UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ...........to...............
Commission File Number 000-12561
Deli Solar (USA), Inc
(Exact name of small business issuer as specified in its charter)
Nevada | 95-3819300 | |
(State or other jurisdiction of | (IRS. Employer | |
Incorporation or organization) | Identification No.) |
Building 3 No. 28, Feng Tai North Road, Beijing, China 100071
(Address of Principal Executive Offices
+86-10-63850516
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x | No o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o | No x |
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
Yes o | No o |
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: there were 6,205,290 shares of common stock outstanding as of August 6, 2007.
Transitional Small Business Disclosure Format (check one)
Yes o | No x |
Deli Solar (USA), Inc.
TABLE OF CONTENTS
| Page | ||
| PART I Financial Information | ||
| Item 1. | Consolidated Financial Statements. | 3 |
| Item 2. | Management’s Discussion and Analysis or Plan of Operation. | 10 |
| Item 3. | Controls and Procedures | 14 |
PART II Other Information | ||
| Item 6. | Exhibits. | 15 |
| Signatures | 16 | |
| Exhibits/Certifications | ||
2
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
| 1.1 | DELI SOLAR (USA), INC. Consolidated Balance Sheets (unaudited) |
Assets | June 30, 2007 | December 31, 2006 | |||||
Current assets | |||||||
Cash and cash equivalents | $ | 5,711,503 | $ | 3,212,065 | |||
Trade accounts receivable | 1,295,211 | 986,809 | |||||
Allowances for doubtful accounts | (119,244 | ) | (116,363 | ) | |||
Net trade accounts receivable | 1,175,967 | 870,446 | |||||
Advance to suppliers | 883,995 | 1,007,709 | |||||
Prepaid expenses | 47,213 | 58,203 | |||||
Inventories | 1,105,550 | 315,765 | |||||
Total current assets | 8,924,228 | 5,464,188 | |||||
Plant and equipment | |||||||
Buildings | 3,615,556 | 3,528,180 | |||||
Machinery and equipment | 72,893 | 71,131 | |||||
Vehicles | 78,063 | 76,176 | |||||
Computer equipment | 12,938 | 12,625 | |||||
Office equipment | 67,704 | 65,749 | |||||
Construction in progress | 3,022,756 | 2,580,031 | |||||
Total property, plant and equipment | 6,869,910 | 6,333,892 | |||||
Accumulated depreciation | (496,610 | ) | (407,424 | ) | |||
Net property, plant and equipment | 6,373,300 | 5,926,468 | |||||
Other receivables | 124,582 | 321,999 | |||||
Deposit | 258,592 | - | |||||
Prepaid land lease | 1,019,467 | 1,003,530 | |||||
Total other assets | 1,402,641 | 1,325,529 | |||||
Total assets | $ | 16,700,169 | $ | 12,716,185 | |||
See the accompanying notes to the unaudited consolidated financial statements.
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DELI SOLAR (USA), INC. Consolidated Balance Sheets (unaudited) (Continued)
Liabilities and stockholders' equity | June 30, 2007 | December 31, 2006 | |||||
Current liabilities | |||||||
Trade accounts payable | $ | 164,588 | $ | 147,901 | |||
Related party payable | 500 | 22,528 | |||||
Other payables | 155,918 | 35,934 | |||||
Accrued expenses | 24,729 | 22,080 | |||||
Customer deposits | 377,900 | 262,269 | |||||
Total current liabilities | 723,635 | 490,712 | |||||
Stockholders' equity | |||||||
Preferred stock: par value $0.001; 25,000,000 shares authorized, 2,674,197 shares issued and outstanding | 2,674 | - | |||||
Common stock: par value $0.001; 66,666,667 shares authorized, 6,205,290 shares issued and outstanding | 6,205 | 6,205 | |||||
Additional paid in capital | 8,283,900 | 5,705,574 | |||||
Retained earnings | 6,901,887 | 5,979,785 | |||||
Accumulated other comprehensive income | 781,868 | 533,909 | |||||
Total stockholders' equity | 15,976,534 | 12,225,473 | |||||
Total Liabilities and stockholders' equity | $ | 16,700,169 | $ | 12,716,185 | |||
See the accompanying notes to the unaudited consolidated financial statements.
4
ITEM 1. Consolidated Financial Statements
1.2 DELI SOLAR (USA), INC. Consolidated Statements of Operations and Comprehensive Income (unaudited)
Three months ended June 30, 2007 | Three months ended June 30, 2006 | Six months ended June 30, 2007 | Six months ended June 30, 2006 | ||||||||||
Sales revenues | $ | 9,418,160 | $ | 7,063,189 | $ | 12,414,023 | $ | 9,416,475 | |||||
Cost of goods sold | 7,490,129 | 5,576,033 | 9,739,044 | 7,358,705 | |||||||||
Gross profit | 1,928,031 | 1,487,156 | 2,674,979 | 2,057,770 | |||||||||
Operating expenses | |||||||||||||
Advertising | 518,619 | 393,128 | 660,093 | 498,904 | |||||||||
Selling expense | 237,502 | 149,426 | 281,532 | 185,328 | |||||||||
Salaries and benefits | 109,641 | 72,352 | 148,993 | 106,204 | |||||||||
Depreciation | 35,630 | 33,963 | 70,966 | 59,265 | |||||||||
Other general and administrative | 241,824 | 539,643 | 454,955 | 701,630 | |||||||||
Total operating expenses | 1,143,216 | 1,188,512 | 1,616,539 | 1,551,331 | |||||||||
Net operating income | 784,815 | 298,644 | 1,058,440 | 506,439 | |||||||||
Other income (expense) | |||||||||||||
Interest income | 78 | - | 1,735 | - | |||||||||
Interest expense | (97 | ) | (2,408 | ) | (97 | ) | (6,210 | ) | |||||
Total other income (expense) | (19 | ) | (2,408 | ) | 1,638 | (6,210 | ) | ||||||
Net income before taxes | 784,796 | 296,236 | 1,060,078 | 500,229 | |||||||||
Taxes | 137,976 | - | 137,976 | - | |||||||||
Net income | $ | 646,820 | $ | 296,236 | $ | 922,102 | $ | 500,229 | |||||
Foreign currency translation adjustment | 142,824 | 46,962 | 247,959 | 91,540 | |||||||||
Comprehensive Income | $ | 789,644 | $ | 343,198 | $ | 1,170,061 | $ | 591,769 | |||||
Basic earnings per share | $ | 0.10 | $ | 0.05 | $ | 0.15 | $ | 0.08 | |||||
Denominator for basic EPS | 6,205,290 | 6,205,290 | 6,205,290 | 6,205,290 | |||||||||
Fully diluted earnings per share | $ | 0.10 | $ | 0.04 | $ | 0.14 | $ | 0.06 | |||||
Denominator for diluted EPS | 6,594,567 | 8,031,009 | 6,399,929 | 8,031,009 | |||||||||
See the accompanying notes to the unaudited consolidated financial statements.
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ITEM 1. Consolidated Financial Statements
1.3 DELI SOLAR (USA), INC. Consolidated Statements of Cash Flows (unaudited)
Cash flows from operating activities: | Six months ended June 30, 2007 | Six months ended June 30, 2006 | |||||
Net income | $ | 922,102 | $ | 500,229 | |||
Adjustments to reconcile net income to net cash provided by operations: | |||||||
Depreciation and amortization | 86,821 | 63,568 | |||||
Provision for allowance on accounts receivable | - | 3,255 | |||||
Changes in operating liabilities and assets: | |||||||
Trade accounts receivable | (280,124 | ) | (27,354 | ) | |||
Advance to suppliers | 179,567 | (33,131 | ) | ||||
Inventories | (771,391 | ) | (585,110 | ) | |||
Other receivables | (52,751 | ) | 55,242 | ||||
Prepaid expenses | (24,413 | ) | 21,645 | ||||
Trade accounts payable | 12,848 | 10,768 | |||||
Other payables | 112,302 | 149,951 | |||||
Accrued expenses | 2,317 | 4,264 | |||||
Customer deposits | 107,660 | 112,495 | |||||
Net cash provided by operations | 294,938 | 275,822 | |||||
Cash flows from investing activities: | |||||||
Purchases of plant and equipment | (374,030 | ) | (672,342 | ) | |||
Prepaid land lease | - | (915,611 | ) | ||||
Related party receivables | - | 37,856 | |||||
Net cash used in investing activities | (374,030 | ) | (1,550,097 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from short term notes payable | - | 32,460 | |||||
Principle payment on short term notes payable | - | (31,250 | ) | ||||
Related party payable | (79,920 | ) | 30,000 | ||||
Proceeds from issuance of preferred stock | 2,581,000 | - | |||||
Net cash provided by financing activities | 2,501,080 | 31,210 | |||||
Effect of rate changes on cash | 77,450 | 91,540 | |||||
Increase (decrease) in cash and cash equivalents | 2,499,438 | (1,151,525 | ) | ||||
Cash and cash equivalents, beginning of period | 3,212,065 | 5,629,168 | |||||
Cash and cash equivalents, end of period | $ | 5,711,503 | $ | 4,477,643 | |||
Supplemental disclosures of cash flow information: | |||||||
Interest paid in cash | $ | 97 | $ | 6,210 | |||
Income taxes paid in cash | $ | - | $ | - | |||
See the accompanying notes to the unaudited consolidated financial statements.
6
ITEM 1. Consolidated Financial Statements
1.4 Notes to Consolidated Financial Statements of June 30, 2007 (unaudited)
Note 1: Basis of Presentation
Quarterly Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB but do not include all of the information and footnotes required by generally accepted accounting principles and should, therefore, be read in conjunction with the Company’s 2006 financial statements in Form 10-KSB. These statements include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year.
Principles of Consolidation
Deli Solar (USA) Inc. was incorporated in the State of Nevada on March 21, 1983 as Meditech Pharmaceuticals, Inc. (“Meditech”). In late 2004, the Board of Directors of Meditech contemplated a strategic reorganization with Deli Solar Holding Ltd., a corporation organized in the British Virgin Islands (“Deli Solar (BVI)”). In contemplation of the reorganization, the Board of Directors resolved to spin off Meditech's drug development business to the shareholders of Meditech of record on February 17, 2005, through a pro rata distribution in the form of a stock dividend. The spin-off was completed on August 29, 2005. The acquisition of Deli Solar (BVI) was accounted for as a recapitalization of Deli Solar (BVI).
Deli Solar (BVI) was formed in June 2004. On August 1, 2004, Deli Solar (BVI) purchased Bazhou Deli Solar Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a corporation duly organized under the laws of the People’s Republic of China (“PRC”) from Messrs. Deli Du, Xiao'er Du, and Xiaosan Du for RMB 6,800,000. As a result of this transaction, Deli Solar (Bazhou) became a wholly-foreign owned enterprise ("WFOE") under PRC law on March 30, 2005. This acquisition was accounted for as a transfer of entities under common control.
Deli Solar (Bazhou) was incorporated on August 19, 1997 under the laws of the PRC. In the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the United States (“US”).
The result of the above transactions is that Deli Solar (BVI) is now our direct, wholly-owned subsidiary and Deli Solar (Bazhou) remains a wholly-owned subsidiary of Deli Solar (BVI).
On November 21, 2005 Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli Solar (Bazhou). The transaction was accounted for as a transfer of entities under common control.
7
Our directly wholly-owned subsidiary Beijing Deli Solar Technology Development Co., Ltd. (“Deli Solar (Beijing)”) was founded in 2006 and is principally engaged in solar power heater integrated construction projects in major cities in China.
Deli Solar (Bazhou) designs, manufactures and sells solar hot water heaters, coal-fired boilers and space heating products within the PRC. The consolidated financial statements include the accounts of Deli Solar (USA), Inc., Deli Solar (BVI), Deli Solar (Beijing), Deli Solar (Bazhou) and Ailiyang. All material intercompany accounts and transactions have been eliminated in consolidation.
Note 2: Summary of Significant Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. The following paragraphs describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The areas described below are affected by critical accounting estimates and are impacted significantly by judgments and assumptions in the preparation of the Consolidated Financial Statements. Actual results could differ materially from the amounts reported based on these critical accounting estimates.
Revenue Recognition
Product sales are recognized when the products are delivered to and inspected by customers and title has passed. The Company provides a three-year standard warranty to all of the products it manufactures. Under this standard warranty program, repair and replacement of defective component parts are free of any charge during the first year following the purchase. In the second and third year, customers must pay for the purchase of the replacement parts, but not for repair services. Our warranty services are performed by our independent sales agents and distributors in return for a 1-2% discount of the purchase price they pay for our products.
Allowance for Doubtful Accounts
The Company's business operations are conducted in the People's Republic of China. We extend unsecured trade credit to our relatively large customers according to their sales volume and historical payment records. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.
Plant and Equipment
Building, Plant and Equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded utilizing the straight-line method over the estimated original useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life of the asset or the term of the lease, whichever is shorter. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to plant and equipment used in production is reported in cost of sales.
8
Construction-in-progress
All facilities purchased for installation, self-made or subcontracted are accounted for under construction-in-progress. Construction-in-progress is recorded at acquisition cost, including cost of facilities, installation expenses and the interest capitalized during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-progress is to be transferred to fixed assets.
Income Taxes
Normally at the national level, a Chinese company is subject to enterprise income tax at the rate of 33%, value added tax at the rate of 17% for most of the goods sold, and business tax on services at a rate ranging from 3% to 5% annually. However, pursuant to the relevant laws and regulations of the PRC, Deli Solar (Bazhou), as a wholly foreign owned enterprise (“WFOE”) in the PRC, is entitled to an exemption from the PRC enterprise income tax for two years commencing from its first profitable year, after loss carry-forwards from the previous five years have been recovered. Deli Solar (Bazhou) first reported profits for the year ended December 31, 1997. Since Deli Solar (Bazhou) was transformed into a WFOE in March 2005, the two year 100% income tax exemption period ended March 31, 2007. Beginning April 1, 2007, the company is entitled a 50% tax exemption from PRC enterprise income tax until March 31, 2010.
Foreign currencies
The accompanying financial statements are presented in United States (US) dollars. The functional currency is the Renminbi (RMB). The financial statements are translated into US dollars from RMB at period end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. On July 21, 2006, China changed its foreign currency exchange policy from a fixed RMB/USD exchange rate into a flexible rate under the control of China’s government. We use the Closing Rate Method in translation of the financial statements of Deli Solar (Bazhou), Ailiyang and Deli Solar (Beijing).
Use of estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
9
Item 2. Management’s Discussion and Analysis or Plan of Operation
FORWARD-LOOKING INFORMATION
The Management's Discussion and Analysis ("MD&A") includes "forward-looking statements". All statements, other than statements of historical facts, included in this MD&A regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside of the Company's control, that could cause actual results to materially differ from such statements. While the Company believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors, especially the timing and magnitude of technological advances; the prospects for future acquisitions; the competition in the solar water heaters and boilers industry and the impact of such competition on pricing, revenues and margins; uncertainties surrounding budget reductions or changes in funding priorities of existing government programs and the cost of attracting and retaining highly skilled personnel.
OVERVIEW
Deli Solar (USA), Inc. (“we,” “us” or the Company) is a holding company for our indirect wholly-owned subsidiary, Bazhou Deli Solar Heating Energy Co. Ltd, a People’s Republic of China (“PRC”) company (“Deli Solar (Bazhou)”). Its principal products are solar water heaters and space heating and cooking products including coal-fired residential boilers. It also sells accessories, component parts, and provides after-sales maintenance and repair services.
We are in the process of constructing a flat plate collector production line and a water tank assembly line. The new assembly line may enhance our production efficiency and improve the quality of our products.
In mid-October 2006, we signed a Memorandum of Understanding ("MOU") with Tianjin Huaneng Group to acquire its 51% ownership of the Tianjin Huaneng Energy Equipment Company, (“Tianjin Huaneng”), which manufactures energy saving boilers and environmental protection equipment for industrial customers. On May 18th 2007, we signed the purchase agreement to acquire the 51% of the Tianjin Hua Neng Energy Equipment company for a purchase price of $3,149,147. We paid approximately $1,575,600 in July 2007. By supplemental agreement dated August 8, 2007 the purchase price was reduced to $1,689,741. However, in addition to the purchase price we are required to pay a finder's fee of approximately $769,418. We also agreed to invest approximately $2.5 million into the new company. The accounting date for this acquisition is July 1, 2007.
In December 2006 we signed an MOU with Shenzhen Xiongri Solar Power Co., Ltd. (“Shenzhen Xiongri”) to acquire 60% of its equity for a purchase price of approximately $250,000 and additional contingent consideration of up to $5 million consisting of shares of our common stock. Shenzhen Xiongri is located Shenzhen, PRC. Its local government provides strong support for the solar water heater industry which could help us grow business in that area. We paid an initial deposit of $258,592 to Shenzhen Xiongri. The acquisition has not taken place as of the date of this Report. We believe Shenzhen Xiongri had approximately $7 million sales revenue and $1 million in net profits before tax in 2006 and we are continuing due diligence on the company and there can be no assurance the actual revenues and profits will be at these levels.
10
RESULTS OF OPERATIONS
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
Sales and Gross Profit
Sales for the three months ended June 30, 2007 were $9,418,160 as compared to $7,063,189 for the same period last year, an increase of 33%. Gross profit for the three months ended June 30, 2007 was $1,928,031, an increase of approximately 30%, as compared to $1,487,156 for the three months ended June 30, 2006. The increase in sales is attributable to our continued investment in brand marketing, sales promotion and our development of a sales distribution network. Our sales gross margin in the second quarter in 2007 was about 20.5%, slightly lower as compared with 21.1% in the same period last year which was primarily a result of sales price competition from solar water heaters. We are facing severe price competition in the traditional solar water heaters market. We expect price competition to continue in the following quarters in 2007. As a result, we expect the margins on solar water heaters will likely continue to decrease. However, we believe our new Flat Plate Collector products will improve the gross margin in the following quarters in 2007.
Operating Expenses
Operating expenses for the three months ended June 30, 2007 were $1,143,216, as compared to $1,188,512 for the same period in 2006, a decrease of 4%. The decreased operating expenses were primarily due to effective control of general and administrative expenses.
Advertising expenses for the three months ended June 30, 2007 were $518,619 as compared to $393,128 for the same period last year, an increase of $125,491, or approximately 32%. The increase in advertising expense was a result of our continued increasing emphasis on advertising to increase product awareness, branding and sales. Management believes increased marketing is an effective method the Company can use to gain more market shares in the face of severe competition.
Selling expenses for the three months ended June 30, 2007 were $237,502 as compared to $149,426 for the same period last year, an increase of $88,076, or approximately 59%. These selling expenses consisted primarily of sales promotions, distribution transportation expenses, agency administration expenses and after sales services, such as expenses for installation and replacements. The increase in selling expenses was primarily due to the increase in sales volume and increase in sales promotion activities.
Other general and administrative expenses for the three months ended June 30, 2007 were $241,824, as compared to $539,643 for the same period last year, a decrease of $297,819, or approximately 55%.
11
Income from Operations
Income from operations for the three months ended June 30, 2007 was $784,815, increased 163% as compared to $298,644 for the three months ended June 30, 2006. The increased income from operations was due to the increased sales revenue and our budget control on operating expenses in the second quarter of 2007.
Net Income
Net income was $646,820 in the three months ended June 30, 2007, compared with $296,236 in the same period last year, primarily due to the increased sales and our budget control on operating expenses in the second quarter of 2007.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Sales and Gross Profit
Sales for the six months ended June 30, 2007 were $12,414,023 as compared to $9,416,475 for the same period last year, an increase of 32%. Gross profit for the six months ended June 30, 2007 was $2,674,979, an increase of approximately 30%, as compared to $2,057,770 for the six months ended June 30, 2006. The increase in sales is attributable to our continued investment in brand marketing, sales promotion and our development of a sales distribution network. Our sales gross margin in the first half year of 2007 was about 21.5%, slightly lower as compared with 21.9% in the same period last year which was primarily a result of sales price competition from solar water heaters.
Operating Expenses
Operating expenses for the six months ended June 30, 2007 were $1,616,539 as compared to $1,551,331 for the same period in 2006, an increase of 4%. Among the operating expenses, the advertising expenses for the six months ended June 30, 2007 were $660,093 as compared to $498,904 for the same period last year, an increase of $161,189, or approximately 32%. The increase in advertising expense was a result of our continued increasing emphasis on advertising to increase product awareness, branding and sales.
Selling expenses for the six months ended June 30, 2007 were $281,532 as compared to $185,328 for the same period last year, an increase of $96,204, or approximately 52%. These selling expenses consisted primarily of sales promotions, distribution transportation expenses, agency administration expenses and after sales services, such as expenses for installation and replacements. The increase in selling expenses was primarily due to the increase in sales volume and increase in sales promotion activities.
Other general and administrative expenses for the six months ended June 30, 2007 were $454,955, as compared to $701,630 for the same period last year, a decrease of $246,675, or approximately 35%. The decrease of the other general and administrative expenses was primarily due to our effective budget control.
12
Income from Operations
Income from operations for the six months ended June 30, 2007 was $1,058,440, increased 109% as compared to $506,439 for the six months ended June 30, 2006. The increased income was due to the increased sales revenue and our budget control on operating expenses.
Net Income
Net income was $922,102 in the six months ended June 30, 2007, compared with $500,229 in the same period last year, an increase of $421,873, or approximately 84%. The increase was primarily due to the fast growing sales revenue and our budget control on operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by our operating activities was $294,938 for the six months ended June 30, 2007, and was $275,822 for the same period of 2006. The increase in net cash provided by operations was due to effective control over our working capital, especially the tight control over accounts receivable and advances to suppliers.
Net cash used in investing activities was $374,030 for the six months ended June 30, 2007, compared with $1,550,097 for the same period of 2006. The decrease was due to less capital expenditures on the new facilities and assembly lines in the Bazhou factory as of June 30, 2007 as compared to June 30, 2006.
Net cash provided by financing activities was $2,501,080 for the six months ended June 30, 2007, compared with $31,210 for the same period of 2006. The increase was due to the issuance of preferred stock in June 2007. On June 14, 2007 we raised $2,581,000 (which is equivalent to $2,750,000 less $169,000 stock issuance cost.) in a private placement from the sale of Series A Preferred Stock and Warrants. The investors purchased (i) an aggregate of 1,774,194 shares of Series A Preferred Stock (with each share of Series A Preferred Stock being convertible into one (1) share of Common Stock, subject to adjustment); (ii) five year warrants to purchase 1,774,194 shares of Common Stock at an exercise price $1.90 per share (subject to adjustment); and (iii) five year warrants to purchase an additional 1,774,194 shares of Common Stock at an exercise price of $2.40 per share (subject to adjustment). Additional shares of Series A Preferred Stock (not to exceed 900,000) are required to be issued to the investors in the event that the Company fails to achieve certain income targets for the fiscal years ended December 31, 2007 and 2008.
As of June 30, 2007, the Company did not have long term and short term debt.
We intend to use our available funds to accelerate the development and testing of new product lines. We believe that our available funds will provide us with sufficient capital for the next twelve months. However, to the extent that we make acquisitions or establish additional production facilities, we may require additional capital for the acquisition or for the operation of the combined companies. We cannot assure you that such funding will be available.
13
ACCOUNTS RECEIVABLE
During the six months ended June 30, 2007, accounts receivable increased to $1,295,211 from $986,809 at the end of last year, primarily due to the peak sales season in the second half of the year.
INVENTORY
Inventories as of June 30, 2007 increased to $1,105,550 from $315,765 as of December 31, 2006 mainly because of our preparation for the peak season coming in the second half of the year.
CASH
Cash and cash equivalents increased to $5,711,503 at June 30, 2007 from $3,212,065 at December 31, 2006, primarily as a result of capital raising in June 2007. Our cash balance may decrease in the near future because of purchasing Tianjin Huaneng and the possible purchase of Shenzhen Xiongri.
While we anticipate that our cash flows will be sufficient to support our operations for the next 12 months, we will need to raise additional equity capital to make acquisitions in the following quarters of 2007. There can be no assurance that financing will be available to us, or that if available, that it will be available on satisfactory terms.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (“Exchange Act”), as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
At the conclusion of the six months ended June 30, 2007 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.
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(b) Changes in Internal Controls
During the period covered by this report, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting
PART II - OTHER INFORMATION
Item 6. Exhibits.
| 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Deli Solar (USA), Inc | ||
| | (Registrant) | |
| Date: August 10, 2007 | By: | /s/ Deli Du |
Deli Du | ||
Chief Executive Officer and President (principal executive officer) | ||
| | | |
| Date: August 10, 2007 | By: | /s/ Jianmin Li |
Jianmin Li | ||
Chief Financial Officer (principal financial officer and accounting officer) | ||
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