Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SUWG > SEC Filings for SUWG > Form 10-Q on 20-Nov-2012All Recent SEC Filings

Show all filings for SUNWAY GLOBAL INC.

Form 10-Q for SUNWAY GLOBAL INC.


20-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as "believes," "estimates," "could," "possibly," "probably," anticipates," "projects," "expects," "may," "will," or "should" or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Overview

Since June 27, 2007, the Company has operated as a holding company for entities that, through contractual relationships, control the business of Daqing Sunway Technology Co., Ltd. ("Daqing Sunway"), a company organized under the laws of the PRC that designs, manufactures and sells logistic transport systems and medicine dispensing systems and equipment that are principally used by hospitals and other medical facilities in the PRC. Currently our Company is the only producer of these two systems in the PRC: pneumatic transport systems ("PTS") and Sunway Automatic Dispensing and Packing ("SADP"). We have served approximately 330 customers in the PRC from our facilities in Daqing and Qingdao. We generate our revenue from sales in two product categories: PTS and SADP.

This discussion and analysis focuses on the business results of Sunway Group (consisting of Beijing Sunway New-Force Medical Treatment Tech Co., Ltd. and Qingdao Liheng Textile Co., Ltd), comparing its results in the three and nine months periods ended September 30, 2012 to the three and nine months ended September 30, 2011.

Three-month period ended September 30, 2012 and September 30, 2011

Results of Operations

In the three months ended September 30, 2012, the Company's revenue was reduced as compared with the same period of 2011. The decrease was primarily attributable we increased test time in the factory to ensure production quality which caused delivery delays in the three months ended September 30, 2012.

The following table summarizes the results of our operations during the three months ended September 30, 2012 and 2011, respectively, and provides information regarding the dollar and percentage increase (or decrease) from the three months ended September 30, 2012 and 2011.

                                             Three Months Ended September 30,
                                                 2012                   2011              Change        Change rate
Revenues                                   $      1,666,269         $  2,370,644       $   (704,375 )          (29.71 ) %
Cost of revenues                           $        528,553         $    873,061       $   (344,508 )          (39.46 ) %
Gross Profit                               $      1,137,716         $  1,497,583       $   (359,867 )          (24.03 ) %
Gross Margin                                          68.28 %              63.17 %                -              5.11 %
Operating Income/(loss)                    $     (1,222,478 )       $   (731,214 )     $   (491,264 )           67.18 %
Changes in fair value of warrants          $              -         $  4,163,755       $ (4,163,755 )      (100.00? %

Net (Loss)/Income                          $       (868,445 )       $ (2,576,526 )     $ (1,708,081 )           66.29 %
Net profit margin                                    (52.12 ) %          (108.68 ) %              -             56.57 %


Table of Contents

Revenue

Revenue for the three months ended September 30, 2012 was $1,666,269, a decrease of 29.71% as compared with revenues of $2,370,644 for the three months ended September 30, 2011. In the three months ended September 30, 2012, we sold 203 workstations, a decrease of 27.76% as compared with 281 workstations sold in the three months ended September 30, 2011. The decrease in workstations was because we increased test time in factory to ensure production quality which caused delivery delays in the three months ended September 30, 2012. During the three months ended September 30, 2012, we sold 10 units of SADP, as compared with 4 units of SADP for the three months ended September 30, 2011.

The following table breaks down application categories as percentage of total revenue:

                                       Three Months Ended September 30,
                                 2012                                    2011
                     Sales         % of total sales          sales         % of total sales
PTS               $   821,695                  49.31 %    $ 1,796,341                  75.77 %
SADP              $   311,817                  18.71 %    $   529,724                  22.35 %
Other             $   532,757                  31.98 %         44,579                   1.88 %
Total net revenue $ 1,666,269                 100.00 %    $ 2,370,644                 100.00 %

Cost of Revenue

Cost of revenue decreased to $528,553 for the three months ended September 30, 2012, a 39.46% decrease as compared with $873,061 for the same period of 2011. The decrease was primarily due to a decline in sales.

The table below presents information about our cost of revenue for the periods indicated:

Three Months Ended September 30, 2012 2011 Change Cost of net revenues $ 528,553 $ 873,061 39.46 %

Gross Profit

Gross profit decreased 24.03% to $1,137,716 for the three months ended September 30, 2012, as compared to $1,497,583 for the three months ended September 30, 2011, mainly due to the Qingdao factory's output capacity was not enough to need customer's requests, resulting in a shortage of products to supply our clients. Our gross profit margin went up 5.11% from 63.17% for the three months ended September 30, 2011 to 68.28% for the same period of 2012 mainly due to reduced lost per product caused by the increase of the capacity of the Qingdao factory.

The table below presents information about our gross profit for the periods indicated:

                              Three Months Ended September 30,
                           2012                              2011
                               Gross profit                     Gross profit
                   US$            margin             US$           margin
Gross Profit   $ 1,137,716             68.28 %   $ 1,497,583             63.17 %


Table of Contents

Operating Expenses

Operating expenses were $2,360,194 for the three months ended September 30, 2012, an increase as compared with $2,228,797 for the same period of 2011. The increased was primarily due to two factors: (i) selling expenses increased $314,823, or 54.56% to $891,794 in the three months ended September 30, 2012 from $576,971 for the same period of 2011; and (ii) general and administration expenses decreased $183,426, or 11.10% to $ 1,468,400 for the three months ended September 30, 2012 from $1,651,826 for the same period of 2011, due to increased marketing expenses.

The table below presents information about our operating expenses for the periods indicated:

                                                         Three Months Ended September 30,
                                                           2012                    2011             Change
Selling expenses                                     $         891,794       $         576,971         54.56 %
General & Administrative expenses                    $       1,468,400       $       1,651,826       (11.10) %
Total operating expenses                             $       2,360,194       $       2,228,797          5.90 %

Income from Operations

Operating loss was $1,222,478 for the three months ended September 30, 2012, as compared with operating loss of $731,214 for the three months ended September 30, 2011. The decrease was primarily due to the changes above.

Changes in fair value of warrants

Changes in fair value of warrants were $4,163,755 for the three months ended September 30, 2011. This is recorded as a non-cash income, which resulted from the change in fair value of warrants issued to investors in conjunction with the Company's issuance of warrants in June of 2007 pursuant to provisions of FASB ASC Topic 815, "Derivative and Hedging" (ASC 815). The accounting treatment of the warrants resulted from a provision providing anti-dilution protection to the warrant holders. As of June 5, 2012, all warrants were expired.

Net Loss

Net loss was $868,445 for the three months ended September 30, 2012, as compared with $2,576,526 net loss for the same period of 2011. The loss was due to sales decline.

Earnings per Share ("EPS")

Basic and diluted loss per share for the three months ended September 30, 2012 were $0.05 and $0.04 compared with loss per share $0.14 and $0.11 for the same period of 2011. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the three months ended September 30, 2012 and September 30, 2011, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 23,314,556 and 23,314,556 for the three months ended September 30, 2012and Septembere 30, 2011.

Nine-month period ended September 30, 2012 and September 30, 2011

Results of Operations

In the nine months ended September 30, 2012, the Company's revenues remained fairly flat with a slight increase as compared with the same period of 2011.

The following table summarizes the results of our operations during the nine months ended September 30, 2012 and 2011, respectively, and provides information regarding the dollar and percentage increase (or decrease) for the nine months ended September 30, 2011 and 2012.

                               The Nine Months Ended September 30,
                                  2012                     2011               Change       Change rate
Net Revenue                 $       5,898,300        $       5,774,391     $     123,909          2.15 %
Cost of net revenue         $       2,596,144        $       2,103,228     $     492,916         23.44 %
Gross Profit                $       3,302,156        $       3,671,163     $   (369,007)       (10.05) %
Gross Margin                            55.98  %                 63.58 %               -        (7.59) %
Operating Income/(loss)     $     (3,694,308)        $     (2,248,841)     $ (1,445,467)         64.28 %
Change in fair value of     $       1,165,692        $       7,229,509       (6,063,817)

warrants $ (83.88) % Net Income/(loss) $ (2,000,247) $ (1,054,910) $ (945,337) 89.61 % Net profit margin (33.91) % (18.27) % - (15.64) %


Table of Contents

Revenue

Revenue for the nine months ended September 30, 2012, which resulted entirely from increase in sale, was $5,898,300, an increase of 2.15% as compared with revenues of $5,774,391 for the nine months ended September 30, 2011. In the nine months ended September 30, 2012, we sold 658 workstations, an increase of 21.40%, as compared with 542 workstations sold for the nine months ended September 30, 2011. During the same period of 2012, we also sold 17 units of SADP, a decrease of 15% compared with 20 units of SADP for the nine months ended September 30, 2011. The decrease in SADP was due primarily to our Qingdao factory's output capacity did not meet our customers needs.

The following table breaks down application categories as percentage of total net revenue.

                                                   Nine Months Ended September 30,
                                             2012                                   2011
                                  Sales         % of total sales        Sales         % of total sales
PTS                           $   3,270,863                55.45 %   $ 3,371,701                  46.55 %
SADP                          $   1,373,431                23.29 %   $ 1,918,596                  40.64 %
OTHER                         $   1,254,006                21.26 %   $   484,094                  12.81 %
Total net revenue             $   5,898,300               100.00 %   $ 5,774,391                 100.00 %

Cost of Revenues

Cost of revenues increased to $2,596,144 for the nine months ended September 30, 2012, representing a 23.44% increase as compared with $2,103,228 for the same period of 2011. The increase was primarily due to increase in salaries in direct labors and manufacturing management.

The table below presents information about our cost of revenue for the periods indicated:

Nine Months Ended September 30, 2012 2011 Change Cost of net revenue $ 2,596,144 $ 2,103,228 23.44 %

Gross Profit

Gross profit decreased 10.05% to $3,302,156 for the nine months ended September 30, 2012, as compared to $3,671,163 for the nine months ended September 30, 2011. Our gross profit margin decreased 7.59% from 63.58% for the nine months ended September 30, 2011 to 55.98% for the same period of 2012, mainly due to an increase in the sales of spare parts and services, whose gross profit was lower than other product.

The table below presents information about our gross profit for the periods indicated:

                          Nine Months Ended September 30,
                          2012                        2011
                             Gross profit               Gross profit
                   US$          margin          US$        margin

Gross Profit $ 3,302,156 55.98 % $ 3,671,163 63.58 %


Table of Contents

Operating Expenses

Operating expenses was$6,996,464 for the nine months ended September 30, 2012, an increase as compared with $5,920,004 for the same period of 2011. The increase was a result of two factors: (i) selling expenses increased $1,116,153, or 98.30% to $2,251,579 for the nine months ended September 30, 2012 from $1,135,426 for the same period of 2011; and (ii) general and administration expenses decreased $39,693, or 0.83% to $4,744,885 for the nine months ended September 30, 2012 from $4,784,578 for the same period of 2011. The increase in selling expenses primary due to increased marketing expenses.

The table below presents information about our operating expenses for the periods indicated:

                                      Nine Months Ended September 30,
                                            2012                2011         Change
Selling expenses                    $          2,251,579     $ 1,135,426         98.3 %
General & Administrative expenses   $          4,744,885     $ 4,784,578       (0.83) %
Total operating expenses            $          6,996,464     $ 5,920,004        18.18 %

Loss from Operations

Operating loss increased 64.27% to $3,694,308 for the nine months ended September 30, 2012, as compared to an operating loss $2,248,841 for the nine months ended September 30, 2011. The increase was primarily because selling expenses and cost of revenues increased sharply.

Changes in fair value of warrants

Changes in fair value of warrants were $1,165,692 for the nine months ended September 30, 2012. This is recorded as a non-cash charges, which resulted from the change in fair value of warrants issued to investors in conjunction with the Company's issuance of warrants in June of 2007 pursuant to provisions of FASB ASC Topic 815, "Derivative and Hedging" (ASC 815). The accounting treatment of the warrants resulted from a provision providing anti-dilution protection to the warrant holders. As of June 5, 2012, all of the warrants were expired according to the agreement item.

Net Loss

Net loss was $2,000,247 for the nine months ended September 30, 2012, an increase as compared with $1,054,910 for the same period of 2011. In the nine months ended September 30, 2012, our net loss was impacted by a non-cash charge of $1,165,692 unrelated to the Company's operations. Excluding the changes in fair value of warrants, the Company's net loss from operations would have been $3,165,939 for the nine months ended September 30, 2012 and $2,235,906 for the nine months ended September 30, 2011.

Earnings Per Share

Basic and diluted losing per share for the nine months ended September 30, 2012 were $0.11 and $0.09 compared with earning $0.06 and $0.05 for the same period of 2011. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the nine months ended September 30, 2012 and September 30, 2011, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 23,314,556 and 23,314,556 for the nine months ended September 30, 2012 and 2011.

Trade Receivables, Nnet

Trade receivables, net increased15.09% to $7,922,194 as of September 30, 2012, compared with $6,883,677 as of December 31, 2011. The increase in trade receivables was primarily attributable to increase in sales.

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of September 30, 2012, the recorded value of our inventory has increased59.40% to $4,406,577 from $2,764,560 as of December 31, 2011. The increase was mainly due to an decrease of 87.40% in finished goods from $2,093,393 as of December 31, 2011 to $263,805 as of September 30, 2012; an increase of 36.57% in raw materials from $452,379 as of December 31, 2011 to $617,815 as of September 30, 2012, an increase of 1,511.13% in work in progress from $218,788 as of December 31, 2011 to $3,524,957 as of September 30, 2012. The increase was primarily attributable to our Qingdao factory's augmented output of the SADP and PTS, so that we have adequate supply to meet our customers' needs.


Table of Contents

The table below presents information about our inventory for the periods indicated:

                    September 30,       December 31,
Item                    2012                2011            Change
Finished goods     $       263,805     $    2,093,393        (87.40) %
Work in progress   $     3,524,957     $      218,788       1,511.13 %
Raw material       $       617,815     $      452,379          36.57 %
Total              $     4,406,577     $    2,764,560          59.40 %

Accounts Payable

Accounts payable was $1,100,774 as of September 30, 2012, an increase as compared with $621,997 as of December 31, 2011. The increase was primarily attributable to the fact that our Qingdao factory's augmented output which caused an increase in purchase volume of raw materials.

Liquidity and Capital Resources

We have historically financed our operations and capital expenditures
principally through private placements of debt and equity offerings and cash
provided by operations.

The table below presents information about our cash flow for the periods
indicated:

                                                       nine months ended September 30,
                                                           2012                 2011              Change
Net cash provided by (used in) operating             $     (1,916,482)      $ (2,649,033)     $      732,551
activities
Net cash provided by (used in) investing             $       (111,775)      $ (2,166,471)     $    2,054,696
activities
Net cash provided by (used in) financing             $         664,767      $           -     $      664,767
activities
Effect of foreign currency translation on cash and   $         214,513          (119,188)     $      333,701
cash equivalents
Beginning cash and cash equivalent                   $       1,550,911      $   9,587,765     $ (8,036,854)
Ending cash and cash equivalent                      $         401,934      $   4,653,073     $  (4,251,139)

Operating Activities

For the nine months ended September 30, 2012, net cash used by operating activities was $1,916,482. This was primarily attributable to our net loss of $2,000,247, adjusted by an add-back of non-cash expenses mainly consisting of depreciation, amortization and changes in fair value of warrants $1,731,500 offset by a $1,647,735 decrease in working capital. Specifically, the working capital decrease was primarily due to (i) a $1,011,804 trade receivables increase driven by increase in sale; (ii) a $1,547,506 inventories increase, principally in work in process and finished goods, due to increase in work process; (iii) a $831,185 increase in advance to suppliers to add purchase volume of raw materials in Qingdao Liheng factory; (iv) a $831,185 increase in prepayments, travel advances to directors, tender deposits and advances to employees, consisting primarily of prepayments for raw materials and supplies in advance of shipment, working capital for sales staff and payment of client deposits; partially offset by a $2,299,640 decrease in accounts payable, tax payable, loans from unrelated parties, amount due from a director, customer deposits and accrued liabilities.

Investing Activities

For the nine months ended September 30, 2012, net cash used in investing activities was $111,775. This was primarily attributable to an $111,775 capital expenditure for purchase of new plant and equipment.

Financing Activities

For the nine months ended September 30, 2012, net cash used in financing activities was $664,767. This was primarily attributable to borrowing a short-term bank loan.


Table of Contents

Cash and Cash Equivalents

Our cash and cash equivalents at January 1, 2012 were $1,550,911 and decreased to $401,934 by the September 30, 2012.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next six months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

Trends

We are not aware of any trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.

Inflation

We believe that inflation has not had a material or significant impact on our revenue or our results of operations.

Obligations under Material Contracts

We do not have any material contractual obligations as of September 30, 2012.

Critical Accounting Policies

Management's discussion and analysis of its financial condition and results of operations is based upon Sunway's consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Sunway's financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Sunway believes that the following reflect the more critical accounting policies that currently affect Sunway's financial condition and results of operations.

Impairment of long-lived assets. We account for impairment of property, plant and equipment with ASC 360 "Property, Plant and Equipment" and amortizable intangible assets in accordance with ASC 350 "Intangibles- Goodwill and Other". The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. During the reporting years, there was no impairment loss incurred. Competitive pricing pressure and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by our long-lived assets.

Inventories. Inventories consist of finished goods and raw materials, and stated at the lower of cost or market value. Substantially all inventory costs are determined using the weighted average basis. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead. The management regularly evaluates the composition of its inventory to identify slow-moving and obsolete inventories to determine if additional write-downs are required.

Trade receivable. Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. Bad debts are written off as incurred. During the reporting years, there were no bad debts.

Outstanding accounts balances are reviewed individually for collectability. The Company do not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To . . .

  Add SUWG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SUWG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.