UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended March
31, 2014
|
|
Or
|
|
|
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ________
to _________
Commission File Number 333-130937
CHINA TELETECH HOLDING, INC.
(Exact name of
registrant as specified in its charter)
Florida
|
59-3565377
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
|
c/o Corporation Service Company
1201 Hays Street
Tallahassee, FL
|
32301
|
(Address of principal executive offices)
|
(Zip Code)
|
(850) 521-1000
(Registrant's
telephone number, including area code)
N/A
(Former name,
former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
o
No
x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act.
Large accelerated filer
|
o
|
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
|
Smaller reporting company
|
x
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of May 15, 2014, there were 97,813,776
shares of common stock, $0.01 par value outstanding.
CHINA TELETECH HOLDINGS, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
March 31, 2014
|
|
Page
Number
|
|
PART I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Item 1.
|
Financial Statements.
|
|
3
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations.
|
|
24
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
|
28
|
|
Item 4.
|
Controls and Procedures.
|
|
28
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|
PART II - OTHER INFORMATION
|
|
|
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|
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|
Item 1.
|
Legal Proceedings.
|
|
29
|
|
Item 1A.
|
Risk Factors.
|
|
29
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
29
|
|
Item 3.
|
Defaults Upon Senior Securities.
|
|
29
|
|
Item 4.
|
Mine Safety Disclosures
|
|
29
|
|
Item 5.
|
Other Information.
|
|
29
|
|
Item 6.
|
Exhibits.
|
|
29
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|
|
|
|
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|
SIGNATURES
|
|
30
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|
China Teletech Holding, Inc.
Consolidated Balance Sheets
As of March 31, 2014 and December 31,
2013
(Stated in US Dollars)
ASSETS
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Note
|
|
USD
|
|
|
USD
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
677
|
|
|
$
|
517
|
|
Other receivable
|
|
|
|
606,855
|
|
|
|
606,970
|
|
Due from related parties
|
|
|
|
463,850
|
|
|
|
468,488
|
|
Total Current Assets
|
|
|
|
1,071,382
|
|
|
|
1,075,975
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
Other asset deposit
|
|
|
|
77,999
|
|
|
|
77,999
|
|
Total Non-Current Assets
|
|
|
|
77,999
|
|
|
|
77,999
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
$
|
1,149,381
|
|
|
$
|
1,153,974
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Due to shareholder
|
|
|
$
|
278,745
|
|
|
$
|
234,711
|
|
Accrued liabilities and other payable
|
|
|
|
35,450
|
|
|
|
58,450
|
|
Convertible debenture – current position
|
|
|
|
1,300,000
|
|
|
|
1,300,000
|
|
Total Current Liabilities
|
|
|
|
1,614,195
|
|
|
|
1,593,161
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
$
|
1,614,195
|
|
|
$
|
1,593,161
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock US$0.01 par value; 1,000,000,000 authorized, 91,813,776 and 62,813,776
shares issued and outstanding at March 31, 2014
and December 31, 2013, respectively
|
|
|
$
|
978,138
|
|
|
$
|
978,138
|
|
Additional paid in capital
|
|
|
|
5,835,805
|
|
|
|
5,835,805
|
|
Other comprehensive capital
|
|
|
|
(417,131
|
)
|
|
|
(401,572
|
)
|
Retained Earnings
|
|
|
|
(6,861,626
|
)
|
|
|
(6,851,558
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
|
(464,814
|
)
|
|
|
(439,187
|
)
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
1,149,381
|
|
|
|
1,153,974
|
|
See Notes to Consolidated Financial Statements
and Accountants’ Report
China Teletech Holding, Inc.
Consolidated Statements of Income
For the three-month periods ended March
31, 2014 and 2013
(Stated in US Dollars)
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
|
USD
|
|
|
USD
|
|
Sales
|
|
$
|
-
|
|
|
$
|
9,100,952
|
|
Cost of sales
|
|
|
-
|
|
|
|
8,879,086
|
|
Gross profit
|
|
|
-
|
|
|
|
221,866
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Administrative and general expenses
|
|
|
14,802
|
|
|
|
119,475
|
|
Total operating expense
|
|
|
14,802
|
|
|
|
119,475
|
|
|
|
|
|
|
|
|
|
|
Operating Income / (Loss)
|
|
|
(14,802
|
)
|
|
|
102,391
|
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of long term debt
|
|
|
-
|
|
|
|
-
|
|
Other income
|
|
|
4,929
|
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
2
|
|
Other Expenses
|
|
|
-
|
|
|
|
-
|
|
Interest expenses
|
|
|
(195
|
)
|
|
|
-
|
|
Total other income / (expense)
|
|
|
4,734
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) before taxation
|
|
|
(10,068
|
)
|
|
|
102,393
|
|
Income tax
|
|
|
-
|
|
|
|
(40,527
|
)
|
Loss from Continuing Operations
|
|
|
(10,068
|
)
|
|
|
61,866
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(10,068
|
)
|
|
$
|
61,866
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation change
|
|
|
-
|
|
|
|
8,334
|
|
Comprehensive income:
|
|
$
|
-
|
|
|
$
|
70,200
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
-minority interest
|
|
$
|
-
|
|
|
$
|
18,160
|
|
-the Company
|
|
|
-
|
|
|
|
43,706
|
|
|
|
$
|
-
|
|
|
$
|
61,866
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
-
|
|
|
|
66,375,574
|
|
-Diluted
|
|
|
-
|
|
|
|
66,375,574
|
|
See Notes to Consolidated Financial Statements
and Accountants’ Report
China Teletech Holding, Inc.
Consolidated Statements of Changes in
Stockholders’ Equity
For the three-month periods ended March
31, 2014 and the year ended December 31, 2013
(Stated in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Additional
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Common
|
|
|
Paid
in
|
|
|
Translation
|
|
|
Retained
|
|
|
Minority
|
|
|
|
|
|
|
of
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Adjustment
|
|
|
Earnings
|
|
|
Interest
|
|
|
Total
|
|
Balance, January 1, 2013
|
|
|
62,813,776
|
|
|
|
628,138
|
|
|
|
4,820,347
|
|
|
|
(343,198
|
)
|
|
|
(5,046,010
|
)
|
|
|
138,198
|
|
|
|
197,475
|
|
Issuance of share
|
|
|
28,000,000
|
|
|
|
280,000
|
|
|
|
520,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
800,000
|
|
Issuance of share base compensation
|
|
|
7,000,000
|
|
|
|
70,000
|
|
|
|
32,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102,000
|
|
Additional paid in capital
|
|
|
-
|
|
|
|
-
|
|
|
|
463,458
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
463,458
|
|
Net Income/Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,805,548
|
)
|
|
|
-
|
|
|
|
(1,805,548
|
)
|
Dividends paid to non-controlling shareholders
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(150,409
|
)
|
|
|
(150,409
|
)
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,798
|
)
|
|
|
(156,798
|
)
|
Disposal od subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,009
|
|
|
|
169,009
|
|
Foreign Currency Translation
Adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(58,374
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(58,374
|
)
|
Balance at December 31, 2013
|
|
|
97,813,776
|
|
|
|
978,138
|
|
|
|
5,835,805
|
|
|
|
(401,572
|
)
|
|
|
(6,851,558
|
)
|
|
|
(0
|
)
|
|
|
(439,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
|
97,813,776
|
|
|
|
978,138
|
|
|
|
5,835,805
|
|
|
|
(401,572
|
)
|
|
|
(6,851,558
|
)
|
|
|
-
|
|
|
|
(439,187
|
)
|
Net Income/loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,068
|
)
|
|
|
-
|
|
|
|
(10,068
|
)
|
Dividends paid to non-controlling shareholders
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign Currency Translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,559
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,559
|
)
|
Balance at March 31,
2014
|
|
|
97,813,776
|
|
|
|
978,138
|
|
|
|
5,835,805
|
|
|
|
(417,131
|
)
|
|
|
(6,861,626
|
)
|
|
|
-
|
|
|
|
(464,814
|
)
|
See Notes to Consolidated Financial Statements
and Accountants’ Report
China Teletech Holding, Inc.
Consolidated Statements of Cash Flows
For the three months periods ended March
31, 2014 and 2013
(Stated in US Dollars)
Cash flow from operating activities
|
|
3/31/2014
|
|
|
3/31/2013
|
|
Net Income (Loss)
|
|
|
(10,068
|
)
|
|
$
|
43,706
|
|
Minority interest
|
|
|
|
|
|
|
18,160
|
|
Ordinary gain on bargain
|
|
|
|
|
|
|
-
|
|
Gain on forgiveness of long term debt
|
|
|
|
|
|
|
-
|
|
Share compensation
|
|
|
|
|
|
|
30,000
|
|
Decrease (Increase) in other receivables
|
|
|
115
|
|
|
|
6,122
|
|
Decrease (Increase) in amount due from related parties
|
|
|
4,638
|
|
|
|
18,518
|
|
Decrease (Increase) in prepaid expenses
|
|
|
|
|
|
|
14,288
|
|
Decrease (Increase) in purchase deposit
|
|
|
-
|
|
|
|
-
|
|
Decrease (Increase) in inventories
|
|
|
|
|
|
|
1,866
|
|
Increase (Decrease) in tax payables
|
|
|
|
|
|
|
41,849
|
|
Increase (Decrease) in accrued liabilities and other payables
|
|
|
(23,000
|
)
|
|
|
(5,796
|
)
|
Increase (Decrease) in due to related parties
|
|
|
44,034
|
|
|
|
475
|
|
Cash provided by operating activities – continuing operations
|
|
|
15,719
|
|
|
|
|
|
Cash provided by operating activities – discontinued operations
|
|
|
-
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
15,719
|
|
|
|
169,188
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Net cash inflow from purchase of a subsidiary-China Teletech Limited
|
|
|
|
|
|
|
-
|
|
Payments for deposits
|
|
|
|
|
|
|
(8
|
)
|
Disposal for short-term investment
|
|
|
|
|
|
|
(2,174
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
(2,182
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash & Cash Equivalents for the Year – continuing operations
|
|
|
15,719
|
|
|
|
|
|
Net Increase (Decrease) in Cash & Cash Equivalents for the Year – discontinued operations
|
|
|
-
|
|
|
|
|
|
Net decrease in cash and cash equivalents for the Year
|
|
|
15,719
|
|
|
|
167,006
|
|
|
|
|
|
|
|
|
|
|
Effect of Currency Translation – continuing operations
|
|
|
(15,559
|
)
|
|
|
|
|
Effect of Currency Translation – discontinued operations
|
|
|
-
|
|
|
|
|
|
|
|
|
(15,559
|
)
|
|
|
8,334
|
|
Cash & Cash Equivalents at Beginning of Year – continuing operations
|
|
|
517
|
|
|
|
|
|
Cash & Cash Equivalents at Beginning of Year – discontinued operations
|
|
|
-
|
|
|
|
|
|
|
|
|
517
|
|
|
|
1,270,035
|
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalents at End of Year – continuing operations
|
|
|
677
|
|
|
|
|
|
Cash & Cash Equivalents at End of Year – discontinued operations
|
|
|
-
|
|
|
|
|
|
Cash & Cash Equivalents at End of Year
|
|
|
677
|
|
|
|
1,445,375
|
|
See Notes to Consolidated Financial Statements
and Accountants’ Report
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
|
1.
|
ORGANIZATION AND PRINCIPAL ACTIVITIES
|
China
Teletech Holding, Inc (the “Company”) formerly known as Avalon Development Enterprise, Inc. was incorporated in the
State of Florida, United States (an OTCBB Company) on March 29, 1999.
On March 27, 2007, the Company
underwent a reverse-merger with Global Telecom Holdings Limited (GTHL, a British Virgin Islands (BVI) Company incorporated on April
1, 2004 under the British Virgin Islands International Business Companies Act (CAP. 291)) and its wholly-owned subsidiary Guangzhou
Global Telecommunication Company Limited (GGT, established on December 4, 2004 in PRC with a registered and paid-up capital of
RMB 3,030,000 (approximate $375,307)) involving an exchange of shares whereby the Company issued an aggregate of 39,817,500 shares
of common stock in exchange for all of the issued and outstanding shares of GTHL. In connection with the reverse merger, the Company
issued 200,000 shares of common stock to Zenith Capital Management LLC in April 2007 at a price of $2.50 per share.
Pursuant to a Stock Purchase
Agreement dated July 29, 2008, the Company acquired 51% of the issued and outstanding shares in Guangzhou Renwoxing Telecom (“GRT”),
a limited liability company incorporated in China. Pursuant to the terms of the Stock Purchase Agreements, the Shareholders agreed
to sell and transfer the proportion of the shares to the Company for a purchase consideration of US$291,833.
On March 2, 2012, pursuant to
a board of resolution passed during the special meeting of the Company, the name of the Company was changed from Guangzhou Global
Telecom, Inc. to China Teletech Holding, Inc. On March 20, 2012, the name change was effective and approved by FINRA.
On March 30, 2012, the Company
completed a share exchange transaction with China Teletech Limited, a British Virgin Islands corporation (“CTL”), by
entering into a share exchange agreement (the “Agreement”) with CTL and the former shareholders of CTL. Pursuant to
the Agreement, the Company acquired all the outstanding capital stock of CTL from the former shareholders of CTL in exchange for
the issuance of 40,000,000 shares of our common stock (the “Share Exchange”). The shares issued to the former shareholders
of CTL constituted approximately 68.34% of the Company’s issued and outstanding shares of common stock as of and immediately
after the consummation of the Share Exchange. As a result of the Share Exchange, CTL became the Company’s wholly owned subsidiary
and Mr. Dong Liu and Mr. Yuan Zhao, the former shareholders of CTL, became our principal shareholders.
In connection with the share
exchange agreement, Miss. Yankuan Li resigned as the Company’s Chairman, but remained as a member of the Board of Directors
of the Company. Mr. Dong Liu was appointed as the Company’s Chairman Mr. Yuan Zhao, Mr. Yau Kwong Lee and Mr. Kwok
Ming Wai Andrew were appointed as the Company’s members of the Board of Directors.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
CTL was formed for the purpose
of providing a group structure to enhance the viable capacity as discussed below of its two variable interest entities located
in the People’s Republic of China (“PRC”); namely, (a) Shenzhen Rongxin Investment Co., Ltd. (“Shenzhen
Rongxin”) and (b) Guangzhou Rongxin Science and Technology Limited (“Guangzhou Rongxin”).
On June 30, 2012, the Company’s
subsidiary, Global Telecom Holdings Limited, entered into an agreement with an independent third party to dispose of its wholly-owned
subsidiary Guangzhou Global Telecommunication Company Limited for a cash consideration of US$644.
On September 30, 2012, the Company’s
subsidiary, China Teletech Limited, entered into an agreement with a related party – Liu Yong, brother of Mr. Liu Dong, to
dispose of the variable interest entity Shenzhen Rongxin Investment Co., Ltd. for a cash consideration of US$1,579.
On January 24, 2013, Kwok Ming
Wai Andrew notified the Company that he would resign from his position as Chief Financial Officer, Secretary, and as a member of
the board of directors of the Company (the "Board"), effective February 1, 2013. On March 26, 2013, the Board unanimously
appointed Jane Yu as Chief Financial Officer and Secretary of the Company, effective March 5, 2013. Ms. Yu will hold
office until the next annual meeting of our shareholders or until removed from office in accordance with the Company's bylaws
The Company, through its subsidiaries,
is principally engaged in the distribution and trading of rechargeable phone cards, cellular phones and accessories within cities
in PRC. Customers of the Company include wholesalers, retailers, and final users.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The Company maintains its general
ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes
are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles
in the United States of America and have been consistently applied in the presentation of financial statements.
The consolidated financial statements
include the accounts of China Teletech Holdings, Inc. and five wholly and partially owned subsidiaries. The consolidated financial
statements were compiled in accordance with generally accepted accounting principles of the United States of America. All significant
inter-company accounts and transactions have been eliminated in consolidation.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
The company owned the following
subsidiaries since the reserve-merger and soon thereafter. As of March 31, 2014 detailed identities of the consolidating subsidiaries
are as follows:-
Name of Company
|
Place of
Incorporation
|
Attributable
Equity Interest %
|
Registered
Capital
|
|
|
|
|
China Teletech Holding Ltd
|
BVI
|
100%
|
USD 978,137.76
|
China Teletech Limited
|
BVI
|
100%
|
USD 10
|
Global Telecom Holdings Limited BVI
|
BVI
|
100%
|
HKD 7,800
|
|
(c)
|
Economic and Political Risks
|
The Company’s operations
in the PRC are subject to special considerations and significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the political, economic, legal environment and foreign currency
exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and
by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, restriction
on international remittances, and rates and methods of taxation, among other things.
Our discussion and analysis
is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. In preparing financial statements in conformity with accounting principles generally accepted in
the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting years. These accounts and estimates include, but are not limited to, the estimation
on useful lives of property, plant and equipment. Actual results could differ from those estimates.
|
(e)
|
Cash and Cash Equivalents
|
The Company considers all cash
and other highly liquid investments with initial maturities of three months or less to be cash equivalents.
Accounts receivable are recognized
and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is
made when recovery of the full amount is doubtful.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
Inventories are stated at the
lower of cost or market value. Cost is computed using the first-in, first-out method and includes all costs of purchase and other
costs incurred in bringing the inventories to their present location and condition. Market value is determined by reference to
the sales proceeds of items sold in the ordinary course of business or estimates based on prevailing market conditions. The inventories
are telecommunication products such as mobile phone, rechargeable phone cards, smart chips, and interactive voice response cards.
|
(h)
|
Accounting for Impairment of Long-Lived Assets
|
The Company adopted Statement
of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Live Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company
periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.
The long-lived assets held and
used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other
industry changes. Recoverability of assets to be held and used is determined by comparing the carrying amount of an asset to future
net undiscounted cash flows to be generated by the assets.
If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to
sell. During the reporting periods, there was no impairment loss.
Revenue from the sale of
the products is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time when the
goods are delivered to customers and the title has passed.
The
Company’s cost of sales is comprised mainly of cost of goods sold.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
Selling
expenses are comprised of salaries for the sales force, client entertainment, commissions, advertising, and travel and lodging
expenses.
|
(l)
|
General & Administrative Expenses
|
General and administrative expenses
include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office
rental and utilities.
The Company expensed all advertising
costs as incurred.
|
(n)
|
Foreign Currency Translation
|
The Company maintains its financial
statements in the functional currency, which is the Renminbi (RMB). Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included
in the determination of net income for the respective periods.
For financial reporting purposes,
the financial statements of the Company, which are prepared using the functional currency, have been translated into United States
dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated
at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Translation adjustments
are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component
of stockholders’ equity.
Exchange Rates
|
3/31/2014
|
12/31/2013
|
Period end RMB : US$ exchange rate
|
6.1644
|
6.1140
|
Average period RMB : US$ exchange rate
|
6.1198
|
6.1982
|
|
|
|
Period end HKD : US$ exchange rate
|
7.7584
|
7.7548
|
Average period HKD : US$ exchange rate
|
7.7592
|
7.7569
|
RMB is not freely convertible
into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
The Company uses the accrual
method of accounting to determine and report its taxable reduction of income taxes for the year in which they are available. The
Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Income tax liabilities
computed according to the United States, People’s Republic of China (PRC), and British Virgin Islands (BVI) tax laws are
provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred
taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting.
The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating
losses that are available to offset future income taxes. A valuation allowance is created to evaluate deferred tax assets if it
is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future
realization is uncertain.
In respect of the Company’s
subsidiaries domiciled and operated in China, the taxation of these entities are summarized below:
|
·
|
GRT and Guangzhou Rongxin are located in the PRC and
GTHL and CTL are located in the British Virgin Islands; all of these entities are subject to the relevant tax laws and regulations
of the PRC and British Virgin Islands in which the related entity domiciled. The maximum tax rates of the subsidiaries pursuant
to the countries in which they domicile are: -
|
Subsidiary
|
Country of Domicile
|
Income Tax Rate
|
CTHL and CTL and GTHL
|
British Virgin Islands
|
0.00%
|
|
·
|
Effective January 1, 2008, PRC government implements
a new 25% tax rate for all enterprises regardless of whether domestic or foreign enterprise thereby eliminating any tax holiday
which is defined as "two-year exemption followed by three-year half exemption" hitherto enjoyed by tax payers. As a
result of the new tax law of a standard 25% tax rate, tax holidays terminated as of December 31, 2007. However, PRC government
has established a set of transition rules to allow enterprises already started tax holidays before January 1, 2008, to continue
enjoying the tax holidays until being fully utilized.
|
|
·
|
Since China Teletech Holding, Inc. is primarily a holding
company without any business activities in the United States. The Company shall not be subject to United States income tax for
the quarter ended March 31, 2014 and for year ended December 31, 2013.
|
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
Statutory reserve refers to the
amount appropriated from the net income in accordance with PRC laws or regulations, which can be used to recover losses and increase
capital, as approved, and, are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at
a profit, must appropriate, on an annual basis, from its earnings, an amount to the statutory reserve to be used for future company
development. Such an appropriation is made until the reserve reaches a maximum equalling 50% of the enterprise’s registered
capital.
|
(r)
|
Fair Value of Financial Instruments
|
For certain of the Company’s
financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities
and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair
Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company.
ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated
balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their
fair values because of the short period of time between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
|
·
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
·
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company analyzes all financial
instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and
ASC 815.
As of March 31, 2014 and December
31, 2013, the Company did not identify any assets and liabilities that were required to be presented on the balance sheet at fair
value.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
|
(s)
|
Other Comprehensive Income (Loss)
|
The Company’s functional
currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars
("USD" or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect
at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting
period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component
of stockholders' equity as "Accumulated other comprehensive income".
Gains and losses resulting from
foreign currency transactions are included in income. There has been no significant fluctuation in exchange rate for the conversion
of RMB to USD after the balance sheet date.
The Company uses FASB ASC Topic
220, “Reporting Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements
of stockholders’ equity, except the changes in paid-in capital and distributions to stockholders due to investments by stockholders.
Comprehensive income for the three-month periods ended March 31, 2014 and 2013 included net income and foreign currency translation
adjustments.
Goodwill represents the excess
of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets",
goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying
a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
FASB ASC Topic 280, "Disclosures
about Segments of an Enterprise and Related Information" requires use of the “management approach” model for segment
reporting. The management approach model is based on the way a company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure,
management structure, or any other manners in which management disaggregates a company.
|
(v)
|
Recent Accounting Pronouncements
|
In January 2013, the FASB issued
ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”).The
Update clarifies that ordinary trade receivables and receivables are not in the scope of Accounting Standards Update No. 2011-11, Balance
Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives,
repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either
offset in accordance with specific criteria contained in FASB Accounting Standards Codification® or subject to a
master netting arrangement or similar agreement. The amendments in this Update are effective for fiscal years, and interim periods
within those years, beginning on or after January 1, 2013. Management does not expect the adoption of this standard has a significant
effect on the Company’s consolidated financial position or results of operations.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
In February 2013, the FASB issued
ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).
The amendments require an organization to:
a) Present (either on the face
of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts
reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under U.S. GAAP
to be reclassified to net income in its entirety in the same reporting period.
b) Cross-reference to other
disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified
directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified
out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related
amounts) instead of directly to income or expense.
The amendments are effective
for reporting periods beginning after December 15, 2012, for public companies. Management does not expect the adoption of this
standard has a significant effect on the Company’s consolidated financial position or results of operations.
In February 2013, the FASB issued
ASU No. 2013-03, “Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities” (“ASU
2013-03”). The amendment clarifies that the requirement to disclose the level of the fair value hierarchy within which the
fair value measurements are categorized in their entirety (as Level 1, Level 2, or Level 3) does not apply to private companies
and nonpublic not-for-profits for items that are not measured at fair value in the statement of financial position, but for which
fair value is disclosed. The amendments are effective upon issuance. Management does not expect the adoption of this standard has
a significant effect on the Company’s consolidated financial position or results of operations.
In February 2013, the FASB issued
ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”).
The amendments require an organization to:
a) Present (either on the face
of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts
reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under U.S. GAAP
to be reclassified to net income in its entirety in the same reporting period.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
b) Cross-reference to other
disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified
directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified
out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related
amounts) instead of directly to income or expense.
The amendments are effective
for reporting periods beginning after December 15, 2012, for public companies. Management does not expect the adoption of this
standard has a significant effect on the Company’s consolidated financial position or results of operations.
In February 2013, the FASB issued
ASU No. 2013-03, “Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities” (“ASU
2013-03”). The amendment clarifies that the requirement to disclose the level of the fair value hierarchy within which the
fair value measurements are categorized in their entirety (as Level 1, Level 2, or Level 3) does not apply to private companies
and nonpublic not-for-profits for items that are not measured at fair value in the statement of financial position, but for which
fair value is disclosed. The amendments are effective upon issuance. Management does not expect the adoption of this standard to
have a significant effect on the Company’s consolidated financial position or results of operations.
A substantial portion of the
Company and the Company’s subsidiaries’ business operations depend on mobile telecommunications in PRC; any loss or
deterioration of such relationship may result in severe disruption to the business operations impacting the Company's revenue.
The Company and the Company’s subsidiaries rely entirely on the networks and gateways of these phone operators to provide
its services. The Company and the Company’s subsidiaries’ agreements with these operators are generally for a short
period of one year and generally do not have automatic renewal provision. If these providers are unwilling to continue business
with the Company and the Company’s subsidiaries, the Company and the Company’s subsidiaries' ability to conduct its
existing business would be adversely affected.
Other receivables as of December
31, 2013 pertained to the Company voluntarily extending financing to business associates for purchase of merchandise in return
for 60% of gross profit in those transactions, in lieu of interest, as well as loans to third parties with no interest, security
and specific terms of repayment.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
|
|
As of 3/31/2014
|
|
|
As of 12/31/2013
|
|
Type of Account
|
|
|
|
|
|
|
|
|
Trade financing to business associates
|
|
$
|
606,855
|
|
|
$
|
606,970
|
|
Allowance for bad debt
|
|
|
-
|
|
|
|
-
|
|
Other receivable, net
|
|
|
606,855
|
|
|
|
606,970
|
|
|
5.
|
DUE FROM/TO RELATED PARTIES
|
The following table presents the balances the Company
due to and from related parties.
|
|
As of 3/31/2014
|
|
|
As of 12/31/2013
|
|
Due from related parties
|
|
$
|
463,850
|
|
|
$
|
468,488
|
|
Due to shareholder
|
|
|
(278,745
|
)
|
|
|
(234,711
|
)
|
Net due from (due to)
|
|
|
185,105
|
|
|
|
233,777
|
|
Amounts owing to the Company’s
related parties are non-interest-bearing and payable on demand.
|
6.
|
CONVERTIBLE
BONDS AND BOND WARRANTS
|
On July 31, 2007 and January
1, 2008, the Company completed two financing transactions with several investors (the “Subscriber”) issuing $2,000,000and
$1,000,000, respectively, Fixed Rate Convertible Debenture due in 2009 and a stock purchase warrant to purchase an aggregate of
2,090,592 shares of the Company common stock, subject to adjustments for stock splits or reorganizations as set forth in the warrant,
that expired in 2012 (the “Warrants”).
The Debentures were subscribed
at a price equal to 87.5% of their principal amount, which is the issue price of $3,428,571 less a 12.5% discount. The Debentures
were issued pursuant to, and are subject to the terms and conditions of, a trust deed dated July31, 2007 (the “Trust Deed”).
|
·
|
Interest Rate.
The Debenture bears interest at the rate of 8% per annum of the principal
amount of the Debentures.
|
|
·
|
Conversion.
Each Debenture is convertible at the option of the holder at any time after
July31, 2007 up to July31, 2009, into shares of our common stock at a fixed conversion price of $0.82 per share.
|
On July 31, 2007, the Company
also entered into a registration rights agreement with the Subscriber pursuant to which the Company agreed to include the Debenture,
the Warrants, and the shares of common stock underlying the Debenture and Warrants in a pre-effective amendment to a registration
statement that the Company have on file with the SEC. The Company intends to have the registration statement cover the resale of
the Debenture, the Warrants, and the shares of common stock underlying the Debenture and Warrants.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
At July 31, 2007 and January
1, 2008, the dates of issuance, the Company determined the fair value of the Debenture to be $2,000,000 and $1,000,000, respectively.
The values of the warrants and the beneficial conversion feature as at December 31, 2007 and 2008 determined under the Black-Scholes
valuation method were immaterial. Accordingly, the interest discount on the warrants and beneficial conversion feature were recorded,
and are being amortized by the straight-line method over 5 years and 2 years respectively.
On November 3, 2008, due to market
conditions, the Company re-negotiated the terms of the Debentures and Warrants, and entered into a modification agreement (the
“Amendment Agreement”) with the Holders. Pursuant to the Amendment Agreement, the Company agreed to completely remove
the monthly interest payment of the Debentures and Increase the annual interest rate to 18%. Therefore, as described in the Schedule
A of the Amendment Agreement, the Company will pay an aggregate of $2,151,110.85 and $1,485,714.10 to the Holders that are due
on July 31, 2009 and February 21, 2010, respectively. The Company acknowledged that the conversion price of the Debentures
on the conversion date shall be equal to the lesser of (a) $0.015 (subject to adjustment), and (b) 80% of the lowest closing bid
price during the 20 Trading Days immediately prior to the applicable conversion date (subject to adjustment).
The
Amendment Agreement further modified the terms of the transaction by reducing the exercise price of the Warrants to $0.015 (subject
to further adjustment), and therefore the number of shares underlying Warrants issued to the Holders will be increased to an aggregate
of 156,097,534 shares as described in Schedule B of the Amendment Agreement.
The Company further amended the
Articles of Incorporation to increase the number of authorized shares of common stock to 1,000,000,000.
On December 29, 2009, the Company
entered into a Settlement Agreement with the Holders. Pursuant to the Settlement Agreement, the Company would make a total payment
of $1,300,000 to the Holders no later than January 21, 2010. The Convertible Debentures would be deemed satisfied and all outstanding
Warrants held by the Holders would be cancelled. In addition, the Holders agreed to cancel all of the Company shares held by them
at such time as the payment has been made.
In May 2010, the Holders commenced
an action against the Company in the Supreme Court of the State of New York in order to recover the outstanding amount of $1,300,000
under the Settlement Agreement. The outcome and estimated loss from this lawsuit cannot be determined at this time.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
On November 28, 2011, the Company
entered into a Settlement and Amendment Agreement with holders of its convertible debentures, warrants and restricted shares (the
“Holders”). The parties in this Settlement and Amendment Agreement agreed: i) principal amount of the debentures will
be reduced from $3 million to $1.3 million; ii) the Holders will surrender common stock purchase warrants to purchase a total of
156,097,534 shares of the Company’s common stock, and surrender 32,704,376 restricted shares of the Company, in exchange
for settlement payments in the sum of $155,000. The Company has paid a total of $155,000 in settlement payments to the Holders.
Therefore, the Company will pay an aggregate of $1.3 million to the Holders that are due on November 28, 2014. The Company acknowledged
that the conversion price of $1.3 million Fixed Rate Convertible Debenture on the conversion date shall be equal to the lesser
of (a) $0.10 (the Set Price) and (b) 90% of the average of the VWAPs for the five trading days immediately prior to the applicable
conversion date (such lower price, as subject to adjustment herein, the Conversion Price). The values of the beneficial conversion
feature under the Black-Scholes valuation method were immaterial.
Extra-Ordinary Gain resulted
from this Settlement and Amendment Agreement amounted to $1,566,323 (net of tax to $1,487,083) has been reflected in the accompanying
income statement for the year ended December 31, 2012.
Because of the fact that the
$1.3 million Fixed Rate Convertible Debenture contains separate securities and yet merged into one package, the Debenture security
must identify its constituents and establish the individual value as determined by the Issuer as follows: -
(1)
|
Convertible Debenture (after two rounds)
|
$ 1,300,000
|
(2)
|
Discount
|
-
|
(3)
|
Warrant
|
-
|
(4)
|
Beneficial Conversion Feature
|
-
|
The Convertible Debentures
Payable, net consisted of the following: -
|
|
3/31/2014
|
|
|
12/31/2013
|
|
Convertible Debenture - Principal and interest
|
|
|
|
|
|
|
|
|
Balance as at beginning of period
|
|
$
|
1,300,000
|
|
|
$
|
1,300,000
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
Redemption
|
|
|
-
|
|
|
|
-
|
|
Interest charged for the current year
|
|
|
-
|
|
|
|
-
|
|
Repayment of interest in current year
|
|
|
-
|
|
|
|
-
|
|
Forgiveness of debt (as addressed above)
|
|
|
-
|
|
|
|
-
|
|
Balance as at end of period and year
|
|
$
|
1,300,000
|
|
|
$
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
Less: Interest discount – Beneficial conversion feature
|
|
|
|
|
Balance as at beginning of year
|
|
$
|
-
|
|
|
$
|
-
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
Balance as at end of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: Interest Discount – Warrant
|
|
|
|
|
|
|
|
|
Balance as at beginning of year
|
|
|
-
|
|
|
|
-
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
Balance as at end of year
|
|
|
-
|
|
|
|
-
|
|
Convertible Debenture, net
|
|
$
|
1,300,000
|
|
|
$
|
1,300,000
|
|
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
The Convertible Debenture
was classified as current as follows:
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
1,300,000
|
|
|
$
|
1,300,000
|
|
|
|
$
|
1,300,000
|
|
|
$
|
1,300,000
|
|
Common stock
The Company is authorized by its
Memorandum of Association (i.e. equivalent to Articles of Incorporation) to issue a total of 1,000,000,000 shares at a par value
of US$0.01 of which 97,813,776 and 62,813,776 shares have been issued and outstanding as of March 31, 2014 and December 31, 2013,
respectively.
During the nine-month period ended
September 30,2013, the Company issued approximately 7,000,000 and 28,000,000 shares of common stock for stock compensation and
for receivables in cash to provide additional working capital to the Company respectively.
Common stock reverse stock split
On December 9, 2011, the Company’s
shareholders jointly agreed to a 10 to 1 reverse stock split (the “Reverse Split”) on its issued and outstanding common
stock, having a par value of $0.01 per share. On February 16, 2012, the Reverse Split was effective and approved by the Financial
Industry Regulatory Authority (FINRA).
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
Cancellation of shares issued
On September 4, 2012, holders
of its convertible debentures, warrants and restricted shares surrendered 3,270,438 restricted shares of the Company.
|
8.
|
SUBSCRIPTION RECEIVABLE AND OTHER EXPENSES
|
The Company issued 1,000,000 shares,
5,000,000 shares, 6,000,000 shares and 6,000,000 shares of common stock to Appinero LLC, Chunling Au, IT Appraiser Corp. and for
these Surf Financial Group LLC in March 2013 respectively for the cancellation and purchase of debt. Since the Company hasn't received
payment for these issuances, the Company recorded them as subscription receivables. The Company authorized Mr. Hinman Au to collect the
subscription receivable and he signed the Letter of Commitment to the Company to guarantee the collection. In the third quarter
of 2013, due to the long aging of the subscription receivable, Ms. Li Yankuan, tried several times to get payment from Mr.
Himnan Au but failed. As of March 31, 2014, the Company undertook an impairment test for subscription receivable and recorded
impairment of subscription receivable of $800,000 and recorded such transaction as “Other Expenses” in the Income Statement.
The Company will keep pursuing collection of the subscription receivable from Mr. Hinman Au and expects that legal action will
be taken if Mr. Hinman Au still does not settle the payment in the fourth quarter of 2013.
|
9.
|
RELATED PARTY TRANSACTION
|
In addition to the transactions
and balances disclosed elsewhere in these financial statements, the Company entered into the following material related party transactions.
As of December 31, 2013, the Company
advanced to Ms. Li Yankuan an amount of $463,458 for a period of 6 months free of interest to finance her contribution of Additional
paid-in Capital. This amount of $463,458 has since been repaid before March 31, 2014.
The salary paid to Ms. Li Yankuan,
member of board of directors, for employee services is $ 112,130 for the year ended December 31 2013.
The salary paid to Mr. Zhao Yuan,
member of board of directors, for employee services is $ 89,704 for the year ended December 31 2013.
The salary paid to Ms. Li Jiewen,
daughter of Ms. Li Yankuan, for employee services and stock compensation is $ 16,617 and 36,000 respectively for the year ended
December 31 2013.
The salary paid to Ms. Jane Yu,
Chief Financial Officer and Secretary, for employee services is $ 19,361 for the year ended December 31 2013.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
|
10.
|
DISPOSAL OF SUBSIDIARIES
|
On June 30, 2012, the Company’s
subsidiary, Global Telecom Holdings Limited, entered into an agreement with an independent third party to dispose of its wholly-owned
subsidiary Guangzhou Global Telecommunication Company Limited for a cash consideration of US$644.
On September 30, 2012, the Company’s
subsidiary, China Teletech Limited, entered into an agreement with a related party – Mr. Liu Yong, brother of Mr. Liu Dong,
to dispose of the variable interest entity Shenzhen Rongxin Investment Co., Ltd. for a cash consideration of US$1,579.
On June 30, 2013, the Company’s
subsidiary, Global Telecom Holdings Limited, entered into an agreement with an independent third party to dispose of its 51% owned
subsidiary Guangzhou Renwoxing Telecom Co., Limited for a cash consideration of US$3,232.
On December 30 2013, the Company
deregistered its subsidiary, Guangzhou Rongxin due to the loss operations.
On December 31 2013, the Company
deregistered its subsidiary, China Teletech Limited due to the loss operations.
|
11.
|
GOING CONCERN UNCERTAINTIES
|
These consolidated financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and
the discharge of liabilities in the normal course of business for the foreseeable future.
As of March 31, 2014, the Company
has an accumulated deficit of $6,861,626 due to the fact that the Company continued to incur losses over the past several years.
As a result, these consolidation
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue
as a going concern.
On December 31, 2013, the Company entered
into a Letter Agreement with holders of its convertible debentures, warrants and restricted shares (the “Holders”)
as the Holders have received no settlement payment from the Company. In lieu of the cash consideration of the settlement payment,
the Company agrees to pay the Holders any amount of cash equal to $ 50,000 and 4,600,000 common shares, which shall be evidenced
by a certificate bearing a customary securities act legend, in exchange for the cancellation of an aggregate amount of 1,300,000.
China Teletech Holding, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2014 and December 31,
2013
On January 6, 2014, the Company
issues the 4,600,000 shares of the Company’s common stock to the Holders. On January 15, 2014, the sum of $50,000 was paid
to the Holders.
The convertible bonds and bond
warrants on Note 8 shall be deemed null and void and of no further force or effect upon satisfaction of the obligations of the
Company under the Letter Agreement.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
The following
discussion and analysis of the results of operations and financial condition of the Company for the three months ended March 31,
2014 shall be read in conjunction with its financial statements and notes. Our discussion includes forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual
results of the timing of events could differ materially from those projected in these forward-looking statements as a result of
a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business
sections in our Form 10-K for the year ended December 31, 2013. We use words such as “anticipate,” “estimate,”
“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” “may,” “will,” “should,” “could,” and similar expressions
to identify forward-looking statements.
Company Overview
We are a
distributor of pre-paid calling card and integrated mobile phone handsets and a provider of mobile handset value-added services. We
are an independent qualified corporation that serves as one of principal distributors of China Telecom, China Unicom, and China
Mobile products in Guangzhou City. We maintain and operate the largest prepaid mobile phone card sales and distribution
center in Guangzhou City. We have cooperative distribution relationships with Panasonic, Motorola, LG, GE, Bird, Samsung
corporations for their mobile handsets. We are also developing an on-line refill platform with China Mobile to develop
our on-line business in the Guangdong Province.
We signed
draft agreement with Beijing Toplaser Technology, Ltd. in April 2014. Pursuant to this agreement, we will issue 20 million shares
of common stock to acquire 100% of the outstanding shares of Beijing Toplaser Technology, Ltd. Now, the audit for the year ended
December 31, 2013 and six months ended June 30. 2014 of Beijing Toplaser Technology, Ltd. is in progress.
Going Concern
The quarterly
(unaudited) consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of March 31,
2014, the Company has an accumulated deficit of $$6,861,626 due to the fact that the Company incurred losses over the past several
years, and has difficulty to pay the PRC government Value Added Tax and past due Debenture Holders Settlement.
However,
as the Company fulfilled the required obligations of a settlement agreement dated November 28, 2011 with holders of the Convertible
Debenture, the principle amount was reduced from $2,866,323 to $1,300,000 and it became a non-current liability. In addition, the
Company disposed of subsidiaries, GGT and Shenzhen Rongxin on June 30 and September 30, 2012 respectively.
Results of
Operations
Results
of Operation for the three months ended March 31, 2014 compared with three months ended March 31, 2013
Total Revenue
During the three
months ended March 31, 2014, we revenue is Nil as compared to $9,100,952 during the same period in 2013, representing an decrease
of $9,100,952. The decrease of revenue during the three months ended March 31, 2014, was mainly due to the disposal of all
operating subsidiaries.
Gross Profit
The gross profit
was Nil for the three months ended March 31, 2014 as compared to $221,866 during the same period of 2013, representing $221,866
decrease. The movement in gross profit was mainly due to the decrease in revenue as explained above.
Expenses
Our general and
administrative expenses (“G&A expenses”) were $14,802 during the three months ended March 31, 2014 as compared
to $119,475 during the three months ended March 31, 2013, representing an decrease in amount of $104,673 or 87.6%.
Net Income
Net loss of $10,068
was recorded during the three months ended March 31, 2014 as compared to a net income of $61,866 during the three months ended
March 31, 2013. The decrease was mainly due to disposal of all operating subsidiaries at the end of year 2013.
Liquidity and
Capital Resources
Cash provided
by operating activities was $15,719 during the three months ended March 31, 2014 as compared to cash provided by operating
activities was $169,188 during the same period of 2013. Cash provided by operating activities
during the first three months of 2014 was mainly resulted from net loss of $10,068, added adjustments
of net decrease in current assets (other receivables, amounts due from a related party, purchase deposit, inventories) $19,038
and net increase in current liabilities (accrued liabilities and other payables and tax payables) $21,034. Cash provided
by operating activities during the first three months of 2013 was mainly resulted from net profit of $43,706, added adjustments
of non-controlling interest $18,160, net decrease in current assets (other receivables, amounts due from a related party, purchase
deposit, inventories) $40,794, net increase in current liabilities (accrued liabilities and other payables and tax payables) $36,528
and share compensation $30,000.
Cash flows used
in investing activities were Nil for the first three months of 2014 as compared to $2,182 provided
by the same period of 2013. Cash used in investing activities during the three months period of 2013 was resulted
from disposal for short-term investment $2,174 and payments for deposits $8.
There was no cash
flow provided by or used in financing activities in the first three months of 2014 and the same period of 2013.
Critical Accounting
Policies
Our significant
accounting policies are summarized in Notes 2 of our financial statements included in this quarter report on Form 10-Q for the
period ended March 31, 2014. Our financial statements and related public financial information are based on the application
of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates;
assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities,
revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates
and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates
on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual
results may differ materially from these estimates under different assumptions or conditions. We continue to monitor
significant estimates made during the preparation of our financial statements.
Recent Accounting
Pronouncements
Please refer to
Note (v) to Consolidated Financial Statements for the periods ended March 31, 2014 and 2013.
Off-Balance
Sheet Arrangements
We do not have
any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known
as “special purpose entities” (SPEs).
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Smaller reporting
companies are not required to provide the information required by this item.
Item 4. Controls
and Procedures.
Disclosure
of Controls and Procedures
Our disclosure
controls and procedures are designed to ensure (i) that information required to be disclosed by us in the reports we file or submit
under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms; and (ii) that information required to be disclosed by us in the reports it files or submits under the Exchange
Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of March 31, 2014
we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)).
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period
covered by this report, our disclosure controls and procedures were not effective at the reasonable assurance level.
Changes in
Internal Controls Over Financial Reporting
There has been
no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this quarterly report
on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
|
Item 1.
|
Legal Proceedings.
|
We are not currently involved in any litigation that we believe
could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our
company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities
as such, in which an adverse decision could have a material adverse effect.
We are a smaller reporting company and therefore, we are not
required to provide information required by this Item of Form 10-Q.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds.
|
None.
|
Item 3.
|
Defaults Upon Senior Securities.
|
None.
|
Item 4.
|
Mine Safety Disclosures.
|
Not applicable.
|
Item 5.
|
Other Information
|
None.
Exhibit
No.
|
|
Description
|
31.1
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
31.2
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
32.1
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
|
32.2
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
|
101.INS (1)
|
|
XBRL Instance Document
|
101.SCH (1)
|
|
XBRL Taxonomy Schema
|
101.CAL (1)
|
|
XBRL Taxonomy Calculation Linkbase
|
101.DEF (1)
|
|
XBRL Taxonomy Definition Linkbase
|
101.LAB (1)
|
|
XBRL Taxonomy Label Linkbase
|
101.PRE (1)
|
|
XBRL Taxonomy Presentation Linkbase
|
*
|
Filed herewith.
|
**
|
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.
|
(1)
|
Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished
and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and
otherwise is not subject to liability under these sections.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CHINA TELETECH HOLDING, INC.
|
|
|
|
|
|
Date: May 20, 2014
|
By:
|
/s/ Yankuan Li
|
|
|
|
Yankuan Li
|
|
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
Date: May 20, 2014
|
By:
|
/s/
Jane Yu
|
|
|
|
Jane Yu
|
|
|
|
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
|
|
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