WEB NEWS Comments & Business Outlook
CHINA INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For The Three Months Ended
March 31,
2016
2015
Revenue
$
279,974
$
376,864
Cost of revenue
722,582
804,711
Gross loss
(442,608
)
(427,847
)
Operating Expenses
General and administrative expenses
78,492
142,398
Total operating expenses
78,492
142,398
Loss from operations
(521,100
)
(570,245
)
Non-operating income
Interest income
16,583
19,938
Other expenses
(31
)
(25
)
Total non-operating income
16,552
19,913
Loss before income taxes
(504,548
)
(550,332
)
Income taxes
-
-
Net loss
(504,548
)
(550,332
)
Net loss attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(504,548
)
$
(550,332
)
Other comprehensive loss
Net loss
$
(504,548
)
$
(550,332
)
Foreign currency translation
130,128
118,212
Total comprehensive loss
$
(374,420
)
$
(432,120
)
Loss per share
- Basic
$
(0.09
)
$
(0.10
)
- Diluted
$
(0.09
)
$
(0.10
)
Weighted average common stock outstanding
- Basic
5,538,002
5,538,002
- Diluted
5,538,002
5,538,002
Comments & Business Outlook
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For The Years Ended
December 31,
2015
2014
Revenue
$
1,124,365
$
15,823,565
Cost of revenue
2,949,311
18,487,950
Gross loss
(1,824,946
)
(2,664,385
)
Operating Expenses
General and administrative expenses
571,337
1,095,060
Loss on impairment of property and equipment
1,121,827
-
Loss on disposal of property and equipment
93,543
15,084,137
Loss on disposal of Intangible assets
-
19,209
Total operating expenses
1,786,707
16,198,406
Loss from operations
(3,611,653
)
(18,862,791
)
Non-operating income
Interest income
78,273
109,953
Interest expense
-
(7,040
)
Other expenses
(16,547
)
(46,065
)
Total non-operating income
61,726
56,848
Loss before income taxes
(3,549,927
)
(18,805,943
)
Income taxes
-
981,868
Net loss
(3,549,927
)
(19,787,811
)
Net loss attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(3,549,927
)
$
(19,787,811
)
Other comprehensive loss
Net loss
$
(3,549,927
)
$
(19,787,811
)
Foreign currency translation
(1,222,138
)
(217,260
)
Total comprehensive loss
$
(4,772,065
)
$
(20,005,071
)
Loss per share
- Basic
$
(0.64
)
$
(3.71
)
- Diluted
$
(0.64
)
$
(3.71
)
Weighted average common stock outstanding
- Basic
5,538,002
5,328,686
- Diluted
5,538,002
5,328,686
Auditor trail
Item 4.01 Changes in Registrant’s Certifying Accountant.
China Internet Cafe Holdings Group, Inc. (the “Company”) was notified that, effective April 30, 2016, AWC (CPA) Limited (“AWC”) has merged (the “Merger”) with Dominic K.F. Chan & Co (“DKFC”) and formed DCAW (CPA) Limited (“DCAW”), which is registered with the Public Company Accounting Oversight Board (PCAOB).
As a result of the Merger, AWC resigned as the Company’s independent registered public accounting firm on April 30, 2016. On May 5, 2016, the Company engaged DCAW (CPA) Limited as its independent registered public accounting firm. The engagement of DCAW was approved by the Audit Committee of the Company’s board of directors on May 5, 2016.
The audit reports of AWC on the financial statements of the Company as of and for the years ended December 31, 2014 and 2013 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company’s financial statements for the fiscal years ended December 31, 2014 and 2013 and through the date of this Current Report, there were: (i) no disagreements with AWC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of AWC, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its reports, and (ii) no reportable events of the type described in Item 304(a)(1)(v) of Regulation S-K.
During the Company’s two most recent fiscal years and through May 5, 2016, neither the Company nor anyone on its behalf consulted with DCAW regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report nor oral advice was provided that DCAW concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K and its related instructions, or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.
AWC furnishes the Company with a letter addressed to the Securities and Exchange Commission stating whether or not AWC agrees with the statements made therein. A copy of such letter, dated May 9, 2016, furnished by AWC is filed as Exhibit 16.1 to this Form 8-K.
Comments & Business Outlook
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For The Nine Months Ended
For The Three Months Ended
September 30,
September 30,
2015
2014
2015
2014
Revenue
$
915,095
$
13,788,938
$
253,823
$
1,423,831
Cost of revenue
2,322,585
13,148,341
751,557
4,776,535
Gross profit (loss)
(1,407,490
)
640,597
(497,734
)
(3,352,704
)
Operating Expenses
General and administrative expenses
397,443
880,916
80,942
630,916
(Gain) Loss on disposal of property and equipment
9,270
2,930,003
(13,742
)
-
Total operating expenses
406,713
3,810,919
67,200
630,916
Loss from operations
(1,814,203
)
(3,170,322
)
(564,934
)
(3,983,620
)
Non-operating income
Interest income
60,237
90,194
19,732
21,314
Interest expense
-
(7,037
)
-
-
Other income (expenses)
(16,636
)
(46,842
)
(3,143
)
9
Total non-operating income
43,601
36,315
16,589
21,323
Loss before income taxes
(1,770,602
)
(3,134,007
)
(548,345
)
(3,962,297
)
Income taxes
-
981,469
-
-
Net loss
(1,770,602
)
(4,115,476
)
(548,345
)
(3,962,297
)
Net loss attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(1,770,602
)
$
(4,115,476
)
$
(548,345
)
$
(3,962,297
)
Other comprehensive loss
Net loss
$
(1,770,602
)
$
(4,115,476
)
$
(548,345
)
$
(3,962,297
)
Foreign currency translation
(800,214
)
(304,909
)
(840,719
)
17,746
Total comprehensive loss
$
(2,570,816
)
$
(4,420,385
)
$
(1,389,064
)
$
(3,944,551
)
Loss per share
- Basic
$
(0.32
)
$
(0.78
)
$
(0.10
)
$
(0.72
)
- Diluted
$
(0.32
)
$
(0.78
)
$
(0.10
)
$
(0.72
)
Weighted average common stock outstanding
- Basic
5,538,002
5,258,148
5,538,002
5,494,524
- Diluted
5,538,002
5,258,148
5,538,002
5,494,524
Management Discussion and Analysis
Our revenue is primarily generated from prepaid fees for time usage at our internet cafes. The prepaid fees may be stored either in prepaid IC cards, or in member accounts associated with a member’s ID card. Amounts are deducted based on time usage of computers at our Internet cafes. Our revenue decreased approximately $1.17 million, or 82%, from approximately $1.42 million for the three months ended September 30, 2014 to $0.25 million for the three months ended September 30, 2015. The decrease in revenue was due to a substantial decrease in the number of our internet cafes. During the year of 2014, we closed an aggregate of 51 Internet cafes due to deteriorating businesses and increasing competition, including 22 in the second quarter and 29 in the third and fourth quarters of 2014. In addition, during the quarter ended September 30, 2015, we temporarily closed two internet cafes for renovation. In order to adapt to market changes and improve our revenue, our focus will still be on the optimization of our existing profitable internet cafes and possible expansion of our businesses to other cities and provinces. We expect but not guarantee a recover in revenue once the optimization and expansion of our business take effect.
Our net loss for the three months ended September 30, 2015 was approximately $0.55 million, an increase of approximately $3.41 million, or 86%, from net loss of approximately $3.96 million for the same period in 2014 as a result of the factors described above.
Comments & Business Outlook
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For The Six Months Ended
For The Three Months Ended
June 30,
June 30,
2015
2014
2015
2014
Revenue
$
661,272
$
12,365,107
$
284,408
$
4,705,765
Cost of revenue
1,571,028
8,371,806
766,317
4,284,254
Gross profit (loss)
(909,756
)
3,993,301
(481,909
)
421,511
Operating Expenses
General and administrative expenses
316,501
250,000
174,103
139,471
Loss on disposal of property and equipment
23,012
2,932,867
23,012
2,932,867
Total operating expenses
339,513
3,182,867
197,115
3,072,338
Income (loss) from operations
(1,249,269
)
810,434
(679,024
)
(2,650,827
)
Non-operating income
Interest income
40,505
68,880
20,567
33,514
Interest expense
-
(7,044
)
-
(3,365
)
Other expenses
(13,493
)
(46,851
)
(13,468
)
(46,534
)
Total non-operating income (loss)
27,012
14,985
7,099
(16,385
)
Income (Loss) before income taxes
(1,222,257
)
825,419
(671,925
)
(2,667,212
)
Income taxes
-
882,362
-
-
Net loss
(1,222,257
)
(56,943
)
(671,925
)
(2,667,212
)
Net loss attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(1,222,257
)
$
(56,943
)
$
(671,925
)
$
(2,667,212
)
Other comprehensive loss
Net loss
$
(1,222,257
)
$
(56,943
)
$
(671,925
)
$
(2,667,212
)
Foreign currency translation
199,930
(322,655
)
81,718
67,459
Total comprehensive loss
$
(1,022,327
)
$
(379,598
)
$
(590,207
)
$
(2,599,753
)
Loss per share
- Basic
$
(0.22
)
$
(0.10
)
$
(0.12
)
$
(0.52
)
- Diluted
$
(0.22
)
$
(0.10
)
$
(0.12
)
$
(0.52
)
Weighted average common stock outstanding
- Basic
5,538,002
5,138,002
5,538,002
5,138,002
- Diluted
5,538,002
5,138,002
5,538,002
5,138,002
Management Discussion and Analysis
Revenue
Our revenue is primarily generated from prepaid fees in IC cards and member accounts which include stored value that will be deducted based on time usage of computers at our internet cafes. Our revenue decreased approximately $4.42 million, or 94%, from approximately $4.71 million for the three months ended June 30, 2014 to $0.28 million for the three months ended June 30, 2015. The decrease in revenue was due to a substantial decrease in the number of our internet cafes. During the year of 2014, we closed five internet cafes located in areas with many new internet cafes in April due to deteriorating business resulting from fierce competitions from these new internet cafes, and temporarily closed 17 internet cafes for renovation during the second quarter which were further suspended in the third quarter for incompliance with fire control regulations along with additional 20 internet cafes. As of December 2014, we had closed an aggregate of 51 internet cafes. In order to adapt to market changes and improve our revenue, we will focus on optimizing our existing profitable internet cafes and expanding our businesses to other cities and provinces during 2015. We expect a recover in revenue once the optimization and expansion of our business take effect.
Our net loss for the three months ended June 30, 2015 was approximately $0.67 million, a decrease of approximately $2 million, or 75%, from net loss of approximately $2.67 million for the same period in 2014 as a result of the factors described above.
Comments & Business Outlook
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For The Three Months Ended
March 31,
2015
2014
Revenue
$
376,864
$
7,659,342
Cost of revenue
804,711
4,087,552
Gross profit (loss)
(427,847
)
3,571,790
Operating Expenses
General and administrative expenses
142,398
110,529
Total operating expenses
142,398
110,529
Income (loss) from operations
(570,245
)
3,461,261
Non-operating income
Interest income
19,938
35,366
Interest expense
-
(3,679
)
Other expenses
(25
)
(317
)
Total non-operating income
19,913
31,370
Income (Loss) before income taxes
(550,332
)
3,492,631
Income taxes
-
882,865
Net income/(loss)
(550,332
)
2,609,766
Net income (loss) attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(550,332
)
$
2,609,766
Other comprehensive income (loss)
Net income (loss)
$
(550,332
)
$
2,609,766
Foreign currency translation
118,212
(390,114
)
Total comprehensive income (loss)
$
(432,120
)
$
2,219,652
Earnings (loss) per share
- Basic
$
(0.10
)
$
0.10
#
- Diluted
$
(0.10
)
$
0.10
#
Weighted average common stock outstanding
- Basic
5,538,002
5,137,905
- Diluted
5,538,002
5,137,905
Management Discussion and Analysis
Revenue
Our revenue is primarily generated from prepaid fees in IC cards and member accounts which include stored value that will be deducted based on time usage of computers at our internet cafes. Our revenue decreased approximately $7.28 million, or 95%, from approximately $7.66 million for the three months ended March 31, 2014 to $0.38 million for the three months ended March 31, 2015. The decrease in revenue was due to a substantial decrease in the number of our internet cafes. During the year of 2014, we closed five internet cafes located in areas with many new internet cafes in April due to deteriorating business resulting from fierce competitions from these new internet cafes, and temporarily closed 17 internet cafes for renovation during the second quarter which were further suspended in the third quarter for incompliance with fire control regulations along with additional 20 internet cafes. As of December 2014, we had closed an aggregate of 51 internet cafes. In order to adapt to market changes and improve our revenue, we will focus on optimizing our existing profitable internet cafes and expanding our businesses to other cities and provinces during 2015. We expect a recover in revenue once the optimization and expansion of our business take effect.
Our net income decreased by approximately $3.16 million, or 121%, to net loss of approximately $0.55 million for the three months ended March 31, 2015 from net income of approximately $2.61 million for the same period in 2014 as a result of the factors described above.
Comments & Business Outlook
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
For The Years Ended
December 31,
2014
2013
Revenue
$
15,823,565
$
28,424,318
Cost of revenue
18,487,950
16,825,336
Gross profit (loss)
(2,664,385
)
11,598,982
Operating Expenses
General and administrative expenses
1,095,060
899,688
Loss on disposal of property and equipment
15,084,137
68,644
Loss on disposal of Intangible assets
19,209
-
Total operating expenses
16,198,406
968,332
Income (loss) from operations
(18,862,791
)
10,630,650
Non-operating income
Change in fair value of derivative financial instrument - preferred stock
-
64,280
Change in fair value of derivative financial instrument - warrants
-
329,254
Interest income
109,953
114,120
Interest expense
(7,040
)
(12,825
)
Other expenses
(46,065
)
16,586
Total non-operating income
56,848
511,415
Income (Loss) before income taxes
(18,805,943
)
11,142,065
Income taxes
981,868
2,800,291
Net income/(loss)
(19,787,811
)
8,341,774
Dividend on preferred stock
-
(113,836
)
Net income (loss) attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(19,787,811
)
$
8,227,938
Other comprehensive income (loss)
Net income (loss)
$
(19,787,811
)
$
8,341,774
Foreign currency translation
(217,260
)
1,209,976
Total comprehensive income (loss)
$
(20,005,071
)
$
9,551,750
Earnings (loss) per share
- Basic
$
(3.71
)
$
1.64
#
- Diluted
$
(3.71
)
$
1.61
#
Weighted average common stock outstanding
- Basic
5,328,686
5,016,105
- Diluted
5,328,686
5,178,357
Management Discussion and Analysis
Revenue
Our revenue is primarily generated from prepaid fees of IC cards and member’s accounts which include stored value that will be deducted based on time usage of computers at our internet cafes. Our revenue decreased approximately $12.6 million, or 44%, from approximately $28.4 million for the fiscal year ended December 31, 2013 to $15.8 million for the fiscal year ended December 31, 2014. The decrease in revenue was due to a substantial decrease in our business resulting from the temporary suspension and shutdown of internet cafes in the year of 2014 compared with 2013. We closed five internet cafes located in areas with many new internet cafes in April due to deteriorating business resulting from fierce competitions from these new internet cafes, and temporarily closed 17 internet cafes for renovation during the second quarter which were further suspended in the third quarter for incompliance with fire control regulations along with additional 20 internet cafes. As of December 2014, we had closed an aggregate of 51 internet cafes. As a result, we expect our revenue for 2015 to be substantially less than the prior year due to the substantial decrease in the number of our internet cafes. In order to adapt to market changes and optimize our profitable internet cafes, we will focus on optimizing our existing internet cafes and expanding our businesses to other cities and provinces during 2015.
Our net loss was approximately $19.8 million for the fiscal year ended December 31, 2014, a decrease of approximately $28.0 million, or 337%, from an income approximately $8.3 million for 2013 as a result of the factors described above.
Comments & Business Outlook
CHINA INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
For The Nine Months Ended
For The Three Months Ended
September 30,
September 30,
2014
2013
2014
2013
Revenue
$
13,788,938
$
21,166,465
$
1,423,831
$
6,959,619
Cost of revenue
13,148,341
12,045,782
4,776,535
3,980,038
Gross profit
640,597
9,120,683
(3,352,704
)
2,979,581
Operating Expenses
General and administrative expenses
880,916
512,795
630,916
145,746
Loss on disposal of equipment
2,930,003
-
-
-
Total operating expenses
3,810,919
512,795
630,916
145,746
Income (loss) from operations
(3,170,322
)
8,607,888
(3,983,620
)
2,833,835
Non-operating income
Change in fair value of derivative financial instrument -
-
64,280
-
-
Change in fair value of derivative financial instrument -
-
310,173
-
2,123
Interest income
90,194
13,630
21,314
4,596
Interest expense
(7,037
)
(9,116
)
-
(3,724
)
Other expenses
(46,842
)
(232
)
9
(42
)
Total non-operating income
36,315
378,735
21,323
2,953
Income (Loss) before income taxes
(3,134,007
)
8,986,623
(3,962,297
)
2,836,788
Income taxes
981,469
2,207,690
-
718,954
Net income/(loss)
(4,115,476
)
6,778,933
(3,962,297
)
2,117,834
Dividend on preferred stock
-
(113,836
)
-
(113,836
)
Net income (loss) attributable to China Internet Cafe
$
(4,115,476
)
$
6,665,097
$
(3,962,297
)
$
2,003,998
Other comprehensive income (loss)
Net income (loss)
$
(4,115,476
)
$
6,778,933
$
(3,962,297
)
$
2,117,834
Foreign currency translation
(304,909
)
978,856
17,746
237,854
Total comprehensive income (loss)
$
(4,420,385
)
$
7,757,789
$
(3,944,551
)
$
2,355,688
Earnings (loss) per share
- Basic
$
(0.78
)
$
1.34
#
$
(0.72
)
$
0.39
- Diluted
$
(0.78
)
$
1.32
#
$
(0.72
)
$
0.39
Weighted average common stock outstanding
- Basic
5,258,148
4,975,653
5,494,524
5,137,905
- Diluted
5,258,148
5,137,905
5,494,524
5,137,905
Management Discussion and Analysis
Revenue
Our revenue is primarily generated from sales of prepaid IC cards and SIM cards which include stored value that will be deducted based on time usage of computers at our internet cafes. Our revenue decreased approximately $5.5 million, or 80%, from approximately $6.9 million for the three months ended September 30, 2013 to $1.4 million for the three months ended September 30, 2014. The decrease in revenue was due to our decreased business hours in the third quarter of 2014 compared with the same period of 2013. We fully closed 5 existing internet cafes located in areas with many new internet cafes in April, temporarily closed 17 existing internet cafes for renovation during the second quarter in order to provide good entertainment environments to our customers, and temporarily closed 20 existing internet cafes in order to strengthen internet cafes’ fire safety management required by Shenzhen government during the third quarter. We will expect a recover in revenue when we reopen our 37 temporarily closed internet cafes as soon as they pass the fire safety inspections performed by Shenzhen Government.
Our net income decreased by approximately $6.1 million, or 287%, to approximately $4.0 million loss for the three months ended September 30, 2014 from approximately $2.1 million income for the same period in 2013 as a result of the factors described above. We expect (but cannot guarantee) our net profit will return to historical levels when we reopen 37 temporarily closed internet cafes as soon as they pass the fire safety inspections performed by Shenzhen Government.
Comments & Business Outlook
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)
For The Six Months Ended
For The Three Months Ended
June 30,
June 30,
2014
2013
2014
2013
Revenue
$
12,365,107
$
14,206,846
$
4,705,765
$
7,008,539
Cost of revenue
8,371,806
8,065,744
4,284,254
3,989,666
Gross profit
3,993,301
6,141,102
421,511
3,018,873
Operating Expenses
General and administrative expenses
250,000
367,049
139,471
95,866
Loss on disposal of equipment
2,932,867
-
2,932,867
-
Total operating expenses
3,182,867
367,049
3,072,338
95,866
Income(loss) from operations
810,434
5,774,053
(2,650,827
)
2,923,007
Non-operating income(expenses)
Change in fair value of derivative financial instrument - preferred stock
-
64,280
-
-
Change in fair value of derivative financial instrument - warrants
-
308,050
-
30,999
Interest income
68,880
9,034
33,514
4,441
Interest expense
(7,044
)
(5,392
)
(3,365
)
(152
)
Other expenses
(46,851
)
(190
)
(46,534
)
(45
)
Total non-operating income(expenses)
14,985
375,782
(16,385
)
35,243
Income(loss) before income taxes
825,419
6,149,835
(2,667,212
)
2,958,250
Income taxes
882,362
1,488,736
-
732,392
Net income(loss)
(56,943
)
4,661,099
(2,667,212
)
2,225,858
Dividend on preferred stock
-
(113,836
)
-
(113,836
)
Net income(loss) attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
(56,943
)
$
4,547,263
$
(2,667,212
)
$
2,112,022
Other comprehensive income(loss)
Net income(loss)
$
(56,943
)
$
4,661,099
$
(2,667,212
)
$
2,225,858
Foreign currency translation
(322,655
)
741,002
67,459
544,310
Total comprehensive income(loss)
$
(379,598
)
$
5,402,101
$
(2,599,753
)
$
2,770,168
Earnings(loss) per share
- Basic
$
(0.01
)
$
0.93 #
$
(0.52
)
$
0.41 #
- Diluted
$
(0.01
)
$
0.91 #
$
(0.52
)
$
0.41 #
Weighted average common stock outstanding
- Basic
5,138,001
4,892,287
5,138,001
5,138,001
- Diluted
5,138,001
5,138,001
5,138,001
5,138,001
Management Discussion and Analysis
Revenue
Our revenue is primarily generated from sales of prepaid IC cards and SIM cards which include stored value that will be deducted based on time usage of computers at our internet cafes. Our revenue decreased approximately $2.3 million, or 33%, from approximately $7.0 million for the three months ended June 30, 2013 to $4.7 million for the three months ended June 30, 2014. The decrease in revenue was due to our decreased business hours in the second quarter of 2014 compared with the same period of 2013. We fully closed 5 existing internet cafes located in areas with many new internet cafes in April and temporarily closed another 17 existing internet cafes for renovation during the second quarter in order to provide good entertainment environments to our customers. The 9 out of 17 renovated internet cafes were reopened in June 2014 and another 8 out of 17 renovated internet cafes were reopened in July and August of 2014. We will expect a recover in revenue after the renovation process.
Our net income decreased by approximately $4.8 million, or 220%, to approximately $2.7 million loss for the three months ended June 30, 2014 from approximately $2.1 million income for the same period in 2013 as a result of the factors described above. We expect our net profit will be stable in the future.
Comments & Business Outlook
CHINA INTERNET CAFE HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For The Years Ended
December 31,
2013
2012
Revenue
$
28,424,318
$
29,575,042
Cost of revenue
16,825,336
20,851,761
Gross profit
11,598,982
8,723,281
Operating Expenses
General and administrative expenses
899,688
1,199,510
Loss on disposal of fixed assets
68,644
-
Cafe relocation costs
-
763,219
Total operating expenses
968,332
1,962,729
Income from operations
10,630,650
6,760,552
Non-operating income (expenses)
Change in fair value of derivative financial instrument - preferred stock
64,280
83,424
Change in fair value of derivative financial instrument - warrants
329,254
(199,758
)
Interest income
114,120
18,624
Interest expense
(12,825
)
(14,501
)
Other expenses
16,586
(14,515
)
Total non-operating income (expenses)
511,415
(126,726
)
Income before income taxes
11,142,065
6,633,826
Income taxes
2,800,291
1,857,341
Net income
8,341,774
4,776,485
Dividend on preferred stock
(113,836
)
(216,605
)
Net income attributable to China Internet Cafe Holdings Group, Inc. common stockholders
$
8,227,938
$
4,559,880
Other comprehensive income
Net income
$
8,341,774
$
4,776,485
Foreign currency translation
1,209,976
122,162
Total comprehensive income
$
9,551,750
$
4,898,647
Earnings per share
- Basic
$
0.33
$
0.21
- Diluted
$
0.32
$
0.19
Weighted average common stock outstanding
- Basic
25,080,525
21,335,038
- Diluted
25,891,783
25,629,741
Management Discussion and Analysis
Results of Operations
Revenue
Our revenue is primarily generated from sales of prepaid IC cards which include stored value that will be deducted based on time usage of computers at our internet cafes. Our revenue decreased approximately $1.2 million, or 4%, from approximately $29.6 million for the fiscal year ended December 31, 2012 to $28.4 million for the fiscal year ended December 31, 2013. The slight decrease in revenue was due to normal fluctuation of business. We will continue to focus on growth within Shenzhen while simultaneously pursuing options for expansion through establishment and acquisition of internet cafes in other cities and provinces.
Net Income
Our net income increased by approximately $3.6 million, or 75%, to approximately $8.3 million for the fiscal year ended December 31, 2013 from approximately $4.8 million for the same period in 2012 as a result of the factors described above. We expect our net profit will be stable in 2014 after applying the benefit of value added taxes starting by the end of 2012.
Comments & Business Outlook
Item 1.01 Entry into a Material Definitive Agreement
On January 27, 2014, China Internet Café Holdings Group, Inc. (the “Company”) and its controlled entity, Shenzhen Junlong Culture Communication Co., Ltd. entered into a health products distribution agreement (the “Distribution Agreement”) with Beijing Eastern Union Medical Biotechnology, Ltd. and its subsidiary Ningxia Eastern Outai Medicine, Ltd. (collectively, “Eastern Union”) to distribute and sell Eastern Union’s Yiyou Series of nutriceutical products including melatonin tablets, Vitamin B tablets, calcium and zinc chewable tablets and multi-vitamin tablets (the “Products”). Pursuant to the agreement, the Company will purchase the Products on consignment and sell them to customers on the non-medical entity market in Guangdong Province, China, including the Company’s 62 internet cafés in Shenzhen, China. The agreement is valid from January 27, 2014 to January 30, 2015. The Company has the priority to renew the agreement upon termination.
The forgoing description of the Distribution Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Distribution Agreement attached hereto as Exhibit 10.1, which is incorporated herein by this reference.
Comments & Business Outlook
Second Quarter of 2012 Financial Results
Revenue decreased approximately $1.75 million or 20% to approximately$6.88 million , as compared to approximately $8.63 million for the quarter ended June 30, 2011. At June 30, 2012, the Company issued over 2.65 million membership cards, a 6% increase from 2.50 million at the end of the first quarter of 2012. Approximately 50% of all registered users were active in the past year and all of them have used their IC card at least once in the past year.
Gross profit for the quarter ended June 30, 2012 decreased by approximately $1.62 million , to approximately$1.94 million , down 45% from approximately $3.55 million for the quarter ended June 30, 2011.
Net income decreased by approximately $4.20 million, or 77% , to approximately $1.23 million during the three months ended June 30, 2012 from approximately $5.43 million during the same period in 2011 as a result of the factors described previously. The company expects to generate higher net profit after the completion of the internet cafes' relocation by the end of the third quarter of 2012.
"Customers continue to visit our cafes because of our convenient locations, high speed connectivity and new computers which offer a wide variety of games and movies, creating an excellent experience" said Mr. Dishan Guo, Chief Executive Officer of the Company. "We will continue to balance our growth between existing cafes, new caf openings, and acquisitions. With approximately $22.3 million of cash and strong cash flows, we are evaluating several attractive options to deploy our capital organically and through acquisitions."
Comments & Business Outlook
SHENZHEN, China , August 7, 2012 /PRNewswire-Asia-FirstCall / -- China Internet Cafe Holdings Group, Inc. ("CICC" or the "Company") (OTCQB: CICC), one of the largest owners and chain operators of internet cafes in China , announced the grand opening of three new internet cafes, bringing the total number of operating locations to 62 from 59 in Shenzhen .
The three new locations were opened throughout Shenzhen in June and July 2012 for a total capital investment of $1.58 million with a combined capacity of over 755 computers. Selection for the new cafes were identified by the Company's dedicated team which sources prime locations within walking distance to factories, and within highly populated and dense geographies such as universities, industrial zones and business centers. Management expects to initially have approximately 9750 registered users across the new locations in the first month of operation, with average revenue per computer of $0.45 /hour. After the first month, China Internet Cafe estimates the total client base for the four new cafes will grow to reach 2.67 million users.
"We are excited to have reached our 62nd cafe opening, and expect these three additional cafes to generate approximately $1.66 million during the next twelve months," said Mr. Dishan Guo , Chief Executive Officer of China Internet Cafe. "Although the pace has been rapid, each cafe is carefully selected in areas with dense concentrations of our targeted customer base to maximize its revenue contribution. These customers include students and local workers who value our premium high speed Internet performance and reliability, and wide variety of high-end games and entertainment. Going forward we will continue to evaluate additional new locations to execute our growth plans."
Comments & Business Outlook
First Quarter 2012 Results
For the quarter ended March 31, 2012 , net revenue increased 10% to $7.13 million , compared to $6.5 million in the first quarter of 2011.
Net income increased by approximately $1.04 million to approximately $0.33 million for the quarter ended March 31, 2012 from net loss of approximately $0.71 million during the same period in 2011.
Earnings per share were $0.01 compared to negative $0.04 for the first quarter of 2011.
Customers continue to visit our cafes because of our convenient locations, high speed connectivity and new computers which offer a wide variety of games and movies, creating an excellent experience," said Mr. Dishan Guo , Chief Executive Officer of the Company. "We will continue to balance our growth between existing cafes, new cafe openings, and acquisitions. With approximately $22 million of cash and strong cash flows, we are evaluating several attractive options to deploy our capital organically and through acquisitions."
Business Updates
Management expects to open 1 new cafe during the second quarter of 2012. The average capital expenditure to open a new store varies by size and location but typically averages $250,000 . With average annual revenue per store of $500,000 and a 28% net margin, the average payback period is less than 2 years.
The Company plans to drive same store sales by offering new loyalty programs such as online gaming competitions, while increasing the availability of high quality, value-added content such as movies, TV shows and video games. In 2012, a credit rewards program will allow loyal customers to earn extra gaming time and encourage credit consumption. For example, customers recharging 100 RMB into the IC card will receive a 20% credit back the following month. New cafes will be outfitted with private rooms that are equipped with surround sound and movie screening areas. It will also include team gaming and tournament play areas with LCD screens for spectator viewing to drive incremental player utilization and the average revenue per user.
Management is actively evaluating potential acquisitions outside Shenzhen in order to expand its geographic footprint and to eventually secure a national internet cafe license. The Company will follow a strict set of criteria for all acquisition candidates in order to maximize returns to shareholders. The Company believes it will consummate a transaction by the summer of 2012.
Comments & Business Outlook
Fourth Quarter 2011 Results
For the quarter ended December 31, 2011 , net revenue increased 41% to $8.9 million , compared to $6.3 million in the fourth quarter of 2010.
For the quarter ended December 31, 2011, EPS was $0.14 vs $0.07 in prior year quarter
"We are pleased to report a great fourth quarter, which achieved strong top line growth to finish a successful 2011 with positive momentum," said Mr. Dishan Guo , Chief Executive Officer of China Internet Cafe. "During 2011, we opened 15 new stores, bringing the total number of internet cafes operating under the "Dragon Surf" brand name to 59. While we continue to expand our presence in Shenzhen , we have also worked to identify suitable acquisition targets in provinces beyond Guangdong , which will leverage our management expertise and operating infrastructure to capitalize on growth opportunities in other desirable geographic locations."
In 2012 the China Internet Cafe will focus on organic growth of its owned and operated ("O&O") internet cafe outlets as it continues to expand its presence in Shenzhen , where population growth and the influx of migrant workers are expected to continue. CICC opened 15 new cafes in 2011, an increase of 34% from 44 in 2010. The average capital expenditures per cafe in 2011 were $0.25 million and are consistent with the strategy to open more high-end cafes with a larger number of total seats. With average revenue per store of $0.55 million per year and a 29% net margin, the average payback period is 1.5 to 2 years.
In 2012, management expects to add 25 new cafes. This includes a mix between small and large depending on the demographics surrounding each location and potentially acquiring an internet cafe chain company.
The Company plans to drive same store sales by offering new loyalty programs such as online gaming competition and focusing on increasing the availability of high quality value-added content such movies, TV shows and video games.
Management is currently evaluating acquisitions outside Shenzhen in order to expand its geographic footprint and to eventually secure a national internet cafe license. The Company continues to carry out stringent due diligence on potential targets, with a disciplined focus on accretive opportunities.
Fiscal 2012 revenue guidance of $50 million and net income guidacne of $14 million.
Comments & Business Outlook
Third Quarter 2011 Results
For the quarter ended September 30, 2011 , net revenue increased 47% to $8.6 million , compared to $5.8 million in the third quarter of 2010.
Non-GAAP adjusted net income for the period was $2.0 million , a 25% increase from the $1.6 million for the year ago period. Non-GAAP adjusted earnings per share were $0.09 compared to $0.08 for the third quarter of 2011 and 2010, respectively.
"We are seeing balanced growth in our new and existing cafes," explained Mr. Dishan Guo , Chief Executive Officer of China Internet Cafe. "Revenues from our cafes opened one year or longer increased 1.3%, representing 66% of total sales. More customers are coming to our cafes because of our convenient locations, high speed connectivity and new games and movies at an affordable price. With strong economic growth and migrant flows in Shenzhen , we expect to maintain solid growth for the remainder of 2011 and into 2012."
Business Updates
During the first nine months of 2011, the Company opened 13 new locations, bringing the total number of cafes to 57. The average capital expenditure to open a new store varies by size and location but typically average $250,000 . With average annual revenue per store of $500,000 and a 28% net margin, the average payback period is less than 2 years.
Management continues to evaluate potential acquisitions outside Shenzhen in order to expand its geographic footprint and to eventually secure a national internet cafe license. In order to meet the basic requirements to acquire a national internet chain license, the Company has an objective to establish or acquire at least 20 internet cafes in two provinces other than Guangdong Province . In the past twelve months, the Company has conducted research in Chongqing , Sichuan , Guizhou , Yunnan , Hunan and Hubei provinces to evaluate the growth potential in each market. The Company will follow a strict set of criteria for all acquisition candidates in order to maximize returns to shareholders.
Investor Presentations
On September 13, 2011, China Internet Cafe Holdings Group, Inc. (the “Company”) made a presentation to investors and potential investors at the Rodman & Renshaw Annual Global Investment Conference held at the Waldorf = Astoria Hotel in New York City.
Comments & Business Outlook
Second Quarter 2011 Results
For the quarter ended June 30, 2011 , net revenue increased 88% to $8.6 million , compared to $4.6 million in the second quarter of 2010
Adjusted earnings per share were $0.10 compared to $0.08 for the first quarter of 2011 and 2010, respectively.
"We are pleased to report robust growth for the first half of 2011," said Mr. Dishan Guo , Chief Executive Officer of China Internet Cafe." We have experienced balanced improvements across our 57 stores, including 13 opened year-to-date in Shenzhen . By offering customers convenient locations, high speed connectivity with quality computers, in addition to new games and movies at an affordable price, we have created unique social gathering places where our younger customers continue to visit frequently. Our user base is supported by rapid computer adoption and increasing disposable income. CICC recently received two key awards from the National Internet Cafe Development Union and Guangdong Provincial Government, further denoting our achievements as both a visionary and a leader in our industry. With over $16 million in cash and strong cash flow, our growth strategy includes a balance of organic growth through existing cafes, complemented by targeted new cafe openings, and acquisitions."
Comments & Business Outlook
SHENZHEN, China, June 21, 2011 /PRNewswire-Asia / -- China Internet Cafe Holdings Group, Inc. ("CICC" or the "Company") (OTCQB: CICC), one of the largest owners and chain operators of internet cafes in southern China, announced the grand opening of seven new internet cafes, bringing the total number of operating locations to 55 in Shenzhen.
The seven new locations were opened throughout Shenzhen in April and May 2011 for a total capital investment of $3.3 million with a combined capacity of over 1,600 computers. Selection for the new cafes were identified by the Company's dedicated team which sources prime locations within walking distance to factories, and within highly populated and dense geographies such as universities, industrial zones and business centers. Management expects to initially have approximately 226,000 registered users across the new locations in the first month of operation, with average revenue per computer of $0.55/hour. After the first month, China Internet Cafe estimates the total client base for the seven new cafes will grow to reach 10.8 million users.
"We are excited to have reached our 55th cafe opening, and expect these seven additional cafes to generate approximately $3.2 million during the next twelve months," said Mr. Dishan Guo, Chief Executive Officer of China Internet Cafe. "Although the pace has been rapid, each cafe is carefully selected in areas with dense concentrations of our targeted customer base to maximize its revenue contribution. These customers include students and local workers who value our premium high speed Internet performance and reliability, and wide variety of high-end games and entertainment. Going forward we will continue to evaluate additional new locations to execute our growth plans."
Comments & Business Outlook
"We delivered solid growth in the first quarter ," said Mr. Dishan Guo, Chief Executive Officer of China Internet Cafe. "Customers continue to visit our cafes because of our convenient locations, high speed connectivity and new computers which offer a wide variety of games and movies, creating an excellent experience. We will continue to balance our growth between existing cafes, new cafe openings, and acquisitions. With over $15 million of cash and strong cash flows, we are evaluating several attractive options to deploy our capital organically and through acquisitions ."
Comments & Business Outlook
For the quarter ended December 31, 2010 , net revenue increased 74.5% to $6.3 million, compared to $3.6 million in the fourth quarter of 2009
"We are pleased to report a strong fourth quarter, which achieved record top line growth to finish a successful 2010 with positive momentum ," said Mr. Dishan Guo, Chief Executive Officer of China Internet Cafe. "During the fourth quarter we opened 5 new stores, bringing the total number of internet cafes operating under the "Dragon Surf" brand name to 44. While we continue to expand our presence in Shenzhen, we have also worked to identify suitable acquisition targets in provinces beyond Guangdong, which will leverage our management expertise and operating infrastructure to capitalize on growth opportunities in other desirable geographic locations ."
SUMMARY FINANCIALS
Fourth Quarter 2010 Results
Q4 2010
Q4 2009
CHANGE
Sales
$ 6.3 million
$ 3.6 million
+ 74. 5 %
Gross Profit
$ 2.3 million
$ 1.5 million
+ 58.0 %
Net Income
$ 1. 5 million
$ 1.1 million
+36.4 %
EPS (Fully Diluted)
$0 .0 8
$0. 06
+33.3 %
Full Year 2010 Results
FY 2010
FY 2009
CHANGE
Sales
$ 20.5 million
$ 14.0 million
+ 45.7 %
Gross Profit
$ 8.6 million
$ 5.6 million
+ 53.4 %
Net Income
$ 5.7 million
$4. 4 million
+ 29.5 %
EPS (Fully Diluted)
$0.29
$0. 2 3
+26.1 %
Business Outlook
In 2011 the China Internet Cafe will focus on organic growth of its owned and operated ("O&O") internet cafe outlets as it continues to expand its presence in Shenzhen, where population growth and the influx of migrant workers are expected to continue. CICC opened 16 new cafes in 2010, and increase of 57% from 28 in 2009. The average capital expenditures per cafe in 2010 were $0.25 million and are consistent with the strategy to open more high-end cafes with a larger number of total seats. With average revenue per store of $0.52 million per year and a 28% net margin , the average payback period is 1.5 to 2 years.
During the first quarter of 2011, the Company opened four new locations. During the second quarter of 2011, management expects to add seven new cafes. This includes a mix between small and large depending on the demographics surrounding each location.
The Company plans to drive same store sales by offering new loyalty programs such as online gaming competition and focusing on increasing the availability of high quality value-added content such movies, TV shows and video games. In 2011, a credit rewards program will allow loyal customers to earn extra gaming time and encourage credit consumption. For example, customers using 300-499 credits within a month will receive a 5% credit back the following month. New cafes will be outfitted with private rooms with surround sound, equipped movie screening areas, and team gaming and tournament play areas with LCD screens for spectator viewing to drive incremental revenue and increase the average revenue per user.
Management is currently evaluating acquisitions outside Shenzhen in order to expand its geographic footprint and to eventually secure a national internet cafe license. The Company continues to carry out stringent due diligence on potential targets, with a disciplined focus on accretive opportunities. As such, management is confident it will consummate a transaction before the beginning of September 2011.
Beginning in the second half of 2011 China Internet Cafe plans to launch a unique franchise model which will leverage the company's operating expertise. The franchisee will have no up-front costs aside from the build-out, will own the cafe and receive 60% of annual income. China Internet Cafe will grant the franchisee the right to use CICC's internet cafe operating license and Junlong brand, assist the franchisee with securing the appropriate store location, train the management team, and assist with implementing all operating and finance software in exchange for 40% of each franchise store's net income.
Deal Flow
SHENZHEN, China, Feb. 23, 2011 /PRNewswire-Asia / -- China Internet Cafe Holdings Group, Inc. announced that the Company closed a private placement financing with investors with gross proceeds of $6.35 million to fund the expansion of the Company's internet cafe portfolio.
Comments & Business Outlook
SHENZHEN, China, Dec. 16, 2010 /PRNewswire-Asia-FirstCall / -- China Unitech Group, Inc. ("China Unitech" today announced that it has added five new internet cafes in Shenzhen, bringing the total number of internet cafes under the Company's operation to 48.
From October to December 2010, China Unitech added five internet cafes in Shenzhen with a total capital investment of $1.5 million . Comprised of 815.6 square meters on average, these internet cafes are located in Bao'an, Henggang, Pingshan, and Shajing, Shenzhen. With estimated average payback period of 2 years, management expects these stores to contribute an aggregate of approximately $2.4 million a nnuall y in total. Currently, one of the internet cafes is ready for operation, while the remaining ones are in the process of construction. China Unitech believes construction and renovation of the four other internet cafes will be completed by March 2011. For 2010, China Unitech expects to achieve approximately $19 million in revenue.
"Following our recent successful introduction of seven additional new internet cafes in the third quarter of this year, we are pleased that we further expanded our network in Shenzhen by adding five facilities to be operated under the "Dragon Surf" brand name, which we believe will enable us to expedite penetration in our existing market. In order to increase capacity, we are planning to add a total of 1332 computer units to these new internet cafes. We believe the investment in additional equipment will contribute favorably to our revenue and profitability over time," commented Mr. Dishan Guo, Chief Executive Officer of China Unitech Group, Inc. "As one of the biggest internet café operators in Shenzhen, we plan to continue to look for opportunities to strengthen our network in our key market, while identifying suitable acquisition targets to enter provinces beyond Guangdong, which will qualify us to become a national internet café operator in China."
GeoTeam Note: CUIG reported 2009 revenues of $14.0 million, net income of $4.4 milion and EPS of $0.23 . Guidance implies that it will report 2010 vs 2009 fourth quarter
revenues of about $ 5.0 million vs. $3.6 million
net income of about $1.4 million vs. $1.1 million
EPS of about $0.07 vs. $0.06
Comments & Business Outlook
Third Quarter 2010 Highlights
Revenue increased 61.4% to $5.8 million year-over-year
Gross profit increased 83.5% year-over-year to $2.7 million
Operating income increased 52.7% to $2.2 million year-over-year
Net income was $1.6 million in the third quarter of 2010, up 41.4% year-over-year
Cash flow provided by operating activities was $6.1 million for the nine months ended September 30, 2010 , as compared to $3.6 million for the same period last year
Acquired one internet cafe in and opened 6 additional internet cafes in the third quarter of 2010
"We are pleased to report another quarter of momentous financial performance with significant surges in our top line and bottom line, representing an increase of 61.4% and 41.4%, respectively, year-over-year. During the third quarter, we successfully added 7 additional new stores, bringing the total number of internet cafes under the "Dragon Surf" brand name to 43. While we continued to expand our presence in Shenzhen , we executed innovative ways to attract and sustain customers, resulting in improved average occupation rate. This has demonstrated Junlong's seasoned capability and Junlong is well on the way to becoming a major national internet cafe operator in the future," commented Mr. Dishan Guo , Chief Executive Officer of China Unitech Group, Inc.
Business Outlook
The Company plans to complete acquisitions in Guizhou , Yunnan and Sichuan provinces in the future in order to qualify as a national internet cafe operator.
"For the remainder of 2010, we continue to look for acquisition opportunities to expand our presence outside of Guangdong province as this move would enable us to qualify as one of few national internet cafe operators in China . While we are lagging behind our initial timeline for completing cross provincial acquisitions, we continue to carry out stringent due diligence on potential targets. Despite the delay, we anticipate healthy and stable top line growth in the last quarter of 2010 supported by our acquisitions completed thus far and the strong market demand for internet cafe services," commented Mr. Guo.
CFO Trail
On September 27, 2010, the
board of directors appointed Mr. Dishan Guo, the company’s Chief Financial Officer effective from that date. Mr. Guo, 46, has been serving as our sole director, Chairman and Chief Executive Officer since July 2, 2010, the day that we consummated our reverse acquisition with Classic Bond Development Limited (“Classic Bond”), a British Virgin Islands company. Through Classic Bond’s control over Shenzhen Junlong Culture Communications Co., Ltd. (“Junlong”), a PRC company, we became involved in the internet café business in the PRC.
Comments & Business Outlook
Second Quarter 2010 Results:
For the quarter ended June 30, 2010 , net revenue increased 27.4% to $4.6 million , compared to $3.6 million in the second quarter of 2009. Net income increased 25.3% to $1.4 million , compared to $1.1 million for the same period last year.
"We are pleased to report strong second quarter financial results, characterized by double-digit growth in both our top and bottom line. Recently, we acquired two internet cafes and opened six independently managed locations under our "Dragon Surf" brand name. Located in the Longgang and Yantian districts of Shenzhen , these internet cafes contributed favorably to our year-over-year revenue growth of 27.4%. As a leading internet cafe operator, we are committed to providing a safe, entertaining and interactive place for internet users in China ," commented Mr. Dishan Guo , Chief Executive Officer of China Unitech Group, Inc.
Business Outlook
For the remainder of the year, the Company plans to focus on geographic expansion and expects continued growth in the demand for internet cafes due to the increased population of migrant workers.
"In the second half of this year, we plan to expand our presence to Guizhou , Yunnan and Sichuan provinces, which will enable us to qualify as one of the few national internet cafe operators by the end of 2010. This will mark a significant milestone for us in our quest to expand our footprint outside of Guangdong province. We also plan to open additional, independently managed internet cafes in strategic locations in Shenzhen in order to accelerate penetration of our existing geographic markets. We anticipate market demand for internet cafes to remain strong, which in turn will support our top line performance during the remaining months of this year," commented Mr. Guo.
Reverse Merger Activity
On July 2, 2010 China Unitech Group consummated a reverse merger transaction with Classic Bond.
Company Snapshot:
Classic Bond is a holding company that owns 100% of the outstanding capital stock of Zhonghefangda, a PRC company that operates a chain of internet cafés.
**Also upon the closing of the reverse acquisition, our board of directors increased its size from one to five members
Industry Snapshot:
Internet cafés have been booming in China in the recent years. According to the "Survey of China Internet Café Industry" by the Ministry of Culture in 2005, China had 110,000 internet cafés, with more than 1,000,000 employees and contributing RMB 18,500,000,000 to China's GDP. According to an article entitled “China Surpasses U.S. in Number of Internet Users” written by David Barboza in the New York Times July 26, 2008 issue, the number of internet users in the China reached about 253 million in June 2008, thereby, putting China ahead of the United States as the world’s biggest internet market. Within the Chinese internet market, internet cafés have been a fast growing segment. According to Pearl Research, a business intelligence and consulting firm, China’s online game market rose 63% in 2008 to $2.8 billion. Given the relatively low rate of computer ownership in China as compared to Western countries, internet cafés have become the primary distribution point for games in China. A substantial number of game players access online games through internet cafés and these players are crucial for survival of internet cafés. Given the pivotal position of internet cafés, many online game companies have been making great efforts to support internet cafés to expand their customer base. Besides games, internet cafés are able to develop partnerships with other online information providers. These companies provide games as well as other information services. These providers have significant revenues and profits.
Post Merger Share Calculation :
6,173,600: Pre reverse merger outstanding shares
5,173,600: Shares cancelled as part of the Share Exchange
19,000,000: Newly issued shares of Common Stock
GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions: 20,000 ,000
Financial Snapshot:
Our revenue is generated from sales of prepaid IC cards. Sales revenue increased $516,402, or 16.11%, to $3,721,105 for the three months ended March 31, 2010 from $3,204,703 for the same period in 2009. The increase was mainly because of the revenue generated by the cafes opened in 2009 which became operative in the first quarter of 2010. Our net income increased $172,075, or 17.36%, to $1,163,259 during the three months ended March 31, 2010 from $991,184 during the same period in 2009.
Investor Alert
The Chinese government has been tough on internet café regulations. In 2003, the Chinese government imposed a minimum capital requirement of RMB 10 million (approximately $1.47 million) for regional café chains and RMB 50 million (approximately $7.32 million) for national café chains. On September 29, 2002, the State Council issued “Regulations on the Administration of Business Sites of Internet Access Services.” The regulations require a license to operate internet cafés which may not be assigned or leased to any third parties. The regulations also have detailed provisions regarding internet cafés’ business operations and security control. These regulations reduced the number of internet cafés.
Liquidity Requirements
We believe that we maintain good relationships with the various banks we deal with and our current available working capital, after receiving the aggregate proceeds from our planned capital raising activities and bank loans referenced above, should be adequate to sustain our operations at our current levels through at least the next twelve months.
