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CTK Stock: Due Diligence – SEC Filings – Risk Factors

CTK Stock – What Investors Should Know About CooTek Inc.

CTK StockCooTek Inc (CTK Stock) is a mobile internet company operating in the USA and China offering a portfolio of content-rich mobile applications. The company’s products are content-rich Mobile Applications that include Online literature, Mobile games, and Scenario-based mobile apps.  For example, fitness, healthcare, Phone call interface decoration, TouchPal Smart Input, and TouchPal Phonebook. It derives the majority of its revenue from the United States. CooTek operates as a mobile internet company in the United States, the People’s Republic of China, and internationally. It distributes its products and acquires users primarily through user downloads from digital distribution platforms and social media. The company was founded in 2008 and is headquartered in Shanghai, the People’s Republic of China.

CooTeK Product Offerings and Mobile Apps

  • Online literature – Fengdu Novel is a mobile application that provides users with free online novels.  Fengdu Literature is a platform covering 14 major categories of male and female-preferred content.  It includes genres of romance, fantasy, science fiction, history, and others.
  • Mobile Games – It also provides casual games, such as dress-up games, including Catwalk Beauty, Truth Runner, and Love Fantasy.  And, simulation games featuring Farm Hero and Idle Land King Tycoon.  Puzzle and educational games are available such as Hi Hamster, Puzzle No. 1, and Idiom Hero.
  • Mobile Apps – TouchPal Smart Input and TouchPal Phonebook are input methods for mobile devices. The platform supports approximately 110 languages and is available on both Android and iOS operating systems.

 CTK Stock: Annual Reports – Financials – SEC Filings

CooTek(Cayman)Inc. is incorporated in the state of the Cayman Islands. CooTek(Cayman)Inc is primarily in the business of services-computer processing & data preparation. For financial reporting, their fiscal year ends on December 31st. This page includes all SEC registration details as well as a list of all documents (S-1, Prospectus, Current Reports, 8-K, 10K, Annual Reports) filed by CooTek(Cayman)Inc.

CooTek (Cayman) Inc is a mobile internet company.  The company offers mobile applications including a portfolio of content-rich mobile applications.  For example, the TouchPal Phone book, and TouchPal Smart Input. Mobile applications focus on three categories: online literature, casual games, and scenario-based mobile apps. The company’s products are Content-rich Mobile Applications that include Online literature, Casual games, Scenario-based mobile apps such as fitness, healthcare, and Phone call interface decoration; TouchPal Smart Input; and TouchPal Phonebook. It derives the majority of its revenue from the United States.

 CTK Stock – Risk Factors

Negative Cash Flow and Profitability

CooTeK Inc. has had net losses and negative cash flows from operating activities in the past.  The company may not achieve or sustain profitability. The company reported a net loss of US$36.8 million and negative cash flows from operations of US$15.7 million in 2019. However, the company recorded a net loss of US$28.6 million and positive cash flows from operations of US$6.0 million for the nine months that ended September 30, 2020.  Future revenue growth and profitability depend on a variety of factors, many of which are beyond the company’s control. These factors include market acceptance of its products, an effective monetization strategy, and controlling costs and expenses.  Furthermore, management must manage growth effectively in spite of market competition and the macroeconomic and regulatory environment.
The company expects costs and expenses to rise as it expands operations and increases investments in R&D.  This will put significant strain on management, operational and financial resources. Invariably, business complexity will increase as the company expands presenting a variety of challenges. For example, the company may fail to develop and improve operational, financial, and managerial controls, or financial reporting systems.  Or, fail to recruit, train, and retain skilled professional personnel, or maintain customer satisfaction. There is a risk in investing time and resources to expand operations but failing to manage the business’s growth. Conversely, by capitalizing on growth opportunities, management may not be able to achieve profitability.  As a result, business, financial condition, operating results, and prospects will be materially and adversely affected.

Credit Default Risk

CooTeK Inc. is currently out of compliance with certain financial covenants pertaining to credit facility agreements. If the company fails to receive any required waiver, it may be in default. As a result, it could result in severe operating and financial restrictions. For example, the company entered into two credit facility agreements with a commercial bank.  Both of these were renewed in June 2020. Under the terms, the company could borrow up to $15.0 million secured by accounts receivable. The company borrowed $15.1 million and repaid $9.5 million under these two credit facilities. As reported on September 30, 2020, the total outstanding balance of short-term bank borrowings was $14.8 million.

These credit facility agreements contain financial covenants that require the company to maintain a minimum consolidated net profit of US$1.00 in the three months ending September 30, 2020. However, the company failed to meet such financial covenants and is currently negotiating a waiver with the counterparty. Going forward, the company cannot guarantee that it will be able to obtain such waivers.  Either on time or on acceptable terms, if at all. If it is unable to obtain such a waiver under any of these credit facilities, it will be in breach of such agreements.  As a result, the relevant counterparty may elect to declare the loans, along with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral securing such loans.

Variable Advertising Revenues

Advertising accounts for the majority of CooTeK’s revenue. Failure to attract or retain advertising customers or a decrease in spending could have a significant negative impact.  It would impact business activity, operating results, and growth prospects. Mobile advertising services accounted for 98.4% and 99.4% of revenues in 2019 and the nine months that ended September 30, 2020, respectively. Advertisers buy advertising services directly or from third-party advertising exchanges and agencies. Advertising customers include advertisers, advertising exchanges, and agencies.  Most do not typically have long-term contractual agreements in place. The risk exists that they may be dissatisfied with advertising services or eventually believe they are ineffective. Furthermore, new advertising formats emerge on a regular basis, and customer preferences can shift. In that event, the company may be unable to timely and cost-effectively adapt its products and services.  There is an unknown element involving future advertising formats or changing customer preferences.

Allegations of Infringement & Illegal or Inappropriate Content

CooTeK Inc. has received and may continue to receive notices or complaints alleging, among other things, copyright infringement and the delivery of illegal or inappropriate content through its products.  Legal or regulatory actions could result in the suspension or removal of such products from digital distribution platforms.  In turn, the company would experience a decrease in its user base.  Also, a significant negative impact on financial results and brand reputation. The company distributes its mobile applications to users through third-party digital distribution platforms.  For example, the Apple App Store, Tencent YingYongBao App Store, and Google Play. Digital distribution platforms have also received and may continue to receive, notices or complaints from third parties.

These notices allege that certain products infringe copyrights.  Or, that they deliver illegal, fraudulent, pornographic, violent, bullying, or other inappropriate content.  Or, they otherwise fail to comply with applicable policies, rules, and regulations in the ordinary course of business. When such notices or complaints are received, digital distribution platforms may suspend or remove such products from their platforms. The processes for appealing such suspensions and removals on those platforms may take time.  CooTeK cannot guarantee that its appeals will always be successful or that any such suspended or removed application will be made available again. Such suspensions and removals of its products may result in a decrease in its user base.  Repeated or large-scale allegations may have a significant negative impact on brand reputation, business operations, and financial performance.

CTK Stock in the News

SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims On Behalf Of Investors Of CooTek (Cayman) Inc. – CTK (June 2021)

Pomerantz LLP is investigating claims on behalf of investors of CooTek (Cayman) Inc. The investigation concerns whether CooTek and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices. CooTek held its initial public offering (“IPO”) in September 2018.  The company issued 4.35 million American Depositary Shares (“ADSs”) at a price of $12.00 per ADS.

CooTek then released its unaudited financial results for the third quarter of 2020 on December 15, 2020. The company disclosed an operating loss of $1.1 million, which the Company stated: “mainly relates to a compensation payment to victims of alleged misconducts of certain third-party advertisers perpetrated on the Group’s platform that the Group deposited to an escrow account controlled by a local authority conducting an investigation on the advertisers that the Group deposited to an escrow account controlled by a local authority conducting an investigation on the advertisers.” Finance then announced its unaudited financial results for the first quarter of 2021 on June 3, 2021. CooTek announced non-GAAP earnings per share of -$0.18, missing consensus estimates by $0.02. In turn, the company’s ADS price fell $0.28 cents per share, or 13.59%, on this news, to close at $1.78 per share on June 3, 2021.

Up Next: BRGO Stock – What Investors Should Know About Bergio International Inc.

BRGO StockBergio International, Inc. (BRGO Stock) designs and distributes upscale jewelry from precious metals and stones primarily in the United States. Products include jewelry styles and designs made of precious metals such as gold, platinum, and other precious stones. The company’s product line is divided into three fashion lines. 18-karat gold, Bridal, and couture or one-of-a-kind pieces. Its Bergio brand designs include upscale jewelry in 18K gold, platinum, and palladium with white diamonds, yellow diamonds, pearls, and colored stones. Bergio International creates between 100 and 150 different product styles. To this end, it has a manufacturing facility in New Jersey and subcontracts with facilities in Italy.  The company was originally incorporated on July 24th, 2007 as “Alba Mineral Exploration, Inc.” in the state of Delaware. The stated purpose was for exploring mineral properties.

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