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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 September 30, 2013
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 o   No x

 

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 November 20, 2013, 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
September 30, 2013 

 

			Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.		1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		25
Item 4.	Controls and Procedures.		25
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.		26
Item 1A.	Risk Factors.		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		26
Item 3.	Defaults Upon Senior Securities.		26
Item 4.	Mine Safety Disclosures		26
Item 5.	Other Information.		26
Item 6.	Exhibits.		26
SIGNATURES			27

 

 

 

China Teletech Holding, Inc.

 

Unaudited Consolidated Financial Statements

 

September 30, 2013 and December 31, 2012

 

(Stated in US Dollars)

 

 

China Teletech Holding, Inc.

 

Contents	Pages
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Income	3
Consolidated Statements of Changes in Stockholders’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6– 21

 

 

China Teletech Holding, Inc.

Consolidated Balance Sheets

As of September 30, 2013 and December 31, 2012

(Stated in US Dollars)

 

				9/30/2013				12/31/2012
		Note
ASSETS
Current Assets
Cash and cash equivalents				$	1,132,249			$	1,270,035
Short-term investment					-				395,813
Other receivables		4			444,584				6,122
Due from related parties		5			1,584				216,167
Prepaid expenses					56,238				92,264
Inventories					-				101,363
Total Current Assets					1,634,655				2,081,764
Non-Current Assets
Other non-current assets					78,257				79,873
Total Non-Current Assets					78,257				79,873
TOTAL ASSETS				$	1,712,912			$	2,161,637
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Taxes payable		6		$	175,188			$	248,511
Due to related parties		5			611,654				357,031
Accrued liabilities and other payables					44,749				58,620
Total Current Liabilities					831,591				664,162
Non-Current Liabilities
Convertible debenture –non-current portion		7			1,300,000				1,300,000
Total Non-Current Liabilities					1,300,000				1,300,000
TOTAL LIABILITIES				$	2,131,591			$	1,964,162
STOCKHOLDERS' EQUITY
Common stock US$0.01 par value; 1,000,000,000 authorized, 97,813,776 and 62,813,776 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		8		$	978,138			$	628,138
Additional Paid in capital					5,372,347				4,820,347
Subscription receivable		9			-				-
Other Comprehensive Income					(319,120	)			(343,198	)
Retained Earnings					(6,450,044	)			(5,046,010	)
Non-controlling interest					-				138,198
TOTAL STOCKHOLDERS' EQUITY					(418,679	)			197,475
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	1,712,912			$	2,161,637

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

 

China Teletech Holding, Inc.

Consolidated Statements of Income

For the three-month periods ended September 30, 2013 and 2012

(Stated in US Dollars)

  

				Three months ended								Nine months ended
		Note		9/30/2013				9/30/2012				9/30/2013				9/30/2012
Sales				$	5,453,634			$	8,562,535			$	24,526,103			$	19,641,115
Cost of sales					5,424,591				8,289,881				24,089,185				19,003,427
Gross profit					29,043				272,654				436,918				637,688
Operating expenses
Administrative and general expenses					128,885				140,583				772,504				892,465
Total operating expense					128,885				140,583				772,504				892,465
Income (Loss) from Operations					(99,842	)			132,071				(335,586	)			(254,777	)
Gain on forgiveness of long term debt					-				-				-				1,566,323
Gain (Loss) on disposal of a subsidiary					-				-				(382,217	)			1,371,596
Other income					-				32,704				-				152,027
Interest income					3				30				11				50
Other expenses		9			(800,000	)			(175	)			(800,000	)			(791	)
Interest expense					-				15				-				10
Income (Loss) before taxation					(899,839	)			164,645				(1,517,792	)			2,834,438
Income tax					3,018				(52,154	)			(43,040	)			(115,427	)
Net Income (Loss)				$	(896,821	)		$	112,491			$	(1,560,832	)		$	2,719,011
Other comprehensive income:
Foreign currency translation change					1,780				(6,833	)			24,078				(2,290	)
Comprehensive income (loss):					(895,041	)			105,658				(1,536,754	)			2,716,721
Net income attributable to:
-non-controlling interest				$	-			$	10,440			$	(156,798	)		$	47,390
-the Company					(896,821	)			102,051				(1,404,034	)			2,671,621
				$	(896,821	)		$	112,491			$	(1,560,832	)		$	2,719,011
Earnings Per Share
Basic				$	(0.01	)		$	0.00			$	(0.02	)		$	0.04
Diluted				$	(0.01	)		$	0.00			$	(0.02	)		$	0.04
Weighted Average Shares Outstanding
-Basic (adjusted for 1 for 10 reverse stock split)					94,780,809				63,283,393				84,482,894				76,004,751
-Diluted (adjusted for 1 for 10 reverse stock split)					94,780,809				63,283,393				84,482,894				76,004,751

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

 

China Teletech Holding, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the nine-month periods ended September 30, 2013 and the year ended December 31, 2012

(Stated in US Dollars)

 

		Total Number				Common				Additional Paid in				Subscription				Other Comprehensive				Retained				Non- controlling
		of Shares				Stock				Capital				Receivable				Income				Earnings				Interest				Total
Balance, January 1, 2012			185,283,627			$	1,852,836			$	1,684,019			$	-			$	32,231			$	(6,548,179	)		$	293,691			$	(2,685,402	)
Reserve common stock split –  1 for 10			(166,754,990	)			(1,667,550	)			1,667,550				-				-				-								-
Value of stock to acquire  China Teletech Limited			40,000,000				400,000				1,014,545				-				-				-								1,414,545
Issuance of share based compensation			7,555,577				75,556				454,233				-				-				-				-				529,789
Cancellation of shares issued			(3,270,438	)			(32,704	)			-				-				-				-				-				(32,704	)
Net Income			-				-				-				-				-				1,502,169				-				1,502,169
Dividends paid to minority interest			-				-				-				-				-				-				(193,949	)			(193,949	)
Minority interest			-				-				-				-				-				-				38,456				38,456
Foreign Currency Translation			-				-				-				-				(375,429	)			-				-				(375,429	)
Balance at December 31, 2012			62,813,776			$	628,138			$	4,820,347			$	-			$	(343,198	)		$	(5,046,010	)		$	138,198			$	197,475
Balance, January 1, 2013			62,813,776			$	628,138			$	4,820,347			$	-			$	(343,198	)		$	(5,046,010	)		$	138,198			$	197,475
Issuance of common stock			28,000,000				280,000				520,000				-				-				-				-				800,000
Issuance of share based compensation			7,000,000				70,000				32,000				-				-				-				-				102,000
Net loss			-				-				-				-				-				(1,404,034	)			-				(1,404,034	)
Dividends paid to minority interest			-				-				-				-				-				-				(150,409	)			(150,409	)
Non-controlling interest			-				-				-				-				-				-				(156,798	)			(156,798	)
Disposal of subsidiary			-				-				-				-				-				-				169,009				169,009
Foreign Currency Translation			-				-				-				-				24,078				-				-				24,078
Balance at September 30, 2013			97,813,776			$	978,138			$	5,372,347				-			$	(319,120	)		$	(6,450,044	)			-			$	(418,679	)

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

 

China Teletech Holding, Inc.

Consolidated Statements of Cash Flows

For the nine months periods ended September 30, 2013 and 2012

(Stated in US Dollars)

 

		Three months ended								Nine months ended
		9/30/2013				9/30/2012				9/30/2013				9/30/2012
Cash flow from operating activities
Net Income (Loss)		$	(896,821	)		$	102,051			$	(1,404,034	)		$	2,671,621
Non controlling interest			-				10,440				(156,798	)			47,390
Depreciation			-				3,038				-				6,078
Ordinary gain on bargain			-				-				-				(119,022	)
Gain on disposal of subsidiary			-				-				382,217				(1,371,596	)
Gain on forgiveness of long term debt			-				-				-				(1,566,323	)
Stock compensation			72,000				-				102,000				455,133
Loss of stock issuance			800,000								800,000				-
Gain on stock cancellation			-				(32,704	)			-				(32,704	)
Decrease (Increase) in other receivables			(70,232	)			(2,309	)			(75,877	)			201,943
Decrease (Increase) in amount due from related parties			(2	)			(24,438	)			(342,453	)			234,161
Decrease (Increase) in prepaid expenses			8,708				30,814				36,026				30,427
Decrease (Increase) in purchase deposit			-				-				-				158,649
Decrease (Increase) in inventories			-				(158,368	)			101,363				401,502
Increase (Decrease) in tax payables			(2,195	)			50,343				49,343				128,571
Increase (Decrease) in accrued liabilities and other payables			1,490				(28,734	)			(12,363	)			98,529
Increase (Decrease) in amount due to related parties			35,469				-				273,295				-
Net cash provided by (used in) operating activities		$	(51,583	)		$	(49,867	)		$	(247,281	)		$	1,344,359
Cash flows from investing activities
Purchase of property, plant and equipment			-				331				-				331
Net cash inflow from purchase of subsidiary – China Teletech Limited			-				-				-				1,783,812
Disposal of a subsidiary			-				-				3,226				569
Purchase for short-term investment			-				893				230,984				202,348
Payments for deposits			1,647				20				1,614				(15,955	)
Net cash provided by investing activities		$	1,647				1,244				235,824				1,971,105
Cash flows from financing activities
Dividend paid to non-controlling shareholders of subsidiary			-				-				(150,409	)			-
Net cash used in financing activities		$	-			$	-			$	(150,409	)		$	-
Net Increase (Decrease) in Cash & Cash Equivalents		$	(49,936	)		$	(48,623	)		$	(161,866	)		$	3,315,464
Effect of Currency Translation		$	1,782			$	(7,024	)		$	24,080			$	(12,190	)
Cash & Cash Equivalents at Beginning of Period		$	1,180,403			$	3,428,191			$	1,270,035			$	69,270
Cash & Cash Equivalents at End of Period		$	1,132,249			$	3,372,544			$	1,132,249			$	3,372,544

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

 

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 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 an immediately after the closing of the Share Exchange. As a result of the Share Exchange, CTL became the Company’s wholly owned subsidiary and Dong Liu and Yuan Zhao, the former shareholders of CTL, became our principal shareholders. 

 

In connection with the share exchange agreement, Ms. 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 September 30, 2013 and December 31, 2012

 

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.

 

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 embrace wholesalers, retailers, and final users.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)

Method of Accounting

 

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.

 

(b)

Consolidation

 

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.

 

The company owned the following subsidiaries since the reserve-merger and soon thereafter. As of September 30, 2013, detailed identities of the consolidating subsidiaries are as follows:-

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

Name of Company		Place of Incorporation			Attributable Equity Interest %			Registered Capital
Global Telecom Holdings, Ltd.		BVI			100%			HKD 7,800
China Teletech Limited		BVI			100%			USD 10
Guangzhou Rongxin Science and Technology Limited		PRC			100%			HK 1,200,000

 

(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.

 

(d)

Use of Estimates

 

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.

 

(f)

Accounts Receivable

 

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 September 30, 2013 and December 31, 2012

 

(g)

Inventories

 

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. Determination of recoverability of assets to be held and used is 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.

 

(i)

Revenue Recognition

 

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.

 

(j)

Cost of Sales

 

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 September 30, 2013 and December 31, 2012

 

(k)

Selling Expenses

 

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.

 

(m)

Advertising

 

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		9/30/2013				12/31/2012				9/30/2012
Period end RMB : US$ exchange rate			6.1514				6.3161				6.3340
Average period RMB : US$ exchange rate			6.2215				6.3198				6.3275
Period end HKD : US$ exchange rate			7.7590				7.7519				7.7549
Average period HKD : US$ exchange rate			7.7597				7.7575				7.7597

 

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 September 30, 2013 and December 31, 2012

 

(o)

Income Taxes

 

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
GRT, and Guangzhou Rongxin		PRC			25.0	%
GTHL and CTL		British Virgin Islands			0.00	%

 

·

Effective January 1, 2008, PRC government implements a new 25% tax rate across the board for all enterprises regardless of whether domestic or foreign enterprise without 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 three-month periods ended September 30, 2013 and 2012.

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

(p)

Statutory Reserve

 

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 September 30, 2013 and December 31, 2012, 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 September 30, 2013 and December 31, 2012

 

(s)

Other Comprehensive Income

 

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 September 30, 2013 and 2012 included net income and foreign currency translation adjustments.

 

(t)

Goodwill

 

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.

 

(u)

Segment Reporting

 

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 September 30, 2013 and December 31, 2012

 

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.

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

In March 2013, the FASB issued ASU No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). The update provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in US GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Management does not expect the adoption of this standard will have a significant effect on the Company’s consolidated financial position or results of operations.

 

In March 2013, the FASB issued ASU No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity” (“ASU 2013-05”). The ASU clarifies that when a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Accounting Standards Codification 830-30 to release any related cumulative translation adjustment into net income. The ASU provides that the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The amendments take effect prospectively for public companies for fiscal years beginning after December 15, 2013, and interim reporting periods within those years. Management does not expect the adoption of this standard will have a significant effect on the Company’s consolidated financial position or results of operations.

 

3.

CONCENTRATION

 

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.

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

4.

OTHER RECEIVABLES

 

		As of 9/30/2013				As of 12/31/2012
Type of Account
Trade financing to business associates		$	444,584			$	6,122
Allowance for bad debt			-				-
Other receivable, net			444,584				6,122

 

Other receivables as of December 31, 2012 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.

 

5.

DUE FROM/TO RELATED PARTIES

 

The following table presents the balances the Company due to and from related parties.

 

		As of 9/30/2013				As of 12/31/2012
Due from related parties		$	1,584			$	216,167
Due to related parties			(611,654	)			(357,031	)
Net due from (due to)			(610,070	)			(140,864	)

 

Amounts owing to the Company’s related parties are non-interest-bearing and payable on demand.

 

6.

TAXES Payable

 

Taxes payable consisted of the following as of September 30, 2013 and December 31, 2012:

 

		As of 9/30/2013				As of 12/31/2012
Value added tax payable		$	164			$	86
Corporate income tax payable			175,013				214,948
Business tax payable			-				33,475
Others			11				2
		$	175,188			$	248,511

 

The Company has been collecting from its customers Value Added Tax (VAT), on behalf of the government. The Company was granted by the government to pay the balance dues under installments up to the end of 2008. The reason of this special arrangement is that the government may waive past due VAT after decision has been made in accordance with regulations for technology zone on tax-exemption matter. However, the Company has not received the approval notice from the government at September 30, 2013.

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

 

7.

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 $2,000,000 and $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’s 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 July 31, 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 had on file with the SEC. The registration statement covered the resale of the Debenture, the Warrants, and the shares of common stock underlying the Debenture and Warrants.

 

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).

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

 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. 

 

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 on 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.

 

Because of the fact that the $1.3 million Fixed Rate Convertible Debenture has separate securities (including a derivative component), the Debenture must identify the value of each component as follows:

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

(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: -

 

		9/30/2013				12/31/2012
Convertible Debenture - Principal and interest
Balance as at beginning of period		$	1,300,000			$	2,866,323
Addition							-
Redemption							-
Interest charged for the current year							-
Repayment of interest in current year							-
Forgiveness of debt							(1,566,323	)
Balance as at end of 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

 

The Convertible Debenture was classified as current and non-current as follows:

 

		9/30/2013				12/31/2012
Current portion		$	-			$	-
Non - current portion			1,300,000				1,300,000
		$	1,300,000			$	1,300,000

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

8.

SHAREHOLDERS’ EQUITY

 

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 September 30, 2013 and December 31, 2012, 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).

 

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.

 

9.

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 September 30, 2013, 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.

 

 

China Teletech Holding, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2013 and December 31, 2012

 

10.

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.

 

The salary paid to Ms. Li Yankuan, member of board of directors, for employee services is $ 21,699 for the nine-month period ended September 30, 2013.

 

The salary paid to Mr. Zhao Yuan, member of board of directors, for employee services is $ 17,359 for the nine-month period ended September 30, 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 nine-month period ended September 30, 2013.

 

The salary paid to Ms. Jane Yu, Chief Financial Officer and Secretary, for employee services is $ 2,411 for the nine-month period ended September 30, 2013.

 

11.

DISPOSAL OF A SUBSIDIARY

 

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.

 

12.

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 September 30, 2013, the Company has an accumulated deficit of $ 6,450,044 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.

 

 

Item 2. 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 nine months ended September 30, 2013 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, 2012. 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 the 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, Birdand 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.

 

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 September 30, 2013, the Company has an accumulated deficit of $6,450,044 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, Shenzhen Rongxin and Guangzhou Renwoxing on June 30 and September 30, 2012 and June 30, 2013 respectively.

 

 

Results of Operations

 

Results of Operation for the three months ended September 30, 2013 compared with three months ended September 30, 2012

 

Total Revenue

 

During the three months ended September 30, 2013, we generated $5,453,634 in revenue as compared to $8,562,535 during the same period in 2012, representing a decrease of $3,108,901 or approximately 36.31%. The decrease of revenue during the three months ended September 30, 2013 was mainly due to the disposal of the subsidiary, Guangzhou Renwoxing.

  

Gross Profit

 

The gross profit was $29,043 for the three months ended September 30, 2013 as compared to $272,654 during the same period of 2012, representing a decrease of $243,611 or approximately 89.35%. The gross profit margin decreased from 3.18% to 0.53%.  The decrease in gross profit was mainly due to the increase in cost of sales. The decrease in gross profit margin was mainly due to the higher increase of cost of sales than increase of revenue.

  

Expenses

 

Our general and administrative expenses (“G&A expenses”) were $128,885 during the three months ended September 30, 2013 as compared to $140,583 during the three months ended September 30, 2012, representing a decrease of $11,698 or 8%.  The decrease in G&A expenses was mainly due to the disposal of Guangzhou Renwoxing.

 

Net Income

 

Net loss of $896,821 was recorded during the three months ended September 30, 2013 as compared to a net income of $112,491 during the three months ended September 30, 2012.  The decrease was mainly due to the provision for subscription receivable in the three months ended September 30, 2013.

 

 

Results of operation for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012

 

Total Revenue

 

During the nine months ended September 30, 2013, we generated $24,526,103 in revenue as compared to $19,641,115 during the same period in 2012, representing an increase of $4,884,988 or approximately 23%. The higher sales amount during the nine months ended September 30, 2013 was mainly because a major supplier of store-value cards temporarily ceased its business with us in the first quarter of 2012 for its internal system upgrade in order to serve a greater customer base from the Guangzhou City extended to the Guangdong Province.   The supplier re-started its business with us and our sales increase during the nine months ended September 30, 2013.

 

Gross Profit

 

The gross profit was $436,918 for the nine months ended September 30, 2013 as compared to $637,688 during the same period of 2012, representing $200,770 or 31.48% decrease. The gross profit margin decreased from 3.25% to 1.78%. The decrease in gross profit margin was mainly due to the higher increase of cost of sales than increase of revenue.

 

Expenses

 

Our general and administrative expenses ("G&A expenses") were $772,504 during the nine months ended September 30, 2013 as compared to $892,465 during the nine months ended September 30, 2012, representing a decrease of $119,961 or 13.4%. The decrease in G&A expenses was mainly due to the decrease of stock compensation from $455,133 to $102,000.

 

For the nine months ended September 30, 2012, there was a gain from the disposal of a subsidiary - GGT of $1,371,596, and a gain on forgiveness of long term debt of $1,566,323.

 

Net Income

 

Net loss of $1,560,832 was recorded during the nine months ended September 30, 2013 as compared to a net income of $2,719,011 during the nine months ended September 30, 2012. The decrease was mainly due to the gain from disposal of a subsidiary and the gain on forgiveness of long term debt in the nine months ended September 30, 2012 and loss from disposal of a subsidiary and provision of subscription receivable in the nine months ended September 30, 2013.

 

Liquidity and Capital Resources

 

Cash used in operating activities was $247,281 during the nine months ended September 30, 2013 as compared to cash provided by operating activities of $1,344,359 during the same period of 2012. Cash used in operating activities during the first nine months of 2013 mainly resulted from net loss of $1,404,034, added adjustments of non-cash expense item stock compensation $102,000, net increase in current liabilities (accrued liabilities and other payables) $310,275, netting off by net increase in current assets (other receivables, amounts due from a related party, purchase deposit and inventories) $280,941 and plus adjustments of loss on disposal of a subsidiary $382,217. Cash provided by operating activities during the same period of 2012 mainly resulted from net income attributable to the Company of $2,671,621, added adjustments of non-cash expense item stock compensation $455,133, decrease in current assets (other receivables, amounts due from related parties, purchase deposit, inventories and tax payables) $1,124,826, netting off by adjustments of gain on disposal of a subsidiary of $1,371,596 and gain on forgiveness of long-term debt of $1,566,323. 

 

  

Cash flows provided by investing activities were $235,824 for the first nine months of 2013 as compared to $1,971,105 provided by the same period of 2012. Cash provided by investing activities during the nine month period of 2013 resulted from net cash inflow from disposal of a subsidiary of $3,226 and disposal for short-term investment of $230,984 and deposits of $1,614. Cash provided by investing activities during the same period of 2012 mainly resulted from net income attributable to the Company of $2,671,621, added adjustments of non-cash expense item stock compensation of $455,133, decrease in current assets (other receivables, amounts due from related parties, purchase deposit, inventories and tax payables) of $1,124,826, netting off by adjustments of gain on disposal of a subsidiary of $1,371,596 and gain on forgiveness of long-term debt of $1,566,323. 

 

There was no cash flow provided by or used in financing activities in the first nine months of 2013 and the same period of 2012.

 

Critical Accounting Policies

 

Our significant accounting policies are summarized in Notes 2 of our financial statements included in this quarterly report on Form 10-Q for the period ended September 30, 2013.  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 September 30, 2013 and 2012. 

 

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 September 30, 2013 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. 

 

Item 1A.   Risk Factors.

 

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.

 

During the three months ended September 30, 2013, the Company issued 5,000,000 restricted shares of its common stock as staff bonus.  

 

During the three months ended September 30, 2013, the Company issued 1,000,000 restricted shares of its common stock for consultant service.

 

The issuance of the shares above was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act.

 

Item 3.      Defaults Upon Senior Securities.

 

None. 

 

Item 4.      Mine Safety Disclosures.

 

Not applicable.

 

Item 5.      Other Information

 

None.

 

Item 6. Exhibits

 

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: November 26, 2013	By:	/s/ Yankuan Li
		Yankuan Li
		President and Chief Executive Officer   (Principal Executive Officer)

 

 

Date: November 26, 2013	By:	/s/ Jane Yu
		Jane Yu
		Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)