Attached files
file | filename |
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EX-31.2 - China Solar & Clean Energy Solutions, Inc. | v165800_ex31-2.htm |
EX-32.1 - China Solar & Clean Energy Solutions, Inc. | v165800_ex32-1.htm |
EX-32.2 - China Solar & Clean Energy Solutions, Inc. | v165800_ex32-2.htm |
EX-31.1 - China Solar & Clean Energy Solutions, Inc. | v165800_ex31-1.htm |
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 September 30,
2009
or
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
transition period from _______ to _________
Commission
File No. 000-12561
CHINA SOLAR & CLEAN
ENERGY SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
95-3819300
|
|
(State
or other jurisdiction of incorporation)
|
I.R.S.
Employer Identification
Number
|
3/F
West Wing Dingheng Plaza,
45A
North Fengtai Road,
Beijing,
China, 100071
(Address
of principal executive offices)
(86)
10-63860500
(Registrant's
telephone number, including area code)
Deli Solar (USA),
Inc.
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x
Yes o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). oYes 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, $.001 per share, outstanding as
at October 31, 2009 was 15,233,652.
TABLE
OF CONTENTS
INDEX
Page
|
||
PART
1 - FINANCIAL INFORMATION
|
||
Item
1. Financial Statements
|
2
|
|
Condensed
Consolidated Balance Sheets as at September 30, 2009 (unaudited) and
December 31, 2008
|
2
|
|
Condensed
Consolidated Statements of Operations for the Three Months and Nine months
Ended
|
||
September
30, 2009 and 2008 (unaudited)
|
3
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine months Ended September
30,
|
||
2009
and 2008 (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the
|
||
Nine
months Ended September 30, 2009 (unaudited) and 2008
|
6
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
7
|
|
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
|
19
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
24
|
|
Item
4T. Controls and Procedures
|
24
|
|
PART
2 - OTHER INFORMATION
|
||
Item
1. Legal Proceedings
|
25
|
|
Item
1A. Risk Factors
|
25
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
25
|
|
Item
3. Defaults Upon Senior Securities
|
25
|
|
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
25
|
Item
5. Other Information
|
25
|
|
Item
6. Exhibits
|
25
|
|
Signatures
|
26
|
2
Item 1. Financial
Statements
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
September 30,
2009
|
December 31, 2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 3,587,364 | $ | 1,820,882 | ||||
Accounts
receivable, net
|
7,512,359 | 5,962,051 | ||||||
Inventories
|
2,892,074 | 5,158,153 | ||||||
Other
receivables and prepayments
|
6,929,358 | 6,705,578 | ||||||
Total
current assets
|
20,921,155 | 19,646,664 | ||||||
Property
and equipment, net
|
14,145,114 | 13,955,691 | ||||||
Goodwill
|
1,911,320 | 2,284,903 | ||||||
Intangible
assets, net
|
1,664,096 | 1,709,184 | ||||||
Assets
of discontinued operations
|
8,972,481 | |||||||
TOTAL
ASSETS
|
$ | 38,641,685 | $ | 46,568,923 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable, trade
|
$ | 1,944,999 | $ | 1,148,428 | ||||
Tax
payable
|
1,539,204 | 1,822,867 | ||||||
Other
payables and accrued liabilities
|
5,190,508 | 7,296,294 | ||||||
Employee
loan
|
1,324,879 | 1,474,085 | ||||||
Total
current liabilities
|
9,999,590 | 11,741,674 | ||||||
Long-term
liabilities:
|
||||||||
Deferred
tax liabilities
|
15,779 | |||||||
Liabilities
of discontinued operations
|
4,182,671 | |||||||
Stockholders’
equity
|
||||||||
Convertible
preferred stock: par value $0.001, 25,000,000 shares authorized, zero and
373,566 shares issued and outstanding, respectively
|
373 | |||||||
Common
stock, $0.001 par value, 66,666,667 shares authorized, 14,233,652 and
13,799,450 shares issued and outstanding,
respectively
|
14,233 | 13,799 | ||||||
Additional
paid-in capital
|
22,506,055 | 22,966,404 | ||||||
Accumulated
other comprehensive loss
|
696,701 | 1,615,081 | ||||||
Retained
earnings
|
3,587,603 | 3,365,788 | ||||||
Profit
earning reserves
|
963,106 | |||||||
Total
china solar stockholders’ equity
|
26,804,592 | 28,924,551 | ||||||
Non-controlling
interest in subsidiary
|
1,837,503 | 1,704,248 | ||||||
Total
equity
|
28,642,095 | 30,628,799 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 38,641,685 | $ | 46,568,923 |
See
accompanying notes to condensed consolidated financial
statements.
3
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Currency
expressed in United States Dollars (“US$”), except for number of
shares)
(Unaudited)
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue,
net
|
$ | 5,344,923 | $ | 17,349,436 | $ | 20,120,492 | $ | 41,493,294 | ||||||||
Cost
of revenue
|
4,032,539 | 13,152,373 | 15,762,295 | 30,894,218 | ||||||||||||
Gross
profit
|
1,312,384 | 4,197,063 | 4,358,197 | 10,599,076 | ||||||||||||
Operation
Expenses
|
||||||||||||||||
Depreciation
and amortization
|
69,294 | 183,216 | 261,200 | 464,599 | ||||||||||||
Selling
and distribution
|
526,874 | 1,408,844 | 1,566,946 | 3,649,866 | ||||||||||||
General
and administrative
|
594,489 | 983,896 | 2,145,024 | 1,957,631 | ||||||||||||
Total
operating expenses
|
1,190,657 | 2,575,956 | 3,973,170 | 6,072,096 | ||||||||||||
Income
from operations
|
121,727 | 1,621,107 | 385,027 | 4,526,980 | ||||||||||||
Other
income (expenses):
|
||||||||||||||||
Other
income
|
40,691 | 210,275 | 60,937 | 277,106 | ||||||||||||
Interest
income
|
664 | - | 3,120 | |||||||||||||
Other
expense
|
(3,366 | ) | (42,662 | ) | (30,644 | ) | (34,186 | ) | ||||||||
Reversal
of reserve for bad debts
|
3 | - | 127,248 | |||||||||||||
Interest
expense
|
(77,792 | ) | (69,192 | ) | (164,441 | ) | (181,005 | ) | ||||||||
Total
other (expense) income
|
(39,800 | ) | 98,421 | (3,780 | ) | 61,915 | ||||||||||
Income
from continuing operations before income taxes
|
81,927 | 1,719,528 | 381,247 | 4,588,895 | ||||||||||||
Income
tax expense
|
8,042 | 458,820 | 206,780 | 1,148,847 | ||||||||||||
Net
income from continuing operation including non controlling
interest
|
73,885 | 1,260,708 | 174,467 | 3,440,048 | ||||||||||||
Net
income (loss) from discontinued operation net of tax
|
- | 448,362 | (512,390 | ) | 613,917 | |||||||||||
Gain
on sale of discontinued operations net of tax
|
- | 652,753 | ||||||||||||||
Net
income
|
73,885 | $ | 1,709,070 | $ | 314,830 | $ | 4,053,965 | |||||||||
Less:
Net income attributable to non controlling interest
|
28,239 | 69,869 | 93,015 | 928,900 | ||||||||||||
Net
income attributable to controlling interest
|
$ | 45,646 | $ | 1,639,201 | $ | 221,815 | $ | 3,125,065 | ||||||||
Basic
|
||||||||||||||||
Continued
operation
|
0.00 | $ | 0.09 | $ | 0.01 | $ | 0.22 | |||||||||
Discontinued
operation
|
0.00 | $ | 0.03 | $ | (0.04 | ) | $ | 0.05 | ||||||||
Gain
on sale of discontinued operation
|
0.00 | $ | 0.00 | $ | 0.05 | $ | 0.00 | |||||||||
0.00 | 0.13 | 0.02 | 0.27 | |||||||||||||
Diluted
|
||||||||||||||||
Continued
operation
|
0.00 | $ | 0.08 | $ | 0.01 | $ | 0.18 | |||||||||
Discontinued
operation
|
0.00 | $ | 0.03 | $ | (0.03 | ) | $ | 0.04 | ||||||||
Gain
on sale of discontinued operation
|
0.00 | $ | 0.00 | $ | 0.04 | $ | 0.00 | |||||||||
0.00 | 0.11 | 0.01 | 0.23 | |||||||||||||
Weighted
average shares outstanding – basic
|
14,652,826 | 13,586,827 | 14,300,013 | 11,651,656 | ||||||||||||
Weighted
average shares outstanding –diluted
|
16,552,826 | 15,173,016 | 16,232,563 | 13,800,196 |
See
accompanying notes to condensed consolidated financial
statements.
4
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Nine months ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
effect of discontinued operation
|
$ | $ | (76,168 | ) | ||||
Net
cash provided by operating activities
|
705,573 | (2,919,100 | ) | |||||
Net
cash provided by(used in) operating activities
|
705,573 | (2,995,268 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from non-controlling shareholder
|
(3,916,212 | ) | ||||||
Disposal
subsidiary
|
1,390,593 | |||||||
Purchase
of property, plant and equipment
|
(450,019 | ) | (3,269,871 | ) | ||||
Payment
for other intangible assets
|
(852,163 | ) | ||||||
Net
effect of discontinued operation
|
(80,606 | ) | ||||||
Net
cash provided by/used in investing activities
|
940,575 | (8,118,852 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Acquisition
of an investment
|
51,532 | |||||||
Proceeds
from private placement sale of stock
|
9,995,156 | |||||||
Proceeds
from warrants exercised
|
312,430 | |||||||
Net
effect of discontinued operation
|
(204,930 | ) | ||||||
Net
cash provided by financing activities
|
51,532 | 10,102,656 | ||||||
Effect
of exchange rate on cash and cash equivalents
|
69,102 | 192,214 | ||||||
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
1,766,482 | (819,250 | ) | |||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,820,882 | 5,466,637 | ||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 3,587,364 | $ | 4,647,387 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
Cash
paid for income taxes
|
$ | 221,970 | $ | 441,015 | ||||
Cash
paid for interest expense
|
$ | 118,921 | $ | - | ||||
NONCASH
INVESTING AND FINANCING TRANSACTIONS:
|
||||||||
Issuance
of common stock for acquisition of SZPSP
|
2,839,458 | |||||||
Issuance
of warrants for the acquisition of SZPSP
|
92,193 | |||||||
Preferred
share converted
|
373,000 | 1,201 |
See
accompanying notes to condensed consolidated financial
statements
5
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Preferred stock
|
Common stock
|
Additional
|
Accumulated
other
|
Total
|
||||||||||||||||||||||||||||||||
No. of
|
Par
|
No. of
|
Par
|
paid-in
|
comprehensive
|
Retained
|
Earnings
|
stockholders’
|
||||||||||||||||||||||||||||
shares
|
value
|
shares
|
value
|
capital
|
income
|
earnings
|
reserve
|
equity
|
||||||||||||||||||||||||||||
Balance as of December 31, 2008
|
373,566 | $ | 373 | 13,799,450 | $ | 13,799 | $ | 22,966,404 | $ | 1,615,081 | $ | 3,365,788 | $ | 963,106 | $ | 28,924,551 | ||||||||||||||||||||
Cancel
939,364 shares of disposal subsidiary
|
(939,364 | ) | (939 | ) | (459,349 | ) | (963,106 | ) | (1,423,394 | ) | ||||||||||||||||||||||||||
Preferred
share converted
|
(373,566 | ) | -373 | 373,566 | 373 | 0 | ||||||||||||||||||||||||||||||
Net
income
|
221,815 | 221,815 | ||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
(918,380 | ) | (918,380 | ) | ||||||||||||||||||||||||||||||||
Issue
1,000,000 contingent shares outstanding
|
1,000,000 | 1,000 | (1,000 | ) | ||||||||||||||||||||||||||||||||
Balance
as of September 30, 2009
|
0 | $ | 0 | 14,233,652 | $ | 14,233 | $ | 22,506,055 | $ | 696,701 | $ | 3,587,603 | $ | - | $ | 26,804,592 |
See
accompanying notes to condensed consolidated financial
statements
6
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying condensed consolidated balance sheet as of December 31, 2008 has
been derived from audited financial statements and the accompanying unaudited
condensed consolidated financial statements for the nine months ended September
30, 2009 and 2008 have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim
financial information and the interim reporting requirements of Regulation S-X.
They do not include all of the information and footnotes for complete
consolidated financial statements as required by GAAP. In management’s opinion,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto contained in the Company’s annual report on Form 10-K for the year ended
December 31, 2008.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates that are particularly susceptible to change include assumptions used
in determining the fair value of securities owned and non-readily marketable
securities.
The
results of operations for the nine and three months ended September 30, 2009 are
not necessarily indicative of the results to be expected for the entire fiscal
year ended December 31, 2009 or for any future period.
NOTE
2 - ORGANIZATION AND BUSINESS
China
Solar & Clean Energy Solutions, Inc. (“China Solar”), formerly known as Deli
Solar (USA) Inc., is a provider of integrated renewable energy products and
services in the People's Republic of China (“PRC”). China Solar sells and
distributes hot water and space heating devices along with waste heat recovery
systems via its subsidiaries including Bazhou Deli Solar Energy Heating Co. Ltd.
("Deli Solar (Bazhou)"), Deli Solar (Beijing) Technology Development Co., Ltd
(“Deli Solar (Beijing)”) and Tianjin Huaneng Group.
China
Solar was incorporated in the State of Nevada on March 21, 1983 as Meditech
Pharmaceuticals, Inc. (“Meditech”). In late 2004, the Board of Directors of
Meditech contemplated a strategic reorganization with Deli Solar Holding Ltd., a
corporation organized in the British Virgin Islands (“Deli Solar (BVI)”) in June
2004. In contemplation of the reorganization, the Board of Directors resolved to
spin off Meditech’s drug development business to the shareholders of Meditech of
record on February 17, 2005, through a pro rata distribution in the form of a
stock dividend. The spin-off was completed on August 29, 2005. The acquisition
of Deli Solar (BVI) was accounted for as a recapitalization of Deli Solar
(BVI).
Bazhou
Deli Solar Energy Heating Co Ltd (“Deli Solar (Bazhou)”)
On August
1, 2004, Deli Solar (BVI) purchased all the capital stock of Bazhou Deli Solar
Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a corporation duly organized
under the laws of the People’s Republic of China (“PRC”) from Messrs. Deli Du,
Xiao’er Du, and Xiaosan Du for RMB 6,800,000 (approximately $995,753.4). As a
result of this transaction, Deli Solar (Bazhou) became a wholly-foreign owned
enterprise (“WFOE”) under PRC law on March 30, 2005. This acquisition was
accounted for as a transfer of entities under common control.
Deli
Solar (Bazhou) was incorporated on August 19, 1997 under the laws of the PRC. In
the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the United
States (“US”).
7
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
The
result of the above transactions is that Deli Solar (BVI) is now our direct,
wholly-owned subsidiary and Deli Solar (Bazhou) remains a wholly-owned
subsidiary of Deli Solar (BVI).
On
November 21, 2005 Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology
Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli
Solar (Bazhou). The transaction was accounted for as a transfer of entities
under common control.
Deli
Solar (Beijing) Technology Development Co Ltd. (“Deli Solar
(Beijing)”)
Deli
Solar (Beijing) was incorporated in June, 2005. It is principally engaged in the
design and implementation of energy efficient solutions for commercial and
industrial customers in major cities in the PRC.
Tianjin
Huaneng Energy Equipment Co Ltd (“Tianjin Huaneng”)
Tianjin
Huaneng Energy Equipment Company (“Tianjin Huaneng”), incorporated in 1987 in Ji
County, Tianjin, is principally engaged in manufacturing and installation of
waste heat recovery systems, energy saving boilers and environmental protection
equipments for industrial customers.
On July
1, 2007, Deli Solar (Beijing) completed an acquisition of 51% of equity in
Tianjin Huaneng. On October 27, 2008, Deli Solar (Beijing) additionally
purchased 29.97% of the outstanding equity interest of Tianjin Huaneng from
minority shareholders of Tianjin Huaneng. Following this transaction, the
Company increased the registered capital of Tianjin Huaneng from RMB5.94 million
to RMB21.68 million by contributing an additional RMB15,740,000 ($2,295,531).As
a result, Deli Solar (Beijing) now owns approximately 91.82% of the equity
interest in Tianjin Huaneng.
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
December 2007, FASB issued guidance related to Business Combinations under ASC
805, Business Combinations, and guidance related to the accounting and reporting
of non controlling interest under ASC 810-10-65-1, Consolidation. This guidance
significantly changes the accounting for and reporting of business combination
transactions and non controlling (minority) interests in consolidated financial
statements. This guidance became effective January 1, 2009.
In May
2009, the FASB issued guidance related to subsequent events under ASC 855-10,
Subsequent Events. This guidance sets forth the period after the balance sheet
date during which management or a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date, and the disclosures that an entity
should make about events or transactions that occurred after the balance sheet
date. It requires disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, whether that date represents the
date the financial statements were issued or were available to be issued. This
guidance is effective for interim and annual periods ending after June 15, 2009.
We adopted ASC 855-10 beginning June 30, 2009 and have included the required
disclosures in our consolidated condensed financial statements.
In June
2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC
105, Generally Accepted Accounting Principles. This guidance states that the ASC
will become the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities. Once effective, the Codification's content
will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be
modified to include only two levels of U.S. GAAP: authoritative and
non-authoritative. This is effective for financial statements issued for interim
and annual periods ending after September 15, 2009. We adopted ASC 105 as of
September 30, 2009 and thus have incorporated the new Codification citations in
place of the corresponding references to legacy accounting
pronouncements.
8
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
4 – BUSINESS DISPOSAL
On July
6, 2009, we entered into the Termination Agreement with the three former
shareholders of Shenzhen Pengsangpu (“SZPSP”) to terminate “The Equity Purchase
Agreement” and “Complementary Agreement to the Equity Purchase Agreement” signed
on January 9th, 2008 and “The Supplementary Agreement on Terms, Pricing and
Payment” signed on March 25, 2008. We accounted for SZPSP as a wholly-owned
subsidiary from March 31, 2008 up to March 31, 2009.
The key
terms of the Termination Agreement are:
|
·
|
We
have already received RMB12,960,486.30 (US$1.89 million) from the SZPSP
Shareholders prior to the execution of the Termination Agreement, the
SZPSP shareholders to pay to Deli-Solar (Beijing) the remaining
RMB15,839,513.70 (US$2.32 million) from the RMB28.8 million (US$4.22
million) purchase price specified in the Supplementary Agreement in two
installments (RMB8,000,000 (US$1.17 million) within 10 days from the
execution date of the Termination Agreement and the remaining balance
within two months from the execution date of the Termination
Agreement)
|
|
·
|
The
SZPSP shareholders to return to us an aggregate of 939,364 shares in our
Company they received pursuant to the Supplementary
Agreement
|
|
·
|
The
SZPSP shareholders will also pay to us a portion of SZPSP's net profit for
the period from April 1, 2008 to March 31, 2009, an amount which will be
determined at a future date by the SZPSP shareholders and Deli-Solar
(Beijing)
|
On August
20, 2009, the 939,364 shares returned from SZPSP as part of the disposal were
cancelled by the transfer agent. Up to September 30, 2009, we have received an
aggregate RMB 22,460,486.30 (US$3.29 million) in cash from the SZPSP
shareholders.
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.
|
September 30,
2009
|
December 31,
2008
|
||||||
(Unaudited)
|
||||||||
Accounts
receivable, cost
|
$ | 8,035,301 | $ | 6,807,085 | ||||
L Less
: allowance for doubtful accounts
|
(522,942 | ) | (845,034 | ) | ||||
|
||||||||
Accounts
receivable, net
|
$ | 7,512,359 | $ | 5,962,051 |
9
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”)
(Unaudited)
Inventories:
September 30,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
||||||||
|
|
|||||||
Raw
materials
|
$ | 887,964 | $ | 1,261,714 | ||||
Consumables
|
19,631 | 4,320 | ||||||
Work-in-process
|
126,511 | 21,269 | ||||||
Finished
goods
|
1,857,967 | 3,870,850 | ||||||
Inventories
|
$ | 2,892,074 | $ | 5,158,153 |
Other
receivables and prepayments:
September 30,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
||||||||
Advance
to suppliers
|
$ | 944,082 | $ | 414,257 | ||||
Notes
receivable
|
717,323 | 727,175 | ||||||
Prepaid
expenses
|
125,435 | 99,000 | ||||||
Income
tax receivable
|
195,549 | |||||||
Other
receivables
|
5,142,518 | 5,269,597 | ||||||
Other
receivables and prepayments
|
$ | 6,929,358 | $ | 6,705,578 |
The
balance of other receivables includes the following items:
(1)
|
The
pending amount of receivable from SZPSP as part of the disposal is
US$928,322.40 (RMB 6,339,513.70)
|
(2)
|
The
amount of loans to Fuwaysun is US$3,000,000 and RMB6,550,000 (US$958,737).
See Note 11.
|
Other
payables and accrued liabilities:
September 30,
2009
|
December 31,
2008
|
|||||||
(Unaudited)
|
||||||||
Customer
deposit
|
$ | 2,124,069 | $ | 2,827,620 | ||||
Salary
payable
|
289,251 | 506,936 | ||||||
Accrued
expenses
|
539,763 | 715,256 | ||||||
Other
payables
|
1,298,267 | 2,109,673 | ||||||
Deferred
revenue
|
939,158 | 1,136,809 | ||||||
Totals
|
$ | 5,190,508 | $ | 7,296,294 |
10
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”)
(Unaudited)
NOTE
6 - STOCKHOLDERS’ EQUITY
Authorized
Capital
The
Company’s authorized capital stock consists of 66,666,667 shares of common stock
at $0.001 par value per share and 25,000,000 shares of preferred stock at $0.001
par value per share.
Class A Preferred
stock
The
Company has designated 3,500,000 of its Preferred Shares as Class A Convertible
Preferred Shares. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the corporation, Class A Convertible Preferred
Shareholders shall be entitled to receive out of the assets of the Corporation,
an amount equal to $1.55 per share. Each share of Series A Preferred Stock shall
be initially convertible into one (1) share of Common Stock subject to
adjustment for stock dividend and stock splits, sale or issuance of common stock
at a price which is less than $1.55, at the option of the investors, at any time
after the original issue date.
Sale
of Units
On June
13, 2007, the Company entered into a Securities Purchase Agreement with Barron
Partners L.P., and two accredited investors in a private placement (“Private
Placement") providing for the sale of: (i) 1,774,194 shares of our Series A
Convertible Preferred Stock; (ii) stock purchase warrants to purchase an
aggregate of 1,774,194 shares of common stock at a price of $1.90 per share; and
(iii) stock purchase warrants to purchase an aggregate of 1,774,194 shares of
common stock at a price of $2.40 per share. Net proceeds of $2,581,000 were used
to finance business acquisitions.
During
the nine months ended September 30, 2009, 373,566 shares of preferred stock were
converted to the same number of shares of common stock.
11
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
Registration
Rights
In
connection with the private placement on June 13, 2007, the Company deposited
900,000 shares of Series A Convertible Preferred Stock into escrow as security.
If the Company’s consolidated pre-tax income for the year ended December 31,
2007 was less than $3,000,000 (or pretax income per share of $0.22 on a fully
diluted basis), the Company was required to deliver to the investors (pro rata
according to the relative size of their investment) a number of the escrow
shares to be determined based on the shortfall by which the Company failed to
achieve the 2007 earnings target. If the Company’s consolidated pre-tax income
for the year ending December 31, 2008 is less than $5,500,000 (or pretax income
per share of $0.40 on a fully diluted basis) the investors were entitled to
receive (pro rata according to the relative size of their investment) a number
of the remaining escrow shares to be determined based on the shortfall by which
the Company failed to achieve 2008 earnings target. The agreement with the
investors further provided that the investors will not be entitled to any of the
remaining escrow shares and all remaining escrow shares shall be returned to the
Company if the Company did not receive at least $4,000,000 from the investors,
either through the exercise of warrants, or additional equity financing, within
90 days after the effectiveness of the first registration statement filed
pursuant to a certain registration rights agreement entered into with the
investors concurrently.
The
registration statement was declared effective on February 7, 2008. The earnings
target for the year ended December 31, 2007 was met, thus 900,000 escrow shares
remained in escrow at the beginning of the year ending December 31, 2008.
However, the 900,000 shares held in escrow were not included in the diluted
earnings per share calculation for the twelve months ended December 31, 2008 as
the escrow shares were to be returned to the Company since the investors did not
provide at least $4,000,000 in additional equity financing within 90 days after
the effectiveness of the first registration statement and the diluted earnings
per share were the same as basic earnings per share due to the net loss result
in 2008.
In
connection with the private placement, the Company entered into a registration
rights agreement with the investors on February 25, 2008 which requires us to
file with the SEC a “resale” registration statement providing for the resale of
(i) all of the 4,691,499 shares of common stock sold to the investors, (ii) the
2,000,000 “make good shares” and (iii) the 469,150 shares underlying the
placement agent warrants (collectively, the “registrable securities”) for an
offering to be made on a continuous basis pursuant to Rule 415 of the Securities
Act of 1933, as amended.
The
Company agreed, among other things, to prepare and file an initial registration
statement within 45 days of the closing dates (i.e. April 14, 2008) to register
for the registrable securities (other than the 2,000,000 make good shares and
the 469,150 shares underlying the placement agent warrants) and cause the
registration statements to be declared effective by SEC.
The
Company is required to file additional registration statements covering all of
the remaining registrable securities (or such lesser number as the SEC deems
appropriate). Failure to have the registration declared effective by due date
may lead to an imposition of liquidated damages for the Company.
On
December 17, 2008, the Registration Statement covering 4,691,499 of common
shares in connection with the private placement on February 25, 2008 were
declared effective by the Securities and Exchange Commission (“SEC”). On July 1,
2009, the Company filed another Registration Statement covering the 1,000,000
Make Good Shares due to the fact that the Company’s after-tax income for the
fiscal year ended December 31, 2008 is less than $4.8 million. The Registration
Statement for the 1,000,000 Make Good Shares was declared effective on July 20,
2009.
12
Common
stock
During
the nine months ended September 30, 2009, the Company issued 373,566 shares of
common stock as part of the conversion of Series A Preferred Stock.
On August
20, 2009, all the 939,364 shares received from SZPSP as part of the disposal of
SZPSP were cancelled by the transfer agent. As a result, the number of common
shares issued and outstanding as of September 30, 2009 was
15,233,652.
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 ended 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
the target of after-tax net income for the fiscal year ended December 31,
2008 was not met, the Company filed S-1 registration statement of 1,000,000
of the Make Good Shares to the investors on July 1. The S-1 was declared
effective by the Securities and Exchange Commission (“SEC”) on July 20, 2009. As
a result, the number of common stocks held in escrow is 1,000,000
A summary
of the status of the Company’s outstanding common stock warrants:
Number of
Shares
|
Weighted-
average
Exercise Price
|
Weighted-
average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
and Exercisable at January 1, 2008
|
5,555,559 | $ | 2.73 |
3.76
years
|
$ | 354,839 | ||||||||||
Granted
|
611,123 | 2.79 |
4.75
years
|
633,888 | ||||||||||||
Exercised
|
(75,000 | ) | — | — | — | |||||||||||
Forfeited
|
— | — | — | — | ||||||||||||
Expired
|
— | — | — | — | ||||||||||||
Outstanding
and Exercisable at December 31, 2008
|
6,091,682 | $ | 2.76 |
3.53
years
|
$ | 988,727 | ||||||||||
Granted
|
— | — | — | — | ||||||||||||
Exercised
|
— | — | — | — | ||||||||||||
Forfeited
|
— | — | — | — | ||||||||||||
Expired
|
— | — | — | — | ||||||||||||
Outstanding
and Exercisable at September 30, 2009
|
6,091,682 | $ | 2.76 |
2.14
years
|
1,040,651 |
13
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
7 - INCOME TAXES
The
Company is registered in the United States of America (“USA”) and has operations
in three tax jurisdictions: the USA, British Virgin Island (“BVI”) and the PRC.
The operations in the United States of America and British Virgin Island have
incurred net operating losses for income tax purposes. The Company generated
substantially all of its net income from the operation of its subsidiary in the
PRC and is subject to the PRC tax jurisdiction. The Company has recorded an
income tax provision for the nine months ended September 30, 2009.
United
States of America
China
Solar was incorporated in the State of Nevada and is subject to the tax laws of
United States of America. As of September 30, 2009, the operation in the United
States of America incurred $362,933 of net operating losses available for
federal tax purposes, which are available to offset future taxable income. The
net operating loss carry forwards will expire through 2028, if unutilized. The
Company has provided for a full valuation allowance against the deferred tax
assets of $54,440 on the expected future tax benefits from the net operating
loss carryforwards as the management believes it is more likely than not that
these assets will not be realized in the future.
British
Virgin Island
Under the
current BVI law, the Company is not subject to tax on income.
The
PRC
The
Company’s subsidiaries operating in the PRC are Deli Solar (Bazhou), Deli Solar
(Beijing), Ailiyang and Tianjin Huaneng.
Ailiyang
is domestically owned and subject to the Corporate Income Tax (“CIT”) governed
by the Income Tax Law of the People’s Republic of China, at a statutory rate of
25%.
On
November 4, 2008, Tianjin Huaneng was classified as an Advanced Technology
Enterprise in the PRC, consequently, the CIT for Tianjin Huaneng is reduced to
15% for the years of 2008, 2009 and 2010.
In March
2005, Deli Solar (Bazhou) was classified as a foreign investment enterprise.
Hence, effective from the year ended 2005, Deli Solar (Bazhou) is entitled to a
two-year exemption from enterprise income tax (which expired at the end of March
2007) and a reduced enterprise income tax rate of 15% for the following three
years.
On July
25, 2006, SZPSP was classified as an Advanced Technology Enterprise in the PRC.
The Company is exempted from CIT for the first two profit making years and then
the CIT is reduced to 15% in the following three years. On July 6, 2009, Deli
Solar (Beijing), entered into the Termination Agreement with SZPSP's
shareholders. From April 1, 2008 up to March 31,2009 shares of SZPSP were held
by Deli Solar (Beijing) and we accounted for SZPSP as a wholly-owned subsidiary.
As of March 31, 2009, the operation in SZPSP incurred $461,641 of net operating
losses.
In
September 2006, the Deli Solar (Beijing) was formed as a foreign investment
enterprise. Hence, effective from the year ended 2006, Deli Solar (Beijing) is
entitled to a two-year exemption from enterprise income tax and a reduced
enterprise income tax rate of 15% for the following three
years.
14
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
On March
16, 2007, the National People’s Congress approved the Corporate Income Tax Law
of the People’s Republic of China (the “New CIT Law”). The New CIT Law, among
other things, imposes a unified income tax rate of 25% for both domestic and
foreign invested enterprises with effect from January 1, 2008. However, as
foreign invested enterprises, Deli Solar (Bazhou) and Deli Solar (Beijing) can
continue to enjoy the lower CIT rate of 15% until their tax holiday
expires.
NOTE
8 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION
(a)
Business information
During
the nine months ended September 30, 2009, the Company had two reportable
segments, namely (i) Solar heater/Biomass stove/Building integrated energy
projects under the management of Deli Solar (Bazhou), Deli Solar (Beijing) and
Ailiyang; and (ii) Industrial waste heat recovery/energy-saving projects under
the management Tianjin Huaneng.
An
analysis of the Company’s revenue and total assets is as
follows:
Revenue
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue:
|
|
|
|
|||||||||||||
Solar
heater/Biomass stove/Building integrated energy projects
|
$ | 1,527,584 | 11,317,237 | $ | 4,539,572 | $ | 24,143,765 | |||||||||
Industrial
waste heat recovery/energy-saving projects
|
3,817,339 | 6,032,199 | 15,580,920 | 17,349,529 | ||||||||||||
$ | 5,344,923 | 17,349,436 | $ | 20,120,492 | $ | 41,493,294 |
Gross
Profit
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Gross
profit:
|
|
|
|
|||||||||||||
Solar heater/Biomass stove/
Building
integrated energy saving projects
|
$ | 375,792 | $ | 2,281,451 | $ | 1,024,025 | $ | 4,901,773 | ||||||||
Industrial
waste heat recovery/energy-saving projects
|
936,592 | 1,915,612 | 3,334,171 | 5,697,302 | ||||||||||||
$ | 1,312,384 | $ | 4,197,063 | $ | 4,358,197 | $ | 10,599,075 |
Total
assets
September
30,2009
|
December
31,2008
|
|||||||
Total
assets
|
2009
|
2008
|
||||||
Solar
heater/Biomass stove/Building integrated energy projects
|
$ | 14,917,326 | 12,795,964 | |||||
Industrial
waste heat recovery/energy-saving projects
|
$ | 15,529,407 | 14,360,410 | |||||
Discontinued
operation
|
$ | 8,972,481 | ||||||
Other
|
$ | 8,194,952 | 10,440,068 | |||||
$ | 38,641,685 | 46,568,923 |
15
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Other
segment in total assets refers to solar lighting products and sales of spare
parts components. The amount of other assets is less than 10% in each category
and disclosed as an “all other” category in accordance with paragraph 21 of SFAS
131. There was no elimination or reversal of transactions between reportable
segments.
(b)
Geographic information
The
Company operates in the PRC and all of the company’s long lived assets are
located in the PRC. In respect of geographical segment reporting, sales are
based on the country in which the customer is located and total assets and
capital expenditure are based on the country where the assets are
located.
The
Company’s operations are located in PRC, which is the main geographical area.
The Company’s sales and total assets by geographical market are analyzed as
follows:
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
|
|
||||||||||||||
Revenue:
|
|
|
|
|||||||||||||
PRC
|
$ | 5,339,069 | $ | 17,327,480 | $ | 19,712,775 | $ | 41,451,013 | ||||||||
Others
|
5,854 | 21,956 | 407,717 | 42,281 | ||||||||||||
$ | 5,344,923 | $ | 17,349,436 | $ | 20,120,492 | $ | 41,493,294 |
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
|
|
||||||||||||||
Gross
profit:
|
|
|
|
|||||||||||||
PRC
|
$ | 1,307,387 | $ | 4,190,476 | $ | 4,099,770 | $ | 10,580,894 | ||||||||
Others
|
4,997 | 6,587 | 258,427 | 18,181 | ||||||||||||
$ | 1,312,384 | $ | 4,197,063 | $ | 4,358,197 | $ | 10,599,075 |
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Total
assets:
|
|
|||||||
PRC
|
$ | 35,098,892 | $ | 40,402,100 | ||||
Others
|
3,542,793 | 6,166,823 | ||||||
$ | 38,641,685 | $ | 46,568,923 |
16
CHINA
SOLAR & CLEAN ENERGY SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
9 – CONTINGENCY
Under an
engagement agreement dated January 16, 2008 between the Company and Roth Capital
Partners, LLC (“Roth”), Roth acted as a placement agent for the Company in
connection with the private placement of approximately 4.7 million shares of our
common stock which was consummated in February 2008 (the “Offering”). Under a
certain agreement, dated as of March 21, 2007 by and among Trenwith Securities,
LLC (“Trenwith”) and the Company (the “Trenwith Agreement”), Trenwith was
granted certain rights, including the right to act as placement agent in
connection with a subsequent private placement of the Company’s securities at
fees which are mutually acceptable within a period of 24 months after the
closing of the June 2007 financing. Trenwith believes that it had the right to
act as placement agent with respect to the Offering and has threatened to bring
proceedings against the Company for alleged violation of its rights under the
Trenwith Agreement. The Company disputes these claims and intends to vigorously
defend any lawsuit which Trenwith may commence.
NOTE 10 –NET INCOME PER
SHARE
The
following table sets forth the computation of basic and diluted net income per
share for the three and nine months ended September 30, 2009 and
2008:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Basic
and diluted net income per share calculation
|
|
|
||||||||||||||
|
|
|
||||||||||||||
Numerator:
|
|
|
||||||||||||||
Net
income from continued operation
|
$ | 45,646 | $ | 1,190,839 | $ | 81,452 | $ | 2,511,146 | ||||||||
Net
income from discontinued operation
|
- | 448,362 | (512,390 | ) | 613,917 | |||||||||||
Gain
on sale of discontinued operation
|
- | - | 652,753 | - | ||||||||||||
45,646 | 1,639,201 | 221,815 | 3,125,064 | |||||||||||||
|
||||||||||||||||
Denominator:
- Weighted average ordinary shares outstanding
|
14,652,826 | 13,586,827 | 14,300,013 | 11,651,656 | ||||||||||||
-
Weighted average preferred stock outstanding
|
900,000 | 586,189 | 932,550 | 1,126,801 | ||||||||||||
-
Weighted average contingent shares outstanding
|
1,000,000 | 1,000,000 | 1,000,000 | 795,620 | ||||||||||||
-
Weighted average warrant shares outstanding
|
- | - | - | 226,119 | ||||||||||||
-
Weighted average ordinary shares outstanding -diluted
|
16,552,826 | 15,173,016 | 16,232,563 | 13,800,196 |
NOTE
11 - SUBSEQUENT EVENT
(a)
|
Postponement
of Acquisition of Shenzhen Fuwaysun Technology Co
Ltd
|
On
January 21, 2008, we entered into a letter of intent (“LOI”) with Mr. Chaowei
Liang, Ms. Xuemei Mo and Mr. Huafeng Mo (the “Fuwaysun Shareholders”), the three
shareholders holding the entire equity interests of Shengzhen Fuwaysun
Technology Co., Ltd. (“Fuwaysun”), a PRC company primarily engaged in the
development and production of solar pest killing lamps and transportable solar
generators. Pursuant to the LOI, we will acquire 60% of Fuwaysun’s entire equity
interests (the “Acquisition”) from the Fuwaysun Shareholders at a purchase price
equal to 60% of Fuwaysun’s audited net assets as of January 30, 2008 (the
“Purchase Price”). We will pay the purchase price with cash and shares of China
Solar.
17
In April,
2008, we entered into two loan agreements with Fuwaysun (the “Loan Agreements”),
pursuant to which we made two loans to Fuwaysun as working capital for nine
months, one for $3,000,000 and the other for RMB3,000,000 ($424,352) (the
“Loans”), respectively. The Loan Agreements are substantially identical, except
for the amount of the loans. Pursuant to the Loan Agreements, if we complete the
Acquisition within nine months, we will cancel the Loans to offset the Purchase
Price; if we cannot complete the Acquisition within nine months, Fuwaysun must
repay the Loans within 30 days after the expiration of the nine months plus
interest on the Loans at a rate of 12% per annum. However, if Fuwaysun refuses
to complete the Acquisition, Fuwaysun shall repay the Loans plus accrued
interest at a rate of 20% per annum within 30 days thereafter and pay us
liquidated damages equal to 5% of the Purchase Price. If Fuwaysun fails to repay
either Loan pursuant to the applicable Loan Agreement, it shall pay us
additional interest on such Loan at a rate of 0.5% per day.
On April
9, 2009, we entered into a supplementary agreement with the Fuwaysun
Shareholders and Fuwaysun (the “Supplementary Agreement”) to extend the dates of
both the Acquisition and the maturity date of the Loans to June 30, 2009. The
acquisition was not completed by September 30, 2009 due to the fact that the
equity stake of the acquiree expands substantially during the period and the
parties are still in negotiations to complete the deal.
(b)
|
Postponement
of Acquisition of Shenzhen Xiongri Solar Co
Ltd
|
In 2006,
we entered into a series of agreements with the three shareholders of Shenzhen
Xiongri Solar Co., Ltd. (“Xiongri”) to purchase 60% of the entire equity
interests of Xiongri for RMB2,000,000 ($282,901). The three shareholders agreed
to loan RMB2,000,000 to Xiongri as working capital. The transfer of the 60%
equity interests is not yet completed.
On April
9, 2009, the parties entered into a supplementary agreement and agreed to
complete the transfer of the 60% equity interests by June 30, 2009. The
Acquisition was not completed by September 30, 2009 and the parties are still in
negotiations to complete the deal.
The
subsequent events were evaluated as of November 12, 2009, the date the financial
statements were issued.
18
Item
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking
Information — This item includes “forward-looking statements”. All
statements, other than statements of historical facts, included in this item
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control, which could cause actual results to materially differ from such
statements. While the Company believes that the assumptions concerning future
events are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, especially the timing and magnitude of
technological advances; the prospects for future acquisitions; the competition
in the solar water heaters and boilers industry and the impact of such
competition on pricing, revenues and margins; uncertainties surrounding budget
reductions or changes in funding priorities of existing government programs and
the cost of attracting and retaining highly skilled personnel.
Overview
We are
engaged in the renewable energy business in the PRC. Our business is conducted
through our wholly-owned PRC based operating subsidiaries, Deli Solar (Bazhou),
Deli Solar (Beijing), Ailiyang and our majority owned subsidiary Tianjin
Huaneng.
The
Company has two reportable segments: (i) Solar heater/Biomass stove/Building
integrated energy projects for households and buildings; and (ii) Industrial
waste heat recovery/Energy-saving projects for industrial
customers.
Deli
Solar (Bazhou) manufactures and distributes solar products in the PRC. The
Company’ principal products are solar hot water heaters and multifunctional
space heaters, including coal-fired boilers for residential use. Deli Solar
(Bazhou) also sells spare parts for its products and provides after-sales
maintenance and repair services.
Deli
Solar (Beijing) is principally engaged in the service and installation energy
saving equipments in residential and commercial buildings in major cities in the
PRC.
Tianjin
Huaneng provides waste heat recovery and energy saving solutions for industrial
customers. The Company manufactures heating products such as heating pipes, heat
exchangers, specialty heating pipes and tubes, high temperature hot blast
boilers, heating filters, normal pressure water boilers, solar energy water
heaters and radiators.
Approximately
22.6% of our net revenue for the nine months ended September 30, 2009 was
derived from sales of our Solar heater/Biomass stove/Building integrated energy
projects and 77.4% from sales of our Industrial waste heat
recovery/energy-saving projects, respectively. Approximately 98.0% and 2.0% of
our net revenues for the nine months ended September 30, 2009, were derived from
sales made inside the PRC and outside the PRC, respectively.
Recent
Developments
On July
6, 2009, Deli Solar (Beijing) entered into the Termination Agreement with the
SZPSP Shareholders. The Termination Agreement terminates the Equity
Purchase and Complementary Agreements Deli Solar (Beijing) entered into with the
SZPSP Shareholders on January 9, 2008, which were amended and supplemented by
the Supplementary Agreement Deli Solar (Beijing) entered into with the SZPSP
Shareholders on March 25, 2008. The terms of the Equity Purchase and
Complementary Agreements are described in our Form 8-K report filed on January
15, 2008. The terms of the Supplementary Agreement are described in
our Form 8-K report filed on April 1, 2008. We accounted for SZPSP as
a wholly-owned subsidiary from March 31, 2008 up to March 31,
2009.
19
The key
terms of the Termination Agreement are:
·
|
Deli Solar (Beijing) having
already received RMB12,960,486.30 from the SZPSP Shareholders prior to the
execution of the Termination Agreement, the SZPSP Shareholders to pay to
Deli Solar (Beijing) the remaining RMB15,839,513.70 from the RMB28.8
million purchase price specified in the Supplementary Agreement in two
installments (RMB8,000,000 within 10 days from the execution date of the
Termination Agreement and the remaining balance within two months from the
execution date of the Termination
Agreement)
|
·
|
The SZPSP Shareholders to return
to Deli Solar (Beijing) an aggregate of 939,364 shares in our Company they
received pursuant to the Supplementary
Agreement
|
·
|
The SZPSP Shareholders will also
pay to Deli-Solar (Beijing) a portion of SZPSP's net profit for the period
from April 1, 2008 to March 31, 2009, an amount which will be determined
at a future date by the SZPSP Shareholders and Deli Solar
(Beijing)
|
Three
months ended September 30, 2009 compared to three months ended September 30,
2008
Sales
Revenue
Three months ended
September 30
|
||||||||
Revenue
|
2009
|
2008
|
||||||
Solar
heater/Biomass stove/Building integrated energy projects
|
$ | 1,527,584 | 11,317,237 | |||||
Industrial
waste heat recovery/energy-saving projects
|
$ | 3,817,339 | 6,032,199 | |||||
total
|
$ | 5,344,923 | 17,349,436 |
Overall:
Sales revenue for the three months ended September 30, 2009 were $5,344,923 as
compared to $17,349,436 for the three months ended September 30, 2008, a
decrease of $12,004,513 or 69.2%. The decrease in sales was primarily
attributable to the decline in sales from single solar products such as solar
heater and biomass stove in Deli Solar (Bazhou). We expect overall sales revenue
for the single solar products to continue to face intensive competition in the
PRC market, while the sales revenue for energy-saving projects is expected to
increase during the rest of the year with the completion of these
projects.
Solar
heater/Biomass stove/Building integrated energy projects: Sales revenue for these
products for the three months ended September 30, 2009 were $1,527,584 as
compared to $11,317,237 for the three months ended September 30, 2008, a
decrease of $9,789,653 or 86.5%. The decrease in sales revenue derived from
solar heaters/biomass stove/boiler related products was due to a weak market and
strong competition. We expect the competition in solar heaters/biomass
stove/boiler related products to continue for the remainder of
2009.
Industrial waste
heat recovery/energy-saving projects: Sales revenue for the three months
ended September 30, 2009 was $3,817,339 as compared to $6,032,199 for the three
months ended September 30, 2008, a decrease of $2,214,860 or 36.7%. The decrease
in sales of industrial waste heat recovery/energy-saving projects was due to
slowdown in industrial orders during the first quarter of 2009 as a result of a
weakening economy. There is a time delay for the recognition of sales revenue
for the industrial projects, which usually takes three to six months to
complete. Certain large orders were placed in the third quarter of 2009, revenue
from which we could recognize in the fourth quarter of 2009 or first quarter of
2010.
Gross
Profit
Three months ended
September 30
|
||||||||
Gross
profit
|
2009
|
2008
|
||||||
Solar
heater/Biomass stove/Building integrated energy projects
|
$ | 375,794 | $ | 2,281,451 | ||||
Industrial
waste heat recovery/energy-saving projects
|
$ | 936,590 | 1,915,612 | |||||
$ | 1,312,384 | $ | 4,197,063 |
20
Overall:
Gross profit margin for the three months ended September 30, 2009 increased
slightly by approximately 0.3% to 24.5%, as compared to 24.2% for the three
months ended September 30, 2008. This was primarily due to the decrease in the
cost of key raw materials. We decreased our inventory of stainless steel while
the price of stainless steel price was high, resulting in lower production costs
and a higher gross profit.
Solar
heater/Biomass stove/Building integrated energy projects: Gross profit
margin for the three months ended September 30, 2009 was stable at approximately
24.6%, a slight increase of 4.4% as compared to 20.2% for the three months ended
September 30, 2008.
Industrial waste
heat recovery/energy-saving projects: Gross profit margin for the three
months ended September 30, 2009 was approximately 24.5%, a decrease of 7.2%, as
compared to 31.8% for the three months ended September 30, 2008. The decrease in
gross profit margin is primarily due to an increase in the cost of raw
materials.
Operating
Expenses
Operating
expenses for the three months ended September 30, 2009 were $1,190,657, as
compared to $2,575,956 for the three months ended September 30, 2008, a decrease
of $1,385,299, or 53.8%. The overall decrease in the selling/distribution
expenses and general/administrative expenses was primarily due to the decrease
in sales revenue from solar water heaters and biomass stoves.
Depreciation
and amortization expenses decreased to $69,294 for the three months ended
September 30, 2009, a decrease of $113,922 or 62.2%, from $183,216 for the three
months ended September 30, 2008, primarily as a result of the end of useful life
for certain of our manufacturing equipments in the first quarter of
2009.
Selling
and distribution expenses decreased to $526,874 for the three months ended
September 30, 2009, a decrease of $881,970 or 62.6%, from $1,408,844 for the
three months ended September 30, 2008, primarily due to the decrease in sales of
solar heaters and biomass stoves.
General
and administrative expenses were $594,489 for the three months ended September
30, 2009 (or approximately 11.1% of sales) compared to $983,896 (or
approximately 5.7% of sales) for the three months ended September 30, 2008, a
decrease of $389,407 or 39.6%. The decrease was primarily due to the decrease in
sales of solar heaters and biomass stoves.
Net
Income
Net
income was $45,646 for the three months ended September 30, 2009, compared to
$1,639,201 for the three months ended September 30, 2008. The decrease was
primarily due to the decrease in sales of solar heater/biomass stove/boiler
related products.
Sales
Revenue
Nine months ended
September 30
|
||||||||
Revenue
|
2009
|
2008
|
||||||
Solar
heater/Biomass stove/Building integrated energy projects
|
$ | 4,539,572 | $ | 24,143,765 | ||||
Industrial
waste heat recovery/energy-saving projects
|
$ | 15,580,920 | 17,349,529 | |||||
$ | 20,120,492 | $ | 41,493,294 |
21
Overall:
Sales revenue for the nine months ended September 30, 2009 were $20,120,492 as
compared to $41,493,294 for the nine months ended September 30, 2008, a decrease
of $21,372,802 or 51.5% compared to the nine months ended September 30, 2008.
The decrease in sales revenue was primarily attributable to the decline in
revenue from the Solar heater/Biomass stove/Building integrated energy projects
under the management of Deli Solar (Bazhou).
Solar
heater/Biomass stove/Building integrated energy projects: Sales revenue for these
products for the nine months ended September 30, 2009 were $4,539,572 as
compared to $24,143,765 for the nine months ended September 30, 2008, a decrease
of $19,604,193 or 81.2%. The decrease in sales revenue was due to a weak market
and competition for solar heater and biomass stove. We expect competition to
continue for the remainder of 2009.
Heat pipe related
equipments/Energy-savings projects: Sales revenue for the nine months
ended September 30, 2009 were $15,580,920 compared to $17,349,529 for the nine
months ended September 30, 2008, an increase of $1,768,609 or 10.2%. The
decrease in sales of industrial waste heat recovery/energy-saving projects was
due to slowdown in industrial orders during the first quarter of 2009 as a
result of a weakening economy. There is a time delay for the recognition of
sales revenue for the industrial projects, which usually takes three to six
months to complete. Certain large orders were placed in the third quarter of
2009, revenue from which we could be recognized in the fourth quarter of 2009 or
first quarter of 2010.
Gross
Profit
Nine months ended
September 30
|
||||||||
Gross
profit
|
2009
|
2008
|
||||||
Solar
heater/Biomass stove/Building integrated energy projects
|
$ | 1,024,027 | $ | 4,901,773 | ||||
Industrial
waste heat recovery/energy-saving projects
|
$ | 3,334,170 | 5,697,302 | |||||
$ | 4,358,197 | $ | 10,599,075 |
Overall:
Gross profit margin for the nine months ended September 30, 2009 decreased by
approximately 3.9% to 21.6% from 25.5% for the nine months ended September 30,
2008. This was primarily due to the decrease in sales of Industrial waste heat
recovery/energy-saving projects and increase in the cost of key raw materials.
We increased our inventory of stainless steel while the price of stainless steel
price was high, resulting in higher production costs and a lower gross
profit.
Solar
heater/Biomass stove/Building integrated energy projects: Gross profit
margin remained fairly constant for the nine months ended September 30, 2009 at
22.6% compared to 20.3% for the nine months ended September 30,
2008.
Industrial waste
heat recovery/energy-saving projects: Gross profit margin for the nine
months ended September 30, 2009 was approximately 21.4%, a decrease of 11.4%
from 32.8% for the nine months ended September 30, 2009. The decrease in gross
profit margin was due to the lower average product sales price and higher
production costs.
Operating
Expenses
Operating
expenses for the nine months ended September 30, 2009 were $3,973,170, as
compared to $6,072,096 for the nine months ended September 30, 2008, a decrease
of $2,098,926 or 34.6%. The overall decrease in operating expenses was primarily
due to the decrease in sales of Solar heater/Biomass stove/Building integrated
energy projects and the resulting decrease in selling and distribution expenses
and general and administrative expenses.
Depreciation
and amortization expense decreased to $261,200 for the nine months ended
September 30, 2009 from $464,599 for the nine months ended September 30, 2008,
primarily as a result of the end of useful life for certain manufacturing
equipments in the first quarter of 2009.
22
Selling
and distribution expense decreased to $1,566,946, for the nine months ended
September 30, 2009, a decrease of $2,082,920 or 57.1%, from $3,649,866 for the
nine months ended September 30, 2008, primarily due to the decrease in sales of
Solar heater/Biomass stove/Building integrated energy projects.
General
and administrative expenses were $2,145,024 (or approximately 10.7% of sales
revenue) for the nine months ended September 30, 2009, compared to $1,957,631
(or approximately 4.7% of sales revenue) for the nine months ended September 30,
2008, primarily due to the decrease in sales of Solar heater/Biomass
stove/Building integrated energy projects.
Net
Income
Net
income was $221,815 for the nine months ended September 30, 2009, compared to
$3,125,064 for the nine months ended September 30, 2008, a decrease of
$2,903,249 or approximately 92.9%. The decrease in net income was due to
primarily a result of decrease in sales of Solar heater/Biomass stove/Building
integrated energy projects.
LIQUIDITY
AND CAPITAL RESOURCES
Net cash
provided by operating activities was $705,573 for the nine months ended
September 30, 2009, while net cash used in our operating activities was
$(2,995,268) for the nine months ended September 30, 2008.
Net cash
provided by investing activities was $940,575 for the nine months ended
September 30, 2009, compared with net cash used in investing activities in the
amount of $(8,118,852) for the nine months ended September 30,
2008.
Net cash
provided by financing activities was $51,532 for the nine months
ended September 30, 2009, compared with $10,102,656 for the nine months
ended September 30, 2008.
We
believe that current cash flow is sufficient to meet anticipated working capital
and capital expenditures for at least the next twelve months. We may require
additional cash for further development of business, including any investments
or acquisitions we may decide to pursue. However, we cannot assure you that such
funding will be available.
Cash
Cash and
cash equivalents increased to $3,587,364 as of September 30, 2009, compared to
$1,820,882 as at December 31, 2008, primarily as a result of receiving cash from
disposal SZPSP
Accounts
Receivable
Accounts
receivable increased to $7,512,359 as at September 30, 2009, from $5,962,051 as
at December 31, 2008, primarily due to an increase in accounts receivable in
connection with an increase in the projects under construction by Tianjin
Huaneng.
Inventory
Inventories
decreased to $2,892,074 as at September 30, 2009, as compared to $5,158,153 as
at December 31, 2008. This substantial decrease was primarily due to strong
sales and a sharp decrease in finished products inventory by Tianjin
Huaneng.
23
Other
Receivables and Prepayments
Other
receivables and prepayments increased slightly to $6,929,358 as at September 30,
2009, compared to $6,705,578 as at December 31, 2008.
Accounts
Payable
Accounts
payable increased to $1,944,999 as at September 30, 2009, compared to $1,148,428
as at December 31, 2008. This increase was primarily due an increase in
inventory of raw materials.
Other
Payables and Accrued Liabilities
Other
payables and accrued liabilities decreased to $5,190,508 as at September 30,
2009 from $7,296,294 as at December 31, 2008, primarily due to a decrease in
shareholder loans and customer deposits.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
Item 4T. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
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”),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 Controls
There
have been no changes in the Company’s internal control over financial reporting
during the quarter ended September 30, 2009 that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
24
PART
II — OTHER INFORMATION
Item 1.
|
LEGAL
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.
Item 1A.
RISK FACTORS
Not
applicable.
Item 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
None.
Item 3.
DEFAULTS UPON SENIOR SECURITIES
None.
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
Item 5.
|
OTHER
INFORMATION
|
None.
Item 6.
|
EXHIBITS
|
Exhibit No.
|
Document
Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.
|
25
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.
|
||
November
12, 2009
|
By:
|
/s/
Deli Du
|
Deli
Du
|
||
Chief
Executive Officer and President
|
||
(Principal
Executive Officer)
|
||
November
12, 2009
|
By:
|
/s/
Yinan Zhao
|
Yinan
Zhao
|
||
Acting
Chief Financial Officer
|
||
(Principal
Financial
Officer)
|
26
Exhibit
Index
Exhibit No.
|
Document Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.
|
27