China Solar & Clean Energy Solutions (CSOL) 10-Q 2011 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2011

or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______

Commission File No.: 000-12561

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

(Exact name of registrant as specified in its Charter)

Nevada	95-3819300
(State or other jurisdiction of incorporation or organization)	(IRS Employee Identification No.)

4/F West Wing Dingheng Plaza,

45A North Fengtai Road,

Beijing, China, 100071

 (Address of principal executive offices, including Zip Code)

(86) 10-6386-0500

 (Registrant’s telephone number, including area code)

N/A

(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.  Yes x  No o

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).  Yes 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 “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer o     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. Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of May 16, 2011: 15,233,652

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

March 31, 2011

TABLE OF CONTENTS

		PAGE
PART 1 - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited).	4
	Condensed Consolidated Balance Sheets as at March 31, 2011 (unaudited) and December 31, 2010	4
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)	6
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and 2010 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements	8-14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4.	Controls and Procedures.	18
PART II - OTHER INFORMATION
Item 6.	Exhibits.	19
SIGNATURES		20

2

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

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 (the “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,” “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 potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

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 are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this 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

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to China Solar & Clean Energy Solutions, Inc. and its subsidiaries. “SEC” refers to the Securities and Exchange Commission.

3

PART I—FINANCIAL INFORMATION

Item 1.                 Financial Statements.

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of  March 31, 2011		As of  December 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,092,023	$	5,048,133
Accounts receivable, net		8,694,692		10,011,187
Inventories		9,825,946		7,808,225
Other receivables and prepayments		2,402,567		2,366,870
Deferred tax assets		745,512		745,512
Total current assets		26,760,740		25,979,927
Property and equipment, net		13,719,889		13,706,953
Goodwill		2,046,397		2,026,468
Land use rights,net		1,605,107		1,599,243
Investment in Trueframe International Limited		4,393,588		4,339,070
TOTAL ASSETS	$	48,525,721	$	47,651,661
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loan - bank	$	-	$	754,979
Accounts payable		2,640,785		3,004,454
Customer deposit payable		10,289,341		7,254,392
Taxes payable		560,263		863,280
Other payables and accrued liabilities		4,159,739		4,547,531
Employee loan		1,937,893		1,945,823
Current portion of long-term liabilities		1,248,856		1,236,354
Total current liabilities and total liabilities		20,836,877		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 March 31, 2011 and December 31, 2010		15,233		15,233
Additional paid-in capital		22,611,909		22,611,909
Accumulated other comprehensive income		1,773,501		1,485,064
Retained earnings		2,815,780		3,504,112
Total stockholders’ equity-China Solar		27,216,423		27,616,318
Non-controlling interest in subsidiary		472,421		428,530
Total Stockholder’s Equity		27,688,844		28,044,848
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	48,525,721	$	47,651,661

See accompanying notes to condensed consolidated financial statements.

4

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended March 31,
	2011			2010
Revenue	$	3,551,129		$	3,896,414
Cost of revenue		2,863,871			2,735,004
Gross profit		687,258			1,161,410
Operating expenses
Depreciation and amortization		126,182			122,513
Selling and distribution		675,120			627,069
General and administrative		406,516			596,765
Total operating expenses		1,207,818			1,346,347
Loss from operations		(520,560	)		(184,937	)
Other income (expenses):
Interest expense, net of interest income		(116,865	)		628
Equity in loss of non-consolidated subsidiary		(1,811	)		(72,175	)
Total other  income (expenses)		(118,676	)		(71,547	)
Loss Before Income Taxes		(639,236	)		(256,484	)
Income tax expense		9,330			66,177
Net Loss		(648,566	)		(322,661	)
Less: Net Income attributable to non-controlling interests		39,766			4,999
Net loss attributable to the Company	$	(688,332	)	$	(327,660	)
Earnings (losses) per common share - Basic and Diluted	$	(0.05	)	$	(0.02	)
Weighted average common shares outstanding - Basic and Diluted		15,233,652			15,815,125

See accompanying notes to condensed consolidated financial statements.

5

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
	2011			2010
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	762,904		$	(1,433,190	)
		762,904			(1,433,190	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(6,323	)		(110,255	)
Net cash used in investing activities		(6,323	)		(110,255	)
Cash flows from financing activities:
Repayment of bank loan		(762,614	)		-
Net cash used in financing activities		(762,614	)		-
Effect of exchange rate on cash and cash equivalents		49,923			986
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS		43,890			(1,542,459	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		5,048,133			4,980,717
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,092,023		$	3,438,258
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	81,942		$	95,658
Cash paid for interest expenses	$	65,839		$	72,535

See accompanying notes to condensed consolidated financial statements.

6

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	As of  March 31, 2011			As of  March 31, 2010
Net Income attributable to the Company	$	(688,332	)	$	(327,660	)
Other comprehensive income(loss)
Currency translation adjustment		292,562			4,832
Comprehensive income (loss)		(395,770	)		(322,828	)
Less: Comprehensive income attributable to non-controlling interests		4,125			395
Comprehensive Income Attributable To the Company	$	(399,895	)	$	(323,223	)

See accompanying notes to condensed consolidated financial statements.

7

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 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 for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation 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 consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Use of estimates in the preparation of financial statements

The preparation of the unaudited financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

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, or Limited, is equivalent to 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.

8

Beijing Deli Solar Technology Development Co., Ltd. (“Deli Solar (Beijing)”) was founded in 2006 and is principally engaged in solar power heater integrated construction projects in major cities in the PRC.

Deli Solar (Beijing) ownes 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

During the three months ended March 31, 2011, there were no changes made to our critical accounting policies and the use of estimates. For further information, please refer to “Critical Accounting Policies” included in PART II, Item 7 of our Annual Report on Form 10-K for the year ended December 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, Bazhou Deli Solar energy Heating Co. Ltd. (“Bazhou”), entered into an agreement with Truefame International Co. Ltd. (“Truefame”), the 55.78% indirect owner of Fuwaysun to acquire 28% of outstanding stock of Truefame in exchange for the loans of approximately $4,000,000. Truefame is a BVI company who owns 32,550,000 outstanding shares, or approximately 55.78% of AgriSolar Solutions, Inc. (“AgriSolar”). Agrisolar owns 100% of Fuweysun through other wholly owned subsidiary.

On January 8, 2010, Fuwaysun entered into a Share Exchange Agreement with AgriSolar Solutions, Inc., a Colorado corporation (“Agrisolar”). Pursuant to the terms of the Exchange Agreement, 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, 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 the Agrisolar (the “Share Exchange”). As a result of the Share Exchange, Trueframe International Limited is the owner of 32,550,000 shares, or approximately 55.78% of Agrisolar issued and outstanding common stock. In October, 2009, the loans, exclusive of RMB 1,000,000 (approximately $146,451) were converted into 28% of the outstanding equity of Truefame international limited (“Truefame”). Trufame is a holding company that owns 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.

The investment in Truframe has been accounted for under the equity method.

9

NOTE 5 - BALANCE SHEET COMPONENTS

Accounts receivable, net

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on the aging of accounts receivable that management believes to be reasonable.

	March 31, 2011		December 31, 2010
	(Unaudited)
Accounts receivable, cost	$	10,038,057	$	11,341,103
Less : allowance for doubtful accounts		1,343,365		1,329,916
Accounts receivable, net	$	8,694,692	$	10,011,187

Inventories:

	March 31, 2011		December 31, 2010
	(Unaudited)
Raw materials	$	1,969,850	$	1,992,316
Consumables		18,665		17,804
Work-in-process		915,198		867,726
Finished goods		6,922,233		4,930,379
Inventories	$	9,825,946	$	7,808,225

Other receivables and prepayments:

	March 31, 2011		December 31, 2010
	(Unaudited)
Advance to suppliers	$	1,416,901	$	867,018
Other receivables		985,666		1,499,852
Other receivables and prepayments	$	2,402,567	$	2,366,870

Other payables and accrued liabilities:

	March 31, 2011		December 31, 2010
	(Unaudited)
Salary payable		265,270		637,996
Accrued expenses and interest payable		297,786		294,009
Other payables		2,548,185		2,577,525
Warranty provision		1,048,498		1,038,001
Totals	$	4,159,739	$	4,547,531

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NOTE 6 - STOCKHOLDERS’ EQUITY

Common Stocks Held in Escrow

In connection with the private placement on February 29, 2008, the Company deposited 2,000,000 shares of common stock (“Make Good Shares”) into escrow and we are required to deliver (i) 1,000,000 of the Make Good Shares to the investors on a pro rata basis for no additional consideration in the event that the Company’s after-tax net income for the fiscal year ending December 31, 2008 is less than $4.8 million; and (ii) 1,000,000 of the Make Good Shares to the investors on a pro rata basis for no additional consideration in the event that the Company’s after-tax net income for the fiscal year ending December 31, 2009 is less than $8 million. The after tax net income target of $4.8 for the year ended December 31, 2008 and $8 million for the year ended December 31, 2009 have not been met. The registration statement of 2,000,000 of the Make Good shares to the investors was declared 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 Term
Outstanding and Exercisable at January 1, 2010		6,622,532	$	2.48	2.25 years
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-
Outstanding and Exercisable at December 31, 2010		6,622,532	$	2.48	1.25 years
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Expired		-		-		-
Outstanding and Exercisable at March 31, 2011		6,622,532		2.48	1 year

NOTE 7 - INCOME TAXES

The Company is registered in the United States of America and has operations in three tax jurisdictions: the United States of America, British Virgin Island (“BVI”) and the PRC. The operations in the United States of America and British Virgin Island have incurred net operating losses for income tax purposes. The Company generated substantially all of its net income from the operation of its subsidiary in the PRC and is subject to the PRC tax jurisdiction.

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NOTE 8 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION

(a) Business information

During the three months ended March 31, 2011, the Company had primarily three reportable segments, (i) Solar Heater/Biomass Stove/Boiler related products, (ii) Heat pipe related equipments/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:

	Three months ended of March 31,
	2011		2010
Revenue:
Solar heater/Biomass stove/Boiler related products	$	348,076	$	745,411
Heat pipe related equipments/Energy-saving projects		3,171,047		3,151,003
Building integrated energy-saving projects		32,006		-
	$	3,551,129	$	3,896,414
Gross profit:
Solar heater/Biomass stove/Boiler related products	$	66,849	$	109,721
Heat pipe related equipments/Energy-saving projects		589,792		1,051,689
Building integrated energy-saving projects		30,617		-
	$	687,258	$	1,161,410

	March 31, 2011		December 31, 2010
Total assets:
Solar heater/Biomass stove/Boiler related products	$	20,525,084	$	20,640,186
Heat pipe related equipments/Energy-saving projects		23,522,962		22,744,744
Building integrated energy-saving projects		1,455,443		1,524,390
Administration		3,022,232		2,742,341
	$	48,525,721	$	47,651,661

 (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.

12

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 three months ended March 31, 2011 and 2010 are analyzed as follows:

	Three months ended of March 31,
	2011		2010
PRC	$	3,532,480	$	3,325,501
Other markets		18,649		570,913
	$	3,551,129	$	3,896,414
Gross profit:
PRC	$	682,237	$	902,350
Other markets		5,021		259,060
	$	687,258	$	1,161,410

	March 31, 2011		December 31,2010
Total assets:
PRC	$	48,506,401	$	47,629,861
Other markets		19,320		21,800
	$	48,525,721	$	47,651,661

13

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

NOTE 9 - SUBSEQUENT EVENT

The Company has evaluated subsequent events after the balance sheet date through the financial statements were issued , there are no subsequent events that are required to be recorded or disclosed in the accompanying interim financial statements.

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Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information — this item includes “forward-looking statements”. All statements, other than statements of historical facts, included in this item regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside of the Company's control, which could cause actual results to materially differ from such statements. While the Company believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors, especially the timing and magnitude of technological advances; the prospects for future acquisitions; the competition in the solar water heaters and boilers industry and the impact of such competition on pricing, revenues and margins; uncertainties surrounding budget reductions or changes in funding priorities of existing government programs and the cost of attracting and retaining highly skilled personnel.

COMPANY OVERVIEW

We are engaged in the solar and renewable energy business in the PRC. Our business is conducted through our wholly-owned PRC based operating subsidiaries, Bazhou Deli Solar, Beijing Deli Solar, and our indirect subsidiary Tianjin Huaneng (majority owned).

The Company has 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’s principal products are solar hot water heaters and multifunctional space heaters, including coal-fired boilers for residential use. Bazhou Deli Solar also sells component parts for its products and provides after-sales maintenance and repair services.

Deli Solar (Beijing) is principally engaged in 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 9.8% of our net revenue for the three months ended March 31, 2011 was derived from sales of our solar heater/biomass stove/boiler related products, 89.3% from sales of our heat pipe related equipment/energy-saving projects, and 0.9% from sales of our building integrated energy projects, respectively. Approximately 99.5% and 0.5% of our net revenues for the three months ended March 31, 2011, were derived from sales made inside the PRC and outside the PRC, respectively.

RESULTS OF OPERATIONS

Results of Operations for the Three months ended March 31, 2011 Compared to Three Months ended March 31, 2010

Sales Revenue

	Three months ended March 31
Revenue	2011		2010
Solar heater/Biomass stove/Boiler related products	$	348,076		$	745,411
Heat pipe related equipments/Energy-saving projects		3,171,047			3,151,003
Building integrated energy-saving projects		32,006			-
total	$	3,551,129		$	3,896,414

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Overall: Sales revenue for the three months ended March 31, 2011 were $3,551,129 as compared to $3,896,414 for the three months ended March 31, 2010, a decrease of $345,285 or 8.9%. The decrease was primarily due to the decrease in revenue from solar heater/biomass stove/Boiler related products.

Heat pipe related equipments/Energy-saving projects: Sales revenue for the three months ended March 31, 2011 was $3,171,047 compared to $3,151,003 for the three months ended March 31, 2010. a increase of $20,044 or 0.6%.

Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for the three months ended March 31, 2011 were $348,076 as compared to $745,411 for the three months ended March 31, 2010, a decrease of $397,335 or 53.3%. The decrease in sales revenue from solar heaters/biomass stove/boiler related products was due to strong competition. We expect there is still fierce competition in the market of solar heater related products in 2011.

Gross Profit

	Three months ended March 31
Gross profit	2011		2010
Solar heater/Biomass stove/Boiler related products	$	66,849	$	109,721
Heat pipe related equipments/Energy-saving projects		589,792		1,051,689
Building integrated energy-saving projects		30,617		-
	$	687,258	$	1,161,410

Overall: Gross profit for the three months ended March 31, 2011 was $687,258 as compared to $1,161,410 for the three months ended March 31, 2010, a decrease of $474,152 of 40.8%. The decrease was primarily due to the decrease in gross profit from heat pipe related equipments and energy-saving projects.

Heat pipe related equipments/Energy-saving projects: Gross profit for the three months ended March 31, 2011was $589,792 as compared to $1,051,689 for the three months ended March 31, 2010, a decrease of $461,897 of 43.9%. The decrease in gross profit from heat pipe related equipments and energy-saving projects was due to the increase of cost.

Solar heater/Biomass stove/Boiler related products: Gross profit for the three months ended March 31, 2011was $66,849 as compared to $109,721 for the three months ended March 31, 2010, a decrease of $42,872 of 39.1%. The decrease in gross profit from solar heaters/biomass stove/boiler related products was due to strong competition. We expect there is still fierce competition in the market of solar heater related products in 2011.

Operating Expenses

Operating expenses for the three months ended March 31, 2011 were $1,207,818, as compared to $1,346,347 for the three months ended March 31, 2010, a decrease of $138,529, or 10.3%. The overall decrease in operating expenses was primarily due to the compression of general and administrative.

Depreciation and amortization expenses increased to $126,182 for the three months ended March 31, 2011, or 3.0%, from $122,513 for the three months ended March 31, 2010, primarily as a result of the increase of our manufacturing equipment and building.

Selling and distribution expenses increased to $675,120 for the three months ended March 31, 2011, or 7.7%, from $627,069 for the three months ended March 31, 2010, primarily due to the increase in transportation cost.

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General and administrative expenses were $406,516 for the three months ended March 31, 2011 (or approximately 11.4% of sales) compared to $596,765 (or approximately 15.3% of sales) for the three months ended March 31, 2010, a decrease of 31.9%. The decrease was primarily due to the compression of daily operation expenses.

Net Income (loss)

Net loss was $688,332 for the three months ended March 31, 2011, compared to $327,660 for the three months ended March 31, 2010, primarily due to the decrease of gross profit.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $762,904 for the three months ended March 31, 2011, while net cash used in our operating activities was $1,433,190 for the three months ended March 31, 2010, primarily due to the collection of accounts receivable of Tianjin Huaneng in Q1, 2011.

Net cash used by investing activities was $6,323 for the three months ended March 31, 2011, compared with net cash used in investing activities in the amount of $110,255 for the three months ended March 31, 2010, primarily due to no large fixed assets to purchase and major investment in Q1, 2011.

Net cash used by financing activities was $762,614 for the three months ended March 31, 2011, compared with net cash used in financing activities in the amount of $0 for the three months ended March 31, 2010, primarily due to the short-term bank loan to return in Tianjin Huaneng in Q1 2011.

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 slightly increased to $5,092,023 as of March 31, 2011, compared to $5,048,133 as of December 31, 2010.

Accounts Receivable

Accounts receivable decreased to $8,694,692 as of March 31, 2011, from $10,011,187 as of December 31, 2010, primarily due to the collection of accounts receivable of Tianjin Huaneng.

Inventory

Inventories increased to $9,825,946 as of March 31, 2011, as compared to $7,808,225 as of December 31, 2010,primarily due to the increase of Tianjin Huaneng’s sales order.

Other Receivables and Prepayments

Other receivables and prepayments slightly increased to $2,402,567 as of March 31, 2011, compared to $2,366,870 as of December 31, 2010.

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Accounts Payable

Accounts payable decreased to $2,640,785 as of March 31, 2011, compared to $3,004,454 as of December 31, 2010. This decrease was due to the decrease in raw materials.

Other Payables and Accrued Liabilities

Other payables and accrued liabilities slightly decreased to $4,159,739 as of March 31, 2011 from $4,547,531 as of December 31, 2010.

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 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 March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 6.  Exhibits.

Exhibit Number	Description
31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

	CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.
Date: May 16, 2011	By:	/s/ Deli Du
		Deli Du
		Chief Executive Officer, President and Director
		(Principal Executive Officer)

Date: May 16, 2011	By:	/s/ Yang Mu
		Yang Mu
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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