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SUWG > SEC Filings for SUWG > Form 10-Q on 20-May-2014All Recent SEC Filings

Show all filings for SUNWAY GLOBAL INC.

Form 10-Q for SUNWAY GLOBAL INC.


20-May-2014

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

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes of the Company, appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements.

The Company primarily functions as a holding company for entities that control the business of Qingdao Sunway and Beijing Sunway, or through contractual relationships, Daqing Sunway, which companies are organized under the laws of the PRC that design, and manufacture and sell logistic transport systems and medicine dispensing systems and equipment that are principally used by hospitals and other medical facilities in the PRC. This discussion and analysis focuses on the business results, comparing results of operations in the three months ended March 31, 2014 and 2013.

Results of Operations

The following table summarizes the results of our operations during the three
months ended March 31, 2014 and 2013, respectively, and provides information
regarding the dollar and percentage increase or (decrease) from the three months
ended March 31, 2014 and 2013.

                                             Three Months Ended March 31
                                                2014               2013            Change        Change rate
Net Revenue                                $    1,556,882      $  2,017,554      $ (460,672 )         (22.83) %
Cost of net revenue                        $      755,406      $  1,206,223      $ (450,817 )         (37.37) %
Gross Profit                               $      801,476      $    811,331      $  (9,855)            (1.21) %
Gross Margin                                        51.48 %           40.21 %             -             11.27 %
Operating expenses                         $    1,559,727      $  2,113,370      $ (553,643 )         (26.20) %
Operating (loss)/ Income                   $    (756,237)      $ (1,301,783 )    $  545,546           (41.91) %
Net Income/(loss)                          $    (806,021)      $ (1,313,463 )    $  507,442           (38.63) %
Net (loss) / profit margin                        (51.77) %          (65.10 )%            -             13.33 %


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Net Revenues

Net revenues for the three months ended March 31, 2014, was $1,556,882, a decrease of 22.83% as compared with net revenues of $2,017,554 for the three months ended March 31, 2013. In the three months ended March 31, 2014, we sold 137 workstations, a decrease of 30.81% as compared with 198 workstations in the three months ended March 31, 2013. The decrease in workstation sales was primarily due to decline in production volume as a result of the Company's operating cash shortage. During the three months ended March 31, 2014, we also sold 3 units of the SADP, a decrease of 50% as compared with 6 units in the three months ended March 31, 2013. The decrease in sales of SADP was due primarily to a defect in design for our second-generation product.

The following table presents a breakdown of revenue by products for the periods indicated.

                                          Three Months Ended March 31,
                                   2014                                   2013
                       Sales         % of total sales         Sales         % of total sales
PTS                 $ 1,045,399                  67.15 %   $ 1,297,992                  64.33 %
SADP                $   179,646                  11.54 %   $   470,688                  23.33 %
Other               $   331,837                  21.31 %   $   248,874                  12.34 %
Total net revenue   $ 1,556,882                 100.00 %   $ 2,017,554                 100.00 %

Cost of Net Revenue

Cost of net revenue decreased to $755,406 for the three months ended March 31, 2014, representing a 37.37% decrease as compared with $1,206,223 for the same period of 2013. This decrease is primarily due to a decrease in sales of PTS and SADP.

Gross Profit

Gross profit decrease 1.12% to $801,476 for the three months ended March 31, 2014, as compared to $811,331 for the three months ended March 31, 2013, our gross profit margin increased 11.27% from 40.21% as of the three months ended March 31, 2013 to 51.48% as of the same period of 2014, mainly attributable to decrease in production cost of PTS which has a higher gross profit margin.

Operating Expenses

Operating expenses were $1,557,713 for the three months ended March 31, 2014, a decrease of 26.29% as compared with $2,113,370 for the same period of 2013. This decrease was primarily because of the decrease of $528,109 in general and administration expenses, and the decrease of $27,548 in selling expenses. The drop in general and administrative expenses was a result of decrease in employee salaries due to decrease in number of employees.

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

                                      Three Months Ended March 31,
                                         2014                2013         Change
Selling expenses                    $       737,823       $   765,371        (3.60) %
General & Administrative expenses   $       819,890       $ 1,347,999       (39.18) %
Total operating expenses            $     1,557,713       $ 2,113,370       (26.29) %

Income from Operations

Operating loss was $756,237 for the three months ended March 31, 2014, as compared to $1,301,783 for the three months ended March 31, 2013. The decrease in loss was primarily due to decrease in general and administrative expenses.


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Net Loss

Net loss was $806,021 for the three months ended March 31, 2014, a decrease in loss of 13.33% from $1,313,463 for the three months ended March 31, 2013. The mainly reason was due to decrease in operating expenses.

Earnings Per Share

Basic and diluted loss per share for the three months ended March 31, 2014 were $0.04 and $0.03 compared with $0.07 and $0.06 for the same period of 2013. The weighted average number of shares outstanding to calculate basic EPS was 18,499,736 and 18,499,736 for the three months ended March 31, 2014 and March 31, 2013, 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 March 31, 2014 and 2013, respectively.

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:

                                                       Three months ended March 31,
                                                          2014                2013          Change
Net cash provided by (used in) operating
activities                                           $      (602,131 )     $  (193,908 )   $  210.52 %
Net cash provided by (used in) investing
activities                                           $        (6,506 )     $    (7,086 )   $    8.19 %
Net cash provided by (used in) financing
activities                                           $       324,507       $         -     $       -
Effect of foreign currency translation on cash and
cash equivalents                                     $       (10,790 )     $   (10,195 )   $    5.84 %
Beginning cash and cash equivalent                   $       442,006       $   352,457     $   25.41 %
Ending cash and cash equivalent                      $       147,086       $   141,268     $    4.12 %

Operating Activities

For the three months ended March 31, 2014, net cash used in operating activities was $602,131. This was primarily attributable to our net loss of $806,021, adjusted by an add-back of non-cash charges mainly consisting of depreciation and amortization of $135,333 and $164,321, respectively, offset by a $95,764 decrease in working capital. Specifically, the decrease in working capital was primarily due to: (i) a $283,137 trade receivables increase driven by delayed customers payment; (ii) a $380,878 increase in inventories, principally of work in progress; (iii) a $219,791 increase in advances to suppliers to buy raw materials; (iv) a $237,615 decrease in prepayments, travel advances to shareholders, tender deposits, advances to employees, and receivables from related parties 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 $522,772 increase in accounts payable, tax payable, customer deposits, accrued liabilities and other payables.

Investing Activities

For the three months ended March 31, 2014, net cash used in investing activities was $6,506. This was primarily attributable to a $6,506 capital expenditure for purchase of new plant and equipment.

Financing Activities

For the three months ended March 31, 2014, net cash provided by financing activities were $324,507, primarily attributable to a short-term bank loan.


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Cash and Cash Equivalents

Our cash and cash equivalents as at March 31, 2014 were $147,086 and decreased by $294,920 from $442,006 as of December 31, 2013.

In future periods, we believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our revolving credit facility, will be insufficient to meet our presently anticipated future cash needs for at least the next year. If we fail to raise fund for our operation through other ways of financing, our financial condition and results of operations may be adversely affected.

Trade Receivables, net

Trade receivables, net increased to $7,693,176 as of March 31, 2014, compared with $7,490,619 as of December 31, 2013. This increase in trade receivables was primarily attributable to delayed customers payment.

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of March 31, 2014, the recorded value of our inventory increased 25.55% to $4,340,912 from $3,457,459 as of December 31, 2013. This increase is mainly due to an increase of 61.72% in work in progress from $2,042,258 as of December 31, 2013 to $3,302,690 as of March 31, 2014 offset by a decrease of 37.46% in finished goods from $888,861 as of December 31, 2013 to $555,895 as of March 31, 2014 and a decrease of 8.36% in raw material from $526,340 as of December 31, 2013 to $482,327 as of March 31, 2014. The increase in work in progress was primarily attributable to the extended installing period and project volumes increase in PTS.

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

Item                March 31, 2014       December 31, 2013       Change
Finished goods     $        555,895     $           888,861       (37.46) %
Work in progress   $      3,302,690     $         2,042,258         61.72 %
Raw material       $        482,327     $           526,340        (8.36) %
Total              $      4,340,912     $         3,457,459         25.55 %

Accounts Payable

Accounts payable were $2,133,524 as of March 31, 2014, an increase of 24.17 % from $1,718,125 as of March 31, 2013. The increase was primarily attributable to our shortage in cash.


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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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