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[November 14, 2012]
CHINA CEETOP.COM, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) Description of Business Overview China Ceetop.com, Inc., an Oregon-registered corporation, is a leading Business-to-Consumer ("B2C") e-commerce company. We own and operate the online platform: www.ceetop.com. We are committed to offering excellent online shopping experience, rapid delivery and outstanding customer service.
We mainly focus on selling Computers/Communications/Consumer ("3C") products online and providing a trading information platform for both buyers and sellers as software as a service ("SaaS"). We carry a wide range of products in assorted categories, including mainstream digital products, home appliances, kitchen appliances, personal care, and lifestyle products, etc. under well-known international and Chinese brands.
Our website (www.Ceetop.com) adopts an initiative B2C mode: Compared with traditional operations, we connect directly with high-end channels in the 3C industry and thus lower the cost in many aspects. Meanwhile, we significantly reduce our delivery expense by close cooperation with leading third party logistic companies. All of these contribute to our pricing system.
We are headquartered in Shenzhen, China. We also maintain an operating office located in Hangzhou, China. We believe that our main competitive advantages include brand recognition, product selection, personalized service, low price, after-sale services, high quality search tools and delivery efficiency. We have expanded and become one of the top domestic and international online stores for 3C products.
Organization History Organizational History of China Ceetop.com, Inc China Ceetop.com, Inc. was incorporated in Oregon on February 18, 2003 under the name of GL Gold Inc. On June 6, 2003 the Company filed an amendment with the State of Oregon changing its name to Oregon Gold, Inc. On January 7, 2011 Oregon Gold Inc. changed its name to China Ceetop.com, Inc. On January 27, 2011, the Company became the holding company of Surry Holding Limited ("Surry") through a reverse acquisition. The Company acquired all of the issued and outstanding capital stock of Surry pursuant to the share exchange agreement dated December 30, 2010 by and among Surry, the Company and the shareholders of the Company (the "Share Exchange Agreement"). At the same time, the Company effected a reverse stock split such that the number of all existing issued shares were reduced from 19,900,100 to 866,636 on a 23 to 1 basis. Pursuant to the Share Exchange Agreement, the Company acquired 100% of the capital stock and ownership interests of Surry in exchange for 28,496,427 newly-issued shares of the Company's common stock and 3,558,046 newly issued shares of the Company's Series A preferred stock.
The original principal activities of the Company were engaged in the identification, acquisition, exploration and development of mining prospects believed to have gold mineralization. The Company ceased this business during the year.
Organizational History of Surry Surry was incorporated in the British Virgin Islands on September 18, 2009.
Surry owns 100% of the outstanding securities of Westow Technology Limited ("Westow"), a company incorporated in the British Virgin Islands. Surry's subsidiaries are engaged in the operation of an online platform for sales of 3C products in the PRC by way of the website www.ceetop.com. Pursuant to a transaction completed on February 28, 2010, the Company holds 100% of Westow.
Organizational History of Westow Westow was incorporated on September 7, 2009, and owns 100% of the outstanding securities of Shenzhen Ceetop Network Technology Co., Limited, a company incorporated in Shenzhen, PRC.
1 --------------------------------------------------------------------------------Organizational History of Shenzhen Ceetop Network Technology Co., Limited and Hangzhou Ceetop Network Technology Co.
HZ Ceetop Network Technology Co., Ltd. ("HZ Ceetop") was incorporated in October 31, 2006 and Shenzhen Ceetop Network Technology Co., Limited ("SZ Ceetop") was incorporated as a wholly foreign-owned enterprise in August, 2009 under the laws of the PRC. SZ Ceetop owns a 100% of the outstanding securities of HZ Ceetop.
Corporate Organization [[Image Removed]] The address for each entity is set forth below: Name Address China Ceetop.com, Inc A2803, Lianhe Guangchang, 5022 Binhe Dadao, Futian District, Shenzhen, China Surry Holdings Limited P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands Westow Technology Limited P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands Shenzhen Ceetop Network 2803, Lianhe Guangchang A, Technology Co. Ltd 5022 Binhe Dadao, Futian (headquarters) District, Shenzhen, China,518033 Telephone: 0755-33366628 Hangzhou Ceetop Network 501 A Yuanhua Wangzuo Center, Technology Co. Ltd 65 Xintang Road, Hangzhou, China, 310020 Telephone: +86-0571-86632800 2--------------------------------------------------------------------------------Comparison of Three and Nine Months Ended September 30, 2012 and 2011 The following table sets forth the results of our operations for the three and nine months ended September 30, 2012 and 2011 indicated in U.S. dollars and as a percentage of net sales: Three months ended September 30 Nine months ended September 30 2012 2011 2012 2011 US Dollars US Dollars US Dollars US Dollars Sales, net $ 1,244,458 100 % $ 3,214,882 100 % $ 3,888,116 100 % $ 10,402,375 100 % Cost of sales (1,227,218 ) 99 % (3,057,157 ) 95 % (3,783,890 ) 97 % (9,831,223 ) 95 % Gross profit 17,240 1 % 157,725 5 % 104,226 3 % 571,152 5 % Stock based compensation (75,911 ) 6 % - - % (231,359 ) 6 % - - % Selling, general and administrative expenses (95,892 ) 8 % (629,000 ) 20 % (540,825 ) 14 % (1,776,441 ) 17 % Other income 3,285 0 % 2,969 0 % 4,201 0 % 8,244 0 % Loss from operations (154,563 ) 12 % (471,275 ) 15 % (667,958 ) 17 % (1,205,289 ) 12 % Net (loss) $ (151,278 ) 12 % $ (468,306 ) 15 % $ (663,757 ) 17 % $ (1,197,045 ) 12 % Net Sales For the three months ended September 30, 2012 and 2011, the Company's net sales were $1,244,458 and $3,214,882 respectively, a decrease of 61%. For the nine months ended September 30, 2012, sales were $3,888,116, compared to $10,402,375 at September 30, 2011, a decrease of 63%. This decrease in net sales was due to high competition in online shopping. As such, the Company began the transition from online retail sales to focus more on sales to a relatively smaller number of distributors.
Cost of Sales For the three months ended September 30, 2012 and 2011, the Company's cost of sales were $1,227,218 and $3,057,157 respectively, a decrease of 60%. For the nine months ended September 30, 2012, cost of sales were $3,783,890, compared to $9,831,223 for the nine months ended September 30, 2011, a decrease of 62%. This decrease in cost of sales was mainly due to the decrease in sales.
Gross Profit. For the three months ended September 30, 2012, our gross profit decreased to $17,240 from $157,725 for the three months ended September 30, 2011, representing an 89% decrease. For the nine months ended September 30, 2012, our gross profit decreased to $104,226 from $571,152 for the nine months ended September 30, 2011, representing an 82% decrease. The decrease in gross profit ratio was a result of the transition of our business from online sales to sales to distributors during the nine months ended September 30, 2012.
Stock Based Compensation. The Company had stock based compensation for the three and nine months ended September 30, 2012 of $75,911 and $231,359, respectively. The compensation was issued for various consulting and professional services to the Company. See Note 8 to the financial statements for a thorough discussion of the issuances.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased to $95,892 for the three months ended September 30, 2012 from $629,000 for the three months ended September 30, 2011, representing an 85% decrease. The expense decreased to $540,825 for the nine months ended September 30, 2012 from $1,776,441 for the nine months ended September 30, 2011, representing a 70% decrease. The decrease was mainly due to the decrease in staff headcount and accordingly reduction in staff payroll.
Net loss. The Company's net loss was $151,278 and $468,306, and $663,757 and $1,197,045, for the three and nine months ended September 30, 2012 and 2011, respectively. The three month decrease of 68% and nine month decrease of 45% resulted primarily from decreased sales over the respective period.
Liquidity and Capital Resources As of September 30, 2012 and December 31, 2011, we had cash and cash equivalents of $13,250 and $855,713, respectively, primarily consisting of cash on hand and demand deposits. To date, we have financed our operations primarily through cash flows from operations and capital contributions by our shareholders.
For the year ended December 31, 2011, our independent auditors, in their report on the financial statements, have indicated that the Company has experienced recurring losses from operations and may not have enough cash and working capital to fund its operations beyond the very near term, which raises substantial doubt about our ability to continue as a going concern. Management has made a similar note in the financial statements. As indicated herein, we have need of capital for the implementation of our business plan, and we will need additional capital for continuing our operations. We do not have sufficient revenues to pay our expenses of operations. Unless the Company is able to raise working capital, it is likely that the Company either will have to cease operations or substantially change its methods of operations or change its business plan.
3--------------------------------------------------------------------------------Our cash flows for the nine month periods are summarized as follows: Nine months ended September 30, 2012 2011 Net cash used in operating activities $ (1,692,744 ) $ (1,462,787 ) Net cash (used in) investing activities - - Net cash provided by financing activities 844,206 362,583 Effect of exchange rate change on cash and cash equivalents 6,075 41,432 Net decrease in cash and cash equivalents (842,463 ) (1,058,772 ) Cash and cash equivalents at beginning of period 855,713 2,671,162 Cash and cash equivalents at end of period $ 13,250 $ 1,612,390 Operating activities Net cash used in operating activities was $1,692,744 for the nine months ended September 30, 2012, compared to net cash used in operating activities of $1,462,787 for the nine months ended September 30, 2011. The primary change in cash used was due to an inventory buildup, as discussed in Note 3, Inventory.
Investing activities No cash was used in investing activities for the nine months ended September 30, 2012 or September 30, 2011.
Financing activities Cash provided by financing activities for the nine months ended September 30, 2012 was $844,206 compared to $362,583 for the nine months ended September 30, 2011. Net cash provided by financing activities during 2012 was attributable to a cash advance from a director. During 2011, financing was attributed to cash received from the merger with China Ceetop and capital injection from four shareholders of a subsidiary company prior to the reverse acquisition took place on January 27, 2011.
Although the Company incurred a loss of $663,757 and had sustained accumulated deficit of $4,989,405 for the nine months ended September 30, 2012, as a result of continued financial support from shareholders, we still maintained positive net equity of $505,545 at September 30, 2012.
Off-Balance Sheet Arrangements We have never entered into any off-balance sheet arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
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