Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - REDtone Asia Inc | ex321.htm |
| EX-32.2 - EXHIBIT 32.2 - REDtone Asia Inc | ex322.htm |
| EX-31.1 - EXHIBIT 31.1 - REDtone Asia Inc | ex311.htm |
| EX-31.2 - EXHIBIT 31.2 - REDtone Asia Inc | ex312.htm |
| EXCEL - IDEA: XBRL DOCUMENT - REDtone Asia Inc | Financial_Report.xls |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 28, 2015
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 333-129388
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REDTONE ASIA, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
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Nevada
(State or Other Jurisdiction of
Incorporation or Organization)
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71-098116
(I.R.S. Tax I.D. No.)
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Unit 15A, Plaza Sanhe, No. 121 Yanping Road, JingAn District 200042 Shanghai, PRC
(Address of Principal Executive Offices)
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(86) 61032230
(Registrant’s Telephone Number, Including Area Code)
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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 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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.
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Large accelerated filer o
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Non-accelerated filer o
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Accelerated filer o
(do not check if smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of February 28, 2015, are as follows:
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Class of Securities
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Shares Outstanding
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Common Stock, $0.0001 par value
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282,315,325
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Transitional Small Business Disclosure Format (check one): Yes o No x
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
REDtone Asia, Inc.
As of Quarter Ended February 28, 2015 (unaudited)
TABLE OF CONTENTS
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Condensed Consolidated Balance Sheet as of February 28, 2015 (unaudited) and May 31, 2014 (Audited)
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3
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Condensed Consolidated Statements of Operations and Comprehensive Income for the Nine months ended February 28, 2015 and February 28，2014 (unaudited)
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4
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Condensed Consolidated Statement of Cash Flows (unaudited) for the Nine months ended February 28, 2015 and February 28, 2014
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5
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Notes to the Condensed Consolidated Financial Statements (unaudited)
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6–14
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REDTONE ASIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At February 28, 2015 and May 31, 2014
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February 28, 2015 (Unaudited)
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May 31, 2014
(Audited)
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|||||||
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Assets
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||||||||
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Current assets
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||||||||
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Cash and cash equivalents
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$ | 4,990,771 | $ | 2,991,276 | ||||
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Inventories
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50,626 | 3,974 | ||||||
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Accounts receivable
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2,217,873 | 2,898,976 | ||||||
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Tax recoverable
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23,432 | 23,372 | ||||||
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Other receivables and deposits
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698,897 | 1,083,269 | ||||||
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Assets held for sale
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- | 1,713,011 | ||||||
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Total current assets
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7,981,599 | 8,713,878 | ||||||
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Property, plant and equipment, net
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1,286,815 | 1,451,894 | ||||||
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Intangible assets, net
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1,834,017 | 1,939,613 | ||||||
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Interest in associates
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1,722,666 | - | ||||||
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Goodwill
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- | 610,386 | ||||||
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Total assets
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12,825,097 | 12,715,771 | ||||||
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Liabilities and stockholders’ equity
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Liabilities
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Current liabilities
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||||||||
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Deferred income
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1,679,383 | 743,793 | ||||||
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Accounts payable
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1,246,145 | 2,798,373 | ||||||
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Accrued expenses and other payables
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1,032,900 | 582,240 | ||||||
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Amount due to a related company
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154,371 | 148,791 | ||||||
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Taxes payable
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627,022 | 671,125 | ||||||
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Liabilities related to assets held for sale
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- | 56,861 | ||||||
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Total current liabilities
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4,739,821 | 5,001,183 | ||||||
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Deferred tax liabilities
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- | 4,780 | ||||||
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Total liabilities
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4,739,821 | 5,005,963 | ||||||
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Equity
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Common stock, US$0.0001 par value , 300,000,000 shares authorized; 282,315,325 shares issued and outstanding, respectively
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28,232 | 28,232 | ||||||
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Additional paid in capital
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7,726,893 | 7,726,893 | ||||||
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Less: Amount due from a related company
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(3,303,193 | ) | (3,272,950 | ) | ||||
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Retained earnings
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2,657,337 | 2,172,842 | ||||||
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Accumulated other comprehensive income
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858,671 | 891,021 | ||||||
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Total stockholders’ equity
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7,967,940 | 7,546,038 | ||||||
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Non-controlling interests
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117,336 | 163,770 | ||||||
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Total equity
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8,085,276 | 7,709,808 | ||||||
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Total liabilities and stockholders’ equity
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12,825,097 | 12,715,771 | ||||||
See accompanying notes to the condensed consolidated financial statements.
REDTONE ASIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Nine months and three months ended February 28, 2015 and 2014
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Nine months ended February 28, 2015 (Unaudited)
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Nine months ended February 28, 2014 (Unaudited)
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Three months ended February 28, 2015 (Unaudited)
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Three months ended February 28, 2014 (Unaudited)
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|||||||||||||
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Continuing operations
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Revenue
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6,097,699 | 4,365,689 | 1,536,250 | 1,460,619 | ||||||||||||
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Other income and gains
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151,229 | 110,350 | 20,125 | 12,900 | ||||||||||||
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Service costs
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(4,858,845 | ) | (1,862,764 | ) | (1,267,397 | ) | (630,544 | ) | ||||||||
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Personnel cost
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(626,758 | ) | (560,718 | ) | (250,330 | ) | (230,729 | ) | ||||||||
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Depreciation expense
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(391,596 | ) | (361,071 | ) | (133,622 | ) | (121,473 | ) | ||||||||
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Amortization expense
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(106,455 | ) | (89,240 | ) | (33,240 | ) | (31,030 | ) | ||||||||
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Administrative and other expenses
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(722,580 | ) | (492,927 | ) | (228,194 | ) | (199,469 | ) | ||||||||
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(Loss)/income before provision for income taxes
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(457,306 | ) | 1,109,319 | (356,408 | ) | 260,274 | ||||||||||
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Income tax income
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(12,072 | ) | (225,875 | ) | (19,460 | ) | (154,282 | ) | ||||||||
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Net (loss)/income before non-controlling interest
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(469,378 | ) | 883,444 | (375,868 | ) | 105,992 | ||||||||||
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Share of results by non-controlling interest
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46,904 | 27,035 | 20,575 | 27,035 | ||||||||||||
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Net (loss)/income from continuing operations
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(422,474 | ) | 910,479 | (355,293 | ) | 133,027 | ||||||||||
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Discontinued operations
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Net loss
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(104,018 | ) | (229,892 | ) | - | (76,666 | ) | |||||||||
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Gain on disposal of subsidiaries
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1,010,987 | - | - | - | ||||||||||||
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Net income/(loss) from discontinued operations
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906,969 | (229,892 | ) | - | (76,666 | ) | ||||||||||
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Net income/(loss) for the year
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Net income/(loss) before non-controlling interest
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437,591 | 653,552 | (375,868 | ) | 29,326 | |||||||||||
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Share of results by non-controlling interest
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46,904 | 27,035 | 20,575 | 27,035 | ||||||||||||
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Net income/(loss) for the year
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484,495 | 680,587 | (355,293 | ) | 56,361 | |||||||||||
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Other comprehensive income/(loss)
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(Loss)/gain on foreign currency translation of continuing operations
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(49,512 | ) | 51,000 | (32,761 | ) | 72,517 | ||||||||||
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Share of other comprehensive income/(loss) by non-controlling interest
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470 | 497 | (444 | ) | 497 | |||||||||||
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Other comprehensive income/(loss) attributable to shareholders of the Company
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(49,042 | ) | 51,497 | (33,205 | ) | 73,014 | ||||||||||
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Gain on foreign currency translation of discontinued operations
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17,162 | 11,740 | - | 694 | ||||||||||||
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Total other comprehensive income/(loss)
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(31,880 | ) | 63,237 | (33,205 | ) | 73,708 | ||||||||||
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Total comprehensive income/(loss)
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- Attributable to continuing operations
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(471,516 | ) | 961,976 | (388,498 | ) | 206,041 | ||||||||||
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- Attributable to discontinued operations
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924,131 | (218,152 | ) | - | (75,972 | ) | ||||||||||
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Total comprehensive income/(loss)
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452,615 | 743,824 | (388,498 | ) | 130,069 | |||||||||||
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(Loss)/earnings per share, basic and diluted
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||||||||||||||||
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– continuing operations
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- | - | - | - | ||||||||||||
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– discontinued operations
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- | - | - | - | ||||||||||||
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Weighted average number of shares
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282,315,325 | 282,315,325 | 282,315,325 | 282,315,325 | ||||||||||||
See accompanying notes to the condensed consolidated financial statements.
REDTONE ASIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months and three months ended February 28, 2015 and 2014
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Nine months ended February 28, 2015 (Unaudited)
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Nine months ended February 28, 2014 (Unaudited)
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Cash flows from operating activities
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Cash flows from continuing operating activities
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Net (loss)/income before non-controlling interest
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(469,378 | ) | 883,444 | |||||
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Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
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Amortization expense
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106,455 | 89,240 | ||||||
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Depreciation expense
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391,596 | 361,071 | ||||||
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Deferred tax income
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(4,797 | ) | (11,110 | ) | ||||
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Changes in operating assets and liabilities:
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Decrease in accounts receivable
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681,103 | 1,443,881 | ||||||
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Increase in inventories
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(46,652 | ) | (1,890 | ) | ||||
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Decrease/(increase) in other receivables and deposits
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384,372 | (935,042 | ) | |||||
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Increase in tax recoverable
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(60 | ) | (216 | ) | ||||
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Increase in deferred income
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935,590 | 19,561 | ||||||
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Decrease in accounts payable
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(1,552,228 | ) | (1,808,255 | ) | ||||
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(Decrease)/increase in tax payables
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(44,103 | ) | 270,273 | |||||
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Increase/(decrease) in accrued liabilities and other payables
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450,660 | 99,212 | ||||||
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Net cash (used in)/provided by continuing operating activities
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832,558 | 410,169 | ||||||
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Net cash used in discontinued operating activities
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(113,811 | ) | (84,249 | ) | ||||
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Net cash (used in)/provided by operating activities
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718,747 | 325,920 | ||||||
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Cash flows from investing activities
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Cash flows from investing activities – continuing operations
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Purchase of property, plant and equipment
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(110,515 | ) | (59,242 | ) | ||||
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Increase in amount due from a related company
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(30,243 | ) | (31,275 | ) | ||||
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Increase in interest in associates
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(1,722,666 | ) | - | |||||
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Net cash used in acquisition of a subsidiary
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- | (254,112 | ) | |||||
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Proceeds from disposal of subsidiaries
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4,565,935 | - | ||||||
| - | ||||||||
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Net cash provided by/(used in) continuing investing activities
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2,702,511 | (344,629 | ) | |||||
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Net cash used in discontinued investing activities
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(1,590,743 | ) | - | |||||
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Net cash provided by/(used in) investing activities
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1,111,768 | (344,629 | ) | |||||
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Cash flows from financing activities
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Cash flows from continuing financing activities
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Decrease in amount due to discontinued operations
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(1,375,268 | ) | - | |||||
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(Decrease)/increase in amount due to related companies
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5,580 | 39,921 | ||||||
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Net cash (used in)/provided by continuing financing activities
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(1,369,688 | ) | 39,921 | |||||
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Net cash flows from discontinued financing activities
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- | - | ||||||
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Net cash (used in)/provided by financing activities
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(1,369,688 | ) | 39,921 | |||||
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Net increase/(decrease) in cash and cash equivalents
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||||||||
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Continuing operations
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2,165,381 | 105,461 | ||||||
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Discontinued operations
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(1,704,554 | ) | (84,249 | ) | ||||
| 460,827 | 21,212 | |||||||
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Effect of exchange rate changes
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Continuing operations
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(165,886 | ) | 8,847 | |||||
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Discontinued operations
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17,162 | (6,879 | ) | |||||
| (148,724 | ) | 1,968 | ||||||
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Cash and cash equivalents at beginning of period
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||||||||
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Continuing operations
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2,991,276 | 3,681,851 | ||||||
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Discontinued operations
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1,687,392 | 1,797,240 | ||||||
| 4,678,668 | 5,479,091 | |||||||
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Less: Cash and cash equivalents included in assets held for sale
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(1,687,392 | ) | - | |||||
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Cash and cash equivalents of continuing operations at beginning of period
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2,991,276 | 5,479,091 | ||||||
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Cash and cash equivalents at end of period
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||||||||
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Continuing operations
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4,990,771 | 3,796,159 | ||||||
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Discontinued operations
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- | 1,706,112 | ||||||
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Cash and cash equivalents of continuing operations at end of period
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4,990,771 | 5,502,271 | ||||||
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Supplementary information – continuing operations
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||||||||
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Cash paid for income taxes
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- | 17,068 | ||||||
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Cash paid for interest
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- | - | ||||||
See accompanying notes to the condensed consolidated financial statements.
REDTONE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2015 (Unaudited)
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
REDtone Asia, Inc. and subsidiaries (the “Company”) are a group of companies in The People’s Republic of China (“PRC”). The principal activities of the Company are that of a Telecommunications provider for mobile, fixed and international gateway services. REDtone provides a wide range of telecommunication services, including prepaid and postpaid discounted call services to corporate customers and consumers as well as prepaid mobile air-time top-up. The Company also offers prepaid shopping card services.
The Company’s major subsidiaries during the six months ended February 28, 2015 are illustrated as follows:
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Name
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Domicile and date of incorporation
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Effective ownership
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Principal activities
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Redtone Telecommunication (China) Limited (“Redtone China”)
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Hong Kong
May 26, 2005
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100%
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Investment holding
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Redtone Telecommunications (Shanghai) Limited (“Redtone Shanghai”)
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The PRC
July, 26, 2005
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100%
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Provides technical support services to group companies
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Shanghai Hongsheng Net Telecommunication Company Limited (“Hongsheng”) #
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The PRC
November 29, 2006
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100%
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Marketing and distribution of discounted call services to PRC consumer market
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Shanghai Huitong Telecommunication Company Limited (“Huitong”) #
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The PRC
March, 26, 2007
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100%
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Marketing and distribution of IP call and discounted call services in the PRC
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Shanghai Jiamao E-Commerce Company Limited (“Jiamao”) #
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The PRC
March 21, 2008
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100%
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Marketing and distribution of products on the internet
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Nantong Jiatong Investment Consultant Co., Ltd (“Nantong Jiatong”) #
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The PRC
May 17, 2011
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100%
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Investment holding
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Shanghai QianYue Business Administration Co., Ltd. ("QBA") #
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The PRC
December 12, 2008
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100%
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Provision of prepaid shopping-card services in the PRC
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|||
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Shanghai Xin Chang Information Technology Company Limited (“Xin Chang”) #
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The PRC
January 13, 2006
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56%
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Marketing and distribution of IP call and discounted call services in the PRC
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|||
# - Variable interest entities
The Company’s major associates during the six months ended February 28, 2015 are illustrated as follows:
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Name
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Domicile and date of incorporation
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Effective ownership
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Principal activities
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|||
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Shanghai YuZhong Financial Information Service Co., Ltd (“YuZhong”) #
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The PRC
July 16, 2014
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49.8%
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Investment holding company
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Shanghai YuGuang Automobile Inspection Technology Co., Ltd (“YuGuang”) #
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The PRC
July 17, 2014
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20%
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Investment holding company
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Taizhou Haitai Motor Vehicle Inspection Co, Ltd. (“Haitai”) #
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The PRC
October 31, 2013
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10.2%
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Inspection of motor vehicle
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|||
# - Variable interest entities
Hong Sheng and QBA were disposed of during the period. See also Footnote 4.
For continuing operations, segment reporting is not required as the revenue, profit or loss and total assets in association with the e-commerce business are immaterial to the Company’s revenue, reported profit or loss and total assets.
On July 16, 2014, Huitong, Mao Hong, a director and nominee shareholder of certain VIEs, and Wei Gang, an independent third party jointly incorporated YuZhong and they founders owned 49.8%, 25.1% and 25.1% of equity interests in YuZhong, respectively. Huitong has contributed RMB398,400 to Yuzhong during the third quarter of fiscal year 2015. Immediately after the capital injection, YuZhong became an associate company.
YuZhong has not incurred any profit or loss during the nine months ended February 28, 2015.
On July 17, 2014, Huitong and Mao Hong jointly incorporated YuGuang. Huitong and Mao Hong owns 20% and 80% of equity interests in YuGuang, respectively. Pursuant to the agreement, Huitong has contributed RMB200,000 to YuGuang during the period. Immediately after the capital injection, YuGuang became an associate company.
YuGuang has not incurred any profit or loss during the nine months ended February 28, 2015.
On September 11, 2014, YuGuang entered into an agreement with Zhou Jin Shan and Chen Xiu Lan to acquire 51% equity interest in Taizhou Haitai Motor Vehicle Inspection Co, Ltd. (“Haitai”) from Zhou Jin Shan at a consideration of RMB652,800. YuGuang also agreed to provide a shareholder’s loan of RMB11.2 million only after Chen Xiu Lan, the 49% shareholder, contributes an accumulated shareholder’s loan of RMB11.2 million to Haitai. Haitai is principally engaged in the provision of motor vehicle inspection service in the PRC. As of the period end date, the Company has advanced RMB10,000,000 to Haitai. The Company has no voting rights in Haitai until the shareholder’s loan requirement is fulfilled.
Haitai has not incurred any profit or loss during the nine months ended February 28, 2015.
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the nine months and three months ended February 28, 2015 and 2014 have been prepared pursuant to the rules & regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however the Company believes that the following disclosures are adequate to make the information presented not misleading. All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is in Chinese Renminbi (“RMB”), while the reporting currency is U.S. Dollar.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of February 28, 2015, the results of its operations and cash flows for the nine months and three months ended February 28, 2015 and 2014.
The results of operations for the nine months and three months ended February 28, 2015 are not necessarily indicative of the results for a full year period.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts in mainland China and Hong Kong.
(b) Fair Value of Financial Instruments
The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables and deposits, tax recoverable, amount due from/(to) related parties, accounts payable, accrued expenses and other payables, and taxes payable.
The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments.
(c) Revenue recognition
The Company has adopted a revenue recognition policy for each type of operation according to ASC 605-45.
Revenue represents the invoiced value of services rendered and receivable during the year. Revenue is recognized when all of the following criteria are met:
- Persuasive evidence of an arrangement exists;
- Delivery has occurred or services have been rendered;
- The seller’s price to the buyer is fixed or determinable; and
- Collectability is reasonably assured.
Revenue recognition policy for each of the major products and services:
1. Discounted call services for consumer (EMS) as follows:
• Collaboration with China Tie Tong Telecommunications (“CTT”) – Redtone China is appointed as the sole distributor for EMS and will recognize revenue when airtime is utilized by the consumer and revenue is recognized on a net basis which is computed based on a fixed sharing ratio of the total airtime utilized by consumers after netting the direct traffic termination costs and incidental expenses. Redtone China’s role for Business Collaboration with CTT is as an “Agent” as Redtone China is the sole distributor for the EMS brand owned and controlled by CTT; and
• Collaboration with other telecommunication providers – Redtone China will act as a discounted consumer call Reseller whereby Redtone China determines the service and package specification and the pricing policy whereas China Unicom acts as a passive termination partner for call traffic. Redtone China will pay China Unicom solely based on call traffic termination by China Unicom at a prescribed rate (defined as traffic termination cost on the books of Redtone China). In this regard, Redtone China will recognize revenue when airtime is utilized by the consumer and the revenue recognized is the gross value of the call charges. Redtone China’s role for Business Collaboration with China Unicom is that of “Principal” as China Unicom is playing a passive role as the traffic termination partner while Redtone China is fully responsible for the entire management of the discounted call services.
As this is a prepaid product, there is an expiration date for the product sold. If the airtime is not utilized by the expiration date, which is currently one year from the activation date, the product will be deemed to be expired and the revenue recognized at the time is the remaining gross value of the expired prepaid product.
2. Discounted call services for corporate consumers is as follows:
• Collaboration with CTT – the revenue recognized is the commission earned from distributing the discounted call services to corporate customers; and
• Collaboration with other telecommunication providers –the revenue recognized is the commission earned from distributing the discounted call services to corporate customers.
3. Reload services for prepaid mobile services – revenue recognized is the commission earned.
4. Discontinued prepaid shopping-card services – revenue recognized is the commission earned.
(d) Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of February 28, 2015 and 2014, there were no dilutive securities outstanding.
(e) Foreign currency translation
The accompanying consolidated financial statements are presented in United States dollars (US$). The functional currencies of the Company are the Hong Kong dollar (HK$) and the Renminbi (RMB), respectively. Capital accounts of the financial statements are translated into United States dollars from HK$ or RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The translation rates are as follows:
|
February 28, 2015
|
May 31, 2014
|
February 28, 2015
|
||||||||||
|
Period end RMB : US$ exchange rate
|
0.1627 | 0.1621 | 0.1633 | |||||||||
|
Average period RMB : US$ exchange rate
|
0.1625 | 0.1629 | 0.1630 | |||||||||
|
Period end HK$ : US$ exchange rate
|
0.1290 | 0.1290 | 0.1289 | |||||||||
|
Average period HK$ : US$ exchange rate
|
0.1290 | 0.1290 | 0.1289 | |||||||||
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC’s government.
The 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.
(f) Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
- Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
- Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
- Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
We measure the fair value of money market funds and equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
(g) Recent Accounting Pronouncements
In July 2013, The FASB has issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force).
U.S. GAAP does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.
This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." This ASU relates to discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity's operations and financial results. The standard expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2014. This ASU is not expected to have an impact on our financial statements or disclosures
The Company does not expect the adoption of these guidance to have a material impact on its consolidated financial statements.
NOTE 4 – DISPOSAL OF SUBSIDIARIES AND DISCONTINUED OPERATION
On July 25, 2014, the Company entered into an agreement to dispose of its entire equity interest in Hongsheng, a VIE subsidiary, to Guotai Investment Holdings Limited at a total cash consideration of approximately $4.54 million.
Pursuant to the agreement, Hongsheng shall transfer all its operations, assets and liabilities other than investment in QBA prior to the completion of the above transaction. Therefore, the entire arrangement is to dispose of the shell of Hongsheng together with the entire interest in QBA.
The completion of disposal is subject to the transfer of the aforementioned operations, assets and liabilities, and also statutory approval by PRC local government.
As of the disposal date, QBA’s assets and liabilities are summarized as follows:
|
July 25, 2014
|
May 31, 2014
|
|||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 2,969,661 | 1,687,392 | |||||
|
Inventories
|
6,708 | 6,669 | ||||||
|
Accounts receivable
|
525 | 522 | ||||||
|
Other receivables and deposits
|
8,892 | 8,841 | ||||||
|
Property, plant and equipment, net
|
5,937 | 9,587 | ||||||
|
Total assets
|
2,991,723 | 1,713,011 | ||||||
|
Liabilities
|
||||||||
|
Accounts payable
|
29,699 | 32,701 | ||||||
|
Accrued expenses and other payables
|
17,462 | 24,160 | ||||||
|
Total current liabilities
|
47,161 | 56,861 | ||||||
|
Net assets of QBA
|
2,944,562 | 1,656,150 | ||||||
The assets of QBA as of May 31, 2014 are classified as assets held for sale and liabilities in the condensed consolidated balance sheet.
The results of QBA during the period (up to date of disposal) are summarized as follows:
|
From June 1, 2014 to
July 25, 2014
|
Nine months ended
February 28, 2014
|
|||||||
|
Revenue
|
$ | 3 | $ | 208 | ||||
|
Other income and gains
|
164 | 74,895 | ||||||
|
Service costs
|
- | (57 | ) | |||||
|
Personnel cost
|
(93,580 | ) | (120,695 | ) | ||||
|
Depreciation expense
|
(3,689 | ) | (146,331 | ) | ||||
|
Administrative and other expenses
|
(6,916 | ) | (37,912 | ) | ||||
|
Net loss
|
(104,018 | ) | (229,892 | ) | ||||
The results of QBA for the nine months ended February 28, 2015 and 2014, respectively, are reported as discontinued operations in the condensed consolidated statement of income and comprehensive income.
The gain on disposal of QBA is analyzed as follows:
|
Consideration received
|
4,565,936
|
|||
|
Less: Net assets of QBA
|
(2,944,563)
|
|||
|
Less: Goodwill arising in the acquisition of QBA
|
(610,386)
|
|||
|
Gain on disposal
|
1,010,987
|
|||
NOTE 5 – ACQUISITION OF A SUBSIDIARY
On January 22, 2014, the Company acquired 56% equity interest in Xin Chang. Consideration of $245,655 was paid upon signing of the Acquisition Agreement; while another $489,900 to be paid to Xin Chang as an operating fund in batches based on Xin Chang’s financial needs as determined by the Company.
The results of Xin Chang for the nine months ended February 28, 2015 and 2014 are as follows:
|
Nine months ended
February 28, 2015
|
Nine months ended
February 28, 2014
(post acquisition)
|
|||||||
|
Revenue
|
$ | 1,290,312 | 216,474 | |||||
|
Other income
|
5,133 | - | ||||||
|
Cost of services
|
(1,137,258 | ) | (233,916 | ) | ||||
|
Personnel cost
|
(109,367 | ) | (23,811 | ) | ||||
|
Depreciation expense
|
(18,251 | ) | - | |||||
|
Amortization expense
|
(16,343 | ) | - | |||||
|
Administrative and other expenses
|
(120,814 | ) | (20,200 | ) | ||||
|
Net income for the period
|
(106,588 | ) | (61,453 | ) | ||||
NOTE 6 - CASH & CASH EQUIVALENTS
As of the balance sheet dates, cash & cash equivalents are summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Cash and bank
|
$ | 408,763 | $ | 494,552 | ||||
|
Time deposits
|
4,582,008 | 2,496,724 | ||||||
|
Total
|
$ | 4,990,771 | $ | 2,991,276 | ||||
As of the balance sheet dates, the time deposits had a maturity term of less than three months.
NOTE 7 – OTHER RECEIVABLES AND DEPOSITS
Other receivables and deposits as of the dates were summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Deposits
|
$ | - | $ | 119,400 | ||||
|
Temporary advance
|
381,223 | 810,625 | ||||||
|
Other receivables
|
317,674 | 153,244 | ||||||
|
Total
|
$ | 698,897 | $ | 1,083,269 | ||||
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of the balance sheet dates are summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
At cost:
|
||||||||
|
Computer and software
|
$ | 70,490 | $ | 102,023 | ||||
|
Telecommunication equipment
|
5,460,732 | 5,297,796 | ||||||
|
Furniture, fixtures and equipment
|
58,420 | 61,887 | ||||||
|
Motor vehicles
|
126,456 | 126,133 | ||||||
|
Leasehold improvement
|
32,736 | 35,319 | ||||||
| 5,748,834 | 5,623,158 | |||||||
|
Less: Accumulated depreciation
|
(4,462,019 | ) | (4,171,264 | ) | ||||
|
Property, plant and equipment, net
|
$ | 1,286,815 | $ | 1,451,894 | ||||
Depreciation expense attributable to continuing operations for the nine months ended February 28, 2015 and 2014 amounted to $391,596 and $361,071, respectively. Depreciation expense attributable to discontinued operations for the nine months ended February 28, 2015 and 2014 amounted to $3,689 and $146,331, respectively.
NOTE 9 – INTANGIBLE ASSETS
Intangible assets as of the balance sheet dates are summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
At cost:
|
||||||||
|
Operating concession
|
$ | 435,375 | $ | 438,670 | ||||
|
Customer base
|
81,270 | 81,450 | ||||||
|
IT license and software
|
2,281,079 | 2,276,992 | ||||||
| 2,797,724 | 2,797,112 | |||||||
|
Less: Accumulated depreciation
|
(963,707 | ) | (857,499 | ) | ||||
|
Intangible assets, net
|
$ | 1,834,017 | $ | 1,939,613 | ||||
Amortization expense attributable to continuing operations for the nine months ended February 28, 2015 and 2014 amounted to $106,455 and $89,240, respectively. Amortization expense attributable to discontinued operations for the nine months ended February 28, 2015 and 2014 amounted to $Nil and $Nil, respectively.
NOTE 10 – GOODWILL
Goodwill as of the balance sheet dates were summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Arising from acquisition of QBA
|
$ | - | $ | 610,386 | ||||
QBA was disposed of during the period.
NOTE 11 – AMOUNT DUE FROM (TO) RELATED COMPANIES
As of the balance sheet dates, amount due from a related company that included in the Company’s equity accounts were analyzed as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Fellow subsidiary:
|
||||||||
|
REDtone Technology Sdn. Bhd.
|
$ | 3,303,193 | $ | 3,272,950 | ||||
The amount represents advances to the related company. As of the balance sheet dates, the amount is unsecured, non-interest bearing and is expected to be repaid within 2015.
Amount due to a related company as of the balance sheet dates were summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Fellow subsidiary:
|
||||||||
|
Redtone Telecommunications Sdn Bhd
|
$ | 154,371 | $ | 148,791 | ||||
The amount due to the related company is unsecured, non-interest bearing and has no fixed repayment date.
NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables as of the balance sheet dates were summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Accrued expenses
|
$ | 295,896 | $ | 345,869 | ||||
|
Other payables
|
737,004 | 236,371 | ||||||
|
Total
|
$ | 1,032,900 | $ | 582,240 | ||||
NOTE 13 – DEFERRED INCOME
Deferred income consists of prepaid air-time sold which is yet to be utilized. The basis of revenue recognition for discounted call services is based on actual call charges made by end users. When calls are being made, the amount will be deducted from deferred income to the statement of income, net of call costs and expenses.
NOTE 14 – TAXES PAYABLE
Taxes payable at the balance sheet dates are summarized as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Income tax payable
|
$ | 474,858 | $ | 456,922 | ||||
|
Business tax and other tax payables
|
152,164 | 214,203 | ||||||
|
Total
|
$ | 627,022 | $ | 671,125 | ||||
Business tax represents PRC sales tax imposed upon the Company’s services provided in the PRC. Tax rates range from 3% to 5% depending on the nature of the taxable activities.
Income tax represents PRC income tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
NOTE 15 – INCOME TAX INCOME
|
Nine months ended
February 28, 2015
|
Nine months ended
February 28, 2014
|
|||||||
|
Current income tax in PRC and Hong Kong
|
$ | 16,869 | $ | 236,985 | ||||
|
Deferred tax income
|
(4,797 | ) | (11,110 | ) | ||||
|
Total
|
$ | 12,072 | $ | 225,875 | ||||
On April 29, 2014, RTSH obtained a tax benefit which the income tax for 2013 and 2014 calendar year is exempt and the income tax for 2015, 2016 and 2017 calendar year will be subject to half rate deduction.
A reconciliation of the expected tax with the actual tax expense is as follows:
|
Nine months ended
February 28, 2015
|
Nine months ended
February 28, 2014
|
|||||||
|
(Loss)/income before provision for income taxes – continuing operations
|
$ | (457,306 | ) | $ | 1,109,319 | |||
|
Expected PRC income tax expense at statutory tax rate of 25%
|
(114,326 | ) | 277,330 | |||||
|
Different tax rate for PRC/Hong Kong local authority
|
7,586 | 15,233 | ||||||
|
Expenses not deductible for tax
|
13,933 | 4,616 | ||||||
|
Utilization of tax loss brought forward
|
(32,677 | ) | (165,108 | ) | ||||
|
Tax loss not provided for deferred tax
|
137,556 | 93,804 | ||||||
|
Total
|
$ | 12,072 | $ | 225,875 | ||||
(i) All PRC subsidiaries are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
(ii) Hong Kong subsidiaries are subject to Hong Kong profits tax. The provision for Hong Kong profits tax is based on a statutory rate of 16.5% of assessable profits in Hong Kong.
(iii) BVI subsidiaries are not subject to profits tax.
NOTE 16 – VARIABLE INTEREST ENTITIES (“VIEs”)
The condensed consolidated financial statements include the financial statements of VIEs for which the Company is the primary beneficiary. All transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation. The results of subsidiaries and VIEs acquired or disposed of during the period are recorded in the consolidated income statements from the effective date of acquisition or up to the effective date of disposal, as appropriate.
The Company has entered into various loan agreements together with equity pledge agreements with nominees which give the Company power to direct the activities of VIEs.
The total consolidated VIE assets and liabilities (QBA is included in comparative figures) reflected on the Company’s balance sheet are as follows:
|
February 28, 2015
|
May 31, 2014
|
|||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 165,454 | $ | 1,888,407 | ||||
|
Inventories
|
50,626 | 10,643 | ||||||
|
Accounts receivable
|
2,217,873 | 2,899,498 | ||||||
|
Tax recoverable
|
23,432 | 23,372 | ||||||
|
Other receivables and deposits
|
669,433 | 1,037,508 | ||||||
|
Goodwill
|
- | 617,454 | ||||||
|
Property, plant and equipment, net
|
196,771 | 108,371 | ||||||
|
Intangible assets, net
|
473,188 | 495,020 | ||||||
|
Interest in associates
|
1,722,666 | - | ||||||
|
Total assets (not include amount due from intra-group companies)
|
5,519,443 | 7,080,273 | ||||||
|
Liabilities
|
||||||||
|
Deferred income
|
1,715,593 | 779,960 | ||||||
|
Accounts payable
|
1,225,198 | 2,810,592 | ||||||
|
Accrued expenses and other payables
|
1,306,648 | 452,527 | ||||||
|
Taxes payable
|
27,531 | 68,484 | ||||||
|
Total current liabilities
|
4,274,970 | 4,111,563 | ||||||
The results of VIEs (QBA is included in comparative figures) are as follows, and are included in the consolidated statements of income of the Company:
|
Nine months ended
February 28, 2015
|
Nine months ended
February 28, 2014
|
|||||||
|
Revenue
|
$ | 5,924,714 | $ | 4,093,086 | ||||
|
Other income and gains
|
976,254 | 34,397 | ||||||
|
Service costs (Not including service costs payable to intra-group companies)
|
(4,846,205 | ) | (1,852,309 | ) | ||||
|
Personnel cost
|
(426,808 | ) | (290,799 | ) | ||||
|
Depreciation expense
|
(35,467 | ) | (550,068 | ) | ||||
|
Amortization expense
|
(23,125 | ) | (165,056 | ) | ||||
|
Administrative and other expenses
|
(394,402 | ) | (37,590 | ) | ||||
|
Income before provision for income taxes (Not including service costs payable to intra-group companies)
|
1,174,961 | 1,231,661 | ||||||
|
Income tax income/(provision for income taxes)
|
(16,869 | ) | (17,032 | ) | ||||
|
Net income
|
1,158,092 | 1,214,629 | ||||||
Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs and can have assets transferred freely out of the VIEs without restrictions. Therefore, the Company considers that there is no asset of VIEs that can only be used to settle obligations of the respective VIEs, except for registered capital and PRC statutory reserves of VIEs as of February 28, 2015. Since the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Company is conducting certain businesses mainly through its VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “REDtone believes,” “management believes” and similar language. The forward-looking statements are based on the current expectations of RTAS and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.
Investors are also advised to refer to the information in our filings with the Securities and Exchange Commission, specifically Forms 10-KSB, 10-QSB and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Except as otherwise indicated by the context, references in this Form 10-Q to “RTAS,” “we,” “us,” “our,” “the Registrant”, “our Company,” or “the Company” are to REDtone Asia, Inc., a Nevada corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “BVI” are to British Virgin Islands; (ii) “PRC” and “China” are to the People’s Republic of China; (iii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iv) “RMB” are to Yuan Renminbi of China; (v) “RM” are to Malaysian Ringgit; (vi) “Securities Act” are to the Securities Act of 1933, as amended; and (vii) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
Business Overview
We are principally involved in the business of offering discounted call services for end users and paperless reload services for prepaid mobile air-time reload for end users in Shanghai covering all three major telecommunication operators namely China Mobile, China Unicom and China Telecom.
Critical Accounting Policies and Estimates
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“US GAAP”). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses 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.
We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our condensed consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Company has adopted a revenue recognition policy for each type of operation according to ASC 605-45.
Revenue represents the invoiced value of services rendered and receivable during the year. Revenue is recognized when all of the following criteria are met:
|
|
-
|
Persuasive evidence an arrangement exists;
|
|
|
-
|
Delivery has occurred or services have been rendered;
|
|
|
-
|
The seller’s price to the buyer is fixed or determinable; and
|
|
|
-
|
Collectability is reasonably assured.
|
Revenue recognition policy for each of the major products and services:
|
1.
|
Discounted call services for consumer (EMS) as follows:
|
|
●
|
Collaboration with China Tie Tong Telecommunications (“CTT”) – Redtone China is appointed as the sole distributor for EMS and will recognize revenue when airtime is utilized by the consumer and revenue is recognized on a net basis which is computed based on a fixed sharing ratio of the total airtime utilized by consumers after netting the direct traffic termination costs and incidental expenses. Redtone China’s role for Business Collaboration with CTT is as an “Agent” as Redtone China is the sole distributor for the EMS brand owned and controlled by CTT; and
|
|
●
|
Collaboration with other telecommunication providers – Redtone China will act as a discounted consumer call Reseller whereby Redtone China determines the service and package specification and the pricing policy whereas China Unicom acts as a passive termination partner for call traffic. Redtone China will pay China Unicom solely based on call traffic termination by China Unicom at a prescribed rate (defined as traffic termination cost on the books of Redtone China). In this regard, Redtone China will recognize revenue when airtime is utilized by the consumer and the revenue recognized is the gross value of the call charges. Redtone China’s role for Business Collaboration with China Unicom is that of “Principal” as China Unicom is playing a passive role as the traffic termination partner while Redtone China is fully responsible for the entire management of the discounted call services
|
As this is a prepaid product, there is an expiration date for the product sold. If the airtime is not utilized by the expiration date, which is currently one year from the activation date, the product will be deemed to be expired and the revenue recognized at the time is the remaining gross value of the expired prepaid product.
|
2.
|
Discounted call services for corporate consumers is as follows:
|
|
●
|
Collaboration with CTT – the revenue recognized is the commission earned from distributing the discounted call services to corporate customers; and
|
|
●
|
Collaboration with other telecommunication providers –the revenue recognized is the commission earned from distributing the discounted call services to corporate customers.
|
|
3.
|
Reload services for prepaid mobile services – revenue recognized is the commission earned.
|
|
4.
|
Prepaid shopping-card services – revenue recognized is the commission earned.
|
Recent Accounting Pronouncements
The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its financial statements.
Year-to-date Results of Operations
Year-to-date Results for Nine-month period ended February 28, 2015 as Compared to period ended February 28, 2014
The following table summarizes the results of our operations during the nine-month periods ended February 28, 2015 and February 28, 2014, and associated percentage changes for comparisons purposes.
Results of continuing operations for 9-month period ended February 28, 2015 compared to 9-month period ended February 28, 2014
|
Nine-month period ended
|
Increase/(Decrease) from comparative period
|
|||||||
|
February 28, 2015
|
February 28, 2014
|
|||||||
|
Revenue
|
6,097,699
|
4,365,689
|
1,732,010
|
40%
|
||||
|
Other income and gains
|
151,229
|
110,350
|
40,879
|
37%
|
||||
|
Service costs
|
(4,858,845)
|
(1,862,764)
|
(2,996,081)
|
161%
|
||||
|
Personnel cost
|
(626,758)
|
(560,718)
|
(66,040)
|
12%
|
||||
|
Depreciation expense
|
(391,596)
|
(361,071)
|
(30,525)
|
8%
|
||||
|
Amortization expense
|
(106,455)
|
(89,240)
|
(17,215)
|
19%
|
||||
|
Administrative and other expenses
|
(722,580)
|
(492,927)
|
(229,653)
|
47%
|
||||
|
(Loss)/income before provision for income taxes
|
(457,306)
|
1,109,319
|
(1,566,625)
|
-141%
|
||||
|
Provision for income taxes
|
(12,072)
|
(225,875)
|
213,803
|
-95%
|
||||
|
Net (loss)/income before non-controlling interest
|
(469,378)
|
883,444
|
(1,352,822)
|
-153%
|
||||
Revenues. The Company generated revenue of $6,097,699 in the first nine months of the fiscal year ending May 31, 2015, representing a 40% increase as compared with the preceding year’s corresponding period. The increase in revenues was mainly due to higher consumption from the competitive market of $658,005 as well as the increase in revenue from the newly acquired subsidiary, Xinchang, amounted to $1,073,838.
Other income and gains. During the first nine month of the fiscal year ending May 31, 2015, the Company recorded other income and gains of $151,229, an increase of $40,879 or 37% compared with the preceding year’s corresponding quarter. The increase was due to an increase in interest income from time deposits.
Service cost. Service costs from operations for the first nine months in fiscal year 2015 of $4,858,845 reflected an increase of $2,996,081 or 161% over the comparative period of preceding year. The increase in service costs was mainly due to increase in the traffic rate as well as the increase in service costs of the newly acquired subsidiary, Xinchang, amounted to $903,342.
Personnel expenses. The personnel expenses have increased by 12% or $66,040 to $626,758 for the first nine month of the fiscal year ending May 31, 2015. This is mainly due to the inclusion of the newly acquired Xin Chang operation.
Depreciation and amortization expenses. Depreciation is generally comparable to comparative period of preceding year. The increase in amortization expense was mainly attributable to the amortization of the newly acquired customer base and the operating concession since the fourth quarter of last fiscal year.
Administrative and other operating expenses. The general and administrative expenses have increased $229,653 or 47% to $722,580. This is mainly due to the increase in administrative expenses of the newly acquired Xin Chang operation of $100,614 and a one-off consultancy fee paid for the conclusion on disposal of QBA.
(Loss)/income before provision for income taxes. For the period under review, the increased in service costs has caused the net loss before provision for income taxes stood at $457,306 as compared to a gain of $1,109,319 over the preceding year’s corresponding quarter.
Net loss before non-controlling interest. For the period under review, the increased in service costs has caused the net loss before non-controlling interest stood at $469,378 as compared to a gain of $883,444 over the preceding year’s corresponding quarter.
Three-month period results ended February 28, 2015 as Compared to Three-month period results ended February 28, 2014
The following table summarizes the results of our operations during the three-month periods ended February 28, 2015 and February 28, 2014, and associated percentage changes for comparisons purposes.
Continuing operations
Results of continuing operations for 3-month period ended February 28, 2015 compared to 3-month period ended February 28, 2014
|
Three-month period ended
|
Increase/(Decrease) from comparative period
|
|||||||
|
February 28, 2015
|
February 28, 2014
|
|||||||
|
Revenue
|
1,536,250
|
1,460,619
|
75,631
|
5%
|
||||
|
Other income and gains
|
20,125
|
12,900
|
7,225
|
56%
|
||||
|
Service costs
|
(1,267,397)
|
(630,544)
|
(636,853)
|
101%
|
||||
|
Personnel cost
|
(250,330)
|
(230,729)
|
(19,601)
|
8%
|
||||
|
Depreciation expense
|
(133,622)
|
(121,473)
|
(12,149)
|
10%
|
||||
|
Amortization expense
|
(33,240)
|
(31,030)
|
(2,210)
|
7%
|
||||
|
Administrative and other expenses
|
(228,194)
|
(199,469)
|
(28,725)
|
14%
|
||||
|
(Loss)/income before provision for income taxes
|
(356,408)
|
260,274
|
(616,682)
|
-237%
|
||||
|
Provision for income taxes
|
(19,460)
|
(154,282)
|
134,822
|
-87%
|
||||
|
Net (loss)/income before non-controlling interest
|
(375,868)
|
105,992
|
(481,860)
|
-455%
|
||||
Revenues. The Company generated revenue of $1,536,250 in the third three months of the fiscal year ending May 31, 2015, representing a 5% marginal increase as compared with the preceding year’s corresponding period. The increase in revenues was mainly due to the increase in revenue from the newly acquired subsidiary, Xinchang, amounted to $169,029.
Other income and gains. During the third three month of the fiscal year ending May 31, 2015, the Company recorded other income and gains of $20,125, an increase of $7,225 or 56% compared with the preceding year’s corresponding quarter. The increase was due to the increase in interest income from time deposits.
Service cost. Service costs from operations for the third three months in fiscal year 2015 of $1,267,397 reflected an increase of $636,853 or 101% over the comparative period of preceding year. The increase in service costs was mainly due to increase in the traffic rate as well as the increase in cost of services of the newly acquired subsidiary, Xinchang, amounted to $68,174.
Personnel expenses. The personnel expenses have increased by 8% or $19,601 to $250,330 for the third three month of the fiscal year ending May 31, 2015. This is mainly due to the inclusion of the newly acquired Xin Chang operation.
Depreciation and amortization expenses. Depreciation is generally comparable to comparative period of preceding year.
Administrative and other operating expenses. The general and administrative expenses have increased by $28,725 or 14% to $228,194. This is mainly due to the increase in administrative expenses of the newly acquired Xin Chang operation of $35,908.
(Loss)/income before provision for income taxes. For the period under review, the increased in service costs has caused the net loss before provision for income taxes stood at $356,408 as compared to a gain of $260,274 over the preceding year’s corresponding quarter.
Net loss before non-controlling interest. For the period under review, the increased in service costs has caused the net loss before non-controlling interest stood at $375,868 as compared to a gain of $105,992 over the preceding year’s corresponding quarter.
Liquidity and capital resources
Cash
Our cash balance at February 28, 2015 was $4,990,771, representing an increase of $1,999,495 compared to our cash balance of $2,991,276 at May 31, 2014.
Cash flow of continuing operations (before effect of exchange rate changes).
|
February 28, 2015
|
February 28, 2014
|
+/- | ||||||||||
|
Net cash provided by operating activities
|
$ | 832,558 | $ | 410,169 | 422,389 | |||||||
|
Net cash provided by/(used in) investing activities
|
$ | 2,702,511 | $ | (344,629 | ) | 3,047,140 | ||||||
|
Net cash (used in)/provided by financing activities
|
$ | (1,369,688 | ) | $ | 39,921 | (1,409,609 | ) | |||||
|
Net increase in cash and cash equivalents
|
2,165,381 | 105,461 | 2,059,920 | |||||||||
Net cash provided by operations during the nine months ended February 28, 2015 amounted to $832,558 as compared to $410,169 in the same period of FY2014 mainly arose from the increase in net operating collection during the period.
Net cash provided investing activities for the nine months period ended February 28, 2015 amounted to $2,702,511 mainly comprised consideration received from the disposal of QBA during the period of $4,565,935 net off by cash used in interest in associates of $1,722,666.
There was net cash used in financing activities of $1,369,688 for the nine months ended February 28, 2015 mainly due to uplift of time deposits to repay amount due to QBA.
Working capital
Our working capital was $3,241,778 at February 28, 2015.
At February 28, 2015, we had stockholders’ equity of $7,967,940; total assets of $12,825,097 and total current liabilities of $4,739,821.
We do not currently anticipate any material capital expenditures for our existing operations.
We do not currently anticipate purchasing or leasing any plant and equipment during approximately the next twelve (12) months.
We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurances that our business will not be affected by inflation in the future.
We have no off balance sheet arrangements.
Discontinued Operations
Results of discontinued operations for 9-month period ended February 28, 2015 compared to 9-month period ended February 28, 2014
|
Nine-month period ended
|
Increase/(Decrease) from comparative period
|
|||||||
|
February 28, 2015
|
February 28, 2014
|
|||||||
|
Revenue
|
3
|
208
|
(205)
|
-99%
|
||||
|
Other income and gains
|
164
|
74,895
|
(74,731)
|
-100%
|
||||
|
Service costs
|
-
|
(57)
|
57
|
-100%
|
||||
|
Personnel cost
|
(93,580)
|
(120,695)
|
(27,115)
|
-22%
|
||||
|
Depreciation expense
|
(3,689)
|
(146,331)
|
(142,642)
|
-97%
|
||||
|
Administrative and other expenses
|
(6,916)
|
(37,912)
|
(30,996)
|
-82%
|
||||
|
Loss before provision for income taxes
|
(104,018)
|
(229,892)
|
(125,874)
|
-55%
|
||||
|
Provision for income taxes
|
-
|
-
|
-
|
0%
|
||||
|
Net loss before non-controlling interest
|
(104,018)
|
(229,892)
|
(125,874)
|
-55%
|
||||
Revenues. The discontinued operation generated marginal revenue of $3 in the nine months of the fiscal year ending May 31, 2015, representing almost 100% decrease as compared with the preceding year’s corresponding quarters. The decrease was mainly due to the cessation business of the company during the period.
Other income and gains. During the first nine months of the fiscal year ending May 31, 2015, the discontinued operation recorded other income and gains of $164, a decrease of $74,731 or 579% compared with the preceding year’s corresponding period. The decrease was due to cessation business of the company during the period.
Service cost. No service costs from operations for the first nine months of the fiscal year ending May 31, 2015 mainly due to cessation business of the company during the year.
Personnel expenses. The personnel expenses have decreased by 22% or $27,115 to $93,580 for the first nine months of the fiscal year ending May 31, 2015. This is mainly due to lay-off manpower expenses incurred during the disposal of QBA.
Loss before provision for income taxes. The net loss before provision for income taxes stood at $104,018 as compared to $229,892 over the preceding year’s corresponding quarter.
We are exposed to various market risks arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and interest rates, which could impact our results of operations and financial position. We do not currently engage in any hedging or other market risk management tools, and we do not enter into derivatives or other financial instruments for trading or speculative purposes.
Foreign Currency Exchange Rate Risk
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies in Chinese Renminbi (“RMB”), Malaysian Ringgit (“RM”) and Hong Kong Dollar (“HK$”) could adversely affect our financial results. We expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby mitigating our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not substantial. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency. All of our sales and expenses denominated in foreign currencies are denominated in the RMB, RM and HK$. Our principal exchange rate risk therefore exists between the U.S. dollar and these currencies. Fluctuations from the beginning to the end of any given reporting period result in the re-measurement of our foreign currency-denominated receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other (income) expense, net in our combined consolidated financial statements. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.
Interest Rate Risk
Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant.
Inflation
Inflation has not had a material impact on the Company’s business in recent years.
Currency Exchange Fluctuations
The Company’s revenues and its expenses are denominated in RMB, RM and HK$. The value of these foreign currency-to-U.S. dollars may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the RMB from the United States dollar. At the recent quarterly regular meeting of People’s Bank of China, its Currency Policy Committee affirmed the effects of the reform on RMB exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of RMB has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so.
Concentration of Credit Risk
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions as described below:
1. The Company’s business is characterized by new product and service development and evolving industry standards and regulations. Inherent in the Company’s business are various risks and uncertainties, including the impact from the volatility of the stock market, limited operating history, uncertain profitability and the ability to raise additional capital.
2. The Company’s revenue is deriving from China and Hong Kong. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.
3. If the Company is unable to derive any revenues from these countries, it would have a significant, financially disruptive effect on the normal operations of the Company.
(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls were effective as of the end of the period covered by this annual report.
(b) Changes in Internal Controls. There have been no changes in our internal controls over financial reporting during the fiscal year ending May 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
(c) Management’s Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of February 28, 2015. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (1992).
Based on the Company’s processes and assessment, as described above, management has concluded that, as of February 28, 2015, the Company’s internal control over financial reporting was effective.
The Company may from time to time be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any such litigation that it believes could have a materially adverse effect on its financial condition or results of operations.
There have been no unregistered sales of equity for the quarter ended February 28, 2015.
There have been no material defaults for the quarter ended February 28, 2015.
The Company has evaluated for disclosure all subsequent events occurring through April 10, 2015, the date the financial statements were issued.
The following exhibits are furnished as part of the Quarterly Report on Form 10-Q:
|
Exhibit
Number
|
Description
|
|
31.1
|
Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chief Executive Officer furnished 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 furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Dated: April 13, 2015
|
REDtone Asia, Inc.
|
Dated: April 13, 2015
|
REDtone Asia, Inc.
|
|
By:
|
/s/ Chuan Beng Wei
|
By:
|
/s/ Hui Nooi Ng
|
|
Name:
|
Chuan Beng Wei
|
Name:
|
Hui Nooi Ng
|
|
Title:
|
Chief Executive Officer
|
Title:
|
Chief Financial Officer
|
|
(Principal Executive Officer)
|
(Principal Financial Officer)
|
23