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EX-31.2 - EXHIBIT 31.2 - China Teletech Holding Incv386359_ex31-2.htm
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EX-32.1 - EXHIBIT 32.1 - China Teletech Holding Incv386359_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - China Teletech Holding Incv386359_ex32-2.htm

 

 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 June 30, 2014

 

Or

 

¨ 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   No ¨

 

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 ¨  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 ¨   Accelerated filer ¨
Non-accelerated filer ¨   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 ¨  No x

 

As of August 14, 2014, there were 97,813,776 shares of common stock, $0.01 par value outstanding.

 

 
 

 

China Teletech Holding, Inc.

 

Consolidated Financial Statements

 

June 30, 2014 and December 31, 2013

 

(Stated in US Dollars)

 

 
 

 

China Teletech Holding, Inc.

 

Contents Pages
   
Consolidated Balance Sheets 2 – 3
   
Consolidated Statements of Income 4
   
Consolidated Statements of Changes in Stockholders’ Equity 5
   
Consolidated Statements of Cash Flows 6
   
Notes to Consolidated Financial Statements 7– 23

 

 
 

 

China Teletech Holding, Inc.

 

Consolidated Balance Sheets

 

As of June 30, 2014 and December 31, 2013

 

(Stated in US Dollars)

 

       6/30/2014
(Unaudit)
   12/31/2013
(Audited)
 
   Note         
ASSETS               
                
Current Assets               
Cash and cash equivalents       $224   $517 
Other receivables   4    607,062    606,970 
Due from related parties   5    139,071    468,488 
Total Current Assets        746,357    1,075,975 
                
Non-Current Assets               
Other non-current assets        77,999    77,999 
Total Non-Current Assets        77,999    77,999 
                
TOTAL ASSETS       $824,356   $1,153,974 
                
LIABILITIES & STOCKHOLDERS' EQUITY               
                
Current Liabilities               
Due to related parties   5    -    234,711 
Accrued liabilities and other payables        23,450    58,450 
Convertible debenture - current portion   6    -    1,300,000 
Total Current Liabilities        23,450    1,593,161 
                
TOTAL LIABILITIES       $23,450   $1,593,161 

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

2
 

 

China Teletech Holding, Inc.

 

Consolidated Balance Sheets

 

As of June 30, 2014 and December 31, 2013

 

(Stated in US Dollars)

  

   6/30/2014
(Unaudit)
   12/31/2013
(Audited)
 
STOCKHOLDERS' EQUITY          
Common stock US$0.01 par value; 1,000,000,000 authorized, 105,213,776 and 97,813,776 shares issued and outstanding at June 30, 2014 and December 31 2013, respectively.  $1,052,138   $978,138 
Additional Paid in capital   5,838,764    5,835,805 
Other Comprehensive Loss   (402,380)   (401,572)

Accumulated Deficit

   (5,687,616)   (6,851,558)
TOTAL STOCKHOLDERS' EQUITY  $800,906   $(439,187)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $824,356   $1,153,974 

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

3
 

 

China Teletech Holding, Inc.

 

Consolidated Statements of Income

 

For the six month period ended June 30, 2014 and 2013

 

(Stated in US Dollars)

 

   Note     
       6/30/2014   6/30/2013 
Sales       $-   $19,072,469 
Cost of sales        -    (18,664,594)
Gross profit        -    407,875 
                
Operating expenses               
Administrative and general expenses        38,102    643,619 
Total operating expense        38,102    643,619 
                
Income (Loss) from Operations        (38,102)   (235,744)
                
Loss on disposal of a subsidiary        -    (382,217)
Interest income        -    9 
Interest expense        (116)   - 

Gain on Cancellation of Debt, Net of Tax

        1,202,160    - 
Income before taxation        1,163,942   (617,952)
Income tax        -    (46,058)
Net Income (Loss)       $1,163,942   $(664,010)
Net Earnings After Tax        1,163,942    (664,010)
                
Other comprehensive income:               
Foreign currency translation change        (808)   22,298 
Comprehensive income (loss):        1,163,134    (641,712)
                
Net income attributable to:               
- Non controlling interest       $-   $(507,212)
-the Company        1,163,942    (156,798)
        $1,163,942   $(664,010)
Earnings (Loss) Per Share               
Basic       $0.01   $(0.01)
Diluted       $0.01   $(0.01)
                
Weighted Average Shares Outstanding               
-Basic        101,534,218    79,235,999 
-Diluted        105,213,776    79,235,999 

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

4
 

 

China Teletech Holding, Inc.

 

Consolidated Statements of Changes in Stockholders’ Equity

 

As of June 30, 2014 and December 31, 2013

 

(Stated in US Dollars)

 

              Foreign             
   Total Number   Common   Additional
Paid in
   Currency
Translation
  

Accumulated

  

Non-controlled

     
   of Shares   Stock   Capital   Adjustment   Deficit   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  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- 
Additional paid in capital   -    -    463,458    -    -    -    463,458 
Net Loss   -    -    -    -    (1,805,548)   -    (1,805,548)
Dividends paid to non controlling interest   -    -    -    -    -    (150,409)   (150,409)
Non controlling interest   -    -    -    -    -    (156,798)   (156,798)
Disposal of subsidiaries   -    -    -    -    -    169,009    169,009 
Foreign Currency Translation   -    -    -    (58,375)   -    -    (58,375)
Balance at December 31, 2013   97,813,776   $978,138   $5,835,805   $(401,572)  $(6,851,558)  -   $(439,187)
                                    
Balance, January 1, 2014   97,813,776   $978,138   $5,835,805   $(401,572)  $(6,851,558)   $-   $(439,187)
Issuance of share based convertible debt repayment   4,600,000    46,000    1,840    -    -    -    47,840 
Issuance of share based compensation   2,800,000    28,000    1,120    -    -    -    29,120 
Net Profits   -    -    -    -    1,163,942    -    1,163,942 
Foreign Currency Translation   -    -    -    (808)   -    -    (808)
Balance at June 30, 2014   105,213,776   $1,052,138   $5,838,765   $(402,380)  $(5,687,616)  $-   $800,906 

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

5
 

 

China Teletech Holding, Inc.

 

Consolidated Statements of Cash Flows

 

For the six month period ended June 30, 2014 and 2013

 

(Stated in US Dollars)

 

   6/30/2014   6/30/2013 
Cash flow from operating activities          
Net Income (Loss)  $1,163,942   $(507,212)
           
Non controlling interest   -    (156,798)
Gain on disposal of subsidiary   -    382,217 

Gain on cancellation of long term debt

   (1,202,160)   - 
Stock compensation   29,120    30,000 
Decrease/(Increase) in other receivables   (92)   (5,645)
Decrease/(Increase) in amount due from related parties   329,416    (342,452)
Decrease/(Increase) in prepaid expenses   -    27,318 
Decrease/(Increase) in purchase deposit   -      
Decrease/(Increase) in inventories   -    101,363 
Increase/(Decrease) in tax payables   -    51,538 
Increase/(Decrease) in accrued liabilities and other payables   (35,000)   (13,853)
Increase/(Decrease) in amount due to related parties   (234,711)   237,826 
           
Net cash provided by(used in) operating activities   50,515    (195,698)
           
Cash flows from investing activities          
Disposal of a subsidiary   -    3,226 
Purchase for short- term investment   -    230,984 
Payments for deposits   -    (33)
           
Net cash provided by (used in) investing activities  $-   $234,177 
           
Cash flows from financing activities          
  Dividend paid to non controlling interests of subsidiaries   -    (150,409)
  Repayment on convertible debt   (50,001)   - 
           
Net cash provided by (used in) financing activities   (50,001)   (150,409)
           
Net Increase(Decrease) in Cash & Cash Equivalents   514    (111,930)
           
Effect of Currency Translation   (807)   22,298 
           
Cash & Cash Equivalents at Beginning of Period   517    1,270,035 
           
Cash & Cash Equivalents at End of Period  $224   $1,180,403 
           
Non –Cash Transaction          
           
Issuance stock for compensation  $29,120   $

30,000

 

 

See Notes to Consolidated Financial Statements and Accountants’ Report

 

6
 

 

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. On June 30, 2012, GTHL entered into an agreement with an independent third party to dispose of GGT for a cash consideration of US$644.

  

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.

 

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 September 30, 2012, CTL entered into an agreement with a related party – Liu Yong, brother of Mr. Liu Dong, to dispose of the variable interest entity Shenzhen Rongxin for a cash consideration of US$1,579. On December 30 2013, the Company had Guangzhou Rongxin deregistered due to ceased operations. On December 31 2013, the Company had CTL deregistered due to ceased operations.

 

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.

 

7
 

 

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

 

(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 June 30, 2014, detailed identities of the consolidating subsidiaries are as follows:-

 

Name of Company  Place of
Incorporation
  Attributable Equity
Interest %
   Registered Capital 
            
Global Telecom Holdings, Ltd.  BVI   100%  HKD7,800 

China Teletech Limited#(1)

  BVI   100%  USD10 

Guangzhou Rongxin Science and Technology Limited (2)

  PRC   100%  HK1,200,000 

Guangzhou Renwoxing Telecome Co., Limited# (3)

  PRC   51%  RMB3,010,000 

 

#(1) Deregistered on December 31, 2013.

(2) Deregistered on December 30, 2013.

#(3) Disposed on June 30, 2013.

.

 

(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.

 

8
 

 

(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.

 

(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 ASC Topic 360-10-35 “Impairment or Disposal of Long-Live Asseets” (formerly Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Live Assets” ), 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 ASC 360-10-35 which 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 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.

 

9
 

 

(j)Cost of Sales

 

The Company’s cost of sales is comprised mainly of cost of goods sold.

 

(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. The Company’s advertising expenses for the period ended June 30, 2014 and 2013 were $nil and $nil respectively.

 

(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  6/30/2014   12/31/2013   6/30/2016 
             
Year/Period end HK$ : US$ exchange rate   7.7579    7.7548    7.7572 
Average year/period HK$ : US$ exchange rate   7.7519    7.7569    7.7591 

 

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.

 

(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 ASC Topic 740 “Income Taxes” (formerly 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 current or non-current deferred tax assets or liabilities related to temporary differences such as 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 off-set 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.

 

10
 

 

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 domicile. The maximum tax rates of the subsidiaries pursuant to the countries in which they domicile are: -

  

Subsidiary  Country of Domicile  Income Tax Rate 
GTHL and CTL  British Virgin Islands   0.00%

 

·Effective January 1, 2008, PRC government implements a new 25% tax rate for all enterprises regardless of whether they are domestic or foreign enterprises, thereby eliminating any tax holiday which is defined as "two-year full exemption followed by three-year half exemption" hitherto enjoyed by tax payers. As a result of the new tax law of a unified 25% tax rate, all tax holidays were terminated as of December 31, 2007. However, PRC government has established a set of transitional rules to allow enterprises that had started tax holidays before January 1, 2008, to continue enjoying the tax holidays until their expiration.

  

·Since China Teletech Holding, Inc. is primarily a holding company without any business activities in the United States. The Company does not generate income which is subject to United States federal income tax for the period and year ended June 30, 2014 and December 31, 2013.

 

(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.

 

11
 

 

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 June 30 2014, the Company did not identify any assets and liabilities that were required to be presented on the balance sheet at fair value.

 

(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 June 30, 2014 and December 31 2013 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 ASC Topic 350 “Intangible – Goodwill and Others” (formerly 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)Stock compensation

 

The Company may periodically issue shares of common stock for services rendered or for financing costs. Such shares are valued based on the market price of the shares on the transaction date.

 

 The Company may periodically issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs.

 

 ASC 718 "Compensation - Stock Compensation" prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.

 

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 The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50 "Equity -Based Payments to Non-Employees". Measurement of share-based payment transactions with non-employees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.

 

 In accordance with ASC 718, the cost of stock options and warrants issued to non-employees is measured at the grant date based on the fair value of the award. The fair value of the stock-based award is determined using the Black-Scholes option-pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive benefit, which is generally the vesting period.

 

 Stock options issued to non-employee directors at fair market value will be accounted for under the intrinsic value method.

 

 The Company did not have any stock options outstanding during the year ended June 30, 2014 and 2013. Accordingly, no pro forma financial disclosure is provided herein. 

 

(w)Issuance of shares for service

 

The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.

 

(x)Recent Accounting Pronouncements

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. The guidance addresses the consolidation of lessors in certain common control leasing arrangements and is based on a consensus reached by the Private Company Council (PCC). Under current U.S. GAAP, a company is required to consolidate an entity in which it has a controlling financial interest. The assessment of controlling financial interest is performed under either: (a) a voting interest model; or (b) a variable interest entity model. In a variable interest entity model, the company has a controlling financial interest when it has: (a) the power to direct the activities that most significantly affect the economic performance of the entity; and (b) the obligation to absorb losses or the right to receive benefits of the entity that could be potentially significant to the entity. To determine which model applies, a company preparing financial statements must first determine whether it has a variable interest in the entity being evaluated for consolidation and whether that entity is a variable interest entity. The new guidance allows a private company to elect (when certain conditions exist) not to apply the variable interest entity guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement.

 

13
 

 

Under the amendments in this ASU, a private company lessee could elect an alternative not to apply variable interest entity guidance to a lessor when:-The private company lessee and the lessor are under common control;-The private company lessee has a leasing arrangement with the lessor;-Substantially all of the activity between the private company lessee and the lessor is related to the leasing activities (including supporting leasing activities) between those two companies, and-If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor. If elected, the accounting alternative should be applied to all leasing arrangements meeting the above conditions. The alternative should be applied retrospectively to all periods presented, and is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted for all financial statements that have not yet been made available for issuance.

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in this ASU enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. The Company does not expect the adoption of 2014-08 to have a material effect on its operating results or financial position.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

 

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 covering for a short period of one year and may not have automatic renewal provision. If these providers are unwilling to continue business with the Company and/or the Company’s subsidiaries, the Company and/or the Company’s subsidiaries' ability to conduct its existing business would be adversely affected.

 

4.OTHER RECEIVABLES

 

Other receivables as of June 30, 2014 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.

 

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   As of 6/30/2014   As of 12/31/2013 
Type of Account          
           
Trade financing to business associates  $607,062   $606,970 
Allowance for bad debt   -    - 
Other receivable, net   607,062    606,970 

 

5.DUE FROM/TO RELATED PARTIES

 

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

 

   As of 6/30/2014   As of 12/31/2013 
Due from related parties  $139,071   $468,488 
Due to related parties   -    (234,711)
Net due from (due to)   139,071    233,777 

 

Amounts due from related parties are unsecured, 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 $2,000,000 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 common stock, subject to adjustments for stock splits or reorganizations as set forth in the warrant, that will expire 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 July 31, 2007 up to July 31, 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.

 

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 obligation of the Debentures and increase the annual interest rate up 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).

 

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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.

 

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   - 

 

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.

 

 

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On January 6, 2014, the Company issued 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.

 

The Convertible Debentures Payable, net consisted of the following: -

 

   6/30/2014   12/31/2013 
Convertible Debenture - Principal and interest          
Balance as at beginning of period  $-   $1,300,000 
Addition   -    - 
Redemption   -    - 
Interest charged for the current year   -    - 
Repayment of interest in current year   -    - 

Cancellation of debt (as addressed above)

   -    - 
Balance as at end of year  $-   $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 

 

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

 

   6/30/2014   12/31/2013 
         
Current portion  $-    1,300,000 
Non - current portion   -    - 
   $-    1,300,000 

 

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7.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 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 receivables and he signed the Letter of Commitment to the Company to guarantee the collection of the outstanding payments. In the third quarter of 2013, due to the long aging of the subscription receivables, 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 receivables and recorded impairment of subscription receivables of $800,000 and recorded such transaction as “Other Expenses” in the Income Statement. The Company will keep pursuing collection of the subscription receivables from Mr. Hinman Au and expects that legal action will be taken if Mr. Hinman Au still does not settle the payment in the second quarter of 2014.

 

8.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 was $ 112,130 for the year ended December 31 2013.

 

The salary paid to Mr. Zhao Yuan, member of board of directors, for employee services was $ 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 was $ 16,617 respectively for the year ended December 31 2013.

 

The salary paid to Ms. Jane Yu, Chief Financial Officer and Secretary, for employee services was $ 19,361 for the year ended December 31 2013.

 

9.DISPOSAL OF SUBSIDIARIES

  

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 had its subsidiary, Guangzhou Rongxin, deregistered due to ceased operations.

 

On December 31 2013, the Company had its subsidiary, China Teletech Limited, deregistered due to ceased operations.

 

10.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 June 30, 2014, the Company has an accumulated deficit of $5,687,616 due to the fact that the Company continued to incur losses over the past several years.

 

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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.

 

11.COMMON STOCK

 

On March 11, 2014 the Company issued 2.8 million shares of restricted common stock with a fair market value at $29,120 in an aggregate to Wall Street Standard Capital, Inc. in exchange for its professional consulting services.

 

On March 11, 2014, the Company issued 4.6 million shares of restricted common stock with a fair market value at $47,840 to an investor for the settlement of convertible note.

 

12.SUBSEQUENT EVENTS

 

The Company has evaluated all other subsequent events as of the filing date of the Form 10Q and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements except the following:

 

On June 30, 2014 the Company entered into a cooperation agreement (the “Agreement”) with Shenzhen Jinke Energy Development Co., Ltd. (“SJD) to purchase 51% of all the assets of SJD, with purchase price to be paid in two installments as follows: (i) the Company will issue to SJD 20 million shares (the “First Stock Issuance”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”) in exchange for the 16% of all the assets of SJD, and (ii) the Company will, upon completion of a financing, purchase the additional 35% of the assets of SJD in consideration of certain amount of the shares of Common Stock to be issued to SJD as proportionate to the First Stock Issuance (approximately 43.75 million shares, the “Second Stock Issuance”), or such amount of cash as equivalent to the fair market value of the Second Stock Issuance, subject to adjustment based on result of the due diligence on SJD. The Agreement also contains customary representation and warranties of the Company and SJD which has been filed in Form 8K Exhibits 10.1 on August 8, 2014.

 

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 three months ended June 30, 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.

 

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Company Overview

 

We were a distributor of pre-paid calling card and integrated mobile phone handsets and a provider of mobile handset value-added services.  We were an independent qualified corporation that serves as one of principal distributors of China Telecom, China Unicom, and China Mobile products in Guangzhou City.  We maintained and operated the largest prepaid mobile phone card sales and distribution center in Guangzhou City.  We had cooperative distribution relationships with Panasonic, Motorola, LG, GE, Bird, Samsung corporations for their mobile handsets.  We were also developing an on-line refill platform with China Mobile to develop our on-line business in the Guangdong Province. After the disposal and deregistration of subsidiaries, this operation models may be no longer applicable in the current operation.

 

On June 30, 2014 we entered into a cooperation agreement (the “Agreement”) with Shenzhen Jinke Energy Development Co., Ltd. (“SJD) to purchase 51% of all the assets of SJD, with purchase price to be paid in two installments as follows: (i) the Company will issue to SJD 20 million shares (the “First Stock Issuance”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”) in exchange for the 16% of all the assets of SJD, and (ii) the Company will, upon completion of a financing, purchase the additional 35% of the assets of SJD in consideration of certain amount of the shares of Common Stock to be issued to SJD as proportionate to the First Stock Issuance (approximately 43.75 million shares, the “Second Stock Issuance”), or such amount of cash as equivalent to the fair market value of the Second Stock Issuance, subject to adjustment based on result of the due diligence on SJD. The Agreement also contains customary representation and warranties of the Company and SJD which has been filed in Form 8K as Exhibits 10.1 on August 8, 2014.

 

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 June 30, 2014, the Company has an accumulated deficit of $$5,687,616 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. The Company entered into an amendment agreement with Enable, pursuant to this agreement, the Company paid the Enable Funds cash of $50,000 and 4,600,000 shares of common stock of the Company for the settlement of the Convertible Debenture. In addition, the Company disposed of its subsidiaries, GGT and Shenzhen Rongxin on June 30 and September 30, 2012 respectively. Furthermore, the Company disposed Guangzhou Renwoxing on June 30, 2013 and deregistered Guangzhou Rongxin and CTL on December 30 and 31, 2013 respectively.

 

Results of Operations

 

Results of Operation for the three months ended June 30, 2014 compared with three months ended June 30, 2013

 

 Total Revenue

 

During the three months ended June 30, 2014, we revenue was Nil as compared to $9,971,517 during the same period in 2013, representing a decrease of $9,971,517.  The decrease of revenue during the three months ended June 30, 2014, was mainly due to the disposal of all operating subsidiaries. 

 

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 Gross Profit

 

 The gross profit was Nil for the three months ended June 30, 2014 as compared to $186,009 during the same period of 2013, representing $186,009 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 $23,300 during the three months ended June 30, 2014 as compared to $524,144 during the three months ended June 30, 2013, representing a decrease of $500,844 or 96%.

 

Net Income

 

Net income of $1,173,202 was recorded during the three months ended June 30, 2014 as compared to a net loss of $725,876 during the three months ended June 30, 2013.  The increase was mainly due to the gain on cancellation of debts in the three months ended June 30, 2014.

 

Results of Operation for the six months ended June 30, 2014 compared with six months ended June 30, 2013

 

Total Revenue

 

During the six months ended June 30, 2014, our revenue is Nil as compared to $19,072,469 during the same period in 2013, representing a decrease of $19,072,469. The decrease of revenue during the six months ended June 30, 2014, was mainly due to the disposal of all operating subsidiaries.   

 

 Gross Profit

 

 The gross profit was Nil for the six months ended June 30, 2014, as compared to $407,875 during the same period of 2013, representing $407,875 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 $38,102 during the six months ended June 30, 2014 as compared to $643,619 during the six months ended June 30, 2013, representing a decrease in amount of $605,517 or 94%.

 

Net Income

 

Net income of $1,163,134 was recorded during the six months ended June 30, 2014 as compared to a net loss of $664,010 during the six months ended June 30, 2013.  The increase was mainly due to the gain on cancellation of debts in the six months ended June 30, 2014.

 

Liquidity and Capital Resources

 

Cash provided by operating activities was $50,515 during the six months ended June 30, 2014 as compared to cash used by operating activities was $195,698 during the same period of 2013.  Cash provided by operating activities during the first six months of 2014 was mainly resulted from net income of $1,163,942, added adjustments of gain on cancellation of long term debt $1,202,160, stock compensation $29,120, net decrease in current assets (other receivables, amounts due from a related party, purchase deposit, inventories) $329,324 and net increase in current liabilities (accrued liabilities and other payables and tax payables) $35,000.  Cash provided by operating activities during the first six months of 2013 was mainly resulted from net loss of $507,212, added adjustments of non-cash expense item stock compensation $30,000, net increase in current liabilities (accrued liabilities and other payables) $275,511, netting off by net increase in current assets (other receivables, amounts due from a related party, purchase deposit and inventories) $219,416 and plus adjustments of loss on disposal of a subsidiary $382,217.

 

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 Cash flows used in investing activities were Nil for the first six months of 2014 as compared to $234,177 provided by the same period of 2013.  Cash provided by investing activities during the six months period of 2013 was resulted from net cash inflow from disposal of a subsidiary $3,226 and disposal for short-term investment $230,984, netting off by payments for deposits $33.

 

 Cash flow used in financing activities were $50,001 for repayment on convertible debt for the first six months of 2014 as compared to $150,409 used for dividend payment to non-controlling interests of subsidiaries.

 

 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 June 30, 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 2 (x) to Consolidated Financial Statements for the periods ended June 30, 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 June 30, 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.

 

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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.

 

None.

 

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.

 

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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: August 14, 2014 By: /s/ Yankuan Li  
    Yankuan Li  
    President and Chief Executive Officer  
(Principal Executive Officer)
 

 

Date: August 14, 2014 By: /s/ Jane Yu  
    Jane Yu  
    Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
 

 

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