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GEO JS TECH GROUP CORP. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this annual report. Our independent auditors have expressed a going concern modification to their report to our financial statements. To date we have incurred substantial losses and will require financing for working capital to meet future obligations. We anticipate needing additional financing on an ongoing basis for the foreseeable future unless our operations provide adequate funds, of which there can be no assurance. It is most likely we will satisfy future financial needs through the sale of equity securities, although we could possibly consider debt securities or promissory notes. We believe the most probable source of funds will be from existing stockholders and/or management, although there are no formal agreements to do so. If we are unable to get our shares included in a public trading market, it will be more difficult to raise funds though the sale of common stock. We cannot assure you that we will be able to obtain adequate financing, achieve profitability, or to continue as a going concern in the future. Results of Operations For the three months ended March 31, 2014 compared to the three months ended March 31, 2014. We had a wider loss from operations in the three and twelve months ended March 31, 2014 compared to the three and twelve months ended March 31, 2013. The following table sets forth the percentage relationship to total revenues of principal items contained in our financial statements of operations for the three months ended March 31, 2014 and 2013. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis. Three months ended March 31, 2014 2013 Revenue $ 584,000 100 % $ 5,586,172 100 % Cost of sales (1,112,750 ) (190 %) (5,132,736) 92 % Gross(loss)/gain (528,750 ) (90 %) 435,436 8 % Total operating expenses (514,138 ) (88 %) (235,578 ) (4 %) Profit from operations before other expenses (1,042,888 ) (178 % ) 199,860 4 % Total other expenses 0 0 % 0 % Net Loss $ (1,042,888 ) (178 %) $ 199,860 4 % Total revenues for the three months ended March 31, 2014 and 2013 were $ 584,000 and 5,586,172, respectively. We attribute the 90% decrease in revenues in the fourth quarter to a lack of funding in South Mexico and new government regulations. Cost of sales and gross profits for the three months ended March 31, 2014 were $1,112,750 and 528,750, respectively, compared to $5,132,736 and 435,436 for 2013. For the three months ended March 31, 2014, our gross loss was $528,750 compared to a gross profit of $435,436 for the three months ended March 31, 2013. The 2014 results are attributed to a lack of adequate funding. For the three months ended March 31, 2014 and 2013, our Mexico operation was temporary stopped due to new Mexico Government law and exporting permits. Operating expenses for the three months ended March 31, 2014 were $514,138, a 118% increase of $278,560 compared to expenses of $235,578 for the three months ended March 31, 2013. As a percentage of revenues, operating expenses were (88%) for the three months ended March 31, 2014 compared to 4% for the three months ended March 31, 2013. The major component of the increase in operating expenses for the three months ended March 31, 2014 is primarily attributed to fixed amortization and administrative expenses comprised of $53,303 depreciation expenses, $7,375 legal fees, $425,000 professional fees, $13,035 travel expenses, $2,141 for salaries, registration fees of $9,220 and $4,064 for ordinary administration expenses. 23 -------------------------------------------------------------------------------- Net loss for the three months ended March 31, 2014 was $1,042,888 compared to a net gain of $199,860 for three months ended March 31, 2013. The net loss increase is primary due to the lack of funding in South Mexico and new government regulation that rendered smaller revenue, while incurring fixed amortized and administrative expenses to maintain basic operations and fund raising. For the twelve months ended March 31, 2014 compared to the twelve months ended March 31, 2014. The following table sets forth the percentage relationship to total revenues of principal items contained in our financial statements of operations for the twelve months ended March 31, 2014 and 2013. Twelve Months Ended March 31, 2014 2013 Revenue $ 2,182,936 100 % $ 5,568,172 100 % Cost of sales (3,152,892 ) (144 %) (5,119,636) 92 % Gross profit (969,956 ) (44) % 448,536 8 % Total operating expenses (2,095,375 ) (96 %) (539,924 ) (9.6 %) Profit from operations before other expenses (3,065,375 ) (140 %) (91,388 ) (1.6 %) Total other expenses 0 0 % 0 0 % Net Loss $ (3,065,375 ) (140 %) $ (91,388 ) (1.6 %) We started trading iron mineral again during the three-month period ended March 31, 2014 using proceeds from our private placement, which provided the necessary funds to acquire the mineral product and for related expense. . Total revenues for the twelve months ended March 31, 2014 and 2013 were $2,182,936 and $5,568,172, respectively. All sales were generated from April to March 2014 when the company made one shipment to a client and a spot trade to a local Mexico buyer. From July to October 2013, the company did not realize any revenues due to the rainy season and lack of funding in South Mexico, the location of most of the iron mineral mines that we rely upon for our mineral supplies. During the rainy season, the loading and transportation will be very costly and dangerous, and therefore, no shipments are being arranged. Additionally, most roads are inoperable in the mining area during this period. Cost of sales and gross profits for the twelve months ended March 31, 2014 were $3,152,892 compared to $5,119,636 for 2013. The cost of sales was derived from one shipment to a client and a spot trade to local Mexico buyer. The higher cost of sales was due primarily to higher commodities cost and a lower selling price when we delivered the goods to the China buyer. This was the result of iron ore prices dropping approximately 20% from the time we purchased the ore to the time of delivery. Another factor is attributed to the fixed patio rental cost and procurement of the mineral materials for the twelve months ended March 31, 2014. We realized a gross loss of $3,065,375 for the twelve months ended March 31, 2014 compared to a $91,388 loss for the twelve months ended March 31, 2013. Generally, the cost of sales for March 31, 2013 were higher because the shipments were made CNF departure port while prior shipments were made FOB destination port. Therefore, we can charge a higher price for the transportation arrangement and have a better profit margin than in prior shipments. Operating expenses for the twelve months ended March 31, 2014 were $2,095,375, a 388% increase of $1,555,451 compared to $539,924 for the twelve months ended March 31, 2013. As a percentage of revenues, operating expenses were 144% for the twelve months ended March 31, 2014 compared to 92% for the twelve months ended March 31, 2013. The increase in operating expenses for the twelve months ended March 31, 2014 is primarily attributed to certain fixed amortization and administrative expense comprised of $213,210 depreciation expense, $53,020 legal fees, $1,700,000 professional fees, $7,150 Internet set-up fee, $24,600 performance bond insurance, $10,080 registration fee for public company, $17,600 Mexico consultant fee, $33,240 salaries, $21,394 travel and $15,081 in basic operation expenses. The reduction on sales of $650,000 was attributed to an anticipated reduction of accounts receivable due to the quality of iron mineral shipped being below the agreed standard, which management determined the most likely reduction on sales might be incurred for that particular shipment. The professional fees represented three quarters of prepayment being amortized at a quarterly rate of $425,000. Net loss for the twelve months ended March 31, 2014 was $3,065,375 as compared to net loss of $91,388 for the 2013 period. The 2014 Net loss increase was primary due to the operation in South Mexico and certain fixed amortized and administrative expenses to maintain basic operation and to raise funds. 24 -------------------------------------------------------------------------------- For the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013. Generally, we anticipate that operating costs and expenses will increase in the future to support an anticipated higher level of revenues. Increased costs will likely be attributable to increased personnel, principally sales personnel and support staff for our infrastructure, and increased marketing expenditures to sell our products. In addition, transforming to be a public reporting entity and compliance with SEC and Sarbanes-Oxley regulations will increase our general and administrative costs in order to meet the higher degree of reporting standard, internal control improvement and corporate governance transparency. Iron mineral prices fluctuate daily depending on the spot price of the iron ore index in the world. Prices could increase or decrease 10 to 15 percent, depending on the world sentiment of the economy and political events, similar to oil spot price or any other commodities. However, if the price increases 10 to 15 percent in a short time, our supplier in Mexico will increase our costs to accumulate and deliver the iron mineral to our patio. A short-term spike in price will increase our cost of purchase, over which we have no control due to market conditions. The reverse relation is also true if iron mineral prices decrease sharply in a short-term period. The iron mineral index traded at a low of $60 and high of $160 in 2012 and 2013. The worst situation was when the company procured the mineral at a high cost when the market price suddenly went up and later sold at low market price when the market price suddenly declined. Although our sale is protected in a sales agreement with letter of credit guaranteed, the customers may be able to force the company to provide an after-sales price concession that was totally unexpected and out of the normal sales procedure. Another factor that can affect our costs are freight charges. Shipping charges depend on the quantity of the shipment to China. For example, during fiscal year 2012 while operating in Ensenada, Mexico, the freight cost for 50,000 tons of iron mineral was $43.00 per ton, but the freight cost for 110,000 tons of iron mineral was $31.00 per ton. The Baltic Dry Index (BDI) fluctuated in any direction from 10 to 15 percent due to the world economy and political events, similar to oil spot price or any other commodity. The reverse relation is also true if the Baltic Dry Index decreases due to slow economy or over supply. In 2012 and 2013, the Baltic Dry Index traded at a low of $500 and high of $2,000. Freight charges are a major factor of sales and cost of goods sold because freight charges should be passed to the buyer. With the adding of freight costs, revenue is higher, but so is the cost of goods sold. The following table sets forth the percentage relationship to total revenues of principal items contained in our financial statements of operations for the two most recent fiscal years ended March 31, 2014 and 2013. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis. Fiscal Years Ended 2014 2013 Revenue 100 % 100 % Cost of sales 144 % 92 % Gross profit (44) % 8 % Total operating expenses (95) % (1.6) % Profit from operations before other expenses (139) % (1.6) % Total other expenses 0 % 0 % Net Profits (139) % (1.6) % Total revenues for the year ended March 31, 2014xc were $2,182,936, a 39% decrease $3,385,236 from revenues of $5,568,172 for the year ended March 31, 2013. The decrease is attributed to the lack of funds in fiscal year 2013 due to disagreement between joint venture partner and other investor. In fiscal year ended March 31, 2014, the increased price of iron minerals purchased in Mexico and the unfavorable price in iron mineral procurement increased of cost of goods sold for purchased iron mineral. The market price of iron mineral in the world has dropped about 10% in fiscal year 2014. GEO Tech was delivering iron mineral at FOB (fright on board) due to lack of funds to pay for the shipping charge of $1,500,000 estimated shipping cost per vessel. Cost of sales for the year ended March 31, 2014 were $3,152.892, a 39% decrease $1,966,744 compared to $5,119,636 for 2013, primarily attributed to the lack of funding to purchase iron mineral. Operating expenses for 2014 were $2,095,375, a 284% increase of $1,555,451 compared to $539,924 for 2013. As a percentage of revenues, operating expenses also increased from 1.6% in 2012 to 95% in 2014. The increase in operating expenses is primarily attributed to the increase of sales related variable expenses as sales volume decreased, such as professional fees for public market, royalties, transportation and travel. Interest expense for 2014 was $0 compared to interest expense of $0 for 2013. Net loss for fiscal year ended March 31, 2014 was $3,065,331 as compared to a net loss of $91,388 for fiscal year 2013. The reduction of net profit was a consequence of reduced revenue, while costs and expenses did not reduce at the same rate as the revenue reduction because the company was required to pay certain fixed operating expenses. 25 -------------------------------------------------------------------------------- Liquidity and Capital Resources At twelve months ended March 31, 2014 compared to the twelve months ended March 31, 2013. Net cash used by operating activities for the twelve months ended March 31, 2014 was $612,700 compared to $298,890 for the twelve months ended March 31, 2013. The March 31, 2014 cash reduction was primarily derived from the net loss of $3,065,531, increase in accounts payable by $15,000 and increase in prepayment by $1,700,000. This was partially offset by the $532,750 inventory decrease and depreciation non-cash expenses of $213,210. The December 31, 2013 reduction primarily attributed to the net loss of $91,388, partially off-set by the depreciation non-cash expenses of $213,210 and increase of inventory of $532,750 and increase account payable $13,177. Net cash used in investing activities for the twelve months ended March 31, 2014 was $13,084, and net cash used in operating activities for the twelve months ended March 31, 2013 was $100,000. The twelve month March 31, 2014 and 2013 periods had decrease cash flow $86,916 from investing activities. The cash used from financing activities increased by $500,000 for the twelve months ended March 31, 2014, due to additional loans from stockholders of $500,000. The cash generated from financing activities increased by $713,500 for the twelve months ended March 31, 2013, due to a $584,500decrease in loans from stockholders and $1,298,000 increase through private placement offering. Because the company did not have sources from public financing or financial institution financing, the issuance of common stock for private accredited investor, or as a prepayment for acquisition of fixed and mining assets, legal and professional expenses and loans from stockholders are the primary source of financing fund for the company. Working capital at March 31, 2014 was a negative $125,784 compared to a positive of $316,610 at March 31, 2013. The decrease in working capital was primarily attributed to increase in operating activities. Total operation activities resulted in a cash decrease of $612,700 at March 31, 2014 and a cash decrease of $296,890 at March 31, 2013. The investment activities increased $500,000 in March 31, 2014 and decreased $584,000 in March 31, 2013. Business Trends and Forecast The company's past performance is not indicative of future performance since commodities prices have fluctuated approximately 50% over the last two years. The price of iron mineral has traded as high as $154.68 (February 2013) and as low as $99.47 (September 2011). Furthermore, methods of cost, insurance and shipping add to vulnerability of costs. In fiscal year 2011, goods were sold inclusive of freight (CNF or Cost and Freight) with two shipments, MV Kriton $1,527,861 and MV Loreto $1,480,310, accounting for an additional of $3,008,171 more in revenue and freight charges. Whereas in fiscal year 2012, goods were sold with our buyer paying for freight (FOB or Freight on Board) because the company did not have the cash flow to prepay the shipping charges including certain cost, insurance and freight charges. These two shipments, MV Pretty and MV STX, changed the discharge port and related risk to the buyer and the 2012 gross revenues were reduced along with shipping costs. It is our experience that the price range of iron mineral spot rate is highly unpredictable. The company's gross profits margin could increase or decrease by at least 10% inside the Mexico domestic or international market. Management is not able to forecast the future price and volume of the iron mineral product because of this mismatch demand and supply, and intensified market price fluctuation. Moreover, the shipping and related goods title transfer method can change the company's gross profits as mentioned above. Based on observations over the last 30 months, the company does not have adequate information to establish any known trends that may provide a definitive indication of future market activities. The major reason was the recent market did not response rationally and there were a lot of changing factors on the demand and supply side, such as changing industrial practices, seasonal demands, suppliers' competition, evolving vendors and identification of new exploration locations. All of these reasons contributed to the current chaotic market and therefore the market demand and supply did not follow a linear or predictable co-relationship with material factors or indicators. We believe it will take time before the market returns to normal supply and demand patterns, whereby management can identify the new market trends and demand-supply co-relationships. Therefore, management cannot supply any forecast based on this unpredictable market situation. Inflation In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations. 26 -------------------------------------------------------------------------------- Recent Accounting Pronouncements The company has evaluated recent accounting pronouncements and their adoption has not had nor is not expected to have a material impact on the company's financial position or statements. Off-balance Sheet Arrangements We have no off-balance sheet arrangements. Critical Accounting Policies JOBS Act The JOBS Act provides that, so long as a company qualifies as an "emerging growth company," it will, among other things: ? be exempted from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting; ? be exempted from the "say on pay" and "say on golden parachute" advisory vote requirements of the Dodd-Frank Wall Street Reform and Customer Protection Act (the "Dodd-Frank Act"), and certain disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer and be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934; and ? instead provide a reduced level of disclosure concerning executive compensation and be exempted from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor's report on the financial statements. It should be noted that notwithstanding our status as an emerging growth company, we would be eligible for these exemptions as a result of our status as a "smaller reporting company" as defined by the Securities Exchange Act of 1934. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to take advantage of the benefits of this extended transition period and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. |