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SUWG > SEC Filings for SUWG > Form 10-Q on 19-Aug-2014All Recent SEC Filings

Show all filings for SUNWAY GLOBAL INC.

Form 10-Q for SUNWAY GLOBAL INC.


19-Aug-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 six months ended June 30, 2014 and 2013.

Three-month period ended June 30, 2014 and June 30, 2013

Results of Operations

In the three months ended June 30, 2014, the Company's net revenue had a sharp decline as compared with the same period of 2013. These decreases were primarily attributable to a result of decrease in the sale.

The following table summarizes the results of our operations during the three months ended June 30, 2014 and 2013, respectively, and provides information regarding the dollar and percentage increase (or decrease) from the Three months ended June 30, 2014 and 2013.

                                             Three months ended June 30,
                                               2014                2013             Change        Change rate
Net Revenues                               $    882,231        $  1,680,046       $ (797,815 )          (47.49 ) %
Cost of net revenues                       $    323,423        $    948,975       $ (625,552 )          (65.92 ) %
Gross Profit                               $    558,808        $    731,071       $ (172,263 )          (23.56 ) %
Gross Margin                                      63.34 %             43.51 %              -             19.83 %
Operating Income/(loss)                    $   (677,039 )      $ (1,442,358 )     $  765,319             53.06 %
Net (Loss)/Income                          $   (759,058 )      $ (1,456,348 )     $  697,290             47.88 %
Net profit margin                                (86.04 ) %          (86.69 ) %            -              0.65 %

Net Revenues

Net revenues for the three months ended June 30, 2014, was $882,231, a decrease of 47.49% as compared with net revenues of $1,680,046 for the three months ended June 30, 2013. In the three months ended June 30, 2014, we sold 82 workstations, a decrease of 56.38% as compared with 188 workstations in the three months ended June 30, 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 June 30, 2014, we also sold 1 unit of the SADP, a decrease of 80% as compared with 5 units in the three months ended June 30, 2013. The decrease in the SADP was due primarily to a defect in design in our second-generation products compared with those of our competitors.


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

                                          Three Months Ended June 30,
                                  2014                                  2013
                      sales       % of total sales          sales         % of total sales
PTS                 $ 539,859                  61.19 %    $ 1,173,771                  69.87 %
SADP                $ 149,607                  16.96 %    $   387,932                  23.09 %
Other               $ 192,765                  21.85 %        118,343                   7.04 %
Total net revenue   $ 882,231                    100 %    $ 1,680,046                    100 %

Gross Profit

Gross profit decreased 23.56% to $558,808 in the three months ended June 30, 2014, as compared to $731,071 for the three months ended June 30, 2013. Our gross profit margin increased 19.83% from 43.51% for the three months ended June 30, 2013 to 63.34% for the same period of 2014, mainly due to a decrease in manufacturing salaries.

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

                               Three Months Ended June 30,
                          2014                            2013
                             Gross profit                   Gross profit
                  US$           margin            US$          margin
Gross Profit   $ 558,808             63.34 %   $ 731,071             43.51 %

Income from Operations

Operating loss was $677,039 in the three months ended June 30, 2014, as compared with operating loss of $1,442,358 for the three months ended June 30, 2013. The decrease in loss was primarily due to a decrease in operation expenses.

Cost of Net Revenue

Cost of net revenue decreased to $323,423 for the three months ended June 30, 2014, representing a 65.92% decrease as compared with $948,975 for the same period of 2013. The decrease was primarily due to a decrease in sales.

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

Three Months Ended June 30, 2014 2013 Change Cost of net revenue $ 323,423 $ 948,975 (65.92) %

Operating Expenses

Operating expenses was $ 1,220,265 in the three months ended June 30, 2014, a decrease as compared with $2,173,429 in the same period of 2013. The decreased was primarily due to two factors: (i) selling expenses decreased $417,985, or 45.79% to $494,818 in the three months ended June 30, 2014 from $912,803 for the same period of 2013; and (ii) general and administration expenses decreased $537,193, or 42.61% to $723,433 for the three months ended June 30, 2014 from $1,260,626 for the same period of 2013. The operating expenses decreased because of expense cutting on the operation budget.

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

                                      Three Months Ended June 30,
                                         2014               2013          Change
Selling expenses                    $       494,818      $   912,803       (45.79) %
General & Administrative expenses   $       723,433      $ 1,260,626       (42.61) %
Total operating expenses            $     1,218,251      $ 2,173,429       (43.86) %

Net Income

Net loss was $759,058 for the three months ended June 30, 2014, a decrease of 47.88% as compared with $1,456,348 of net loss for the same period of 2013. In the three months ended June 30, 2014, the main reason for the loss is that our products upgrade more slowly compare with our competitor, which led to our revenue decrease.


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Earnings per Share

Basic and diluted loss per share for the three months ended June 30, 2014 were $0.04 and $0.03 compared with loss per share $0.08 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 June 30, 2014 and 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 June 30, 2014 and 2013.

Six-month period ended June 30, 2014 and June 30, 2013

Results of Operations

In the six months ended June 30, 2014, the Company's net revenue and operating expenses had a sharp decline as compared with the same period of 2013. The decrease was primarily attributable to a decline in the sales volume.

The following table summarizes the results of our operations during the six months ended June 30, 2014 and 2013, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the six months ended June 30, 2014 and 2013.

                                              Six Months Ended June 30
                                               2014               2013              Change         Change rate

Net revenues                               $  2,440,723       $  3,699,772       $ (1,259,049 )          (34.03 ) %
Cost of net revenue                        $  1,079,172       $  2,156,826       $ (1,077,654 )          (49.96 ) %
Gross Profit                               $  1,361,551       $  1,542,946       $   (181,395 )          (11.76 ) %
Gross Margin                                      55.78 %            41.70 %                -             14.08 %
Operating expenses                         $  2,778,980       $  4,310,003       $ (1,531,023 )          (35.52 ) %
Operating (loss)/ Income                   $ (1,484,927 )     $ (2,767,057 )     $  1,282,130             46.34 %
Net Income/(loss)                          $ (1,567,289 )     $ (2,793,368 )     $  1,226,079             43.89 %
Net (loss) / profit margin                       (64.21 ) %         (75.50 ) %              -             11.29 %

Net Revenues

Net revenues for the six months ended June 30, 2014, was $2,440,723, a decrease of 34.03% as compared with net revenues of $3,699,772 for the six months ended June 30, 2013. In the six months ended June 30, 2014, we sold 219 workstations, a decrease of 43.26% as compared with 386 workstations in the six months ended June 30, 2013. The decrease in workstation sales was primarily due to a decline in production volume as a result of the Company's operating cash shortage. During the six months ended June 30, 2014, we also sold 4 units of the SADP, a decrease of 63.64% as compared with 11 units in the six months ended June 30, 2013. The decrease in sales of SADP was due primarily to a defect in design in our second-generation products.

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

                                            Six Months Ended June 30,
                                   2014                                   2013
                       Sales         % of total sales         Sales         % of total sales
PTS                 $ 1,586,120                  64.99 %   $ 2,471,763                  66.81 %
SADP                $   329,638                  13.51 %   $   858,620                  23.21 %
Other               $   524,965                  21.51 %   $   369,389                   9.98 %
Total net revenue   $ 2,440,723                 100.00 %   $ 3,699,772                 100.00 %

Cost of Net Revenue

Cost of net revenue decreased to $1,079,172 for the six months ended June 30, 2014, representing a 49.96% decrease as compared with $2,156,826 for the same period of 2013. This decrease is primarily due to a decrease in the sales of PTS and SADP.

Gross Profit

Gross profit decrease 11.76% to $1,361,551 for the six months ended June 30, 2014, as compared to $1,542,946 for the six months ended June 30, 2013, our gross profit margin increased 14.08% from 41.70% as of the six months ended June 30, 2013 to 55.78% as of the same period of 2014, mainly attributable to decreased in production cost of PTS which has a higher gross profit margin.


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Operating Expenses

Operating expenses were $2,778,980 for the six months ended June 30, 2014, a decrease of 35.52% as compared with $4,310,003 for the same period of 2013. This decrease was primarily because of a decrease of $1,087,393 in general and administration expenses, and a decrease of $443,630 in selling expenses. The drop in general and administrative expenses was a result of decrease in employee salaries due to a decrease in the number of employees.

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

                                      Six Months Ended June 30,
                                         2014             2013         Change
Selling expenses                    $    1,233,726     $ 1,677,356       (26.45) %
General & Administrative expenses   $    1,545,254     $ 2,632,647       (41.30) %
Total operating expenses            $    2,778,980     $ 4,310,003       (35.52) %

Income from Operations

Operating loss was $1,484,927 for the six months ended June 30, 2014, as compared to $2,767,057 for the six months ended June 30, 2013. The decrease in loss was primarily due to a decrease in general and administrative expenses derived from close management monitoring.

Net Loss

Net loss was $1,567,289 for the six months ended June 30, 2014, a decrease in loss of 43.89% from $2,793,368 for the six months ended June 30, 2013. The mainly reason was due to the close monitoring of spending and expenses cutting on the operation budget.

Earnings Per Share

Basic and diluted loss per share for the six months ended June 30, 2014 were $0.08 and $0.07 compared with $0.15 and $0.12 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 six months ended June 30, 2014 and June 30, 2013, 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, 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:

                                                       Six months ended June 30,
                                                         2014              2013           Change
Net cash provided by (used in) operating                                                  (164.32)
activities                                           $     178,157      $ (276,966)     $          %
Net cash provided by (used in) investing                                                   (82.51)
activities                                           $    (11,080)      $  (63,368)     $          %
Net cash provided by (used in) financing                                                         -
activities                                           $     326,483      $         -     $          %
Effect of foreign currency translation on cash and                                         (70.64)
cash equivalents                                     $      27,916      $    95,068     $          %
Beginning cash and cash equivalent                   $     442,006      $   352,457     $    25.41 %
Ending cash and cash equivalent                      $     963,482      $   107,191     $   798.85 %

Operating Activities

For the six months ended June 30, 2014, net cash used in operating activities was $178,157. This was primarily attributable to our net loss of $1,567,289, adjusted by an add-back of non-cash charges mainly consisting of depreciation, amortization, and impairment of fixed assets of $250,966, $328,203, and $35,078, respectively, offset by a $1,131,199 increase in working capital. Specifically, the increase in working capital was primarily due to: (i) a $454,114 trade receivables decrease driven by customers payment; (ii) a $141,162 increase in inventories, principally of work in progress; (iii) a $25,165 decrease in advances to suppliers to buy raw materials; (iv) a $391,569 increase 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 $1,184,651 increase in accounts payable, tax payable, customer deposits, accrued liabilities and other payables.


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Investing Activities

For the six months ended June 30, 2014, net cash used in investing activities was $11,080. This was primarily attributable to a $11,080 capital expenditure for purchase of new plant and equipment.

Financing Activities

For the six months ended June 30, 2014, net cash provided by financing activities were $326,483, primarily attributable to a short-term bank loan borrowing.

Cash and Cash Equivalents

Our cash and cash equivalents as of the six months ended June 30, 2014 were $963,482 and increased by $521,476 from $442,006 by the end 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. 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.

Trade Receivables, net

Trade receivables, net decreased to $7,051,700 as of June 30, 2014, compared with $7,490,619 as of December 31, 2013. This increase in trade receivables was primarily attributable to customers' payment.

Inventory

Inventory consists of raw materials, finished goods and work in progress. As of June 30, 2014, the recorded value of our inventory increased 18.79% to $4,107,273 from $3,457,459 as of December 31, 2013. This increase is mainly due to an increase of 65.27% in work in progress from $2,042,258 as of December 31, 2013 to $3,375,308 as of June 30, 2014 offset by a decrease of 51.42% in finished goods from $888,861 as of December 31, 2013 to $431,815 as of June 30, 2014 and a decrease of 42.97% in raw material from $526,340 as of December 31, 2013 to $300,150 as of June 30, 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                June 30, 2014       December 31, 2013       Change
Finished goods     $       431,815     $           888,861       (51.42) %
Work in progress   $     3,375,308     $         2,042,258         65.27 %
Raw material       $       300,150     $           526,340       (42.97) %
Total              $     4,107,273     $         3,457,459         18.79 %

Accounts Payable

Accounts payable were $1,760,310 as of June 30, 2014, an increase of 2.46 % from $1,718,125 as of December 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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