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SUWG > SEC Filings for SUWG > Form 10-Q on 19-Aug-2013All Recent SEC Filings

Show all filings for SUNWAY GLOBAL INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SUNWAY GLOBAL INC.


19-Aug-2013

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, Sunway Global, Inc. (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 three products in the PRC. We have served approximately 300 customers in the PRC from our facilities in Qingdao. We generate our revenue from sales in three product categories: pneumatic transport systems ("PTS"), Sunway Automatic Dispensing and Packing ("SADP"), and automatic medicament emitting systems.

This discussion and analysis focuses on the business results of Sunway Group (consisting of Daqing Sunway, the Company's primary operating entity, along with its other indirectly-owned subsidiaries Beijing Sunway New-force Medical Treatment Tech Co., Ltd. and Qingdao Sunway New-force Mechanical Co., Ltd), comparing its results in the three and six months ended June 30, 2013 to the same period of 2012.

Three-month periods ended June 30, 2013 and June 30, 2012

Results of Operations

In the three months ended June 30, 2013, the Company's net revenue and operating loss was decreased sharply as compared with the same period of 2012. These decreases were primarily attributable to a decrease in the sales and a rise in the product costs.

The following table summarizes the results of our operations during the three months ended 30, 2013 and 2012, respectively, and provides information regarding the dollar and percentage increase (or decrease) from the Three months ended June 30, 2013 and 2012.

                                             Three months ended June 30,
                                               2013                2012             Change       Change rate
Net Revenues                               $   1,680,046       $  2,276,562       $ (596,516 )          (26.20 ) %
Cost of net revenues                       $     948,975       $  1,120,090       $ (171,115 )          (15.28 ) %
Gross Profit                               $     731,071       $  1,156,472       $ (425,401 )          (36.78 ) %
Gross Margin                                       43.51 %             50.8 %              -             (7.29 ) %
Operating Income/(loss)                    $  (1,442,358 )     $ (1,184,712 )     $ (257,646 )           21.75 %
Changes in fair value of warrants          $           -       $    197,824       $ (197,824 )             100 %

Net (Loss)/Income                          $  (1,456,348 )     $   (850,725 )     $ (605,623 )           71.19 %
Net profit margin                                 (86.69 ) %         (37.37 ) %            -            (49.32 ) %


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Net Revenues

Net revenues for the three months ended June 30, 2013, which resulted entirely from sales, was $1,680,046, a decrease of 26.20% as compared with net revenues of $2,276,562 for the three months ended June 30, 2012. In the three months ended June 30, 2013, we sold 188 workstations, a decrease of 7.39% as compared with 203 workstations sold in the three months ended June 30, 2012. The decrease in PTS' sale was because the number of newly established hospital decreased, which led to shrinking of the market.

During the three months ended June 30, 2013, we sold 5 units of SADP, a decrease of 50% as compared with 10 units of SADP for the three months ended June 30, 2012. The decrease in SADP was due primarily because our products upgrade slowly compared with those of our competitor, which led to shrinking of our marketing.

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

                                                     Three Months Ended June 30,
                                            2013                                    2012
                                sales         % of total sales          sales          % of total sales
PTS                          $ 1,173,771                  69.87 %    $  1,295,029                  56.89 %
SADP                         $   387,932                  23.09 %    $    815,467                  35.82 %
Other                        $   118,343                   7.04 %         166,066                   7.29 %
Total net revenue            $ 1,680,046                    100 %    $  2,276,562                 100.00 %

Gross Profit

Gross profit decreased 36.78% to $731,071 in the three months ended June 30, 2013, as compared to $1,156,472 for the three months ended June 30, 2012. Our gross profit margin down 7.29% from 50.80% for the three months ended June 30, 2012 to 43.51% for the same period of 2013, mainly due to a decrease in the PTS' sale prices and a rise in the product costs.

Income from Operations

Operating loss was $1,442,358 in the three months ended June 30, 2013, as compared with operating loss of $1,184,712 for the three months ended June 30, 2012. The increase in loss was primarily due to a decrease in the sales and a rise quickly in operation expenses.

Cost of Net Revenue

Cost of net revenue decreased to $948,975 for the three months ended June 30, 2013, representing a 15.28% decrease as compared with $1,120,090 for the same period of 2012. The decrease was primarily due to decrease in sale.


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Operating Expenses

Operating expenses was $2,173,429 in the three months ended June 30, 2013, a decrease as compared with $2,341,184 in the same period of 2012. The decreased was primarily due to two factors: (i) selling expenses increased $95,082, or 11.63% to $912,803 in the three months ended June 30, 2013 from $817,721 for the same period of 2012; and (ii) general and administration expenses decreased $262,837, or 17.25% to $ 1,260,626 for the three months ended June 30, 2013 from $1,523,463 for the same period of 2012. The increase in selling expenses is mainly due to our exhibits expenses had increased 121.88% in the three months ended June 30, 2013 compare with the same period of 2012.

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

                                      Three Months Ended June 30,
                                         2013               2012          Change
Selling expenses                    $       912,803      $   817,721         11.63 %
General & Administrative expenses   $     1,260,626      $ 1,523,463       (17.25) %
Total operating expenses            $     2,173,429      $ 2,341,184        (7.17) %

Changes in fair value of warrants

Changes in fair value of warrants were $197,824 in the three months ended June 30, 2012. 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. On June 5, 2012, all of warrants were expired.

Net Income

Net loss was $1,456,348 for the three months ended June 30, 2013, a decrease of 71.19% as compared with $850,725 of net loss for the same period of 2012. In the three months ended June 30, 2013, the loss mainly reason is our products upgrade slowly compare with our competitor, led to our revenues decrease.

Earnings per Share

Basic and diluted loss per share for the three months ended June 30, 2013 were $0.08 and $0.06 compared with loss per share $0.05 and $0.04 for the same period of 2012. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the three months ended June 30, 2013 and June 30, 2012, 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 June 30, 2013 and June 30, 2012.

Six-month periods ended June 30, 2013 and June 30, 2012

Results of Operations

In the six months ended June 30, 2013, the Company's net revenues and gross profit were decreased sharply as compared with the same period of 2012. These decreases were primarily attributable to a decline in our spare part and PTS' sale prices and volumes, and a rise in the product costs.


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The following table summarizes the results of our operations during the six months ended June 30, 2013 and 2012, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the six months ended June 30, 2013 and 2012.

                                             The six Months Ended June 30
                                                2013               2012             Change          Change rate
Net Revenue                                $     3,699,772     $   4,283,794     $   (584,022)           (13.63) %
Cost of net revenue                        $     2,156,826     $   2,068,223     $      88,603              4.28 %
Gross Profit                               $     1,542,946     $   2,215,571     $   (672,625)           (30.36) %
Gross Margin                                         41.70 %           51.72 %               -           (10.02) %
Operating (loss)/ Income                   $   (2,767,057)     $ (2,408,992)     $   (358,065)             14.86 %
Changes in fair value of warrants          $             -     $   1,165,692     $ (1,165,692)               100  %
Net Income/(loss)                          $   (2,793,368)     $ (1,068,954)     $ (1,724,414)            161.32 %
Net (loss) / profit margin                         (75.50) %         (24.95) %               -           (50.55)  %

Net Revenues

Net revenues in the six months ended June 30, 2013, was $3,699,772, a decrease of 13.63% as compared with net revenues of $4,283,794 in the six months ended June 30, 2012. In the six months ended June 30, 2013, we sold 386 workstations, a decrease of 6.54% as compared with 413 workstations in the six months ended June 30, 2012. During the same period of 2013, we also sold 11 units of SADP, a decrease of 15.38% as compared with 13 units in the six months ended June 30, 2012. The decrease was primarily because our products upgrades slowly compare with those of our competitor, led to decrease in sale volume.

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

                                                                  The six Months Ended June 30,
                                                          2013                                     2012
                                              Sales         % of total sales           Sales         % of total sales
PTS                                        $ 2,471,763                  66.81 %     $ 2,449,168                  57.17 %
SADP                                       $   858,620                  23.21 %     $ 1,061,614                  24.78 %
Other                                      $   369,389                   9.98 %     $   773,012                  18.05 %
Total net revenue                          $ 3,699,772                 100.00 %     $ 4,283,794                 100.00 %

Gross Profit

Gross profit decrease 30.36% to $1,542,946 for the six months ended June 30, 2013, as compared to $2,215,571 for the six months ended June 30, 2012, our gross profit margin dropped 10.02% from 51.72% as of the six months ended June 30, 2012 to 41.70% as of the same period of 2013, mainly due to our spare part and PTS' sale prices declining and product costs rising.


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Income from Operations

Operating loss was $2,767,057 for the six months ended June 30, 2013, as compared to $2,408,992 for the six months ended June 30, 2012. The increase in loss was primarily due to a decrease in the sales and an increase in operation expenses.

Cost of Net Revenue

Cost of net revenue increased to $2,156,826 for the six months ended June 30, 2013, representing a 4.28% increase as compared with $2,068,223 for the same period of 2012. This increase is primarily due to PTS installing and producing costs.

Operating Expenses

Operating expenses were $4,310,003 for the six months ended June 30, 2013, a decrease of 6.80% as compared with $4,624,563 for the same period of 2012. The decrease was primarily due to two reasons: (i) selling expenses increase $317,818, or 23.38% to $1,677,356 in the six months ended June 30, 2013 from $1,359,538 for the same period of 2012; and (ii) general and administration expenses decrease $632,378, or 19.37% to $2,632,647 in the six months ended June 30, 2013 from $3,265,025 for the same period of 2012. The increase in selling expenses was mainly because our salesperson's salary increased 57.78% in the six months ended June 30, 2013 compare with the same period of 2012.

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

                                      The six Months Ended June 30,
                                         2013                 2012         Change
Selling expenses                    $     1,677,356       $  1,359,538         23.38 %
General & Administrative expenses   $     2,632,647       $  3,265,025       (19.37) %
Total operating expenses            $     4,310,003       $  4,624,563        (6.80) %

Changes in fair value of warrants

Changes in fair value of warrants were $1,165,692 for the six months ended June 30, 2012. This is recorded as a non-cash charge, 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.

Net Income

In the six months ended June 30, 2013, net loss was $2,793,367 an increase of 161.32% as compared with $1,068,954 as net loss for the same period of 2012. In the three months ended June 30, 2013, the loss mainly because is our products upgrade slowly compared with those of our competitor, which led to our revenues decrease.

Earnings Per Share

Basic and diluted loss per share for the six months ended June 30, 2013 was $0.15 and $0.12 compared with the loss per share for the same period of 2012 was $0.06 and $0.05. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the six months ended June 30, 2013 and March 31, 2012, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 23,314,556 and 23,314,556 for the six months ended June 30, 2013 and 2012 respectively.


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Trade Receivables, net

Trade receivables, net increased to $9,085,808 as of June 30, 2013, compared with $8,595,793 as of December 31, 2012. This increase in trade receivables was primarily attributable to some new signature contract's accounting receivable policy change that the final sum of the remaining portion is received after the construction is completed until one year to more than one year.

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of June 30, 2013, the recorded value of our inventory has decrease 1.65% to $3,599,114 from $3,659,579 as of December 31, 2012. The decrease was mainly due to an increase of 22.26% in finished goods from $409,699 as of December 31, 2012 to $ 500,907 as of June 30, 2013; a decrease of 16.26% in the raw material inventory from $733,474 as of December 31, 2012 to $614,188 as of June 30, 2013, an decrease of 1.29% in work in progress inventory from $2,516,406 as of December 31, 2012 to $2,484,019 as of June 30, 2013. The decrease was primarily attributable to decrease in sale volume.

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

Item                March 31, 2013       December 31, 2012       Change
Finished goods     $        500,907     $           409,699         22.26 %
Work in progress   $      2,484,019     $         2,516,406        (1.29) %
Raw material       $        614,188     $           733,474       (16.26)  %
Total              $      3,599,114     $         3,659,579        (1.65) %

Accounts Payable

Accounts payable amounted to $1,290,145 as of June 30, 2013, an increase as compared with $1,211,450 as of December 31, 2012. The increase was primarily attributable to our cash liquidity shortage.

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:

                                                       The six Months Ended June 30,
                                                          2013                 2012          Change
Net cash provided by (used in) operating                                       (553,748
activities                                           $     (276,966 )      $            )   $  (49.98 )%
Net cash provided by (used in) investing                                        (45,471
activities                                           $      (63,368 )      $            )   $   39.36 %
Net cash provided by (used in) financing                                              -
activities                                           $            -        $                $       -
Effect of foreign currency translation on cash and                               40,997
cash equivalents                                     $       95,068        $                $  131.89 %
Beginning cash and cash equivalent                   $      352,457        $  1,550,911     $  (77.27 )%
Ending cash and cash equivalent                      $      107,191        $    992,689     $  (89.20 )%

Operating Activities

For the six months ended June 30, 2013, net cash provided by used in operating activities was $276,966. This was primarily attributable to our net loss of $2,793,368, adjusted by an add-back of non-cash charges mainly consisting of depreciation and amortization of $643,039 and $971,238 respectively, offset by a $902,125 increase in working capital. Specifically, increase in working capital was primarily due to: (i) a $319,314 trade receivables increase driven by accounting policy change; (ii) a $18,589 increase in inventories, principally of finished goods; (iii) a $3,028 decrease in advances to suppliers to buy raw materials; (iv) a $458,781 increase in prepayments, travel advances to shareholders, tender deposits and advances to employees, consisting primarily of prepayments for raw materials and other supplies in advance of shipment, working capital for sales staff and payment of client deposits; partially offset by a $1,695,781 increase in accounts payable, tax payable, customer deposits, accrued liabilities and other payables.


Table of Contents

Investing Activities

For the six months ended June 30, 2013, net cash used in investing activities was $63,368. This was primarily attributable to a $63,368 capital expenditure for purchase of new plant and equipment.

Cash and Cash Equivalents

Our cash and cash equivalents as at the beginning of January 1, 2013, were $352,457 and decreased to $107,191 by the end of the period, main reason is our products upgrade slowly compare with our competitor, led to our revenues decreasing.

In the future, we need extra operating cash from commercial bank, combined with availability under our revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next 6 months.

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.

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