REDtone Asia (RTAS) 10-Q 2015 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: November 30, 2014

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File No. 333-129388

REDTONE ASIA, INC. (Exact Name of Small Business Issuer as Specified in its Charter)
Nevada (State or Other Jurisdiction of Incorporation or Organization)	71-098116 (I.R.S. Tax I.D. No.)
Unit 15A, Plaza Sanhe, No. 121 Yanping Road, JingAn District 200042 Shanghai, PRC (Address of Principal Executive Offices)
(86) 61032230 (Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x     No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o	Non-accelerated filer  o
Accelerated filer  o (do not check if smaller reporting company)	Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 30, 2014, are as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.0001 par value	282,315,325

Transitional Small Business Disclosure Format (check one): Yes o       No  x

REDtone Asia, Inc.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION			3
ITEM 1.	FINANCIAL STATEMENTS		3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		20
ITEM 4T.	CONTROL AND PROCEDURES		22
PART II - OTHER INFORMATION			22
ITEM 1.	LEGAL PROCEEDINGS		22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		23
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	23
ITEM 4.		[REMOVED AND RESERVED]	23
ITEM 5.		OTHER INFORMATION	23
ITEM 6.		EXHIBITS	23
SIGNATURES			24

1

PART I – FINANCIAL INFORMATION

ITEM 1.                        FINANCIAL STATEMENTS

REDtone Asia, Inc.

As of Quarter Ended November 30, 2014 (unaudited)

TABLE OF CONTENTS

Condensed Consolidated Balance Sheet as of November 30, 2014 (unaudited) and May 31, 2014 (Audited)	3
Condensed Consolidated Statements of Operations and Comprehensive Income for the Six months ended November 30, 2014 and November 30, 2013 (unaudited)	4
Condensed Consolidated Statement of Cash Flows (unaudited) for the Six months ended November 30, 2014 and November 30, 2013	5
Notes to the Condensed Consolidated Financial Statements (unaudited)	6–13

2

REDTONE ASIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

At November 30, 2014 and May 31, 2014

	November 30, 2014 (Unaudited)			May 31, 2014 (Audited)
Assets
Current assets
Cash and cash equivalents	$	5,181,893		$	2,991,276
Inventories		6,358			3,974
Accounts receivable		3,103,203			2,898,976
Tax recoverable		23,515			23,372
Other receivables and deposits		228,919			1,083,269
Assets held for sale		-			1,713,011
Total current assets		8,543,888			8,713,878
Property, plant and equipment, net		1,384,637			1,451,894
Intangible assets, net		1,869,047			1,939,613
Goodwill		-			610,386
Total assets		11,797,572			12,715,771
Liabilities and stockholders’ equity
Liabilities
Current liabilities
Deferred income		928,731			743,793
Accounts payable		972,441			2,798,373
Accrued expenses and other payables		638,673			582,240
Amount due to a related company		154,382			148,791
Taxes payable		617,823			671,125
Liabilities related to assets held for sale		-			56,861
Total current liabilities		3,312,050			5,001,183
Deferred tax liabilities		(2,604	)		4,780
Total liabilities		3,309,446			5,005,963
Equity
Common stock, US$0.0001 par value , 300,000,000 shares authorized; 282,315,356 shares issued and outstanding, respectively		28,232			28,232
Additional paid in capital		7,726,893			7,726,893
Less: Amount due from a related company		(3,309,416	)		(3,272,950	)
Retained earnings		3,012,630			2,172,842
Accumulated other comprehensive income		891,432			891,021
Total stockholders’ equity		8,349,771			7,546,038
Non-controlling interests		138,355			163,770
Total equity		8,488,126			7,709,808
Total liabilities and stockholders’ equity		11,797,572			12,715,771

See accompanying notes to the condensed consolidated financial statements.

3

REDTONE ASIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Six months and three months ended November 30, 2014 and 2013

	Six months ended November 30, 2014 (Unaudited)			Six months ended November 30, 2013 (Unaudited)			Three months ended November 30, 2014 (Unaudited)			Three months ended November 30, 2013 (Unaudited)
Continuing operations
Revenue		4,561,449			2,905,070			2,384,134			1,410,803
Other income and gains		131,104			97,450			49,655			55,160
Service costs		(3,591,448	)		(1,232,220	)		(1,893,913	)		(415,970	)
Personnel cost		(376,428	)		(329,989	)		(162,973	)		(159,578	)
Depreciation expense		(257,974	)		(239,598	)		(131,391	)		(120,709	)
Amortization expense		(73,215	)		(58,210	)		(33,235	)		(27,782	)
Administrative and other expenses		(494,386	)		(293,458	)		(301,599	)		(138,755	)
(Loss)/income before provision for income taxes		(100,898	)		849,045			(89,322	)		603,169
Income tax income		7,388			(71,593	)		3,700			(75,982	)
Net (loss)/income before non-controlling interest		(93,510	)		777,452			(85,622	)		527,187
Share of results by non-controlling interest		26,329			-			32,565			-
Net (loss)/income from continuing operations		(67,181	)		777,452			(53,057	)		527,187
Discontinued operations
Net loss		(104,018	)		(153,226	)		-			(126,736	)
Gain on disposal of subsidiaries		1,010,987			-			-			-
Net income/(loss) from discontinued operations		906,969			(153,226	)		-			(126,736	)
Net income for the year
Net income before non-controlling interest		813,459			624,226			(85,622	)		400,451
Share of results by non-controlling interest		26,329			-			32,565			-
Net income for the year		839,788			624,226			(53,057	)		400,451
Other comprehensive income
Gain on foreign currency translation of continuing operations		(16,751	)		(21,517	)		(20,546	)		(27,799	)
Share of other comprehensive income by non-controlling interest		914			-			(68	)		-
Other comprehensive income attributable to shareholders of the Company		(15,837	)		(21,517	)		(20,614	)		(27,799	)
Gain on foreign currency translation of discontinued operations		17,162			11,046			-			434
Total other comprehensive income		1,325			(10,471	)		(20,614	)		(27,365	)
Total comprehensive income/(loss)
- Attributable to continuing operations		(83,018	)		755,935			(73,671	)		499,388
- Attributable to discontinued operations		924,131			(142,180	)		-			(126,302	)
Total comprehensive income		841,113			613,755			(73,671	)		373,086
(Loss)/earnings per share, basic and diluted
– continuing operations		-			-			-			-
– discontinued operations		-			-			-			-
Weighted average number of shares		282,315,325			282,315,325			282,315,325			282,315,325

See accompanying notes to the condensed consolidated financial statements.

4

REDTONE ASIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended November 30, 2014 and 2013

	Six months ended November 30, 2014 (Unaudited)			Six months ended November 30, 2013 (Unaudited)
Cash flows from operating activities
Cash flows from continuing operating activities
Net (loss)/income before non-controlling interest		(93,510	)		777,452
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Amortization expense		73,215			58,210
Depreciation expense		257,974			239,598
Deferred tax income		(7,388	)		(7,388	)
Changes in operating assets and liabilities:		-			-
(Increase)/decrease in accounts receivable		(204,227	)		1,798,826
Increase in inventories		(2,384	)		(74	)
Decrease/(increase) in other receivables and deposits		854,350			(483,920	)
Increase in tax recoverable		(143	)		(210	)
Increase in deferred income		184,938			179,642
Decrease in accounts payable		(1,825,932	)		(2,563,369	)
(Decrease)/increase in tax payables		(53,302	)		130,978
Increase/(decrease) in accrued liabilities and other payables		56,433			(15,350	)
Net cash (used in) provided by continuing operating activities		(759,976	)		114,395
Net cash used in discontinued operating activities		(113,811	)		(53,619	)
Net cash (used in) provided by operating activities		(873,787	)		60,776
Cash flows from investing activities
Cash flows from investing activities – continuing operations
Purchase of property, plant and equipment		(181,133	)		(19,126	)
Increase in amount due from a related company		(36,466	)		(11,715	)
Proceeds from disposal of subsidiaries		4,565,935			-
Net cash provided by/(used in) continuing investing activities		4,348,336			(30,841	)
Net cash used in discontinued investing activities		(1,590,743	)		-
Net cash provided by/(used in) investing activities		2,757,593			(30,841	)
Cash flows from financing activities
Cash flows from continuing financing activities
Decrease in amount due to discontinued operations		(1,375,268	)		-
(Decrease)/increase in amount due to related companies		5,591			15,653
Net cash (used in)/provided by continuing financing activities		(1,369,677	)		15,653
Net cash flows from discontinued financing activities		-			-
Net cash (used in)/provided by financing activities		(1,369,677	)		15,653
Net increase/(decrease) in cash and cash equivalents
Continuing operations		2,218,683			99,207
Discontinued operations		(1,704,554	)		(53,619	)
		514,129			45,588
Effect of exchange rate changes
Continuing operations		(28,066	)		(21,586	)
Discontinued operations		17,162			(6,594	)
		(10,904	)		(28,180	)
Cash and cash equivalents at beginning of period
Continuing operations		2,991,276			3,681,851
Discontinued operations		1,687,392			1,797,240
		4,678,668			5,479,091
Less: Cash and cash equivalents included in assets held for sale		(1,687,392	)		-
Cash and cash equivalents of continuing operations at beginning of period		2,991,276			5,479,091
Cash and cash equivalents at end of period
Continuing operations		5,181,893			3,759,472
Discontinued operations		-			1,737,027
Cash and cash equivalents of continuing operations at end of period		5,181,893			5,496,499
Supplementary information – continuing operations
Cash paid for income taxes		-			3,233
Cash paid for interest		-			-

See accompanying notes to the condensed consolidated financial statements.

5

REDTONE ASIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2014 (Unaudited)

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

REDtone Asia, Inc. and subsidiaries (the “Company”) are a group of companies in The People’s Republic of China (“PRC”). The principal activities of the Company are that of a Telecommunications provider for mobile, fixed and international gateway services. REDtone provides a wide range of telecommunication services, including prepaid and postpaid discounted call services to corporate customers and consumers as well as prepaid mobile air-time top-up. The Company also offers prepaid shopping card services.

The Company’s major subsidiaries during the six months ended November 30, 2014 are illustrated as follows:

Name	Domicile and date of incorporation	Effective ownership	Principal activities
Redtone Telecommunication (China) Limited (“Redtone China”)	Hong Kong May 26, 2005	100%	Investment holding
Redtone Telecommunications (Shanghai) Limited (“Redtone Shanghai”)	The PRC July, 26, 2005	100%	Provides technical support services to group companies
Shanghai Hongsheng Net Telecommunication Company Limited (“Hongsheng”) #	The PRC November 29, 2006	100%	Marketing and distribution of discounted call services to PRC consumer market
Shanghai Huitong Telecommunication Company Limited (“Huitong”) #	The PRC March, 26, 2007	100%	Marketing and distribution of IP call and discounted call services in the PRC
Shanghai Jiamao E-Commerce Company Limited (“Jiamao”) #	The PRC March 21, 2008	100%	Marketing and distribution of products on the internet
Nantong Jiatong Investment Consultant Co., Ltd (“Nantong Jiatong”) #	The PRC May 17, 2011	100%	Investment holding
Shanghai QianYue Business Administration Co., Ltd. ("QBA") #	The PRC December 12, 2008	100%	Provision of prepaid shopping-card services in the PRC
Shanghai Xin Chang Information Technology Company Limited (“Xin Chang”) #	The PRC January 13, 2006	56%	Marketing and distribution of IP call and discounted call services in the PRC

    # - Variable interest entities

Hong Sheng and QBA were disposed of during the period.  See also Footnote 4.

For continuing operations, segment reporting is not required as the revenue, profit or loss and total assets in association with the e-commerce business are immaterial to the Company’s revenue, reported profit or loss and total assets.

On July 16, 2014, Huitong, Mao Hong, a director and nominee shareholder of certain VIEs, and Wei Gang, an independent third party, jointly incorporated Shanghai YuZhong Financial Information Service Co., Ltd (“YuZhong”), a limited company incorporated in PRC. Huitong, Mao Hong and Wei Gang owns 49.8%, 25.1% and 25.1% of equity interests in YuZhong, respectively. As of November 30, 2014, the capital has yet to be injected by the founders. It remained a dormant company.

On July 17, 2014, Huitong and Mao Hong jointly incorporated Shanghai YuGuang Automobile Inspection Technology Co., Ltd (“YuGuang”), a limited company incorporated in PRC. Huitong and Mao Hong owns 20% and 80% of equity interests in YuGuang, respectively. As of November 30, 2014, the capital has yet to be injected by the founders. It remained a dormant company.

On September 11, 2014, YuGuang entered into an agreement with Zhou Jin Shan and Chen Xiu Lan to acquire 51% equity interest in Taizhou Haitai Motor Vehicle Inspection Co, Ltd. (“Haitai”) from Zhou Jin Shan at a consideration of RMB652,800. YuGuang also agreed to provide a shareholder’s loan of RMB11.2 million only after Chen Xiu Lan, the 49% shareholder, contributes an accumulated shareholder’s loan of RMB11.2 million to Haitai. Haitai is principally engaged in the provision of motor vehicle inspection service in the PRC. As of the period end date, the investment has yet to be injected by YuGuang.

6

NOTE 2 – PRINCIPLES OF CONSOLIDATION

The unaudited interim financial statements of the Company and the Company’s subsidiaries (see Note 1) for the six months and three months ended November 30, 2014 and 2013 have been prepared pursuant to the rules & regulations of the SEC. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however the Company believes that the following disclosures are adequate to make the information presented not misleading. All significant intercompany balances and transactions have been eliminated. The functional currency for the majority of the Company’s operations is in Chinese Renminbi (“RMB”), while the reporting currency is U.S. Dollar.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of November 30, 2014, the results of its operations and cash flows for the six months and three months ended November 30, 2014 and 2013.

The results of operations for the six months and three months ended November 30, 2014 are not necessarily indicative of the results for a full year period.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts in mainland China and Hong Kong.

(b) Fair Value of Financial Instruments

The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, other receivables and deposits, tax recoverable, amount due from/(to) related parties, accounts payable, accrued expenses and other payables, and taxes payable.

The estimated fair value amounts have been determined by the Company, using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented, due to the short maturities of these instruments.

(c) Revenue recognition

The Company has adopted a revenue recognition policy for each type of operation according to ASC 605-45.

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

-           Persuasive evidence of an arrangement exists;

-           Delivery has occurred or services have been rendered;

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

-           Collectability is reasonably assured.

Revenue recognition policy for each of the major products and services:

1.           Discounted call services for consumer (EMS) as follows:

•           Collaboration with China Tie Tong Telecommunications (“CTT”) – Redtone China is appointed as the sole distributor for EMS and will recognize revenue when airtime is utilized by the consumer and revenue is recognized on a net basis which is computed based on a fixed sharing ratio of the total airtime utilized by consumers after netting the direct traffic termination costs and incidental expenses. Redtone China’s role for Business Collaboration with CTT is as an “Agent” as Redtone China is the sole distributor for the EMS brand owned and controlled by CTT; and

7

•           Collaboration with other telecommunication providers – Redtone China will act as a discounted consumer call Reseller whereby Redtone China determines the service and package specification and the pricing policy whereas China Unicom acts as a passive termination partner for call traffic. Redtone China will pay China Unicom solely based on call traffic termination by China Unicom at a prescribed rate (defined as traffic termination cost on the books of Redtone China). In this regard, Redtone China will recognize revenue when airtime is utilized by the consumer and the revenue recognized is the gross value of the call charges. Redtone China’s role for Business Collaboration with China Unicom is that of “Principal” as China Unicom is playing a passive role as the traffic termination partner while Redtone China is fully responsible for the entire management of the discounted call services.

As this is a prepaid product, there is an expiration date for the product sold. If the airtime is not utilized by the expiration date, which is currently one year from the activation date, the product will be deemed to be expired and the revenue recognized at the time is the remaining gross value of the expired prepaid product.

2.           Discounted call services for corporate consumers is as follows:

•           Collaboration with CTT – the revenue recognized is the commission earned from distributing the discounted call services to corporate customers; and

•           Collaboration with other telecommunication providers –the revenue recognized is the commission earned from distributing the discounted call services to corporate customers.

3.           Reload services for prepaid mobile services – revenue recognized is the commission earned.

4.           Discontinued prepaid shopping-card services – revenue recognized is the commission earned.

(d) 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 period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of November 30, 2014 and 2013, there were no dilutive securities outstanding.

(e) 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:

	November 30, 2014	May 31, 2014	November 30, 2013
Period end RMB : US$ exchange rate	0.1631	0.1621	0.1632
Average period RMB : US$ exchange rate	0.1626	0.1629	0.1626
Period end HK$ : US$ exchange rate	0.1290	0.1290	0.1290
Average period HK$ : US$ exchange rate	0.1290	0.1290	0.1289

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.

(f) Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

-           Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

8

-           Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

-           Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

We measure the fair value of money market funds and equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

(g) Recent Accounting Pronouncements

In July 2013, The FASB has issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force).

U.S. GAAP does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.

This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." This ASU relates to discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity's operations and financial results. The standard expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2014. This ASU is not expected to have an impact on our financial statements or disclosures

The Company does not expect the adoption of these guidance to have a material impact on its consolidated financial statements.

NOTE 4 – DISPOSAL OF SUBSIDIARIES AND DISCONTINUED OPERATION

On July 25, 2014, the Company entered into an agreement to dispose of its entire equity interest in Hongsheng, a VIE subsidiary, to Guotai Investment Holdings Limited at a total cash consideration of approximately $4.54 million.

Pursuant to the agreement, Hongsheng shall transfer all its operations, assets and liabilities other than investment in QBA prior to the completion of the above transaction. Therefore, the entire arrangement is to dispose of the shell of Hongsheng together with the entire interest in QBA.

The completion of disposal is subject to the transfer of the aforementioned operations, assets and liabilities, and also statutory approval by PRC local government.

As of the disposal date, QBA’s assets and liabilities are summarized as follows:

	July 25, 2014		May 31, 2014
Assets
Cash and cash equivalents	$	2,969,661	$	1,687,392
Inventories		6,708		6,669
Accounts receivable		525		522
Other receivables and deposits		8,892		8,841
Property, plant and equipment, net		5,937		9,587
Total assets		2,991,723		1,713,011
Liabilities
Accounts payable		29,699		32,701
Accrued expenses and other payables		17,462		24,160
Total current liabilities		47,161		56,861
Net assets of QBA		2,944,562		1,656,150

9

The assets of QBA as of May 31, 2014 are classified as assets held for sale and liabilities in the condensed consolidated balance sheet.

The results of QBA during the period (up to date of disposal) are summarized as follows:

	From June 1, 2014 to July 25, 2014			Six months ended November 30, 2013
Revenue	$	3		$	409
Other income and gains		164			48,852
Service costs		-			(56	)
Personnel cost		(93,580	)		(75,309	)
Depreciation expense		(3,689	)		(97,317	)
Administrative and other expenses		(6,916	)		(29,805	)
Net loss		(104,018	)		(153,226	)

The results of QBA for the six months ended November 30, 2014 and 2013, respectively, are reported as discontinued operations in the condensed consolidated statement of income and comprehensive income.

The gain on disposal of QBA is analyzed as follows:

Consideration received	4,565,936
Less: Net assets of QBA	(2,944,563	)
Less: Goodwill arising in the acquisition of QBA	(610,386	)
Gain on disposal	1,010,987

NOTE 5 – ACQUISITION OF A SUBSIDIARY

On January 22, 2014, the Company acquired 56% equity interest in Xin Chang. Consideration of $245,655 was paid upon signing of the Acquisition Agreement; while another $489,900 to be paid to Xin Chang as an operating fund in batches based on Xin Chang’s financial needs as determined by the Company.

The results of Xin Chang for the six months ended November 30, 2014 are as follows:

Revenue	$	904,809
Other income		2,870
Cost of services		(835,168	)
Personnel cost		(47,373	)
Depreciation expense		(9,397	)
Amortization expense		(10,888	)
Administrative and other expenses		(64,706	)
Net income for the period		(59,853	)

NOTE 6 - CASH & CASH EQUIVALENTS

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

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	November 30, 2014		May 31, 2014
Cash and bank	$	826,583	$	494,552
Time deposits		4,355,310		2,496,724
Total	$	5,181,893	$	2,991,276

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

NOTE 7 – OTHER RECEIVABLES AND DEPOSITS

Other receivables and deposits as of the dates were summarized as follows:

	November 30, 2014		May 31, 2014
Deposits	$	169,137	$	119,400
Temporary advance		-		810,625
Other receivables		59,782		153,244
Total	$	228,919	$	1,083,269

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of the balance sheet dates are summarized as follows:

	November 30, 2014			May 31, 2014
At cost:
Computer and software	$	103,622		$	102,023
Telecommunication equipment		5,459,342			5,297,796
Furniture, fixtures and equipment		114,923			61,887
Motor vehicles		126,907			126,133
Leasehold improvement		35,467			35,319
		5,840,261			5,623,158
Less: Accumulated depreciation		(4,455,624	)		(4,171,264	)
Property, plant and equipment, net	$	1,384,637		$	1,451,894

Depreciation expense attributable to continuing operations for the six months ended November 30, 2014 and 2013 amounted to $257,974 and $239,598, respectively. Depreciation expense attributable to discontinued operations for the six months ended November 30, 2014 and 2013 amounted to $3,689 and $97,317, respectively.

NOTE 9 – INTANGIBLE ASSETS

Intangible assets as of the balance sheet dates are summarized as follows:

	November 30, 2014			May 31, 2014
At cost:
Operating concession	$	436,929		$	438,670
Customer base		81,560			81,450
IT license and software		2,281,256			2,276,992
		2,799,745			2,797,112
Less: Accumulated depreciation		(930,698	)		(857,499	)
Intangible assets, net	$	1,869,047		$	1,939,613

Amortization expense attributable to continuing operations for the six months ended November 30, 2014 and 2013 amounted to $73,215 and $58,210, respectively. Amortization expense attributable to discontinued operations for the three months ended November 30, 2014 and 2013 amounted to $Nil and $Nil, respectively.

NOTE 10 – GOODWILL

Goodwill as of the balance sheet dates were summarized as follows:

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	November 30, 2014		May 31, 2014
Arising from acquisition of QBA	$	-	$	610,386

QBA was disposed of during the period.

NOTE 11 – AMOUNT DUE FROM/(TO) RELATED COMPANIES

As of the balance sheet dates, amount due from a related company that included in the Company’s equity accounts were analyzed as follows:

	November 30, 2014		May 31, 2014
Fellow subsidiary:
REDtone Technology Sdn. Bhd.	$	3,309,416	$	3,272,950

The amount represents advances to the related company. As of the balance sheet dates, the amount is unsecured, non-interest bearing and is expected to be repaid within 2015.  

 Amount due to a related company as of the balance sheet dates were summarized as follows:

	November 30, 2014		May 31, 2014
Fellow subsidiary:
Redtone Telecommunications Sdn Bhd	$	154,382	$	148,791

The amount due to the related company is unsecured, non-interest bearing and has no fixed repayment date.

NOTE 12 – ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of the balance sheet dates were summarized as follows:

	November 30, 2014		May 31, 2014
Accrued expenses	$	296,947	$	345,869
Other payables		341,726		236,371
Total	$	638,673	$	582,240

NOTE 13 – DEFERRED INCOME

Deferred income consists of prepaid air-time sold which is yet to be utilized. The basis of revenue recognition for discounted call services is based on actual call charges made by end users. When calls are being made, the amount will be deducted from deferred income to the statement of income, net of call costs and expenses.

NOTE 14 – TAXES PAYABLE

Taxes payable at the balance sheet dates are summarized as follows:

	November 30, 2014		May 31, 2014
Income tax payable	$	459,703	$	456,922
Business tax and other tax payables		158,120		214,203
Total	$	617,823	$	671,125

Business tax represents PRC sales tax imposed upon the Company’s services provided in the PRC.  Tax rates range 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 subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.

NOTE 15 – INCOME TAX INCOME

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	Six months ended November 30, 2014			Six months ended November 30, 2013
Current income tax in PRC and Hong Kong	$	-		$	78,981
Deferred tax income		(7,388	)		(7,388	)
Total	$	(7,388	)	$	71,593

On April 29, 2014, RTSH obtained a tax benefit which the income tax for 2013 and 2014 calendar year is exempt and the income tax for 2015, 2016 and 2017 calendar year will be subject to half rate deduction.

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

	Six months ended November 30, 2014			Six months ended November 30, 2013
(Loss)/income before provision for income taxes – continuing operations	$	(100,898	)	$	849,045
Expected PRC income tax expense at statutory tax rate of 25%		(25,225	)		212,261
Different tax rate for PRC/Hong Kong local authority		5,561			7,344
Expenses not deductible for tax		9,351			10,529
Utilization of tax loss brought forward		(54,915	)		(197,546	)
Tax loss not provided for deferred taxF		57,840			39,005
Total	$	(7,388	)	$	71,593

 (i) All PRC subsidiaries are subject to PRC tax. The provision for PRC income tax is based on a statutory rate of 25% of the assessable income of the PRC subsidiaries as determined in accordance with the relevant income tax rules and regulations of the PRC.

(ii) Hong Kong subsidiaries are subject to Hong Kong profits tax. The provision for Hong Kong profits tax is based on a statutory rate of 16.5% of assessable profits in Hong Kong.

(iii) BVI subsidiaries are not subject to profits tax.

NOTE 16 – VARIABLE INTEREST ENTITIES (“VIEs”)

The condensed consolidated financial statements include the financial statements of VIEs for which the Company is the primary beneficiary. All transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation. The results of subsidiaries and VIEs acquired or disposed of during the period are recorded in the consolidated income statements from the effective date of acquisition or up to the effective date of disposal, as appropriate.

The Company has entered into various loan agreements together with equity pledge agreements with nominees which give the Company power to direct the activities of VIEs.

The total consolidated VIE assets and liabilities (QBA is included in comparative figures) reflected on the Company’s balance sheet are as follows:

	November 30, 2014		May 31, 2014
Assets
Cash and cash equivalents	$	148,172	$	1,888,407
Inventories		6,358		10,643
Accounts receivable		3,103,203		2,899,498
Tax recoverable		23,515		23,372
Other receivables and deposits		197,057		1,037,508
Goodwill		-		617,454
Property, plant and equipment, net		209,321		108,371
Intangible assets, net		480,338		495,020
Total assets (not include amount due from intra-group companies)		4,167,964		7,080,273
Liabilities
Deferred income		964,930		779,960
Accounts payable		951,493		2,810,592
Accrued expenses and other payables		134,117		452,527
Taxes payable		14,954		68,484
Total current liabilities		2,065,494		4,111,563

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The results of VIEs (QBA is included in comparative figures) are as follows, and are included in the consolidated statements of income of the Company:

	Six months ended November 30, 2014			Six months ended November 30, 2013
Revenue	$	4,440,095		$	2,703,230
Other income and gains		1,018,755			61,259
Service costs (Not including service costs payable to intra-group companies)		(3,579,001	)		(1,222,529	)
Personnel cost		(302,545	)		(324,531	)
Depreciation expense		(24,181	)		(109,874	)
Amortization expense		(17,660	)		-
Administrative and other expenses		(285,996	)		(211,256	)
Income before provision for income taxes (Not including service costs payable to intra-group companies)		1,249,467			896,299
Income tax income/(provision for income taxes)		(1	)		720
Net income		1,249,466			897,019

Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs and can have assets transferred freely out of the VIEs without restrictions. Therefore, the Company considers that there is no asset of VIEs that can only be used to settle obligations of the respective VIEs, except for registered capital and PRC statutory reserves of VIEs as of November 30, 2014. Since the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Company is conducting certain businesses mainly through its VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.

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ITEM 2.                      MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “REDtone believes,” “management believes” and similar language. The forward-looking statements are based on the current expectations of RTAS and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. The actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

Investors are also advised to refer to the information in our filings with the Securities and Exchange Commission, specifically Forms 10-KSB, 10-QSB and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.

Except as otherwise indicated by the context, references in this Form 10-Q to “RTAS,” “we,” “us,” “our,” “the Registrant”, “our Company,” or “the Company” are to REDtone Asia, Inc., a Nevada corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “BVI” are to British Virgin Islands; (ii) “PRC” and “China” are to the People’s Republic of China; (iii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iv) “RMB” are to Yuan Renminbi of China; (v) “RM” are to Malaysian Ringgit; (vi) “Securities Act” are to the Securities Act of 1933, as amended; and (vii) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Business Overview

We are principally involved in the business of offering discounted call services for end users and paperless reload services for prepaid mobile air-time reload for end users in Shanghai covering all three major telecommunication operators namely China Mobile, China Unicom and China Telecom. 

Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“US GAAP”). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our condensed consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company has adopted a revenue recognition policy for each type of operation according to ASC 605-45.

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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 an arrangement exists;

- Delivery has occurred or services have been rendered;

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

- Collectability is reasonably assured.

Revenue recognition policy for each of the major products and services:

1. Discounted call services for consumer (EMS) as follows:

● Collaboration with China Tie Tong Telecommunications (“CTT”) – Redtone China is appointed as the sole distributor for EMS and will recognize revenue when airtime is utilized by the consumer and revenue is recognized on a net basis which is computed based on a fixed sharing ratio of the total airtime utilized by consumers after netting the direct traffic termination costs and incidental expenses. Redtone China’s role for Business Collaboration with CTT is as an “Agent” as Redtone China is the sole distributor for the EMS brand owned and controlled by CTT; and

● Collaboration with other telecommunication providers – Redtone China will act as a discounted consumer call Reseller whereby Redtone China determines the service and package specification and the pricing policy whereas China Unicom acts as a passive termination partner for call traffic. Redtone China will pay China Unicom solely based on call traffic termination by China Unicom at a prescribed rate (defined as traffic termination cost on the books of Redtone China). In this regard, Redtone China will recognize revenue when airtime is utilized by the consumer and the revenue recognized is the gross value of the call charges. Redtone China’s role for Business Collaboration with China Unicom is that of “Principal” as China Unicom is playing a passive role as the traffic termination partner while Redtone China is fully responsible for the entire management of the discounted call services

As this is a prepaid product, there is an expiration date for the product sold. If the airtime is not utilized by the expiration date, which is currently one year from the activation date, the product will be deemed to be expired and the revenue recognized at the time is the remaining gross value of the expired prepaid product.

2. Discounted call services for corporate consumers is as follows:

● Collaboration with CTT – the revenue recognized is the commission earned from distributing the discounted call services to corporate customers; and

● Collaboration with other telecommunication providers –the revenue recognized is the commission earned from distributing the discounted call services to corporate customers.

3. Reload services for prepaid mobile services – revenue recognized is the commission earned.

4. Prepaid shopping-card services – revenue recognized is the commission earned.

Recent Accounting Pronouncements

The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its financial statements.

Year-to-date Results of Operations

Year-to-date Results for Six-month period ended November 30, 2014 as Compared to period ended November 30, 2013

The following table summarizes the results of our operations during the six-month periods ended November 30, 2014 and November 30, 2013, and associated percentage changes for comparisons purposes.

Continuing operations

Results of continuing operations for 6-month period ended November 30, 2014 compared to 6-month period ended November 30, 2013

16

	Six-month period ended
	November 30,2014			November 30,2013			Increase/(Decrease) from comparative period
Revenue		4,561,449			2,905,070			1,656,379		57	%
Other income and gains		131,104			97,450			33,654		35	%
Service costs		(3,591,448	)		(1,232,220	)		2,359,228		191	%
Personnel cost		(376,428	)		(329,989	)		46,439		14	%
Depreciation expense		(257,974	)		(239,598	)		18,376		8	%
Amortization expense		(73,215	)		(58,210	)		15,005		26	%
Administrative and other expenses		(494,386	)		(293,458	)		200,928		68	%
(Loss)/income before provision for income taxes		(100,898	)		849,045			(949,943	)	-112	%
Provision for income taxes		7,388			(71,593	)		78,981		-110	%
Net (loss)/income before non-controlling interest		(93,510	)		777,452			(870,962	)	-112	%

Revenues. The Company generated revenue of $4,561,449 in the first six months of the fiscal year ending May 31, 2015, representing a 57% increase as compared with the preceding year’s corresponding period. The increase in revenues was mainly due to higher consumption from the competitive market of $751,570 as well as inclusion of revenue from the newly acquired subsidiary, Xinchang, amounted to $904,809.

Other income and gains.  During the first six month of the fiscal year ending May 31, 2015, the Company recorded other income and gains of $131,104, an increase of $33,654 or 35% compared with the preceding year’s corresponding quarter.  The increase was due to an increase in interest income from time deposits.

Service cost. Service costs from operations for the first six months in fiscal year 2015 of $3,591,448 reflected an increase of $2,359,228 or 191% over the comparative period of preceding year. The increase in service costs was mainly due to increase in the traffic rate as well as inclusion of the newly acquired subsidiary, Xinchang, amounted to $835,168.

Personnel expenses.  The personnel expenses have increased by 14% or $46,439 to $376,428 for the first six month of the fiscal year ending May 31, 2015. This is mainly contributed by annual increment in payroll and additional headcount due to the inclusion of the newly acquired Xin Chang operation.

Depreciation and amortization expenses. Depreciation is generally comparable to comparative period of preceding year. The increase in amortization expense was mainly attributable to the amortization of the newly acquired customer base and the operating concession since the fourth quarter of last fiscal year.

Administrative and other operating expenses.  The general and administrative expenses have increased $200,928 or 68% to $493,386. This is mainly due to the inclusion of the newly acquired Xin Chang operation of $64,706 and a one-off consultancy fee paid for the conclusion on disposal of QBA.

(Loss)/income before provision for income taxes.  For the period under review, the increased in service costs has caused the net loss before provision for income taxes stood at $100,898 as compared to a gain of $849,045 over the preceding year’s corresponding quarter.

Net loss before non-controlling interest.  For the period under review, the increased in service costs has caused the net loss before non-controlling interest stood at $93,510 as compared to a gain of $777,452 over the preceding year’s corresponding quarter.

Three-month period results ended November 30, 2014 as Compared to Three-month period results ended November 30, 2013

The following table summarizes the results of our operations during the three-month periods ended November 30, 2014 and November 30, 2013, and associated percentage changes for comparisons purposes.

Continuing operations

Results of continuing operations for 3-month period ended November 30, 2014 compared to 3-month period ended November 30, 2013

17

	Three-month period ended
	November 30,2014			November 30,2013			Increase/(Decrease) from comparative period
Revenue		2,384,134			1,410,803			973,331		69	%
Other income and gains		49,655			55,160			(5,505	)	-10	%
Service costs		(1,893,913	)		(415,970	)		1,477,943		355	%
Personnel cost		(162,973	)		(159,578	)		3,395		2	%
Depreciation expense		(131,391	)		(120,709	)		10,682		9	%
Amortization expense		(33,235	)		(27,782	)		5,453		20	%
Administrative and other expenses		(301,599	)		(138,755	)		162,844		117	%
(Loss)/income before provision for income taxes		(89,322	)		603,169			(692,491	)	-115	%
Provision for income taxes		3,700			(75,982	)		(79,682	)	-105	%
Net (loss)/income before non-controlling interest		(85,622	)		527,187			(612,809	)	-116	%

Revenues. The Company generated revenue of $2,384,134 in the second three months of the fiscal year ending May 31, 2015, representing a 69% increase as compared with the preceding year’s corresponding period. The increase in revenues was mainly due to higher consumption from the competitive market of $537,505 as well as inclusion of revenue from the newly acquired subsidiary, Xinchang, amounted to $435,826.

Other income and gains.  During the second three month of the fiscal year ending May 31, 2015, the Company recorded other income and gains of $49,655, a decrease of $5,505 or 10% compared with the preceding year’s corresponding quarter.  The decrease was due to the decrease in interest income from time deposits.

Service cost. Service costs from operations for the second three months in fiscal year 2015 of $1,893,913 reflected an increase of $1,477,943 or 355% over the comparative period of preceding year. The increase in service costs was mainly due to increase in the traffic rate as well as inclusion of the newly acquired subsidiary, Xinchang, amounted to $445,744.

Personnel expenses.  The personnel expenses have marginally increased by 2% or $3,395 to $162,973 for the second three month of the fiscal year ending May 31, 2015. This is mainly contributed by annual increment in payroll.

Depreciation and amortization expenses. Depreciation is generally comparable to comparative period of preceding year. The increase in amortization expense was mainly attributable to the amortization of the newly acquired customer base and the operating concession since the fourth quarter of last fiscal year.

Administrative and other operating expenses.  The general and administrative expenses have increased $162,844 or 117% to $301,599. This is mainly due to the inclusion of the newly acquired Xin Chang operation of $30,010 and a one-off consultancy fee paid for the conclusion on disposal of QBA.

(Loss)/income before provision for income taxes.  For the period under review, the increased in service costs has caused the net loss before provision for income taxes stood at $89,322 as compared to a gain of $603,169 over the preceding year’s corresponding quarter.

Net loss before non-controlling interest.  For the period under review, the increased in service costs has caused the net loss before non-controlling interest stood at $85,622 as compared to a gain of $527,187 over the preceding year’s corresponding quarter.

Liquidity and capital resources

Cash

Our cash balance at November 30, 2014 was $5,181,893, representing an increase of $1,161,0676 compared to our cash balance of $2,991,276 at May 31, 2014.

Cash flow of continuing operations (before effect of exchange rate changes).

	November 30, 2014			November 30, 2013			+/-
Net cash provided by/ (used in) operating activities	$	(759,976	)	$	114,395		(874,371	)
Net cash provided by/(used in) investing activities	$	4,348,336		$	(30,841	)	4,379,177
Net cash used in financing activities	$	(1,369,677	)	$	15,653		(1,385,330	)
Net (decrease)/increase in cash and cash equivalents		4,048,892			99,207		3,949,685

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Net cash used in operations during the six months ended November 30, 2014 amounted to $759,976 as compared to net cash provided by operations of $114,395 in the same period of FY2014 mainly arose from the operating losses during the period.

Net cash provided investing activities for the six months period ended November 30, 2014 amounted to $4,348,336 mainly represents consideration received for the disposal of QBA during the period.

There was net cash used in financing activities of $1,369,677 for the six months ended November 30, 2014 mainly due to uplift of time deposits to repay amount due to QBA..

Working capital

Our working capital was $5,231,838 at November 30, 2014

At November 30, 2014, we had stockholders’ equity of $8,349,771; total assets of $11,797,572 and total current liabilities of $3,312,050.

We do not currently anticipate any material capital expenditures for our existing operations except for the extension of a shareholder loan to Taizhou Haitai Motor Vehicle Inspection Co., Ltd as well as subscription for the equity interest in Shanghai YuZhong Financial Information Service Co., Ltd. and Shanghai YuGuang Automobile Inspection Technology Co., Ltd. Details are disclosed in Note 1 to the unaudited financial statements.

We do not currently anticipate purchasing or leasing any plant and equipment during approximately the next twelve (12) months.

We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurances that our business will not be affected by inflation in the future.

We have no off balance sheet arrangements.

Discontinued Operations

Results of discontinued operations for 6-month period ended November 30, 2014 compared to 6-month period ended November 30, 2013

	Six-month period ended
	November 30, 2014			November 30, 2013			Increase/(Decrease) from comparative period
Revenue		3			409			(406	)	-99	%
Other income and gains		164			48,852			(48,688	)	-100	%
Service costs		-			(56	)		(56	)	-100	%
Personnel cost		(93,580	)		(75,309	)		18,271		24	%
Depreciation expense		(3,689	)		(97,317	)		(93,628	)	-96	%
Administrative and other expenses		(6,916	)		(29,805	)		(22,889	)	-77	%
Loss before provision for income taxes		(104,018	)		(153,226	)		(49,208	)	-32	%
Provision for income taxes		-			-			-		N/A
Net loss before non-controlling interest		(104,018	)		(153,226	)		(49,208	)	-32	%

Revenues. The discontinued operation generated marginal revenue of $3 in the six months of the fiscal year ending May 31, 2015, representing a 100% decrease as compared with the preceding year’s corresponding quarters. The decrease was mainly due to the cessation business of the company during the period.

Other income and gains.  During the first six months of the fiscal year ending May 31, 2015, the discontinued operation recorded other income and gains of $164, a decrease of $48,688 or 99% compared with the preceding year’s corresponding period.  The decrease was due to cessation business of the company during the period.

19

Service cost. No service costs from operations for the first six months of the fiscal year ending May 31, 2015 mainly due to cessation business of the company during the year.

Personnel expenses.  The personnel expenses have increased by 24% or $18,271 to $93,580 for the first six months of the fiscal year ending May 31, 2015. This is mainly due to lay-off manpower expenses incurred during the disposal of QBA.

Loss before provision for income taxes.  The net loss before provision for income taxes stood at $104,018 as compared to $153,226 over the preceding year’s corresponding quarter.

ITEM 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and interest rates, which could impact our results of operations and financial position. We do not currently engage in any hedging or other market risk management tools, and we do not enter into derivatives or other financial instruments for trading or speculative purposes.

Foreign Currency Exchange Rate Risk

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies in Chinese Renminbi (“RMB”), Malaysian Ringgit (“RM”) and Hong Kong Dollar (“HK$”) could adversely affect our financial results. We expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby mitigating our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not substantial. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency. All of our sales and expenses denominated in foreign currencies are denominated in the RMB, RM and HK$. Our principal exchange rate risk therefore exists between the U.S. dollar and these currencies. Fluctuations from the beginning to the end of any given reporting period result in the re-measurement of our foreign currency-denominated receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other (income) expense, net in our combined consolidated financial statements. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.

Interest Rate Risk

Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant.

Inflation

Inflation has not had a material impact on the Company’s business in recent years.

Currency Exchange Fluctuations

The Company’s revenues and its expenses are denominated in RMB, RM and HK$. The value of these foreign currency-to-U.S. dollars may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of RMB to U.S. dollars had generally been stable and RMB had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar. Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign

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currencies. Recently there has been increased political pressure on the Chinese government to decouple the RMB from the United States dollar. At the recent quarterly regular meeting of People’s Bank of China, its Currency Policy Committee affirmed the effects of the reform on RMB exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of RMB has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so.

Concentration of Credit Risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions as described below:

1. The Company’s business is characterized by new product and service development and evolving industry standards and regulations. Inherent in the Company’s business are various risks and uncertainties, including the impact from the volatility of the stock market, limited operating history, uncertain profitability and the ability to raise additional capital.

2. The Company’s revenue is deriving from China and Hong Kong. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.

3. If the Company is unable to derive any revenues from these countries, it would have a significant, financially disruptive effect on the normal operations of the Company.

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ITEM 4T.                      CONTROL AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls were effective as of the end of the period covered by this annual report.

(b) Changes in Internal Controls. There have been no changes in our internal controls over financial reporting during the fiscal year ending May 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

(c) Management’s Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

Internal control over financial reporting, no matter how well designed, has inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of November 30, 2014. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (1992).

Based on the Company’s processes and assessment, as described above, management has concluded that, as of November 30, 2014, the Company’s internal control over financial reporting was effective.

PART II - OTHER INFORMATION

ITEM 1.                      LEGAL PROCEEDINGS

The Company may from time to time be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any such litigation that it believes could have a materially adverse effect on its financial condition or results of operations.

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ITEM 2.                      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There have been no unregistered sales of equity for the quarter ended November 30, 2014.

ITEM 3.                      DEFAULTS UPON SENIOR SECURITIES

There have been no material defaults for the quarter ended November 30, 2014.

ITEM 4.                      [REMOVED AND RESERVED]

ITEM 5.                      OTHER INFORMATION

The Company has evaluated for disclosure all subsequent events occurring through January 14, 2014, the date the financial statements were issued.

ITEM 6.                      EXHIBITS

The following exhibits are furnished as part of the Quarterly Report on Form 10-Q:

Exhibit Number	Description
31.1	Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:  January 14, 2015	REDtone Asia, Inc.	Dated:  January 14, 2015	REDtone Asia, Inc.
By:	/s/Chuan Beng Wei	By:	/s/Hui Nooi Ng
Name:	Chuan Beng Wei	Name:	Hui Nooi Ng
Title:	Chief Executive Officer	Title:	Chief Financial Officer
	(Principal Executive Officer)		(Principal Financial Officer)

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