U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 September 30, 2005, the Issuer had outstanding 21,866,255 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 Consolidated Balance Sheet as of September 30, 2005
(unaudited) .................................................... 3
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 2005 and 2004 (unaudited) ..... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2005 and 2004 (unaudited).............. 5
Notes to Condensed Financial Statements as of September 30, 2005
(Unaudited) .................................................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation ......... 9
Item 3. Controls and Procedures .......................................... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 15
Item 2. Changes in Securities ............................................ 15
Item 6. Exhibits ....................... ................................. 15
SIGNATURES .................................................................. 15
2
TEDA TRAVEL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
------------------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash $ 37,786
Accounts receivable, net 146,221
Prepaid expenses and other current assets 237,439
-----------
Total Current Assets 421,446
-----------
Property and equipment - net 36,512
OTHER ASSETS
Intangible license rights, net 487,968
Investment in affiliate 2,420,130
-----------
Total Other Assets 2,908,098
-----------
TOTAL ASSETS $ 3,366,056
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 207,168
Capital lease - current 9,333
Due to a shareholder 554,402
Due to related parties 35,829
-----------
Total Current Liabilities 806,732
-----------
LONG-TERM LIABILITIES
Capital lease - long-term 5,485
-----------
Total Long-Term Liabilities 5,485
-----------
TOTAL LIABILITIES 812,217
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized,
none issued and outstanding --
Common stock, $.001 par value, 100,000,000 shares authorized,
21,866,255 shares issued and outstanding 21,866
Additional paid-in capital 4,785,499
Deferred stock compensation (97,651)
Accumulated deficit (2,155,875)
-----------
Total Stockholders' Equity 2,553,839
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,366,056
===========
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 Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
REVENUE, NET $ 277,364 $ 141,117 $ 600,149 $ 386,446
------------ ------------ ------------ ------------
EXPENSES
Stock issued for services 26,517 382,876 601,701 3,168,597
Professional fees 58,999 48,538 169,959 171,401
Payroll 104,600 60,676 352,220 148,418
Management fees 7,692 7,692 23,077 23,077
Other selling, general and administrative 139,600 43,759 489,771 106,473
------------ ------------ ------------ ------------
Total Expenses 337,408 543,541 1,636,728 3,617,966
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (60,044) (402,424) (1,036,579) (3,231,520)
OTHER INCOME (EXPENSE)
Interest income 71 4 177 40
Gain on debt forgiveness -- -- 3,350,000 --
Other income 10,081 -- 10,081 --
Equity loss of affiliate (140,047) (225,036) (448,923) (526,452)
------------ ------------ ------------ ------------
Total Other Income (Expenses) (129,895) (225,032) 2,911,335 (526,412)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES (189,939) (627,456) 1,874,756 (3,757932)
Income taxes 5,100 8,861 28,312 24,178
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (195,039) $ (636,317) $ 1,846,444 $ (3,782,110)
============ ============ ============ ============
Net income (loss) per common share - basic and
diluted $ (.01) $ (.03) $ 0.08 $ (.19)
============ ============ ============ ============
Weighted average number of common shares
outstanding - basic and diluted 21,848,755 20,955,813 21,731,810 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 NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,846,444 (3,782,110)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 192,229 11,257
Stock and warrants issued for consulting services 601,701 3,168,597
Gain on debt forgiveness (3,350,000) --
Loss in affiliate 448,923 526,452
Increase (decrease) in:
Accounts receivable 13,281 (80,473)
Prepaid expenses (80,379) (34,816)
Decrease (increase) in:
Accounts payable and accrued expenses 68,538 86,578
----------- -----------
Net Cash Used In Operating Activities (259,263) (104,515)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,670) (12,165)
----------- -----------
Net Cash Provided By (Used In) Investing
Activities (6,670) (12,165)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties 16,919 16,238
Due to a director 8,634 (21,645)
Due to a shareholder 218,444 --
Payment on note payable - related party -- (9,066)
Proceeds from note payable - related party -- 179,058
Payments on capital lease (7,020) (7,691)
----------- -----------
Net Cash Provided By Financing Activities 236,977 156,894
----------- -----------
INCREASE (DECREASE) IN CASH (28,956) 40,214
CASH - BEGINNING OF PERIOD 66,742 98,079
----------- -----------
CASH - END OF PERIOD $ 37,786 138,293
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
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During 2004, the Company leased a vehicle under a capital lease for $24,178.
During 2005, the Company issued 19,370 shares of common stock valued at $48,440
for a deposit on the acquisition of 55% equity interest of Shanghai Bowking
Hotel Management Company Limited.
During 2005, the Company issued 175,000 shares of common stock valued at 122,500
for media services.
See accompanying notes to condensed consolidated financial statements.
5
TEDA TRAVEL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 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
Limited, Teda BVI, Ltd., Teda Beijing, Ltd. and its 60% owned subsidiary
6
NOTE 3 PRINCIPLES OF CONSOLIDATION - continued
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 September 30, 2005 s as follows:
Current assets $ 25,788,640
Non-current assets 42,152,120
------------
Total Assets 67,940,760
============
Current liabilities 35,151,474
Non-current liabilities 22,980,164
Stockholders' equity 9,809,122
------------
Total Liabilities and Stockholders' Equity 67,940,760
============
Revenues $ 6,392,361
Gross Profit 2,474,139
------------
Net loss (558,573)
============
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% $(195,501)
Less: U.S. GAAP adjustment for depreciation 253,422
------------
Equity in loss of affiliate $(448,923)
============
NOTE 5 RELATED PARTY TRANSACTIONS
---------------------------------
During the nine months ended September 30, 2005 and 2004, the Company
received management revenue of $330,530 and $336,494, respectively from two
properties it manages that are owned by a shareholder.
During the nine months ended September 30, 2005 and 2004, the Company paid
$23,077 to a stockholder for consulting and professional services.
7
NOTE 5 RELATED PARTY TRANSACTIONS - continued
During the nine months ended September 30, 2005 and 2004, the Company paid
$26,530 and $21,967 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 $1,328 and recorded deferred stock compensation of $672 as of September
30, 2005.
During July 20, 2005, the Company issued 175,000 shares to Media Service
Provider in the U.S. for services having a fair value of $122,500. The
Company recognized expense of $25,521 and recorded deferred stock
compensation of $96,979 as of September 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. The Company
has remaining payment of $193,560 and there is no fixed date of closing of
the acquisition.
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 $ 600,149 $ -- $ 600,149
Loss from operations (1,036,579) -- (1,036,579)
Depreciation and amortization 192,229 -- 192,229
Assets 945,926 2,420,130 3,366,056
Capital Expenditures (6,670) -- (6,670)
8
NOTE 7 BUSINESS SEGMENTS - continued
Property Real Estate
2004 Management Investments Total
----------- ----------- -----------
Revenue $ 386,446 $ -- $ 386,446
Loss from operations (3,231,520) -- (3,231,520)
Depreciation 11,257 -- 11,257
Assets 464,932 3,135,416 3,600,348
Capital Expenditures 44,034 -- 44,034
NOTE 8 DUE TO RELATED PARTIES
-----------------------------
At September 30, 2005, the Company owed $554,402 to a shareholder, at the
rate of 3% per annum and payable on August 31, 2005. The advance is
unsecured and currently in default.
At September 30, 2005, a related party is owed $35,829 for office space
leased to the Company.
NOTE 9 SUBSEQUENT EVENTS
------------------------
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, the Company
issued 19,370 shares of common stock as a deposit on the acquisition. As of
October 31, 2005, this acquisition is not completed.
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
herewith.
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.
9
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
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 operating Company was
previously 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
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.
10
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
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 September 30,
2005, the Company has 18 management contracts of hotels and club houses located
in various locations in the PRC, encompassing more than 3,700 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.
Moreover, the Board of Directors is seriously looking for different ways in
which to raising capital for the Company, including but not limited to issuance
of new shares and disposal of Company's assets.
To conserve cash, on August 20, 2005, the Company rescinded its acquisition of
Teda Resort Alliance Development Co., Limited ("TRAC") by mutual consent.
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.
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.
11
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
(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 September 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
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.
12
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
(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 and nine months ended September 30, 2005 compared to the three and
nine months ended September 30, 2004
Revenues.
Revenues were $277,364 and $141,116 for the three months ended September 30,
2005 and 2004, and $600,149 and $386,446 for the nine months ended September 30,
2005 and 2004, representing an increase of $136,248 and $213,703, or 97% and
55%. We enjoyed a healthy growth this year, especially with the number of hotels
under our management that has grown from 3 to 18.
Other Selling, G&A expenses.
Other selling, G&A expenses were $139,600 and $43,759 for the three months ended
September 30, 2005 and 2004, and $489,771 and $106,473 for the nine months ended
September 30, 2005 and 2004, representing an increase of $95,841 and $383,298,
or 219% and 360%. 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.
Loss from Operations.
The Company incurred a loss from operations of $60,044 and $402,424 for the
three months ended September 30, 2005 and 2004, and $1,036,579 and $3,231,520
for the nine months ended September 30, 2005 and 2004. 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 $140,047 and $225,036 for
the three months ended September 30, 2005 and 2004, and $448,923 and $526,452
for the nine months ended September 30, 2005 and 2004, representing a decrease
of $84,989 and $77,529, or 38% and 15%. The decrease in net loss was due to
increased 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 the three
months ended September 30, 2005 and 2004 was $5,100 and $8,861, and for the nine
months ended September 30, 2005 and 2004 was $28,312 and $24,178, representing
an increase (decrease) of ($3,761) and $4,134, or 42% and 17%.
13
Item 2. Management's Discussion and Analysis or Plan of Operation - continued
Net Income / (Loss).
The Company recorded a net loss of ($195,039) and ($636,317) for the three
months ended September 30, 2005 and 2004, and a net income of $1,846,444 and a
net loss of ($3,782,110) for the nine months ended September 30, 2005 and 2004.
The significant decrease was mainly due to the non-recurring expense of $808,396
and $1,977,325 derived from the stock issued for services in comparison to the
three and nine months ended September 30, 2004 and a gain of $3,350,000 recorded
in the current year 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.
Consolidated Financial Condition
Liquidity and Capital Resources - September 30, 2005
Operating.
For the period ended September 30, 2005, the Group's operations utilized cash
resources of $259,263, as compared to utilizing cash of $104,515 for the period
ended September 30, 2004, an increase of $154,748. This is mainly attributable
to the increase in the payment of payroll and other operating expenses.
Based on current expectations, we believe that our cash and cash equivalents,
and cash generated from operations will not 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.
The report from our independent registered public accounting firm on our audited
financial statements at December 31, 2004 contains an explanatory paragraph
regarding doubt as to our ability to continue as a going concern as a result of
our significant recurring losses from operations since inception. We do not have
sufficient working capital to pay our operating costs for the next 12 months. In
view of the above, the Board of Directors is seriously looking for different
ways in which to raising capital for the Company, including but not limited to
issuance of new shares and disposal of Company's assets.
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 that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
There was no change in our internal control over financial reporting during our
third quarter of fiscal 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities.
On July 20, 2005 we issued 175,000 shares of our common stock in connection with
the appointment of a Media Services Provider in the U.S. for the term of one
year. The common shares were issued pursuant to Regulation S under the Act.
There was no underwriter involved in this issuance.
Item 6. Exhibits.
Exhibit Index
31. Certification of Chief Executive and 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. Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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: November 10, 2005 By: /s/ GODFREY CHIN TONG HUI
--------------------------------
Godfrey Chin Tong Hui,
Chief Executive and
Financial Officer
15
================================================================================
Exhibit 31.
Certification of Chief Executive and 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.
I, Godfrey Chin Tong Hui, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Teda Travel Group
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the small business issuer as of, and for, the periods presented in
this quarterly report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
a) designed such disclosure controls and procedures or cause such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during the
period in which this annual report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter that has materially
affected, or its reasonably likely to materially affect, the small
business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of small business issuer's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal controls over financial reporting.
Date: November 10, 2005
/s/ Godfrey Chin Tong Hui
-----------------------------
Godfrey Chin Tong Hui
Chief Executive and Financial Officer
================================================================================
Exhibit 32.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Teda Travel Group Inc. Quarterly Report on Form 10-QSB
for the quarter ended September 30, 2005 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Godfrey Chin Tong Hui,
Chief Executive and Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, and
(2) The information contained in the Report fairly presents in all material
respects the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906, another
document authenticating, acknowledging or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Teda Travel Group Inc. and will be
retained by Teda Travel Group Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
/s/ Godfrey Chin Tong Hui
-----------------------------
Godfrey Chin Tong Hui
Chief Executive and Financial Officer