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Share Name | Share Symbol | Market | Type |
---|---|---|---|
China Solar and Clean Energy Solutions Inc (PK) | USOTC:CSOL | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.0111 | 0.0001 | 0.036 | 0.00 | 21:15:17 |
TABLE
OF
CONTENTS
|
About
This Prospectus
|
1
|
|||
Cautionary
Note Regarding Forward Looking Statements and Other Information
Contained
in this Prospectus
|
1 | |||
Prospectus
Summary
|
2 | |||
Risk
Factors
|
14 | |||
Selling
Stockholders
|
27 | |||
Plan
of Distribution
|
35 | |||
Use
of Proceeds
|
36 | |||
Market
For Common Equity a
nd
Related Stockholder Matters
|
36 | |||
Management's
Discussion and Analysis of Financial Condition or Plan of
Operation
|
39 | |||
Business
|
46
|
|||
Description
of Property
|
61 | |||
Security
Ownership of Certain Beneficial Owners and Management
|
63
|
|||
Directors
and Executive Officers
|
63
|
|||
Executive
Compensation
|
65 | |||
Certain
Relationships and Related Transactions
|
66 | |||
Description
of Our Securities
|
66 | |||
Legal
Matters
|
67 | |||
Experts
|
67 | |||
Changes
in and Disagreements with Accountants
|
68 | |||
Financial
Statements
|
68 | |||
Where
You Can Find More Information
|
68 |
(i)
|
1,774,194
shares of Series A Preferred Stock (with each share convertible
into one
(1) share of common stock, subject to
adjustment)
|
(ii)
|
five
year class A 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 class B warrants to purchase an additional 1,774,194 shares
of Common
Stock at an exercise price of $2.40 per share (subject to adjustment).
|
Common
stock outstanding prior to Offering
|
|
6,205,290
|
|
|
|
Common
stock offered by the Company
|
|
0
|
|
|
|
Total
shares of common stock offered by selling stockholders
|
|
1,017,468,
representing 16.4% of the shares of common stock currently
outstanding.
|
|
|
|
Common
stock to be outstanding after the offering (assuming all Series
A
Preferred Stock being registered have been converted and all
warrants
being registered have been exercised)
|
|
7,222,758
|
|
|
|
Total dollar
value of common stock underlying the Series A Preferred Stock
and Warrants being registered
|
|
The
closing market price for the common stock on June 13, 2007, the
date of
the sale of the Series A Preferred Stock and class A warrants,
was $2.10.
Using this value the dollar value of the 1,017,468 shares of
common stock
underlying the Series A Preferred Stock and class A warrants
being
registered is $2,136,683.
The
closing market price for the common stock on January 9, 2008
was $3.45.
Using this value the total dollar value of the 1,017,468 shares
of common
stock underlying the Series A Preferred Stock and class A warrants
being
registered is $3,510,265.
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any of the proceeds from the sales of the shares
by the
selling stockholders. To the extent the warrants are exercised
for cash,
if at all, we will receive the exercise price for those warrants.
Under
the terms of the warrants cashless exercise is permitted but
not until
June 13, 2008 and only then if the resale of the warrant shares
by the
holder is not covered by an effective registration statement. We
intend to use any cash proceeds received from the exercise of
warrants for
working capital and other general corporate purposes. We cannot
assure you
that any of the warrants will ever be exercised for cash or at
all.
|
|
|
|
Our
OTC Bulletin Board Trading Symbol
|
|
CSOL.OB
|
|
|
|
Risk
Factors
|
|
See
"Risk Factors" beginning on page 14 and other information included in
this prospectus for a discussion of factors you should consider
before
deciding to invest in shares of our common
stock.
|
·
|
prepare
and file prior to August 13
,
2007 an initial registration statement to register for resale by
the
investors all of the shares underlying the Series A Preferred Stock
and
the warrants (or such lesser number as the SEC shall permit); and
|
·
|
to
use our commercially reasonable best efforts to have that registration
declared effective on the earlier to occur of
|
·
|
150
days after the filing date (January 10, 2008),
|
·
|
10
days following receipt of a no review or similar letter from the
SEC or
|
·
|
the
third business day following the day we receive notice from the
SEC that
the SEC has determined that the registration statement is eligible
to be
declared effective without further comments by the SEC.
|
Finder's
fee to Trenwith Securities, LLC
|
|
$
|
165,000
|
(1)
|
Trenwith
Warrants
|
$
|
41,516
|
(1)
|
|
Fees
to be paid to Hayden Communication International, Inc.
(“HCI”)
|
|
$
|
102,000
|
(2)
|
HCI
Warrants
|
$
|
0
|
(2)
|
|
Liquidated
Damages payable under Securities Purchase Agreement
|
$
|
167,750
|
(3)
|
|
Liquidated
Damages payable under Registration Rights Agreement
|
$
|
918,145
|
(4)
|
|
Maximum
Aggregate Value of Make Good Shares
|
$
|
3,105,000
|
(5)
|
|
Total
Payments made or which may be required to be made by the Company
to
Selling Stockholders:
|
|
$
|
4,499,411
|
(6)
|
(1)
|
Under
the placement agent agreement between the Company and Trenwith
Securities
LLC, the Company paid Trenwith a transaction fee of $165,000
at the
closing of the transaction and issued Trenwith five year warrants
to
purchase 106,452 shares of common stock with an exercise price
of $1.71
per share. We have valued the 106,452 warrants for purposes
of this table
using their “intrinsic value” i.e. the difference between the aggregate
strike price ($182,033) and the aggregate fair market value
($223,549)
based on the closing price of $2.10 on June 12, 2007(the date
of issue),
which amounts to $41,516. Trenwith had also been issued on
execution of
the placement agreement five year warrants to purchase 75,000
shares of
common stock with an exercise price of $2.90. We have valued
the 75,000
Trenwith warrants for purposes of this table using their “intrinsic value”
i.e. the difference between the aggregate strike price ($217,500)
and the
aggregate fair market value ($157,500) based on the closing
price of $2.10
on June 12, 2007, which amounts to $0. Under the terms of the
placement agent agreement if any additional transaction is
completed
between the Company and the investors within 12 months of the
closing
Trenwith is entitled to receive an additional fee equal to
4% of the
aggregate consideration paid by the investors. We have not
assigned any
value to any future transaction.
|
(2)
|
Pursuant
to a consulting agreement entered on July 23, 2007 between
the Company and
Hayden Communications International, Inc. (“HCI”), an investor relations
firm owned by Matt Hayden one of the selling stockholders,
we are required
to pay HCI $8,500 per month and HCI was issued 175,000 warrants
at an
exercise price of $2.40, half of which vest on January 23,
2008 and the
other half vests on July 23, 2008. For purposes of this table
we have
valued these warrants using their “intrinsic value” i.e. the difference
between the aggregate strike price ($420,000) and the aggregate
fair
market value ($367,500) based on the closing price of $2.10
on June 12,
2007, which amounts to $0.
|
(3)
|
Under
the terms of the Securities Purchase Agreement, prior to July
13, 2007, we
were required to increase the size of our Board of Directors
to five or
seven and cause the appointment of a majority of the board
to be
“independent directors,” as defined by the rules of the Nasdaq Stock
Market. We did not comply with obligation until November 1,
2007. Under
the terms of the Securities Purchase Agreement we are required
to pay the
investors liquidated damages equal to one percent (1%) per
month of the
purchase price of the then outstanding shares of Series A Preferred
Stock,
in cash or in Series A Preferred Stock, at the option of the
investors,
based on the number of days that such obligation is not met
beyond certain
grace periods. Accordingly through November 1, 2007 we were
delinquent by
110 days in meeting this obligation.
In
addition, under the terms of the securities purchase agreement,
we were
required, prior to August 12,2007 to appoint (i) an audit committee
comprised solely of not less than three independent directors
and a (ii)
compensation committee comprised of not less than three directors,
a
majority of whom are independent directors. Our audit and compensation
currently each consists of two members both of whom are independent.
Accordingly, we are delinquent in our obligation. However,
under the terms
of the securities purchase agreement no liquidated damages
are required to
be paid for this breach during any period for which liquidated
damages are
payable for failing to have an independent board. Accordingly,
damages
began to accrue for breach of this provision on November 1,
2007. As of
January 15, 2008 we were delinquent by
76
days in meeting this obligation and we are required to pay
investors a
total of approximately $68,750.
Accordingly, we are required to pay
the investors a total of approximately $167,750.
|
(4)
|
Under
the terms of the registration rights agreement we are required,
among
other things, to use our commercially reasonable best efforts
to have this
registration declared effective on the earlier occur of
o
150
days after the filing date (i.e. January 10, 2008); or
o
the
third business day following the day we receive notice from
the SEC that
the SEC has determined that the registration statement is eligible
to be
declared effective without further comments by the SEC.
Under
the terms of the registration rights agreement, we also agreed
to, as soon
as reasonably practicable (but no later than 30 days) following
the date
on which we are permitted by then current SEC guidance to file
a
subsequent registration statement, use our commercially reasonable
best
efforts to file a subsequent registration statement covering
100% of the
remaining registrable securities (or such lesser number as
the SEC deems
appropriate). We have agreed to continue this process until
such time as
all of the registrable securities have been registered.
Our
failure to meet this schedule and other timetables provided
in the
registration rights agreement could result in the imposition
of liquidated
damages, which are payable through the issuance of additional
shares of
Series A Preferred Stock at the rate of 17,742 shares of Series
A
Preferred Stock for each month, capped at 266,129 shares. On January
9, 2008 the closing market price of the common stock was $3.45. Using
this valuation the aggregate value of the 266,129 shares that
could be
issued for failing to comply with the foregoing timetables
is $918,145. We
have no way of knowing whether we will be required to pay some
or any of
this amount.
|
(5)
|
Under
the terms of the Securities Purchase Agreement, we delivered
to an escrow
agent at the closing 900,000 shares of Series A Preferred Stock
as “Make
Good Escrow Shares.” If our consolidated “pre-tax income” for the year
ended December 31, 2007 is less than $3 million (or pretax
income per
share of $0.22 on a fully diluted basis) (the “2007 Target Number”) the
“2007 Percentage Shortfall” will first be computed by dividing the amount
of the shortfall by the 2007 Target Number. If the 2007 Percentage
Shortfall is equal to or greater than thirty three and one-third
percent
(33 1/3%), then the escrow agent is required to deliver all
of the Make
Good Escrow Stock to the investors. If the 2007 Percentage
Shortfall is
less than thirty three and one-third percent (33 1/3%), then
the escrow
agent is required to (i) deliver to the investors the number
of shares of
the Make Good Escrow Stock as is determined by multiplying
the 2007
Percentage Shortfall by 2,750,000 (not to exceed 900,000),
and (ii)
deliver to the Escrow Agent the remaining shares of Make Good
Escrow
Stock, if any (the “Remaining Escrowed Shares”). If our consolidated
pre-tax income for the year ended December 31, 2008 is less
than
$5,500,000 (or pretax income per share of $0.40 on a fully
diluted basis
(the “2008 Target Number”) the “2008 Percentage Shortfall” shall be
computed by dividing the amount of the shortfall by the 2008
Target
Number. If the 2008 Percentage Shortfall is equal to or greater
than
thirty three and one-third percent (33 1/3%), then the escrow
agent shall
deliver all of the Remaining Escrowed Shares to the investors.
If the 2008
Percentage Shortfall is less than thirty three and one-third
percent (33
1/3%), then the escrow agent shall (i) deliver to the investors
the number
of shares of the Make Good Escrow Stock as is determined by
multiplying
the 2008 Percentage Shortfall by 2,750,000 (not to exceed the
Remaining
Escrowed Shares) and (ii) deliver to the Company any Remaining
Escrowed
Shares. The investors shall not be entitled to any of the Make
Good Escrow
Stock for 2008 and all Remaining Escrowed Shares shall be returned
to us
if we do not receive at least $4,000,000 from the investors
(within 90
days after the effectiveness of the first registration statement
filed
pursuant to the registration rights agreement) either through
the exercise
of warrants, or additional equity financing. On January 9,
2008 the
closing market price of the common stock was $3.45. Using this
valuation
the aggregate value of the 900,000 shares that could be issued
for failing
to achieve the numbers set forth above is $3,105,000.
|
Market
price per share on June 13, 2007 (date of sale) of common stock
underlying
the Series A Preferred Stock:
|
$
|
2.10
|
||
Conversion
price per share on June 13, 2007 of common stock underlying the
Series A
Preferred Stock:
|
$
|
1.55
|
||
Total
number of shares underlying the Series A Preferred Stock (excluding
the
900,000 escrow shares which were not then issuable to the selling
stockholders).
|
1,774,194
|
|||
Combined
market price of the total number of shares 1,774,194 underlying
the Series
A Preferred Stock using the $2.10 market price on the date of
sale
|
$
|
3,725,807
|
||
Combined
conversion price of shares underlying the Series A Preferred
Stock
|
$
|
2,750,000
|
||
Total
possible discount to market price of Series A Preferred
stock:
|
$
|
975,807
|
Market
price on January 9, 2008 of common stock underlying the
Series A Preferred Stock:
|
$
|
3.45
|
||
Conversion
price on January 9, 2008 per share of common stock underlying the
Series A Preferred Stock:
|
$
|
1.55
|
||
Total
shares of common stock underlying the Series A Preferred Stock
(excluding
the 900,000 escrow shares which were not then issuable to the
selling
stockholders).
|
1,774,194
|
|||
Total
market price of the total number of shares (1,774,194) underlying
the
Series A Preferred Stock using $3.45 market price
|
$
|
6,120,969
|
||
Total
conversion price of shares underlying the Series A Preferred
Stock
|
$
|
2,750,000
|
||
Total
possible discount to market price of Series A Preferred
stock:
|
$
|
3,370,969
|
Market
price on June 13, 2007 (date of issuance) of common stock underlying
warrants
|
|
$
|
2.10
|
|
Exercise
price per share: Class A Warrants
|
|
$
|
1.90
|
|
Exercise
price per share (reduced by 75%) Class A Warrants (1)
|
$
|
.48
|
||
Exercise
price per share: Class B Warrants
|
|
$
|
2.40
|
|
Exercise
price per share (reduced by 75%): Class B Warrants (1)
|
$
|
.60
|
||
No.
of shares issuable under Class A Warrants
|
|
|
1,774,194
|
|
No.
of shares issuable under Class B Warrants
|
|
|
1,774,194
|
|
Aggregate
market price on June 13, 2007 of the 1,774,194 shares underlying
the Class
A Warrants
|
|
$
|
3,725,807
|
|
Aggregate
market price on June 13, 2007 of the 1,774,194 shares underlying
the Class
B Warrants
|
|
$
|
3,725,807
|
|
Combined
exercise price of Class A Warrants
|
|
$
|
3,370,969
|
|
Combined
exercise price of Class A Warrants (discounted by 75%) (1)
|
$
|
842,742
|
||
Combined
exercise price of Class B Warrants
|
|
$
|
4,258,066
|
|
Combined
exercise price of Class B Warrants (discounted by 75%) (1)
|
$
|
1,064,516
|
||
Total
discount to market price on date of issuance: Class A
Warrants
|
|
$
|
354,838
|
|
Total
discount to market price on date of issuance: Class B
Warrants
|
|
$
|
0
|
|
Total
discount to market price on date of issuance: All
Warrants
|
|
$
|
354,838
|
|
Total
discount to market price on date of issuance: Class A Warrants
(75%
discount)
|
$
|
2,883,065
|
||
Total
discount to market price on date of issuance: Class B Warrants
(75%
discount)
|
$
|
2,661,291
|
||
Total
discount to market price on date of issuance: All Warrants(75%
discount)
|
$
|
5,544,356
|
Market
price per share of underlying shares of common stock
|
|
$
|
3.45
|
|
Exercise
price per share: Class A Warrant (1)
|
|
$
|
1.90
|
|
Exercise
price per share: Class B Warrant (1)
|
|
$
|
2.40
|
|
No.
of shares issuable under Class A Warrant
|
|
|
1,774,194
|
|
No.
of shares issuable under Class B Warrant
|
|
|
1,774,194
|
|
Market
price of total shares underlying under Class A Warrant
|
|
$
|
6,120,969
|
|
Market
price of total shares underlying under Class B Warrant
|
|
$
|
6,120,969
|
|
Combined
exercise price of Class A Warrants
|
|
$
|
3,370,969
|
|
Combined
exercise price (discounted by 75%) of Class A Warrants
|
|
$
|
842,742
|
|
Combined
exercise price of Class B Warrants
|
|
$
|
4,258,066
|
|
Combined
exercise price (discounted by 75% ) of Class B Warrants
|
|
$
|
1,064,516
|
|
Total
profit if Class A Warrants exercised and sold on January 9,
2008
|
|
$
|
2,750,000
|
|
Total
profit if Class B Warrant exercised and sold on January 9,
2008
|
|
$
|
1,862,903
|
|
Total
profit if all Warrants exercised and sold on January 9,
2008
|
|
$
|
4,612,903
|
|
Total
profit if Class A Warrants exercised (at 75% discount) and
sold on January
9, 2008
|
|
$
|
5,278.227
|
|
Total
profit if Class B Warrant exercised (at 75% discount) and sold
on January
9, 2008
|
|
$
|
5,056,453
|
|
Total
profit if all Warrants exercised (at 75% discount) and sold
on January 9,
2008
|
|
$
|
10,334,680
|
Market
price per share of common stock on January 9, 2008
|
$
|
3.45
|
||
Exercise
price per share of HCI Warrant
|
$
|
2.40
|
||
No.
of shares issuable under HCI Warrant
|
175,000
|
|||
Market
price of total shares underlying under HCI Warrant
|
$
|
603,750
|
||
Total
exercise price of HCI Warrant
|
$
|
420,000
|
||
Total
profit if HCI Warrant exercised and sold on January 9, 2008
|
$
|
183,750
|
|
|
%
of Net
|
|||||
|
Amount
|
Proceeds
|
|||||
Gross
proceeds paid to issuer on June 13, 2007:
|
$
|
2,750,000
|
-
|
||||
All
payments that have been made by issuer:
|
$
|
368,483
|
15.5
|
%
|
|||
Net
proceeds to Company from offering on June 13, 2007:
|
$
|
2,381,517
|
100
|
%
|
|||
Combined
total possible profit as a result of
|
|||||||
original
discounted conversion price of the Series A Preferred Stock
|
$
|
975,807
|
41
|
%
|
|||
Combined
total possible profit as a result of
|
|||||||
discounted
exercise price of the warrants
|
$
|
354,838
|
15
|
%
|
|||
Liquidated
damages (1)
|
$
|
726,621
|
31
|
%
|
|||
Value
of Make Good Shares based on closing price of $2.10 on June 13,
2007
|
1,890,000
|
79
|
%
|
|
|
%
of Net
|
|||||
|
Amount
|
Proceeds
|
|||||
Gross
proceeds paid to issuer:
|
$
|
2,750,000
|
-
|
||||
All
payments that have been made by issuer:
|
$
|
368,483
|
|
||||
Net
proceeds to issuer:
|
$
|
2,381,517
|
100
|
%
|
|||
Combined
total possible profit as a result of
|
|||||||
discounted
conversion price of the Series A Preferred Stock to market
|
$
|
3,370,969
|
142
|
%
|
|||
Combined
total possible profit as a result of
|
|||||||
discounted
exercise price of the warrants to market
|
$
|
4,612,903
(1
|
)
|
194
|
%
|
||
Liquidated
damages (1)
|
$
|
1,085,895
|
46
|
%
|
|||
Value
of Make Good Shares based on closing price of $3.45 on January
9,
2008
|
$
|
3,105,000
|
130
|
%
|
Number
of shares outstanding prior to Series A Preferred Stock and Warrant
|
|
|||
transaction
held by persons other than the selling shareholders,
|
|
|||
affiliates
of the Company and affiliates of the selling
shareholders
|
3,052,404
|
|||
Number
of shares registered for resale by selling shareholders
|
||||
or
affiliates in prior registration statements
|
0
|
|||
Number
of shares registered for resale by selling shareholders
|
||||
or
affiliates of selling shareholders that continue to be held
by
|
||||
selling
shareholders or affiliates of selling shareholders
|
0
|
|||
Number
of shares have been sold in registered resales by selling
|
||||
shareholders
or affiliates of selling shareholders
|
0
|
|||
Number
of shares being registered for resale on behalf of selling
|
||||
shareholders
or affiliates of selling shareholders in this registration
statement
|
1,017,468
|
|||
Number
of shares to be ultimately registered for resale on behalf of
selling
|
||||
shareholders
or affiliates of selling shareholders in current
|
||||
transaction
(1)
|
6,222,582
|
|
·
|
|
issue
equity securities which would dilute current stockholders’ percentage
ownership;
|
|
·
|
|
incur
substantial debt;
|
|
·
|
|
assume
contingent liabilities; or
|
|
·
|
|
expend
significant cash.
|
|
·
|
|
difficulties
in the assimilation of acquired operations, technologies and/or
products;
|
|
·
|
|
unanticipated
costs associated with the acquisition or investment transaction;
|
|
·
|
|
the
diversion of management’s attention from other business concerns;
|
|
·
|
|
adverse
effects on existing business relationships with suppliers and customers;
|
|
·
|
|
risks
associated with entering markets in which we have no or limited
prior
experience;
|
|
·
|
|
the
potential loss of key employees of acquired organizations; and
|
|
·
|
|
substantial
charges for the amortization of certain purchased intangible assets,
deferred stock compensation or similar items.
|
·
|
to
incur additional indebtedness;
|
·
|
pay
dividends on our capital stock;
|
·
|
to
redeem or repurchase our common stock or any class or series of
capital
stock that is junior or on a parity with the Series A Preferred
Stock;
|
·
|
to
enter into any transaction that has any reset feature that could
result in
additional shares being issued.
|
· |
cost-effectiveness
of solar power technologies as compared with conventional and non-solar
alternative energy technologies;
|
· |
performance
and reliability of solar power products as compared with conventional
and
non-solar alternative energy technologies; and
|
· |
capital
expenditures by customers that tend to decrease if the PRC or global
economy slows down.
|
Name
of Selling Stockholder
|
Number
of
Shares
Underlying Series A Preferred Stock owned prior to the
Offering
|
|
Number
of Shares
Underlying
Class A Warrants owned prior to the Offering
|
|
Total
Number
Of
Shares Beneficially Owned Prior to Offering
|
|
Percentage
Of Shares Beneficially Owned Prior to Offering
|
|
Maximum
Number of Shares Underlying Series A Preferred Stocks to be
Sold
|
|
Maximum
Number of Shares Underlying Class A Warrants to be
Sold
|
|
Total
Number
Of
Shares Beneficially Owned after Offering
|
|
Percentage
Ownership after Offering % (6)
|
||||||||||
Barron
Partners LP
(7)
|
1,645,162
|
1,645,162
|
304,059(2)(3)
|
|
4.9%(2)(3)
|
|
471,596
|
471,596
|
304,059(2)(3)
|
|
4.9%(2)(3)
|
|
|||||||||||||
Eos
Holdings, LLC
(7)
|
64,516
|
64,516
|
193,548(4)
|
|
3%(3)
|
|
18,569
|
18,569
|
156,410
|
|
2.5%
|
|
|||||||||||||
Matthew
Hayden
|
64,516
|
64,516
|
281,048(4)
|
(5) |
4.3%(3)
|
|
18,569
|
37,138
|
243,910
|
3.8%
|
|
(i)
|
1,774,194
shares of Series A Preferred Stock (with each share of Series A
Preferred
Stock convertible into one (1) share of common stock), subject
to
adjustment);
|
(ii)
|
five
year class A 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 class B warrants to purchase an additional 1,774,194 shares
of common
stock at an exercise price of $2.40 per share, subject to
adjustment.
|
Name
and
Address
|
Amount
of Investment
|
Number
of Shares
of
Series A Preferred Stock
|
Number
of
Shares
of Common Underlying Series A Preferred Stock
|
Number
of Shares of Common
Underlying
Class A Warrants
|
Number
of Shares of Common
Underlying
Class B Warrants
|
|||||||||||
Barron
Partners LP
|
$
|
2,550,000
|
1,645,162
|
1,645,162
|
1,645,162
|
1,645,162
|
||||||||||
Eos
Holdings, LLC
|
$
|
100,000
|
64,516
|
64,516
|
64,516
|
64,516
|
||||||||||
Matthew
Hayden
|
$
|
100,000
|
64,516
|
64,516
|
64,516
|
64,516
|
||||||||||
Total
|
$
|
2,750,000
|
1,774,194
|
1,774,194
|
1,774,194
|
1,774.194
|
·
|
we
may not issue any convertible debt or any shares of convertible
preferred
stock prior to June 13, 2010 (or the date, if earlier, that the
investors
have converted all the Series A Preferred Stock, exercised all
warrants
and sold the underlying shares in the public
market);
|
·
|
we
must use the proceeds of the financing for acquisitions and working
capital purposes and not to repay any outstanding debt or to redeem
or
repurchase any equity securities;
|
·
|
we
cannot have any debt outstanding in an amount greater than twice
EBITDA
from continuing operations for the prior four quarters. This restriction
continues until June 13, 2010
(or
the date, if earlier, that
the
investors have converted all the Series A Preferred Stock, exercised
all
warrants and sold 90% of the underlying shares in public market);
|
·
|
we
cannot enter into any transaction that has any reset features that
could
result in additional shares being issued. This restriction continues
until
June 13, 2012 (or the date, if earlier, on which the investors
have
converted all the Series A Preferred Stock, exercised all warrants
and
sold the underlying shares in the public market);
|
·
|
Prior
to July 13, 2007, we were required to increase the size of our
Board of
Directors to five or seven and cause the appointment of a majority
of the
board to be “independent directors,” as defined by the rules of the
Nasdaq Stock Market. Prior to November 1, 2007 our Board consisted
of four
members two of whom are independent. Under the terms of our the
securities
purchase agreement we are required to pay the investors liquidated
damages
equal to one percent (1%) per month of the purchase price of the
then
outstanding shares of Series A Preferred Stock, in cash or in Series
A
Preferred Stock at the option of the investors, based on the number
of
days that such obligation is not met beyond certain grace periods.
As
of November 1, 2007
we
were delinquent by 110 days in meeting this
obligation;
|
·
|
In
addition, under the terms of the securities purchase agreement,
we were
required, prior to August 12,2007 to appoint (i) an audit committee
comprised solely of not less than three independent directors
and a (ii)
compensation committee comprised of not less than three directors,
a
majority of whom are independent directors. Our audit and compensation
currently each consists of two members both of whom are independent.
Accordingly, we are delinquent in our obligation. However, under
the terms
of the securities purchase agreement no liquidated damages are
required to
be paid for this breach during any period for which liquidated
damages are
payable for failing to have an independent board. Accordingly,
damages
began to accrue for breach of this provision on November 1, 2007.
As of
January 15, 2008 we were delinquent by
76
days in meeting this obligation and we are required to pay investors
a
total of approximately
$68,750.
|
·
|
Until
June 13, 2010, we must obtain approval from the Board of Directors
or
Compensation Committee (comprised of a majority of independent
directors)
that any awards other than salary to any officer, director or consultants
(whose compensation is more than $100,000 per annum) are customary,
appropriate and reasonable;
|
·
|
we
were required to retain an investor relations firm prior to July
13, 2007.
We met this obligation on July 23,
2007.
|
·
|
to
change the powers, preferences or rights of the Series A Preferred
Stock
or to alter or amend the Certificate of Designation;
|
·
|
to
authorize or create any class of stock ranking as to dividends
or
distribution of assets on liquidation senior to or pari passu with
the
Series A Preferred Stock, or any series of preferred stock possessing
greater voting rights or the right to convert at a more favorable
price
than the Series A Preferred Stock;
|
·
|
to
increase the authorized number of shares of Series A Preferred
Stock or
the number of authorized shares of preferred stock; and
|
·
|
to
amend our certificate of incorporation in breach of any of the
above
provisions.
|
·
|
ordinary
brokers transactions (which may include long or short sales) through
the
facilities of the OTCBB or other
market;
|
·
|
privately
negotiated transactions;
|
·
|
transactions
involving cross or block trades or otherwise on the open market;
|
·
|
purchases
by brokers, dealers or underwriters as principal and resale by
these
purchasers for their own accounts under this prospectus;
|
·
|
sales
"at the market" to or through market makers or into an existing
market for
the common stock;
|
·
|
sales
in other ways not involving market makers or established trading
markets,
including direct sales to purchasers or sales made through agents;
|
·
|
through
transactions in options, swaps or other derivatives (whether exchange
listed or otherwise);
|
·
|
any
combination of the above, or by any other legally available means;
and
|
·
|
any
other method permitted by applicable
law.
|
Quarter
Ended
|
High
|
|
Low
|
||||
03/31/2005
|
$
|
10.01
|
$
|
0.01
|
|||
06/30/2005
|
2.8
|
1.95
|
|||||
09/30/2005
|
16.75
|
1.95
|
|||||
12/31/2005
|
16.75
|
7
|
|||||
03/31/2006
|
11
|
7.5
|
|||||
06/30/2006
|
11
|
11
|
|||||
09/30/2006
|
6.50
|
1.3
|
|||||
12/31/2006
|
2.50
|
0.7
|
|||||
03/31/2007
|
3.73
|
3.50
|
|||||
06/30/2007
|
2.60
|
1.81
|
|||||
09/30/2007
|
3.45
|
1.75
|
|||||
12/31/2007
|
4.50
|
2.40
|
·
|
1%
of the number of shares of our common stock then outstanding; or
|
·
|
the
average weekly trading volume of our common stock during the four
calendar
weeks preceding the filing of a notice on Form 144 with respect
to the
sale.
|
Types
|
|
Approx.
% of water heater revenues
|
|
Sub-types
|
|
Approx.
% of total solar product revenue
|
|
|
|
|
|
|
|
Evacuated
Tubular Solar Water Heaters
|
|
90%
|
|
Regular
Evacuated Tubular Solar Water Heaters
|
|
85%
|
|
|
|
|
|
|
|
|
|
|
|
Evacuated
Heat Pipe Solar Water Heaters
|
|
5%
|
|
|
|
|
|
|
|
Flat
Plate Solar Water Heaters
|
|
10%
|
|
|
|
N/A
|
|
|
Daily
Production (Approximate Units)
|
|
Annual
Production (Approximate Units)
|
|
|
|
|
|
Solar
Hot Water Heaters
|
|
300
|
|
80,000
|
|
|
|
|
|
Boilers
and Space Heating Products
|
|
150
|
|
39,000
|
Brands
|
|
Products
|
|
Model
Numbers
|
|
|
|
|
|
Deli
Solar Brand
|
|
Solar
Water Heaters
|
|
DLYG-12/75
|
|
|
|
|
|
Ailiyang
Brand
|
|
Solar
Water Heaters
|
|
ALY-12/75
|
|
|
|
|
|
Dudeli
Brand
|
|
Solar
Water Heaters
|
|
DDL-12/75
|
|
|
|
|
|
Deyu
Brand
|
|
Solar
Water Heaters
|
|
DY-12/75
|
(in
$USD)
|
Solar
|
Gas
|
Electric
|
|||||||
|
|
|
|
|||||||
Initial
Equipment Cost
|
241
|
120
|
72
|
|||||||
|
||||||||||
Engineering
Life (Years)
|
15
|
6
|
5
|
|||||||
|
||||||||||
Equipment
Cost (15 years)
|
241
|
300
|
216
|
|||||||
|
||||||||||
Annual
Additional Energy Cost
|
0
|
98
|
81
|
|||||||
|
||||||||||
Total
Operating Cost (15 years)
|
241
|
1,770
|
1,431
|
|
Annual
Sales
|
|||
|
|
|||
1999
A
|
5.0
million m(2
|
)
|
||
|
||||
2000
A
|
6.0
million m(2
|
)
|
||
|
||||
2001
A
|
8.0
million m(2
|
)
|
||
|
||||
2002
A
|
10.0
million m(2
|
)
|
||
|
||||
2003
A
|
12.0
million m(2
|
)
|
||
|
||||
2004
F
|
16.2
million m(2
|
)
|
||
|
||||
2015
F
|
232.0
million m(2
|
)
|
·
|
focus
on rural market segment.
|
·
|
extensive
and targeted advertising.
|
·
|
multi-brand
strategy.
|
·
|
a larger
distribution and agency network.
|
·
|
after-sales
services network.
|
|
|
|
Our
Brand Name
|
|
Our
Classification of Products
|
|
|
|
Deli
Solar
|
|
Premium
|
|
|
|
DeYu
|
|
Standard
|
|
|
|
AiliYang
|
|
Economy
|
|
|
|
Our
Brand Name
|
|
Our
Classification of Products
|
|
|
|
Du
Deli
|
|
Premium
|
|
|
|
DeYu
|
|
Standard
|
·
|
to
target different products in different tiers of the same geographical
market.
|
·
|
to
eliminate agency dominance in a regional market by granting non-exclusive
agencies to more than one distributor in a region.
|
·
|
to
create competition among agents by assigning only one specific
brand of
our products to one distributor in a sales region so that
each different
distributor will be responsible for selling a brand different
from other
distributors in the same geographical region. We periodically
evaluate the
performance of distributors in the same region, and then
provide
suggestions to help them perform better. In addition, we
also encourage
them to increase sales of our premium products.
|
·
|
to
increase the market share of our products.
|
|
·
|
Local
solar energy status and market potential
|
·
|
Local
competition
|
·
|
Sales
and market potential in the covered
area
|
·
|
Presence
of alternatives, such as gas or electricity
|
·
|
Credibility
of the candidate
|
Ranking
of Solar Hot Water Companies by Market Share Based on Revenue in
2003
|
||||||||
Company
|
|
Ranking
|
|
Market
Share
|
|
Profitable
|
||
|
|
|
|
|
|
|
||
Huangming
|
|
1
|
|
5%
|
|
No
|
||
|
|
|
|
|
|
|
||
Tsinghua
Sunshine
|
|
2
|
|
3%
|
|
No
|
||
|
|
|
|
|
|
|
||
Huayang
|
|
3
|
|
3%
|
|
No
|
||
|
|
|
|
|
|
|
||
Deli
Solar (Bazhou)
|
|
19
|
|
0.4%
|
|
Yes
|
||
|
|
|
|
|
|
|
||
Top
10 Companies
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
Authorized
Scope
|
|
Valid
Term
|
|
Certificate
Number
|
|
|
|
|
|
|
|
Deli
Solar
|
|
Boiler
(Space Heating Utility);
|
|
03/14/2003
|
|
to
1978396
|
|
|
Solar
Hot Water Utility;
|
|
03/13/2013
|
|
|
|
|
Solar
Stove and Solar Energy
|
|
|
|
|
|
|
Collection
Heater
|
|
|
|
|
|
|
|
|
|
|
|
Du
Deli
|
|
The
same as the above
|
|
01/28/2003
|
|
to
1978532
|
|
|
|
|
01/27/2013
|
|
|
|
|
|
|
|
|
|
De
Yu
|
|
Solar
Energy Collection Heat
|
|
07/28/1998
|
|
to
1195609
|
|
|
and
Boiler (Not machine accessory)
|
|
07/27/2008
|
|
|
|
|
|
|
|
|
|
Aili
Solar (to
replace
our
brand
"Ailiyang")
|
|
Approved,
pending the trademark certificate delivery
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Holder
|
|
Location
& Deed Number
|
|
Usage
and Nature
|
|
Square
meters
|
|
Construction/building
on the land
|
|
Term
of use right
|
|
Transfer
price
|
Deli
Solar (Bazhou)
|
|
Bazhou,
Ningnan Village; #98060026
|
|
Industrial
Transferred Land
|
|
10,244.05
Sq. M
|
|
Plant,
warehouses, accessories room, convention center
|
|
50
years (from March 25, 1998 to March 25, 2048
|
|
RMB
615,000
(approximately
$79,581) was paid to the Langfang Municipal Land Administration Bureau,
plus annual land use fee of RMB 5122 (approximately $
662.79)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Deli Du
|
|
Eighty
kilometers from
Bazhou
Jingbao Road North; #20010700405
|
|
Office
space for Deli Solar (Bazhou) Granted Land
|
|
816
Sq. M
|
|
Office
building, accessories room
|
|
50
years (from June 11, 2001 to June 3, 2051
|
|
RMB
20,000 (approximately $ 2,588) was paid to the Langfang Municipal
Land
Administration Bureau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deli
Solar (Bazhou) - Pending to be proceeded
|
|
Close
to Bazhou Jingbao Road
|
|
Factory
Facilities
Collectively
Owned - transfer pending
|
|
61,530
Sq. M
|
|
Factory
facilities
|
|
Pending
the Land Use Right Certificate
|
|
approximately
$919,858 was paid to Bazhou local government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tianjin
Huaneng
Group
Energy Equipment
Co.
Ltd.
|
No.
119 Yuyang South Road
Ji
County, Tianjin
|
Factory |
51,000
Sq. M
|
50 years from September 2004 to September 2054 | Approximately 528,000 was paid to Ji county | |||||||
Total
|
|
|
|
|
|
72,590.05
Sq. M
|
|
|
|
|
|
|
|
Name
and
|
Amount
and
|
|
|||||||
Title
of
|
Address
of
|
Nature
of Beneficial
|
Percent
of
|
|||||||
Class
|
Beneficial
Owner
|
Owner
|
Class
(1)
|
|||||||
Common
Stock
|
Deli
Du, President, CEO and director
No.
28, Fengtai Bei Road
Fengtai
District, Beijing, PRC 100071
|
3,152,886
|
50.8%(2
|
)
|
||||||
Common
Stock
|
David
Gelbaum and Monica Chavez as trustees of The Quercus Trust, 2309
Santiago
Drive Newport Beach, CA 92660
|
318,550
|
5.1 | % | ||||||
Common
Stock
|
First
Wilshire Securities Management, Inc. 1224 East Green Street, Suite
200
Pasadena, CA 91006
|
381,226
|
6.1 | % | ||||||
|
||||||||||
Common
Stock
|
Gary
Lam, Chief Financial Officer
No.
28, Fengtai Bei Road
Fengtai
District, Beijing, PRC 100071
|
0
|
-
|
|||||||
Common
Stock
|
Zhaolin
Ding, director
No.
28, Fengtai Bei Road
Fengtai
District, Beijing, PRC 100071
|
0
|
-
|
|||||||
|
||||||||||
Common
Stock
|
Jianmin
Li, director
No.
28, Fengtai Bei Road
Fengtai
District, Beijing, PRC 100071
|
0
|
-
|
|||||||
Common
Stock
|
Zhenhang
Jia,
director
No.
28, Fengtai Bei Road
Fengtai
District, Beijing, PRC 100071
|
0
|
-
|
|||||||
Common
Stock
|
Kevin
Randolph, director
309
3rd Ave SE
Ephrata,
WA 98823-2245
|
0
|
-
|
|||||||
Common
Stock
|
All
directors and officers of the Company as a group (6 people
)
|
|
3,152,886
|
50.8
|
%
|
(1)
|
As
of January 9, 2008 we had 6,205,290 outstanding shares of common
stock. In
determining the percent of common stock owned by a stockholder on
January
9, 2008, (a) the numerator is the number of shares of common stock
beneficially owned by such stockholder, including shares the beneficial
ownership of which may be acquired, within 60 days upon the conversion
of
convertible securities or the exercise of warrants held by such
stockholder, and (b) the denominator is the sum of (i) 6,205,290,
the
number of shares outstanding on January 9, 2008, and (ii) the total
number
of shares underlying the convertible securities and warrants, which
each
of the stockholders has the right to acquire within 60 days following
January 9, 2008.
|
(2)
|
As
a closing condition to the unit purchase agreement under which the
certain
accredited investors subscribed for shares from the Company in the
private
placement transaction which closed on March 31, 2005, Mr. Du agreed
to
place 10% of the shares of common stock then held by him (approximately
320,289 shares) into escrow for the benefit of the investors in the
event
we fail to attain specified levels of net income. The Company failed
to
attain those numbers and consequently Mr. Du is required to transfer
those
shares. Although the transfer of the shares is in process as of the
date
of this report such shares have not been transferred and are still
under
Mr. Du’s name.
|
Name
|
Position
|
Age
|
|||||
|
|
|
|||||
Deli
Du
|
President, CEO and a director |
42
|
|||||
Gary
Lam
|
Chief Financial Officer |
53
|
|||||
Zhaolin
Ding
|
director |
39
|
|||||
Zhenhang
Jia
|
director |
60
|
|||||
Kevin Randolph | director |
58
|
|||||
Jianmin Li | director |
38
|
Name
|
|
Positions
|
|
Age
|
|
|
|
|
|
Deli
Du
|
|
Chairman
and Director
|
|
42
|
Yunjin
Luo
|
|
Director
|
|
71
|
Hao
Dong
|
|
CEO
|
|
32
|
Xueling
Wu
|
|
Controller
|
|
26
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
(($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Non-Qualified
Deferred Compensation Earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
|||||||||||||||||||
Deli
Du (1)
|
2006
|
80,000
|
—
|
—
|
—
|
—
|
—
|
—
|
80,000
|
|||||||||||||||||||
2005
|
60,000
|
—
|
—
|
—
|
—
|
—
|
—
|
60,000
|
Name
of Director
|
Fees
Earned or
Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in
Pension
value
and
Nonqualified
Deferred Compensation Earnings
|
All
Other Compensation
($)
|
Total
($)
|
|||||||||||||||
John
D. Kuhns
|
20,000
|
—
|
—
|
—
|
—
|
—
|
20,000
|
|||||||||||||||
Deli
Du
|
20,000
|
—
|
—
|
—
|
—
|
—
|
20,000
|
|||||||||||||||
Kelly
Chow
|
20,000
|
—
|
—
|
—
|
—
|
—
|
20,000
|
|||||||||||||||
Yunjun
Luo
|
20,000
|
—
|
—
|
—
|
—
|
—
|
20,000
|
|||||||||||||||
Ravinder
Soin
|
20,000
|
—
|
—
|
—
|
—
|
—
|
20,000
|
1.
|
Unaudited
Consolidated Financial Statements for the Three and Nine Months ended
September 30, 2007
|
|
|
|
|
|
|
|
i.
|
Consolidated
Balance Sheets as of September 30, 2007 and December 31,
2006
|
F-2
|
|
|
|
|
|
ii.
|
Consolidated
Statements of Operations and Comprehensive Income for the Three
and Nine Months ended September 30, 2007 and 2006
|
F-4
|
|
|
|
|
|
iii.
|
Consolidated
Statements of Cash Flows for the Nine months ended September 30, 2007
and 2006
|
F-5
|
|
|
|
|
|
iv.
|
Notes
to Consolidated Financial Statements of September 30, 2007
|
F-6
|
|
|
|
|
2.
|
Audited
Consolidated Financial Statements for the Year ended December 31,
2006
|
|
|
|
|
|
|
|
i.
|
Report
of Independent Public Accounting Firm
|
F-11
|
|
|
|
|
|
ii.
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-12
|
|
|
|
|
|
iii.
|
Consolidated
Statements of Operations and Comprehensive Income for the Years
ended
December 31, 2006 and 2005
|
F-14
|
|
|
|
|
|
iv.
|
Consolidated
Statements of Changes in Stockholders' Equity
|
F-15
|
|
|
|
|
|
v.
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006
and 2005
|
F-16
|
|
|
|
|
|
vi.
|
Notes
to Audited Consolidated Financial Statements
|
F-17
|
3.
|
Unaudited
Condensed Financial Statements of Tianjin Huaneng Group Energy
Equipment
Co. Ltd. for the Nine Months Ended September 30,
2007
|
F-27 | |
i.
|
Condensed
Balance Sheet as of September 30, 2007
|
F-28
|
|
ii.
|
Condensed
Statements of Operations and Comprehensive Income for the nine
months
ended September 30, 2007
|
F-29
|
|
iii.
|
Condensed Statements
of Cash Flows for the nine month period ended September 30,
2007
|
F-30
|
|
iv.
|
Condensed Statement
of Changes in Stockholders' Equity for the nine months ended
September 30,
2007
|
F-31
|
|
v.
|
Notes
to Condensed Financial Statements
|
F-32
|
|
4.
|
Audited
Financial Statements of Tianjin Huaneng Group Energy Equipment
Co. Ltd.
for the Years ended December 31, 2006 and December 31,
2005
|
F-45 | |
i.
|
Report
of Independent Public Accounting Firm
|
F-46
|
|
ii.
|
Balance
Sheets as of December 31, 2006 and 2005
|
F-47
|
|
iii.
|
Statements
of Operations and Comprehensive Income
for the Years ended December 31, 2006 and 2005
|
F-48
|
|
iv.
|
Statements
of Cash Flows for the Years Ended
December 31, 2006 and 2005
|
F-49
|
|
v.
|
Statements
of Changes in Stockholders' Equity for the Years ended December
2006 and
2005
|
F-50
|
|
vi.
|
Notes
to Audited Financial Statements
|
F-51
|
|
5.
|
Unaudited
Pro Forma Financial Information of China Solar & Clean Energy
Solutions, Inc.
|
F-64 | |
i.
|
Unaudited
Pro Forma Combined Balance Sheet of China Solar & Clean Energy
Solutions, Inc. as of September 30, 2007
|
F-66 | |
ii.
|
Unaudited
Pro Forma Combined Statement of Operations of China Solar & Clean
Energy Solutions, Inc. for the nine months ended September 30,
2007
|
F-68 | |
iii.
|
Unaudited
Pro Forma Combined Statement of Operations of China Solar & Clean
Energy Solutions, Inc. for the fiscal year ended December 31,
2006
|
F-69
|
|
iv.
|
Notes
to Unaudited Pro Forma Combined Financial Statements
|
F-70
|
Assets
|
September 30, 2007
|
December 31, 2006
|
|||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
3,311,421
|
$
|
3,212,065
|
|||
Trade
accounts receivable
|
7,220,091
|
986,809
|
|||||
Allowances
for doubtful accounts
|
(811,950
|
)
|
(116,363
|
)
|
|||
Net
trade accounts receivable
|
6,408,141
|
870,446
|
|||||
Advance
to suppliers
|
1,348,254
|
1,007,709
|
|||||
Prepaid
expenses
|
29,129
|
58,203
|
|||||
Inventories
|
5,238,184
|
315,765
|
|||||
Total
current assets
|
16,335,129
|
5,464,188
|
|||||
Property,
plant and equipment
|
|||||||
Buildings
|
4,457,449
|
3,528,180
|
|||||
Machinery
and equipment
|
1,348,627
|
71,131
|
|||||
Vehicles
|
364,891
|
76,176
|
|||||
Computer
equipment
|
31,483
|
12,625
|
|||||
Office
equipment
|
177,209
|
65,749
|
|||||
Construction
in progress
|
3,336,862
|
2,580,031
|
|||||
Total
plant and equipment
|
9,716,521
|
6,333,892
|
|||||
Accumulated
depreciation
|
(1,723,631
|
)
|
(407,424
|
)
|
|||
Net
property, plant and equipment
|
7,992,890
|
5,926,468
|
|||||
Other
receivables
|
1,583,569
|
321,999
|
|||||
Prepaid
land lease
|
1,560,428
|
1,003,530
|
|||||
Total
other assets
|
3,143,997
|
1,325,529
|
|||||
Goodwill
|
1,773,550
|
-
|
|||||
Total
assets
|
$
|
29,245,566
|
$
|
12,716,185
|
Liabilities
and stockholders' equity
|
September 30, 2007
|
December 31, 2006
|
|||||
Current
liabilities
|
|||||||
Trade
accounts payable
|
$
|
1,623,020
|
$
|
147,901
|
|||
Related
party payable
|
500
|
22,528
|
|||||
Other
payables
|
1,389,768
|
35,934
|
|||||
Accrued
expenses
|
736,043
|
22,080
|
|||||
Deposits
|
3,493,478
|
262,269
|
|||||
Taxes
payable
|
1,975,859
|
||||||
Deferred
revenue
|
678,486
|
||||||
Short-term
notes payable
|
1,154,703
|
-
|
|||||
Total
current liabilities
|
11,051,857
|
490,712
|
|||||
Long
term loans
|
778,474
|
-
|
|||||
Minority
Interests
|
785,018
|
-
|
|||||
Stockholders'
equity
|
|||||||
Convertible
preferred stock: par value $0.001; 25,000,000 shares
authorized, 2,674,194
shares issued and authorized
|
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
|
7,400,960
|
5,979,785
|
|||||
Accumulated
other compreh.exchange rate
|
936,478
|
533,909
|
|||||
Total
stockholders' equity
|
16,630,217
|
12,225,473
|
|||||
Total
Liabilities and stockholders' equity
|
$
|
29,245,566
|
$
|
12,716,185
|
Three months
ended September
30, 2007
|
Three months
ended September
30, 2006
|
Nine months
ended September
30, 2007
|
Nine months
ended September
30, 2006
|
||||||||||
Sales
revenues
|
$
|
12,629,636
|
$
|
6,565,606
|
$
|
25,043,660
|
$
|
15,982,081
|
|||||
Cost
of goods sold
|
10,078,609
|
5,190,840
|
19,817,653
|
12,549,545
|
|||||||||
Gross
profit
|
2,551,027
|
1,374,766
|
5,226,007
|
3,432,536
|
|||||||||
Operating
expenses
|
|||||||||||||
Advertising
|
458,652
|
382,287
|
1,118,745
|
881,190
|
|||||||||
Selling
expense
|
583,166
|
145,073
|
864,698
|
330,400
|
|||||||||
Salaries
and benefits
|
111,656
|
88,113
|
260,649
|
194,319
|
|||||||||
Depreciation
|
82,731
|
29,943
|
153,697
|
89,208
|
|||||||||
Other
general and administrative
|
532,137
|
175,914
|
987,093
|
877,544
|
|||||||||
Total
operating expenses
|
1,768,342
|
821,330
|
3,384,882
|
2,372,661
|
|||||||||
Net
operating income
|
782,685
|
553,436
|
1,841,125
|
1,059,875
|
|||||||||
Other
income (expense)
|
|||||||||||||
Interest
income (expense)
|
(31,845
|
)
|
(3,898
|
)
|
(30,207
|
)
|
(10,108
|
)
|
|||||
Total
other income (expense)
|
(31,845
|
)
|
(3,898
|
)
|
(30,207
|
)
|
(10,108
|
)
|
|||||
Net
income before minority interest and taxes
|
750,840
|
549,538
|
1,810,918
|
1,049,767
|
|||||||||
Taxes
|
189,770
|
-
|
327,747
|
-
|
|||||||||
Net
income after taxes
|
$
|
561,070
|
$
|
549,538
|
$
|
1,483,171
|
$
|
1,049,767
|
|||||
Minority
Interests
|
61,996
|
-
|
$
|
61,996
|
-
|
||||||||
Net
income
|
$
|
499,074
|
$
|
549,538
|
$
|
1,421,175
|
$
|
1,049,767
|
|||||
Foreign
Currency Translation Adjustment
|
154,609
|
194,660
|
402,569
|
286,200
|
|||||||||
Comprehensive
Income
|
$
|
653,683
|
$
|
744,198
|
$
|
1,823,743
|
1,335,967
|
||||||
Basic
earnings per share
|
$
|
0.08
|
$
|
0.09
|
$
|
0.23
|
$
|
0.17
|
|||||
Denominator
for basic EPS
|
6,205,290
|
6,205,290
|
6,205,290
|
6,205,290
|
|||||||||
Fully
diluted earnings per share
|
$
|
0.06
|
$
|
0.07
|
$
|
0.20
|
$
|
0.13
|
|||||
Denominator
for diluted EPS
|
8,310,856
|
8,031,009
|
7,039,341
|
8,031,009
|
Nine months ended
September 30, 2007
|
Nine months ended
September 30, 2006
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
1,421,175
|
$
|
1,049,767
|
|||
Adjustments
to reconcile net income
|
-
|
-
|
|||||
to
net cash provided by operations:
|
-
|
-
|
|||||
Minority
interest
|
61,996
|
||||||
Depreciation
and amortization
|
153,697
|
98,557
|
|||||
Provision
for allowance on account receivable
|
677,809
|
5,418
|
|||||
Changes
in operating liabilities and assets:
|
-
|
||||||
Trade
accounts receivable
|
(1,421,758
|
)
|
(155,052
|
)
|
|||
Advance
to suppliers
|
300,616
|
(39,311
|
)
|
||||
Inventories
|
(1,546,168
|
)
|
(539,612
|
)
|
|||
Other
receivables
|
(923,756
|
)
|
90,111
|
||||
Prepaid
expenses
|
10,000
|
33,087
|
|||||
Trade
accounts payable
|
315,368
|
52,937
|
|||||
Other
payables
|
625,571
|
209,151
|
|||||
Accrued
expenses
|
(17,631
|
)
|
7,105
|
||||
Customer
deposits
|
554,814
|
154,709
|
|||||
Tax
payable
|
112,280
|
-
|
|||||
Net
cash provided by operations
|
324,013
|
966,867
|
|||||
Cash
flows from investing activities:
|
|||||||
Purchases
of plant and equipment
|
(740,779
|
)
|
(1,282,174
|
)
|
|||
Acquisition
of subsidiary
|
(2,162,133
|
)
|
-
|
||||
Prepaid
land lease
|
25,110
|
(921,360
|
)
|
||||
Net
cash used in investing activities
|
(2,877,802
|
)
|
(2,203,534
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Repayment
on short term notes payable
|
(6,712
|
)
|
(98,501
|
)
|
|||
Related
party payable
|
(92,686
|
)
|
-
|
||||
Proceeds
from issuance of preferred stock
|
2,581,000
|
-
|
|||||
Net
cash provided by financing activities
|
2,481,602
|
(98,501
|
)
|
||||
Effect
of rate changes on cash
|
171,543
|
286,200
|
|||||
Increase
(decrease) in cash and cash equivalents
|
99,356
|
(1,048,968
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
3,212,065
|
5,629,168
|
|||||
Cash
and cash equivalents, end of period
|
$
|
3,311,421
|
$
|
4,580,200
|
|||
Supplemental
disclosures of cash flow information:
|
|||||||
Interest
paid in cash
|
$
|
46,287
|
$
|
16,318
|
|||
Income
taxes paid in cash
|
$
|
137,976
|
$
|
-
|
a) |
Revenue
Recognition
|
b) |
Allowance
for Doubtful Accounts
|
c) |
Plant
and Equipment
|
d) |
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.
|
e)
|
Income
Taxes
|
Generally,
a PRC 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. Tianjin
Huaneng is subject to enterprise income tax at the rate
of 33%. 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 to a 50% tax exemption
from PRC enterprise
income tax until March 31, 2010.
|
f)
|
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,
the PRC 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) and Deli Solar (Beijing).
|
g)
|
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.
|
|
USD
|
|||
Asset
acquired:
|
||||
Cash
and cash equivalents
|
196,150
|
|||
Accounts
receivable, trade
|
2,370,836
|
|||
Inventories
|
1,665,617
|
|||
Other
receivables and prepayments
|
449,611
|
|||
Property,
plant & Equipment
|
589,986
|
|||
Intangible
assets
|
256,157
|
|||
Goodwill
|
1,004,132
|
|||
Total
assets acquired
|
6,532,489
|
|||
Liabilities
assumed
|
||||
Short-term
bank loan
|
588,899
|
|||
Accounts
payable, trade
|
573,479
|
|||
Deferred
revenue
|
340,856
|
|||
Advances
from customers
|
1,326,666
|
|||
Value-added
tax payable
|
440,207
|
|||
Income
taxes payable
|
458,705
|
|||
Deferred
tax liabilities
|
16,059
|
|||
Accrued
liabilities and other payable
|
716,188
|
|||
Long
term loan
|
381,690
|
|||
Total
liabilities assumed
|
4,842,748
|
|||
Net
assets acquired
|
1,689,741
|
(Unaudited)
|
Three months
ended
September 30,
2007
|
Three months
ended
September 30,
2006
|
Nine months
ended
September 30,
2007
|
Nine months
ended
September 30,
2006
|
|||||||||
Operating
revenues
|
|||||||||||||
Solar
Heater/Boiler related products
|
$
|
8,813,298
|
$
|
6,565,606
|
$
|
21,227,321
|
$
|
15,982,081
|
|||||
Heat
Pipe related products
|
3,816,338
|
3,816,339
|
|||||||||||
Total
revenues
|
12,629,636
|
6,565,606
|
25,043,660
|
15,982,081
|
|||||||||
Profit
from continuing operation
|
|||||||||||||
Solar
Heater/Boiler related products
|
593,844
|
553,436
|
1,652,284
|
1,059,875
|
|||||||||
Heat
Pipe related products
|
188,841
|
188,841
|
|||||||||||
Total
revenues
|
782,685
|
553,436
|
1,841,125
|
1,059,875
|
|||||||||
Other
Income/Interest expense
|
(31,845
|
)
|
(3,898
|
)
|
(30,207
|
)
|
(10,108
|
)
|
|||||
Net
income before minority interest and taxes
|
$
|
750,840
|
$
|
549,538
|
$
|
1,810,918
|
$
|
1,049,767
|
|||||
Depreciation
expenses
|
|||||||||||||
Solar
Heater/Boiler related products
|
46,575
|
29,943
|
117,541
|
89,208
|
|||||||||
Heat
Pipe related products
|
36,156
|
36,156
|
|||||||||||
Total
depreciation expenses
|
82,731
|
29,943
|
153,697
|
89,208
|
As
of
September
30, 2007
|
||||
Solar
Heater/Boiler related products
|
$
|
12,316,863
|
||
Heat
Pipe related products
|
16,928,703
|
|||
Total
assets
|
$
|
29,245,566
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors
Deli
Solar (USA), Inc.
Beijing,
People’s Republic of China
We
have audited the consolidated balance sheets of Deli Solar
(USA), Inc.
(the Company) as of December 31, 2006 and 2005, and the related
consolidated statements of operations and comprehensive income,
stockholders’ equity, and cash flows for the years ended December 31, 2006
and 2005. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our
audit.
We
conducted our audits in accordance with the standards of the
Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance
about whether the consolidated financial statements are free
of material
misstatement. The company is not required to have, nor were
we engaged to
perform, an audit of its internal control over financial reporting.
Our
audits included consideration of internal control over financial
reporting
as a basis for designing audit procedures that are appropriate
in the
circumstances, but not for the purpose of expressing an opinion
on the
effectiveness of the company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining,
on a test basis, evidence supporting the amounts and disclosures
in the
financial statements, assessing the accounting principles used
and
significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our
audits
provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred
to above
present fairly, in all material respects, the financial position
of Deli
Solar (USA), Inc. as of December 31, 2006 and 2005, and the
results of its
operations and its cash flows for the years ended, in conformity
with
accounting principles generally accepted in the United States
of
America.
/s/
Child, Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
March
31, 2007
|
Assets
|
December
31, 2006
|
|
December
31, 2005
|
||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
3,212,065
|
$
|
5,629,168
|
|||
Trade
accounts receivable
|
986,809
|
748,475
|
|||||
Allowances
for doubtful accounts
|
(116,363
|
)
|
(193,630
|
)
|
|||
Net
trade accounts receivable
|
870,446
|
554,845
|
|||||
Advance
to suppliers
|
1,007,709
|
811,275
|
|||||
Prepaid
expenses
|
58,203
|
44,783
|
|||||
Related
entities receivable
|
-
|
37,856
|
|||||
Inventories
|
315,765
|
383,183
|
|||||
Total
current assets
|
5,464,188
|
7,461,110
|
|||||
Property,
plant and equipment
|
|||||||
Buildings
|
3,528,180
|
3,175,994
|
|||||
Machinery
and equipment
|
71,131
|
43,335
|
|||||
Vehicles
|
76,176
|
106,636
|
|||||
Computer
equipment
|
12,625
|
26,197
|
|||||
Office
equipment
|
65,749
|
6,976
|
|||||
Construction
in progress
|
2,580,031
|
159,356
|
|||||
Total
|
6,333,892
|
3,518,494
|
|||||
Accumulated
depreciation
|
(407,424
|
)
|
(228,986
|
)
|
|||
Net
property, plant and equipment
|
5,926,468
|
3,289,508
|
|||||
Other
receivables
|
65,721
|
82,090
|
|||||
Deposits
|
256,278
|
-
|
|||||
Prepaid
land lease
|
1,003,530
|
70,798
|
|||||
Total
other assets
|
1,325,529
|
152,888
|
|||||
Total
assets
|
$
|
12,716,185
|
$
|
10,903,506
|
Liabilities
and stockholders' equity
|
December
31, 2006
|
|
December
31, 2005
|
||||
Current
liabilities
|
|||||||
Trade
accounts payable
|
147,901
|
89,375
|
|||||
Related
entities payable
|
22,528
|
-
|
|||||
Other
payables
|
35,934
|
1,733
|
|||||
Accrued
expenses
|
22,080
|
50,045
|
|||||
Customer
deposits
|
262,269
|
5,621
|
|||||
Short-term
notes payable
|
-
|
130,112
|
|||||
Total
current liabilities
|
490,712
|
276,886
|
|||||
Stockholders'
equity
|
|||||||
Preferred
stock:
par
value $0.001;25,000,000 shares authorized, no shares issued
and
outstanding
|
|||||||
Common
stock:
par
value $0.001; 66,666,667 shares authorized, 6,205,290 shares
issued and
authorized
|
6,205
|
6,205
|
|||||
Additional
paid in capital
|
5,705,574
|
5,705,574
|
|||||
Retained
earnings
|
5,979,785
|
4,740,284
|
|||||
Accumulated
other comprehensive income
|
533,909
|
174,557
|
|||||
Total
stockholders' equity
|
12,225,473
|
10,626,620
|
|||||
Total
Liabilities and stockholders' equity
|
$
|
12,716,185
|
$
|
10,903,506
|
December
31,
|
December
31,
|
||||||
2006
|
|
2005
|
|||||
Sales
revenues
|
$
|
21,468,313
|
$
|
15,577,447
|
|||
Cost
of goods sold
|
16,842,994
|
11,868,459
|
|||||
Gross
profit
|
4,625,319
|
3,708,988
|
|||||
Operating
expenses
|
|||||||
Advertising
|
1,106,488
|
646,667
|
|||||
Selling
expense
|
459,746
|
256,634
|
|||||
Salaries
and benefits
|
279,069
|
191,539
|
|||||
Depreciation
|
154,946
|
14,631
|
|||||
Other
general and administrative
|
1,414,458
|
1,279,714
|
|||||
Total
operating expenses
|
3,414,707
|
2,389,185
|
|||||
Net
operating income
|
1,210,612
|
1,319,803
|
|||||
Other
income (expense)
|
|||||||
Interest
(expenses)
|
(16,717
|
)
|
(20,829
|
)
|
|||
Other
income
|
45,606
|
-
|
|||||
Total
other income (expense)
|
28,889
|
(20,829
|
)
|
||||
Net
income before taxes
|
1,239,501
|
1,298,974
|
|||||
Taxes
|
-
|
-
|
|||||
Net
income
|
$
|
1,239,501
|
$
|
1,298,974
|
|||
Foreign
Currency Translation Adjustment
|
359,352
|
174,557
|
|||||
Comprehensive
Income
|
$
|
1,598,853
|
$
|
1,473,531
|
|||
Basic
earnings per share
|
$
|
0.20
|
$
|
0.23
|
|||
Denominator
for basic EPS
|
6,205,290
|
5,732,616
|
|||||
Fully
diluted earnings per share
|
$
|
0.18
|
$
|
0.17
|
|||
Denominator
for diluted EPS
|
6,957,876
|
7,558,335
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
||||||
|
|
Common
|
|
Common
|
|
Paid
in
|
|
Retained
|
|
Comprehensive
|
|
|
|
||||||
Balances
at:
|
|
Shares
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Income
|
|
Totals
|
|||||||
January
1, 2005
|
4,431,000
|
4,430
|
824,960
|
3,441,310
|
-
|
4,270,700
|
|||||||||||||
Shares
issued:private placement
|
1,714,290
|
1,715
|
5,998,300
|
-
|
-
|
6,000,015
|
|||||||||||||
Cost
of issuance
|
(1,348,626
|
)
|
(1,348,626
|
)
|
|||||||||||||||
Warrants
exercised
|
60,000
|
60
|
230,940
|
-
|
-
|
231,000
|
|||||||||||||
Net
income
|
1,298,974
|
-
|
1,298,974
|
||||||||||||||||
Foreign
currency
|
-
|
-
|
-
|
-
|
174,557
|
174,557
|
|||||||||||||
Balance:
December 31, 2005
|
6,205,290
|
$
|
6,205
|
$
|
5,705,574
|
$
|
4,740,284
|
$
|
174,557
|
$
|
10,626,620
|
||||||||
Foreign
currency
|
359,352
|
359,352
|
|||||||||||||||||
2006
Net income
|
-
|
-
|
-
|
1,239,501
|
-
|
1,239,501
|
|||||||||||||
Balance:
Dec 31, 2006
|
6,205,290
|
$
|
6,205
|
$
|
5,705,574
|
$
|
5,979,785
|
$
|
533,909
|
$
|
12,225,473
|
Cash
flows from operating activities:
|
Year
ended December 31, 2006
|
|
Year
ended December 31, 2005
|
||||
Net
income
|
$
|
1,239,501
|
$
|
1,298,974
|
|||
Adjustments
to reconcile net income
|
|||||||
to
net cash provided by operations:
|
|||||||
Depreciation
and amortization
|
178,437
|
100,171
|
|||||
Provision
for allowance on accounts receivable
|
(77,267
|
)
|
105,030
|
||||
Changes
in operating liabilities and assets:
|
|||||||
Trade
accounts receivable
|
(238,334
|
)
|
(476,106
|
)
|
|||
Advance
to suppliers
|
(196,434
|
)
|
(458,231
|
)
|
|||
Inventories
|
67,418
|
(8,279
|
)
|
||||
Prepaid
expenses
|
(58,203
|
)
|
(44,783
|
)
|
|||
Other
Receivables
|
16,369
|
(63,975
|
)
|
||||
Trade
accounts payable
|
58,526
|
(79,124
|
)
|
||||
Other
payables
|
34,201
|
(81,746
|
)
|
||||
Accrued
expenses
|
(27,965
|
)
|
(212,048
|
)
|
|||
Customer
deposits
|
256,649
|
(6,827
|
)
|
||||
Net
cash provided by operations
|
1,252,898
|
73,056
|
|||||
Cash
flows from investing activities:
|
|||||||
Deposits
made to a acquire subsidiary
|
(256,278
|
)
|
-
|
||||
Prepaid
land lease
|
(932,732
|
)
|
(2,711
|
)
|
|||
Purchases
of property, plant and equipment
|
(2,815,398
|
)
|
(845,126
|
)
|
|||
Net
cash used in investing activities
|
(4,004,408
|
)
|
(847,837
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Payments
on short-term notes payable
|
(130,112
|
)
|
(403,101
|
)
|
|||
Capital
contribution received from shareholders
|
-
|
4,882,389
|
|||||
Related
receivable
|
82,639
|
518,637
|
|||||
Related
payables
|
22,528
|
(10,341
|
)
|
||||
Net
cash provided by (used in) financing activities
|
(24,945
|
)
|
4,987,584
|
||||
Effect
of rate changes on cash
|
359,352
|
174,557
|
|||||
Increase
in cash and cash equivalents
|
(2,417,103
|
)
|
4,387,360
|
||||
Cash
and cash equivalents, beginning of period
|
5,629,168
|
1,241,808
|
|||||
Cash
and cash equivalents, end of period
|
$
|
3,212,065
|
$
|
5,629,168
|
|||
Supplemental
disclosures of cash flow information:
|
|||||||
Interest
paid in cash
|
$
|
16,717
|
$
|
20,884
|
|||
Income
taxes paid in cash
|
$
|
-
|
$
|
-
|
2006
|
|
2005
|
|||||
Raw
Material
|
150,748
|
103,543
|
|||||
Consumables
|
5,970
|
6,138
|
|||||
Finished
goods
|
159,047
|
273,502
|
|||||
Total
|
$
|
315,765
|
$
|
383,183
|
Buildings
|
6
-
50 years based on the land lease term.
|
Machinery
and equipment
|
10
years
|
Vehicles
|
7
years
|
Computer
equipment
|
3
years
|
Office
equipment
|
7
years
|
2006
|
|
2005
|
|||||
NUMERATOR
FOR BASIC AND DILUTED EPS
|
|||||||
Net
income to common stockholders
|
$
|
1,239,501
|
$
|
1,298,974
|
|||
DENOMINATORS
FOR BASIC AND DILUTED EPS
|
|||||||
Weighted
average shares of common stock outstanding
|
6,205,290
|
5,732,616
|
|||||
Add:
dilutive equity securities outstanding
|
752,586
|
1,825,719
|
|||||
Denominator
for diluted EPS
|
6,957,876
|
7,558,335
|
|||||
EPS
- Basic
|
$
|
0.20
|
$
|
0.23
|
|||
EPS
- Diluted
|
$
|
0.18
|
$
|
0.17
|
2007
|
$
|
57,698
|
||
2008
|
50,172
|
|||
2009
|
50,172
|
|||
2010
|
50,172
|
|||
2011
|
30,522
|
|||
Thereafter
|
170,589
|
|||
$
|
463,260
|
Warrants
|
|
||||||
|
|
2006
|
|
2005
|
|||
Outstanding
- beginning of year
|
1,825,719
|
-
|
|||||
Granted
|
-
|
1,885,719
|
|||||
Exercised
|
-
|
60,000
|
|||||
Forfeited
|
-
|
-
|
|||||
Outstanding
- end of year
|
1,825,719
|
1,825,719
|
|||||
Shares
exercisable - end of year
|
1,825,719
|
1,825,719
|
Number
|
|
|
|
Weighted
|
|
Weighted
|
|
||||||
|
|
Outstanding
and
|
|
Exercise
|
|
Average
|
|
Average
|
|
||||
|
|
Exercisable
|
|
Price
Range
|
|
Exercise
Price
|
|
Life
in Years
|
|||||
Warrants
|
1,825,719
|
$
|
3.85
|
$
|
3.85
|
4.2
|
|
|
Page
|
|
|
|
Condensed
Balance Sheets
|
|
F-28
|
Condensed
Statements of Operations And Comprehensive Income
|
|
F-29
|
Condensed
Statements of Cash Flows
|
|
F-30
|
Condensed
Statement of Owners’ Equity
|
|
F-31
|
Notes
to Condensed Financial Statements
|
|
F-32
to F-44
|
September
30, 2007
|
December
31, 2006
|
||||||
(unaudited)
|
(audited)
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
333,515
|
$
|
282,148
|
|||
Accounts
receivable, net
|
5,384,146
|
4,129,068
|
|||||
Inventories
|
3,642,557
|
3,136,141
|
|||||
Prepayments
and other receivables
|
1,101,348
|
569,416
|
|||||
Total
current assets
|
10,461,566
|
8,116,773
|
|||||
Non-current
assets:
|
|||||||
Property,
plant and equipment, net
|
1,317,675
|
1,151,521
|
|||||
Intangible
assets, net
|
536,308
|
507,556
|
|||||
TOTAL
ASSETS
|
$
|
12,315,549
|
$
|
9,775,850
|
|||
LIABILITIES
AND OWNERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Short-term
bank loan
|
$
|
596,474
|
$
|
1,154,703
|
|||
Accounts
payable, trade
|
1,416,353
|
614,355
|
|||||
Deferred
revenue
|
678,486
|
696,813
|
|||||
Advances
from customers
|
3,178,932
|
2,513,511
|
|||||
Amount
due to related party
|
2,177,019
|
-
|
|||||
Value-added
tax payable
|
498,476
|
875,750
|
|||||
Income
taxes payable
|
201,625
|
835,860
|
|||||
Deferred
tax liabilities
|
32,754
|
79,038
|
|||||
Accrued
liabilities and other payables
|
1,315,498
|
1,148,560
|
|||||
Total
current liabilities
|
10,095,617
|
7,918,590
|
|||||
Long-term
liabilities:
|
|||||||
Long-term
payables
|
778,474
|
748,412
|
|||||
Total
liabilities
|
10,874,091
|
8,667,002
|
|||||
Owners’
equity:
|
|||||||
Registered
capital
|
720,786
|
720,786
|
|||||
Accumulated
other comprehensive income
|
93,704
|
66,449
|
|||||
Statutory
reserve
|
257,466
|
257,466
|
|||||
Retained
earnings
|
369,502
|
64,147
|
|||||
Total
owners’ equity
|
1,441,458
|
1,108,848
|
|||||
TOTAL
LIABILITIES AND OWNERS’ EQUITY
|
$
|
12,315,549
|
$
|
9,775,850
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
||||||||||||
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
Revenue,
net
|
|||||||||||||
Product
|
$
|
3,791,419
|
$
|
3,485,607
|
$
|
9,735,722
|
$
|
7,083,384
|
|||||
Maintenance
|
4,135
|
2,288
|
709,701
|
482,514
|
|||||||||
3,795,554
|
3,487,895
|
10,445,423
|
7,565,898
|
||||||||||
Cost
of revenue
|
|||||||||||||
Product
|
3,020,048
|
2,544,860
|
8,149,145
|
5,628,748
|
|||||||||
Maintenance
|
1,087
|
137
|
43,421
|
28,951
|
|||||||||
3,021,135
|
2,544,997
|
8,192,566
|
5,657,699
|
||||||||||
Gross
profit
|
774,419
|
942,898
|
2,252,857
|
1,908,199
|
|||||||||
Operating
expenses:
|
|||||||||||||
Sales
and marketing
|
345,750
|
389,951
|
946,279
|
744,761
|
|||||||||
Depreciation
and amortization
|
64,092
|
42,767
|
183,974
|
128,301
|
|||||||||
Research
and development
|
31,457
|
29,968
|
92,998
|
89,061
|
|||||||||
General
and administrative
|
133,034
|
134,968
|
477,138
|
380,799
|
|||||||||
Total
operating expenses
|
574,333
|
597,654
|
1,700,389
|
1,342,922
|
|||||||||
Income
from operations
|
200,086
|
345,244
|
552,468
|
565,277
|
|||||||||
Other
income (expenses):
|
|||||||||||||
Interest
expense
|
(11,796
|
)
|
(98,321
|
)
|
(98,488
|
)
|
(169,201
|
)
|
|||||
Interest
income
|
549
|
167
|
1,729
|
727
|
|||||||||
Total
other expenses
|
(11,247
|
)
|
(98,154
|
)
|
(96,759
|
)
|
(168,474
|
)
|
|||||
Income
before income taxes
|
188,839
|
247,090
|
455,709
|
396,803
|
|||||||||
Income
tax expense
|
(62,318
|
)
|
(81,558
|
)
|
(129,617
|
)
|
(134,648
|
)
|
|||||
NET
INCOME
|
$
|
126,521
|
$
|
165,532
|
$
|
326,092
|
$
|
262,155
|
|||||
Other
comprehensive income:
|
|||||||||||||
-
Foreign currency translation gain
|
27,255
|
(21,037
|
)
|
27,255
|
25,041
|
||||||||
COMPREHENSIVE
INCOME
|
$
|
153,776
|
$
|
144,495
|
$
|
353,347
|
$
|
287,196
|
Nine
months ended September 30,
|
|||||||
2007
|
2006
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
326,092
|
$
|
262,155
|
|||
Adjustments
to reconcile net income to net cash (used in) provided by
operating
activities:
|
|||||||
Gain
on disposal of plant and equipment
|
(2,066
|
)
|
-
|
||||
Depreciation
and amortization
|
183,974
|
128,301
|
|||||
Allowance
for doubtful accounts
|
104,189
|
-
|
|||||
Deferred
tax liabilities
|
(46,284
|
)
|
-
|
||||
Change
in operating assets and liabilities:
|
|||||||
Accounts
receivable, trade
|
(1,359,266
|
)
|
(282,091
|
)
|
|||
Inventories
|
(506,416
|
)
|
(1,288,724
|
)
|
|||
Prepayments
and other receivables
|
(531,934
|
)
|
(124,176
|
)
|
|||
Accounts
payable
|
801,998
|
344,530
|
|||||
Deferred
revenue
|
(18,327
|
)
|
(75,700
|
)
|
|||
Advances
from customers
|
665,421
|
971,107
|
|||||
Value-added
tax payable
|
(377,274
|
)
|
(318,027
|
)
|
|||
Income
taxes payable
|
(634,235
|
)
|
(607,877
|
)
|
|||
Accrued
liabilities and other payables
|
166,851
|
1,044,088
|
|||||
Net
cash (used in) provided by operating activities
|
(1,227,277
|
)
|
53,586
|
||||
Cash
flows from investing activities:
|
|||||||
Purchase
of property, plant and equipment
|
(345,814
|
)
|
(71,306
|
)
|
|||
Proceeds
from disposal of plant and equipment
|
5,739
|
-
|
|||||
Net
cash used in investing activities
|
(340,075
|
)
|
(71,306
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Dividends
paid to owners
|
(20,915
|
)
|
-
|
||||
Advances
from a related party
|
2,177,019
|
-
|
|||||
Repayment
of short-term bank loan
|
(558,229
|
)
|
-
|
||||
Repayment
of long-term payables
|
30,062
|
(25,411
|
)
|
||||
Net
cash provided by (used in) financing activities
|
1,627,937
|
(25,411
|
)
|
||||
Foreign
currency translation adjustment
|
(9,218
|
)
|
(18,494
|
)
|
|||
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
51,367
|
(61,625
|
)
|
||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
282,148
|
258,737
|
|||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
333,515
|
$
|
197,112
|
|||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
Cash
paid for income taxes
|
$
|
896,067
|
$
|
741,886
|
|||
Cash
paid for interest expenses
|
$
|
133,966
|
$
|
-
|
Registered
capital
|
Accumulated
other comprehensive income
|
Statutory
reserve
|
Retained
earnings
|
Total
owner’s
equity
|
||||||||||||
Balance
as of January 1, 2007
|
$
|
720,786
|
$
|
66,449
|
$
|
257,466
|
$
|
64,147
|
$
|
1,108,848
|
||||||
Foreign
currency translation adjustment
|
-
|
27,255
|
-
|
-
|
27,255
|
|||||||||||
Net
income for the period
|
-
|
-
|
-
|
326,092
|
326,092
|
|||||||||||
Dividends
paid to owners
|
-
|
-
|
-
|
(20,737
|
)
|
(20,737
|
)
|
|||||||||
Balance
as of September 30, 2007
|
$
|
720,786
|
$
|
93,704
|
$
|
257,466
|
$
|
369,502
|
$
|
1,441,458
|
l
|
Basis
of Presentation
|
l
|
Use
of Estimates
|
l
|
Revenue
Recognition
|
l
|
Cost
of Revenue
|
l
|
Cash
and Cash Equivalents
|
l
|
Accounts
Receivable and
Allowance
for
Doubtful
Accounts
|
l
|
Inventories
|
l
|
Property,
Plant and Equipment
|
Depreciable
life
|
Residual
value
|
||
Building
|
20
years
|
5%
|
|
Plant
and machinery
|
10
years
|
5%
|
|
Motor
vehicles
|
5
years
|
5%
|
|
Office
equipment
|
10
years
|
5%
|
l
|
Land
Use Right
|
l
|
Valuation
of Long-lived Assets
|
l
|
Comprehensive
Income
|
l
|
Income
Taxes
|
l
|
Foreign
Currencies Translation
|
l
|
Research
and Development Costs
|
l
|
Product
Warranty
|
l
|
Related
Parties
|
l
|
Segment
Reporting
|
l
|
Fair
Value of Financial Instruments
|
l
|
Recently
Issued Accounting Standards
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Accounts
receivable, gross
|
$
|
6,064,857
|
$
|
4,706,360
|
|||
Less:
allowance
for doubtful accounts
|
(680,711
|
)
|
(577,292
|
)
|
|||
Accounts
receivable, net
|
$
|
5,384,146
|
$
|
4,129,068
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Raw
materials
|
$
|
512,798
|
$
|
508,161
|
|||
Work
in process
|
480,743
|
245,082
|
|||||
Finished
goods
|
2,649,016
|
2,382,898
|
|||||
$
|
3,642,557
|
$
|
3,136,141
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Advances
to employees
|
$
|
521,977
|
$
|
206,661
|
|||
Deposits
paid to suppliers
|
571,950
|
345,024
|
|||||
Other
receivables
|
7,421
|
17,731
|
|||||
$
|
1,101,348
|
$
|
569,416
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Building
|
$
|
760,927
|
$
|
721,753
|
|||
Plant
and machinery
|
1,343,724
|
1,157,166
|
|||||
Motor
vehicles
|
249,106
|
199,606
|
|||||
Office
equipment
|
104,074
|
109,806
|
|||||
Foreign
translation difference
|
39,998
|
-
|
|||||
2,497,829
|
2,188,331
|
||||||
Less:
accumulated depreciation
|
(1,180,154
|
)
|
(1,036,810
|
)
|
|||
Net
book value
|
$
|
1,317,675
|
$
|
1,151,521
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Land
use rights, cost
|
$
|
528,704
|
$
|
528,704
|
|||
Foreign
translation difference
|
36,682
|
-
|
|||||
565,386
|
528,704
|
||||||
Less:
accumulated amortization
|
(29,078
|
)
|
(21,148
|
)
|
|||
Land
use rights, net
|
$
|
536,308
|
$
|
507,556
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Welfare
payable
|
$
|
370,999
|
$
|
523,566
|
|||
Salary
payable
|
233,180
|
393,869
|
|||||
Accrued
expenses
|
695,148
|
131,832
|
|||||
Government
levy payable
|
16,171
|
99,293
|
|||||
$
|
1,315,498
|
$
|
1,148,560
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Payable
to employees
|
$
|
496,252
|
$
|
496,252
|
|||
Payable
to government
|
194,560
|
194,560
|
|||||
Payable
to third parties
|
57,600
|
57,600
|
|||||
Foreign
translation difference
|
30,062
|
-
|
|||||
$
|
778,474
|
$
|
748,412
|
Nine
months ended September 30,
|
|||||||
2007
|
2006
|
||||||
Current
tax
|
$
|
177,166
|
$
|
134,648
|
|||
Deferred
tax
|
(47,549
|
)
|
-
|
||||
Income
tax expenses
|
$
|
129,617
|
$
|
134,648
|
Nine
months ended September 30,
|
|||||||
2007
|
2006
|
||||||
Income
before income taxes
|
$
|
455,709
|
$
|
396,803
|
|||
Statutory
income tax rate
|
33
|
%
|
33
|
%
|
|||
150,384
|
130,945
|
||||||
Add:
Items not subject to taxes
|
|||||||
-
Provisions and accrued liabilities
|
7,072
|
3,703
|
|||||
-
Deferred revenue
|
(27,839
|
)
|
-
|
||||
Income
tax expenses
|
$
|
129,617
|
$
|
134,648
|
September
30, 2007
|
December
31, 2006
|
||||||
(audited)
|
|
Deferred
tax liabilities:
|
|||||||
-
Accounts receivables
|
$
|
31,489
|
$
|
79,038
|
Nine
months ended September 30,
|
|||||||
2007
|
2006
|
||||||
Revenue:
|
|||||||
-
Southeast
Asia
|
$
|
303,311
|
$
|
31,062
|
|||
-
The PRC
|
10,142,112
|
4,046,941
|
|||||
Total
revenue, net
|
$
|
10,445,423
|
$
|
4,078,003
|
Years
ending September 30:
|
||||
2008
|
$
|
12,720
|
||
2009
|
3,180
|
|||
Total
future minimum operating lease payments
|
$
|
15,900
|
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-46
|
|||
Balance
Sheets
|
F-47
|
|||
Statements
of Operations And Comprehensive Income
|
F-48
|
|||
Statements
of Cash Flows
|
F-49
|
|||
Statements
of Owners’ Equity
|
F-50
|
|||
Notes
to Financial Statements
|
F-51
to F-63
|
As
of December 31,
|
|||||||
ASSETS
|
2006
|
2005
|
|||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
282,148
|
$
|
258,737
|
|||
Accounts
receivable, net
|
4,129,068
|
2,113,888
|
|||||
Inventories
|
3,136,141
|
3,771,807
|
|||||
Prepayments
and other receivables
|
569,416
|
475,753
|
|||||
Total
current assets
|
8,116,773
|
6,620,185
|
|||||
Non-current
assets:
|
|||||||
Property,
plant and equipment, net
|
1,151,521
|
1,190,894
|
|||||
Intangible
assets, net
|
507,556
|
518,130
|
|||||
Total
non-current assets
|
1,659,077
|
1,709,024
|
|||||
TOTAL
ASSETS
|
$
|
9,775,850
|
$
|
8,329,209
|
|||
LIABILITIES
AND OWNERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Short-term
bank loan
|
$
|
1,154,703
|
$
|
1,154,703
|
|||
Accounts
payable, trade
|
614,355
|
564,418
|
|||||
Deferred
revenue
|
696,813
|
477,566
|
|||||
Advances
from customers
|
2,513,511
|
2,924,157
|
|||||
Value-added
tax payable
|
875,750
|
373,338
|
|||||
Income
taxes payable
|
835,860
|
642,817
|
|||||
Deferred
tax liabilities
|
79,038
|
-
|
|||||
Accrued
liabilities and other payables
|
1,148,560
|
853,103
|
|||||
Total
current liabilities
|
7,918,590
|
6,990,102
|
|||||
Long-term
liabilities:
|
|||||||
Long-term
payables
|
748,412
|
773,823
|
|||||
Total
liabilities
|
8,667,002
|
7,763,925
|
|||||
Owners’
equity:
|
|||||||
Registered
capital
|
720,786
|
720,786
|
|||||
Accumulated
other comprehensive income
|
66,449
|
16,872
|
|||||
Statutory
reserve
|
257,466
|
178,348
|
|||||
Retained
earnings (accumulated deficits)
|
64,147
|
(350,722
|
)
|
||||
Total
owners’ equity
|
1,108,848
|
565,284
|
|||||
TOTAL
LIABILITIES AND OWNERS’ EQUITY
|
$
|
9,775,850
|
$
|
8,329,209
|
Years
ended December 31,
|
|||||||
2006
|
2005
|
||||||
Revenue,
net
|
|||||||
Product
|
$
|
13,026,841
|
$
|
8,984,244
|
|||
Maintenance
|
485,986
|
368,176
|
|||||
13,512,827
|
9,352,420
|
||||||
Cost
of revenue
|
|||||||
Product
|
10,346,178
|
7,293,042
|
|||||
Maintenance
|
27,809
|
23,896
|
|||||
10,373,987
|
7,316,938
|
||||||
Gross
profit
|
3,138,840
|
2,035,482
|
|||||
Operating
expenses:
|
|||||||
Sales
and marketing
|
992,474
|
743,219
|
|||||
Depreciation
and amortization
|
123,366
|
110,052
|
|||||
Research
and development
|
119,603
|
94,962
|
|||||
General
and administrative
|
845,632
|
674,019
|
|||||
Total
operating expenses
|
2,081,075
|
1,622,252
|
|||||
Income
from operations
|
1,057,765
|
413,230
|
|||||
Other
income (expenses):
|
|||||||
Interest
expense
|
(152,742
|
)
|
(119,027
|
)
|
|||
Interest
income
|
1,169
|
1,643
|
|||||
Other
income
|
34,011
|
62,450
|
|||||
Loss
on disposal of plant and equipment
|
-
|
(2,944
|
)
|
||||
Total
other expenses
|
(117,562
|
)
|
(57,878
|
)
|
|||
Income
before income taxes
|
940,203
|
355,352
|
|||||
Income
tax expense
|
337,558
|
254,185
|
|||||
NET
INCOME
|
$
|
602,645
|
$
|
101,167
|
|||
Other
comprehensive income:
|
|||||||
-
Foreign currency translation gain
|
49,577
|
33,166
|
|||||
COMPREHENSIVE
INCOME
|
$
|
652,222
|
$
|
134,333
|
Years
ended December 31,
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
602,645
|
$
|
101,167
|
|||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation
and amortization
|
202,215
|
181,455
|
|||||
Allowance
for doubtful accounts
|
291,785
|
148,418
|
|||||
Loss
on disposal of plant and equipment
|
-
|
2,944
|
|||||
Change
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(2,306,965
|
)
|
(756,552
|
)
|
|||
Inventories
|
635,666
|
(550,936
|
)
|
||||
Prepayments
and other receivables
|
(93,663
|
)
|
(113,623
|
)
|
|||
Accounts
payable
|
49,937
|
152,797
|
|||||
Deferred
revenue
|
219,247
|
112,986
|
|||||
Advances
from customers
|
(410,646
|
)
|
194,051
|
||||
Value-added
tax payable
|
502,412
|
241,339
|
|||||
Income
taxes payable
|
193,043
|
47,088
|
|||||
Deferred
tax liabilities
|
79,038
|
-
|
|||||
Accrued
liabilities and other payables
|
295,458
|
532,294
|
|||||
Net
cash provided by operating activities
|
260,172
|
293,428
|
|||||
Cash
flows from investing activities:
|
|||||||
Purchase
of property, plant and equipment
|
(152,269
|
)
|
(194,453
|
)
|
|||
Proceeds
from disposal of plant and equipment
|
-
|
5,556
|
|||||
Payment
in relation to intangible assets
|
-
|
(107,920
|
)
|
||||
Net
cash used in investing activities
|
(152,269
|
)
|
(296,817
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Dividend
paid to owners
|
(108,658
|
)
|
(56,709
|
)
|
|||
Repayment
of long-term payables
|
(25,411
|
)
|
(47,502
|
)
|
|||
Net
cash used in financing activities
|
(
134,069
|
)
|
(
104,211
|
)
|
|||
Foreign
currency translation adjustment
|
49,577
|
33,166
|
|||||
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
23,411
|
(74,434
|
)
|
||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
258,737
|
333,171
|
|||||
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$
|
282,148
|
$
|
258,737
|
|||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
Cash
paid for income taxes
|
$
|
84,562
|
$
|
207,097
|
|||
Cash
paid for interest expenses
|
$
|
152,742
|
$
|
119,027
|
Registered
capital
|
Accumulated
other comprehensive (loss) income
|
Statutory
reserve
|
(Accumulated
deficits)/
retained
earnings
|
Total
Equity
|
||||||||||||
Balance
as of January 1, 2005
|
$
|
720,786
|
$
|
(16,294
|
)
|
$
|
103,838
|
$
|
(320,670
|
)
|
$
|
487,660
|
||||
Foreign
currency translation
|
-
|
33,166
|
-
|
-
|
33,166
|
|||||||||||
Net
income for the year
|
-
|
-
|
-
|
101,167
|
101,167
|
|||||||||||
Dividend
to owners
|
-
|
-
|
-
|
(56,709
|
)
|
(56,709
|
)
|
|||||||||
Transfer
of retained earnings to statutory reserve
|
-
|
-
|
74,510
|
(74,510
|
)
|
-
|
||||||||||
Balance
as of December 31, 2005
|
720,786
|
16,872
|
178,348
|
(350,722
|
)
|
565,284
|
||||||||||
Foreign
currency translation
|
-
|
49,577
|
-
|
-
|
49,577
|
|||||||||||
Net
income for the year
|
-
|
-
|
-
|
602,645
|
602,645
|
|||||||||||
Dividend
to owners
|
-
|
-
|
-
|
(108,658
|
)
|
(108,658
|
)
|
|||||||||
Transfer
of retained earnings to statutory reserve
|
-
|
-
|
79,118
|
(79,118
|
)
|
-
|
||||||||||
Balance
as of December 31, 2006
|
$
|
720,786
|
$
|
66,449
|
$
|
257,466
|
$
|
64,147
|
$
|
1,108,848
|
1. |
ORGANIZATION
AND BUSINESS
BACKGROUND
|
2. |
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
l
|
Basis
of Presentation
|
l
|
Use
of Estimates
|
l
|
Revenue
Recognition
|
(a) |
Product
revenue
|
(b) |
Maintenance
revenue
|
(c) |
Interest
Income
|
l
|
Cost
of Revenue
|
l
|
Cash
and Cash Equivalents
|
l
|
Accounts
Receivable and
Allowance
for
Doubtful
Accounts
|
l
|
Inventories
|
l
|
Property,
Plant and Equipment
|
Depreciable
life
|
Residual
value
|
||||||
Building
|
20
years
|
5
|
%
|
||||
Plant
and machinery
|
10
years
|
5
|
%
|
||||
Motor
vehicles
|
5
years
|
5
|
%
|
||||
Office
equipment
|
10
years
|
5
|
%
|
l
|
Land
Use Right
|
l
|
Valuation
of Long-lived Assets
|
l
|
Comprehensive
Income
|
l
|
Income
Taxes
|
l
|
Foreign
Currencies Translation
|
l
|
Retirement
Plan Costs
|
l
|
Research
and Development Costs
|
l
|
Advertising
Expenses
|
l
|
Product
Warranty
|
l
|
Related
Parties
|
l
|
Segment
Reporting
|
l
|
Fair
Value of Financial Instruments
|
l
|
Recently
Issued Accounting Standards
|
3. |
ACCOUNTS
RECEIVABLE, NET
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Accounts
receivable, gross
|
$
|
4,706,360
|
$
|
2,399,395
|
|||
Less:
allowance
for doubtful accounts
|
(577,292 | ) | (285,507 | ) | |||
Accounts
receivable, net
|
$
|
4,129,068
|
$
|
2,113,888
|
4. |
INVENTORIES
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Raw
materials
|
$
|
508,161
|
$
|
553,206
|
|||
Work
in process
|
245,082 | 29,794 | |||||
Finished
goods
|
2,382,898 | 3,188,807 | |||||
3,136,141 | 3,771,807 | ||||||
Less:
allowance
for obsolescence
|
- | - | |||||
$
|
3,136,141
|
$
|
3,771,807
|
5. |
PREPAYMENTS
AND OTHER RECEIVABLES
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Advances
to employees
|
$
|
206,661
|
$
|
216,475
|
|||
Deposits
to vendors
|
345,024 | 240,937 | |||||
Other
receivables
|
17,731 | 18,341 | |||||
$
|
569,416
|
$
|
475,753
|
6. |
PROPERTY,
PLANT AND EQUIPMENT, NET
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Building
|
$
|
721,753
|
$
|
690,887
|
|||
Plant
and machinery
|
1,157,166 | 1,063,659 | |||||
Motor
vehicles
|
199,606 | 192,997 | |||||
Office
equipment
|
109,806 | 88,520 | |||||
2,188,331 | 2,036,063 | ||||||
Less:
accumulated depreciation
|
(1,036,810 | ) | (845,169 | ) | |||
Net
book value
|
$
|
1,151,521
|
$
|
1,190,894
|
7.
|
INTANGIBLE
ASSETS, NET
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Land
use rights, cost
|
$
|
528,704
|
$
|
528,704
|
|||
Less:
accumulated amortization
|
(21,148 | ) | (10,574 | ) | |||
Land
use rights, net
|
$
|
507,556
|
$
|
518,130
|
8. |
SHORT-TERM
BANK LOAN
|
9. |
DEFERRED
REVENUE
|
10. |
ADVANCES
FROM CUSTOMERS
|
11. |
ACCRUED
LIABILITIES AND OTHER
PAYABLES
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Welfare
payable
|
$
|
523,566
|
$
|
278,389
|
|||
Salary
payable
|
393,869 | 325,280 | |||||
Government
levy payable
|
99,293 | 85,584 | |||||
Accrued
expenses
|
131,832 | 163,850 | |||||
$
|
1,148,560
|
$
|
853,103
|
12. |
LONG-TERM
PAYABLES
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Payable
to employees
|
$
|
496,252
|
$
|
579,263
|
|||
Payable
to government
|
194,560 | 194,560 | |||||
Payable
to third parties
|
57,600 | - | |||||
$
|
748,412
|
$
|
773,823
|
13. |
INCOME
TAXES
|
Years
ended December 31,
|
|||||||
2006
|
2005
|
||||||
Current
tax
|
$
|
258,520
|
$
|
254,185
|
|||
Deferred
tax
|
79,038 | - | |||||
Income
tax expenses
|
$
|
337,558
|
$
|
254,185
|
Years
ended December 31,
|
|||||||
2006
|
2005
|
||||||
Income
before income taxes
|
$
|
940,203
|
$
|
355,352
|
|||
Statutory
income tax rate
|
33 | % | 33 | % | |||
310,267 | 117,266 | ||||||
Add:
Items not subject to taxes
|
|||||||
-
Deferred revenue
|
65,880 | 34,544 | |||||
-
Provisions
|
(38,589 | ) | 102,375 | ||||
Income
tax expenses
|
$
|
337,558
|
$
|
254,185
|
As
of December 31,
|
|||||||
2006
|
2005
|
||||||
Deferred
tax liabilities:
|
|||||||
Accounts
receivables
|
$
|
75,378
|
$
|
-
|
|||
Depreciation
|
3,660 | - | |||||
Deferred
tax liabilities
|
$
|
79,038
|
$
|
-
|
14. |
OWNERS’
EQUITY
|
15. |
CHINA
CONTRIBUTION PLAN
|
16. |
STATUTORY
RESERVE
|
17. |
SEGMENT
INFORMATION
|
Years
ended December 31,
|
|||||||
2006
|
2005
|
||||||
Revenue:
|
|||||||
-
Southeast
Asia
|
$
|
126,250
|
$
|
268,761
|
|||
-
The PRC
|
13,386,577 | 9,083,659 | |||||
Total
revenue, net
|
$
|
13,512,827
|
$
|
9,352,420
|
18. |
CONCENTRATION
AND RISK
|
(a) |
Major
customers
|
(b) |
Major
vendors
|
Year
ended December 31, 2006
|
||||||||||
Vendors
|
Purchases
|
Percentage
of
purchases
|
Accounts
Payables
|
|||||||
Vendor
A
|
$
|
3,400,500
|
58
|
%
|
$
|
354,560
|
||||
Vendor
B
|
709,068 |
12
|
%
|
- | ||||||
Total:
|
$
|
4,109,568
|
70
|
%
|
$
|
354,560
|
Year
ended December 31, 2005
|
||||||||||
Vendors
|
Purchases
|
Percentage
of purchases
|
Accounts
Payables
|
|||||||
Vendor
A
|
$
|
4,047,680
|
55
|
%
|
$
|
352,723
|
(c) |
Credit
risk
|
(d) |
Interest
rate risk
|
19. |
COMMITMENTS
|
Year
ending December 31:
|
||||
2007
|
$
|
12,720
|
||
2008
|
12,720 | |||
Total
future minimum operating lease payments
|
$
|
25,440
|
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
|
||||
UNAUDITED
PRO FORMA COMBINED STATEMENT OF OPERATIONS
|
||||
FOR
THE NINE MONTHS ENDED SEPTEMBER 30,
2007
|
China
Solar
|
Tianjin
Huaneng
|
Pro
forma adjustment #1
|
Pro
forma combined
|
||||||||||||
ASSETS
|
|||||||||||||||
Current
assets:
|
|||||||||||||||
Cash
and cash equivalents
|
$
|
2,977,906
|
$
|
333,515
|
$
|
3,311,421
|
|||||||||
Net
trade accounts receivable
|
1,023,995
|
5,384,146
|
6,408,141
|
||||||||||||
Related
party receivable
|
2,177,019
|
-
|
(2,177,019
|
)
|
(4)
|
|
-
|
||||||||
Advances
and prepayments
|
798,013
|
579,370
|
1,377,383
|
||||||||||||
Inventories
|
1,595,627
|
3,642,557
|
5,238,184
|
||||||||||||
Total
current assets
|
8,572,560
|
9,939,588
|
16,335,129
|
||||||||||||
Property,
plant and equipment, net
|
6,675,215
|
1,317,675
|
7,992,890
|
||||||||||||
Investment
in a subsidiary
|
1,689,741
|
-
|
(1,689,741
|
)
|
(1)
|
-
|
|||||||||
Total
other assets:
|
|||||||||||||||
Other
receivables
|
1,061,591
|
521,978
|
1,583,569
|
||||||||||||
Intangible
assets
|
-
|
536,308
|
536,308
|
||||||||||||
Prepaid
land lease
|
1,024,120
|
-
|
1,024,120
|
||||||||||||
Total
other assets
|
2,085,711
|
1,058,286
|
3,143,997
|
||||||||||||
Goodwill
|
-
|
-
|
1,773,550
|
(1),
(2)
|
|
1,773,550
|
|||||||||
TOTAL
ASSETS
|
$
|
19,023,227
|
$
|
12,315,549
|
$
|
29,245,566
|
China
Solar
|
Tianjin
Huaneng
|
Pro
forma adjustment #1
|
Pro
forma combined
|
||||||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||||||||||
Current
liabilities:
|
|||||||||||||||
Short-term
bank loans
|
$
|
558,229
|
$
|
596,474
|
$
|
1,154,703
|
|||||||||
Accounts
payable, trade
|
206,667
|
1,416,353
|
1,623,020
|
||||||||||||
Related
party payable
|
500
|
2,177,019
|
(2,177,019
|
)
|
(4)
|
|
500
|
||||||||
Deferred
revenue
|
-
|
678,486
|
678,486
|
||||||||||||
Deposits
|
314,546
|
3,178,932
|
3,493,478
|
||||||||||||
Taxes
payable
|
1,243,004
|
732,855
|
1,975,859
|
||||||||||||
Accrued
liabilities
|
40,895
|
695,148
|
736,043
|
||||||||||||
Other
payables
|
-
|
620,350
|
769,418
|
(2)
|
1,389,768
|
||||||||||
Total
current liabilities
|
2,363,841
|
10,095,617
|
11,051,857
|
||||||||||||
Long-term
liabilities:
|
|||||||||||||||
Long-term
loan
|
-
|
778,474
|
778,474
|
||||||||||||
Minority
interest
|
-
|
-
|
720,717
|
(1),
(3)
|
|
720,717
|
|||||||||
Stockholders’
equity:
|
|||||||||||||||
Convertible
preferred stock: par value $0.001; 25,000,000 shares
authorized, 2,674,194
shares issued and outstanding
|
2,674
|
-
|
2,674
|
||||||||||||
Common
stock: par value $0.001; 66,666,667 shares authorized,
6,205,290 shares
issued and outstanding
|
6,205
|
720,786
|
(720,786
|
)
|
(1)
|
6,205
|
|||||||||
Additional
paid-in capital
|
8,348,200
|
257,466
|
(257,466
|
)
|
(1)
|
8,348,200
|
|||||||||
Accumulated
other comprehensive income
|
965,872
|
93,704
|
(123,098
|
)
|
(1)
|
936,478
|
|||||||||
Retained
earnings
|
7,336,435
|
369,502
|
(304,976
|
)
|
(1),
(3)
|
7,400,961
|
|||||||||
Total
stockholders’ equity
|
16,659,386
|
1,441,458
|
16,694,518
|
||||||||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
19,023,227
|
$
|
12,315,549
|
$
|
29,245,566
|
#1:
|
The
pro forma adjustments give effect to the acquisition
of Tianjin Huaneng as
if it were consummated on June 30,
2007.
|
China
Solar
|
Tianjin
Huaneng
|
Pro
forma adjustment #2
|
Pro
forma combined
|
||||||||||||
Revenue,
net
|
$
|
21,248,106
|
$
|
10,445,423
|
$
|
31,693,529
|
|||||||||
Cost
of revenue
|
16,796,518
|
8,192,566
|
24,989,084
|
||||||||||||
Gross
profit
|
4,451,588
|
2,252,857
|
6,704,445
|
||||||||||||
Operating
expenses:
|
|||||||||||||||
Sales
and marketing
|
433,115
|
946,279
|
1,379,394
|
||||||||||||
Depreciation
and amortization
|
89,605
|
183,974
|
273,579
|
||||||||||||
General
and administrative
|
2,306,885
|
570,136
|
2,877,021
|
||||||||||||
Total
operating expenses
|
2,829,605
|
1,700,389
|
4,529,994
|
||||||||||||
Income
from operations
|
1,621,983
|
552,468
|
2,174,451
|
||||||||||||
Other
income (expenses):
|
|||||||||||||||
Interest
expense
|
-
|
(98,488
|
)
|
(98,488
|
)
|
||||||||||
Interest
income
|
96
|
1,729
|
1,825
|
||||||||||||
Total
other expenses
|
96
|
(96,759
|
)
|
(96,663
|
)
|
||||||||||
Income
before income taxes and minority interest
|
1,622,079
|
455,709
|
2,077,788
|
||||||||||||
Minority
interest
|
-
|
-
|
(159,785
|
)
|
(3)
|
|
(159,785
|
)
|
|||||||
Income
tax expense
|
(265,429
|
)
|
(129,617
|
)
|
(395,046
|
)
|
|||||||||
NET
INCOME
|
$
|
1,356,650
|
$
|
326,092
|
$
|
1,522,957
|
|||||||||
Basic
income per common share
|
$
|
0.22
|
$
|
0.25
|
|||||||||||
Diluted
income per common share
|
$
|
0.19
|
$
|
0.22
|
|||||||||||
Basic
common shares
|
6,205,290
|
6,205,290
|
|||||||||||||
Diluted
common shares
|
7,039,341
|
7,039,341
|
#2
|
The
pro forma adjustments give effect to the acquisition
of Tianjin Huaneng as
if it were consummated on January 1,
2007.
|
China
Solar
|
Tianjin
Huaneng
|
Pro
forma adjustment #3
|
Pro
forma combined
|
||||||||||||
Revenue,
net
|
$
|
21,468,313
|
$
|
13,512,827
|
$
|
34,981,140
|
|||||||||
Cost
of revenue
|
16,842,994
|
10,373,987
|
27,216,981
|
||||||||||||
Gross
profit
|
4,625,319
|
3,138,840
|
7,764,159
|
||||||||||||
Operating
expenses:
|
|||||||||||||||
Sales
and marketing
|
1,106,488
|
992,474
|
2,098,962
|
||||||||||||
General
and administrative
|
2,308,219
|
1,088,601
|
3,396,820
|
||||||||||||
Total
operating expenses
|
3,414,707
|
2,081,075
|
5,495,782
|
||||||||||||
Income
from operations
|
1,210,612
|
1,057,765
|
2,268,377
|
||||||||||||
Other
income (expenses)
|
28,889
|
(117,562
|
)
|
(88,673
|
)
|
||||||||||
Income
before income taxes and minority interest
|
1,239,501
|
940,203
|
2,179,704
|
||||||||||||
Minority
interest
|
-
|
-
|
(295,296
|
)
|
(3)
|
|
(295,296
|
)
|
|||||||
Income
tax expense
|
-
|
(337,558
|
)
|
(337,558
|
)
|
||||||||||
NET
INCOME
|
$
|
1,239,501
|
$
|
602,645
|
$
|
1,546,850
|
|||||||||
Basic
income per common share
|
$
|
0.20
|
$
|
0.25
|
|||||||||||
Diluted
income per common share
|
$
|
0.14
|
$
|
0.18
|
|||||||||||
Basic
common shares
|
6,205,290
|
6,205,290
|
|||||||||||||
Diluted
common shares
|
8,732,070
|
8,732,070
|
#3
|
The
pro forma adjustments give effect to the acquisition
of Tianjin Huaneng as
if it were consummated on January 1,
2006.
|
(1)
|
To
reflect the allocation of the purchase price based
on their estimated fair
value at the acquisition date
|
Allocation
of purchase price of assets acquired
|
||||
Acquired
assets:
|
||||
Cash
|
$
|
384,607
|
||
Accounts
receivable, trade
|
4,648,699
|
|||
Inventories
|
3,265,915
|
|||
Other
receivables and prepayments
|
881,590
|
|||
Property,
plant and equipment
|
1,156,835
|
|||
Intangible
assets
|
502,269
|
|||
Goodwill
|
1,004,132
|
|||
Total
assets acquired
|
11,844,047
|
|||
Less:
liabilities assumed
|
||||
Short-term
bank borrowings
|
(1,154,703
|
)
|
||
Accounts
payable, trade
|
(1,124,468
|
)
|
||
Deferred
revenue
|
(668,345
|
)
|
||
Advances
from customers
|
(2,601,305
|
)
|
||
Value-added
tax payable
|
(863,151
|
)
|
||
Income
taxes payable
|
(899,421
|
)
|
||
Deferred
tax liabilities
|
(31,489
|
)
|
||
Accrued
liabilities and other payable
|
(1,404,290
|
)
|
||
Long-term
loan
|
(748,412
|
)
|
||
(9,495,584
|
)
|
|||
Less:
minority interest
|
(658,722
|
)
|
||
Purchase
price
|
$
|
1,689,741
|
(2)
|
To
record the finder’s fee of approximately $769,418 as the part of
acquisition cost.
|
(3)
|
To
record Tianjin Huaneng’s 49% minority
interest.
|
(4)
|
To
eliminate inter-company balance between China Solar
and Tianjin
Huaneng.
|
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