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| CVDT.OB > SEC Filings for CVDT.OB > Form 10-Q on 14-Aug-2008 | All Recent SEC Filings |
14-Aug-2008
Quarterly Report
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
Plan of Operation
We were originally incorporated in Nevada on October 18, 2004 as a development stage company named "Crawford Lake Mining, Inc." in the business of mineral exploration. On August 17, 2006, we entered in an agreement with Jinan Yinquan Technology Co., Ltd., a Chinese registered company. Upon the effectiveness of the Acquisition, the Company succeeded to the business of Jinan Yinquan, which will be continued as its sole line of business. Accordingly, the Company has changed its name to China VoIP & Digital Telecom Inc. and has also changed its symbol to CVDT.
During the next twelve months, we expect to take the following steps in connection with the development of our business and the implementation of our plan of operations:
We intend to continue with our marketing strategies to market our NPSoft Switch System in the People's Republic of China. We currently offer our products to 17 cities within the Shandong Province, 3 cities within Zhejiang Province and 1 city in Anhui Province. Furthermore, our NP Soft Switch system is being tested in 2 other markets.
Along with the continued marketing activities of our current products and services, we are also developing other telecommunication technologies in order to complement our VOIP product offering.
During the next twelve months, the Company expects to roll out new technologies and also expand into new markets within the People's Republic of China.
Our aggressive expansion plan will be replied on such capital support. We can not assure the successful result of fund raising. As such, we may not execute our initial business strategy or plan as expected, and furthermore, our competitors may stand in a better position than us, which results in an adverse effect on our business, although we believe that currently, even without such funds, we can still run a healthy business within our already occupied markets.
Critical Accounting Policies
In preparing our financial statements, we make estimates, assumptions and
judgments that can have a significant impact on our net revenue, operating
income or loss and net income or loss, as well as on the value of certain assets
and liabilities on our balance sheet. We believe that the estimates, assumptions
and judgments involved in the accounting policies described below have the
greatest potential impact on our financial statements, so we consider these to
be our critical accounting policies. Senior management has discussed the
development and selection of these critical accounting policies and their
disclosure in this Report with the Audit Committee of our Board of Directors.
We believe the following critical accounting policies involve the most complex,
difficult and subjective estimates and judgments: revenue recognition; allowance
for doubtful accounts; income taxes; stock-based compensation; asset impairment.
Revenue Recognition
Sale of goods
Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.
Rendering of services
When the provision of services is started and completed within the same accounting year, revenue is recognized at the time of completion of the services.
When the provision of services is started and completed in different accounting year, revenue is recognized using the percentage of completion method.
Amounts collected prior to satisfying the above revenue recognition criteria are included in deferred revenue.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts to reduce amounts to their
estimated realizable value. A considerable amount of judgment is required when
we assess the realization of accounts receivables, including assessing the
probability of collection and the current credit-worthiness of each customer. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, an additional provision for
doubtful accounts could be required. We initially record a provision for
doubtful accounts based on our historical experience, and then adjust this
provision at the end of each reporting period based on a detailed assessment of
our accounts receivable and allowance for doubtful accounts. In estimating the
provision for doubtful accounts, we consider: (i) the aging of the accounts
receivable; (ii) trends within and ratios involving the age of the accounts
receivable; (iii) the customer mix in each of the aging categories and the
nature of the receivable; (iv) our historical provision for doubtful accounts;
(v) the credit worthiness of the customer; and (vi) the economic conditions of
the customer's industry as well as general economic conditions, among other
factors.
Income taxes
We account for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of
The Company operates in several countries. As a result, we are subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.
We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.
Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.
Asset Impairment
We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate.
Results of Operations for the three month periods ended June 30, 2008
During the three month periods ended June 30, 2008, we recorded revenue of $3,135,963 as compared to $1,267,867 of same period of 2007, an increase of $1,868,096 or 147%. The sharp increase of revenue is mainly contributed to more acceptances of our products and services. In addition, with the fund support, we are able to expand to more geographic areas.
Cost of sales increased to $2,043,674 during the three month periods ended June 30, 2008 from $1,019,038 during the same period of 2007, an increase of $1,024,637 or 101%. The increase is mainly due to the increase of actual dialing time for all customers which are generally in line with the increase of revenue.
The gross profit increased from $248,829 in the three month periods ended June 30, 2007 to $1,092,289 during the three month periods ended June 30, 2008. The increase of 339% or $843,460 is due to the increase of revenue. The increase of gross margin is mainly due to the change in revenue segments.
Selling, general and administrative expenses were $393,765 during the three month periods ended June 30, 2008 as compared to $94,640 during the same period of 2007, an increase of $299,125 or 473%. The increase was mainly contributed to the marketing expenses in order to achieve higher revenue and more administrative expenses in relation to more sales offices in China.
Depreciation and amortization expenses increased by 358% or $143,093 to $173,355 during the three month periods ended June 30, 2008 as compared to the same period of 2007. The increase is mainly attributed to the increase of equipments used for current business and future expansion purposes, the amortization of intangible assets acquired.
We recorded operation income of $525,169 during the three month periods ended June 30, 2008 as compared to $123,927 during the same period of 2007. This is mainly due to the big gross profits earned in the quarter ended June 30, 2008.
Other income/(expenses) recorded other expense of amortization of convertible debt of $416,666, interest expenses of $124,064 and other income of change in derivative liability of $5,308,398 during the three month periods ended June 30, 2008 which were resulted from convertible notes issued in December of 2007. The income of change in derivative liability of $5,308,398 was varied in accordance with our stock market price. After setting-off other expenses, net other income recorded $4,854,330 during the three month periods ended June 30, 2008 compared to the gain of $4,130 during the same period of 2007.
Net income recorded $5,362,528 during the three month periods ended June 30, 2008 as compared to net income of $128,057 during the same period of 2007, an increase of $5,234,471
Results of Operations for the six month periods ended June 30, 2008
During the six month periods ended June 30, 2008, we recorded revenue of $5,135,704 as compared to $2,256,001 of same period of 2007, an increase of $2,879,703 or 128%. The sharp increase of revenue is mainly contributed to more acceptances of our products and services. In addition, with the fund support, we are able to expand to more geographic areas.
Cost of sales increased to $3,051,230 during the six month periods ended June 30, 2008 from $1,789,462 during the same period of 2007, an increase of $1,261,768 or 71%. The increase is mainly due to the increase of actual dialing time for all customers which are general in line with the increase of revenue.
The gross profit increased from $466,539 in the six months ended June 30, 2007 to $2,084,474 during the six month periods ended June 30, 2008. The increase of 347% or $1,617,935 is due to the increase of revenue. The increase of gross margin is mainly due to the change in revenue segments.
Selling, general and administrative expenses were $676,510 during the six month periods ended June 30, 2008 as compared to $174,321 during the same period of 2007, an increase of $502,189 or 288%. The increase was mainly contributed to the marketing expenses in order to achieve higher revenue and more administrative expenses in relation to more sales offices in China.
Depreciation and amortization expenses increased by 384% or $171,640 to $216,361 during the six month periods ended June 30, 2008 as compared to the same period of 2007. The increase is mainly attributed to the increase of equipments used for current business and future expansion purposes.
We recorded operation income of $1,191,603 during the six month periods ended June 30, 2008 as compared to $247,497 during the same period of 2007. This is mainly due to the big gross profits earned in the six month periods ended June 30, 2008.
Other income/(expenses) recorded other expense of amortization of convertible
debt of $833,333, interest expenses of $311,564 and other income of change in
derivative liability of $637,140 during the six month periods ended June 30,
2008 which were resulted from convertible notes issued in December of 2007.
After setting-off other income, net other expenses recorded $396,130 during the
six months ended June 30, 2008 compared to the gain of $14,609 during the same
period of 2007.
Net income recorded $764,183 during the six month periods ended June 30, 2008 as compared to net income of $262,106 during the same period of 2007, an increase of $502,077 or 192%.
Liquidity and Capital Resources
Cash provided by operating activities were $424,225 during the six month periods ended June 30, 2008 as compared to cash used in operating activities of $218,941 for six month periods ended June 30, 2007. Cash used in operating activities mainly consisted of change in derivative liability of $637,140, increase in advance to suppliers of $951,442, increase in inventory of $445,150 and decrease in accrued expenses and other current liabilities of $403,691, partially offset by net gain of $811,319, change in beneficial conversion feature of $73,994, depreciation and amortization of $188,049, provision for bad debt of 13,250, and amortization of debt discount and fund raising fee of $833,334. Cash used in operating activities during the same period of 2007 mainly consisted of increase of accounts receivables of $308,644, increase of advances to suppliers of $401,777, and increase in inventory of $56,978, partially setting off by net income of $262,106, decrease of prepaid and other current assets of $172,093, depreciation and amortization of $44,721, increase of other current liabilities of $69,538.
Cash flows used in investing activities were $2,813,067 during the six month periods ended June 30, 2008 as compared to $555,982 during the same period of 2007. Cash used in investing activities during the six month periods ended June 30, 2008 mainly consisted of purchase of property and equipment of $797,815, purchase of intangible assets of $1,449,692 cash payment for acquisition of $565,560 by setting off cash from acquired subsidiary of $44,380. The cash used in investing activities during the six month periods ended June 30, 2007 represent the cash used for purchase of property and equipment.
Foreign currency translation were $(3,809) during the six month periods ended June 30, 2008 as compared to $11,358 during the same period of 2007.
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