Ceetop Inc. - FORM 10-Q - November 14, 2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2012

Commission File Number     000-32629

China Ceetop.com, Inc.
(Exact name of registrant as specified in charter)
 
Oregon
  
98-0408707
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
A2803, Lianhe Guangchang, 5022 Binhe Dadao,
Futian District, Shenzhen, China
  
518026
(Address of principal executive offices)
  
(Zip Code)

(86-755) 3336-6628
Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x     No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨
Accelerated Filer                          ¨
Non-accelerated filer    ¨
(Do not check if smaller reporting company)
Smaller Reporting Company   x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 14, 2012, the Company had outstanding 24,866,246 shares of its common stock, par value $0.001.

Special Note Regarding Forward-Looking Statements
 
 
 
 

This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this report include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.

 
 
 
 
PART I – FINANCIAL INFORMATION

CHINA CEETOP.COM, INC.

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

 
 
 
 
TABLE OF CONTENTS

Consolidated Balance Sheets (unaudited and audited)
F-1
   
Consolidated Statements of Operations and Comprehensive (Loss) Income (unaudited)
F-2
   
Consolidated Statements of Cash Flows (unaudited)
F-3
   
Consolidated Statements of Stockholders’  Equity (unaudited)
F-4
   
Notes to Consolidated Financial Statements (unaudited)
F-5 - F-16

 
 
 

CHINA CEETOP.COM, INC.
CONSOLIDATED BALANCE SHEETS
 
   
   
     
September 30,
    
December 31,
  
 
Notes
  
2012
    
2011
  
     
(Unaudited)
    
(Audited)
  
               
ASSETS
              
               
Current Assets
              
               
Cash and cash equivalents
     $ 13,250     $ 855,713  
Accounts receivable
 3     303,247       96,931  
Advances to suppliers
 3     157,098       -  
Deposits and other receivables
       236,606       58,491  
Inventories
 3     980,192       194,344  
Prepayments
       5,222       4,629  
                   
Total Current Assets
       1,695,615       1,210,108  
                   
Non-current assets
                  
                   
Property and equipment, net
 3     26,115       59,658  
                   
Total Assets
     $ 1,721,730     $ 1,269,766  
                   
LIABILITIES AND STOCKHOLDERS' EQUITY
                  
                   
Current Liabilities
                  
                   
Deposits from customers
     $ 64,936     $ -  
Amount due to a director
 5     844,206       -  
Accrued expenses and other payable
       307,043       338,281  
                   
Total Liabilities
       1,216,185       338,281  
                   
Stockholders' Equity
                  
                   
Common stock, USD0.001 par value, 100,000,000 shares
                  
authorized, 24,866,246 and 32,281,063 shares issued
                  
and outstanding at September 30, 2012 and December 31,
                  
2011 respectively
 6     24,866       32,281  
Preferred stock, USD0.001 par value, Nil and 3,558,046
                  
shares authorized, issued and outstanding at September 30,
                  
2012 and December 31, 2011 respectively
 6     -       3,558  
Additional paid-in capital
 7     5,827,537       5,815,844  
Common stock issued for prepaid service
 8     (472,104 )     (702,743 )
Statutory reserve
 9     - )     -  
Accumulated other comprehensive income
 10     114,651       108,193  
Accumulated deficit
       (4,989,405       (4,325,648 )
                   
Stockholders' Equity
       505,545       931,485  
                   
                   
Total Liabilities and Stockholders' Equity
     $ 1,721,730     $ 1,269,766  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-1
 
 
CHINA CEETOP.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
 
   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2012
    
2011
    
2012
    
2011
  
                         
Sales, net
   $ 1,244,458     $ 3,214,882     $ 3,888,116     $ 10,402,375  
                                 
Cost of sales
     (1,227,218 )     (3,057,157 )     (3,783,890 )     (9,831,223 )
                                 
Gross profit
     17,240       157,725       104,226       571,152  
Stock based compensation
     (75,911       -       (231,359 )     -  
Selling, general and administrative expenses
     (95,892 )     (629,000 )     (540,825 )     (1,776,441 )
                                 
(Loss) from operations
     (154,563 )     (471,275 )     (667,958 )     (1,205,289 )
                                 
Other Income
                                
Interest income
     14       1,906       198       6,169  
Other income
     3,271       1,063       4,003       2,075  
                                 
Total other income
     3,285       2,969       4,201       8,244  
                                 
Net (loss)
   $ (151,278 )   $ (468,306 )   $ (663,757 )   $ (1,197,045 )
                                 
Weighted average shares (including common shares and
                                
non-convertible preferred shares) outstanding
                                
Basic - note 3)
     32,739,354       35,474,370       34,798,315       33,699,012  
Diluted - note 3)
     32,739,354       35,474,370       34,798,315       33,699,012  
                                 
Net (loss) per share (include common shares and
                                
non-convertible preferred shares)
                                
Basic - note 3)
   $ (0.0046 )   $ (0.0132 )   $ (0.0191 )   $ (0.0355 )
Diluted - note 3)
   $ (0.0046 )   $ (0.0132 )   $ (0.0191 )   $ (0.0355 )
                                 
Net (loss)
   $ (151,278     $ (468,306 )   $ (663,757 )   $ (1,197,045 )
Other comprehensive income - foreign currency translation adjustment
     (1,030 )     11,909       6,458       44,014  
                                 
Comprehensive (loss)
   $ (152,308 )   $ (456,397 )   $ (657,299 )   $ (1,153,031 )

The accompanying notes are an integral part of these consolidated financial statements.

 
F-2
 
 
CHINA CEETOP.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(UNAUDITED)
 
   
2012
    
2011
  
             
CASH FLOWS FROM OPERATING ACTIVITIES
            
             
Net loss
     (663,757 )   $ (1,197,045 )
Adjustments to reconcile net loss to net cash provided
                
  by/(used in) operating activities :
                
Depreciation
     33,926       38,450  
Share-based payment expense
     231,359       118,817  
Provision for doubtful accounts
     -       1,385  
Reversal of provision previously recognized
     -       (503 )
Changes in operating assets and liabilities :
                
Accounts receivable
     (206,316 )     (174,983 )
Advances to suppliers
     (157,098 )     -  
Other receivable, deposits and prepayments
     (178,708 )     78,119  
Inventories
     (785,848 )     (80,766 )
Amount due from related parties
     -       50,000  
Accounts payable
     -       (264,298 )
Deposits from customers
     64,936       -  
Accrued expense and other payable
     (31,238 )     (31,963 )
                 
Net cash used in operating activities
     (1,692,744 )     (1,462,787 )
                 
CASH FLOW FROM FINANCING ACTIVITIES
                
Advance from a director
     844,206       -  
Merge with China Ceetop
     -       50,171  
Capital injection from shareholders
     -       312,412  
                 
Net cash provided by financing activities
     844,206       362,583  
                 
Effect of exchange rate changes 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, beginning balance
     855,713       2,671,162  
                 
Cash and cash equivalents, ending balance
   $ 13,250     $ 1,612,390  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3
 
 
CHINA CEETOP.COM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)

   
Common Stock
    
Preferred Stock
   Additional
paid-in		   Common
stock issued
for prepaid		   Accumulated
other
comprehensive		   (Accumulated   Total
stockholders		  
   
Stock
          
Stock
                  
   
outstanding
    
Amount
    
outstanding
    
Amount
  
capital
  
service
  
income/(loss)
  
loss)
  
equity
  
                                             
Balance January 1, 2011
   $ 28,496,427     $ 28,496     $ 3,558,046     $ 3,558   $ 4,563,546   $ -   $ 53,020   $ (2,671,128 ) $ 1,977,492  
                                                               
Foreign currency translation
                                                              
adjustments - note 10)
     -       -       -       -     -     -     55,173     -     55,173  
                                                               
Merge with China Ceetop - note 1)
     866,636       867       -       -     39,304     -     -     -     40,171  
                                                               
Capital injection from a shareholder
                                                              
- note 7)
     -       -       -       -     312,412     -     -     -     312,412  
                                                               
Issuance of common stock for
                                                              
prepaid service - notes 6, 8)
     2,900,000       2,900       -       -     896,100     (899,000 )   -     -     -  
                                                               
Amortisation of common stock
                                                              
for prepaid service - note 8)
     -       -       -       -     -     196,257     -     -     196,257  
                                                               
Issuance of common stock for
                                                              
consultancy service - notes 6, 8)
     18,000       18       -       -     4,482     -     -     -     4,500  
                                                               
Loss for the year ended December 31
     -       -       -       -     -     -     -     (1,654,520 )   (1,654,520 )
                                                               
Balance December 31, 2011
     32,281,063       32,281       3,558,046       3,558     5,815,844     (702,743 )   108,193     (4,325,648 )   931,485  
                                                               
Foreign currency translation
                                                              
adjustments - note 10)
     -       -       -       -     -     -     6,458     -     6,458  
                                                               
Amortisation of common stock for
                                                              
prepaid service - note 8)
     -       -       -       -     -     230,639     -     -     230,639  
                                                               
Issuance of common stock for
                                                              
   consultancy service - notes 6, 8)
     9,000       9       -       -     711     -     -     -     720  
                                                               
Cancellation of shares - note 6)
     (7,423,817 )     (7,424 )     (3,558,046 )     (3,558 )   10,982     -     -     -     -  
                                                               
Loss for the nine months ended
                                                              
September 30, 2012
     -       -       -       -     -     -     -     (663,757 )   (663,757 )
                                                               
Balance September 30, 2012
   $ 24,866,246     $ 24,866     $ -     $ -   $ 5,827,537   $ (472,104 ) $ 114,651   $ (4,989,405 ) $ 505,545  

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-4
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 1 – ORGANIZATION

China Ceetop.com, Inc. (the “Company” or “China Ceetop”) 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.

Surry Holdings Limited (“Surry”) was incorporated in the British Virgin Islands on September 18, 2009.  Surry holds 100% of Westow Technology Limited (“Westow”), a company incorporated in the British Virgin Islands, which in turn holds 100% of Shenzhen Ceetop Network Technology Co., Limited ("SZ Ceetop"), a company incorporated in Shenzhen, Peoples’ Republic of China ("PRC") and ultimately holds 100% of Hangzhou Ceetop Network Technology Co., Limited ("HZ Ceetop"), a company incorporated in Hangzhou, PRC.

Pursuant to a series of transactions completed in September, 2009, Surry became the holding company of Westow, SZ Ceetop and HZ Ceetop ("Group Reorganization").

Since Surry, Westow, SZ Ceetop and HZ Ceetop were under common control of a controlling party both before and after the completion of the Group Reorganization, the Group Reorganization has been accounted for using merger accounting.  The consolidated financial statements have been prepared on the basis as if Surry had always been the holding company of Westow, SZ Ceetop and HZ Ceetop and this group structure had been in existence throughout the nine months ended September 30, 2012 and year ended December 31, 2011 as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation”.

On January 27, 2011, the Company became the holding company of 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.

Prior to the acquisition of the Surry, the Company was a non-operating public shell.  Pursuant to Securities and Exchange Commission (“SEC”) rules, the merger or acquisition of a private operating company into a non-operating public shell with nominal net assets is considered as a capital transaction, rather than a business combination.  Accordingly, for accounting and financial reporting purposes, the transaction was treated as a reverse acquisition, wherein Surry is considered the acquirer.  The assets and liabilities of Surry have been brought forward at their book value and no goodwill has been recognized.  The historical financial statements prior to January 27, 2011 are those of Surry.

The Company operates in a single reportable segment.  The principal activities of the Company are engaged in the provision of an online platform for distribution of 3C products (computers/communications/consumer electronics) in the PRC by way of a website named www.ceetop.com mainly through its wholly owned legal subsidiaries HZ Ceetop and SZ Ceetop.  With effect from the three months ended March 31, 2012, the Company also traded in 3C products outside the online platform.

These Consolidated Financial Statements present the Company and its subsidiaries on a historical basis.

 
F-5
 

 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 2 - GOING CONCERN

The accompanying unaudited Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern.  As shown in the accompanying Consolidated Financial Statements, the Company incurred net losses of $663,757 and $151,278 for the nine and three months ended September 30, 2012 respectively, and has accumulated deficit of $4,989,405 at September 30, 2012.  Although as mentioned in Note 7 “Additional Paid in Capital”, a major preferred stock shareholder of the Company had undertaken to inject funds in the amount of RMB10,000,000 (equivalent to $1,547,000) to HZ Ceetop as its working capital on or before December 31, 2011.  However, up to September 30, 2012, only RMB 2,000,000 (equivalent to $312,412) was injected by that major shareholder and at the same time of injection was waived for repayment by that shareholder so that the amount $312,412 was credited to additional paid in capital.  Management is unable and in particular following returning and cancellation of all preferred stock for no consideration on September 5, 2012 (note 6) to ascertain when the balance of RMB 8,000,000 (equivalent to $1,234,588) would be injected to the Company.  During the nine months ended September 30, 2012, the cash and bank balances were significantly decreased from $855,713 to $13,250 resulting in the drop of liquidity ratio of the Company to 0.59 at September 30, 2012.  These factors create an uncertainty about the Company’s ability to continue as a going concern.  In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of common stock.  There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations notwithstanding that a director advanced a total sum of $844,206 to the Company (note 5) during the nine months ended September 30, 2012.  During the three months ended September 30, 2012, a verbal agreement was reached by the Government of Guiyang (the “Government”) and the Company.  Under the terms of agreement, the Government will provide subsidies to the Company amounting to RMB 10,000,000 in three consecutive years to encourage the Company establish the business in the city in order to enhance the economic development of the city.  However, the subsidy to the Company from the proposed agreement is remote as the agreement had not been signed by both parties so far.  The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These Unaudited Consolidated Financial Statements were prepared by the Company pursuant to the rules and regulations of the SEC.  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to present fairly the operating results for the respective periods.  Certain information and footnote disclosures normally present in Annual Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations.  These Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and footnotes for the year ended December 31, 2011.  The results for nine months ended September 30, 2012, are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company adopted the new accounting guidance (“Codification”) on July 1, 2009. For the nine months ended September 30, 2012, all references for periods subsequent to July 1, 2009 are based on the codification. The Company's functional currency is the Chinese Yuan Renminbi; however the accompanying consolidated financial statements have been translated and presented in the United States Dollars (“USD”).

Principles of Consolidation

The Consolidated Financial Statements incorporate the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognized in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.
 
 
F-6
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Consolidation (continued)

The Consolidated Statements of Income and Comprehensive Income include the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under common control, where this is a shorter period.

A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. Such business combinations are referred to as common control combinations, which is in line with U.S. GAAP.

Translation Adjustment

As of September 30, 2012 and December 31, 2011, the accounts of the Company were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (“CNY”).  Such financial statements were translated into U.S. Dollars (“USD”) in accordance with the Foreign Currency Matters Topic of the Codification, with the CNY as the functional currency.  According to the Codification, all assets and liabilities were translated at the current exchange rate, stockholders’ equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the Codification, as a component of shareholders’ equity.  Transaction gains and losses are reflected in the income statement.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income

The Company uses SFAS 130 “Reporting Comprehensive Income” (codified in FASB ASC Topic 220). 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. Comprehensive income for the three and nine months ended September 30, 2012 and 2011 included net income and foreign currency translation adjustments.

Risks and Uncertainties

The Company’s operations are carried out in the PRC.  Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy.  The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

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.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. There were no contingencies of this type at September 30, 2012 or December 31, 2011.
 
 
F-7
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Contingencies (continued)

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There were no contingencies of this type at September 30, 2012 or December 31, 2011.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

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.  Reserves are recorded based on the Company’s historical collection history.   Allowances for doubtful accounts as of September 30, 2012 and December 31, 2011 were $1,086 and $1,080, respectively.

Advances to suppliers

The Company advances to certain vendors for purchase of goods.  The advances to suppliers are interest free and unsecured.

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market value.  Management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if lower.  As of September 30, 2012 and December 31, 2011, inventories consist of the following:

   
09/30/2012
    
12/31/2011
  
             
Finished goods
   $ 980,192     $ 194,344  

Prior to the three months ended March 31, 2012, the Company only engaged in the provision of an online platform for distribution of 3C products.  As a result of high competition in online shopping, since the three months ended March 31, 2012 the Company is transitioning its sales from online retail sales to focus more on sales to a relatively smaller number of distributors.  As of September 30, 2012, the Company therefore maintained a much higher level of inventory of finished goods as compared with last year.

Property, Plant & 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 for substantially all assets with estimated lives of:

Office equipment
  3 - 5 years
 
 
F-8
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant & Equipment  (continued)

As of September 30, 2012 and December 31, 2011 Property, Plant & Equipment consist of the following:

   
09/30/2012
    
12/31/2011
  
             
Office equipment
     265,492       263,983  
Accumulated depreciation
     (239,377 )     (204,325 )
                 
    $ 26,115     $ 59,658  

Depreciation expense for the nine months ended September 30, 2012 and 2011 was $33,926 and $38,450, respectively.

Depreciation expense for the three months ended September 30, 2012 and 2011 was $12,197 and $12,970, respectively.

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 September 30, 2012 and December 31, 2011, there was no impairment of its long-lived assets.

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.

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.

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising.  The Company expenses all advertising costs as incurred.  For the nine months and three months ended September 30, 2012 and 2011, the Company did not incur any advertising expenses.

 
F-9
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Shipping and Handling costs

Shipping and handling costs consist primarily of freight charges and packaging charges for delivery of goods to the customers and are included in selling, general and administrative expenses.  The Company expenses all shipping and handling costs when they are incurred.  For the nine months ended September 30, 2012 and 2011, the Company incurred freight charges of $1,320 and $90,168 respectively, and packaging charges of $Nil and $2,772 respectively.  For the three months ended September 30, 2012 and 2011, the Company incurred freight charges of $Nil and $30,992 respectively and packaging charges of $Nil and $2,772 respectively.

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 September 30, 2012 and December 31, 2011, the Company did not take any uncertain positions that would necessitate recording a tax related liability.

Statement of Cash Flows

In accordance with SFAS 95 “Statement of Cash Flows”, codified in FASB ASC Topic 230, cash flows from the Company’s operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

 
F-10
 

CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basic and Diluted Earnings per Share

Earnings per share are calculated in accordance with FASB ASC Topic 260, “Earnings per Share”.  Basic earnings per share are 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 are 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.

Share-Based payment

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.  The Company entered into an agreement with a service provider for investor relations and financial media services, the service provider was to be compensated 9,000 shares of Common Stock of the Company no later than the 5th day of, and for each month, over the term of the agreement.  In accordance with the consensus reached in EITF 96-18, the Company recognized in the Consolidated Statement of Income and Comprehensive Income the fair value of 9,000 shares of Common Stock issued to the service provider each month during the term of the agreement as share based payment on the same basis, in the same period, and in the same manner, as if the Company had paid cash for the service rendered by the service provider instead of paying with equity instruments (common stock) of the Company in each month and that the measurement date of the fair value of each 9,000 shares of Common Stock issued to the service provider will be the issue date which is before the 5th day of each month.  However, both parties signed an early termination agreement on August 14, 2012 agreeing that the effective date of termination of the agreement was February 01, 2012.  The Company recognized the stock based compensation expense amounted to $720 for this service which was based on stock price measured at fair market value at the date of allotment of shares on August 23, 2012 (9,000 common shares at $0.08 per share).

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.  At present, there is a high concentration on a few customers as more fully explained in Note 13 hereof.  The Company controls credit risk related to account receivable through credit approvals, credit limits and monitoring procedures.  The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
 
 
F-11
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In December 2011, the FASB issued guidance on offsetting assets and liabilities and disclosure requirements in Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“Update 2011-11”). Update 2011-11 requires that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement.  In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.  Update 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.  The implementation of the disclosure requirement is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

As of September 30, 2012, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

Note 4 - INCOME TAXES

The Company operates in more than one jurisdiction with the main operations conducted in PRC and virtually no activities in USA with complex regulatory environments subject to different interpretations by the taxpayer and the respective governmental taxing authorities. The Company evaluates its tax positions and establishes liabilities, if required.

Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) through December 31, 2007 is at a statutory rate of 33%, which is comprised of 30% national income tax and 3% local income tax.  As from January 1, 2008 onwards, the EIT is at a statutory rate of 25%.

Uncertain Tax Positions

Interest associated with unrecognized tax benefits are classified as income tax and penalties in selling, general and administrative expenses in the statements of operations. For the nine months and three months ended September 30, 2012 and 2011, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions, but the tax authority in PRC has the right to examine the Company’s tax position in all past years.

The deferred tax asset not recognized is as follows:

   
09/30/2012
    
12/31/2011
  
             
Unused tax loss brought forward
   $ 4,124,891     $ 2,671,128  
Unused tax loss for the period/year
     663,757       1,654,520  
Expenses not deductible for tax (share-based payment)
     (231,359 )     (200,757 )
                 
    $ 4,557,289     $ 4,124,891  
                 
Unrecognized deferred tax asset brought forward
     1,031,223       667,782  
Unrecognized deferred tax asset for the year (at PRC tax rate of 25%)
     108,099       363,441  
                 
Unrecognized deferred tax asset carried forward
   $ 1,139,322     $ 1,031,223  
Less : valuation allowances
     (1,139,322 )     (1,031,223 )
                 
Unrecognized deferred tax asset carried forward
   $ -     $ -  
 
 
F-12
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 4 - INCOME TAXES (CONTINUED)

The Company has not recognized deferred tax asset in respect of PRC tax loss in these Consolidated Financial Statements as it is not more-likely-than-not that the future taxable profit against which loss can be utilized will be available to the entities operating in PRC.  The unrecognized tax loss as of December 31, 2011 that will be expiring in 2013, 2014, 2015 and 2016 are respectively $426,068, $648,473, $1,596,587 and $1,453,763.  The unrecognized tax loss incurred for nine months ended September 30, 2012 of $432,398 (on top of the amount of unrecognized tax loss to December 31, 2011) will expire in 2017.

Note 5 - AMOUNT DUE TO A DIRECTOR

The amount due to a director is unsecured, interest free and with no fixed repayment terms.

Note 6 - COMMON STOCK AND PREFERRED STOCK

The Company is authorized to issue up to 100,000,000 shares of common stock of par value of $0.001 per share and 3,558,046 shares of Series A preferred stock of par value of $0.001 per share.  As detailed in Note 1 above, on January 27, 2011, the Company effected a reverse stock split such that the number of all existing issue shares were reduced from 19,900,100 to 866,636 on a 23 to 1 basis.  At the same time, pursuant to the Share Exchange Agreement, Surry became a wholly-owned subsidiary of the Company through issuance of 28,496,427 shares of common stock of par value of $0.001 per share and 3,558,046 shares of Series A preferred stock of par value of $0.001 per share.

For accounting purposes, this transaction was treated as reverse acquisition and the Company’s equity accounts at December 31, 2010 prior to the acquisition are restated based on the ratio of the exchange of 28,496,427 shares of common stock of the Company for 44,450 shares of common stock of Surry and exchange of 3,558,046 shares of preferred stock of the Company for 5,550 shares of preferred stock of Surry.  As the par value of each capital stock of the Company and Surry are $0.001 and $1 respectively, the difference in capital of $17,946 arising from this reverse acquisition was reallocated to additional paid-in capital.

On July 12, 2011, the Company issued 2,900,000 shares of common stock to four independent parties as payments to such parties for market research and other advisory services for $899,000 (see Note 8).

On December 27, 2011 and August 23, 2012, the Company has issued common stock of 18,000 shares and 9,000 shares respectively to an independent party for settlement of services provided to the Company regarding investor relations and financial media services amounted to $4,500 and $720 (Note 8) respectively.

On September 5, 2012, 7,423,817 shares of common stock and 3,558,046 shares of preferred stock held by the four shareholders and a shareholder respectively were returned and cancelled for no consideration.

As of September 30, 2012, the Company has a total of 24,866,246 shares of common stock and no shares of Series A Preferred Stock outstanding.

 
F-13
 

CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 7 - ADDITIONAL PAID IN CAPITAL

Included in the additional paid in capital balance of $5,827,537 as of September 30, 2012, is  $4,399,000 which arose from two waivers of amount due to shareholders which occurred in December, 2009 of $1,465,000 and February, 2010 of $2,934,000.

On July 21, 2011, the Company obtained a financial undertaking from the holder of our preferred stock, Guoxing Wang, to inject funds in the amount of RMB10,000,000 (equivalent to $1,547,000) to HZ Ceetop as its working capital on or before December 31, 2011.  That shareholder further agreed that such capital injection will be interest free and he waived his entitlement to and right for repayment to the capital injected.  On August 8, 2011, there was a capital injection of RMB 2,000,000 (equivalent to $312,412) received from that shareholder and was credited to Additional Paid in Capital of the Company.  Management is unable to ascertain when, or if, the balance of RMB 8,000,000 (equivalent to $1,234,588) would be injected to the Company.

On September 5, 2012, 7,423,817 shares of common stock and 3,558,046 shares of preferred stock held by the four shareholders and a shareholder respectively were returned and cancelled for no consideration, an amount of $10,982 was therefore credited to additional paid in capital on that date.

Note 8 - SHARE BASED PAYMENTS

On July 12, 2011, the Company issued 2,900,000 shares of the Company’s common stock to Wuying Wang, Xiaoghua Jin, Lifang Yang and Qingxin Huang, four independent parties, in exchange for market research and other advisory services from them pursuant to the terms of four consultancy agreements dated May 6, 2011, June 15, 2011, April 3, 2011 and May 5, 2011 respectively (“Consultancy Agreements”) (see Note 6).  These shares were fully vested and not subject to forfeiture when issued. The fair value of the shares issued was $0.31 per share and the total fair value of the shares issued was $899,000.  The fair value of the shares issued was based on the quoted market price of the Company’s shares as of July 12, 2011. The total fair value of the shares issued is recognized as a share-based payment expense over the period from the date of the Consultancy Agreements to the consultancy services are completed.  The consultancy services are to be performed for two to three years.  For the nine and three months ended September 30, 2012 the Company amortized $230,639 and $77,441 as share-based payment expense respectively.  The unrecognized share-based payment expense of $472,104 as of September 30, 2012 will be amortized up to July 2014.  There is no tax benefit related to the share-based payment expense recognized. For the three and nine months ended September 30, 2012, share based payment of $118,816 and $118,816 respectively, was separately recognized and included in selling and expenses.

On December 27, 2011, the Company issued 18,000 shares of the Company’s common stock to Capital Link, Inc., an independent party, in exchange for investor relations and financial media services provided by that party pursuant to the terms of service agreement dated November 9, 2011 (see Note 6).  The shares were fully vested and not subject to forfeiture when issued.  The fair value of the shares issued was $0.25 per share and total fair value of the shares issued was $4,500 and was recognized as a share-based payment expense when issued.  The fair value of the shares issued was based on the quoted market price of the Company’s shares as of December 27, 2011.  These services were to be performed from December 1, 2011 to November 30, 2012 with a monthly retainer payable in the form of 9,000 common shares.  However, both parties signed an early termination agreement on August 14, 2012 agreeing that the effective date of termination of the agreement was February 01, 2012.  The Company recognized stock based compensation expense equal to $720 (a provision of $2,250 had already been recognized in the quarter March 31, 2012, therefore a reversal of $1,530 was recognized in this quarter) for this service which was based on the stock price of the Company  measured at fair market value at the date of allotment of shares on August 23, 2012 (9,000 common shares at $0.08 per share).

Note 9 – STATUTORY RESERVE
 
In accordance with the laws and regulations of the PRC, a wholly-owned Foreign Invested Enterprise’s income, after the payment of the PRC income taxes, shall be allocated to the statutory reserves.  The allocation is 10 percent of the net income and the cumulative allocations are not to exceed 50 percent of the registered capital.  However, the laws do not prohibit enterprises allocate net income to this reserve after the limit of 50 per cent of registered capital has been reached.  These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of September 30, 2012 and December 31, 2011, no allocation to these non-distributable reserve funds has been made due to losses sustained by the Company in both years.
 
 
F-14
 
 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 10 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Balances of related after-tax components comprising accumulated other comprehensive loss, included in stockholders’ equity, at September 30, 2012 and December 31, 2011, are as follows:

   
Foreign Currency Translation Adjustment
    
Accumulated Other Comprehensive Income/(Loss)
  
             
Balance at December 31, 2010
   $ 53,020     $ 53,020  
Change for the 2011
     55,173       55,173  
                 
Balance at December 31, 2011
     108,193       108,193  
Change for 2012 Q1
     6,952       6,952  
                 
Balance at March 31, 2012
     115,145       115,145  
Change for 2012 Q2
     536       536  
                 
Balance at June 30, 2012
     115,681       115,681  
Change for 2012 Q3
     (1,030 )     (1,030 )
                 
Balance at September 30, 2012
   $ 114,651     $ 114,651  

Note 11 - CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC's economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 12 - LEASES

As at September 30, 2012, the Company had total future aggregate minimum lease payments under non-cancellable operating leases as follows:

     
09/30/2012
  
         
Within 1 year
  
$
18,395
  
In the second year
    
14,367
  
In the third year
    
-
  
         
   
$
32,762
  

As at September 30, 2012, the Company has one office situated in Hangzhou, PRC.  The operating leases for this office provide for monthly rental payments of $1,487 that is expiring in June, 2014.  In respect of this lease, the Company paid rental expenses of $12,487 and $4,524 for the nine months ended September 30, 2012 and 2011 respectively.  For the three months ended September 30, 2012 and 2011, the Company paid rental expenses of $4,560 and $4,524 respectively.

 
F-15
 

 
CHINA CEETOP.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
(UNAUDITED)

Note 13 – MAJOR CUSTOMERS AND CREDIT RISK

Two customers each accounted for more than 10% of accounts receivable at September 30, 2012, totaling 93%.  Two customers each accounted for more than 10% of accounts receivable at December 31, 2011, totaling 52%.   There was no vendor that accounted for more than 10% of accounts payable at September 30, 2012 and December 31, 2011.

Four customers each accounted for more than 10% of sales amount for the three months ended September 30, 2012, totaling 87%.  There was no customer that accounted for more than 10% of sales amount for the three months ended September 30, 2011.  Two vendors each accounted for more than 10% of purchases amount for the three months ended September 30, 2012, totaling 77% of purchases.  Two vendors that accounted for more than 10% of purchases amount for the three months ended September 30, 2011, totaling 25% of purchases.

Note 14 – SUBSEQUENT EVENTS

For the nine months ended September 30, 2012, the Company has evaluated subsequent events for potential recognition and disclosure.

No significant events occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our consolidated financial statements.

 
F-16
 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.
 
 
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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

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 Technology Co. Ltd (headquarters)
2803, Lianhe Guangchang A, 5022 Binhe Dadao, Futian District, Shenzhen, China,518033
Telephone: 0755-33366628
Hangzhou Ceetop Network Technology Co. Ltd
 
501 A Yuanhua Wangzuo Center, 65 Xintang Road, Hangzhou, China, 310020
Telephone: +86-0571-86632800
 
 
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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.
 
 
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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.
 
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, the Certifying Officers carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2012. Their evaluation was carried out with the participation of the Company’s management. Based upon their evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures were not effective.
 
 
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Notwithstanding the conclusion that our internal control over financial reporting was not effective as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer believe that the financial statements and other information contained in this quarterly report present fairly, in all material respects, our business, financial condition and results of operations.  Nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of September 30, 2012.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred in the quarter ended September 30, 2012, that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.
 
PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

Neither the Company nor its property is a party to any pending legal proceeding.

Item 1A.  Risk Factors

Smaller reporting companies are not required to provide disclosure pursuant to this Item.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None

Item 6.  Exhibits

None
 
Exhibit Number
Name of Exhibit
 
31.1
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.(1)
 
31.2
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.(1)

32.1
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. (1)

101**
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. (2)
(1)   Filed herewith
(2) Users of this data are advised that pursuant to Rule 406T of Regulation S-T, this XBRL information is being furnished and not filed herewith for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and Sections 11 or 12 of the Securities Act of 1933, as amended, and is not to be incorporated by reference into any filing, or part of any registration statement or prospectus, of China Ceetop.com, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.
 
 
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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
CHINA CEETOP.COM, INC.
  
(Registrant)
      
       
By:
  
/s/ Weiliang Liu
  
   
Weiliang Liu
  
   
CEO, President, Secretary, and Director
  
       
Date:
  
November 14, 2012
  

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signatures
  
Title
  
Date
         
         
/s/ Weiliang Liu
  
CEO, President, Secretary, and Director
  
November 14, 2012
Weiliang Liu
        
 
/s/ Juqun Zhao
  
CFO, and Treasurer
  
November 14, 2012
Juqun Zhao
        
 
 
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