Results of Operations
Three months ended June 30, 2010 compared to three months ended June 30, 2009:
Net sales increased 75% from $9,556,566 for the quarter ended June 30, 2009 to $16,719,095 for the quarter ended June 30, 2010. The increase is attributable to sales associated with our new DAETS and Newbao subsidiaries. Cost of sales increased 88% from $7,942,007 for the quarter ended June 30, 2009 to $14,909,148 for the quarter ended June 30, 2010. This increase was due to of the corresponding increase in sales volume. Cost of sales, as a percentage of revenue was approximately 89% and 83% for the three months ended June 30, 2010 and 2009, respectively. We are pursuing strategies to reduce the overall cost of sales as a percentage of sales as the Company grows, such as entering into higher margin outsourcing agreements.
General and administrative expenses during the three months ended June 30, 2010 were $522,759 compared to $315,314 for the three months ended June 30, 2009, an increase of 66%. The increase is primarily attributable to expenses associated with our new DAETS and Newbao subsidiaries which were acquired in the fourth quarter of 2009. General and administrative expenses as a percentage of revenue were 3% and 3% for the three months ended June 30, 2010 and 2009, respectively.
During the three months ended June 30, 2010, we recognized net income of $1,118,909 after accounting for the non-controlling interest in our Clipper-Huali consolidated subsidiary, compared to net income of $1,023,240 during the three months ended June 30, 2009, a 9% increase. The increase in net income is attributable to an increase in net sales for the quarter. Comprehensive income for the three months ended June 30, 2010 was $1,458,646 compared to $348,832 for three months ended June 30, 2009. Comprehensive income or loss includes gains or losses in foreign currency translation adjustments and unrealized gains or losses (if any) on available-for-sale securities held.
Six months ended June 30, 2010 compared to six months ended June 30, 2009:
Net sales increased 87% from $16,985,874 for the six months ended June 30, 2009 to $31,706,314 for the six months ended June 30, 2010. The increase is attributable to sales associated with our new DAETS and Newbao subsidiaries. Cost of sales increased 93% from $14,932,862 for the six months ended June 30, 2009 to $28,794,214 for the six months ended June 30, 2009. This increase was due to of the corresponding increase in sales volume. Cost of sales, as a percentage of revenue was approximately 91% and 88% for the six months ended June 30, 2010 and 2009, respectively.
General and administrative expenses during the six months ended June 30, 2010 were $860,668 compared to $529,324 for the six months ended June 30, 2009, an increase of 63%. The increase is primarily attributable to expenses associated with our new DAETS and Newbao subsidiaries which were acquired in the fourth six months of 2009. General and administrative expenses as a percentage of revenue were 3% and 3% for the six months ended June 30, 2010 and 2009, respectively.
During the six months ended June 30, 2010, we recognized net income of $1,772,892 after accounting for the non-controlling interest in our Clipper-Huali consolidated subsidiary, compared to net income of $1,135,072 during the six months ended June 30, 2009, a 56% increase. The increase in net income is attributable to an increase in net sales for the quarter. Comprehensive income for the six months ended June 30, 2010 was $2,344,670 compared to $671,452 for six months ended June 30, 2009. Comprehensive income or loss includes gains or losses in foreign currency translation adjustments and unrealized gains or losses (if any) on available-for-sale securities held.
Liquidity and Capital Resources
Our cash balance at June 30, 2010 increased $158,783, from $3,977,382 as of December 31, 2009, to $4,136,165. The increase was the result of cash provided by operating activities of $247,149 and the effect of exchange rates on cash of $554,026, offset by cash used in investing activities of $87,548 and cash used in financing activities of $554,844. Operating activities for the six months ended June 30, 2010, exclusive of changes in operating assets and liabilities, provided $1,935,109, as well as an increase in accrued expenses and other payables of $1,173,558, an increase in accounts payable of $323,423 and a decrease in inventory of $119,829, offset by an increase in accounts receivable $2,946,158 and a decrease in supplier advances of $358,612.
In recent years, we have funded our working capital requirements principally through borrowings under bank lines of credit, term loans, and issuances of common stock in exchange for debt. To the extent our operations are not sufficient to fund our capital requirements, we may enter into additional revolving loan agreements with a financial institution, or attempt to raise additional capital through the sale of additional common or preferred stock or through the issuance of additional debt. To the extent that we raise additional capital or settle existing liabilities through the sale or issuance of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. The current financing environment in the United States is exceptionally challenging and we can provide no assurances that we could raise capital either for operations or to finance an acquisition.
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