U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2004

OR

[ ] TRANSITION UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

(formerly named Softstone Inc.)

(Exact name of registrant as specified in its charter)

 

 

111 Hilltop Lane, Pottsboro, TX 75076

903-786-9618

____________________________________________________

(Address and telephone number of registrant's principal

executive offices and principal place of business)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

(Title of Class)

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 twelve 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 [  ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

State issuer’s revenues for its most recent fiscal year: $23,275

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity ($0.925), as of October 11, 2004: $277,513.

As of October 11, 2004, there were 600,015 shares of the Registrant's Common Stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990). None

Transitional Small Business Disclosure Format (check one): Yes [  ] No [X]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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TABLE OF CONTENTS
		Page
Item 1	Description of Business	1
	Business Development	1
	Description Business of	1
	Employees	1
	Acquisition of China ESCO Holdings Limited	1
	Reports to Security Holders	6
Item 2	Description of Property	6
Item 3	Legal Proceedings	6
Item 4	Submission of Matters to a Vote of Security Holders	6
Item 5	Market for Common Equity and Related Stockholder Matters	7
	Recent Sales of Unregistered Securities	8
Item 6	Management’s Discussion and Analysis	9
	Results of Operations - Fiscal Years Ended June 30, 2003
	and June 20, 2004	9
	Sales	10
	Operating expenses	10
	Income (loss)	10
	Balance sheet items	10
	Liquidity and Capital Resources	10
	Outlook	10
	Off-Balance Sheet Arrangements	11
Item 7	Financial Statements	11
Item 8	Changes In and Disagreements With Accountants on Accounting
	and Financial Disclosure	28
Item 8A	Controls and Procedures	28
Item 9	Directors, Executive Officers, Promoters and Control Persons;
	Compliance With Section 16(s) of the Exchange Act	29
	Audit Committee and Audit Committee Financial Expert	30
	Code of Ethics	30

 

 

 

 

 

 

 

 

 

 

 

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Item 1. Description of Business.

Business Development.

Our company TS Electronics, (formerly, Softstone, Inc.) was incorporated on January 28, 1999, pursuant to the provisions of the General Corporation Act of the State of Delaware. On May 31, 1999, we merged with Soft Stone Building Products, Inc., an Oklahoma corporation that was a predecessor to our company’s business. Our initial business operations were conducted at 620 Dallas Drive, Denton, Texas 76205. On February 1, 2000, we moved our offices and facilities to Ardmore, Oklahoma. In June 2002 we moved our production facilities to a building in Ardmore, OK at an industrial air park and we moved our office facilities to 111 Hilltop Lane, Pottsboro, Texas 75076, which is our present address. Our principal operations began in the quarter ended September 30, 2002. On August 13, 2003 we changed our name to TS Electronics, Inc.

Our focus initially was solely on realizing the commercial benefits of a process developed and patented by our first president, Frederick Parker. This process converts waste tires into useful products. The Parker I System machine was constructed in Ardmore, Oklahoma as a proof-of-concept prototype. With certain adjustments made, this machine became a production model that ingests whole tires at one end of the machine and ejects rubber modules at the other end with virtually no waste or contaminants. The rubber modules are virtually indestructible and have been tested for use as a playground covering, pathways, walking trails, horse barn stalls and other uses. We were not successful in promoting this business, wrote off all assets associated with the business and shifted our attention to the commercial possibilities of a superior, newly discovered devulcanization process to which we acquired a 5.5-year exclusive license for the Western Hemisphere. In addition we began an importation business dealing in hard-to-find and specialty crumb rubber. To date, we have not been successful in either of these endeavors and have abandoned all efforts in such pursuit.

At present we have one full-time employee that draws no salary or compensation and no part-time employees.

Acquisition of China ESCO Holdings Limited. Effective August 11, 2004, we entered into a Stock Exchange Agreement (the "Agreement") with Mr. Hou Xiao, the sole shareholder of China ESCO and its wholly owned operating subsidiary, AsiaNet. China ESCO was incorporated on February 13, 2001, to be the present holding company of AsiaNet that was organized on April 25, 2000, in the Zhu Hai City Economic Special District, Guangdong Province in The People’s Republic of China (the "PRC). China ESCO is engaged in the development and manufacturing of electrical energy saving systems and products in the PRC.

	1

The Agreement provides that our company will issue approximately 11,201,902 shares of its restricted common stock in exchange for 100% of the issued and outstanding capital stock of China ESCO which will represent approximately 94% of the then total issued and outstanding common stock of our company after the exchange.

General. China ESCO Holdings Limited ("China ESCO") is an energy saving technology company that was incorporated on February 13, 2001 in the Hong Kong Special Administrative Region of China in The People’s Republic of China (the "PRC").

Substantially all of the operations of China ESCO are conducted through its wholly-owned subsidiary AsiaNet PE Systems Limited ("AsiaNet") which was incorporated on April 25, 2000 in the Zhuai City Economic Special District in Guangdong Province in the PRC. The predecessor of AsiaNet was a company located in New Zealand that was organized in 1994. The principal business activities of AsiaNet is the design and manufacturing of energy saving devices for air conditioning systems, motors and other electrically operated equipment and systems in the PRC. The Zhuai provincial government has issued a Certificate of Authority to AsiaNet as an enterprise with foreign investment in the PRC and classified AsiaNet as a wholly owned foreign enterprise ("WOFE") which entitles AsiaNet to substantial PRC corporate income tax benefits.

Both our company and China ESCO have commenced due diligence investigations of each other in preparation for the consummation of the transaction. We plan to prepare appropriate shareholder materials for dissemination to the shareholders to obtain shareholder approval of the proposed transaction as soon as practicable, subject to completion of due diligence and receipt of appropriate financial statements of China ESCO and its subsidiary.

If the transaction is consummated, our name is expected to be changed to "China ESCO Corporation" or such other name as selected by China ESCO. Upon closing, all of our current officers and directors will resign and be replaced by officers and directors of China ESCO. The Agreement also contemplates the adoption of a 2004 Stock Benefit Plan, the appointment of the new auditors of China ESCO as the independent auditors of our company and the filing of an amendment to the Certificate of Incorporation of our company to change its name, as described above, and to increase the authorized number of shares of its common stock from 30,000,000 shares to 50,000,000 shares of common stock.

The consummation of the transaction with China ESCO is subject to a number of conditions, including approval by the board of directors of our company and China ESCO and the shareholders of our company and China ESCO, completion of satisfactory due diligence, receipt by our company of financial statements of China ESCO as required under applicable regulations, and satisfaction of all applicable regulatory requirements. As a result of the exchange of the China ESCO stock in exchange for our company’s stock, China ESCO will become a wholly-owned subsidiary of our company.

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Business of China ESCO.  The manufacturing system of China ESCO has been verified by the China Quality Certification Center and has been granted certificate IS0 #9001:2000 and certificate IS0 #14001. Its products have passed the test procedures of the Wuhan High-Voltage Research Institute. China ESCO also passed the requirements for the China National Compulsive Certification (3C Certification) and the China National Saving Certification.

All of the products of China ESCO are researched and developed by the technicians of the Company. All key components of its products are manufactured by China ESCO, and other affiliated components are acquired from approximately 200 unaffiliated third party vendors. In addition to its direct marketing activities, China ESCO has distribution relationships with more than 200 authorized distribution companies with sales and distribution to over 30 provinces in the PRC.

China ESCO has manufactured more than 100 series of products that primarily are used in electrical appliances such as motors, air conditioners, illumination equipment, oil pumps, boilers, and electrical transmission and distribution purposes. It has a broad range of customers, including numerous small and middle size companies, in various industries such as manufacturing, smelting, oil and gas, electronics, textiles, hospitals and publishing.

China ESCO emphasizes the service and maintenance of its energy saving products and systems after their sale to its customers, and has 25 service centers in the PRC that provide 24 hour/seven days a week services to its customers.

The principal executive office of China ESCO in the PRC is at: Jinye Industrial Mansion No2, GangEr Road, Qianshan Zhuhai, Guangdong, P.R. China, Post Code: 519020.

WOFE Tax Rates. Under the Provisional Regulations of The People’s Republic of China Concerning Income Tax on Enterprises promulgated by the State Council and which came into effect on January 1, 1994, income tax is generally payable by enterprises at a rate of 33% of their taxable income. China ESCO became entitled to a tax holiday of "two years’ full exemption beginning in 2001, and then became entitled to three years at one half of the applicable tax rate" thereafter, during which such enterprises are able to enjoy further preferential tax treatment. As a result, China ESCO was entitled to the full WOFE exemption for the years of 2001 and 2002. Commencing with the year of 2003, the Company became entitled to a tax exemption at an applicable tax rate of 7-1/2% of taxable income.

 

Enterprise income tax ("EIT") is provided on the basis of the statutory profit for financial reporting purposes, adjusted for income and expense items, which are not assessable or deductible for income tax purposes.

Summary of Financial Information. The following information is a summary of a consolidated financial information regarding China ESCO and its subsidiaries:

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Management of China ESCO. Upon the closing of the reorganization of our company with China ESCO, it is expected that our management will be changed and will comprised of the following persons:

	4

 

 

Name	Age	Position
Hou Xiao	46	Chief Executive Officer and President
Liao Jing	27	Vice President, Treasurer and Chief
		Financial Officer
Peng Fei	32	Vice President - Production
Fang Fang	34	Vice President - Human Resources
Zhu Na	25	Secretary

Hou Xiao (also known as "Michael") has been the Chief Executive Officer, President and the sole shareholder of China ESCO and AsiaNet since 1997. He is responsible for the overall strategic planning, management and business development of China ESCO. From June 1986 to January 2002, he was a researcher at the Hubei Academy of Social Sciences in the PRC. From August 1993 to September 1994, he was the Communications Manager of Fukuyama Holdings in New Zealand. Mr. Hou received a degree in 1990 in American culture and language at the Post Graduate School of China Academy of Social Sciences, and received a degree from Hebei Broadcasting & TV University in 1984 in Chinese language and literatue.

Liao Jing (also known as "Maddy") has been the Chief Financial Officer of China ESCO and AsiaNet from February 2001 to the present. From 1999 to 2001 Mr. Liao was an accountant for Zhuai Sunrana Cosmetics Co., Ltd. in the PRC. Ms. Liao received a degree in accounting at Shanghai Lixin University of Commerce in 2001, and received a degree from the University of International Business & Economics in accounting in 204.

Peng Fei (also known as "Likoff") has been the Production Department Manager of China ESCO and AsiaNet from May 2001 to the present. From September 1998 to May 2001, Mr. Peng was an electrical engineer for Zhuhai Coca-Cola Beverage, Ltd. in the PRC. From July 1995 to September 1998, Mr. Peng was a real estate representative for China Agriculture Group, Zhuhai Parent Co. Mr. Peng has studied Produce Process Automatization at South China University of Technology in the PRC.

Fang Fang (also known as "Sendy") has been the Human Resources Manager of China ESCO and AsiaNet from July 2001 to the present. From November 1997 to July 2001, Ms. Fang was the office supervisor of Zhuai International Financial Building Company, Ltd. Ms. Fang studied foundry operations at the Dongbei Industry Institute in the PRC.

	5

Zhu Na (also known as "Rebecca") has been the Secretary of China ESCO and AsiaNet since 2003. Ms. Zhu received a Masters in Business Administration from the Royal Roads University of Canada in 2003. From September 1996 to July 2000 Ms. Zhu studied English and trading at The International Relationship Institute of PLA.

We file reports with the Securities and Exchange Commission. These reports are annual 10-KSB, quarterly 10-QSB, and periodic 8-K reports. We also intend to furnish stockholders with annual reports containing financial statements audited by independent public or certified accountants and such other periodic reports as we may deem appropriate or as required by law. The public may read and copy any materials we file with the SEC at the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC maintains an Internet Web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of such site is http://www.sec.gov.

Item 2.    Description of Property.

We neither own nor lease any office or manufacturing space. Our office space is provided rent free in Pottsboro, Texas by our president.

Item 3.    Legal Proceedings.

Neither our company nor any of our property is a party to, or the subject of, any material pending legal proceedings other than ordinary, routine litigation incidental to our business.

Item 4.    Submission of Matters to a Vote of Security Holders.

There have been no matters submitted to a vote of our stockholders during the last fiscal year or during the subsequent period to the filing of this report. However, we took the following action on August 13, 2003 pursuant to the written consent of the record holders of a majority of the outstanding shares of our common stock:

 

·	We changed our name from Softstone Inc. to TS Electronics, Inc.

 

·	We consolidated to 600,015 shares all outstanding shares of our common stock, effective August 14, 2003.

 

By written consent of the record holders of a majority of the outstanding shares, we approved the following actions, subject to our mailing an Information Statement to the non-consenting shareholders:

 

·	We would issue 5,350,000 shares of our Common Stock to TS Electronics (China) Corp. in exchange for all its capital stock.

	6

·	We would sell to an entity owned by Gene F. Boyd, Betty Sue Boyd and Keith P. Boyd ("the Boyds"), who are our present controlling shareholders, in exchange for their paying or obtaining the written release of approximately $1,032,588 of company debt owed to the Boyds and other creditors -

 

·	our rubber business and related assets,

 

·	50,000 shares of post-consolidation stock, and

 

·	100,000 Common Stock Purchase Warrants exercisable for one year at $1.25 a warrant.

                By agreement with TS Electronics (China) Corp., in January 2004 we jointly abandoned our plans for our company to acquire TS Electronics (China) Corp. We requested of the Securities and Exchange Commission authority to withdraw our Information Statement, and we have no plans to merge with or otherwise acquire that company.

Item 5.    Market for Common Equity and Related Stockholder Matters.

Our common stock was admitted to trading on the OTC Bulletin Board on April 17, 2002. Its stock symbol initially was "SOFS." On August 15, 2003 the symbol was changed to "TSET". The following table shows the quarterly high and low prices of the stock since it was admitted to trading through June 30, 2004, which was before the stock symbol change. The prices reflect inter-dealer quotations without mark-up, mark-down or commissions and may not represent actual transactions.

			High			Low
Calendar 2002:
2nd Qtr			0.51			0.11
3rd Qtr			0.25			0.06
4th Qtr			0.17			0.05
Calendar 2003:
1st Qtr			0.1			0.1
2nd Qtr			0.1			0.05
3rd Qtr			5.4			0.08
4th Qtr			5.2			2.0
Calendar 2004:
1st Qtr			0.2			0.6
2nd Qtr			0.65			0.52

 

There are approximately 168 holders of record of our company’s common stock.

	7

Our company has declared no dividends on our common stock. There are no restrictions that would or are likely to limit the ability of our company to pay dividends on its common stock, but we have no plans to pay dividends in the foreseeable future and intend to use earnings for the expansion of our business.