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[August 19, 2014]
CEETOP 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 Ceetop, Inc. (the "Company") is an Oregon-registered corporation. Before 2013 the Company owned and operated the online retail platform: www.ceetop.com. Due to excessive competition in online retail, the Company has transformed itself into an integrated supply chain services provider, and focuses on Business to Business ("B to B") supply chain management and related value-added services among enterprises.
Since the second half of 2012, the Company gradually has changed its focus away from online retail business, and focused on providing warehousing management and B to B supply chain information technology service for suppliers. After business restructuring and a pilot run in the first half of 2013, the Company's main business was adjusted to conduct warehousing management services and focusing on B to B supply chain information technology, providing third party supply chain management service for customers, providing data services, and supply chain financial services, and other value-added services for customers. The Company provides customers with B to B integrated supply chain services.
By establishing a warehousing base, using iSCM (namely, e-commerce supply chain management system) platform to build a "standardized" identity for the "non-standardized" products, and completing standard data transmission between the upstream and downstream enterprise resource planning of enterprises through the iSCM platform, the Company makes the information of purchases, sales and logistics of its customers more accurate and transparent. With the support of this platform, our customers' business information is displayed accurately in front of their partners, such as banks. By providing customers with this platform and providing customers with third party logistics supervision, the Company assists banks and other financial institutions in providing customers with supply chain based financial services.
Through the stimulation of labor specialization, the original competition between products or companies has turned into the competition between supply chains. Each supply chain is represented by collaboration among multiple enterprises, and provides a set of final products for consumers. The Company now focuses on B to B data collection and transmission among multiple enterprises, and data analysis services. Our advanced technology, experiences in supply chain management and efficient data processing ability provides value-added data services for other online platforms, offline stores and logistic servers, banks and others.
The Company is headquartered in Guiyang, China. We also maintain an operating office and warehousing base located in Hangzhou, China.
Organization History Organizational History of Ceetop, Inc Ceetop, 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. and on September 12, 2013 the Company changed its name to Ceetop Inc.
Organizational History of Surry Surry Holdings Limited ("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 supply chain services business.
Pursuant to a transaction completed on February 28, 2010, the Company holds 100% of Westow. Surry changed its name to Ceetop Holdings Limited on April 3, 2014.
Organizational History of Westow Westow was incorporated on September 7, 2009, and owns 100% of the outstanding securities of Guizhou Ceetop Network Technology Co., Ltd (formerly Shenzhen Ceetop Network Technology Co., Limited), a company registered and located in Guiyang, PRC.
3 Organizational History of Guizhou Ceetop Network Technology Co., Ltd, Hangzhou Ceetop Network Technology Co., Ltd, Hangzhou Lianzhan Supply Chain Management Co., Ltd, and Hangzhou Tuoyin Management Consulting Co., Ltd.
Guizhou Ceetop Network Technology Co., Ltd (formerly Shenzhen Ceetop Network Technology Co., Ltd. was incorporated in Shenzhen in August, 2009) changed its name and moved to Guiyang, PRC during the second quarter of 2013. On January 14, 2014, Guizhou Ceetop Network Technology Co., Ltd. changed its name to Guizhou Ceetop Group Holding Co., Ltd. Hangzhou Ceetop Network Technology Co., Ltd. was incorporated in October 31, 2006. Both Hangzhou Lianzhan Supply Chain Management Co., Ltd. (mainly provides integrated supply chain services, focuses on B to B supply chain management and related value-added service among enterprises) and Hangzhou Tuoyin Management Consulting Co., Ltd. (mainly accumulates knowledge, technology expertise and patents, and provides consulting services for other enterprises) were incorporated in Hangzhou in June 2013. Guizhou Ceetop Group Holding Co., Ltd owns 100% outstanding securities of Hangzhou Ceetop Network Technology Co., Ltd., Hangzhou Lianzhan Supply Chain Management Co., Ltd. and Hangzhou Tuoyin Management Consulting Co., Ltd.
Organizational History of Hangzhou Softview Information Technology Co., Ltd.
("Softview") Softview was incorporated in Hangzhou on July 7, 2010. Guizhou Ceetop Network Technology Co., Ltd. owns 42.5% of the outstanding securities of Softview. Softview is engaged in the information technology in the supply chain management system.
The address for each entity is set forth below: Name Address Ceetop, Inc. (formerly China A2803, Lianhe Guangchang, 5022 Binhe Ceetop.com, Inc.) Dadao, Futian District, Shenzhen, China Ceetop Holdings Limited (formerly Surry P.O. Box 957, Offshore Incorporations Holdings Limited) Centre, Road Town, Tortola, British Virgin Islands Westow Technology Limited P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands Guizhou Ceetop Group Holding Co., Ltd. East Yunhuan Road, Baiyun District, (formerly Guizhou Ceetop Network Guiyang, China Technology Co. Ltd.) (headquarters) Hangzhou Ceetop Network Technology Co. 501 A YuanhuaWangzuo Center, 65 Xintang Ltd Road, Hangzhou, China, 310020 Hangzhou Lianzhan Supply Chain Suite A1028, 9th Xiyuan Road, Boke Management Co., Ltd. Dasha, Hangzhou, China Hangzhou Tuoyin Management Consulting Suite A1027, 9th Xiyuan Road, Boke Co., Ltd. Dasha, Hangzhou, China Hangzhou Softview Information Suite A1026, 9th Xiyuan Road, Boke Technology Company Limited Dasha, Hangzhou, China Financial Condition and Changes in Financial Condition Overall Operating Results: Net Sales. For the three and six months ended June 30, 2014 and 2013, sales were $nil, The lack of revenues is due to the Company transitioning from online retail sales to B to B supply chain service .
Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased 31% to $205,381 for the three months ended June 30, 2014 from $295,685 for the three months ended June 30, 2013; decreased 2% to 494,274 for the six months ended June 30, 2014 from $505,456 for the six months ended June 30, 2013.
Net Loss. The Company's net loss was $232,432 and $293,230 for the three months ended June 30, 2014 and 2013, respectively; $578,538 and $502,999 for the six months ended June 30, 2014 and 2013, respectively.
4 Liquidity and Capital Resources: The Company incurred net losses of $232,432 and $293,230 for the three months ended June 30, 2014 and 2013 respectively; $578,538 and $502,999 for the six months ended June 30, 2014 and 2013, respectively, and has accumulated deficit of $9,184,173 at June 30, 2014.
For the year ended December 31, 2013, 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.
Critical Accounting Policies We believe that the critical accounting policies and estimates discussed below involve the most complex management judgments due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and expense amounts. In consultation with our Board of Directors, we have identified the following critical accounting policies that require management's most difficult subjective judgment: Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Revenue Recognition The Company's revenue recognition policies are in compliance with SEC Staff Accounting bulletin ("SAB") 104 (codified in FASB ASC Topic 605). Sales revenue is recognized at the completion of delivery to customers when a formal arrangement exists, the price is fixed or determinable, no other significant obligations of the Company exist and collectability is reasonably assured at the date of completion of delivery. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Accounts Receivable/Bad Debt 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. Reserves are recorded based on the Company's historical collation history.
Property and Equipment Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property, plant and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property, plant and equipment is provided using the straight-line method over the estimated useful lives of the assets.
Impairment of Long-Lived Assets The Property, Plant and Equipment Topic of the Codification addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes previous accounting guidance, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2014 and December 31, 2013, there were no impairments of its long-lived assets.
5 Income Taxes The Company utilizes the accounting standards ("SFAS") No. 109, "Accounting for Income Taxes," codified in Financial Accounting Standard Board Accounting Standards Codification ("ASC") Topic 740 which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, ("FIN 48"), codified in FASB ASC Topic 740. When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Company's financial statements. At June 30, 2014 and December 31, 2013, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Basic and Diluted Income / (Loss) Per Share Earnings per share are calculated in accordance with FASB ASC Topic 260, "Earnings per Share". Basic earnings per share is based upon the weighted average number of common shares and preferred shares outstanding. Preferred shares are included in the denominator of basic earnings per share because preferred shares participate with common shares in the earnings and dividends of the Company on a one-for-one basis. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Fair Value of Financial Instruments The Financial Instrument Topic of the Codification requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
Share Based Compensation Share-based payment is accounted for based on the FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R") and Emerging Issue Task Force 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EITF 96-18") and Emerging Issue Task Force 00-18 "Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees" ("EITF 00-18") (codified in FASB ASC Topic 505-50). The Company recognized in the Consolidated Statements of Income and Comprehensive Income the fair value of shares, stock options and other equity-based compensation issued to non-employees when the service provided by non-employees is completed, or the date when the shares were issued (provided that the shares issued are fully vested and not subject to forfeiture) with the prepaid services presented as contra equity. This is in accordance with the consensus reached in EITF 00-18 that in the event that a note or receivable is acquired in exchange for the fully vested, non-forfeitable equity instruments, the note or receivable should be displayed as contra-equity by the granter. The Company, as granter, interprets that the term "receivable" also embraces prepaid service fees. For employees, the Company recognized in the Consolidated Statements of Income and Comprehensive Income the grant date fair value of the shares, stock options and other equity-based compensation over the requisite service period.
Off Balance Sheet Arrangements None.
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