REDtone Asia (RTAS) 8-K/A Completion of Acquisition or Disposition of Assets

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

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Date of Report (Date of earliest event reported):  August 2, 2010

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HOTGATE TECHNOLOGY, INC.

(Exact name of registrant as specified in Charter)

NEVADA	333-129388	71-098116
(State or other jurisdiction of incorporation or organization)	(Commission File No.)	(IRS Employee Identification No.)

Room 1602, Aitken Vanson Centre, 61 Hoi Yuen Rd., Kwun Tong, Hong Kong

(Address of principal executive offices, including zip code)

(852)2270-0688

 (Registrant’s tel ephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨     Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))

¨     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

        (17 CFR 240.14d-2(b))

¨    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

        (17 CFR 240.13e-4(c))

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TABLE OF CONTENTS

PART I

P ART II

PART III

PART IV

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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,”
47;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.

ITEM 2.01 COMPLETION OF ACQUISITION OF ASSETS

On August 2, 2010, Hotgate Technology, Inc. (the “Company”) entered into an Agreement for a Share Exchange (the “Agreement”) with REDtone Technology Sdn. Bhd. and REDtone International Berhad, both of which are incorporated in Malaysia.   The Agreement closed on September 27, 2010. Upon the closing, of the Agreement, the Company acquired 100% ownership of REDtone Telecommunications (China) Limited (“REDtone China”).

Consideration paid by the Company was a total of 244,444,444 shares of its common stock (following the reverse stock split approved on July 29, 2010) in exchange for 100% ownership of REDtone China (such share exchange shall be referred to herein as the “Exchange”).  

The Agreement also provided for the implementation and completion of the capitalisation of the debts due from the Company to REDtone International Berhad which was satisfied by way of issuance and allotment of 13,147,197 shares of the Company’s common stock and the presentation of any required financial statements for the completion of the transaction as required by applicable law.

A more detailed description of the business acquired is set forth below:

PART I

ITEM 1. BUSINESS

Business Overview

Hotgate Technology, Inc.

Hotgate Technology, Inc. (formerly RNS Software, Inc.) was incorporated on January 6, 2005 in Nevada as File4ward Software, Inc.

On May 16, 2008, the Company entered into an Agreement for Share Exchange with Hotgate Holding Limited, a British Virgin Island company (“HHL”) and the shareholders of HHL, namely Redtone Telecommunications Sdn Bhd, a Malaysian company, Pang Wee Tak, Alvin James and Michael Yang, individually.  Such shareholders collectively own 100% of the shares of HHL.  Upon completion of the Agreement for Share Exchange, the Company had a total of approximately 186,321,429 shares of its common stock issued and outstanding. In connection with these changes, the Company received a new trading symbol of HTGT on June 9, 2008.  

Since the previous 4^th quarter of the fiscal year ended May 31, 2009, the management has implemented a drastic downsizing arrangement for the Group as a measure to braise through the severe economic crisis and the expenses and resources has been kept down in line.

On September 30, 2009, the Board of Directors of the Company accepted the resignation of Ms. Li Li Wong as the Chief Financial Officer of the Company, as was previously reported on Form 8-K filed October 2, 2009.  Ms. Wong’s resignation is not due to any disagreements with the Company and she has no claims against the Company.  On the same day, the Board of Directors of the Company appointed Ms. Yan Suan Sah to serve as the Company’s Chief Financial

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Officer.  Ms. Yan Suan Sah, age 33, is a registered Chartered Accountant with Malaysian Institute of Accountants, and also an associate member of Chartered Institute of Management Accountants UK.  She brings with her over 10 years of work experience in finance, accounting and internal control.

On May 3, 2010, the Board of Directors of the Company accepted the resignation of Mr Chuan Beng Wei as the interim Chief Executive Officer of the Company, which was reported on Form 8-K filed May 5, 2010. Ms Yan Suan Sah was appointed as the Chief Executive Officer on the same day.

REDtone China

REDtone China was incorporated as a private limited company under the name of REDtone Holding Pte Limited, in Hong Kong on May 26, 2005, under the Comp anies Ordinance of Hong Kong,    It assumed its present name on August 9, 2005. The principal activity of REDtone China is that of investment holding, while its subsidiaries are principally involved in research and development of telecommunication and network technology, marketing, and distribution of discounted call services.

Given the potential for discounted call services in People’s Republic of China (“PRC”), REDtone China was incorporated by REDtone International Berhad, to replicate REDtone International Berhad’s Malaysian business model for discounted call services to the PRC in February 2006.  Growth in discounted call services in PRC was encouraging because discounted call solutions provide a cheaper mode of voice services for individual users and corporate clients  that make nationwide and international calls.

REDtone China, via its subsidiary, entered into a business collaboration agreement with a Shanghai Branch Company, China TieTong Telecommunications (“China TieTong”), to offer long distance domestic and international discounted call packages to mobile phone and fixed line subscribers in Shanghai.  China TieTong has established a high-speed backbone optical transmission network of 52,000 kilometers over the years.  This covers most of the cities in the PRC.

Under the business collaboration, China TieTong will provide network access for REDtone to deliver discounted calls, while REDtone China will provide the necessary support for sales and marketing, customer care, technical system, and other related matters for China TieTong’s consumer and corporate voice services in Shanghai.  In addition, REDtone China is the sole distributor for China TieTong consumer and corporate voice services in Shanghai.

Since commencing its operations four years ago, REDtone China has grown rapidly.  REDtone China’s infrastructure network capacity has grown to approximately 437E1, whereby each E1 allows average transmissions of 100,000,000 minutes per month.  REDtone China is primarily offering its discounted call services to the consumer market.  The consumer market discounted call is offered as a prepaid telecommunication service.  This generates average cash of approximately RMB9 million per month.  In addition, the current average gross revenue per month is standing at approximately RMB8 million.  REDtone China has approximately one million active customers in consumer market segment.  Regarding the postpaid telecommunication services for the corporate market, REDtone China is generating average gross revenue of approximately RMB1 million per month.

REDtone China proposes to venture into new businesses, which will predominately be expansions of REDtone China’s existing technology, operating platform, marketing channels, and customer base.  REDtone China is seeking to expand its services in Shanghai, as well as other cities in the PRC,to the prepaid value reload market for 2G and 3G mobile users.  

This new service will offer fast, convenient, and “paperless” reload facilities to all reload agencies in Shanghai.  In addition, the reload services are easier to manage and more convenient compared to traditional paper-based and value-card printing, distribution, and control.  This new service is expected to be launched by the third quarter of 2010.

Products and Services

REDtone Ch ina offer 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

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Discounted Call Solutions for Consumers (“EMS”)

This is an innovative prepaid call service that offers an effective solution to help consumers to manage their telecommunications costs. This service was introduced in January 2006. Unlike a conventional discount service, this service comes with unique features which help users save time, effort, and control costs.

REDtone China partnered with China Tie Tong and China Unicom in Shanghai for the provision of discounted call services to approximately 1,000,000 actives customers with the support of approximately 4,000 active channel agencies.  

The following are the benefits of EMS:

(a)

Maximum savings, 24 hours daily - users enjoy maximum savings off phone charges for local, nationwide, long distance and mobile phone calls, 24 hours a day;

(b)

One account manages 20 lines - the service supports up to 20 phone numbers (fixed and mobile lines) to operate from one single account, namely, users can register home, business and mobile lines. Instead of having to keep track of several accounts, users can manage them all conveniently through just one consolidated account;

(c)

Free and easy registration process - there is a self-registration process through REDtone gateway where the system takes users though a step-by-step voice-guided menu and the service is activated instantly. In addition, users can add or delete phone numbers from the account any time;

(d)

Easy dialing – no personal identification number (“PIN”) required. There is no lengthy PIN to remember. Users just need to dial the nearest REDtone gateway followed by the destination number;

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(e)

Quick and easy reloads - topping up the account is simple and hassle-free with REDtone Reload Cards through an auto-reload facility. The REDtone Reload Cards are available from authorised distributors nationwide. As for the auto-reload through credit card facility, the account is automatically topped up whenever it reaches a preset threshold. REDtone will notify users by way of SMS to users’ mobile phone of each auto-reload transaction;

(f)

Secure authentication - the REDtone gateway identifies users via Caller-ID and not by PIN to prevent abuse of account; and

(g)

Internet Bill Presentment - Bill presentment for this service is through the Internet whereby customers may view and print their bills themselves up to the previous day’s transactions. Customers may also make billing enquiries by dialing the given hotlines to the Group’s customer care team.

EMS business has seen steady growth from the years 2007 to 2010, as follows:

a)

Unsold air time, being the airtime sold to agencies, has grown steadily from an average of RMB2.2mil per month in FYE2007 to RMB5.6mil per month in FYE2008 (growth of 159% year on year), and incr ease further to RMB6.6mil per month in FYE2009 (growth of 18%).  In FYE2010, the average unsold air-time reached RMB7.1mil per month represents growth of 8% year on year;

b)

Sold air-time, being airtime sold to end users, increase gradually from RMB2.3mil per month in FYE2007 to RMB6.6mil per month in FYE 2008 (growth of 189% year on year),and increase further to RMB7.7mil per month average in FYE2009(growth of 17% ).  In FYE2010, the average sold air-time reached RMB8.2mil per month represents growth of 6% year on year;

c)

End users EMS utilisation grows from RMB1.8mil/mo nth in FYE2007 to RMB7.9mil per month in FYE2010 (total growth of 338%). The year on year growth from FYE2007 to FYE2010 was 233%, 21% and 7% respectively; and

d)

Generating comfortable net operating cash inflow of approximately RMB 9mil per year.

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Business flow of EMS

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Discounted Call Services for Corporate Customers

This is a post-paid, discounted call service, targeting large companies and corporations with high long distance telephone bills.  We are partners with China Tie Tong, China Telecom, China Mobile, and China Unicom in Shanghai to provide discounted IP call services to more than 1,620 active corporate clients.   

Business Flow of Discounted Call for Corporate Segme nt

Reload for 2G and 3G Prepaid mobile

Using our existing customer base and technology platform, in August 2010, we expanded into prepaid value reload services for 2G and 3G Mobile users in Shanghai.  The reload prepaid mobile will have the capacity to  make telephone calls, use the internet, and download games.  Under this service, REDtone China acts as the distributor for three major telecommunication service providers in Shanghai, specifically: China Mobile, China Unicom, and China Telecom.  REDtone China offers the distinct advantage in providing this service in that we able to use our existing platform, technology, marketing channels, and customer base resulting in minimal start-up costs.

Our objectives in providing this service are as follow:

ü

Become one of the largest distributors for prepaid mobile reload services in Shanghai.

ü

Focus on offering a more comprehensive mobile reload solution to our customers.  Our service is convenient and entirely paperless (via SMS/ IVR/Web).

ü

We anticipate prepaid model to generate a good cash flow reserve.  We target a monthly top-up value of approximately RMB10 million for the year 2011 and all following years.

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Currently, China Mobile and China Unicom have an estimated 10 million prepaid mobile users in Shanghai.  With our existing technology and system, this service offers a fast, convenient, “paperless”, and automatic reload facility to all reload agencies in Shanghai.  Our system is a major attraction to both telecommunication service providers and reload agencies as it makes the reload process easier to manage and more c onvenient as compared with traditional paper-based system which includes, value-card printing, distribution, and storage control.  

Once this service model is establish in Shanghai, similar models will be replicated in other major cities in the PRC.   

Business flow of Reload Services

Customers and Markets

REDtone China has built a strong foundation, and has an intangible asset in its customer base, especially in Shanghai. We have more than 1,000,000 consumers and 1,600 major corporate customers.  These reference si tes are helpful for us to market our services.

Currently, we conduct our business solely in Shanghai.  We plan to expand our market share and presence in China in the next three years by replicating our successful business model currently being used in Shanghai.

We believe China will be our fastest growing market.  We plan to invest significant resources to expand our market share and presence in China in the next three years

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Sales and Marketing

  ;

REDtone China will continue its tradition of leveraging on capable partners to market its services and products in order to grow its business quickly. Innovative schemes are designed to attract and retain partners to achieve our sales goals. These partners would include distributors and agents. We believe that these channels are effective in bringing our services and products to customers because of their network of contacts and market knowledge.

The existing REDtone China’s sale partners have been with us since the start of our EMS business in 2006.  We provide product training and customer care support, develop incentive system and motivation programme to our partners in order to enhance the quality of our service and to make our products relevant and attractive for the market.

Business Strategies for Future Growth

We have identified a number of initiatives to drive our future growth, as outlined below:

1.

Expand our Presence in China

Currently, REDtone China’s business is only in Shanghai. We are currently expanding and growing our business beyond Shanghai by replicating our successful proprietary telecommunications service business model in other provinces and countries.

REDtone’s expansion is executed with relatively low capital expenditure requirements as it fabricates its own equipment and software, and does not require investing in basic infrastructurethus allowing it to scale its business without incurring huge investment costs.

Based on statistics from May, 2010, published by the company website of China Mobile, China Unicom and China Telecom, there are over 780 millionmobile phone subscribers in China.  This will demonstrates the tremendous potential there is for growth.

2.

Synergistic expansion into related value added services -  Prepaid Mobile reload

Riding on existing customer base and E-Purse technology platform, REDtone China extends its services into prepaid mobile reload for 2G and 3G Mobile users in Shanghai and other potential major cities.  This service covers all three major telecommunication service providers in Shanghai, specifically: China Mobile, China Unicom, and China Telecom.  The distinct advantage of having this service is we are able to use our current platform and technology, and its existing marketing channel and customer base with minimal start-up costs.

With an estimate of over 10 million prepaid mobile users in Shanghai for China Mobile and China Unicom, this service will offer fast and convenient “paperless” reload facilities to all reload agencies in Shanghai.  The attraction to both telecommunication service providers as well as reload downstream resellers is that such service will help making the ir reload services easier to manage, and more convenient, when compared with traditional paper-based value-card printing, distribution, and storage control issues.  

Once this service model established its footing in Shanghai, similar model can be replicated in other cities in China.       

3.

Introduction of  New Products and Services

We believe our continuous product innovation, understanding of our customers’ needs and good customer service will continue to bring us success. Hence, we are committed to research ing, designing and developing products and services that will continue to meet the demands of our customers. In addition to new products and updates, we also continue to review our revenue model by closely monitoring market trends and discussing trends with our clients and users.

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Competition

The telecommunications industry in China is dominated by three state-run corporations, specifically: China Telecom Corporation L imited, China Mobile Communications Corporation, and China United Network Communications Group Co., Ltd.  All of these corporations have 3G licenses and engage in fixed-line and mobile business in China. 

There is potential competition from:

(i)

Direct Telecommunication Operators

The direct telecommunication operators are specifically: China Telecom Corporation Limited, China Mobile Communications Corporation, and China United Network Communications Group Co., Ltd.  These companies may adopt a more aggressive pricing approach on their local and international calls.  This would likely have a direct impact on our discounted call service s for the corporate segment.  Likewise, if these competitors offer competitive rates for domestic, long distance, and international calls, this could offer a substitution to our EMS services and threaten our profits in this market.

(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 Shanghai discounted consumer call market may cause the price disruption when they compete on price aggressively.

(iii)

Other Mobile air-time reload service providers

Other players like Smartpay, Defeng and YiQiao offers similar mobile air-time reload services in Shanghai.   They have 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)

Competitive Pricing

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)

Superior Technology and Competent Technical Support

We use superior call routing technology and techniques, such as its own invention, the Smart Call System, for large corporate customers. As the products are developed in-house, we know the products well and are competent in supporting customers. Customers can expect hassle-free implementation of the products and services.

(c)

Innovation

Innovation which is 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

(d)

Value Added Services

For the telecommunications services provided by us, customers would also benefit from value added services in our convenient reload, customer care services and support, e-billings and others.

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Regulatory Matters

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. The PRC’s laws and regulations will be modified and updated from time to time by the Chinese government. In addition, many of the PRC’s 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 regula tions.

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, Kerry Properties (Shanghai) Limited and REDtone Telecommunications (China) Ltd on August 11, 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 Company did not incur any research and development expenses in the fiscal year ended May 31, 2010.

Employees

As of August 31, 2010, we had forty-four (44) employees including: fourteen (14) in management, twenty-two (22) in research and development, technical support, and customer care, four (4) in sales and marketing, and four (4) in finance and administration.  None of our employees are represented by labor unions or subject to collective bargaining agreements.  We believe our employee relations are good and have had no employee related disputes recorded throughout the years.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

There are inherent operational and business risks which could potentially adversely affect our financial performance.

We are principally involved in the provision of telecommunications services and solutions and office communication solutions.  As such, we are subject to certain operational and business risk factors inherent in the telecommunications industry.  The operational risks include, inter alia: changes in conditions, such as deterioration in prevailing market conditions, changes in labor, an increase in labor and raw material costs, and maintaining a continued supply of electricity which is essential for the smooth operations of our telecommunications network(s). The business risks include, inter alia: network disruption in respect of the provision of the telecommunications services, and although we seek to mitigate these operational and business risks through, inter alia, efficient cost control, maintaining a diversified range of customers and suppliers, having good relationships with the customers, suppliers a nd employees of the Company and having contractual agreements for projects undertaken, there can be no assurance that any change to these factors will not have a material adverse effect on our business and financial performance.

Our industry is highly competitive, which could materially affect our business operations.  

We are in the very competitive and rapidly changing telecommunications industry and its future success will depend on its ability to increase its market share in its markets.  We are competing against well established telecommunications companies, which offer related services.  These companies include, but are not limited to: China Telecom, China Unicom, and China Mobile.  We are competing against these companies on several levels, including: pricing strategies, technological advances, advertising campaigns, strategic partnerships, and other initiatives.  The increasing competition in this telecommunications industry has had, and is expected to continue to have, a significant impact on our business and financial performance.  Competition is expected to increase with the emergence of new entrants into this market.  We believe that the provision of telecommunications services complemented with our innovative will provide the Group with a competitive edge and differentiate us from its competitors.

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Although we seek to mitigate these risks, there can be no assurance that our competitors will not develop technologies and products that are more effective than those developed by u s. We have a very clear strategy to replicate the business in other provinces in China.

 We are currently dependent on attracting and maintaining key personnel.

The technology industry is growing and quickly changing, and successful management and operation of the business requires employing highly skilled, knowledgable employees.  This includes employees who are working in both technological and non-technological fields. Our management recognizes and believes that our continuing success depends significantly on the abilities and continuing efforts of our existing Executive Directors, Chief Executive Officers, and key personnel. The labor market for skilled personnel in this field is highly competitive.  We recognise that our success depends to a significant extent upon our ability to attract new personnel and retain our existing skilled personnel. We seek to mitigate this risk factor by offering our employees competitive salaries, remuneration, and benefits packages.  There can be no assurance that these measures will be successful and that any change in our existing skilled personnel will not have a material effect on our business and operations.

There can be no assurance that there will not be any adverse changes to the terms of business collaboration agreement with China TieTong.

We currently have business collaboration agreements with China TieTong.  These agreements provide for renewability and are subject to changes in the terms of the agreements on renewal.  We will endeavour to seek and renew the agreement on terms favourable to us.  There can be no assurance that any adverse changes to the terms of the agreement would not result in higher interconnection expenses. However, as we h ave emerged as a significant service provider, China TieTong may view this as a business opportunity to continue and further strengthen their working relationship with us.

Although individual members of our management team have experience as officers of publicly-traded companies, much of that experience came prior to the adoption of the Sarbanes-Oxley Act.

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act.  We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures.  If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent auditor certifications that Sarbanes-Oxley Act requires publicly-t raded companies to obtain.

If the market does not accept our other new products or upgrades to existing products that we launch from time to time, our operating results and financial condition would be materially adversely affected.  

From time to time, we plan on launching new products and upgrades to existing products.  Our future success with our next generation product offerings will depend on our ability to accurately determine the functionality and features required by our customers, as well as the ability to enhance our products and deliver them in a timely manner. We cannot predict the present and future size of the potential market for our next generation of products, and we may incur substantial costs to enhance and modify our products and services in order to meet the demands of this potential ma rket.

If we experience delays in product development or the introduction of new products or new versions of existing products, our business and sales will be negatively affected.  

There can be no assurance that we will not experience delays in connection with our current product development or future development activities.  If we are unable to develop and introduce new products, or enhancements to existing products in a timely manner in response to changing market conditions or customer requirements, it may materially and adversely affect our operating results and financial condition.  Because we have limited resources, we must effectively manage and properly allocate and prioritize our product development efforts.  There can be no assurance that these efforts will be s uccessful or, even if successful, that any resulting products will achieve customer acceptance.

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We have only limited protection of our proprietary rights and technology.  

Our success is heavily dependent upon our proprietary technology. We rely on a combination of the protections provided under applicable copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements, to establish and protect our proprietary rights. As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our developers, distributors and marketers.  Despite these precautions, it may be possible for unauthorized third parties to copy certain portions of our products or to reverse engineer or obtain and use information that we regard as proprietary, to use our products or technology without authorization, or to develop similar technology independently. Moreover, the laws of some other countries do not protect our proprietary rights to the same extent as do the laws of the United States. Furthermore, we have no patents and existing copyright laws afford only limited protection.  There can be no assurance that we will be able to protect our proprietary software against unauthorized third party copying or use, which could adversely affect our competitive position.

We have never paid cash dividends and are not likely to do so in the foreseeable future.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for use in the operation and expansion of our business. We dos not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.

Risks Associated With Doing Business in China and Asia

There are substantial risks associated with doing business in China and Asia, as set forth in the following risk factors.

Our operations and assets in China are subject to significant political and economic uncertainties.

Changes in PRC laws and regulations, their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or th e nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results from operations and financial condition. Under current leadership of the PRC, the Chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

Our business is largely subject to the uncertain legal environment in China and your legal protection could be limited.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, the Chinese legal system is a system in which precedents set in earlier legal cases are not generally used. The overall effect of leg islation enacted over the past 20 years has been to enhance the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively recent and evolving rapidly, and their interpretation and enforcement involve various uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold business licenses and permits. In addition, all of our executive officers and directors are not residents of the U.S., and most of the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to serve process on these individuals in the U.S., or to enforce a judgment obtained in the U.S. against the Company or any of these persons.

The Chinese governments exert substantial influence over the manner in which we must conduct our business activities which could hav e an adverse effect on our ability to operate in China.

China has only recently permitted provincial and local economic autonomy and private economic activities. The Chinese governments continue to exercise substantial control over virtually every sector of the economy through regulation and state ownership. Our ability to operate may be harmed by changes in laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts to ensure our compliance with such regulations or interpretations.

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Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy could have a significant effect on economic conditions in China.  Additionally, regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in particular regions of China, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Future inflation in China may inhibit our ability to conduct business in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

The substantial portion of our revenues will be settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside China or to pay dividends or other payment s in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents at banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.

The value of our securities will be affected by the foreign exchange rate between U.S. dollars and RMB and other local currencies.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into RMB for our operational needs and should the RMB appreciate against the U.S. dollar at that time, our financial position, the business of the company, and the price of our common stock may be harmed. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, then the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

Risks Relating to our Common Stock

Our stock price may be volatile. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

●

changes in our industry;

●

competitive pricing pressures;

●

 our ability to obtain working capital financing;

●

additions or departures of key personnel;

●

limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;

●

sales of our common stock;

●

our ability to execute our business plan;

●

operating results that fall below expectations;

15

●

loss of any strategic relationship;

●

regulatory developments;

●

economic and other external factors; and

●

period-to-period fluctuations in our financial results.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.

We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

There is currently no liquid trading market for our common stock and we cannot ensure that one will ever develop or be sustained.

To date there has not been a liquid trading market for our common stock. We cannot predict how liquid the market for our common stock might become.  As soon as is practicable after becoming eligible, we anticipate applying for listing of our common stock on either the NYSE Amex Equities, The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards for any of these exchanges, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains quoted on the OTC Bulletin Board or is suspended from the OTC Bulletin Bo ard, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.

Furthermore, for companies whose securities are quoted on the OTC Bulletin Board, it is more difficult (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies and (iii) to obtain needed capital.

Our common stock is currently a “penny stock,” which may make it more difficult for our investors to sell their shares.

Our common stock is currently and may continue in the future to be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to th e penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.

16

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing capital stock.

We have financed our operations, and we expect to continue to finance our operations, acquisitions and develop strategic relationships, by issuing equity or debt securities, which could significantly reduce the percentage ownership of our existing stockholders.  Furthermore, any newly issued securities could have rights, preferences and privileges senior to those of our existing stock.  Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of stock to decline.

Trends, risks and uncertainties.

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all such risk factors before making an investment decision with respect to our Common Stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

As a smaller reporting company, the Company is not required to provide the disclosure required by this item.

ITEM 2. PROPERTIES

Our operation is located at 15A,E –F, Sanhe Plaza, No: 121, YanPing Road, Shanghai, People’s Republic of China.  Our office is used for sales and marketing, research and development, customer support, technical support, and administrative functions.  All of the facilities are leased.  We believe our facilities are adequate for our current needs.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.  As of the filing date of this Form 8-K, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.  There are no proceedings in which any of our directors, officers or affiliates is an adverse party or has a material interest adverse to our interest.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

As at the date of this report, no matter was submitted to a vote of the Company’s security holders.

17

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 a par value of $0.0001 per share.  As of the date of this report, we had 24,723,683 outstanding shares of Common Stock.

Our common stocks are quoted on the OTCBB under the symbol “HTGT”.  We hav e 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 any plan to pay any cash dividends in the foreseeable future will depend on the Company performance.

 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, 2010, to the date of this report, the Company sold unregistered securities to stockholders who acknowledge and understand that the certificates representing the shares have not been registered under the Securities Act 1933, as amended (“The Act”), and are restricted securities as that term is defined in Rule 144 under the Act, and require a written release from either the issuing Company or their attorney prior to legend removal.

Date of share certificate	Share certificate number	Name of shareholder	No. of shares	Subscription price (per share)	Total subscription price (US$)
2 August 2010	1156	Grand Trading  Investment Pte Ltd	110,000,000*	US$0.0004	44,000

* The figure is before the one-for-twelve reverse stock split

ITEM 6.  SELECTED FINANCIAL DATA

As a smaller reporting company, the Company is not required to provide the disclosure required by this item.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are formerly an information and communication technology (ICT) application provider in China and Asia specializing in internet connectivity, internet value-added services, wireless solutions and voice services for the hospitality industry. Due to the economic crisis and severe market competition, the operation of the company has been drastically downsized in FY2010.

In line with the management’s decision to seek new profitable business, the Company has on August 2, 2010, entered into an Agreement for a Share Exchange (the “Agreement”) with REDtone Technology Sdn. Bhd. and REDtone International Berhad, both of whi ch are incorporated in Malaysia.   Upon the closing of the transactions contemplated in the Agreement, the Company will acquire 100% ownership of REDtone Telecommunications (China) Limited (“REDtone China”). REDtone China has subsidiaries in Shanghai which are principally involved in the business of offering discounted call services to consumers and corporate segment and reload services for prepaid mobile.

18

Results of Operations

Financial Presentation

The following sets forth a discussion and analysis of R EDtone China’s financial condition and results of operations for the two financial years ended (“FYE”) May 31, 2010 and 2009. 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 Form 8-K/A.

		Fiscal year ended May 31,			Increase /(Decrease)
		2010		2009	from previous year
						%
Revenue	$	4,279,588	$	2,093,718	2,185,870	104%
Other income and gains		113,609		113,898	(289)	0%
Service costs		955,467		272,637	682,830	250%
Administrative expenses		456,987		483,217	(26,230)	-5%
Personnel cost		566,618		656,174	(89,556)	-14%
Depreciation expense		425,651		420,138	5,513	1%
Amortisation expense		110,447		110,446	1	0%
Other operating expenses		41,107		99,662	(58,555)	-59%
Income before provision of income taxes		1,836,920		165,342	1,671,578	1011%
Provision for income taxes		448,620		137,278	311,342	227%
Net income	$	1,388,300	$	28,064	1,360,236	4847%
Gain on foreign currency translation		21,641		36,158	(14,517)	-40%
Total comprehensive income	$	1,409,941	$	64,222	1,345,719	2095%

FYE May 31, 2010 compared to FYE May 31, 2009

Revenue   

Revenue from operations for FYE May 31, 2010 of $4.28 million reflected an increase of 104% compared to revenue of $2.09 million for FYE May 31, 2009.  This is due to increase in number of customers for the consumer market segment due to continuous expansion of customer base as a result of capacity expansion and improved voice quality.

Other income and gain.

For FYE 2010 and FYE 2009, other income and gain consists mainly of interest income and exchange difference.

Service Cost.

For FYE 2010, service cost registered an increase of 250% over FYE 2009, mainly due to increase in revenue which has resulted in the increase in traffic costs.  

General and administrative expenses.

For FYE 2010, the general and administrative expenses recorded a decrease of 5% as compared to FYE 2009 as a result of cost cutting exercise implemented by the management.

Personnel cost.

There was a reduction in personnel cost of $89,556 in FYE2010 as compared to FYE2009 due to cost cutting exercise implemented by the management.    

Other operating expenses

The reduction in other operating expenses in FYE2010 is mainly due to reduction in sales and marketing cost as our business mature and establish.    

Profit before tax.  

For FYE 2010, REDtone China recorded profit before tax of $1.39 million, an increase of $1.36 million, equivalent to approximately 4,847% as compared to FYE2009.   The increase in profit before tax is mainly due to increase in number of customers for consumer market segment resulting in higher consumer call revenue.

19

Liquidity and Capital Resources.  

Cash

Our cash balanc e as of May 31, 2010, was $4,319,834, representing a decrease of $299,034 as compared $4,618,856 recorded on May 31, 2009.

Cash Flow (before effect of exchange rate changes).

		Fiscal year ended May 31,
		2010		2009		Percentage
					+/-	change (%)
Net cash provided by operating activities		43,440		1,097,455	-1,054,015	-96%
Net cash used in investing activities	$	(399,528)	$	(88,575)	(310,953)	351%
Net cash provided by/(used in) financing activities	$	48,393	$	(187,213)	235,606	N/A
Net (decrease)/increase in cash and cash equivalents		(307,695)		821,667	(1,129,362)	N/A

Net cash provided by operations during the FYE 2010 amounted to $43,440 as compared to $1,097,455 for FYE 2009, representing a decrease of 96% due to advances made to a related company of $1.18million.

Net cashflow used in investing activities for FYE 2010 amounted to $399,528. This is mainly due to increase in investment available for sale amounting to approximately to $390,000.    

Net cashflow provided by financing activities for FYE May 31, 2010 amounted to $48,393 mainly due to collection on behalf of a related company.   

Working Capital

Our working capital was a positive of $3,199,625 as at May 31, 2010 as compared to $1,341,639 as at May 31, 2009.     

With the high cash reserve, the Company is in active search for good potential investment opportunities to generate better returns for its cash reserve.

As at May 31, 2010, we had stockholders’ surplus of $8,087,333, total assets of $11,065,886 and total liabilities of $2,978,553.  For FYE May 31, 2010, we recorded total comprehensive income of $1,409,941.  

We do not anticipate any material capital expenditures for our existing operations for the next twelve (12) months.

We do not believe that inflation has had a material effect on our result s 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.  

Revenue represents the invoiced value of services rendered and receivable during the year. Revenue is recognized when all of the following criteria are met:

a)

Persuasive evidence of an arrangement exists,

b)

Delivery has occurred or services have been rendered,

c)

The seller’s price to the buyer is fixed or determinable, and

d)

Collectability is reasonably assured.

20

Recent Accounting Pronouncements.

The Company d oes 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 disclosure 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.

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	45	Director	July 2008 - Present
Michael Yang Chee Hoong	62	Director	July 2008 - Present
Yan Suan Sah	34	CEO	May 2010 – Present
		CFO	September 2009 - Present

Mr. Chuan Beng Wei took office as Director with the Company in July, 2008.   In 1996, he founded Redtone Telecommunications Sdn Bhd which later became a subsidiary of Redtone International Bhd (“Redtone”), a company specializing in value-added telecommunications services.  Redtone is listed on the ACE market of Bursa Malaysia.  He serve d as the Managing Director of Redtone and was in charge of business development and strategic management. Mr. Wei began his career with Agilent Technologies (M) Sdn Bhd in 1989 and performed duties as a System Engineer and Major Account Manager. In 1995, he founded TQC Consultants (IT Division) Sdn Bhd, a software development and system integration company.  Mr. Wei is also a Council Member and the chairperson for Communication Special Interest Group for The Association of Computer and Multimedia Malaysia and the Vice President for the Kuala Lumpur/Selangor Darul Ehsan Telecommunication Association. He holds a Bachelor’s Degree in Electrical Engineering from the University of Technology in Malaysia and a Diploma in Management from the Malaysia Institute of Management.

Mr. Wei was also the interim CEO from April 13, 2009, to May 3, 2010.  Ms. Yan Suan Sah, the existing CFO of the Company assumes the role of CEO wit h effect from May 3, 2010.

Michael Yang, age 62, is a director of the Company. Since 1994, Mr. Yang has been the managing director of Zephyr Capital, an investment and management consulting company with clients in Australia, Malaysia, Hong Kong, China and other Asia countries. He is also a director of a number of companies including PHI Bhd., Cash Bhd. and EB Capital Bhd   Mr. Yang started his career in 1975 with Amanah-Chase Merchant Bank Bhd, the Malaysian merchant banking arm of Chase Manhattan Bank (now known as JP Morgan Chase) where he served as a General Manager and head of corporate banking. Mr. Yang holds a Master’s Degree in Business Administration from Cranfield University in the United Kingdom, a Bachelor of Economics degree (with honors) from the University of Malaya, Malaysia and a Diploma in Marketing from the Institute of Marketing in the United Kingdom.

Ms. Yan Suan Sah, age 34 is the CFO of the Company pursuant to the resignation of Li Li Wong on 30 September 2009.  Ms. Sah is a registered Chartered Accountant with Malaysian Institute of Accountants, and also an associate member of Chartered Institute of Management Accountants UK.  She brings with her over 10 years of work experience in finance, accounting and internal control.  Upon graduation from her Bachelor studies at Otago University in New Zealand, she began her career as an audit assistant in a Chartered Accounting firm in Malaysia.  In 1999, she joined TNT Logistics as an Accounts Executive.   In 2000, she worked at APIIT College as a Business Analyst, responsible for business analysis and internal control.   During her employment with APIIT, she obtained her Post Graduate Certificate in IT from

21

Staffordshire University, UK in 2002.  In 2003, she joined Success Forte Sdn Bhd, a local business consulting firm, as a Business Consultant in the areas of accounting, tax, research and corporate finance.   In 2007, she worked with DSC Systems Sdn Bhd as the Group Finance Manager, responsible for the overall finance and administration of the group.  From 2008 until September 2009, Ms Sah was the Group Finance Manger of Redtone Telecommunications Sdn Bhd, responsible for the overall accounting and financial management of Redtone group.

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.

ITEM 11. EXECUTIVE COMPENSATION.

The Company paid its executive officers compensation for their services.  The Company intends to maintain this policy in the future.

Director Compensation

The Company has not paid its directors any compensation for their services on the Board of Directors.  The Company intends to maintain this policy in the future.

Compensation Committee Interlocks and Insider Participation

As a smaller reporting company, the Company is not required to provide the disclosure required by this item.

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 at the date of this report: (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 at t he date of this report, the Company had 24,723,683   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	Grand Trading Investment Pte Ltd 47, Kaki Bukit Place, #04-00, Eunos Tech Park, 416225, Singapore.	9,166,667	37.1%
Common shares	CE Multimedia Pte Ltd 32B North Canal Road, 059288, Singapore.	7,063,438	28.6%
Common shares	Redtone International Bhd, Suites 22-28, 5th Floor, IOI Business Park, 47100 Puchong, Malaysia.	3,027,723	12.2%

(iii)

Security ownership of officers and directors as a group:  None.

22

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

During the period from J une 1, 2010, to the date of this report, there were no related transactions between the Company and the directors.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Report:

1.

Financial Statements of the business acquired- REDtone Telecommunications (China) Limited

Audited Consolidated Balance Sheets for th e financial year ended May 31, 2010 and May 31, 2009

Audited Consolidated Statements of Income and Comprehensive Income for the financial year ended May 31, 2010 and May 31, 2009

Audited Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the financial year ended May 31, 2010 and May 31, 2009

Audited Consolidated Statements of Cash flows for the financial year ended May 31, 2010 and May 31, 2009

2.

Proforma Financial Information:  Hotgate Technology Inc. and Subsidiaries

Unaudited Proforma Combined Balance Sheet for the financial year ended May 31, 2010

Unaudited Proforma Combined Statements of Income and Comprehensive Income for the financial year ended May 31, 2010

23

REDTONE TELECOMMUNICATIONS (CHINA) LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of May 31, 2010 and 2009

		2010			2009
Assets
Current assets
Cash and cash equivalents	$	4,319,834	$		4,618,856
Inventories		199			1,250
Accounts receivable		132,769			66,658
Amount due from a related company		1,179,487			-
Tax recoverable		67,547			97,968
Other receivables and deposits		421,138			233,531
Total current assets		6,120,974			5,018,263
Property, plant and equipment, net		2,632,778			3,036,740
Intangible assets, net		1,921,531			2,031,774
Available-for-sale investment		390,603			-
Deferred tax assets		-			267,239
Total assets	$	11,065,886	$		10,354,016
Liabilities and stockholders’ equity
Liabilities
Current liabilities
Deferred income	$	2,226,709	$	2,708,389
Accounts payable		363,732		783,161
Accrued expenses and other payables		94,703		106,288
Amount due to related companies		127,179		78,786
Tax payables		109,026		-
Total current liabilities		2,921,349		3,676,624
Deferred tax liabilities		57,204		-
Total liabilities		2,978,553		3,676,624
Stockholders’ equity
Common stock, US$0.1282 par value , 60,000,000 shares authorized; 58,501,000 shares issued and outstanding		7,500,128		7,500,128
Retained earnings/(accumulated deficit)		137,922		(1,250,378)
Accumulated other comprehensive income		449,283		427,642
Total stockholders’ equity		8,087,333		6,677,392
Total liabilities and stockholders’ equity	$	11,065,886	$	10,354,016

See accompanying notes to the consolidated financial statements.

24

REDTONE TELECOMMUNICATIONS (CHINA) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Years Ended May 31, 2010 and 2009

		2010		2009
Revenue	$	4,279,588	$	2,093,718
Other income and gains		113,609		113,898
Service costs		955,467		272,637
Administrative expenses		456,987		483,217
Personnel cost		566,618		656,174
Depreciation expense		425,651		420,138
Amortization expense		110,447		110,446
Other operating expenses		41,107		99,662
Income before provision for income taxes		1,836,920		165,342
Provision for income taxes		448,620		137,278
Net income	$	1,388,300	$	28,064
Other comprehensive income
Gain on foreign currency translation		21,641		36,158
Total comprehensive income	$	1,409,941	$	64,222
Net income per share, basic and diluted	$	0.02	$	0.00
Weighted average number of shares		58,501,000		58,5 01,000

See accompanying notes to the consolidated financial statements.

25

REDTONE TELECOMMUNICATIONS (CHINA) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Years Ended May 31, 2010 and 2009

	Number of common shares issued		Common  stock		Retained earnings/ (accumulated deficit)		Accumulated other comprehensive income		Total equity
Balance at June 1, 2008	58,501,000	$	7,500,128	$	(1,278,442)	$	391,484	$	6,613,170
Net income for the year	-		-		28,064		-		28,064
Gain on foreign exchange translation	-		-		-		36,158		36,158
Balance at May 31, 2009 and    June 1, 2009	58,501,000	$	7,500,128	$	(1,250,378)	$	427,642	$	6,677,392
Net income for the year	-		-		1,388,300		-		1,388,300
Gain on foreign exchange translation	-		-		-		21,641		21,641
Balance at May 31, 2010	58,501,000	$	7,500,128	$	137,922	$	449,283	$	8,087,333

See accompanying notes to the consolidated financial statements.

26

REDTONE TELECOMMUNICATIONS (CHINA) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended May 31, 2010 and 2009

		2010		2009
Cash flows from operating activities
Net income	$	1,388,300	$	28,064
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax		324,443		128,141
Amortization expense		110,447		110,446
Depreciation expense		425,651		420,138
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable		(66,111)		13,702
Decrease in inventories		1,051		3,324
(Increase)/decrease in other receivables and deposits		(187,607)		1,853
Increase in amount due from a related company		(1,179,487)		-
Decrease/(increase) in tax recoverable		30,421		(97,968)
(Decrease)/increase in deferred income		(481,680)		2,708,389
(Decrease)/increase in accounts payable		(419,429)		4,045
Increase/(decrease) in tax payables		109,026		(51,599)
Decrease in accrued liabilit ies and other payables		(11,585)		(2,171,080)
Net cash provided by operating activities		43,440		1,097,455
Cash flows from investing activities
Purchase of property, plant and equipment		(8,925)		(44,830)
Purchase of intangible assets		-		(43,745)
Purchase of available for sale investment		(390,603)		-
Net cash used in investing activities	$	(399,528)	$	(88,575)
Cash flows from financing activities
Increase/(decrease) in amount due to related companies		48,393		(187,213)
Net cash provided by/(used in) financing activities	$	48,393	$	(187,213)
Net (decrease)/increase in cash and cash equivalents		(307,695)		821,667
Effect of exchange rate changes on cash and cash equivalents		8,673		(6,499)
Cash and cash equivalents at beginning of year		4,618,856		3,803,688
Cash and cash equivalents at end of year	$	4,319,834	$	4,618,856
Cash paid for interest	$	-	$	-
Cash paid for income taxes	$	162,399	$	141,514

See accompanying notes to the consolidated fina ncial statements.

27

REDTONE TELECOMMUNICATIONS (CHINA) LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements

May 31, 2010 and 2009

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

Redtone Telecommunications (China) Limited and subsidiaries (the “Company”) are a group of companies engaged in the provision of discounted call and telecommunications related value added services in the People’s Republic of China (“PRC ”).

As of May 31, 2010, details of the Company are as follows:

Name	Domicile and date of incorporation	Paid-in capital	Effective ownership		Principal activities
Redtone Telecommunications (China) Limited	Hong Kong May 26, 2005	HK$58,501,000	N/A		Investment holdings
Redtone Telecommunications (Shanghai) Limited (“Redtone Shanghai”)	The PRC July, 26, 2005	$3,590,000	100%		Provision of technical support services to group companies
Shanghai Hongsheng Net Telecommunication Company Limited (“Hongsheng”)	The PRC November 29, 2006	RMB1,000,000	100%#		Marketing and distribution of discounted call services on PRC consumer market
Shanghai Huitong Telecommunication Company Limited (“Huitong”)	The PRC March, 26, 2007	RMB500,000	100%#		Marketing and distribution of IP call and discounted call services in the PRC
Shanghai Jiamao E-Commerce Company Limited (“Jiamao”)	The PRC March 21, 2008	RMB1,000,000	100%#	&n bsp;	Marketing and distribution of products on the internet

# - Variable interest entities.  See also Footnote 15.

On March 31, 2008, Hongsheng incorporated Jiamao for the provision of ecommerce business. Jiamao is not reported as a distinct operating segment as the revenue, profit or loss and total assets in association with the ecommerce business are immaterial to the Group’s revenue, reported profit or loss and total assets, respectively.

NOTE 2 – PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements for the years ended May 31, 2010 and 2009, 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.

28

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

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.

(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

The depreciation expense for the years ended May 31, 2010 and 2009 amounted to $425,651 and $420,138, respectively.

(e) Intangible Assets

Intangible assets primarily represent license and software and are generally amortized on a straight-line basis over the periods of benefit, in 20 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 p rojected 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.

The amortization expenses for the years ended May 31, 2010 and 2009 amounted to $110,447 and $110,446, 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 recognised in the balance sheet at cost less impairment losses.

29

(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 were no impairments of long-lived assets for the years ended May 31, 2010 and 2009.

(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

The carrying amounts of the Company's cash and cash equivalents, accounts receivable, amount due from related companies, tax recoverable, other receivables and deposits, available-for-sale investment, accounts payable, accrued expenses and other payables, amount due to related companies and tax payables approximate fair value be cause of the short maturity of these items.

(j) Revenue Recognition

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

(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. &n bsp;As of May 31, 2010 and 2009, 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.

30

(m) Retirement Benefits

Hong Kong mandates companies to operate a mandatory provident fund scheme, which is available to all employees in Hong Kong. Both the Company and the employees are required to contribute 5% (subject to an aggregate amount of $256) per month of the employees’ relevant income.  Contributions from the Company are 100% vested in the employees as soon as they are paid to the scheme.  Contributions to the scheme are expensed in the statement of operations as they become payable in accordance with the rules of the scheme.  The assets of the scheme are held separately from those of the Company and managed by independent professional fund managers.  The Company provides no other retirement benefits to its employees as no payroll is recorded in Hong Kong.

Most of the Company’s employees are Chinese nationals and subject to Social Security Provident Fund and Hou sing Provident Fund of PRC.  For Social Security Provident Fund, the Company is required to contribute 37% per month of the employees’ relevant income while 11% is deducted from employee income as employee’s contribution.  For Housing Provident Fund, the Company and employee contributions are 7% each per month of the employees’ relevant income.  Each year, minimum and maximum threshold will be set as contribution base and will be revised once a year based on social income level of the society.  

Contributions from the Company and employee may not be 100% vested in the employees as the Social Security regime is subject to centralized planning and allocation scheme in China.   Contributions to the scheme are expensed in the statement of operations as they become payable in accordance with the rules of the scheme.  The assets of the scheme are held separately from those of the Compa ny and managed by government agencies.

The Company provides no other retirement benefits to its employees.

(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:

	May 31, 2010	May 31, 2009
Year end RMB : US$ exchange rate	0.1464	0.1457
Average yearly RMB : US$ exchange rate	0.1459	0.1458
Year end HK$ : US$ exchange rate	0.1282	0.1282
Average yearly HK$ : US$ exchange rate	0.1282	0.1282

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

ASC Topic “The FASB Accounting Standards Codification(TM) and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162” became effective on September 15, 2009. This standard establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with US GAAP. The Codification does not change current US GAAP, but is intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. As of the effective date, all existing accounting standard documents were superseded and, accordingly, all subsequent public filings will reference the Codification as the sole source of authoritative literature.

31

In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2010-17, which amends ASC 605, “Revenue Recognition”. ASU 2010-17 provides guidance on applying the milestone method to milestone payments for achieving specified performance measure when those payments are related to uncertain future events limited to transactions involving research and development. Entities can make an accounting policy election to recognize arrangement consideration received for achieving specified performance measure during the period in which the milestones are achieved, provided certain criteria are met. ASU 2010-17 is effective for interim and annual periods beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the adoption of ASU 2010-17 to have a material impact on its consolidated financial statements.

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.” The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), “Consolidation (Topic 810): Amendments for Certain Investment Funds” which is effective as of the beginning of a reporting entit y’s first annual period that begins after November 15, 2009, and for interim periods within that first reporting period. Early application is not permitted. The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”) which requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2010-06, Improving Disclosures about Fair value Measurements, which amends ASC 820 to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. The ASU also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The ASU is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. We do not expect that th is ASU will have a significant impact on the consolidated financial statements or related disclosures.

NOTE 4 – CASH & CASH EQUIVALENTS

As of the balance sheet dates, cash & cash equivalents are summarized as follows:

		2010		2009
Cash and bank	;	1,574,829		1,698,165
Fixed deposits		2,745,005		2,920,691
Total	$	4,319,834	$	4,618,856

As of the balance sheet dates, the fixed deposits had a maturity term of less than three months.

NOTE 5 – AVAILABLE-FOR-SALE INVESTMENT

As of the balance sheet dates, available-for-sale investment is summarized as follows:

		2010		2009
Shanghai Hai He Computing Technology Company Limited (“Hai He”)		390,603		-
&n bsp;
Total	$	390,603	$	-

32

Hai He is principally engaged in the wholesale and retailing of 3G mobile internet device and air-time access package in the PRC.  The above investment was held for sale without participation in management and control.  

The Company is currently in the process of negotiation for disposal of this investment not less than original cost. In the opinion of the directors, the carrying value of t he unlisted investment approximates the fair value as of May 31, 2010 and up to the date of this report.

NOTE 6 –OTHER RECEIVABLES AND DEPOSITS

Other receivables and deposits as of May 31, 2010 and 2009 were summarized as follows:

		2010		2009
Deposits		133,058		209,852
Other receivables		288,080		23,679
Total	$	421,138	$	233,531

Deposits consist of payments made by the Company to third parties in the normal course of business operations with no interest being charged and no fixed repayment terms. These payments are made for the places and services that are used by the Company for its current operations.

The Company evaluates the amounts recorded as deposits, prepaid expenses and other receivables on a periodic basis and records a charge to the current operations of the Company when the related expense has been incurred or when the amounts reported as other receivables is no longer deemed to be collectible by the Company.

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment of the Company consists are primarily owned and operated by the Company’s subsidiaries in the PRC.

Property, plant and equipment as of May 31, 2010 and 2009 are summarized as follows:

		2010		2009
At cost:
Computer and software	$	95,107	$	89,183
Telecommunication equipment		4,483,234		4,459,119
Furniture, fixtures and equipment		38,296		37,966
Motor vehicles		30,173		30,034
Leasehold improvement		26,997		26,912
		4,673,807		4,643,214
Less: Accumulated depreciation		(2,041,029)		(1,606,474)
Property, plant and equipment, net	$	2,632,778	$	3,036,740

Depreciation expense for the years ended May 31, 2010 and 2009 were $425,651 and $420,138, respectively.

NOTE 8 – INTANGIBLE ASSETS

Intangible assets of the Company consist primarily of license and software for the PRC operations.  

Intangible assets as of May 31, 2010 and 2009 are summarized as follows:

		2010		2009
At cost:
License and software	$	2,252,870	$	2,252,666
Less: Accumulated amortization		(331,339)		(220,892)
Intangible assets, net	$	1,921,531	$	2,031,774

Amortization expense for the years ended May 31, 2010 and 2009 amounted to $110,447 and $110,446, respectively. 

33

NOTE 9 – DEFERRED TAX ASSETS/(LIABILITIES)

As of the balance sheet dates, the components of the Company’s deferred tax assets/(liabilities) are summarized as fol lows:

		2010		2009
Arising from:
Difference in depreciation and amortization	$	(57,204)	$	(68,626)
PRC tax los ses		-		335,865
Total	$	(57,204)	$	267,239

NOTE 10 – AMOUNT DUE FROM/(TO) RELATED COMPANIES

Amount due from a related company as of May 31, 2010 and 2009 were summarized as follows:

		2010		2009
Parent company:
REDtone Technology Sdn. Bhd.	$	1,179,487	$	-
	$	1,179,487	$	-

The amount represents advances to the parent company. As of May 31, 2010, the amount is unsecured, non-interest bearing and repayable within one year.

Amount due to related companies as of May 31, 2010 and 2009 were summarized as follows:

		2010		2009
Fellow subsidiary:
Redtone Telecommunications Sdn Bhd	$	127,179	$	78,786
	$	127,179	$	78,786

The amount due to related companies arises from intercompany charges and collection on behalf from customers located in PRC. The amounts are unsecured, non-interest bearing and repayable within one year.

NOTE 11 – ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of May 31, 2010 and 2009 were summarized as follows:

		2010		2009
Accrued expenses	$	32,152	$	69,848
Other payables		62,551		36,440
			&nb sp;
Total	$	94,703	$	106,288

NOTE 12 – DEFERRED INCOME

Deferred income consists of prepaid air-time sold but 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 statement of income, net of call costs and expenses.

34

NOTE 13 – TAX PAYABLE

Tax payable for the years ended May 31, 2010 and 2009 are summarized as follows:

			2010		2009
Business tax payable	&nb sp;	$	94,481	$	-
Income tax payable			12,617		-
Others			1,928		-
Total		$	109,026	$	-

Business tax represents PRC turnover tax imposed upon the Company’s services provided in the PRC.  Tax rates ranging from 3% to 5% depending on the nature of the taxable activities.

Income tax represents PRC income tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsi diaries as determined in accordance with the relevant income tax rules and regulations of the PRC.

NOTE 13 – PROVISION FOR INCOME TAXES

Income tax expense for the years ended May 31, 2010 and 2009 are summarized as follows:

		2010		2009
Current – PRC incom e tax provision	$	124,043	$	6,459
Deferred income tax provision		324,577		130,819
Total	$	448,620	$	137,278

A reconciliation of the expected tax with the actual tax expense is as follows:

		2010			2009
		Amount	%		Amount	%
Income before provision for income taxes	$	1,836,920		$	165,342
Expected PRC income tax expense at statutory tax rate of 25%		459,230	25.0		41,335	25.0
Different tax rate for PRC local authority		(28,857)	(1.6)		1,262	0.8
Expenses not deductible for tax		61,110	3.3		35,823	21.6
Income not subject to tax		1,808	0.1		(30,484)	(18.4)
Utilization of tax loss brought forward	;	(44,671)	(2.4)		-	-
Tax losses not provided for deferred tax		-	-		89,342	54.0
Actual tax expense	$	448,620	24.4	$	137,278	83.0

(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)

Redtone Telecommunications (China) Limited did not generate any assessable profits in Hong Kong and therefore is not subje ct to Hong Kong tax.

35

NOTE 14 – OTHER INCOME

Other revenue for the years ended May 31, 2010 and 2009 are summarized as follows:

		2010		2009
Interest income	$	48,467	$	40,953
Exchange difference		51,082		13,593
Other		14,060		59,352
Total	$	113,609	$	113,898

NOTE 15 – VARIABLE INTEREST ENTITIES (“VIEs”)

On November 30, 2006, the Company entered into loan agreements with Huang Bin (“HB”) and Mao Hong (“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 April 30, 2007, the Company entered into the loan agreements with Mao Junbao (& #147;MJ”) and 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 the Company and Redtone Shanghai.

Although the Company is not the shareholder of Hongsheng and Huitong, the Company has determined that it is the primary beneficiary of these two entities, as the Company has 100% voting powers and entitled to receive all the benefit from operations of these two entities. Hence, Hongsheng and Huitong are identified as VIEs and are consolidated as if wholly-owned subsidiaries of the Company.

The status of Hongsheng and Huitong as VIEs has not changed since the date of the combination. In addition, the Company did not identify any additional VIEs in which we hold a significant inte rest.

The total consolidated VIE assets and liabilities reflected on the Company’s balance sheet are as follows:

		2010		2009
Assets
Cash and cash equivalents	$	304,861	$	261,459
Inventories		199		1,250
Accounts receivable		132,769		66,658
Other receivables and deposits		414,404		224,493
Property, plant and equipment, net		52,860		58,642
Available-for-sale investment		390,603		-
Total assets (not include amount due from int ra-group companies)	$	1,295,696	$	612,502
Liabilities
Deferred income	$	2,226,709	$	2,708,389
Accounts payable		363,732		783,161
Accrued expenses and other payables		9,099		84,803
Tax payables		40,935		-
Total liabilities	$	2,640,475	$	3,576,353

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The financial performance of the consolidated VIEs reflected on our statement of income is as follows:

		2010		2009
Revenue	$	4,279,588	$	2,093,718
Other income and gains		66,030		60,559
Service costs		841,342		214,755
Administrative expenses		270,770		267,332
Personnel cost		488,852		606,549
Depreciation expense		13,799		9,306
Other operating expenses		35,171		97,961
Income before provision for income taxes (Not include service costs payable to intra-group companies)		2,695,684		958,374
Provision for income taxes		67,006		6,458
Net income	$	2,628,678	$	951,916

NOTE 16 – COMMON STOCK

As of May 31, 2010 and 2009, the Company has a total of 60,000,000 shares of common shares authorized at HK$1.0 par value (equivalent to US$0.1282).  As of May 31, 2010 and 2009, the Company has a total of 58,501,000 shares of common stock issued and outstanding.

NOTE 17 –CONCENTRATION OF SERVICE PROVIDER

The Company’s business operation mainly relies on two major IP routing service providers, China TieTong and China Unicom for routing distance call signals through their IP protocols.

The Company maintains long-term telecommunication service purchase agreements with the above-mentioned vendors as of May 31, 2010. There are no minimum p urchase requirements by the Company.  Contracts are renewed on an annual basis. The Company’s management reports that it does not expect any issues or difficulty in continuing to renew the supply contracts with these vendors going forward.

As of May 31, 2010 and 2009, the Company has $362,795 and $783,120, respectively, payable due to its two major suppliers.

NOTE 18 – CONTINGENCIES AND COMMITMENTS

Operating lease commitments

As of May 31, 2010 and 2009, two PRC subsidiaries had arranged non-cancelable operating leases with a third party for its office premise.  The expected annual lease payments under these operating leases are as follows:

		2010
For the year ended May 31,
2011		128,427
2012		94,963
2013		17,239
Total	$	240,629

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NOTE 19 – SUBSEQUENT EVENT

The Company has evaluated for disclosure all subsequent events occurring through September 27, 2010, the date the financial statements were issued and filed with the United States Securities and Exchange Commission.

Subsequent to the balance sheet date, the Company entered into the following agreements:

On August 2, 2010, the Company entered into a Share Exchange Agreement (“SEA”) with REDtone Technology Sdn. Bhd. and REDtone International Berhad, both of which are incor porated in Malaysia.   Upon the closing of the transactions contemplated in the SEA, Hotgate Technology, Inc. will acquire 100% ownership of the Company.

Consideration to be paid to by Hotgate Technology, Inc. to REDtone Technology Sdn. Bhd. and REDtone International Berhad shall be a total of 244,444,444 shares of the Hotgate Technology, Inc.’s common stock   in exchange for 100% ownership of the Company (such share exchange shall be referred to herein as the “Exchange”).

38

HOTGATE TECHNOLOGY, INC. AND SUBSIDIARIES

UNAUDITED PRO-FORMA COMBINED BALANCE SHEET

Year ended May 31, 2010

		Hotgate		REDtone  China		Reverse  takeover		Deconsolidation		Pro-forma
		Historical		Historical		Adjustments		Adjustments		Combined
Assets
Current Assets
Inventories	$	-	$	199	$	-	$	-	$	199
Accounts receivable		23,919		132,769		-		(4,396)		152,292
Amount due from related companies		-		1,179,487		-		1,083,535		2,263,022
Tax recoverable		-		67,547		-		-		67,547
Other receivables and deposits		15,089		421,138		-		(7,351)		428,876
Cash and cash equivalents		9,527		4,319,834		-		(2,959)		4,326,40 2
Total current assets		48,535		6,120,974		-		1,068,829		7,238,338
Property, plant and equipment, net		14,970		2,632,778		-		(8,316)		2,639,432
Intangible assets		42,785		1,921,531		-		(5,041)		1,959,275
Available-for-sale investment		-		390,603		-		-		390,603
Deferred tax assets		-		-		-		-		-
Total Assets		106,290		11,065,886		-		1,055,472		12,227,648
Liabilities and stockholders’ equity
Liabilities
Deferred incom e				2,226,709		-		-		2,226,709
Accounts payable		30,144		363,732		-		(1,084)		392,792
Accrued expenses and other payables		162,657		94,703		-		(102,797)		154,563
Due to a minority shareholder		1,025,180		-		(971,592)		(53,588)		-
Amount due to related companies		-		127,179		-		-		127,179
Taxes payable		11,279		109,026		-		(10,187)		110,118
Total current liabilities		1,229,260		2,921,349		(971,592)		(167,656)		3,011,361
Non-current liabilities
Deferred tax liability		-		57,204		-		-		57,204
Total liabilities		1,229,260		2,978,553		(971,592)		(167,656)		3,068,565
Stockholders’ equity
Issued capital		1,556		7,500,128		(7,474,767)		-		26,917
Additional paid in capital		564,841		-		8,446,359		(63,144)		8,948,056
(Accumulated deficit)/retained earnings		(1,671,693)		137,922		-		1,279,202		(254,569)
Accumulated other comprehensive income		(17,674)		449,283		-		7,070		438,679
Total stockholders’ (deficit)/equity		(1,1 22,970)		8,087,333		971,592		1,223,128		9,159,083
Total liabilities and stockholders’ equity	$	106,290	$	11,065,886	$	-	$	1,055,472	$	12,227,648

39

HOTGATE TECHNOLOGY, INC. AND SU BSIDIARIES

UNAUDITED PRO-FORMA COMBINED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

Year ended May 31, 2010

		Hotgate		REDtone China		Deconsolidation		Pro-forma
		Historical		Historical		Adjustments		Combined
Revenues	$	63,312	$	4,279,588	$	(6,930)	$	4,335,970
Other income and gains		72,251		113,609		(11,485)		174,375
Service costs		12,098		955,467		(3,343)		964,222
Administrative expenses		115,911		456,987		(22,135)		550,763
Personnel cost		27,696		566,618		(21,073)		573,241
Depreciation expense		4,668		425,651		(2,613)		427,706
Amortization expense		13,544		110,447		(2,929)		121,062
Other operating expenses		-		41,107		-		41,107
			&n bsp;
(Loss)/income before provision for income tax expense	$	(38,354)	$	1,836,920	$	33,678	$	1,832,244
Income ta x expense		-		448,620		-		448,620
Net (loss)/income	$	(38,354)	$	1,388,300	$	33,678	$	1,383,624
						& nbsp;
Other comprehensive income
(Loss)/gain on foreign currency translation		(16,950)		21,641		-		4,691
Total comprehensive (loss)/income		(55,304)		1,409,941		33,678		1,388,315

40

HOTGATE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO PRO-FORMA COMBINED FINANCIAL STATEMENTS

May 31, 2010

Note 1 – Basis of preparation

Subsequent to the balance sheet date, the Company entered into the following arrangements:

(a)

Acquisition of REDtone Telecommunications (China) Limited (“Redtone China”).

On August 2, 2010, the Company entered into a Share Exchange Agreement (“SEA”) with Redtone Technology Sdn. Bhd. and Redtone International Berhad, both of which are incorporated in Malaysia.   Upon the closing of the transactions contemplated in the SEA, the Company will acquire 100% ownership of Redtone China.

For accounting purposes, the acquisition of Redtone China by Hotgate has been recorded as a reverse acquisition of a public company and a recapitalization of Redtone China based on factors demonstrating that Hotgate is acquirer for accounting purposes. 

The Agreement also provide for the implementation and completion of the capitalization of the debts due from the Company to Redtone International Berhad which is to be satisfied by way of issuance and allotment of 13,147,197 shares of the Company’s common stock and the presentation of any required financial statements for the completion of the transaction as required by applicable law.

(b)

Disposal of Hotgate Holdings Limited, B eijing Hotgate Technology Limited and Hotgate Technology (M) Sdn Bhd (“Hotgate Holdings Group”)

On 29 June 2010, the Company entered into the following arrangements:

1.

Share Sale Agreement between the Company and Yan Suan Sah, the CEO of the Company for the acquisition by the Company of 1 share in RT Communications Limited, representing 100% equity interest in RT Communications Limited for a total cash consideration of USD1.00;

2.

Share Sale Agreement between Hotgate VMS and Hotgate Holdings for the disposal by Hotgate VMS of USD166,025 in the issued and paid-up capital of Beijing Hotgate Technology Limited, representing 100% equity interest in Beijing Hotgate Technology Limited for a total cash consideration of RMB1.00;

3.

Share Sale Agreement between Hotgate Holdings and RT Communications Limited for the acquisition by RT Communications Limited of 500,000 shares of HKD1.00 each in Hotgate VMS, representing 100% equity interest in Hotgate VMS for a total cash consideration of HKD 1.00; and

4.

Share Sale Agreement between the Company and Wimax Asia Limited for the disposal by Hotgate of 100,000,000 issued shares of one class with no par value in Hotgate Holdings, representing 100% equity interest in Hotgate Holdings for a total cash consideration of USD3.00.

Note 2 - Pro-forma financial statements

The unaudited pro-forma combined consolidated financial statements for the year ended May 31, 2010 give effect to the acqui sition of Redtone China and the disposal of Hotgate Holdings Group, as if these arrangements had occurred retroactively. The unaudited pro-forma combined consolidated financial statements have been developed from the audited consolidated accounts of Hotgate and Redtone China. Certain amounts from Hotgate’s historical carve-out financial statements have been reclassified to conform to Redtone China’s presentation.

41

The unaudited pro-forma combined consolidated financial statements are provided for illustrative purposes only and are not intended to represent the actual consolidated results of operations or the consolidated financial position of Hotgate had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. The unaudited pro-forma combined consolidated financial statements should be read in conjunction with the separate historical financial statements of Hotgate and the historical consolidated financial statements of Redtone China.

NOTE 3   PRO-FORMA ADJUSTMENTS

The pro-forma adjustments included in the unaudited combined consolidated financial statements are as follows:

(a)

Reverse takeover adjustments

1.

Net effect in common stock as a result of issuing shares for the acquisition, and elimination of share capital of Redtone China.

2.

Adjustments in paid up capital as a result of the issuance of ordinary shares, and elimination of Hotgate’s accu mulated deficit before merger.

3.

Capitalization of the debts due from the Company to Redtone International Berhad

(b)

Deconsolidation adjustments

1.

Deconsolidation of Hotgate Holdings Group, as if it had occurred retroactively.

42

SIGNATURES

Pursuant to 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.

	HOTGATE TECHNOLOGY, INC.
Dated: September 29, 2010	/s/ Yan Suan Sah
	Yan Suan Sah
	Chief Executive Officer
Dated: September 29 , 2010	/s/ Yan Suan Sah
	Yan Suan Sah
	Chief Financial Officer