10-Q/A 1 tcom1202qa.txt U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB [X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended December 31, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______ COMMISSION FILE NUMBER 333-62236 TELECOM COMMUNICATIONS, INC. ---------------------------- (Exact name of small business issuer as specified in its charter) Indiana 35-2089848 -------- ----------- (State or other jurisdiction of (IRS Employer incorporation or organization) identification No.) 827 S. Broadway, Los Angeles, CA 90014 -------------------------------------- (Address of principal executive offices) (213) 489-3486 -------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Number of shares of common stock outstanding as of December 31, 2002:10,050,000 TELECOM COMMUNICATIONS INC FORM 10-QSB INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets December 31, 2002 (Unaudited) and September 30, 2002 -----3-4 Statement of Operations (Unaudited) For the Three Months Ended December 31, 2002 and 2001 ----4-5 Statement of Cash Flows (Unaudited) For the Three Months Ended December 31, 2002 and 2001 ---5-9 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis and Plan of Operation------------------------------------------------9-15 PART II. Other Information Item 1. Legal Proceedings --------------------------------- 15 Item 2. Changes in Securities and Use of Proceeds ----------16 Item 3. Defaults Upon Senior Securities --------------------16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information ----------------------------------16 Item 6. Exhibits and Reports on Form 8-K -------------------16 Signatures ----------------------------------------------17-18 ITEM 1. FINANCIAL STATEMENTS TELECOM COMMUNICATIONS INC. BALANCE SHEETS AT December 31, 2002 (UNAUDITED) AND SEPTEMBER 30, 2002 (Unaudited) December 31, 2002 September 30, 2002 ASSETS --------------------------------- Current Assets --------------------------------- Cash in banks (note 4) $ 17,532 $ 33,905 Inventory (note 5) 4,000 4,000 TOTAL CURRENT ASSETS 21,532 37,905 -------- ---------- PROPERTY AND EQUIPMENT, NET 0 0 --------------------------------------- TOTAL ASSETS $ 21,532 $ 37,905 ========= ========== LIABILITIES & STOCKHOLDERS' EQUITY --------------------------------------- CURRENT LIABILITIES ---------------------------------------- Income taxes payable (note 14) $ 1,631 $ 4,032 -------- --------- TOTAL CURRENT LIABILITIES 1,631 4,032 -------- ---------- STOCKHOLDERS' EQUITY (NOTE 15) ----------------------------------------- COMMON STOCK ($.001 PAR VALUE,80,000,000 SHARES AUTHORIZED: 10,000,000 ISSUED AND OUTSTANDING) $ 10,000 $ 10,000 Preferred stock ($.001 par value, 20,000,000 shares authorized 0 0 non issued and outstanding) additional paid-in-capital 0 25,000 Retained earnings $(61,232) $(68,352) TOTAL STOCKHOLDERS' EQUITY 71,133 67,225 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,532 $ 37,905 ========= ========= TELECOM COMMUNICATIONS INC. STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 & 2001 Three Months Three Months Ended Ended DECEMBER 31, 2002 DECEMBER 31, 2001 INCOME (NOTE 2): ------------------ Phone calls $ 42,179 $ 31,123 Lotto tickets (net) 402 1,806 Bus tokens 79,550 98,193 Bus passes 795 2,084 Checks cashed (net) 1,564 2,251 Money Grams (net) 857 1,495 ---------- ------------ TOTAL 125,887 136,952 ---------- ------------ COST OF GOODS SOLD ------------------ Phone call costs 26,699 15,181 Bus token costs 79,953 89,445 Bus pass costs 754 1,998 TOTAL COST OF SALES 100,406 106,624 ---------- ----------- GROSS PROFIT $ 25,481 $ 30,328 ---------- ----------- OPERATING EXPENSES: ------------------ General & administrative $ 19,942 $ 14,814 TOTAL EXPENSES 19,942 14,814 --------- ----------- OPERATING INCOME 5,539 15,514 --------- ----------- INCOME TAX (PROVISION) BENEFIT 1,631 3,813 ----------- ----------- NET INCOME $ 3,908 $ 11,701 ----------- ----------- Net income per common share basic & fully diluted $ ** $ ** ----------- ----------- Weighted average common shares outstanding 10,050,000 10,050,000 ----------- ----------- ** Less than $.01 TELECOM COMMUNICATIONS INC. STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 CASH FLOWS FROM OPERATING ACTIVITIES: 2002 2001 -------------------------------------------------------------------------------- Net income $3,908 $11,744 Adjustments to reconcile net income to net cash used in operating activities: Common stock issued for services 0 0 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 11,181 (17,213) ----------- ------------ NET CASH PROVIDED BY (USED IN) Operating activities 15,089 (5,469) ------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: ------------------------------------- SHAREHOLDER DISTRIBUTIONS 0 0 Net cash used in financing activities 0 0 Net cash used in investing activities Net increase (decrease) in cash and cash equivalents 15,089 (5,469) CASH AND CASH EQUIVALENTS: ------------------------------------ Beginning of period 2,443 25,920 ------------- ----------- ENDING CASH BALANCE $ 17,532 $ 20,451 ------------- ----------- TELECOM COMMUNICATIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (UNAUDITED) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the interim financial information and pursuant to the rules and regulations of the securities and exchange commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to fairly present the company's financial position at DECEMBER 31, 2002, the results of operations for the three months periods ended DECEMBER 31, 2002 and 2001, and cash flows for the three months ended DECEMBER 31, 2002 and 2001. The results for the period ended DECEMBER 31, 2002, are not necessarily indicative of the results to be expected for the entire fiscal year ending SEPTEMBER 31, 2003. NOTE 1. ABOUT THE COMPANY Telecom Communications of America was founded as a sole proprietorship in 1995 by Michelle Hiromoto with the assistants and management of her father Tak Hiromoto. The purpose of the company was to provide low cost access to long distance carriers for individuals needing to call Latin and South America. The company operates on the Internet as opposed to using conventional long distance carriers to facilitate lower costs that are passed on to the customers. Many of the extra fees that are found in conventional long distance systems are avoided this way. In addition the company also provides various services such as check cashing, money wiring, the sale of bus tokens and passes, and tickets from California Lottery known as Lotto. NOTE 2. REVENUE RECOGNITION SAB 101 identifies basic criteria that must be met for revenue recognition. There must be the following items: A. Persuasive evidence of an arrangement exists; B. Delivery has occurred or service has been rendered. C. The seller's price to the buyer is fixed or determinable; D. Collectability is reasonably assured. Except for check cashing, all transactions are done on a cash basis with fixed prices made clear to the buyer prior to the transaction. All products are paid for immediately upon receipt or completion of phone calls. All monies received are not refundable. EITF 99-19 requires that sales recognized on a gross basis be for an item or service where the merchant takes total risk for the product or service as opposed to an agent relationship wherein earnings are simply a commission received as a representative who bears no risk. Phone calls, Bus Passes, and Tokens, are reported at gross while Lotto Tickets, Money Grams and Check Cashing are reported at net. Checks cashed are limited to local individuals known by the owners as local employees with two types of I.D. required. On one occasion $5,000 worth of checks did bounce which were later determined to be counterfeit. This incident was isolated and has not been repeated because of the controls being used. For this reason bad checks are minimal. All cashed checks are deposited the same evening and clear the next day so there are no material receivables. There is a fee of 1.7% of the amount cashed. NOTE 4. BANKING POLICY Funds are kept in two banks so no more than $100,000 is in any one account. NOTE 5. INVENTORY VALUATION The average inventories on any given day are as follows: Bus Passes $ 500 Bus Tokens 2,000 Lotto Scratcher 1,500 --------- Total $ 4,000 ========== NOTE 6. RECEIVABLES There are no receivables as all business is done for cash. See Note 2. NOTE 7. ASSETS All capitalized assets are fully depreciated while new ones are currently being leased. NOTE 8. LIABILITIES There are no loans outstanding and no material payables other than income taxes accrued. See Note 14. NOTE 9. LOANS AND LEASES Although no loans are outstanding, the Company does have a computer lease requiring a monthly payment of $911.00. This lease is good through July 1, 2003. Although there is a purchase option at the end of the lease for $3,600 this is not small enough to be considered a bargain purchase option which would require lease capitalization Statement No. 13 which requires capitalization and depreciation of certain leases. No capitalization of the lease will be done. The Company is also leasing its occupancy through December 31, 2003. Both obligations are broken down as follows: Computer Lease Balance on 07/01/2001 through 09/30/2001 $ 2,733 Balance on 10/01/2001 through 09/30/2002 10,932 Balance on 10/01/2002 through 07/01/2003 8,199 ______ $ 21,864 Total ========== Occupancy Lease Balance on 07/01/2001 through 09/30/2001 $ 5,400 Balance on 10/01/2001 through 09/30/2002 22,300 Balance on 10/01/2002 through 09/30/2003 23,500 Balance on 10/01/2003 through 12/31/2003 6,000 __________ $57,200 Total =========== NOTE 10. RELATED PARTY TRANSACTIONS There have been no related party transactions. NOTE 11. LITIGATION Mas Financial Corp. and Aaron Tsai filed a lawsuit against the Company in August, 2002 in the Vanderburgh County alleging breach of contract. The Company and its counsel believe that the suit is without merit and immaterial. The suit is being strongly contested and counterclaim was filed on October 15, 2002 against Aaron Tsai alleging fraud and breach of contract. NOTE 12. PRE-PAID ITEMS AND DEPOSITS There are no large deposits on any assets or prepaid insurance. NOTE 13. PAYROLL Prior to incorporation there were no payrolls as ownership took draws as any sole proprietorship does. After incorporation the officers will be paid as professional, independent contractors. Therefore, there are no payroll tax issues to be concerned about at this time. NOTE 14. INCOME TAX PROVISION Provision for income taxes is based on corporate rates for both state and federal taxes. Corporate rates are used for the statements prior to incorporation for consistency. The rates are calculated as follows: Federal rates: The first $50,000 @ 15% percent. The next $25,000 @ 25% percent. The balance @ 35% percent. State rates: California rate of 9.3%. NOTE 15. INCORPORATION On December 21, 2000, the Company was acquired by MAS Acquisition XXI Corp. Following APB No. 16, this type of acquisition is commonly called a "reverse merger" wherein the smaller private operating company, Telecom Communications of America, merges into a non-operating shell corporation, MAS Acquisition XXI Corp., which had no assets, resulting in the owner's/manager's, Tak Hiromoto continuing to have effective operating control of the new combined company, Telecom Communications, Inc. The shareholders of the former shell only continue as passive investors. The accounting was accomplished by adjusting the balance sheet into a corporate style as opposed to a sole proprietorship with simple recognition of the assets and liabilities as they were in the former financial statements of the sole proprietorship. The equity section is adjusted by taking all owner's capital and reclassifying it as Additional Paid in Capital. The Common Stock issued is recognized at its par value of .001 as per the offering. Ten million shares were issued totaling $10,000 but no cash was received. The offsetting entry is to reduce Additional Paid in Capital by the $10,000. The financial statements presented here represent the activities of the smaller operating company. As mentioned, ten million shares have been issued at a par value of .001. A total of 100 million shares are authorized with 80 million as common shares and 20 million as preferred. The preferred stock will not be convertible so once issued no dilution of Earnings per Share will be needed. The company intends to raise additional capital through the issuance of stock to enable it to expand. Management estimates that $50,000 is needed to move forward the first year. Of the ten million shares issued, nine million were issued to Tak Hiromoto. He then transferred one million shares to Herman Alexis & Co., Inc. for assisting the company. The remaining one million shares are broken down with 977,500 owned by MAS Capital, Inc. and the remaining 22,400 owned by a large number of small investors. NOTE 16. FACILITATION OF MERGER The joining of the companies was accomplished by an introduction to MAS Acquisition XXI Corp. by Herman Alexis & Co., Inc. to the Hiromotos. Neither party knew each other before this introduction. NOTE 17. EARNINGS PER SHARE The company calculates net income or Earnings per Share as required by SFAS No. 128. Earnings per share are calculated by dividing net income by the average number of outstanding shares. No shares are convertible so dilution is not an issue. The following represents the calculation of earnings per share: For the three months ended DECEMBER 31 BASIC & DILUTED* 2002 2001 ---------------- ------- ------- Net income $3,908 $11,701 Less preferred stock dividends -- -- Net income $3,908 $11,701 Weighted average number of common shares 10,050,000 10,050,000 ---------- ---------- Basic & diluted earnings per share $ ** $ ** ========= ========= *There were no common stock equivalents for either period presented. ** Less than $.01 NOTE 18. DEFERRED TAXES According to SFAS 109, the objectives of accounting for income taxes are to recognize (a) the amount of taxes payable or refundable for a current year and (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise's financial statements or tax returns. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carry forwards. Measurements of current and deferred tax liabilities and assets are based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. If a tax deferral occurs, the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. At this time, there are no such deferrals. See Note 14 for calculations of current tax year liabilities based on existing rates. NOTE 19. SEGMENT REPORTING Currently the company reports only one segment on the financial statements, as there is only one central location of business and not multiple locations or departments. SFAS 131 defines an operating segment, in part, as a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. The chief operating decision maker is not necessarily a single person, but is a function that may be performed by several persons. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION With the exception of historical facts stated herein, the matters discussed in this report are "forward looking" statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such "forward looking" statements include, but are not necessarily limited to, statements regarding anticipated levels of future revenues and earnings from operations of the Company. Readers of this report are cautioned not to put undue reliance on "forward looking" statements, which are by their nature, uncertain as reliable indicators of future performance. The Company disclaims any intent or obligation to publicly update these "forward looking" statements, whether as a result of new information, future events, or otherwise. DESCRIPTION OF BUSINESS Business Development Telecom Communications Inc. was incorporated on January 6, 1997 in the State of Indiana under the corporate name MAS Acquisition XXI Corp. Prior to December 21, 2000, we were a blank check company seeking a business combination with unidentified business. On December 21, 2000, we acquired Telecom Communications of America which was a sole proprietorship doing business in Los Angeles, California since August 15, 1995 and changed our name to Telecom Communications Inc. In connection with this acquisition, Aaron Tsai, our former sole officer and director was replaced by Telecom Communications of America's owners and associates. We issued 9,000,000 shares of our common stock or 90% of our total outstanding common shares after giving effect to the acquisition. MAS Capital Inc. returned 7,272,400 shares of common stock for cancellation without any consideration. Our principal executive offices are located at 827 S. Broadway, Los Angeles, CA 90014. Our telephone number is (213) 489-3486. Overview Our main business is to provide low cost telephone calls over the Internet to individuals and businesses. Our services enable our customers to make low cost telephone calls over the Internet using the traditional telephone. In September 1999, we introduced a service that enables international and domestic calls to be made over the Internet using traditional telephones. Long distance calls made using our services are often substantially less expensive than long distance calls routed over traditional voice network. Following illustrate a typical cost for our customers. In summary, our cost of 9.5 cents per minute compared with 17 cents per minute using traditional phones taking in considerations for the monthly basic service charges for the traditional phone services. Illustration: (based on telephone services in our area) Our cost per minute = 9.5 Traditional phone services cost per minute = 7 cents (without basic fees) Assumptions: Residential long distance charge for the month is $10.78 for 154 minutes (domestic call). Customer is using plans such as MCI 7 Cents anytime residential plan. Additional costs for Traditional long distance charges: MCI 7 Cents anytime residential plan 6.95 12% Federal Excise Tax 1.32 40% State & Local Taxes 4.36 .004% Federal, State & Local Surcharges 0.04 25% Federal Universal Service Fee 2.61 .23% CA High cost Fund-B Surcharges 0.25 .005% CA Universal Life Tel Service Surcharges 0.05 .003% CA Relay Service and Communication Device Fund 0.03 .006% CA 911 Local 0.07 -------- TOTAL $15.68 To calculate traditional phone cost, we took the traditional long distance charges for the month of $10.78 plus the monthly fees of $15.68 and divide the result by 154 minutes which gives 17 cents per minute. $10.78 + $15.68 = $26.46 divided by 154 minutes = 17 cents. In this illustration, our customers would save 7.5 cents per minute using our services. The basic fees may very for different areas and we do not have that information at this time. For International calls, you have a higher savings due to higher tariff on traditional phone calls. We intend to expand our business through acquisitions. Currently, we have one telephone calling center with one server located in Los Angeles, California. We have only a limited operating history upon which you can evaluate our business and prospects. We have achieved limited profitability, and expect to continue to achieve limited profitability in the year 2001 and subsequent fiscal periods. We will need to significantly increase our revenues in order to achieve greater profitability, which may not occur. Even if we do achieve greater profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis in the future. Industry Background The Internet is experiencing unprecedented growth as a global medium for communications and commerce. Internet telephony has emerged as a low cost alternative to traditional long distance calls. Internet telephone calls are less expensive than traditional domestic and international long distance calls primarily because these calls are carried over the Internet and therefore bypass a significant portion of local and international long distance tariffs. The fees and tariffs that are eliminated for our services can be itemized as follows: * Calling Plans Charge * Carrier Access Charge * Federal Excise Tax * State and local Tax * Federal, State and local surcharge * Federal Universal Service fee * California High Cost Fund-B surcharge * California Universal Lifeline Telephone Service surcharge * California Relay Service and Common Device fund * California 911 Local charge The technology by which Internet phone calls are made is also more cost-effective than the technology by which traditional long distance calls are made. The growth of Internet telephony has been limited to date due to poor sound quality attributable to technological issues such as delays in packet transmission and network capacity limitations. However, recent improvements in packet-switching technology, new software algorithms and improved hardware have substantially reduced delays in packet transmissions. Products and Services Presently, we have one telephone calling center located in Los Angeles, California. This center has 6 phone booths each with its own traditional telephone set, table and chair. Phone calls made from these booths are routed through our computer server and Internet connection to a third party servers which provide the interconnection to their established network which enables telecommunications over Internet Protocol (IP) data networks using their software, hardware and related components. The third party providing this service is Inter-Tel.net, Inc. with whom Telecom has a contractual agreement. We do not rely solely on customers visiting our telephone calling center. We also have 24 phone lines attached to our server which enables customers accessing our services using telephones away from our location by calling in to our telephone calling center to be re-routed to our Internet connections. In addition, the following products and services are also offered at our telephone calling center: * Money wiring service * Check cashing * Sales of Lotto tickets * Automatic Telling Machine (ATM) * Faxing services * Sales of telephone cards Business Strategies We hope to grow rapidly through franchising our existing operations and through acquisitions. We have not made any specific business plan for franchising our existing operations and we have no prior experience in franchising. Currently, we do not have prospective franchisees or acquisition targets that are targeted for acquisitions. Key elements of the company's business strategy are: * Acquiring and consolidating geographically disparate and usually smaller independent Internet Telephone Service Providers. * Developing and offering additional value-added products and services to customers. For example, offering long distance international calls over the Internet using cellular phones. * Selling franchises of our telephone calling center concept throughout the West Coast and in other areas of high concentration of immigrants. * Building customer loyalty and gaining market share through brand recognition. * Expansion of our sales and marketing operation. Marketing Strategy We currently market our products in several areas. Our marketing efforts include newspaper advertisements and advertisements in publications that potential customers from Latin American countries are likely to see. Other advertising such as flyers targeting a particular market segment are developed to compliment and expand the impact of our marketing program. Our marketing strategy for the future will consist of using medias designed to reach mass audiences such as audio spot advertisements, video clips and banner advertising on the Internet as well as advertising targeted toward specific markets using radio, television and other publications. Competition We have nearly two years of experience building and fine tuning Internet based telephone call services using traditional telephones at a calling center environment. We believe we have the ability to deploy information technology at a faster rate and with fewer errors than new entrants into this field. We have basic billing capabilities to accommodate the more complex commercial transactions in which we intend to engage in the future. We already have in place network management tools and a secure web site capable of taking new account orders in real-time. With our billing package, we can bill customers for their telephone calls at any interval that they desire. We can send out bills on a weekly, bi-weekly or monthly basis. Many Commercial transactions need to be billed differently. We use an internal billing system that was designed for our telephony system. The transactions that we intend to bill for are charges that would normally appear on the telephone bill. We will be offering long distance telephone service to our commercial as well as our retail customers. We can bill for transactions by time of day, date, even charge a surcharge on holidays. We believe our competitive strength is the ability to build a bridge for a segment of the urban population to access Internet based telephone communication services. We also believe we can move faster than larger telephone companies in identifying and taking advantage of market opportunities as Internet based telephone communication services continues to evolve at a rapid pace. Long Distance Market The long distance telephony market and, in particular, the Internet telephony market, is highly competitive. There are several large and numerous small competitors and we expect to face continuing competition based on price and service offerings from existing competitors and new market entrants in the future. The principal competitive factors in the market include price, quality of service, breadth of geographic presence, customer service, reliability, network capacity and the availability of enhanced communications services. Our competitors include AT&T, MCI WorldCom, Sprint, Net2Phone and other telecommunications carriers. Many of our competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we have. As a result, certain of these competitors may be able to adopt more aggressive pricing policies, which could hinder our ability to market our Internet telephony services. Web-Based Internet Telephony Services As consumers and telecommunications companies have grown to understand the benefits that may be obtained from transmitting voice over the Internet, a substantial number of companies have emerged to provide voice over the Internet. In addition, companies currently in related markets have begun to provide voice over the Internet services or adapt their products to enable voice over the Internet services. These related companies may potentially migrate into the Internet telephony market as direct competitors or could become competitors if we move towards their current markets through our stated intention to grow by acquisition. Internet Telephony Service Providers During the past several years, a number of companies have introduced services that make Internet telephony services available to businesses and consumers. AT&T Jens (a Japanese affiliate of AT&T), deltathree.com (a subsidiary of RSL Communications), I-Link, iBasis (formerly known as VIP Calling), ICG Communications, IPVoice.com, ITXC and OzEmail (which was acquired by MCI WorldCom) provide a range of voice over the Internet services. These companies offer PC-to-phone or phone-to-phone services which could be adapted to provide a similar service to the services we offer. Some, such as AT&T Jens and OzEmail, offer these services within limited geographic areas. Intellectual Property We do not currently own or hold any patents, trademarks, licenses, franchises concessions, royalty agreements or labor contracts. Government Regulation Regulation of Internet Access Service We provide Internet access, in part, by using telecommunications services provided by carriers. Terms, conditions and prices for telecommunications service are subject to economic regulation by State and Federal agencies. We, as an Internet Access Provider, are not currently subject to direct economic regulation by the Federal Communications Commission (FCC) or any State regulatory body other than the type and scope of regulation that is applicable to businesses generally. In April 1998 the FCC reaffirmed that Internet Access Providers should be classified as unregulated "Information Service Providers" rather than regulated "Telecommunication Providers" under the terms of the Federal Telecommunication Act of 1996. As a result, we are not subject to Federal regulations that apply to telephone companies and similar carriers simply because we provide our services using telecommunications service provided by a third party carrier. To date, no State has attempted to exercise economic regulations over Internet Access Providers. Governmental regulatory approaches and policies to Internet Access Providers and others that use the Internet to facilitate Data and Communication Transmissions are continuing to develop and in the future we could be exposed to regulation by the FCC or other Federal agencies or by State regulatory agencies or bodies. For example, the FCC has expressed an intention to consider whether to regulate providers of voice and fax service that employ the Internet or Internet Packet Switching as "Telecommunications Providers" even though Internet access itself would not be regulated. The FCC is also considering whether providers of Internet based telephone services should be required to contribute towards the Universal Service Fund, which subsidizes telephone service for rural and low income consumers, or should pay carrier access charges on the same basis as applicable to regulated telecommunications providers. To the extent that we engage in the provision of Internet or Internet Protocol base telephone or fax service, we may become subject to regulations promulgated by the FCC or State with respect to such activities. We cannot assure potential investors that such regulations would not adversely affect our ability to offer certain enhanced business services in the future. - Regulation of Internet Content Due to the increase in popularity and use of the Internet by broad segments of the population it is possible that laws and regulations may be adopted with respect to web site content, privacy pricing, encryption standards, consumer protection, electronic commerce, taxation, copyright infringement and other intellectual property issues. We cannot predict the effect, if any, that any future regulatory changes or developments may have on the demand for our access or enhanced business service. Employees We believe that the success of our business will depend, in part, on our ability to attract, retain and motivate highly qualified sales, technical and management personnel, and upon the continued service of our senior management personnel. As of the date of this registration statement, we have two full- time and three-part time employees. Two full-time employees are responsible for management and marketing, one part-time employee is responsible for book keeping and sales, two other part-time employees are responsible for sales and other day to day operations. The three part-time employees are sons and daughter of Mr. Tak Hiromoto and Mrs. Elizabeth Hiromoto. We consider our employee relations to be good and we have never experienced any work stoppages. We can not assure you that we will be able to successfully attract, retain and motivate a sufficient number of qualified personnel to conduct our business in the future. RESULTS OF OPERATIONS Net Income The Company had a net income of 3,908 for the three months ended DECEMBER 31, 2002 versus a net income of $11,701 for the same period ended DECEMBER 31, 2001, a decrease of 7,793. The change in net income for the period was primarily attributable to an increase in general and administrative expenses of $5,128. Sales Revenue was $125,887 for the three months ended DECEMBER 31, 2002, versus $136,952 for the three months ended DECEMBER 31, 2001, a decrease of $11,065 or 8%. The decrease in sales for the first three months was primarily due to the Company's focus on marketing higher margin products and growing brand awareness with promotional prices for both existing and new customers which lead to a reduction in revenue. Expenses Total expenses were $19,942 for the three months ended DECEMBER 31, 2002, versus $14,814 for the three months ended DECEMBER 31, 2001. Since the Company became fully reporting, in addition to our managing time which can be considerable, there are additional expenses relating to being a public company. Liquidity and Capital Resource On DECEMBER 31, 2002, the Company had cash of $17,532. This compares with cash of $20,451 on DECEMBER 31, 2001. Cash provided by financing activities totaled $ 0 for the three months ended DECEMBER 31, 2002. There are no line of credit and capital expenditures at this time. PART II Item 1. Legal Proceedings Mas Financial Corp and Aaron Tsai filed a claim against us in August, 2002, in the Vanderburgh Circuit Court, County of Vanderburgh, State of Indiana, alleging breach of contract. The Company and its counsel believe that the claim is without merit, and are vigorously defending against this claim. We executed the Consulting Agreement in reliance upon fraudulent misrepresentation made by Mas and its parties. We filed a counterclaim against Aaron Tsai for fraud and breach of contract. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matter to a Vote of Security Holder No matter was submitted to a vote during the year. Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters Market Information Public trading market currently exists for our common stock. On December 21, 2002 the Company's stock became eligible to be listed on the Over-the Counter Bulletin Board under the symbol "TCOM". We cannot predict whether a more active market will develop in the future. In the absence of an active trading market: investor may have difficulty buying and selling or obtaining market quotations, visibility for our common stock may be limited and; a lack of visibility of our stock may have a depressive effect on the market price for our common stock. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Consent of Auditor Articles of Incorporation as amended and bylaws are incorporated by reference to Exhibit No. 3 of Form SB-2 as amended filed November 28, 2001. (b) Reports on Form 8-K No Form 8-K was filed during the fourth quarter. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, duly authorized TELECOM COMMUNICATIONS, INC SIGNATURE TITLE DATE ------------------ ---------- -------- /s/ Tak Hiromoto CEO, President and Director February 20, 2003 ------------------- Tak Hiromoto /s/ Elizabeth Hiromoto Secretary, Treasurer and director February 20, 2003 ----------------------- Elizabeth Hiromoto ROBERT G. ERCEK, CPA 1756 West Ave. J-12 #107 Lancaster, CA 93534 (661) 726-9448 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT I here by consent to the use of this Registration statement on Form 10QSB of my report dated January 23, 2003 relating to the comparative financial statements of Telecom Communications Inc. as of December 31, 2001 and 2002 respectively. Dated February 17, 2003 Robert G. Ercek Lancaster, California /s/: Robert G. Ercek ------------------------- Certified Public Accountant CERTIFICATIONS I, Tak Hiromoto, the Chief Executive Officer of Telecom Communications, Inc. certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Telecom Communications, Inc. ; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 20, 2003 /s/ Tak Hiromoto -------------------------------------- Tak Hiromoto, Chief Executive Officer and Principle Accounting Officer