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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Jakroo Inc    JKRO

JAKROO INC

(JKRO)
Delayed Quote. Delayed OTC Bulletin Board - Other OTC - 03/28 12:51:53 pm
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JAKROO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/14/2019 | 05:11pm EDT

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Certain statements in this section and elsewhere in this report contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report and not clearly historical in nature are forward-looking, and the words "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "intends," "potential," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements are subject to significant risks and uncertainties, including but not limited to those relating to product and customer demand, market acceptance of our products, the ability to create new products, the ability to achieve a sustainable profitable business, the effect of economic conditions, the ability to protect our intellectual property rights, competition from other providers and products, risks in product development, our ability to raise capital to fund continuing operations, and other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"). The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law. Amounts in this section are in thousands, unless otherwise indicated.

Readers are advised to review the "Risk Factors" section of the Company's Annual Report on Form 10-K, filed with the SEC on April 2, 2019, for a fuller recitation of the risks that may impact the outcome of the Company's forward-looking statements.



Overview


We specialize in the design, manufacture and direct sale of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets across Asia, Europe and North America. Our made-to-order, just-in-time ("JIT") process vertically integrates design, sales and distribution of sporting apparel products.

The chart below illustrates the Company's current organizational structure:



                               [[Image Removed]]



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For the purpose of streamlining its manufacturing operations in China, Rider Sportsfashion (LangFang) took over the operations of Dachang Branch and Garment Processing Branch. The deregistration process for these branches was completed in December 2017 and April 2018, respectively.

Our global sporting apparel business is currently comprised of three core business units: inline retail, which consists of products produced and sold as part of a collection ("Inline"), OEM contract manufacturing ("OEM") and custom order ("Custom Order"). Our Inline, OEM and Custom Order businesses currently account for 12%, 13% and 75%, respectively, of our sales revenue for the six months ended June 30, 2019, comparing with 14%, 12%, and 74% for the six months ended June 30, 2018.

The two primary sales channels for our Inline Retail and Custom Order Retail business are direct sale and wholesale. Direct sale currently generates 83% of our worldwide sales revenues for the six months ended June 30, 2019. Under the direct sale model, we sell our products directly to end users through our Jakroo e-commerce platform. The Jakroo platform allows customers to easily log onto our platform, complete their designs or submit design requests to our Pro designers and place purchase orders. Wholesale currently represents 17% of our revenue for the six months ended June 30, 2019. We act as both retailer and wholesaler of our products through our e-commerce platform as well as through large online retailers such as TMall in China. Sales through both channels are executed with payments made directly to us online prior to the production and shipment of products.

In order to target customers in major markets, we have established sales offices in the United States, Canada, Austria, and China that provide localized sales, marketing and customer service support to our regional markets. As of the date of the report, we have approximately 183 employees worldwide.

During the six months ended June 30, 2019, our California based design team created 9,327 Pro Custom designs, compared to 11,368 Pro Custom designs during the same period in 2018, representing a 18% decrease in Pro Design requests. We attribute the decrease in pro design projects to a combination of an impact of our search engine page rank due to periodic changes in Google's ranking algorithm and a higher than expected shift by some customers from our pro design service to the new Jakroo DesignLab (formerly known as Jakroo Express) self-design platform. Using Jakroo DesignLab, customers are able to create their own designs without the assistance of a Pro Designer. We recorded 1640 new user sign-ups during the six months ended June 30, 2019 compared to 100 new user sign-ups during the six months of 2018 representing a 16 time increase in new customer acquisition. We anticipate that the number of new user sign-ups on the Jakroo DesignLab platform will continue to grow as we target certain customer personas that prefer a self-directed design experience. New user visits across our US, Canadian, and European informational websites increased 7.0% during the six months ended June 30, 2019 as compared to the same period in 2018. The increase can be attributed to investment in our social media and display marketing campaigns focused on increasing awareness for the Jakroo brand.

During the quarter ended June 30, 2019, our new customer sales decreased 18% while our number of returning customer sales increased 7%, compared to the same period in 2018. This resulted in a decrease in revenue from our Custom Order segment of approximately 7.7% across our North American and European operating segments compared to the same period in 2018. We attribute the decrease in revenue to a slowdown in consumer demand as a result of slower than expected new customer growth in our core markets across the United States and Canada.

We lease a 64,000 square feet manufacturing facility at the border of Beijing and Hebei province in China. The facility has annual capacity to produce 500,000 jerseys and manufactures all of our products. We consider our centralized manufacturing facility both a competitive advantage and a key driver behind our ability to maintain high quality and industry leading short delivery times. During the quarter ended June 30, 2019, we processed approximately 20,758 micro-production lots with a total production quantity of 54,343 units, compared to 20,554 lots and 58,343 units respectively during the same period in 2018. 99% of these products were produced and shipped in 14 days or less and 74% were produced and shipped in 7 days or less for the second quarter 2019 compared to 98% of products produced in 14 days or less and 59% produced and shipped in 7 days or less during the same period in 2018. During both fiscal periods, the average production lot quantity of 3pcs remained constant.



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Our operating segments include North America, China and Europe.

We believe there is an increasing recognition of the health benefits of an active lifestyle through cycling, triathlon and running. We believe this trend provides us with an expanding potential consumer base for our products. We also believe there continues to be an increasing number of individuals participating in cycling, triathlon and running activities, thus creating an increased demand for athletic apparel from leisure, pre-athlete and amateur participants. We plan to continue to grow our business over the long term through increased sales of our apparel via our made-to-order, JIT process, and our expansion in international markets.

Although we believe these trends will facilitate our growth, we also face potential challenges that could limit our ability to take advantage of these opportunities, including, among other things, the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers. In addition, we may not be able to effectively manage our growth as our business becomes a larger and more complex global business. We may not consistently be able to anticipate consumer preferences or develop new and innovative products that meet changing consumer needs and preferences in a timely manner. Furthermore, our industry is very competitive, and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability.



General


Revenues are comprised of the sales of our technical endurance apparel products, which include OEM, inline collection and custom made to order, with the custom made to order assuming the highest percentage of sales of the three segments.

Cost of revenues consists primarily of fabrics, other raw materials, overhead, manufacturing costs, inbound raw material freight and outbound duty and freight costs required to make our products floor-ready to customer specifications.

We include outbound freight costs associated with shipping goods to customers as cost of goods sold.

Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation, supply chain and corporate services. Personnel costs are included in these categories based on each employee's function. Personnel costs include salaries, benefits and incentives.



Results of Operations


Six Months Ended June 30, 2019 compared to Six Months Ended June 30, 2018

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:



                                                Six Months Ended June 30,
                                                   2019             2018

Revenues                                      $    5,930,140$ 6,333,834
Cost of revenues                                   2,634,203       2,746,307
Gross profit                                       3,295,937       3,587,527

Selling, general and administrative expense 2,707,387 2,862,940 Interest expense, net of interest income

              36,203          37,971
Income before income taxes                           552,347         686,616
Income tax expense                                    66,693         173,126
Net income                                    $      485,654$   513,490




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As a percentage of net revenues                   Six Months Ended June 30,
                                                  2019                2018

Revenues                                             100.00 %            100.00 %
Cost of revenues                                      44.42               43.36
Gross profit                                          55.58               56.64
Selling, general and administrative expense           45.65               45.20
Interest expenses, net of interest income              0.61                0.60
Income before income taxes                             9.32               10.84
Income tax expense                                     1.12                2.73
Net income                                             8.20 %              8.11 %




Revenues


Net revenues decreased approximately $403,694, or 6.4%, to $5.93 million in the six months ended June 30, 2019 from $6.33 million in the same period in 2018. Net revenues by business units are summarized below:



                                Six Months Ended June 30,
                    2019            2018          $ Change      % Change
OEM              $   743,473$   773,091$  (29,618 )       (3.83 )%
INLINE               724,607         910,126       (185,519 )      (20.38 )%
CUSTOM ORDERS      4,462,060       4,650,617       (188,557 )       (4.05 )%
Total Revenues   $ 5,930,140$ 6,333,834$ (403,694 )       (6.37 )%



The decrease in net revenue was driven by decreases across all business units, with our Inline business unit revenue decreasing the most, by $185,519 or 20.4%. We attribute the decrease in our OEM and Inline business units' net revenue largely to the reduced orders from OEM customers and increased competition on the e-commerce platforms such as TMall and JD.com in China.

Our Custom Order unit's revenue decreased $188,557, or 4.1%, to approximately $4.46 million for the six months ended June 30, 2019 from approximately $4.65 million during the same period in 2018. Our Custom Order unit accounted for approximately 75.2% and 73.4% of total revenue for the six months ended June 30, 2019 and 2018, respectively. During the six months ended June 30, 2019, Custom Order sales in North America experienced a decline of approximately 5.4% compared to the same period in 2018. The decrease was partially caused by the severe cold weather condition in North America in the first quarter 2019 which caused a carry-over effect entering the second quarter in 2019. Custom Order Sales in Europe decreased 14.9% during the six months ended June 30, 2019 compared to the same period in 2018 as a result of slower new customer acquisition. Revenue generated from Custom Orders sales in China increased 38.3% for the six months ended June 30, 2019 compared to the same period in 2018 primarily due to the implementation of promotional campaigns and a new personal fit service which is designed to improve the online ordering process and provide a better fitting product.



Cost of Revenues


Cost of revenues for our products includes the expenses incurred from our purchase of raw materials, direct labor fees and manufacturing overhead.

For the six months ended June 30, 2019, our total cost of revenues amounted to approximately $2.63 million, or 44.4% of total revenues, as compared to approximately $2.75 million, or 43.4% of net revenues in the six months ended June 30, 2018. The increase in cost of revenues as a percentage of total revenue was primarily driven by an increase of the cost of revenue for our OEM unit. The cost of revenue as a percentage of total revenue for our OEM unit increased by 12.4% to 62.0% for the six months ended June 30, 2019, compared to 49.6% for the same period in 2018. The increase in cost of revenues as a percentage of total revenue for our OEM was primarily driven by lower order volume by our OEM customers and increase of manufacturing and material costs in the six months ended June 30, 2019. The cost of revenue as percentage of total revenue for our Inline and Customer Order units was relatively stable with less than 1% decrease for the six months ended June 30, 2019.



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Gross profit


Gross profit decreased by $291,590, or 8.1%, to approximately $3.30 million for the six months ended June 30, 2019 from approximately $3.59 million for the same period in 2018. Gross profit as a percentage of net revenues, or gross margin, decreased by 1.0% to approximately 55.6% in the six months ended June 30, 2019 compared to approximately 56.6% in the same period in 2018. The decrease in gross margin percentage was primarily driven by the increase of cost of revenue for our OEM unit and the decrease of Customer Order sales which have a higher gross margin.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist of costs related to marketing, selling, new product development and auditing and legal services. For the six months ended June 30, 2019, selling, general and administrative expenses decreased by $155,553 to approximately $2.71 million from approximately $2.86 million for the same period in 2018. As a percentage of net revenues, selling, general and administrative expenses increased by 0.5% to 45.7% in the six months ended June 30, 2019 from 45.2% for the same period in 2018. The increase in percentage was primarily attributable to a decrease of net revenue for the six months ended June 30, 2019.




Provision for income taxes



Provision for income taxes decreased $106,433 to $66,693 in the six months ended June 30, 2019 from $173,126 during the same period in 2018. The decrease is line with the reduction of the income tax rate of Chinese operations starting from 2019 and decrease of income before taxes for the six months ended June 30, 2019.

Other Comprehensive Income (loss)/Foreign Currency Translation Adjustment

Other comprehensive income (loss)/foreign currency translation adjustment changed $77,032 to a loss of $2,375 in six months ended June 30, 2019 from a loss of $79,407 in the same period of 2018. These changes were primarily attributable to the increase in the US Dollar to RMB exchange rate in the six months ended June 30, 2019 as compared to the same period in 2018.

Three Months Ended June 30, 2019 compared to Three Months Ended June 30, 2018

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:



                                                  Three Months Ended
                                                       June 30,
                                                 2019            2018

Revenues                                      $ 3,458,508$ 3,671,637
Cost of revenues                                1,483,877       1,472,866
Gross profit                                    1,974,631       2,198,771

Selling, general and administrative expense 1,370,222 1,509,345 Interest expense, net of interest income

           18,212          18,994
Income before income taxes                        586,197         670,432
Income tax expense                                 50,983         167,177
Net income                                    $   535,214$   503,255




                                                Three Months Ended
As a percentage of net revenues                      June 30,
                                                 2019          2018

Revenues                                          100.00 %     100.00 %
Cost of revenues                                   42.91        40.11
Gross profit                                       57.09        59.89

Selling, general and administrative expense 39.62 41.11 Interest expense, net of interest income

            0.53         0.52
Income before income taxes                         16.94        18.26
Income tax expense                                  1.47         4.55
Net income                                         15.47 %      13.71 %




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Revenues


Net revenues decreased $213,129, or 5.8%, to $3.46 million in the three months ended June 30, 2019 from $3.67 million in the same period in 2018. Net revenues by business units are summarized below:



                                Three Months Ended June 30,
                    2019            2018          $ Change       % Change
OEM              $   127,588$    31,225$    96,363        308.61 %
INLINE               518,736         624,098       (105,362)       (16.88) %
CUSTOM ORDER       2,812,184       3,016,314       (204,130)        (6.77) %
Total Revenues   $ 3,458,508$ 3,671,637$ (213,129)        (5.80) %



The decrease in net revenue was the effect of a decrease of Inline and Custom Orders revenue of $105,362 and $204,130, respectively, in the three months ended June 30, 2019 compared to the same period in 2018. We attribute these results largely to increased competition on the e-commerce platforms such as TMall and JD.com in China for our Inline unit and negative effect of the severe weather condition in North America in the first quarter 2019 with a carry-over effect entering the second quarter 2019 for our Customer Order unit. OEM revenue increased $96,363, or 308.6%, to $127,588 in the three months ended June 30, 2019 from $31,225 for the same period in 2018 due to additional orders from OEM customers in the three months ended June 30, 2019.



Cost of Revenues


Cost of revenues for our products includes the expenses incurred from our purchase of raw materials, direct labor fees and manufacturing overhead.

For the three months ended June 30, 2019, our total cost of revenues amounted to approximately $1.48 million or approximately 42.9% of total revenues, as compared to approximately $1.47 million or approximately 40.1% of total revenues in the three months ended June 30, 2018. The increase of 2.8% in cost of revenues as a percentage of total revenue was primarily driven by a decrease of Custom Order sales which have a higher gross margin.



Gross profit


Gross profit decreased $224,140, or 10.2%, to $1.97 million for the three months ended June 30, 2019 from $2.20 million for the same period in 2018. Gross profit as a percentage of net revenues, or gross margin, decreased by 2.8% to 57.1% in the three months ended June 30, 2019 compared to 59.9% in the same period in 2018. The decrease in gross margin percentage was primarily driven by a decrease of Custom Order sales which have a higher gross margin.

Selling, general and administrative expenses

Our selling, general and administrative expenses decreased $139,123, or 9.2%, to $1.37 million in the three months ended June 30, 2019 from $1.51 million in same period of 2018. As a percentage of net revenues, selling, general and administrative expenses decreased to 39.6% in the second quarter of 2019 from 41.1% in the same period in 2018. The decrease in percentage was primarily attributable to decrease of marketing related costs and reduction of labor costs due to the departure of two employees in Europe.



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Provision for income taxes


Provision for income taxes decreased $116,194 to $50,983 in the three months ended June 30, 2019 from $167,177 during the same period in 2018. The decrease is line with the reduction of the income tax rate of Chinese operations starting from 2019 and decrease of income before taxes for the three months ended June 30, 2019.

Other Comprehensive Income (Loss)/Foreign Currency Translation Adjustment

Other comprehensive income (loss)/foreign currency translation adjustment changed $132,905 to a loss of $74,381 in the three months ended June 30, 2019 from a loss of $207,286 during the same period in 2018. These changes were primarily attributable to the increase in the US Dollar to RMB exchange rate in the three months ended June 30, 2019 as compared to the same period in 2018.



Segment Results of Operation


The revenues and income (loss) before income taxes associated with our segments are summarized in the following tables.

Six Months Ended June 30, 2019 compared to Six Months Ended June 30, 2018

Revenues by segment are summarized below:



                                 Six Months Ended June 30,
                    2019            2018          $ Change       % Change
North America    $ 3,987,857$ 4,309,904$ (322,047)        (7.47) %
China              1,739,056       1,785,196        (46,140)        (2.58) %
Europe               203,227         238,734        (35,507)       (14.87) %
Total revenues   $ 5,930,140$ 6,333,834$ (403,694)        (6.37) %



Net revenues from our North America operating segment decreased by $322,047, or 7.5%, to approximately $3.99 million in the six months ended June 30, 2019 from approximately $4.31 million during the same period in 2018. The decrease was primarily attributed to the realignment of OEM business to China after the first quarter of 2018 and the decrease of revenue from our Custom Order business due to the severe weather condition in North America in the six months ended June 30, 2019. Net revenues in China in USD decreased by $46,140, or 2.6%, to $1.74 million in the six months ended June 30, 2019 from $1.79 million during the same period in 2018. This decrease was primarily due to a negative exchange rate impact on our revenue of Inline business units in China. The revenue from China in RMB increased by 3.7% as compared to the same period in 2018, but the increase was offset by 6.3% as a result of lower USD converted from RMB due to an RMB depreciation that occurred during the six months ended June 30, 2019, compared with the same period in 2018. Net revenue generated from the European market shows a decrease of $35,507, or 14.9%, to $203,227 in the three months ended June 30, 2019 from $238,734 during the same period in 2018. This decrease was primarily caused by realignment of Europe business operation and slower acquisition of new customers.

Income (loss) before income taxes by segment is summarized below:



                                                 Six Months Ended June 30,
                                     2019          2018         $ Change        % Change
North America                      $ 140,090$ 345,572$ (205,482)        (59.46) %
China                                383,781       383,244             537           0.14 %
Europe                                28,476       (42,200 )        70,676       (167.48) %

Total income before income taxes $ 552,347$ 686,616$ (134,269) (19.56) %

Our North America operating segment shows a decrease of operating income of $205,482, or 59.5%, to $140,090 for the six months ended June 30, 2019 from a $345,572 operating income during the same period in 2018. The decrease of the operating income was primarily due to a decrease of $322,047, or 7.5%, in net revenue, increases of amortization and maintenance expenses related to our Jakroo e-commerce platform, and increase of $74,568 stock option based compensation for the six months ended June 30, 2019 compared to the same period in 2018.



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Our China operating segment shows a slight increase of operating income of $537, or 0.1%, to $383,781 for the six months ended June 30, 2019 from $383,244 in the same period in 2018. The increase of operating income was primarily due to the reduction of the marketing costs related to advertising and trade shows while offsetting by the negative impact from exchange rate conversion.

Our Europe operating segment shows an operating income of $28,476 for the six months ended June 30, 2019 from a $42,200 operating loss in the same period in 2018. The turnaround from operating losses to operating income in the six months ended June 30, 2019 was primarily attributed to a reduction of labor costs resulted from the departure of employees.

Three Months Ended June 30, 2019 compared to Three Months Ended June 30, 2018

Revenues by segment are summarized below:



                                Three Months Ended June 30,
                    2019            2018          $ Change       % Change
North America    $ 2,552,602$ 2,711,840$ (159,238)        (5.87) %
China                816,224         807,889           8,335          1.03 %
Europe                89,682         151,908        (62,226)       (40.96) %
Total revenues   $ 3,458,508$ 3,671,637$ (213,129)        (5.80) %



Net revenues in our North America operating segment decreased $159,238 or 5.9%, to $2.55 million in the three months ended June 30, 2019 from $2.71 million in the same period of 2018. The decrease was primarily due to a decrease of revenue of our Custom Order business for $159,238, or 5.9% to approximately $2.55 million for the three months ended June 30, 2019, compared with approximately $2.71 million for the same period in 2018 in North America. Net revenues in China in USD increased by $8,335, or 1.0% to $816,224 in the three months ended June 30, 2019 from $807,889 in the same period of 2018. The increase in the US Dollar to RMB exchange rate in the three months ended June 30, 2019 also had a negative impact on net revenue in China. The revenue from China in RMB increased by 8.0% as compared to the same period in 2018, but 7% of the increase was offset by lower USD converted from RMB due to an RMB depreciation that occurred during the quarter ended June 30, 2019, compared with the same period in 2018. Net revenue generated from the European market decreased by $62,226 to $89,682 in the three months ended June 30, 2019 from $151,908 in the same period of 2018 as a result of realignment of the Europe business operation.

Income (loss) before income taxes by segment is summarized below:



                                                Three Months Ended June 30,
                                     2019          2018         $ Change       % Change
North America                      $ 296,087$ 415,357$ (119,270)       (28.72) %
China                                275,875       267,715           8,160          3.05 %
Europe                                14,235       (12,640 )        26,875        212.62 %

Total income before income taxes $ 586,197$ 670,432$ (84,235) (12.56) %

Our North America operating segment shows a decrease of operating income of $119,270, or 28.7%, to $296,087 in the three months ended June 30, 2019 from $415,357 for the same period in 2018. The change is due to:



       ?   A decrease of net revenue of $159,238, or 5.9% for this segment in the
           three months ended June 30, 2019 compared to the same period in 2018;

       ?   Increase of amortization and maintenance expenses related to our Jakroo
           e-commerce platform; and

       ?   Increase of stock option based compensation.




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Our China operating segment shows an increase of income before taxes for $8,160, or 3.1%, from $267,715 in the three months ended June 30, 2018 to $275,875 for the same period in 2019. The increase of operating income is primarily driven by an increase of revenue for this segment during the three months ended June 30, 2019 compared to the same period in 2018 and improvement of production efficiency leading to lower average production costs per unit while offsetting by the negative impact from exchange rate conversion.

Our Europe operating segment showed an increase of operating income of $26,875, or 212.6%, for the three months ended June 30, 2019 from $12,640 operating loss in the same period of 2018. The turnaround from operating losses to operating income in the three months ended June 30, 2019 was primarily attributed to a reduction of labor costs resulted from the departure of employees in the second quarter of 2019.

Liquidity and Capital Resources

Our cash requirements have principally been for working capital and capital expenditures. We fund our working capital, inventory and capital investments primarily from cash flows from operating activities, cash and cash equivalents on hand. Our working capital requirements generally reflect the growth in our business. Our capital investments have included purchasing factory machinery, leasehold improvements for our offices and factory, land and building, and making investments and improvements in information technology systems.

We believe our cash, cash equivalents on hand and cash from operations are adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Although we believe we will have adequate sources of liquidity over the longer term, an economic recession, a slow growth period, decrease in demand for our products, or the need for liquidity to engage in strategic opportunities could adversely affect our business and liquidity or increase our need for liquidity. If and when needed, no assurances can be given that funding will be available to us on acceptable terms, if at all. In addition, instability in or a tightening of the capital markets could adversely affect our ability to obtain additional capital, on terms acceptable to us or at all, to grow or maintain our business. Also, to the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to existing stockholders.

If adequate funds are not available when needed, we may be required to significantly reduce or refocus our operations.



Cash Flows


The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:

Six Months Ended June 30, 2019 compared to Six Months Ended June 30, 2018



                                                                 Six Months Ended June 30,
                                                                    2019              2018

Net cash provided by (used in):
Operating activities                                           $    1,250,142$  682,672
Investing activities                                                 (180,200 )       (45,976 )
Financing activities                                                   77,040         (34,677 )
Effect of exchange rate changes on cash and cash equivalents              762         (70,134 )
Net increase in cash and cash equivalents                      $    1,147,744$  531,885




Operating Activities


Operating activities consisted primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items included depreciation and amortization, share-based compensation, and deferred taxes. In addition, operating cash flows included the effect of changes in operating assets and liabilities, principally inventories, accounts receivable, income taxes payable, prepaid expenses and other assets, accounts payable, advance from customers, and accrued expenses.



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Cash flows provided by operating activities increased by $567,470, or 83.1% to approximately $1.25 million for the six months ended June 30, 2019 from $682,672 of cash flows provided by operating activities during the same period in 2018. The increase in cash from operating activities was due to increased net cash flows from operating assets and liabilities of $535,137, offset by a decrease in net income of $27,836, and an increase resulting from adjustments to net income for non-cash items, which increased $60,169 in the six months ended June 30, 2019 compared to the same period in 2018.



Investing Activities


Cash used in investing activities increased $134,224, or 291.9%, to $180,200 in the six months ended June 30, 2019 from $45,976 in the same period in 2018, primarily due to higher capital expenditure related to the proprietary Jakroo e-commerce platform. Total capital expenditure was $180,200 and $45,976 in the six months ended June 30, 2019 and 2018, respectively.



Financing Activities


Financing activities during the six months ended June 30, 2019 consisted primarily of cash repayment to related parties of $36,872 and repayment of our mortgage loan for $36,087. We also received cash of $149,999 from private issuances of common stock in the six months ended June 30, 2019.

Repayment of our mortgage loan was $36,087 for the six months ended June 30, 2019, compared with $34,677 for the same period in 2018.

Off-Balance Sheet Arrangements

In connection with various contracts and agreements, we have agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which our counterparties are grossly negligent, engage in willful misconduct or act in bad faith. Based on our historical experience and the estimated probability of future loss, we have determined the fair value of such indemnifications is not material to our financial position or results of operations.

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issues by the Financial Accounting Standards Board or other standard bodies that may have an impact on the Company's accounting and reporting. The Company believes that any recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

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08/14JAKROO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS..
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05/15JAKROO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS..
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04/01JAKROO : Management's Discussion and Analysis of Financial Condition and Results..
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03/04JAKROO INC. : Regulation FD Disclosure (form 8-K)
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01/30JAKROO INC. : Change in Directors or Principal Officers (form 8-K)
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2018JAKROO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS..
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2018JAKROO INC. : Changes in Registrant's Certifying Accountant (form 8-K)
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Managers
NameTitle
Wei Dong Du Chairman, President & Chief Executive Officer
Derek Wiseman Chief Operating Officer, Secretary & Director
David Wang Chief Financial Officer
Ben Jacques-Maynes Manager-Specialty Accounts, Research & Development
Tan Wei Director
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