UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 20102011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from _______ to _________
Commission File No. 000-12561
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada | | 95-3819300 |
| | |
(State or other jurisdiction of incorporation) | | I.R.S. Employer Identification Number |
Building 3
No. 28 Feng Tai North Road,
Beijing China 1000711000071
(Address of principal executive offices)
(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). o¨ Yes o¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o¨ | | Accelerated filer | o¨ |
| | | | |
Non-accelerated filer | o¨ | (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o¨ Yes x No
The number of shares of the issuer’s common stock, $.001 per share, outstanding as at August 16, 201015, 2011 was 15,233,652.
TABLE OF CONTENTS
INDEX
| | | | Page |
PART 1 - FINANCIAL INFORMATION | | |
| | | | |
| | Item 1. Financial Statements | | 5 |
| | | | |
| | Condensed Consolidated Balance Sheets as at June 30, 20102011 (unaudited) and December 31, 20092010 | | 35 |
| | Condensed Consolidated Statements of Operations for the sixSix Months Ended June 30, 20102011 and 20092010 (unaudited) | | 46 |
| | Condensed Consolidated Statements of Cash Flows for the sixSix Months Ended June 30, 20102011 and 20092010 (unaudited) | | 57 |
| | Condensed Consolidated Statements of Stockholders' Equity and other comprehensiveComprehensive Income for the sixSix Months Ended June 30, 2011 and 2010 (unaudited) and 2009 | | 68 |
| | Notes to Condensed Consolidated Financial Statements (unaudited) | | 79 |
| | | | |
| | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | | 1516 |
| | | | |
| | Item 3. Quantitative and Qualitative Disclosures About Market Risk | | 1921 |
| | | | |
| | Item 4T.4. Controls and Procedures | | 1921 |
| | | | |
PART 2 - OTHER INFORMATION | | |
| | | | |
| | Item 1. Legal Proceedings | | 2022 |
| | Item 1A. Risk Factors | | 22 |
| | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | 22 |
| | Item 3. Defaults Upon Senior Securities | | 22 |
| | Item 4. Removed and ReservedSubmission of Matters to a Vote of Security Holders | | 22 |
| | Item 5. Other Information | | 22 |
| | Item 6. Exhibits | | 2122 |
| | | | |
| | Signatures | | 2223 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about the following subjects:
· | timing and magnitude of technologies advances; |
· | prospects for future acquisitions; |
· | competition in the solar water heaters and boilers industry; |
· | impact of such competition on pricing; |
· | uncertainties surrounding budget reductions or changes in funding priorities of existing government programs; and |
· | cost of attracting and retaining highly skilled personnel. |
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed under “Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended on December 31, 2011, as filed with the Securities and Exchange Commission (the “Commission”) on April 15, 2011. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
CERTAIN TERMS USED IN THIS REPORT
In this Report, unless otherwise noted or as the context otherwise requires: “the Company,” “China Solar”, “we,” “us,” and “our” refers to the combined company China Solar & Clean Energy Solutions, Inc. and its subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this Report only:
· | “AgriSolar” refers to AgriSolar Solutions, Inc, a Colorado corporation; |
· | “Commission” refers to the Securities and Exchange Commission; |
· | “Deli Solar (Bazhou)” refers to Bazhou Deli Solar Energy Heating Co., Ltd., our wholly owned PRC subsidiary; |
· | “Deli Solar (Beijing)” refers to Beijing Deli Solar Technology Development Co., Ltd., our wholly owned PRC subsidiary; |
· | “Deli Solar (BVI)” refers to Deli Solar Holding Ltd., our wholly owned British Virgin Island subsidiary; |
· | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
· | “Forboss” refers to Forboss Solar (ShenZhen) Co, Ltd, a PRC corporation; |
· | “FTHK” refers to Fuwaysun Technology (HK) Limited, a Hong Kong corporation; |
· | “Fuwaysun” refers to Shenzhen Fuwaysun Technology Company Limited, a PRC corporation; |
· | “Meditech” refers Meditech Pharmaceuticals, Inc., a Nevada Company, our formerly known name of the Company; |
· | “PRC” refers to the People’s Republic of China; |
· | “Securities Act” refers to the Securities Act of 1933, as amended; |
· | “Share Exchange” refers to On January 8, 2010, Fuwaysun entered into a Share Exchange Agreement with Agrisolar, pursuant to the terms of which, the Agrisolar agreed to acquire all of the issued and outstanding shares of common stock in Fuwaysun, in exchange for the issuance of an aggregate of up to 58,055,000 shares of the Agrisolar’s common stock to the shareholders of Fuwaysun, thereby causing Fuwaysun and its wholly-owned subsidiaries FTHK, Forboss, and Fuwaysun to become wholly-owned subsidiaries of the Agrisolar. |
· | “Tianjin Huaneng” refers Tianjin Huaneng Energy Equipment Company, a PRC Company; |
· | “Trueframe” refers to Trueframe International Co., Ltd.; and |
· | “U.S.” refers to the United States. |
Item 1. Financial Statements
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | As of June 30, 2010 | | | As of December 31, 2009 | |
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 3,596,126 | | | $ | 4,980,717 | |
Accounts receivable, net | | | 9,982,618 | | | | 8,067,944 | |
Inventories | | | 5,122,077 | | | | 4,547,170 | |
Other receivables and prepayments | | | 3,119,287 | | | | 1,733,695 | |
Deferred tax assets | | | 587,932 | | | | 588,016 | |
Total current assets | | | 22,408,040 | | | | 19,917,542 | |
| | | | | | | | |
Property and equipment, net | | | 13,646,414 | | | | 13,775,554 | |
Goodwill | | | 1,977,652 | | | | 1,967,153 | |
Land use rights | | | 1,583,016 | | | | 1,592,140 | |
Investment in Trueframe International Limited | | | 3,740,972 | | | | 3,812,806 | |
TOTAL ASSETS | | $ | 43,356,094 | | | $ | 41,065,195 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable, trade | | $ | 1,602,749 | | | $ | 1,601,002 | |
Taxes payable | | | 1,459,445 | | | | 1,278,974 | |
Other payables and accrued liabilities | | | 9,794,925 | | | | 9,977,178 | |
Loan payable-employee | | | 1,998,277 | | | | 1,266,747 | |
Short-term loans | | | 736,279 | | | | | |
Total current liabilities | | | 15,591,675 | | | | 14,123,901 | |
| | | | | | | | |
Long-term liabilities | | | - | | | | 156,410 | |
Total liabilities | | | 15,591,675 | | | | 14,280,311 | |
| | | | | | | | |
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 | | | 22,611,909 | | | | 22,611,909 | |
Accumulated other comprehensive income | | | 801,018 | | | | 693,016 | |
Retained earnings | | | 3,847,460 | | | | 3,100,294 | |
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 | | $ | 43,356,094 | | | $ | 41,065,195 | |
See accompanying notes to condensed consolidated financial statements. | | As of June 30, 2011 | | | As of December 31, 2010 | |
| | (Unaudited) | | | | |
| | | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 4,821,943 | | | $ | 5,048,133 | |
Accounts receivable, net | | | 9,637,306 | | | | 10,011,187 | |
Inventories | | | 10,385,281 | | | | 7,808,225 | |
Other receivables and prepayments | | | 3,063,959 | | | | 2,366,870 | |
Deferred tax assets | | | 828,422 | | | | 745,512 | |
Total current assets | | | 28,736,911 | | | | 25,979,927 | |
| | | | | | | | |
Property and equipment, net | | | 13,783,340 | | | | 13,706,953 | |
Goodwill | | | 2,072,484 | | | | 2,026,468 | |
Land use rights,net | | | 1,615,350 | | | | 1,599,243 | |
Investment in Trueframe International Limited | | | 4,433,847 | | | | 4,339,070 | |
TOTAL ASSETS | | $ | 50,641,932 | | | $ | 47,651,661 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Short-term loan - bank | | $ | 772,606 | | | $ | 754,979 | |
Accounts payable | | | 3,438,840 | | | | 3,004,454 | |
Customer deposit payable | | | 10,171,193 | | | | 7,254,392 | |
Taxes payable | | | 152,226 | | | | 863,280 | |
Other payables and accrued liabilities | | | 4,812,111 | | | | 4,547,531 | |
Employee loan | | | 2,001,916 | | | | 1,945,823 | |
Current portion of long-term liabilities | | | 1,265,220 | | | | 1,236,354 | |
Total current liabilities and total liabilities | | | 22,614,112 | | | | 19,606,813 | |
| | | | | | | | |
Stockholders’ equity | | | | | | | | |
Convertible preferred stock: par value $0.001, 25,000,000 shares authorized, 0 shares issued and outstanding | | | - | | | | - | |
Common stock, $0.001 par value, 66,666,667 shares authorized, 15,233,652 shares issued and outstanding at June 30, 2011 and December 31, 2010 | | | 15,233 | | | | 15,233 | |
Additional paid-in capital | | | 22,611,909 | | | | 22,611,909 | |
Accumulated other comprehensive income | | | 2,147,553 | | | | 1,485,064 | |
Retained earnings | | | 2,835,492 | | | | 3,504,112 | |
Total stockholders’ equity-China Solar | | | 27,610,187 | | | | 27,616,318 | |
Non-controlling interest in subsidiary | | | 417,633 | | | | 428,530 | |
Total Stockholder’s Equity | | | 28,027,820 | | | | 28,044,848 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 50,641,932 | | | $ | 47,651,661 | |
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
| | Three months ended June 30, | | | Six months ended June 30, | |
| | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | |
Revenue | | $ | 6,777,715 | | | $ | 10,705,927 | | | | 10,328,844 | | | $ | 14,602,341 | |
Cost of revenue | | | 5,343,502 | | | | 7,713,567 | | | | 8,207,373 | | | | 10,448,571 | |
Gross profit | | | 1,434,213 | | | | 2,992,360 | | | | 2,121,471 | | | | 4,153,770 | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 121,732 | | | | 104,311 | | | | 247,914 | | | | 226,824 | |
Selling and distribution | | | 753,880 | | | | 729,260 | | | | 1,429,000 | | | | 1,356,329 | |
General and administrative | | | 429,093 | | | | 698,661 | | | | 835,609 | | | | 1,295,426 | |
Total operating expenses | | | 1,304,705 | | | | 1,532,232 | | | | 2,512,523 | | | | 2,878,579 | |
| | | | | | | | | | | | | | | | |
Income (loss) from operations | | | 129,508 | | | | 1,460,128 | | | | (391,052 | ) | | | 1,275,191 | |
| | | | | | | | | | | | | | | | |
Other income (expenses): | | | | | | | | | | | | | | | | |
Interest expense, net of interest income | | | (95,256 | ) | | | (88,026 | ) | | | (212,121 | ) | | | (159,573 | ) |
Equity in loss of non-consolidated subsidiary | | | (33,469 | ) | | | (72,000 | ) | | | (35,280 | ) | | | (72,000 | ) |
Total other income (expenses) | | | (128,725 | ) | | | (160,026 | ) | | | (247,401 | ) | | | (231,573 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) Before Income Taxes | | | 783 | | | | 1,300,102 | | | | (638,453 | ) | | | 1,043,618 | |
Income tax expense | | | 41,209 | | | | 105,908 | | | | 50,539 | | | | 172,085 | |
Net income (loss) | | | (40,426 | ) | | | 1,194,194 | | | | (688,992 | ) | | | 871,533 | |
Less: Net Income (loss) attributable to non-controlling interests | | | (60,138 | ) | | | 119,368 | | | | (20,372 | ) | | | 124,367 | |
Net income (loss) attributable to the Company | | $ | 19,712 | | | $ | 1,074,826 | | | | (668,620 | ) | | $ | 747,166 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Earnings (loss) per common share - Basic and Diluted | | $ | 0.00 | | | $ | 0.08 | | | | (0.04 | ) | | $ | 0.06 | |
| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding - Basic and Diluted | | | 15,233,652 | | | | 15,233,652 | | | | 15,233,652 | | | | 15,233,652 | |
| | 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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in United States Dollars (“US$”))
| | 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 | | Six months ended June 30, | |
| | 2011 | | | 2010 | |
| | | | | | |
Cash flows from operating activities: | | | | | | |
Net cash used in operating activities | | $ | (255,653 | ) | | $ | (2,143,894 | ) |
| | | (255,653 | ) | | | (2,143,894 | ) |
Cash flows from investing activities: | | | | | | | | |
Purchase of property, plant and equipment | | | (27,857 | ) | | | (117,516 | ) |
Net cash used in investing activities | | | (27,857 | ) | | | (117,516 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from bank loan | | | - | | | | 732,732 | |
Net cash provided by financing activities | | | - | | | | 732,732 | |
| | | | | | | | |
| | | | | | | | |
Effect of exchange rate on cash and cash equivalents | | | 57,320 | | | | 144,087 | |
| | | | | | | | |
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS | | | (226,190 | ) | | | (1,384,591 | ) |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 5,048,133 | | | | 4,980,717 | |
| | | | | | | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 4,821,943 | | | $ | 3,596,126 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | | |
Cash paid for income taxes | | $ | 97,797 | | | $ | 132,453 | |
Cash paid for interest expenses | | $ | 129,821 | | | $ | 101,715 | |
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME
(Currency expressed in 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 | |
See accompanying notes to condensed consolidated financial statements | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net Income (loss) attributable to the Company | | $ | 19,712 | | | $ | 1,074,826 | | | $ | (668,620 | ) | | $ | 747,166 | |
Other comprehensive income(loss) | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | 379,402 | | | | 10,510 | | | | 671,964 | | | | 15,342 | |
Comprehensive income (loss) | | | 399,114 | | | | 1,085,336 | | | | 3,344 | | | | 762,508 | |
Less: Comprehensive income attributable to non-controlling interests | | | 5,350 | | | | 859 | | | | 9,475 | | | | 1,254 | |
Comprehensive Income (loss) Attributable To the Company | | $ | (393,764 | ) | | $ | 1,084,477 | | | $ | (6,131 | ) | | $ | 761,254 | |
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements. However, the information included in these 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,reflects all adjustments (consisting onlysolely of normal recurring adjustments) consideredwhich are, in the opinion of management, necessary for athe fair presentation have been included.of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet as of December 31, 2010 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year 2010. These interim financial statements should be read in conjunction with that report.
For further information, refer to the auditedconsolidated financial statements and notesfootnotes thereto containedincluded in the Company’s annual reportAnnual Report on Form 10-K for the year ended December 31, 2009.2010.
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 six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2010 or for any future period.
NOTE 2 - ORGANIZATION AND BUSINESS
China Solar & Clean Energy Solutions, Inc. (“China Solar”), formerly known as Deli Solar (USA) Inc., was incorporated in the State of Nevada on March 21, 1983 as Meditech Pharmaceuticals, Inc. (“Meditech”). In late 2004, the Board of Directors of Meditech contemplated a strategic reorganization with Deli Solar Holding Ltd., a corporation organized in the British Virgin Islands (“Deli Solar (BVI)”). The acquisition of Deli Solar (BVI) was accounted for as a recapitalization of Deli Solar (BVI).
On August 1, 2004, Deli Solar (BVI) purchased Bazhou Deli Solar Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a corporation duly organized under the laws of the People’s Republic of China (“PRC”). As a result of this transaction, Deli Solar (Bazhou) became a wholly-foreign owned enterprise (“WFOE”) under PRC law on March 30, 2005. This acquisition was accounted for as a transfer of entities under common control.
Deli Solar (Bazhou) was incorporated on August 19, 1997 under the laws of the PRC. In the PRC, Ltd,Ltd., or Limited, is equivalent to Inc,Inc., or Incorporated, in the United States (“US”).
On November 21, 2005 Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli Solar (Bazhou). The transaction was accounted for as a transfer of entities under common control.
Beijing Deli Solar Technology Development Co., Ltd. (“Deli Solar (Beijing)”), our wholly owned PRC subsidiary, was founded in 2006 and is principally engaged in solar power heater integrated construction projects in major cities in the PRC.
Deli Solar (Beijing) ownesowns 91.82% of Tianjin Huaneng 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 radiators. On July 6, 2009, Deli Solar (Beijing) entered into a termination agreement (the "Termination Agreement") with the three shareholders of SZPSP. The Termination Agreement terminates the equity 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), Deli Solar (Bazhou), Ailiyang, Deli Solar (Beijing) and Tianjin Huaneng are hereinafter referred to as the “Company”.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2010,During the FASB issuedthree months ended June 30, 2011, there were no changes made to our critical accounting policies and the use of estimates. For further information, please refer to “Critical Accounting Standards Update (“ASU”) 2010-06, “improving Disclosures about Fair Value Measurements,” which clarifies certain existing requirementsPolicies” included in ASC 820 “Fair Value Measurements and Disclosures,” and required disclosures related to significant transfers between each level and additional information about Level 3 activity. FASB ASU 2010-06 begins phasing inPART II, Item 7 of our Annual Report on Form 10-K for the first fiscal period beginning afteryear ended December 15, 2009. The Company is currently assessing the impact on its consolidated results of operations and financial conditions.
In February 2010, the FASB issued FASB ASU 2010-09, “Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements,” which clarifies certain existing evaluation and disclosure requirements in ASC 855 “Subsequent Events” related to subsequent events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events through the date in which the financial Statements are issued and are effective immediately. The new guidance does not have an effect on the Company’s consolidated results of operations and financial condition.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.31, 2010.
NOTE 4-INVESTMENT IN TRUEFRAME INTERNATIONAL LTD.
During the year ended December 31, 2008 and 2009, we loaned Shenzhen Fuwaysun Technology Co., Ltd. (“Fuwaysun”) approximately $4,000,000 under two loan agreements. In October 23, 2009, our wholly owned subsidiary, Deli Solar (Bazhou), entered into an agreement with Trueframe International LimitedCo., Ltd. (“Trueframe”), the 55.78% indirect owner of Fuwaysun to acquire 28% of outstanding stock of Trueframe in exchange for the loans of approximately $4,000,000. Trueframe is a BVI company that owns 32,550,000 outstanding shares, or approximately 55.78% of AgriSolar Solutions, Inc. (“AgriSolar”). Agrisolar owns 100% of Fuweysun through one of its wholly owned subsidiaries.
On January 8, 2010, Fuwaysun entered into a Share Exchange Agreement with AgriSolar. Pursuant to the terms of the Exchange Agreement, Agrisolar agreed to acquire all of the issued and outstanding shares of common stock in Fuwaysun, in exchange for the issuance of an aggregate of up to 58,055,000 shares of the Agrisolar’s common stock to the shareholders of Fuwaysun, thereby causing Fuwaysun and its wholly-owned subsidiaries, Fuwaysun Technology (HK) Limited, a Hong Kong corporation (“FTHK”), Forboss Solar (ShenZhen) Co, Ltd, a PRC corporation (“Forboss”), and Shenzhen Fuwaysun Technology Company Limited, a PRC corporation (“Fuwaysun”) to become wholly-owned subsidiaries of Agrisolar (the “Share Exchange”). As a result of the Share Exchange, Trueframe is the owner of 32,550,000 shares, or approximately 55.78% of Agrisolar issued and outstanding common stock. In October, 2009, we acquiredthe loans, exclusive of RMB 1,000,000 (approximately $146,451) were converted into 28% of the outstanding equity of Truefame International Limited ("Truefame"), whichTrueframe. Trueframe is a holding company that owns 55.78 %55.78% of Fuwaysun. The remaining RMB 1,000,000 is due when Fuwaysun receives adequate funding. Thus, Deli Solar (BVI) owns indirectly 15.62% of the outstanding common stock of AgriSolar Solutions, Inc. ("AGSO"), which holds Shengzhen Fuwaysun Technology Co., Ltd. ("Fuwaysun") for approximately $3,741,000. Fuwaysun is a PRC company primarily engagedAgriSolar.
The investment in the development and production of solar pest killing lamps and transportable solar generators.The investment isTruframe has been accounted for under the equity method of accounting.method.
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 exchange 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 accompanying 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 65 - 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 offor an allowance for doubtful accounts based on the aging of accounts receivable that management believes to be reasonable.
| | | June 30, 2011 | | | December 31, 2010 | |
| | June 30, 2010 | | December 31, 2009 | | | (Unaudited) | | | | |
| | (Unaudited) | | | | | | | | | |
Accounts receivable, cost | | $ | 11,544,327 | | | $ | 9,621,122 | | | $ | 10,998,273 | | | $ | 11,341,103 | |
Less : allowance for doubtful accounts | | | (1,561,709 | ) | | | (1,553,178 | ) | | | 1,360,967 | | | | 1,329,916 | |
Accounts receivable, net | | $ | 9,982,618 | | | $ | 8,067,944 | | | $ | 9,637,306 | | | $ | 10,011,187 | |
Inventories:
| | | June 30, 2011 | | | December 31, 2010 | |
| | June 30, 2010 | | December 31, 2009 | | | (Unaudited) | | | | |
| | (Unaudited) | | | | | | | | | |
Raw materials | | $ | 2,265,357 | | | $ | 1,186,188 | | | $ | 2,505,554 | | | $ | 1,992,316 | |
Consumables | | | 16,844 | | | | 16,358 | | | | 19,628 | | | | 17,804 | |
Work-in-process | | | 73,018 | | | | 57,357 | | | | 2,822,081 | | | | 867,726 | |
Finished goods | | | 2,766,858 | | | | 3,287,267 | | | | 5,038,018 | | | | 4,930,379 | |
Inventories | | $ | 5,122,077 | | | $ | 4,547,170 | | | $ | 10,385,281 | | | $ | 7,808,225 | |
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. | | June 30, 2011 | | | December 31, 2010 | |
| | (Unaudited) | | | | |
| | | | | | |
Advance to suppliers | | $ | 1,830,648 | | | $ | 867,018 | |
Other receivables | | | 1,233,311 | | | | 1,499,852 | |
Other receivables and prepayments | | $ | 3,063,959 | | | $ | 2,366,870 | |
Other payables and accrued liabilities:
| | June 30, 2010 | | December 31, 2009 | | | June 30, 2011 | | | December 31, 2010 | |
| | (Unaudited) | | | | | (Unaudited) | | | | |
Customer deposit | | $ | 3,895,096 | | | $ | 4,488,561 | | |
| | | | | | | |
Salary payable | | | 420,544 | | | | 521,951 | | | | 352,876 | | | | 637,996 | |
Accrued expenses | | | 221,430 | | | | 226,430 | | |
Accrued expenses and interest payable | | | | 209,779 | | | | 294,009 | |
Other payables | | | 2,905,996 | | | | 2,551,978 | | | | 3,187,220 | | | | 2,577,525 | |
Warranty provision | | | 1,022,132 | | | | 1,016,549 | | | | 1,062,236 | | | | 1,038,001 | |
Current portion of investment payable(1) | | | 1,329,727 | | | | 1,171,709 | | |
Totals | | $ | 9,794,925 | | | $ | 9,977,178 | | | $ | 4,812,111 | | | $ | 4,547,531 | |
(1) Represents liability in connection with the acquisition of Tianjin Huaneng,
NOTE 76 - STOCKHOLDERS’ EQUITY
Common stock
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 StocksStock Held in Escrow
In connection with the private placement on February 29, 2008, the Company deposited 2,000,000 shares of common stock (“Make Good Shares”) into escrow and we are required to deliver (i) 1,000,000 of the Make Good Shares to the investors on a pro rata basis for no additional consideration in the event that the Company’s after-tax net income for the fiscal year ending December 31, 2008 is less than $4.8 million; and (ii) 1,000,000 of the Make Good Shares to the investors on a pro rata basis for no additional consideration in the event that the Company’s after-tax net income for the fiscal year ending December 31, 2009 is less than $8 million. As of December 31, 2008, the after-taxThe after tax net income target of $4.8 for the year ended December 31, 2008 and $8 million hasfor the year ended December 31, 2009 have not been met. The registration statement of 1,000,0002,000,000 of the Make Good Sharesshares to the investors was declared effective on July 20, 2009.effective.
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 | | | Number of Shares | | | Weighted- average Exercise Price | | | Weighted- average Remaining Contractual Term | |
Outstanding and Exercisable at January 1, 2009 | | 7,091,682 | | | $ | 2.76 | | | 3.53 years | | |
Outstanding and Exercisable at January 1, 2010 | | | | 6,622,532 | | | $ | 2.48 | | | 2.25 years | |
Granted | | - | | | - | | | | - | | | | - | | | | - | | | | - | |
Exercised | | - | | | - | | | | - | | | | - | | | | - | | | | - | |
Forfeited | | 469,150 | | | - | | | | - | | | | - | | | | - | | | | - | |
Expired | | - | | | - | | | | - | | | | - | | | | - | | | | - | |
Outstanding and Exercisable at December 31, 2009 | | 6,622,532 | | | $ | 2.48 | | | 2.25 years | | |
Outstanding and Exercisable at December 31, 2010 | | | | 6,622,532 | | | $ | 2.48 | | | 1.25 years | |
Granted | | - | | | - | | | | - | | | | - | | | | - | | | | - | |
Exercised | | - | | | - | | | | - | | | | - | | | | - | | | | - | |
Forfeited | | - | | | - | | | | - | | | | - | | | | - | | | | - | |
Expired | | 1,825,719 | | | - | | | | - | | | | - | | | | - | | | | - | |
Outstanding and Exercisable at June 30, 2010 | | 4,796,813 | | | 1.95 | | | 2.3 years | | |
Outstanding and Exercisable at June 30, 2011 | | | | 6,622,532 | | | | 2.48 | | | 1 year | |
NOTE 87 - INCOME TAXES
The Company is registered in the United States of America (“U.S.”) and has operations in three tax jurisdictions: the United States of America, the British Virgin IslandIslands (“BVI”) and the PRC. The operations in the United States of AmericaU.S. and British Virgin Islandthe BVI 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 comparison of income tax expense at the U.S. statutory rate of 35% to the Company's effective tax is as follows:
| | For the six month ended | |
| | June 30, | |
| | 2011 | | | 2010 | |
| | | | | | |
U.S. statutory rate at 35% | | $ | (223,469 | ) | | $ | 365,265 | |
Tax reate difference between China and U.S. | | | 111,427 | | | | (251,301 | ) |
Tax paid for prior periods | | | 77,936 | | | | - | |
Change in valuation allowance | | | 84,645 | | | | 58,121 | |
Effective tax | | $ | 50,539 | | | $ | 172,085 | |
The provisions for income tax are summarized as follows:
Current | | $ | 123,273 | | | $ | 132,564 | |
Deferred | | | (72,734 | ) | | | 39,521 | |
Total | | $ | 50,539 | | | $ | 172,085 | |
NOTE 98 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a) Business information
During the sixthree months ended June 30, 2010,2011, the Company had primarily three reportable segments, (i) Solar Heater/Biomass Stove/Boiler related products, (ii) Heat pipe related productsequipments/Energy-saving projects and (iii) Building integrated energy-saving projects, under the management of Bazhou, Tianjin Huaneng, and Deli Solar (Beijing), respectively.
The Company’s revenue, gross profit and total assets by reportable segment are as follows:
Sales Revenues
Sales Revenues | | | | | | | | | | | | | |
| | Three months ended June 30, | | | Six months ended June 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2010 | | | 2009 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 1,786,423 | | | $ | 1,463,547 | | | $ | 2,531,834 | | | $ | 3,011,395 | | | $ | 752,416 | | | $ | 1,786,423 | | | $ | 1,100,492 | | | $ | 2,531,834 | |
Heat pipe related equipments/Energy-saving projects | | | 8,920,032 | | | | 11,843,316 | | | | 12,071,035 | | | | 13,949,263 | | | | 5,936,060 | | | | 8,920,032 | | | | 9,107,107 | | | | 12,071,035 | |
Building integrated energy saving projects | | | (528 | ) | | | - | | | | (528 | ) | | | - | | |
Building integrated energy-saving projects | | | | 89,239 | | | | (528 | ) | | | 121,245 | | | | (528 | ) |
| | $ | 10,705,927 | | | $ | 13,306,863 | | | $ | 14,602,341 | | | $ | 16,960,658 | | | $ | 6,777,715 | | | $ | 10,705,927 | | | $ | 10,328,844 | | | $ | 14,602,341 | |
Gross ProfitGross Profit | | | | | | | | | | | | |
| | Three months ended June 30, | | | Six months ended June 30, | |
| | 2011 | | | 2010 | | | 2011 | | | 2010 | |
Gross profit: | | | | | | | | | | | | |
Solar heater/Biomass stove/Boiler related products | | $ | 183,987 | | | $ | 394,908 | | | $ | 250,836 | | | $ | 504,629 | |
Heat pipe related equipments/Energy-saving projects | | | 1,192,993 | | | | 2,597,980 | | | | 1,782,785 | | | | 3,649,669 | |
Building integrated energy-saving projects | | | 57,233 | | | | (528 | ) | | | 87,850 | | | | (528 | ) |
| | $ | 1,434,213 | | | $ | 2,992,360 | | | $ | 2,121,471 | | | $ | 4,153,770 | |
| Three months ended June 30, | | Six months ended SepteJune 30, | | |
| 2010 | | 2009 | | 2010 | | 2009 | | |
Gross profit: | | | | | | | | | |
Total assets | | | | | | | |
Total assets | | | June 30,2011 | | | June 30,2010 | |
Solar heater/Biomass stove/Boiler related products | | $ | 394,908 | | | $ | 319,922 | | | $ | 504,629 | | | $ | 648,234 | | | $ | 20,853,926 | | | $ | 20,640,186 | |
Heat pipe related equipments/Energy-saving projects | | | 2,597,980 | | | | 2,963,104 | | | | 3,649,669 | | | | 3,520,606 | | | | 25,337,537 | | | | 22,744,744 | |
Building integrated energy saving projects | | | (528 | ) | | | - | | | | (528 | ) | | | - | | |
Building integrated energy-saving projects | | | | 1,328,488 | | | | 1,524,390 | |
Administration | | | | 3,121,981 | | | | 2,742,341 | |
| | $ | 2,992,360 | | | $ | 3,283,026 | | | $ | 4,153,770 | | | $ | 4,168,840 | | | $ | 50,641,932 | | | $ | 47,651,661 | |
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 sixthree months ended June30,June 30, 2011 and 2010 and 2009 are analyzed as follows:
RevenueRevenue | | | | | | | | | | | | |
| | Three months ended June 30, | | | Six months ended June 30, | |
| | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | |
PRC | | $ | 6,777,715 | | | $ | 9,840,185 | | | $ | 10,310,195 | | | $ | 13,165,686 | |
Others | | | - | | | | 865,742 | | | | 18,649 | | | | 1,436,655 | |
| | $ | 6,777,715 | | | $ | 10,705,927 | | | $ | 10,328,844 | | | $ | 14,602,341 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | | | | | | | | | | | | | | |
| 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 | |
| | | Three months ended June 30, | | | Six months ended June 30, | |
| Three months ended June 30, | | Six months ended SepteJune 30, | | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| 2010 | | 2009 | | 2010 | | 2009 | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | | | |
PRC | | $ | 2,764,919 | | | $ | 3,058,071 | | | $ | 3,667,269 | | | $ | 3,915,410 | | | $ | 1,434,213 | | | $ | 2,764,919 | | | $ | 2,116,450 | | | $ | 3,667,269 | |
Others | | | 227,441 | | | | 224,955 | | | | 486,501 | | | | 253,430 | | | | - | | | | 227,441 | | | | 5,021 | | | | 486,501 | |
| | $ | 2,992,360 | | | $ | 3,283,026 | | | $ | 4,153,770 | | | $ | 4,168,840 | | | $ | 1,434,213 | | | $ | 2,992,360 | | | $ | 2,121,471 | | | $ | 4,153,770 | |
Total assets
| June 30, | | December 31, | | | June 30, | | | December 31, | |
| 2010 | | 2009 | | | 2011 | | | 2010 | |
Total assets: | | | | | | | | | | |
PRC | | $ | 43,048,967 | | | $ | 37,720,553 | | | $ | 50,617,315 | | | $ | 47,629,861 | |
Others | | $ | 307,127 | | | $ | 3,344,642 | | | | 24,617 | | | | 21,800 | |
| | $ | 43,356,094 | | | $ | 41,065,195 | | | $ | 50,641,932 | | | $ | 41,651,661 | |
CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
NOTE 10 –NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share for the six months ended June 30, 2010 and 2009:
| 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 119 - SUBSEQUENT EVENT
The Company announced on July 25, 2011 that one of its subsidiaries (Deli Solar (BVI)) signed an agreement with Guizhou Fuxiang Eco-Industrial City Investment & Development Co. Ltd to jointly construct green eco-buildings. The eco-buildings will be planned and applied with low carbon and eco-technologies for the purpose of energy-saving, low carbon ecology, and integrated solar energy solutions.
Engineering costs are expected to amount to over RMB 4 billion (US $630 million) with a net profit rate of approximately 16-18%. Construction will be implemented over three phases. First phase construction is expected to commence August 2011 and continue through December 2012, covering 1.5km2 (0.58 miles2) with costs estimated from RMB 750-900 million (USD $116-140 million); Second phase construction is expected to commence August 2012 and continue through October 2014, covering 4km2 (1.54 miles2) with costs estimated from RMB 2–2.4 billion (USD $310-370 million); Third phase construction is expected to commence August 2013 and continue through December 2015, covering 2.5km2 (0.97 miles2) with costs estimated from RMB 4-4.8 billion (USD $620-740 million).
The Company has evaluated subsequent events after the balance sheet date through the date the financial statements were issued , thereissued. There are no other subsequent events that are required to be recorded or disclosed in the accompanying interim financial statements.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information — this item includes “forward-looking statements”. AllThe following discussion and analysis of the results of operations and financial condition for the six months ended June 30, 2011 and 2010 should be read in conjunction with our financial statements other thanand the notes to those financial statements of historical facts,that are included elsewhere 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. TheseReport. Our discussion includes forward-looking statements rely onbased upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of 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.factors. See “Cautionary Note Regarding Forward Looking Statements.”
We are engaged in the solar and renewable energy business in the PRC. Our business is conducted through our wholly-owned PRC based operating subsidiaries, Bazhou Deli Solar Beijing(Bazhou), Deli Solar (Beijing), and our indirect subsidiary Tianjin Huaneng (majority owned).
The Company has three reportable segments: (i) Solar Heater/Biomass Stove/Boiler related products, (ii) Heat pipe related 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 sells renewable energy systems to produce hot water and for space heating in the PRC. Bazhou Deli Solar’sSolar (Bazhou)'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 component parts for its products and provides after-sales maintenance and repair services.
Deli Solar (Beijing), a wholly owned PRC subsidiary, is principally engaged in building integrated energy-saving projects in major cities in the PRC, including Beijing.
Tianjin Huaneng manufactures heating products such as heating pipes, heat exchangers, specialty heating pipes and tubes, high temperature hot blast boilers, heating filters, normal pressure water boilers, solar energy water heaters and radiators.
Approximately 17.34%10.7% of our net revenue for the six months ended June 30, 20102011 was derived from sales of our solar heater/biomass stove/boiler related products, and 82.66%88.2% from sales of our heat pipe related equipment/energy-saving projects, and 1.2% from sales of our building integrated energy projects, respectively. Approximately 90.16%99.8% and 9.84%0.2% of our net revenuesrevenue for the six months ended June 30, 2010, were2011, was derived from sales made inside the PRC and outside the PRC, respectively.
RESULTS OF OPERATIONS
Three months ended June 30, 20102011 compared to three months ended June 30, 20092010
Sales RevenuesRevenue
| Three months ended June 30, | | | Three months ended June 30, | |
| 2010 | | 2009 | | |
Revenue: | | | | | |
Revenue | | | 2011 | | | 2010 | |
Solar heater/Biomass stove/Boiler related products | | $ | 1,786,423 | | | $ | 1,463,547 | | | $ | 752,416 | | | $ | 1,786,423 | |
Heat pipe related equipments/Energy-saving projects | | | 8,920,032 | | | | 11,843,316 | | | | 5,936,060 | | | | 8,920,032 | |
Building integrated energy saving projects | | | (528 | ) | | | - | | |
| | $ | 10,705,927 | | | $ | 13,306,863 | | |
Building integrated energy-saving projects | | | | 89,239 | | | | (528 | ) |
Total | | | $ | 6,777,715 | | | $ | 10,705,927 | |
Overall: Sales revenueRevenue for the three months ended June 30, 2011 was $6,777,715 as compared to $10,705,927 for the three months ended June 30, 2010, were $10,705,927 as compareda decrease of $3,928,212 or 36.7%. The decrease was primarily due to $13,306,863the decrease in revenue from solar heater/biomass stove/boiler related products and heat pipe related equipments/energy-saving projects.
Solar heater/Biomass Stove/Boiler related products: Revenue for the three months ended June 30, 2009, a decrease of $2,600,936 or 19.55%. The decrease in sales2011 was primarily attributable$752,416 as compared 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$1,786,423 for the three months ended June 30, 2010, were $1,786,423 as compared to $1,463,547 for the three months ended June 30, 2009, a increasedecrease of $322,876$1,034,007 or 22.06%57.9%. The increasedecrease in sales revenue derived from solar heaters/biomass stove/boiler related products was due to strong competition, which resulted in a loss of market share in this segment. We expect competition to remain fierce in the increasing demand for solar heater related products market in the second quarter this year.foreseeable future. We expect solar heaters in Company continue to decline.
Heat pipe related equipments/Energy-saving projects: Sales revenueRevenue for the three months ended June 30, 2011 was $5,936,060 as compared to $8,920,032 for the three months ended June 30, 2010, a decrease of $2,983,972 or 33.5%. The decrease in sales revenue from heat pipe related equipments/energy-saving projects was $8,920,032due to the decrease in some large projects compared to $11,843,316the previous year period, however we expect the revenue will increase in the second half year, due to our recent efforts to expand this segment and as we expect to recognize revenue in the second half of the current fiscal year from several contracts that were entered into in the first half of the current fiscal year.
Building integrated energy-saving projects: Revenue for the three months ended June 30, 2009, a decrease2011 was $89,239 as compared to $-528 for the three months ended June 30, 2010, an increase of $2,923,284 or 24.68%, because we pay little attention to small orders this year. No enough attention to mini-orders results in the decrease of$89,767. The sales in the past six months .However, we believe that new and large order clients will increase, which will leadrevenue from building integrated energy-saving projects was due to the increase of sales volumein integrated solar energy-saving building projects in Deli Solar (Beijing), we expect the revenue will increase in the nextfuture due to our recent efforts to expand this segment and as we expect to generate more revenue in the second half year.of the current fiscal year compared to the previous year period.
Gross Profit
| Three months ended June 30, | | | Three months ended June 30 | |
| 2010 | | 2009 | | |
Gross profit: | | | | | |
Gross profit | | | 2011 | | | 2010 | |
Solar heater/Biomass stove/Boiler related products | | $ | 394,908 | | | $ | 319,922 | | | $ | 183,987 | | | $ | 394,908 | |
Heat pipe related equipments/Energy-saving projects | | | 2,597,980 | | | | 2,963,104 | | | | 1,192,993 | | | | 2,597,980 | |
Building integrated energy saving projects | | | (528 | ) | | | - | | |
Building integrated energy-saving projects | | | | 57,233 | | | | (528 | ) |
| | $ | 2,992,360 | | | $ | 3,283,026 | | | $ | 1,434,213 | | | $ | 2,992,360 | |
Overall: Gross profit for the three months ended June 30, 2011was $1,434,213 as compared to $2,992,360 for the three months ended June 30, 2010, a decrease of $1,558,147 or 52.1%. The decrease was primarily due to the decrease in gross profit from solar heater/biomass stove/boiler related products and heat pipe related equipments and energy-saving projects.
Solar heater/Biomass Stove/Boiler related products: Gross profit and gross profit margin for the three months ended June 30, 2010 increased by approximately 3.28% to 27.95%,2011 were $183,987 and 24.5% respectively, as compared to 24.67%$394,908 and 22.1% for the three months ended June 30, 2009. This2010. Gross profit decreased $210,921 or 53.4%. The decrease in gross profit from solar heaters/biomass stove/boiler related products was primarily due to the increasestrong competition, which resulted in sales pricesa loss of our heat pipe related equipments.market share in this segment.
Solar heater/Biomass stove/Boiler related products: Gross profit margin for the three months ended June 30, 2010 was approximately 22.11%, a slight increase of 0.25% as compared to 21.86% for the three months ended June 30, 2009.
Heat pipe related equipments/Energy-saving projects: Gross profit and gross profit margin for the three months ended June 30, 2010 was approximately 29.13%, a increase of 4.11% from 25.02%2011 were $1,192,993 and 20.1% respectively, as compared to $2,597,980 and 29.1% for the three months ended June 30, 20092010. Gross profit decreased $1,404,987 or 54.1% The decrease in sales revenue from heat pipe related equipments/energy-saving projects was due to anthe decrease in some large projects compared to the previous year period, however we expect the revenue will increase in the sale prices.second half year due to our recent efforts to expand this segment and as we expect to recognize revenue in the second half of the current fiscal year from several contracts that were entered into in the first half of the current fiscal year. Gross profit margin decreased 9.0%, the main reason was due to the increase of cost, including raw material labor cost and other product cost.
Building integrated energy-saving projects: Gross profit for the three months ended June 30, 2011 was $57,233 as compared to $-528 for the three months ended June 30, 2010, an increase of $57,761. The increase in sales revenue from building integrated energy-saving projects was due to the increase in integrated solar energy-saving building projects in Deli Solar (Beijing), we expect the revenue will increase in the future.
Operating Expenses
Operating expenses for the three months ended June 30, 20102011 were $ 1,528,696,$1,304,705, as compared to $ 1,234,781 for the three months ended June 30, 2009, an increase of $ 293,915, or 23.80%. The overall increase in operating expenses was primarily due to the increase in the wages of the staff under the management of Tianjin Huaneng.
Depreciation and amortization expenses increased to $ 104,311$1,532,232 for the three months ended June 30, 2010, a increasedecrease of $ 1,026$227,527, or 0.99%, from $ 103,28514.8%. The overall decrease in operating expenses was primarily due to the cost reduction and consolidation efforts in our general and administrative functions.
Depreciation and amortization expenses increased to $121,732 for the three months ended June 30, 2009,2011, or 16.7%, from $104,311 for the three months ended June 30, 2010, primarily as a result of the increase of our manufacturing equipment and building.
Selling and distribution expenses increased to $ 729,260$753,880 for the three months ended June 30, 2011, or 3.4%, from $729,260 for the three months ended June 30, 2010, primarily due to the increase in transportation cost.
General and administrative expenses were $429,093 for the three months ended June 30, 2011 (or approximately 6.3% of sales) compared to $698,661 (or approximately 6.5% of sales) for the three months ended June 30, 2010, a increasedecrease of $ 248,673 or 51.74%, from $ 480,58738.6%. The decrease was primarily due to cost reduction and consolidation efforts in our general and administrative functions.
Net Income (loss)
Net loss was $40,426 for the three months ended June 30, 2009, because we have improved the marketing personnel's wage level this year.
General and administrative expenses were $ 695,1252011, compared to net income of $1,194,194 for the three months ended 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, a increase of 6.79%, 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 mainlyprimarily due to the gain on disposal of SZPSP last yeardecrease in revenue and the increase in the wages of the staff under the management of Tianjin Huaneng.gross profit.
Six months ended June 30, 20102011 compared to six months ended June 30, 20092010
Sales Revenue
| Six months ended June 30, | | | Six months ended June 30, | |
| 2010 | | 2009 | | |
Revenue: | | | | | |
Revenue | | | 2011 | | | 2010 | |
Solar heater/Biomass stove/Boiler related products | | $ | 2,531,834 | | | $ | 3,011,395 | | | $ | 1,100,492 | | | $ | 2,531,834 | |
Heat pipe related equipments/Energy-saving projects | | | 12,071,035 | | | | 13,949,263 | | | | 9,107,107 | | | | 12,071,035 | |
building integrated energy saving projects | | | (528 | ) | | | - | | |
| | $ | 14,602,341 | | | $ | 16,960,658 | | |
Building integrated energy-saving projects | | | | 121,245 | | | | (528 | ) |
Total | | | $ | 10,328,844 | | | $ | 14,602,341 | |
Overall: Sales revenueRevenue for the six months ended June 30, 2011 was $10,328,844 as compared to $14,602,341 for the six months ended June 30, 2010, were $14,602,341 as compareda decrease of $4,273,497 or 29.3%. The decrease was primarily due to $16,960,658the decrease in revenue from solar heater/biomass stove/boiler related products and heat pipe related equipments/energy-saving projects.
Solar heater/Biomass Stove/Boiler related products: Revenue for the six months ended June 30, 2009, a decrease of $2,358,317 or 13.90%. The decrease in sales2011 was primarily attributable$1,100,492 as compared 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$2,531,834 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$1,431,342 or 15.92%56.5%. 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 accessWe expect competition to China favorable policy or “China’s Home Appliance Subsidy Program For Rual Areas” as is called for domestic enterprises.remain fierce in the solar heater related products market in the foreseeable future. We expect solar heaters in Company continue to decline.
Heat pipe related equipments/Energy-saving projects: SalesRevenue for the six months ended June 30, 2011 was $9,107,107 as compared to $12,071,035 for the six months ended June 30, 2010. a decrease of $2,963,928 or 24.6%. The decrease in sales revenue from heat pipe related equipments/energy-saving projects was due to the decrease in some large projects compared to the previous year period, however we expect the revenue will increase in the future due to our recent efforts to expand this segment and as we expect to generate more revenue in the second half of the current fiscal year compared to the previous year period.
Building integrated energy-saving projects: Revenue for the six months ended June 30, 2011 was $121,245 as compared to $-528 for the six months ended June 30, 2010, an increase of $121,773. The increase in sales revenue from building integrated energy-saving projects was $ 12,071,035 compareddue to $13,949,263the increase in integrated solar energy-saving building projects in Deli Solar (Beijing), we expect the revenue will increase in the future, due to our recent efforts to expand this segment and as we expect to recognize revenue in the second half of the current fiscal year from several contracts that were entered into in the first half of the current fiscal year.
Gross Profit
| | Six months ended June 30 | |
Gross profit | | 2011 | | | 2010 | |
Solar heater/Biomass stove/Boiler related products | | $ | 250,836 | | | $ | 504,629 | |
Heat pipe related equipments/Energy-saving projects | | | 1,782,785 | | | | 3,649,669 | |
Building integrated energy-saving projects | | | 87,850 | �� | | | (528 | ) |
| | $ | 2,121,471 | | | $ | 4,153,770 | |
Overall: Gross profit 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 attention2011was $2,121,471 as compared 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$4,153,770 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. Thisa decrease of $2,032,299 or 48.9%. The decrease was primarily due to the increasedecrease in sales volumegross profit from solar heater/biomass stove/boiler related products and prices of our heat pipe related equipments.equipments and energy-saving projects.
Solar heater/Biomass stove/Boiler related products: Gross profit and gross profit margin for the six months ended June 30, 2010 was approximately 19.93%,2011 were $250,836 and 22.8% respectively, as compared to 21.53%$504,629 and 19.9% for the six months ended June 30, 2009. This2010. Gross profit decreased $253,793 or 50.3%. The decrease in gross profit from solar heaters/biomass stove/boiler related products was primarily due to weak market in which we had to sell our products in lower price.strong competition.
Heat pipe related equipments/Energy-saving projects: Gross profit and gross profit margin for the six months ended June 30, 2011 were $1,782,785 and 19.6% respectively, as compared to $3,649,669 and 30.2% for the six months ended June 30, 2010. Gross profit decreased $1,866,884 or 51.2% The decrease in sales revenue from heat pipe related equipments/energy-saving projects was due to the decrease in some large projects compared to previous year period, however we expect the revenue will increase in the second half year due to our recent efforts to expand this segment and as we expect to recognize revenue in the second half of the current fiscal year from several contracts that were entered into in the first half of the current fiscal year. Gross profit margin decreased 10.6%, the main reason was due to the increase of cost, including raw material labor cost and other product cost.
Building integrated energy-saving projects: Gross profit for the six months ended June 30, 2011 was $87,850 as compared to $-528 for the 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$88,378. The increase is mainlyin sales revenue from building integrated energy-saving projects was due to anthe increase in integrated solar energy-saving building projects in Deli Solar (Beijing), we expect the revenue will increase in the sale prices.future.
Operating Expenses
Operating expenses for the six months ended June 30, 20102011 were $ 2,874,939,$2,512,523, as compared to $ 2,782,513$2,878,579 for the six months ended June 30, 2009, an increase2010, a decrease of $ 92,426,$366,056, or 3.32%12.7%. The overall increasedecrease in operating expenses was primarily due to increase of salary expense.the cost reduction and consolidation efforts in our general and administrative functions.
Depreciation and amortization expenses increased to $ 226,824$247,914 for the six months ended June 30, 2011, or 18.20%9.3%, from $ 191,906$226,824 for the six months ended June 30, 2009,2010, primarily as a result of the increase of our manufacturing equipment and building.
Selling and distribution expenses increased to $ 1,356,329$1,429,000 for the six months ended June 30, 2011, or 30.41%5.4%, 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$1,356,329 for the six months ended June 30, 2010, primarily due to the increase in transportation cost.
General and administrative expenses were $835,609 for the six months ended June 30, 2011 (or approximately 8.8%8.1% of sales) compared to $ 1,550,535$1,295,426 (or approximately 9.14%8.9% of sales) for the six months ended June 30, 2009,2010, a decrease of 16.69%35.5%. The decrease was primarily due to the compression of operation cost.cost reduction and consolidation efforts in our general and administrative functions.
Net Income (loss)
Net loss was $688,992 for the six months ended June 30, 2011, compared to net income was $ 747,166of $871,533 for the six months ended June 30, 2010, compared to the net income of $ 1,277,423 for the six months ended June 30, 2009, primarily due to increasethe decrease of salary expensesale and strong competition.gross profit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $ 2,143,894 for the six months ended June 30, 2010, while net cash provided by our operating activities was $ 3,599 for the six months ended June 30, 2009.
Net cash used by investing activities was $ 117,516 for the six months ended 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 $ 732,732 for the six months ended 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 flow is sufficient to meet anticipated working capital and capital expenditures for at least the next twelve months. We may require additional cash for further development of business, including any investments or acquisitions we may decide to pursue. However, we cannot assure you that such funding will be available.
Cash
Cash and cash equivalents decreased to $ 3,596,126$4,821,943 as of June 30, 2010,2011, compared to $4,980,717$5,048,133 as of December 31, 2009, primarily as a result of the increase in the operating activities in the second quarter of 2010.
Accounts Receivable
Accounts receivable increaseddecreased to $9,982,618$9,637,306 as of June 30, 2010,2011, from $8,067,944$10,011,187 as of December 31, 2009,2010, primarily due to Tian Jin Hua Neng.the collection of accounts receivable of Tianjin Huaneng.
Inventory
Inventories increased to $ 5,122,077$10,385,281 as of June 30, 2010,2011, as compared to $4,547,170$7,808,225 as of December 31, 2009,2010, primarily due to the increase of raw materials considering the rise of the domestic steel prices. Tianjin Huaneng’s sales order.
Other Receivables and Prepayments
Other receivables and prepayments increased to $ 3,119,287$3,063,959 as of June 30, 2010,2011, compared to $1,733,695$2,366,870 as of December 31, 2009,2010, primarily due to the increase of temporary turnover.Tianjin Huaneng’s sales, correspondingly other receivable and prepayments had increased in Tianjin Huaneng.
Accounts Payable
Accounts payable increased to $ 1,602,749$3,438,840 as of June 30, 2010,2011, compared to $1,601,002$3,004,454 as of December 31, 2009.2010. This increase was due to the increase in payment for raw materials.
Other Payables and Accrued Liabilities
Other payables and accrued liabilities slightly decreasedincreased to $ 9,794,925$4,812,111 as of June 30, 20102011 from $9,977,178$4,547,531 as of December 31, 2009.2010.
OFF-BALANCE SHEET ARRANGEMENTSOff-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.Smaller reporting companies are not required to provide the information required by this item.
Item 4T.4. | 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 Company’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 internal control over financial reporting occurred during the period covered by this report for the quarter ended June 30, 20102011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II —- OTHER INFORMATION
Item 1. | LEGAL PROCEEDINGSLegal Proceedings. |
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.None.
Item 1A. | RISK FACTORSRisk Factors. |
Not applicable.Smaller reporting companies are not required to provide the information required by this item.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. | DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities. |
None.
Item 4. | REMOVED AND RESERVED(Removed and Reserved). |
Item 5. | OTHER INFORMATIONOther Information. |
RESTATEMENT ON CONSOLIDATED FINANCIAL STATEMENTSNone.
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 | |
Item 6. | EXHIBITS.Exhibits. |
(a) Exhibits
Exhibit No.Number
| | Document Description |
31.1 | | Certification of Chief Executive Officer pursuantPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
31.2 | | Certification of Chief Financial Officer pursuantPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
32.1 | | Certification of Chief Executive Officerpursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification of Chief Financial Officerpursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | | Interactive Data File (the Registrant will be furnishing Exhibit 101 within 30 days of the filing date of this Form 10-Q, as permitted under the rules of the Securities and Exchange Commission.) |
* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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. | |
| | | |
19, 2011 | By: | /s/ Deli Du | |
| | Deli Du | |
| | Chief Executive Officer and President | |
| | (Principal Executive Officer) | |
| | | |
19, 2011 | By: | /s/ Fangsong Zheng | Yang Mu |
| | Fangsong Zheng | Yang Mu |
| | Acting Chief Financial Officer | |
| | (Principal(Principal Financial Officer) | |
Exhibit Index
Exhibit No.Number
| | Document Description |
31.1 | | Certification of Chief Executive Officer pursuantPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
31.2 | | Certification of Chief Financial Officer pursuantPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
32.1 | | Certification of Chief Executive Officerpursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2 | | Certification of Chief Financial Officerpursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | | Interactive Data File (the Registrant will be furnishing Exhibit 101 within 30 days of the filing date of this Form 10-Q, as permitted under the rules of the Securities and Exchange Commission.) |