD.
On June 9, 2004, we acquired all of the issued and outstanding stock of
China Quantum Communications, Ltd., or CQCL, pursuant to a share exchange
agreement dated as of that date, by and among Techedge, certain of our
stockholders, CQCL and its shareholders, to whom we refer to as the "CQCL
shareholders". Pursuant to the share exchange agreement, we issued 72,000,000
shares of our common stock to the CQCL shareholders in exchange for all of the
capital stock of CQCL held by them, thereby increasing our total outstanding
shares of common stock from 8,000,000 shares to 80,000,000 shares. As a result
of the exchange, the CQCL shareholders acquired 90% of our issued and
outstanding shares of common stock on a post-exchange basis.
As part of this transaction, our then existing directors and officers
resigned as directors and officers of Techedge and were replaced by directors
and officers designated by CQCL. Following the closing of the share exchange,
our current directors were appointed.
Following the acquisition of CQCL, we refocused our business efforts on
developing and providing our IP-PCS product. We have continued operating CQCL's
communications service business through CQCL and CQCL's wholly-owned
subsidiaries, China Quantum Communications Inc., a Delaware corporation, and
Guang Tong Wang Luo (China) Co. Ltd. (or Quantum Communications (China) Co.,
Ltd.), a Chinese company.
Market Overview
Despite being the world's largest telecom market, cellular penetration in
the U.S. continues to trail penetration in Europe and the rest of the developed
world. Experts predict that the majority of future voice communications will be
conducted wirelessly. Fulfilling this demand represents a huge market potential.
Furthermore, it is estimated that the majority of new wireless subscribers in
the United States between 2004 and 2009 are going to use prepaid or hybrid
plans, comprising about 14% of total mobile telephone revenue by 2009.
-17-
A large percentage of cellular telephone users, especially those in ethnic
communities and tourists from foreign countries or states, often spend a
significant portion of their time within a single region or community, with
little need for them to pay extra fees for roaming and coverage outside that
region. These users would greatly benefit from a low cost, feature rich,
wireless phone that works within their region and offers very low long distance
rates.
Prepaid Wireless and Prepaid Calling Card Market
For years, carriers have been concentrating their efforts on the postpaid
wireless services market because of the relatively high average revenue per
unit, or ARPU, and the fact that customers are locked in through contracts. With
the increasing saturation in the postpaid wireless services market, prepaid
wireless services are presenting phone service carriers with a way to grow and
diversify their revenue base. On a revenue-per-user basis, prepaid users
typically bring in only about one-third the revenue of "post-paid" ones,
according to research firm IDC. By concentrating on contracts, U.S. wireless
telecommunications companies have largely ignored a huge market segment: those
who are credit challenged, cannot afford, or are not interested in, post-paid
billing. Between the second quarter of 2003 and the same period in 2004, the
average U.S. wireless carrier increased its customer base by just 10%. In
contrast, TracFone, one of the first prepaid wireless service providers in the
U.S., increased its customer base by 44% to reach 3.6 million users. A more
recent prepaid entrant, Virgin Mobile USA more than doubled its customer base to
2.1 million. The prepaid wireless market today is $11.8 billion including
calling card and wireless. The U.S. prepaid wireless market had over 18 million
subscribers by the end of 2003. TracFone, Virgin Mobile USA, and other mobile
virtual network operators, or MVNOs, have executed their prepaid wireless
strategies with great success, tapping into previously underserved markets
including youth, credit-challenged, immigrants and infrequent users. An MVNO is
a mobile phone service operator that does not own its own spectrum and usually
does not have its own network infrastructure. Instead, the MVNO has business
arrangements with traditional mobile operators to buy minutes of use for sale to
their own customers. Because these MVNOs buy wholesale minutes from incumbent
carriers, they are forced to charge a relatively high rate to remain profitable.
Techedge's IP-PCS solution is designed to allow these providers to eliminate
their spectrum costs, lower usage costs by using an IP-backhaul and still offer
value-added features such as short text messaging and information distribution
services.
Prepaid Wireless Market. The market for pay-as-you-go wireless telephone
service market is expected to grow to 24% of the total wireless market by 2008,
according to the Yankee Group. The number of wireless subscribers is expected to
grow to 31.4 million by 2008. Frost & Sullivan expects the number of prepaid
wireless subscribers to reach 29 million by 2007. Prepaid wireless is an easy,
convenient way for millions of people, including immigrants that lack credit or
bank accounts or foreign tourists who are in the United States temporarily, to
obtain wireless service. Currently, about 50% of post-paid cellular plan
applicants are turned down due to credit issues, especially members of ethnic
groups such as Hispanics, Asians and African Americans. According to
Atlantic-ACM Research, 40% of new cell phone users are expected to choose
prepaid plans.
Prepaid calling-card Market. The U.S. prepaid calling-card industry is
projected to grow at 9.7% annually to reach $6.4 billion by 2008, according to
Prepaid Calling Cards: Market Dynamics and Forecast 2003-2008, a report by
telecommunications industry research firm Atlantic-ACM. Despite the expected
growth of the prepaid calling card market, competition is growing and providers
of prepaid telephone services are looking for additional sources of revenue and
new business strategies to differentiate themselves from their competitors.
Techedge's low-cost IP-PCS solution will allow wireless telephone service
providers to offer additional capabilities that can translate to new sources of
revenue.
-18-
Our Competitive Advantages
Techedge's IP-PCS solution focuses on providing low-cost wireless services
to ethnic minorities, tourists, and campus environments, which are frequent
users of long distance calling services. Routing international calls through an
IP backbone significantly reduces long distance charges.
Significant expected advantages of our IP-PCS solutions include:
o Low Capital Expenditure per Subscriber:
- Network infrastructure and handsets are significantly cheaper
than digital cellular telephone systems using code division
multiple access, or CDMA, or global system for mobile
communications, or GSM, technologies.
- No frequency license cost.
o Ease of deployment
- Unlicensed radio spectrum is available nationwide.
- IP connections are ubiquitous.
- Low power base stations have fewer zoning restrictions and do
not require tower construction.
- High reuse of radio spectrum, allowing traffic densities of up
to 15,000 subscribers per square kilometer.
o Long Handset Battery Life
- Low power consumption (10mW/hr. compared with 200mW/hr.
required for standard CDMA handset)
- Battery life is 3 to 4 times that of high power wireless
handsets
o Better Voice Quality
- Provides 4 times the erlang capacity, or traffic density, of a
cellular network.
- 10 subscribers per channel compared to 40 subscribers per
channel for cellular networks.
o Environmentally Friendly
- PHS phones generally emit 90% fewer electromagnetic waves than
mobile phones
- In Japan, hospitals and similar institutions prefer PHS
handsets because of the fear of electromagnetic interference
with medical equipment
Marketing and Sales
Techedge is targeting telecommunication service providers serving ethnic,
youth, budget conscious and other markets, the members of which are likely to
choose prepaid plans. Techedge's IP-PCS product focuses on providing low-cost
wireless services that can be offered as prepaid plans in niche markets such as
ethnic minorities, tourists, and campus environments. Ethnic groups, especially
new immigrants, are the single largest segment purchasing prepaid products.
Another large potential market segment for prepaid wireless services are
low-income Americans. Since many of these simply cannot afford a locked-in
contract for their phones, it makes much more sense for them to choose prepaid
calling services that allow them to purchase services for which they can
currently pay. IP-PCS's expected cost advantage makes it an attractive solution
for this market segment. For the traditional cellular carriers, the break-even
period for a prepaid customer can be as much as two years more than for contract
customers, according to consulting firm Adventis. IP-PCS allows the carrier to
spend less money to reach and service prepaid users and expand coverage areas as
market demands require.
-19-
Techedge intends to initially approach selected tier 2 and tier 3 carriers
or Internet service providers, or ISPs, including MVNOs, to deploy its IP-PCS
solution in niche markets. Techedge also plans to offer its IP-PCS solution to
selected players in the prepaid calling card market, especially to ones looking
for additional sources of revenue. Both wireless carriers and prepaid calling
card providers have broad distribution networks and multiple relationships with
diverse groups of retailers including convenience stores, gas stations, grocery
stores, check cashers, money-transfer companies, and electronics stores.
Techedge has hired people or entered into commercial agreements with
companies that have strong relationships with regional carriers or ethnic
communities. Techedge will continue to seek to develop relationships with ISPs
and cable companies to market its products. Techedge plans to actively
participate in trade shows, associations and cross marketing campaigns with
equipment suppliers to promote its technologies. Techedge's equipment
manufacturing suppliers are well known in the telecommunications industry, which
will allow the Company to capitalize on the strength of the names of its
equipment manufacturers to market Techedge's products to carriers.
Key Suppliers
We purchase from selected telecommunications equipment manufacturers
system components used in our products and to deliver our services, including
PHS base stations and handsets, VAS Servers, IP gateways, WiMax, a
standards-based wireless technology that provides high-capacity broadband
connections over long distances, pre-WiMax and other broadband networking
devices. We have formed strategic alliances with leading Asian
telecommunications equipment vendors, such as ZTE, UTStarcom, and Show
Engineering, to manufacture the IP base stations.
Competition
The market for telecommunications services is extremely competitive.
In the wireless infrastructure business, we compete with large established
wireless equipment manufacturers such as Motorola, Nokia, Siemens, Lucent,
Nortel, Ericsson, Alcatel, Samsung and NEC. These companies offer a wide range
of range of wireless network systems that use competing technologies. Mobile
VoIP is an emerging technology that is attracting many new entrants as our
potential competitors. These entrants are using a range of wireless
technologies, including PCS, Wi-Fi, and other wireless technologies. We believe
that we are a market leader in using IP-PCS technology to provide mobile VoIP
services.
Our phone service operations face significant competition from traditional
telecommunications providers, as well as wireless, cable and other providers of
telecommunications services. We compete for customers based principally on
service offerings, price and customer service.
The success of our future operations will depend, in part, on our IP-PCS
product's ability to enable low cost local and long distance telephone services
and achieve cost savings by using VoIP technology as compared to carrying calls
over traditional networks. In recent years, the price of traditional telephone
service has fallen to historic lows. The price of telephone service may continue
to fall for various reasons, including the adoption of VoIP technology by
various communications carriers. Some providers of traditional long distance
services are offering unlimited or nearly unlimited use of some of their
services for an attractive monthly rate. These developments may reduce the price
of local and long distance calls to a point where our customers will no longer
have a price advantage when using our products and services. We would then have
to rely on factors other than price to differentiate our product and service
offerings, such as regional wireless access and mobility. The decrease in
pricing power and gross margin from our customers may materially and adversely
affect our products' competitiveness, and affect our sales and margin.
-20-
Research and Development
We operate research and development facilities in the United States and
China, where our employees are involved in research and development and related
activities. These employees have technical expertise in areas such as software
and hardware development, system integration, wireless communications,
switching, protocols, web applications, PC development, firewalls and network
address translations, engineering real-time online transactions, billing, call
management, and network monitoring. This staff is devoted to the improvement and
enhancement of our existing product and service offerings, as well as to the
development of new products and services. Our future success will depend, in
part, on our ability to improve existing technology, to retain the services of
talented employees and to develop new products and services that incorporate the
leading technologies.
Software development and system integration costs are our primary research
and development expenditures. Such costs totaled $432,144 in 2004 and $386,775
in 2003.
Intellectual Property
We regard copyrights, trademarks, trade secrets, patents, patent
applications, and similar intellectual property as critical to our success and
we rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
suppliers, and others to protect our proprietary rights.
Government Regulation
Our ability to provide IP-PCS solutions to certain service providers using
unlicensed spectrums may be affected by FCC regulations on the use of unlicensed
PCS spectrums.
Employees
As of December 31, 2004, we employed 50 individuals in the United States
and China. Our employees are not represented by a labor union, and we consider
our employee relations to be good.
Properties
We are headquartered at 33 Wood Avenue South, 7F, Iselin, New Jersey. We
also have research and development and support centers in both the United States
and China.
A summary of the material leased facilities where we conduct business
operations is as follows:
Locations Sq. Ft. Description Lease Expiration Date
- --------- ------- ------------ ---------------------
Iselin, New Jersey 2000 Headquarter April, 2008
New York, New York 1400 IP-PCS Trial Month to month
Hang Zhou, China 4057 R&D, Support Year to Year
In addition to the facilities listed above, we have obtained telephony and
Internet collocation space in special dedicated facilities to house Internet
routing and related equipment, as well as general real estate spaces to house
wireless base stations and antennas. We believe that our facilities are suitable
and adequate for our current business needs and that suitable additional or
alternative space will be available in the future on commercially reasonable
terms.
-21-
We do not own any real property for use in our operations or otherwise.
Legal Proceedings
We are not a party to, and none of our property is the subject of, any
pending legal proceedings other than routine litigation that is incidental to
our business. To our knowledge, no governmental authority is contemplating any
such proceedings.
-22-
MANAGEMENT
Directors and Executive Officers
Set forth below is information concerning our directors and executive
officers. Our board of directors currently consists of three directors.
Name Age Position(s)
- -------------- ------- -----------------------------------------------
Peter Wang 51 Chairman and Chief Executive Officer
Ya Li 35 Chief Financial Officer, Director and Secretary
Charles Xue 52 Director
Eugene Chen 46 Chief Operating Officer
Steve Lam 52 Chief Technology Officer
The terms of office of each executive officer and director expires upon
the election of their respective successors. Executive officers of the Company
are appointed at the discretion of the Board of Directors with no fixed term.
There are no family relationships between or among any of the executive officers
or directors of the Company. The following biographical information about our
directors and executive officers is based solely on information provided to us
by them.
Peter Wang, 50, has served as the Director and Chief Executive Officer of CQCL
since September 2000, and our Chairman and Chief Executive Officer since our
acquisition of CQCL in June 2004. Mr. Wang co-founded and successfully built
Unitech Telecom (renamed UTStarcom) as well as several other technology/service
ventures. Mr. Wang has more than 20 years of experience in the telecommunication
equipment and services industry and has held management, operations, and
research and development positions in companies such as AT&T Bell Labs and
Racal-Milgo Information System.
Ya Li, 35, has served as the Chief Operating Officer and a Director of CQCL
since March 2002, our Chief Financial Officer and a Director since our
acquisition of CQCL in June 2004, and our Chief Operating Officer from June 2004
to March 2005. From August 1998 to March 2000, Mr. Li was the Chairman and Chief
Executive Officer of Global Villager Inc., which he founded and which was
acquired by Startec Global Communications Inc., a telecommunications carrier
focused on ethnic markets, in March 2000. Mr. Li has a B.S. in engineering from
the University of Science & Technology of China, a M.S. in computer science from
Temple University, and completed the two-year Management Program from the
University of Pennsylvania's Wharton School of Business. From 1994 to 1999, Mr.
Li worked in the information, telecommunications, and financial industries for
Bell Atlantic, Donaldson Lufkin and Jenrette, Lehman Brothers, and Morgan
Stanley. Mr. Li has served as a Director for the Chinese Finance Society,
Council on U.S.-China Affairs, and China Chamber of Commerce in the U.S.
Charles Xue, 52, has served as a Director of CQCL since May 2002, and one of our
Directors since our acquisition of CQCL in June 2004. Since 2001, Mr. Xue has
served as Chairman of PRCEDU.com, one of the largest online education companies
in China. Mr. Xue co-founded Unitech Telecom, which was renamed UTStarcom, Inc.,
and served as its Chairman from 1990 to 1996 and as its Vice-Chairman from 1996
to 2002. Mr. Xue founded 8848.net, a leading e-commerce site in China, and has
served as its Chairman since 1998. Education??
Eugene Chen, 46, has served as our Chief Operating Officer since March 2005.
From January 2005 until March 2005, Mr. Chen served as our Senior Vice President
for Business Operations. Prior to joining Techedge, Mr. Chen worked at AT&T
Corp. for over 21 years in various management and technical positions, including
Director of Business Support Systems for its fixed wireless service. Mr. Chen
also held a key management position in AT&T Solution's system integration
practice which was responsible for deploying advanced data networking solutions
for large enterprise customers. Most recently, Mr. Chen served as AT&T's
Director - Signature Client Group Billing Operations responsible for large
enterprise accounts from November 2002 to December 2004. Mr. Chen has a Bachelor
of Science and a Masters of Science degree in Electrical Engineering from
Columbia University of New York.
-23-
Steve Lam, 51, has served as our Chief Technology Officer since January 2005.
From March, 2000 to November, 2004, Mr. Lam worked for UTStarcom, a
telecommunication equipment manufacturer. He held a number of positions in
UTStarcom including director of 3G architecture, SoftSwitch architecture, and
Broadband Product Management. In 1998, Mr. Lam co-founded World PCS, a developer
of PCS products for wireless local loop. Mr. Lam has over 20 years of diverse
research and development experience in the areas of 2G and 3G mobile networks,
soft-switches, cable television, and consumer electronics. Mr. Lam has held
various positions with Plessey Telecommunication PLC and STC Telecommunication
PLC in the United Kingdom and Siemens, SBC Technologies, and Panasonic
Technologies in the United States. Mr. Lam holds a B.S. in Electronic
Engineering from the Chinese University of Hong Kong, an M.S. in Electronic
Engineering and a Diploma of Management Sciences from the University of
Manchester, Institute of Science and Technology in the in the United Kingdom.
Board of Directors
We currently do not have any standing committees. The entire Board of
Directors assumes the duties that would be delegated to an audit committee, a
compensation committee and a nominating committee. We intend to expand the size
of our Board of Directors, seek additional independent directors, and create an
audit committee, a compensation committee, and a nominating committee in the
future. The Board of Directors has 1 member, Charles Xue, who is independent as
defined in The Nasdaq Stock Market listing standards currently in effect.
Director Compensation
Directors do not receive cash compensation from us for the services they
provide as directors, although all of the Company's directors are reimbursed for
out-of-pocket expenses relating to attendance at board and committee meetings.
Executive Compensation
The following table sets forth all cash compensation paid or to be paid by
the Company, as well as certain other compensation paid or accrued, during each
of the Company's last three fiscal years to each Named Executive Officer.
-24-
Summary Compensation Table
Annual Long-Term
Compensation Compensation Awards
------------ -------------------
Name and Principal Securities Underlying
Position Year Salary Bonus Options (1)
-------- ---- ------ ----- -----------
Peter Wang(2) 2004 --(3) $ -- 662,700
Chief Executive Officer 2003 -- -- --
2002 -- -- --
Ya Li (2) 2004 $81,667(4) $ -- 662,700
Chief Financial Officer 2003 -- -- --
2002 -- -- --
Gregory A. Konesky (5) 2004 $ -- $ -- --
Former Chief Executive 2003 -- -- --
Officer 2002 -- -- --
- -------------
(1) Represents shares of our common stock issuable upon exercise of options to
purchase CQCL ordinary shares that we assumed as a result of our acquisition of
CQCL in June 2004.
(2) Began employment with Techedge in June 2004.
(3) Prior to the commencement of employment with Techedge, Mr. Wang earned
$20,000 in salary from CQCL during 2004, the payment of which has been deferred.
Mr. Wang earned $80,000 in salary from CQCL during 2003, the payment of which
has been deferred, and $120,000 in salary from CQCL during 2002, the payment of
which has been deferred.
(4) Includes $71,667 of salary the payment of which has been deferred. Prior to
the commencement of employment with Techedge, Mr. Li earned $58,333 in salary
from CQCL during 2004, the payment of which has been deferred. Mr. Li earned
$146,667 in salary from CQCL during 2003, the payment of $81,278 of which has
been deferred, and $126,155 in salary from CQCL during 2002, the payment of
$47,308 of which has been deferred.
(5) Mr. Konesky served as our Chief Executive Officer and President until his
resignation in June 2004 in connection with our acquisition of CQCL. Mr. Konesky
did not receive any compensation during the years indicated since Techedge had
been a shell company with no operations prior to the acquisition of CQCL in June
2004.
-25-
Option Grants in Fiscal 2004
The following table contains information regarding the grant of stock
options to the Named Executive Officers during the year ended December 31, 2004.
In addition, in accordance with rules adopted by the Securities and Exchange
Commission (the "SEC"), the following table sets forth the hypothetical gains or
"options spreads" that would exist for the respective options assuming rates of
annual compound price appreciation in the Company's common stock of 5% and 10%
from the date the options were granted to their final expiration date.
Options/SAR Grants in Last Fiscal Year
-----------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Expiration Grant Date
Name Granted(#)(1) Fiscal Year Base Price Date Market Value (2)
---- ------------- ----------- ---------- ---- ----------------
Peter Wang 662,700 15.53% $ 0.20 5/3/07 $0.81
Ya Li 662,700 15.53% 0.20 5/3/12 $0.81
Gregory A. Konesky -- -- -- -- --
- -------------
(1) Represents shares of our common stock issuable upon exercise of options to
purchase CQCL ordinary shares that we assumed as a result of our acquisition of
CQCL in June 2004.
(2) Represents the closing bid price of our common stock on August 2, 2004, the
date that we assumed the outstanding CQCL option grants.
Employment Contracts and Termination of Employment, and Change-in-Control
On March 10, 2005, the Board of Directors of Techedge, Inc., appointed
Eugene K. Chen as its Chief Operating Officer. Mr. Chen was hired by Techedge on
an at-will basis in accordance with the terms set forth in Techedge's original
offer letter to him which he accepted in December 2004 and in accordance with
Techedge's standard employee policies and procedures. In accordance with the
offer letter, Mr. Chen receives an annual salary of $180,000 and other benefits
consistent with Techedge's standard employee benefit package, including health,
dental and life insurance, three weeks annual paid vacation and seven company
holidays. The offer letter requires that Techedge's management recommend to the
board of directors that Mr. Chen receive a combination of a stock option and
restricted stock with respect to 3,250,000 shares of Techedge's common stock.
The recommended stock option would be to purchase Techedge common stock at a
price to be determined by the board of directors and would vest over a four-year
period with 10% vesting at the end of the first three months of employment and
monthly vesting thereafter. The recommended restricted stock would be subject to
the terms of Techedge's 2005 Equity Compensation Plan and would vest over a
four-year period with 25% vesting at the end of the first year of employment and
annual vesting thereafter. To date, Techedge's board of directors has not acted
on this recommendation. The offer letter provides that in the event that Mr.
Chen's employment with Techedge is terminated by reason of an Involuntary
Termination then he will be entitled to receive one year's base salary, to be
paid in accordance with Techedge's normal payroll practices and subject to
applicable withholding taxes, provided he delivers a general release of claims
in form and substance satisfactory to Techedge. For purposes of the offer
letter, "Involuntary Termination" means any termination by Techedge of Mr.
Chen's employment other than as a result of death, Disability or Termination for
Cause. "Disability" means Mr. Chen's inability to perform the normal and usual
duties of his position with Techedge by reason of any physical or medical
impairment that is expected to result in death or continue for a period of
twelve consecutive months or more. "Termination for Cause" means the occurrence
of any of the following actions by Mr. Chen: (i) commission of any act of fraud,
embezzlement or dishonesty; (ii) unauthorized use or disclosure of confidential
information or trade secrets of Techedge, (iii) intentional misconduct which has
an adverse effect upon Techedge's business or reputation, (iv) continued failure
to perform the major duties, functions and responsibilities of his position
after written notice from Techedge identifying the deficiencies in his
performance and a reasonable cure period of not less than 30 days or (v) a
material breach of his fiduciary duties as an officer of Techedge.
-26-
Equity Compensation Plan Information
The following table gives information as of December 31, 2004, about our
common stock that may be issued upon the exercise of options and rights under
our 2003 Non-Statutory Stock Option Plan and the CQCL 2001 Stock Plan. These
plans were our only equity compensation plans in existence as of December 31,
2004. In April 2005, the board of directors adopted our 2005 Equity Compensation
Plan, which adoption was ratified by our stockholders on May 20, 2005. As a
result of the ratification of the 2005 Equity Compensation Plan, the CQCL 2001
Stock was terminated with respect to future option grants. No options have been
granted under the 2003 Non-Statutory Stock Option Plan, and subsequent to
December 31, 2004, the Board of Directors terminated the 2003 Non-Statutory
Stock Option Plan.
(c)
Number of Securities
Remaining Available
(a) For Future Issuance
Number Of Securities (b) Under Equity
To Be Issued Upon Weighted-Average Compensation Plans
Exercise Of Exercise Price Of (Excluding Securities
Outstanding Options, Outstanding Options, Reflected In
Plan Category Warrants and Rights Warrants and Rights Column (a))
------------- ------------------- ------------------- --------------------
Equity Compensation Plans
Approved by Stockholders ....... -- $ -- --
Equity Compensation Plans
Not Approved by Stockholders ... 4,266,684(1) $0.20 9,290,804(2)
--------- ----- ---------
TOTAL 4,266,684 $0.20 9,290,804
========= ===== =========
- -------------
(1) Represents shares of our common stock issuable upon exercise of options to
purchase CQCL ordinary shares that we assumed as a result of our acquisition of
CQCL in June 2004.
(2) Represents 7,290,804 shares of Techedge common stock that remain available
for future issuance under the CQCL 2001 Stock Plan, and 2,000,000 shares that
were available for future issuance under the Techedge 2003 Non-Statutory Stock
Option Plan as of December 31, 2004. Because the Board of Directors has since
terminated the 2001 CQCL Stock Plan with respect to future option grants and the
2003 Non-Statutory Stock Option Plan, no shares remain available for future
issuance under these plans.
-27-
Description of the CQCL 2001 Stock Plan
Adoption and Shares Reserved. Our board of directors approved the
assumption of the CQCL 2001 Stock Plan in August 2004 in connection with our
acquisition of CQCL. The 2001 Stock Plan provided for the grant of incentive
stock options to our employees, and for the grant of nonstatutory stock options
to our employees, directors and consultants.
The 2001 Stock Plan provided that the maximum aggregate number of shares
that may be subject to option and sold pursuant to the plan is 11,557,488
shares. As a result of the stockholders ratification of the adoption of the 2005
Equity Compensation Plan, the 2001 Stock Plan has been terminated with respect
to future option grants. We are required to reserve and keep available such
number of shares to satisfy the outstanding but unexercised options that have
been granted under the 2001 Stock Plan.
Administration. Our board of directors or a committee of our board
administers the 2001 plan. The administrator has the power to determine the fair
market value of the shares, select the employees, directors or consultants to
whom options are to be granted, the terms of the options granted, including the
exercise price, the number of shares covered by each option, form of
consideration, terms of exercisability of the options and vesting acceleration
or waiver of forfeiture restrictions; however, no additional options will be
granted under the 2001 plan.
Exercise Price. The administrator determines the exercise price of options
granted under the 2001 plan, subject to the following requirements: (i) the
exercise price of incentive stock options shall be no less than 100% of the fair
market value per share, and for incentive stock options granted to employees who
own greater than 10% of the voting power of all classes of our stock, the
exercise price shall be no less than 110% of the fair market value per share;
and (ii) the exercise price of nonstatutory stock options shall be no less than
85% of the fair market value per share, and for nonstatutory stock options
granted to employees, directors or consultants who own greater than 10% of the
voting power of all classes of stock, the exercise price shall be no less than
110% of the fair market value per share. The term of an option may not exceed 10
years from the date of grant, except in the case of incentive stock options
granted to employees owning more than 10% of the voting power of all of our
classes of stock, in which case the term shall be no more than 5 years.
Termination of Employment. After termination of one of our employees,
directors or consultants, that person may exercise an option for the period of
time stated in the option agreement. In the case of termination of one of our
employees, directors or consultants due to death or disability, the option will
remain exercisable for 6 months following the date of termination. In all other
cases, in the absence of a period of time in the option agreement, to the extent
the option is vested the option will remain exercisable for 30 days following
the date of termination. To the extent that an option is not exercised within
the applicable time period, the unexercised option is reverted to the plan. If
on the date of termination, the option is not fully vested, the unvested portion
of the option is reverted to the plan.
Non-Transferability of Options. Our 2001 plan generally does not allow for
the transfer of options, except by will or the laws of descent, and only the
holder of an option may exercise the option during the holder's lifetime.
Adjustments upon Merger or Asset Sale. Our 2001 plan provides that the
Administrator may allow holders to exercise options in the event of a proposed
dissolution or liquidation of the company. The plan also provides that if we
merge with another corporation, sell all or substantially all of our assets, the
successor corporation will assume or provide a substitute for each option. If
the outstanding options are not assumed or substituted, the options shall
terminate as of the date of the merger or asset sale.
-28-
Amendment and Termination. Our 2001 plan has been terminated with respect
to future option grants. Our board of directors has the authority to amend,
suspend or terminate the plan provided it does not adversely affect any option
previously granted under it.
Description of the 2005 Equity Compensation Plan
The following description of the principal terms of the 2005 Plan is a summary
and is qualified in its entirety by the full text of the 2005 Plan.
Administration. The 2005 Plan will be administered by a duly authorized
committee appointed by the Board of Directors and charged with administration of
the 2005 Plan. The Committee may grant options to purchase shares of the
Company's common stock, stock purchase rights and restricted or unrestricted
stock awards ("awards") of shares of common stock to eligible employees,
directors and consultants, determine the terms and conditions of each option,
stock purchase right or award and adopt, amend and rescind rules and regulations
for the administration of the 2005 Plan. No options, stock purchase rights or
awards may be made under the Plan after April 14, 2015, but the 2005 Plan shall
continue thereafter while previously granted options, stock purchase rights or
awards remain subject to the 2005 Plan.
Employees, Directors and Consultants Eligible to Receive Options or Awards
Under the 2005 Plan. Persons eligible to receive options, stock purchase rights
or awards under the 2005 Plan are those employees, directors and consultants of
Techedge and its subsidiaries who, in the opinion of the Committee, are in a
position to make a significant contribution to our success.
Shares Subject to the 2005 Plan. Subject to adjustments set forth in the
2005 Plan, the aggregate number of shares of common stock available for issuance
under the 2005 Plan will be 8,500,000, subject to customary adjustments for
stock splits, stock dividends or similar transactions. If any option or stock
purchase right granted under the 2005 Plan terminates without having been
exercised in full or if any award is forfeited, the number of shares of common
stock as to which such option, stock purchase right or award was forfeited shall
be available for future grants within certain limits under the 2005 Plan. No
director, employee or consultant may receive awards of or relating to more than
4,000,000 shares of Techedge's common stock in the aggregate in any year.
Terms and Conditions of Options. The Committee determines the exercise
price of options granted under the 2005 Plan. The exercise price of incentive
stock options, however, must be at least equal to the fair market value per
share of common stock (or 110% of fair market value in the case of incentive
options granted to a ten-percent stockholder) issuable upon exercise of the
option at the time the incentive option was granted. No option may be
exercisable for more than ten years (five years in the case of an incentive
option granted to a ten-percent stockholder) from the date of grant. Options
issued under the 2005 Plan will be exercisable at such time or times as the
Committee prescribes at the time of grant. Unless otherwise determined by the
Committee, options will generally be exercisable as to 12.5% of the shares of
common stock underlying such option 6th months after the date of grant and as to
1/42 of the remaining shares subject to the option each month thereafter.
Generally, the option price may be paid (a) in cash or by certified check,
bank draft or money order, (b) through delivery of shares of common stock having
a fair market value equal to the purchase price, or (c) a combination of these
methods. The Committee is also authorized to establish a cashless exercise
program.
No option may be transferred other than by will or by the laws of descent
and distribution, and during a recipient's lifetime an option may be exercised
only by the recipient. Unless otherwise determined by the Committee, options
that are exercisable at the time of a recipient's termination of service with
Techedge will continue to be exercisable for three months (twelve months if the
optionee terminates service due to death or disability).
-29-
Terms and Conditions of Stock Purchase Rights. Stock purchase rights may
be issued either alone, or in tandem with, options or other awards under the
2005 Plan. A stock purchase right allows a recipient to purchase a share of
common stock at a price determined by the Committee. The Company will have the
right to repurchase the shares of common stock that are subject to the award
upon the recipient's termination of service. Unless otherwise determined by the
Committee, the Company's right of repurchase will lapse as to 12.5% of the
purchased shares 6 months after the date of grant and will lapse as to 1/42 of
the remaining purchased shares each month thereafter.
Terms and Conditions of Restricted Stock Awards. The Committee may also
grant a restricted stock award to any eligible employee, director or consultant.
Under a restricted stock award, shares of common stock that are the subject of
the award are generally subject to forfeiture to the extent that the recipient
terminates service with the Company prior to the award having vested. Unless
otherwise determined by the Committee, 12.5% of the shares subject to a
restricted stock award will vest 6 months after the date of grant and as to 1/42
of the remaining shares each month thereafter. Unless otherwise determined by
the Committee, holders of restricted shares will have the right to vote such
shares and to receive any cash dividends with respect thereto during the
restriction period. Any stock dividends will be subject to the same restrictions
as the underlying shares of restricted stock.
Terms and Conditions of Unrestricted Stock Awards. The Committee may grant
unrestricted stock awards to any eligible employee, director or consultant.
Unrestricted shares do not require any payment by the recipient and are not
subject to forfeiture.
In the event of a consolidation or merger in which Techedge is not the
surviving corporation or which results in the acquisition of substantially all
Techedge's outstanding stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all Techedge's assets, the 2005 Plan provides that all
outstanding options and stock purchase rights will become exercisable, unless
the successor entity assumes such options and stock purchase rights, and that
the Company's right of repurchase with respect to shares covered by all
outstanding stock purchase rights and all restrictions with respect to
restricted stock awards will lapse.
The Board may at any time amend the 2005 Plan for the purpose of
satisfying the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), or other applicable law or regulation or for any other legal
purpose, provided that, without the consent of our stockholders, the Board may
not (a) increase the number of shares of common stock available under the 2005
Plan, (b) change the group of individuals eligible to receive options and/or
purchase grants, or (c) extend the term of the 2005 Plan.
-30-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of May 31, 2005, the number of shares of
our common stock beneficially owned by (i) each person who is known by us to be
the beneficial owner of more than five percent of the Company's common stock;
(ii) each director and nominee for election to the Board of Directors; (iii)
each of the named executive officers in the Summary Compensation Table (the
"Named Executive Officers"); and (iv) all directors and executive officers as a
group. Unless otherwise indicated, the stockholders listed in the table have
sole voting and investment power with respect to the shares indicated. The
address for those persons for whom an address is not otherwise indicated is c/o
Techedge, Inc., 33 Wood Avenue South, 7th Floor, Iselin, New Jersey 08830.
NUMBER OF % OF COMMON
SHARES STOCK
BENEFICIALLY BENEFICIALLY
NAME OWNED** OWNED**
SB China Holdings PTE Ltd. (1) 11,928,935 14.64%
UTStarcom Inc. (2) 11,928,935 14.64%
Pacific Century Fund LLC (3) 15,741,112 19.32%
PZW Family LLP (4) 18,556,209 22.78%
Peter Wang (5) 26,840,231 32.69%
Ya Li (6) 538,444 *
Charles Xue 0 *
All Directors and Executive Officers
as a Group (5 persons) (7) 27,378,675 33.12%
- -----------------------------------------------------------------------------
* Indicates less than one percent.
** Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to the shares shown. Except as indicated by footnote and
subject to community property laws where applicable, to our knowledge, the
stockholders named in the table have sole voting and investment power with
respect to all common stock shares shown as beneficially owned by them. A person
is deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days upon the exercise of options, warrants or convertible
securities (in any case, the "Currently Exercisable Options"). Each beneficial
owner's percentage ownership is determined by assuming that the Currently
Exercisable Options that are held by such person (but not those held by any
other person) have been exercised and converted.
(1) The address for SB China Holdings PTE Ltd. is 28F-A Zhao Feng World Trade
Building, 369 Jiang Su Road, Shanghai 200050, PRC China.
-31-
(2) The address for UTStarcom, Inc., is 1275 Harbor Bay Parkway, Alameda,
California 94502.
(3) Peter Wang, Techedge's Chief Executive Officer and Chairman of the Board of
Directors, and Ya Li, Techedge's Chief Financial Officer, are each members of
Pacific Century Fund LLC owning 28.88% and 30.92%, respectively, of the
ownership interests of Pacific Century. The address for Pacific Century Fund LLC
is 68 Cottonwood Court, Monmouth Junction, New Jersey 08852.
(4) PZW Family LLP is 20% owned by Peter Wang. The address for PZW Family LLP is
58261 Melton Road, Hillard, Florida 32046.
(5) Includes 3,976,336 shares held by MAC Wireless/PW LLC which is 80% owned by
Mr. Wang, 1,325,469 shares held by Hangzhou Joray Electronics CO Ltd. which is
50% owned by Mr. Wang, 18,556,209 shares held by PZW Family LLP which is 20%
owned by Mr. Wang, and 662,700 shares issuable upon exercise of Currently
Exercisable Options. As the owner of 50% of the equity interests in Hangzhou
Joray Electronics, Mr. Wang shares voting and investment power over the shares
of Techedge common stock held by Hangzhou Joray Electronics. As one of the
general partners of PZW Family LLP, Mr. Wang shares voting and investment power
over the shares of Techedge common stock held by PZW Family LLP. Mr. Wang
disclaims beneficial ownership of the shares held by MAC Wireless/PW LLC,
Hangzhou Joray Electronics, and PZW Family LLP except to the extent of his
pecuniary interest in the shares.
(6) Includes 538,444 shares issuable upon exercise of Currently Exercisable
Options.
(7) Includes 1,201,144 shares issuable upon exercise of Currently Exercisable
Options held by our executive officers and directors.
-32-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 2003, there has not been nor is there proposed any
transaction or series of similar transactions to which we were or are to be a
party in which:
o The amount involved exceeds $60,000; and
o In which any director, executive officer, holder of more than 5% of our
common stock or any member of the immediate family of any of these persons
had or will have a direct or indirect material interest other than:
- compensation agreements and other arrangements, that are described
where required under "Executive Compensation;"
- the share exchange described under "Change of Control of Techedge;"
and
- the transactions described below:
On February 8, 2005, Techedge, Inc., sold 260,000 shares of its common
stock, par value $.0001 per share, to Pacific Century Fund LLC pursuant to a
stock purchase agreement, dated that same day, with Pacific Century for a
purchase price of $1.00 per share. Under the agreement, Techedge granted Pacific
Century the right to include the shares that it purchased in any registration
statement that Techedge might subsequently file (other than a registration
statement on Form S-4, S-8 or other limited purpose form), subject to cutback in
the case of an underwritten offering.
On April 26, 2005, Techedge, Inc., sold 95,000 shares of its common stock,
par value $.0001 per share, to Pacific Century Fund LLC pursuant to a stock
purchase agreement, dated that same day, with Pacific Century for a purchase
price of $1.00 per share. In addition, for no additional consideration, Techedge
granted Pacific Century warrants to purchase 95,000 shares of our common stock
at an exercise price of $1.50 per share. Under the agreement, Techedge granted
Pacific Century the right to include the shares that it purchased in any
registration statement that Techedge might subsequently file (other than a
registration statement on Form S-4, S-8 or other limited purpose form), subject
to cutback in the case of an underwritten offering.
Peter Wang, Techedge's Chief Executive Officer and Chairman of the Board
of Directors, and Ya Li, Techedge's Chief Financial Officer are each members of
Pacific Century Fund LLC owning 28.88% and 30.92%, respectively, of the
ownership interests of Pacific Century.
-33-
DESCRIPTION OF CAPITAL STOCK
General
The following description of our securities is a summary and is subject in
all respects to our certificate of incorporation, as amended, our bylaws and
Delaware law.
Our authorized capital consists of 100,000,000 shares of common stock, par
value $0.0001 per share and 1,000,000 shares of preferred stock, par value
$0.0001 per share.
Common Stock
As of May 31, 2005, there were 81,455,000 shares of common stock issued
and outstanding. Holders of our common stock are entitled to one vote per share
on all matters to be voted upon by the shareholders, and there is no cumulative
voting for the election of our Board of Directors. Holders of our common stock
are entitled to receive ratably such dividends, if any, as may be declared by
our Board of Directors out of funds legally available therefore. We have not
paid any cash dividends on our common stock and do not expect to do so in the
foreseeable future. Upon our liquidation, dissolution, or winding up, the
holders of our common stock will be entitled to share ratably in our assets that
are legally available for distribution, after payment of all debts and other
liabilities and any preferential liquidation rights of any preferred stock then
outstanding. Holders of our common stock have no preemptive rights to purchase
shares of our capital stock. All of the outstanding shares of our common stock
are, and the shares issuable upon exercise of outstanding options and warrants
will be, when issued, fully paid and nonassessable.
Preferred Stock
There are no shares of preferred stock outstanding. The board of directors
has the authority, without action by the stockholders, to designate and issue
the shares of preferred stock in one or more series and to designate the rights,
preferences and privileges of each series, any or all of which may be greater
than the rights of the common stock. It is not possible to state the actual
effect of the issuance of any of the shares of preferred stock upon the rights
of the holders of the common stock until the board of directors determines the
specific rights of the holders of such shares. However, the effects might
include restricting dividends on the common stock, diluting the voting power of
the common stock, impairing the liquidation rights of the common stock and
hindering or preventing a change of our control without further action by the
stockholders, thereby protecting management.
Options and Warrants
At May 31, 2005, options to purchase 4,266,684 shares of our common stock
that were granted under the CQCL 2001 Stock Plan were outstanding, of which
4,122,685 were vested. An additional 8,500,000 shares of our common stock are
reserved for issuance pursuant to our 2005 Equity Compensation Plan. At May 31,
2005, warrants or other rights to purchase 639,118 shares of our common stock
were outstanding.
Registration Rights
At May 31, 2005, 3,244,118 shares of common stock, including the shares
offered pursuant to this prospectus and 450,000 other shares of common stock
either outstanding or issuable upon exercise of outstanding warrants, were
subject to demand or piggyback registration rights for purposes of registering
the resale of such shares under the Securities Act of 1933. In addition, we
anticipate that all of the shares issuable upon exercise of outstanding options
granted under the CQCL 2001 Stock Plan, as well as the shares of common stock to
be issued under the 2005 Equity Compensation Plan, will be registered under the
Securities Act of 1933.
-34-
Anti-Takeover Effects of Provisions of Our Charter Documents.
Several provisions of our certificate of incorporation and bylaws may have
anti-takeover effects. These provisions are intended to avoid costly takeover
battles, lessen our vulnerability to a hostile change of control and enhance the
ability of our board of directors to maximize shareholder value in connection
with any unsolicited offer to acquire us. However, these anti-takeover
provisions, which are summarized below, could also discourage, delay or prevent
(1) the merger or acquisition of our company by means of a tender offer, a proxy
contest or otherwise, that a shareholder may consider in its best interest and
(2) the removal of incumbent officers and directors.
Our certificate of incorporation and bylaws:
o provide that stockholders may only take action by written consent if
such consent is unanimous;
o do not provide for cumulative voting; and
o provide that special meetings of stockholders may be called only by
our President, a majority of the members of our board of directors
or holders of more than 50% of our outstanding shares of common
stock.
We are not currently subject to Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in certain business
combinations with a 15% stockholder for a period of three years following the
date the person became a 15% stockholder, unless, with certain exceptions, the
business combination or the transaction in which the person became a 15%
stockholder is approved in a prescribed manner. Generally, the business
combinations covered by this statute include:
o a merger;
o an asset or stock sale;
o other transaction resulting in a financial benefit to the 15%
stockholder; and
o in determining whether a stockholder is a 15% stockholder, the
Delaware statute generally includes the voting shares owned by the
stockholder and the stockholder's affiliates and associates.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company and its address is 17 Battery Place, New York, NY
10004.
-35-
SELLING STOCKHOLDERS
Pursuant to a Subscription Agreement dated April 29, 2005, and amended as
of May 27, 2005, we issued to Whalehaven Capital Fund Limited and Alpha Capital
Aktiengesellschaft a total of 1,000,000 shares of our common stock at a purchase
price of $0.50 per share or gross proceeds of $500,000, and, for no additional
consideration, warrants to purchase a total of 294,118 additional shares of our
common stock at an exercise price of $0.75 per share. In connection with the
amended Subscription Agreement, Whalehaven and Alpha Capital shall, not later
than five days after the effective date of the registration statement of which
this prospectus is a part (such date, the "Final Closing Date"), purchase from
us for a gross purchase price of $500,000, 1,000,000 shares of our common stock
at a purchase price of $0.50 per share and warrants to purchase a total of
400,000 additional shares of our common stock at an exercise price of $0.75 per
share. We are now registering in this prospectus the shares issued and to be
issued in connection with the amended Subscription Agreement and the shares that
may be acquired pursuant to the exercise of the warrants that have been issued
and that will be issued so they can be resold. We will not receive any proceeds
from the resale of the shares by the selling stockholders.
We are also registering in this prospectus 100,000 shares of common stock
that were issued to RMN Consulting LLC in exchange for consulting services so
they can be resold.
We will not receive any proceeds from the resale of the shares by the
selling stockholders.
The table below sets forth information concerning the resale of these
shares, and includes a list of the stockholders whose shares are being
registered for resale, the number of shares beneficially owned by each of the
stockholders as of May 31, 2005, the number of shares being registered and the
number of shares they will beneficially own if they sell all of the shares being
registered.
Amount of Amount of Shares % of Shares to be
Shares to be Beneficially Beneficially
Beneficially Owned After Owned After
Owned Prior to Amount of Secondary Secondary
Name of Beneficial Owner Offering Shares Offered Offering Offering
------------------------ -------- -------------- -------- --------
Whalehaven Capital Fund 1,347,059(2) 1,347,059 0 0%
Limited(1)
Alpha Capital 1,347,059(2) 1,347,059 0 0%
Aktiengesellschaft
RMN Consulting 100,000 100,000 0 0%
- -------------
(1) Whalehaven Capital Fund Limited has indicated that Evan Schemenauer, Arthur
Jones and Jennifer Kelly exercise joint voting or investment power over the
shares beneficially owned by it.
(2) Includes (i) 500,000 outstanding shares, (ii) 147,059 shares issuable upon
exercise of outstanding warrants, (iii) 500,000 shares to be purchased by the
selling stockholder pursuant to the amended Subscription Agreement on the Final
Closing Date and (iv) 200,000 shares issuable upon exercise of warrants to be
issued to the selling stockholder pursuant to the amended Subscription Agreement
on the Final Closing Date.
-36-
PLAN OF DISTRIBUTION
Sales by Selling Stockholders.
The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The selling stockholders may use any one or more of the following methods
when disposing of shares or interests therein:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o short sales effected after the date the registration statement to
which this prospectus relates is declared effective;
o broker-dealers may agree with the selling stockholders to sell a
specified number of shares at a stipulated price per share;
o through the writing or settlement of option or other hedging
transactions, whether through an options exchange or otherwise;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
-37-
In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that rule.
The selling stockholders and any underwriters, broker-dealers or agents
that participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.
-38-
VALIDITY OF COMMON STOCK
The legality of the securities offered in this prospectus has been passed
upon for us by Lowenstein Sandler PC, Roseland, New Jersey.
EXPERT
Techedge's consolidated financial statements as of December 31, 2004 and
for the years ended December 31, 2004 and 2003 and for the period from September
13, 2000 (date of inception) through December 31, 2004, included in this
prospectus have been audited by Rosenberg Rich Baker Berman & Company,
independent auditors, as stated in its report appearing in this prospectus, and
have been so included in reliance upon the report of such firm given upon its
authority as an expert in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation limits the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the General Corporation Law of the
State of Delaware. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our Certificate of Incorporation provides that we shall indemnify our
directors and officers to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, including in circumstances in
which indemnification is otherwise discretionary under Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by one of our directors, officers or
controlling persons in the successful defense of any action, suit or proceeding)
is asserted by that director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether that indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of that issue.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement, certain portions of which are omitted as permitted
by the rules and regulations of the SEC. For further information pertaining to
us and the common stock to be sold in the offering, reference is made to the
registration statement, including the exhibits thereto and the financial
statements and notes filed as a part thereof. This prospectus summarizes
material provisions of contracts and other documents to which we refer you.
Since this prospectus may not contain all of the information that you may find
important, you may desire to review the full text of these documents. We have
included or incorporated by reference copies of these documents as exhibits to
our registration statement.
-39-
You should only rely on the information contained in this prospectus and
the registration statement. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common stock.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and file reports, proxy statements and other information
with the SEC. Such reports, proxy statements and other information, as well as
the registration statement and the exhibits thereto, may be inspected, without
charge, at the Public Reference Room maintained by the SEC at 450 Fifth Street,
NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
information regarding operation of the Public Reference Room. Copies of such
material may also be obtained at the Public Reference Room at prescribed rates.
Such materials can also be inspected on the SEC's web site at http:www.sec.gov.
-40-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Unaudited Interim Financial Statements
Consolidated Balance Sheet as of March 31, 2005 F-2
Consolidated Statements of Operations for the three months F-3
ended March 31, 2005 and 2004 and for the period from
September 13, 2000 (date of inception) through March 31,
2005
Consolidated Statements of Cash Flows for the three months F-4
ended March 31, 2005 and 2004 and for the period from
September 13, 2000 (date of inception) through March 31,
2005
Notes to Consolidated Financial Statements F-5
F-8
Independent Auditor's Report
Financial Statements
Consolidated Balance Sheet as of December 31, 2004 F-10
Consolidated Statements of Operations for the years ended F-11
December 31, 2004 and 2003 and for the period from
September 13, 2000 (date of inception) to December 31, 2004
Consolidated Statement of Changes in Stockholders' Equity F-12
(Deficit) for the period from September 13, 2000 (date of
inception) to December 31, 2004
Consolidated Statements of Cash Flows for the years ended F-14
December 31, 2004 and 2003 and for the period from
September 13, 2000 (date of inception) to December 31, 2004
Notes to Consolidated Financial Statements F-15
Schedule I - Valuation and Qualifying Accounts F-29
F-1
Techedge, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
March 31, 2005
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 37,532
Accounts receivable, net of bad debt reserve of $14,326 35,777
Due from related party 133,752
Prepaid consulting 271,150
Prepaid expenses and other current assets 19,497
-----------
Total Current Assets 497,708
Property and equipment, net of accumulated depreciation 181,637
Investment in unconsolidated subsidiary 324,167
Other assets 30,237
-----------
Total Assets 1,033,749
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 539,077
Other liabilities 78,300
Due to officers 1,001,942
-----------
Total Current Liabilities 1,619,319
-----------
Commitments and contingencies --
Stockholders' Equity (Deficit):
Common Stock, stated value $.0001, 100,000,000
shares authorized; 80,360,000 shares issued and outstanding 8,036
Additional paid-in capital 5,441,546
Deficit accumulated during development stage (6,031,626)
Accumulated other comprehensive income (3,526)
-----------
Total stockholders' equity (deficit) (585,570)
-----------
Total Liabilities and Stockholders' Equity $ 1,033,749
===========
See notes to the unaudited consolidated financial statements
F-2
Techedge, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
For the Three Months Ended March 31, 2005 and 2004
and for the Period from
September 13, 2000 (date of inception) through March 31, 2005
(UNAUDITED)
Three Months Ended For the Period From
March 31, September 13, 2000
---------------------------- (Date of Inception)
2005 2004 to March 31, 2005
------------ ------------ -----------------
Revenues $ 66,503 $ 79,179 $ 1,223,942
Cost of Sales 36,887 36,138 624,811
------------ ------------ ------------
Gross Profit 29,616 43,041 599,131
------------ ------------ ------------
Costs and expenses:
Research and development 198,024 83,146 1,861,360
General and administrative (including
stock-based compensation of
$56,500, $0, and $70,111, respectively) 438,060 195,968 4,442,126
Depreciation and Amortization 19,072 28,179 301,843
------------ ------------ ------------
Total costs and expenses 655,156 307,293 6,605,329
------------ ------------ ------------
Loss from operations (625,540) (264,252) (6,006,198)
------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary -- -- (60,134)
Gain (Loss) on foreign currency -- (3,068) 660
Interest income 167 2,359 34,046
------------ ------------ ------------
Total other income (expense) 167 (709) (25,428)
------------ ------------ ------------
Net Loss $ (625,373) $ (264,961) $ (6,031,626)
------------ ------------ ------------
Unrealized gain (loss) on foreign
currency translation, net of tax -- 3,526 (3,526)
------------ ------------ ------------
Comprehensive Loss $ (625,373) $ (261,435) $ (6,035,152)
============ ============ ============
Loss Per Common Share, basic and diluted $ (0.01) $ 0.00
============ ============
Weighted Average Common Shares Outstanding, basic
and diluted 80,148,571 67,739,604
============ ============
See notes to the unaudited consolidated financial statements
F-3
Techedge, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004
and for the Period from September 13, 2000 (date
of inception) through March 31, 2005
(UNAUDITED)
Three Months Ended For the Period From
March 31, September 13, 2000
-------------------------- (Date of Inception)
2005 2004 to March 31, 2005
----------- ----------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (625,373) $ (264,961) $(6,031,626)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 27,245 28,179 378,618
Loss on unconsolidated subsidiary -- -- 60,134
Provision for doubtful accounts -- -- 14,326
Loss on foreign currency exchange -- 3,526 (3,526)
Stock-based compensation 56,500 -- 70,111
Changes in operating assets and liabilities:
Accounts receivable (838) (1,491) (50,103)
Due from related parties 84,506 (3,581) (133,752)
Prepaid expenses and other current assets (3,393) 34,283 (26,960)
Other assets -- (27) (27,127)
Accounts payable and accrued expenses 254,872 252,671 568,962
Other liabilities (181,700) -- 78,300
----------- ----------- -----------
Net cash provided by (used in) operating activities (388,181) 48,599 (5,102,643)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated subsidiary -- (157,419) (408,270)
Purchase of property and equipment (16,663) (25,382) (221,865)
----------- ----------- -----------
Net cash used in investing activities (16,663) (182,801) (630,135)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement of common stock 260,000 -- 768,800
Repurchase of treasury stock -- -- (432)
Net proceeds from private placement of preferred stock -- -- 4,000,000
Net proceeds from (repayments of) officers' advances 127,500 (70,085) 1,001,942
----------- ----------- -----------
Net cash provided by (used in) financing activities 387,500 (70,085) 5,770,310
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (17,344) (204,287) 37,532
Cash and Cash Equivalents, beginning of period 54,876 710,694 --
----------- ----------- -----------
Cash and Cash Equivalents, end of period $ 37,532 $ 506,407 $ 37,532
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Income taxes paid $ -- $ 500 $ 2,173
=========== =========== ===========
See notes to the unaudited 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,
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.
2. LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS
Through March 31, 2005 the Company had incurred development stage losses
totaling $6,031,626, and net cash used in operating activities of $5,102,643. At
March 31, 2005 the Company had $37,532 of cash and cash equivalents and $35,777
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)
successfully develop, deploy and market its products on a wide scale.
3. PREPAID CONSULTING
During the quarter ended, March 31, 2005, the Company became obligated to issue
402,000 fully vested, non-forfeitable warrants to purchase shares of common
stock to two consultants for services in addition to cash payments. Warrants to
purchase a total of 267,200 shares are to be issued for services that extend
into the future and are amortized monthly over the period of the agreement,
ranging from four to six months. Warrants to purchase a total of 134,800 shares
are to be issued for services performed during the three months ended March 31,
2005 and were expensed. Since there was no readily determinable value for the
consulting services provided or to be provided, the fair value of the warrants
granted during the three months ended March 31, 2005 was estimated as of the
date of grant using the Black-Scholes stock option pricing model, based on the
following weighted average assumptions: annual expected return of 0%; annual
volatility of 0%; and based upon a risk-free interest rate of 3.0% and expected
warrant life of 2 years. The Company accounted for the prepaid value of
consulting services in accordance with EITF 00-18, Accounting Recognition for
Certain Transactions Involving Equity Instruments Granted to Other Than
Employees.
F-5
During the quarter ended, March 31, 2005, the Company granted 100,000 fully
vested, non-forfeitable shares of common stock to a consultant for services that
extend into the future and are amortized monthly over the period of one year,
the term of the agreement. Since there was no readily determinable value for the
consulting services provided or to be provided, the fair value of the shares was
recorded as of the date of grant in the amount of $110,000. The Company
accounted for the prepaid value of consulting services in accordance with EITF
00-18, Accounting Recognition for Certain Transactions Involving Equity
Instruments Granted to Other Than Employees.
4. STOCKHOLDERS' EQUITY
In February 2005, the Company completed a private placement of 260,000 shares of
common stock at a price of $1.00 per share, or gross proceeds of $260,000.
During the quarter ended, March 31, 2005, the Company granted 402,000 fully
vested, non-forfeitable warrants to purchase shares of common stock to two
consultants for services in addition to cash payments. See Footnote 4 for more
information regarding transaction.
During the quarter ended, March 31, 2005, the Company granted 100,000 fully
vested, non-forfeitable shares of common stock to a consultant for services. See
Footnote 4 for more information regarding transaction.
5. RELATED PARTY TRANSACTIONS
The Company records material related party transactions. The Company incurs
costs for certain administrative expenses from a company owned 100% by the
Company's CEO. 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.
The Company also purchases equipment used in the Research and Development from a
company owned 100% by the Company's CEO.
The Company also engages in advances to and advances from related parties. The
advances have no stated terms of repayment and carry no interest.
F-6
Following is a summary of transactions and balances with affiliated entities and
related parties for 2005 and 2004:
Three Months Ended
March 31,
-----------------------
2005 2004
-------- --------
Revenues from related parties $ -- $ 6,025
Purchases and expenses from related parties $ 2,400 $ 18,691
Due from related parties $133,752 $ 45,163
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, CFO, CTO and COO. No written repayment agreements exist with either
officer. Amounts are unsecured, non-interest bearing and due upon demand.
6. SUBSEQUENT EVENTS
In April 2005, the Company completed a private placement of 95,000 shares of
common stock at a purchase price of $1.00 per share, or gross proceeds of
$95,000, and, for no additional consideration, a cashless 2-year warrant to
purchase an additional 95,000 shares at an exercise price of $1.50 per share. A
value of $36,770 of the proceeds has been allocated to the warrant.
In April 2005, the Company completed a private placement of 367,647 of common
stock at a purchase price of $0.68 per share, or gross proceeds of $250,000,
and, for no additional consideration, a cashless 5-year warrant to purchase an
additional 147,059 shares at an exercise price of $1.10 per share. A value of
$71,470 of the proceeds has been allocated to the warrant.
In May 2005, the Company completed a private placement of 367,647 of common
stock at a purchase price of $0.68 per share, or gross proceeds of $250,000,
and, for no additional consideration, a cashless 5-year warrant to purchase an
additional 147,059 shares at an exercise price of $1.10 per share. A value of
$68,240 of the proceeds has been allocated to the warrant.
F-7
To the Board of Directors and Stockholders of
Techedge Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Techedge Inc. and
Subsidiaries (a Delaware corporation in the development stage) as of December
31, 2004, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 2004 and
2003 and for the period from September 13, 2000 (date of inception) to December
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Techedge
Inc. and Subsidiaries as of December 31, 2004 and the results of their
operations and cash flows for the two years ended December 31, 2004 and 2003 and
for the period from September 13, 2000 (date of inception) to December 31, 2004,
in conformity with accounting principles generally accepted in the United States
of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information, Valuation and
Qualifying Accounts on page F-22 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
F-8
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, NJ
February 28, 2005
F-9
Techedge Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents $ 54,876
Accounts receivable, net of bad debt reserve of $14,326 34,939
Due from related parties 218,258
Prepaid expenses and other current assets 16,104
-----------
Total Current Assets 324,177
Property and equipment, net 192,219
Investment in unconsolidated subsidiary 324,167
Other assets 30,237
-----------
Total Assets 870,800
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 284,205
Other liabilities 260,000
Due to officers 874,442
-----------
Total Current Liabilities 1,418,647
-----------
Commitments and Contingencies (Note 10) --
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 4,853,932
Deficit accumulated during development stage (5,406,253)
Accumulated other comprehensive loss (3,526)
-----------
Total Stockholders' Equity (547,847)
-----------
Total Liabilities and Stockholders' Equity $ 870,800
===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
Techedge Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
For the Period From
For the Year Ended September 13, 2000
December 31, (Date of Inception)
2004 2003 to December 31, 2004
------------ ------------ --------------------
Revenues $ 312,899 $ 437,361 $ 1,157,439
Cost of Sales 156,676 180,981 587,924
------------ ------------ ------------
Gross Profit 156,223 256,380 569,515
------------ ------------ ------------
Costs and expenses:
Research and development 432,144 386,775 1,663,336
General and administrative (including
stock-based compensation of $0,
$13,611 and $13,611, respectively) 1,081,465 861,422 4,039,102
Depreciation and amortization 75,945 74,002 246,173
------------ ------------ ------------
Total costs and expenses 1,589,554 1,322,199 5,948,611
------------ ------------ ------------
Loss from operations (1,433,331) (1,065,819) (5,379,096)
------------ ------------ ------------
Other income (expense):
Loss from unconsolidated subsidiary (20,796) (11,049) (60,134)
Gain on foreign currency 4,810 (1,908) 660
Interest income (expense), net 3,695 14,934 33,879
------------ ------------ ------------
Total other income (expense) (12,291) 1,977 (25,595)
------------ ------------ ------------
Net Loss $ (1,445,622) $ (1,063,842) $ (5,404,691)
------------ ------------ ------------
Unrealized loss on foreign
currency translation, net of tax (3,262) (3,155) (3,526)
------------ ------------ ------------
Comprehensive Loss $ (1,448,884) $ (1,066,997) $ (5,408,217)
============ ============ ============
Loss Per Common Share, basic and diluted $ (0.02) $ (0.02)
============ ============
Weighted Average Common Shares Outstanding,
basic and diluted 74,120,075 67,595,795
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
Techedge Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
For the Period from September 13, 2000 (Date of Inception) to December 31, 2004
Preferred Series A Stock Common Stock
----------------------------------- ----------------------------------- Additional
$.0001 $.0001 Paid-In
Shares Stated Value Shares Stated Value Capital
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE, September 13, 2000 -- $ -- -- $ -- $ --
(date of inception)
Common stock issued in
private placement -- -- 63,619,200 6,362 --
Net loss -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE, December 31, 2000 -- -- 63,619,200 6,362 --
Preferred stock issued in
private placement 5,301,600 530 -- -- 3,999,470
Foreign currency translation -- -- -- -- --
Net loss -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE, December 31, 2001 5,301,600 530 63,619,200 6,362 3,999,470
Issuance of common stock in
consideration for all of
the assets of WCG
Communications LLC -- -- 3,976,200 398 111,465
Issuance of preferred stock
in consideration for 100%
ownership of Zhejiang VSAT
Satellite Communication
Co., Ltd. 1,325,400 133 -- -- 226,395
Foreign currency translation -- -- -- -- --
Net loss -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE, December 31, 2002 6,627,000 663 67,595,400 6,760 4,337,330
================ ================ ================ ================ ================
Accumulated Accumulated Total
Deficit Other Stockholders'
During Comprehensive Equity
Development Stage Income (Loss) (Deficit)
----------------- ---------------- ----------------
BALANCE, September 13, 2000 $ -- $ -- $ --
(date of inception)
Common stock issued in
private placement (1,562) -- 4,800
Net loss (93,837) -- (93,837)
---------------- ---------------- ----------------
BALANCE, December 31, 2000 (95,399) -- (89,037)
Preferred stock issued in
private placement -- -- 4,000,000
Foreign currency translation -- (825) (825)
Net loss (1,251,210) -- (1,251,210)
---------------- ---------------- ----------------
BALANCE, December 31, 2001 (1,346,609) (825) 2,658,928
Issuance of common stock in
consideration for all of
the assets of WCG
Communications LLC -- -- 111,863
Issuance of preferred stock
in consideration for 100%
ownership of Zhejiang VSAT
Satellite Communication
Co., Ltd. -- -- 226,528
Foreign currency translation -- 3,716 3,716
Net loss (1,550,180) -- (1,550,180)
---------------- ---------------- ----------------
BALANCE, December 31, 2002 (2,896,789) 2,891 1,450,855
================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
Techedge Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
For the Period from September 13, 2000 (Date of Inception) to December 31, 2004
Preferred Series A Stock Common Stock
------------------------------------ ------------------------------------ Additional
$.0001 $.0001 Paid-In
Shares Stated Value Shares Stated Value Capital
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE, December 31, 2002 6,627,000 $ 663 67,595,400 $ 6,760 $ 4,337,330
Stock issued for services 18,025 2 144,204 14 13,595
Foreign currency translation -- -- --
Net loss -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE December 31, 2003 6,645,025 665 67,739,604 6,774 4,350,925
Repurchase and cancellation
of Common stock -- -- (5,725,728) (573) 141
Common stock issued in
private placement -- -- 3,340,008 334 503,666
Effect of merger and
recapitalization (6,645,025) (665) 14,646,116 1,465 (800)
Foreign currency translation -- -- -- -- --
Net loss -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ----------------
BALANCE, December 31, 2004 -- $ -- 80,000,000 $ 8,000 $ 4,853,932
================ ================ ================ ================ ================
Accumulated Accumulated Total
Deficit Other Stockholders'
During Comprehensive Equity
Development Stage Income (Loss) (Deficit)
----------------- ---------------- ----------------
BALANCE, December 31, 2002 $ (2,896,789) $ 2,891 $ 1,450,855
Stock issued for services -- -- 13,611
Foreign currency translation -- (3,155) (3,155)
Net loss (1,063,842) -- (1,063,842)
---------------- ---------------- ----------------
BALANCE December 31, 2003 (3,960,631) (264) 397,469
Repurchase and cancellation
of Common stock -- -- (432)
Common stock issued in
private placement -- -- 504,000
Effect of merger and
recapitalization -- -- --
Foreign currency translation -- (3,262) (3,262)
Net loss (1,445,622) -- (1,445,622)
---------------- ---------------- ----------------
BALANCE, December 31, 2004 $ (5,406,253) $ (3,526) $ (547,847)
================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
Techedge Inc. and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended For the Period From
December 31, September 13, 2000
---------------------------- (Date of Inception)
2004 2003 to December 31, 2004
----------- ----------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,445,622) $(1,063,842) $ (5,404,691)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 108,190 105,018 351,373
Loss on unconsolidated subsidiary 20,796 11,049 60,134
Provision for doubtful accounts -- -- 14,326
Loss on foreign currency exchange (3,262) (3,155) (3,526)
Stock-based compensation -- 13,611 13,611
Changes in operating assets and liabilities:
Accounts receivable (11,371) 30,267 (49,265)
Due from related parties (176,676) (31,942) (218,258)
Prepaid expenses and other current assets 43,562 (26,989) (23,567)
Other assets 1,093 1,386 (27,127)
Accounts payable and accrued expenses (174,129) (21,492) 314,090
Other Liabilities 260,000 -- 260,000
----------- ----------- ------------------
Net cash used in operating activities (1,377,419) (986,089) (4,712,900)
----------- ----------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated subsidiary -- -- (409,832)
Purchase of property and equipment (12,420) (33,243) (205,202)
----------- ----------- ------------------
Net cash used in investing activities (12,420) (33,243) (615,034)
----------- ----------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement of common stock 504,000 -- 508,800
Repurchase of treasury stock (432) -- (432)
Net proceeds from private placement of preferred stock -- -- 4,000,000
Proceeds from officers' advances 230,453 318,221 874,442
----------- ----------- ------------------
Net cash provided by financing activities 734,021 318,221 5,382,810
----------- ----------- ------------------
Net increase (decrease) in cash (655,818) (701,111) 54,876
Cash and Cash Equivalents, beginning of period 710,694 1,411,805 --
----------- ----------- ------------------
Cash and Cash Equivalents, end of period $ 54,876 $ 710,694 $ 54,876
=========== =========== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
1. ORGANIZATION AND NATURE OF BUSINESS
China Quantum Communications, Ltd. ("CQ") was organized on October 4, 2000. The
primary business of China Quantum Communications, Ltd. is to provide wireless,
VoIP, and value-added communication services to commercial and residential users
in the U.S. and China.
On December 29, 2000, CQ purchased 100% of the common stock of China Quantum
Communications, Inc., which was formed on September 13, 2000, and China Quantum
Communications, Inc. became a wholly owned subsidiary. Based on its controlling
interest in China Quantum Communications, Inc., the operating results of China
Quantum Communications, Inc. are included in the consolidated results of the
Company since December 29, 2000.
On January 21, 2001, CQ formed China Quantum Communications, Ltd. (China), a
wholly owned subsidiary. Based on its controlling interest in China Quantum
Communications, Ltd. (China), the operating results of China Quantum
Communications, Ltd. (China) are included in the consolidated results of the
Company since January 21, 2001.
In January 2001, CQ purchased 100% ownership of Zhejiang VSAT Satellite
Communication Co., Ltd., owned in the majority by the Company's CEO. In
September 2002, the Board of Directors authorized the issuance of 1,325,400
shares of Series A preferred stock as final consideration for the transaction.
This transaction was accounted for as a purchase pursuant to SFAS Statement No.
141, "Business Combinations". The total purchase price of approximately
$226,528, which was based on the fair market value of the assets purchased, was
allocated among the various assets purchased in the acquisition.
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 (the
"Exchange Agreement"), by and among the Company, the shareholders of the
Company, CQ and the shareholders of CQ.
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 the Company had become a shell company prior to
the share exchange, the share exchange was treated as a recapitalization of the
Company. As such, the historical financial information prior to the share
exchange is that of CQ and its subsidiaries. Historical share amounts have been
restated to reflect the effect of the share exchange.
Currently the Company focuses its activities on providing low cost mobile Voice
over IP (VoIP) solutions to service providers. It offers an "IP-PCS solution"
that utilizes PHS mobile technology on an unlicensed PCS frequency for low-cost
VoIP services. It has developed proprietary technologies in mobile IP call
processing and owns key intellectual properties. It has substantially completed
development of the IP-PCS product and is engaged in efforts to commercialize
this product.
F-15
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
2. LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS
Through December 31, 2004 the Company had incurred development stage losses
totaling $5,404,691, a working capital deficit of $1,094,470, and net cash used
in operating activities of $4,712,900. At December 31, 2004, the Company had
$54,876 of cash and cash equivalents and $34,939 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)
successfully develop, deploy and market of its products on a wide scale.
The Company believes that it will be able to complete the necessary steps in
order to meet its cash flow requirements throughout fiscal 2005 and continue its
development and commercialization efforts. Management's plans in this regard
include, but are not limited to, the following:
Management estimates that the Company will need additional minimum capital
of $1,250,000 by December 31, 2005 to continue its operations either
through revenues from sales, external independent or related party
funding, further expense reductions or some combination thereof.
The Company presently has ongoing discussions and negotiations with a
number of additional financing alternatives, one or more of which it
believes will be able to successfully close to provide necessary working
capital, while maintaining sensitivity to shareholder dilution issues.
However, the Company has no definitive agreements to provide funding at
this time.
Management believes that actions presently being taken to complete the
Company's development stage through the commercial roll-out of its IP
based Personal Communication Service (PCS) platform will be successful.
However, there can be no assurance that Techedge Inc. will generate
sufficient revenues to provide positive cash flows from operations or that
sufficient capital will be available, when required, to permit the Company
to realize its plans. The accompanying financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Techedge Inc., its
wholly owned and majority owned subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-16
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH AND CASH EQUIVALENTS
Techedge Inc. considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
STOCK BASED COMPENSATION
Financial Accounting Statement No. 123, Accounting for Stock Based Compensation,
encourages, but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. The Company has adopted the
"disclosure only" alternative described in SFAS 123 and SFAS 148, which require
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied.
BAD DEBT RESERVE
The Company provides for an allowance for doubtful accounts equal to the
estimated losses that will be incurred in the collection of all receivables. The
estimated losses are based on a review of the current status of the existing
receivables. The bad debt reserve is $14,326 at December 31, 2004.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of five years. Repairs and
maintenance expenditures, which do not extend the useful lives of the related
assets, are expensed as incurred.
REVENUE RECOGNITION
The Company recognizes revenue for its telecommunications services at the time
the services are provided to the end user.
RECLASSIFICATIONS
Certain amounts in the 2003 financial statements have been reclassified for
comparative purpose to conform to presentation in the 2004 financial statements.
F-17
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Financial Risks
At times throughout the year, the Company may maintain certain bank accounts in
excess of FDIC insured limits.
The Company provides credit in the normal course of business. The Company
performs ongoing credit evaluations of its customers and maintains allowances
for doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends, and other information.
Geographical Risks
Approximately 77% of the Company's assets and approximately 22% of the Company's
operations were in China for the year ended December 31, 2004. Accordingly, the
Company's business, financial condition and results of operations may be
influenced by the political, economic and legal environment in China, and by the
general state of China's economy. The Company's operations in China are subject
to special considerations and significant risks not typically associated with
companies in the United States. These include risks associated with, among
others, the political, economic and legal environments and foreign currency
exchange. The Company's results may be adversely affected by, among other
things, changes in the political, economic and social conditions in China, and
by changes in governmental policies with respect to laws and regulations,
changes in China's telecommunications industry and regulatory rules and
policies, anti-inflationary measures, currency conversion and remittance abroad,
and rates and methods of taxation.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense was $2,639,
$38,116 and $152,047 for the years ended December 31, 2004, 2003 and for the
period from September 13, 2000 (date of inception) to December 31, 2004,
respectively.
COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes rules for the reporting of comprehensive income and its components.
In addition to net loss, comprehensive income (loss) includes all changes in
equity during a period, except those resulting from investments by and
distributions to owners. Items of comprehensive income include foreign currency
exchanges.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred and
amounted to $432,144, $386,775, and $1,663,336 in 2004, 2003 and for the period
from September 13, 2000 (date of inception) to December 31, 2004, respectively.
Costs consist primarily of salaries and related costs of employees engaged in
research, design and development activities, the cost of parts for prototypes
and equipment depreciation.
F-18
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets," which became
effective for the Company on July 1, 2002 for the year ended December 31, 2002.
Under SFAS No. 144, the Company reviews long-term assets for impairment whenever
events or circumstances indicate that the carrying amount of those assets may
not be recoverable. The Company also assesses these assets for impairment based
on their estimated future cash flows. The Company has not incurred any losses in
connection with the adoption of this statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for Techedge
Inc.'s cash, accounts receivable, accounts payable, and accrued expenses
approximate their fair values due to the short maturities of these financial
instruments.
The carrying amounts reported in the consolidated balance sheets for Techedge
Inc.'s amounts recorded as other liabilities and due to officers approximate
their fair values based on current rates at which the Company could borrow funds
with similar maturities.
SEGMENT REPORTING
The Company operates in a single segment, offering telephony services while
focusing its activities on providing low cost mobile Voice over IP (VoIP)
solutions to service providers.
FOREIGN CURRENCY TRANSLATION
Operations of two of the Company's subsidiaries are conducted in China and the
financial statements of those subsidiaries are translated from China's Renminbi,
the functional currency, into U.S. Dollars in accordance with SFAS No. 52,
"Foreign Currency Translation." Accordingly, all foreign currency assets and
liabilities are translated at the period-end exchange rate and all revenues and
expenses are translated at the average exchange rate for the period. The effects
of translating the financial statements of foreign subsidiaries into U.S.
Dollars are reported as a cumulative translation adjustment, a separate
component of comprehensive income in stockholders' equity. Foreign currency
transaction gains and losses are reported in earnings and consisted of $4,810 of
gains in 2004, $1,908 of losses in 2003, and $660 of gains for the period from
September 13, 2000 (date of inception) to December 31, 2004.
LOSS PER COMMON SHARE, BASIC AND DILUTED
Techedge Inc. accounts for net loss per common share in accordance with the
provisions of SFAS No. 128, "Earnings per Share" ("EPS"). SFAS No. 128 requires
the disclosure of the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Common equivalent shares have been excluded from the computation of
diluted EPS since their effect would be anti-dilutive.
F-19
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS Statement No. 123(R) on Share-Based
Payments which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This statement is effective for public entities that file as small
business issuers as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005.
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Period From
December 31, September 13, 2000
----------------------- (Date of Inception)
2004 2003 to December 31, 2004
--------- --------- --------------------
Interest paid $ -- $ -- $ --
========= ========= ================
Income taxes paid $ 500 $ 750 $ 2,173
========= ========= ================
Schedule of Non-Cash Investing and Financing
Activities:
Issuance of 72,000,000 shares of common stock
in exchange for 100% of the outstanding
preferred and ordinary shares of China Quantum
Communications, Ltd. $ 2,388 $ --
========= =========
Issuance of 144,204 CQ ordinary shares and
18,025 CQ Series A preferred shares to
consultants for services $ -- $ 13,611
========= =========
F-20
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
5. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following at December 31, 2004:
Equipment $ 528,525
Office furniture and equipment 15,067
---------
543,592
Less-Accumulated depreciation (351,373)
---------
$ 192,219
=========
Depreciation expense for the years ended December 31, 2004, 2003 and for the
period from September 13, 2000 (date of inception) to December 31, 2004, was
$108,190, $105,018, and $351,373, respectively, of which $32,245, $31,016 and
$105,200 respectively, is included in research and development expense.
6. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Investment in unconsolidated subsidiary represents a 100% ownership of Zhejiang
Guang Tong Wang Luo Co., Ltd (ZJQC), a Chinese telecommunications company, which
was purchased on September 13, 2000, and is owned through a trust. In accordance
with Document 17 as issued by the Ministry of Information Industry, Peoples'
Republic of China, foreign groups and/or individuals are prohibited from
directly conducting telecommunications activities, either in the form of
investment, joint venture or partnership. Additionally, telecommunication
companies are prohibited from soliciting foreign investment or allowing foreign
shareholders or other form of ownership. Accordingly the Company recognizes its
ownership in accordance with SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries", and ARB 51, "Consolidated Financial Statements", and has recorded
its investment using the equity investment method since Techedge Inc. cannot
exercise control or influence over management and/or Board of Directors of the
foreign subsidiary.
F-21
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
6. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (Continued)
Following is a summary of financial position and results of operations of ZJQC:
December 31,
----------------------------
2004 2003
------------ ------------
Current assets $ 117,527 $ 288,538
Property, plant and equipment 34,826 55,598
Other assets 14,395 14,394
------------ ------------
Total assets 166,748 358,530
============ ============
Current liabilities 347,678 347,641
Owner's equity (deficit) (180,930) 10,889
------------ ------------
Total liabilities and owner's equity $ 166,748 $ 358,530
============ ============
Sales $ 32,866 $ 33,658
============ ============
Net loss $ (20,796) $ (11,049)
============ ============
7. STOCKHOLDERS' EQUITY
On October 4, 2000, in connection with its incorporation, China Quantum
Communications, Ltd. ("CQ") had authorized capital of 50,000 ordinary shares
with a par value of $0.0001.
On January 2, 2001, CQ sold 48,000,000 ordinary shares (which were exchanged for
63,619,200 shares of Techedge common stock as part of the Share Exchange (as
defined below)) in a private placement with proceeds of $4,800.
On January 10, 2001, CQ increased its authorized capital to 60,000,000 ordinary
shares, par value $0.0001 per share, by subdividing its existing authorized
shares.
On May 2, 2001, CQ sold 4,000,000 Series A preferred shares (which were
exchanged for 5,301,600 shares of Techedge common stock as part of the Share
Exchange) in a private placement for proceeds of $4,000,000.
On May 2, 2001 CQ increased its authorized capital to provide for 75,000,000
ordinary shares, par value $0.0001 per share, and 6,250,000 Series A preferred
shares.
On September 18, 2002, CQ issued 3,000,000 ordinary shares (which were exchanged
for 3,976,200 shares of Techedge common stock as part of the Share Exchange) for
all of the assets of WCG
F-22
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
Communications, LLC, a company owned in the majority by Company's CEO for
$111,863, the fair market value.
On September 18, 2002, CQ issued 1,000,000 Series A preferred shares (which were
exchanged for 1,325,400 shares of Techedge common stock as part of the Share
Exchange) for 100% ownership of Zhejiang VSAT Satellite Communication Co., Ltd.,
a company owned in the majority by the Company's CEO for $226,528, the fair
market value.
During the year ended December 31, 2003, CQ issued 108,800 ordinary shares
(which were exchanged for 144,204 shares of Techedge common stock in the Share
Exchange) and 13,600 Series A preferred shares (which were exchanged for 18,025
shares of Techedge common stock in the Share Exchange) to consultants for
services performed. The Company recognized a charge to operations of $13,611,
based upon the fair market value of the services provided.
On May 6, 2004, the CQ board of directors approved the purchase and cancellation
of 4,320,000 ordinary shares from a related party for an aggregate price of
$432.
On June 4, 2004, CQ sold 2,500,000 ordinary shares (which were exchanged for
3,340,008 shares of Techedge common stock in the Share Exchange) in a private
placement for proceeds of $504,000.
On June 9, 2004, the Company completed the merger with CQ. Pursuant to the
Exchange agreement, the shareholders of CQ exchanged all of their outstanding
preferred and common shares (5,013,600 and 49,308,800, respectively) for
72,000,000 shares of the Company's common stock, representing approximately 90%
of the Company's common stock at the time.
Preferred Stock
The CQ preferred stock was redeemable, cumulative and was convertible into
shares of common stock by a majority vote of the holders or automatically upon
the closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933 of the United
States of America. Preferred shares were convertible into common at any time,
without the payment of additional consideration, into such number of fully paid
ordinary shares per preference share as would have been determined by dividing
the original purchase price by the conversion price (initially the original
price). Dividends could have been declared for preferred shareholders at the
discretion of the Board of Directors. The Board of Directors declared no
dividends on preferred stock for the period from September 13, 2000 (date of
inception) to June 9, 2004, the date of the Share Exchange.
Stock Option Plan
On December 29, 2000, China Quantum Communications, Ltd. established its Stock
Option Plan (the "Plan"), in which incentive stock options and nonqualified
stock options may be granted to officers, employees and consultants of the
Company. The vesting of such options is four years and the options expire in ten
years.
On August 4, 2004, Techedge Inc. adopted the 2001 Stock Option Plan established
by China Quantum Communications, Ltd. under an Option Exchange agreement
approved by the board of directors. Pursuant to the agreement, the Company
exchanged an option to purchase 1.3254 shares of Techedge common stock for each
option to purchase one ordinary share of China Quantum Communications, Ltd. All
other terms and conditions of existing stock option agreements remain unchanged
as to exercise price and vesting. The amounts presented in the table below have
been restated to reflect the change.
F-23
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
7. STOCKHOLDERS' EQUITY (Continued)
A summary of the stock option activity for the years ended December 31, 2004 and
2003 pursuant to the terms of the Plan, which include incentive stock options
and non-qualified stock options, is set forth below:
Weighted Average
Number of Options Exercise Price
----------------- ----------------
Outstanding at December 31, 2002 4,300,924 $ 0.20
Granted -- --
Exercised -- --
Canceled/Expired (34,239) 0.20
----------------- ----------------
Outstanding at December 31, 2003 4,266,685 0.20
Granted -- --
Exercised -- --
Canceled/Expired -- --
----------------- ----------------
Outstanding at December 31, 2004 4,266,685 $ 0.20
================= ================
Exercisable at December 31, 2004 4,021,485 $ 0.20
================= ================
The per share weighted average remaining life of the options outstanding at
December 31, 2004 and 2003 is 6.10 and 7.10 years, respectively.
Techedge Inc. has elected to continue to account for stock-based compensation
under APB Opinion No. 25, under which no compensation expense has been
recognized for stock options and certain compensating warrants granted to
employees at fair market value. Had compensation expense for stock options
granted under the Plan and certain warrants granted to employees in 2004 and
2003, been determined based on fair value at the grant dates, Techedge's net
loss for 2004 and 2003 would have been increased to the pro forma amounts shown
below.
December 31,
---------------------------------
2004 2003
------------ ------------
Net Loss:
As reported $ (1,445,622) $ (1,063,842)
============ ============
Pro forma $ (1,472,828) $ (1,088,180)
============ ============
Net Loss Per Share:
As reported $ (0.02) $ (0.02)
============ ============
Pro forma $ (0.02) $ (0.02)
============ ============
F-24
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
8. RELATED PARTY TRANSACTIONS
The Company records material related party transactions. The Company
incurs costs for certain administrative expenses from a company owned 100%
by the Company's CEO. 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.
The Company also purchases equipment used in the Research and Development
from a company owned 100% by the Company's CEO.
The Company also engages in advances to and advances from related parties.
The advances have no stated terms of repayment and carry no interest.
Following is a summary of transactions and balances with affiliated
entities and related parties for 2004 and 2003:
For the Period From
December 31, September 13, 2000
--------------------------- (Date of Inception)
2004 2003 to December 31, 2004
------------ ------------ --------------------
Revenues from related parties $ 24,100 $ 360 $ 24,820
Purchases and expenses to related parties $ 74,765 $ 8,484 $ 92,141
Due from related parties $ 218,258 $ 41,582 $ 218,258
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-25
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
9. INCOME TAXES
No provision has been made for corporate income taxes due to cumulative losses
incurred. At December 31, 2004, China Quantum Communications, Inc. had operating
loss carry forwards of approximately $1,208,000 and $320,000 to offset future
federal and state income taxes, respectively. Certain changes in stock ownership
can result in a limitation in the amount of net operating loss and tax credit
carryovers that can be utilized each year.
The federal and state net operating loss carry forwards expire as follows:
Federal State Total
------------- -------------- ---------------
2007 $ - $ 8,445 $ 8,445
2008 - 96,080 96,080
2009 - 96,966 96,966
2010 - 59,758 59,758
2011 - 58,523 58,523
2020 31,905 - 31,905
2021 362,970 - 362,970
2022 366,316 - 366,316
2023 225,752 - 225,752
2024 221,086 - 221,086
============= ============== ===============
$ 1,208,029 $ 319,772 $ 1,527,801
============= ============== ===============
At December 31, 2004 the Company had net deferred income tax assets of
approximately $1,528,000 comprised principally of the future tax benefit of net
operating loss carry forwards, which represents an increase of $280,000 for the
fiscal year ended December 31, 2004. A full valuation reserve has been recorded
against such assets due to the uncertainty as to their future realizability. The
total change in the valuation allowance amounted to $280,000 for the year ended
December 31, 2004.
The differences between income tax benefits in the financial statements and the
tax benefit computed at the U.S. Federal statutory rate of 34% are as follows:
Year ended December 31,
-----------------------------
2004 2003
------------ ------------
Federal Income Tax (Benefit) (34)% (34)%
Valuation allowance 34% 34%
------------ ------------
Effective tax rate --% --%
============ ============
F-26
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company leases office equipment and certain office space in New Jersey, New
York and the Peoples' Republic of China under operating leases. Lease agreements
vary from one to four-year lease agreements with a renewal option for New Jersey
for two additional years.
The following is a schedule of future minimum rental payments (exclusive of
common area charges) required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of December 31,
2004.
Year Ending December 31,
2005 $ 113,200
2006 43,200
2007 43,200
2008 14,400
-----------
Total minimum payments required $ 214,000
===========
The leases also contain provisions for contingent rental payments based upon
increases in taxes and common area maintenance expense.
Subsequent to year-end, the Company exercised its renewal option for New Jersey
office space for an additional 2 years under the same terms as the original
lease agreement.
Following is a summary of rental expenses under all operating leases:
December 31,
-----------------------------
2004 2003
------------ ------------
Minimum rentals $ 133,000 $ 111,902
Contingent rentals 2,352 9,247
------------ ------------
Total rent expense $ 135,352 $ 121,149
============ ============
F-27
Techedge Inc. and Subsidiaries
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
December 31, 2004
11. SEGMENT REPORTING
The company intends to provide low cost mobile Voice over IP (VoIP) solutions to
service providers. The Company has operations in two geographic areas, China and
the United States. The chief operating decision makers evaluate performance,
make operating decisions, and allocate resources based on consolidated financial
data. Gross profit, operating income, income from operations, and income taxes
are not allocated to specific individual departments within the organization. In
accordance with SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," the Company is considered a single reportable segment. The
Company is required to disclose certain information about revenues, information
about geographic areas, information about major customers, and information about
long-lived assets.
Year Ended December 31, 2004
-------------------------------------------------
United States China Total
------------- ------------- -------------
Revenues $ 312,898 $ -- $ 312,898
Long-lived assets $ 159,019 $ 387,604 $ 546,623
Year Ended December 31, 2003
-------------------------------------------------
United States China Total
------------- ------------- -------------
Revenues $ 437,631 $ -- $ 437,631
Long-lived assets $ 243,141 $ 446,671 $ 689,812
For the years ended December 31, 2004 and 2003, the Company did not have any
major customers.
12. SUBSEQUENT EVENTS
In February 2005, the Company completed a private placement pursuant to which it
issued a total of 260,000 shares for aggregate gross proceeds of $260,000.
F-28
Techedge Inc. and Subsidiaries
(A Development Stage Company)
Schedule I - Valuation and Qualifying Accounts
Year Ended December 31, 2004
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts end of year
- ------------------------------------------- ------------------- --------------- -------------- ------------------
Year ended December 31, 2004:
Bad debt reserve
(deducted from accounts receivable) $ 14,326 -- -- $ 14,326
=================== ==================
F-29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Sections 145(a) and (b) of the Delaware General Corporation Law permit us to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that the
person is or was one of our directors, officers, employees or agents, or is or
was serving at our request as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to our best interests, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the person's conduct
was unlawful; provided, that with respect to actions or suits brought on our
behalf, the person may only be indemnified with respect to expenses (including
attorneys' fees) and may not be indemnified with respect to any claim, issue or
matter for which the person is adjudged to be liable unless a court determines
otherwise. Under Section 145(c), to the extent that one of our present or former
directors or officers is successful on the merits or otherwise in defense of any
of these actions, suits or proceedings, or in defense of any claim, issue or
matter, the director or officer shall be indemnified against expenses (including
attorneys' fees) that the director or officer actually and reasonably incurs
because of the action, suit or proceeding. Section 145 of the Delaware General
Corporation Law permits a corporation to include in its charter documents, and
in agreements between the corporation and its directors and officers, provisions
expanding the scope of indemnification beyond that specifically provided by the
current law.
Delaware law and Article Eleventh of our certificate of incorporation provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Article Ninth of our certificate of incorporation requires us to indemnify our
directors, officers, employees and agents to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law.
II-1
In addition to the indemnification provided for in our certificate of
incorporation and bylaws, we may enter into indemnification agreements with our
existing and future directors and officers. We also may obtain liability
insurance for the benefit of our directors and officers.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth estimated expenses expected to be incurred
in connection with the issuance and distribution of the securities being
registered
SEC Registration Fee ..................................... $ 238.43
Printing and engraving expenses........................... $ 500*
Legal fees and expenses................................... $ 50,000*
Accounting fees and expenses.............................. $ 3,000*
Miscellaneous............................................. $ 500*
-------------
TOTAL..................................................... $ 54,238.43
-----------------
*Estimated.
Item 26. Recent Sales of Unregistered Securities.
We were incorporated in Delaware in July 2002 to serve as the successor to
the business and interests of BSD Development Partners, LTD. Upon our
organization, we sold an aggregate of 5,000,000 shares of our common stock as
follows: (a) 2,250,000, 50,000 and 50,000 shares respectively to our three
founders and officers, (b) 2,250,000 shares to a private investor and (c)
400,000 shares to our then legal counsel.
In September 2002, we issued a further 3,000,000 shares to those 61
persons who had a limited partnership interest in BSD Development Partners upon
consummation of our merger with BSD.
On June 9, 2004, we acquired all of the issued and outstanding stock of
China Quantum Communications, Ltd., or CQCL, pursuant to a share exchange
agreement dated as of that date, by and among Techedge, certain of our
stockholders, CQCL and its shareholders, to whom we refer to as the "CQCL
shareholders". Pursuant to the share exchange agreement, we issued 72,000,000
shares of our common stock to the CQCL shareholders in exchange for all of the
capital stock of CQCL held by them.
On August 4, 2004, we assumed all of the options outstanding under the
CQCL 2001 Stock Plan which were held by directors, officers, employees and
consultants of CQCL and its subsidiaries. As a result of the assumption, the
CQCL options became exercisable for an aggregate of 4,266,684 shares of Techedge
common stock subject to and in accordance with the terms of the CQCL 2001 Stock
Plan and the individual stock option agreements governing such stock options.
The shares of Techedge common stock underlying the assumed CQCL options were
registered under the Securities Act of 1933 (the "Securities Act") pursuant to a
registration statement on Form S-8 filed on June 10, 2005 (the "S-8"). None of
the assumed options was exercised prior to the filing of the S-8.
II-2
On January 1, 2005, we agreed to grant to a consultant as partial payment
for consulting services two-year warrants to purchase 250,000 shares of common
stock at an exercise price of $0.75 per share and 200,000 shares of common stock
at an exercise price of $1.00 per share. All of the warrants were subject to
monthly vesting, and, as a result of our termination of the consulting
agreement, only 84,000 of the $0.75 warrants and 68,000 of the $1.00 warrants
would have vested and all of these warrants have expired unexercised.
On February 8, 2005, we sold 260,000 shares of our common stock to Pacific
Century Fund LLC pursuant to a stock purchase agreement, dated that same day,
with Pacific Century for a purchase price of $1.00 per share.
On March 15, 2005, the Company granted 100,000 shares of common stock and
two-year warrants to purchase 250,000 shares of common stock at an exercise
price of $0.75 per share to a consultant as partial payment for business
advisory services.
On April 26, 2005, we sold 95,000 shares of our common stock to Pacific
Century Fund LLC pursuant to a securities purchase agreement with Pacific
Century, dated that same day, for a purchase price of $1.00 per share and issued
to Pacific Century for no additional consideration a warrant (the "Warrant") to
purchase 95,000 shares of common stock at an exercise price of $1.50 per share,
which Warrant is exercisable at any time through the close of business on April
26, 2007.
On April 29, 2005, we entered into a subscription agreement with
Whalehaven Capital Fund Limited pursuant to which we sold 367,647 shares of our
common stock to Whalehaven for a purchase price of $0.68 per share, or $250,000
in the aggregate, and issued to Whalehaven for no additional consideration a
warrant to purchase 147,059 shares of common stock at an exercise price of $1.10
per share, which warrant is exercisable at any time through the close of
business on April 29, 2010. On May 4, 2005, Alpha Capital Aktiengesellschaft
became a party to the subscription agreement. Under the subscription agreement,
Alpha purchased 367,647 shares of our common stock for $0.68 per share, or
$250,000 in the aggregate, and we issued to Alpha for no additional
consideration a warrant to purchase 147,059 shares of our common stock at an
exercise price of $1.10 per share, which warrant is exercisable at any time
through the close of business on May 4, 2010. Alpha and Whalehaven are referred
to collectively as the Subscribers. Under the subscription agreement, each of
the Subscribers agreed to purchase at a second closing an additional 367,647
shares of common stock for a purchase price of $0.68 per share, or $250,000 in
the aggregate, and a warrant to purchase an additional 147,059 shares of common
stock at an exercise price of $1.10 per share, which warrant will be exercisable
at any time through the close of business on the fifth anniversary of its date
of issue. The Subscribers' obligation to effect the second closing is subject
only to customary closing conditions outside of their control, including, among
other things, the effectiveness of a shelf registration statement (the
"Registration Statement") registering the resale of the shares of common stock
purchased pursuant to the subscription agreement (the "Shares") and the shares
of common stock underlying the Warrants (the "Warrant Shares" and together with
the Shares, the "Registrable Shares"). Subject to the satisfaction of such
conditions, the second closing is scheduled to occur on the fifth day after the
Registration Statement is declared effective.
II-3
On May 27, 2005, we entered into an amendment to the subscription
agreement with the Subscribers. Pursuant to the terms of the amended
subscription agreement, the per share sale price of our common stock was reduced
to $0.50 such that we sold 500,000 shares to each of the Subscribers for an
aggregate purchase price of $250,000, and the exercise price of the warrants
that we had previously issued to the Subscribers was reduced to $0.75 per share.
Under the amended subscription agreement, each of the Subscribers agreed to
purchase at a second closing an additional 500,000 shares of common stock for a
purchase price of $0.50 per share, or $250,000 in the aggregate, and warrants to
purchase an additional 200,000 shares of common stock at an exercise price of
$0.75 per share, which warrants will be exercisable at any time through the
close of business on the fifth anniversary of their date of issue.
None of the transactions involved a public offering, and we believe that
each transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) of the Securities Act or Regulation D promulgated
under the Securities Act. None of the transactions involved any underwriters,
underwriting discounts or commissions. The securities granted in these
transactions are restricted and may not be resold unless they are subsequently
registered under the Securities Act or resold pursuant to an applicable
exemption therefrom. Appropriate legends have been or are to be affixed to the
share certificates and instruments issued or to be issued in the transactions.
Item 27. Exhibits.
The exhibits filed as a part of this Registration Statement are as
follows:
(a) List of Exhibits. (Filed herewith unless otherwise noted.)
Exhibit No. Description
- ----------- -----------
2.1 Share Exchange Agreement, dated June 9, 2004 (incorporated by
reference to Exhibit 2.1 to the Registrant's current report on
Form 8-K filed with the SEC on August 8, 2004)
3.1.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3(a) to the Registrant's registration
statement on Form 10-SB filed with the SEC on September 17,
2002)
3.1.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1.1 to the
Registrant's quarterly report on Form 10-QSB filed with the SEC
on November 12, 2004)
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit
3(b) to the Registrant's registration statement on Form 10-SB
filed with the SEC on September 17, 2002)
II-4
4.1 Specimen of Common Stock Certificate of Registrant (incorporated
by reference to Exhibit 4(b) to the Registrant's registration
statement on Form 10-SB filed with the SEC on September 17,
2002)
5.1 Opinion of Lowenstein Sandler PC as to legality of securities
being offered
10.1 Lease Agreement dated as of March 2002, between Metro Park
Associates, as lessor, and China Quantum Communications, Inc.,
as lessee (incorporated by reference to Exhibit 10.1 to the
Registrant's annual report on Form 10-KSB filed with the SEC on
March 31, 2005).
10.2 Addendum to Lease dated April 28, 2004, between Metro Park
Associates, as lessor, and China Quantum Communications, Inc.,
as lessee (incorporated by reference to Exhibit 10.2 to the
Registrant's annual report on Form 10-KSB filed with the SEC on
March 31, 2005).
10.3+ Offer Letter, dated December 27, 2004 between the Registrant and
Eugene K. Chen (incorporated by reference to Exhibit 99.1 to the
Registrant's current report on Form 8-K filed with the SEC on
March 16, 2005).
10.4 Stock Purchase Agreement, dated February 8, 2005, between the
Registrant and Pacific Century Fund LLC (incorporated by
reference to Exhibit 10.1 to the Registrant's current report on
Form 8-K filed with the SEC on February 14, 2005).
10.5+ China Quantum Communications, Ltd. 2001 Stock Plan and forms of
agreement thereunder (incorporated by reference to Exhibit 10.6
to the Registrant's annual report on Form 10-KSB filed with the
SEC on March 31, 2005).
10.6+ Registrant's 2005 Equity Compensation Plan and forms of
agreement thereunder (incorporated by reference to Exhibit 4.5
to the Registrant's registration statement on Form S-8
(Registration No. 333-125742)).
10.7 Securities Purchase Agreement, dated as of April 26, 2005,
between the Registrant and Pacific Century Fund LLC
(incorporated by reference to Exhibit 10.1 to the Registrant's
current report on Form 8-K filed with the SEC on April 29,
2005).
10.8 Warrant dated April 26, 2005, issued to Pacific Century Fund LLC
(incorporated by reference to Exhibit 10.2 to the Registrant's
current report on Form 8-K filed with the SEC on April 29,
2005).
10.9 Subscription Agreement dated as of April 29, 2005, among the
Registrant and the Subscribers (incorporated by reference to
Exhibit 10.1 to the Registrant's current report on Form 8-K
filed with the SEC on May 5, 2005).
II-5
10.10 Amendment to Subscription Agreement dated as of May 27, 2005,
between the Registrant and the Subscribers (incorporated by
reference to Exhibit 10.1 to the Registrant's current report on
Form 8-K filed with the SEC on June 3, 2005).
10.11 Warrant dated April 29, 2005, issued to Whalehaven Capital Fund
Limited (incorporated by reference to Exhibit 10.2 to the
Registrant's current report on Form 8-K filed with the SEC on
May 2, 2005).
10.12 Funds Escrow Agreement dated as of April 29, 2005, by and among
the Registrant and the Subscribers, among other parties
(incorporated by reference to Exhibit 10.3 to the Registrant's
current report on Form 8-K filed with the SEC on May 5, 2005).
10.13 Warrant dated May 4, 2005, issued to Alpha Capital
Aktiengesellschaft (incorporated by reference to Exhibit 10.2 to
the Registrant's current report on Form 8-K filed with the SEC
on May 5, 2005).
21.1 List of subsidiaries of the Registrant (incorporated by
reference to Exhibit 21.1 to the Registrant's annual report on
Form 10-KSB filed with the SEC on March 31, 2005).
23.1 Independent Auditors' Consent of Rosenberg Rich Baker Berman &
Company, CPA, PA
23.2 Consent of Lowenstein Sandler PC (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of this
registration statement)
- --------------------
+ Management contract or compensatory plan or arrangement in which any director
or executive officer named in this Registration Statement has participated or
participates.
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective and each post-effective
amendment that contains a form of prospectus will be treated as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time will be treated as the initial
bona fide offering of those securities.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Iselin, State of New Jersey, on June 13, 2005.
TECHEDGE, INC.
By: /s/ Peter Z. Wang
-------------------------------------
Peter Z. Wang
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Peter Z. Wang and Ya Li, or either of them, as their
true and lawful attorney-in-fact in any and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement on Form SB-2 and any
and all amendments thereto, including post-effective amendments or any
abbreviated registration statement and any amendments thereto filed pursuant to
Rule 462(b) increasing the number of securities for which registration is
sought, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the U.S. Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or either one of his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
/s/ Peter Z. Wang Chairman and Chief Executive Officer Dated: June 13, 2005
- -------------------- (Principal Executive Officer)
Peter Z. Wang
/s/ Ya Li Chief Financial Officer and Director Dated: June 13, 2005
- ------------------- (Principal Financial and Accounting Officer)
Ya Li
/s/ Charles Xue Director Dated: June 13, 2005
- -------------------
Charles Xue
II-8
EXHIBIT INDEX
Exhibit No. Description
2.1 Share Exchange Agreement, dated June 9, 2004 (incorporated by
reference to Exhibit 2.1 to the Registrant's current report on
Form 8-K filed with the SEC on August 8, 2004)
3.1.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3(a) to the Registrant's registration
statement on Form 10-SB filed with the SEC on September 17,
2002)
3.1.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1.1 to the
Registrant's quarterly report on Form 10-QSB filed with the SEC
on November 12, 2004)
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit
3(b) to the Registrant's registration statement on Form 10-SB
filed with the SEC on September 17, 2002)
4.1 Specimen of Common Stock Certificate of Registrant (incorporated
by reference to Exhibit 4(b) to the Registrant's registration
statement on Form 10-SB filed with the SEC on September 17,
2002)
5.1 Opinion of Lowenstein Sandler PC as to legality of securities
being offered
10.1 Lease Agreement dated as of March 2002, between Metro Park
Associates, as lessor, and China Quantum Communications, Inc.,
as lessee (incorporated by reference to Exhibit 10.1 to the
Registrant's annual report on Form 10-KSB filed with the SEC on
March 31, 2005).
10.2 Addendum to Lease dated April 28, 2004, between Metro Park
Associates, as lessor, and China Quantum Communications, Inc.,
as lessee (incorporated by reference to Exhibit 10.2 to the
Registrant's annual report on Form 10-KSB filed with the SEC on
March 31, 2005).
10.3+ Offer Letter, dated December 27, 2004 between the Registrant and
Eugene K. Chen (incorporated by reference to Exhibit 99.1 to the
Registrant's current report on Form 8-K filed with the SEC on
March 16, 2005).
10.4 Stock Purchase Agreement, dated February 8, 2005, between the
Registrant and Pacific Century Fund LLC (incorporated by
reference to Exhibit 10.1 to the Registrant's current report on
Form 8-K filed with the SEC on February 14, 2005).
10.5+ China Quantum Communications, Ltd. 2001 Stock Plan and forms of
agreement thereunder (incorporated by reference to Exhibit 10.6
to the Registrant's annual report on Form 10-KSB filed with the
SEC on March 31, 2005).
10.6+ Registrant's 2005 Equity Compensation Plan and forms of
agreement thereunder (incorporated by reference to Exhibit 4.5
to the Registrant's registration statement on Form S-8
(Registration No. 333-125742)).
10.7 Securities Purchase Agreement, dated as of April 26, 2005,
between the Registrant and Pacific Century Fund LLC
(incorporated by reference to Exhibit 10.1 to the Registrant's
current report on Form 8-K filed with the SEC on April 29,
2005).
10.8 Warrant dated April 26, 2005, issued to Pacific Century Fund LLC
(incorporated by reference to Exhibit 10.2 to the Registrant's
current report on Form 8-K filed with the SEC on April 29,
2005).
10.9 Subscription Agreement dated as of April 29, 2005, among the
Registrant and the Subscribers (incorporated by reference to
Exhibit 10.1 to the Registrant's current report on Form 8-K
filed with the SEC on May 5, 2005).
10.10 Amendment to Subscription Agreement dated as of May 27, 2005,
between the Registrant and the Subscribers (incorporated by
reference to Exhibit 10.1 to the Registrant's current report on
Form 8-K filed with the SEC on June 3, 2005).
10.11 Warrant dated April 29, 2005, issued to Whalehaven Capital Fund
Limited (incorporated by reference to Exhibit 10.2 to the
Registrant's current report on Form 8-K filed with the SEC on
May 2, 2005).
10.12 Funds Escrow Agreement dated as of April 29, 2005, by and among
the Registrant and the Subscribers, among other parties
(incorporated by reference to Exhibit 10.3 to the Registrant's
current report on Form 8-K filed with the SEC on May 5, 2005).
10.13 Warrant dated May 4, 2005, issued to Alpha Capital
Aktiengesellschaft (incorporated by reference to Exhibit 10.2 to
the Registrant's current report on Form 8-K filed with the SEC
on May 5, 2005).
21.1 List of subsidiaries of the Registrant (incorporated by
reference to Exhibit 21.1 to the Registrant's annual report on
Form 10-KSB filed with the SEC on March 31, 2005).
23.1 Independent Auditors' Consent of Rosenberg Rich Baker Berman &
Company, CPA, PA
23.2 Consent of Lowenstein Sandler PC (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of this
registration statement)