SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.1)10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009June 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 |
3/F West Wing Dingheng Plaza,Building 3
45ANo. 28 Feng Tai North Fengtai Road,
Beijing China 100071
(Address(Address of principal executive offices)
(86) 10-6386-0500(011) 86-10-63860500
(Registrant's telephone number, including area code)
(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). oYes o No o
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 May 21, 2009August 16, 2010 was 16,173,016.15,233,652.
TABLE OF CONTENTS
INDEX
INDEX
| | | | Page |
PART 1 - FINANCIAL INFORMATION | | |
| | | | |
| | Item 1. Financial Statements | 3 | |
| | | | |
| | Condensed consolidated balance sheets, March 31, 2009Consolidated Balance Sheets as at June 30, 2010 (unaudited) and December 31, 20082009 | | 3 |
| | Condensed consolidated statementsConsolidated Statements of operations,Operations for the three months ended March 31,six Months Ended June 30, 2010 and 2009 and 2008 (unaudited) | | 4 |
| | Condensed consolidated statementsConsolidated Statements of stockholders' equity and comprehensive income,Cash Flows for the year ended December 31, 2008six Months Ended June 30, 2010 and for the three months ended March 31, 2009 (unaudited) | | 5 |
| | Condensed consolidated statementsConsolidated Statements of cash flows,Stockholders' Equity and other comprehensive Income for the three months ended March 31,six Months Ended June 30, 2010 (unaudited) and 2009 and 2008 (unaudited) | | 6 |
| | Notes to condensed consolidated financial statementsCondensed Consolidated Financial Statements (unaudited) | | 7 |
| | | | |
| | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 18 | 15 |
| | | | |
| | Item 3. Quantitative and Qualitative Disclosures About Market Risk | | 19 |
| | | | |
| | Item 4T. Controls and Procedures | | 19 |
| | | | |
PART 2 - OTHER INFORMATION | | |
| | | | |
| | Item 1. Legal Proceedings | | 20 |
| | Item 1A. Risk Factors | | |
| | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | |
| | Item 3. Defaults Upon Senior Securities | | |
| | Item 4. Removed and Reserved | | |
| | Item 5. Other Information | | |
| | Item 6. Exhibits | 22 | 21 |
| | | | |
| | Signatures | 23 | 22 |
In accordance with Rule 12b-15 under the Exchange Act, each item of the Original Filing that is amended by this Amended Filing is also restated in its entirety, and this Amended Filing is accompanied by currently dated certifications on Exhibits 31.1, 31.2, 32.1 and 32.2 by the Company’s Chief Executive Officer and Chief Financial Officer. Except as described above, this Amended Filing does not amend, update, or change any items, financial statements, or other disclosures in the Original Filing, and does not reflect events occurring after the filing of the Original Filing, including as to any exhibits to the Original Filing affected by subsequent events. Information not affected by the changes described above is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Amended Filing should be read in conjunction with the Original Filing and our other SEC filings subsequent to the filing of the Original Filing, including any amendments to those filings. Capitalized letters not defined in the Amended Filing are as defined by the Original Filing.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Currency expressed in US Dollars)
| | March 31, 2009 | | | December 31, 2008 | | | As of June 30, 2010 | | As of December 31, 2009 | |
| | (Unaudited) | | | (Restated) | | | (Unaudited) | | | |
ASSETS | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,361,842 | | | $ | 2,404,996 | | | $ | 3,596,126 | | | $ | 4,980,717 | |
Investment, at fair value | | | 95,086 | | | | - | | |
Accounts receivable, net | | | 5,174,548 | | | | 6,040,065 | | | | 9,982,618 | | | | 8,067,944 | |
Inventories | | | 9,748,645 | | | | 8,285,521 | | | | 5,122,077 | | | | 4,547,170 | |
Other receivables and prepayments | | | 6,706,201 | | | | 7,870,575 | | | | 3,119,287 | | | | 1,733,695 | |
Lease receivables, current | | | 156,199 | | | | 156,579 | | |
Deferred tax assets | | | | 587,932 | | | | 588,016 | |
Total current assets | | | 23,242,521 | | | | 24,757,736 | | | | 22,408,040 | | | | 19,917,542 | |
| | | | | | | | | | | | | |
Property and equipment, net | | | 15,089,472 | | | | 15,149,198 | | | | 13,646,414 | | | | 13,775,554 | |
Goodwill | | | 2,340,512 | | | | 2,340,512 | | | | 1,977,652 | | | | 1,967,153 | |
Other intangible assets, net | | | 3,536,044 | | | | 3,596,184 | | |
Lease receivables, non current | | | 684,528 | | | | 654,578 | | |
Land use rights | | | | 1,583,016 | | | | 1,592,140 | |
Investment in Trueframe International Limited | | | | 3,740,972 | | | | 3,812,806 | |
TOTAL ASSETS | | $ | 44,893,077 | | | $ | 46,498,208 | | | $ | 43,356,094 | | | $ | 41,065,195 | |
| | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | |
Accounts payable, net | | $ | 4,696,729 | | | $ | 5,301,349 | | |
Tax payable | | | 1,543,770 | | | | 1,818,488 | | |
Accounts payable, trade | | | $ | 1,602,749 | | | $ | 1,601,002 | |
Taxes payable | | | | 1,459,445 | | | | 1,278,974 | |
Other payables and accrued liabilities | | | 11,617,232 | | | | 11,190,000 | | | | 9,794,925 | | | | 9,977,178 | |
Loan payable-employee | | | | 1,998,277 | | | | 1,266,747 | |
Short-term loans | | | | 736,279 | | | | |
Total current liabilities | | | 17,857,731 | | | | 18,309,837 | | | | 15,591,675 | | | | 14,123,901 | |
| | | | | | | | | | | | | |
Long-term liabilities: | | | | | | | | | |
Deferred tax liabilities | | | 15,779 | | | | 15,779 | | |
Long-term debt | | | 286,483 | | | | 286,483 | | |
Long-term liabilities | | | | - | | | | 156,410 | |
Total liabilities | | | 18,159,993 | | | | 18,612,099 | | | | 15,591,675 | | | | 14,280,311 | |
| | | | | | | | | | | | | |
Minority interests | | | 204,098 | | | | 194,542 | | |
| | | | | | | | | |
Stockholders’ equity: | | | | | | | | | |
Convertible preferred stock: par value $0.001, 25,000,000 shares authorized, 373,566 (unaudited) and 373,566 shares issued and outstanding, respectively | | | 373 | | | | 373 | | |
Common stock, $0.001 par value, 66,666,667 shares authorized, 13,799,450 (unaudited) and 13,799,450 shares issued and outstanding, respectively | | | 13,799 | | | | 13,799 | | |
Stockholders’ equity | | | | | | |
Common stock, $0.001 par value, 66,666,667 shares authorized, 15,233,652 shares issued and outstanding | | | | 15,233 | | | | 15,233 | |
Additional paid-in capital | | | 23,073,258 | | | | 23,073,258 | | | | 22,611,909 | | | | 22,611,909 | |
Accumulated other comprehensive loss | | | 1,681,724 | | | | 1,615,081 | | |
Accumulated other comprehensive income | | | | 801,018 | | | | 693,016 | |
Retained earnings | | | 796,726 | | | | 2,025,950 | | | | 3,847,460 | | | | 3,100,294 | |
Profit earning reserves | | | 963,106 | | | | 963,106 | | |
Total stockholders’ equity | | | 26,528,986 | | | | 27,691,567 | | |
Total stockholders’ equity-China Solar | | | | 27,275,620 | | | | 26,420,452 | |
Non-controlling interest in subsidiary | | | | 488,799 | | | | 364,432 | |
Total Stockholder’s Equity | | | | 27,764,419 | | | | 26,784,884 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 44,893,077 | | | $ | 46,498,208 | | | $ | 43,356,094 | | | $ | 41,065,195 | |
See accompanying notes to condensed consolidated financial statements.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(Unaudited)
| | Three months ended June 30, | | | six months ended June 30, | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | (restated) | | | | | | (restated) | |
Revenue, net | | $ | 10,705,927 | | | $ | 13,306,863 | | | $ | 14,602,341 | | | $ | 16,960,658 | |
Cost of revenue | | | 7,713,567 | | | | 10,023,837 | | | | 10,448,571 | | | | 12,791,818 | |
Gross profit | | | 2,992,360 | | | | 3,283,026 | | | | 4,153,770 | | | | 4,168,840 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 104,311 | | | | 103,285 | | | | 226,824 | | | | 191,906 | |
Selling and distribution | | | 729,260 | | | | 480,587 | | | | 1,356,329 | | | | 1,040,072 | |
General and administrative | | | 695,125 | | | | 650,909 | | | | 1,291,786 | | | | 1,550,535 | |
Total operating expenses | | | 1,528,696 | | | | 1,234,781 | | | | 2,874,939 | | | | 2,782,513 | |
Income from operations | | | 1,463,664 | | | | 2,048,245 | | | | 1,278,831 | | | | 1,386,327 | |
Other income (expenses): | | | | | | | 0 | | | | | | | | | |
Other income | | | 146 | | | | 6,559 | | | | 161 | | | | 43,837 | |
Interest income | | | 139 | | | | 2,451 | | | | 767 | | | | 2,456 | |
Other expense | | | (3,682 | ) | | | (41,438 | ) | | | (3,801 | ) | | | (50,869 | ) |
Reversal of reserve for bad debts | | | - | | | | 127,245 | | | | - | | | | 127,245 | |
Interest expense | | | (88,165 | ) | | | (39,490 | ) | | | (160,340 | ) | | | (86,649 | ) |
Loss from non-consolidated subsidiries | | | (72,000 | ) | | | - | | | | (72,000 | ) | | | - | |
Total other income (expenses) | | | (163,562 | ) | | | 55,327 | | | | (235,213 | ) | | | 36,020 | |
gain on sale of discontinued operation net of tax | | | - | | | | 652,753 | | | | - | | | | 652,753 | |
| | | | | | | | | | | | | | | | |
Income(Loss) From Continuing Operations Before Income Taxes | | | 1,300,102 | | | | 2,756,325 | | | | 1,043,618 | | | | 2,075,100 | |
| | | | | | | | | | | | | | | | |
Income tax expense | | | 105,908 | | | | 173,135 | | | | 172,085 | | | | 198,738 | |
| | | | | | | | | | | | | | | | |
Income(Loss) From Continuing Operations | | | 1,194,194 | | | | 2,583,190 | | | | 871,533 | | | | 1,876,362 | |
| | | | | | | | | | | | | | | | |
Income(Loss) From Discontinued Operations(net of tax) | | | - | | | | - | | | - | | | | (512,390 | ) |
| | | | | | | | | | | | | | | | |
Net Income(Loss) | | | 1,194,194 | | | | 2,583,190 | | | | 871,533 | | | | 1,363,972 | |
Less:Net Income Attributable To Non-controlling interest | | | 119,368 | | | 76,543 | | | | 124,367 | | | | 86,549 | |
Net Income(Loss) Attributable To China Solar Shareholders | | $ | 1,074,826 | | | $ | 2,506,647 | | | $ | 747,166 | | | $ | 1,277,423 | |
Basic and Diluted | | | | | | | | | | | | | | | | |
continuing operations | | $ | 0.08 | | | $ | 0.16 | | | $ | 0.06 | | | $ | 0.12 | |
discontinued operations | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | (0.03 | ) |
| | | 0.08 | | | | 0.16 | | | | 0.06 | | | | 0.09 | |
Weighted average shares outstanding – Basic and Diluted | | | 15,233,652 | | | | 16,173,016 | | | | 15,233,652 | | | | 16,123,921 | |
See accompanying notes to condensed consolidated financial statements.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in US Dollars)United States Dollars (“US$”))
(Unaudited)
| | For the three months ended March 31, | |
| | 2009 | | | 2008 | |
Revenue, net | | $ | 4,733,164 | | | $ | 8,300,076 | |
Cost of revenue | | | 3,818,027 | | | | 5,845,016 | |
Gross profit | | | 915,137 | | | | 2,455,060 | |
| | | | | | | | |
Operating expenses | | | | | | | | |
Depreciation and amortization | | | 304,988 | | | | 149,167 | |
Selling and distribution | | | 545,899 | | | | 502,563 | |
General and administrative | | | 1,266,344 | | | | 601,653 | |
Total operating expenses | | | 2,117,231 | | | | 1,253,383 | |
| | | | | | | | |
Other income (expenses): | | | | | | | | |
Other income | | | 38,807 | | | | 41,090 | |
Interest income | | | 37,532 | | | | - | |
Other expense | | | (9,431 | ) | | | - | |
Interest expense | | | (47,159 | ) | | | (33,838 | ) |
Total other income | | | 19,749 | | | | 7,252 | |
| | | | | | | | |
Income before income taxes and minority interest | | | (1,182,345 | ) | | | 1,208,929 | |
Income tax expenses | | | 36,873 | | | | 346,263 | |
Minority interest | | | 10,006 | | | | 473,015 | |
| | | | | | | | |
NET INCOME/(LOSS) | | $ | (1,229,224 | ) | | $ | 389,651 | |
| | | | | | | | |
NET INCOME/(LOSS) AVAILABLE TO COMMON STOCKHOLDERS | | $ | (1,229,224 | ) | | $ | 389,651 | |
| | | | | | | | |
Net income/(loss) per share - Basic | | $ | (0.08 | ) | | $ | 0.05 | |
Net income/(loss) per share - Diluted | | $ | (0.08 | ) | | $ | 0.03 | |
| | | | | | | | |
Weighted average shares outstanding - Basic | | | 13,799,450 | | | | 8,009,713 | |
Weighted average shares outstanding - Diluted | | | 13,799,450 | | | | 15,284,770 | |
| | six months ended June 30, | |
| | 2010 | | | 2009 | |
| | | | | (restated) | |
Cash flows from operating activities: | | | | | | |
Net effect of discontiuned operation | | $ | - | | | $ | 3,249,424 | |
Net cash used in operating activities | | | (2,143,894 | ) | | | (3,245,825 | ) |
| | | (2,143,894 | ) | | | 3,599 | |
Cash flows from investing activities: | | | | | | | | |
Acquisition of companies,net of cash acquired | | | | | | | | |
Disposal of subsidiary | | | - | | | | 439,122 | |
Purchase of property, plant and equipment | | | (117,516 | ) | | | (231,528 | ) |
payment for other intangible assets | | | | | | | | |
Net effect of discontiuned operation | | | - | | | | (8,420 | ) |
Net cash used in investing activities | | | (117,516 | ) | | | 199,174 | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from non-controlling shareholder | | | - | | | | 51,231 | |
Cash received from borrowings | | | 732,732 | | | | | |
Proceeds from warrants exercised | | | | | | | | |
Net effect of discontiuned operation | | | | | | | | |
Net cash provided by financing activities | | | 732,732 | | | | 51,231 | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation adjustment | | | 144,087 | | | | (10 | ) |
| | | | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | | | (1,384,591 | ) | | | 253,994 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 4,980,717 | | | | 2,405,644 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 3,596,126 | | | $ | 2,659,638 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | | |
Cash paid for income taxes | | $ | 132,453 | | | $ | 129,318 | |
Cash paid for interest expenses | | $ | 101,715 | | | $ | 86,649 | |
See accompanying notes to condensed consolidated financial statements.statements
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2009
(Currency expressed in US Dollars)
| | Preferred stock | | | Common stock | | | Additional | | | Accumulated other | | | | | | | | | Total | |
| | No. of | | | Par | | | No. of | | | Par | | | paid-in | | | comprehensive | | | Retained | | | Earnings | | | stockholders ’ | |
| | shares | | | value | | | shares | | | value | | | capital | | | income | | | earnings | | | reserve | | | equity | |
Balance , December 31, 2008 | | | 373,566 | | | $ | 373 | | | | 13,799,450 | | | $ | 13,799 | | | $ | 23,073,258 | | | $ | 1,615,081 | | | $ | 2,025,950 | | | $ | 963,106 | | | $ | 27,691,567 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | ( 1,229,224 | ) | | | | | | | (1,229,224 | ) |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | 66 , 643 | | | | | | | | | | | | 66 , 643 | |
Balance , March 31, 2009 | | | 373,566 | | | $ | 373 | | | | 13,799,450 | | | $ | 13,799 | | | $ | 23,073,258 | | | $ | 1,681,724 | | | $ | 796,726 | | | $ | 963,106 | | | $ | 26,528,986 | |
See accompanying notes to condensed consolidated financial statements.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in US Dollars)United States Dollars (“US$”), except for number of shares)
(Unaudited)
| | Preferred stock | | | Common stock | | | Additional | | | Accumulated other | | | | | | Non-controlling | | | Total | |
| | No. of shares | | | Par value | | | No. of shares | | | Par value | | | paid-in Capital | | | comprehensive income | | | Retained Earnings | | | interest in subsidiary | | | stockholders’ equity | |
Balance as of Jan 1, 2010 | | | - | | | | - | | | | 15,233,652 | | | | 15,233 | | | | 22,611,909 | | | | 693,016 | | | | 3,100,294 | | | | 364,432 | | | | 26,784,884 | |
Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 747,166 | | | | 124,367 | | | | 871,533 | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | 108,002 | | | | | | | | | | | | 108,002 | |
Balance as of June 30, 2010 | | | - | | | | - | | | | 15,233,652 | | | | 15,233 | | | | 22,611,909 | | | | 801,018 | | | | 3,847,460 | | | | 488,799 | | | | 27,764,419 | |
| | Three months ended March 31, | |
| | 2009 | | | 2008 | |
Cash flows from operating activities: | | | | | | |
Net cash used in operating activities | | $ | (829,589 | ) | | $ | (4,104,526 | ) |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Purchase of property, plant and equipment | | | (185,122 | ) | | | (730,974 | ) |
Cash paid for investment in acquisition | | | (95,086 | ) | | | - | |
Net cash used in investing activities | | | (280,208 | ) | | | (730,974 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from private placement sale of stock | | | - | | | | 9,995,156 | |
Proceeds from warrants exercised | | | - | | | | 107,500 | |
Net cash provided by financing activities | | | - | | | | 10,102,656 | |
| | | | | | | | |
Foreign currency translation adjustment | | | 66,643 | | | | - | |
| | | | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | | | (1,043,154 | ) | | | 5,267,156 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 2,404,996 | | | | 5,466,637 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 1,361,842 | | | $ | 10,733,793 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid for income taxes | | $ | 63,014 | | | $ | 31,978 | |
Cash paid for interest expenses | | $ | 47,159 | | | $ | 33,838 | |
See accompanying notes to condensed consolidated financial statements
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)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 three months ended March 31, 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, 2008.2009.
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 threesix months ended March 31, 2009 and 2008June 30, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year endedending December 31, 20092010 or for any future period.
There is no provision for dividends for the quarter to which this quarterly report relates.
NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND
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. (“Bazhou Deli Solar”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, Bazhou 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.
Bazhou 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 Bazhou Deli Solar remains a wholly owned subsidiary of Deli Solar (BVI).
On November 21, 2005 Bazhou Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Bazhou Deli Solar.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 US Dollars)
(Unaudited)
NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND, continued
Beijing Deli Solar Technology Development Co., Ltd. (“Beijing Deli Solar”Solar (Beijing)”) was founded in 2006 and is principally engaged in solar power heater integrated construction projects in major cities in the PRC.
In January 2007, Bazhou Deli Solar via Mr. Deli Du, set up a branch sales offices in the city of Lian Yun Gang and the City of Bazhou to cope with the increasing sales demand in that region. This branch office exists in the form of a sole-proprietorship set up in the name of Mr. Deli Du but is beneficially owned by Bazhou Deli Solar, so is regarded as a variable interest entity (“VIE”) by the Company.
On July 1, 2007, Beijing Deli Solar acquired 51%(Beijing) ownes 91.82% of Tianjin Hua NengHuaneng Energy Equipment Company (“Tianjin Huaneng”), which manufactures energy saving boilers and environmental protection equipment for industrial customers.
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 raditors.
radiators. On October 27, 2008, BeijingJuly 6, 2009, Deli Solar (Beijing) entered into ana termination agreement to acquire approximately 29.97% of(the "Termination Agreement") with the outstanding equity interest of Tianjin Huaneng, from the minoritythree shareholders of Tianjin Huaneng. As a result of the consummation of the agreement and the additional capital contribution, the Company owns approximately 91.82% ofSZPSP. The Termination Agreement terminates the equity interest in Tianjin Huaneng.purchase and complementary agreements. We accounted for SZPSP as a wholly-owned subsidiary from March 31, 2008 until March 31, 2009.
China Solar, Deli Solar (BVI), Bazhou Deli Solar (Bazhou), Ailiyang, Beijing Deli Solar (Beijing) and Tianjin Huaneng and SZPSP are collectively hereinafter referred to as the "Company"“Company”.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2007,January 2010, the FASB issued SFAS No. 159, “TheAccounting Standards Update (“ASU”) 2010-06, “improving Disclosures about Fair Value Option for Financial AssetsMeasurements,” which clarifies certain existing requirements in ASC 820 “Fair Value Measurements and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits entitiesDisclosures,” and required disclosures related to choose to measure, on an item-by-item basis, specified financial instrumentssignificant transfers between each level and certain other items at fair value. Unrealized gains and losses on items for whichadditional information about Level 3 activity. FASB ASU 2010-06 begins phasing in the fair value option has been elected are required to be reported in earnings at each reporting date. SFAS No. 159 is effective forfirst fiscal yearsperiod beginning after NovemberDecember 15, 2007, the provisions of which are required to be applied prospectively.2009. The Company believes that SFAS 159 will not have a materialis currently assessing the impact on theits consolidated financial position or results of operations.operations and financial conditions.
In December 2007,February 2010, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be requiredFASB ASU 2010-09, “Subsequent Events, Amendments to recognize all the assets acquiredCertain Recognition and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R will change the accounting treatmentDisclosure Requirements,” which clarifies certain existing evaluation and disclosure for certain specific itemsrequirements in a business combination. SFAS No. 141R applies prospectivelyASC 855 “Subsequent Events” related to business combinations forsubsequent events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events through the date in which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, any business combinations the Company engages in will be recordedfinancial Statements are issued and disclosed following existing GAAP until January 1, 2009.are effective immediately. The Company expects SFAS No. 141R willnew guidance does not have an impacteffect on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time. The Company is still assessing the impactCompany’s consolidated results of this pronouncement.operations and financial condition.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS, continued
In December 2007, the FASBManagement does not believe that any other recently issued, SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 establishes newbut not yet effective, 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 March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected toif currently adopted would have a material effect on the Company’s futureaccompanying financial position or results of operations.statements.
NOTE 4-INVESTMENT IN TRUEFRAME INTERNATIONAL LTD.
Trueframe International Limited
In May 2008,October, 2009 we acquired 28% of the FASB issued SFAS No. 162, “The Hierarchyoutstanding equity of Generally Accepted Accounting Principles” (“SFAS No. 162”Truefame International Limited ("Truefame"). This statement identifies, which is a holding company that owns 55.78 % of the sourcesoutstanding common stock of accounting principles and the frameworkAgriSolar Solutions, Inc. ("AGSO"), which holds Shengzhen Fuwaysun Technology Co., Ltd. ("Fuwaysun") for selecting the principles to be usedapproximately $3,741,000. Fuwaysun is a PRC company primarily engaged in the preparationdevelopment and production of financial statementssolar pest killing lamps and transportable solar generators.The investment is accounted for under the equity method of accounting.
NOTE 5– BUSINESS DISPOSAL
On July 6, 2009, we entered into the Termination Agreement with the three former shareholders of SZPSP to terminate “The Equity Purchase Agreement” and “Complementary Agreement to the Equity Purchase Agreement”
The key terms of the Termination Agreement are:
Pursuant to the terms of the agreements the Company received RMB 28,800,000 and 939,364 shares of its common stock in conformity with GAAPexchange for its ownership of SZPSP. In addition, the Company will receive a portion of the net profit, if any, of SZPSP for the year ended March 31, 2009. No effect has been given to the profit distribution 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.
Also in May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60" ("SFAS No. 163"). SFAS No. 163 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company is currently evaluating the impact of SFAS No. 163 on its financial statements but does not expect it to have an effect on the Company's financial position, results of operations or cash flows.
In May 2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 applies to convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years after December 15, 2008, and must be applied on a retrospective basis. Early adoption is not permitted. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.
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.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS, continued
Under the guidance of FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable 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 ouraccompanying financial statements.
The operations of SZPSP have been presented as discontinued operations in the accompanying financial statements from the date of acquisition to the date of disposition, for the appropriate periods.
As summary of the operations of SZPSP is follows:
| | March 31, 2009 | |
Revenues | | $ | 1,024,103 | |
Income before provision for income taxes from discontinued operations | | | (501,120 | ) |
Income tax provision | | | 11,270 | |
Income(loss) from discontinued operation, net of tax | | $ | (512,390 | ) |
NOTE 46 - 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 specifically identified amountsthe aging of accounts receivable that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required.reasonable.
9
| | March 31, 2009 | | | December 31, 2008 | |
Accounts receivable, cost | | $ | 6,019,421 | | | $ | 6,885,099 | |
Less: Allowance for doubtful accounts | | | (844,873 | ) | | | (845,034 | ) |
Accounts receivable, net | | $ | 5,174,548 | | | $ | 6,040,065 | |
| | June 30, 2010 | | | December 31, 2009 | |
| | (Unaudited) | | | | |
Accounts receivable, cost | | $ | 11,544,327 | | | $ | 9,621,122 | |
Less : allowance for doubtful accounts | | | (1,561,709 | ) | | | (1,553,178 | ) |
Accounts receivable, net | | $ | 9,982,618 | | | $ | 8,067,944 | |
Inventories:
| | June 30, 2010 | | | December 31, 2009 | |
| | (Unaudited) | | | | |
Raw materials | | $ | 2,265,357 | | | $ | 1,186,188 | |
Consumables | | | 16,844 | | | | 16,358 | |
Work-in-process | | | 73,018 | | | | 57,357 | |
Finished goods | | | 2,766,858 | | | | 3,287,267 | |
Inventories | | $ | 5,122,077 | | | $ | 4,547,170 | |
Other receivables and prepayments:
| | June 30, 2010 | | | December 31, 2009 | |
| | (Unaudited) | | | | |
Advance to suppliers | | $ | 1,201,129 | | | $ | 555,781 | |
Other receivables | | | 1,918,158 | | | | 1,177,914 | |
Other receivables and prepayments(1) | | $ | 3,119,287 | | | $ | 1,733,695 | |
(1) The amount includes the loan of RMB2, 000,000 for Xiongri. 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. The three shareholders agreed to loan RMB2, 000,000 to Xiongri as working capital. We have not completed the transfer of the 60% equity interests. However,the parties came to consensus after negotiation on October 23, 2009 that the agreement shall be revoked and the three shareholders need to return RMB2, 000,000 in following two years after signed.
Other payables and accrued liabilities:
| | June 30, 2010 | | | December 31, 2009 | |
| | (Unaudited) | | | | |
Customer deposit | | $ | 3,895,096 | | | $ | 4,488,561 | |
Salary payable | | | 420,544 | | | | 521,951 | |
Accrued expenses | | | 221,430 | | | | 226,430 | |
Other payables | | | 2,905,996 | | | | 2,551,978 | |
Warranty provision | | | 1,022,132 | | | | 1,016,549 | |
Current portion of investment payable(1) | | | 1,329,727 | | | | 1,171,709 | |
Totals | | $ | 9,794,925 | | | $ | 9,977,178 | |
(1) Represents liability in connection with the acquisition of Tianjin Huaneng,
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)
NOTE 4 - BALANCE SHEET COMPONENTS, continued
Inventories consisted of the following:
| | March 31, 2009 | | | December 31, 2008 | |
Raw materials | | $ | 1,961,283 | | | $ | 1,443,266 | |
Work-in-process | | | 2,560,455 | | | | 21,269 | |
Finished goods | | | 5,188,362 | | | | 6,816,666 | |
Consumable | | | 38,545 | | | | 4,320 | |
Total inventory | | $ | 9,748,645 | | | $ | 8,285,521 | |
Other receivables and prepayments consisted of the following:
| | March 31, 2009 | | | December 31, 2008 | |
Advance to suppliers | | $ | 1,710,354 | | | $ | 1,389,998 | |
Notes receivable | | | - | | | | 727,175 | |
Prepaid expenses | | | 164,429 | | | | 159,089 | |
Income tax receivable | | | - | | | | 195,549 | |
Other receivable | | | 4,831,418 | | | | 5,398,764 | |
Other receivables and prepayments | | $ | 6,706,201 | | | $ | 7,870,575 | |
NOTE 57 - STOCKHOLDERS’ EQUITY
Common Stockstock
During the year ended December 31, 2009, 373,566 shares of preferred stock were converted to the same number of shares of common stock.
.
During the year ended December 31, 2009, 939,364 shares of common stock were cancelled due to termination with SZPSP.
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 iswe 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
A summary of the status of the Company’s outstanding common stock warrants:
| | Number of Shares | | | Weighted- average Exercise Price | | | Weighted- average Remaining Contractual | |
Outstanding and Exercisable at January 1, 2009 | | | 7,091,682 | | | $ | 2.76 | | | 3.53 years | |
Granted | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Forfeited | | | 469,150 | | | | - | | | | - | |
Expired | | | - | | | | - | | | | - | |
Outstanding and Exercisable at December 31, 2009 | | | 6,622,532 | | | $ | 2.48 | | | 2.25 years | |
Granted | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Forfeited | | | - | | | | - | | | | - | |
Expired | | | 1,825,719 | | | | - | | | | - | |
Outstanding and Exercisable at June 30, 2010 | | | 4,796,813 | | | | 1.95 | | | 2.3 years | |
NOTE 68 - 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 IslandsIsland (“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 three months ended March 31, 2009.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)
NOTE 6 - INCOME TAXES, continued
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 March 31, 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 Islands
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 Bazhou Deli Solar, Beijing Deli Solar, Ailiyang, Tianjin Huaneng and SZPSP.
Of these subsidiaries Ailiyang, Tianjin Huaneng are 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%.
In March 2005, the Bazhou Deli Solar became a foreign investment enterprise. Hence, effective from the year ended 2005, Bazhou Deli Solar 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.
In September 2006, the Beijing Deli Solar was founded as a foreign investment enterprise. Hence, effective from the year ended 2006, Beijing Deli Solar 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. Tianjin Huaneng is now is subject to CIT at a statutory rate of 25%. However, as foreign invested enterprises, Bazhou Deli Solar, Beijing Deli Solar and SZPSP can continue to enjoy the lower CIT rate of 15% until their tax holiday expires.
The Company’s effective income tax rates for the three months ended March 31, 2009 and 2008 were 18%. The Company’s effective income tax rate of 18% for the three months ended March 31, 2008 was due to an exemption from enterprise income tax provided by the PRC taxing authority during that period, as discussed above.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)
NOTE 79 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a) Business information
During the threesix months ended March 31, 2009,June 30, 2010, the Company had primarily fourthree reportable segments, (i) solar heater/boilerSolar Heater/Biomass Stove/Boiler related products, (ii) heatHeat pipe related products and (iii) Building integrated energy-saving projects, (iv) solar heat collector and others, under the management of Bazhou, Deli Solar, Tianjin Huaneng, and Shenzhne Pengsangpu,Deli Solar (Beijing), respectively.
During the three months ended March 31, 2008, the Company had primarily two reportable segments, (i) solar heater/boiler related products and (ii) heat pipe related products.
The Company’s revenue, gross profit and total assets by reportable segment for the three months ended March 31, 2009 and 2008 are as follows:
| | 2009 | | | 2008 | |
Revenue: | | | | | | |
Solar water heaters/boilers & space heaters | | $ | 1,547,847 | | | $ | 2,829,815 | |
Heat-pipe related products and equipment | | | 2,106,541 | | | | 5,470,261 | |
Energy-saving projects | | | 369,105 | | | | - | |
Solar heat collector and others | | | 709,671 | | | | - | |
| | $ | 4,733,164 | | | $ | 8,300,076 | |
| | | | | | | | |
Gross profit: | | | | | | | | |
Solar water heaters/boilers & space heaters | | $ | 328,312 | | | $ | 574,893 | |
Heat-pipe related products and equipment | | | 557,518 | | | | 1,880,167 | |
Energy-saving projects | | | 10,027 | | | | - | |
Solar heat collector and others | | | 19,280 | | | | - | |
| | $ | 915,137 | | | $ | 2,455,060 | |
| | | | | | | | |
Total assets: | | | | | | | | |
Solar water heaters/boilers & space heaters | | $ | 14,165,584 | | | $ | 12,795,964 | |
Heat-pipe related products and equipment | | | 13,650,457 | | | | 14,360,410 | |
Energy-saving projects | | | 2,333,218 | | | | 7,916,717 | |
Solar heat collector and others | | | 4,486,035 | | | | 2,409,562 | |
All other | | | 10,257,783 | | | | 9,015,555 | |
| | $ | 44,893,077 | | | $ | 46,498,208 | |
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)Sales Revenues
NOTE 7 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION, continued | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | |
Revenue: | | | | | | | | | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 1,786,423 | | | $ | 1,463,547 | | | $ | 2,531,834 | | | $ | 3,011,395 | |
Heat pipe related equipments/Energy-saving projects | | | 8,920,032 | | | | 11,843,316 | | | | 12,071,035 | | | | 13,949,263 | |
Building integrated energy saving projects | | | (528 | ) | | | - | | | | (528 | ) | | | - | |
| | $ | 10,705,927 | | | $ | 13,306,863 | | | $ | 14,602,341 | | | $ | 16,960,658 | |
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, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”). There was no elimination or reversal of transactions between reportable segments.Gross Profit
| Three months ended June 30, | | Six months ended SepteJune 30, | |
| 2010 | | 2009 | | 2010 | | 2009 | |
Gross profit: | | | | | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 394,908 | | | $ | 319,922 | | | $ | 504,629 | | | $ | 648,234 | |
Heat pipe related equipments/Energy-saving projects | | | 2,597,980 | | | | 2,963,104 | | | | 3,649,669 | | | | 3,520,606 | |
Building integrated energy saving projects | | | (528 | ) | | | - | | | | (528 | ) | | | - | |
| | $ | 2,992,360 | | | $ | 3,283,026 | | | $ | 4,153,770 | | | $ | 4,168,840 | |
Total assets
| | June 30, 2010 | | | December 31, 2009 | |
Total assets | | 2010 | | | 2009 | |
Solar heater/Biomass stove/Boiler related products | | $ | 20,036,244 | | | $ | 17,075,566 | |
Heat pipe related equipments/Energy-saving projects | | $ | 19,198,609 | | | $ | 17,210,210 | |
Building integrated energy saving projects | | $ | 1,394,158 | | | $ | 1,774,920 | |
Discontinued operation | | $ | | | | $ | - | |
Other | | $ | 2,727,083 | | | $ | 5,004,499 | |
| | $ | 43,356,094 | | | $ | 41,065,195 | |
(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 revenue, gross profit and total assets by geographical market for the threesix months ended March 31,June30, 2010 and 2009 and 2008 are analyzed as follows:
Revenue
| Three months ended June 30, | | Six months ended SepteJune 30, | |
| 2010 | | 2009 | | 2010 | | 2009 | |
Revenue: | | | | | | | | |
PRC | | $ | 9,840,185 | | | $ | 13,051,551 | | | $ | 13,165,686 | | | $ | 16,558,795 | |
Others | | | 865,742 | | | | 255,312 | | | | 1,436,655 | | | | 401,863 | |
| | $ | 10,705,927 | | | $ | 13,306,863 | | | $ | 14,602,341 | | | $ | 16,960,658 | |
| | March 31, 2009 | | | March 31, 2008 | |
Revenue: | | | | | | |
PRC | | $ | 4,586,613 | | | $ | 7,320,833 | |
Other markets | | | 146,551 | | | | 979,243 | |
| | $ | 4,733,164 | | | $ | 8,300,076 | |
| | | | | | | | |
Gross profit: | | | | | | | | |
PRC | | $ | 886,662 | | | $ | 2,165,363 | |
Other markets | | | 28,475 | | | | 289,697 | |
| | $ | 915,137 | | | $ | 2,455,060 | |
| | | | | | | | |
Total assets: | | | | | | | | |
PRC | | $ | 40,473,231 | | | $ | 40,331,385 | |
Other markets | | | 4,419,846 | | | | 6,166,823 | |
| | $ | 44,893,077 | | | $ | 46,498,208 | |
| Three months ended June 30, | | Six months ended SepteJune 30, | |
| 2010 | | 2009 | | 2010 | | 2009 | |
Gross profit: | | | | | | | | |
PRC | | $ | 2,764,919 | | | $ | 3,058,071 | | | $ | 3,667,269 | | | $ | 3,915,410 | |
Others | | | 227,441 | | | | 224,955 | | | | 486,501 | | | | 253,430 | |
| | $ | 2,992,360 | | | $ | 3,283,026 | | | $ | 4,153,770 | | | $ | 4,168,840 | |
Total assets
| June 30, | | December 31, | |
| 2010 | | 2009 | |
Total assets: | | | | |
PRC | | $ | 43,048,967 | | | $ | 37,720,553 | |
Others | | $ | 307,127 | | | $ | 3,344,642 | |
| | $ | 43,356,094 | | | $ | 41,065,195 | |
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)United States Dollars (“US$”))
(Unaudited)
NOTE 8 – CONTINGENCY10 –NET INCOME PER SHARE
Under an engagement agreement dated January 16, 2008 betweenThe following table sets forth the Companycomputation of basic and Roth Capital Partners, LLC (“Roth”), Roth acted as a placement agentdiluted net income per share 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 bysix months ended June 30, 2010 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.2009:
NOTE 9-RELATED PARTY
Zhang Junru, CEO of Tianjin Huaneng, is one of the 21 individual investors for Huaneng Installation Corporation, a subsidiary of Tianjin Huaneng, which is the controlling shareholder of Huaneng Installion with 65% of the equity. The 21 individual investors including Zhang Junru in combination owns 35% of the shares in Huaneng Installation. | Three months ended June 30, | | Six months ended SepteJune 30, | |
| 2010 | | | 2009 | | 2010 | | | 2009 | |
Basic and diluted net income per share calculation | | | | | | | | | | |
| | | | | | | | | | |
Numerator: | | | | | | | | | | |
Net income from continuing operations | | $ | 1,074,826 | | | $ | 2,506,647 | | | $ | 747,166 | | | $ | 1,789,813 | |
Net (loss) income from discontinued operation | | | - | | | | - | | | | - | | | | (512,390 | ) |
| | $ | 1,074,826 | | | $ | 2,506,647 | | | $ | 747,166 | | | $ | 1,277,423 | |
Denominator: - Weighted average ordinary shares outstanding – Basic and Diluted | | | 15,233,652 | | | | 16,173,016 | | | | 15,233,652 | | | | 16,123,921 | |
NOTE 1011 - 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 to be agreed upon 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 amounts 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 daysCompany has evaluated subsequent events 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 must 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 is required to pay us additional interest on such Loan at a rate of 0.5% per day.
On April 9, 2009, we entered into a supplement agreement with the Fuwaysun Shareholders and Fuwaysun (the “Supplement Agreement”) and extended both thebalance sheet date for the parties to complete the Acquisition and the maturity date of the Loans to June 30, 2009 and otherwise retained the terms of the LOI and the Loan Agreements.
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in US Dollars)
(Unaudited)
NOTE 10 - SUBSEQUENT EVENTS, continued
(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. We have not completed the transfer of the 60% equity interests.. On April 9, 2009, the parties entered into a supplemental agreement and agreed to complete the transfer of the 60% equity interests by June 30, 2009.
NOTE 11- RESTATEMENT ON CONSOLIDATED FINANCIAL STATEMENTS
In April 14, 2010, we file an amendment of 10K of 2008, the following are the reasons the restatement is required.
The acquisition of the additional 29.97% interest in Tianjin Hua Neng Energy Equipment Company on October 27, 2009 was not properly recorded. As disclosed in Note 4 tothrough the financial statements of 2008, the Registrant paid $515,026 at the completion of the agreement with the remainder, aggregating approximately $1,047,611 plus interestwere issued , there are no subsequent events that are required to be paid overrecorded or disclosed in the next three years. We only recorded the amount actually paid and did not record the corresponding debt. In addition there 1,000,000 warrants to purchase the company’s common stock were issued as part of the purchase price and were not valued and included as additional purchase price.
The using right of building of Deli Solar (Beijing) will expire in August, 2011. But the Company never depreciated for it. So the Company decided to correct it.
After further analysis of the Company’s revenue recognition policy, it has decided to change the revenue recognition of its consolidated subsidiary Tianjin Hua Neng. The Company will make the appropriate entries to properly record the revenue and associated costs of revenue.
The following is a summary of the effects of the restatement on the balance sheet as of December 31, 2008.
| | As of December 31, 2008 | |
| | as previously reported | | | as restated | |
| | | | | | |
ASSETS | | | | | | |
Accounts receivable, net | | $ | 7,284,255 | | | $ | 6,040,065 | |
Inventories | | | 6,950,844 | | | | 8,285,521 | |
Total current assets | | | 24,667,249 | | | | 24,757,736 | |
Property, plant and equipment, net | | | 15,366,009 | | | | 15,149,198 | |
Goodwill | | | 2,284,903 | | | | 2,340,512 | |
Total assets | | $ | 46,568,923 | | | $ | 46,498,2083 | |
| | As of December 31, 2008 | |
| | as previously reported | | | as restated | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Income tax payables | | $ | 2,236,298 | | | $ | 1,818,488 | |
Other payables and accrued liabilities | | | 8,386,698 | | | | 11,900,000 | |
Total current liabilities | | | 15,924,345 | | | | 18,309,837 | |
Long-term debt | | | - | | | | 286,483 | |
Total liabilities | | | 15,940,124 | | | | 18,612,099 | |
Minority interests | | | 1,704,248 | | | | 194,542 | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Additional paid-in capital | | | 22,966,404 | | | | 23,073,258 | |
Retained earnings | | | 3,365,788 | | | | 2,025,950 | |
Total stockholders’ equity | | | 28,924,551 | | | | 27,691,567 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 46,568,923 | | | $ | 46,498,208 | |
accompanying interim financial statements.
The following is a summary of the effects of the restatement on the 10Q for the three months ended March 31, 2009.
| | As of March 31, 2009 | |
| | as previously reported | | | as restated | |
| | | | | | |
ASSETS | | | | | | |
Accounts receivable, net | | $ | 6,658,667 | | | $ | 5,174,548 | |
Inventories | | | 7,240,423 | | | | 9,748,645 | |
Total current assets | | | 22,218,418 | | | | 23,242,521 | |
Property, plant and equipment, net | | | 15,306,283 | | | | 15,089,472 | |
Goodwill | | | 2,284,903 | | | | 2,340,512 | |
Total assets | | $ | 44,030,176 | | | $ | 44,893,077 | |
| | As of March 31, 2009 | |
| | as previously reported | | | as restated | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Income tax payables | | $ | 2,210,157 | | | $ | 1,543,770 | |
Other payables and accrued liabilities | | | 7,343,0611 | | | | 11,617,232 | |
Total current liabilities | | | 14,249,947 | | | | 17,857,731 | |
Long-term debt | | | - | | | | 286,483 | |
Total liabilities | | | 14,265,726 | | | | 18,159,993 | |
Minority interests | | | 1,713,804 | | | | 204,098 | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Additional paid-in capital | | | 22,966,404 | | | | 23,073,258 | |
Retained earnings | | | 2,425,240 | | | | 796,726 | |
Total stockholders’ equity | | | 28,050,646 | | | | 26,528,986 | |
| | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 44,030,176 | | | $ | 44,893,077 | |
| | Three months ended March 31, 2009 | |
| | as previously reported | | | as restated | |
Revenue, net | | $ | 6,195,691 | | | $ | 4,733,164 | |
Cost of revenue | | | 4,991,878 | | | | 3,818,027 | |
Gross profit | | | 1,203,813 | | | | 915,137 | |
Income before income taxes | | | (893,669 | ) | | | (1,182,345 | ) |
Net income | | | (940,548 | ) | | | (1,229,224 | ) |
Net income available to common stockholders | | $ | (940,548 | ) | | $ | (1,229,224 | ) |
Net income per share – basic | | $ | (0.07 | ) | | $ | (0.09 | ) |
Net income per share – diluted | | $ | (0.07 | ) | | $ | (0.09 | ) |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information — Thisthis 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.
OverviewOVERVIEW
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, (Bazhou),Beijing Deli Solar, (Beijing), Ailiyang and our majority ownedindirect subsidiary Tianjin Huaneng.Huaneng (majority owned).
The Company has three reportable segments: (i) Solar heater/Heater/Biomass stove/Building integrated energy projects for households and buildings;Stove/Boiler related products, (ii) Industrial waste heat recovery/Energy-saving projects for industrial customers; and (iii) Heat pipe related products.products and (iii) Building integrated energy-saving projects, under the management of Bazhou, Tianjin Huaneng, and Deli Solar (Beijing), respectively.
Deli Solar (Bazhou) designs, manufactures and distributes solar productssells renewable energy systems to produce hot water and for space heating in the PRC. The Company’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 (Bazhou) also sells sparecomponent parts for its products and provides after-sales maintenance and repair services.
Deli Solar (Beijing) is principally engaged in the service and installation of energy saving equipments in residential and commercial buildingsbuilding integrated energy-saving projects in major cities in the PRC.PRC, including Beijing.
Tianjin Huaneng provides waste heat recovery and energy saving solutions for industrial customers. The Company 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 17.34% of our net revenue for the six months ended June 30, 2010 was derived from sales of our solar heater/biomass stove/boiler related products and 82.66% from sales of our heat pipe related equipment/energy-saving projects, respectively. Approximately 90.16% and 9.84% of our net revenues for the six months ended June 30, 2010, were derived from sales made inside the PRC and outside the PRC, respectively.
RESULTS OF OPERATIONS
Three months ended March 31, 2009June 30, 2010 compared to three months ended March 31, 2008June 30, 2009
Sales Revenues
An analysis of the Company’s revenues and gross profits for each segment is as follows: | Three months ended June 30, | |
| 2010 | | 2009 | |
Revenue: | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 1,786,423 | | | $ | 1,463,547 | |
Heat pipe related equipments/Energy-saving projects | | | 8,920,032 | | | | 11,843,316 | |
Building integrated energy saving projects | | | (528 | ) | | | - | |
| | $ | 10,705,927 | | | $ | 13,306,863 | |
| | Three Months Ended March 31, 2009 | | | Three Months Ended March 31, 2008 | |
Revenue: | | | | | | |
Solar water heaters/boilers & space heaters | | $ | 1,547,847 | | | $ | 2,829,815 | |
Heat-pipe related products and equipment | | | 2,106,541 | | | | 5,470,261 | |
Energy-saving projects | | | 369,105 | | | | - | |
Solar heat collector and others | | | 709,671 | | | | - | |
| | $ | 4,733,164 | | | $ | 8,300,076 | |
Overall: Sales revenuesrevenue for the three months ended March 31, 2009June 30, 2010 were $4,733,164$10,705,927 as compared to $8,300,076$13,306,863 for the same period last year,three months ended June 30, 2009, a decrease of $3,566,912$2,600,936 or 43% compared to the same period in 2008.19.55%. The decrease in sales was primarily attributable to a weakening economy. Sales for industrial enterprisesthe decline in China are usually slow forrevenue from our heat pipe related equipments/Energy-saving projects under the first quarter due to the long holiday season around Chinese Lunar New Year. We expect sales revenue to increase during the restmanagement of the year with the completion of pending projects in the first quarter and collection of the account receivables corresponding to these projects.Tian Jin Hua Neng.
Solar Heater/heater/Biomass stove/Boiler Related Productsrelated products: Sales revenuesrevenue for these products for the three months ended March 31, 2009June 30, 2010 were $1,547,847$1,786,423 as compared to $2,829,815$1,463,547 for the same period last year,three months ended June 30, 2009, a decreaseincrease of $1,281,968$322,876 or 45.3%22.06%. The decreaseincrease in sales revenue derived from solar heaters and heaters/biomass stove/boiler related products was due to lower average selling price as a result of increased competition and a weakening economy. We expect price competition to continuethe increasing demand for solar heater in the remainder of 2009.second quarter this year.
Heat Pipe Related Products and Equipment:pipe related equipments/Energy-saving projects: Sales revenuesrevenue for the three months ended March 31, 2009 were $2,106,541June 30, 2010 was $8,920,032 compared to $5,470,261 for the same period last year, a decrease of $3,363,720 or 61.5%. The decrease in sales of heat pipe related products and equipments were a result of slowdown in demand amid economic downturn. The average selling price decreased as a result of increased competition. We expect an increase in sales of heat pipe related products and equipments in the second half due to traditional seasonal increased market demand for boiler related products as winter approaches and as a result of aggressive investment in infrastructure construction as part of its stimulus initiative by the Chinese government to revive the economy. This potential increase in sales will be negatively affected by the continuing price competition for the rest of 2009.
Energy Saving Projects: Sales revenues$11,843,316 for the three months ended March 31,June 30, 2009, were $ 369,105 compareda decrease of $2,923,284 or 24.68%, because we pay little attention to 0 forsmall orders this year. No enough attention to mini-orders results in the same period last year. Thedecrease of sales of energy saving projects were attributablein the past six months .However, we believe that new and large order clients will increase, which will lead to the acquisitionincrease of SZPSP that was completed on April 1, 2008.
Solar Heat Collector and Others: Sales revenues forsales volume in the three months ended March 31, 2009 were $ 709,671 compared to 0 for the same period lastnext half year. The sales of solar heat collectors and others were attributable to the acquisition of SZPSP completed on April 1, 2008.
Gross Profit
| Three months ended June 30, | |
| 2010 | | 2009 | |
Gross profit: | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 394,908 | | | $ | 319,922 | |
Heat pipe related equipments/Energy-saving projects | | | 2,597,980 | | | | 2,963,104 | |
Building integrated energy saving projects | | | (528 | ) | | | - | |
| | $ | 2,992,360 | | | $ | 3,283,026 | |
| | For the Three Months Ended March 31, 2009 | | | For the Three Months Ended March 31, 2008 | |
Revenue: | | | | | | |
Solar water heaters/boilers & space heaters | | $ | 328,312 | | | $ | 574,893 | |
Heat-pipe related products and equipment | | | 557,518 | | | | 1,880,167 | |
Energy-saving projects | | | 10,027 | | | | - | |
Solar heat collector and others | | | 19,280 | | | | - | |
| | $ | 915,137 | | | $ | 2,455,060 | |
Overall: Gross profit margin for the three months ended March 31, 2009 decreasedJune 30, 2010 increased by approximately 10% from3.28% to 27.95%, as compared to 24.67% for the corresponding period in 2008.three months ended June 30, 2009. This was primarily due to a decreasethe increase in sales prices of low-margin products such as household water heaters and the relatively higher cost of key raw materials such as stainless steel. The Company added stockpiles when the stainless steel price was higher, which translated to a higher production cost and lower gross profit. We expect the gross profit for lower margin products, such as household water heaters, to decrease as a result of increasingly intensive competition in the market, while the gross profit for higher margin products, such as large-scale projects and equipments, is to increase for the remaining of year with the completion of pending projects and new orders forour heat pipe related equipments.
Solar Heater/heater/Biomass stove/Boiler Related Productsrelated products: Gross profit margin remained fairly constant for the three months ended March 31, 2009 (21%)June 30, 2010 was approximately 22.11%, a slight increase of 0.25% as compared to 21.86% for the three months ended MarchJune 30, 2008 (20%). Although we anticipate an increase in market demand in the boiler related products as winter approaches, we expect the profit margin for household solar water heater/boilers to decrease as the price competition is likely to continue for the remainder of 2009.
Heat Pipe Related Products and Equipments:pipe related equipments/Energy-saving projects: Gross profit margin for the three months ended March 31, 2009June 30, 2010 was approximately 26%29.13%, a decreaseincrease of 8%4.11% from the corresponding period last year. The decrease in gross profit margin was to the lower average product sales price as a result of increased competition for these products.
Energy Saving Projects: Gross profit25.02% for the three months ended March 31,June 30, 2009 was $ 10,027 (2.7% margin) . The profit margin for this category is attributable to the decrease in average selling price and increase in expenditure for the product promotion and marketing campaigns launched during the first three months in SZPSP. We expect the gross profit for energy-saving projects to increase due to an increase in government orders for infrastructure construction. There were no sales of these products in the corresponding period for the prior year as SZPSP was not one of the subsidiaries in 1Q of 2008.sale prices.
Solar Heat Collector and Others: Gross profit for the three months ended March 31, 2009 was $19,280 (2.7% margin) The profit margin for this category is attributable to the decrease in average selling price and increase in expenditures for the product promotion and marketing campaigns launched during the first three months in SZPSP. There were no sales of these products in the corresponding period for the prior year as SZPSP was not one of the subsidiaries in 1Q of 2008.
Operating Expenses
Operating expenses for the three months ended March 31, 2009June 30, 2010 were $2,117,231,$ 1,528,696, as compared to $1,253,383$ 1,234,781 for the same period in 2008,three months ended June 30, 2009, an increase of $863,848,$ 293,915, or 68.9%23.80%. The overall increase in operating expenses was primarily due to the acquisition of SZPSP and the subsequent increase in sales and marketing expenses detailed below.the wages of the staff under the management of Tianjin Huaneng.
Depreciation and amortization expenseexpenses increased to $304,988 as compared to $149,167$ 104,311 for the same period last year. Thethree months ended June 30, 2010, a increase was mainly due to an increase in depreciation and amortization expenseof $ 1,026 or 0.99%, from $ 103,285 for the three months ended June 30, 2009, primarily as a result of the acquisitionincrease of SZPSP.
Operating Expenses, continuedour manufacturing equipment and building.
Selling and distribution expenseexpenses increased to $545,899 as compared to $502,563$ 729,260 for the same period lastthree months ended June 30, 2010, a increase of $ 248,673 or 51.74%, from $ 480,587 for the three months ended June 30, 2009, because we have improved the marketing personnel's wage level this year. The increase was mainly due to increased expenses incurred in the development of sales network and promotion programs.
General and administrative expenses were $1,266,344 and $601,653, or approximately 26.8% and 7.2% of sales,$ 695,125 for the three months ended March 31,June 30, 2010 (or approximately 6.49% of sales) compared to $ 650,909 (or approximately 4.89% of sales) for the three months ended June 30, 2009, and 2008, respectively. The neta increase of $664,6916.79%, because we have improved the wages level of management staff this year.
Net Income
Net income was $ 1,074,826 for the three months ended June 30, 2010, compared to $ 2,506,647 for the three months ended June 30, 2009. The decrease in net income was mainly due to the acquisitiongain on disposal of SZPSP.SZPSP last year and the increase in the wages of the staff under the management of Tianjin Huaneng.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Sales Revenue
| Six months ended June 30, | |
| 2010 | | 2009 | |
Revenue: | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 2,531,834 | | | $ | 3,011,395 | |
Heat pipe related equipments/Energy-saving projects | | | 12,071,035 | | | | 13,949,263 | |
building integrated energy saving projects | | | (528 | ) | | | - | |
| | $ | 14,602,341 | | | $ | 16,960,658 | |
Overall: Sales revenue for the six months ended June 30, 2010 were $14,602,341 as compared to $16,960,658 for the six months ended June 30, 2009, a decrease of $2,358,317 or 13.90%. The decrease in sales was primarily attributable to the decline in revenue from our heat pipe related equipments/Energy-saving projects under the management of Tian Jin Hua Neng.
Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for the six months ended June 30, 2010 were $2,531,834 as compared to $3,011,395 for the six months ended June 30, 2009, a decrease of $479,561 or 15.92%. The decrease in sales revenue derived from solar heaters/biomass stove/boiler related products was due to strong competition. Moreover, we are foreign invested enterprise and can not get access to China favorable policy or “China’s Home Appliance Subsidy Program For Rual Areas” as is called for domestic enterprises.
Heat pipe related equipments/Energy-saving projects: Sales revenue for the six months ended June 30, 2010 was $ 12,071,035 compared to $13,949,263 for the six months ended June 30, 2009, a decrease of $1,878,228 or 13.46%. The decrease in sales was because we pay little attention to small orders this year. No enough attention to mini-orders results in the decrease of sales in the past six months .However, we believe that new and large order clients will increase, which will lead to the increase of sales volume in the next half year.
Gross Profit
| Six months ended June 30, | |
| 2010 | | 2009 | |
Gross profit: | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 504,629 | | | $ | 648,234 | |
Heat pipe related equipments/Energy-saving projects | | | 3,649,669 | | | | 3,520,606 | |
building integrated energy saving projects | | | (528 | ) | | | - | |
| | $ | 4,153,770 | | | $ | 4,168,840 | |
Overall: Gross profit margin for the six months ended June 30, 2010 increased by approximately 3.87% to 28.45%, as compared to 24.58% for the six months ended June 30, 2009. This was primarily due to the increase in sales volume and prices of our heat pipe related equipments.
Solar heater/Biomass stove/Boiler related products: Gross profit margin for the six months ended June 30, 2010 was approximately 19.93%, as compared to 21.53% for the six months ended June 30, 2009. This was primarily due to weak market in which we had to sell our products in lower price.
Heat pipe related equipments/Energy-saving projects: Gross profit margin for six months ended June 30, 2010 was approximately 30.23% as compared to 25.24% from the six months ended June 30, 2009, an increase of 5.00%.The increase is mainly due to an increase in the sale prices.
Operating Expenses
Operating expenses for the six months ended June 30, 2010 were $ 2,874,939, as compared to $ 2,782,513 for the six months ended June 30, 2009, an increase of $ 92,426, or 3.32%. The overall increase in operating expenses was primarily due to increase of salary expense.
Depreciation and amortization expenses increased to $ 226,824 for the six months ended June 30, or 18.20%, from $ 191,906 for the six months ended June 30, 2009, primarily as a result of the increase of our manufacturing equipment and building.
Selling and distribution expenses increased to $ 1,356,329 for the six months ended June 30, or 30.41%, from $ 1,040,072 for six months ended June 30, 2009, because we have improved the marketing personnel's wage level this year.
General and administrative expenses were $ 1,291,786 for the six months ended June 30, 2010 (or approximately 8.8% of sales) compared to $ 1,550,535 (or approximately 9.14% of sales) for the six months ended June 30, 2009, a decrease of 16.69%. The decrease was primarily due to the compression of operation cost.
Net Income (loss)
Net income (loss) was ($1,229,224)$ 747,166 for the threesix months ended March 31, 2009,June 30, 2010, compared to $389,651 in the same period last year, a decreasenet income of $1,618,875 or approximately 415.5%. The net loss was$ 1,277,423 for the six months ended June 30, 2009, primarily due to slowdown in sales amid a weakening economyincrease of salary expense and price competition among the peer companies.strong competition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used inby operating activities was ($829,589) and ($4,104,526)$ 2,143,894 for the threesix months ended March 31, 2009 and 2008, respectively. The decrease inJune 30, 2010, while net cash usedprovided by operationsour operating activities was mainly due to$ 3,599 for the decrease in sales.six months ended June 30, 2009.
Net cash used inby investing activities was ($280,208) and ($730,974)$ 117,516 for the threesix months ended March 31, 2009 and 2008, respectively.June 30, 2010, compared with net cash provided by investing activities in the amount of $ 199,174 for the six months ended June 30, 2009.
Net cash provided by financing activities was $0 and $10,102,656$ 732,732 for the threesix months ended March 31, 2009 and 2008, respectively.June 30, 2010, compared with net cash provided by financing activities in the amount of $ 51,231 for the six months ended June 30, 2009.
We believe that current cash will beflow is sufficient to meet anticipated working capital and capital expenditures for at least the next twelve months. However, we need toWe may require additional cash for further development of business, including any investments or acquisitions we may decide to pursue. WeHowever, we cannot assure you that such funding will be available.
Cash
Cash and cash equivalents decreased to $1,361,842 at March$ 3,596,126 as of June 30, 2010, compared to $4,980,717 as of December 31, 2009, from $2,404,996 at December 31, 2008, primarily as a result decreaseof the increase in sales.
the operating activities in the second quarter of 2010.
Accounts Receivable
During the three months ended March 31, 2009, accountAccounts receivable decreasedincreased to $5,174,548$9,982,618 as of June 30, 2010, from $6,040,065$8,067,944 as of December 31, 2008,2009, primarily due to collection positively. We evaluate the need for an allowance for doubtful accounts based on specifically identified amounts that we believe to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the allowances for doubtful accounts during the three months ended March 31, 2009 were none.Tian Jin Hua Neng.
Inventory
Inventories increased to $ 5,122,077 as of March 31, 2009 increasedJune 30, 2010, as compared to $9,748,645 from $8,285,521$4,547,170 as of December 31, 2008 principally because2009, primarily due to the increase of an increase in inventoriesraw materials considering the rise of finished goods by Tianjin Huaneng. The inventory mainly consists of finished goods waiting for transportation or installation.the domestic steel prices.
Other Receivables and Prepayments
Other receivables and prepayments increased to $ 3,119,287 as of March 31, 2009 decreasedJune 30, 2010, compared to $6,706,201 from $7,870,575$1,733,695 as of December 31, 2008. Other receivables and prepayments mainly consist2009, primarily due to the increase of prepaid expenses and deposits.temporary turnover.
Accounts Payable
Accounts payable increased to $ 1,602,749 as of March 31, 2009 decreasedJune 30, 2010, compared to $4,696,729 from $5,301,349$1,601,002 as of December 31, 2008 primarily2009. This increase was due to the payments made to creditors under the term of credit agreements.increase in raw materials.
Other Payables and Accrued Liabilities
Other payables and accrued liabilities slightly decreased to $ 9,794,925 as of March 31, 2009 increased to $11,617,232June 30, 2010 from $11,190,000$9,977,178 as of December 31, 2008, primarily due2009.
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, and 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
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the increaseCompany’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in our system of deposit of contract.internal control over financial reporting occurred during the period covered by this report for the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Not applicable.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
Item 4. | REMOVED AND RESERVED |
RESTATEMENT ON CONSOLIDATED FINANCIAL STATEMENTS
The following are the reasons the restatement is required.
The acquisition of the additional 29.97% interest in Tianjin Hua Neng Energy Equipment Company on October 27, 2009 was not properly recorded. As disclosed in Note 4 to the financial statements of 2008, the Registrant paid $515,026 at the completion of the agreement with the remainder, aggregating approximately $1,047,611 plus interest to be paid over the next three years. We only recorded the amount actually paid and did not record the corresponding debt. In addition there 1,000,000 warrants to purchase the company’s common stock were issued as part of the purchase price and were not valued and included as additional purchase price.
The using right of building of Deli Solar (Beijing) will expire in August, 2011. But the Company never depreciated for it. So the Company decided to correct it.
After further analysis of the Company’s revenue recognition policy, it has decided to change the revenue recognition of its consolidated subsidiary Tianjin Hua Neng. The Company will make the appropriate entries to properly record the revenue and associated costs of revenue.
The following is a summary of the effects of the restatement on the company’s consolidated financial statements.
| | As of June 30, 2009 | |
| | as previously reported | | | as restated | |
ASSETS | | | | | | |
Accounts receivable, net | | $ | 8,457,470 | | | $ | 8,457,470 | |
Inventories | | | 2,701,654 | | | | 2,701,654 | |
Total current assets | | | 21,526,868 | | | | 21,526,868 | |
Property, plant and equipment, net | | | 14,108,704 | | | | 13,891,893 | |
Goodwill | | | 1,910,509 | | | | 1,966,118 | |
Total assets | | | 39,214,410 | | | | 39,053,208 | |
| | As of June 30, 2009 | |
| | as previously reported | | | as restated | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Income tax payables | | | 2,336,230 | | | | 2,336,230 | |
Other payables and accrued liabilities | | | 5,149,009 | | | | 6,320,987 | |
Total current liabilities | | | 10,513,980 | | | | 11,685,958 | |
Long-term debt | | | - | | | | 286,483 | |
Minority interests | | | 1,842,962 | | | | 333,256 | |
Stockholders’ equity: | | | | | | | | |
Additional paid-in capital | | | 22,966,404 | | | | 23,073,258 | |
Retained earnings | | | 3,520,184 | | | | 3,303,373 | |
Total stockholders’ equity | | | 26,857,468 | | | | 26,747,511 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 39,214,410 | | | $ | 39,053,208 | |
| | For six months ended June 30,2009 | |
| | as previously reported | | | as restated | |
Revenue, net | | $ | 14,775,569 | | | $ | 16,960,658 | |
Cost of revenue | | | 11,729,756 | | | | 12,791,818 | |
Gross profit | | | 3,045,813 | | | | 4,168,840 | |
Depreciation and amortization | | | 191,906 | | | | 191,906 | |
Total operating expenses | | | 2,782,513 | | | | 2,782,513 | |
Income from operations | | | 263,300 | | | | 1,386,327 | |
Income before income taxes | | | (392,550 | ) | | | 1,562,710 | |
Net income | | | 353,134 | | | | 1,363,972 | |
Net income available to common stockholders | | $ | 154,396 | | | $ | 1,277,423 | |
Net income per share – basic and diluted | | $ | 0.01 | | | $ | 0.08 | |
| | For three months ended June 30, 2009 | |
| | as previously reported | | | as restated | |
Revenue, net | | $ | 9,659,248 | | | | 13,306,863 | |
Cost of revenue | | | 7,787,925 | | | | 10,023,837 | |
Gross profit | | | 1,871,323 | | | | 3,283,026 | |
Depreciation and amortization | | | 103,285 | | | | 103,285 | |
Total operating expenses | | | 1,234,781 | | | | 1,234,781 | |
Income from operations | | | 636,542 | | | | 2,048,245 | |
Income before income taxes | | | 615,327 | | | | 2,756,325 | |
Net income | | | 442,192 | | | | 2,583,190 | |
Net income available to common stockholders | | $ | 1,094,945 | | | | 2,506,647 | |
Net income per share – basic and diluted | | $ | 0.07 | | | $ | 0.16 | |
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. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to Form 10-Q on Form 10-Q/A to be signed on its behalf by the undersigned thereunto duly authorized.
| China Solar & Clean Energy Solutions, Inc. |
| | |
May 4, 2010 | By: | /s/ Deli Du |
| | Deli Du
Chief Executive Officer and President
(Principal Executive Officer)
|
| | |
| By: | /s/ Yinan Zhao |
| | Yinan Zhao
Acting Chief Financial Officer
(Principal Financial Officer)
|
Exhibit Index
| | |
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. |
SIGNATURES
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.
| China Solar & Clean Energy Solutions, Inc. | |
| | | |
| By: | /s/ Deli Du | |
| | Deli Du | |
| | Chief Executive Officer and President | |
| | (Principal Executive Officer) | |
| | | |
| By: | /s/ Fangsong Zheng | |
| | Fangsong Zheng | |
| | Acting Chief Financial Officer | |
| | (Principal Financial Officer) | |
Exhibit Index
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. |