U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
First Amended
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____ to ____
Commission file number 000-29077
TEDA TRAVEL GROUP INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 11-3177042
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 2102, Chinachem Century Tower, 178 Gloucester Road, Wanchai, Hong Kong
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(Address of principal executive offices)
Registrant's Telephone Number, Including International Code and Area Code:
(852) 2833-2186
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(Former name, former address and former fiscal year, if
changed since last report)
As of August 31, 2005, the Issuer had outstanding 21,691,255 shares of the
Issuer's common stock, $.001 par value.
Transitional Small Business Disclosure Format (Check One): Yes | | No |X|
1
TEDA TRAVEL GROUP, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Consolidated Sheet as of June 30, 2005
(Unaudited) .................................................... 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 2005 and 2004 (Unaudited) ...... 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2005 and 2004 (Unaudited)............. 5
Notes to Condensed Financial Statements as of June 30, 2005
(Unaudited) ............................................... 6 - 9
Item 2. Management's Discussion and Analysis or Plan of Operation ....... 10
Item 3. Controls and Procedures ......................................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 16
Item 2. Changes in Securities ........................................... 16
Item 3. Exhibits and Reports on Form 8-K ................................ 17
SIGNATURES ................................................................. 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TEDA TRAVEL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
-------------
(UNAUDITED)
ASSETS
CURRENT ASSETS ------
Cash $ 77,239
Accounts receivable, net 157,240
Prepaid expenses and other current assets 189,851
-----------
Total Current Assets 424,330
-----------
Property and equipment - net 41,440
OTHER ASSETS
Intangible license rights, net 546,522
Investment in affiliate 2,560,177
-----------
Total Other Assets 3,106,699
-----------
TOTAL ASSETS $ 3,572,469
----------- ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 271,165
Capital lease - current 9,333
Due to a shareholder 554,402
Due to related parties 7,383
-----------
Total Current Liabilities 842,283
-----------
LONG-TERM LIABILITIES
Capital lease - long-term 7,825
-----------
Total Long-Term Liabilities 7,825
-----------
TOTAL LIABILITIES 850,108
-----------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued and outstanding --
Common stock, $.001 par value, 100,000,000 shares
authorized, 21,691,255 shares issued and outstanding 21,691
Additional paid-in capital 4,663,174
Deferred stock compensation (1,668)
Accumulated deficit (1,960,836)
-----------
Total Stockholders' Deficiency 2,722,361
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,572,469
===========
See accompanying notes to condensed consolidated financial statements.
3
TEDA TRAVEL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------ ------------ ------------ ------------
REVENUE, NET $ 178,816 $ 136,046 $ 322,785 $ 245,329
------------ ------------ ------------ ------------
EXPENSES
Stock issued for services 185,934 808,396 575,184 2,785,721
Professional fees 67,357 38,678 110,960 122,863
Payroll 139,596 44,600 247,620 87,742
Management fees 7,692 7,693 15,385 15,385
Other selling, general and administrative 167,731 35,552 350,171 62,714
------------ ------------ ------------ ------------
Total Expenses 568,310 934,919 1,299,320 3,074,425
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (389,494) (798,873) (976,535) (2,829,096)
OTHER INCOME (EXPENSE)
Interest income 105 36 106 36
Gain on debt forgiveness 3,350,000 -- 3,350,000 --
Equity loss of affiliate (242,311) (229,748) (308,876) (301,416)
------------ ------------ ------------ ------------
Total Other Income (Expenses) 3,107,794 (229,712) 3,041,230 (301,380)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES 2,718,300 (1,028,585) 2,064,695 (3,130,476)
Income taxes 13,039 8,536 23,212 15,317
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 2,705,261 $ (1,037,121) $ 2,041,483 $ (3,145,793)
============ ============ ============ ============
Net income (loss) per common share - basic and
diluted $ 0.12 $ (.05) $ 0.09 $ (.16)
============ ============ ============ ============
Weighted average number of common shares
outstanding - basic and diluted 21,678,791 20,955,813 21,673,338 19,740,158
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
TEDA TRAVEL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,041,483 (3,145,793)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 127,978 6,275
Stock and warrants issued for consulting services 575,184 2,785,721
Gain on debt forgiveness (3,350,000) --
Loss in affiliate 308,876 301,416
Increase (decrease) in:
Accounts receivable 2,262 (83,610)
Prepaid expenses (102,993) 32,716
Decrease (increase) in:
Accounts payable and accrued expenses 132,535 55,653
----------- -----------
Net Cash Used In Operating Activities (264,675) (47,622)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,901) (43,636)
Investment in a subsidiary 48,440 --
Due from directors -- (16,730)
Due from stockholders -- 15,625
----------- -----------
Net Cash Provided By (Used In) Investing Activities 42,539 (44,741)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties 10,804 --
Due to a director 30,396 --
Due to a shareholder 196,113 --
Payments on capital lease (4,680) --
----------- -----------
Net Cash Provided By Financing Activities 232,633 --
----------- -----------
INCREASE (DECREASE) IN CASH 10,497 (92,363)
CASH - BEGINNING OF PERIOD 66,742 98,079
----------- -----------
CASH - END OF PERIOD $ 77,239 5,716
-------------------- =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
-----------------------------------------------------------------------
During 2004, the Company leased a vehicle under a capital lease for $24,178.
See accompanying notes to condensed consolidated financial statements.
5
TEDA TRAVEL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
------------------------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for the
interim period are not necessarily indicative of the results to be expected
for the year.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's Form 10-KSB.
NOTE 2 REVERSE MERGER
---------------------
On March 10, 2004, Acola Corp. consummated an agreement with Teda Travel,
Inc. a Florida corporation, pursuant to which Teda Travel, Inc. exchanged
100% of the then issued and outstanding shares of common stock of Teda
Hotels Management Company, Limited for 17,853,578 shares or approximately
86% of the common stock of Acola Corp. As a result of the agreement, the
transaction was treated for accounting purposes as a capital transaction
and recapitalization by the accounting acquirer (Teda Hotels Management
Company, Limited) and as a reorganization by the accounting acquiree (Acola
Corp.). Subsequent to the merger, Acola Corp. changed its name to Teda
Travel Group, Inc.
Accordingly, the financial statements include the following:
(1) The balance sheet consists of the net assets of the acquirer at
historical cost and the net assets of the acquiree at historical cost.
(2) The statement of operations includes the operations of the acquirer
for the periods presented and the operations of the acquiree from the
date of the merger.
NOTE 3 PRINCIPLES OF CONSOLIDATION
----------------------------------
The accompanying condensed consolidated financial statements for 2004
include the accounts of Teda Travel Group, Inc. from the date of merger and
its wholly owned subsidiary Teda Hotels Management Company Limited and its
wholly owned subsidiaries Teda Hotels Management Limited, and Teda BVI,
Ltd.
The accompanying condensed consolidated financial statements for 2005
include the accounts of Teda Travel Group, Inc. and its wholly owned
subsidiaries Teda Hotels Management Company Limited, Teda Hotels Management
6
NOTE 3 PRINCIPLES OF CONSOLIDATION - continued
Limited, Teda BVI, Ltd., Teda Beijing, Ltd. and its 60% owned subsidiary
Landmark International Hotel Group, Ltd. hereafter referred to as (the
"Company"). The Company accounts for its 35% investment in a joint venture
using the equity method. All significant inter-company transactions and
balances have been eliminated in consolidation.
NOTE 4 INVESTMENT IN AFFILIATE
------------------------------
On January 6, 2002, the Company acquired a 35% interest in a real estate
joint venture located in China. The joint venture was formed to develop and
manage a mixed-use complex of apartments, restaurants, a hotel and a
private clubhouse. The joint venture was formed with a maximum life of 50
years. The joint venture partner is also a 17% stockholder of the Company.
A summary of the unaudited condensed consolidated financial statements of
the affiliate as of June 30, 2005 s as follows:
Current assets $ 21,189,510
Non-current assets 42,153,486
------------
Total Assets 63,342,996
============
Current liabilities 48,537,168
Non-current liabilities 4,837,929
Stockholders' equity 9,967,899
------------
Total Liabilities and Stockholders' Equity 63,342,996
============
Revenues $ 4,002,312
Gross Profit 1,594,638
------------
Net loss (399,795)
============
The Company's share of the loss for 2005 after
accounting for differences between Hong Kong GAAP
and U.S. GAAP are as follows:
Company share at 35% $ (139,928)
Less: U.S. GAAP adjustment for depreciation (168,948)
=========================================== ------------
Equity in loss of affiliate $ (308,876)
============
NOTE 5 RELATED PARTY TRANSACTIONS
---------------------------------
During the six months ended June 30, 2005 and 2004, the Company received
management revenue of $209,324 and $213,012, respectively from two
properties it manages that are owned by a shareholder.
7
NOTE 5 RELATED PARTY TRANSACTIONS - continued
During the six months ended June 30, 2005 and 2004, the Company paid
$15,385 to a stockholder for consulting and professional services.
During the six months ended June 30, 2005 and 2004, the Company paid
$14,645 and $60,550 to a director and stockholder for office space.
NOTE 6 STOCKHOLDERS EQUITY
--------------------------
(A) Stock issued for services
-----------------------------
During May 19, 2005, the Company issued 4,000 shares to two vice presidents
for services having a fair value of $2,000. The Company recognized expense
of $332 and recorded deferred stock compensation of $1,668 as of June 30,
2005.
(B) Stock issued for acquisition
--------------------------------
During May 19, 2005, the Company issued 39,834 shares of common stock for
the acquisition of 55% of Teda Resort Alliance Development Co., Limited
common stock with a fair value of $105,328. Issuance of 39,834 shares was
cancelled as the transaction of acquisition has been mutually rescinded.
During May 19, 2005, the Company issued 19,370 shares of common stock for
the acquisition of 55% equity interest of Shanghai Bowking Hotel Management
Company Limited with a fair value of $48,440 as first payment.
NOTE 7 BUSINESS SEGMENTS
------------------------
The Company has two operating segments. Each segment operates exclusively
in Asia. The Company's Property Management segment provides management
services to hotels and resorts in Asia. The Real Estate Investment segment
invests in real estate development projects. The accounting policies of the
segments are the same as described in the summary of significant accounting
policies. There are no inter-segment sales.
2005 Property Real Estate
Management Investments Total
----------- ----------- -----------
Revenue $ 322,785 $ -- $ 322,785
Loss from operations (999,641) (308,876) (1,308,517)
Depreciation and amortization 127,978 -- 127,978
Assets 1,012,292 2,560,177 3,572,469
Capital Expenditures (5,901) -- (5,901)
8
NOTE 7 BUSINESS SEGMENTS - continued
Property Real Estate
2004 Management Investments Total
----------- ----------- -----------
Revenue $ 245,329 $ -- $ 245,329
Loss from operations (2,844,377) (301,416) (3,145,793)
Depreciation 6,275 -- 6,275
Assets 267,629 3,360,452 3,628,081
Capital Expenditures 43,636 -- 43,636
NOTE 8 DUE TO RELATED PARTIES
-----------------------------
At June 30, 2005, the Company owed $554,402 to a shareholder, at the rate
of 3% per annum and payable on the maturity date.
At June 30, 2005, a related party is owed $7,383 for office space leased to
the Company.
NOTE 9 GAIN ON DEBT FORGIVENESS
------ ------------------------
During 2005, the Company recorded a gain of $3,350,000 for the forgiveness
of liabilities by its former parent corporation upon completion of the spin
of by the parent corporation to its stockholders.
NOTE 10 SUBSEQUENT EVENTS
------- ------------------
During 2004, the Company entered into a letter of intent to purchase 55% of
the outstanding stock of Teda Resort Alliance Development Co, Ltd. for cash
of approximately $280,872 and $105,328 payable in shares of common stock.
Upon completion of an independent valuation, the purchase price was
adjusted to $199,516. The transaction was approved by the Chinese Authority
on April 25, 2005, and the Company closed the transaction on April 27,
2005. On August 22, 2005, this transaction has been mutually rescinded due
to the Registrant's lack of funds to complete the acquisition.
On January 4, 2005, the Company entered into an agreement to acquire 55%
equity interest in Shanghai Bowking Hotel Management Company Limited for
$242,000 of which $121,000 was payable in cash and $121,100 was payable in
the form of 48,440 restricted common shares of the Company valued at a fair
value of $121,100. As of August 22, 2005, this acquisition is not
completed.
9
Item 2. Management's Discussion and Analysis or Plan of Operation.
Cautionary Statements
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included in
Part I, Item 1 of this Report. All amounts are expressed in U.S. dollars.
The following discussion regarding the Company and its business and operations
contains "forward-looking statements" within the meaning of Private Securities
Litigation Reform Act 1995. These statements consist of any statement other than
a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements. The Company does not have a policy of updating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
Overview
The Company is a Delaware corporation incorporated on September 10, 1993,
currently headquartered in Hong Kong SAR, People's Republic of China ("PRC"). It
has since engaged in various ventures and was led by numerous different
management teams for the last ten years. The most recent operation Company was
previously was known as Acola Corp. ("Acola"), which came into being on October
12, 2001. Acola was formed to attempt to distribute an anti-cancer drug in
Mexico, where it was unable to secure enough capital to obtain the exclusive
distribution rights to the drug and has had no business since 2002.
On March 10, 2004, Teda Travel Incorporated, a Florida Corporation ("Teda
Florida"), entered into a Share Exchange Agreement ("Exchange Agreement") with
its wholly owned subsidiary, Teda Hotels Management Company Limited, a British
Virgin Islands Corporation ("Teda BVI") and Acola. The Exchange Agreement set
forth certain terms and conditions of the exchange by which the entire issued
share capital of Teda BVI is transferred to that of Acola in exchange for
approximately 86% of the issued share capital of Acola. The closing of the
Transaction occurred on March 12, 2004. On the closing date, pursuant to the
Exchange Agreement, all of Acola's existing officers and directors, except Mr.
James N. Baxter, resigned and all the directors of Teda Florida were elected on
the Board of Acola. Mr. James N. Baxter resigned on March 30, 2004. In order to
better reflect the new operations of the Company, the Company amended its
certificate of incorporation to change its name to that of Teda Travel Group,
Inc. on April 20, 2004. Prior to the share exchange, the Company had no material
operations. The merger was accounted for as a recapitalization of Teda BVI, as
the shareholders of Teda BVI acquired capital stock of the Company in a reverse
acquisition. Accordingly, the assets and liabilities of Teda BVI were recorded
at historical cost, and the shares of common stock issued by the Company were
reflected in the consolidated financial statements with retroactive effect, as
if the Company had been the parent company from inception. The Company's former
year-end date was June 30 and currently assumes the year-end date of the
acquirer of December 31.
The Company primarily earns its revenues through the provision of management
services, including training and consulting services, to hotels and resorts in
the PRC through its operating subsidiaries, Teda BVI, and Teda Hotels Management
Limited, a Hong Kong corporation; and a 60%-held subsidiary, Landmark
10
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
International Hotel Group Limited, acquired through an acquisition that closed
on November 8, 2004.
The Company is also an investor in real estate development projects in the PRC.
In January 2002, the Company acquired a 35% interest in a real estate joint
venture by the name of Tianjin Yide Real Estate Company Limited. The Company's
co-venturer is a real estate developer by the name of Tianjin Teda International
Hotels Development Company Limited, a corporation owned by the Tianjin
provincial government and formed under the laws of the People's Republic of
China. Through the real estate joint venture, the Company owns a 35% interest in
a multi-use complex featuring apartment units for sale, as well as a hotel and
clubhouse. For more information about the Company's real estate joint venture,
please see Item 2, "Properties," in the Teda Travel Group, Inc.'s Annual Report
on Form 10-KSB, as filed with the United States Securities and Exchange
Commission on April 13, 2005.
Revenues are derived from the Company's provision of management services to
hotels and resorts which include management fees and incentive fees from the
properties that it manages, pursuant to the terms and conditions of its
management contracts. Each of the hotels and resorts is managed under a
management contract with terms varying from 2-10 years. As of June 30, 2005,
the Company manages 13 hotels and a club house located in various parts of the
PRC, encompassing more than 2,695 rooms.
Under its management contracts with each of the hotel and resort properties, the
Company is responsible for the supervision and day-to-day operations of the
property in exchange for a basic management fee based on gross revenues. In
addition, the Company may also earn an incentive fee based upon gross operating
profits of the property managed.
The Company's expansion plans for 2005 have not been successful due to the lack
of sufficient funds. For this reason, management has decided to conserve cash
and agreed with the owners of Teda Resort Alliance Development Co., Limited
("TRAC") to rescind the Company's acquisition of the TRAC on August 20, 2005.
Management of the Company plans to grow by acquiring peer hotel management
companies and may diversify the Company's business through entering new travel
business sectors such as online reservation services and travel agencies.
For more information relating to the Company's business, please see the section
entitled "Business" in the Teda Travel Group, Inc.'s Annual Report on Form
10-KSB as filed with the United States Securities and Exchange Commission on
April 13, 2005.
Critical Accounting Policies
The preparation of our financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including but not limited to those
related to income taxes and impairment of long-lived assets. We base our
estimates on historical experience and on various other assumptions and factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Based on our
ongoing review, we plan to make adjustments to our judgments and estimates where
facts and circumstances dictate. Actual results could differ from our estimates.
11
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
We believe the following critical accounting policies are important to the
portrayal of our financial condition and results and require our management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.
(i) Property and Equipment
--------------------------
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful life of the assets from three to thirty nine years. Repairs and
maintenance on property and equipment are expensed as incurred.
(ii) Revenue Recognition
------------------------
The Company recognizes hotel and resort management service fees in the period
when the services are rendered.
(iii) Foreign Currency Translation
----------------------------------
The Company's assets and liabilities that are denominated in foreign currencies
are translated into the currency of United States dollars using the exchange
rates at the balance sheet date. For revenues and expenses, the average exchange
rate during the year was used to translate Hong Kong dollars and Chinese
Renminbi into United States dollars. The translation gains and losses resulting
from changes in the exchange rate are charged or credited directly to the
stockholders' equity section of the balance sheet when material. All realized
and unrealized transaction gains and losses are included in the determination of
income in the period in which they occur. Translation and transaction gains and
losses are included in the statement of operations because they are not material
as of June 30, 2005.
(iv) Stock-Based Compensation
-----------------------------
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations and elects the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123").
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock. The Company also records stock
compensation expense for any options issued to non-employees using the fair
value method prescribed in SFAS No. 123.
(v) Income Taxes
----------------
The Company accounts for income taxes under the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
12
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
(vi) Long-Lived Assets
----------------------
The Company accounts for long-lived assets under the Statements of Financial
Accounting Standards Nos. 142 and 144 "Accounting for Goodwill and Other
Intangible Assets" and "Accounting for Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 142 and 144"). In accordance with SFAS No. 142 and 144,
long-lived assets, goodwill and certain identifiable intangible assets held and
used by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
goodwill and intangible assets, the recoverability test is performed using
undiscounted net cash flows related to the long-lived assets.
Consolidated Results of Operations
For the three months ended June 30, 2005 and June 30, 2004
Revenues. Revenues for the three months ended June 30, 2005 were $178,816 as
compared to revenues of $136,046 for the same period last year, an increase of
$42,770, or 31%. We enjoyed a healthy growth in the current quarter, especially
with the number of hotels under our management that has grown from 3 to 13.
Other Selling, G&A expenses. Other selling, G&A expenses for the three months
ended June 30, 2005 were $167,731 as compared to $35,552 for the three months
ended June 30, 2004, an increase of $132,179 or 372%. The significant increases
in Other Selling, G&A expenses is due to the counsel cost incurred on due
diligence, acquisition agreement drafting and other costs incurred for
implementing procedures to satisfy regulations within the Sarbanes-Oxley Act.
The Company expects the legal costs to reduce significantly hereafter.
Stock issued for services. The Company recorded stock compensation of $185,934
for shares issued to consultants for media relations during the three months
ended June 30, 2005. The Company recorded $808,396 in the same period last year
which represented mainly consultancy fees related to the share exchange
transaction that closed on March 12, 2004 and various services such as legal
services, business development matters and bonus to a person who become the CEO
of a subsidiary.
Loss from Operations. The Company incurred a loss from operations of $389,494
for the three months ended June 30, 2005 as compared to a loss of $798,873 last
year. The loss from operations reflected a decrease in expenses related to stock
issued for services and an increase in revenue.
Equity loss in associate. The Company recorded an equity loss in affiliate of
$242,311 for the three months ended June 30, 2005 as compared to $229,748 for
the three months ended June 30, 2004, an increase of $12,563, or 5%. The
increase in net loss was due to decreased hotel accommodation revenue recorded
by the associate during the quarter.
Income tax. The Company derives its hotel management income in the People's
Republic of China and is subject to withholding income tax in the People's
Republic of China depending upon the province in which a particular hotel is
located. Income tax expense the Company charged to the consolidated income
13
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
statement for three months ended June 30, 2005 was $13,039 as compared to $8,536
for the three months ended June 30, 2004, an increase of $4,503 or 53%.
Net Loss. The Company recorded a net income of 2,705,261 as compared to a net
loss of ($1,037,121) for the same period last year. The significant decrease was
mainly due to $808,396 expense derived from the stock issued for services in the
last period largely offset by a gain of $3,350,000 recorded in the current for
the forgiveness of liabilities by its former parent corporation upon completion
of the spin of by the parent corporation to its stockholders described above, in
addition to increase in gross revenue.
For the six months ended June 30, 2005 and June 30, 2004
Revenues. Revenues for the six months ended June 30, 2005 were $322,785 as
compared to revenues of $245,329 for the same period last year, an increase of
$77,456, or 32%. We enjoyed a healthy growth in the current quarter, especially
with the number of hotels under our management that has grown from 3 to 13.
Other Selling, G&A expenses. Other selling, G&A expenses for the six months
ended June 30, 2005 were $350,171 as compared to $62,714 for the six months
ended June 30, 2004, an increase of $287,457 or 458%. The significant increases
in Other Selling, G&A expenses is due to the counsel cost incurred on due
diligence, acquisition agreement drafting and other costs incurred for
implementing procedures to satisfy regulations within the Sarbanes-Oxley Act.
The Company expects the legal costs to reduce significantly hereafter.
Stock issued for services. The Company recorded stock compensation of $575,184
for shares issued to consultants for media relations during the six months ended
June 30, 2005. The Company recorded $2,785,721 in the same period last year
which represented mainly consultancy fees related to the share exchange
transaction that closed on March 12, 2004.
Loss from Operations. The Company incurred a loss from operations of $976,535
for the six months ended June 30, 2005 as compared to a loss of $2,829,096 last
year. The loss from Operations reflected a decrease in expenses as outlined
above, mostly that of the stock issued for services, and an increase in revenue.
Equity loss in associate. The Company recorded an equity loss in affiliate of
$308,876 for the six months ended June 30, 2005 as compared to $301,416 for the
six months ended June 30, 2004, an Increase of $7,460, or 2%. The increase in
net loss was due to decreased hotel accommodation revenue recorded by the
associate during the quarter.
Income tax. The Company derives its hotel management income in the People's
Republic of China and is subject to withholding income tax in the People's
Republic of China depending upon the province in which a particular hotel is
located. Income tax expense the Company charged to the consolidated income
statement for six months ended June 30, 2005 was $23,212 as compared to $15,317
for the six months ended June 30, 2004, an increase of $7,895 or 52%.
Net Loss. The Company recorded a net income of $2,041,483 as compared to a net
loss of ($3,145,793) for the same period last year. The significant decrease was
mainly due to the non-recurring $1,977,325 expense derived from the stock issued
for services last year and a gain of $3,350,000 for the forgiveness of
liabilities by its former parent corporation upon completion of the spin of by
the parent corporation to its stockholders described above, in addition to
increase in gross revenue.
14
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
Consolidated Financial Condition
Liquidity and Capital Resources - June 30, 2005
Operating. For the period ended June 30, 2005, the Group's operations utilized
cash resources of $264,675, as compared to utilizing cash of $47,622 for the
period ended June 30, 2004, an increase of $217,053 This is mainly attributable
to the increase in accounts receivable.
Investing and financing. For the period ended June 30, 2005, the Group's
investing activities obtained cash resources of $42,539, as compared to
utilizing cash of $44,741 for the period ended June 30, 2004, a decrease of
$87,280
Based on current expectations, we believe that our cash and cash equivalents,
and cash generated from operations will satisfy our working capital needs, and
other liquidity requirements associated with our existing operations through at
least the next 12 months. There are no transactions, arrangements, and other
relationships with unconsolidated entities or other persons that are reasonably
likely to materially affect liquidity or the availability of our requirements
for capital.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements.
Item 3. Controls and Procedures.
Based on our management's evaluation (with the participation of our chief
executive officer and chief financial officer), as of the end of the period
covered by this report, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act")) are effective to ensure that information required
to be disclosed by us in reports.
There was no change in our internal control over financial reporting during our
second quarter of fiscal 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 2000, the Company received a letter from an attorney advising that
there is an Order for Entry of Default Judgment in the District Court of
Boulder, Colorado against a predecessor of the Company in favor of two alleged
former employees of Northern Lights Software, Ltd. (a subsidiary of the Company)
dated March 10, 1998 in the total amount of $74,887. The judgment was apparently
for alleged unpaid wages. Pursuant to an Agreement and Plan of Reorganization
dated February 15, 1999, a former director of the Company had personally
warranted that there were no undisclosed liabilities in the Company and had
indemnified the Company against such claims. He stated that he believed that
claimants were actually employees of Northern Lights Software (New York) Ltd., a
subsidiary of Northern Lights Software, Ltd. (Delaware), a predecessor of the
Company. The Company's predecessor accepted $10,300 from the former director in
exchange for releasing his indemnification of the Company. The Company believes
that the Colorado lawsuit was brought against the wrong corporation and that the
default judgment was erroneously issued in violation of Colorado statutes, as
interpreted by the Colorado Supreme Court. Based upon a review of the record in
the case, management believes that it would be an error for any court to enforce
the default judgment, and the Company plans to mount a vigorous defense against
any effort to enforce the judgment against the Company.
Other than that stated above, to the best knowledge of the Officers and
Directors of the Company, neither the Company nor any of its Officers or
Directors is a party to any material legal proceeding or litigation and such
persons know of no other material legal proceeding or litigation contemplated or
threatened. Other than that stated above, there are no judgments against the
Company or its Officers or Directors.
Item 2. Changes in Securities.
On May 19, 2005, the Company issued 4,000 shares to two vice presidents for
services having a fair value of $2,000. The Company recognized expense of $332
and recorded deferred stock compensation of $1,668 as of June 30, 2005.
On May 19, 2005, the Company issued 39,834 shares of common stock for the
acquisition of 55% of Teda Resort Alliance Development Co., Limited common stock
with a fair value of $105,328. Issuance of 39,834 shares was cancelled as the
transaction of acquisition has been mutually rescinded.
On May 19, 2005, the Company issued 19,370 shares of common stock for the
acquisition of 55% equity interest of Shanghai Bowking Hotel Management Company
Limited with a fair value of $48,440 as first payment.
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Item 3. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to
Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On April 28, 2005, the Company filed a Current Report on Form 8-K dated
July 1, 2005, for:
(a) April 27, 2005, Teda Travel Group, Inc. issued a press release
announcing that the acquisition of Teda Resort Alliance Company
Limited has been approved by the Tianjin Government.
On May 9, 2005, the Company filed a Current Report on Form 8-K dated July
1, 2005, for:
(a) On April 25, 2005, Teda Travel Group, Inc. (the "Registrant"), a
Delaware corporation signed a Supplemental Agreement to Agreement for
Sale and Purchase of Certain Interests in the Registered Capital of
Tianjin TEDA Resort Alliance Development Company Limited ("TRAC")
dated August 18, 2004 (the "Supplemental Agreement"). The supplemental
agreement called for a reduction of total consideration for the sale
and purchase of the Sale Interests, from $386,200 to $199,516.
On July 6, 2005, the Company filed a Current Report on Form 8-K dated July
1, 2005, for:
(a) On June 30, 2005, Hon Ming Wong resigned from the position of Chief
Financial Officer and Director of Teda Travel Group Inc. (the
"Company") due to personal reasons;
(b) The Company's Board of Directors appointed Godfrey Chin Tong Hui as
Interim Chief Financial Officer, effective June 30, 2005. Mr. Hui is
currently the Chief Executive Officer of the Company.
On July 11, 2005, the Company filed a Current Report on Form 8-K dated June
30, 2005, for:
(a) On June 30, 2005, the Boards of Directors terminated of service of
Pacific Stock Transfer Company, a Nevada corporation with office at
500 E. Warm Springs Rd., Suite 240 Las Vegas, NV 89119 as the
Company's Stock Transfer Agent.
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(b) On June 30, 2005, the Boards of Directors engaged the service of
Holladay Stock Transfer, Inc., a Nevada corporation with office at 50
West Liberty Street, Suite 880, Reno, Nevada 89501 as the Company's
new Stock Transfer Agent.
On August 23, 2005, the Company filed a Current Report on Form 8-K dated
August 20, 2005, for:
(a) Teda Travel Group, Inc. (the "Registrant") had signed a definitive
agreement to purchase 55% of the outstanding registered capital of
Teda Resort Alliance Development Co., Ltd ("TRAC"), a Sino-foreign
joint venture company registered in the People's Republic of China.
This transaction was mutually rescinded due to the Registrant's lack
of funds to complete the acquisition..
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TEDA TRAVEL GROUP INC.
Date: September 1, 2005 By: /s/ GODFREY CHIN TONG HUI
----------------------------
Godfrey Chin Tong Hui,
Chief Executive Officer
Date: September 1, 2005 By: /s/ GODFREY CHIN TONG HUI
----------------------------
Godfrey Chin Tong Hui,
Chief Financial Officer
18