If we are not be able to integrate businesses, products, technologies or personnel that we acquire, or to realize expected
benefits of our acquisitions or strategic investments, our business and financial results may be adversely affected.
If we do not complete the Tinho Acquisition, our business may have no revenue unless and until we merge with or acquire an
operating business, so we are likely to continue to incur losses.
Following the disposal of its operating subsidiaries in 2013, the Company has had no revenues or earnings from operations and in the
fiscal year ended December 31, 2013, and we have incurred a loss of $38,861,687. We expect that we will continue to incur losses at least
until we complete a business combination with a suitable acquisition target. There can be no assurances that we will ever be profitable.
If we fail to meet all applicable Nasdaq Capital Market requirements and Nasdaq determines to delist our
common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment, adversely
affect our ability to raise needed funds and subject us to additional trading restrictions and regulations.
Our Common Stock is listed on Nasdaq Capital Market. In order to maintain that listing, we must satisfy
minimum financial and other requirements. On April 15, 2014, we received notice from The NASDAQ Stock Market ("Nasdaq") that, because
the Company failed to timely file its annual report on 10-K for the fiscal year ended December 31, 2013, the Company no longer complies with
the periodic filing requirement for continued listing on the Nasdaq Capital Market under Rule 5250(c)(1) of Nasdaq Listing Rules. To date we
have also not timely filed our form 10-Q for the quarter ended March 31, 2014.
Nasdaq's notice has no immediate effect on the listing of the Company's common stock on the Nasdaq Capital Market,
and with the filing of this annual report, we believe that we satisfied the requirements to file and Annual Report on Form 10-K. However, we
cannot assure you that we will continue to be able to meet this or other listing requirements, including the filing of the form 10-Q for March 31,
2014.
In connection with the proposed Tinho Acquisition or other acquisition targets or strategic investments that result in a
change of control, we may be required to submit an initial listing application to Nasdaq, which will require the post-transaction company to
meet all Nasdaq initial listing requirements, which are generally more stringent than the continued listing requirements. There is no assurance
that we will be able to meet these Nasdaq initial listing requirements or that Nasdaq will approve the post-transaction company for listing.
Additionally, if we are not successful with the Tinho Acquisition, Nasdaq may request to evaluate us as a public
"shell" company under Rule 5101, which may adversely affect our ability to maintain our listing prior to and after completing an
acquisition or strategic investment with a potential target. Nasdaq recently amended its listing rules to restrict the ability of companies that
have completed reverse mergers with shell companies to list their securities on such exchanges. In order to become eligible to list their
securities, reverse merger companies must have had their securities traded on an over-the-counter market for at least one year, maintained a
closing price of $4.00 or higher for not less than 30 of the most recent 60 days prior to the filing of an initial listing application and prior to
listing, and timely filed with the SEC all required reports since the consummation of the reverse merger, including one annual report containing
audited financial statements for a full fiscal year commencing after the date of the filing of the Form 8-K containing the company's Form 10
information.
If we fail to meet all applicable Nasdaq requirements and Nasdaq delists our securities from trading on its exchange,
we expect our securities could be quoted on the Over-The-Counter Bulletin Board ("OTCBB") or the "pink sheets." If this
were to occur, we could face significant material adverse consequences, including:
Our corporate headquarters was previously located at Sanlitun SOHO, Building A, 11th Floor, No.8 Workers
Stadium North Road, Chaoyang District, Beijing 10027, China. This leased office space was about 1,800 square meters and the lease expired
in July 2013. The office space was renewed until April of 2014, when the lease expires. As of the date of this report the Company has moved
to Sanlitun SOHO, Building B, 19th Floor, No.8 Workers Stadium North Road, Chaoyang District, Beijing 10027, China where the Company's
Chief Executive Officer maintains his office. The office space is leased from the landlord by Nollec, the former subsidiary of the Company.
The Company has not entered into a formal agreement between itself and Nollec to sublease any space.
Leimone (Tianjin) Industrial Co., Ltd ("Leimone Tianjin"), a related party (see Item 13), is currently involved with a
dispute with the construction company contracted to build our new manufacturing facility in Tianjin. On August 15, 2011, Leimone Tianjin filed
a claim against Henan Urban Construction Group ("HUCG"). The claim is for the termination of the construction contract between Leimone
Tianjin and HUCG and claims damages of approximately $1.3 million (RMB 8,072,310) against HUCG. In Leimone Tianjin's court filing, it has
accused HUCG of improper use of the funds paid to HUCG by Leimone Tianjin, as a result, construction project has been delayed. HUCG's
has claimed as its defense that the delay in construction was a result of poor conditions at the construction site. The Mid-Level People's Court
of Tianjin City has issued a decision in the last quarter of 2012 which is acceptable to the Company. HUCG appealed the decision and in the
second quarter of 2013, the Court of Appeals upheld the previous rulings. The Courts have executed on its ruling and removed the HUCG from
the premises.
Other than our dispute disclosed above we are not a party to any material legal proceedings nor are we aware of any
circumstance that may reasonably lead a third party to initiate legal proceedings against us.
Our common stock trades on the Nasdaq Capital Market under the symbol "ZOOM". The following table sets forth,
for the periods indicated, the high and low sale prices per share of common stock, as reported by the Nasdaq Capital Market. On November
12, 2013, we effectuated a 10 for 1 reverse split of its common stock. All share numbers and per share amounts in this report have been
retroactively restated to reflect the reverse split.
As of May 22, 2014 there were 3,008,569 shares of our common stock outstanding. There are 39 shareholders of
record and we believe there are approximately 4,800 shareholders in street or broker name. As of May 22, 2014, the closing
price of our stock was $2.63.
Recent Sales of Unregistered Securities
The Company did not sell or issue unregistered securities during the year ended December 31, 2013 other than
as previously disclosed in a Form 8-K or Form 10-Q filed with the SEC.
Dividend Policy
We have never declared or paid cash dividends on our capital stock and do not plan to pay any cash dividends in
the foreseeable future. Our current policy is to retain all of our earnings to finance future growth.
8
Repurchases by the Company
During 2013, we did not repurchase any shares of our common stock on our own behalf or for any affiliated
purchaser.
Equity Compensation Plan Information
The information required by this Item 5 regarding securities authorized for issuance under our equity
compensation plans is set forth in Part III, Item 12 of this report.
ITEM 6 - SELECTED FINANCIAL DATA
Not required.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements. Forward looking statements are identified by words and
phrases such as "anticipate", "intend", "expect", and words and phrases of similar import. We caution investors that forward-looking statements
are only predictions based on our current expectations about future events and are not guarantees of future performance. Actual results,
performance or achievements could differ materially from those expressed or implied by the forward-looking statements due to risks,
uncertainties and assumptions that are difficult to predict. We encourage you to read those risk factors carefully along with the other
information provided in this proxy statement and in our other filings with the SEC before deciding to invest in our stock or to maintain or change
your investment. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law.
You should read this Management's Discussion and Analysis in conjunction with the Consolidated Financial
Statements and Related Notes.
On December 31, 2012, the Company entered into a Share Purchase Agreement (the "SPA") with Beijing Zhumu
Culture Communication Company, Ltd. ("BZCC"), a PRC company that provides services to the telecommunication industry. Pursuant to
the SPA, the Company agreed to sell (the "Subsidiary Sale") to BZCC all the equity interests the Company holds in its China based
subsidiaries (except for SpreadZoom as mentioned above), which include 100% of the outstanding equity interest of Ever Elite and its wholly
owned subsidiary Nollec, 80% of the outstanding equity interest of TCB Digital (excluding TCB Digital's interest in SpreadZoom), 100% of the
outstanding equity interest of Profit Harvest, and 100% of the outstanding equity interest of CDE. As consideration for the Subsidiary Sale,
BZCC agreed to pay to the Company RMB 200 million (approximately US$32 million) (the "Purchase Price"), subject to adjustment pending an
appraisal by an independent third party appraiser. BZCC remitted an advance payment to Zoom in the amount of RMB 80 million and
deposited the balance of the Purchase Price into an escrow account, to be released to the Company upon the final closing of the Subsidiary
Sale, which was to be held 30 days after the Company received all requisite corporate and regulatory approvals with respect to the Subsidiary
Sale. On December 31, 2012, BZCC completed its acquisition of Profit Harvest and CDE; the closing of the sale of Ever Elite and Nollec
occurred on April 5, 2013. As mentioned above, on December 30, 2013, BZCC assigned its purchase right for TCB Digital to Tianjin Huatianli
Trading Co., Ltd. ("Huatianli"). On December 30, 2013, the Company consented to the assignment between BZCC and Huatianli
and agreed to amend the SPA to reflect the change. In connection with the assignment, RMB120 million, representing the balance of the
Purchase Price that was being held in escrow pending the closing of all of the sales under the SPA, was released to a Company-designated
bank account. Of that amount, approximately RMB 68 million was available for the Company's immediate use, and approximately RMB52
million, representing the purchase price for TCB Digital, was be monitored by Huatianli until the closing of the TCB Digital sale. As of the date
of this report the RMB 120 million is held in wealth management account at trust company. The Company's Chief Executive Officer has
unencumbered sole signing and dispositive rights to that account. As of May 16, 2014, the Company has received payment in full from
Huatianli for the sale of TCB Digital and the Company has submitted to the PRC government documentation for the recording of the transfer of
Jiangsu Leimone's ownership interest in TCB Digital to Huatianli. Om May 15, 2014, the Company completed the sale of TCB Digital to
Huatianli. The Company has received payment in full separately from Huantianli for RMB 52 million; accordingly, the Company is obligated to
repay RMB 52 million to BZCC from the RMB 120 million held in the trust wealth management account. Refer to "Note 21 - Subsequent
Events" for further details.
9
Recent Developments
On January 13, 2014, Zoom entered into a Letter of Intent with Tinho Union Holding Group, pursuant to which it
proposes to acquire 100% of the outstanding shares of Tinho Union Holding Group and its subsidiaries ("Tinho") in exchange for
the issuance of 9,363,585 shares of the Company's common stock at a valuation of $8.6505 per share; 4,681,793 shares that are to be issued
will be held in escrow, and those shares will be released upon Tinho's achievement of certain earnings targets (such transaction, the
"Tinho Acquisition"). The Letter of Intent is subject to final terms and conditions, which will be mutually accepted and fully described
in a definitive agreement governing the proposed transaction.
The Letter of Intent provides the parties with exclusivity until the earlier of: (i) June 30, 2014; (ii) the time that all parties
agree in writing not to pursue the Tinho Acquisition; or (iii) execution of a definitive agreement; provided, that the Company shall be allowed to
consider other acquisition proposals that may be superior to terms of the Tinho Acquisition. In the event that either Tinho or Zoom's board of
directors fails to approve the Tinho Acquisition during the exclusivity period for reasons other than material breach of the Letter of Intent or the
definitive agreement, dissatisfaction with the outcomes of due diligence, or failure of any closing conditions outside of a party's control, such
party shall be subject to a break-up fee of $2 million. However, Tinho shall not be subject to any break-up fee in the event that Zoom is no
longer listed on the Nasdaq Capital Market and Zoom is deemed by Nasdaq to be subject to Nasdaq's seasoning rules. With the exception of
these exclusivity and break-up provisions, which are binding, the terms of the Letter of Intent are non-binding in nature.
Tinho is a leading B2B e-commerce platform provider for the travel industry in China. Tinho's innovative platform
aggregates and streamlines a vast inventory of travel products, including air, hotels, car rentals, and vacation packages from travel service
providers worldwide to enable customers to easily and accurately find best deals in real-time. Tinho also provides full-service, customized
travel solutions to corporate clients. Tinho distributes its platform through websites (www.thlm.com.cn), franchise model, direct-sale model and
24-hour toll-free call centers. Founded in 2009, Tinho is headquartered in Shenzhen, China with over 200 employees.
Critical Accounting Policies and Estimates
The preparation of Zoom's consolidated financial statements in conformity with accounting principles generally
accepted in the United States ("US GAAP") requires it to make estimates and judgments that affect its reported assets, liabilities, revenues,
and expenses, and the disclosure of contingent assets and liabilities. Zoom based its estimates and judgments on historical experience and on
various other assumptions that it believes to be reasonable under the circumstances. Future events, however, may differ markedly from
current expectations and assumptions. While there are a number of significant accounting policies affecting Zoom's consolidated financial
statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:
allowance for doubtful accounts; income taxes; asset impairment.
Revenue Recognition
In accordance with US GAAP, revenue is recognized only when the price is fixed or determinable, persuasive
evidence of an arrangement exists, the service is performed, and collection of the resulting receivable is reasonably assured. Noted below are
brief descriptions of the product or service revenues that Zoom recognizes in the financial statements contained herein.
The Company recognizes sales in accordance with the U.S. Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial Statements" (FASB ASC Topic 605),
"Revenue Recognition."
The Company recognizes revenue when the following criteria are met:
(i) persuasive evidence of an arrangement exists;
(ii) delivery has occurred or services were rendered;
(iii) the price to the customer is fixed or determinable and,
10
(iv) collection of the resulting receivable is reasonably assured. Revenue is not recognized until title and risk of
loss is transferred to the customer, which occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions
were met.
The Company bases its estimates on historical experience taking into consideration the type of products sold, the type
of customer, and the type of specific transaction in each arrangement. Revenues represent the invoiced value of goods, net of value added tax
("VAT").
The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its
customers. Deposits or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advanced
from customers.
Income is recognized as the percentage of estimated total income that incurred costs to date divided by estimated total
costs after giving effect to estimates of costs to complete based on most recent information. Percentage of completion is based on labor hours
incurred to date divided by total estimated labor hours for the contract.
Royalty income on sales of licensed products by its customers is recorded when the customers report sales to the
Company. Royalty income is reported monthly and recorded in the period in which the product is sold. The Company has the right to audit the
books of the licensees.
Equity Method Accounting
In May 2012, the Company invested $12.3 million to establish a joint venture named SpreadZoom Technologies
Co. Ltd., ("SpreadZoom"). The Company owns 47.4% of SpreadZoom and accounted for this investment under the equity method of
accounting (ASC 323-30). Refer to "Note 19 - Equity Method Investment" for details.
The Company revised its accounting for Portables Unlimited, LLC. Previously, the Company accounted for the
investment as a subsidiary under the consolidation method of accounting; as of the date of this report, Company retroactively changed its
method of accounting for Portables to the equity method. Previously reported net income/(loss) attributable to the Company were unchanged;
however, the consolidated balance sheet at December 31, 2012 no longer includes all of the assets and liabilities of Portables. As of
December 31, 2013, Portables was no longer an investment of the Company. As disclosed above the Company completely wrote off the
investment on July 15, 2013, recording a loss of approximately $11.5 million. At December 31, 2012, the Company was a joint borrower on a
$3 million line of credit provided by M&T Bank. This line was refinanced in February of 2013 to be reduced to $2.5 million; concurrently,
the Company and Portables co-borrowed $2.5 million in a term note from M&T Bank. Both the line of credit and term note were
accounted for as an increase to the investment amount when Portables was still owned by the Company. The investment was written off in
July of 2013; however, at December 31, 2013, the maximum value of the line of credit of $2.5 million and the amortized balance of the term
note are carried as liabilities on the Company's consolidated balance sheets. On May 20, 2014, Portables and M&T Banks released the
Company from the obligation of repaying the line of credit and term note. Refer to "Note 9 - Short Term Loans" for further
details.
Allowance for doubtful accounts
Zoom maintains an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A
considerable amount of judgment is required when Zoom assesses the realization of accounts receivables, including assessing the probability
of collection and the current credit-worthiness of each customer. If the financial condition of customers were to deteriorate, resulting in an
impairment of their ability to make payments, an additional provision for doubtful accounts could be required. Zoom initially records a provision
for doubtful accounts based on its historical experience, and then adjusts this provision at the end of each reporting period based on a detailed
assessment of its accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, Zoom considers:
(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) its 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.
Management regularly reviews outstanding receivables to determine their recoverability. Zoom regularly reviews the credit policies and
procedures of its operating subsidiaries to ensure that procedures are appropriate to the Company's risk management approach as well as the
general economic environment.
11
Income taxes
Zoom accounts for income taxes in accordance with SFAS No. 109 (ASC Topic 740), "Accounting for Income
Taxes". Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts and each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce
deferred tax assets to the amount expected to be realized when, in management's opinion; it is more likely than not that some portion of the
deferred tax assets will not be realized. The provision for income taxes represents current taxes payable net of the change during the period in
deferred tax assets and liabilities. Zoom adopted FIN 48 (ASC Topic 740), Accounting for Uncertainty in Tax Positions. Zoom has engages tax
preparers in all of the jurisdictions in which it operates to determine if the Company is both fully compliant with applicable tax laws and is
lawfully maximizing tax benefits to the Company.
Asset Impairment
Zoom periodically evaluates 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. Zoom also utilizes judgment to determine other factors within fair value analyses,
including the applicable discount rate. As of December 31, 2012, the Company had completely written off goodwill resulting from its
acquisition of Jiangsu Leimone, Silver Tech, and CDE. There was no goodwill outstanding as of and for the year ended December 31,
2013.
Results of Operations for the years ended December 31, 2013 and 2012:
Discontinued Operations
On December 31, 2012, the Company announced the Subsidiary Sale, and on July 15, 2013, the Company has written off its
investment on Portables, all as discussed in more detail above. Additionally, during the fourth quarter of the year ended December 31, 2013,
management determined that the Company's former 50.1% equity interest investment in Portables Unlimited, LLC ("Portables"), was
incorrectly accounted for using the consolidation method. As such, the Company's results of operations for the fiscal years ended December
31, 2013 and 2012 provided herein only reports revenue from continuing operations. Revenue and expenses for the discontinued operations
of Portables, Ever Elite, Nollec, Profit Harvest, CDE and TCB Digital are reported in Note 20 to the accompanying financial statements in this
report.
12
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
(Decrease)
|
|
%
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
Net revenue
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
n/a
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
n/a
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
n/a
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,882,051
|
|
|
10,290,461
|
|
|
(7,408,410)
|
|
-71.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income-net
|
|
|
(1,078,605)
|
|
|
717,397
|
|
|
(1,796,002)
|
|
-250.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes from continuing operations
|
|
|
(3,960,656)
|
|
|
(9,573,064)
|
|
|
5,612,408
|
|
-58.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations
|
|
|
191,414
|
|
|
190,845
|
|
|
569
|
|
0.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(4,152,070)
|
|
|
(9,763,909)
|
|
|
5,611,839
|
|
-57.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
(23,149,034)
|
|
|
(11,178,671)
|
|
|
(11,970,363)
|
|
107.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal, net tax
|
|
|
(16,354,593)
|
|
|
(11,860,025)
|
|
|
(4,494,568)
|
|
37.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(39,503,627)
|
|
|
(23,038,696)
|
|
|
(16,464,931)
|
|
71.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(43,655,697)
|
|
|
(32,802,605)
|
|
|
(10,853,092)
|
|
33.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to noncontrolling interest
|
|
|
(4,794,010)
|
|
|
(350,094)
|
|
|
(4,443,916)
|
|
1269.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to stockholders
|
|
|
(38,861,687)
|
|
|
(32,452,511)
|
|
|
(6,409,176)
|
|
19.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income to stockholders
|
|
|
(3,241,292)
|
|
|
1,977,228
|
|
|
(5,218,520)
|
|
-263.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss to stockholders
|
|
$
|
(42,102,979)
|
|
$
|
(30,475,283)
|
|
$
|
(11,627,696)
|
|
38.15
|
%
|
Other key indicators
|
|
Years Ended December 31
|
|
|
|
(Percent of Net Sales)
|
|
2013
|
|
2012
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
n/a
|
%
|
|
n/a
|
%
|
|
n/a
|
%
|
Gross profit
|
|
n/a
|
%
|
|
n/a
|
%
|
|
n/a
|
%
|
Selling, general and administrative expenses
|
|
n/a
|
%
|
|
n/a
|
%
|
|
n/a
|
%
|
Net loss margin from continuing operations
|
|
n/a
|
%
|
|
n/a
|
%
|
|
n/a
|
%
|
Revenues
Zoom's revenue from continuing operations were $0 and $0 (as restated) for 2013 and 2012. The Company is
restructuring its businesses and has disposed of its operating subsidiaries; accordingly, the results of operations do not provide for any
revenue derived from continuing operations.
Cost of sales
For the years 2013 and 2012, Zoom's cost of sales from continuing operations were $0 and $0 (as restated). As
aforementioned the Company is restructuring its business; therefore, neither revenues nor related cost of sales have been recognized as
results of continuing operations.
13
Operating expenses
Operating expenses are comprised of general and administrative expenses and non-cash equity-based
compensation.
General and administrative expenses primarily consisted of compensation for executive personnel, travel expenses,
insurance, and professional fees associated with maintaining a public company.
For 2013, general and administrative expenses for continuing operations were $1,740,884 compared to $2,873,524 (as
restated) for 2012. General and administrative expenses have decreased $1,132,640 year-over-year. The decreases are attributed to the
restructuring and disposal of operating subsidiaries. Non-cash compensation expense for 2013 was $1,141,167 as compared to $7,416,937
(as restated). The non-cash equity-based compensation charges were related to the shares issued to board members and acceleration of
vesting periods for shares issued to former executives of the Company. The Company has exhausted its employees' stock compensation plan
approved by the Company's shareholders in 2009. The Company expects to seek approval from the Company's shareholders for an
amendment to the plan to authorize additional shares under the plan.
Other income and (expenses) - net
Other income and (expenses) from continuing operations, net were $(1,078,605) in 2013, a decrease of $1,796,002,
or -250.35% from $717,397 (as restated) in 2012. The decrease was primarily attributable to losses by the
Company's equity method investments in SpreadZoom, and Portables, for the period prior to its disposal.
Net loss
For 2013, Net loss was $43,655,697 as compared to $32,802,605 (as restated) for 2012. Zoom experienced material
losses as a result of its decision to discontinue and dispose of its operations in the US, PRC, and Hong Kong. The Company incurred loss on
disposal of $16,354,593 for the dispositions of Ever Elite, Nollec, and Portables. The Company wrote off an outstanding accounts receivable
owed to TCB Digital by Gohigh Data Networks Technology Co., Ltd ("Gohigh") in the amount of $24,084,239; the bad debt was
included in its results from discontinued operations; as of December 31, 2013, and for the period then ended, the Company and its subsidiaries
ceased doing business with Gohigh and made numerous unsuccessful efforts to recover the amounts owed by Gohigh. Accordingly, the
Company recognized a 100% reserve for bad debt related to this former customer.
Other comprehensive (loss) income
For 2013, our other comprehensive (loss) income was $(3,241,292) compared to $1,977,228 (as restated) for 2012.
Other comprehensive income resulted from changes in net foreign currency exchange changes particularly the Renminbi's movements against
the US dollar resulting from our conversion of RMB into US$ for reporting; and we may report gain or loss depending on changes in the
exchange rate.
Liquidity and Capital
Resources
Zoom generally finances its operations from cash flow generated internally, equity fundraising and short-term bank
loans due in less than one year and with interest rates between 5.3% and 8.4%. As of December 31, 2013, we had cash and
equivalents of $36,735, an increase of $28,384 from $8,351 (as restated) as of December 31, 2012. We also had $19,632,865 in
restricted cash at the end of 2013 relating to the Subsidiary Sale; such restricted cash was held in a wealth management trust account
controlled by the Company's Chief Executive Officer and BZCC. The funds were related to the disposition of certain discontinued operations.
As of May 16, 2014, the funds have been released to the Company for use without any further restrictions. The signatory and dispositive
authority over the funds in the wealth management account after they were unencumbered rests solely with the Company's Chief Executive
Officer.
The net cash provided in operating activities in 2013 was $18,589,197 compared to net cash used in operating
activities for 2012 of $23,913,357 (as restated). The net cash inflow from operating activities in 2013 was primarily generated in discontinued
operations by an increase in accounts payable and decreases in prepayments.
Net cash used in investing activities was $15,417,561 in 2013. These funds were primarily used in discontinued
operations as deposit in time deposits with PRC banks to secure the issuance of bank notes.
Net cash used in financing activities was $3,610,927 in 2013. These funds were primarily used in discontinued
operations to repay loans and related parties.
14
On a going forward basis, over the next 12 months, Zoom intends to complete the sale of its PRC subsidiaries and
enter into merger transaction with Tinho. At such point the management of Tinho will deploy the funds in the combined business.
Off balance sheet arrangements
As of December 31, 2013, Zoom had no off balance sheet arrangements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required
15
Item 8. Consolidated Financial Statements
ZOOM TECHNOLOGIES, INC., AFFILIATES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
36,735
|
|
$
|
8,351
|
Restricted cash
|
|
|
19,632,865
|
|
|
19,044,294
|
Other receivables and prepaid expenses
|
|
|
614,403
|
|
|
4,398,053
|
Due from related parties
|
|
|
9,358,033
|
|
|
20,528,155
|
Current assets of discontinued operations, held for sale
|
|
|
127,409,901
|
|
|
144,751,290
|
Total current assets
|
|
|
157,051,937
|
|
|
188,730,143
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
-
|
|
|
-
|
Intangible assets
|
|
|
349,600
|
|
|
349,600
|
Long-term investments
|
|
|
10,880,977
|
|
|
23,758,974
|
TOTAL ASSETS
|
|
$
|
168,282,514
|
|
$
|
212,838,717
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term loans
|
|
|
3,158,587
|
|
|
2,994,999
|
Notes payable
|
|
|
350,937
|
|
|
290,000
|
Accounts payable
|
|
|
-
|
|
|
38,695
|
Accrued expenses and other payables
|
|
|
866,367
|
|
|
947,504
|
Purchase deposit from buyer
|
|
|
8,240,490
|
|
|
8,740,490
|
Taxes payable
|
|
|
21,860
|
|
|
22,334
|
Due to related parties
|
|
|
3,449,922
|
|
|
5,362,597
|
Warrant liability
|
|
|
377
|
|
|
7,340
|
Current liabilities of discontinued operations
|
|
|
139,109,499
|
|
|
138,348,859
|
Total current liabilities
|
|
|
155,198,039
|
|
|
156,752,818
|
|
|
|
|
|
|
|
Long-term loans
|
|
|
1,352,103
|
|
|
-
|
Long-term notes payable
|
|
|
-
|
|
|
317,500
|
TOTAL LIABILITIES
|
|
|
156,550,142
|
|
|
157,070,318
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Preferred stock: authorized 1,000,000 shares, par value $0.01 none issued and outstanding
|
|
|
-
|
|
|
-
|
Common stock: authorized 60,000,000 shares, par value $0.01, 3,008,737 shares issued
|
|
|
|
|
|
|
and 3,008,569 shares outstanding at December 31, 2013; 2,932,137 shares issued
|
|
|
|
|
|
|
and 2,931,969 shares outstanding at December 31, 2012.
|
|
|
30,087
|
|
|
29,321
|
Treasury shares: 168 shares at cost
|
|
|
(7,322)
|
|
|
(7,322)
|
Additional paid-in capital
|
|
|
53,699,157
|
|
|
52,083,153
|
Statutory surplus reserve
|
|
|
727,822
|
|
|
702,539
|
Accumulated other comprehensive income
|
|
|
817,365
|
|
|
4,058,657
|
Accumulated deficit
|
|
|
(42,985,768)
|
|
|
(4,098,798)
|
TOTAL STOCKHOLDERS' EQUITY
|
|
|
12,281,341
|
|
|
52,767,550
|
Non-controlling interest
|
|
|
(548,969)
|
|
|
3,000,849
|
TOTAL EQUITY
|
|
|
11,732,372
|
|
|
55,768,399
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
168,282,514
|
|
$
|
212,838,717
|
The accompanying notes are an integral part of these consolidated financial statements.
16
ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
FOR THE YEAR ENDED
|
|
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Net revenues
|
|
$
|
-
|
|
$
|
-
|
Cost of sales
|
|
|
-
|
|
|
-
|
Gross profit
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
2,882,051
|
|
|
10,290,461
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,882,051)
|
|
|
(10,290,461)
|
|
|
|
|
|
|
|
Other income and (expenses)
|
|
|
|
|
|
|
Interest income
|
|
|
316
|
|
|
-
|
Interest expense
|
|
|
(153,199)
|
|
|
(120,738)
|
Change in fair value of warrants
|
|
|
6,963
|
|
|
843,501
|
Equity method net investment loss
|
|
|
(926,373)
|
|
|
(3,840)
|
Other expense, net
|
|
|
(6,312)
|
|
|
(1,526)
|
Other (expense) income, net
|
|
|
(1,078,605)
|
|
|
717,397
|
|
|
|
|
|
|
|
Loss before income taxes for continuing operations
|
|
|
(3,960,656)
|
|
|
(9,573,064)
|
|
|
|
|
|
|
|
Income taxes for continuing operations
|
|
|
191,414
|
|
|
190,845
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(4,152,070)
|
|
|
(9,763,909)
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
(23,149,034)
|
|
|
(11,178,671)
|
Loss on disposal, net tax
|
|
|
(16,354,593)
|
|
|
(11,860,025)
|
Loss from discontinued operations
|
|
|
(39,503,627)
|
|
|
(23,038,696)
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(43,655,697)
|
|
$
|
(32,802,605)
|
|
|
|
|
|
|
|
less:
Loss attributable to noncontrolling interest
|
|
|
(4,794,010)
|
|
|
(350,094)
|
|
|
|
|
|
|
|
Net loss attributable to Zoom Technologies, Inc.
|
|
$
|
(38,861,687)
|
|
$
|
(32,452,511)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share from continuing operations:
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.39)
|
|
$
|
(3.60)
|
Diluted
|
|
$
|
(1.39)
|
|
$
|
(3.60)
|
|
|
|
|
|
|
|
Basic and diluted loss per common share from discontinued operations:
|
|
|
|
|
|
|
Basic
|
|
$
|
(11.66)
|
|
$
|
(8.36)
|
Diluted
|
|
$
|
(11.66)
|
|
$
|
(8.36)
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
|
|
|
|
|
Basic
|
|
$
|
(13.05)
|
|
$
|
(11.96)
|
Diluted
|
|
$
|
(13.05)
|
|
$
|
(11.96)
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
|
2,976,933
|
|
|
2,714,471
|
Diluted
|
|
|
2,976,933
|
|
|
2,714,471
|
|
|
|
|
|
|
|
Amounts attributable to Zoom Technologies, Inc. common shareholders
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(4,152,070)
|
|
|
(9,763,909)
|
Loss from discontinued operations
|
|
|
(34,709,617)
|
|
|
(22,688,602)
|
Net loss attributable to Zoom Technologies, Inc.
|
|
$
|
(38,861,687)
|
|
$
|
(32,452,511)
|
The accompanying notes are an integral part of these consolidated financial statements.
17
ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
FOR THE YEAR ENDED
|
|
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Net loss attributable to Zoom Technologies, Inc.
|
|
$
|
(38,861,687)
|
|
$
|
(32,452,511)
|
Net loss attributable to noncontrolling interest
|
|
$
|
(4,794,010)
|
|
$
|
(350,094)
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
Foreign currency translation (loss) gain - Zoom Technologies, Inc.
|
|
|
(3,241,292)
|
|
|
1,977,228
|
Foreign currency translation (loss) gain - noncontrolling interest
|
|
|
(356,630)
|
|
|
26,540
|
|
|
|
|
|
|
|
Comprehensive loss Zoom Technologies, Inc.
|
|
$
|
(42,102,979)
|
|
$
|
(30,475,283)
|
Comprehensive loss noncontrolling interest
|
|
$
|
(5,150,640)
|
|
$
|
(323,554)
|
The accompanying notes are an integral part of these consolidated financial statements.
18
ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Additional
|
|
|
Statutory
|
|
|
other
|
|
|
Retained
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common stock
|
|
|
Treasury
|
|
|
to be
|
|
|
paid in
|
|
|
surplus
|
|
|
comprehensive
|
|
|
earnings
|
|
|
|
|
|
Noncontrolling
|
|
|
Shares
|
|
|
Amount
|
|
Shares
|
|
|
Amount
|
|
|
stock
|
|
|
issued
|
|
|
capital
|
|
|
reserve
|
|
|
income
|
|
|
(deficit)
|
|
|
Total
|
|
|
interest
|
Balance December 31, 2011
(Restated)
|
|
-
|
|
$
|
-
|
|
2,386,624
|
|
$
|
23,866
|
|
$
|
(7,322)
|
|
$
|
100
|
|
$
|
44,670,670
|
|
$
|
682,528
|
|
$
|
2,081,429
|
|
$
|
28,373,724
|
|
$
|
75,824,995
|
|
$
|
3,324,403
|
Issuance of shares for services
|
|
|
|
|
|
|
490,720
|
|
|
4,907
|
|
|
|
|
|
73
|
|
|
6,476,817
|
|
|
|
|
|
|
|
|
|
|
|
6,481,797
|
|
|
|
Shares issued to replace cancelled options
|
|
|
|
|
|
|
30,280
|
|
|
303
|
|
|
|
|
|
|
|
|
143,106
|
|
|
|
|
|
|
|
|
|
|
|
143,409
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977,228
|
|
|
|
|
|
1,977,228
|
|
|
26,540
|
Shares issued against shares to be issued
|
|
|
|
|
|
|
17,263
|
|
|
173
|
|
|
|
|
|
(173)
|
|
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
1,557
|
|
|
|
Shares issued to employees
|
|
|
|
|
|
|
7,250
|
|
|
72
|
|
|
|
|
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
720
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
790,355
|
|
|
|
|
|
|
|
|
|
|
|
790,355
|
|
|
|
Appropriations to statutory surplus reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,011
|
|
|
|
|
|
(20,011)
|
|
|
-
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,452,511)
|
|
|
(32,452,511)
|
|
|
(350,094)
|
Balance December 31, 2012
(Restated)
|
|
-
|
|
$
|
-
|
|
2,932,137
|
|
$
|
29,321
|
|
$
|
(7,322)
|
|
$
|
-
|
|
$
|
52,083,153
|
|
$
|
702,539
|
|
$
|
4,058,657
|
|
$
|
(4,098,798)
|
|
$
|
52,767,550
|
|
$
|
3,000,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
(Restated)
|
|
-
|
|
$
|
-
|
|
2,932,137
|
|
$
|
29,321
|
|
$
|
(7,322)
|
|
$
|
-
|
|
$
|
52,083,153
|
|
$
|
702,539
|
|
$
|
4,058,657
|
|
$
|
(4,098,798)
|
|
$
|
52,767,550
|
|
$
|
3,000,849
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,241,292)
|
|
|
|
|
|
(3,241,292)
|
|
|
(356,630)
|
Shares issued to directors and consultants
|
|
|
|
|
|
|
76,600
|
|
|
766
|
|
|
|
|
|
|
|
|
1,480,286
|
|
|
|
|
|
|
|
|
|
|
|
1,481,052
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,718
|
|
|
|
|
|
|
|
|
|
|
|
135,718
|
|
|
|
Appropriations to statutory surplus reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,283
|
|
|
|
|
|
(25,283)
|
|
|
-
|
|
|
|
Capital Injection by Tongguang Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
2,679,883
|
Dividends Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
(1,079,061)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,861,687)
|
|
|
(38,861,687)
|
|
|
(4,794,010)
|
Balance December 31, 2013
|
|
-
|
|
$
|
-
|
|
3,008,737
|
|
$
|
30,087
|
|
$
|
(7,322)
|
|
$
|
-
|
|
$
|
53,699,157
|
|
$
|
727,822
|
|
$
|
817,365
|
|
$
|
(42,985,768)
|
|
$
|
12,281,341
|
|
$
|
(548,969)
|
The accompanying notes are an integral part of these consolidated financial statements.
19
ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
FOR THE YEAR ENDED
|
|
|
|
DECEMBER 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(43,655,697)
|
|
$
|
(32,802,605)
|
Adjustments to reconcile net loss to
|
|
|
|
|
|
|
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
Loss on impairment of goodwill
|
|
|
-
|
|
|
9,048,334
|
Depreciation and amortization
|
|
|
214,076
|
|
|
3,266,770
|
Non-cash equity-based compensation
|
|
|
1,141,167
|
|
|
7,416,937
|
Provision for inventory obsolescence
|
|
|
(202,745)
|
|
|
382,955
|
Provision on accounts receivable
|
|
|
24,190,352
|
|
|
1,551,474
|
Loss on disposal
|
|
|
16,354,593
|
|
|
11,860,025
|
Loss on equity method investment
|
|
|
926,373
|
|
|
3,840
|
Fair value adjustment on warrants
|
|
|
(6,963)
|
|
|
(843,501)
|
Changes in deferred tax assets
|
|
|
(69,206)
|
|
|
56,695
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,359,832)
|
|
|
(46,531,984)
|
Inventories
|
|
|
(11,855,915)
|
|
|
(5,047,646)
|
Advances to suppliers
|
|
|
229,517
|
|
|
3,225,579
|
Other receivables and prepaid expenses
|
|
|
11,275,565
|
|
|
7,882,357
|
Accounts payable
|
|
|
26,294,775
|
|
|
27,676,119
|
Advance from customers
|
|
|
(130,274)
|
|
|
3,823,356
|
Related parties-net
|
|
|
2,963,865
|
|
|
(28,613,441)
|
Accrued expenses and other current liabilities
|
|
|
(720,454)
|
|
|
13,731,379
|
Net cash provided by (used in) operating activities
|
|
|
18,589,197
|
|
|
(23,913,357)
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Restricted cash
|
|
|
(14,010,637)
|
|
|
(57,727,911)
|
Purchase of property and equipment and other long-term assets
|
|
|
(650,594)
|
|
|
(284,866)
|
Increase in notes receivable
|
|
|
(103,038)
|
|
|
(2,485,272)
|
Cash decrease from disposal of subsidiary
|
|
|
(653,292)
|
|
|
(789,529)
|
Cash paid for equity method investment
|
|
|
|
|
|
(12,342,542)
|
Cash received for the sale of discontinued operations
|
|
|
-
|
|
|
31,740,490
|
Net cash used in investing activities
|
|
|
(15,417,561)
|
|
|
(41,889,630)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from loans
|
|
|
54,244,551
|
|
|
23,646,665
|
Repayment of loans
|
|
|
(37,050,191)
|
|
|
(28,211,734)
|
Proceeds from issuances of notes
|
|
|
13,555,402
|
|
|
-
|
Repayment of notes payable
|
|
|
(574,063)
|
|
|
(1,766,739)
|
Receipt from related parties
|
|
|
25,732,935
|
|
|
75,050,569
|
Repayment on borrowings from related parties
|
|
|
(59,519,561)
|
|
|
(325,522)
|
Net cash (used in) provided by financing activities
|
|
|
(3,610,927)
|
|
|
68,393,239
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash & equivalents
|
|
|
71,005
|
|
|
(274,956)
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and equivalents
|
|
|
(368,286)
|
|
|
2,315,296
|
|
|
|
|
|
|
|
Cash and equivalents, beginning of period
|
|
|
3,253,880
|
|
|
938,584
|
Cash and equivalents from continuing components
|
|
|
8,351
|
|
|
22,158
|
Cash and equivalents from discontinued components
|
|
|
3,245,529
|
|
|
916,426
|
|
|
|
|
|
|
|
Cash and equivalents, end of period
|
|
$
|
2,885,594
|
|
$
|
3,253,880
|
Cash and equivalents from continuing components
|
|
|
36,735
|
|
|
8,351
|
Cash and equivalents from discontinued components
|
|
|
2,848,859
|
|
|
3,245,529
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURES:
|
|
|
|
|
|
|
Interest paid
|
|
$
|
153,199
|
|
$
|
120,738
|
Income tax paid
|
|
$
|
191,414
|
|
$
|
190,845
|
The accompanying notes are an integral part of these consolidated financial statements.
20
ZOOM TECHNOLOGIES, INC., AFFILIATES & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013 AND 2012
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS OPERATIONS
Acquisitions
Zoom Technologies, Inc. (the "Company") was incorporated in the state of Delaware on February 29, 2002. Until September 22,
2009, the Company was engaged in the design, production, marketing, sales, and support of broadband and dial-up modems, Voice over
Internet Protocol or "VoIP" products and services, Bluetooth® wireless products, and other communication-related products.
On September 22, 2009, the Company consummated a share exchange transaction and acquired all the outstanding shares of Gold Lion
Holding Limited ("Gold Lion"), a company incorporated in the British Virgin Islands ("BVI"), and its subsidiaries Jiangsu Leimone Electronics
Co. Ltd ("Jiangsu Leimone"), Tianjin Tong Guang Group Digital Communication Co., Ltd ("TCB Digital") both incorporated in the (People's
Republic of China, ("PRC"), and Profit Harvest Corporation Limited ("Profit Harvest") incorporated in Hong Kong. In connection with the share
exchange transaction, the Company spun off its then-existing business to its stockholders, by distributing and transferring all assets and
liabilities to its then subsidiary, Zoom Telephonics, Inc., and issuing shares of its then operating subsidiary as a dividend to its stockholders.
The subsidiaries of Gold Lion were engaged in the manufacture design, sale and manufacture of mobile devices and handsets in China.
On June 1, 2010, Zoom pursuant to a share exchange agreement dated April 29, 2010, acquired 100% of the shares of Silver Tech
Enterprises Ltd, incorporated in the BVI and its wholly owned subsidiaries Ever Elite Corporation Limited, incorporated in Hong Kong, and
Nollec Wireless Company Ltd., ("Nollec"), incorporated in the PRC. Nollec is engaged in mobile phone and wireless communication device
design.
On January 4, 2011, pursuant to a share exchange agreement, the Company via Profit Harvest acquired 100% ownership of Celestial
Digital Entertainment, Ltd., ("CDE") a mobile platform video game development company based in Hong Kong.
On October 11, 2011, the Company and Zoom USA Holdings, Inc., a newly formed wholly- owned subsidiary of the Company ("Zoom
Sub") entered into a Securities Purchase Agreement ("Securities Purchase Agreement") to purchase from The Cellular Network
Communications Group, Inc. ("CNCG") a 50% interest in Portables Unlimited LLC ("Portables"), one of the largest wholesale distributors and
direct retailers of T-Mobile products in the United States. Subsequent to the purchase of the 50% stake in ownership from CNCG, the
Company increased its stake in Portables to 50.1% by injecting additional capital.
As of July 15, 2013, the Company was in default of the promissory note for $2,000,000 owed to Portables Unlimited, Inc. The promissory
note was collateralized by the Company's ownership percentage in Portables. As of the date of this report, the Company was not able to
recover its investment. As a result, Zoom ceased to have a an equity interest in Portables and did not retain an investment in it on the date of
default, July 15, 2013, accordingly, the Company recognized a loss which includes a complete write off of its investment in Portables. The
Company recorded a loss on disposal of approximately $11.5 million related to its write of Portables.
21
Dispositions
On December 31, 2012, Zoom Technologies, Inc. ("Zoom" or the "Company") entered into a Share Purchase Agreement (the "SPA")
with Beijing Zhumu Culture Communication Company, Ltd. ("BZCC"), a PRC company that provides services to the telecommunication
industry. Pursuant to the SPA, the Company agreed to sell (the "Subsidiary Sale") to the Purchaser all the equity interests the Company holds
in its China based subsidiaries (except for SpreadZoom Technologies Co., Ltd. ("SpreadZoom") as mentioned below), which include 100% of
the outstanding equity interest of Ever Elite Corporation Limited, an intermediary holding company incorporated in Hong Kong, and its wholly
owned subsidiary, Nollec, 80% of the outstanding equity interest of TCB Digital, 100% of the outstanding equity interest of Profit Harvest
Corporation, Ltd. ("Profit Harvest"), and 100% of the outstanding equity interest of Celestial Digital Entertainment, Ltd. ("CDE"). As
consideration for the Subsidiary Sale, the Purchaser agreed to pay to the Company RMB 200 million (approximately US$31.7 million) (the
"Purchase Price"), subject to adjustment pending an appraisal by an independent third party appraiser. The Company on October 24, 2012
received approximately $12.6 million (RMB 80 million) less bank charges; the Company on November 5, 2012, received $19.1 million (RMB
120 million) less transaction fees and bank charges. As of the date of this report, the Purchaser has remitted the entire amount of RMB 200
million to the Company, of which RMB120 million was initially held in escrow pending the closing of the Subsidiary Sale. Of this amount, a
portion of the funds, approximately RMB 80 million, has been released to the Company to use; accordingly, in the normal course of business,
the Company deployed those funds to SpreadZoom and Tianjian Leimone as detailed in "Note 11 - Related Party Transactions". The RMB 80
million released from escrow was a negotiated amount between the Company and the Purchaser. On December 30, 2013, BZCC assigned its
purchase right to TCB Digital to Tianjin Huatianli Trading Co., Ltd. ("Huatianli"). On December 30, 2013, the Company consented to
the assignment between BZCC and Huatianli and agreed to amend the SPA to reflect the change. In connection with the assignment, RMB120
million, representing the balance of the Purchase Price that was being held in escrow pending the closing of all of the sales under the SPA,
was agreed upon to be released within 10 business days to a Company-designated bank account. Of that amount, approximately RMB 68
million was available for the Company's immediate use, and approximately RMB52 million, representing the purchase price for TCB Digital,
was be monitored by Huatianli until the closing of the TCB Digital sale. As of the date of this report the RMB 120 million is held in wealth
management account at trust company. The Company's Chief Executive Officer has unencumbered sole signing and dispositive rights to that
account. As of May 16, 2014, the Company has received payment in full from Huatianli for the sale of TCB Digital and the Company has
submitted to the PRC government documentation for the recording of the transfer of Jiangsu Leimone's ownership interest in TCB Digital to
Huatianli. The Company believes for accounting purposes the sale transaction is complete, and government recording is perfunctory. Since
the Company received payment separately from Huantianli for RMB 52 million, the Company is obligated to repay RMB 52 million to BZCC
from the RMB 120 million held in the wealth management account.
The Company's ownership interest in SpreadZoom, which owns and operates mobile phone manufacturing facilities in Tianjin, was not part
of the Subsidiary Sale.
The closing of the sale of Profit Harvest and CDE occurred on December 31, 2012; the closing of the sale of Ever Elite and Nollec
occurred on April 5, 2013
As disclosed above, as of July 15, 2013, the Company has completely written off its investment in Portables Unlimited, LLC.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company's accompanying consolidated balance sheet at December 31, 2013 includes the accounts of Gold Lion Holding Ltd and
its wholly owned subsidiary Jiangsu Leimone, its 100%-owned subsidiary Silver Tech, and its wholly owned subsidiary, Zoom Sub. The
Company's consolidated balance sheet also included the accounts of TCB Digital for which the Company owns 80% indirectly held through
Jiangsu Leimone which has been classified as discontinued operations held for sale.
The Company's accompanying consolidated balance sheet at December 31, 2012, include the accounts of Gold Lion Holding Ltd and its
wholly owned subsidiary Jiangsu Leimone, its 100%-owned subsidiary Silver Tech, and its wholly owned subsidiary Zoom Sub. The
Company's consolidated balance sheet also included the accounts of TCB Digital for which the Company owns 80% indirectly held through
Jiangsu Leimone, 100% of Ever Elite which wholly owns Nollec, indirectly held through Silver Tech, all of which have been classified as
discontinued operations held for sale.
22
The Company's consolidated results of operations for the year ended December 31, 2013 from continuing operations included the results
of Gold Lion, Silver Tech, Jiangsu Leimone, Zoom Sub; results of operations from Ever Elite and Nollec, up to the date of their disposition, and
TCB Digital have been presented as discontinued operations. The Company's consolidated results of operations for the year ended December
31, 2012 from continuing operations included the results of Gold Lion, Silver Tech, Jiangsu Leimone, Zoom Sub; results of operations from
Profit Harvest, CDE, Ever Elite, Nollec, and TCB Digital have been presented as discontinued operations.
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Noncontrolling interest represents the ownership interests in a subsidiary that was held by owners other than the parent and is part of the
equity of the consolidated group. The noncontrolling interest is reported in the consolidated statement of financial position within equity,
separately from the parent's equity. Net income or loss and comprehensive income or loss is attributed to the parent and the noncontrolling
interest. If losses attributable to the parent and the noncontrolling interest in a subsidiary exceed their interests in the subsidiary's
equity, the excess, and any further losses attributable to the parent and the noncontrolling interest, is attributed to those interests.
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America ("US GAAP"). The functional currency of the Company's continuing operation Jiangsu Leimone and its equity investment
SpreadZoom is the Chinese Renminbi ("RMB"). The functional currency of the Company's continuing operation, Zoom Sub is United States
Dollars ("USD" or "$"). The functional currency of the Company's discontinued operations, TCB Digital and Nollec is the RMB. The functional
currency of the Company's discontinued operations Ever Elite and CDE is Hong Kong Dollars ("HKD"). The accompanying consolidated
financial statements are translated and presented in the reporting currency of USD. The functional currency of its equity method investment,
Portables is the USD.
Equity Method Accounting
In May 2012, the Company invested $12.3 million to establish a joint venture named SpreadZoom Technologies Co. Ltd.,
("SpreadZoom"). The Company owns 47.4% of SpreadZoom and accounted for this investment under the equity method of accounting (ASC
323-30). Refer to "Note 19 - Equity Method Investments" for details.
The Company revised its accounting for Portables Unlimited, LLC. Previously, the Company accounted for the
investment as a subsidiary under the consolidation method of accounting; as of the date of this report, Company retroactively changed its
method of accounting for Portables to the equity method. Previously reported net income/(loss) attributable to the Company were unchanged;
however, the consolidated balance sheet at December 31, 2012 no longer includes all of the assets and liabilities of Portables. As of
December 31, 2013, Portables was no longer an investment of the Company. As disclosed above the Company completely wrote off the
investment on July 15, 2013, recording a loss of approximately $11.5 million. At December 31, 2012, the Company was a joint borrower on a
$3 million line of credit provided by M&T Bank. This line was refinanced in February of 2013 to be reduced to $2.5 million; concurrently,
the Company and Portables co-borrow $2.5 million in a term note from M&T Bank. Both the line of credit and term note were accounted
for as an increase to the investment amount when Portables was still owned by the Company. The investment was written off in July of 2013;
however, at December 31, 2013, the maximum value of the line of credit of $2.5 million and the amortized balance of the term note are carried
as liabilities on the Company's consolidated balance sheets. On May 20, 2014, Portables and M&T Banks released the Company from
the obligation of repaying the line of credit and term note. Refer to "Note 9 - Short Term Loans" for further details.
23
Exclusion of Related Party Lessor from Consolidation
Portables, commencing in January 2009, subleased its principal facility from one of its members. The member began leasing the
facility in December 2005 from a related party, AUM Realty, LLC ("AUM"). The Company's management has assessed whether AUM should
be consolidated pursuant to FASB ASC 810 Consolidations. ASC 810 is not a "rules based" standard and thereby includes limited
circumstances under which it can be conclusively determined whether an entity should be consolidated. Management believes that AUM is not
a variable interest entity ("VIE") as defined in ASC 810 because AUM was adequately capitalized. Equity contributions from AUM's owners
exceeded 20% of the acquisition costs of the property. Management believes that this is, according to ASC 810 criteria, "sufficient to permit the
entity to finance its activities without additional subordinated financial support." Management believes that the same was true up to July 15,
2013, the date of disposition of Portables.
Based on this assessment, management believes that AUM is not a VIE because the Company does not make decisions that have
significant impact on the performance of AUM; therefore, it is not consolidated as a component of these consolidated financial statements. If
the matter were to be assessed differently, these consolidated financial statements would have included AUM's assets (principally land and
building), liabilities (principally loan payable) and expenses, with the excess of AUM's assets over liabilities shown as a "non-controlling
interest". AUM guarantees $1.7 million of the $3 million line of credit with M&T Bank for Portables Unlimited, LLC.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP 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 dates of the
consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management makes these
estimates using the best information available at the time the estimates are made. However, actual results could differ materially from those
results.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general,
other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign
currency exchange rates and the volatility of public markets.
Comprehensive Income
The Company follows the provisions of ASC 220 "Reporting Comprehensive Income", establishes standards for the reporting and
display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements.
ASC 220 defines comprehensive income is comprised of net income and all changes to the statements of stockholders' equity, except
those due to investments by stockholders, changes in paid-in capital and distributions to stockholders, including adjustments to minimum
pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.
Foreign Currency Translation and Transactions
The accounts of the Company's Chinese subsidiaries are maintained in the RMB and the accounts of the U.S. parent company are
maintained in the USD. The accounts of the Chinese subsidiaries were translated into USD in accordance with Financial Accounting Standards
("FASB") Accounting Standards Codification ("ASC") Topic 810 with the RMB as the functional currency for the Chinese subsidiaries.
According to ASC 810, all assets and liabilities were translated at the exchange rate at the date of the balance sheet; stockholders' equity is
translated at historical rates; the line items on the statement of operations are translated at the weighted average exchange rate for the period.
The resulting translation adjustments are reported under other comprehensive income in accordance with FASB ASC Topic 220. Gains and
losses resulting from the translations of foreign currency transactions and balances are reflected in the income statement.
24
Cash and Equivalents
For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, including accounts in book overdraft
positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and
cash equivalents. The Company maintains cash with various banks and trust companies located in China, Hong Kong and the United States.
Cash accounts in China and Hong Kong are not insured or otherwise protected. Should any bank or trust company holding cash deposits
become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash on deposit with that particular
bank or trust company.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of
accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.
Accounts are written off
against the allowance when it becomes evident collection will not occur. For the contracted manufacturing activities, our standard terms for
accounts receivable from our customers are between 60 to 75 days from close of the billing cycle; and for sales of own brand phones our
terms include prepaid arrangements and extending receivable to customers up to 60 days. We also offer credit terms of up to 150 days in our
trading activities to a certain customers. As of December 31, 2013, management concluded that the allowance for doubtful accounts, as
disclosed in "Note 5 - Accounts Receivable" was adequate to cover any potential unrecoverable balances as a result of delinquency.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a weighted average basis and includes all expenditures
incurred in bringing the goods to the point of sale and putting them in a saleable condition. In assessing the ultimate realization of inventories,
the management makes judgments as to future demand requirements compared to current or committed inventory levels.
In addition, the Company estimates net realizable value based on intended use, current market value and inventory ageing analyses. The
Company writes down inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of
inventories and their estimated market value based upon assumptions about future demand and market conditions.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Gains or losses on disposals are reflected as gain or loss in the year of disposal.
All ordinary repair and maintenance costs are expensed as incurred. Expenditures for maintenance and repairs are expensed as incurred.
Major renewals and betterments are charged to the property accounts while replacements, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed in the current period.
Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of assets. See "Note
7 - Property, Plant and Equipment" for details.
Capitalized Interest
Interest associated with major development and construction projects is capitalized and included in the cost of the project. When no
debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of the
Company's outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is
suspended for more than a brief period. There have not been material amounts of capitalized interest for the years ended December 31, 2013
and 2012.
25
Impairment of Long-lived Assets
In accordance with ASC 360, "Property, Plant and Equipment", the Company reviews the carrying values of long-lived assets,
including property, plant and equipment and other intangible assets, whenever facts and circumstances indicate that the assets may be
impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds the fair value. Assets to be disposed of are reported at the lower
of the carrying amount or fair value, less costs of disposal. The Company last performed annual reviews of its long-lived assets at December
31, 2013 and 2012. In 2012, the Company determined that certain fixed assets and goodwill were impaired based on the disposal of certain
operations. The amount of impairment loss in 2012 was $9,048,334 (as restated).
Goodwill
The Company recognizes goodwill for the excess of the purchase price over the fair value of the identifiable net assets of the
business acquired. ASC 350 "Intangible Assets-Goodwill and Other", an impairment test for goodwill is undertaken by the Company at the
reporting unit level annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The Company
recorded impairment of goodwill related to the following subsidiaries: Jiangsu Leimone, CDE, and Silver Tech. See "Note 3 - Merger and
Acquisitions" for details.
Revenue Recognition
The Company recognizes sales in accordance with FASB ASC Topic 605, "Revenue Recognition."
The Company recognizes revenue when the following criteria are met:
(i) persuasive evidence of an arrangement exists;
(ii) delivery has occurred or services were rendered;
(iii) the price to the customer is fixed or determinable and,
(iv) collection of the resulting receivable is reasonably assured. Revenue is not recognized until title and risk of loss is transferred to the
customer, which occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions were met.
The Company bases its estimates on historical experience taking into consideration the type of products sold, the type of customer, and
the type of specific transaction in each arrangement. Revenues represent the invoiced value of goods, net of value added tax ("VAT").
The Company does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers. Deposits
or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advanced from customers.
The Company's discontinued operation, Nollec is in the mobile phone design, software integration and mobile solution R&D business.
Nollec recognizes revenue under the percentage of completion method ASC Topic 605- 35-25 (Construction - Type and Production - Type
Contracts) when reasonably dependable estimates can be made and all the following conditions exist:
-
Contracts executed by the parties normally include provisions that clearly specify the enforceable rights regarding goods or services to be
provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement.
-
The buyer can be expected to satisfy all obligations under the contract.
-
The contractor can be expected to perform all contractual obligations.
26
Estimates of cost to complete is reviewed periodically and revised as appropriate to reflect new information. When the current estimates of
total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is made.
Income is recognized as the percentage of estimated total income, and is determined by dividing incurred costs to date by estimated total
costs after giving effect to adjustments, if any, in estimates of costs to completion based upon the most recent information. Percentage of
completion is based on labor hours incurred to date divided by total estimated labor hours for the contract.
Royalty income on sales of licensed products by its customers is recorded when the customers report sales to the Company. Royalty
income is reported monthly and recorded in the period in which the product is sold. The Company has the right to audit the books of the
licensees.
The Company's discontinued operation CDE is in the business of video games and applications for mobile phones and mobile platforms
development. Revenue is recognized in accordance with ASC 985-605-55-125. Cost of Software Development Revenue is accounted for
under ASC 985-20 to be sold, leased or otherwise marketed.
CDE capitalizes cost of development of software for hosting purpose in accordance with ASC subtopic 350-40 ("ASC 350-40"),
Intangibles-Goodwill and Other: Internal-Use. As such, CDE expenses all costs that are incurred in connection with the planning and
implementation phases of development and costs that are associated with repair or maintenance. Costs incurred in the development phase
are capitalized and amortized over the estimated product life. Since the inception of CDE, the amount of costs qualifying for capitalization has
been insignificant and as a result all internally used software development costs have been expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740 "Income Taxes", previously SFAS No. 109. Under this method,
deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts and each year-end based on enacted tax laws and statutory rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets to the amount
expected to be realized when, in management's opinion; it is more likely than not that some portion of the deferred tax assets will not be
realized. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and
liabilities.
Uncertain Tax Positions
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the
liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year.
Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. There
were no uncertain tax positions in 2013 and 2012. The Company's evaluation of uncertain tax positions was performed for the tax years ended
December 31, 2009 and forward, the tax years which remain subject to examination as of December 31, 2013.
Operating Leases
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company that do not meet the
capitalization criteria of ASC 840 "Leases", are accounted for as operating leases. Rental payables under operating leases are expensed on
the straight-line basis over the lease term.
27
Research and Development Costs
Research and development costs are related primarily to the development of cell phone technology, video games and applications for
mobile phones and mobile platforms development. Research and development costs are expensed as incurred.
Loss per Share
The Company reports earnings (loss) per share in accordance with the provisions of ASC 260 "Earnings Per Share". ASC 260
requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such
earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the
weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could
occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.
Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the
treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the
common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation dates. When the
Company's results from operations are a net loss, dilutive securities are not included in diluted loss per share because they would be
considered anti-dilutive.
Fair Values of Financial Instruments
ASC 820 "Fair Value Measurements and Disclosures", defines fair value, establishes a three-level valuation hierarchy for disclosures
of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance
sheets for current receivables and payables qualify as financial instruments. Management concluded the carrying values are a reasonable
estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if
applicable, their stated interest rate approximates current rates available. The three levels are defined as follows:
-
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
-
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
28
The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of December 31, 2013 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
Carrying
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
Cash and cash equivalents
|
|
$
|
36,735
|
|
$
|
36,735
|
|
$
|
-
|
|
$
|
-
|
Restricted cash
|
|
$
|
19,632,865
|
|
$
|
19,632,865
|
|
$
|
-
|
|
$
|
-
|
Warrants
|
|
$
|
377
|
|
$
|
-
|
|
$
|
377
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
Carrying
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
Cash and cash equivalents
|
|
$
|
8,351
|
|
$
|
8,351
|
|
$
|
-
|
|
$
|
-
|
Restricted cash
|
|
$
|
19,044,294
|
|
$
|
19,044,294
|
|
$
|
-
|
|
$
|
-
|
Warrants
|
|
$
|
7,340
|
|
$
|
-
|
|
$
|
7,340
|
|
$
|
-
|
The Company's financial instruments include cash and equivalents, restricted cash, accounts receivable, notes receivables, other
receivables, accounts payable, notes payable, and warrants. Cash and cash equivalents consist primarily of high rated money market funds at
a variety of well-known institutions with original maturities of three months or less. Restricted cash represents time deposits on account to
secure short-term bank loans and notes payable. Management estimates the carrying amounts of the non-related party financial instruments
approximate their fair values due to their short-term nature.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and
equivalents and trade and bills receivables. As of December 31, 2013 and 2012, substantially all of the Company's cash and equivalents and
restricted cash were held by major financial institutions located in the PRC, Hong Kong and the United States, which management believes are
of high credit quality. With respect to trade and notes receivables, the Company extends credit based on an evaluation of the customer's
financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts
of trade receivables.
Notes receivable are undertaken by the banks to honor the payments at maturity and the customers are required to place deposits with the
banks equivalent to certain percentage of the notes amount as collateral. These notes receivable can be sold to any third party at a discount
before maturity. The Company does not maintain an allowance for notes receivable in the absence of bad debt experience and the payments
are undertaken by the banks.
Non-controlling Interests
The Company follows ASC 810 for reporting non-controlling interest ("NCI") in a subsidiary. As a result, the Company reports NCI as
a separate component of Equity in the Consolidated Balance Sheet. Additionally, the Company reports the portion of net income and
comprehensive income attributed to the Company and NCI separately in the Consolidated Statement of Income.
Statement of Cash Flows
In accordance with ASC 230, "Statement of Cash Flows", cash flows from the Company's operations are calculated based upon the
local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with
changes in the corresponding balances on the balance sheet.
29
Recent Accounting Pronouncements
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). 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. 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. The Company has not yet determined the
effect of the adoption of this standard and it is expected to have a material impact on the Company's consolidated financial position and results
of operations.
NOTE 3 - MERGER AND ACQUISITIONS
The Company acquired 100% equity in Silver Tech on May 31, 2010. As of May 31, 2010, the net assets of Silver Tech were
$2,564,160. The purchase consideration was $10,960,000 which resulted in goodwill of $8,395,840. As of December 31, 2012, the Company
has taken action to dispose of Silver Tech's operating subsidiaries Ever Elite and Nollec; accordingly, all goodwill related to Silver Tech has
been written off.
The Company acquired 100% ownership of CDE on January 4, 2011. As of January 4, 2011, the net liabilities of CDE were $43,409. The
purchase consideration was $1,818,000 which resulted in goodwill of $1,861,409. As of December 31, 2012, as part of the Company's disposal
of Profit Harvest the Company has indirectly disposed of CDE, accordingly, all of the goodwill related to CDE has been written off.
The following table summarizes goodwill as of December 31, 2013 and 2012 resulting from the acquisitions of Jiangsu Leimone, Silver Tech, and CDE:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Jiangsu Leimone
|
|
$
|
103,057
|
|
$
|
103,057
|
Silver Tech
|
|
|
8,395,840
|
|
|
8,395,840
|
CDE
|
|
|
-
|
|
|
1,861,409
|
Total
|
|
|
8,498,897
|
|
|
10,360,306
|
Less: Impairment
|
|
|
(8,498,897)
|
|
|
(10,360,306)
|
Total goodwill
|
|
$
|
-
|
|
$
|
-
|
The Company reviews the carrying value of the goodwill for impairment regularly.
30
NOTE 4 - RESTRICTED CASH
Restricted cash was part of the funds deposited with the Company for sale to BZCC of Profit Harvest, CDE, Ever Elite, Nollec,
and TCB Digital. BZCC has assigned its rights to purchase TCB Digital to Huatianli. The funds become unrestricted upon closing of the
disposition transaction.
NOTE 5 - ACCOUNTS RECEIVABLE
As of December 31, 2013 and 2012, the Company's accounts receivable consisted of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Accounts receivable
|
|
$
|
757,956
|
|
$
|
735,304
|
less:
Allowance for doubtful accounts
|
|
|
(757,956)
|
|
|
(735,304)
|
Accountants receivable, net
|
|
$
|
-
|
|
$
|
-
|
The Company has provided 100% allowance for outstanding accounts receivable based on the Company decision to cease operations in
those subsidiaries in which those balances arose in the normal course of business. Once operations have ceased it is unlikely those balances
will be recovered.
NOTE 6 - OTHER RECEIVABLES AND PREPAID EXPENSES
As of December 31, 2013 and 2012, the Company's other receivables and prepaid expenses consisted of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Deposit
|
|
$
|
-
|
|
$
|
90,091
|
Others
|
|
|
614,403
|
|
|
4,307,962
|
Total other receivables and prepaid expenses
|
|
$
|
614,403
|
|
$
|
4,398,053
|
The balances of $614,403 and $4,307,962 as "Others" as of December 31, 2013 and 2012 were comprised of
receivables owed to the Company by Profit Harvest that arose in the normal course of business where the Company paid for expenses and
professional fees on behalf of Profit Harvest. Profit Harvest was previously a subsidiary of the Company. In 2012, it was sold to Beijing Zhumu
Culture Communication Company, Ltd. These amounts are expected to be recovered by the Company. The Company has continued to
collected outstanding balances from Profit Harvest subsequent to December 31, 2013; accordingly, the Company has determined the amounts
are fully recoverable and no allowance has been provided.
31
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 2013 and 2012 consisted of the following:
|
|
Estimated
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Useful Lives
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
(Restated)
|
Machinery and equipment
|
|
4-6 years
|
|
$
|
1,130,554
|
|
$
|
1,096,662
|
Electronic equipment
|
|
4-6 years
|
|
|
92,415
|
|
|
89,645
|
Transportation equipment
|
|
4-6 years
|
|
|
51,801
|
|
|
50,248
|
Leasehold improvements
|
|
5 years
|
|
|
-
|
|
|
-
|
Computer equipment
|
|
4-6 years
|
|
|
1,173
|
|
|
1,173
|
Office equipment
|
|
4-6 years
|
|
|
20,805
|
|
|
20,181
|
Total
|
|
|
|
|
1,296,748
|
|
|
1,257,909
|
less:
Accumulated depreciation
|
|
|
|
|
(1,296,748)
|
|
|
(1,257,909)
|
Property, plant and equipment,
net
|
|
|
|
$
|
-
|
|
$
|
-
|
Depreciation expense for the years ended December 31, 2013 and 2012 was$0 and $813,471, respectively.
NOTE 8 - INTANGIBLE ASSETS
As of December 31, 2013 and 2012, the Company's intangible assets were summarized as follows:
|
|
Estimated
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Useful Life
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
(Restated)
|
Domain name, logo and trade mark
|
|
Indefinite
|
|
$
|
349,600
|
|
$
|
349,600
|
less
: Accumulated amortization
|
|
|
|
|
-
|
|
|
-
|
Intangible assets,
net
|
|
|
|
$
|
349,600
|
|
$
|
349,600
|
Intangible assets are stated at cost less accumulated amortization. The Company acquired domain name "zoom.com" and related logo
and trade name for 80,000 shares of common stock valued $349,600 as of the date of purchase. The domain name, logo and trademark have
indefinite lives and no amortization was recorded for the years ended December 31, 2013 and 2012.
32
NOTE 9 - SHORT TERMS LOANS
At December 31, 2012, the short term loan balance of $2,994,999 reflected the amount drawn against a line of credit for up to
$3.0 million issued jointly to the Company and Portables by M&T Bank. The line was collateralized by real property, a certificate of
deposit, and guarantees of Portables Unlimited, Inc. (the 49.9% owner of Portables). The interest rate was 1 month LIBOR plus 3.00%. The
maturity date of the line of credit is March 26, 2015. In February of 2013, the line of credit was refinanced to a maximum borrowing amount of
$2.5 million. At December 31, 2013 the Company accrued an amount due on the credit for $2.5 million. On May 20, 2014, the Company was
released by M&T Bank as co-borrower for the line of credit. The Company will recognize a gain in the second quarter of 2014 for $2.5
million reflecting the release.
In February of 2013 the Company and Portables jointly entered into a term loan with M&T Bank for $2,500,000 million that
matures in February of 2017. The balance of the note fully amortizes via monthly principal and interest payments up through the maturity of
the note. The note carries an interest of 1 month LIBOR plus 3.50%. At December 31, 2013, Portables had repaid $
489,310
in principal; the outstanding balance of the note was $
2,010,690
. The
Company accounted for the outstanding balance of $2,010,690 with $658,587 as short term, and the remainder of $1,352,103 as long term.
On May 20, 2014, the Company was released by M&T Bank as co-borrower for the term note. The Company will recognize a gain in the
second quarter of 2014 for $2,010,690 million reflecting the release.
NOTE 10 - NOTES PAYABLE
As of December 31, 2013 and 2012, the Company's notes payable consisted of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Former Executives of Nollec
|
|
$
|
145,000
|
|
$
|
290,000
|
The Cellular Network Communications Group, Inc.
|
|
|
205,937
|
|
|
-
|
Total
|
|
$
|
350,937
|
|
$
|
290,000
|
There was a note owed to the former executives of Nollec that was an incentive for key managers to remain with the Nollec after Zoom
acquired it in 2010. The note neither bears interest nor is collateralized by any assets.
The Note due to CNCG carries an annual interest rate of 8.00% to be made in quarterly installments of $43,708. The Company's
subsidiary Zoom Sub is currently in default of the note due to CNCG therefore the interest rate adjusted to 14.00%. The note amortizes and
matures in October of 2014. The note is unsecured and is not guaranteed by Zoom Technologies, Inc. The note was previously classified as
long term. Refer to "Note 12 - Long-Term Notes Payable" for additional details.
33
NOTE 11 - RELATED PARTY TRANSACTIONS
Due from related parties
As of December 31, 2013 and 2012, the amounts due from related parties were:
|
|
|
December 31,
|
|
|
December 31,
|
Due from related parties
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Beijing Leimone Shengtong Wireless Technology Co., Ltd.
|
|
$
|
17,997
|
|
$
|
91,571
|
Leimone (Tianjin) Industrial Co., Ltd.
|
|
|
-
|
|
|
11,034,982
|
Shenzhen Leimone
|
|
|
293,998
|
|
|
355,564
|
Spreadzoom
|
|
|
9,046,038
|
|
|
9,046,038
|
Total due from related parties
|
|
$
|
9,358,033
|
|
$
|
20,528,155
|
Beijing Leimone Shengtong Wireless Technology Co., Ltd. ("Beijing Leimone") was founded by Gu, the largest shareholder of the
Company. Beijing Leimone borrowed money from the Company. The borrowings bore no interest and had a maturity of 12 months. The
balances are neither collateralized nor personally guaranteed by Gu. The balance is expected to be repaid in full.
Leimone (Tianjin) Industrial Co., Ltd. ("Tianjin Leimone") was controlled by Gu, the largest shareholder of the Company. Tianjin Leimone
sells raw materials to the Company. As of December 31, 2012, the amount due from Tianjin Leimone of $11,034,982 represented advances for
purchases arising in the normal course of business for transactions prior to December 31, 2012. The balance was net off against the capital
injection detailed in Due to related parties below.
Shenzhen Leimone Company, Ltd., formed by individuals including our Chairman, Mr. Gu, is set up with the intention of providing
manufacturing services to our Company particularly for exports. $293,998 and $355,564 as of December 31, 2013 and 2012 was a loan to
Shenzhen Leimone for setup costs. The balance is expected to be repaid in full.
The balance due from SpreadZoom represents an advance to SpreadZoom for it to purchase components to manufacture handsets in the
normal course of business. The advance bears no interest, and is uncollateralized. Upon completion of the sale of TCB Digital, the Company
expects to be repaid these advances.
34
Due to related parties
As of December 31, 2013 and 2012, the amounts due to related parties were:
|
|
|
December 31,
|
|
|
December 31,
|
Due to related parties
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Mr. Lei Gu
|
|
$
|
1,063,500
|
|
$
|
2,901,283
|
Anthony Chan
|
|
|
-
|
|
|
358,814
|
Leimone (Tianjin) Industrial Co., Ltd.
|
|
|
2,283,922
|
|
|
-
|
Beijing Leimone Shengtong Cultural Development Co., Ltd.
|
|
|
102,500
|
|
|
102,500
|
Portables Unlimited, Inc.
|
|
|
-
|
|
|
2,000,000
|
Total due to related parties
|
|
$
|
3,449,922
|
|
$
|
5,362,597
|
Mr. Gu provided funds to the Company with no interest and are due on demand. As of December 31, 2013 and 2012, the balances of
funds provided by Gu was $1,063,500 and $2,901,283 respectively.
Mr. Anthony Chan provided funds to the Company with no interest and they were due on demand. As of December 31, 2012, the balances
of funds provided by Chan and certain accrued compensation for services rendered was $358,814. As of December 31, 2013, the amounts
owed to Mr. Chan have been repaid in full.
Leimone (Tianjin) Industrial Co., Ltd. ("Tianjin Leimone") was controlled by Gu, the largest shareholder of the Company. As of December
31, 2013, the amount owed to Tianjin Leimone was $2,283,922. This balance is the result of a transfer from Tianjin Leimone of $10,719,532
(RMB 66,400,000) for Jiangsu Leimone to inject as capital into its discontinued operation TCB Digital. The transfer of funds from Tianjin
exceeded the then outstanding balance of $8,435,610 owed by Tianjin Leimone; therefore, the remaining balance is a net due to Tianjin
Leimone.
The balance owed to Beijing Lemone Shengtong Cultural Development Co, Ltd ("Beijing Shentong") arose in the normal
course of business, as certain corporate staff expenses in Beijing were paid by Beijing Shentong on behlf of the Company.
The balance owed of $2 million was for a promissory note issued to Portables Unlimited, Inc. The Company defaulted on this loan and
forfeited its ownership in Portables. See Note 1 in the accompanying financial statements for details.
NOTE 12 - LONG-TERM NOTES PAYABLE
The note was issued by Zoom Sub to CNCG as part of its acquisition of Portables, with an original face amount of $500,000,
term from October 11, 2011 to October 11, 2014, and annual interest rate of 2.0%. On October 5, 2012, the Company repaid $182,500 of the
outstanding principle and the interest rate was adjusted to 14.0%. The Company made further payments of principal on the note during 2013.
The note is in default and has been classified as short term. The outstanding balance in notes payable is $205,937.
35
NOTE 13 - STOCKHOLDERS' EQUITY
COMMON STOCK
On November 12, 2012, the Company issued 10,000 shares of its common stock to consultants for the service
period from November 1, 2012 to October 31, 2013. These shares were valued at $0.80 per share which was the closing price on the date of
Board Approval. The Company recorded non-cash compensation expense of $13,333 for the year ended December 31, 2012, and the balance
of deferred expenses related to such shares at December 31, 2012 was $66,667 for these issuances.
On October 8, 2012, the Company issued 1,000 and 3,000 shares of its common stock to legal counsel for services
rendered and a consultant for the service period from October 1, 2012 to September 30, 2013, respectively. These shares were valued at
$0.90 per share which was the closing price on the date of Board Approval. The Company recorded non-cash compensation expense of
$9,000 and $6,750 for the year ended December 31, 2012, and the balance of deferred expenses related to such shares at December 31,
2012 was $0 and $20,250 for these issuances, respectively.
On September 6, 2012 and July 2, 2012, the Company issued 7,250 shares and 13,763 shares, respectively, of its
common stock to the employees of its Nollec subsidiary in lieu of cash salaries. The 7,250 shares were valued at $0.98 per share, the closing
price on the date of Board Approval, and were issued for services from September 2012 onwards for 3 years. The 13,763 shares were valued
at $1.03 per share, the closing price on the date of Board Approval, and were issued for services within the second quarter of 2012. The
Company recorded non-cash compensation expense of $7,894 for the year ended December 31, 2012, for these issuances.
On June 25, 2012, the Company issued 3,500 shares of its common stock to a consultant for services from June 2012
onwards for 1 year. These shares were valued at $1.07 per share which was the closing price on the date of Board Approval. The Company
recorded non-cash compensation expense of $21,846 for the year ended December 31, 2012 for this issuance, and the balance of deferred
expenses related to such shares at December 31, 2012 was $15,604.
On May 22, 2012, the Company issued 30,280 shares of its common stock to its employees, consultants and directors
in replacement for cancelling 133,900 outstanding options that were held by the same recipients. The shares have the same vesting schedule
as the options and were valued at $1.12 per share, the closing price on the date of Board Approval. Based on the difference between the
market value of the shares and the Black-Scholes value of the cancelled options as of May 22, 2012, there is an incremental non-cash
compensation expense of $308,553 to be recorded over the service period.
On May 22, 2012, the Company issued 449,720 shares of its common stock to consultants for their services over the
next four years beginning with the second quarter of 2012. The shares were valued at $1.12 per share, the closing price on the date of Board
Approval. The projects these consultants are pursuing include but are not limited to marketing our ODM business to large Southeast Asian
customers, sales of our own brand and ODM products to private companies and government supported programs in China aimed at various
demographic sectors of the domestic mobile market, and other cooperative ventures with the three mobile operators of the PRC. The
Company recorded $944,412 of non-cash compensation expense for this issuance for the quarter ended December 31, 2012; and the
outstanding deferred expenses related to such shares at December 31, 2012 was $4,092,452.
On February 28, 2012, the Company issued to members of the Board of Directors a total of 17,000 shares of its
common stock at a then fair value of $1.34. The Company recorded $227,800 of non-cash compensation expense for this issuance for the
quarter ended December 31, 2012. The outstanding deferred expense related to such shares at December 31, 2012 was $0.
On January 25, 2013 the Company issued 18,600 shares of its common stock to its Board of Directors for the service period from January
1, 2013 to December 31, 2013. These shares were valued at $6.50 per share which was the closing price on the date of Board Approval. The
Company recorded non-cash compensation expense of $120,900 for the year ended December 31, 2013.
36
On January 25, 2013 the Company issued 2,000 shares of its common stock to consultants for the service period from January 1, 2013 to
December 31, 2013. These shares were valued at $6.50 per share which was the closing price on the date of Board approval. The Company
recorded non-cash compensation expense of $ 13,000 for the year ended December 31, 2013.
On July 16, 2013, the Company issued 56,000 shares as compensation to Mr. Anthony Chan for back pay. The Company recorded
$475,603 of compensation expense.
On November 12, 2013, the Company effectuated a 10 for 1 reverse split of its common stock. All share numbers and per share amounts
have been retroactively restated to reflect the reverse split.
For the year ended December 31, 2013, the Company accelerated the write off of certain deferred stock based compensation totaling
$395,250.
NOTE 14 - WARRANTS
The Company granted Series A, B, C, D and E warrants to the accredited investors as part of its private placement offering on
October 16, 2009 and November 18, 2009.
Following is the brief description of warrants:
Series A Warrants
: The Series A warrants have an exercise price of $60.00 and a term of 5 years from the issue date subject to
the Exchange Cap (as defined in the agreement).
Series B Warrants
: The Series B warrants have an exercise price of $0.10 and a term of three (3) months from the issue date
provided
,
however
, that such date shall be extended indefinitely if the warrant cannot be exercised due to the Beneficial
Ownership Limitation (as defined in the agreement) or the Exchange Cap Limitation (as defined in the agreement) until the warrant can be
exercised in full by the holder thereof without breaching the Beneficial Ownership Limitation (as defined in the agreement) or the Exchange
Cap Limitation (as defined in the agreement). All B Warrants were exercised in December 2009.
Series C Warrants
: The Series C warrants shall be exercisable only upon the exercise of the Series B warrants. The Series C
warrants shall have an exercise price of $60.00 and a term of 5 years from the issue date.
Series D Warrants
: The Series D warrants shall be exercisable if the Company fails to meet certain performance criteria for the
year 2009. The Series D warrant shall have an exercise price of $0.10 and a term of exercise equal to three (3) months from the date the
Maximum Eligibility Date (as defined in the agreement); provided, however, that such date shall be extended indefinitely if the warrant cannot
be exercised due to the Beneficial Ownership Limitation (as defined in the agreement) or the Exchange Cap (as defined in the agreement) until
the warrant can be exercised in full by the holder without breaching the Beneficial Ownership Limitation (as defined in the agreement) or the
Exchange Cap Limitation (as defined in the agreement). Due to the Net Income of Zoom as reported in the Company's annual report for the
year 2009 exceeding the eligibility threshold pursuant to the agreement, the Series D Warrants became ineligible for exercise.
Series E Warrants
: The Series E warrants shall be exercisable if the Company fails to meet certain performance criteria for the
year 2010. The Series E warrants shall have an exercise price of $0.10 and a term of three (3) months from the date the Maximum Eligibility
Date (as defined in the agreement); provided, however, that such date shall be extended indefinitely if the warrant cannot be exercised due to
the Beneficial Ownership Limitation (as defined in the agreement) until the Warrant can be exercised in full by the holder thereof without
breaching the Beneficial Ownership Limitation (as defined in the agreement). Due to the Net Income of Zoom as reported in the Company's
annual report for the year 2010 exceeding the eligibility threshold pursuant to the agreement, the Series E Warrants became ineligible for
exercise.
The Company granted on May 6, 2010, Series F warrants to the above investors for their temporary forfeiture of their right to participate in
the Company's future financings.
37
Series F Warrants
: The Series F warrants have an exercise price of $60.00 and a term of 5 years from the issue date. The Company
issued 37,500 Series F warrants to investors who participated in private placement transaction pursuant to the Securities Purchase Agreement
dated October 15, 2009, to temporarily waive their right for a period of eight months to participate in a future offering of the Company. The
investors originally have a period of twenty-four months ("Rights Period") in which they have the right to participate, and for providing a
temporary waiver, an eight-month duration is added to the original expiration of the Rights Period.
The Company granted Series G warrants to the accredited investors as part of its private place offering on November 15, 2010.
Series G Warrants
: The Series G warrants shall have an exercise price of $47.10 and a term of 5 years from the issue date.
Anti-dilution Adjustments for Certain Warrants: Since the private placement in November 2010 involved sales of the Company's stock at a
price that activated anti-dilution provisions in the Series A, C, F and certain placement agent warrants, the exercise price of these warrants is
adjusted to $37.40 per share and the number of warrants eligible is multiplied by a factor of 60 / 37.40 or 1.60 with fractional shares rounding up.
The following summary represents warrants activity during the year ended December 31, 2013:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Warrants
|
|
|
Price
|
|
|
Value
|
Balance, December 31, 2012
|
|
863,860
|
|
$
|
23.00
|
|
$
|
-
|
Granted
|
|
|
|
|
|
|
|
|
Lapsed
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
863,860
|
|
$
|
23.00
|
|
$
|
-
|
The following presents warrants summary as of December 31, 2013:
|
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Average
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Price
|
|
Exercisable
|
|
|
Price
|
Warrants
|
|
863,860
|
|
|
1.09 years
|
|
$
|
23.00
|
|
863,860
|
|
$
|
23.00
|
The Company has accounted for all of the outstanding Series A, C, F, G, and related placement warrants as liabilities. The Company
assessed the value of these warrants by using the binomial lattice model. When the Company valued the warrants it used the following
assumptions as part of inputs into the valuation model. US treasury rates as measure of the risk free rate of return. The Company also used
the mean of the annualized standard deviation of the log normal returns of comparable companies in the same line of business as measure of
volatility. The Company controls whether dilution may occur, so it did not add additional assumptions regarding dilutive events into the future
discrete outcomes found in the model. The warrants values were adjusted for the dilutive effect as ratio of the outstanding common stock at
the time of measurement. In determining the probabilities of an up movement or down movement in the discrete outcomes, as well as the
related magnitude of such up or down movements, the Company used a Cox-Ross-Rubenstein approach in applying the binomial lattice
model.
38
NOTE 15 - STOCK OPTIONS
The 2009 Equity Incentive Compensation Plan
On October 11, 2011, the Company's BOD approved of the granting of 150,000 options to employees and executives of Portables
Unlimited LLC, the Company's newly acquired subsidiary, with the exercise prices of $18.30 and $37.50 per share, with 25% of the options
vesting immediately and the balance equally per quarter over three years. These options expire in four years.
On October 8, 2012, the Company's BOD approved of the re-pricing of 120,000 out of the above-mentioned 150,000 options from the
exercise price of $37.50 to $18.30 per share.
On October 26, 2011, the Company's BOD approved of the granting of 1,000 options to its new independent director, with the exercise
price of $20.40 per share, vesting over one year and expiring in two years.
On November 29, 2011, the Company's BOD approved of the granting of 30,000 options to a consultant, with the exercise price of $10.00
per share, with 1/3 vesting immediately and the balance equally over two quarters. These options expire in two years.
On May 22, 2012, the Company issued 30,280 shares of its common stock to its employees, and directors in replacement for cancelling
133,900 outstanding options that were held by the same recipients. The shares have the same vesting schedule as the options and were
valued at $1.12 per share, the closing price on the date of Board Approval, which is considered the market price at that time. Based on the
difference between the market value of the shares and the Black-Scholes value of the cancelled options as of May 22, 2012, there was no
extra non-cash compensation expense for the year ended December 31, 2013.
The following summary represents options activity during the year ended December 31, 2013 under the New Plan.
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Under
|
|
|
Average
|
|
|
Aggregate
|
|
|
New
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Plan
|
|
|
Price
|
|
|
Value
|
Balance, December 31, 2012
|
|
181,000
|
|
$
|
16.90
|
|
$
|
-
|
Granted
|
|
65,000
|
|
|
3.66
|
|
|
-
|
Lapsed
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
(46,875)
|
|
|
16.90
|
|
|
-
|
Balance, December 31, 2013
|
|
199,125
|
|
$
|
12.58
|
|
$
|
-
|
The following represents options summary as of December 31, 2013 under the New Plan.
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Average
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Price
|
|
Exercisable
|
|
|
Price
|
Options
|
|
199,125
|
|
|
3.05 years
|
|
$
|
12.58
|
|
144,958
|
|
$
|
15.91
|
For the re-pricing of the 120,000 options on October 8, 2012, from the exercise price of $37.5 to $18.30 per share, the Company
determined the incremental fair value of $0.058 per share which was calculated by taking the difference between the Black Scholes values of
the new exercise price and that of the old exercise price. Other data used in the calculations include: the stock market price of $9.00, expected
life of 3 years, volatility of 39.22% and discount rate of 0.35%.
39
On November 29, 2011, the Company's BOD approved of the granting of 30,000 options to a consultant, with the exercise price of $1.00
per share, with 1/3 vesting immediately and the balance equally over two quarters. These options expire in two years.
On February 14, 2013, the Company's BOD approved of the granting of 10,000 options to an employee with an exercise price of $6.50,
with monthly vesting beginning in February 2013. The options expire four years from the date of grant. The Company determined the grant
date fair value of 10,000 options of $0.17 per share which was calculated using the Black Scholes Options Pricing Model as follows: Stock
price of $6.50 per share, exercise price of $6.50 per share, expected life of 4.00 years, volatility of 32.48% and discount rate of 0.64%.
In November of 2013, the Company's BOD approved of the granting of 55,000 options to certain employees with an exercise price of
$3.14, with monthly vesting beginning in November 2013. The options expire four years from the date of grant. The Company determined the
grant date fair value of 55,000 options of $1.14 per share which was calculated using the Black Scholes Options Pricing Model.
As a result, of the issuances in February and November of 2013 of 10,000 and 55,000 shares respectively, the total options issued during
2013 was 65,000.
The Company recorded $135,718 of non-cash compensation expense related to stock options for the year ended December 31, 2013. As
of December 31, 2013, there was $49,781 of non-cash compensation to be recorded up to 2014 based on options valued at grant date.
NOTE 16 - INCOME TAXES
The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is
domiciled.
Zoom Technologies Inc., the parent company was incorporated in the U.S. and has net operating losses ("NOL") for income tax purposes,
which can be carried forward for up to 20 years from the year the loss is incurred. Zoom has NOL carry forwards for income taxes of
approximately $4.04 million and $1.38 million at December 31, 2013 and 2012, which may be available to reduce future years' taxable income.
Management believes the realization of benefits from these losses remains uncertain due to Zoom's limited operating history and continuing
losses. Accordingly, a 100% deferred tax asset valuation allowance has been provided.
The discontinued operations of TCB Digital and Nollec, and the continuing operation of Jiangsu Leimone are governed by the Income Tax
Law of the PRC concerning the private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the
statutory financial statements after appropriate tax adjustments.
Jiangsu Leimone is exempt from income tax in PRC for two years starting from the first profitable year or the year 2008, whichever is
earlier, and is subject to a 50% exemption on normal income tax rate for the following three years. 2012, is the last year that Jiangsu
Leimone will afforded the 50% exemption from PRC incomes taxes.
SpreadZoom in subject to the Income Tax Law of the PRC concerning the private-run enterprises, which are generally subject to tax at a
statutory rate of 25% on profit that is reported in the statutory financial statements after appropriate tax adjustments.
Nollec is exempt from income tax in PRC for two years starting from 2008, and is subject to a 50% exemption on normal income tax rate
for three years starting from 2010 and is subject to normal income tax rate from 2013.
Nollec had pre-tax loss up to the date of its disposition April 5, 2013. The Company's net income and earnings per share had no effect due
to its income tax exemption.
The discontinued and disposed operations Profit Harvest and CDE are governed by the Income Tax Law of Hong Kong, which is generally
subject to tax at a statutory rate of 16.5% on income reported in the statutory financial statements after appropriate tax adjustments.
40
Portables is governed by the Income Tax Law of United States; however, because Portables is a pass through entity for tax purposes, tax
liabilities are the responsibility of its members. Therefore, Zoom Sub, which is responsible to report and make payments on its portion of
income generated by Portables is subject to a graduated statutory tax rate of 34%.
U.S. NOL carryforwards are only those arising after September 22, 2009, which was the date when a more-than-50% ownership change
occurred.
The following table summarizes the temporary differences which result in deferred tax assets and liabilities as at December 31, 2013 and
2012:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
1,373,600
|
|
$
|
469,200
|
less: Valuation allowance
|
|
|
(1,373,600)
|
|
|
(469,200)
|
Total deferred tax assets
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
-
|
|
|
-
|
Deferred tax assets, net
|
|
$
|
-
|
|
$
|
-
|
The following table reconciles the U.S. statutory rates to the Company's effective tax rates for the years ended December 31, 2013 and
2012:
|
|
For Years Ended
|
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
|
|
|
(Restated)
|
US statutory rates
|
|
34.00%
|
|
34.00%
|
Tax rate difference
|
|
-2.72%
|
|
-1.33%
|
Valuation allowance
|
|
-31.28%
|
|
-32.67%
|
State taxes
|
|
-4.83%
|
|
-1.99%
|
Tax per financial statements
|
|
-4.83%
|
|
-1.99%
|
NOTE 17 - STATUTORY RESERVES
As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation
has been made for the following:
i) Making up cumulative prior years' losses, if any;
ii) Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and
regulations, until the fund amounts to 50% of the Company's registered capital;
iii) Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory
common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's
employees; and Statutory common welfare fund is no longer required per the new cooperation law executed in 2006.
iv) Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.
As of December 31, 2013 and 2012, the Company's statutory surplus reserve was $727,822 and $702,539 respectively.
41
NOTE 18 - OPERATING RISK
The industry in which we compete is a rapidly evolving, highly competitive and fragmented market driven by consumer
preferences and quickly evolving technology. Increased competition may result in price reductions, reduced gross margin and loss of market
share. Failure to compete successfully against current or future competitors could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company cannot guarantee the Renminbi and USD exchange rate will remain steady; therefore, the Company could post
the same profit for two comparable periods and post higher or lower profit depending on exchange rate of Renminbi and USD. The exchange
rate could fluctuate depending on changes in the political and economic environments without s
Currently, PRC is in a period of growth and is openly promoting business development in order to bring more business into PRC.
Additionally PRC currently allows a Chinese corporation to be owned by a United States corporation. If the laws or regulations relating to
ownership of a Chinese corporation are changed by the PRC government, the Company's ability to operate the PRC subsidiaries could be
affected.
The Company is exposed to interest rate risk arising from short-term variable rate borrowings from time to time. The Company's
future interest expense will fluctuate in line with any change in borrowing rates.
The Company had outstanding warrants that are accounted for as derivative securities. Their values are re-measured at each reporting
period. The quoted U.S. treasury rates with the maturities similar to those of the warrants are used as inputs in calculating their value;
accordingly, the value of the warrants, are subject to fluctuations interest rates.
NOTE 19 - EQUITY METHOD INVESTMENTS
On May 10, 2012, the Company along with Spreadtrum Communications (Tianjin) Co., Ltd, Tianjin Baoshui District Investment
Co, Ltd, and Han & Qin International (BVI) Limited invested in the joint venture SpreadZoom Technologies, Inc ("SpreadZoom").
SpreadZoom is domiciled in Tianjin, China with a registered capital of $47,352,700 (RMB 300,000,000). As of June 30, 2012, $17,520,500
(RMB 111,000,000) in capital had been contributed to SpreadZoom; the Company contributed $
12,342,542
(RMB 78,000,000). The Company had committed to invest an additional $10,117,700 (RMB 64,100,000) in SpreadZoom. Management
and control of the business have not been fully determined. The Company has used the equity method to account for its investment in
SpreadZoom and has recorded a loss from investment of $ 1,031,979 and $ 429,586 for the years ended December 31, 2013 and 2012,
respectively.
42
Changes in Equity Method Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Portables
|
|
|
SpreadZoom
|
|
|
Total
|
Balance December 31, 2011
(Restated)
|
|
$
|
9,160,273
|
|
$
|
-
|
|
$
|
9,160,273
|
Initial investment
|
|
|
|
|
|
12,342,542
|
|
|
12,342,542
|
Equity method investment income (loss)
|
|
|
425,746
|
|
|
(429,586)
|
|
|
(3,840)
|
Increase in investment through co-borrowing on bank line of credit
|
|
|
3,000,000
|
|
|
|
|
|
3,000,000
|
Reduction in equity interest from 55.0% to 50.1%
|
|
|
(735,000)
|
|
|
|
|
|
(735,000)
|
Reduction from repayment of bank line of credit
|
|
|
(5,001)
|
|
|
|
|
|
(5,001)
|
Balance December 31, 2012
(Restated)
|
|
$
|
11,846,018
|
|
$
|
11,912,956
|
|
$
|
23,758,974
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2012
(Restated)
|
|
|
11,846,018
|
|
|
11,912,956
|
|
|
23,758,974
|
Equity method investment loss
|
|
|
105,606
|
|
|
(1,031,979)
|
|
|
(926,373)
|
Increase in investment through co-borrowing on bank term note
|
|
|
2,500,000
|
|
|
|
|
|
2,500,000
|
Reduction in investment through repayment of line of credit
|
|
|
(500,000)
|
|
|
|
|
|
(500,000)
|
Reduction from repayment on bank term note
|
|
|
(489,310)
|
|
|
|
|
|
(489,310)
|
Gain from default of promisssry note leading for fofeiture of ownership
|
|
|
(2,000,000)
|
|
|
|
|
|
(2,000,000)
|
Loss on disposal
|
|
|
(11,462,314)
|
|
|
|
|
|
(11,462,314)
|
Balance December 31, 2013
|
|
$
|
-
|
|
$
|
10,880,977
|
|
$
|
10,880,977
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
Financial Position of SpreadZoom
|
|
|
|
|
|
(Restated)
|
Current assets
|
|
$
|
17,811,982
|
|
$
|
42,772,581
|
Non-current assets
|
|
|
6,558,367
|
|
|
1,775,661
|
Total assets
|
|
|
24,370,349
|
|
|
44,548,242
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
9,353,001
|
|
|
27,839,474
|
Non-current liabilities
|
|
|
-
|
|
|
-
|
Total liabilities
|
|
|
9,353,001
|
|
|
27,839,474
|
|
|
|
|
|
|
|
Net asset value
|
|
$
|
15,017,348
|
|
$
|
16,708,768
|
|
|
|
|
|
|
|
|
|
|
For Years Ended
|
Results of Operations of SpreadZoom
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Net revenues
|
|
$
|
66,920,617
|
|
$
|
46,025,192
|
Cost of goods sold
|
|
|
65,000,788
|
|
|
45,859,806
|
Gross profit
|
|
|
1,919,829
|
|
|
165,386
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
4,152,403
|
|
|
1,327,593
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,232,574)
|
|
|
(1,162,207)
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
54,025
|
|
|
255,721
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(2,178,549)
|
|
|
(906,486)
|
|
|
|
|
|
|
|
less: Provision for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,178,549)
|
|
$
|
(906,486)
|
|
|
|
|
|
|
|
Investment loss attributable to Zoom Technologies, Inc.
|
|
$
|
(1,031,979)
|
|
$
|
(429,586)
|
The Company accounted for its investment in Portables Unlimited, LLC using the equity method. The following are operating results of
Portables for the year ended December 31, 2012 and from January 1, 2013 to July 15, 2013, the date of disposition.
43
|
|
|
July 15,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
Financial Position of Portables
|
|
|
|
|
|
(Restated)
|
Current assets
|
|
$
|
6,283,761
|
|
$
|
7,145,668
|
Non-current assets
|
|
|
2,515,896
|
|
|
2,542,977
|
Total assets
|
|
|
8,799,657
|
|
|
9,688,645
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
14,570,582
|
|
|
16,994,165
|
Non-current liabilities
|
|
|
1,708,928
|
|
|
-
|
Total liabilities
|
|
|
16,279,510
|
|
|
16,994,165
|
|
|
|
|
|
|
|
Net asset value
|
|
$
|
(7,479,853)
|
|
$
|
(7,305,520)
|
|
|
|
|
|
|
|
|
|
|
For the Period Ended
|
|
|
For Year Ended
|
Results of Operations of Portables
|
|
|
July 15,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Net revenues
|
|
$
|
14,130,111
|
|
$
|
49,773,552
|
Cost of goods sold
|
|
|
10,341,986
|
|
|
40,813,304
|
Gross profit
|
|
|
3,788,125
|
|
|
8,960,248
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
3,309,640
|
|
|
7,215,081
|
|
|
|
|
|
|
|
Operating income
|
|
|
478,485
|
|
|
1,745,167
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
(267,695)
|
|
|
(895,374)
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
210,790
|
|
|
849,793
|
|
|
|
|
|
|
|
less: Provision for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
210,790
|
|
$
|
849,793
|
|
|
|
|
|
|
|
Investment loss attributable to Zoom Technologies, Inc.
|
|
$
|
105,606
|
|
$
|
425,746
|
44
NOTE 20 - DISCONTINUED OPERATIONS
On December 31, 2012, the Company announced its plan to dispose of certain business operations to Beijing Zhumu Culture
Communication Company, Ltd. covered in the Share Purchase Agreement as described in "Note 1 - Organization and Nature of Business
Operations" was for approximately $31.7 million (RMB 200 million) in sales proceeds. The Share Purchase Agreement covers the sale of
several business operations in different jurisdictions, with differing regulatory requirements regarding the purchase and sale of businesses.
For accounting purposes the Company has accounted for those operations as discontinued operations up to the point of the individual closing
of the relevant entities under relevant local jurisdictions as detailed in the tables below.
The sale of Profit Harvest and CDE closed on December 31, 2012. The portion of the sale covered in the Share Purchase Agreement for
Ever Elite and Nollec closed on April 5, 2013. The sale of TCB Digital closed on May 16, 2014.
Results of Operations
|
|
|
Years Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Net revenues
|
|
$
|
249,744,183
|
|
$
|
329,099,574
|
Cost of sales
|
|
|
234,624,885
|
|
|
313,699,749
|
Gross profit
|
|
|
15,119,298
|
|
|
15,399,825
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
35,270,830
|
|
|
24,463,419
|
Operating income
|
|
|
(20,151,532)
|
|
|
(9,063,594)
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
(2,855,322)
|
|
|
(1,936,953)
|
(Loss) income before taxes from discontinued operations
|
|
|
(23,006,854)
|
|
|
(11,000,547)
|
|
|
|
|
|
|
|
less: Provision for income taxes
|
|
|
142,180
|
|
|
178,124
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(23,149,034)
|
|
$
|
(11,178,671)
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per common share from
|
|
|
|
|
|
|
discontinued operations:
|
|
|
|
|
|
|
Basic
|
|
$
|
(11.66)
|
|
$
|
(8.36)
|
Diluted
|
|
$
|
(11.66)
|
|
$
|
(8.36)
|
45
Financial Position
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
(Restated)
|
Cash and equivalents
|
|
$
|
2,848,859
|
|
$
|
3,245,529
|
Restricted cash
|
|
|
80,658,355
|
|
|
64,467,142
|
Notes receivable
|
|
|
669,583
|
|
|
548,218
|
Accounts receivable, net
|
|
|
20,225,872
|
|
|
35,642,961
|
Inventories, net
|
|
|
18,809,671
|
|
|
7,059,829
|
Other receivables and prepaid expenses
|
|
|
2,061,687
|
|
|
10,580,693
|
Advance to suppliers
|
|
|
224,913
|
|
|
3,004,016
|
Due from related parties
|
|
|
204,509
|
|
|
18,322,784
|
Construction in progress deposit
|
|
|
-
|
|
|
243,747
|
Property, plant and equipment, net
|
|
|
1,636,316
|
|
|
1,293,689
|
Intangible assets
|
|
|
-
|
|
|
342,682
|
Deferred tax assets, noncurrent
|
|
|
70,136
|
|
|
-
|
Total current assets
|
|
|
127,409,901
|
|
|
144,751,290
|
|
|
|
|
|
|
|
Total Assets of Discontinued Operations
|
|
$
|
127,409,901
|
|
$
|
144,751,290
|
|
|
|
|
|
|
|
Short-term loans
|
|
$
|
38,529,498
|
|
$
|
21,187,680
|
Notes payable
|
|
|
42,441,911
|
|
|
28,156,022
|
Accounts payable
|
|
|
42,843,584
|
|
|
16,255,076
|
Accrued expenses and other payables
|
|
|
19,643
|
|
|
1,013,986
|
Advances from customers
|
|
|
97,110
|
|
|
1,039,775
|
Taxes payable
|
|
|
(4,106,935)
|
|
|
(2,341,883)
|
Interest payable
|
|
|
-
|
|
|
110,835
|
Dividends payable
|
|
|
-
|
|
|
628,890
|
Due to related parties
|
|
|
19,284,688
|
|
|
72,298,478
|
Total current liabilities
|
|
|
139,109,499
|
|
|
138,348,859
|
|
|
|
|
|
|
|
Total Liabilities of Discontinued Operations
|
|
|
139,109,499
|
|
|
138,348,859
|
|
|
|
|
|
|
|
Net Assets of Discontinued Operations
|
|
$
|
(11,699,598)
|
|
$
|
6,402,431
|
46
NOTE 21 - SUBSEQUENT EVENT
On December 31, 2012, the Company entered into a Securities Purchase Agreement with BZCC, which among other assets
included the sale of TCB Digital by the Company to BZCC. On or about December 30, 2013, the Company consented to BZCC assigning its
purchase rights to Huatianli; on May 15, 2014, the Company completed the sale of TCB Digital to Huatianli which is evidenced by the recording
of transfer ownership with the PRC government, and the Company's receipt of payment in full from Huatianli. Additionally, the Company is
obligated to refund a purchase deposit of RMB 52 million to BZCC for funds previously deposited in a restricted trust account in the Company's
name.
On May 20, 2014, the Company received releases from M&T Bank for balances owed under both a line of credit and term note owed
at December 31, 2013. As result of these releases, the liabilities will be written off as gains in the second quarter of 2014.
NOTE 22 - CORRECTION OF ERROR FOR ACCOUNTING OF PORTABLES UNLIMITED, LLC.
On May 5, 2014, the Company concluded that the consolidated balance sheet, and related consolidated statement of operations
and comprehensive income/(loss), stockholders' equity and statements of cash flows included in Form 10K Annual Report, dated April 15,
2013 (the "2012 Financials") will need to be restated as a result of the Company erroneous application of the consolidation method
of accounting for its former 50.1% equity interest investment in Portables Unlimited, LLC ("Portables"). The Company's
management determined during the fourth quarter of the year ended December 31, 2013 that the Company's former investment in Portables
was incorrectly accounted for using the consolidation method and should instead have been accounted for using the equity method. The error
resulted in an overstatement of the total assets, total liabilities, net revenues, cost of sales, operating expenses, and operating income in the
previously filed consolidated financial statements. The Company did not demonstrate that it had unilateral control over the investment, but
rather, the Company only exercised substantive participating rights; accordingly, the Company should have used the equity method of
accounting to account for its former investment.
The following tables show the previously report amounts, the required adjustment and the currently restated amounts related to the
Company financial position and results of operations at December 31, 2012 (as restated), and for the year then ended.
|
|
|
December 31, 2012
|
|
|
|
As Previously
|
|
|
|
|
|
As Currently
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Reported
|
Financial Position
|
|
|
|
|
|
|
|
|
(Restated)
|
Current assets
|
|
$
|
193,879,917
|
|
$
|
(5,149,774)
|
|
$
|
188,730,143
|
Non-current assets
|
|
|
41,837,026
|
|
|
(17,728,452)
|
|
|
24,108,574
|
Total assets
|
|
|
235,716,943
|
|
|
(22,878,226)
|
|
|
212,838,717
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
170,751,984
|
|
|
(13,999,166)
|
|
|
156,752,818
|
Non-current liabilities
|
|
|
317,500
|
|
|
-
|
|
|
317,500
|
Total liabilities
|
|
|
171,069,484
|
|
|
(13,999,166)
|
|
|
157,070,318
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
52,056,677
|
|
|
710,873
|
|
|
52,767,550
|
Non-controlling interest
|
|
|
12,590,782
|
|
|
(9,589,933)
|
|
|
3,000,849
|
Net equity
|
|
|
64,647,459
|
|
|
(8,879,060)
|
|
|
55,768,399
|
47
|
|
|
For the Year Ended December 31, 2012
|
|
|
|
As Previously
|
|
|
|
|
|
As Currently
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Reported
|
|
|
|
|
|
|
|
|
|
(Restated)
|
Net revenues
|
|
$
|
49,773,552
|
|
$
|
(49,773,552)
|
|
$
|
-
|
Cost of sales
|
|
|
40,813,304
|
|
|
(40,813,304)
|
|
|
-
|
Gross profit
|
|
|
8,960,248
|
|
|
(8,960,248)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
17,505,542
|
|
|
(7,215,081)
|
|
|
10,290,461
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,545,294)
|
|
|
(1,745,167)
|
|
|
(10,290,461)
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
(603,723)
|
|
|
1,321,120
|
|
|
717,397
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes for continuing operations
|
|
|
(9,149,017)
|
|
|
(424,047)
|
|
|
(9,573,064)
|
|
|
|
|
|
|
|
|
|
|
Income taxes for continuing operations
|
|
|
190,845
|
|
|
-
|
|
|
190,845
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(9,339,862)
|
|
|
(424,047)
|
|
|
(9,763,909)
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
(11,178,671)
|
|
|
-
|
|
|
(11,178,671)
|
Loss on disposal, net tax
|
|
|
(11,860,025)
|
|
|
-
|
|
|
(11,860,025)
|
Loss from discontinued operations
|
|
|
(23,038,696)
|
|
|
-
|
|
|
(23,038,696)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,378,558)
|
|
$
|
(424,047)
|
|
$
|
(32,802,605)
|
|
|
|
|
|
|
|
|
|
|
less:
Income (loss) attributable to noncontrolling interest
|
|
|
73,953
|
|
|
(424,047)
|
|
|
(350,094)
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Zoom Technologies, Inc.
|
|
$
|
(32,452,511)
|
|
$
|
-
|
|
$
|
(32,452,511)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(11.96)
|
|
$
|
-
|
|
$
|
(11.96)
|
Diluted
|
|
$
|
(11.96)
|
|
$
|
-
|
|
$
|
(11.96)
|
These corrections will be made to applicable prior period financial information in future filings with the SEC including this filing
48
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended ("Exchange Act"), the Company carried
out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer ("CEO")
(the Company's principal executive officer) and Chief Financial Officer ("CFO") (the Company's principal financial and accounting
officer), of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act)
as of the end of the period covered by this report. Based upon that evaluation, the Company's CEO and CFO concluded that the Company's
disclosure controls and procedures is not effective to ensure that information required to be disclosed by the Company in the reports that the
Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's
CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to
the Company's management and board regarding the preparation and fair presentation of published financial statements, but because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.
Our management assessed the effectiveness of the Company's internal control over financial reporting as of December
31, 2013. The framework used by management in making that assessment was the criteria set forth in the document entitled
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that assessment, our management has determined that as of December 31, 2013, the Company identified deficiencies that were
determined to be a material weakness.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented
or detected on a timely basis. Because of the material weakness described below, management concluded that our internal controls over
financial reporting were not effective as of December 31, 2013.
The specific material weakness identified by the Company's management as of December 31, 2013 is described as
follows:
-
Our disclosure controls and procedures were not effective. As detailed in the Explanatory Note found in Form 10Q/A that was filed on
November 25, 2013, on November 19, 2013 prior to receiving approval from the Company's registered independent public accountant, the
Company filed its Form 10Q. The Company already remediated this material weakness and has determined that the newly implemented
controls and procedures are operating effectively.
-
The Company has had to make corrections of errors on two separate occasions during the last two years for its accounting of warrants
and its accounting for its equity investment in Portables. These corrections of errors represent material weaknesses in the Company's ability
to accurately account for complex accounting issues. The Company is currently reviewing its processes to determine if more additional
outside expertise is necessary to account for transactions that require complex accounting treatments. The Company must assess the cost
benefit of using outside sources. As of the date of this report, the Company has neither completed its analysis, nor put in place remedial
measures to eliminate the material weakness.
49
This annual report does not include an attestation report of the Company's registered public accounting firm regarding
internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm
as we are a smaller reporting company and not required to provide the report.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of the fiscal
year ended December 31, 2013 other than those that have been detailed above that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. However, the material weakness's disclosed above resulted in the Company
having a violation under Sarbanes Oxley section 402
ITEM 9B - OTHER INFORMATION
Not applicable
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table and biographical descriptions set forth information regarding the current executive officers and
members of the Board.
DIRECTORS AND EXECUTIVE OFFICERS