Attached files
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EX-32.2 - EXHIBIT 32.2 - REDtone Asia Inc | ex322.htm |
EX-32.1 - EXHIBIT 32.1 - REDtone Asia Inc | ex321.htm |
EX-31.2 - EXHIBIT 31.2 - REDtone Asia Inc | ex312.htm |
EX-31.1 - EXHIBIT 31.1 - REDtone Asia Inc | ex311.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
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☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended April 30, 2016
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from ______ to______
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Commission file number 333-129388
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REDTONE ASIA, INC.
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(Exact Name of registrant as specified in its charter)
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Nevada
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71-098116
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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12 Floor, Hualin Building, Caoxi Road, Xuhui District, 200235 Shanghai, PRC
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code (86) 6103 2230
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.0001 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act. Yes ☒ No ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (of for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☒
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant as of April 30, 2016 was $11,292,614. Although listed on the OTCBB under the symbol RTAS, there is currently no active trading for the registrant's common stock. Therefore, the aggregate market value of the stock is deemed to be $11,292,614.
At the date of this report, there were 282,315,356 outstanding shares of REDtone Asia, Inc. Common Stock, $0.0001 par value.
Documents Incorporated by Reference: None
Table of Contents
PART I
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ITEM 1. BUSINESS
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1
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ITEM 1A. RISK FACTORS
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5
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ITEM 1B. UNRESOLVED STAFF COMMENTS
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5
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ITEM 2. PROPERTIES
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5
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ITEM 3. LEGAL PROCEEDINGS
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5
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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5
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PART II
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ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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6
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ITEM 6. SELECTED FINANCIAL DATA
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6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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6
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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9
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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9
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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10
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ITEM 9A. CONTROLS AND PROCEDURES
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10
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ITEM 9B. OTHER INFORMATION
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10
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PART III
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
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11
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ITEM 11. EXECUTIVE COMPENSATION.
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12
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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13
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
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13
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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14
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PART IV
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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15
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Note About Forward-Looking Statements
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe", "project", "expect", "anticipate", "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," "possible," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled "Risk Factors" (refer to Part I, Item 1A). We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
Historical Overview
The Company's major subsidiaries during the years are illustrated as follows:
Name
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Domicile and date of incorporation
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Effective ownership
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Principal activities
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REDtone Telecommunication (China) Limited ("REDtone China")
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Hong Kong
May 26, 2005
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100%
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Investment holding
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REDtone Telecommunications (Shanghai) Limited ("REDtone Shanghai")
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The PRC
July, 26, 2005
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100%
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Provides technical support services to group companies
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Shanghai Huitong Telecommunication Company Limited ("Huitong") 1
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The PRC
March, 26, 2007
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100%
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Marketing and distribution of IP call and discounted call services in the PRC
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Shanghai Jiamao E-Commerce Company Limited ("Jiamao") 1
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The PRC
March 21, 2008
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100%
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Marketing and distribution of IP call and discounted call services in the PRC
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Shanghai Xin Chang Information Technology Company Limited ("Xin Chang") 1
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The PRC
January 13, 2006
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56%
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Marketing and distribution of IP call and discounted call services in the PRC
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VMS Technology Limited
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Hong Kong
September 14, 1998
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100%
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Trading of discounted call related equipment and provision of related services
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RT Communications Ltd
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BVI
February 24, 2010
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100%
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Investment holding
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Shanghai YuZhong Financial Information Service Co., Ltd ("YuZhong") 1
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The PRC
July 16, 2014
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49.8%
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Investment holding
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Shanghai YuGuang Automobile Inspection Technology Co., Ltd ("YuGuang") 1
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The PRC
July 17, 2014
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59.8%
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Investment holding
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Taizhou Haitai Motor Vehicle Inspection Co, Ltd. ("Haitai") 1
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The PRC
October 31, 2013
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30.5%
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Investment holding
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Feng Cheng Motor Vehicle Inspection Co., Ltd. ("FengCheng") 1,
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The PRC
November 30, 2012
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30.5%
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Dormant
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1 - Variable interest entities
1
Business of the Issuer
Corporate Structure
2
Control through equity ownership
Control through contractual binding ("VIE")
On April 30, 2007, the Company entered into loan agreements with Mao Junbao ("MJ") and MH for the establishment of Shanghai Huitong Telecommunications Co., Ltd ("Huitong"). On April 30, 2007, the Company entered into an equity pledge agreement, which provides that MJ and MH would pledge all their equities in Huitong to the Company and REDtone Shanghai.
On July 16, 2014, Huitong, Mao Hong, a director and nominee shareholder of certain VIEs, and Wei Gang, an independent third party jointly incorporated Shanghai YuZhong Financial Information Service Co., Ltd ("YuZhong") and the founders owned 49.8%, 25.1% and 25.1% of equity interests in YuZhong, respectively.
On July 17, 2014, Huitong and YuZhong jointly incorporated Shanghai YuGuang Automobile Inspection Technology Co., Ltd ("YuGuang"). Huitong and YuZhong own 20% and 80% of equity interests in YuGuang, respectively.
On September 11, 2014, YuGuang entered into an agreement with Zhou Jin Shan and Chen Xiu Lan to acquire 51% equity interest in Taizhou Haitai Motor Vehicle Inspection Co, Ltd. ("Haitai") from Zhou Jin Shan at a consideration of RMB652,800. Haitai is principally engaged in the provision of motor vehicle inspection service in the PRC. The acquisition was completed in January 2015.
As of the date of acquisition, Haitai has 51% equity interest in Feng Cheng Motor Vehicle Inspection Co., Ltd. ("FengCheng"). FengCheng is principally engaged in the provision of services for motor vehicle technical and emission inspection. Haitai and FengCheng was collectively known as "Haitai Group".
Although the Company is not the shareholder of Huitong, Jiamao, Xin Chang, YuZhong, YuGuang, Haitai, and FengCheng, the Company has determined that it is the primary beneficiary of these seven (7) entities, as the Company has their respective voting powers and is entitled to receive all the benefits from the operations of these seven (7) entities. Hence, Huitong, Jiamao, Xin Chang, YuZhong, YuGuang, Haitai, and FengCheng, are identified as VIEs and are consolidated as subsidiaries of the Company.
Mr Mao Hong, the appointed Chief Operating Officer, is also a shareholder of Huitong and YuZhong.
Business Overview
We are principally involved in the business of offering discounted call services and paperless reload services for prepaid mobile air-time reload for end users and corporate segment for end users in Shanghai covering all three major telecommunication operators namely China Mobile, China Unicom and China Telecom.
Products and Services
During the period ended April 30, 2016, REDtone China offers the following services to customers:
1. Discounted call services for consumers ("EMS")
2. Discounted call services for corporate customers
3. Reload services for prepaid mobile
Our venture into the car inspection business with a "One-Stop Centre" located in Taizhou City of the PRC has ceased operations due to some unforeseen higher total investment costs
Competition
The telecommunications industry in China is dominated by three state-run corporations: China Telecom Corporation Limited, China Mobile Communications Corporation and China United Network Communications Group Co., Ltd, all of whom have 3G licenses and engaged fixed-line and mobile business in China.
We see competition from:
(i) Direct Telecommunication Operators namely China Telecom Corporation Limited, China Mobile Communications Corporation and China United Network Communications Group Co., Ltd. These companies may adopt a more aggressive pricing on their local and international calls and have direct impact on our discounted call services for corporate segment. Likewise, if these operators offer very competitive rates for domestic, long distance and international calls, it could pose a substitution threat to our EMS services.
3
(ii) Other Discounted Service Providers
The discounted service providers such as Super E-Secretary operate domestic calls and the tool to compete is to provide discount on long distance calls. This company, despite being a small player (less than 15% market share) in the Shanghai discounted consumer call market, may cause the price disruption when they compete on price aggressively.
(iii) Other Mobile airtime reload service providers
Other competitors like Smartpay, Defeng and YiQiao offers similar mobile airtime reload services in Shanghai. They entered into this reload services earlier than us but we command slightly better price advantage and better system support for paperless mobile reload in comparison with conventional paper-based reload model.
We believe our competitive advantage is derived from the following strengths:
(a)
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Competitive Pricing
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We, being one of the leading alternative voice service providers in Shanghai in terms of market share, could command the economies of scale to achieve lower minutes cost and lower operating cost per minute. Additional cost advantage is the low capital investment with self-developed technology. By having advantage of longer market presence, credibility and dominant market share, we can afford to price its products and services competitively while maintaining healthy gross margins.
(b)
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Innovation
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Innovation embodied in all the products and services is the key to the competitive advantage of our operations. In addition, innovation also helps us to truly serve the needs of the customers and to provide value-added services and products to the customers.
Close communication with our front line resellers will enable us to gather market intelligence and assist us in strategy formulation that is relevant to market needs.
(c)
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Value Added Services
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For the telecommunications services we provide, customers would also benefit from value added services in our convenient reload, customer care services and support, and e-billings.
Regulatory Matters
REDtone China does not provide direct telecommunication services in PRC. REDtone China acts as a distributor for CTT. REDtone China has a business licence issued by PRC's State Administration for Industry and Commerce to carry out the distribution services. REDtone China does not require a telecommunication licence to carry out its distribution activities.
We do not anticipate having to expend significant resources to comply with any governmental regulations applicable to our operations. We are subject to the laws and regulations which are generally applicable to business operations, such as business licensing requirements, income taxes and payroll taxes.
However, the telecommunications industry is highly regulated in China. PRC laws and regulations will be modified and updated from time to time by the China government. In addition, many PRC laws and regulations are subject to extensive interpretive power of governmental agencies and commissions, and there is substantial uncertainty regarding the future interpretation and application of these laws or regulations.
Costs of Compliance with Environmental Laws
We are not presently affected by and do not have any costs associated with compliance with environmental laws.
Customers and Suppliers
Our major customers are end users and corporate clients in Shanghai. Our suppliers are mainly termination partners and telecommunication players such as China TieTong Telecommunications ("CTT"), China Mobile and China Unicom and China Telecom.
4
Intellectual Property and Research and Development
The Company has no registered patents, trademarks or copyrights and no applications for patents, trademarks or copyrights are pending.
The Company utilized intellectual property pursuant to an agreement signed between REDtone Technology Sdn. Bhd, and REDtone Telecommunications (China) Ltd on 11 August 2005 in respect of the acquisition of the software with regards to the Customer billing, commission management, top-up management, traffic management, cardless system and gateway interface system suite.
The "REDtone" logo in Chinese is registered trademarks in China valid until October 13, 2020.
The Company did not incur any research and development expenses in the fiscal period ended April 30, 2016.
Number of Employees
Currently, our Chief Operating Officer manages the Company. We had thirty-four (34) employees including nine (9) in the Management team, twelve (12) in Research & Development, Customer Care, Sales and Marketing as well as Finance and Administrative, and balance of thirteen (13) in Technical supports. None of our employees are represented by labor unions or subject to collective bargaining agreements. We believe our employee relations are good and have no employee related dispute recorded over the years.
ITEM 1A. RISK FACTORS
As a smaller reporting company, the Company is not required to provide the information required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 12 Floor, Hualin Building, Caoxi Road, Xuhui District, Shanghai, PRC. The Company's management believes that all facilities occupied by the Company are adequate for present requirements, and that the Company's current equipment is in good condition and is suitable for the operations involved.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to and none of our property is subject to any material pending or threatened legal, governmental, administrative or judicial proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Articles of Incorporation provide that the Company has the authority to issue 300,000,000 shares of common stock at par value of $0.0001 per share. As of April 30, 2016, we had 282,315,356 outstanding shares of Common Stock.
On March 25, 2011, our common stock began being quoted on the OTCBB under the symbol "RTAS". We have not had any active trading in our stock as of the date of this report.
The Company has never paid any cash dividends on its stock and does not plan to pay any cash dividends in the foreseeable future.
As of April 30, 2016, we had approximately 49 shareholders of record.
Equity Compensation Plans
The Company does not have any equity compensation plans in place as of the date of this report, and had no options, warrants or other convertible securities outstanding as of that date.
Sales of Unregistered Securities
For the period from June 1, 2016 to the date of this report, there is no sale of unregistered securities.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, the Company is not required to provide the information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are principally involved in the business of offering discounted call services and paperless reload services for prepaid mobile air-time reload for end users and corporate segment in Shanghai covering all three major telecommunication operators namely China Mobile, China Unicom and China Telecom.
Our venturing into car inspection business in PRC since January 2015 has ceased operation as of the date of this report.
Results of Operations
Financial Presentation
The following sets forth a discussion and analysis of the Company's financial condition and results of operations for the two financial periods ended April 30, 2016 and year ended May 31, 2015 respectively. This discussion and analysis should be read in conjunction with our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Item 1A — Risk Factors" of this Annual Report on Form 10-K.
6
Results of continuing operations for period ended April 30, 2016 compared to year ended May 31, 2015
Year ended
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Apr 30, 2016
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May 31, 2015
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Increase/(Decrease) from previous year
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Revenue
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5,100,897
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8,423,788
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(3,322,891
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-39
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%
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Other income and gains
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120,957
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117,179
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3,778
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3
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%
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Service costs
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(3,996,707
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(6,908,020
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(2,911,313
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-42
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%
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Personnel cost
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(642,665
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(827,606
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(184,941
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-22
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%
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Depreciation expense
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(379,941
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(541,142
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(161,201
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-30
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%
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Amortization expense
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(145,051
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)
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(321,033
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(175,982
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-55
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%
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Administrative and other expenses
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(4,208,749
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)
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(1,165,708
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)
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3,043,041
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261
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%
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Loss before provision for income taxes
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(4,151,259
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)
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(1,222,542
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)
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2,928,717
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239
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%
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Provision for income taxes
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(539,787
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)
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(68,002
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471,785
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693
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%
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Net loss before non-controlling interest
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(4,691,046
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)
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(1,290,544
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3,400,502
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263
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%
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Revenues. The Company generated revenue of $5,100,897 in the fiscal period ended April 30, 2016, representing a 39% decrease as compared with the fiscal year ended May 31, 2015. The decrease was mainly due to an intensely drop in our traffic minutes that we are facing the competitive from internet call such as WeChat, QQ and so forth.
Other income and gains. During the fiscal period ended April 30, 2016, the Company recorded other income and gains of $120,957, a marginal increase of $3,778 or 3% compared with last year. The increase was due to increase in interest income from trust fund placements.
Service cost. Service costs from operations for the period ended April 30, 2016 of $3,996,707 reflected a reduction of $2,911,313 over the fiscal year ended May 31, 2015. The decreased was consistent with the decrease in our revenue.
Personnel expenses. The personnel expenses have decreased 22% or $184,941 to $642,665 for the period ended April 30, 2016. This is mainly due to reduction in manpower arising from the slow-down of our telecommunications operation.
Depreciation and amortization expenses. The depreciation is decreased by 30% or $161,201 compared to last year. The decrease is mainly due to the Company has fully depreciated some of the fixed assets during the period.
Amortization expense has decreased by $175,982 or 55% compared to last year. The decrease in amortization expense was mainly attributable to the absent of an amortization of a newly acquired customer base of $154,074 during the period. The said customer base was fully amortised in financial year 2015.
Administrative and other operating expenses. The general and administrative expenses have increased $3,043,041 or 261% to $4,208,749. This is mainly due to the inclusion of the impairment of fixed assets amounted $2,591,832, impairment of goodwill $377,171, impairment of account receivable $196,138 and impairment of inventory $20,309 during the period.
Loss before provision for income taxes. For the fiscal period under review, the dramatically decreased in the revenue and the inclusion of impairment in fixed assets, goodwill, account receivables and inventory have caused the loss before provision for income taxes stood at $4,691,046 as compared to the loss before provision for income taxes of $1,290,544 over fiscal year ended May 31, 2015.
Provision for income taxes. For the fiscal period under review, there is an income tax provision of $539,787 compared to income tax income of $68,002 over the financial year 2015.
Net loss before non-controlling interest. For the fiscal period under review, the decreased in revenue and the inclusion of impairment of fixed assets, goodwill, account receivables and inventory have caused the net loss before non-controlling interest stood at $4,691,046 as compared to a net loss of $1,290,544 over fiscal year 2015.
7
Liquidity and Capital Resources.
Cash
Our cash balance at April 30, 2016, was $345,315, representing a decrease of $455,506, from previous cash balance of $800,821 as of May 31, 2015.
Cash Flow from Continuing Operations (before effect of exchange rate changes).
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Apr 30, 2016
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(Restated)
May 31, 2015
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+/-
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Net cash (used in)/ provided by operating activities
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$
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(251,616
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)
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$
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650,117
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N/A
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||||||
Net cash (used in)/ provided by investing activities
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$
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(2,448
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)
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$
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1,670,481
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N/A
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Net cash used in financing activities
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$
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(87,831
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)
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$
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(1,106,884
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)
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(1,019,053
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)
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Net decrease in cash and cash equivalents
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(341,895
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)
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(2,127,248
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)
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(1,785,353
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)
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Net cash used in operations during the fiscal period ended April 30, 2016 amounted to $251,616 as compared to net cash provided by operations of $650,117 in the corresponding FY2015, the change was mainly due to lower revenue generated during the period.
Net cash flow provided by investing activities for the fiscal year ended May 31, 2015 amounted to $1,670,481 mainly represents consideration received for the disposal of QBA during the year, net off with cash paid in purchase of property, plant and equipment.
There was net cash used in financing activities for the period ended April 30, 2016 total $87,831 mainly represents settlement of amount due to related parties.
Working Capital
Our working capital was a negative of $446,983 at April 30, 2016. The increased in working capital is mainly due to lower revenue generated during the period.
At April 30, 2016, we had stockholders' equity of $4,605,944; total assets of $7,846,279 and total current liabilities of $5,668,861.
We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurances that our business will not be affected by inflation in the future.
We have no off balance sheet arrangements.
Critical Accounting Policies and Estimates
Revenue Recognition
The Company assesses appropriate revenue recognition policy for each type of operation according to ASC 605-45
8
Revenue represents the invoiced value of services rendered and receivable during the year. Revenue is recognized when all of the following criteria are met:
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•
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Persuasive evidence of an arrangement exists,
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•
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Delivery has occurred or services have been rendered,
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•
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The seller's price to the buyer is fixed or determinable, and
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•
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Collectability is reasonably assured
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Revenue Recognition policy for each of the major products and services:
1.
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Discounted call services for consumer (EMS) as follow:
· Collaboration with CTT – REDtone China is appointed as the sole distributor for EMS and we will recognize the revenue when airtime is utilize by the consumer and it is on net basis which is computed based on a fixed sharing ratio of the total airtime utilize by consumers after netting of direct traffic termination cost and incidental expenses as per the collaboration agreement with CTT. REDtone China's role for Business Collaboration with CTT would be as "Agent" as REDtone China is the sole distributor for EMS brand owned and controlled by CTT; and
· Collaboration with other telecommunication providers – REDtone China will act as discounted consumer call Reseller whereby REDtone China will decide on service and package specification, pricing policy while China Unicom merely acts as passive termination partner for call traffic. REDtone China will pay China United Network Communications Company Ltd ("China Unicom") solely based on call traffic termination by China Unicom at prescribed rate (defined as traffic termination cost in the book of REDtone China). In this regard, REDtone China will recognize the revenue when the consumer utilizes airtime and the value recognize is the call charges gross value. REDtone China role for Business Collaboration with China Unicom would be as "Principal" as China Unicom is playing passive role as traffic termination partner while REDtone China is fully responsible for the entire management of discounted call services.
As this is a prepaid product, there is an expiry date for the product sold. If the airtime is not utilize by the expiry date, which is currently one year from the activation date, it will be deemed expired and recognize as revenue based on the remaining gross value of the expired prepaid product.
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2.
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Discounted call services for corporate as follow:
· Collaboration with CTT – the revenue recognize is the commission earn from distributing the discounted call services to corporate customer; and
· Collaboration with other telecommunication providers –the revenue recognize is the commission earn from distributing the discounted call services to corporate customer.
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3.
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Reload services for prepaid mobile – revenue recognize is the commission earn.
|
4. | Collaboration with Shanghai Huili Telecommunications Co., Ltd ("Huili") – Huili will act as "intermediary agent" to resell the call traffic termination by Redtone China. Huili will pay Redtone China the termination costs on the books of Redtone China. |
Recent Accounting Pronouncements.
The Company does not expect the adoption of any recent accounting pronouncements which are further elaborated in Note 3 (o) of Notes to Consolidated Financial Statements will have any material impact on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company is not required to provide information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements and the notes thereto appear in Part IV, Item 15, of this report.
9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief operating officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our chief operating officer and chief financial officer concluded that our disclosure controls were effective as of the end of the period covered by this annual report.
(b) Changes in Internal Controls. There have been no changes in our internal controls over financial reporting during the fiscal period ended April 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
(c) Management's Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, as amended. The Company's internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company's financial reporting and the preparation of financial statements in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's consolidated financial statements.
|
Internal control over financial reporting, no matter how well designed, has inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company's internal control over financial reporting as of April 30, 2016. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (1992).
Based on the Company's processes and assessment, as described above, management has concluded that, as of April 30, 2016, the Company's internal control over financial reporting was effective.
This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation requirements by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Annual Report on Form 10-K for the period ended April 30, 2016.
ITEM 9B. OTHER INFORMATION
There were no items required to be disclosed in a report on Form 8-K during the fourth quarter of the fiscal period ended April 30, 2016 that have not been already disclosed on a Form 8-K filed with the SEC.
10
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth as of the date hereof, except as otherwise noted, the names, ages and positions held with respect to each director, executive officer, and significant employee expected to make a significant contribution to the Company:
|
|
|
|
Name
|
Age
|
Position
|
Period
|
|
|
|
|
Chuan Beng Wei
|
51
|
Director
CEO
|
July 2008 - Present
October 2010- Present
|
Lau Bik Soon
|
46
|
Director
|
October 2010-Present
|
|
|
|
|
Ng Hui Nooi
|
43
|
CFO
|
March 2012-Present
|
Mr. Chuan Beng Wei, age 51, is now the Chief Executive Officer of the Company. Mr. Wei has been and will continue serving on the Board of Directors of the Company. He obtained his Bachelor's Degree in Electrical Engineering from University of Technology Malaysia in 1989 and Diploma in Management (Gold Medalist Award Winner) from the Malaysian Institute of Management, Kuala Lumpur in 1995. He also completed an Entrepreneur Development Program from the renowned MIT Sloan School of Management in USA in January 2006.
He began his career with Hewlett Packard Sales Malaysia Sdn Bhd in 1989 as a Systems Engineer responsible for information technology ("IT") technical and customer relations, and was subsequently promoted to Major Account Manager. Having gained wide exposure in IT, electronics and the telecommunications industry, he began his entrepreneur pursuit. He started REDtone Telecommunications Sdn Bhd in 1996 with two other partners. As one of the founding members of the REDtone Group, he is instrumental in shaping the Group's business relations and policies. His main responsibilities include management of the Group's overall business, expanding its overseas markets and financial-related matters. Mr Wei also serves as the Managing Director of the REDtone Group, which was listed in January 2004 in the ACE Market of Bursa Malaysia. In addition, in 2007, Mr Wei started REDtone China where he played a significant role in developing business strategy in China. He was the past Chairman for The Association of Computer and Multimedia Malaysia and the past Deputy Chapter Chairperson for the exclusive Young Presidents' Organization (YPO).
Mr. Bik Soon Lau, age 46, obtained his first-class honors degree in electrical engineering from the University of Technology in Malaysia. He joined REDtone in 2008, as an executive director responsible for expanding the Group's Malaysia business which includes data, broadband, Wifi and discounted call services. Prior to joining REDtone, he was the Country Manager for Hitachi Data Systems Malaysia from year 2005 to 2008. Under his leadership in Hitachi, he strengthened the organisation and company's channel partner, and helped the company grow its business in Malaysia.
Mr. Lau's 17 years of experience as Sales Director in the ICT and telecommunications industry provides expertise in corporate leadership and strategic marketing planning. In his career, he has held numerous other positions, including sales director, partner sales manager, enterprise division account manager, business development manager, systems engineer, and research and design engineer. He has held these positions with organizations such as Cisco Systems, Sun Microsystems, Compaq Computer, TQC Consultant (IT Division) Sdn Bhd, and Motorola Penang. During his tenure with these organizations, he received various Partner Management Excellence awards as well as many accolades as a high achiever in sales.
Ms. Hui Nooi Ng, age 43, a Malaysian Chartered Accountant, obtained her Professional Degree from The Association of Chartered Certified Accountants in 2004. Ms. Ng has more than nineteen years of working experience in accountancy and has held various positions from accountant to finance manager with companies in Malaysia and Vietnam. In 1999, she joined ChemQuest Sdn Bhd, as an accountant, fully responsible for the finance and accounting operations for the company. In 2010, she joined Poh Huat Furniture Ind. Vietnam Joint Stock Co, a Malaysian manufacturing company based in Vietnam as the Finance Manager. In this position, her main responsibilities included financial review and reporting, budgeting, business planning and risk management and treasury functions.
11
Number and Terms of Office of Directors
A Board of Directors, consisting of at least one (1) person shall be chosen annually by the Stockholders at their meeting to manage the affairs of the company. The Directors' term of office shall be one year, and Directors may be re-elected for successive annual terms. There is no family relationship between any of our executive officers and directors.
Code of Ethics
The Company has not yet adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, comprising written standards that are reasonably designed to deter wrongdoing and to promote the behavior described in Item 406 of Regulation S-K promulgated by the Securities and Exchange Commission. Due to the small size of the Company, management does not believe such a code is needed at this time.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors, executive officers and persons who own more than 10% of the Company's stock (collectively, "Reporting Persons") to file with the SEC initial reports of ownership and changes in ownership of the Company's Common Stock. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal period ended April 30, 2016, all Reporting Persons complied with all applicable filing requirements.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal period ended April 30, 2016 and fiscal year ended May 31, 2015, certain information regarding the compensation earned by the Company's named executive officers. Where columns have been omitted from the Summary Compensation Table below, it is because no such compensation was paid to the named executive officer during the 2016 fiscal period or 2015 fiscal years.
SUMMARY COMPENSATION TABLE
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Annual Compensation
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
Other
|
|
|
All Other
|
|
||||
Name and
|
|
|
|
|
|
|
|
|
Annual
|
|
|
Compen-
|
|
||||
Principal
|
|
Salary
|
|
|
Bonus
|
|
|
Compen-
|
|
|
Sation
|
|
|||||
Position
|
Year Ended/ Period Ended |
|
($)
|
|
|
($)
|
|
|
sation ($)
|
|
|
($)
|
|
||||
Chuan Beng Wei,
|
April 30, 2016
|
|
|
34,541
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Director, CEO
|
May 31, 2015
|
|
|
38,738
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bik Soon, Lau
|
April 30, 2016
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Director
|
May 31, 2015
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hui Nooi, Ng
|
April 30, 2016
|
|
|
15,072
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
CFO
|
May 31, 2015
|
|
|
15,495
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
Director Compensation
Members of the Board of Directors did not receive any cash or non-cash compensation for their service as Directors during our 2016 fiscal period and 2015 fiscal year.
Compensation Committee Interlocks and Insider Participation
As a smaller reporting company, the Company is not required to provide the disclosure required by this item.
12
Compensation Committee Report
As a smaller reporting company, the Company is not required to provide the disclosure required by this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth beneficial ownership information as of April 30, 2016: (i) each of the Company's officers and directors, (ii) each person who is known by the Company to own beneficially more than 5% of the outstanding shares of common stock, and (iii) all of the Company's officers and directors as a group. As of the date of this report, the Company had 282,315,356 shares of common stock outstanding.
(i) Security Ownership of directors and executive officers: None
(ii) Security ownership of certain beneficial owners:
|
|
|
|
|
|
|
|
||
Title of Class
|
Name and Address
|
|
Amount &
Nature of
Beneficial
Ownership
|
|
|
Percentage
of Class
|
|
||
|
|
|
|
|
|
|
|
||
Common shares
|
REDtone International Bhd,
Suites 22-28, 5th Floor,
IOI Business Park, 47100 Puchong,
Malaysia.
|
|
|
260,619,365
|
|
|
|
92.31
|
%
|
|
(iii)
|
Security ownership of officers and directors as a group: None.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
During the fiscal period ended April 30, 2016 and fiscal year ended May 31, 2015, there were no related transactions between the Company and the directors except the followings:
Amount due from a related company
2016
|
2015
|
|||||||
Fellow subsidiary:
|
||||||||
REDtone Technology Sdn. Bhd.
|
$
|
3,235,344
|
$
|
3,289,447
|
Amount due to related parties
2016
|
(Restated)
2015
|
|||||||
Fellow subsidiary:
|
||||||||
REDtone Telecommunications Sdn Bhd
|
$
|
173,409
|
$
|
160,420
|
||||
Related party:
|
||||||||
Shanghai Huili Telecommunications Co., Ltd
|
28,771
|
54,792
|
||||||
Non-controlling interests
|
1,798,633
|
1,873,432
|
||||||
2,000,813
|
2,088,644
|
13
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
Fiscal year ended April 30, 2016
|
DCAW (CPA) Limited
|
$
|
110,500
|
||
|
|
||||
Fiscal year ended May 31, 2015
|
AWC (CPA) Limited
|
$
|
52,500
|
•
|
Audit Fees.
|
|
|
|
-Including fees for professional services for the audit of our annual financial statements and for the reviews of the financial statements included in each of our quarterly reports on Form 10-Q.
|
|
|
•
|
Audit Related Fees
|
|
|
|
-Consists of assurance related services by the independent auditors that are reasonably related to the performance of the audit and review of our financial statements and are not included under audit fees.
|
|
|
•
|
Tax Fees
|
|
|
|
- These services included assistance regarding federal, state and local tax compliance and return preparation.
|
|
|
•
|
All Other Fees
|
|
|
|
-Includes time and procedures related to change in independent accountants and research and assistance provided to the Company.
|
During its fiscal period ended April 30, 2016, the Company did not have an Audit Committee and the Company's director pre-approved all fees of the principal accountant.
14
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS - beginning on page F-1 of this Report:
|
|
- Independent Auditors' Report
|
F1
|
- Consolidated Balance Sheet at April 30, 2016 and May 31, 2015
|
F2
|
- Consolidated Statements of Incomeand Comprehensive Income for the Period Ended April 30, 2016 and for the Year Ended May 31, 2015
|
F3
|
- Consolidated Statements of Changes in Equity for the Period Ended April 30, 2016 and for the Year Ended May 31, 2015
|
F4
|
- Consolidated Statements of Cash Flows for the Period Ended April 30, 2016 and for the Year Ended May 31, 2015
|
F5
|
- Notes to Consolidated Financial Statements
|
F6
|
15
DCAW (CPA) Limited
CERTIFIED PUBLIC ACCOUNTANTS
7/F, Nan Dao Commercial Building
359-361 Queen's Road Central
Hong Kong
Tel : (852) 2851 7954
Fax: (852) 2545 4086
|
正大會計師事務所有限公司
香港執業會計師
香港皇后大道中三五九至三六一號
南島商業大七樓
電話:(八五二)二八五一 七九五四
傳真:(八五二)二五四五 四O八六
|
To: The board of directors and stockholders of
Redtone Asia, Inc.
Report of Independent Registered Public Accounting Firm
We were engaged to audit the accompanying consolidated balance sheets of REDtone Asia, Inc. and its subsidiaries, ("the Company") as of April 30, 2016 and May 31, 2015, and the related consolidated statements of operation, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.
We were unable to evaluate correctness of the accounting treatment of one related party not being classified as variable interest entity. Had this related party been classified as variable interest entity, the consolidated balance sheet should have included this related party and we were unable to quantify the financial impact of such consolidation on the balance sheet and statements of operation. The outstanding balances of amount due to this related party derived from revenue and service costs for the years ended April 30, 2016 and May 31, 2015, appearing in the accompanying consolidated financial statements were and $28,771 and $54,792 respectively. The Company's records did not permit the application of other auditing procedures to obtain sufficient evidence regarding the correctness of the accounting treatment of amount due to the related party and such related parties transactions thereof.
Since the Company did not provide sufficient appropriate evidence and we were not able to apply other auditing procedures to satisfy ourselves as to evaluate the correctness of the accounting treatment of the related party not being a variable interest entity, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on these consolidated financial statements.
DCAW (CPA) Limited
/s/ DCAW (CPA) Limited
Certified Public Accountants
Hong Kong, China
August 9, 2016
F1
REDTONE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At April 30, 2016 and May 31, 2015
2016
|
(Restated)
2015
|
|||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
345,315
|
$
|
800,821
|
||||
Fixed deposits pledged with bank
|
3,081,486
|
3,223,718
|
||||||
Inventories
|
-
|
3,951
|
||||||
Accounts receivable
|
644,246
|
825,790
|
||||||
Other receivables and deposits
|
264,982
|
361,780
|
||||||
Other investment
|
941,649
|
1,038,037
|
||||||
Total current assets
|
5,221,878
|
6,254,097
|
||||||
Property, plant and equipment, net
|
1,014,560
|
3,803,404
|
||||||
Intangible assets, net
|
1,609,841
|
1,777,171
|
||||||
Goodwill
|
-
|
377,171
|
||||||
Total assets
|
7,902,079
|
12,211,843
|
||||||
Liabilities and stockholders' equity
|
||||||||
Liabilities
|
||||||||
Current liabilities
|
||||||||
Deferred income
|
1,145,770
|
1,138,911
|
||||||
Accounts payable
|
776,356
|
382,094
|
||||||
Accrued expenses and other payables
|
829,495
|
883,459
|
||||||
Amount due to related parties
|
2,000,813
|
2,088,644
|
||||||
Taxes payable
|
972,227
|
656,242
|
||||||
Liabilities related to assets held for sale
|
-
|
-
|
||||||
Total current liabilities
|
5,724,661
|
5,149,350
|
||||||
Total liabilities
|
5,724,661
|
5,149,350
|
||||||
|
||||||||
Equity
|
||||||||
Common stock, US$0.0001 par value , 300,000,000 shares authorized; 282,315,356 shares issued and outstanding, respectively
|
28,232
|
28,232
|
||||||
Additional paid in capital
|
7,726,893
|
7,726,893
|
||||||
Less: Amount due from a related company
|
(3,235,344
|
)
|
(3,289,447
|
)
|
||||
Retained earnings
|
(446,139
|
)
|
2,141,129
|
|||||
Accumulated other comprehensive income
|
532,302
|
836,582
|
||||||
Total stockholders' equity
|
4,605,944
|
7,443,389
|
||||||
Non-controlling interests
|
(2,428,526
|
)
|
(380,896
|
)
|
||||
Total equity
|
2,177,418
|
7,062,493
|
||||||
Total liabilities and stockholders' equity
|
7,902,079
|
12,211,843
|
||||||
See accompanying notes to the consolidated financial statements.
F2
REDTONE ASIA, INC. AND SUBSIDIARIESs
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Period Ended April 30, 2016 and Year ended May 31, 2015
2016
|
2015
|
|||||||
Continuing operations
|
||||||||
Revenue
|
5,100,897
|
8,423,788
|
||||||
Other income and gains
|
120,957
|
117,179
|
||||||
Service costs
|
(3,996,707
|
)
|
(6,908,020
|
)
|
||||
Personnel cost
|
(642,665
|
)
|
(827,606
|
)
|
||||
Depreciation expense
|
(379,941
|
)
|
(541,142
|
)
|
||||
Amortization expense
|
(145,051
|
)
|
(321,033
|
)
|
||||
Administrative and other expenses
|
(4,208,749
|
)
|
(1,165,708
|
)
|
||||
Loss before provision for income taxes
|
(4,151,259
|
)
|
(1,222,542
|
)
|
||||
Provision for income taxes
|
(539,787
|
)
|
(68,002
|
)
|
||||
Net loss before non-controlling interest
|
(4,691,046
|
)
|
(1,290,544
|
)
|
||||
Share of loss by non-controlling interest
|
2,103,778
|
351,862
|
||||||
Net loss
|
(2,587,268
|
)
|
(938,682
|
)
|
||||
Discontinued operations
|
||||||||
Net loss
|
-
|
(104,018
|
)
|
|||||
Gain on disposal of discontinued operations
|
-
|
1,010,987
|
||||||
Net income for the year
|
-
|
906,969
|
||||||
Net loss for the period/ year
|
||||||||
Net loss before non-controlling interest
|
(4,691,046
|
)
|
(383,575
|
)
|
||||
Non-controlling interest
|
2,103,778
|
351,862
|
||||||
Net loss for the period/ year
|
(2,587,268
|
)
|
(31,713
|
)
|
||||
Other comprehensive loss
|
||||||||
Loss on foreign currency translation of continuing operations
|
(304,280
|
)
|
(71,601
|
)
|
||||
Share of other comprehensive income by non-controlling interest
|
56,148
|
4,089
|
||||||
Other comprehensive loss attributable to shareholders of the Company
|
(248,132
|
)
|
(67,512
|
)
|
||||
Gain on foreign currency translation of discontinued operations
|
-
|
17,162
|
||||||
Total other comprehensive loss
|
(248,132
|
)
|
(50,350
|
)
|
||||
Total comprehensive loss
|
||||||||
- Attributable to continuing operations
|
(2,835,400
|
)
|
(1,006,194
|
)
|
||||
- Attributable to discontinued operations
|
-
|
924,131
|
||||||
Total comprehensive loss
|
(2,835,400
|
)
|
(82,063
|
)
|
||||
Earnings per share, basic and diluted
|
||||||||
– continuing operations
|
(0.00
|
)
|
(0.00
|
)
|
||||
– discontinued operations
|
0.00
|
0.00
|
||||||
Weighted average number of shares
|
282,315,356
|
282,315,356
|
||||||
See accompanying notes to the consolidated financial statements.
F3
REDTONE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Period Ended April 30, 2016 and Year ended May 31, 2015
Issued common shares
|
Common stock
|
Additional paid in capital
|
Amount due from a related company
|
Retained earnings
|
Other comprehensive income
|
Total stock-
holders' equity
|
Non-
controlling
interests
|
Total equity
|
||||||||||||||||||||||||||||
Balance at June 1, 2014
|
282,315,356
|
$
|
28,232
|
$
|
7,726,893
|
$
|
(3,272,950
|
)
|
$
|
2,172,842
|
$
|
891,021
|
$
|
7,546,038
|
$
|
163,770
|
$
|
7,709,808
|
||||||||||||||||||
Non-controlling interest arising from acquisition of subsidiary
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(196,893
|
)
|
(196,893
|
)
|
|||||||||||||||||||||||||
Increase in amount due from a related party
|
(16,497
|
)
|
-
|
-
|
(16,497
|
)
|
-
|
(16,497
|
)
|
|||||||||||||||||||||||||||
Net income for the year
|
-
|
-
|
-
|
-
|
(31,713
|
)
|
-
|
(31,713
|
)
|
(351,862
|
)
|
(383,575
|
)
|
|||||||||||||||||||||||
Foreign currency translation adjustments
|
-
|
-
|
-
|
-
|
-
|
(54,439
|
)
|
(54,439
|
)
|
4,089
|
(50,350
|
)
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Balance at May 31, 2015
|
282,315,356
|
$
|
28,232
|
$
|
7,726,893
|
$
|
(3,289,447
|
)
|
$
|
2,141,129
|
$
|
836,582
|
$
|
7,443,389
|
$
|
(380,896
|
)
|
$
|
7,062,493
|
|||||||||||||||||
Decrease in amount due from a related company
|
-
|
-
|
-
|
54,103
|
-
|
-
|
54,103
|
-
|
54,103
|
|||||||||||||||||||||||||||
Net loss for the year
|
-
|
-
|
-
|
-
|
(2,587,268
|
)
|
-
|
(2,587,268
|
)
|
(2,103,778
|
)
|
(4,691,046
|
)
|
|||||||||||||||||||||||
Foreign currency translation adjustments
|
-
|
-
|
-
|
-
|
-
|
(304,280
|
)
|
(304,280
|
)
|
56,148
|
(248,132
|
)
|
||||||||||||||||||||||||
Balance at April 30, 2016
|
282,315,356
|
$
|
28,232
|
$
|
7,726,893
|
$
|
(3,235,344
|
)
|
$
|
(446,139
|
)
|
$
|
532,302
|
$
|
4,605,944
|
$
|
(2,428,526
|
)
|
$
|
2,177,418
|
See accompanying notes to the consolidated financial statements.
F4
REDTONE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period Ended April 30, 2016 and Year ended May 31, 2015
2016
|
(Restated)
2015
|
|||||||
Cash flows from operating activities
|
||||||||
Cash flows from continuing operating activities
|
||||||||
Net loss before non-controlling interest
|
(4,691,046
|
)
|
(1,290,544
|
)
|
||||
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
|
||||||||
Amortization expense
|
145,051
|
321,033
|
||||||
Depreciation expense
|
379,941
|
541,142
|
||||||
Deferred tax
|
-
|
(4,759
|
)
|
|||||
Impairment in goodwill
|
377,171
|
-
|
||||||
Impairment in fixed assets
|
2,591,832
|
-
|
||||||
Impairment in inventories
|
20,309
|
-
|
||||||
Impairment on allowance for debts
|
196,138
|
-
|
||||||
Changes in operating assets and liabilities:
|
||||||||
(Increase)/ Decrease in accounts receivable
|
(14,594
|
)
|
2,073,186
|
|||||
(Increase)/ Decrease in inventories
|
(16,358
|
)
|
23
|
|||||
Decrease in other receivables and deposits
|
96,798
|
721,489
|
||||||
Decrease in tax recoverable
|
-
|
23,372
|
||||||
Decrease in deferred income
|
6,859
|
395,118
|
||||||
Increase/ (Decrease) in accounts payable
|
394,262
|
(2,416,279
|
)
|
|||||
Increase/ (Decrease) in tax payables
|
315,985
|
(14,883
|
)
|
|||||
(Decrease)/ Increase in accrued liabilities and other payables
|
(53,964
|
)
|
301,219
|
|||||
Net cash (used in)/ provided by continuing operating activities
|
(251,616
|
)
|
650,117
|
|||||
Net cash (used in) discontinued operating activities
|
-
|
(113,811
|
)
|
|||||
(251,616
|
)
|
536,306
|
||||||
Cash flows from investing activities
|
||||||||
Cash flows from investing activities – continuing operations
|
||||||||
Purchase of property, plant and equipment
|
(295,171
|
)
|
(1,692,890
|
)
|
||||
Purchases of intangible assets
|
-
|
(161,400
|
)
|
|||||
Decrease/ (increase) in amount due from a related company
|
54,103
|
(16,497
|
)
|
|||||
Decrease/ (increase) in trust fund
|
96,388
|
(1,038,037
|
)
|
|||||
Decrease/ (increase) in fixed deposits pledged with bank
|
142,232
|
(3,223,718
|
)
|
|||||
Net cash (used in) acquisition of interest in subsidiaries
|
-
|
(103,874
|
)
|
|||||
Proceeds from disposal of subsidiaries
|
-
|
4,565,935
|
||||||
Net cash used in continuing investing activities
|
(2,448
|
)
|
(1,670,481
|
)
|
||||
Net cash flows used in discontinued investing activities
|
-
|
(1,590,743
|
)
|
|||||
(2,448
|
)
|
(3,261,224
|
)
|
|||||
Cash flows from financing activities
|
||||||||
Cash flows from continuing financing activities
|
||||||||
Decrease in amount due to discontinued operations
|
-
|
(1,375,268
|
)
|
|||||
Capital contributed by non-controlling interests
|
-
|
64,599
|
||||||
(Decrease)/ Increase in amount due to related parties
|
(87,831
|
)
|
203,785
|
|||||
|
||||||||
Net cash used in continuing financing activities
|
(87,831
|
)
|
(1,106,884
|
)
|
||||
Net cash flows from discontinued financing activities
|
-
|
-
|
||||||
|
(87,831
|
)
|
(1,106,884
|
)
|
||||
Net decrease in cash and cash equivalents
|
||||||||
Continuing operations
|
(341,895
|
)
|
(2,127,248
|
)
|
||||
Discontinued operations
|
-
|
(1,704,554
|
)
|
|||||
(341,895
|
)
|
(3,831,802
|
)
|
|||||
Effect of exchange rate changes on cash and cash equivalents
|
||||||||
Continuing operations
|
(113,611
|
)
|
(63,207
|
)
|
||||
Discontinued operations
|
-
|
17,162
|
||||||
(113,611
|
)
|
(46,045
|
)
|
|||||
Cash and cash equivalents at beginning of year
|
||||||||
Continuing operations
|
800,821
|
2,991,276
|
||||||
Discontinued operations
|
-
|
1,687,392
|
||||||
Combined Cash and cash equivalent at beginning of year
|
800,821
|
4,678,668
|
||||||
Less: cash and cash equivalents included in beginning assets held for sale
|
-
|
(1,687,392
|
)
|
|||||
Cash and cash equivalent at beginning of year
|
800,821
|
2,991,276
|
||||||
Cash and cash equivalents at end of year
|
||||||||
Continuing operations
|
345,315
|
800,821
|
||||||
Discontinued operations (included in assets held for sale)
|
-
|
-
|
||||||
345,315
|
800,821
|
|||||||
Supplementary information – continuing operations
|
||||||||
Cash paid for income taxes
|
3,879
|
42,639
|
||||||
Cash paid for interest
|
-
|
-
|
||||||
See accompanying notes to the consolidated financial statements.
F5
REDTONE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2016
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
REDtone Asia, Inc. and subsidiaries (the "Company") are a group of companies in The People's Republic of China ("PRC"). The principal activities of the Company are that of a telecommunications provider for mobile, fixed and international gateway services. REDtone provides a wide range of telecommunication services, including prepaid and postpaid discounted call services to corporate customers and consumers as well as prepaid mobile airtime top-up. The Company also offers prepaid shopping card services.
The Company's major subsidiaries during the years are illustrated as follows:
Name
|
Domicile and date of incorporation
|
Effective ownership
|
Principal activities
|
|||
Redtone Telecommunication (China) Limited ("Redtone China")
|
Hong Kong
May 26, 2005
|
100%
|
Investment holding
|
|||
Redtone Telecommunications (Shanghai) Limited ("Redtone Shanghai")
|
The PRC
July, 26, 2005
|
100%
|
Provides technical support services to group companies
|
|||
Shanghai Huitong Telecommunication Company Limited ("Huitong") 1
|
The PRC
March, 26, 2007
|
100%
|
Marketing and distribution of IP call and discounted call services in the PRC
|
|||
Shanghai Jiamao E-Commerce Company Limited ("Jiamao") 1
|
The PRC
March 21, 2008
|
100%
|
Marketing and distribution of IP call and discounted call services in the PRC
|
|||
Shanghai Xin Chang Information Technology Company Limited ("Xin Chang") 1
|
|
The PRC
January 13, 2006
|
|
56%
|
|
Marketing and distribution of IP call and discounted call services in the PRC
|
VMS Technology Limited
|
Hong Kong
September 14, 1998
|
100%
|
Trading of discounted call related equipment and provision of related services
|
|||
RT Communications Ltd
|
BVI
February 24, 2010
|
100%
|
Investment holding
|
|||
Shanghai YuZhong Financial Information Service Co., Ltd ("YuZhong") 1
|
The PRC
July 16, 2014
|
49.8%
|
Investment holding
|
|||
Shanghai YuGuang Automobile Inspection Technology Co., Ltd ("YuGuang") 1
|
The PRC
July 17, 2014
|
59.8%
|
Investment holding
|
|||
Taizhou Haitai Motor Vehicle Inspection Co, Ltd. ("Haitai") 1
|
The PRC
October 31, 2013
|
30.5%
|
Investment holding
|
|||
Feng Cheng Motor Vehicle Inspection Co., Ltd. ("FengCheng") 1
|
The PRC
November 30, 2012
|
30.5%
|
Dormant
|
|||
1 - Variable interest entities
F6
Nantong Jiatong, Hongsheng and QBA were disposed of July 25, 2014. The corresponding results for years ended May 31, 2015 (up to disposal date) was reported as discontinued operations. See also Footnote 4.
Prior to disposal of Hongsheng, the Company transferred its equity interest in Xin Chang to Huitong. The statutory registration was completed in September 2014.
YuZhong, YuGuang, Haitai and FengCheng are new subsidiaries in previous financial year. See also Footnote 5.
NOTE 2 – PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements for the period ended April 30, 2016 and year ended May 31, 2015 include the accounts of the Company, the Company's subsidiaries and VIEs (see Note 1). The consolidated financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America, and all significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company's operations is the Renminbi ("RMB"), while the reporting currency is the US Dollar.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Economic and political risk
The Company's major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in PRC may influence the Company's business, financial condition, and results of operations.
The Company's major operations in the PRC are subject to considerations and significant risks typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
(b) Cash and cash equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
(c) Accounts receivable and other receivables
Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable.
F7
Impairment on allowance for debts for the period ended April 30, 2016 and year ended May 31, 2015 amounted to $196,138 and $nil, respectively.
(d) Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation. The cost of maintenance and repairs is charged to the statement of operations as incurred, whereas significant renewals and improvements are capitalized. The cost and the related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of operations.
The Company provides for depreciation of property, plant and equipment principally by use of the straight-line method for financial reporting purposes. Plant and equipment are depreciated over the following estimated useful lives:
Computer and software
|
5 years
|
Furniture, fixtures and equipment
|
5 years
|
Motor vehicles
|
5 years
|
Leasehold improvements
|
5 years
|
Telecommunication equipment
|
10 years
|
Depreciation expense attributable to continuing operations for the period ended April 30, 2016 and year ended May 31, 2015 amounted to $379,941 and $541,142, respectively. Depreciation expense attributable to discontinued operations for the period ended April 30, 2016 and year ended May 31, 2015 amounted to $nil and $3,689, respectively.
(e) Intangible assets
IT license and software and operating license and are generally amortized on a straight-line basis over the expected periods of benefit, in 20 years. Customer base are amortized on a straight-line basis over 3 years.
The Company performs regular review of identified intangible assets to determine if facts and circumstances indicate that the useful life is shorter than the original Company policies. If such facts and circumstances exist, the Company regularly assesses the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, we accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life.
Amortization expense attributable to continuing operations for the period ended April 30, 2016 and year ended May 31, 2015 amounted to $145,051 and $321,033, respectively.
(f) Available-for-sale investments
Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are recognized in the balance sheet at cost less impairment losses.
(g) Accounting for the impairment of long-lived assets
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
There is $2,591,832 (2015: Nil) impairment loss recognized during the period ended April 30, 2016 and year ended May 31, 2015 respectively.
F8
(h) Income tax
Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.
The Company evaluates a tax position to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, no benefit is recognized.
(i) Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
|
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
|
|
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
|
|
Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
|
We measure the fair value of money market funds and equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
(j) Revenue recognition
The Company assesses appropriate revenue recognition policy for each type of operation according to ASC 605-45
Revenue represents the invoiced value of services rendered and receivable during the year. Revenue is recognized when all of the following criteria are met:
-
Persuasive evidence of an arrangement exists,
-
Delivery has occurred or services have been rendered,
-
The seller's price to the buyer is fixed or determinable, and
-
Collectability is reasonably assured
Revenue recognition policy for each of the major products and services:
1.
|
Discounted call services for consumer (EMS) as follow:
|
|
Collaboration with CTT – Redtone China is appointed as the sole distributor for EMS and will recognize revenue when airtime is utilized by the consumer and the revenue recognized is on net basis which is computed based on a fixed sharing ratio of the total airtime utilized by consumers after netting of direct traffic termination cost and incidental expenses. Redtone China's role for Business Collaboration with China TieTong Telecommunications (CTT) would be as "Agent" as Redtone China is the sole distributor for EMS brand owned and controlled by CTT; and
|
F9
|
Collaboration with other telecommunication providers – Redtone China will act as a discounted consumer call Reseller whereby Redtone China will determine the service and package specification and pricing policies whereas China Unicom acts as a passive termination partner for call traffic. Redtone China will pay China Unicom solely based on call traffic termination by China Unicom at a prescribed rate (defined as traffic termination costs on the books of Redtone China). In this regard, Redtone China will recognize the revenue when the consumer utilizes airtime and the value recognized as revenue is the call charges gross value. Redtone China's role for Business Collaboration with China Unicom would be as "Principal" as China Unicom is playing a passive role as traffic termination partner while Redtone China is fully responsible for the entire management of discounted call services
|
As this is a prepaid product, there is an expiration date for the product sold. If the airtime is not utilized by the expiration date, which is currently one year from the activation date, it will be deemed expired and revenue will be recognized based on the remaining gross value of the expired prepaid product.
2.
|
Discounted call services for corporate as follow:
|
☐
|
Collaboration with CTT – the revenue recognize is the commission earned from distributing the discounted call services to corporate customer; and
|
☐
|
Collaboration with other telecommunication providers –the revenue recognized is the commission earned from distributing the discounted call services to corporate customer.
|
3.
|
Reload services for prepaid mobile – revenue recognized is the commission earned.
|
4.
|
Collaboration with Shanghai Huili Telecommunications Co., Ltd ("Huili") – Huili will act as "intermediary agent" to resell the call traffic termination by Redtone China. Huili will pay Redtone China the termination costs on the books of Redtone China.
|
(k) Earnings per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the year. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of April 30, 2016 and May 31, 2015, there were no dilutive securities outstanding.
(l) Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
(m) Retirement benefits
PRC mandates companies to contribute funds into the national retirement system, which benefits qualified employees based on where they were born within the country. The Company pays the required payment for qualified employees of the Company.
(n) Foreign currency translation
The accompanying consolidated financial statements are presented in United States dollars (US$). The functional currencies of the Company are the Hong Kong dollar (HK$) and the Renminbi (RMB), respectively. Capital accounts of the financial statements are translated into United States dollars from HK$ or RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The translation rates are as follows:
F10
April 30, 2016
|
May 31, 2015
|
|||||||
Year end RMB : US$ exchange rate
|
0.1541
|
0.1612
|
||||||
Average yearly RMB : US$ exchange rate
|
0.1570
|
0.1614
|
||||||
Year end HK$ : US$ exchange rate
|
0.1286
|
0.1290
|
||||||
Average yearly HK$ : US$ exchange rate
|
0.1289
|
0.1290
|
On July 21, 2005, the PRC changed its foreign currency exchange policy from a fixed RMB/US$ exchange rate into a flexible rate under the control of the PRC's government.
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
(o) Recent Accounting Pronouncements
The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during the period. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company's reported financial position or operations in the near term.
The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to April 30, 2016 through the date these financial statements were issued.
NOTE 4 – DISPOSAL OF SUBSIDIARIES AND DISCONTINUED OPERATION
On July 25, 2014, the Company entered into an agreement to dispose of its entire equity interest in Hongsheng, a VIE subsidiary, to Guotai Investment Holdings Limited at a total cash consideration of approximately $4.54 million.
Pursuant to the agreement, Hongsheng shall transfer all its operations, assets and liabilities other than investment in QBA prior to the completion of the above transaction. Therefore, the entire arrangement is to dispose of the shell of Hongsheng together with the entire interest in QBA.
As of the disposal date, QBA's assets and liabilities are summarized as follows:
July 25, 2014
|
||||
Assets
|
||||
Cash and cash equivalents
|
$ |
2,969,661
|
||
Inventories
|
6,708
|
|||
Accounts receivable
|
525
|
|||
Other receivables and deposits
|
8,892
|
|||
Property, plant and equipment, net
|
5,937
|
|||
Total assets
|
2,991,723
|
|||
Liabilities
|
||||
Accounts payable
|
29,699
|
|||
Accrued expenses and other payables
|
17,462
|
|||
Total current liabilities
|
47,161
|
|||
Net assets of QBA
|
2,944,562
|
|||
F11
The assets of QBA as of May 31, 2014 are classified as assets held for sale and liabilities in the consolidated balance sheet.
The results of QBA during the year (up to date of disposal) are summarized as follows:
From June 1 2014 to July 25, 2014
|
||||
Revenue
|
$
|
3
|
||
Other income and gains
|
164
|
|||
Service costs
|
-
|
|||
Personnel cost
|
(93,580
|
)
|
||
Depreciation expense
|
(3,689
|
)
|
||
Administrative and other expenses
|
(6,916
|
)
|
||
Net loss
|
(104,018
|
)
|
||
The results of QBA for the year ended 31 May, 2015 is reported as discontinued operations in the condensed consolidated statement of income and comprehensive income.
The gain on disposal of QBA is analyzed as follows:
Consideration received
|
4,565,936
|
|||
Less: Net assets of QBA
|
(2,944,563
|
)
|
||
Less: Goodwill arising in the acquisition of QBA
|
(610,386
|
)
|
||
Gain on disposal
|
1,010,987
|
|||
NOTE 5 – ACQUISITION OF A SUBSIDIARY
On July 16, 2014, Huitong, Mao Hong, a director and nominee shareholder of certain VIEs, and Wei Gang, an independent third party jointly incorporated YuZhong and the founders owned 49.8%, 25.1% and 25.1% of equity interests in YuZhong, respectively.
On July 17, 2014, Huitong and YuZhong jointly incorporated YuGuang. Huitong and YuZhong own 20% and 80% of equity interests in YuGuang, respectively.
On September 11, 2014, YuGuang entered into an agreement with Zhou Jin Shan and Chen Xiu Lan to acquire 51% equity interest in Taizhou Haitai Motor Vehicle Inspection Co, Ltd. ("Haitai") from Zhou Jin Shan at a consideration of RMB652,800. Haitai is principally engaged in the provision of motor vehicle inspection service in the PRC. The acquisition was completed in January 2015.
As of the date of acquisition, Haitai has 51% equity interest in FengCheng. FengCheng is principally engaged in the provision of services for motor vehicle technical and emission inspection. Haitai and FengCheng was collectively known as "Haitai Group".
Management has assessed the fair value of the assets and liabilities of Haitai Group as of the acquisition date, and is analyzed as follows:
Assets
|
||||
Construction in progress
|
$
|
1,100,243
|
||
Other receivables and deposits
|
101,036
|
|||
Cash and cash equivalents
|
1,132
|
|||
1,202,411
|
||||
Liabilities
|
||||
Accrued expenses and other payables
|
1,736,068
|
|||
1,736,068
|
||||
Net assets acquired
|
(533,657
|
)
|
||
Net assets shared by YuGuang
|
(272,165
|
)
|
||
Cash consideration
|
105,006
|
|||
Goodwill
|
377,171
|
|||
Reconciliation of net cash used in acquisition
|
||||
Cash consideration paid
|
105,006
|
|||
Less: cash acquired from the transaction
|
(1,132
|
)
|
||
Net cash used in acquisition
|
103,874
|
F12
NOTE 6 - CASH & CASH EQUIVALENTS
As of the balance sheet dates, cash & cash equivalents are summarized as follows:
2016
|
2015
|
|||||||
Cash and bank
|
$
|
345,315
|
$
|
800,821
|
||||
Total
|
$
|
345,315
|
$
|
800,821
|
NOTE 7 – OTHER RECEIVABLES AND DEPOSITS
Other receivables and deposits as of the year-end dates were summarized as follows:
2016
|
2015
|
|||||||
Deposits
|
$
|
264,982
|
$
|
292,985
|
||||
Other receivables
|
-
|
|
68,795
|
|||||
Total
|
$
|
264,982
|
$
|
361,780
|
F13
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of the balance sheet dates are summarized as follows:
2016
|
2015
|
|||||||
At cost:
|
||||||||
Computer and software
|
$
|
165,435
|
$
|
147,213
|
||||
Telecommunication equipment
|
5,303,150
|
5,473,624
|
||||||
Furniture, fixtures and equipment
|
54,628
|
57,976
|
||||||
Motor vehicles
|
119,870
|
167,175
|
||||||
Leasehold improvement
|
115,657
|
32,556
|
||||||
Construction in progress
|
-
|
2,502,332
|
||||||
5,758,740
|
8,380,876
|
|||||||
Less: Accumulated depreciation
|
(4,744,180
|
)
|
(4,577,472
|
)
|
||||
Property, plant and equipment, net
|
$
|
1,014,560
|
$
|
3,803,404
|
Depreciation expense attributable to continuing operations for the period ended April 30, 2016 and for the year ended May 31, 2015 amounted to $379,941 and $541,142, respectively. Depreciation expense attributable to discontinued operations for the period ended April 30, 2016 and for the year ended May 31, 2015 amounted to $nil and $3,689, respectively.
NOTE 9 – INTANGIBLE ASSETS
Intangible assets as of the balance sheet dates are summarized as follows:
2016
|
2015
|
|||||||
At cost:
|
||||||||
Operating concession
|
$
|
566,773
|
$
|
592,934
|
||||
Customer base
|
77,037
|
80,593
|
||||||
IT license and software
|
2,275,419
|
2,281,786
|
||||||
2,919,229
|
2,955,313
|
|||||||
Less: Accumulated depreciation
|
(1,309,388
|
)
|
(1,178,142
|
)
|
||||
Intangible assets, net
|
$
|
1,609,841
|
$
|
1,777,171
|
Amortization expense attributable to continuing operations for the period ended April 30, 2016 and for the year ended May 31, 2015 amounted to $145,051 and $321,033, respectively.
NOTE 10 – GOODWILL
Goodwill as of the balance sheet dates were summarized as follows:
2016
|
2015
|
|||||||
Arising from the acquisition of Haitai Group
|
$
|
377,171
|
$
|
377,171
|
||||
Less: Impairment | (377,171 | ) | ||||||
-
|
377,171
|
Haitai Group was acquired in previous financial year, See also Footnote 5.
F14
NOTE 11 – AMOUNT DUE FROM/(TO) RELATED PARTIES
Amount due from a related company as of the balance sheet dates were summarized as follows:
2016
|
2015
|
|||||||
Fellow subsidiary:
|
||||||||
REDtone Technology Sdn. Bhd.
|
$
|
3,235,344
|
$
|
3,289,447
|
The amount represents advances to the related company. As of the balance sheet dates, the amount is unsecured, non-interest bearing and is no fixed term of repayment.
Amount due to a related company as of the balance sheet dates were summarized as follows:
2016
|
2015
|
|||||||
Fellow subsidiary:
|
||||||||
REDtone Telecommunications Sdn Bhd
|
$
|
173,409
|
$
|
160,420
|
||||
Related party:
|
||||||||
Shanghai Huili Telecommunications Co., Ltd
|
28,771
|
54,792
|
||||||
Non-controlling interests
|
1,798,633
|
1,873,432
|
||||||
2,000,813
|
2,088,644
|
The amounts due to the related parties are unsecured, non-interest bearing and has no fixed repayment date.
NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables as of the balance sheet dates were summarized as follows:
2016
|
2015
|
|||||||
Accrued expenses
|
$
|
379,165
|
$
|
344,094
|
||||
Other payables
|
450,330
|
539,365
|
||||||
Total
|
$
|
829,495
|
$
|
883,459
|
NOTE 13 – DEFERRED INCOME
Deferred income consists of prepaid airtime sold which is yet to be utilized. The basis of revenue recognition for discounted call services is based on actual call charges made by end users. When calls are being made, the amount will be deducted from deferred income to the statement of income, net of call costs and expenses.
F15
NOTE 14 – TAXES PAYABLE
Taxes payable at the balance sheet dates are summarized as follows:
2016
|
2015
|
|||||||
Income tax payable
|
$
|
992,222
|
$
|
487,044
|
||||
Business tax and other tax payables
|
(19,995
|
)
|
169,198
|
|||||
Total
|
$
|
972,227
|
$
|
656,242
|
Business tax represents PRC sales tax imposed upon the Company's services provided in the PRC. Tax rates range from 3% to 6% depending on the nature of the taxable activities.
Income tax represents PRC income tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
NOTE 15 – (INCOME TAX INCOME)/PROVISION FOR INCOME TAXES
2016
|
2015
|
|||||||
Current income tax in PRC and Hong Kong
|
$
|
94,555
|
$
|
72,761
|
||||
Under-provision in prior year
|
445,232
|
-
|
||||||
Deferred income tax income
|
-
|
(4,759
|
)
|
|||||
Total
|
$
|
539,787
|
$
|
68,002
|
On April 29, 2014, RTSH obtained a tax benefit which the income tax for 2013 and 2014 calendar year is exempt and the income tax for 2015, 2016 and 2017 calendar year will be subject to half rate deduction. Accordingly, provision for income tax of $112,110 for the period from January 1, 2013 to May 31, 2013 that included in last year's income tax expenses was reversed as an income tax income during the year.
A reconciliation of the expected tax with the actual tax expense is as follows:
2016
|
2015
|
|||||||
Income before provision for income taxes
|
$
|
(4,151,259
|
)
|
$
|
(1,222,542
|
)
|
||
Expected PRC income tax expense at statutory tax rate of 25%
|
(1,037,815
|
)
|
(305,636
|
)
|
||||
Different tax rate for PRC/Hong Kong local authority
|
(1,054
|
)
|
9,649
|
|||||
Expenses not deductible for tax
|
272,054
|
241,114
|
||||||
Income not subject to tax
|
-
|
(34,449
|
)
|
|||||
Under provision in prior year
|
445,232
|
-
|
||||||
Utilization of tax loss brought forward
|
(105
|
)
|
||||||
Tax loss not provided for deferred tax
|
861,370
|
157,429
|
||||||
Total
|
$
|
539,787
|
$
|
68,002
|
F16
(i) All PRC subsidiaries are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.
(ii) Hong Kong subsidiaries are subject to Hong Kong profits tax. The provision for Hong Kong profits tax is based on a statutory rate of 16.5% of assessable profits in Hong Kong.
(iii) BVI subsidiaries are not subject to profits tax.
NOTE 16 – VARIABLE INTEREST ENTITIES ("VIEs")
On April 30, 2007, the Company entered into the loan agreements with Mao Junbao ("MJ") and Mao Hong ("MH") for the establishment of Huitong and on April 30, 2007, an equity pledge agreement which provides that MJ and MH would pledge all their equities in Huitong to Redtone Shanghai.
During the year, Huitong acquired YuZhong, YuGuang, Haitai and FengCheng, as subsidiaries of the Company. See also Footnote 5.
On November 30, 2006, the Company entered into loan agreements with Huang Bin ("HB") and MH for the establishment of Hongsheng and on November 30, 2006, an equity pledge agreement which provides that HB and MH will pledge all their equities in Hongsheng to the Company and Redtone Shanghai. The agreement also provides that control of Hongsheng by the Company shall take effect from June 1, 2007.
On May 24, 2011, Hongsheng had entered into the Nominee Agreement among Wang Jianping and Xu Lanying, which provided that Hongsheng would commission Wang Jianping and Xu Lanying to establish Nantong Jiatong and the nominee shareholders of Nantong Jiatong is Wang Jianping and Xu Lanying.
On May 24, 2011, the Company entered into the loan Agreement with Nantong Jiatong to extend a loan of RMB22,000,000 for the additional capital injection into Hongsheng for establishment of QBA, an equity pledge agreement entered by and amongst the Company, Nantong Jiatong and Hongsheng, provided that Nantong Jiatong would pledge all its equities in Hongsheng to the Company.
Hongsheng and QBA were disposed on July 25, 2014. All equity interests in subsidiaries held by these companies were transferred to Huitong before disposal. All related loans under the above arrangements were settled before disposal.
Although the Company is not the shareholder of the above VIE subsidiaries, the Company has determined that it is the primary beneficiary of these entities, as the Company has controlling voting powers and entitled to receive the benefit from operations of these entities. Hence, these companies are identified as VIEs and are consolidated as if subsidiaries of the Company.
We did not identify any additional VIEs in which we hold a significant interest.
The total consolidated VIE assets and liabilities reflected on the Company's balance sheet are as follows:
2016
|
2015
|
|||||||
Assets
|
||||||||
Cash and cash equivalents
|
$
|
161,340
|
$
|
482,559
|
||||
Inventories
|
-
|
3,951
|
||||||
Accounts receivable
|
640,656
|
825,790
|
||||||
Tax recoverable
|
-
|
-
|
||||||
Other receivables and deposits
|
185,144
|
332,497
|
||||||
Goodwill
|
-
|
372,019
|
||||||
Property, plant and equipment, net
|
413,072
|
2,845,078
|
||||||
Intangible assets, net
|
381,670
|
443,700
|
||||||
Total assets (not include amount due from intra-group companies)
|
1,781,882
|
5,305,594
|
||||||
Liabilities
|
||||||||
Deferred income
|
1,145,770
|
1,138,911
|
||||||
Accounts payable
|
755,461
|
361,141
|
||||||
Accrued expenses and other payables
|
2,081,052
|
3,036,788
|
||||||
Taxes payable
|
18,332
|
23,005
|
||||||
Total current liabilities
|
4,000,615
|
4,559,845
|
||||||
F17
The results of VIEs are as follows, and are included in the consolidated statements of income of the Company:
2016
|
2015
|
|||||||
Revenue
|
$
|
3,971,566
|
$
|
7,343,342
|
||||
Other income and gains
|
5,753
|
969,671
|
||||||
Service costs (Not including service costs payable to intra-group companies)
|
(3,980,948
|
)
|
(6,889,162
|
)
|
||||
Personnel cost
|
(276,152
|
)
|
(519,808
|
)
|
||||
Depreciation expense
|
(57,762
|
)
|
(65,088
|
)
|
||||
Amortization expense
|
(43,264
|
)
|
(209,926
|
)
|
||||
Administrative and other expenses
|
(447,258
|
)
|
(684,006
|
)
|
||||
Income before provision for income taxes (Not including service costs payable to intra-group companies)
|
(4,078,739
|
)
|
(54,977
|
)
|
||||
Income tax income/(provision for income taxes)
|
-
|
(40,002
|
)
|
|||||
Net income
|
(4,078,739
|
)
|
(94,979
|
)
|
Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs and can have assets transferred freely out of the VIEs without restrictions. Therefore, the Company considers that there is no asset of VIEs that can only be used to settle obligations of the respective VIEs, except for registered capital and PRC statutory reserves of VIEs as of April 30, 2016 and May 31, 2015. Since the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Company is conducting certain businesses mainly through its VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
NOTE 17 – SEGMENTAL ANALYSIS
Information of the Company's business segment is as follows:-
2016
|
2015
|
|||||||
Revenue from:
|
||||||||
Telecommunications
|
$
|
5,100,897
|
$
|
8,423,788
|
||||
Segment loss from:
|
||||||||
Telecommunications
|
$
|
(1,500,484
|
)
|
$
|
(923,817
|
)
|
||
Motor vehicle technical & emission inspection
|
(2,650,775
|
)
|
(298,725
|
)
|
||||
(4,151,259
|
)
|
(1,222,542
|
)
|
|||||
Depreciation & Amortization expenses:
|
||||||||
Telecommunications
|
$
|
524,802
|
$
|
862,175
|
||||
Motor vehicle technical & emission inspection
|
190
|
-
|
||||||
524,992
|
862,175
|
|||||||
Segment assets:
|
||||||||
Telecommunications
|
$
|
7,871,107
|
$
|
9,573,796
|
||||
Motor vehicle technical & emission inspection
|
30,972
|
2,638,047
|
||||||
7,902,079
|
12,211,843
|
|||||||
Capital expenditure:
|
||||||||
Telecommunications
|
$
|
-
|
$
|
246,575
|
||||
Motor vehicle technical & emission inspection
|
-
|
(1,415
|
)
|
|||||
-
|
245,160
|
F18
NOTE 18 – CAPITAL COMMITMENTS
Capital commitment that related to the Company's car inspection business is as follows:-
2016
|
2015
|
|||||||
Contracted but not provided for property, plant and equipment
- within 1 year
|
$
|
-
|
$
|
2,785,647
|
NOTE 19 – RELATED PARTY TRANSACTION
2016
|
2015
|
|||||||
Revenue
|
||||||||
- REDtone MEX Sdn Bhd
|
$
|
-
|
$
|
43,216
|
||||
- Shanghai Huili Telecommunications Co., Ltd
|
670,159
|
1,284,767
|
||||||
Cost of Sales
|
||||||||
- Shanghai Huili Telecommunications Co., Ltd
|
(740,080
|
)
|
(268,080
|
)
|
||||
Total
|
$
|
(69,921
|
)
|
$
|
1,059,903
|
F19
NOTE 20 - RESTATEMENTS
During the course of internal evaluation, our accounting staff found classification errors in our previously reported financial statements for the fiscal year ended May 31, 2015 that required correction relating to balance sheet: (1) cash and cash equivalents, fixed deposits pledged with bank, other investment, deferred income, accounts payable and amount due to related parties. The impacts of the changes reflected on a decrease in cash and cash equivalents by $4,261,755, an increase of fixed deposits pledged with bank by $3,223,718, an increase of other investment by $1,038,037, an increase in deferred income by $344,476, a decrease in accounts payable by $399,268 and an increase of amount due to related parties by $54,792. There were no changes in total asset, total liabilities and shareholders' equity. (2) cash flow statement for the fiscal year ended May 31, 2015 that required to correction relating to an increase in deferred income of $344,476, a decrease in accounts payable $399,268, and a decrease in net cash provided by continuing operating activities by $54,792. Trust fund reflected on an increase of $1,038,037 and fixed deposits pledged with bank a decrease of $3,223,718. An increase of amount due to related parties by $54,792 and a decrease of Net cash used in continuing financing activities by $54,792. The net cash provided by/(used in) continuing investing activities decreased by $4,261,755; the net increase/(decrease) in cash and cash equivalents decreased by $4,261,755; cash and cash equivalents at end of year decreased by $4,261,755. The details of the changes were reflected in the following items:
REDTONE ASIA INC.
BALANCE SHEETS (extract)
ITEMS
|
Original
2015
|
Restated
2015
|
||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
5,062,576
|
$
|
800,821
|
||||
Fixed deposits pledged with bank
|
-
|
3,223,718
|
||||||
Other investment
|
-
|
1,038,037
|
||||||
5,062,576
|
5,062,576
|
|||||||
Liabilities and stockholders' equity
|
||||||||
Liabilities
|
||||||||
Current liabilities
|
||||||||
Deferred income | 794,435 | 1,138,911 | ||||||
Account payable
|
781,362
|
382,094
|
||||||
Amount due to related parties
|
2,033,852
|
2,088,644
|
||||||
3,609,649
|
3,609,649
|
STATEMENTS OF CASH FLOWS (extract)
ITEMS
|
Original
2015
|
Restated
2015
|
||||||
Cash flows from operating activities | ||||||||
Decrease in deferred income | 50,642 | 395,118 | ||||||
(Decrease) in accounts payable | (2,017,011 | ) | (2,416,279 | ) | ||||
Net cash provided by continuing operating activities | 704,909 | 650,117 | ||||||
Cash flows from investing activities
|
||||||||
Cash flows from investing activities – continuing operations
|
||||||||
Increase in trust fund
|
-
|
(1,038,037
|
)
|
|||||
Increase in fixed deposits pledged with bank
|
-
|
(3,223,718
|
)
|
|||||
Net cash provided by/(used in) continuing investing activities
|
2,591,274
|
(1,670,481
|
)
|
|||||
Cash flows from financing activities | ||||||||
Increase in amount due to related parties | 148,993 | 203,785 | ||||||
Net cash used in continuing financing activities | (1,161,676 | ) | (1,106,884 | ) | ||||
Net increase/(decrease) in cash and cash equivalents
|
||||||||
Continuing operations
|
2,134,507
|
(2,127,248
|
)
|
|||||
Cash and cash equivalents at end of year
|
||||||||
Continuing operations
|
5,062,576
|
800,821
|
F20
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
REDTONE ASIA, INC.
|
|
|
|
|
Dated: August 9, 2016
|
/s/ Chuan Beng Wei |
|
Chuan Beng Wei
|
|
Chief Executive Officer and Director
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
|
Title
|
Date
|
|
/s/ Chuan Beng Wei
|
|||
Chuan Beng, Wei
|
Chief Executive Officer,
|
August 9, 2016
|
|
Director
|
|||
/s/ Bik Soon, Lau
|
|||
Bik Soon, Lau
|
Director
|
August 9, 2016
|
|
/s/ Hui Nooi, Ng
|
|||
Hui Nooi, Ng
|
Chief Financial Officer
|
August 9, 2016
|
16