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 June 30, 2020 Compared to the Three
Months Ended June 30, 2019
Net sales were $4,989 for the three months ended June 30, 2020 as compared to
$144,938 for the three months ended June 30, 2019. This represented a decrease
of $139,949 or 96.6% compared to the prior year period. The decrease in net
sales was primarily the result of a weaker demand in laser marking machine
sales.
Cost of sales decreased by $111,306 or 96.8% to $3,709 for the three months
ended June 30, 2020, as compared to $115,015 for the three months ended June 30,
2019. Gross profit was $1,280 for the three months ended June 30, 2020, compared
$29,923 for the same period in 2019. Gross profit as a percentage of net sales
was approximately 25.7% for the three months ended June 30, 2020, compared to
approximately 20.6% 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
June 30, 2020.
For the three months ended June 30, 2020, selling, general and administrative
expenses totaled $46,089, represented a decrease of $26,664, or 36.7%, as
compared to $72,753 for the same period in 2019. The decrease in selling,
general and administrative expenses was primarily attributable to the decrease
in salary, professional, entertainment, traveling and repair and maintenance
expenses.
For the three months ended June 30, 2020, loss from operations increased to
$44,809 as compared to $42,830 for the three months ended June 30, 2019. This
represented an increased loss of $1,979, or 4.6% comparing the two periods. The
increase in loss from operations was mainly due to the decrease in net sales,
partially offset by the decrease in selling, general and administrative expenses
for the three months ended June 30, 2020.
Other income (expenses) were $(4,231) and $3,284 for the three months ended June
30, 2020 and 2019, respectively. This represented an increased loss of $7,515 or
228.8%. The main reason for the increased other expenses was primarily due to
the decreased gain on disposal of fixed assets.
Our net loss was $49,040 for the three months ended June 30, 2020, compared to a
net loss of $39,546 for the three months ended June 30, 2019. The increase in
net loss for the three months ended June 30, 2020 was due to the reasons
described above.
Results of Operations -Six months Ended June 30, 2020 Compared to the Six months
Ended June 30, 2019
Net sales were $14,256 for the six months ended June 30, 2020 as compared to
$145,958 for the six months ended June 30, 2019. This represented a decrease of
$131,702 or 90.2% compared to the prior year period. The decrease in net sales
was primarily the result of a weaker demand in laser marking machine sales.
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Cost of sales decreased by $114,128 or 94.9% to $6,169 for the six months ended
June 30, 2020, as compared to $120,297 for the six months ended June 30, 2019.
Gross profit was $8,087 for the six months ended June 30, 2020, compared to
$25,661 for the same period in 2019. Gross profit as a percentage of net sales
was approximately 56.7% for the six months ended June 30, 2020, compared to
approximately 17.6% in the same period in 2019. The change in gross margin was
primarily due to higher margin on the products sold in the six months ended June
30, 2020.
For the six months ended June 30, 2020, selling, general and administrative
expenses totaled $82,027, represented a decrease of $54,544, or 39.9%, as
compared to $136,571 for the same period in 2019. The decrease in selling,
general and administrative expenses was primarily attributable to the decrease
in salary, professional, entertainment, rent, and repair and maintenance
expenses.
For the six months ended June 30, 2020, loss from operations decreased to
$73,940 as compared to $110,910 for the six months ended June 30, 2019. This
represented a decreased loss of $36,970, or 33.3% comparing the two periods. The
decrease in loss from operations was mainly due to the decrease in selling,
general and administrative expenses for the six months ended June 30, 2020.
Other expenses were $10,340 and $3,898 for the six months ended June 30, 2020
and 2019, respectively. This represented an increased loss of $6,442 or 165.3%.
The main reason for the increased other expenses was primarily due to the
decreased gain on disposal of fixed assets, partially offset by the increased
rent income.
Our net loss was $84,280 for the six months ended June 30, 2020, compared to a
net loss of $114,808 for the six months ended June 30, 2019. The decrease in net
loss for the six months ended June 30, 2020 was due to the reasons described
above.
Liquidity and Capital Resources
Cash and cash equivalents were $8,722 on June 30, 2020 and $4,596 on December
31, 2019. Our total current assets were $116,835 on June 30, 2020, as compared
to $95,906 on December 31, 2019. Our total current liabilities were $1,603,144
on June 30, 2020, as compared to $1,144,461 on December 31, 2019.
We had working capital deficiency of $1,486,309 on June 30, 2019 compared with
working capital deficiency of $1,048,555 on December 31, 2019. This increase in
working capital deficiency was primarily due to the increased accrued expenses,
due to related parties and current portion of loan from shareholders, which was
partially offset by the increased cash and cash equivalents, accounts
receivables, inventories, and prepaid and other current assets, and the
decreased accounts payables and the current portion of lease liability.
Net cash flows provided in operating activities was $3,969 during the six months
ended June 30, 2020, an increase of $14,273, compared to net cash flows used in
operating activities of $10,304 during the six months ended June 30, 2019. The
increase in net cash flow provided by operating activities during the six months
ended June 30, 2020 was primarily due to the decrease of inventories, and the
increase of accrued expenses and due to related parties, partially offset by net
loss, the increase in accounts receivables and prepaid and other current assets,
and the decrease in accounts payable.
Net cash flows provided by investing activities was $0 and $12,914 during the
six months ended June 30, 2020 and 2019, respectively. The decrease was
primarily due to the decreased proceeds from disposal of fixed assets.
We did not have net cash flows provided by nor used in financing activities
during the six months ended June 30, 2020 and 2019.
Net change in cash and cash equivalents was an increase of $4,126 during the six
months ended June 30, 2020. Net change in cash and cash equivalents was an
increase of $11,625 during the six months ended June 30, 2019.
Going Concern
The Company had an accumulated deficit of $2,531,290 and $2,447,010 as of June
30, 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.
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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.
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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