Securities
Act File No. 000-53839
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
China Teletech
Limited
(Name of
small business issuer in its charter)
British Columbia
|
4813
|
27-1011540
|
(State
or other jurisdiction of incorporation or organization)
|
(Primary
Standard Industrial Classification Code Number)
|
(I.R.S.
Employer Identification No.)
|
Henry
Liguori, Chief Executive Officer
China
Teletech Limited
Room A,
20/F, International Trade Residential and Commercial Building
Nanhu
Road, Shenzhen, China
Phone: (86)
755-82204422
(Address
and telephone number of principal executive offices)
Copies
to:
Phillip
E. Koehnke, APC
P.O. Box
235472, Encinitas, CA 92024
(858)
229-8116 Phone
(501)
634-0070 fax
Approximate
date of proposed sale to the public: as soon as practicable after this
Registration Statement becomes effective.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. ( )
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act of 1933 registration number of the earlier effective
registration statement for the same
offering. ( )
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act of
1933 registration statement number of the earlier effective registration
statement for the same offering. ( )
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act
of 1933 check the following box and list the Securities Act of 1933 registration
statement number of the earlier effective registration statement for the same
offering. ( )
If
delivery of the Prospectus is expected to be made pursuant to Rule 434, check
the following box. ( )
Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer
|
o
|
Accelerated
Filer
|
o
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title
of Each
|
Amount
|
Proposed
Maximum
|
Proposed
Maximum
|
Amount
of
|
Class
of Securities
|
Being
|
Price
Per Share(1)
|
Aggregate
Price(1)
|
Registration
|
To
be Registered
|
Registered
|
|
|
Fee
|
Common
Stock
|
70,919,945
|
$0.10
|
$200,000
|
$61.40
|
Total
|
70,919,945
|
$0.10
|
$200,000
|
$61.40
|
(1) The
shares included herein are being distributed to the stockholders of CN Dragon
Corporation, a Nevada corporation. No consideration will be received by China
Teletech Limited in consideration of such distribution. The offering price is
the stated, fixed price of $0.10 per share until the securities are quoted on
the OTC Bulletin Board for the purpose of calculating the registration fee
pursuant to Rule 457. This amount is only for purposes of determining the
registration fee, the actual value of the securities will be based upon
fluctuating market prices once the securities are quoted on the OTC Bulletin
Board.
The
registrant hereby amends this registration statement (the “Registration
Statement”) on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a) may determine.
Page
2
PRELIMINARY
PROSPECTUS
CHINA
TELETECH LIMITED
DISTRIBUTION OF 70,919,945 SHARES OF COMMON
STOCK
We are
furnishing this Prospectus to the shareholders of CN Dragon Corporation, a
Nevada corporation (formerly known as Wavelit, Inc.) (“CN Dragon”)
Shareholders
of CN Dragon will receive one (1) share of China Teletech Limited (the
“Company,” “Corporation,” “China Teletech,” “we,” and “us”) for every one (1)
share of CN Dragon which they held on February 12, 2009, the record date of the
distribution (the “Record Date” and the “Distribution”). Any fractional shares
left as a result of the Distribution will be rounded up to the nearest whole
share. The Distribution is expected to be effected as soon as practicable after
the date the Registration Statement, of which this Prospectus is a part, is
declared effective.
We are
bearing all costs incurred in connection with this Distribution.
Before
this offering, there has been no public market for our common stock and our
common stock is not listed on any stock exchange or on the over-the-counter
market. This Distribution of our common shares is the first public Distribution
of our shares. It is our intention to seek a market maker to publish quotations
for our shares on the OTC Electronic Bulletin Board; however, we have no
agreement or understanding with any potential market maker. Accordingly, we can
provide no assurance to you that a public market for our shares will develop and
if so, what the market price of our shares may be. The shares
registered in the Distribution will be sold at $0.10 per share until our shares
are quoted on the OTC Bulletin Board, if ever, and thereafter at prevailing
market prices or privately negotiated prices.
SHARES OF
CHINA TELETECH LIMITED INVOLVE A HIGH DEGREE OF RISK. WE URGE YOU TO READ THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 13, ALONG WITH THE REST OF THIS
PROSPECTUS RELATING TO RISKS ASSOCIATED WITH THE SECURITIES REGISTERED
HEREIN.
NEITHER
THE SECURITIES EXCHANGE COMMISSION (“SEC”) NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Page
3
THE
DATE OF THIS PROSPECTUS IS MAY 28, 2010
TABLE
OF CONTENTS
Prospectus
Summary
|
5
|
Summary
Financial Data
|
9
|
Risk
Factors
|
13
|
The
Spin-Off
|
20
|
Questions
and Answers Concerning the Stock Distribution
|
22
|
Use
of Proceeds
|
23
|
Dividend
Policy
|
23
|
Legal
Proceedings
|
23
|
Directors,
Executive Officers, Promoters and Control Persons
|
24
|
Security
Ownership of Certain Beneficial Owners and Management
|
25
|
Interest
of Named Experts and Counsel
|
26
|
Indemnification
of Directors and Officers
|
26
|
Description
of Business
|
27
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
30
|
Description
of Property
|
36
|
Certain
Relationships and Related Transactions
|
36
|
Executive
Compensation
|
36
|
Descriptions
of Securities
|
37
|
Determination
of Price
|
38
|
Market
for Common Equity and Related Stockholder Matters
|
38
|
Additional
Information
|
38
|
Legal
Matters
|
39
|
Financial
Statements
|
39
|
Dealer
Prospectus Delivery Obligation
|
91
|
Part
II
|
91
|
Page
4
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the "RISK FACTORS" section, the
financial statements and the notes to the financial statements. As used
throughout this prospectus, the terms "China Teletech", "Company", "we," "us,"
or "our" refer to China Teletech Limited.
Organization
China
Teletech Limited (formerly known as Stream Horizons Studio, Inc.) was
incorporated under the laws of the Province of British Columbia, Canada on
October 1, 2001 under the name Infotec Business Strategies, Inc. The Company is
a wholly owned subsidiary of CN Dragon Corporation (formerly known as Wavelit).
From its inception, the Company was engaged in the production of video for
broadcast over the internet, both live streaming video and on-demand
pre-recorded video. The full service studio offered full video
editing, both post-production and live-editing, “green-screen” video production,
digital still photography services, as well as the capability to broadcast and
edit together live video feeds from any location with broadband internet
services (virtual studio). The Company had historically been responsible for the
broadcast of various live events and creation of corporate videos for the
clients of its parent company, CN Dragon.
Although
we continued to investigate the profitability of pursuing our prior production
of internet video for broadcast business, management believed and still believes
that there may be more value for our shareholders if we were able to (i) attract
a more substantial operating company and engage in a merger or business
combination of some kind, or (ii) acquire assets or shares of an entity actively
engaged in business which generates revenues. We have investigated several
possible merger candidates to determine whether or not they would add value to
the Company for the benefit of our shareholders. Following such investigation,
we entered into negotiations with Sierra Vista Group Limited, a British Virgin
Islands Company, incorporated on January 30, 2008 under the British Virgin
Islands Business Companies Act, 2004 as further described below. It shall be
noted that Sierra Vista Group Limited changed its company name to China Teletech
Limited (“CTL”) on June 2, 2009.
On or
about February 12, 2009, CN Dragon’s Board of Directors approved of a Spin-Off
of China Teletech Limited (formerly known as Stream Horizons Studio, Inc.), its
wholly owned subsidiary (the “Spin-Off”). The purpose of the Spin-Off was to
provide an independent company to pursue its independent operations. The
proposed Spin Off was disclosed in CN Dragon’s Preliminary Form 14C filed with
the United States Securities and Exchange Commission (the “SEC”) on February 12,
2009 and subsequently amended on March 16, 2009. Pursuant to the terms of the
Spin-Off, CN Dragon has agreed to distribute the 70,919,945 shares to be issued
in the Spin-Off as a stock dividend (the “Distribution”) to its shareholders of
record as of February 12, 2009 (the “Record Date”).
Following
the filing of the Preliminary Form 14C, on or about May 20, 2009 the Company
entered into a share exchange agreement (the “Exchange Agreement”) with CTL.
Pursuant to the Exchange Agreement, the Company agreed to exchange 170,000,000
shares of its common stock for 10 shares of CTL representing 100% of CTL’s
issued and outstanding shares, thus making CTL a wholly owned subsidiary of the
Company. However, pursuant to the terms of the Exchange Agreement, the
transaction will not close until the Company is able to properly consummate the
Spin-Off, obtain SEC approval and effectiveness of this Registration Statement
and file the Definitive Form 14C with the SEC (the “Closing
Transaction”).
In
connection with the Spin-Off and as explained above, CN Dragon will distribute
the 70,919,945 shares to be issued in the Spin-Off as a Distribution to its
shareholders of record as of the Record Date. This Distribution will constitute
our initial public offering. The Distribution is expected to be effected as soon
as practicable after the date the Registration Statement, of which this
Prospectus is a part, is declared effective and the effectiveness of the Closing
Transaction. CN Dragon will distribute one (1) share of our common stock for
each one (1) share of CN Dragon common stock that you own on the Record Date.
You will not be charged or assessed for the shares and neither we nor CN Dragon
will receive any proceeds from the Distribution of the shares.
Following
the effectiveness of this Registration Statement and the Closing Transaction,
the Company plans to cease its video for broadcast operations and direct its
business focus to CTL’s business operations. Currently, CTL maintains two
operating subsidiaries in the People’s Republic of China (“PRC”); namely, (a)
Shenzhen Rongxin Investment Co., Ltd. (“Shenzhen Rongxin”) and (b) Guangzhou
Yueshen Taiyang Network and Technology Co., Ltd. (“Guangzhou
Yueshen”).
This Registration Statement
and related information, including the financial statements and business
operations, takes into account and references the effectiveness of the Closing
Transaction, specifically the Exchange Agreement, as described
herein.
The
following summary is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus. The securities offered hereby are
speculative and involve a high degree of risk. See "Risk Factors."
This
summary highlights selected information contained elsewhere in this Prospectus.
To understand this offering fully, you should read the entire Prospectus
carefully.
Page
5
KEY
FACTS ABOUT OUR COMPANY
AND
THIS PROSPECTUS
Common
Stock Distributed:
|
70,919,945
shares
|
Common
Stock Outstanding
Before
The Distribution:
|
170,000,000
shares. These shares represent the shares that will be issued pursuant to
the Exchange Agreement as part of the Closing
Transaction.
|
Common
Stock Outstanding
After
The Distribution:
|
240,919,945
shares
|
Distributing
Company
|
CN
Dragon corporation, a Nevada corporation (“CN Dragon”).
|
Distributed
Company
|
China
Teletech Limited, a British Columbia corporation (the “Company,” “we,” and
“us”).
|
Shares
to be distributed:
|
CN
Dragon will distribute to its stockholders an aggregate of 70,919,945
shares of our common stock, based on 70,919,945 CN Dragon shares
outstanding on the record date, February 12, 2009 (the “Record Date” and
the “Shares”). The Shares will constitute 29.43% of our outstanding shares
after the Distribution. Immediately following the Distribution, CN Dragon
will not own any of our shares and we will be an independent
company. The remaining 70.56% of our common stock which will
not be distributed to shareholders of CN Dragon will be held by our then
Chief Executive Officer and Director Dong Liu who will hold 35.28% of our
outstanding shares after the Distribution and by our then Chief Financial
Officer, Secretary and Director Yuan Zhao who will hold 35.28% of our
outstanding shares after the Distribution.
|
Record
Date:
|
The
Record Date for the Distribution is February 12, 2009, if you own shares
of common stock of CN Dragon on the Record Date, you will receive one
share of our common stock for every one share of CN Dragon that you hold
as of the Record Date.
|
Offering
Price
|
For
purposes of calculating the registration fee for the common stock
included in this Prospectus, we have used an estimated price of $0.10
per share. This is an arbitrary price and we can offer no
assurances that the $0.10
price bears any relation to the
value of the shares as of
the date of this Prospectus.
|
Distribution
Date:
|
We
currently anticipate that the Distribution will occur as soon as
practicable after the date the Registration Statement, of which this
Prospectus is a part, is declared effective.
|
Distribution
|
On
the Distribution Date, the Distribution Agent identified below will
distribute the shares representing our common stock to via book entry only
to the CN Dragon stockholders as of the Record Date. You will not be
required to make any payment or take any other action to receive your
shares of our common stock. The distributed shares of our common stock
will be freely transferable unless you are one of our affiliates or an
affiliate of CN Dragon.
|
Distribution
Ratio:
|
The
distribution ratio of the Distribution will be on a one for one basis,
i.e., each shareholder of CN Dragon as of the Record Date will receive one
share of our common stock for every one share of CN Dragon that they hold
on the Record Date.
|
Distribution
Agent
|
Action
Stock Transfer
7069
S. Highland Dr., # 300
Salt
Lake City, UT 84121
Phone: (801)
274-1088
Fax: (801)
274-1099
|
Transfer
Agent and Registrar for our Shares:
|
Action
Stock Transfer
7069
S. Highland Dr., # 300
Salt
Lake City, UT 84121
Phone: (801)
274-1088
Fax: (801)
274-1099
|
Offering
Price:
|
The
offering price of the shares has been arbitrarily determined by us based
on estimates of the price that purchasers of speculative securities, such
as the shares, will be willing to pay considering the nature and capital
structure of our Company, the experience of our officers and Directors and
the market conditions for the sale of equity securities in similar
companies. The offering price of the shares bears no relationship to the
assets, earnings or book value of us, or any other objective standard of
value. We believe that no shares registered in the Distribution will be
sold prior to us becoming a publicly traded company, at which time such
shares will be sold based on the market price of such
shares.
|
No
Market:
|
No
assurance is provided that a market will be created for our securities in
the future, or at all. If in the future a market does exist for our
securities, it is likely to be highly illiquid and
sporadic.
|
Address:
|
Room
A, 20/F, International Trade Residential and Commercial
Building
Nanhu
Road, Shenzhen, China
|
Telephone
Number:
|
(86)
755-82204422
|
Page
8
SUMMARY
FINANCIAL DATA
You
should read the summary financial information presented below for the periods
ended December 31, 2009 and 2008 and for the three month periods ended March 31,
2010 and 2009. We derived the summary financial information from our audited
financial statements for the years ended December 31, 2009 and 2008 and our
unaudited financial statements for the three month periods ended March 31, 2010
and 2009, appearing elsewhere in this Prospectus. You should read this summary
financial information in conjunction with our plan of operation, financial
statements and related notes to the financial statements, each appearing
elsewhere in this Prospectus.
CONSOLIDATED
BALANCE SHEETS
As
At December 31,
ASSETS
|
2009
|
2008
|
||
Current
Assets
|
||||
Cash
and Cash Equivalent
|
$ 337,490
|
$ 709,791
|
||
Inventory
|
253,118
|
138,151
|
||
Receivables
|
401,646
|
23,062
|
||
Total Current
Assets
|
992,255
|
871,004
|
||
Non-Current
Assets
|
||||
Other
Asset
|
258
|
-
|
||
Property,
Plant & Equipment, net
|
28,526
|
33,266
|
||
TOTAL
ASSETS
|
$ 1,021,039
|
$ 904,270
|
||
LIABILITIES
|
||||
Current
Liabilities
|
||||
Accounts
Payable and Other Liabilities
|
$ 181,727
|
$ 124,694
|
||
Taxes
Payable
|
225,197
|
189,811
|
||
Total Current
Liabilities
|
406,924
|
314,505
|
||
TOTAL
LIABILITIES
|
$ 406,924
|
$ 314,505
|
||
STOCKHOLDERS' EQUITY
|
||||
Preferred
Stock ($0.000 par value, 10,000,000 shares authorized, 0 share issued and
outstanding at December 31, 2009 and 2008)
|
$ -
|
$ -
|
||
Common
Stock ($0.000 par value, 250,000,000 shares authorized, 240,919,945 issued
and outstanding at December 31, 2009 and 2008)
|
-
|
-
|
||
Additional
Paid in Capital
|
1,410,256
|
1,410,256
|
||
Retained
Earnings
|
(915,942)
|
(929,770)
|
||
Accumulated
Other Comprehensive Income
|
119,801
|
109,279
|
||
TOTAL
STOCKHOLDERS' EQUITY
|
614,115
|
589,765
|
||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ 1,021,039
|
$ 904,270
|
Page
9
CONSOLIDATED
BALANCE SHEETS
As
At March 31,
ASSETS
|
2010
|
2009
|
||
Current
Assets
|
||||
Cash
and Cash Equivalents
|
$ 382,839
|
$ 316,576
|
||
Inventory
|
350,865
|
195,613
|
||
Receivables
|
300,776
|
401,244
|
||
Total Current
Assets
|
1,034,480
|
913,434
|
||
Non-Current
Assets
|
||||
Other
Asset
|
258
|
-
|
||
Property,
Plant & Equipment, net
|
27,125
|
30,398
|
||
TOTAL
ASSETS
|
$ 1,061,863
|
$ 943,832
|
||
LIABILITIES
|
||||
Current
Liabilities
|
||||
Accounts
Payable and Other Liabilities
|
$ 200,816
|
$ 142,746
|
||
Taxes
Payable
|
233,931
|
194,488
|
||
Total Current
Liabilities
|
434,747
|
337,234
|
||
TOTAL
LIABILITIES
|
$ 434,747
|
$ 337,234
|
||
STOCKHOLDERS' EQUITY
|
||||
Preferred
Stock ($0.000 par value, 10,000,000 shares authorized, 0 share issued and
outstanding at March 31, 2010 and December 31
2009)
|
$ -
|
$ -
|
||
Common
Stock ($0.000 par value, 250,000,000 shares authorized, 240,919,945 issued
and outstanding at March 31, 2010 and December 31 2009)
|
-
|
-
|
||
Additional
Paid in Capital
|
1,410,256
|
1,410,256
|
||
Retained
Earnings
|
(903,053)
|
(913,678)
|
||
Accumulated
Other Comprehensive Income
|
119,913
|
110,020
|
||
TOTAL
STOCKHOLDERS' EQUITY
|
627,116
|
606,598
|
||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ 1,061,863
|
$ 943,832
|
Page
10
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
The Years Ended December 31,
2009
|
2008
|
|||
Revenues
|
||||
Sales
|
$ 10,803,459
|
$ 20,272,787
|
||
Cost
of Sales
|
10,393,324
|
19,371,787
|
||
Gross
Profit
|
410,135
|
901,000
|
||
Operating Expenses
|
||||
Selling
Expenses
|
49,493
|
31,024
|
||
General
& Administrative Expenses
|
312,730
|
161,436
|
||
Total Operating
Expense
|
362,223
|
192,460
|
||
Operating
Income/(Loss)
|
47,912
|
708,540
|
||
Other Income (Expenses)
|
||||
Other
Income
|
19,971
|
-
|
||
Other
Expenses
|
(19,266)
|
(75)
|
||
Interest
Income
|
73
|
89
|
||
Interest
Expense
|
(3)
|
-
|
||
Total Other
Income/(Expense)
|
775
|
14
|
||
Earnings
before Tax
|
48,687
|
708,554
|
||
Income
Tax
|
(34,859)
|
(186,860)
|
||
Net
Income
|
$ 13,828
|
$ 521,694
|
Earnings
per share
|
|||
- Basic
|
$ 0.00
|
$ 0.00
|
|
- Diluted
|
$ 0.00
|
$ 0.00
|
|
Weighted
average shares outstanding
|
|||
- Basic
|
240,919,945
|
240,919,945
|
|
- Diluted
|
240,919,945
|
240,919,945
|
Page
11
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
The Three-Month Periods Ended March 31,
2010
|
2009
|
|||
Revenues
|
||||
Sales
|
$ 3,334,185
|
$ 2,111,061
|
||
Cost
of Sales
|
3,234,336
|
2,043,320
|
||
Gross
Profit
|
99,849
|
67,741
|
||
Operating Expenses
|
||||
Selling
Expenses
|
17,159
|
8,709
|
||
General
& Administrative Expenses
|
61,136
|
38,485
|
||
Total Operating
Expense
|
78,295
|
47,194
|
||
Operating
Income/(Loss)
|
21,554
|
20,547
|
||
Other Income (Expenses)
|
||||
Other
Income
|
39
|
-
|
||
Other
Expenses
|
(53)
|
-
|
||
Interest
Income
|
3
|
-
|
||
Interest
Expense
|
-
|
(13)
|
||
Total Other
Income/(Expense)
|
(11)
|
(13)
|
||
Earnings
before Income Tax
|
21,543
|
20,534
|
||
Income
Tax
|
8,654
|
4,442
|
||
Net
Income
|
$ 12,889
|
$ 16,092
|
Earnings
per share
|
|||
- Basic
|
$ 0.00
|
$ 0.00
|
|
- Diluted
|
$ 0.00
|
$ 0.00
|
|
Weighted
average shares outstanding
|
|||
- Basic
|
240,919,945
|
240,919,945
|
|
- Diluted
|
240,919,945
|
240,919,945
|
Page
12
RISK
FACTORS
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Forward Looking Statements.” The risks and uncertainties
described below are not the only ones facing the Company. Additional risks and
uncertainties not presently known to the Company or that the Company currently
believes are immaterial may also impair the Company’s business operations. If
any of the following risks actually occur, the Company’s business, financial
condition or results of operations could be materially adversely affected, the
value of the Company common stock could decline, and you may lose all or part of
your investment.
RISKS
RELATED TO OUR BUSINESS
Following
the Closing Transaction, management will collectively hold approximately 70.56%
of the outstanding shares and exercise control of the Company.
Following
the Closing Transaction, the two officers/directors, Dong Liu and Yuan Zhao,
collectively hold 70.56% of the outstanding shares and exercise control of the
company. Accordingly, our other shareholders will have little or no control of
the company.
We
are a development stage company and have little to no operating history upon
which to evaluate our business.
We have a
limited operating history and may not succeed. Our plans and
businesses are “proposed” and “intended” but we may not be able to successfully
implement them. Our primary business purpose is the expansion of our
mobile phone value added services and applications. We expect that unanticipated
expenses, problems, and technical difficulties will occur and that they will
result in material delays in the operation of our business. We may
not obtain sufficient capital or achieve a significant level of operations and,
even if we do, we may not be able to conduct such operations on a profitable
basis.
You
should consider our prospects in light of the risks, uncertainties and
difficulties frequently encountered by companies that, like us, are in their
early stage of development. We cannot guarantee that we will succeed in
achieving our business goals, and our failure to do so would have a material
adverse effect on our business, prospects, financial condition, operating
results and our ability to continue as a going concern. We expect that we will
require additional capital in order to execute our current business plan. As a
development stage business, we may in the future experience under
capitalization, shortages, setbacks and many of the problems, delays and
expenses encountered by any early stage business. As a result of these factors,
other factors described herein and unforeseen factors, we may not be able to
successfully implement our business model.
We
depend on a number of suppliers and any failure by any of them to supply us with
products may impair our inventory and adversely affect our ability to meet
customer demands, which could result in a decrease in net sales.
We
typically do not maintain long-term purchase contracts with suppliers, but
instead operate principally on a purchase order basis. Our current suppliers may
not continue to sell products to us on current terms or at all, and we may not
be able to establish relationships with new suppliers to ensure delivery of
products in a timely manner or on terms acceptable to us. We may not be able to
acquire desired merchandise in sufficient quantities on terms acceptable to us
in the future. Our business could also be adversely affected if there were
delays in product shipments to us due to freight difficulties, financial
difficulties with our major suppliers, delays due to the difficulties of our
suppliers involving strikes or other difficulties at their principal transport
providers or otherwise. We are also dependent on suppliers for assuring the
quality of merchandise supplied to us. Our inability to acquire suitable
merchandise in the future or the loss of one or more of our suppliers and our
failure to replace them may harm our relationship with our customers and our
ability to attract new customers, resulting in a decrease in net
sales.
Maintaining
good terms with distributors, wholesalers and retailers, and responding to
customers may prove difficult.
Our
success depends in part on our ability to (i) effectively maintain good working
relationships with distributors, wholesalers and retailers, and (ii) respond to
changing customer tastes in mobile phone applications, and to translate market
trends into appropriate, saleable product offerings far in
advance. It is especially important in China to maintain good
relationships with business partners since a significant portion of sales is
highly dependent on the trading with distributors, wholesalers and
retailers. If we are unable to successfully predict or respond to
changing styles or trends and misjudge the market for our products or any new
product lines, our sales will be lower and we may be faced with a substantial
amount of unsold inventory or missed opportunities. In response, we
may be forced to rely on additional markdowns or promotional sales to dispose of
excess, slow-moving inventory, which may have a material adverse effect on our
business, financial condition and results of operations.
Page 13
We
face risks associated with purchasing products from foreign
companies
The
Company’s purchases are based solely in PRC. Foreign products, such
as foreign brand mobile phones, are purchased through authorized dealers in
PRC. Dealing with imported products, we may be subject to the risks
generally associated with doing business abroad, such as foreign governmental
regulations, economic disruptions, delays in shipments, freight cost increases
and changes in political or economic conditions in countries from which we
purchase products. In the event that our authorized dealers have trouble with
foreign supplies the Company would switch to other available brands with similar
qualities.
The
loss of the services of our senior management could impair our ability to
execute our business strategy and as a result, reduce our sales and
profitability.
Mr.
Wen-wu Chen, General Manager, is a key person managing the marketing and sales
efforts of the Company since 2008. Mr. Chen has developed an
extensive sales network in the China telecommunications industry.
Mr. Sibei
Li, Sales Manager, is a key person in the management and recruitment of sales
person for the Company. Mr. Li was previously the sales manager for
several companies in the telecommunications, electronics and real estate
industries.
We depend
on the continued services of our senior management. The loss of such key
personnel could have a material adverse effect on our ability to execute our
business strategy and on our financial condition and results of operations. We
do not maintain key-person insurance for our senior management. We may have
difficulty replacing our senior management who leave and, therefore, the loss of
the services of any of these individuals could harm our business.
There are
several members in senior management with extensive management experience in the
telecommunications industry. The Company acknowledges that it may
lose some of these valued members but the effect on the Company would be
minimal. Guangzhou Yueshen is well connected with the
telecommunications industry in PRC and would be able to find capable
replacements if needed. The Company will also implement performance
based incentive mechanisms to reduce the loss of senior management.
Requirements
associated with being a public company will require significant company
resources and management attention.
Prior to
this offering, we had not been independently subject to the reporting
requirements of the Securities Exchange Act of 1934, or the other rules and
regulations of the SEC or any securities exchange relating to public
companies. We are working with independent legal, accounting and
financial advisors to identify those areas in which changes should be made to
our financial and management control systems to manage our growth and our
obligations as a public company. These areas include corporate
governance, corporate control, internal audit, disclosure controls and
procedures and financial reporting and accounting systems. We have
made, and will continue to make, changes in these and other areas, including our
internal controls over financial reporting. However, we cannot assure
you that these and other measures we may take will be sufficient to allow us to
satisfy our obligations as a public company on a timely basis.
In
addition, compliance with reporting and other requirements applicable to public
companies such as Sarbanes Oxley will create additional costs for us, will
require the time and attention of management and will require the
hiring of additional personnel
and outside consultants. We cannot predict or estimate the amount of
the additional costs we may incur, the timing of such costs or the degree of
impact on our management's attention to these matters will have on our
business.
In
addition, being a public company could make it more difficult or more costly for
us to obtain certain types of insurance, including directors' and officers'
liability insurance, and we may be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors, our board committees or as executive officers.
Our
planned growth together with our added obligations of being a public company may
strain our business infrastructure, which could adversely affect our operations
and financial condition.
As we
grow, we will face the risk that our future resources and systems, including
management resources, accounting and finance personnel and operating systems,
may be inadequate to support our growth. We may also face new challenges,
including an increase in information to be processed by our management
information systems and diversion of management attention and resources away
from existing operations and towards growth in new markets. Our current growth
strategy will require us to increase our management and other resources over the
next few years. In particular, heightened new standards with respect to internal
accounting and other controls, as well as other resource-intensive requirements
of being a public company, may, and have further strained our business
infrastructure. If we are unable to manage our planned growth and maintain
effective controls, systems and procedures, we may be unable to efficiently
operate and manage our business and have and may continue to experience
information lapses affecting our public reporting which could adversely effect
our operations and financial condition.
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14
We
need to attract qualified employees.
Our
future success depends in large part upon our ability to attract, train, retain
and motivate employees. Qualified individuals of the requisite caliber and
number needed to fill positions are in short supply in some areas. Our industry
is characterized by high levels of employee attrition. Although we believe we
will be able to offer competitive salaries and benefits, we may have to increase
spending in order to retain personnel.
The
success of our growth plan will be dependent on our ability to recruit and/or
promote enough qualified personnel to support our future growth. The time and
effort required to train and supervise a large number of new managers and
associates may divert our existing resources and adversely affect our operating
and financial performance.
We
may pursue strategic acquisitions, which could have an adverse impact on our
business.
We may
from time to time consider acquiring complementary companies or businesses. To
do so, we would need to identify suitable acquisition candidates, negotiate
acceptable acquisition terms and obtain appropriate financing. Any acquisition
that we pursue, whether or not successfully completed, may involve risks,
including:
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the
diversion of our capital and our management's attention from other
business issues and opportunities;
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difficulties
in successfully integrating companies or stores that we acquire, including
personnel, financial systems and controls, distribution, operations and
general store operating procedures;
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material
adverse effects on our operating results, particularly in the fiscal
quarters immediately following the acquisition as it is integrated into
our operations;
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material
adverse effects on our operating results due to the closure of stores or
distribution centers;
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potentially
dilutive issuances of our equity securities;
and
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the
incurrence of debt and contingent liabilities and impairment charges
related to goodwill and other intangible assets, any of which could harm
our business and financial
condition.
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Our
success is highly dependent on our ability to provide timely delivery to our
customers, and any disruption in our delivery capabilities or our related
planning and control processes may adversely affect our operating
results.
An
important part of our success is due to our ability to deliver products quickly
to our customers. Our ability to maintain this success depends on the
identification and implementation of improvements to our planning processes,
distribution infrastructure and supply chain. We also need to ensure that our
distribution infrastructure and supply chain keep pace with our anticipated
growth. The cost of these enhanced processes could be significant and any
failure to maintain, grow or improve them could adversely affect our operating
results.
We
may have insufficient funds to implement our expansion strategy.
Our
expansion strategy will require additional capital for, among other purposes,
opening new and relocated stores, renovating existing stores, entering new
collaboration terms with distributors, wholesalers and other retailers, and
entering new markets, including researching existing and new real estate and
consumer markets, lease costs, inventory, property and equipment, integration of
new stores and markets into company-wide systems and programs and other costs
associated with new store, renovated and relocated store and market entry
expenses and growth. If cash generated internally is insufficient to
fund capital requirements, or if funds are not available, we will require
additional debt or equity financing. Adequate financing may not be
available or, if available, may not be available on terms satisfactory to us. If
we fail to obtain sufficient additional capital in the future, we could be
forced to curtail our expansion, renovation and relocation strategies by
reducing or delaying capital expenditures relating to new stores, renovated and
relocated stores and new market entry, selling assets or restructuring or
refinancing our indebtedness. As a result, there can be no assurance that we
will be able to fund our current plans for the opening of new stores, the
expansion, renovation and relocation of existing stores or entry into new
markets
.
We
estimate that the Company will need approximately US$5,000,000 as funding for
the next 12 months. The funds will be used to increase the number of
chain stores and increase inventory for higher turnover. We estimate
to increase 10 new retail stores in Guangzhou and 10 new retail stores in
Shenzhen, spending about US$146,400 per new store. Due to the high
demand for mobile phone related services in China, we expect that increased
inventory would lead to higher turnover for the Company. In the
event that the Company fails to raise the needed funding, we expect to open a
total of 3 new stores and maintain a small growth over the current turnover
level.
If
we are unable to maintain the profitability of our existing operations and to
generate profit for the new operations, we may not be able to adequately
implement our growth strategy, which may adversely affect our overall operating
results.
Our
planned growth depends, in part, on our ability to maintain the profitability of
our existing operations and to open new operations in Shenzhen and other
locations in Guangdong Province. There can be no assurance, however,
that we will be able to reach favorable terms with distributors, wholesalers and
other retailers, identify and obtain favorable store sites, arrange favorable
leases for stores, obtain governmental and other third-party consents, permits
and licenses needed to expand or operate stores, construct or refurbish stores,
open stores in a timely manner, or hire, train and integrate qualified sales
associates in those stores. If we are unable to profitably manage new
operations and maintain the profitability of our existing operations, we may not
be able to adequately implement our growth strategy, which may adversely affect
our overall operating results.
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15
We
may not have sufficient funds to operate our business and may not be able to
obtain additional financing.
Assuming
any disruption in current sales, we may require additional funds to continue our
business. We may not be able to obtain additional financing as
needed, on acceptable terms, or at all, which would force us to delay our plans
for growth and implementation of our strategy which could seriously harm our
business, financial condition, and results of operations. As we need
additional funds, we may seek to obtain them primarily through stock or debt
financings. Those additional financings could result in dilution to
our stockholders.
Failure
to fund continued capital expenditures could adversely affect
results.
If our
revenues do not continue, we may have a limited ability to expend the capital
necessary to maintain business operations at expected levels, resulting in
insufficient revenues over time. If our cash flow from anticipated operations is
not sufficient to satisfy our capital expenditure requirements, there can be no
assurance that additional debt or equity financing or other sources of capital
will be available to meet these requirements.
Costs
of legal matters and regulation could exceed estimates.
We may
become parties to a number of legal and administrative proceedings involving
matters pending in various courts or agencies. These include
proceedings associated with facilities which may be owned, operated or used by
us and include claims for personal injuries and property damages. Our
current business model may involve management of regulated materials and are
subject to various environmental laws and regulations. It is not possible for us
to estimate reliably the amount and timing of all future expenditures related to
environmental and legal matters and other contingencies.
Any
projections used in this Registration Statement may not be
accurate.
Any and
all projections and estimates contained in this Registration Statement or
otherwise prepared by us are based on information and assumptions which
management believes to be accurate; however, they are mere projections and no
assurance can be given that actual performance will match or approximate the
projections.
Our
estimates may prove to be inaccurate and future net cash flows are
uncertain.
Our
estimates of both future sales and the timing of development expenditures are
uncertain and may prove to be inaccurate. We also make certain
assumptions regarding net cash flows and operating and development costs that
may prove incorrect when judged against our actual experience. Any
significant variance from these assumptions could greatly affect our estimates
of future net cash flows and our ability to borrow under our credit
facility.
A
downturn in the economy may affect consumer purchases of discretionary items and
could harm our operating results.
In
general, our sales represent discretionary spending by our customers.
Discretionary spending on our products is affected by many factors, including,
among others:
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general
business conditions;
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interest
rates;
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inflation;
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consumer
debt levels;
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the
availability of consumer credit;
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the
number of new and second home
purchases;
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taxation;
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energy
prices;
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unemployment
trends;
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terrorist
attacks and acts of war; and
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other
matters that influence consumer confidence and
spending.
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Purchases
of discretionary items, including the products we intend to sell, could decline
during periods when disposable income is lower or during periods of actual or
perceived unfavorable economic conditions. If this occurs, our operating results
could suffer.
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16
Existing
and increased competition in the mobile phone value added service and
application business may reduce our net revenues, profits and market
share.
The
mobile phone value added service and application business is highly competitive.
Our retail segment competes against a wide variety of small, independent
specialty stores as well as mobile phone equipment stores, national specialty
chains and convenience store outlets. In addition, some of our
suppliers offer products directly to consumers. Many of our
competitors are considerably larger and have substantially greater financial,
marketing and other resources than we have. We cannot assure you that
we will continue to be able to compete successfully against existing or future
competitors. Our expansion into markets served by our competitors and
entry of new competitors or expansion of existing competitors into our markets
could have a material adverse effect on our business, financial condition and
results of operations.
RISKS
RELATING TO THE SPIN-OFF
We
may be unable to achieve some or all of the benefits that we expect to achieve
from our separation from CN Dragon.
We may
not be able to achieve the full strategic and financial benefits that we expect
will result from our separation from CN Dragon or such benefits may be delayed
or may not occur at all. For example, analysts and investors may not regard our
corporate structure as clearer and simpler than the current CN Dragon corporate
structure or place a greater value on our Company as a stand-alone company than
on our businesses being a part of CN Dragon. As a result, in the future the
aggregate market price of CN Dragon’s common stock and our common stock as
separate companies may be less than the market price per share of CN Dragon’s
common stock had the separation and distribution not occurred.
We
are being separated from CN Dragon, our parent company, and, therefore, we have
a limited operating history as a separate company, and no history as a separate
reporting company until this Registration Statement filing.
The
historical and financial information included in this information statement does
not necessarily reflect the financial condition, results of operations or cash
flows that we would have achieved as a separate publicly-traded company during
the periods presented or those that we will achieve in the future primarily as a
result of the following factors:
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Our
past business has in part been operated by CN Dragon as part of its
broader corporate organization, rather than as a separate, publicly-traded
company; and
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Other
significant changes may occur in our cost structure, management, financing
and business operations as a result of our operating as a company separate
from CN Dragon.
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The
Distribution of our shares may result in tax liability.
You may
be required to pay income tax on the value of your shares of common stock
received in connection with the Spin-Off Distribution. This Distribution may be
taxable to you as a dividend and/or as a capital gain, depending upon the extent
of your basis in CN Dragon stock which you hold. You are advised to consult your
own tax advisor as to the specific tax consequences of the
Distribution. Shareholders are also encouraged to read “Federal
Income Tax Consequences of the Distribution” and “Federal Income Tax
Consequences to Shareholders” below, which contain important tax disclosures
relating to the Distribution.
The
Distribution may cause the trading price of CN Dragon’s common stock to
decline.
Following
the Distribution CN Dragon expects that its common stock will continue to be
quoted and traded on the Over the Counter Bulletin Board under the symbol
“DRGN.” A trading market may not continue for the shares of CN Dragon’s common
stock or even develop for our shares. As a result of the Distribution, the
trading price of CN Dragon’s common stock may be substantially lower following
the Distribution than the trading price of CN Dragon’s common stock immediately
prior to the Distribution.
Further,
the combined trading prices of CN Dragon’s common stock and our common stock
after the Distribution may be less than the trading price of CN Dragon’s common
stock immediately prior to the Distribution.
The
lack of a broker or dealer to create or maintain a market in our stock could
adversely impact the price and liquidity of our securities.
We have
no agreement with any broker or dealer to act as a market maker for our
securities and as a result, we may not be successful in obtaining any market
makers. Thus, no broker or dealer will have an incentive to make a market for
our stock. The lack of a market maker for our securities could adversely
influence the market for and price of our securities, as well as your ability to
dispose of, or to obtain accurate information about, and/or quotations as to the
price of, our securities.
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17
RISKS
RELATED TO OUR STOCK
We
require substantial capital requirements to finance our operations.
We have
substantial anticipated capital requirements and we may require additional
capital for future operations. We plan to finance anticipated ongoing
expenses and capital requirements with funds generated from the following
sources:
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cash
provided by operating activities;
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available
cash and cash investments; and
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capital
raised through debt and equity
offerings.
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The funds
provided by these sources, if attainable, may not be sufficient to meet our
anticipated cash requirements and the uncertainties and risks associated with
future performance and revenues will ultimately determine our liquidity and our
ability to meet anticipated capital requirements. If declining prices
cause our anticipated revenues to decrease, we may be limited in our ability to
replace our inventory. As a result, our production and revenues would
decrease over time and may not be sufficient to satisfy our projected capital
expenditures. We may not be able to obtain additional financing in
such a circumstance.
As
a public company, our stock price could be extremely volatile and, as a result,
you may not be able to resell your shares at or above the price you paid for
them.
Following
this Registration Statement, an active public market for our common stock may
not develop or be sustained. Further, the market price of our common stock may
decline below the price paid for investor’s shares.
Among the
factors that could affect our stock price are:
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industry
trends and the business success of our
vendors;
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actual
or anticipated fluctuations in our quarterly financial and operating
results, including our comparable store
sales;
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our
failure to meet the expectations of the investment community and changes
in investment community recommendations or estimates of our future
operating results;
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strategic
moves by our competitors, such as product announcements or
acquisitions;
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regulatory
developments;
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litigation;
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general
market conditions;
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other
domestic and international macroeconomic factors unrelated to our
performance; and
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additions
or departures of key personnel.
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The stock
market has from time to time experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. These kinds of
broad market fluctuations may adversely affect the market price of our common
stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If a securities class action suit is filed against us, we would
incur substantial legal fees and our management's attention and resources would
be diverted from operating our business in order to respond to the
litigation.
We
may need to raise additional money before we achieve profitability; if we fail
to raise additional money, it could be difficult to continue our
business.
In the
event our revenues decrease, we may not have sufficient financial resources from
revenues to meet our operating expenses and capital
requirements. We may seek additional funding through public or
private financing or through collaborative arrangements with strategic
partners.
You
should be aware that in the future:
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we
may not obtain additional financial resources when necessary or on terms
favorable to us, if at
all;
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any
available additional financing may not be adequate;
and
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we
may be required to sell shares of our common stock at extremely discounted
prices in order for us to obtain additional
financing.
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If we
cannot raise additional funds when needed, or on acceptable terms, we may not be
able to continue to operate.
Issuing
preferred stock with rights senior to those of our common stock could adversely
affect holders of common stock.
Our
charter documents give our board of directors the authority to issue series of
preferred stock without a vote or action by our stockholders and such shares
have been issued. The board also has the authority to determine the
terms of preferred stock, including price, preferences and voting
rights. The rights granted to holders of preferred stock may
adversely affect the rights of holders of our common stock. For
example, a series of preferred stock may be granted the right to receive a
liquidation preference – a pre-set distribution in the event of a liquidation –
that would reduce the amount available for distribution to holders of common
stock. In addition, the issuance of preferred stock could make it
more difficult for a third party to acquire a majority of our outstanding voting
stock. As a result, common stockholders could be prevented from
participating in transactions that would offer an optimal price for their
shares.
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18
We
do not anticipate paying dividends on our capital stock in the foreseeable
future.
We do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain our future earnings, if any, to fund the development and growth of our
business. In addition, the terms of the any future debt or credit facility may
preclude us from paying any dividends. As such, our shareholders may not receive
any profit on their investment other than from the eventual sale of their
shares, if any.
RISKS
RELATED TO DOING BUSINESS IN CHINA
Changes
in China's political or economic situation could harm us and our operating
results.
Economic
reforms adopted by the Chinese government have had a positive effect on the
economic development of the country, but the government could change these
economic reforms or any of the legal systems at any time. This could either
benefit or damage our operations and profitability. Some of the things that
could have this effect are:
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Level
of government involvement in the
economy;
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Control
of foreign exchange;
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Methods
of allocating resources;
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Balance
of payments position;
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International
trade restrictions; and
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International
conflict.
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The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in many ways.
For example, state-owned enterprises still constitute a large portion of the
Chinese economy and weak corporate governance and a lack of flexible currency
exchange policy still prevail in China. As a result of these differences, we may
not develop in the same way or at the same rate as might be expected if the
Chinese economy was similar to those of the OECD member countries
Uncertainties
with respect to the PRC legal system could limit the legal protections available
to you and us.
The PRC
legal system is based on written statutes, and prior court decisions may be
cited for reference but have limited precedential value. Since 1979, a series of
new PRC laws and regulations have significantly enhanced the protections
afforded to various forms of foreign investments in China. However, since the
PRC legal system continues to evolve rapidly, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties, which may limit legal protections
available to you and us. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of resources and management
attention. In addition, all of our executive officers and all of our directors
are residents of China and not of the United States, and substantially all the
assets of these persons are located outside the United States. As a result, it
could be difficult for investors to affect service of process in the United
States or to enforce a judgment obtained in the United States against our
Chinese operations and subsidiaries.
You
may have difficulty enforcing judgments against us.
We are a
British Columbia company and most of our assets are located outside of the
United States. Most of our current operations will be conducted in the PRC. In
addition, most of our directors and officers are nationals and residents of
countries other than the United States. A substantial portion of the assets of
these persons is located outside the United States. As a result, it may be
difficult for you to effect service of process within the United States upon
these persons. It may also be difficult for you to enforce in U.S. courts
judgments on the civil liability provisions of the U.S. federal securities laws
against us and our officers and directors, most of whom are not residents in the
United States and the substantial majority of whose assets are located outside
of the United States. In addition, there is uncertainty as to whether the courts
of the PRC would recognize or enforce judgments of U.S. courts.
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19
The
PRC government exerts substantial influence over the manner in which we must
conduct our business activities.
The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws
and regulations, including those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
We believe that our operations in China are in material compliance with all
applicable legal and regulatory requirements. However, the central or local
governments of the jurisdictions in which we operate may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations. Accordingly, government actions
in the future, including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant
effect on economic conditions in China or particular regions thereof and could
require us to divest ourselves of any interest we then hold in Chinese
properties or joint ventures.
Future
inflation in China may inhibit our ability to conduct business in
China.
In recent
years, the Chinese economy has experienced periods of rapid expansion and highly
fluctuating rates of inflation. These factors have led to the adoption by the
Chinese government, from time to time, of various corrective measures designed
to restrict the availability of credit or regulate growth and contain inflation.
High inflation may in the future cause the Chinese government to impose controls
on credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby harm the market for our products and our
company.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
The
majority of our revenues will be settled in RMB and U.S. dollars, and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside China or to make
dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
or remit foreign currencies after providing valid commercial documents, at those
banks in China authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to governmental approval in China, and companies are required
to open and maintain separate foreign exchange accounts for capital account
items. We cannot be certain that the Chinese regulatory authorities will not
impose more stringent restrictions on the convertibility of the
RMB.
Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.
The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and RMB and between those currencies and other currencies
in which our sales may be denominated. Appreciation or depreciation in the value
of the RMB relative to the U.S. dollar would affect our financial results
reported in U.S. dollar terms without giving effect to any underlying change in
our business or results of operations. Fluctuations in the exchange rate will
also affect the relative value of any dividend we issue that will be exchanged
into U.S. dollars as well as earnings from, and the value of, any U.S.
dollar-denominated investments we make in the future.
Since
July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the
People's Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the RMB may
appreciate or depreciate significantly in value against the U.S. dollar in the
medium to long term. Moreover, it is possible that in the future PRC authorities
may lift restrictions on fluctuations in the RMB exchange rate and lessen
intervention in the foreign exchange market.
THE
SPIN-OFF
70,919,945
shares of our common stock will be distributed by CN Dragon to its shareholders
(the “Distribution”) as of February 12, 2009 (the “Record Date”). This equates
to one share of our common stock distributed for each one share of common stock
held by each shareholder of CN Dragon as of the Record Date. Fractional shares
will be rounded up to the nearest whole share. The Spin-Off is being undertaken
by CN Dragon to allow us to independently operate the Company, an to afford us
the opportunity to obtain audited financial statements and trade our common
stock on the Over-The-Counter Bulletin Board. By distributing shares
of our stock to CN Dragon’s shareholders, we are able to become a fully
reporting company and move forward with the registration of the shares disclosed
herein, and the planned future trading of our common stock on the
Over-The-Counter Bulletin Board. As a result of the Spin-Off, we will be a
stand-alone company. We also plan to take steps to quote our securities on the
Over-The-Counter Bulletin Board subsequent to the Distribution, as we believe
that this will improve our access to the capital markets for additional growth
capital. However, an active market for our securities may not develop following
the Distribution, if ever.
The
Distribution is expected to be effected as soon as practicable after the date
the Registration Statement, of which this Prospectus is a part, is declared
effective. We will not issue certificates representing the shares of Company
common stock. The shares issued pursuant to the distribution will be
book entry only with our transfer agent. Shareholder that desire
physical certificates can contact the transfer agent and request physical
certificates for approximately $40 per certificate. No fractional
shares of Company common stock will be issued.
Page
20
We have
not applied to register the shares in any state. An exemption from registration
will be relied upon in the states where the shares are distributed and may only
be traded in such jurisdictions after compliance with applicable securities
laws. The shares may not be eligible for sale or resale in such jurisdictions.
We may apply to register the shares in several states for secondary trading;
however we are under no requirement to do so.
REASONS
FOR THE DISTRIBUTION
The main
reasons for the Distribution are to:
-
|
Affording
us the opportunity to obtain audited financial statements for us and trade
our common stock on the Over-The-Counter Bulletin Board. By
distributing shares of our stock to CN Dragon’s shareholders we are able
to become a fully reporting company and move forward with the registration
of the shares disclosed herein, and the planned future trading of our
common stock on the Over-The-Counter Bulletin Board;
and
|
-
|
To
enable CN Dragon stockholders to increase or decrease their level of
participation in our business by varying their level of investment in us
separate from CN Dragon.
|
PLAN
OF DISTRIBUTION
This
Prospectus relates to the distribution by CN Dragon of 29.45% of the shares of
our common stock (the “Distribution”). Our common stock will be distributed by
Action Stock Transfer the distribution agent, to CN Dragon stockholders of
record as of the Record Date on the basis of one share of our common stock for
every one share of CN Dragon common stock. Any fractional shares will be rounded
up to the nearest whole share. All such shares of our common stock will be fully
paid and non-assessable and the holders thereof will not be entitled to
preemptive rights. No consideration will be paid to CN Dragon or the Company by
the CN Dragon stockholders for the shares of our common stock received in the
Distribution. Following the Distribution, CN Dragon will own no shares of our
common stock or our other securities. The Distribution is currently expected to
be effected as soon as practicable after the Registration Statement, of which
this Prospectus is a part, is declared effective. All shares will be
issued via book entry with our transfer agent. No certificates
representing the shares of our common stock will be mailed to the CN Dragon
stockholders. We will not receive any proceeds from the resale of common stock
by the CN Dragon stockholders.
No cash
distributions will be paid. Although the distribution ratio is one for one, with
any fractional shares rounded up to the nearest whole share. No shareholder of
CN Dragon is required to make any payment or exchange any shares in order to
receive our common shares in the spinoff. CN Dragon will bear all of the costs
of the Distribution.
TRANSFER
AND RESALE OF COMMON STOCK
Following
the effectiveness of this Registration Statement, the shares of our common stock
distributed to the CN Dragon stockholders will be freely transferable, except
for shares received by persons who may be deemed to be our "affiliates" or
“affiliates” of CN Dragon, as such term is defined under the Securities Act of
1933, as amended (the “Securities Act”).
Persons
who may be deemed to be our affiliates after the Distribution include
individuals or entities that control, are controlled by or under common control
with the Company, and include our directors and principal executive officers, as
well as any stockholder owning 10% or more of the total stock issued and
outstanding. Under Rule 144, if we are current in our reporting obligations,
resales of common stock for the account of affiliates cannot be made until the
common stock has been held for six months from the later of its acquisition from
the company or an affiliate of the company, and if we are not current in our
reporting obligations, such shares must be held for a total of at least one
year. Thereafter, shares of common stock may be resold without registration
subject to Rule 144's resale limitations, including, but not limited to, the
following:
-
|
volume
limitation;
|
-
|
aggregation;
|
-
|
broker
transaction, and
|
-
|
notice
filing requirements.
|
The
volume limitations provide that a person (or persons who must aggregate their
sales) cannot, within any three-month period, sell more than the greater of one
percent of the then outstanding shares, or the average weekly reported trading
volume during the four calendar weeks preceding each such sale. The one
individual listed as a director and as executive management of the Company is an
affiliate of the Company. Additionally, the Company may consider adding
additional executives and/or directors in the future.
Page
21
FEDERAL
INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The
following discussion is a summary of the material U.S. federal income tax
consequences of the distribution of our shares. However, it is not intended to
be a complete discussion of all potential tax effects that might be relevant to
the Distribution. It also is limited to domestic non-corporate shareholders. It
may not be applicable to certain classes of taxpayers, including, without
limitation, corporations, nonresident aliens, insurance companies, tax-exempt
organizations, financial institutions, securities dealers, broker-dealers,
persons who are not citizens or residents of the United States or who are
otherwise subject to special treatment under the United States tax code.
Additionally, each stockholder’s individual circumstances may affect the tax
consequences of the Distribution to such stockholder. Finally, no information is
provided with respect to tax consequences under any applicable foreign, state or
local laws. All classes of taxpayer shareholders should consult their own tax
advisors regarding the tax consequences of the Distribution.
The
following summary is based on laws, regulations, rulings, practice, and judicial
decisions in effect at the date of this Prospectus, and does not take into
account possible changes to such laws or such interpretations, if any, any of
which may be applied retroactively. Additionally, legislative, regulatory, or
interpretive changes or future court decisions may significantly modify the
statements made in this description. Any such changes or interpretations may or
may not be retroactive and could affect the tax consequences described
herein.
YOU
ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE DISTRIBUTION OF OUR SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, AND OF CHANGE
IN THE APPLICABLE LAWS.
FEDERAL
INCOME TAX CONSEQUENCES TO SHAREHOLDERS
CN Dragon
has not requested nor does it intend to request a ruling from the Internal
Revenue Service or an opinion of tax counsel as to the federal income tax
consequences of the Distribution. However, based on the facts of the proposed
transaction, it is the opinion of the management of CN Dragon that the
transaction will not qualify as a "tax free" spin off under Section 355 of the
Internal Revenue Code of 1986, as amended. As such, CN Dragon will likely report
the transaction as a taxable distribution to which Section 301
applies.
Assuming
CN Dragon reports the transaction as taxable under Section 301, the amount of
the Distribution for purposes of Section 301 of the Code will be equal to the
fair market value of the shares on the date of the Distribution. Since we have
had historical net losses, we are not expected to have earnings or profits as of
the date of the Distribution. Furthermore, because there is no current public
market for our common stock, the fair market value of these shares and hence the
amount of the Distribution will probably be minimal on the date of Distribution;
however, each stockholder’s individual circumstances may affect the tax
consequences of the Distribution to such stockholder. Stockholders who are not
citizens or residents of the United States, are corporations, or who are
otherwise subject to special treatment under applicable tax codes, may have
other consequences as a result of the Distribution. We strongly urge all
stockholders to consult with their own tax, financial, or investment advisor or
legal counsel experienced in these matters.
The
foregoing sets forth the opinion of the management of CN Dragon. CN Dragon will
likely report the amount of the Distribution to the Internal Revenue Service
based on our net book value on the date of Distribution, which has not been
determined to date. The Internal Revenue Service is not bound thereby and no
assurance exists that it will concur with the position of management regarding
the value of the shares or other matters herein discussed. Specifically, it is
possible that the Internal Revenue Service may assert that a substantially
higher fair market value existed for the shares on the date of Distribution. If
the Internal Revenue Service were to successfully assert that a substantially
higher value should be placed on the amount of the Distribution, the taxation of
the transaction to CN Dragon and its stockholders would be based on such higher
value. In such event, the tax impact would increase significantly and would not
be minimal. CN Dragon would recognize gain to the extent the value placed on the
amount of the Distribution exceeded its adjusted basis in the stock (which
approximates our net book value). You would be taxed on the amount so determined
for the Distribution as a dividend to the extent of any current year or
accumulated earnings and profits of CN Dragon and would recognize gain on the
balance of the Distribution to the extent it exceeded their adjusted basis in
our shares owned by them.
YOU
ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE DISTRIBUTION OF OUR SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGE
IN THE APPLICABLE LAWS.
QUESTIONS
AND ANSWERS CONCERNING THE STOCK DISTRIBUTION
Will
Every Stockholder Share in Proportion to Their Holdings in CN
Dragon?
Yes, each
shareholder of CN Dragon will receive one share of our common stock for every
one share of common stock of CN Dragon they hold as of February 12, 2009 (the
“Record Date”), in connection with the Distribution. Any fractional shares will
be rounded up the nearest whole share.
Page
22
However,
certain states may not allow us to distribute the shares to certain shareholders
of CN Dragon, including, but not limited to the shareholders who have deposited
their shares in the depository trust, without first registering and/or
qualifying the shares in that particular state. Therefore, we reserve the right
to pay you $0.01 as the dividend for each share you would have received, in lieu
of issuing you our shares in this Distribution.
What
is the Connection Between CN Dragon and the Company?
Prior to
the Distribution, we were a wholly owned subsidiary of CN Dragon.
Why
Are We Engaging in This Distribution?
The
dividend represents the Company’s initial public offering of its securities,
although it is different than a traditional offering in that securities are
distributed only to eligible CN Dragon stockholders. We believe that the
dividend has several advantages over a traditional initial public offering. This
type of offering gives us an opportunity to offer our common stock to investors
who we believe, as CN Dragon stockholders, already have some interest in the
Company. This form of offering also is more cost effective than the traditional
method since there will not be any underwriting discounts and/or commissions
paid.
In
addition, CN Dragon's management supports the dividend because they believe it
will benefit CN Dragon stockholders by:
-
|
Affording
us the opportunity to obtain audited financial statements for us and trade
our common stock on the Over-The-Counter Bulletin Board, instead of the
Pink Sheets. By spinning-off our assets and operations we are
able to become a fully reporting company and move forward with the
registration of the shares disclosed herein, and the planned future
trading of our common stock on the Over-The-Counter Bulletin Board;
and
|
-
|
Enabling
CN Dragon stockholders to increase or decrease their level of
participation in our business by varying their level of investment in us
separate from CN Dragon.
|
Can
I Sell My Shares?
Upon the
effectiveness of our Registration Statement with the SEC, the shares of common
stock issuable to shareholders of CN Dragon will be freely tradeable, assuming
any market for these securities ever develops and the compliance with state
securities laws, of which there can be no assurance. Any affiliates
of us and/or affiliates of CN Dragon will hold restricted securities subject to
the resale limitations of Rule 144, as described in greater detail
herein.
Where
Will the Company’s Common Stock Trade?
There is
currently no public market for our common stock. We expect that our securities
will trade on the over-the-counter market on the OTC Electronic Bulletin Board.
A market for our common stock may not develop or if it does develop, such market
may not be sustained.
What
Are Shares Of the Company Worth?
The value
of our shares will be determined by their trading price after the Distribution
is affected. We do not know what the trading price will be and we can provide no
assurances as to the value of such shares, if any.
What
Are The Tax Consequences To Me Of The Distribution?
While we
do not believe that the Distribution will qualify as a tax-free distribution
under U.S. tax laws, we can provide no guidance to shareholders who will receive
shares in the Distribution regarding the potential tax consequences of such
Distribution. However, a portion of the Distribution may be taxable to you as a
dividend and the remainder may be a tax-free reduction in your basis in your CN
Dragon shares.
USE
OF PROCEEDS
We are
not selling any shares of common stock pursuant to this Prospectus and therefore
we will not receive any proceeds from this offering.
DIVIDEND
POLICY
To date,
we have not declared or paid any dividends on our outstanding shares. We
currently do not anticipate paying any cash dividends in the foreseeable future
on our common stock. Although we intend to retain our earnings to finance our
operations and future growth, our Board of Directors will have discretion to
declare and pay dividends in the future. Payment of dividends in the future will
depend upon our earnings, capital requirements and other factors, which our
Board of Directors may deem relevant.
Page
23
LEGAL
PROCEEDINGS
From time
to time we may be a defendant or plaintiff in various legal proceedings arising
in the normal course of our business. We are currently not a party to any
material pending legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, management is not
aware of any known litigation or liabilities involving the operators of our
properties that could affect our operations. Should any liabilities be incurred
in the future, they will be accrued based on management’s best estimate of the
potential loss. As such, there is no adverse effect on our consolidated
financial position, results of operations or cash flow at this time.
Furthermore, Management of the Company does not believe that there are any
proceedings to which any director, officer, or affiliate of the Company, any
owner of record of the beneficially or more than five percent of the common
stock of the Company, or any associate of any such director, officer, affiliate
of the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company.
DIRECTORS,
EXECUTIVE OFFICERS,
PROMOTERS
AND CONTROL PERSONS
Directors
and Executive Officers
The
following table sets forth, as of the date of this Registration Statement, the
name, age and position of our sole director, executive officers and other
significant employees:
Officers
and Directors
NAME
|
AGE
|
SINCE
|
POSITION
|
Henry
Liguori
|
68
|
2007
|
President,
Chief Executive Officer, Chief Financial Officer, Secretary and
sole Director.
|
The
following table sets forth, as of the date of the Closing Transaction, the name,
age and position of our sole director, executive officers and other significant
employees:
Officers
and Directors
NAME
|
AGE
|
SINCE
|
POSITION
|
Dong
Liu
|
38
|
2009
|
President
and Director
|
Yuan
Zhao
|
28
|
2009
|
Chief
Financial Officer, Secretary and
Director
|
The
backgrounds of our directors, executive officers and significant employees are
as follows:
Henry Liguori, President,
Chief Executive Officer, Chief Financial Officer, Secretary and sole
Director
Mr. Henry
Liguori is our current President, Chief Executive Officer, Chief
Financial Officer, Secretary and sole Director. Mr. Liguori’s
education includes an undergraduate degree in Philosophy from St. Lawrence,
Beacon, New York, a graduate degree in Theology from Immaculate Heart
of Mary, Geneva, New York and a post graduate degree from Iona College, New
Rochelle, New York. Following the completion of his formal education,
Mr. Liguori served in the United States Navy, retiring as a Lieutenant
Commander. After the end of Operation Desert Storm in the Persian
Gulf War, Mr. Liguori ended his military career with the meritorious
service medal having served the Navy, Marine Corps and Coast Guard both at
home and abroad. Mr. Liguori has extensive experience as an administrator
and consultant in the fields of education, business and many charitable
organizations and has been offering consulting services in these fields since
1995.
Dong
Liu, President and Director.
Mr. Liu
is the President and Director of the Company since 2008. He is also
the Chairman of Shenzhen Rongxin Investment Company Limited, a company that
invests in communications equipment, computer and network technology
development. He had previously worked for China’s state-owned
enterprise, Jinxin Industy Development Company Limited, in Hainan Province and
Shenzhen for 11 years and participated in the government’s involvement in
business development with several industries.
Yuan
Zhao, Chief Financial Officer, Secretary and Director.
Mr. Zhao
is the Chief Financial Officer, Secretary and Director of the Company since
2008. In 2007, he was a business consultant for a Singapore
investment company, Huantong Singapore Co. Ltd., which involves in the trading
services of telecommunications equipment. He studied business
administration at the Asia Pacific Management Institute in Singapore from 2005
to 2007. Previously he had 4 years’ experience in the hotel management industry
in Canada.
Page
24
Neither
Mr. Liguori, Liu or Zhao have not been involved in any of the following legal
proceeding within the past 5 years that would materially affect their integrity
or his ability to act on behalf of our company:
1.
|
2.
|
3.
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not
been reversed, suspended, or
vacated.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of the issued and outstanding shares of our common stock as of the
date of this Registration Statement, but prior to the Closing Transaction and
Distribution, by the following persons:
1.
|
Each
person who is known to be the beneficial owner five percent (5%) or more
of our issued and outstanding shares of common
stock;
|
2.
|
Each
of our Directors and executive Officers;
and
|
3.
|
All
of our Directors and Officers as a
group
|
Name
And Address
|
Number
Of Shares Beneficially Owned
|
Percentage
Owned
|
CN
Dragon Corporation (1)
|
1
|
100%
|
Henry
Ligouri (1)(2)
|
0
|
0%
|
Total
|
1
|
100%
|
|
(1)
|
The
address is 7216 West Enterprise Drive, Las Vegas, Nevada,
89417.
|
|
(2)
|
Mr.
Ligouri is CN Dragon’s Chief Executive Officer and sole
director. Mr. Ligouri is the sole officer and director of the
Company.
|
The
following table sets forth certain information regarding the proposed beneficial
ownership of the issued and outstanding shares of our common stock following the
effectiveness of the Registration Statement and Closing Transaction, but before
the Distribution by the following persons:
1.
|
Each
person who is known to be the beneficial owner five percent (5%) or more
of our issued and outstanding shares of common
stock;
|
2.
|
Each
of our Directors and executive Officers;
and
|
3.
|
All
of our Directors and Officers as a
group
|
Name
And Address
|
Number
Of Shares Beneficially Owned
|
Percentage
Owned
|
Dong
Liu(1)
|
85,000,000
|
35.28%
|
Yuan
Zhao(2)
|
85,000,000
|
35.28%
|
CN
Dragon Corporation(3)
|
70,919,945
|
29.43%
|
Total
|
240,919,945
|
100%
|
|
(1)
|
The
address is Room A, 20/F, International Trade Residential and Commercial
Building, Nanhu Road, Shenzhen China
518002.
|
|
(2)
|
The
address is Room 904, Block C, ShengYueJu, FengYuan Road, Guangzhou China,
510130.
|
|
(3)
|
These
shares represent the shares to be issued to CN Dragon and subsequently
issued to CN Dragon’s shareholder’s in the Distribution. The address is
Room A, 20/F, International Trade Residential and Commercial Building,
Nanhu Road, Shenzhen China 518002.
|
The
following table sets forth certain information regarding the proposed beneficial
ownership of the issued and outstanding shares of our common stock following the
Closing Transaction and Distribution by the following persons:
1.
|
Each
person who is known to be the beneficial owner five percent (5%) or more
of our issued and outstanding shares of common
stock;
|
2.
|
Each
of our Directors and executive Officers;
and
|
3.
|
All
of our Directors and Officers as a
group
|
Name
And Address
|
Number
Of Shares Beneficially Owned
|
Percentage
Owned
|
Dong
Liu(1)
|
85,000,000
|
35.28%
|
Yuan
Zhao(2)
|
85,000,000
|
35.28%
|
Total
|
170,000,000
|
70.56%
|
|
(1)
|
The
address is Room A, 20/F, International Trade Residential and Commercial
Building, Nanhu Road, Shenzhen China
518002.
|
|
(2)
|
The
address is Room 904, Block C, ShengYueJu, FengYuan Road, Guangzhou China,
510130.
|
Page
25
Beneficial
ownership is determined in accordance with the rules and regulations of the
SEC. The number of shares and the percentage beneficially owned by
each individual listed above include shares that are subject to options held by
that individual that are immediately exercisable or exercisable within 60 days
from the date of this registration statement and the number of shares and the
percentage beneficially owned by all officers and directors as a group includes
shares subject to options held by all officers and directors as a group that are
immediately exercisable or exercisable within 60 days from the date of this
registration statement
INTEREST
OF NAMED EXPERTS AND COUNSEL
This Form
S-1 Registration Statement was prepared by our counsel, Phillip E. Koehnke, APC,
which does not hold any ownership interest in us or beneficially own any of our
securities.
EXPERTS
The
financial statements of the Company as of December 31, 2009 and 2008 included in
this Prospectus have been audited by Samuel H. Wong & Co., LLP, our
independent registered public accountants, as stated in their report appearing
herein and have been so included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
There is
no provision in the Articles of Incorporation, nor the By-Laws of the
Corporation, nor any Resolution of the Board of Directors, providing for
indemnification of Officers or Directors. The Registrant is aware of certain
provision of British Columbia Law which creates or imposes any provision for
indemnity of Officers or Directors.
British
Columbia Statutes
Division
5 of the British Columbia Business Corporations Act provides for the
indemnification of our officers and directors for liabilities they may incur in
their capacity as directors and officers. In such case, the Company
may be required to advance costs for the defense of any action or legal
proceeding against our officers and directors. In the event that such
officers and directors are found to be not liable in the proceeding, the Company
will be required to indemnify our officers and directors and pay all costs and
expenses incurred in the proceedings. In addition, indemnification of
our officers and directors may be court ordered. We may obtain insurance to
insure again such losses.
Page
26
Charter
Provisions
Our
Charter does not contain any indemnity provisions.
Bylaws
Our
Bylaws provide for the indemnification of our officers and directors to the
fullest extent provided by law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
DESCRIPTION
OF BUSINESS
Organization
China
Teletech Limited (formerly known as Stream Horizons Studio, Inc.) was
incorporated under the laws of the Province of British Columbia, Canada on
October 1, 2001 under the name Infotec Business Strategies, Inc. The Company is
a wholly owned subsidiary of CN Dragon Corporation (formerly known as Wavelit).
From its inception, the Company was engaged in the production of video for
broadcast over the internet, both live streaming video and on-demand
pre-recorded video. The full service studio offered full video
editing, both post-production and live-editing, “green-screen” video production,
digital still photography services, as well as the capability to broadcast and
edit together live video feeds from any location with broadband internet
services (virtual studio). The Company had historically been responsible for the
broadcast of various live events and creation of corporate videos for the
clients of its parent company, CN Dragon.
Although
we continued to investigate the profitability of pursuing our prior production
of internet video for broadcast business, management believed and still believes
that there may be more value for our shareholders if we were able to (i) attract
a more substantial operating company and engage in a merger or business
combination of some kind, or (ii) acquire assets or shares of an entity actively
engaged in business which generates revenues. We have investigated several
possible merger candidates to determine whether or not they would add value to
the Company for the benefit of our shareholders. Following such investigation,
we entered into negotiations with Sierra Vista Group Limited, a British Virgin
Islands Company, incorporated on January 30, 2008 under the British Virgin
Islands Business Companies Act, 2004 as further described below. It shall be
noted that Sierra Vista Group Limited changed its company name to China Teletech
Limited (“CTL”) on June 2, 2009.
On or
about February 12, 2009, the CN Dragon’s Board of Directors approved of a
Spin-Off of China Teletech Limited (formerly known as Stream Horizons Studio,
Inc.), its wholly owned subsidiary (the “Spin-Off”). The purpose of the Spin-Off
was to provide an independent company in which to operate. The proposed Spin Off
was disclosed in CN Dragon’s Preliminary Form 14C filed with the United States
Securities and Exchange Commission (the “SEC”) on February 12, 2009 and
subsequently amended on March 16, 2009. Pursuant to the terms of the Spin-Off,
CN Dragon has agreed to distribute the 70,919,945 shares to be issued in the
Spin-Off as a stock dividend (the “Distribution”) to its shareholders of record
as of February 12, 2009 (the “Record Date”).
Following
the filing of the Preliminary Form 14C, on or about May 20, 2009 the Company
entered into a share exchange agreement (the “Exchange Agreement”) with CTL.
Pursuant to the Exchange Agreement, the Company agreed to exchange 170,000,000
shares of its common stock for 10 shares of CTL representing 100% of CTL’s
issued and outstanding shares, thus making CTL a wholly owned subsidiary of the
Company. However, pursuant to the terms of the Exchange Agreement, the
transaction will not close until the Company is able to properly consummate the
Spin-Off, obtain SEC approval and effectiveness of this Registration Statement
and file the Definitive Form 14C with the SEC (the “Closing
Transaction”).
In
connection with the Spin-Off and as explained above, CN Dragon will distribute
the 70,919,945 shares to be issued in the Spin-Off as a Distribution to its
shareholders of record as of the Record Date. This Distribution will constitute
our initial public offering. The Distribution is expected to be effected as soon
as practicable after the date the Registration Statement, of which this
Prospectus is a part, is declared effective and the effectiveness of the Closing
Transaction. CN Dragon will distribute one (1) share of our common stock for
each one (1) share of CN Dragon common stock that you own on the Record Date.
You will not be charged or assessed for the shares and neither we nor CN Dragon
will receive any proceeds from the Distribution of the shares.
Following
the effectiveness of this Registration Statement and the Closing Transaction,
the Company plans to cease its video for broadcast operations and direct its
business focus to CTL’s business operations. Currently, CTL maintains two
operating subsidiaries in the People’s Republic of China (“PRC”); namely, (a)
Shenzhen Rongxin Investment Co., Ltd. (“Shenzhen Rongxin”) and (b) Guangzhou
Yueshen Taiyang Network and Technology Co., Ltd. (“Guangzhou
Yueshen”).
Page
27
This Registration Statement
and related information, including the financial statements and business
operations, takes into account and references the effectiveness of the Closing
Transaction, specifically the Exchange Agreement, as described
herein.
The
Company’s current headquarters are located at CN Dragon’s corporate headquarters
at 7216 West Enterprise Dr., Las Vegas, Nevada, 89417. The Company’s current
telephone number is 702-951-5682. Following the Closing Transaction, the Company
plans to move its corporate headquarters to CTL’s headquarters located at Room
A, 20/F, International Trade Residential and Commercial Building, Nanhu Road,
Shenzhen, PRC 518002, which is also the registered office of
CTL. CTL’s telephone number is (86) 755-82204422. CTL’s
subsidiaries, Shenzhen Rongxin is located at Room A, 20/F, International Trade
Residential and Commercial Building, Nanhu Road, Shenzhen, PRC 518002, and
Guangzhou Yueshen is located at 1/F, No. 139, Yingyuan Road, Yuexiu District,
Guangzhou, PRC.
General
Company Info
The
Company conducts its primary business operations through its operating
subsidiaries, Guangzhou Yueshen and Shenzhen Rongxin.
Guangzhou
Yueshen is principally engaged in the trading and distribution of rechargeable
phone cards, prepaid subway tickets, cellular phones and cellular phone
accessories in Guangzhou city in China. Guangzhou Yueshen sells to
wholesalers, retailers, and end users.
Shenzhen
Rongxin’s primary business is the wholesale and distribution of mineral water as
well as trading of wine. Shenzhen Rongxin’s is the exclusive supplier of Tibet
Glacial 5100 spring water to the Guangdong Province of China which has a
population of approximately 110 million. (Source – Guangdong population:
People’s Government of Guangdong Province
http://www.gd.gov.cn/, http://en.wikipedia.org/wiki/Guangdong#Demographics)
Business
Strategy
The
Company plans to expand the trading and distribution of rechargeable phone
cards, prepaid subway tickets, cellular phones and cellular phone accessories in
Guangzhou and Shenzhen cities in China, while maintaining its existing position
in the trading of mineral water and wine. The Company intends to introduce new
software and value-added services through an expanded network of regional stores
and strategic partners covering the Guangdong Province and via a virtual
store.
Guangzhou
Yueshen plans to duplicate its successful mobile phone related
operation in Shenzhen city by utilizing the existing distribution connections
Shenzhen Rongxin maintains in such areas through its network of regional stores
and strategic partnership in connection with its mineral water and wine
business. While it plans to increase service and retail stores for the mobile
phone related operation across Guangzhou and Shenzhen, Guangzhou Yueshen intends
to build further alliances with all available distributors, wholesalers and
other retail outlets such as neighborhood convenience stores across Guangdong
Province. Guangzhou Yueshen also plans to develop and acquire mobile phone
applications and software to expand its product offerings.
The
company was looking to expand its mobile phone related services in the Shenzhen
city, PRC and collaborated with Shenzhen Rongxin. Shenzhen Rongxin, a
distributor and wholesaler of mineral water in Shenzhen city, intended to
diversify its business and develop the mobile phone related service business in
the Shenzhen city, PRC together with the know-how and experience of Guangzhou
Yueshen. The principals from both companies formed CTL, and CTL
acquired Shenzhen Rongxin and Guangzhou Yueshen as wholly owned subsidiaries in
2008. The Company, following the effectiveness of the Closing
Transactions, intends to develop the trading and distribution of mobile phone
related services in Shenzhen city and expand the existing operations in
Guangzhou city.
Shenzhen
Rongxin will continue its successful distribution of mineral water and wine in
Guangdong Province. It is currently the exclusive supplier of Tibet
Glacial spring water to the Guangdong Province of China.
Competition
China
mobile phone user base increased to 747 million in January 2010 according to
statistics published by China’s Ministry of Industry and Information
Technology. The mobile phone related services industry is competitive
and highly fragmented with no standout industry leaders. Rechargeable
phone cards are usually sold though convenience stores, mobile phone service
stores and other retail outlets. Customer demand for rechargeable
phone cards is steady with no particular brand loyalty. Guangzhou
Yueshen’s competitive advantage is to offer better customer service, shopping
convenience in prime location, and strategic collaboration with mobile phone
distributors, wholesalers and other retail outlets. In addition, as described
above, Guangzhou Yueshen will be able to strategically utilize Shenzhen
Rongxin’s existing distribution networks to move its rechargeable phone cards,
prepaid subway tickets, cellular phones and cellular phone accessory business
into these new geographical areas. (Source – China mobile service subscribers:
China’s Ministry of Industry and Information Technology
http://tmt.interfaxchina.com/news/2579, http://www.miit.gov.cn/)
Page
28
Distribution
Methods of Products and Services
Guangzhou
Yueshen has an established distribution network with mobile phone distributors,
wholesalers and retail outlets in Guangzhou city. Products are traded
on site with little distribution and shipping costs. We project
revenue increase from future expansion by adding additional retail outlets,
wholesalers and distributors in the Guangdong Province. There is no
assurance of the revenue increase from future expansion or that expansion will
occur at all.
Shenzhen
Rongxin also has an established distribution network in Guangdong Province for
the resale of mineral water product from a single vendor. In the case
for wine trading, a simple distribution is set up for a single major
customer.
The
Company’s new website, www.chinateletech.com, is currently under development to
provide corporate information. The Company plans to develop a virtual
store online will be executed after the new mobile phone related service
operation in Shenzhen city has been established.
In
addition, the Company plans to add more services to its current product lines,
specifically the value-added services which include the provision of
personalized information to users’ mobile phones, 3G contents and other software
applications. An example of such value-added services is the
provision of travel service related information and reservation of travel
products (hotel, transportation and other ticketing) via the mobile phone
Internet platform.
Suppliers
Shenzhen
Rongxin is subject to supply shortage risk because its purchases of mineral
water for resale are sourced from a single vendor, Tibet Glacial Mineral Water
Co., Ltd. (“Tibet Glacial”). On January 1, 2009, Shenzhen Rongxin entered into
purchase agreement whereby Tibet Glacial would provide spring water at fixed
price until December 31, 2012 and in return, Shenzhen Rongxin needed to consume
no less than 140,000 trunks of bottle water per year.
Guangzhou
Yueshen has a more diverse group of suppliers for the mobile phone related
services and does not plan to rely upon any one major supplier for such
products. We believe that there are a number of readily available sources for
such products, contributing to our ability to obtain competitive
pricing.
Dependence
on Major Customers
Guangzhou
Yueshen has a diverse customer base for the mobile phone related services that
focuses on individual retail customers. As such, we do not expect to be
dependent on any major customers and do not expect that this will change in the
near future.
Patents,
Trademarks, Licenses
We do not
have any designs which are copyrighted, trademarked or patented.
Environmental
and Regulatory Issues
The
expense of complying with environmental regulations is of minimal
consequence.
Research
and Development
We
foresee minimal future research and development costs related to the development
of mobile phone applications and software, as the development cost in China is
relatively low. Many applications are readily available and can be
acquired at low prices. We foresee high demands for such applications
but for relatively short periods of time. New applications are needed
every now and then to keep merchandise fresh and fashionable.
Effect
of existing or probable governmental regulations on the business, and economic
and political risks
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies North America and
Western Europe. These include risks associated with, among others, the economic,
political, 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.
Page
29
Employees
The
Company has 18 full-time employees. We intend to hire full time employees and
additional independent contract labor on an as needed basis when our website is
complete.
Report
to Shareholders
As a
result of this offering, and the effectiveness of this registration statement,
we will become subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and will file current reports, periodic reports,
annual reports, proxy statements, and other information with the Securities and
Exchange Commission, as required.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements and related notes included in this
report. This report contains “forward-looking statements” and these
statements contained in this report that are not historic in nature,
particularly those that utilize terminology such as “may,” “will,” “should,”
“expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable
terminology are forward-looking statements based on current expectations and
assumptions. Various risks and uncertainties could cause actual results to
differ materially from those expressed in these forward-looking statements.
Factors that could cause actual results to differ from expectations include, but
are not limited to, those set forth under the section “Risk Factors” set forth
in this report.
The
forward-looking events discussed in this registration statement, the documents
to which we refer you and other statements made from time to time by us or our
representatives, may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about
us. All forward-looking statements in this document are based on
information currently available to us as of the date of this
report. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. In the event any circumstances
underlying any forward-looking statements made herein change, we will make
changes accordingly and disclose such changes in future financial statements and
related notes.
Results
of Operations
Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
For the
twelve months ended December 31, 2008, the Company had revenue of $20,272,787
and gross profit of $901,000. The operating expense was $192,460 and
a net income of $521,694. The gross profit ratio was 4.44% and net
profit ratio was 2.57%. This indicated the gross profit margin was
very lean with the cost of sales at 95.56% of sales. The operating
expense was relatively small indicating a well-managed team, enabling the
Company to make a profit for the year.
The high
cost of sales relates to renovation costs of new stores, rent and deposit,
development costs of new network of service locations, recruitment of personnel
for the new locations, and investment in 3G equipment and
inventory.
2008 was
the first full year of operation so comparative figures from previous periods
were unavailable.
For the
twelve months ended December 31, 2009, the Company had revenue of $10,803,459
and gross profit of $410,135. The operating expense was $362,223 and
a net income of $13,828. The gross profit ratio was 3.80% and net
profit ratio was 0.13%. These figures were indicative of the effects
of the financial tsunami between the end of 2008 and the end of 2009, resulting
in decline of sales from the loss of some customers who were affected by the
financial crisis. The drop in sales was across all products from the
Company, with no significant emphasis on any specific product. The
Company was able to maintain a slim profit for the twelve months by monitoring
and adjusting the level of operating expense.
For the
three months ended March 31, 2010, the Company had revenue of $3,334,185 and
gross profit of $99,849. The operating expense was $78,295 and a net
income of $12,889. The gross profit ratio was 2.99% and net profit
ratio was 0.39%. 2009 was a difficult year but the Company’s first
quarter result of 2010 was encouraging as the China economy
recovers. Revenue for the first quarter 2010 increased 57.94% from
the same period last year. The gross profit ratio declined slightly
as the Company offered discounted pricing in all mobile phone related products
in the first quarter 2010 in a promotional bid to boost sales and entice new
customers amid keen competition.
Recent Trends and Future
Growth
The 3G
mobile phone services have commenced recently in PRC and coupled with the right
kind of promotions, the Company can expect substantial growth in
revenues. Changes in the telecommunications policy in PRC directly
affect the Company’s operations.
Mobile
phone related service operation was previously established in Guangzhou city by
Guangzhou Yueshen. The Company would like to duplicate and develop
this operation in Shenzhen city. The Company expects to increase
sales over the next 18 months due primarily to the planned new mobile phone
related service operations in Shenzhen and expand the sales network in
Guangzhou.
Page
30
Liquidity
and Capital Resources
At March
31, 2010, we had cash of $382,839.
The
Company currently has sufficient cash flow to support its
operations. The Company is actively monitoring the business
environment as it recovers from the effects of the financial tsunami, and
adjusting to market needs while maintaining a healthy cash
position.
It will
need approximately US$5,000,000 in additional funding for the expansion projects
of the new retail stores and service locations for the next 12
months. The funds will be used to increase the number of chain stores
and increase inventory for higher turnover. We estimate to increase
10 new retail stores in Guangzhou and 10 new retail stores in Shenzhen, spending
about US$146,400 per new store. Due to the high demand for mobile
phone related services in China, we expect that increased inventory would lead
to higher turnover for the Company. In the event that the
Company fails to raise the needed funding, we expect to open a total of 3 new
stores and maintain a small growth over the current turnover level.
We expect
to incur approximately $50,000 per year in additional costs associated with
becoming a public company. These costs are generally associated with
administrative, attorney and auditing fees. In the event we are
unable to generate sufficient capital from operations or other funding sources,
we intend to secure loans from our existing shareholders for operating
capital.
Future
Goals
In the
next 12 months, our goal is to develop the mobile phone related service
operation in Shenzhen and expand the sales network in Guangzhou. In
the event that expansion is successful, we plan on adding additional mobile
phone application and software and market them in both Guangzhou and
Shenzhen.
Following
becoming a reporting company which we hope to achieve within the next 60 days,
we plan on making a private placement of our securities to raise the funds for
our initial expansion plans. The private placement should close within the next
six (6) months and we have contacted a securities firm to assist us with the
private placement. Assuming the private placement is successful, we
plan on expanding in Shenzhen during the second half of 2010 and starting the
mobile phone application and software development thereafter. The
development of mobile phone application is dependent upon sufficient financing
and the identification of suitable mobile phone application suppliers and
distributors.
Off-balance
Sheet Arrangements
We
maintain no significant off-balance sheet arrangements
Critical
Accounting Policies
The
Company’s policy is to use the accrual method of accounting to prepare and
present financial statements, which conform to generally accepted accounting
principles. The company has elected a December 31, year-end.
Method of
Accounting
The
Company maintains its general ledger and journals with the accrual method
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.
Consolidation
The
consolidated financial statements include all the accounts of the Company and
its three wholly-owned subsidiaries. Inter-company transactions, such as sales,
cost of sales, due to / due from balances, investment in subsidiaries, and
subsidiaries’ capitalization have been eliminated.
Page
31
As of
March 31, 2010, the detailed identities of the consolidated subsidiaries are as
follows:-
Name
of Entities
|
Date
of Incorporation
|
Place
of Incorporation
|
Attributable
Equity Interest
|
Registered
Capital
|
China
Teletech Limited, formerly known as Sierra Vista Group
Limited
|
1/20/2008
|
BVI
|
100%
|
USD
10
|
Shenzhen
Rongxin
|
11/21/1996
|
PRC
|
100%
|
RMB
10,000,000
|
Guangzhou
Yueshen
|
4/19/2004
|
PRC
|
100%
|
HKD
1,200,000
|
Use of
Estimates
In the
preparation of the financial statements in conformity with accounting principle
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amount of assets, 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 valuation of accounts receivable, inventories, and the estimation on useful
lives of property, plant and equipment. Actual results could differ from those
estimates.
Cash and Cash
Equivalent
Cash and
cash equivalent are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
Accounts Receivable –
Trade
Trade
receivables 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.
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 include bottles of mineral water, prepaid mineral
water cards, rechargeable phone cards, prepaid subway tickets, and mobile
phones.
Advances to
Suppliers
Advances
to suppliers represent the cash paid in advance for the purchase of goods. The
advances to suppliers are interest free and unsecured.
Property, Plant and
Equipment
Property,
plant and equipment are stated at cost. Repairs and maintenance to these assets
are charged to expense as incurred; major improvements enhancing the function
and / or useful life are capitalized. When items are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any
gains or losses arising from such transactions are recognized.
Property,
plant, and equipment are depreciated using the straight-line method over their
estimated useful life with 20% and 10% salvage values on furniture & fixture
and motor vehicles respectively. Their useful lives are as
follows:
Fixed Asset Classification
|
Useful Lives
|
Furniture
& Fixture
|
4
Years
|
Motor
Vehicles
|
10
Years
|
Page
32
Customers
Deposits
Customers
deposit represents the money the Company has received from customers in advance
for the purchase of goods. The Company considers customer deposits as a
liability until the title of goods have been transferred at which point the
balance will be credited to sales revenue.
Statutory
Reserve
Statutory
reserve refer to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or operation. 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 reserve
reaches a maximum equalling 50% of the enterprise’s capital.
Comprehensive
Income
In
accordance with SFAS No. 130, “Reporting Comprehensive
Income”, comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, all items that are required to be recognized under
current accounting standards as components of comprehensive income are required
to be reported in a financial statement that is presented with the same
prominence as other financial statements. The Company’s current components of
other comprehensive income are unrealized gain or loss in investment and the
foreign currency translation adjustment.
Recognition of
Revenue
Guangzhou
Yueshen establishes retail outlets in Guangzhou city for the trading and
distribution of rechargeable phone cards, prepaid subway tickets, cellular
phones and cellular phone accessories. Revenue from the sale of Yueshen’s
products is recognized on the transfer of risk and ownership, which generally
coincides with the time when the goods are delivered to customers and the titles
have been passed. Prepayments by customers for phone cards, subway tickets and
cellular phone are presented as customer deposits.
Shenzhen
Rongxin establishes network in Guangdong Province for the resale of Tibet 5100
mineral water products and wine. Revenue from the sale of mineral water and wine
is recognized when goods are delivered to customers or loaded on customers’
pick-up trucks and the titles have been passed.
Neither
Guangzhou Yueshen nor Shenzhen Rongxin has any refund policies for the return of
goods.
Cost of
Sales
Guangzhou
Yueshen’s cost of sales is primarily comprised of cost of goods, and other
purchasing and receiving overhead costs.
Shenzhen
Rongxin’s cost of sales consists of cost of mineral water and wine, inbound
freight, warehouse cost, and outbound freight.
Selling
Expenses
Selling
expense include outbound freight, salaries of the sale force, clients
entertainment, commission, advertising, and office rental expense.
General & Administrative
Expenses
General
and administrative expenses are comprised of executive compensation, general
overhead such as the finance department and administrative staff, depreciation,
travel and lodging, meals and entertainment and utility.
Advertising
Expenses
Cost
related to advertising and promotion expenditures are expensed as incurred
during the year. Advertising costs are charge to selling expenses.
Retirement
Benefits
Full-time
employees of the Company are entitled to staff welfare benefits including
Medicare, welfare subsidies, unemployment insurance, and pension benefits
through a PRC government-mandated multi-employer defined contribution plan. The
Company is required to accrue for these benefits based on certain percentages of
the employees’ salaries. Costs related to the retirement benefits are charged to
the Company’s statements of operation as incurred.
Page
33
Income
Tax
The
Company uses the accrual method of accounting to determine and report its
taxable reduction of income taxes for the year in which are available. In
accordance with SFAS No. 109 “Accounting for Income Taxes”,
the Company accounts for income tax using an asset and liability approach and
allows for recognition of deferred tax benefits in future years. Under the asset
and liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not that such items will either expire before the Company is able to
realize their benefits, or that future realization is uncertain.
In
respect of the Company and its subsidiaries domiciled and operated in the
British Virgin Islands and People’ Republic of China, the taxation of these
entities are summarized below:
Entities
|
Countries of Domicile
|
Income Tax Rate
|
China
Teletech Limited
|
Canada
|
28.50%
|
China
Teletech Limited
|
BVI
|
0.00%
|
Shenzhen
Rongxin
|
PRC
|
25.00%
|
Guangzhou
Yueshen
|
PRC
|
25.00%
|
Foreign Currency
Translation
The
Company’s two operating subsidiaries Shenzhen Rongxin and Guangzhou Yueshen
maintain their 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 financial currency at the exchanges rates prevailing at the dates of the
transaction. Exchange gains or losses arising form foreign currency transactions
are included in the determination of net income for the respective
periods.
For
financial reporting purpose, the financial statements of Shenzhen Rongxin and
Guangzhou Yueshen, which are prepared using the functional currency, have been
translated into United States dollars. Assets and liabilities are translated at
the exchange rates at the balance sheet dates and revenue and expenses are
translated at the average exchange rates, and stockholders’ equity is translated
at historical exchange rates. Translation adjustments are not included in
determining net income but are included in foreign exchange adjustment to other
comprehensive income, a component of stockholders’ equity.
Exchange Rates
|
3-31-2010
|
12-31-2009
|
12-31-2008
|
Period
end RMB: US$ exchange rate
|
6.8361
|
6.8372
|
6.8542
|
Average
period RMB: US$ exchange rate
|
6.8360
|
6.8409
|
6.9623
|
Period
end HKD: US$ exchange rate
|
7.7647
|
7.7551
|
7.7507
|
Average
period HKD: US$ exchange rate
|
7.7639
|
7.7522
|
7.7874
|
Recent Accounting
Pronouncements
In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165
establishes general standards of accounting for and disclosing of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. SFAS 165 does not significantly change the
types of subsequent events that an entity reports, but it requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. SFAS 165 is effective for interim or annual
reporting requirements ending after June 15, 2009. The adoption of this standard
did not have a material impact on our financial position, results of operations
or cash flows of the Company.
In June
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement No. 162 (“ASU 2009-01”). ASU 2009-01
established the Accounting Standards Codification (the “Codification”) as the
source of authoritative GAAP recognized by the FASB to be applied to
nongovernmental entities. The Codification supersedes all prior non-SEC
accounting and reporting standards. Following ASU 2009-01, the FASB will not
issue new accounting standards in the form of FASB
Statements,
FASB Staff Positions, or Emerging Issues Task Force abstracts. ASU 2009-01 also
modifies the existing hierarchy of GAAP to include only two levels —
authoritative and non-authoritative. ASU 2009-01 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009, and early adoption was not permitted. The adoption of this standard did
not have an impact on the financial position, results of operations or cash
flows of the Company.
Page
34
In August
2009, the FASB issued ASU 2009-05, Fair Value Measurements and
Disclosures (Topic 820) - Measuring Liabilities at Fair Value (“ASU
2009-05”). ASU 2009-05 addresses concerns in situations where there may be a
lack of observable market information to measure the fair value of a liability,
and provides clarification in circumstances where a quoted market price in an
active market for an identical liability is not available. In these cases,
reporting entities should measure fair value using a valuation technique that
uses the quoted price of the identical liability when that liability is traded
as an asset, quoted prices for similar liabilities, or another valuation
technique, such as an income or market approach. ASU 2009-05 also clarifies that
when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the liability. ASU
2009-05 is effective for the first reporting period subsequent to August 2009
and the adoption of this update did not to have a material impact on the
financial position, results of operations, or cash flows of the
Company.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 166”).
SFAS 166 amends the application and disclosure requirements of SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities — a Replacement
of FASB Statement 125 (“SFAS 140”), removes the concept of a “qualifying
special purpose entity” from SFAS 140 and removes the exception from applying
FASB Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest
Entities — an Interpretation of ARB No. 51 (“FIN 46(R)”) to qualifying
special purpose entities. SFAS 166 is effective for the first annual reporting
period that begins after November 15, 2009, and early adoption is not permitted.
The adoption of this standard did not have a material impact on the financial
position, results of operations or cash flows of the Company.
In
October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605) —
Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging
Issues Task Force (“ASU 2009-13”). ASU 2009-13 addresses the accounting
for multiple-deliverable arrangements where products or services are accounted
for separately rather than as a combined unit, and addresses how to separate 71
deliverables and how to measure and allocate arrangement consideration to one or
more units of accounting. Existing GAAP requires an entity to use
vendor-specific objective evidence (“VSOE”) or third-party evidence of a selling
price to separate deliverables in a multiple-deliverable selling arrangement. As
a result of ASU 2009-13, multiple-deliverable arrangements will be separated in
more circumstances than under current guidance. ASU 2009-13 establishes a
selling price hierarchy for determining the selling price of a deliverable. The
selling price will be based on VSOE if it is available, on third-party evidence
if VSOE is not available, or on an estimated selling price if neither VSOE nor
third-party evidence is available. ASU 2009-13 also requires that an entity
determine its best estimate of selling price in a manner that is consistent with
that used to determine the selling price of the deliverable on a stand-alone
basis, and increases the disclosure requirements related to an entity’s
multiple-deliverable revenue arrangements. ASU 2009-13 must be prospectively
applied to all revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010, and early adoption is
permitted. Entities may elect, but are not required, to adopt the amendments
retrospectively for all periods presented. The Company does not believe that the
adoption of this standard will have a material impact on the financial position,
results of operations, or cash flows of the Company.
In
December 2009, the FASB issued ASU 2009-17, Consolidations (Topic 810) — Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. ASU 2009-17
replaces the quantitative-based risk and rewards calculation for determining
which reporting entity, if any, has a controlling financial interest in a
variable interest entity with an approach focused on identifying which reporting
entity has the power to direct the activities of a variable interest entity that
most significantly impact the entity’s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive benefits
from the entity. An approach that is expected to be primarily qualitative will
be more effective for identifying which reporting entity has a controlling
financial interest in a variable interest entity. ASU 2009-17 also requires
additional disclosures about a reporting entity’s involvement in variable
interest entities. The provisions of ASU 2009-17 are to be applied beginning in
the first fiscal period beginning after November 15, 2009. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows of the Company.
Page
35
In
January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810) —
Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope
Clarification. ASU 2010-02 clarifies that the scope of previous guidance
in the accounting and disclosure requirements related to decreases in ownership
of a subsidiary apply to (i) a subsidiary or a group of assets that is a
business or nonprofit entity; (ii) a subsidiary that is a business or nonprofit
entity that is transferred to an equity method investee or joint venture; and
(iii) an exchange of a group of assets that constitutes a business or nonprofit
activity for a noncontrolling interest in an entity. ASU 2010-02 also expands
the disclosure requirements about deconsolidation of a subsidiary or
derecognition of a group of assets to include (i) the valuation techniques used
to measure the fair value of any retained investment; (ii) the nature of any
continuing involvement with the subsidiary or entity acquiring a group of
assets; and (iii) whether the transaction that resulted in the deconsolidation
or derecognition was with a related party or whether the former subsidiary or
entity acquiring the assets will become a related party after the transaction.
The provisions of ASU 2010-02 will be effective for the first reporting period
beginning after December 13, 2009. The adoption of this standard did not have a
material impact on the financial position, results of operations or cash flows
of the Company.
In
January 2010 the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820) —Improving Disclosures About Fair Value
Measurements. ASU 2010-06 clarifies the requirements for certain
disclosures around fair value measurements and also requires registrants to
provide certain additional disclosures about those measurements. The new
disclosure requirements include (i) the significant amounts of transfers into
and out of Level 1 and Level 2 fair value measurements during the period, along
with the reason for those transfers, and (ii) separate presentation of
information about purchases, sales, issuances and settlements of fair value
measurements with significant unobservable inputs. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009. The
adoption of this standard did not have a material impact on the financial
position, results of operations or cash flows of the Company.
DESCRIPTION
OF PROPERTY
At
present, we do not own any property. Following the Closing
Transaction, both offices in Shenzhen and Guangzhou will be located in leased
facilities. We have local access to all commercial freight systems. The office
facility in Shenzhen contains both the administrative/sales offices and retail
floor sections. The monthly lease is $2,610 per month. The office facility in
Guangzhou contains both the administrative/sales offices and retail floor
sections. The monthly lease is $2,180 per month.
CERTAIN
RELATIONSHIPS AND
RELATED
TRANSACTIONS
Our
control persons are Messrs. Dong Liu and Yuan Zhao.
EXECUTIVE
COMPENSATION
Executive
Compensation
Our
executive officers have not received any compensation since the date of our
incorporation, and we did not accrue any compensation.
Employment
Agreements
Currently,
we do not have any employment agreements. However, following the
Closing Transaction, we plan to enter into an employment agreement with Mr. Liu
as President and Director at a compensation rate of $2,841 per
month.
Following
the Closing Transaction, we plan to enter into an employment agreement with Mr.
Zhao as Chief Financial Officer, Secretary and Director at a compensation rate
of $2,600 per month.
At this
time, we do not have any further executive compensation or incentive plans for
Messrs. Liu and Zhao following the spin-off and share exchange transaction save
for the abovementioned.
Equity
Compensation, Pension or Retirement Plans
No
retirement, pension, profit sharing, stock option or insurance programs or other
similar programs have been adopted by the Company for the benefit of its
employees.
Audit
Committee
Presently,
our Board of Directors is performing the duties that would normally be performed
by an audit committee. We intend to form a separate audit committee, and plan to
seek potential independent directors. In connection with our search, we plan to
appoint an individual qualified as an audit committee financial
expert.
Options/SARS
Grants During Last Fiscal Year
None.
Directors’
Compensation
We
currently do not compensate our director. In the future, we may
compensate our current director or any additional directors for reasonable
out-of-pocket expenses in attending board of directors meetings and for
promoting our business. From time to time we may request certain
members of the board of directors to perform services on our
behalf. In such cases, we will compensate the directors for their
services at rates no more favorable than could be obtained from unaffiliated
parties.
Page
36
DESCRIPTION
OF SECURITIES
The
following description of our capital stock is a summary of the material terms of
our capital stock following the Closing Transaction. This summary is subject to
and qualified in its entirety by our Articles of Incorporation and Bylaws, and
by the applicable provisions of British Columbia law.
Our
authorized capital stock consists of 260,000,000 shares of stock consisting of
250,000,000 shares of common stock, no par value per share (the “Common Stock”)
of which, following the Closing Transaction, 240,919,945 will be issued and
outstanding, and 10,000,000 shares of preferred stock, par value $0.001 per
share (the “Preferred Stock”) of which zero shares are issued and
outstanding. Stockholders do not have any preemptive or subscription
rights to purchase shares in any future issuance of our common
stock.
Common
Stock
The Board
of Directors is authorized to issue 250,000,000 shares of common stock, no par
value per share, of which, following the Closing Transaction, 240,919,945 will
have been issued and outstanding. Each share of our common stock is entitled to
share pro rata in dividends and distributions with respect to our common stock
when, as and if declared by the Board of Directors from funds legally available
therefore. No holder of any shares of common stock has any preemptive right to
subscribe for any of our securities. Upon dissolution, liquidation or winding up
of the Company, the assets will be divided pro rata on a share-for-share basis
among holders of the shares of common stock after any required distribution to
the holders of preferred stock, if any. All shares of common stock outstanding
are fully paid and non-assessable.
Preferred
Stock
The Board
of Directors is authorized to issue, 10,000,000 shares of preferred stock, no
par value per share, of which zero shares have been issued and are currently
outstanding.
Dividend
Policy
Subject
to any preferential rights of any series of preferred stock, holders of shares
of common stock will be entitled to receive dividends on the stock out of assets
legally available for distribution when, as and if authorized and declared by
our Board of Directors. We currently intend to retain all available funds for
use in our business and therefore do not anticipate paying any cash dividends in
the foreseeable future. Any future determination relating to dividend policy
will be made by the discretion of our Board of Directors and will depend on a
number of factors, including the future earnings, capital requirements,
financial condition and future prospects and such other factors as our Board of
Directors may deem relevant. Payment of dividends on the common stock may be
restricted by loan agreements, indentures and other transactions entered into by
us from time to time. We do not anticipate the payment of cash dividends on our
common stock in the foreseeable future.
Voting
Rights
Holders
of common stock are entitled to one vote per share on all matters voted on
generally by the stockholders, including the election of directors, and, except
as otherwise required by law or except as provided with respect to any series of
preferred stock, the holders of the shares possess all voting
power. The holders of shares of our common stock do not have
cumulative voting rights in connection with the election of the board of
directors, which means that the holders of more than 50% of such outstanding
shares, voting for the election of directors, can elect all of the directors to
be elected, if they so choose, and, in such event, the holders of the remaining
shares will not be able to elect any of our directors.
Liquidation
Rights
Subject
to any preferential rights of any series of preferred stock, holders of shares
of common stock are entitled to share ratably in our assets legally available
for distribution to our stockholders in the event of our liquidation,
dissolution or winding up.
Absence
of Other Rights
Holders
of common stock have no preferential, preemptive, conversion or exchange
rights.
Options
and Warrants
There are
no options, warrants or other instruments convertible into shares
outstanding.
Page
37
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Action Stock
Transfer.
DETERMINATION
OF PRICE
The
Distribution described in this Prospectus is a Spin-Off Distribution of
70,919,945 shares of CN Dragon common stock, which will represent 29.45% of our
outstanding common stock. CN Dragon will distribute the 70,919,945 shares of our
common stock as soon as practicable after the date that our Registration
Statement, of which this Prospectus is a part, is declared effective by the SEC.
No new shares are being sold in this Distribution and no offering price has been
established for our common stock. Upon completion of the Distribution, we hope
to apply to have our shares quoted on the OTC Bulletin Board. We can provide no
assurances that our shares will be accepted by the OTC Bulletin Board, or at
what price our shares will trade if a market for does develop, nor can we
provide any assurances that a market will develop.
For
purposes of calculating the registration fee for the common stock included in
this Prospectus, we have used an estimated price of $0.10 per
share. This is an arbitrary price and we can offer no assurances that
the $0.10 price per
share bears any relation to the
value of the shares as of
the date of this Prospectus.
MARKET
FOR COMMON EQUITY
AND
RELATED STOCKHOLDER MATTERS
No
established public trading market exists for our common stock. We have no shares
of common stock subject to outstanding options or warrants to purchase, or
securities convertible into, our common stock. Except for this offering and the
170,000,000 shares of common stock to be issued pursuant to the Exchange
Agreement as part of the Closing Transaction, there is no common stock that is
being, or has been proposed to be, publicly offered. As of February 12, 2009,
the Record Date for the Distribution of shares by CN Dragon, CN Dragon had
70,919,945 shares of common stock outstanding, held by 337 shareholders of
record, which shareholders will become our shareholders following the
Distribution.
ADDITIONAL
INFORMATION
We have
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission for our common stock offered in this offering. This Prospectus does
not contain all of the information set forth in the Registration Statement. You
should refer to the Registration Statement and its exhibits for additional
information. Whenever we make references in this Prospectus to any of our
contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the Registration
Statement for the copies of the actual contract, agreement or other
document.
Our
fiscal year ends on December 31. We plan to furnish our shareholders annual
reports containing audited financial statements and other appropriate reports,
where applicable. In addition, we intend to become a reporting company and file
annual, quarterly, and current reports, and other information with the SEC,
where applicable. You may read and copy any reports, statements, or other
information we file at the SEC's public reference room at 100 F. Street, N.E.,
Washington D.C. 20549. You can request copies of these documents, upon payment
of a duplicating fee by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings are also available to the public on the SEC's Internet
site at http\\www.sec.gov.
LEGAL
MATTERS
Certain
legal matters with respect to the issuance of shares of common stock offered
hereby will be passed upon by Phillip E. Koehnke, APC, Encinitas,
California.
FINANCIAL
STATEMENTS
The
Financial Statements required by Article 8 of Regulation S-X are stated in U.S.
dollars and are prepared in accordance with Accounting Principles Generally
Accepted in the United States of America (“US GAAP”). The following financial
statements pertaining to China Teletech Limited are filed as part of this
Prospectus.
CHINA
TELETECH LIMITED
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
38
China
Teletech Limited
Consolidated
Financial Statements
March
31, 2010 and December 31, 2009
(Stated
in US Dollars)
China Teletech
Limited
Contents
|
Pages
|
Report
of Independent Registered Public Accounting Firm
|
A1
|
Consolidated
Balance Sheets
|
A2
|
Consolidated
Statements of Operations
|
A3
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
A4
|
Consolidated
Statements of Cash Flows
|
A5
– A6
|
Notes
to Consolidated Financial Statements
|
A7
– A24
|
To: The
Board of Directors and Stockholders
China Teletech Limited
Report of Independent
Registered Public Accounting Firm
We have
reviewed the accompanying consolidated balance sheets of China Teletech Limited
as of March 31, 2010 and December 31 2009, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the three-month periods ended March 31, 2010 and 2009. These interim financial
statements are the responsibility of the Company's management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim consolidated financial statements for them to be in
conformity with United States generally accepted accounting
principles.
South San
Francisco,
California Samuel
H. Wong & Co., LLP
April 30,
2010 Certified
Public Accountants
A1
China
Teletech Limited
Consolidated
Balance Sheets
As
of March 31, 2010 and December 31 2009
(Stated
in US Dollars)
ASSETS
|
Notes
|
3/31/2010
|
12/31/2009
|
|
Current
Assets
|
||||
Cash
and Cash Equivalents
|
2D
|
$ 382,839
|
$ 337,490
|
|
Other
Receivable
|
3
|
300,776
|
284,639
|
|
Inventories
|
2F
|
350,865
|
253,118
|
|
Advances
to Suppliers
|
2G
|
-
|
117,008
|
|
Total Current
Assets
|
1,034,480
|
992,255
|
||
Non-Current
Assets
|
||||
Other
Asset
|
258
|
258
|
||
Property,
Plant & Equipment, net
|
2H,4
|
27,125
|
28,526
|
|
TOTAL
ASSETS
|
$ 1,061,863
|
$ 1,021,039
|
||
LIABILITIES
|
||||
Current
Liabilities
|
||||
Accounts
Payable
|
$ 2,099
|
$ 2,116
|
||
Taxes
Payable
|
233,931
|
225,197
|
||
Other
Payable
|
95,515
|
86,724
|
||
Related
Party Payable
|
5
|
75,202
|
52,887
|
|
Accrued
Liabilities
|
28,000
|
40,000
|
||
Total Current
Liabilities
|
434,747
|
406,924
|
||
TOTAL
LIABILITIES
|
$ 434,747
|
$ 406,924
|
||
STOCKHOLDERS' EQUITY
|
||||
Preferred
Stock ($0.000 par value, 10,000,000 shares authorized, 0 share issued and
outstanding at March 31, 2010 and December 31
2009)
|
$ -
|
$ -
|
||
Common
Stock ($0.000 par value, 250,000,000 shares authorized, 240,919,945 issued
and outstanding at March 31, 2010 and December 31 2009)
|
-
|
-
|
||
Additional
Paid in Capital
|
1,410,256
|
1,410,256
|
||
Statutory
Reserve
|
2J,6
|
-
|
-
|
|
Retained
Earnings
|
(903,053)
|
(915,942)
|
||
Accumulated
Other Comprehensive Income
|
2K
|
119,913
|
119,801
|
|
TOTAL
STOCKHOLDERS' EQUITY
|
627,116
|
614,115
|
||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ 1,061,863
|
$ 1,021,039
|
See
Notes to Consolidated Financial Statements and Accountant’s Report
A2
China
Teletech Limited
Consolidated
Statements of Operations
For
the three-month periods ended March 31, 2010 and 2009
(Stated
in US Dollars)
Notes
|
3/31/2010
|
3/31/2009
|
||
Revenues
|
||||
Sales
|
2L
|
$ 3,334,185
|
$ 2,111,061
|
|
Cost
of Sales
|
2M
|
3,234,336
|
2,043,320
|
|
Gross
Profit
|
99,849
|
67,741
|
||
Operating Expenses
|
||||
Selling
Expenses
|
2N
|
17,159
|
8,709
|
|
General
& Administrative Expenses
|
2O
|
61,136
|
38,485
|
|
Total Operating
Expense
|
78,295
|
47,194
|
||
Operating
Income/(Loss)
|
21,554
|
20,547
|
||
Other Income (Expenses)
|
||||
Other
Income
|
39
|
-
|
||
Other
Expenses
|
(53)
|
-
|
||
Interest
Income
|
3
|
-
|
||
Interest
Expense
|
-
|
(13)
|
||
Total Other
Income/(Expense)
|
(11)
|
(13)
|
||
Earnings
before Income Tax
|
21,543
|
20,534
|
||
Income
Tax
|
2R,
8
|
8,654
|
4,442
|
|
Net
Income
|
$ 12,889
|
$ 16,092
|
Earnings
per share
|
|||
Basic
|
$ 0.00
|
$ 0.00
|
|
Diluted
|
$ 0.00
|
$ 0.00
|
|
Weighted
average shares outstanding
|
|||
Basic
|
240,919,945
|
240,919,945
|
|
Diluted
|
240,919,945
|
240,919,945
|
See
Notes to Consolidated Financial Statements and Accountant’s Report
A3
China
Teletech Limited
Consolidated
Statements of Changes in Stockholders’ Equity
For
the three-month period ended March 31, 2010 and the year ended December 31
2009
(Stated
in US Dollars)
Accumulated
|
|||||||||
Number
|
Number
|
Additional
|
Other
|
||||||
of
|
Preferred
|
of
|
Common
|
Paid
in
|
Statutory
|
Retained
|
Comprehensive
|
||
Shares
|
Stock
|
Shares
|
Stock
|
Capital
|
Reserve
|
Earnings
|
Income
|
Total
|
|
Balance
at January 1, 2009
|
-
|
-
|
240,919,945
|
$-
|
$1,410,256
|
$
-
|
$(929,770)
|
$
109,279
|
$ 589,765
|
Net
Income
|
-
|
-
|
-
|
-
|
13,828
|
-
|
13,828
|
||
Appropriations
of Retained Earnings
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Distribution
of Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Unrealized
Gain/(Loss) in Investment
|
-
|
-
|
-
|
-
|
-
|
9,004
|
9,004
|
||
Foreign
Currency Translation Adjustment
|
-
|
-
|
-
|
-
|
-
|
1,518
|
1,518
|
||
Balance
at December 31, 2009
|
-
|
-
|
240,919,945
|
$
-
|
$
1,410,256
|
$
-
|
$
(915,942)
|
$
119,801
|
$ 614,115
|
Balance
at January 1, 2010
|
-
|
-
|
240,919,945
|
$
-
|
$
1,410,256
|
$
-
|
$(915,942)
|
$
119,801
|
$ 614,115
|
Net
Income
|
-
|
-
|
-
|
-
|
12,889
|
-
|
12,889
|
||
Appropriations
of Retained Earnings
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Distribution
of Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Unrealized
Gain/(Loss) in Investment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Foreign
Currency Translation Adjustment
|
-
|
-
|
-
|
-
|
-
|
112
|
112
|
||
Balance
at March 31, 2010
|
-
|
-
|
240,919,945
|
$
-
|
$1,410,256
|
$-
|
$
(903,053)
|
$119,913
|
$627,116
|
Comprehensive
Income
|
|||
12/31/2009
|
3/31/2010
|
Total
|
|
Net
Income
|
$ 13,828
|
$ 12,889
|
$ 26,717
|
Unrealized
Gain/(Loss) in Investment
|
9,004
|
-
|
9,004
|
Foreign
Currency Translation Adjustment
|
1,518
|
112
|
1,630
|
$ 24,350
|
$ 13,001
|
$ 37,351
|
See
Notes to Consolidated Financial Statements and Accountant’s Report
A4
China
Teletech Limited
Consolidated
Statements of Cash Flows
For
the three-month periods ended March 31, 2010 and 2009
(Stated
in US Dollars)
3/31/2010
|
3/31/2009
|
||
Cash Flows from Operating
Activities
|
|||
Cash
Received from Customers
|
$ 3,318,048
|
$ 1,741,230
|
|
Cash
Paid to Suppliers & Employees
|
(3,270,805)
|
(2,135,086)
|
|
Interest
Received
|
3
|
-
|
|
Interest
Paid
|
-
|
(13)
|
|
Taxes
Paid
|
(2,044)
|
1
|
|
Miscellaneous
Receipts
|
39
|
-
|
|
Cash
Sourced from/(Used) in Operating Activities
|
45,241
|
(393,868)
|
|
Cash Flows from Investing
Activities
|
|||
Purchases
of Property, Plant, and Equipment
|
-
|
(87)
|
|
Cash
Sourced from/(Used) in Investing Activities
|
-
|
(87)
|
|
Cash Flows from Financing
Activities
|
|||
Cash
Sourced from/(Used) in Financing Activities
|
-
|
-
|
|
Net
Increase/(Decrease) in Cash & Cash Equivalents for the
Period
|
$ 45,241
|
$ (393,955)
|
|
Effect
of Other Comprehensive Income
|
108
|
740
|
|
Cash
& Cash Equivalents at Beginning of Period
|
337,490
|
709,791
|
|
Cash
& Cash Equivalents at End of Period
|
$ 382,839
|
$ 316,577
|
See
Notes to Consolidated Financial Statements and Accountant’s Report
A5
China
Teletech Limited
Reconciliation
of Net Income to Cash Sourced/(Used) in Operations
For
the three-month periods ended March 31, 2010 and 2009
(Stated
in US Dollars)
3/31/2010
|
3/31/2009
|
||
Net
Income
|
$ 12,889
|
$ 16,092
|
|
Adjustments
to Reconcile Net Income to
|
|||
Net
Cash Provided by Cash Activities:
|
|||
Depreciation
|
1,353
|
2,955
|
|
Net
Loss on Disposal of Property, Plant
and Equipment
|
53
|
-
|
|
Decrease/(Increase)
in Accounts Receivable
|
-
|
14,582
|
|
Decrease/(Increase)
in Other Receivable
|
(16,137)
|
(379,806)
|
|
Decrease/(Increase)
in Inventory
|
(97,747)
|
(57,462)
|
|
Decrease/(Increase)
in Advance to Suppliers
|
117,007
|
(12,957)
|
|
Increase/(Decrease)
in Accounts Payable
|
(17)
|
3
|
|
Increase/(Decrease)
in Taxes Payable
|
8,734
|
4,677
|
|
Increase/(Decrease)
in Other Payable
|
8,791
|
22,656
|
|
Increase/(Decrease)
in Related Party Payable
|
22,315
|
-
|
|
Increase/(Decrease)
in Accrued Liabilities
|
(12,000)
|
-
|
|
Increase/(Decrease)
in Customer Deposits
|
-
|
(4,608)
|
|
Total
of all adjustments
|
32,352
|
(409,960)
|
|
Cash
Sourced from/(Used) in Operation
|
$ 45,241
|
$ (393,868)
|
See
Notes to Consolidated Financial Statements and Accountant’s Report
A6
China
Teletech Limited
Notes
to Consolidated Financial Statements
For
the three-month periods ended March 31, 2010 and 2009
1.
|
The Company and
Principal Business
Activities
|
China
Teletech Limited, formerly known as Stream Horizon Studios, Inc. (the
“Company”), was incorporated under the laws of the Province of British Columbia,
Canada on October 1, 2001. The Company was formerly a subsidiary of
Wavelit, Inc., a Nevada corporation. The Company will be spun off from its
parent to the shareholders of Wavelit, Inc where the shareholders of Wavelit,
Inc. will receive an aggregate of 70,919,945 common shares. The
Company is in the process of submitting a Form S-1 to register the securities
that it will issue in this transaction. Concurrently, the Company is applying to
have its common shares independently quoted on the Over the Counter Bulletin
Board Market in the United States of America.
Upon
declaration of effectiveness by the US Securities and Exchange Commission of the
Form S-1, the Company will enter into reverse merger transaction via a share
exchange agreement with China Teletech Limited (“BVI”), formerly known as Sierra
Vista Group Limited, a company incorporated in the British Virgin Islands. Under
the terms of the share exchange agreement, the Company will issue an aggregate
of 170,000,000 shares of common stock to the shareholders of BVI for 100% of the
outstanding stock of BVI.
The
Company has accounted for the shares exchange transaction between itself and BVI
as a recapitalization of BVI where the Company (the legal acquirer) is
considered the accounting acquiree and BVI (the legal acquiree) is considered
the accounting acquirer. Accordingly, the financial data included in the
accompanying consolidated financial statements is that of the accounting
acquirer BVI. The historical stockholders’ equity of the accounting
acquirer prior to the share exchange has been retroactively restated as if the
share exchange transaction occurred as of the beginning of the first period
presented. Any assets or liabilities of the Company prior to the
share exchange transaction were immaterial. The Company is deemed to be a
continuation of the business of BVI.
In
accordance with the accounting rules for variable interest entities, BVI has
accounted for Shenzhen Rongxin Investment Co., Ltd. (“Shenzhen Rongxin”), a
company domiciled in the People’s Republic of China, as a wholly owned
subsidiary. BVI has entered into four agreements with Mr. Liu Dong
and Mr. Zhao Yuan who beneficially own Shenzhen Rongxin 51% and 49%,
respectively. The four agreements between BVI and Mr. Zhao Yuan and
Mr. Liu Dong are as follows:
(1). Entrusted
Management Agreement
Mr. Liu
Dong and Zhao Yuan will entrust to BVI the complete and exclusive right to
manage the operations of Shenzhen Rongxin.
A7
(2). Exclusive
Option Agreement
Mr. Liu
Dong and Zhao Yuan will grant BVI the exclusive right to purchase all the assets
and the business of Shenzhen Rongxin whenever legally possible under PRC
laws.
(3). Shareholders'
Voting Proxy Agreement
Mr. Liu
Dong and Zhao Yuan will give the right to BVI to appoint designees to vote on
shareholders’ matters on behalf of the owners of Shenzhen Rongxin.
(4). Shares
Pledge Agreement
Shenzhen
Rongxin will intend to sell it assets to BVI; however, before such transactions
can be realized under PRC laws, in order to protect the interest of the
shareholders of BVI, the owners of Shenzhen Rongxin will pledge all their
ownership to BVI.
BVI has
entered into four agreements with Shanghai Classic Group Limited (“Shanghai
Classic”), an investment holding company incorporated in the British Virgin
Island. Shanghai Classic wholly owns Guangzhou Yueshen Taiyang
Network and Technology Co., Ltd. (“Guangzhou Yueshen”), a company domiciled in
the People’s Republic of China. The four agreements are detailed
below.
(1). Entrusted
Management Agreement
Shanghai
Classic will entrust to BVI, the complete and exclusive right to manage the
operations of Guangzhou Yueshen.
(2). Exclusive
Option Agreement
Shanghai
Classic will grant BVI the exclusive right to purchase all the assets and the
business of Guangzhou Yueshen whenever legally possible under PRC
laws.
(3). Shareholders'
Voting Proxy Agreement
Shanghai
Classic will give the right to BVI to appoint designees to vote on shareholders’
matters on behalf of the owners of Guangzhou Yueshen.
(4). Shares
Pledge Agreement
Shanghai
Classic will intend to sell its assets to BVI; however, before such transactions
can be realized under PRC laws, in order to protect the interest of the
shareholders of BVI, Shanghai Classic will pledge all its ownership to
BVI
A8
BVI has
accounted for Shenzhen Rongxin as a wholly owned subsidiary under the accounting
rules for variable interest entities.
Under the
foregoing agreements between BVI and the owners of Shenzhen Rongxin and
Guangzhou Yueshen, and the anticipated share exchange between the Company and
BVI, BVI will effectively take on all the rights and privileges of beneficial
ownership of Shenzhen Rongxin and Guangzhou Yueshen.
Business
The
Company conducts its primary business operations through its indirectly wholly
owned operating subsidiaries: (a) Shenzhen Rongxin and (b) Guangzhou
Yueshen.
Shenzhen
Rongxin’s primary business is the wholesale and distribution of mineral water as
well as trading of wine. Shenzhen Rongxin is the exclusive supplier
of Tibet Glacial 5100 spring water to the Guangdong Province of PRC, which
currently has a population of approximately 110 million people.
Guangzhou
Yueshen is principally engaged in the trading and distribution of rechargeable
phone cards, prepaid subway tickets, cellular phones, and cellular phone
accessories in Guangzhou City in the PRC. Guangzhou Yueshen sells to
wholesalers, retailers, and end 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 all the accounts of the Company and
its two indirectly wholly-owned subsidiaries. Inter-company transactions, such
as sales, cost of sales, due to/due from balances, investment in subsidiaries,
and subsidiaries’ capitalization have been eliminated.
As of
March 31, 2010, the detailed identities of the consolidated subsidiaries are as
follows:-
A9
Name of Entities
|
Date
of Incorporation
|
Place
of Incorporation
|
Attributable
Equity Interest
|
Registered Capital
|
China
Teletech Limited, formerly known as Sierra Vista Group
Limited
|
1/20/2008
|
BVI
|
100%
|
USD
10
|
Shenzhen
Rongxin
|
11/21/1996
|
PRC
|
100%
|
RMB
10,000,000
|
Guangzhou
Yueshen
|
4/19/2004
|
PRC
|
100%
|
HKD
1,200,000
|
(C)
|
Use
of Estimates
|
In the
preparation of the 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, 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 valuation of receivables and inventories, and the estimation on
useful lives of property, plant and equipment. Actual results could
differ from those estimates.
(D)
|
Cash
and Cash Equivalents
|
Cash and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
(E)
|
Accounts
Receivable – Trade
|
Trade
receivables 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.
(F)
|
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 include bottles of mineral water and wine, prepaid
mineral water cards, rechargeable phone cards, prepaid subway tickets, and
mobile phones.
(G)
|
Advances
to Suppliers
|
Advances
to suppliers represent the cash paid in advance for the purchase of goods. The
advances to suppliers are interest free and unsecured.
A10
(H)
|
Property,
Plant, and Equipment
|
Property,
plant, and equipment are stated at cost. Repairs and maintenance to
these assets are charged to expense as incurred; major improvements enhancing
the function and/or useful life are capitalized. When items are sold
or retired, the related cost and accumulated depreciation are removed from the
accounts and any gains or losses arising from such transactions are
recognized.
Property,
plant, and equipment are depreciated using the straight-line method over their
estimated useful life with 20% and 10% salvage values on furniture & fixture
and motor vehicles respectively. Their useful lives are as
follows:
Fixed Assets Classification
|
Useful Lives
|
Furniture
& Fixture
|
4
Years
|
Motor
Vehicles
|
10
Years
|
(I)
|
Customer
Deposits
|
Customer
deposits represent money that the Company has received from customers in advance
for the purchase of goods. The Company considers customer deposits as a
liability until the title of goods have been transferred at which point the
balance will be credited to sales revenue.
(J)
|
Statutory
Reserve
|
Statutory
reserve refer to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or operation. 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 capital.
(K)
|
Comprehensive
Income
|
In
accordance with SFAS No. 130, “Reporting Comprehensive Income”,
comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to
owners. Among other disclosures, all items that are required to be
recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented
with the same prominence as other financial statements. The Company’s
current components of other comprehensive income are unrealized gain or loss in
investment and the foreign currency translation adjustment.
A11
(L)
|
Recognition
of Revenue
|
Guangzhou
Yueshen establishes retail outlets in Guangzhou city for the trading and
distribution of rechargeable phone cards, prepaid subway tickets, cellular
phones and cellular phone accessories. Revenue from the sale of Yueshen’s
products is recognized on the transfer of risk and ownership, which generally
coincides with the time when the goods are delivered to customers and the titles
have been passed. Prepayments by customers for phone cards, subway tickets and
cellular phone are presented as customer deposits.
Shenzhen
Rongxin establishes network in Guangdong Province for the resale of Tibet 5100
mineral water products and wine. Revenue from the sale of mineral water and wine
is recognized when goods are delivered to customers or loaded on customers’
pick-up trucks and the titles have been passed.
Neither
Guangzhou Yueshen nor Shenzhen Rongxin has any refund policies for the return of
goods.
(M)
|
Cost
of Sales
|
Guangzhou
Yueshen’s cost of sales is primarily comprised of cost of goods, and other
purchasing and receiving overhead costs.
Shenzhen
Rongxin’s cost of sales consists of cost of mineral water and wine, inbound
freight, warehouse cost, and outbound freight.
(N)
|
Selling
Expenses
|
Selling
expenses include outbound freight, salaries of the sales force, client
entertainment, commissions, advertising, and office rental
expenses.
(O)
|
General
& Administrative Expenses
|
General
and administrative expenses are comprised of executive compensation, general
overhead such as the finance department and administrative staff, depreciation,
travel and lodging, meals and entertainment and utility.
(P)
|
Advertising
Expense
|
Costs
related to advertising and promotion expenditures are expensed as
incurred. Advertising costs are charged to selling
expenses.
A12
(Q)
|
Retirement
Benefits
|
Full-time
employees of the Company are entitled to staff welfare benefits including
medicare, welfare subsidies, unemployment insurance, and pension benefits
through a PRC government-mandated multi-employer defined contribution plan. The
Company is required to accrue for these benefits based on certain percentages of
the employees’ salaries. Costs related to the retirement benefits are charged to
the Company’s statements of operations as incurred.
(R)
|
Income
Tax
|
The
Company uses the accrual method of accounting to determine and report its income
taxes for the period in which they are available. In accordance with SFAS No.
109 “Accounting for Income
Taxes”, the Company accounts for income tax using an asset and liability
approach and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not that such items will either
expire before the Company is able to realize their benefits, or that future
realization is uncertain.
In
respect of the Company and its subsidiaries domiciled and operated in the
British Virgin Islands and People’s Republic of China, the taxation of these
entities are summarized below:
Entities
|
Countries of Domicile
|
Income Tax Rate
|
China
Teletech Limited
|
Canada
|
28.50%
|
China
Teletech Limited
|
BVI
|
0.00%
|
Shenzhen
Rongxin
|
PRC
|
25.00%
|
Guangzhou
Yueshen
|
PRC
|
25.00%
|
(S)
|
Foreign
Currency Translation
|
The
Company’s two operating subsidiaries Shenzhen Rongxin and Guangzhou Yueshen
maintain their 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
period.
A13
For
financial reporting purposes, the financial statements of Shenzhen Rongxin and
Guangzhou Yueshen, 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.
03/31/10
|
12/31/09
|
03/31/09
|
|
Period
end RMB : US$ exchange rate
|
6.8361
|
6.8372
|
6.8456
|
Average
period RMB : US$ exchange rate
|
6.8360
|
6.8409
|
6.8466
|
Period
end HKD : US$ exchange rate
|
7.7647
|
7.7551
|
7.7505
|
Average
period HKD : US$ exchange rate
|
7.7639
|
7.7522
|
7.7548
|
(T)
|
Financial
Instruments
|
The
Company’s financial instruments are cash and cash equivalents, other receivable,
advances to suppliers, accounts payable, other payable, and related party
payable. The recorded values of cash and cash equivalents, accounts receivable,
other receivable, advances to suppliers, accounts payable, other payable,
related party payable approximate their fair values due to their short-term
nature.
(U)
|
Recent
Accounting Pronouncements
|
In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165
establishes general standards of accounting for and disclosing of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. SFAS 165 does not significantly change the
types of subsequent events that an entity reports, but it requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. SFAS 165 is effective for interim or annual
reporting requirements ending after June 15, 2009. The adoption of this standard
did not have a material impact on our financial position, results of operations
or cash flows of the Company.
In June
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-01, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement No. 162 (“ASU 2009-01”). ASU 2009-01
established the Accounting Standards Codification (the “Codification”) as the
source of authoritative GAAP recognized by the FASB to be applied to
nongovernmental entities. The Codification supersedes all prior non-SEC
accounting and reporting standards. Following ASU 2009-01, the FASB will not
issue new accounting standards in the form of FASB
A14
Statements,
FASB Staff Positions, or Emerging Issues Task Force abstracts. ASU 2009-01 also
modifies the existing hierarchy of GAAP to include only two levels —
authoritative and non-authoritative. ASU 2009-01 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009, and early adoption was not permitted. The adoption of this standard did
not have an impact on the financial position, results of operations or cash
flows of the Company.
In August
2009, the FASB issued ASU 2009-05, Fair Value Measurements and
Disclosures (Topic 820) - Measuring Liabilities at Fair Value (“ASU
2009-05”). ASU 2009-05 addresses concerns in situations where there may be a
lack of observable market information to measure the fair value of a liability,
and provides clarification in circumstances where a quoted market price in an
active market for an identical liability is not available. In these cases,
reporting entities should measure fair value using a valuation technique that
uses the quoted price of the identical liability when that liability is traded
as an asset, quoted prices for similar liabilities, or another valuation
technique, such as an income or market approach. ASU 2009-05 also clarifies that
when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the liability. ASU
2009-05 is effective for the first reporting period subsequent to August 2009
and the adoption of this update did not to have a material impact on the
financial position, results of operations, or cash flows of the
Company.
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 166”).
SFAS 166 amends the application and disclosure requirements of SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities — a Replacement
of FASB Statement 125 (“SFAS 140”), removes the concept of a “qualifying
special purpose entity” from SFAS 140 and removes the exception from applying
FASB Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest
Entities — an Interpretation of ARB No. 51 (“FIN 46(R)”) to qualifying
special purpose entities. SFAS 166 is effective for the first annual reporting
period that begins after November 15, 2009, and early adoption is not permitted.
The adoption of this standard did not have a material impact on the financial
position, results of operations or cash flows of the Company.
In
October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605) —
Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging
Issues Task Force (“ASU 2009-13”). ASU 2009-13 addresses the accounting
for multiple-deliverable arrangements where products or services are accounted
for separately rather than as a combined unit, and addresses how to separate 71
deliverables and how to measure and allocate arrangement consideration to one or
more units of accounting. Existing GAAP requires an entity to use
vendor-specific objective evidence (“VSOE”) or third-party evidence
A15
of a
selling price to separate deliverables in a multiple-deliverable selling
arrangement. As a result of ASU 2009-13, multiple-deliverable arrangements will
be separated in more circumstances than under current guidance. ASU 2009-13
establishes a selling price hierarchy for determining the selling price of a
deliverable. The selling price will be based on VSOE if it is available, on
third-party evidence if VSOE is not available, or on an estimated selling price
if neither VSOE nor third-party evidence is available. ASU 2009-13 also requires
that an entity determine its best estimate of selling price in a manner that is
consistent with that used to determine the selling price of the deliverable on a
stand-alone basis, and increases the disclosure requirements related to an
entity’s multiple-deliverable revenue arrangements. ASU 2009-13 must be
prospectively applied to all revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, and early adoption
is permitted. Entities may elect, but are not required, to adopt the amendments
retrospectively for all periods presented. The Company does not believe that the
adoption of this standard will have a material impact on the financial position,
results of operations, or cash flows of the Company.
In
December 2009, the FASB issued ASU 2009-17, Consolidations (Topic 810) — Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. ASU 2009-17
replaces the quantitative-based risk and rewards calculation for determining
which reporting entity, if any, has a controlling financial interest in a
variable interest entity with an approach focused on identifying which reporting
entity has the power to direct the activities of a variable interest entity that
most significantly impact the entity’s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive benefits
from the entity. An approach that is expected to be primarily qualitative will
be more effective for identifying which reporting entity has a controlling
financial interest in a variable interest entity. ASU 2009-17 also requires
additional disclosures about a reporting entity’s involvement in variable
interest entities. The provisions of ASU 2009-17 are to be applied beginning in
the first fiscal period beginning after November 15, 2009. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows of the Company.
In
January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810) —
Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope
Clarification. ASU 2010-02 clarifies that the scope of previous guidance
in the accounting and disclosure requirements related to decreases in ownership
of a subsidiary apply to (i) a subsidiary or a group of assets that is a
business or nonprofit entity; (ii) a subsidiary that is a business or nonprofit
entity that is transferred to an equity method investee or joint venture; and
(iii) an exchange of a group of assets that constitutes a business or nonprofit
activity for a noncontrolling interest in an entity. ASU 2010-02 also expands
the disclosure requirements about deconsolidation of a subsidiary or
derecognition of a group of
A16
assets to
include (i) the valuation techniques used to measure the fair value of any
retained investment; (ii) the nature of any continuing involvement with the
subsidiary or entity acquiring a group of assets; and (iii) whether the
transaction that resulted in the deconsolidation or derecognition was with a
related party or whether the former subsidiary or entity acquiring the assets
will become a related party after the transaction. The provisions of ASU 2010-02
will be effective for the first reporting period beginning after December 13,
2009. The adoption of this standard did not have a material impact on the
financial position, results of operations or cash flows of the
Company.
In
January 2010 the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820) —Improving Disclosures About Fair Value
Measurements. ASU 2010-06 clarifies the requirements for certain
disclosures around fair value measurements and also requires registrants to
provide certain additional disclosures about those measurements. The new
disclosure requirements include (i) the significant amounts of transfers into
and out of Level 1 and Level 2 fair value measurements during the period, along
with the reason for those transfers, and (ii) separate presentation of
information about purchases, sales, issuances and settlements of fair value
measurements with significant unobservable inputs. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009. The
adoption of this standard did not have a material impact on the financial
position, results of operations or cash flows of the Company.
3.
|
Other
Receivable
|
3/31/2010
|
12/31/2009
|
|||
Shenzhen
Shengqing Technology Co., Ltd.
|
$
|
14,789
|
$
|
11,861
|
Beijing
Xin Century Co., Ltd.
|
1,936
|
1,936
|
||
Tangcheng
Longsheng Cell Phone Co., Ltd.
|
3,803
|
3,803
|
||
Mr.
Xu
|
119,893
|
119,874
|
||
JinJing
Co., Ltd.
|
105,323
|
105,306
|
||
Shenzhen
Ziyang Investment Consultant Co., Ltd.
|
41,866
|
41,859
|
||
China
Telecom Corporation Limited Settlement Center
|
4,389
|
-
|
||
Guangzhou
Huantong Telecom Technology and Consultant Services,
Ltd
|
146
|
-
|
||
Guangzhou
Yueshen Electron and Technology Company Limited
|
8,631
|
-
|
||
$
|
300,776
|
$
|
284,639
|
All of
the other receivable is unsecured and interest free.
A17
4.
|
Property, Plant, and
Equipment
|
Accumulated
|
|||||
03/31/2010
|
Cost
|
Depreciation
|
Net
|
||
Furniture
& Fixture
|
$ 12,345
|
$ (9,529)
|
$ 2,816
|
||
Motor
Vehicles
|
24,868
|
(559)
|
24,309
|
||
$ 37,213
|
$ (10,088)
|
$ 27,125
|
|||
Accumulated
|
|||||
12/31/2009
|
Cost
|
Depreciation
|
Net
|
||
Furniture
& Fixture
|
$ 14,622
|
$ (10,960)
|
$ 3,662
|
||
Motor
Vehicles
|
24,864
|
-
|
24,864
|
||
$ 39,486
|
$ (10,960)
|
$ 28,526
|
5. Related
Party Payable
03/31/2010
|
12/31/2009
|
||
Mr.
Liu Dong, shareholder of Shenzhen Rongxin
|
$ 22,309
|
$ -
|
|
Mr.
Liu Yong, brother of Mr. Liu Dong
|
7,841
|
7,835
|
|
Mr.
Zhao Yuan, shareholder of Shenzhen Rongxin
|
45,052
|
45,052
|
|
$ 75,202
|
$ 52,887
|
The
outstanding related party payables do not bear any interest or collateral and
are repayable on demand. There is no impact to the Company’s earnings
for the three-month period ended March 31, 2010 and for the year ended December
31, 2009.
A18
6.
|
Statutory Reserve
Commitment
|
In
compliance with PRC laws, the Company is required to appropriate a portion of
its net income to its statutory reserve up to a maximum of 50% of an
enterprise’s registered capital in the PRC. The Company had future
unfunded commitments, as provided below.
03/31/2010
|
12/31/2009
|
||
PRC
Subsidiaries Registered Capital
|
|||
Shenzhen
Rongxin
|
$ 1,206,753
|
$ 1,206,753
|
|
Guangzhou
Yueshen
|
153,502
|
153,502
|
|
Statutory
Reserve Ceiling based on 50% of PRC
Registered Capital
|
680,128
|
680,128
|
|
Less: Retained Earnings
appropriated to Statutory Reserve
|
-
|
-
|
|
Reserve
Commitment Outstanding
|
$ 680,127
|
$ 680,127
|
A19
7.
|
Operating
Segments
|
The
Company individually tracks the performance of its operating subsidiaries
Shenzhen Rongxin and Guangzhou Yueshen. Shenzhen Rongxin’s business activities
involve the trading of mineral water and wine. Guangzhou Yueshen is primarily
engaged in distribution of prepaid phone cards and subway tickets.
Below is
a presentation of the Company’s financial position and operation results for its
operating subsidiaries as of March 31, 2010 and December 31 2009, and for the
three-month periods ended March 31, 2010 and 2009.
Financial
Position
|
|||||||||||
As
of
|
|||||||||||
03/31/2010
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Current
Assets
|
$528,872
|
$27,889
|
$47,660
|
$428,943
|
$1,116
|
$
1,034,480
|
|||||
Non-Current
Assets
|
23,302
|
1,216
|
282
|
2,534
|
49
|
27,383
|
|||||
Total
Assets
|
552,174
|
29,105
|
47,942
|
431,477
|
1,165
|
1,061,863
|
|||||
Current
Liabilities
|
237,489
|
12,526
|
18,423
|
165,808
|
501
|
434,747
|
|||||
Non-Current
Liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||
Total
Liabilities
|
237,489
|
12,526
|
18,423
|
165,808
|
501
|
434,747
|
|||||
Net
Assets
|
314,685
|
26,579
|
29,519
|
265,669
|
664
|
627,116
|
|||||
Total
Liabilities
|
|||||||||||
&
Net Assets
|
$552,174
|
$29,105
|
$47,942
|
$431,477
|
$1,165
|
$1,061,863
|
Results
of Operations
|
|||||||||||
For
the three-month period ended
|
|||||||||||
03/31/2010
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Revenue
|
$2,499,378
|
$128,978
|
$64,610
|
$635,822
|
$5,397
|
$3,334,185
|
|||||
Cost
of Goods sold
|
2,463,216
|
123,976
|
59,069
|
582,651
|
5,424
|
3,234,336
|
|||||
Gross
Profit
|
36,162
|
5,002
|
5,541
|
53,171
|
(27)
|
99,849
|
|||||
Operating
Expenses
|
28,357
|
3,923
|
4,344
|
41,693
|
(22)
|
78,295
|
|||||
Operating
Profit
|
7,805
|
1,079
|
1,197
|
11,478
|
(5)
|
21,554
|
|||||
Other
Income
|
(4)
|
(1)
|
(1)
|
(5)
|
-
|
(11)
|
|||||
Earnings
before Tax
|
7,801
|
1,078
|
1,196
|
11,473
|
(5)
|
21,543
|
|||||
Income
Tax Expense
|
3,134
|
434
|
480
|
4,608
|
(2)
|
8,654
|
|||||
Net
Income/(Loss)
|
$4,667
|
$644
|
$716
|
$6,865
|
$(3)
|
$12,889
|
A20
Financial
Position
|
|||||||||||
As
of
|
|||||||||||
12/31/2009
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Current
Assets
|
$ 386,451
|
$ 165,622
|
$ 121,881
|
$ 317,118
|
$ 1,183
|
$ 992,255
|
|||||
Non-Current
Assets
|
11,210
|
4,804
|
3,536
|
9,199
|
34
|
28,784
|
|||||
Total
Assets
|
397,661
|
170,426
|
125,416
|
326,318
|
1,217
|
1,021,039
|
|||||
Current
Liabilities
|
158,484
|
67,922
|
49,983
|
130,050
|
485
|
406,924
|
|||||
Non-Current
Liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||
Total
Liabilities
|
158,484
|
67,922
|
49,983
|
130,050
|
485
|
406,924
|
|||||
Net
Assets
|
239,178
|
102,505
|
75,433
|
196,267
|
732
|
614,115
|
|||||
Total
Liabilities
|
|||||||||||
&
Net Assets
|
$ 397,661
|
$ 170,426
|
$ 125,416
|
$ 326,318
|
$ 1,217
|
$
1,021,039
|
Results
of Operations
|
|||||||||||
For
the three-month period ended
|
|||||||||||
03/31/2009
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Revenue
|
$1,927,669
|
$64,019
|
$84,833
|
$11,375
|
$23,183
|
$2,111,061
|
|||||
Cost
of Goods sold
|
1,891,824
|
60,971
|
60,248
|
7,098
|
23,179
|
2,043,320
|
|||||
Gross
Profit
|
35,845
|
3,048
|
24,585
|
4,259
|
4
|
67,741
|
|||||
Operating
Expenses
|
(24,970)
|
(2,124)
|
(17,129)
|
(2,968)
|
(3)
|
47,194
|
|||||
Operating
Profit
|
10,875
|
924
|
7,456
|
1,291
|
1
|
20,547
|
|||||
Other
Income
|
(6)
|
(1)
|
(5)
|
(1)
|
-
|
(13)
|
|||||
Earnings
before Tax
|
10,869
|
923
|
7,451
|
1,290
|
1
|
20,534
|
|||||
Income
Tax Expense
|
(2,351)
|
(200)
|
(1,612)
|
(279)
|
-
|
4,442
|
|||||
Net
Income
|
$ 8,518
|
$ 723
|
$ 5,839
|
$ 1,011
|
$ 1
|
$ 16,092
|
8. Income
Taxes
All of
the Company’s operations are in the People’s Republic of China (“PRC”), and in
accordance with the relevant tax laws and regulations of PRC, the corporate
income tax rate is 25%. The provision for income taxes for PRC
sourced net income amounted to $8,654 and $4,442 for the three-month periods
ended March 31 2010 and 2009, respectively.
A21
Income
before taxes consists of the following:
March
31, 2010
|
March
31, 2009
|
||||||
Income
(loss) before taxes:
|
|||||||
Canada
|
$
|
-
|
$
|
-
|
|||
BVI
|
(13,074)
|
(711)
|
|||||
PRC
|
34,617
|
21,245
|
|||||
Total
income before taxes
|
$
|
21,543
|
$
|
20,534
|
|||
Provision
for taxes:
|
|||||||
Current:
|
|||||||
Canadian
Federal
|
-
|
-
|
|||||
Canadian
Provincial
|
-
|
-
|
|||||
PRC
|
8,654
|
4,442
|
|||||
$
|
8,654
|
$
|
4,442
|
||||
Deferred:
|
|||||||
Canadian
Federal
|
-
|
-
|
|||||
Canadian
Provincial
|
-
|
-
|
|||||
PRC
|
-
|
-
|
|||||
-
|
-
|
||||||
Total
provision for taxes
|
$
|
8,654
|
$
|
4,442
|
|||
Effective
tax rate
|
40.17%
|
21.63%
|
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts for income tax purposes. Deferred tax assets and liabilities have
not been accrued as at March 31, 2010 and December 31, 2009 because the
accounting bases of assets and liabilities approximate their tax values and
because the Company’s tax loss arose from BVI where the income tax rate is
nil.
The
differences between the Canadian income tax rates and the Company's effective
tax rate for the three-month periods ended March 31, 2010 and 2009 are shown in
the following table:
March
31, 2010
|
March
31, 2009
|
|||
Canadian
income tax rates
|
28.50%
|
29.50%
|
||
Lower
rates in PRC, net
|
-3.50%
|
-4.50%
|
||
Effect
of deferred income taxes
|
15.17%
|
-3.37%
|
||
Effective
tax rate
|
40.17%
|
21.63%
|
A22
8.
|
Concentration
Risk
|
Shenzhen
Rongxin is subject to supply shortage risk because its purchases of mineral
water for resale are sourced from a single vendor, Tibet Glacial Mineral Water
Co., Ltd. (“Tibet Glacial”). On January 1, 2009, Shenzhen Rongxin entered into a
purchase agreement whereby Tibet Glacial would provide spring water at fixed
price until December 31, 2012 and in return, Shenzhen Rongxin needed to consume
no less than 140,000 trunks of bottle water per year.
9.
|
Economic, Political,
and Legal 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 economic,
political, 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.
10.
|
Spin-off
|
Stream
Horizons Studio, Inc. is engaged in the production of video for broadcast over
the internet. The following table summarizes its financial position and
operating result as of and for the period ended July 31, 2009 following the
spin-off from Wave-lit, Inc.
Stream
Horizons Studio, Inc.
|
||||||||||
Condensed
Balance Sheet
|
Condensed
Statement of Income
|
|||||||||
Assets
|
Sales
revenue
|
$ -
|
||||||||
Current
assets
|
$ -
|
Cost
of sales
|
-
|
|||||||
Non-current
assets
|
-
|
Gross
Profit
|
-
|
|||||||
Total
assets
|
-
|
Other
income
|
757,095
|
|||||||
Liabilities
|
Income
tax
|
-
|
||||||||
Current
liabilities
|
-
|
Net
Income
|
$ 757,095
|
|||||||
Total
liabilities
|
$ -
|
A23
Stockholders' Equity
|
||||
Common
Stock
|
$ -
|
|||
Additional
Paid in Capital
|
89,111
|
|||
Accumulated
Other Comprehensive Income
|
148,551
|
|||
Retained
Earnings
|
(237,662)
|
|||
Total
Stockholders' Equity
|
$ -
|
For the
purpose of the presentation of the financial statements of the Company as a
continuation of business under BVI, the Company has not included the results of
operations for Stream Horizon up to and the end of July 31 2009 as shown above.
No transaction occurred between July 31, 2009 and March 31, 2010.
A24
China
Teletech Limited
Consolidated
Financial Statements
December
31, 2009 and 2008
(Stated
in US Dollars)
China Teletech
Limited
Contents
|
Pages
|
Report
of Independent Registered Public Accounting Firm
|
B1
|
Consolidated
Balance Sheets
|
B2
|
Consolidated
Statements of Operations
|
B3
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
B4
|
Consolidated
Statements of Cash Flows
|
B5
– B6
|
Notes
to Consolidated Financial Statements
|
B7
- B22
|
To: The
Board of Directors and Stockholders
China Teletech Limited
Report of Independent
Registered Public Accounting Firm
We have
audited the accompanying consolidated balance sheets of China Teletech Limited
as of December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Teletech Limited as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the years then ended in conformity with accounting principles
generally accepted in the United States of America.
South San
Francisco,
California Samuel
H. Wong & Co., LLP
March 25,
2010
Certified Public Accountants
B1
China
Teletech Limited
Consolidated
Balance Sheets
As
of December 31, 2009 and 2008
(Stated
in US Dollars)
ASSETS
|
Notes
|
12/31/2009
|
12/31/2008
|
|
Current
Assets
|
||||
Cash
and Cash Equivalent
|
2D
|
$ 337,490
|
$ 709,791
|
|
Short
Term Investment
|
2E
|
-
|
2,053
|
|
Accounts
Receivable
|
2F,3
|
-
|
21,009
|
|
Other
Receivable
|
4
|
284,639
|
-
|
|
Inventory
|
2G
|
253,118
|
138,151
|
|
Advance
to Suppliers
|
2H
|
117,007
|
-
|
|
Total Current
Assets
|
992,255
|
871,004
|
||
Non-Current
Assets
|
||||
Other
Asset
|
258
|
-
|
||
Property,
Plant & Equipment, net
|
2I,5
|
28,526
|
33,266
|
|
TOTAL
ASSETS
|
$ 1,021,039
|
$ 904,270
|
||
LIABILITIES
|
||||
Current
Liabilities
|
||||
Accounts
Payable
|
$ 2,116
|
$ 2,234
|
||
Taxes
Payable
|
225,197
|
189,811
|
||
Other
Payable
|
86,724
|
50,949
|
||
Related
Party Payable
|
6
|
52,887
|
-
|
|
Accrued
Liabilities
|
40,000
|
-
|
||
Customer
Deposits
|
2J
|
-
|
71,511
|
|
Total Current
Liabilities
|
406,924
|
314,505
|
||
TOTAL
LIABILITIES
|
$ 406,924
|
$ 314,505
|
||
STOCKHOLDERS' EQUITY
|
||||
Preferred
Stock ($0.000 par value, 10,000,000 shares authorized, 0 share issued and
outstanding at December 31, 2009 and 2008)
|
$ -
|
$ -
|
||
Common
Stock ($0.000 par value, 250,000,000 shares authorized, 240,919,945 issued
and outstanding at December 31, 2009 and 2008)
|
-
|
-
|
||
Additional
Paid in Capital
|
1,410,256
|
1,410,256
|
||
Statutory
Reserve
|
2K,5
|
-
|
-
|
|
Retained
Earnings
|
(915,942)
|
(929,770)
|
||
Accumulated
Other Comprehensive Income
|
2L
|
119,801
|
109,279
|
|
TOTAL
STOCKHOLDERS' EQUITY
|
614,115
|
589,765
|
||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ 1,021,039
|
$ 904,270
|
See
Notes to Financial Statements and Accountant’s Report
B2
China
Teletech Limited
Consolidated
Statements of Operations
For
the years ended December 31, 2009 and 2008
(Stated
in US Dollars)
Notes
|
12/31/2009
|
12/31/2008
|
||
Revenues
|
||||
Sales
|
2M
|
$ 10,803,459
|
$ 20,272,787
|
|
Cost
of Sales
|
2N
|
10,393,324
|
19,371,787
|
|
Gross
Profit
|
410,135
|
901,000
|
||
Operating Expenses
|
||||
Selling
Expenses
|
2O
|
49,493
|
31,024
|
|
General
& Administrative Expenses
|
2P
|
312,730
|
161,436
|
|
Total Operating
Expense
|
362,223
|
192,460
|
||
Operating
Income/(Loss)
|
47,912
|
708,540
|
||
Other Income (Expenses)
|
||||
Other
Income
|
19,971
|
-
|
||
Other
Expenses
|
(19,266)
|
(75)
|
||
Interest
Income
|
73
|
89
|
||
Interest
Expense
|
(3)
|
-
|
||
Total Other
Income/(Expense)
|
775
|
14
|
||
Earnings
before Tax
|
48,687
|
708,554
|
||
Income
Tax
|
2S
|
(34,859)
|
(186,860)
|
|
Net
Income
|
$ 13,828
|
$ 521,694
|
Earnings
per share
|
|||
Basic
|
$ 0.00
|
$ 0.00
|
|
Diluted
|
$ 0.00
|
$ 0.00
|
|
Weighted
average shares outstanding
|
|||
Basic
|
240,919,945
|
240,919,945
|
|
Diluted
|
240,919,945
|
240,919,945
|
See
Notes to Financial Statements and Accountant’s Report
B3
China
Teletech Limited
Consolidated
Statements of Changes in Stockholders’ Equity
As
of December 31, 2009 and 2008
(Stated
in US Dollars)
Accumulated
|
|||||||||
Number
|
Number
|
Additional
|
Other
|
||||||
of
|
Preferred
|
of
|
Common
|
Paid
in
|
Statutory
|
Retained
|
Comprehensive
|
||
Shares
|
Stock
|
Shares
|
Stock
|
Capital
|
Reserve
|
Earnings
|
Income
|
Total
|
|
Balance
at January 1, 2008
|
-
|
-
|
70,945,919
|
$ -
|
$ -
|
$ -
|
$ (1,378,516)
|
$ 103,713
|
$
(1,274,803)
|
Issuance
of Shares in Share Exchange
|
170,000,000
|
-
|
1,410,256
|
-
|
-
|
-
|
1,410,256
|
||
Net
Income
|
-
|
-
|
-
|
-
|
521,694
|
-
|
521,694
|
||
Appropriations
of Retained Earnings
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Distribution
of Dividends
|
-
|
-
|
-
|
-
|
(72,948)
|
-
|
(72,948)
|
||
Unrealized
Gain/(Loss) in Investment
|
-
|
-
|
-
|
-
|
-
|
(9,004)
|
(9,004)
|
||
Foreign
Currency Translation Adjustment
|
-
|
-
|
-
|
-
|
-
|
14,570
|
14,570
|
||
Balance
at December 31, 2008
|
-
|
-
|
240,919,945
|
$ -
|
$
1,410,256
|
$ -
|
$ (929,770)
|
$ 109,279
|
$ 589,765
|
Balance
at January 1, 2009
|
-
|
-
|
240,919,945
|
$ -
|
$1,410,256
|
$ -
|
$ (929,770)
|
$ 109,279
|
$ 589,765
|
Net
Income
|
-
|
-
|
-
|
-
|
13,828
|
-
|
13,828
|
||
Appropriations
of Retained Earnings
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Distribution
of Dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||
Unrealized
Gain/(Loss) in Investment
|
-
|
-
|
-
|
-
|
-
|
9,004
|
9,004
|
||
Foreign
Currency Translation Adjustment
|
-
|
-
|
-
|
-
|
-
|
1,518
|
1,518
|
||
Balance
at December 31, 2009
|
-
|
-
|
240,919,945
|
$ -
|
$
1,410,256
|
$ -
|
$ (915,942)
|
$ 119,801
|
$ 614,115
|
Comprehensive
Income
|
|||
12/31/2008
|
12/31/2009
|
Accumulated Total
|
|
Net
Income
|
$ 521,694
|
$ 13,828
|
$ 535,522
|
Unrealized
Gain/(Loss) in Investment
|
(9,004)
|
9,004
|
-
|
Foreign
Currency Translation Adjustment
|
14,570
|
1,518
|
16,088
|
$ 527,260
|
$ 24,350
|
$ 551,610
|
See
Notes to Financial Statements and Accountant’s Report
B4
China
Teletech Limited
Consolidated
Statements of Cash Flows
For
the years ended December 31, 2009 and 2008
(Stated
in US Dollars)
12/31/2009
|
12/31/2008
|
||
Cash Flows from Operating
Activities
|
|||
Cash
Received from Customers
|
$ 10,468,317
|
$ 20,335,516
|
|
Cash
Paid to Suppliers & Employees
|
(10,878,471)
|
(19,493,098)
|
|
Interest
Received
|
73
|
89
|
|
Interest
Paid
|
(3)
|
-
|
|
Taxes
Paid
|
19
|
(186,860)
|
|
Miscellaneous
Receipts
|
19,971
|
-
|
|
Cash
Sourced/(Used) in Operating Activities
|
(390,095)
|
655,647
|
|
Cash Flows from Investing
Activities
|
|||
Proceeds
from sale of Short Term Investment
|
15,950
|
(2,054)
|
|
Purchases
of Property, Plant, and Equipment
|
(24,947)
|
(4,364)
|
|
Proceeds
of Disposal Assets
|
16,527
|
-
|
|
Proceeds
of Other Asset Deposit
|
(258)
|
||
Cash
Used/(Sourced) in Investing Activities
|
(7,272)
|
(6,418)
|
|
Cash Flows from Financing
Activities
|
|||
Proceeds
from Issuance of Common Stock
|
-
|
-
|
|
Distribution
of Dividends
|
-
|
(72,948)
|
|
Cash
Sourced/(Used) in Financing Activities
|
-
|
(72,948)
|
|
Net
Increase/(Decrease) in Cash & Cash Equivalents for the
Year
|
(382,823)
|
576,281
|
|
Effect
of Other Comprehensive Income
|
10,522
|
5,567
|
|
Cash
& Cash Equivalents at Beginning of Year
|
709,791
|
127,943
|
|
Cash
& Cash Equivalents at End of Year
|
$ 337,490
|
$ 709,791
|
See
Notes to Financial Statements and Accountant’s Report
B5
China
Teletech Limited
Reconciliation
of Net Income to Cash Sourced/(Used) in Operations
For
the years ended December 31, 2009 and 2008
(Stated
in US Dollars)
12/31/2009
|
12/31/2008
|
||
Net
Income
|
$ 13,828
|
$ 521,694
|
|
Adjustments
to Reconcile Net Income to
|
|||
Net
Cash Provided by Cash Activities:
|
|||
Loss
on Sale of Short Term Investment
|
(13,896)
|
-
|
|
Depreciation
|
9,459
|
15,650
|
|
Net
Loss on Disposal of Property, Plant
and Equipment
|
3,700
|
-
|
|
Decrease/(Increase)
in Accounts Receivable
|
21,009
|
(21,009)
|
|
Decrease/(Increase)
in Other Receivable
|
(137,474)
|
66,294
|
|
Decrease/(Increase)
in Inventory
|
(114,968)
|
(71,795)
|
|
Decrease/(Increase)
in Advance to Suppliers
|
(117,007)
|
16,460
|
|
Increase/(Decrease)
in Accounts Payable
|
(118)
|
(748)
|
|
Increase/(Decrease)
in Taxes Payable
|
35,386
|
189,807
|
|
Increase/(Decrease)
in Other Payable
|
35,775
|
(78,150)
|
|
Increase/(Decrease)
in Related Party Payable
|
52,887
|
-
|
|
Increase/(Decrease)
in Accrued Liabilities
|
40,000
|
-
|
|
Increase/(Decrease)
in Customer Deposits
|
(71,511)
|
17,444
|
|
Total
of all adjustments
|
(403,923)
|
133,953
|
|
$ (390,095)
|
$ 655,647
|
B6
China
Teletech Limited
Notes
to Consolidated Financial Statements
As
of and for the years ended December 31, 2009 and 2008
1.
|
The Company and
Principal Business
Activities
|
China
Teletech Limited, formerly known as Stream Horizon Studios, Inc. (the
“Company”), was incorporated under the laws of the Province of British Columbia,
Canada on October 1, 2001 under the name Infotec Business Strategies, Inc. The
Company was formerly a subsidiary of Wavelit, Inc., a Nevada corporation. The
Company will be spun off from its parent to the shareholders of Wavelit, Inc
where the shareholders of Wavelit, inc. will receive an aggregate of 70,919,945
common shares. The Company is in the process of submitting a Form S-1
to register the securities that it issue in this transaction. Concurrently, the
Company is applying to have its common shares independently quoted on the Over
the Counter Bulletin Board Market in the United States of America.
Upon
declaration of effectiveness by the US Securities and Exchange Commission of the
Form S-1, the Company will enter into reverse merger transaction via a share
exchange agreement with China Teletech Limited (“BVI”), formerly known as Sierra
Vista Group Limited, a company incorporated in the British Virgin Islands. Under
the terms of the share exchange agreement, the Company will issue an aggregate
of 170,000,000 shares of common stock to the shareholders of BVI for 100% of the
outstanding stock of BVI.
The
Company has accounted for the shares exchange transaction between itself and the
BVI as a recapitalization of BVI where the Company (the legal acquirer) is
considered the accounting acquiree and China Teletech Limited (the legal
acquiree) is considered the accounting acquirer. Accordingly, the financial data
included in the accompanying consolidated financial statements is that of the
accounting acquirer BVI. The historical stockholders’ equity of the
accounting acquirer prior to the share exchange has been retroactively restated
as if the share exchange transaction occurred as of the beginning of the first
period presented. Any assets or liabilities of the Company prior to
the share exchange transaction were immaterial. The Company is deemed to be a
continuation of the business of BVI.
In
accordance to accounting for variable interest entities, BVI wholly owns
Shenzhen Rongxin Investment Co., Ltd. (“Shenzhen Rongxin”), a company domiciled
in the People’s Republic of China. BVI has entered into four
agreements with Mr. Liu Dong and Mr. Zhao Yuan whom beneficially own Shenzhen
Rongxin 51% and 49%, respectively. The four agreements between BVI
and Mr. Zhao Yuan and Mr. Liu Dong are as follows:
(1). Entrusted
Management Agreement
Mr. Liu
Dong and Zhao Yuan will entrust to BVI the complete and exclusive right to
manage the operations of Shenzhen Rongxin.
(2). Exclusive
Option Agreement
B7
Mr. Liu
Dong and Zhao Yuan will grant BVI the exclusive right to purchase all the assets
and the business of Shenzhen Rongxin whenever legally possible under PRC
laws.
(3). Shareholders'
Voting Proxy Agreement
Mr. Liu
Dong and Zhao Yuan will give the right to BVI to appoint designees to vote on
shareholders matters on behalf of the owners of Shenzhen Rongxin.
(4). Shares
Pledge Agreement
Shenzhen
Rongxin will intend to sell it assets to BVI; however, before such transactions
can be realized under PRC laws, in order to protect the interest of the
shareholders of BVI, the owners of Shenzhen Rongxin will pledge all their
ownership to BVI.
BVI has
entered into four agreements with Shanghai Classic Group Limited (“Shanghai
Classic”), an investment holding company incorporated in the British Virgin
Island. Shanghai classic wholly owns Guangzhou Yueshen Taiyang
Network and Technology Co., Ltd. (“Guangzhou Yueshen”), a company domiciled in
the People’s Republic of China. The four agreements are detailed
below.
(1). Entrusted
Management Agreement
Shanghai
Classic Group Limited will entrust to BVI, the complete and exclusive right to
manage the operations of Guangzhou Yueshen.
(2). Exclusive
Option Agreement
Shanghai
Classic Group Limited will grant BVI the exclusive right to purchase all the
assets and the business of Guangzhou Yueshen whenever legally possible under PRC
laws.
(3). Shareholders'
Voting Proxy Agreement
Shanghai
Classic Group Limited will give the right to BVI to appoint designees to vote on
shareholders matters on behalf of the owners of Guangzhou Yueshen.
(4). Shares
Pledge Agreement
Shanghai
Classic Group Limited will intend to sell its assets to China Teletech Limited;
however, before such transactions can be realized under PRC laws, in order to
protect the interest of the shareholders of BVI, the Shanghai Classic Group
Limited will pledge all its ownership to BVI
B8
BVI has
accounted for Shenzhen Rongxin as wholly owned subsidiary under the rules of
accounting for variable interest entities.
Under the
foregoing agreements between BVI and the owners of Shenzhen Rongxin and
Guangzhou Yueshen, and the anticipated share exchange between the Company and
BVI, the will effectively take on all the rights and privileges of beneficial
ownerships of Shenzhen Rongxin and Guangzhou Yueshen.
Business
The
Company will conduct its primary business operations through its indirectly
wholly owned operating subsidiaries: (a) Shenzhen Rongxin and (b) Guangzhou
Yueshen.
Shenzhen
Rongxin’s primary business is the wholesale and distribution of mineral
water. Shenzhen Rongxin is the exclusive supplier of Tibet Glacial
5100 spring water to the Guangdong Province of PRC, which currently has a
population of approximately 110 million people.
Guangzhou
Yueshen is principally engaged in the trading and distribution of rechargeable
phone cards, prepaid subway tickets, cellular phones, and cellular phone
accessories in Guangzhou City in the PRC. Guangzhou Yueshen sells to
wholesalers, retailers, and end users.
2.
|
Summary of Significant
Accounting Policies
|
(A)
|
Method
of Accounting
|
The
Company maintains its general ledger and journals with the accrual method
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 all the accounts of the Company and
its two wholly-owned subsidiaries. Inter-company transactions, such as sales,
cost of sales, due to/due from balances, investment in subsidiaries, and
subsidiaries’ capitalization have been eliminated.
As of
December 31, 2008, the detailed identities of the consolidated subsidiaries are
as follows:-
B9
Name of Entities
|
Date
of Incorporation
|
Place
of Incorporation
|
Attributable
Equity Interest
|
Registered Capital
|
Sierra
Vista Group Limited
|
1/20/2008
|
BVI
|
100%
|
USD
10
|
Shenzhen
Rongxin
|
11/21/1996
|
PRC
|
100%
|
RMB
10,000,000
|
Guangzhou
Yueshen
|
4/19/2004
|
PRC
|
100%
|
HKD
1,200,000
|
(C)
|
Use
of Estimates
|
In the
preparation of the 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, 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 valuation of accounts receivable, inventories, and the
estimation on useful lives of property, plant and equipment. Actual
results could differ from those estimates.
(D)
|
Cash
and Cash Equivalent
|
Cash and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
(E)
|
Investment
in Equity Securities
|
The cost
method of accounting is used to account for the Company’s investment in equity
securities for which the Company had less than 20% controlling equity interest.
Controlling equity interest for the Company is typically a position of more than
50% beneficial ownership.
In the
consolidated balance sheets, investments in equity securities are stated at
their fair market value. Any unrealized gain or loss are reported on the
consolidated statements of stockholders’ equity.
(F)
|
Accounts
Receivable – Trade
|
Trade
receivables 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
B10
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 include bottles of mineral water, prepaid mineral water cards,
rechargeable phone cards, prepaid subway tickets, and mobile
phones.
(H)
|
Advances
to Suppliers
|
Advances
to suppliers represent the cash paid in advance for the purchase of goods. The
advances to suppliers are interest free and unsecured.
(I)
|
Property,
Plant, and Equipment
|
Property,
plant, and equipment are stated at cost. Repairs and maintenance to
these assets are charged to expense as incurred; major improvements enhancing
the function and/or useful life are capitalized. When items are sold
or retired, the related cost and accumulated depreciation are removed from the
accounts and any gains or losses arising from such transactions are
recognized.
Property,
plant, and equipment are depreciated using the straight-line method over their
estimated useful life with a 10% salvage value. Their useful lives
are as follows:
Fixed Assets Classification
|
Useful Lives
|
Office
Equipment
|
3
Years
|
Furniture
& Fixture
|
3
Years
|
Motor
Vehicles
|
10
Years
|
(J)
|
Customer
Deposits
|
Customer
Deposit represents the money the Company has received from customers in advance
for the purchase of goods. The Company considers customer deposits as a
liability until the title of goods have been transferred at which point the
balance will be credited to sales revenue.
(K)
|
Statutory
Reserve
|
Statutory
reserve refer to the amount appropriated from the net income in accordance with
laws or regulations, which can be used to recover losses and increase capital,
as approved, and, are to be used to expand production or operation. 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 capital.
B11
(L)
|
Comprehensive
Income
|
In
accordance with SFAS No. 130, “Reporting Comprehensive Income”,
comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to
owners. Among other disclosures, all items that are required to be
recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented
with the same prominence as other financial statements. The Company’s
current components of other comprehensive income are unrealized gain or loss in
investment and the foreign currency translation adjustment.
(M)
|
Recognition
of Revenue
|
Guangzhou
Yueshen establishes retail outlets in Guangzhou city for the trading and
distribution of rechargeable phone cards, prepaid subway tickets, cellular
phones and cellular phone accessories. Revenue from the sale of Yueshen’s
products is recognized on the transfer of risk and ownership, which generally
coincides with the time when the goods are delivered to customers and the titles
have been passed. Prepayments by customer for phone cards, subway tickets and
cellular phone are presented as customer deposit.
Shenzhen
Rongxin establishes network in Guangdong Province for the resale of Tibet 5100
mineral water products. Revenue from the sale of mineral water is recognized
when goods are delivered to customers or loaded on customers’ pick-up trucks and
the titles have been passed.
Neither
Guangzhou Yueshen nor Shenzhen Rongxin has any refund policies for the return of
goods.
(N)
|
Cost
of Sales
|
Guangzhou
Yueshen’s cost of sales is primarily comprised of cost of goods, and other
purchasing and receiving overhead costs.
Shenzhen
Rongxin’s cost of sales consists of cost of mineral water, inbound freight,
warehouse cost, and outbound freight.
(O)
|
Selling
Expenses
|
Selling
expenses include outbound freight, salaries of the sales force, client
entertainment, commissions, advertising, and office rental
expenses.
B12
(P)
|
General
& Administrative Expenses
|
General
and administrative expenses comprised of executive compensation, general
overhead such as the finance department and administrative staff, depreciation
expenses, travel and lodging, meals and entertainment, utility, and research and
development expenses.
(Q)
|
Advertising
Expense
|
Costs
related to advertising and promotion expenditures are expensed as incurred
during the year. Advertising costs are charged to selling
expense
(R)
|
Retirement
Benefits
|
Full-time
employees of the Company are entitled to staff welfare benefits including
Medicare, welfare subsidies, unemployment insurance, and pension benefits
through a PRC government-mandated multi-employer defined contribution plan. The
Company is required to accrue for these benefits based on certain percentages of
the employees’ salaries. Costs related to the retirement benefits are charged to
the Company’s statements of operations as incurred.
(S)
|
Income
Tax
|
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. In
accordance with SFAS No. 109 “Accounting for Income Taxes”,
the Company accounts for income tax using an asset and liability approach
and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not that such items will either
expire before the Company is able to realize their benefits, or that future
realization is uncertain.
In
respect of the Company and its subsidiaries domiciled and operated in the
British Virgin Islands and People’s Republic of China, the taxation of these
entities are summarized below:
Entities
|
Countries of Domicile
|
Income Tax Rate
|
China
Teletech Limited
|
USA
|
0.00%
- 39.00%
|
China
Teletech Limited
|
BVI
|
0.00%
|
Shenzhen
Rongxin
|
PRC
|
25.00%
|
Guangzhou
Yueshen
|
PRC
|
25.00%
|
B13
(T)
|
Foreign
Currency Translation
|
The
Company’s two operating subsidiaries Shenzhen Rongxin and Guangzhou Yueshen
maintain their 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 Shenzhen Rongxin and
Guangzhou Yueshen, 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
|
2009
|
2008
|
Year
end RMB : US$ exchange rate
|
6.8372
|
6.8542
|
Average
yearly RMB : US$ exchange rate
|
6.8409
|
6.9623
|
Year
end HKD : US$ exchange rate
|
7.7551
|
7.7507
|
Average
yearly HKD : US$ exchange rate
|
7.7522
|
7.7874
|
(U)
|
Recent
Accounting Pronouncements
|
In
February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No.
115 (" SFAS 159"). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair values. SFAS 159 is
effective for fiscal years after November 15, 2007.
In December 2007, the Financial
Accounting Standards Board issued FASB Statement No. 141 (Revised 2007),
Business Combinations (“SFAS 141R”). SFAS 141R provides additional
guidance on improving the relevance, representational faithfulness, and
comparability of the financial information that a reporting entity provides in
its financial reports about a business combination and its effects. This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
B14
In
December 2007, the Financial Accounting Standards Board issued FASB Statement
No. 160, Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 amends ARB No. 51 to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. This Statement is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
("SFAS 161"). SFAS 161 applies to all derivative instruments and
related hedged items accounted for under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 161 requires entities to provide greater
transparency about (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for
under SFAS 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
results of operations and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). Statement 162 will become effective
60 days following the SEC's approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, "The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principles."
In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP
APB 14-1 requires the issuer of certain convertible debt instruments that
may be settled in cash (or other assets) on conversion to separately account for
the liability (debt) and equity (conversion option) components of the instrument
in a manner that reflects the issuer's non-convertible debt borrowing
rate. FSP APB 14-1 is effective for fiscal years beginning after
December 15, 2008 on a retroactive basis.
In
September 2008, FASB issued FSP No. 133-1 and FIN 45-4, “Disclosures about
Credit Derivatives and Certain Guarantees”, an amendment of FASB Statement No.
133 and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161. This FSP is intended to improve disclosures about credit
derivatives by requiring more information about the potential adverse effects of
changes in credit risk on the financial position, financial performance, and
cash flows of the sellers of credit derivatives. The
B15
provisions
of the FSP that amend Statement 133 and FIN 45 are effective for reporting
periods (annual or interim) ending after November 15, 2008.
Management
of the Company does not anticipate that the adoption of these seven standards
will have a material impact on these consolidated financial
statements.
3.
|
Accounts
Receivable
|
Accounts receivable at December 31,
consisted of the following:-
12/31/2009
|
12/31/2008
|
||
Accounts
Receivable - Trade
|
$ -
|
$ 21,009
|
|
Less: Allowance for
Doubtful Accounts
|
-
|
||
Net
Accounts Receivable
|
$ -
|
$ 21,009
|
Aging Analysis
|
12/31/2009
|
12/31/2008
|
|
0-30
Days
|
$ -
|
$ -
|
|
30-60
Days
|
-
|
21,009
|
|
Over
60 Days
|
-
|
-
|
|
$ -
|
$ 21,009
|
4.
|
Other
Receivable
|
12/31/2009
|
12/31/2008
|
||
Shenzhen
Shengqing Technology Co., Ltd.
|
$ 11,862
|
$ -
|
|
Beijing
Xin Century Co., Ltd.
|
1,936
|
-
|
|
Tangcheng
Longsheng Cell Phone Co., Ltd.
|
3,803
|
-
|
|
Mr.
Xu
|
119,874
|
-
|
|
JinJing
Co., Ltd.
|
105,306
|
-
|
|
Shenzhen
Ziyang Investment Consultant Co., Ltd.
|
41,859
|
-
|
|
$ 284,639
|
$ -
|
All the
loans to above were unsecured and interest free.
B16
5.
|
Property, Plant, and
Equipment
|
Accumulated
|
|||||
12/31/2009
|
Cost
|
Depreciation
|
Net
|
||
Office
Equipment
|
$ -
|
$ -
|
$ -
|
||
Furniture
& Fixture
|
14,622
|
(10,960)
|
3,662
|
||
Motor
Vehicles
|
24,864
|
-
|
24,864
|
||
$ 39,486
|
$ (10,960)
|
$ 28,526
|
|||
Accumulated
|
|||||
12/31/2008
|
Cost
|
Depreciation
|
Net
|
||
Office
Equipment
|
$ 4,083
|
$ (3,874)
|
$ 209
|
||
Furniture
& Fixture
|
34,352
|
(20,927)
|
13,425
|
||
Motor
Vehicles
|
30,974
|
(11,342)
|
19,632
|
||
$ 69,409
|
$ (36,143)
|
$ 33,266
|
6.
|
Related Party
Payable
|
Related
party payable $52,887 consisted of $7,835 and $45,052 payables to the owners of
Shenzhen Rongxin Mr. Liu Dong’s brother Mr. Liu Yong and Mr. Zhao Yuan
respectively. The outstanding payables do not bear any interest or collateral.
There is no impact to the Company’s earnings for the year ended December 31,
2009.
B17
7.
|
Statutory Reserve
Commitment
|
In
compliance with PRC laws, the Company is required to appropriate a portion of
its net income to its statutory reserve up to a maximum of 50% of an
enterprise’s registered capital in the PRC. The Company had future
unfunded commitments, as provided below.
12/31/2009
|
12/31/2008
|
||
PRC
Subsidiaries Registered Capital
|
|||
Shenzhen
Rongxin
|
$ 1,206,753
|
$ 1,206,753
|
|
Guangzhou
Yueshen
|
153,502
|
153,502
|
|
Statutory
Reserve Ceiling based on 50% of PRC
Registered Capital
|
680,128
|
680,128
|
|
Less: Retained Earnings
appropriated to Statutory Reserve
|
-
|
-
|
|
Reserve
Commitment Outstanding
|
$ 680,128
|
$ 680,128
|
B18
8.
|
Operating
Segments
|
The
Company individually tracks the performance of its operating subsidiaries
Shenzhen Rongxin and Guangzhou Yueshen. Shenzhen Rongxin’s business activities
involve the trading of mineral water and wines. Guangzhou Yueshen is primarily
engaged in distribution of prepaid phone cards and subway tickets.
Below is
a presentation of the Company’s financial position and operation results for its
operating subsidiaries as of December 31, 2009 and 2008, and for the years then
ended.
Financial
Position
|
|||||||||||
As
of
|
|||||||||||
12/31/2009
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Current
Assets
|
$ 386,451
|
$ 165,622
|
$ 121,881
|
$ 317,118
|
$ 1,183
|
$ 992,255
|
|||||
Non-Current
Assets
|
11,210
|
4,804
|
3,536
|
9,199
|
34
|
28,784
|
|||||
Total
Assets
|
397,661
|
170,426
|
125,416
|
326,318
|
1,217
|
1,021,039
|
|||||
Current
Liabilities
|
158,484
|
67,922
|
49,983
|
130,050
|
485
|
406,924
|
|||||
Non-Current
Liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||
Total
Liabilities
|
158,484
|
67,922
|
49,983
|
130,050
|
485
|
406,924
|
|||||
Net
Assets
|
239,178
|
102,505
|
75,433
|
196,267
|
732
|
614,115
|
|||||
Total
Liabilities
|
|||||||||||
&
Net Assets
|
$ 397,661
|
$ 170,426
|
$ 125,416
|
$ 326,318
|
$ 1,217
|
$
1,021,039
|
Results
of Operations
|
|||||||||||
For
the year ended
|
|||||||||||
12/31/2009
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Revenue
|
$ 7,057,398
|
$ 3,024,599
|
$ 212,380
|
$ 450,626
|
$ 58,455
|
$
10,803,459
|
|||||
Cost
of Goods sold
|
6,897,664
|
2,956,142
|
162,002
|
319,550
|
57,966
|
10,393,324
|
|||||
Gross
Profit
|
159,734
|
68,458
|
50,378
|
131,077
|
489
|
410,135
|
|||||
Operating
Expense
|
(141,074)
|
(60,460)
|
(44,493)
|
(115,764)
|
(432)
|
(362,223)
|
|||||
Operating
Profit
|
18,660
|
7,997
|
5,885
|
15,312
|
57
|
47,912
|
|||||
Other
Income
|
302
|
129
|
95
|
248
|
1
|
775
|
|||||
Earnings
before Tax
|
18,962
|
8,127
|
5,980
|
15,560
|
58
|
48,687
|
|||||
Income
Tax Expense
|
(13,576)
|
(5,818)
|
(4,282)
|
(11,141)
|
(42)
|
(34,859)
|
|||||
Net
Income
|
$ 5,386
|
$ 2,308
|
$ 1,699
|
$ 4,419
|
$ 16
|
$ 13,828
|
B19
Financial
Position
|
|||||||||||
As
of
|
|||||||||||
12/31/2008
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Current
Assets
|
$ 322,927
|
$ 31,311
|
$ 516,766
|
$ -
|
$ -
|
$ 871,004
|
|||||
Non-Current
Assets
|
12,333
|
1,196
|
19,737
|
-
|
-
|
33,266
|
|||||
Total
Assets
|
335,260
|
32,507
|
536,503
|
-
|
-
|
904,270
|
|||||
Current
Liabilities
|
116,604
|
11,306
|
186,596
|
-
|
-
|
314,505
|
|||||
Non-Current
Liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||
Total
Liabilities
|
116,604
|
11,306
|
186,596
|
-
|
-
|
314,505
|
|||||
Net
Assets
|
218,657
|
21,201
|
349,907
|
-
|
-
|
589,765
|
|||||
Total
Liabilities
|
|||||||||||
&
Net Assets
|
$ 335,260
|
$ 32,507
|
$ 536,503
|
$ -
|
$ -
|
$ 904,270
|
Results
of Operations
|
|||||||||||
For
the year ended
|
|||||||||||
12/31/2008
|
Phone Card
|
Subway Card
|
Water
|
Wine
|
Mobile Phone
|
Total
|
|||||
Revenue
|
$18,056,300
|
$ 673,716
|
$ 1,542,771
|
$ -
|
$ -
|
$
20,272,787
|
|||||
Cost
of Goods sold
|
17,722,252
|
641,327
|
1,008,208
|
-
|
-
|
19,371,787
|
|||||
Gross
Profit
|
334,048
|
32,389
|
534,563
|
-
|
-
|
901,000
|
|||||
Operating
Expense
|
(71,355)
|
(6,918)
|
(114,186)
|
-
|
-
|
(192,460)
|
|||||
Operating
Profit
|
262,693
|
25,470
|
420,377
|
-
|
-
|
708,540
|
|||||
Other
Income
|
5
|
1
|
8
|
-
|
-
|
14
|
|||||
Earnings
before Tax
|
262,698
|
25,471
|
420,385
|
-
|
-
|
708,554
|
|||||
Income
Tax Expense
|
(69,279)
|
(6,717)
|
(110,864)
|
-
|
-
|
(186,860)
|
|||||
Net
Income
|
$ 193,419
|
$ 18,754
|
$ 309,521
|
$ -
|
$ -
|
$ 521,694
|
The
Company’s chief operating decision maker determines performance based on net
income. Because the effect of income tax on each segment bears great importance,
decision maker will pay attention to income tax.
B20
9.
|
Concentration of
Risk
|
Shenzhen
Rongxin is subject to supply shortage risk because it purchases of mineral water
for resale is sourced from a single vendor, Tibet Glacial Mineral Water Co.,
Ltd. (“Tibet Glacial”). On October 8, 2007, Shenzhen Rongxin entered into
purchase agreement whereby Tibet Glacial would provide spring water at fixed
price until January 1, 2009 and in return, Shenzhen Rongxin needed to consume no
less than 140,000 trunks of bottle water per year. However, the Company’s
operation result is correlated with Tibet Glacial’s availability to
supply.
10.
|
Economic, Political,
and Legal 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 economic,
political, 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.
11.
|
Spin-off
|
Stream
Horizons Studio, Inc. was engaged in the production of video for broadcast over
the internet. The following tabulation summarizes its financial position and
operation result as of and for the period ended July 31, 2009 following the
spin-off from Wave-lit, Inc.
Stream
Horizons Studio, Inc.
|
||||
Condensed
Balance Sheet
|
Condensed
Statement of Income
|
|||
Assets
|
Sales
revenue
|
$ -
|
||
Current
assets
|
$ -
|
Cost
of sales
|
-
|
|
Non-current
assets
|
-
|
Gross
Profit
|
-
|
|
Total
assets
|
-
|
|||
Other
income
|
757,095
|
|||
Liabilities
|
||||
Current
liabilities
|
-
|
Income
tax
|
-
|
|
Total
liabilities
|
-
|
|||
Net
Income
|
$ 757,095
|
B21
Stockholders' Equity
|
||||
Common
Stock
|
$ -
|
|||
Additional
Paid in Capital
|
89,111
|
|||
Accumulated
Other Comprehensive Income
|
148,551
|
|||
Retained
Earnings
|
(237,662)
|
|||
Total
Stockholders' Equity
|
$ -
|
For the
purpose of the presentation of the financial statements of Company as a
continuation of business under BVI, the Company has not included the results of
operations for Stream Horizon up to and the end of July 31 2009 as shown
above.
B22
DEALER
PROSPECTUS DELIVERY OBLIGATION
Until
ninety (90) days after the later of (1) the effective date of the Registration
Statement or (2) the first date on which the securities are offered publicly,
all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a Prospectus. This is
in addition to the dealers' obligation to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
The
following table sets forth the expenses in connection with this Registration
Statement. All of such expenses are estimates, other than the filing fees
payable to the Securities and Exchange Commission.
Description
|
Amount
to be Paid
|
|||
Filing
Fee - Securities and Exchange Commission
|
$
|
61.40
|
||
Attorney's
fees and expenses
|
10,000.00
|
*
|
||
Accountant's
fees and expenses
|
25,000.00
|
*
|
||
Transfer
agent's and registrar fees and expenses
|
1,500.00
|
*
|
||
Printing
and engraving expenses
|
1,500.00
|
*
|
||
Miscellaneous
expenses
|
5,000.00
|
*
|
||
Total
|
$
|
43,061.40
|
*
|
*
Estimated
Page
92
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
*See
Indemnification of Directors and Officers above.
RECENT
SALES OF UNREGISTERED SECURITIES
Following
the Closing Transaction, we will issue a total of 70,919,945 unrestricted shares
common shares of common stock to existing shareholders of CN Dragon as part of
the Spin Off.
Following
the Closing Transaction, we will issue a total of 85,000,000 restricted common
shares of common stock to Dong Liu as part of the Exchange
Agreement.
Following
the Closing Transaction, we will issue a total of 85,000,000 restricted common
shares of common stock to Yuan Zhao as part of the Exchange
Agreement.
All of
the issuances of securities described above were deemed to be exempt from
registration in reliance on Section 4(2) of the Securities Act of 1933 as
transactions by an issuer not involving a public offering. We made the
determination that each investor had enough knowledge and experience in finance
and business matters to evaluate the risks and merits of the investment.
There was no general solicitation or general advertising used to market
the securities. We provided each investor with disclosure of all aspects
of our business, including providing the investor with press releases, access to
our auditors, and other financial, business, and corporate information. A legend
was placed on the stock certificates stating that the securities have not been
registered under the Securities Act and cannot be sold or otherwise transferred
without an effective registration or an exemption therefrom.
EXHIBITS
Exhibit
#
|
Description
|
|
3.1
|
Articles
of Incorporation filed with the British Columbia Ministry of Finance on
October 1, 2001(Filed with our Registration Statement on Form 10 filed on
November 20, 2009).
|
|
3.2
|
Certificate
of Name Change filed with the British Columbia Ministry of Finance on
November 17, 2005 (Filed with our Registration Statement on Form 10 filed
on November 20, 2009).
|
|
3.3
|
Certificate
of Restoration filed with the British Columbia Ministry of Finance on
August 28, (Filed with our Registration Statement on Form 10 filed on
November 20, 2009).
|
|
4.1
|
Notice
of Alteration filed with the British Columbia Ministry of Finance on
October 7, 2009 (Filed with our Registration Statement on Form 10 filed on
November 20, 2009).
|
|
10.1
|
Stock
Purchase and Share Exchange Agreement effective May 20, 2009 (Filed with
our Registration Statement on Form 10 filed on November 20,
2009).
|
|
23.1
|
Consent
of Samuel H. Wong & Co., LLP, dated November 2, 2009 (Filed with our
Registration Statement on Form 10 filed on November 20,
2009).
|
UNDERTAKINGS
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a post
effective amendment to this Registration Statement:
(a) To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
(b) To
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and rise represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(c) To
include any material information with respect to the plan of distribution not
previously disclosed in this Registration Statement or any material changes to
such information in the Registration Statement.
2. For
determining liability under the Securities Act, treat each post-effective
amendment as a new Registration Statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
3. To
file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
4. For
determining liability of the undersigned issuer under the Securities Act to any
purchaser in the initial distribution of the securities, the undersigned issuer
undertakes that in a primary offering of securities of the undersigned issuer
pursuant to this Registration Statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the
undersigned issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
i. Any
preliminary prospectus or prospectus of the undersigned issuer relating to the
offering required to be filed pursuant to Rule 424;
ii. Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned issuer or used or referred to by the undersigned
issuer;
iii. The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned issuer or its securities provided by
or on behalf of the undersigned issuer; and
iv. Any
other communication that is an offer in the offering made by the undersigned
issuer to the purchaser.
5.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer of controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
6. For
determining any liability under the Securities Act, treat the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act as
part of this Registration Statement as of the time the Commission declared it
effective.
7. For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new Registration Statement for
the securities offered in the Registration Statement, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
8. That,
for the purpose of determining liability under the Securities Act to any
purchaser:
a). If
the issuer is relying on Rule 430B:
1. Each
prospectus filed by the undersigned issuer pursuant to Rule 424(b)(3) shall be
deemed to be part of the Registration Statement as of the date the filed
prospectus was deemed part of and included in the Registration Statement;
and
2. Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a Registration Statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act shall
be deemed to be part of and included in the Registration Statement as of the
earlier of the date such form of prospectus is first used after effectiveness or
the date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the Registration Statement relating to the
securities in the Registration Statement to which that prospectus relates, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no statement made in a
Registration Statement or prospectus that is part of the Registration Statement
or made in a document incorporated or deemed incorporated by reference into the
Registration Statement or prospectus that is part of the Registration Statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the Registration
Statement or prospectus that was part of the Registration Statement or made in
any such document immediately prior to such effective date; or
b). If
the issuer is subject to Rule 430C:
Each
prospectus filed pursuant to Rule 424(b) as part of a Registration Statement
relating to an offering, other than Registration Statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the Registration Statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
Registration Statement or prospectus that is part of the Registration Statement
or made in a document incorporated or deemed incorporated by reference into the
Registration Statement or prospectus that is part of the Registration Statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the Registration Statement or
prospectus that was part of the Registration Statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form S-1 and authorized this Registration Statement to
be signed on its behalf by the undersigned in the City of Las Vegas, Nevada May
28, 2010.
CHINA
TELETECH LIMITED
|
|
/s/
Henry
Liguori
|
|
HENRY
LIGUORI
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
Chief
Financial Officer (Principal Accounting
Officer)
|
In
accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
/s/ Henry
Liguori
HENRY
LIGUORI
Chief
Executive Officer (Principal Executive Officer)
Chief
Financial Officer (Principal Accounting Officer)
Director
May 28,
2010