UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For the
quarterly period ended
June 30,
2009
or
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _______ to _________
Commission
File No. 000-12561
CHINA SOLAR & CLEAN
ENERGY SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
95-3819300
|
(State
or other jurisdiction of incorporation)
|
|
I.R.S.
Employer Identification
Number
|
Building
3
No.
28 Feng Tai North Road,
Beijing China
1000071
(Address
of principal executive offices)
(011)
86-10-63860500
(Registrant's
telephone number, including area code)
Deli Solar (USA),
Inc.
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x
Yes
o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o
Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “small
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
o
|
|
Accelerated filer
|
o
|
|
|
|
|
|
Non-accelerated filer
|
o
|
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
x
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
x
No
The
number of shares of the issuer’s common stock, $.001 per share, outstanding as
at August 4, 2009 was 16,173,016.
TABLE
OF CONTENTS
INDEX
|
|
|
|
|
|
Page
|
PART
1 - FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1. Financial Statements
|
3
|
|
|
|
|
Condensed
Consolidated Balance Sheets as at June 30, 2009 (unaudited) and December
31, 2008
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three Months and Six Months
Ended
|
|
|
June
30, 2009 and 2008 (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June
30,
|
|
|
2009
and 2008 (unaudited)
|
5
|
|
Condensed
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the
|
|
|
Six
Months Ended June 30, 2009 (unaudited) and 2008
|
6
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|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
7
|
|
|
|
|
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
|
18
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|
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
23
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Item
4T. Controls and Procedures
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23
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PART
2 - OTHER INFORMATION
|
|
|
|
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|
Item
1. Legal Proceedings
|
24
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|
Item
1A. Risk Factors
|
24
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
24
|
|
Item
3. Defaults Upon Senior Securities
|
25
|
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
25
|
|
Item
5. Other Information
|
25
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|
Item
6. Exhibits
|
25
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|
|
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Signatures
|
26
|
Item 1.
Financial
Statements
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,659,638
|
|
|
$
|
1,820,882
|
|
Accounts
receivable, net
|
|
|
8,457,470
|
|
|
|
5,962,051
|
|
Inventories
|
|
|
2,701,654
|
|
|
|
5,158,153
|
|
Other
receivables and prepayments
|
|
|
7,708,106
|
|
|
|
6,705,578
|
|
Total
current assets
|
|
|
21,526,868
|
|
|
|
19,646,664
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
14,108,704
|
|
|
|
13,955,691
|
|
Goodwill
|
|
|
1,910,509
|
|
|
|
2,284,903
|
|
Intangible
assets, net
|
|
|
1,668,329
|
|
|
|
1,709,184
|
|
Assets
of discontinued operations
|
|
|
-
|
|
|
|
8,972,481
|
|
TOTAL
ASSETS
|
|
$
|
39,214,410
|
|
|
$
|
46,568,923
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
$
|
1,650,559
|
|
|
$
|
1,148,428
|
|
Income
tax payable
|
|
|
2,336,230
|
|
|
|
1,822,867
|
|
Other
payables and accrued liabilities
|
|
|
5,149,009
|
|
|
|
7,296,294
|
|
Employee
loan
|
|
|
1,378,182
|
|
|
|
1,474,085
|
|
Total
current liabilities
|
|
|
10,513,980
|
|
|
|
11,741,674
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
-
|
|
|
|
15,779
|
|
Liabilities
of discontinued operations
|
|
|
-
|
|
|
|
4,182,671
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
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|
Convertible
preferred stock: par value $0.001, 25,000,000 shares authorized, zero and
373,566 shares issued and outstanding, respectively
|
|
|
-
|
|
|
|
373
|
|
Common
stock, $0.001 par value, 66,666,667 shares authorized, 14,173,016
(unaudited) and 13,799,450 shares issued and outstanding,
respectively
|
|
|
14,172
|
|
|
|
13,799
|
|
Additional
paid-in capital
|
|
|
22,966,404
|
|
|
|
22,966,404
|
|
Accumulated
other comprehensive loss
|
|
|
816,996
|
|
|
|
1,615,081
|
|
Retained
earnings
|
|
|
3,520,184
|
|
|
|
3,365,788
|
|
Profit
earning reserves
|
|
|
-
|
|
|
|
963,106
|
|
Less:
Treasury stock
|
|
|
(460,288
|
)
|
|
|
-
|
|
Total
stockholders’ equity
|
|
|
26,857,468
|
|
|
|
28,924,551
|
|
Minority
interests
|
|
|
1,842,962
|
|
|
|
1,704,248
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
39,214,410
|
|
|
$
|
46,568,923
|
|
See
accompanying notes to condensed consolidated financial
statements.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
(Unaudited)
|
|
Three months ended June 30,
|
|
|
Six mont
hs ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue,
net
|
|
$
|
9,659,248
|
|
|
$
|
15,843,782
|
|
|
$
|
14,775,569
|
|
|
$
|
24,143,858
|
|
Cost
of revenue
|
|
|
7,787,925
|
|
|
|
11,896,829
|
|
|
|
11,729,756
|
|
|
|
17,741,845
|
|
Gross
profit
|
|
|
1,871,323
|
|
|
|
3,946,95
3
|
|
|
|
3,045,813
|
|
|
|
6,402,01
3
|
|
Operation
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
103,028
|
|
|
|
132,216
|
|
|
|
191,906
|
|
|
|
281,383
|
|
Selling
and distribution
|
|
|
480,587
|
|
|
|
1,097,814
|
|
|
|
1,040,072
|
|
|
|
1,600,377
|
|
General
and administrative
|
|
|
651,166
|
|
|
|
1,012,727
|
|
|
|
1,550,535
|
|
|
|
1,614,380
|
|
Total
operating expenses
|
|
|
1,234,781
|
|
|
|
2,242,757
|
|
|
|
2,782,513
|
|
|
|
3,496,140
|
|
Income
from operations
|
|
|
636,542
|
|
|
|
1,704,196
|
|
|
|
263,300
|
|
|
|
2,905,873
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
6,559
|
|
|
|
25,741
|
|
|
|
43,837
|
|
|
|
66,831
|
|
Interest
income
|
|
|
2,451
|
|
|
|
1,638
|
|
|
|
2,456
|
|
|
|
1,638
|
|
Other
expense
|
|
|
(41,438
|
)
|
|
|
6,839
|
|
|
|
(50,869
|
)
|
|
|
6,839
|
|
Reversal
of reserve for bad debts
|
|
|
127,245
|
|
|
|
-
|
|
|
|
127,245
|
|
|
|
-
|
|
Interest
expense
|
|
|
(39,490
|
)
|
|
|
(77,975
|
)
|
|
(86,649
|
)
|
|
|
(111,813
|
)
|
Total
other (expense) income
|
|
|
55,327
|
|
|
|
(43,757
|
)
|
|
|
36,020
|
|
|
|
(36,505
|
)
|
Income
from continued operation before income taxes
|
|
|
691,869
|
|
|
|
1,660,439
|
|
|
|
299,320
|
|
|
|
2,869,368
|
|
Income
tax expenses
|
|
|
173,135
|
|
|
|
343,764
|
|
|
|
198,738
|
|
|
|
690,027
|
|
Net
income from continued operation including non controlling
interest
|
|
|
518,734
|
|
|
|
1,316,675
|
|
|
|
100,582
|
|
|
|
2,179,341
|
|
Less:
Net income attributable to non controlling interest
|
|
|
76,543
|
|
|
|
386,016
|
|
|
|
86,549
|
|
|
|
859,031
|
|
Net income
from continue
d operation
attributable to
common
shareholder
|
|
$
|
442,191
|
|
|
$
|
930,659
|
|
|
$
|
14,033
|
|
|
$
|
1,320,310
|
|
Net
income (loss) from discontinued operation net of tax
|
|
|
-
|
|
|
|
165,555
|
|
|
|
(512,390
|
)
|
|
|
165,555
|
|
Gain
on sale of discontinued operation net of tax
|
|
|
652,753
|
|
|
|
-
|
|
|
|
652,753
|
|
|
|
-
|
|
Net
income
|
|
|
1,094,944
|
|
|
|
1,096,214
|
|
|
|
154,396
|
|
|
|
1,485,865
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued
operation
|
|
|
0.03
|
|
|
|
0.07
|
|
|
|
0.00
|
|
|
|
0.12
|
|
Discontinued
operation
|
|
|
0.00
|
|
|
|
0.01
|
|
|
|
(0.04
|
)
|
|
|
0.01
|
|
Gain
on sale of discontinued operation
|
|
|
0.05
|
|
|
|
0.00
|
|
|
|
0.05
|
|
|
|
0.00
|
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.01
|
|
|
|
0.13
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued
operation
|
|
|
0.03
|
|
|
|
0.06
|
|
|
|
0.00
|
|
|
|
0.10
|
|
Discontinued
operation
|
|
|
0.00
|
|
|
|
0.01
|
|
|
|
(0.03
|
)
|
|
|
0.01
|
|
Gain
on sale of discontinued operation
|
|
|
0.04
|
|
|
|
0.00
|
|
|
|
0.04
|
|
|
|
0.00
|
|
|
|
|
0.07
|
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
0.11
|
|
Weighted
average shares outstanding
–
basic
|
|
|
14,173,016
|
|
|
|
13,075,468
|
|
|
|
14,125,984
|
|
|
|
10,612,185
|
|
Weighted
average shares outstanding
–
diluted
|
|
|
16,073,016
|
|
|
|
15,584,542
|
|
|
|
16,199,637
|
|
|
|
13,006,396
|
|
See
accompanying notes to condensed consolidated financial
statements.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
|
|
Six months ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
effect of discontinued operation
|
|
$
|
(3,245,825
|
)
|
|
$
|
453,020
|
|
Net
cash provided by operating activities
|
|
|
3,249,424
|
|
|
|
(3,690,958
|
)
|
|
|
|
3,599
|
|
|
|
(3,237,938
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of subsidiaries, net of cash acquired
|
|
|
-
|
|
|
|
(3,916,212
|
)
|
Disposal
subsidiary
|
|
|
439,122
|
|
|
|
-
|
|
Purchase
of property, plant and equipment
|
|
|
(231,528
|
)
|
|
|
(2,033,562
|
)
|
Net
effect of discontinued operation
|
|
|
(8,420
|
)
|
|
|
-
|
|
Net
cash provided by investing activities
|
|
|
199,174
|
|
|
|
(5,949,774
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from non-controlling shareholder
|
|
|
51,231
|
|
|
|
-
|
|
Proceeds
from private placement sale of stock
|
|
|
-
|
|
|
|
9,995,156
|
|
Proceeds
from warrants exercised
|
|
|
-
|
|
|
|
107,500
|
|
Net
cash provided by financing activities
|
|
|
51,231
|
|
|
|
10,102,656
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash
|
|
|
(10
|
)
|
|
|
307,592
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
253,994
|
|
|
|
1,222,536
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
2,405,644
|
|
|
|
5,466,637
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
2,659,638
|
|
|
$
|
6,689,173
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
129,318
|
|
|
$
|
199,025
|
|
Cash
paid for interest expense
|
|
$
|
39,490
|
|
|
$
|
143,696
|
|
NONCASH
INVESTING AND FINANCING TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Issuance
of common stock for acquisition of SZPSP
|
|
|
-
|
|
|
|
2,839,458
|
|
Issuance
of warrants for the acquisition of SZPSP
|
|
|
-
|
|
|
|
92,193
|
|
Preferred
share converted
|
|
|
373
|
|
|
|
1.136
|
|
See
accompanying notes to condensed consolidated financial
statements
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
|
|
Preferred
stock
|
|
|
Common
stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated
other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
No.
of
|
|
|
Par
|
|
|
No.
of
|
|
|
Par
|
|
|
paid-in
|
|
|
treasury
|
|
|
comprehensive
|
|
|
Retained
|
|
|
Earnings
|
|
|
stockholders’
|
|
|
|
shares
|
|
|
value
|
|
|
s
hares
|
|
|
value
|
|
|
capital
|
|
|
stock
|
|
|
income
|
|
|
earnings
|
|
|
reserve
|
|
|
equity
|
|
Balance
as of December 31, 2008
|
|
|
373,566
|
|
|
$
|
373
|
|
|
|
13,799,450
|
|
|
$
|
13,799
|
|
|
$
|
22,966,404
|
|
|
$
|
|
|
|
$
|
1,615,081
|
|
|
$
|
3,365,788
|
|
|
$
|
963,106
|
|
|
$
|
28,924,551
|
|
Disposal
subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460,288
|
)
|
|
|
|
|
|
|
|
|
|
|
(963,106
|
)
|
|
|
(1,423,394
|
)
|
Preferred
share converted
|
|
|
(373,566
|
)
|
|
|
(373
|
)
|
|
|
373,566
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,396
|
|
|
|
|
|
|
|
154,396
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(798,085
|
)
|
|
|
|
|
|
|
|
|
|
|
(798,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2009
|
|
|
0
|
|
|
$
|
0
|
|
|
|
14,173,016
|
|
|
$
|
1
4,172
|
|
|
$
|
22,966,404
|
|
|
$
|
(
460,288
|
)
|
|
$
|
816,996
|
|
|
$
|
3,
520,184
|
|
|
$
|
-
|
|
|
$
|
26,857,468
|
|
See
accompanying notes to condensed consolidated financial
statements
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying condensed consolidated balance sheet as of December 31, 2008 has
been derived from audited financial statements and the accompanying unaudited
condensed consolidated financial statements for the six months ended June 30,
2009 and 2008 have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim
financial information and the interim reporting requirements of Regulation S-X.
They do not include all of the information and footnotes for complete
consolidated financial statements as required by GAAP. In management’s opinion,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto contained in the Company’s annual report on Form 10-K for the year ended
December 31, 2008.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates that are particularly susceptible to change include assumptions used
in determining the fair value of securities owned and non-readily marketable
securities.
The
results of operations for the three months ended June 30, 2009 and 2008 are not
necessarily indicative of the results to be expected for the entire fiscal year
ended December 31, 2009 or for any future period.
NOTE
2 - ORGANIZATION AND BUSINESS
China
Solar & Clean Energy Solutions, Inc. (“China Solar”), formerly known as Deli
Solar (USA) Inc. was incorporated in the State of Nevada on March 21, 1983 as
Meditech Pharmaceuticals, Inc. (“Meditech”). In late 2004, the Board of
Directors of Meditech contemplated a strategic reorganization with Deli Solar
Holding Ltd., a corporation organized in the British Virgin Islands (“Deli Solar
(BVI)”). In contemplation of the reorganization, the Board of Directors resolved
to spin off Meditech’s drug development business to the shareholders of Meditech
of record on February 17, 2005, through a pro rata distribution in the form of a
stock dividend. The spin-off was completed on August 29, 2005. The acquisition
of Deli Solar (BVI) was accounted for as a recapitalization of Deli Solar
(BVI).
Deli
Solar (BVI) was formed in June 2004. On August 1, 2004, Deli Solar (BVI)
purchased Bazhou Deli Solar Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a
corporation duly organized under the laws of the People’s Republic of China
(“PRC”) from Messrs. Deli Du, Xiao’er Du, and Xiaosan Du for RMB 6,800,000. As a
result of this transaction, Deli Solar (Bazhou) became a wholly-foreign owned
enterprise (“WFOE”) under PRC law on March 30, 2005. This acquisition was
accounted for as a transfer of entities under common control.
Deli
Solar (Bazhou) was incorporated on August 19, 1997 under the laws of the PRC. In
the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the United
States (“US”).
The
result of the above transactions is that Deli Solar (BVI) is now our direct,
wholly-owned subsidiary and Deli Solar (Bazhou) remains a wholly-owned
subsidiary of Deli Solar (BVI).
On
November 21, 2005 Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology
Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli
Solar (Bazhou). The transaction was accounted for as a transfer of entities
under common control.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Beijing
Deli Solar Technology Development Co., Ltd. (“Deli Solar (Beijing)”) was founded
in 2006 and is principally engaged in solar power heater integrated construction
projects in major cities in the PRC.
On July
1, 2007, Deli Solar (Beijing) acquired 51% of Tianjin Huaneng Energy Equipment
Company (“Tianjin Huaneng”), which manufactures energy saving boilers and
environmental protection equipment for industrial customers. On October 27,
2008, Deli Solar (Beijing) purchased 29.97% of the outstanding equity interest
of Tianjin Huaneng from the minority shareholders of Tianjin Huaneng. Following
this transaction, the Company increased the registered capital of Tianjin
Huaneng from RMB5.94 million to RMB21.68 million by contributing an additional
RMB15,740,000 ($2,295,531). As a result, the Company’s equity interest in
Tianjin Huaneng increased to approximately 91.82%.
On April
1, 2008, Beijing Deli Solar Technology Development Co., Ltd (“Deli Solar
(Beijing)”) acquired 100% of Shenzhen Pengsangpu Solar Industrial Products
Corporation (“SZPSP”), which is engaged in the re-sale of energy-saving related
heating products such as heat pipes, heat exchangers, pressure water boilers,
solar energy heaters and radiators. On July 6, 2009, Deli Solar (Beijing)
entered into a termination agreement (the "Termination Agreement") with the
three shareholders of SZPSP, Renzheng Qiu, Bin Luo and Hanwen Chen (the "SZPSP
Shareholders"). The Termination Agreement terminates the equity purchase and
complementary agreements (collectively, the "Equity Purchase and Complementary
Agreements") Deli Solar (Beijing) entered into with the SZPSP Shareholders on
January 9, 2009 and supplemented on March 25, 2008. We accounted for SZPSP as a
wholly-owned subsidiary from March 31, 2008 up to March 31, 2009.
China
Solar, Deli Solar (BVI), Deli Solar (Bazhou), Ailiyang, Deli Solar (Beijing) and
Tianjin Huaneng are hereinafter referred to as the “Company”.
NOTE
3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions of
which are required to be applied prospectively. The Company believes that SFAS
159 will not have a material impact on the consolidated financial position or
results of operations.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-An Amendment of ARB No. 51, or SFAS No. 160”
(“SFAS No. 160”). SFAS No. 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company believes that SFAS 160 will
not have a material impact on the consolidated financial position or results of
operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). This statement identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) in the United States. This statement is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles”. The Company does not
expect the adoption of SFAS No. 162 to have a material effect on the financial
condition or results of operations of the Company.
In June
2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the earnings
allocation in computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per Share. Under the guidance
of
FSP EITF
03-6-1, unvested share-based payment awards that contain nonforfeitable rights
to dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings-per-share
pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and all
prior-period earnings per share data presented shall be adjusted
retrospectively. Early application is not permitted. The Company is assessing
the potential impact of this FSP on the earnings per share
calculation.
In June
2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument (or an
Embedded Feature) is Indexed to an Entity's Own Stock" ("EITF 07-5"). EITF 07-5
provides that an entity should use a two-step approach to evaluate whether an
equity-linked financial instrument (or embedded feature) is indexed to its own
stock, including evaluating the instrument's contingent exercise and settlement
provisions. EITF 07-5 is effective for financial statements issued for fiscal
years beginning after December 15, 2008. Early application is not permitted. The
Company is assessing the potential impact of this EITF 07-5 on the financial
condition and results of operations.
In April
2009, the FASB issued Financial Staff Position SFAS 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments” (FSP SFAS 107-1 and APB 28-1). The FSP
statement amends FASB Statement No. 107, “Disclosures about Fair Values of
Financial Instruments,” to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements. The statement also amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in all interim financial
statements. This statement is effective for interim periods ending
after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. We are evaluating the impact of this FSP on our
financial statements.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”)
(Unaudited)
NOTE
4 – BUSINESS DISPOSAL
On July
6, 2009, we entered into the Termination Agreement with the three former
shareholders of Shenzhen PSP to terminate “The Equity Purchase Agreement” and
“Complementary Agreement to the Equity Purchase Agreement” signed on January
9th, 2008 and “The Supplementary Agreement on Terms, Pricing and Payment” signed
on March 25, 2008. We accounted for SZPSP as a wholly-owned subsidiary from
March 31, 2008 up to March 31, 2009.
The key
terms of the Termination Agreement are:
|
·
|
We
have already received RMB12,960,486.30 from the SZPSP Shareholders prior
to the execution of the Termination Agreement, the SZPSP Shareholders to
pay to Deli-Solar (Beijing) the remaining RMB15,839,513.70 from the
RMB28.8 million purchase price specified in the Supplementary Agreement in
two installments (RMB8,000,000 within 10 days from the execution date of
the Termination Agreement and the remaining balance within two months from
the execution date of the Termination
Agreement)
|
|
·
|
The
SZPSP Shareholders to return to us an aggregate of 939,364 shares in our
Company they received pursuant to the Supplementary
Agreement
|
|
·
|
The
SZPSP Shareholders will also pay to us a portion of SZPSP's net profit for
the period from April 1, 2008 to March 31, 2009, an amount which will be
determined at a future date by the SZPSP Shareholders and Deli-Solar
(Beijing)
|
NOTE
5 - BALANCE SHEET COMPONENTS
Accounts
receivable, net
The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on the
aging of accounts receivable that management believes to be
reasonable.
|
|
June 30,
2009
|
|
|
December 31,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, cost
|
|
$
|
8,980,190
|
|
|
$
|
6,807,085
|
|
Less
: allowance for doubtful accounts
|
|
|
(522,720
|
)
|
|
|
(845,034
|
)
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
8,457,470
|
|
|
$
|
5,962,051
|
|
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”)
(Unaudited)
Inventories:
|
|
|
June
30, 2009
|
|
|
December
31,
2008
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
914,083
|
|
|
$
|
1,261,714
|
|
Consumables
|
|
|
21,064
|
|
|
|
4,320
|
|
Work-in-process
|
|
|
1,032,419
|
|
|
|
21,269
|
|
Finished
goods
|
|
|
734,088
|
|
|
|
3,870,850
|
|
Inventories
|
|
$
|
2,701,654
|
|
|
$
|
5,158,153
|
|
Other
receivables and prepayments:
|
|
|
June 30, 2009
|
|
|
|
December 3
1,
2008
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance
to suppliers
|
|
$
|
929,750
|
|
|
$
|
414,257
|
|
Notes
receivable
|
|
|
223,797
|
|
|
|
727,175
|
|
Prepaid
expenses
|
|
|
99,000
|
|
|
|
99,000
|
|
Income
tax receivable
|
|
|
-
|
|
|
|
195,549
|
|
Other
receivables
|
|
|
6,455,559
|
|
|
|
5,269,597
|
|
Other
receivables and prepayments
|
|
$
|
7,708,106
|
|
|
$
|
6,705,578
|
|
The
balance of other receivables includes the following items:
(1)
|
The
amount of receivable from disposal of subsidiary is $2,318,463.93,which
will be settled in September in accordance with the Termination
Agreement;
|
(2)
|
The
amount of loans to Fuwaysun is $3,000,000 and RMB6,550,000 ($958,737),
please refer to Note 11 for
details.
|
Other
payables and accrued liabilities:
|
|
|
June 30, 2009
|
|
|
|
December 31,
2008
|
|
|
|
|
(Unaudit
ed)
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
deposit
|
|
$
|
2,080,291
|
|
|
$
|
2,827,620
|
|
Salary
payable
|
|
|
288,392
|
|
|
|
506,936
|
|
Accrued
expenses
|
|
|
592,056
|
|
|
|
715,256
|
|
Other
payables
|
|
|
1,196,003
|
|
|
|
2,109,673
|
|
Deferred
revenue
|
|
|
992,267
|
|
|
|
1,136,809
|
|
Totals
|
|
$
|
5,149,009
|
|
|
$
|
7,296,294
|
|
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”)
(Unaudited)
NOTE
6 - STOCKHOLDERS’ EQUITY
Authorized
Capital
The
Company’s authorized capital stock consists of 66,666,667 shares of $0.001 par
value per share common stock and 25,000,000 shares of $0.001 par value per share
preferred stock.
Class A Preferred
stock
The
Company has designated 3,500,000 of its Preferred Shares as Class A Convertible
Preferred Shares. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the corporation, Class A Convertible Preferred
Shareholders shall be entitled to receive out of the assets of the Corporation,
an amount equal to $1.55 per share. Each share of Series A Preferred Stock shall
be initially convertible into one (1) share of Common Stock subject to
adjustment for stock dividend and stock splits, sale or issuance of common stock
at a price which is less than $1.55, at the option of the investors, at any time
after the original issue date.
Sale
of Units
On June
13, 2007, the Company entered into a Securities Purchase Agreement with Barron
Partners L.P., and two accredited investors in a private placement (“Private
Placement") providing for the sale of: (i) 1,774,194 shares of our Series A
Convertible Preferred Stock; (ii) stock purchase warrants to purchase an
aggregate of 1,774,194 shares of common stock at a price of $1.90 per share; and
(iii) stock purchase warrants to purchase an aggregate of 1,774,194 shares of
common stock at a price of $2.40 per share. Net proceeds of $2,581,000 were used
to finance business acquisitions.
During
the six months ended June 30, 2009, 373,566 shares of preferred stock were
converted to the same number of shares of common stock.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
Registration
Rights
In
connection with the private placement on June 13, 2007, the Company deposited
900,000 shares of Series A Convertible Preferred Stock into escrow as security.
If the Company’s consolidated pre-tax income for the year ended December 31,
2007 was less than $3,000,000 (or pretax income per share of $0.22 on a fully
diluted basis), the Company was required to deliver to the investors (pro rata
according to the relative size of their investment) a number of the escrow
shares to be determined based on the shortfall by which the Company failed to
achieve the 2007 earnings target. If the Company’s consolidated pre-tax income
for the year ending December 31, 2008 is less than $5,500,000 (or pretax
income per share of $0.40 on a fully diluted basis) the investors were
entitled to receive (pro rata according to the relative size of their
investment) a number of the remaining escrow shares to be determined based on
the shortfall by which the Company failed to achieve 2008 earnings target. The
agreement with the investors further provided that the investors will not be
entitled to any of the remaining escrow shares and all remaining escrow shares
shall be returned to the Company if the Company did not receive at least
$4,000,000 from the investors, either through the exercise of warrants, or
additional equity financing, within 90 days after the effectiveness of the first
registration statement filed pursuant to a certain registration rights agreement
entered into with the investors concurrently. The registration statement in
question was declared effective on February 7, 2008. The earnings target for the
year ended December 31, 2007 was met, thus 900,000 escrow shares remained in
escrow at the beginning of the year ending December 31, 2008. However, the
900,000 shares held in escrow were not included in the diluted earnings per
share calculation for the twelve months ended December 31, 2008 as the escrow
shares were to be returned to the Company since the investors did not provide at
least $4,000,000 in additional equity financing within 90 days after the
effectiveness of the first registration statement and the diluted earnings per
share were the same as basic earnings per share due to the net loss result in
2008.
Common
stock
On
February 29, 2008, the Company completed a private placement of 4,691,499 shares
of common stock for an aggregate purchase price of approximately $11,300,000.
The Company received $9,995,156 as net proceeds from this
financing.
During
the twelve months ended December 31, 2008, the Company issued 1,400,628 shares
of common stock as part of the conversion of Series A Preferred
Stock.
During
the twelve months ended December 31, 2008, certain investors exercised their
warrants to purchase an aggregate of 75,000 shares of common stock totaling
$107,500.
During
the twelve months ended December 31, 2008, the Company granted 7,304 shares of
common stock to a former Board member in exchange for services. The shares were
valued at $2.08 per share or an aggregate total of $15,192.
During
the six months ended June 30, 2009, the Company issued 373,566 shares of common
stock as part of the conversion of Series A Preferred Stock.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Common
Stocks Held in Escrow
In
connection with the private placement on February 29, 2008, the Company
deposited 2,000,000 shares of common stock (“Make Good Shares”) into escrow and
we are required to deliver (i) 1,000,000 of the Make Good Shares to the
investors on a pro rata basis for no additional consideration in the event that
the Company’s after-tax net income for the fiscal year ending December 31, 2008
is less than $4.8 million; and (ii) 1,000,000 of the Make Good Shares to the
investors on a pro rata basis for no additional consideration in the event that
the Company’s after-tax net income for the fiscal year ending December 31, 2009
is less than $8 million. As of December 31, 2008, the after-tax net income
target of $4.8 million has not been met. The registration statement of 1,000,000
of the Make Good Shares to the investors was declared effective on July 20,
2009.
Warrants
for services
On June
13, 2007, in connection with the Private Placement, the Board of Directors
granted to consultants and agents warrants to purchase an aggregate of 181,452
shares of the Company’s common stock, of which 75,000 warrants are exercisable
at US$2.90 per share and 106,452 warrants are exercisable at US$2.71 per share,
or on a cashless exercise basis. The warrants vested immediately and expire on
June 13, 2012. The market price of the stock was US$2.10 per share on the grant
date. The Company valued the 75,000 warrants at US$0.74 per share and the
106,452 warrants at US$0.78 per share, or $138,338 in aggregate in accordance
with SFAS 123R, which were recorded as offering cost in additional paid-in
capital in the accompanying consolidated financial statements for the year ended
December 31, 2007.
The fair
value of the warrants was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
Risk
free interest rate (%)
|
|
|
5.00
|
%
|
Dividend
yield (%)
|
|
|
0.00
|
%
|
Expected
life of warrant grants (years)
|
|
2.96
years
|
|
Expected
volatility of warrant grants (%)
|
|
|
135
|
%
|
On March
30, 2005, in conjunction with a private placement sale of common stock the
Company issued five year warrants to purchase 1,714,290 shares of common stock
at a price of $3.85 per share to investors. Concurrently, the Company issued
five year warrants to purchase 171,429 common shares at $3.85 per share to
financial advisers and others. No share-based compensation expense was recorded,
as management determined this transaction to be a cost of issuance.
The
Company issued a warrant (the "Warrant") to its placement agent in connection
with its private placement in February 2008. The Warrant authorizes the agent to
purchase 469,150 shares of its common stock at a fixed price ($2.88 per share),
for a five-year period. The Warrant contains a cashless exercise provision which
permits the placement agent, at its option, to exercise the Warrant without
tendering the exercise price, in exchange for a reduced number of shares. The
number of shares will be calculated according to a formula should the placement
agent decide to opt to exercise the Warrant under the cashless provision. If the
Company is sold during the exercise period (referred to as a "fundamental
transaction" in the Warrant), the placement agent has the right to exercise its
Warrant and thus participate in the proceeds from the sale to the same extent as
any other shareholder. These warrants are immediately exerciseable. The fair
value of the warrants was estimated at the date of grant using the Black-Scholes
option-pricing model. In calculating the fair value of the warrants, management
used the closing price of the common stock on February 29, 2008, of $2.71 per
share, plus the following assumptions:
Risk
fee interest rate (%)
|
|
|
5.00
|
%
|
Dividend
yield (%)
|
|
|
0.00
|
%
|
Expected
life of warrant grants (years)
|
|
3.67
years
|
|
Expected
volatility of warrant grants (%)
|
|
|
135
|
%
|
A summary
of the status of the Company’s outstanding common stock warrants:
|
|
Number of
Shares
|
|
|
Weighted-
average
Exercise Price
|
|
|
Weighted-
average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December
31, 2005
|
|
|
1,825,719
|
|
|
$
|
3.85
|
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at December 31, 2006
|
|
|
1,825,719
|
|
|
|
3.85
|
|
|
2.25
years
|
|
|
|
—
|
|
Granted
|
|
|
3,729,840
|
|
|
|
2.18
|
|
|
4.50
years
|
|
|
|
354,839
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
and Exercisable at December 31, 2007
|
|
|
5,555,559
|
|
|
$
|
2.73
|
|
|
3.76
years
|
|
|
$
|
354,839
|
|
Granted
|
|
|
611,123
|
|
|
|
2.79
|
|
|
4.75
years
|
|
|
|
633,888
|
|
Exercised
|
|
|
(75,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
and Exercisable at December 31, 2008
|
|
|
6,091,682
|
|
|
$
|
2.76
|
|
|
3.53
years
|
|
|
$
|
988,727
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
and Exercisable at June 30, 2009
|
|
|
6,091,682
|
|
|
$
|
2.76
|
|
|
2.54
years
|
|
|
|
988,727
|
|
Registration
Rights Agreement
In
connection with the private placement, the Company entered into a registration
rights agreement with the investors on February 25, 2008 which requires us to
file with the SEC a “resale” registration statement providing for the resale of
(i) all of the 4,691,499 shares of common stock sold to the investors, (ii) the
2,000,000 “make good shares” and (iii) the 469,150 shares underlying the
placement agent warrants (collectively, the “registrable securities”) for an
offering to be made on a continuous basis pursuant to Rule 415 of the Securities
Act of 1933, as amended.
The
Company agreed, among other things, to prepare and file an initial registration
statement within 45 days of the closing date (i.e. April 14, 2008) to register
for resale part of the registrable securities (other than the 2,000,000 make
good shares and the 469,150 shares underlying the placement agent warrants) and
to cause that registration statement to be declared effective by July 28,
2008.
The
Company is required to file additional registration statements covering all of
the remaining registrable securities (or such lesser number as the SEC deems
appropriate) if any registrable securities could not be registered in the
initial registration statement, by the 15th day following the date on which we
are able to effect the registration of such securities in accordance with any
SEC restrictions.
The
Company’s failure to meet this schedule and other timetables provided in the
registration rights agreement could result in the imposition of liquidated
damages. No liquidated damages will accrue in respect of any registrable
securities which the SEC has requested (due to the application of Rule 415) the
Company to remove from the registration statement and the required effectiveness
date for such registrable securities will be tolled until such time as the
Company is able to effect the registration of those securities in accordance
with any SEC restrictions.
On July
28, 2008, the Company incurred liquidated damages equal to $112,596 which
represents 1% of $11,259,587 (the aggregate of investment amount by the
investors) due to the fact that the Company failed to have the registration
statement declared effective on or prior to that date. The liquidated damages
continue to accrue per diem with respect to all investors at the monthly rate of
1% and pro rated for partial months. The registration statement did not go
effective until December 17, 2008. Accordingly, as of December 17, 2008, the
Company had incurred $523,026 in liquidated damages for failing to have the
registration statement declared effective by July 28, 2008.
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
7 - INCOME TAXES
The
Company is registered in the United States of America and has operations in
three tax jurisdictions: the United States of America, British Virgin Island
(“BVI”) and the PRC. The operations in the United States of America and British
Virgin Island have incurred net operating losses for income tax purposes. The
Company generated substantially all of its net income from the operation of its
subsidiary in the PRC and is subject to the PRC tax jurisdiction. The Company
has recorded an income tax provision for the six months ended June 30,
2009.
United
States of America
China
Solar was incorporated in the State of Nevada and is subject to the tax laws of
United States of America. As of June 30, 2009, the operation in the United
States of America incurred $362,933 of net operating losses available for
federal tax purposes, which are available to offset future taxable income. The
net operating loss carry forwards will expire through 2028, if unutilized. The
Company has provided for a full valuation allowance against the deferred tax
assets of $54,440 on the expected future tax benefits from the net operating
loss carryforwards as the management believes it is more likely than not that
these assets will not be realized in the future.
British
Virgin Island
Under the
current BVI law, the Company is not subject to tax on income.
The
PRC
The
Company’s subsidiaries operating in the PRC are Deli Solar (Bazhou), Deli Solar
(Beijing), Ailiyang and Tianjin Huaneng.
Ailiyang
is domestically owned and subject to the Corporate Income Tax (“CIT”) governed
by the Income Tax Law of the People’s Republic of China, at a statutory rate of
25%.
On
November 4, 2008,Tianjin Huaneng was classified as an Advanced Technology
Enterprise in the PRC, then the CIT is reduced to 15% for the years of 2008,
2009 and 2010.
In March
2005, the Deli Solar (Bazhou) became a foreign investment enterprise. Hence,
effective from the year ended 2005, Deli Solar (Bazhou) is entitled to a
two-year exemption from enterprise income tax (which expired at the end of March
2007) and a reduced enterprise income tax rate of 15% for the following three
years.
On July
25, 2006, SZPSP was classified as an Advanced Technology Enterprise in the PRC.
The Company is exempted from CIT for the first two profit making years and then
the CIT is reduced to 15% in the following three years. On July 6, 2009,
Deli-Solar (Beijing), entered into the Termination Agreement with SZPSP's
shareholders. From April 1, 2008 up to March 31,2009 shares of SZPSP were held
by Deli-Solar (Beijing) and we accounted for SZPSP as a wholly-owned subsidiary.
As of March 31, 2009, the operation in SZPSP incurred $461,641 of net operating
losses.
In
September 2006, the Deli Solar (Beijing) was founded as a foreign investment
enterprise. Hence, effective from the year ended 2006, Deli Solar (Beijing) is
entitled to a two-year exemption from enterprise income tax and a reduced
enterprise income tax rate of 15% for the following three years.
On March
16, 2007, the National People’s Congress approved the Corporate Income Tax Law
of the People’s Republic of China (the “New CIT Law”). The New CIT Law, among
other things, imposes a unified income tax rate of 25% for both domestic and
foreign invested enterprises with effect from January 1, 2008. However, as
foreign invested enterprises, Deli Solar (Bazhou) and Deli Solar (Beijing) can
continue to enjoy the lower CIT rate of 15% until their tax holiday
expires.
NOTE
8 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a)
Business information
During
the six months ended June 30, 2009, the Company had two reportable segments
namely (i) solar heater/biomass stove/boiler related products, (ii) heat pipe
related equipment/energy-saving projects, under the management of Deli Solar
(Bazhou) and Tianjin Huaneng, respectively.
An
analysis of the Company’s revenue and total assets is as
follows:
Revenue
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2009
|
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
products
|
|
$
|
1,464,143
|
|
|
|
9,996,713
|
|
|
$
|
3,011,395
|
|
|
$
|
12,826,528
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
|
8,195,10
5
|
|
|
|
5,847,069
|
|
|
|
11,764,174
|
|
|
|
11,317,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,659,248
|
|
|
|
15,843,782
|
|
|
$
|
14,775,569
|
|
|
$
|
24,143,858
|
|
Gross
Profit
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
|
|
$
|
319,922
|
|
|
$
|
2,045,428
|
|
|
$
|
648,234
|
|
|
$
|
2,620,321
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
|
1,551,401
|
|
|
|
1,901,52
5
|
|
|
|
2,397,579
|
|
|
|
3,781,69
2
|
|
|
|
$
|
1,871,323
|
|
|
$
|
3,946,953
|
|
|
$
|
3,045,813
|
|
|
$
|
6,402,013
|
|
Total
assets
|
|
June 30
,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Total assets
|
|
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
|
|
$
|
15,058,506
|
|
|
|
12,795,964
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
$
|
15,660,681
|
|
|
|
14,360,410
|
|
Discontinued
operation
|
|
$
|
-
|
|
|
|
8,972,481
|
|
Other
|
|
$
|
8,495,223
|
|
|
|
10,440,068
|
|
|
|
$
|
39,214,410
|
|
|
|
46,568,923
|
|
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Other
segment in total assets refers to solar lighting products and sales of spare
parts components. The amount of other assets is less than 10% in each category
and disclosed as an “all other” category in accordance with paragraph 21 of SFAS
131. There was no elimination or reversal of transactions between reportable
segments.
(b)
Geographic information
The
Company operates in the PRC and all of the company’s long lived assets are
located in the PRC. In respect of geographical segment reporting, sales are
based on the country in which the customer is located and total assets and
capital expenditure are based on the country where the assets are
located.
The
Company’s operations are located in PRC, which is the main geographical area.
The Company’s sales and total assets by geographical market are analyzed as
follows:
|
|
Three months ended June
30,
|
|
|
Six months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
9,403,936
|
|
|
$
|
15,833,619
|
|
|
$
|
14,373,706
|
|
|
$
|
23,154,452
|
|
Others
|
|
|
255,312
|
|
|
|
10,163
|
|
|
|
401,863
|
|
|
|
989,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,659,248
|
|
|
$
|
15,843,782
|
|
|
$
|
14,775,569
|
|
|
$
|
24,143,858
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Gross
profit:
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,617,893
|
|
|
$
|
3,942,583
|
|
|
$
|
2,792,383
|
|
|
$
|
5,980,883
|
|
Others
|
|
|
253,430
|
|
|
|
4,370
|
|
|
|
253,430
|
|
|
|
421,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,871,323
|
|
|
$
|
3,946,953
|
|
|
$
|
3,045,813
|
|
|
$
|
6,402,013
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Total
assets:
|
|
|
|
|
PRC
|
|
$
|
35,504,947
|
|
|
$
|
40,402,100
|
|
Others
|
|
|
3,709,463
|
|
|
|
6,166,823
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,214,410
|
|
|
$
|
46,568,923
|
|
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
9 – CONTINGENCY
Under an
engagement agreement dated January 16, 2008 between the Company and Roth Capital
Partners, LLC (“Roth”), Roth acted as a placement agent for the Company in
connection with the private placement of approximately 4.7 million shares of our
common stock which was consummated in February 2008 (the “Offering”). Under a
certain agreement, dated as of March 21, 2007 by and among Trenwith Securities,
LLC (“Trenwith”) and the Company (the “Trenwith Agreement”), Trenwith was
granted certain rights, including the right to act as placement agent in
connection with a subsequent private placement of the Company’s securities at
fees which are mutually acceptable within a period of 24 months after the
closing of the June 2007 financing. Trenwith believes that it had the right to
act as placement agent with respect to the Offering and has threatened to bring
proceedings against the Company for alleged violation of its rights under the
Trenwith Agreement. The Company disputes these claims and intends to vigorously
defend any lawsuit which Trenwith may commence.
NOTE 10 –
NET INCOME PER
SHARE
The
following table sets forth the computation of basic and diluted net income per
share for the three and six months ended June 30, 2009 and 2008:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Basic
and diluted net income per share calculation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
442,191
|
|
|
$
|
930,659
|
|
|
$
|
14,033
|
|
|
$
|
1,320,310
|
|
Net
income from discontinued operation
|
|
|
-
|
|
|
|
165,555
|
|
|
|
(512,390
|
)
|
|
|
165,555
|
|
Gain
on sale of discontinued operation
|
|
|
652,753
|
|
|
|
-
|
|
|
|
652,753
|
|
|
|
-
|
|
|
|
|
1,094,
944
|
|
|
|
1,096,214
|
|
|
|
154,396
|
|
|
|
1,485,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
- Weighted average ordinary shares outstanding
|
|
|
14,173,016
|
|
|
|
13,075,468
|
|
|
|
14,125,984
|
|
|
|
10,612,185
|
|
-
Weighted average preferred stock outstanding
|
|
|
900,000
|
|
|
|
1,509,074
|
|
|
|
1,073,653
|
|
|
|
1,383,593
|
|
-
Weighted average contingent shares outstanding
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
692,308
|
|
-
Weighted average warrant shares outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
318,310
|
|
|
|
|
16,073,016
|
|
|
|
15,
584,542
|
|
|
|
16,199,637
|
|
|
|
13,006,396
|
|
NOTE
11 - SUBSEQUENT EVENT
(a) Postponement
of Acquisition of Shenzhen Fuwaysun Technology Co., Ltd.
On
January 21, 2008, we entered into a letter of intent (“LOI”) with Mr. Caowei
Liang, Ms. Xuemei Mo and Mr. Huafeng Mo (the “Fuwaysun Shareholders”), the three
shareholders holding the entire equity interests of Shengzhen Fuwaysun
Technology Co., Ltd. (“Fuwaysun”), a PRC company primarily engaged in the
development and production of solar pest killing lamps and transportable solar
generators. Pursuant to the LOI, we will acquire 60% of Fuwaysun’s entire equity
interests (the “Acquisition”) from the Fuwaysun Shareholders at a purchase price
equal to 60% of Fuwaysun’s audited net assets as of January 30, 2008 (the
“Purchase Price”). We will pay the purchase price with cash and our shares as to
be agreed by the parties.
In April,
2008, we entered into two loan agreements with Fuwaysun (the “Loan Agreements”),
pursuant to which we made two loans to Fuwaysun as working capital for six
months, one for $3,000,000 and the other for RMB3,000,000 ($424,352) (the
“Loans”), respectively. The Loan Agreements are substantially identical, except
for the amount of the loans. Pursuant to the Loan Agreements, if we complete the
Acquisition within six months, we will cancel the Loans to offset the Purchase
Price; if we cannot complete the Acquisition within six months, Fuwaysun must
repay the Loans within 30 days after the expiration of the six months plus
interest on the Loans at a rate of 12% per annum. However, if Fuwaysun refuses
to complete the Acquisition, Fuwaysun shall repay the Loans plus accrued
interest at a rate of 20% per annum within 30 days thereafter and pay us
liquidated damages equal to 5% of the Purchase Price. If Fuwaysun fails to repay
either Loan pursuant to the applicable Loan Agreement, it shall pay us
additional interest on such Loan at a rate of 0.5% per day.
On April
9, 2009, we entered into a supplementary agreement with the Fuwaysun
Shareholders and Fuwaysun (the “Supplementary Agreement”) to extend the dates of
both the Acquisition and the maturity date of the Loans to June 30, 2009. The
Acquisition was not completed by June 30, 2009 and the parties are still in
negotiations to complete the Acquisition.
(b) Postponement
of Acquisition of Shenzhen Xiongri Solar Co., Ltd.
In 2006,
we entered into a series of agreements with the three shareholders of Shenzhen
Xiongri Solar Co., Ltd. (“Xiongri”) to purchase 60% of the entire equity
interests of Xiongri for RMB2,000,000 ($282,901). The three shareholders agreed
to loan RMB2,000,000 to Xiongri as working capital. The transfer of the 60%
equity interests is not yet completed.
On April
9, 2009, the parties entered into a supplementary agreement and agreed to
complete the transfer of the 60% equity interests by June 30, 2009. The
Acquisition was not completed by June 30, 2009 and the parties are still in
negotiations to complete the Acquisition.
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking
Information — This item includes “forward-looking statements”. All
statements, other than statements of historical facts, included in this item
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, which could cause actual results to materially differ from such
statements. While the Company believes that the assumptions concerning future
events are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, especially the timing and magnitude of
technological advances; the prospects for future acquisitions; the competition
in the solar water heaters and boilers industry and the impact of such
competition on pricing, revenues and margins; uncertainties surrounding budget
reductions or changes in funding priorities of existing government programs and
the cost of attracting and retaining highly skilled personnel.
Overview
We are
engaged in the solar and renewable energy business in the PRC. Our business is
conducted through our wholly-owned PRC based operating subsidiaries, Bazhou Deli
Solar, Beijing Deli Solar, and our indirect subsidiary Tianjin Huaneng (majority
owned).
The
Company has two reportable segments: (i) Solar heater/Biomass stove/Boiler
related products and (ii) Heat pipe related equipment/Energy-saving
projects.
Deli
Solar (Bazhou) designs, manufactures and sells renewable energy systems to
produce hot water and for space heating in the PRC. Bazhou Deli Solar’s
principal products are solar hot water heaters and multifunctional space
heaters, including coal-fired boilers for residential use. Bazhou Deli Solar
also sells component parts for its products and provides after-sales maintenance
and repair services.
Deli
Solar (Beijing) is principally engaged in the installation of large solar water
heaters in construction projects in major cities in the PRC, including
Beijing. However, so far there is no net revenue derived from Beijing
Deli Solar.
Tianjin
Huaneng manufactures heating products such as heating pipes, heat exchangers,
specialty heating pipes and tubes, high temperature hot blast boilers, heating
filters, normal pressure water boilers, solar energy water heaters and
radiators.
Approximately
20.4% of our net revenue for the six months ended June 30, 2009 were derived
from sales of our solar heater/biomass stove/boiler related products and 79.6%
from sales of our heat pipe related equipment/energy-saving projects,
respectively. Approximately 97.2% and 2.8% of our net revenues for the six
months ended June 30, 2009, were derived from sales made inside the PRC and
outside the PRC, respectively.
Recent
Developments
On July
6, 2009, Beijing Deli Solar entered into the Termination Agreement with the
SZPSP Shareholders. The Termination Agreement terminates the Equity
Purchase and Complementary Agreements Beijing Deli Solar entered into with the
SZPSP Shareholders on January 9, 2008, which were amended and supplemented by
the Supplementary Agreement Beijing Deli Solar entered into with the SZPSP
Shareholders on March 25, 2008. The terms of the Equity Purchase and
Complementary Agreements are described in our Form 8-K report filed on January
15, 2008. The terms of the Supplementary Agreement are described in
our Form 8-K report filed on April 1, 2008. We accounted for SZPSP as
a wholly-owned subsidiary from March 31, 2008 up to March 31,
2009.
The key
terms of the Termination Agreement are:
|
·
|
Deli Solar (Beijing) having
already received RMB12,960,486.30 from the SZPSP Shareholders prior to the
execution of the Termination Agreement, the SZPSP Shareholders to pay to
Beijing Deli Solar the remaining RMB15,839,513.70 from the RMB28.8 million
purchase price specified in the Supplementary Agreement in two
installments (RMB8,000,000 within 10 days from the execution date of the
Termination Agreement and the remaining balance within two months from the
execution date of the Termination
Agreement)
|
|
·
|
The SZPSP Shareholders to return
to Beijing Deli Solar an aggregate of 939,364 shares in our Company they
received pursuant to the Supplementary
Agreement
|
|
·
|
The SZPSP Shareholders will also
pay to Deli-Solar (Beijing) a portion of SZPSP's net profit for the period
from April 1, 2008 to March 31, 2009, an amount which will be determined
at a future date by the SZPSP Shareholders and Deli-Solar
(Beijing)
|
Three
months ended June 30, 2009 compared to three months ended June 30,
2008
Sales
Revenue
|
|
Three
months ended
June
30
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
|
|
$
|
1,464,143
|
|
|
|
9,996,713
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
$
|
8,195,105
|
|
|
|
5,847,069
|
|
total
|
|
$
|
9,659,248
|
|
|
|
15,843,782
|
|
Overall:
Sales revenue for the three months ended June 30, 2009 were $9,659,248 as
compared to $15,843,782 for the three months ended June 30, 2008, a decrease of
$6,184,534 or 39.0%. The decrease in sales was primarily attributable to the
decline in revenue from our solar heater/biomass stove/boiler related products
under the management of Deli Solar (Bazhou). We expect overall sales revenue for
heat pipe related equipments and energy-saving projects to increase during the
rest of the year with the completion of pending orders from the first quarter
and the collection of account receivables corresponding to these
projects.
Solar
heater/Biomass stove/Boiler related products
:
Sales revenue for these
products for the three months ended June 30, 2009 were $1,464,143 as compared to
$9,996,713 for the three months ended June 30, 2008, a decrease of $8,532,570 or
85.4%. The decrease in sales revenue derived from solar heaters/biomass
stove/boiler related products was due to a weak market and strong competition.
We expect competition to continue for the remainder of 2009.
Heat pipe related
equipments/Energy-saving projects:
Sales revenue for the three months
ended June 30, 2009 was $8,195,105 compared to $5,847,069 for the three months
ended June 30, 2008, a substantial increase of $2,348,036 or 40.2%. The increase
in sales of heat pipe related equipments/energy-saving projects was due to
certain large orders placed in the fourth quarter of 2008, revenue from which we
recognized during the second quarter of 2009.
Gross
Profit
|
|
Three months ended
June
30
|
|
|
|
2009
|
|
|
2008
|
|
Gross profit
|
|
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
|
|
$
|
319,922
|
|
|
|
2,045,428
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
$
|
1,551,401
|
|
|
|
1,901,525
|
|
|
|
$
|
1,871,323
|
|
|
|
3,946,953
|
|
Overall:
Gross profit margin for the three months ended June 30, 2009 decreased by
approximately 5.5% to 19.4%, as compared to 24.9% for the three months ended
June 30, 2008. This was primarily due to the decrease in sales of our heat pipe
related equipment/energy-saving projects and the increase in the cost of key raw
materials. We increased our inventory of stainless steel while the price of
stainless steel price was high, resulting in higher production costs and a lower
gross profit.
Solar
heater/Biomass stove/Boiler related products
: Gross profit margin for the
three months ended June 30, 2009 was approximately 21.9%, a slight increase of
1.4% as compared to 20.5% for the three months ended June 30, 2008.
Heat pipe related
equipments/Energy-saving projects:
Gross profit margin for the three
months ended June 30, 2009 was approximately 18.9%, a decrease of 13.6% from
32.5% for the three months ended June 30, 2008 due to an increase in the cost of
raw materials.
Operating
Expenses
Operating
expenses for the three months ended June 30, 2009 were $1,234,781, as compared
to $2,242,757 for the three months ended June 30, 2008, a decrease of
$1,007,976, or 44.9%. The overall decrease in operating expenses
was primarily due to the decrease in sales of our solar heater/biomass
stove/boiler related products and the resulting decrease in selling and
distribution expenses and general and administrative expenses.
Depreciation
and amortization expenses decreased to $103,028 for the three months ended June
30, 2009, or 22.1%, from $132,216 for the three months ended June 30, 2008,
primarily as a result of the end of useful life for certain of our manufacturing
equipment in the first quarter of 2009.
Selling
and distribution expenses decreased to $480,587 for the three months ended June
30, 2009, or 56.2%, from $1,097,814 for the three months ended June 30, 2008,
primarily due to the decrease in sales of our solar heater/biomass stove/boiler
related products.
General
and administrative expenses were $651,166 for the three months ended June 30,
2009 (or approximately 6.7% of sales) compared to $1,012,727 (or approximately
6.4% of sales) for the three months ended June 30, 2008, a decrease of 35.7%.
The decrease was primarily due to the decrease in sales of solar heater/biomass
stove/boiler related products.
Net
Income
Net
income was $1,094,944 for the three months ended June 30, 2009, compared to
$1,096,214 for the three months ended June 30, 2008. The net loss for the first
quarter of 2009 was $940,548. The increase in net income as compared with the
first quarter of this year was mainly due to the gain on disposal of SZPSP and
increase in sales from heat pipe related equipments and energy-saving projects
under the management of Tianjin Huaneng.
Six
months ended June 30, 2009 compared to six months ended June 30,
2008
Sales
Revenue
|
|
Six months ended
June
30
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
|
|
$
|
3,011,395
|
|
|
|
12,826,528
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
$
|
11,764,174
|
|
|
|
11,317,330
|
|
|
|
$
|
14,775,569
|
|
|
|
24,143,858
|
|
Overall:
Sales revenue for the six months ended June 30, 2009 were $14,775,569 as
compared to $24,143,858 for the six months ended June 30, 2008, a decrease of
$9,368,289 or 38.8% compared to the six months ended June 30, 2008. The decrease
in sales revenue was primarily attributable to the decline in revenue from the
solar heater/biomass stove/boiler related products under the management of Deli
Solar (Bazhou).
Solar
heater/Biomass stove/Boiler related products
:
Sales revenue for these
products for the six months ended June 30, 2009 were $3,011,395 as
compared to $12,826,528
for the six months ended June 30, 2008, a decrease of $9,815,133 or 76.5%. The
decrease in sales revenue derived from solar heater/biomass stove/boiler related
products was due to a weak market and competition. We expect competition to
continue for the remainder of 2009.
Heat pipe related
equipments/Energy-savings projects:
Sales revenue for the six months
ended June 30, 2009 were $11,764,174 compared to $11,317,330 for the six months
ended June 30, 2008, an increase of $446,844 or 4.0%. The increase in sales of
heat pipe related equipments/energy-saving projects was due to completion of
certain large orders placed in the fourth quarter of 2008, revenue from which we
recognized during the second quarter of 2009.
Gross
Profit
|
|
Six months ended
June
30
|
|
|
|
2009
|
|
|
2008
|
|
Gross profit
|
|
|
|
|
|
|
|
|
Solar
heater/Biomass stove/Boiler related products
|
|
$
|
648,234
|
|
|
|
2,620,321
|
|
Heat
pipe related equipments/Energy-saving projects
|
|
$
|
2,397,579
|
|
|
|
3,781,692
|
|
|
|
$
|
3,045,813
|
|
|
|
6,402,013
|
|
Overall:
Gross profit margin for the six months ended June 30, 2009 decreased by
approximately 5.9% to 20.6% from 26.5% for the six months ended June 30, 2008.
This was primarily due to the decrease in sales of heat pipe related
equipment/energy-saving projects and increase in the cost of key raw materials.
We increased our inventory of stainless steel while the price of stainless steel
price was high, resulting in higher production costs and a lower gross
profit.
Solar
heater/Biomass stove/Boiler related products
: Gross profit margin
remained fairly constant for the six months ended June 30, 2009 at 21.5%
compared to 20.4% for the six months ended June 30, 2008.
Heat pipe related
equipment/Energy-saving projects:
Gross profit margin for the six months
ended June 30, 2009 was approximately 20.4%, a decrease of 13.0% from 33.4% for
the six months ended June 30, 2009. The decrease in gross profit margin was due
to the lower average product sales price and higher production
costs.
Operating
Expenses
Operating
expenses for the six months ended June 30, 2009 were $2,782,513, as compared to
$3,496,140 for the six months ended June 30, 2008, a decrease of $713,627 or
20.4%. The overall decrease in operating expenses was primarily due to the
decrease in sales of solar heater/biomass stove/boiler related products and the
resulting decrease in selling and distribution expenses and general and
administrative expenses.
Depreciation
and amortization expense decreased to $191,906 for the six months ended June 30,
2009 from $281,383 for the six months ended June 30, 2008, primarily as a result
of the end of useful life for certain manufacturing equipments in the first
quarter of 2009.
Selling
and distribution expense decreased to $1,040,072, for the six months ended June
30, 2009 or 35.0%, from $1,600,377 for the six months ended June 30, 2008,
primarily due to the decrease in sales of solar heater/biomass stove/boiler
related products.
General
and administrative expenses were $1,550,535 (or approximately 10.5% of sales
revenue) for the six months ended June 30, 2009, compared to $1,614,380 (or
approximately 6.7% of sales revenue) for the six months ended June 30, 2008,
primarily due to the decrease in sales of solar heater/biomass stove/boiler
related products.
Net
Income
Net
income was $154,396 for the six months ended June 30, 2009, compared to
$1,485,865 for the six months ended June 30, 2008, a decrease of $1,331,469 or
approximately 89.6%. The decrease in net income was due primarily to a decrease
in sales of solar heater/biomass stove/boiler related products.
LIQUIDITY
AND CAPITAL RESOURCES
Net cash
provided by operating activities was $3,249,424 for the six months ended June
30, 2009, while net cash used in our operating activities was $3,690,958 for the
six months ended June 30, 2008.
Net cash
provided by investing activities was $199,174 for the six months ended June 30,
2009, compared with net cash used in investing activities in the amount of
$5,949,774 for the six months ended June 30, 2008.
Net cash
provided by financing activities was $51,231 for the six months ended June
30, 2009, compared with $10,102,656 for the six months ended June 30,
2008.
We
believe that current cash flow is sufficient to meet anticipated working capital
and capital expenditures for at least the next twelve months. We may require
additional cash for further development of business, including any investments
or acquisitions we may decide to pursue. However, we cannot assure you that such
funding will be available.
Cash
Cash and
cash equivalents increased to $2,659,638 as of June 30, 2009, compared to
$1,820,882 as at December 31, 2008, primarily as a result of an increase in
sales and collection of accounts receivable in the first quarter of
2009.
Accounts
Receivable
Accounts
receivable increased to $8,457,470 as at June 30, 2009, from $5,962,051 as at
December 31, 2008, primarily due to an increase in accounts receivable in
connection with an increase in the projects under construction by Tianjin
Huaneng.
Inventory
Inventories
decreased to $2,701,654 as at June 30, 2009, as compared to $5,158,153 as at
December 31, 2008. This substantial decrease was primarily due to strong sales
and a sharp decrease in finished products inventory by Tianjin
Huaneng.
Other
Receivables and Prepayments
Other
receivables and prepayments increased slightly to $7,708,106 as at June 30,
2009, compared to $6,705,578 as at December 31, 2008.
Accounts
Payable
Accounts
payable increased to $1,650,559 as at June 30, 2009, compared to $1,148,428 as
at December 31, 2008. This increase was primarily due an increase in inventory
of raw materials.
Other
Payables and Accrued Liabilities
Other
payables and accrued liabilities decreased to $5,149,009 as at June 30, 2009
from $7,296,294 as at December 31, 2008, primarily due to a decrease in
shareholder loans and customer deposits.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Item 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
Item 4T. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We
conducted an evaluation of the effectiveness of the design and operation of our
‘‘disclosure controls and procedures’’ (‘‘Disclosure Controls’’) as of the end
of the period covered by this Quarterly Report on Form 10-Q. The Disclosure
Controls evaluation was conducted under the supervision and with the
participation of management, including our CEO and Acting CFO. Disclosure
Controls are controls and procedures designed to ensure that information
required to be disclosed by us in our reports filed under the Exchange Act, such
as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules and forms.
Disclosure Controls are also designed to ensure that such information is
accumulated and communicated to our management, including the CEO and Acting
CFO, as appropriate to allow timely decisions regarding required
disclosure.
The
evaluation of our Disclosure Controls included a review of the Disclosure
Controls’ objectives and design, the Company’s implementation of the Disclosure
Controls, and their effect on the information generated for use in this
Quarterly Report on Form 10-Q. Many of the components of our Disclosure Controls
are also evaluated on an ongoing basis by other personnel in our finance
department. The overall goals of these various evaluation activities are to
monitor our Disclosure Controls, and to modify them as necessary. Our intent is
to maintain the Disclosure Controls as dynamic systems that change as conditions
warrant.
Our board
of directors was advised by Cordovano and Honeck LLP, our previous independent
registered public accounting firm, that during their performance of audit
procedures for 2008, they identified the following deficiencies which they
considered to be material weaknesses in corporate governance and compliance with
laws and regulations:
·
|
Lack
of board of directors approval for contracts related to the following
businesses: Fuwaysun, Lianyungang, Xiongri and
Xiangnian;
|
·
|
Failure
to obtain state approvals of several businesses: SZPSP, Fuwaysun and
Xiongri; and
|
·
|
Failure
to disclose information on the new businesses in Form 10-K or
10-Q.
|
The
deficiencies were mainly related to inadequate staffing and supervision for
timely disclosure of such information and the obtainment of the required
notifications and approvals.
To
address the deficiencies, our management including CEO and Acting CFO have taken
remedial procedures to standardize accounting practices, train staff and
strengthen supervision to ensure timely disclosure of financial results for the
second quarter of 2009.
Changes
in Internal Control over Financial Reporting
As far as
we know, there was no major changes or weakness in our internal control over
financial reporting that occurred during the second fiscal quarter of 2009
covered by this Quarterly Report on Form 10-Q that are reasonably likely to
materially affect, our internal control over financial reporting. We are working
to refine our internal controls over financial reporting.
Inherent
Limitations on Effectiveness of Controls
The
Company’s management, including the CEO and Acting CFO, does not expect that our
Disclosure Controls or our internal control over financial reporting will
prevent or detect all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that
the control system’s objectives will be met. The design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include faulty judgments
and breakdowns due to simple error or mistake. Controls can also be circumvented
by individuals, by collusion, or by management override (whether such action is
intentional or unintentional). The design of any system of controls is based in
part on certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures. Therefore, any current evaluation of controls
cannot and should not be projected to future periods.
PART
II — OTHER INFORMATION
Item 1.
|
LEGAL
PROCEEDINGS
|
Neither
we nor any of our subsidiaries is a party to any pending legal
proceedings.
Not
applicable.
Item 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
None.
Item 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
Item4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
Item 5.
|
OTHER
INFORMATION
|
None.
Exhibit
No.
|
|
Document Description
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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China
Solar & Clean Energy Solutions, Inc.
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August
11, 2009
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By:
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/s/ Deli Du
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Deli
Du
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Chief
Executive Officer and President
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(Principal
Executive Officer)
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August
11, 2009
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By:
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/s/ Yinan Zhao
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Yinan
Zhao
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Acting
Chief Financial Officer
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(Principal
Financial
Officer)
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Exhibit
Index
Exhibit
No.
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Document
Description
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31.1
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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31.2
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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32.1
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Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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32.2
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Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.
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