Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including this discussion and analysis by management, contains or incorporates forward-looking statements. All statements other than statements of historical fact made in 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 potential risks and uncertainties that could cause our actual results to differ materially from those expressed or implied herein are set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

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.

Results of Operations -Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Net sales were $9,267 for the three months ended March 31, 2020 as compared to $1,020 for the three months ended March 31, 2019. This represented an increase of $8,247 or 808.5% compared to the prior year period. The increase in net sales was primarily because more machine parts were sold during the three months ended March 31, 2020.

Cost of sales decreased by $2,822 or 53.4% to $2,460 for the three months ended March 31, 2020, as compared to $5,282 for the three months ended March 31, 2019. Gross profit was $6,807 for the three months ended March 31, 2020, compared to gross loss of $(4,262) for the same period in 2019. Gross profit (loss) as a percentage of net sales was approximately 73.5% for the three months ended March 31, 2020, compared to approximately (417.8%) in the same period in 2019. The change in gross margin was primarily due to higher margin on the products sold in the three months ended March 31, 2020.

For the three months ended March 31, 2020, selling, general and administrative expenses totaled $35,938, represented a decrease of $27,880, or 43.7%, as compared to $63,818 for the same period in 2019. The decrease in selling, general and administrative expenses was primarily attributable to the decrease in salary, professional, entertainment, insurance premiums and repair and maintenance expenses.

For the three months ended March 31, 2020, loss from operations decreased to $29,131 as compared to $68,080 for the three months ended March 31, 2019. This represented a decreased loss of $38,949, or 57.2% comparing the two periods. The decrease in loss from operations was mainly due to the increase in net sales and the decrease in cost of sales and selling, general and administrative expenses for the three months ended March 31, 2020.

Other expenses were $6,109 and $7,182 for the three months ended March 31, 2020 and 2019, respectively. This represented a decreased loss of $1,073 or 14.9%. The main reason for the decreased other expenses was primarily due to the increase in rent income.

Our net loss was $35,240 for the three months ended March 31, 2020, compared to a net loss of $75,262 for the three months ended March 31, 2019. The decrease in net loss for the three months ended March 31, 2020 was due to the reasons described above.


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Liquidity and Capital Resources

Cash and cash equivalents were $10,197 on March 31, 2020 and $4,596 on December 31, 2019. Our total current assets were $100,320 on March 31, 2020, as compared to $95,906 on December 31, 2019. Our total current liabilities were $1,170,039 on March 31, 2020, as compared to $1,144,461 on December 31, 2019.

We had working capital deficiency of $1,069,719 on March 31, 2019 compared with working capital deficiency of $1,048,555 on December 31, 2019. This increase in working capital deficiency was primarily due to decreased prepaid expense and other current assets and inventory, and increased accrued expenses and due to related parties, which was partially offset by increased cash and cash equivalents and accounts receivables, and the decreased accounts payables, current portion of loan from shareholders and the current portion of lease liability.

Net cash flows provided in operating activities was $5,652 during the three months ended March 31, 2020, an increase of $56,547, compared to net cash flows used in operating activities of $50,895 during the three months ended March 31, 2019. The increase in net cash flow provided by operating activities during the three months ended March 31, 2020 was primarily due to the decreases in net loss and inventory, and the increase in due to related parties, partially offset by the increase in account receivables and prepaid and other current assets, and the decrease in accounts payable and accrued expenses.

We did not have net cash flows provided by nor used in investing activities and financing activities during the three months ended March 31, 2020 and 2019.

Net change in cash and cash equivalents was an increase of $5,601 during the three months ended March 31, 2020. Net change in cash and cash equivalents was a decrease of $45,213 during the three months ended March 31, 2019.

Going Concern

The Company had an accumulated deficit of $2,482,250 and $2,447,010 as of March 31, 2020 and December 31, 2019, respectively. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of liabilities in the normal course of business. This presentation presumes funds will be available to finance ongoing research and development, operations and capital expenditures and permit the realization of assets and the payment of liabilities in the normal course of operations for the foreseeable future.

These factors, among others, raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Future Impact of Covid-19

Our results of operations could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the outbreak of COVID-19. The outbreak in China has resulted in the temporary closures of factories as mandated by the provincial governments in various provinces of China from late January to March, which has adversely affected our ability to supply equipment, services and related products to our customers. Due to the Chinese factories' shutdowns and traffic restrictions during the outbreak in China and potential shutdowns and traffic restrictions in the countries where our suppliers are located, our supply chain and business operations of our suppliers may be affected. Disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers' or customers' products, could have adverse ripple effects on our manufacturing output and delivery schedule. We also face difficulties in collecting our accounts receivables due to the effects of COVID-19 on our customers and risk gaining a large amount of bad debt. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which we or our suppliers and customers operate.


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Although China has already begun to recover from the outbreak of COVID-19, the epidemic continues to spread on a global scale and there is the risk of the epidemic returning to China in the future, thereby causing further business interruption. While the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. If our future sales continue to decline significantly, we may risk facing bankruptcy due to our recurring fixed expenses. The extent to which COVID-19 impacts our results will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others.

Inflation

Our opinion is that inflation has not had a material effect on our operations and is not expected to have any material effect on our operations.

Climate Change

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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