The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and the related
notes, and other financial information included in this Form 10-Q and our
financial statements and notes thereto included in our annual report on Form
10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K").
Our Management's Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking. Words such as
"anticipates," "expects," "intends," "plans," "predicts," "potential,"
"believes," "seeks," "hopes," "estimates," "should," "may," "will," "with a view
to" and variations of these words or similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties and assumptions that
are difficult to predict. Forward-looking statements are, by their very nature,
uncertain and risky. These risks and uncertainties include international,
national, and local general economic and market conditions; our ability to
sustain, manage, or forecast growth; our ability to successfully make and
integrate acquisitions; new product development and introduction; existing
government regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
change in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; the risk of foreign currency exchange rates; and other risks that
might be detailed from time to time in our filings with the Securities and
Exchange Commission. For more information, see our discussion of risk factors
located at Part I, Item 1A of our 2020 Form 10-K.
Although the forward-looking statements in this Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because forward-looking
statements are inherently subject to risks and uncertainties, the actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review and consider
the various disclosures made by us in this report as we attempt to advise
interested parties of the risks and factors that may affect our business,
financial condition, and results of operations and prospects.
Overview
Our Company is a provider of health and nutritional supplements and personal
care products. Currently, we are mainly selling our products over the internet
directly to end-user customers through our website, at www.merionus.com, and to
wholesale distributors through phone and electronic communication. Our major
customers of our nutritional and beauty products are located in the Asian
market, predominantly in the People's Republic of China. Our major customers of
our OEM and packaging products are located in the United States.
Since June 2014, we have been selling our products primarily over the internet
directly to end-user customers and by phone/email orders directly to our
wholesale distributors. Certain miscellaneous sales are made directly to
customers who walk into the Company offices and customers who call the Company
directly for products. We are now focusing on selling health and nutritional
supplements and personal care products directly on the internet through our
website at www.merionus.com and to our OEM customers. As of the date of filing
of this report, we market eight individual nutritional supplement products,
three and five of which were introduced in 2018 and 2019 respectively, and one
beauty product, which was also introduced in 2018, on our website. We are no
longer selling similar products of third parties on our website.
In January 2018, we entered into an Asset Purchase Agreement (the "Purchase
Agreement") with SUSS Technology Corporation, a Nevada corporation (the
"Seller"), pursuant to which the Seller agreed to sell to the Company
substantially all of the assets associated with the Seller's manufacture of
dietary supplements (the "Nevada Factory") for an aggregate purchase price (the
"Purchase Price") of $1,000,000 and 333,334 shares of the Company's common stock
(the "Purchase Shares") valued at $320,000. The Seller was one of our major
suppliers during the year ended December 31, 2017. Upon purchasing these assets
from the Seller, we started to manufacture some of the nutritional supplements
that we sold until May 2021. These assets meet all industry nutritional and
dietary supplement manufacturing standards, including U.S. Food and Drug
Administration and Good Manufacturing Practice compliance and Current Good
Manufacturing Practice regulations.
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In January 2018, we introduced a new beauty product, Noir Naturel, a gentle
formula for grey coverage from the first application into hair care.
In September 2018, we introduced three different types of natural aphrodisiac
supplements, Viwooba (1-3) for men that may support kidney health, improve
immunity, enhance physical fitness, eliminate fatigue, improve sexual desire and
enhance body energy, strength and sexual ability.
In March 2019, we introduced 1) Lady-S, a female dietary supplement that may
assist with weight loss, 2) Gold King, a nutritional supplement that may provide
antioxidant support and liver health, 3) New Power, a nutritional supplement
that may support heart health, and 4) Taibao, a nutritional supplement that may
enhance physical performance and energy metabolism.
In December 2019, we introduced ReMage Power, a nutritional supplement that may
provide anti-aging Nicotinamide adenine dinucleotide (NAD)+ support and promote
energy & cell metabolism.
In May 2021, we determined that it is more beneficial to outsource to
third-party manufacturers the production of our branded and OEM products than
manufacturing through our Nevada Factory. As a result, we disposed of our
factory machinery and terminated our Nevada Factory lease in May 2021. As we
have significant continuing involvement in the sale of our branded and OEM
products through our third-party manufacturers, this restructuring did not
constitute a strategic shift that will have a major effect on our operations and
financial results. Therefore, the results of operations for our Nevada Factory
were not reported as discontinued operations under the guidance of Accounting
Standards Codification 205.
On June 11, 2021, our Board of Directors approved a 1-for-3 reverse stock split
of our common stock. On July 27, 2021, we filed a Certificate of Change with the
State of Nevada (the "Certificate") to effect a 1-for-3 reverse stock split of
our authorized shares of common stock, par value $0.001 (the "Common Stock"),
accompanied by a corresponding decrease in our issued and outstanding shares of
Common Stock (the "Reverse Stock Split"), effective upon filing. Following the
Reverse Stock Split, the number of authorized shares of Common Stock was reduced
from 1,000,000,000 to 333,333,333. All shares and per share amounts used herein
and in the accompanying unaudited condensed financial statements have been
retroactively restated to reflect the 1-for-3 Reverse Stock Split.
Principal Factors Affecting Our Financial Performance
We believe consumers have become more confident in ordering products like ours
over the internet. However, the nutritional supplement and skin care products
e-commerce markets have been, and continue to be, increasingly competitive and
are rapidly evolving due to the reasons discussed below.
Barriers to entry are minimal in the nutritional supplement and skin care
businesses, and current and new competitors can launch new websites at a
relatively low cost. Many competitors in this area have greater financial,
technical and marketing resources than we do. Continued advancement in
technology, and increased access to that technology, is paving the way for
growth in direct marketing. We also face competition for consumers from
retailers, duty-free retailers, specialty stores, department stores and
specialty and general merchandise catalogs, many of which have greater financial
and marketing resources than we have. Notwithstanding the foregoing, we believe
that we are well-positioned within the Asian consumer market with our current
plan of supplying American merchandise to consumers in Asia. There can be no
assurance that we will maintain or increase our competitive position or that we
will continue to provide only American-made merchandise.
As COVID-19 has limited the global travels, transportation, and import and
export goods, we moved our focus on local OEM and packaging business through the
production from third party manufacturers and it has become our major revenue
source in fiscal year 2021. The loss of one or more of our U.S. OEM and
packaging customers would result in a potential loss of sales and have a
negative effect on our operations if we cannot find one or more substitutes.
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Our products are sensitive to business and personal discretionary spending
levels, and demand tends to decline or grow more slowly during economic
downturns, including downturns in any of our major markets. The global economy
is currently undergoing a period of downturn due to COVID-19, and the future
economic environment continues to remain uncertain. This has led, and could
further lead, to reduced consumer spending, which may include spending on
nutritional and beauty products and other discretionary items. The increase of
trade tensions between US and China and the spread of COVID-19 have and might
continue to have negative impacts on our business. The reduced consumer spending
may force us and our competitors to lower prices. These conditions may adversely
affect our revenues and results of operations.
Coronavirus (COVID-19)
At the end of 2019, there was an outbreak of a novel strain of coronavirus
(COVID-19) in China, which has spread rapidly to many parts of the world,
including the U.S. In March 2020, the World Health Organization declared
COVID-19 a pandemic. The pandemic has resulted in quarantines, travel
restrictions, and the temporary closure of office buildings and facilities in
China and in the U.S. The economic impact of the coronavirus or COVID-19 in both
China and the U.S have significantly impacted our business and results of
operations.
Our headquarters are located in California and were closed from March 19, 2020
to June 9, 2020. Due to the surge of COVID-19 cases in California, our offices
were closed again from July 16, 2020 to September 16, 2020 and our employees
worked remotely from home during these periods. Our offices have been reopened
since September 16, 2020. Substantially all of our product sales revenues are
generated in China and all of our OEM and packaging revenues are generated in
the U.S. Consequently, our results of operations have been and will continue be
materially adversely affected, to the extent that COVID-19 harms the Chinese and
U.S. economy. Any potential impact to our results will depend on, to a large
extent, future developments and new information that may emerge regarding the
duration and severity of COVID-19 and new variants, efficacy and distribution of
COVID-19 vaccines and the actions taken by government authorities and other
entities in China and U.S. to contain COVID-19 or treat its impact, almost all
of which are beyond our control.
Although we expect that our health supplement products and our OEM/packaging
services will still be in demand due to awareness of the importance of health
growing along with the realities of COVID-19, the global economy has been and
may continue to be negatively affected by COVID-19 and there is continued
uncertainty about the duration and intensity of the impact of COVID-19. Many of
our customers are individuals and small and medium-sized enterprises (SMEs),
which may not have strong cash flows or be well capitalized, and may be
vulnerable to a pandemic outbreak and slowing macroeconomic conditions. If the
SMEs cannot weather the COVID-19 pandemic and the resulting economic impact, or
cannot resume business as usual after a prolonged outbreak, our revenues and
business operations may be materially and adversely impacted.
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 the Company's
ability to access capital, which could negatively affect the Company's
liquidity.
Substantially all of our revenues are concentrated in China and the United
States. Consequently, the COVID-19 outbreak has and may continue to materially
adversely affect our business operations, financial condition and operating
results, including but not limited to the material negative impact to the
production and delivery of our products, revenues and collection of accounts
receivable and the additional allowance for doubtful accounts. The situation
remains highly uncertain for any further outbreak or resurgence of the COVID-19,
new variants and the efficacy and distribution of COVID-19 vaccines. It is
therefore difficult for the Company to estimate the impact on our business or
operating results that might be adversely affected by any further outbreak or
resurgence of COVID-19 for the remaining year of 2021.
In addition, due to COVID-19 going around the world and some of the raw
materials to produce our products are sourced from outside of the United States,
the suppliers have been and might continue to be negatively impacted due to
increased shipping costs and shortage of raw materials around the world.
Consequently, the COVID-19 outbreak has and may continue to materially adversely
affect the Company's business operations, financial condition and operating
results for the remainder of 2021, including but not limited to the shortage of
raw materials, delay of shipment, and increased prices for the Company's
products manufactured by our suppliers.
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The Company started to recover as total revenues for the three and six months
ended June 30, 2021 were higher as compared to the same period of 2020. Because
of the uncertainty surrounding COVID-19, the financial impact for 2021 cannot be
reasonably estimated at this time.
Looking ahead, we understand that these unprecedented times will have a
financial impact to some of our customers, and might potentially cause loss of
certain existing customers. Our plan has been to promote the awareness of the
importance of health and our health supplement products, which in turn might
build sales with new customers to offset the loss of any of our existing
customers.
As COVID-19 continues to impact global business, the U.S. government established
relief programs for small business such as the Paycheck Protection Program
("PPP") and the Economic Injury Disaster Loan program ("EIDL"). We received a
PPP loan of $131,100 and EIDL loan of $150,000 to help fund our operation in
2020. The PPP loan was fully forgiven by the SBA administration in January 2021.
On February 2, 2021, the Company received loan proceeds of $137,792 under the
U.S. Small Business Administration ("SBA") second round of Paycheck Protection
Program ("PPP") to help fund our operations in 2021.
Results of Operations
Comparison of the three months ended June 30, 2021 and 2020
For the three months ended June 30,
Percentage
2021 2020 Change Change
Total sales $ 761,107 $ 29,124 $ 731,983 2,513.3 %
Total cost of sales 631,834 72,980 558,854 765.8 %
Gross profit (loss) 129,273 (43,856 ) 173,129 394.8 %
Operating expenses
Selling 20,094 17,742 2,352 13.3 %
General and administrative 301,334 309,188 (7,854 ) (2.5 )%
Stock compensation expense 84,867 63,650 21,217 33.3 %
Loss on disposal of equipment 268,800 - 268,800 100.0 %
Total operating expenses 675,095 390,580 284,515 72.8 %
Loss from operations (545,822 ) (434,436 ) 111,386 25.6 %
Other income (expense), net 25,386 (31,683 ) 57,069 180.1 %
Provision for income taxes - - - -
Net loss $ (520,436 ) $ (466,119 ) $ 54,317 11.7 %
Total sales increased by approximately $732,000 or 2,513.3%, from approximately
$29,000 in the three months ended June 30, 2020 to approximately $761,000 in the
three months ended June 30, 2021. The increase of sales was mainly due to the
OEM contracts that the Company signed in 2020 and we fulfilled some of those
orders during the three months ended June 30, 2021.
The cost of sales increased by approximately $559,000, or 765.8%, from
approximately $73,000 in the three months ended June 30, 2020 to approximately
$632,000 in the three months ended June 30, 2021. The increase of cost of sales
was in line with our revenue as we fulfilled two large OEM orders during the
three months ended June 30, 2021.
Our overall gross margin (loss) percentage increased from approximately (150.6)%
in the three months ended June 30, 2020 to approximately 17.0% in the three
months ended June 30, 2021, mainly due to the increase of sales in the three
months ended June 30, 2021 as compared to the same period in 2020. We had more
sales to absorb our fixed production costs during the three months ended June
30, 2021 as our products normally have high gross margins. On the other hand, we
had more idle capacity cost during the same period in 2020 which had created a
gross loss.
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Our product sales increased by approximately $8,000, or 87.1% from $8,777 for
the three months ended June 30, 2020 to $16,420 for the same period ended June
30, 2021. The gross margin percentage increased from approximately 2.9% in the
three months ended June 30, 2020 to approximately 19.5% in the three months
ended June 30, 2021. The reason for the increase of product sales gross margin
percentage was due to the sale of products at retail price without any wholesale
discounts in the three months ended June 30, 2021 while we offered some
wholesales and bundle discounts to our customers during the same period in 2020.
Our OEM and packaging sales increased by approximately $724,000, or 3,559.9%
from approximately $20,000 for the three months ended June 30, 2020 to
approximately $744,000 for the same period ended June 30, 2021. The gross margin
percentage decreased from approximately 43.4% in the three months ended June 30,
2020 to approximately 17.0% in the three months ended June 30, 2021. For the
three months ended June 30, 2021, we had incurred more manufacturing overhead
costs for our OEM and packaging sales with additional labor hours being
allocated to such production due to increased production procedures as compared
to the same period in 2020. In addition, the cost of raw materials of the two
large OEM orders required higher material usage in the three months ended June
30, 2021 as compared to the OEM and packaging products sold in the same period
in 2020. As a result, our OEM and packaging sales gross margin percentage
decreased by 24.0% during the three months ended June 30, 2021 as compared to
the same period in 2020.
Selling expenses increased from approximately $18,000 in the three months ended
June 30, 2020 to approximately $20,000 in the three months ended June 30, 2021.
The increase of approximately $2,000, or 13.3%, was mainly due to the increase
of approximately $10,000 of sales department salaries as we transferred our
factory employees to be our sales representatives after closing our Nevada
factory in May 2021, the increase of approximately $1,000 of packing expenses
and the increase of approximately $5,000 of shipping expenses as we have more
OEM orders that required packing and shipping services, offset by the decrease
of approximately $14,000 of advertising and marketing expenses.
General and administrative ("G&A") expenses decreased by approximately $8,000
from approximately $309,000 in the three months ended June 30, 2020 to
approximately $301,000 in the three months ended June 30, 2021. The decrease was
mainly attributable to the decrease of approximately $15,000 of foreign currency
transaction fees in the three months ended June 30, 2021, the decrease of
approximately $4,000 of professional fees, and the decrease of approximately
$9,000 of bad debt expenses, offset by the increase of approximately $20,000 to
upgrade our website.
Stock compensation expenses increased by approximately $21,000 during the three
months ended June 30, 2021 compared to the same period in 2020. Approximately
$85,000 and $64,000, related to the amortization of the value of 766,668 shares
of restricted common stock to three employees for the three months ended June
30, 2021 and 2020, respectively, which all have a vesting period of three years.
In May 2021, we determined that it is more beneficial to outsource to
third-party manufacturers the production our branded and OEM products than
manufacturing in our Nevada factory. As a result, we terminated our Nevada
factory lease and disposed of all machinery held in Nevada which resulted in
$268,800 of loss on disposal of equipment for the three months ended June 30,
2021.
Other income (expense) increased by approximately $57,000 from an expense of
approximately $(32,000) in the three months ended June 30, 2020 to income of
approximately $25,000 in the three months ended June 30, 2021, mainly due to the
decrease of interest expenses of approximately $40,000 incurred from the third
party and related parties interest bearing loans that were transferred to DW
Food, a related party, through a debt sale agreement in December 2020 and
subsequently paid with shares of the Company's common stock in December 2020.
The increase of other income was also due to a $25,000 California Small Business
COVID-19 Relief Grant that we received in May 2021.
Net loss increased by approximately $54,000 from approximately $466,000 in the
three months ended June 30, 2020 to approximately $520,000 in the three months
ended June 30, 2021, mainly due to the reasons discussed above.
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Comparison of the six months ended June 30, 2021 and 2020
For the six months ended June 30,
Percentage
2021 2020 Change Change
Total sales $ 1,196,469 $ 95,112 $ 1,101,357 1,158.0 %
Total cost of sales 869,358 120,669 748,689 620.4 %
Gross profit (loss) 327,111 (25,557 ) 352,668 1,379.9 %
Operating expenses
Selling 66,197 31,173 35,024 112.4 %
General and administrative 667,940 692,796 (24,856 ) (3.6 )%
Stock compensation expense 168,801 252,300 (83,499 ) (33.1 )%
Loss (gain) on disposal of
equipment 268,800 (16,000 ) (284,800 ) (1,780.0 )%
Total operating expenses 1,171,738 960,269 211,469 22.0 %
Loss from operations (844,627 ) (985,826 ) (141,199 ) (14.3 )%
Other income (expense), net 26,551 (73,063 ) 99,614 136.3 %
Provision for income taxes - - - -
Net loss $ (818,076 ) $ (1,058,889 ) $ (240,813 ) (22.7 )%
Total sales increased by approximately $1.1 million or 1,158.0%, from
approximately $95,000 in the six months ended June 30, 2020 to approximately
$1.2 million in the six months ended June 30, 2021. The increase of sales was
mainly due to the OEM contracts that the Company signed in 2020 and we fulfilled
those orders during the six months ended June 30, 2021.
The cost of sales increased by approximately $749,000, or 620.4%, from
approximately $121,000 in the six months ended June 30, 2020 to approximately
$869,000 in the six months ended June 30, 2021. The increase of cost of sales
was in line with our revenue as we fulfilled two large OEM orders during the six
months ended June 30, 2021.
Our overall gross margin (loss) percentage increased from approximately (26.9)%
in the six months ended June 30, 2020 to approximately 27.3% in the six months
ended June 30, 2021, mainly due to the increase of sales in the six months ended
June 30, 2021 as compared to the same period in 2020. We had more sales to
absorb our fixed production costs during the six months ended June 30, 2021 as
our products normally have high gross margins. On the other hand, we had more
idle capacity cost during the same period in 2020 which had driven down our
gross margin.
Our product sales decreased by approximately $12,000, or 41.6% from $29,754 for
the six months ended June 30, 2020 to $17,381 for the same period ended June 30,
2021. The gross margin percentage decreased from approximately 49.4% in the six
months ended June 30, 2020 to approximately 23.5% in the six months ended June
30, 2021. The reason for the decrease of product sales gross margin percentage
was due to providing more discounts to our customers during the six months ended
June 30, 2021 on some of our products that were closer to the expiration date as
compare to the same period in 2020.
Our OEM and packaging sales increased by approximately $1.1 million, or 1,704.0%
from $65,358 for the six months ended June 30, 2020 to $1,179,088 for the same
period ended June 30, 2021. The gross margin percentage decreased from
approximately 55.4% in the six months ended June 30, 2020 to approximately 28.5%
in the six months ended June 30, 2021. For the six months ended June 30, 2021,
we had incurred more manufacturing overhead costs for our OEM and packaging
sales with additional labor hours being allocated to such production due to
increased production procedures as compared to the same period in 2020. In
addition, the cost of raw materials of the two large OEM orders required higher
material usage in the first quarter of 2021 as compared to the OEM and packaging
products sold in the same period in 2020. As a result, our OEM and packaging
sales gross margin percentage decreased by 26.9% during the six months ended
June 30, 2021 as compared to the same period in 2020.
Selling expenses increased from approximately $31,000 in the six months ended
June 30, 2020 to approximately $66,000 in the six months ended June 30, 2021.
The increase of approximately $35,000, or 112.4%, was mainly due to the increase
of approximately $31,000 of packing expenses and the increase of approximately
$17,000 of shipping expenses as we fulfilled more OEM orders that required
packing and shipping services, the increase of approximately $10,000 of sales
department salaries as we transferred our factory employees to be our sales
representatives after closing our Nevada factory in May 2021 offset by the
decrease of approximately $23,000 of advertising, marketing and training
expenses.
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General and administrative ("G&A") expenses decreased by approximately $25,000
from approximately $693,000 in the six months ended June 30, 2020 to
approximately $668,000 in the six months ended June 30, 2021. The decrease was
mainly attributable to the decrease of approximately $30,000 of payroll and
benefit expenses as we did not replace certain employees after their
resignations and the decrease of approximately $27,000 of bad debt expenses, the
decrease of approximately $15,000 of foreign currency transaction fees offset by
the increase of approximately $17,000 of rent expense with our training center
in New York, the increase of approximately $20,000 to upgrade our website, and
the increase of approximately $10,000 of other miscellaneous G&A expenses.
Stock compensation expenses decreased by approximately $84,000 during the six
months ended June 30, 2021 compared to the same period in 2020. In March 2019,
we issued 333,334 shares of our common stock to an advisor to provide certain
business and financial operation and planning consultation services, and with
amortization expenses of approximately $125,000, and such services were
completed in March 2020 and we no longer incurred such costs in the six months
ended June 30, 2021. Approximately $169,000 and $127,000, related to the
amortization of the value of 766,668 shares of restricted common stock to three
employees for the six months ended June 30, 2021 and 2020, respectively, which
all have a vesting period of three years.
In May 2021, we determined that it is more beneficial to outsource to
third-party manufacturers the production our branded and OEM products than
manufacturing through our Nevada factory. As a result, we terminated our Nevada
factory lease and disposed of all machinery held in Nevada which resulted in
$268,800 of loss on disposal of equipment for the six months ended June 30,
2021. During the six months ended June 30, 2020, we traded in one of our
vehicles which resulted in a gain of $16,000.
Other income (expense) increased by approximately $100,000 from an expense of
approximately $(73,000) in the six months ended June 30, 2020 to income of
approximately $27,000 in the six months ended June 30, 2021, mainly due to the
decrease of interest expenses of approximately $78,000 incurred from the third
and related parties interest bearing loans that were transferred to DW Food, a
related party, through a debt sale agreement in December 2020 and subsequently
paid with shares of the Company's common stock in December 2020. The increase of
other income was also due to a $25,000 California Small Business COVID-19 Relief
Grant that we received in May 2021.
Net loss decreased by approximately $241,000 from approximately $1.1 million in
the six months ended June 30, 2020 to approximately $818,000 in the six months
ended June 30, 2021, mainly due to the reasons discussed above.
Liquidity and Capital Resources
As of June 30, 2021, we had a cash balance of approximately $6,000, compared to
a cash balance of approximately $10,000 at December 31, 2020.
In assessing our liquidity, we monitor and analyze our cash on-hand and our
operating and capital expenditure commitments. Our liquidity needs are to meet
our working capital requirements, operating expenses and capital expenditure
obligations. Other than operating expenses and current liabilities of
approximately $1.1 million, the Company does not have significant cash
commitments. Cash requirements include cash needed for purchase of inventory,
payroll, payroll taxes, rent, and other operating expenses. However, in response
to the liquidity factors described above, the Company has continued to find ways
to reduce its operating expenses. In addition, should our Company need funds,
our principal shareholder and Chief Executive and Financial Officer Mr. Dinghua
Wang may lend additional money to the Company from time to time to the extent he
is in a position and willing to do so. No assurance can be provided that he will
continue to lend funds to the Company in the future.
Management has concluded under U.S. GAAP that there is substantial doubt about
our ability to continue as a going concern as a result of our lack of
significant revenue and sufficient working capital. If we are unable to generate
significant revenue or secure financing, we may be required to cease or limit
our operations. Our financial statements do not include adjustments that might
result from the outcome of this uncertainty.
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For the six months ended June 30, 2021, cash used in operating activities
amounted to approximately $126,000 as compared to approximately $315,000 used in
operating activities in the same period in 2020. Cash used in operating
activities for the six months ended June 30, 2021 was primarily the result of
our approximately $818,000 net loss, the decrease of accounts payable and
accrued expenses of approximately $76,000 and the payment of lease liabilities
of approximately $105,000. This amount was partially offset by the non-cash
expense of approximately $169,000 in stock based compensation, approximately
$28,000 of depreciation expenses, approximately $106,000 in amortization of
operating leases right-of-use assets and approximately $269,000 of loss on
disposal of equipment, the decrease of accounts receivable of approximately
$75,000, the decrease of inventories of approximately $11,000, the decrease of
prepaid expenses approximately $106,000 as we realized our prepaid inventory
purchases to fulfill our OEM orders and the increase of deferred revenue of
approximately $105,000 as we still have some OEM backlog orders to be fulfilled.
For the six months ended June 30, 2021, investing activities provided
approximately $7,700 in net cash received from the sale of machinery in our
Nevada factory.
For the six months ended June 30, 2021, financing activities provided
approximately $115,000 as compared to approximately $317,000 during the six
months ended June 30, 2020. Net cash received in the six months ended June 30,
2021 includes approximately $138,000 from the second round of the SBA PPP loan,
and approximately $7,000 from a loan from our principal shareholder and Chief
Executive and Financial Officer, Mr. Dinghua Wang. These amounts were partially
offset by our repayment of approximately $21,000 to our principal shareholder
and Chief Executive and Financial Officer, Mr. Dinghua Wang and approximately
$8,000 of principal payments for long-term debt.
The material terms of the loans from our principal shareholder and Chief
Executive and Financial Officer, Mr. Dinghua Wang, certain related parties and
certain unaffiliated third parties are set forth in Note 6 and Note 7 of the
accompanying notes to unaudited condensed financial statements.
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 our stockholders.
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