10-Q 1 fnrg_10q.htm JUNE 30, 2013 QUARTERLY REPORT fnrg_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

þ
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

¨
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period __________ to __________

Commission File Number: 333-145910
 
ForceField Energy Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
  
20-8584329
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)

245 Park Avenue, 39th Floor
New York, New York
 
10167
(Address of principal executive offices)
 
(Zip Code)
 
212-672-1786
(Issuer’s telephone number)

Check whether the issuer (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days þ Yes  ¨ 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).  Yes  þ  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.

Large accelerated filer
o
Accelerated filer
o
Non-Accelerated filer
o
Smaller reporting company
þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes  þ No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 16,265,501 common shares as of August 14, 2013. 
 


 
 

 
 
 
     
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Consolidated Balance Sheets
 
   
June 30,
   
December 31,
 
   
2013
   
2012
 
   
(Unaudited)
       
ASSETS
 
Current assets:
           
Cash and cash equivalents
 
$
377,120
   
$
994,149
 
Accounts receivable, net
   
2,897,376
     
4,469,514
 
Inventory, net
   
173,071
     
323,141
 
Deferred tax assets, net
   
74,926
     
90,257
 
Prepaid expenses and other current assets
   
686,960
     
448,601
 
Total current assets
   
4,209,453
     
6,325,662
 
Property, plant and equipment, net
   
7,913,460
     
7,547,128
 
Goodwill
   
1,342,834
     
1,342,834
 
Intangible assets, net
   
4,477,335
     
4,862,408
 
Related party receivables
   
224,118
     
413,061
 
Other assets
   
     
21,956
 
Total assets
 
$
18,167,200
   
$
20,513,049
 
   
LIABILITIES AND EQUITY
   
Current liabilities:
               
Accounts payable
 
$
2,914,290
   
$
3,689,065
 
Accrued liabilities
   
294,961
     
679,021
 
Loans payable
   
17,000
     
 
Related party payables
   
5,665,320
     
5,652,487
 
Income taxes payable
   
1,152,730
     
1,239,067
 
Total current liabilities
   
10,044,301
     
11,259,640
 
Convertible debentures
   
200,000
     
150,000
 
Deferred tax liabilities, net — non-current
   
223,147
     
409,037
 
Total liabilities
   
10,467,448
     
11,818,677
 
                 
Commitments and contingencies
   
     
 
                 
Equity:
               
ForceField Energy Inc. stockholders' equity:
               
Preferred stock, $0.001 par value. 12,500,000 shares authorized; zero shares
               
issued and outstanding
   
     
 
Common stock, $0.001 par value. 37,500,000 shares authorized; and 16,221,112 and 16,080,815 shares
         
issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
   
16,221
     
16,081
 
Additional paid-in capital
   
13,549,804
     
13,015,222
 
Accumulated deficit
   
(8,267,603
)
   
(6,922,198
)
Accumulated other comprehensive income
   
399,529
     
317,337
 
Total ForceField Energy Inc. stockholders' equity
   
5,697,951
     
6,426,442
 
Noncontrolling interests
   
2,001,801
     
2,267,930
 
Total equity
   
7,699,752
     
8,694,372
 
Total liabilities and equity
 
$
18,167,200
   
$
20,513,049
 

The accompanying notes are an integral part of the consolidated financial statements.
 
 
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Sales
 
$
217,484
   
$
526,590
   
$
502,629
   
$
1,034,217
 
Cost of goods sold
   
221,458
     
513,219
     
497,325
     
988,544
 
Gross margin
   
(3,974
   
13,371
     
5,304
     
45,673
 
Operating expenses:
                               
Professional fees
   
192,393
     
148,014
     
381,969
     
289,724
 
General and administrative
   
771,159
     
823,282
     
1,417,100
     
1,428,401
 
Total operating expenses
   
963,552
     
971,296
     
1,799,069
     
1,718,125
 
Income (loss) from operations
   
(967,526
   
(957,925
   
(1,793,765
   
(1,672,452
Other income (expense)
                               
Equity earnings (loss) from investment in TransPacfic Energy, Inc.
   
     
(1,211
   
     
(1,211
Interest expense, net
   
(5,175
)
   
(2,518
   
(9,593
)
   
(4,768
Total other income (expense)
   
(5,175
)
   
(3,729
   
(9,593
)
   
(5,979
Income (loss) before income taxes
   
(972,701
)
   
(961,654
   
(1,803,358
)
   
(1,678,431
Provision for income taxes (benefit)
   
(125,731
   
(167,342
   
(191,824
   
(281,518
Net income (loss)
   
(846,970
   
(794,312
   
(1,611,534
   
(1,396,913
Less: Net income (loss) attributable to noncontrolling interests
   
(149,266
   
(178,244
   
(266,129
   
(316,312
Net loss attributable to ForceField Energy Inc. common shareholders
 
$
(697,704
 
$
(616,068
 
$
(1,345,405
 
$
(1,080,601
                                 
Basic and diluted earnings (loss) per share
 
$
(0.04
 
$
(0.04
 
$
(0.08
 
$
(0.07
                                 
Weighted-average number of common shares outstanding:
                               
Basic and diluted
   
16,187,281
     
15,057,587
     
16,159,934
     
15,033,951
 
                                 
Comprehensive income (loss):
                               
Net income (loss)
 
$
(846,969
 
$
(794,312
 
$
(1,611,533
 
$
(1,396,913
Foreign currency translation adjustment
   
68,505
     
(59,310
   
82,191
     
(50,547
Comprehensive income (loss)
   
(778,464
   
(853,622
   
(1,529,342
   
(1,447,460
Comprehensive income (loss) attributable to noncontrolling interests
   
(149,266
)
   
(178,244
   
(266,129
   
(316,312
Comprehensive income (loss) attributable to ForceField Energy Inc.
   
(629,198
)
   
(675,378
   
(1,263,213
)
   
(1,131,148

The accompanying notes are an integral part of the consolidated financial statements.
 
 
Consolidated Statements of Cash Flows (Unaudited)
 
   
Six Months Ended June 30,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net income (loss)
 
$
(1,611,534
 
$
(1,396,913
Adjustments to reconcile net income (loss) to cash used in operating activities:
         
Depreciation and amortization
   
765,666
     
619,247
 
Provision for doubtful accounts
   
(62,152
   
389,874
 
Equity loss from investment in TransPacific Energy, Inc.
   
     
1,211
 
Common stock issued in exchange for services
   
92,822
     
24,000
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
342,722
     
(493,392
Notes receivable
   
     
477,769
 
Inventory
   
153,773
     
114,874
 
Prepaid expenses and other current assets
   
(286,039
   
92,346
 
Related party receivables - trade
   
193,702
     
(112,110
Other assets
   
22,106
     
 
Accounts payable
   
523,375
     
154,333
 
Accrued liabilities
   
(331,136
   
149,459
 
Income taxes payable
   
(268,314
)
   
(359,663
Net cash used in operating activities
   
(465,009
   
(338,965
)
                 
Cash flows from investing activities:
               
Cash consideration for acquisition of business
   
     
(150,000
)
Purchase of property, plant and equipment
   
(589,404
)
   
(190,017
Net cash provided by (used in) investing activities
   
(589,404
)
   
(340,017
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock, net of issuance costs
   
441,900
     
195,000
 
Proceeds from issuance of convertible debentures
   
50,000
     
 
Proceeds from loans payable
   
17,000
     
129,600
 
Proceeds from (repayments of) related party payables
   
(75,000
   
40,000
 
Net cash provided by financing activities
   
433,900
     
364,600
 
                 
Effect of exchange rates on cash and cash equivalents
   
3,484
     
(3,880
Net increase (decrease) in cash and cash equivalents
   
(617,029
   
(318,262
Cash and cash equivalents at beginning of period
   
994,149
     
674,291
 
Cash and cash equivalents at end of period
 
$
377,120
   
$
356,029
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
 
$
7,906
   
$
4,768
 
Cash paid for income taxes
 
$
800
   
$
 
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Issuance of common stock related to acquisitions
 
$
   
$
475,207
 
Common stock issued to reduce accounts payable
 
$
   
$
40,000
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
Notes to Interim Unaudited Consolidated Financial Statements
June 30, 2013
(Expressed in United States dollars)
 
1.
NATURE OF OPERATIONS

ForceField Energy Inc. (“ForceField” or “Company”) is an international manufacturer, distributor, and licensee of alternative energy products and technologies. ForceField was incorporated in the State of Nevada on January 30, 2007. ForceField (i) owns 50.3% of TransPacific Energy, Inc. (“TPE”), a U.S. based renewable energy technology provider that uses “waste heat” from various manufacturing and other sources to provide clean electricity; (ii) is the exclusive North American distributor of light emitting diode (LED) commercial lighting products and fixtures for a premier manufacturer in China; and (iii) is a producer of trichlorosilane (“TCS”) in China. TCS is a chemical primarily used in the production of polysilicon, which is an essential raw material in the production of solar cells for photovoltaic (“PV”) panels that convert sunlight to electricity. This TCS is sold to the marketplace via two operating segments, (1) a 90% owned TCS distribution company, and (2) through the 60% ownership of a TCS plant, both of which are located in China.

On February 28, 2013, the Company changed its name from SunSi Energies Inc. (“SunSi”) to ForceField Energy Inc. With the exception of the Company’s wholly-owned subsidiary, SunSi Energies Hong Kong Ltd. (“SunSi HK”) which name remains unchanged, all historic references to “SunSi” in this document have been changed to “ForceField”.
 
2.
SUMMARY OF  SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and are expressed in United States dollars. The consolidated financial statements include the accounts of the Company; its wholly-owned subsidiaries SunSi Energies Hong Kong Limited (“SunSi HK”), ForceField Energy S.A.(“S.A.”) in Costa Rica and ForceField Energy USA Inc. (“ForceField USA”); the Company’s 50.3% owned subsidiary TransPacific Energy, Inc. (“TPE”); SunSi HK's 90% owned subsidiary Zibo Baokai Commerce and Trade Co. Ltd. (“Baokai”); and SunSi HK's 60% owned subsidiary Wendeng He Xie Silicon Industry Co., Ltd. (“Wendeng”).  All intercompany accounts have been eliminated in consolidation.

Management’s Representation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited financial statements at December 31, 2012 as filed in the Company’s Form 10-K filed with the Securities and Exchange Commission. 
 
Reverse Stock Split

All preferred and common share amounts (except par value and par value per share amounts) have been retroactively restated as of June 30, 2013 to reflect the Company’s one-for-two reverse capital stock split effective October 9, 2012, as described in Note 17 — Stockholders’ Equity to these consolidated financial statements.
 

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of 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. The Company continually evaluates its estimates, including but not limited to those related to the valuation of accounts receivable, inventories, deferred income taxes, goodwill and intangible assets, and the estimation on the useful lives of property, plant and equipment. The Company bases its estimates on historical experience, known or expected trends and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

Refer to Note 2 — Summary of Significant Accounting Policies in the Company’s audited 2012 consolidated financial statements in Form 10-K for a summary of its significant accounting policies.

3.
THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Standards Updates through ASU 2013-11 that contain technical corrections to existing guidance or affect specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.
 
4.
ACCOUNTS RECEIVABLE, NET
 
Accounts receivable at June 30, 2013 and December 31, 2012 were comprised of the following:
 
   
June 30,
2013
   
December 31,
2012
 
             
Accounts receivable, trade
 
$
2,936,828
   
$
4,645,193
 
Accounts receivable, unbilled
   
112,058
     
26,167
 
Costs and unearned income unbilled
   
200,000
     
257,500
 
Allowance for doubtful accounts
   
(351,510
)
   
(459,346
)
                 
Total
 
$
2,897,376
   
$
4,469,514
 

In March 2013, the Company’s Baokai segment agreed to assign the accounts receivable balance from one of its customers, totaling $1,334,321, to the manufacturer of the product it distributes, Zibo Baoyun Chemical Plant (“ZBCP”). In exchange, the Company is relieved of its accounts payable obligations to ZBCP. Additionally, ZBCP agreed to pay the 2% gross margin earned by the Company related to these accounts receivables from the sale of its product by June 30, 2013. This amount has not yet been collected.

At December 31, 2012, the Company established a general provision related to its trade accounts receivable of $459,346 to an allowance for doubtful accounts by recording a charge to bad debt expense. During the six months ended June 30, 2013, the Company decreased its provision by recording a benefit to bad debt expense of $62,152 due to the settlement of accounts receivable balances previously reserved against. Furthermore, the Company’s ORC segment wrote off accounts receivables totaling $51,500 that it previously reserved against.
 
As of June 30, 2013, three customers accounted for approximately 13%, 17%, and 63% respectively, or approximately 93% of total accounts receivable.
 
As of December 31, 2012, three customers accounted for approximately 11%, 22% and 65%, respectively, or approximately 98% of total accounts receivable.
 
 
5.
INVENTORY
 
Inventory at June 30, 2013 and December 31, 2012 was comprised of the following:
 
   
June 30,
2013
   
December 31,
2012
 
             
Raw materials
 
$
173,071
   
$
170,417
 
Finished goods
   
     
163,520
 
Allowance for excess or obsolete inventory
   
     
(10,796
)
                 
Total
 
$
173,071
   
$
323,141
 
 
At December 31, 2012, the Company established a general provision of $10,796 to an allowance for excess or obsolete inventory by recording a charge to cost of goods sold. During the six months ended June 30, 2013, the Company reduced its allowance for excess or obsolete inventory to zero following the sale of the inventory against which it recorded the provision.
 
6. 
PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
Prepaid expenses and other current assets at June 30, 2013 and December 31, 2012 were comprised of the following:
 
   
June 30,
2013
   
December 31,
2012
 
             
Advances to suppliers, net of allowance
 
$
495,002
   
$
300,396
 
Prepaid expenses
   
137,213
     
94,682
 
Value added tax (VAT) credit
   
53,477
     
52,656
 
Other
   
1,268
     
867
 
                 
Total
 
$
686,960
   
$
448,601
 

Advances made to suppliers are for the purchase of raw materials that are expected to be recovered within twelve months. At December 31, 2012, the Company established a general provision for doubtful accounts related to its advances to suppliers by recording a charge to bad debt expense of $9,314. During the six months ended June 30, 2013, the Company did not record any further adjustments to the provision.
 
Prepaid expenses and other assets represent prepayments made in the normal course and in which the economic benefit is expected to be realized within twelve months.
 
7. 
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at June 30, 2013 and December 31, 2012 was comprised of the following:
                                                                                                                                                          
         
June 30, 2013
         
December 31, 2012
 
         
Accumulated
   
Net book
         
Accumulated
   
Net book
 
   
Cost
   
Depreciation
   
Value
   
Cost
   
Depreciation
   
Value
 
                                     
Building
 
$
3,842,546
   
$
(442,065
)
 
$
3,400,481
   
$
3,783,611
   
$
(340,062
)
 
$
3,443,549
 
Furniture and equipment
   
9,985
     
(3,917
)
   
6,068
     
9,831
     
(2,831
)
   
7,000
 
Machinery and equipment
   
3,975,412
     
(954,706
)
   
3,020,706
     
3,914,440
     
(733,413
)
   
3,181,027
 
Automotive equipment
   
329,943
     
(137,617
)
   
192,326
     
324,883
     
(99,292
)
   
225,591
 
Office equipment
   
12,639
     
(5,312
)
   
7,327
     
12,445
     
(3,921
)
   
8,524
 
Construction in Progress
   
1,286,552
     
     
1,286,552
     
681,437
     
     
681,437
 
                                                 
Total
 
$
9,457,077
   
$
(1,543,617
)
 
$
7,913,460
   
$
8,726,647
   
$
(1,179,519
)
 
$
7,547,128
 
 
 
Depreciation for the three months ended June 30, 2013 and June 30, 2012 totaled $172,349 and $167,498, respectively.

Depreciation expense for the six months ended June 30, 2013 and 2012 totaled $342,761 and $329,917, respectively.
 
Differences may arise in the amount of depreciation expense reported in the Company's operating results as compared to the corresponding change in accumulated depreciation due to foreign currency translation. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity.
 
8. 
BUSINESS COMBINATIONS

On May 10 and May 17, 2012, the Company entered into two share exchange agreements (the “Agreements”) with shareholders of TPE to acquire an aggregate controlling equity interest of its common stock. TPE is a renewable energy technology corporation located in California and Nevada that designs and installs proprietary modular Organic Rankine Cycle (“ORC”) units utilizing up to nine patented refrigerant mixtures to maximize heat recovery and convert waste heat directly from any process that generates waste heat or flue gas (such as industrial, solar, geothermal and biomass processes) converting it into electrical energy.
 
From June 14, 2012 through August 20, 2012, the Company paid $520,000 in cash and issued 255,356 shares of its common stock, valued at approximately $965,226 or $3.78 per share, in exchange for 24,753,768 shares of TPE’s common stock in accordance with the terms of the Agreements. These investments represent approximately a 50.3% equity interest in the common stock of TPE.
 
The acquisition was accounted for as a business combination under the acquisition method of accounting in accordance with generally accepted accounting principles.

Prior to gaining its controlling interest, the Company accounted for its investment in TPE as prescribed in ASC 323, “Investment — Equity Method and Joint Venture”. Accordingly, the Company adjusted the carrying amount of its investment to recognize its share of earnings or losses. During the six months ended June 30, 2013, the Company recorded an equity loss from its investment in TPE of $5,798.

Fair Value of Consideration Transferred and Recording of Assets Acquired, Liabilities Assumed and Non-controlling Interests

The following table summarizes the acquisition date fair value of the consideration transferred, identifiable assets acquired, liabilities assumed and non-controlling interests including an amount for goodwill:
 
Consideration:
     
Cash and cash equivalents
 
$
520,000
 
Common stock, 255,356 shares of ForceField common stock (1)
   
965,226
 
Fair value of total consideration transferred
 
$
1,485,226
 
Equity loss on investment in TransPacific Energy, Inc.
   
(5,798
Fair value of total consideration
 
$
1,479,428
 
         
Recognized amount of identifiable assets acquired and liabilities assumed:
       
Financial assets
 
$
442,629
 
Identifiable intangible asset – technology
   
1,583,000
 
Financial liabilities
   
(452,026
Deferred tax liability
   
(645,009
)
Total identifiable net assets
   
928,594
 
Noncontrolling interest
   
(792,000
)
Goodwill
   
1,342,834
 
   
$
1,479,428
 
 
(1)
The $3.78 per share price was determined by calculating the 30-day weighted average trading price of the Company’s common stock immediately preceding the initial June 14, 2012 funding of the transaction.
 
 
9. 
GOODWILL AND  INTANGIBLE ASSETS, NET
 
The carrying amount of goodwill at June 30, 2013 and December 31, 2012 was comprised of the following:
 
   
June 30,
2013
   
December 31,
2012
 
             
Goodwill – Wendeng He Xie Silicon Co., Ltd
   
     
583,183
 
Goodwill – TransPacific Energy, Inc.
   
1,342,834
     
1,342,834
 
Impairment charge
   
     
(607,422
 )
Foreign currency translation adjustments
   
     
24,239
 
                 
Goodwill, net at June 30, 2013
 
$
1,342,834
   
$
1,342,834
 
 
Intangible assets at June 30, 2013 and December 31, 2012 were comprised of the following:
 
         
June 30, 2013
   
December 31, 2012
 
   
Amortization
   
Gross
         
Net
   
Gross
         
Net
 
   
Period
   
Carrying
   
Accumulated
   
Book
   
Carrying
   
Accumulated
   
Book
 
   
(Years)
   
Amount
   
Amortization
   
Value
   
Amount
   
Amortization
   
Value
 
                                           
Intangible assets subject to amortization:
                                         
Customer relationships
  3     $ 1,643,126       (1,255,166 )     387,960     $ 1,617,925     $ (966,261 )   $ 651,664  
Exclusive distribution rights
  5       780,000       (130,000 )     650,000       780,000       (52,000 )     728,000  
Land leasehold and use rights
  50       2,042,195       (93,478 )     1,948,717       2,010,872       (71,553 )     1,939,319  
Technology
  15       1,583,000       (92,342 )     1,490,658       1,583,000       (39,575 )     1,543,425  
                                                       
Total
        $ 6,048,321       (1,570,986 )     4,477,335     $ 5,991,797     $ (1,129,389 )   $ 4,862,408  

On August 27, 2012, the Company entered into a five year distribution agreement with Shanghai Lightsky Optoelectronics Technology Co., Ltd. (“Lightsky”) located in Shanghai, China whereby ForceField became the exclusive distributor of Lightsky LED lighting products in the United States, Canada and Mexico. Lightsky is an established manufacturer and seller of numerous patented LED lighting products in China and throughout Asia. ForceField issued 150,000 shares of its restricted common stock valued at $780,000, which represents the trading price of $5.20 per share of the Company’s common stock on the date of the transaction, as consideration for the rights. This amount will be amortized using the straight-line method over the five year expected life of the distribution rights. The shares are restricted for an eighteen-month period from their date of issuance. In order to maintain its exclusivity and qualify for any automatic renewal periods beyond the five-year period, ForceField must achieve certain performance milestones.

Amortization expense for intangible assets subject to amortization for the three months ended June 30, 2013 and 2012 totaled $212,279 and $142,747, respectively.
 
Amortization expense for intangible assets subject to amortization for the six months ended June 30, 2013 and 2012 totaled $422,905 and $289,330, respectively.
 
Differences may arise in the amount of amortization expense reported in the Company's operating results as compared to the corresponding change in accumulated depreciation due to foreign currency translation. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity.
 
 
10. 
RELATED PARTY RECEIVABLES - TRADE

Related party receivables were comprised of the following at June 30, 2013 and December 31, 2012:
 
   
June 30,
2013
   
December 31,
2012
 
             
Wendeng Huahai Chemical Co., Ltd.
 
$
224,118
   
$
413,061
 
                 
Total
 
$
224,118
   
$
413,061
 

The amount represents trade receivables due from a related party; an entity in which a shareholder of the Company maintains an equity interest. The receivable is interest-free, unsecured and payable in accordance with the Company’s standard trade terms.
 
11. 
OTHER ASSETS

Other assets were comprised of the following at June 30, 2013 and December 31, 2012:
 
   
June 30,
2013
   
December 31,
2012
 
             
Deposit – Department of Extra budgetary Fund, Wendeng
 
$
   
$
21,956
 
                 
Total
 
$
   
$
21,956
 
 
12. 
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
Accounts payable and accrued liabilities were comprised of the following at June 30, 2013 and December 31, 2012:
 
   
June 30,
2013
   
December 31,
2012
 
             
Accounts payable
 
$
2,914,290
   
$
3,689,065
 
                 
Accrued liabilities:
               
Billings in excess of cost and earned income
   
172,200
     
257,500
 
Reserve for estimated losses on uncompleted contracts
   
29,524
     
121,442
 
Other accrued liabilities
   
93,237
     
300,079
 
Total accrued liabilities
   
294,961
     
679,021
 
                 
Total accounts payable and accrued liabilities
 
$
3,209,251
   
$
4,368,086
 

Accounts payable and accrued liabilities primarily represent trade payables of the Company’s Chinese operating subsidiaries.
 
 
13. 
LOANS PAYABLE
 
Loans payable at June 30, 2013 and December 31, 2012 were comprised of the following:
 
   
June 30,
2013
   
December 31,
2012
 
             
Loans payable
 
$
17,000
   
$
 
                 
Total
 
$
17,000
   
$
 

On May 1, 2012, the Company executed a letter agreement with a third party lender whereby it could borrow up to $100,000 Canadian dollars if needed. All borrowings under the agreement are unsecured, bear interest at a rate of 10% annually and mature effective December 31, 2012. In May and June 2012, the Company received proceeds aggregating $79,600 from the lender under the agreement. As of December 31, 2012, the Company had repaid all principal amounts borrowed on its letter agreement.

In May 2013, the terms of the letter agreement were extended until December 31, 2013 and the Company borrowed $17,000 on the facility.

On June 12, 2012, the Company received loan proceeds totaling $50,000 from a demand note entered into with a third party lender. All borrowings on the note are unsecured, bear interest at a rate of 12% annually and are payable on demand. On July 5, 2012, the Company repaid the principal amount totaling $50,000 on its demand note payable.
 
14. 
RELATED PARTY PAYABLES    
                                                                     
Related party payables were comprised of the following at June 30, 2013 and December 31, 2012:
 
   
June 30,
2013
   
December 31,
2012
 
             
Advances from minority shareholder of noncontrolling interest (Wendeng)
 
$
5,576,673
   
$
5,488,840
 
Purchase consideration due minority shareholder of noncontrolling interest (Baokai)
   
88,647
     
163,647
 
                 
Total
 
$
5,665,320
   
$
5,652,487
 
 
The minority shareholder of the Company’s Wendeng subsidiary made a series of advances, both pre and post-acquisition, to fund capital expenditures and plant expansion. These advances were made on an interest-free basis, are unsecured and payable on demand. Additionally, an officer of ForceField made a series of advances to fund working capital. These advances were also made on an interest-free basis, are unsecured and payable on demand.

The amount due to the minority shareholder of its Baokai subsidiary represents unpaid purchase consideration from the Company’s December 8, 2010 acquisition. This amount bears no interest, is unsecured and payable on demand.
 
15.
INCOME TAXES                     
 
As of June 30, 2013, the Company had federal, state and foreign net operating loss carryforwards aggregating approximately $6.6 million that are available to offset future liabilities for income taxes. The Company has generally established a valuation allowance against these carryforwards based on an assessment that it is more likely than not that these benefits will not be realized in future years. The federal and state net operating loss carryforwards expire at various dates through 2032.

The Company remains subject to examination in federal, state and foreign jurisdictions in which the Company conducts its operations and files tax returns. These tax years range from 2008 through 2012. The Company believes that the results of current or any prospective audits will not have a material effect on its financial position or results of operations as adequate reserves have been provided to cover any potential exposures related to these ongoing audits.
 
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provision of FASB ASC 740. 
 

16.
DEBT

Debt was comprised of the following at June 30, 2013 and December 31, 2012:

   
June 30,
2013
   
December 31,
2012
 
             
9% Unsecured, convertible debentures
 
$
200,000
   
$
150,000
 
Less: Current portion
   
     
 
     Long term debt
 
$
200,000
   
$
150,000
 
 
The following table summarizes the issuance of all unsecured, convertible debentures during the six month period ended June 30, 2013 and year ended December 31, 2012:
 
Issue Date
 
Interest Rate
 
Face Value
 
Maturity Date
 
Conversion Rate of
Face Value to Common Shares
                   
10/15/2011
 
9%
 
100,000
 
10/15/2014
 
0.125
11/16/2012
 
9%
   
50,000
 
11/16/2015
 
0.200
02/13/2013
 
9%
   
50,000
 
02/13/2016
 
0.200
 Total
     
$
200,000
       

On October 15, 2011, the Company completed the private placement of an unsecured, convertible debenture in the amount of $100,000. The debenture carries an interest rate of 9% per annum, payable semiannually each April 15 and October 15, for a three-year term convertible at a fixed conversion price of $8.00 per share, which equates to 12,500 shares of the Company’s common stock.

On November 16, 2012 and February 13, 2013, the Company completed the private placement of two unsecured, convertible debentures each in the amount of $50,000. The debentures carry an interest rate of 9% per annum, payable semiannually, for a three-year term with a fixed conversion price of $5.00 per share, or 10,000 shares of the Company’s common stock if converted within the first year of issuance or a fixed conversion price of $6.00 per share, or 8,333 shares of the Company’s common stock if converted during the second or third year following issuance.
 
17.
STOCKHOLDERS’ EQUITY

Reverse Stock Split

On October 9, 2012, the Company effectuated a one-for-two reverse split of its preferred and common stock. All references in these financial statements to the number of preferred shares, common shares or warrants, price per share and weighted average number of common shares outstanding prior to the 1:2 reverse stock split have been adjusted to reflect this stock split on a retroactive basis, unless otherwise noted.

Preferred Stock

ForceField is authorized to issue 12,500,000 shares of preferred stock at a par value of $0.001. No shares of preferred stock were issued and outstanding as of either June 30, 2013 or December 31, 2012.

Common Stock

ForceField is authorized to issue 37,500,000 shares of common stock at a par value of $0.001 and had 16,221,112 and 16,080,815 shares of common stock issued and outstanding as of June 30, 2013 and December 31, 2012, respectively.
 

Common Stock Issued in Private Placements

On September 5, 2011, the Company commenced a new offering of 1.5 million shares at $6.00 per share. In October 2011, the Company accepted a subscription agreement from an investor for 20,000 shares of its common stock and received $120,000 in gross proceeds pursuant to this new offering. In February 2012, the Company issued an additional 10,000 shares of its common stock to the investor as a result of the offering amendment described below.

In February 2012, the Company amended this offering by reducing the share price from $6.00 to $4.00 per share. Since the February 2012 amendment, the Company accepted subscription agreements from investors and issued 12,500 shares of its common stock for gross proceeds totaling $50,000. Additionally, the Company accepted subscription agreements from two of its officers and issued 37,500 shares of its common stock for gross proceeds totaling $150,000. The purchase of these shares is consistent with the terms of the Company’s private placement described above. There was no cost associated with the officer issuances.

On July 1, 2012, the Company modified its offering to include one stock purchase warrant per share of common stock sold. The stock purchase warrants are exercisable at $4.00 per share and expire one year from their date of issuance. Since the July 1, 2012 modification, the Company accepted subscription agreements from investors and issued 562,750 shares of its common stock and equal amount of stock purchase warrants for gross proceeds totaling $2,251,000. Using the Black-Scholes model, the Company allocated a value of $1,530,577 to these stock purchase warrants through the period ended December 31, 2012.

During the six month period ended June 30, 2013 the Company accepted subscription agreements from investors and issued 122,750 shares of its common stock and 135,250 common stock purchase warrants for gross proceeds totaling $491,000. Warrants have been accounted for as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. Using the Black-Scholes model, the Company allocated a value of $375,339 to these stock purchase warrants through the period ended June 30, 2013.

Common Stock Issued in Exchange for Services

During the six month period ended June 30, 2013, the Company issued 5,400 shares of its common stock valued at $28,148 in exchange for consulting services. Additionally, the Company issued 7,848 shares of its common stock valued at $42,000 to its three independent directors in accordance with their board compensation agreements and 4,299 shares of its common stock valued at $22,674 in promotional activities to attendees of various financing events hosted by the Company. Each of these share issuances were valued based upon the closing trading share price of the Company’s common stock on their respective dates of award.
 
Common Stock Issued in the Acquisition of a Business

Effective August 20, 2012, the Company exchanged 255,356 shares of its common stock valued at $965,226, or $3.78 per share, in connection with its equity investment in TPE (see “Note 8 – Business Combinations”).

Common Stock Issued in the Acquisition of Distribution Rights

On August 27, 2012, the Company entered into a five year distribution agreement with Lightsky located in Shanghai, China whereby it became the exclusive distributor of Lightsky LED lighting products in the United States, Canada and Mexico. The Company issued 150,000 shares of its restricted common stock valued at $780,000, or $5.20 per share. The shares are restricted for an eighteen month period from their date of issuance (see “Note 9 – Goodwill and Intangible Assets, Net”).
 
Stock Purchase Warrants
 
The following table reflects all outstanding and exercisable warrants for the periods ended December 31, 2012 and June 30, 2013. All stock warrants are exercisable for a period of one year from the date of issuance.
 

   
Number of
Warrants
Outstanding
   
Weighted Average
Exercise Price
   
Remaining
Contractual
Life (Years)
 
Balance, December 31, 2012
   
562,750
   
 $
4.00
   
 $
0.20
 
Warrants issued
   
135,250
   
 $
4.00
     
0.68
 
Warrants exercised
   
     
     
 
Balance June 30, 2013
   
698,000
   
 $
4.00
     
0.29
 
———————
(1)
The remaining contractual life of the warrants outstanding as of June 30, 2013 ranges from 0.01 to 0.93 years.
 
The value of the common stock options and warrants has been determined using the following Black Scholes methodology:

   
June 30,
2013
   
December 31,
2012
 
Expected dividend yield (1) 
   
0.00
%
   
0.00
%
Risk-free interest rate (2)
   
0.13 – 0.16
%
   
0.16 – 0.21
%
Expected volatility (3)
   
111.21 – 146.37
%
   
111.94 – 152.31
%
Expected life (in years)
   
1.00
     
1.00
 
______________
(1)
The Company has no history or expectation of paying cash dividends on its common stock.
(2)
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
(3)
The volatility of the Company’s common stock is based on trading activity for the previous one year period ended at each stock purchase warrant contract date.
 
18.
COMMITMENTS
 
ForceField has entered into a number of engagement agreements for advisory and consulting services on a non-exclusive basis to obtain new equity capital and debt financing. In the event that the Company receives new capital proceeds from a source identified by one of the consultants, then such consultant will receive a finders or referral fee at closing ranging from seven percent (7%) to ten percent (10%) of the amount received by the Company. The terms and condition of financing are subject to Company approval.
 
19. 
SEGMENT INFORMATION

As a result of the acquisition of its equity interest in TPE and exclusive distribution rights for Lightsky LED lighting products, the Company reassessed its requirement for segment reporting based on the operating and reporting structure of the combined company.
 
The Company utilized several criteria, including (i) the Company’s organizational structure, (ii) the manner in which the Company’s operations are managed, (iii) the criteria used by the Company’s Chief Executive Officer, the Chief Operating Decision Maker (“CODM”), to evaluate segment performance and (iv) the availability of separate financial information, as a basis to identify its operating segments.

The Company determined that it has four reportable business segments: Baokai, Wendeng, ORC and LED. The Baokai segment consists of the business of Zibo Baokai Commerce and Trade Co., Ltd., a company based in the Shandong province of China that distributes the trichlorosilane production of Zibo Baoyun Chemical Plant. The Wendeng segment consists of the operations of Wendeng He Xie Silicon Industry Co., Ltd., a company based in the Shandong province of China that directly manufactures and sells trichlorosilane. The ORC segment consists of the operations of TransPacific Energy, Inc., a company based in California and Nevada that designs and installs proprietary modular Organic Rankine Cycle units utilizing patented multiple refrigerant mixtures to maximize heat recovery and convert waste heat directly from industrial processes, solar and geothermal, biomass converting it into electrical energy. The LED segment consists of the business of ForceField USA that distributes LED lighting products manufactured in China by Shanghai Lightsky Optoelectronics Technology Co., Ltd. in the major North American markets.

The accounting policies of the reportable segments are the same as those described in Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements. The Company’s CODM reviews financial information presented on a consolidated basis, accompanied by disaggregated information by segment for purpose of evaluating financial performance.
 
 
Segment Results

The following table sets forth operations by segment for the three months ended June 30, 2013 and 2012:

   
TCS
                         
   
Baokai
   
Wendeng
   
ORC
   
LED
   
Corporate
   
Consolidated
 
Sales:
                                               
2013
 
$
16,944
   
$
139,495
   
$
6,535
   
$
54,510
   
$
   
$
217,484
 
2012
 
$
527,052
   
$
(462
 
$
   
$
   
$
   
$
526,590
 
Cost of goods sold:
                                               
2013
 
$
16,605
   
$
183,408
   
$
(5,915
 
$
27,360
   
$
   
$
221,458
 
2012
 
$
516,511
   
$
(3,292
 
$
   
$
   
$
   
$
513,219
 
Gross margin:
                                               
2013
 
$
339
   
$
(43,913
 
$
12,450
   
$
27,150
   
$
   
$
(3,974
2012
 
$
10,451
   
$
2,830
   
$
   
$
   
$
   
$
13,371
 
Operating expenses:
                                               
2013
 
$
64,092
   
$
395,259
   
$
25,678
   
$
89,572
   
$
388,951
   
$
963,552
 
2012
 
$
110,836
   
$
571,903
   
$
   
$
   
$
288,557
   
$
971,296
 
Other income (expense):
                                               
2013
 
$
   
$
   
$
59
   
$
   
$
(5,234
 
$
(5,175
)
2012
 
$
   
$
   
$
   
$
   
$
(3,729
 
$
(3,729
Provision for income taxes:
                                               
2013
 
$
(15,938
)
 
$
(109,793
)
 
$
   
$
   
$
   
$
(125,731
)
2012
 
$
(25,074
 
$
(142,268
 
$
   
$
   
$
   
$
(167,342
Net income (loss):
                                               
2013
 
$
(47,815
)
 
$
(329,379
)
 
$
(13,169
 
$
(62,422
 
$
(394,185
 
$
(846,970
)
2012
 
$
(75,221
 
$
(426,805
 
$
   
$
   
$
(292,286
)
 
$
(794,312
 
 
 
The following table sets forth operations by segment for the six months ended June 30, 2013 and 2012:

   
TCS
                         
   
Baokai
   
Wendeng
   
ORC
   
LED
   
Corporate
   
Consolidated
 
Sales:
                                               
2013
 
$
53,917
   
$
155,713
   
$
214,890
   
$
78,109
   
$
   
$
502,629
 
2012
 
$
762,011
   
$
272,206
   
$
   
$
   
$
   
$
1,034,217
 
Cost of goods sold:
                                               
2013
 
$
52,839
   
$
203,724
   
$
197,140
   
$
43,622
   
$
   
$
497,325
 
2012
 
$
746,771
   
$
241,773
   
$
   
$
   
$
   
$
988,544
 
Gross margin:
                                               
2013
 
$
1,078
   
$
(48,011
 
$
17,750
   
$
34,487
   
$
   
$
5,304
 
2012
 
$
15,240
   
$
30,443
   
$
   
$
   
$
   
$
45,673
 
Operating expenses:
                                               
2013
 
$
(31,066
 
$
751,431
   
$
63,178
   
$
193,794
   
$
821,732
   
$
1,799,069
 
2012
 
$
110,836
   
$
1,060,909
   
$
   
$
   
$
546,380
   
$
1,718,125
 
Other income (expense):
                                               
2013
 
$
   
$
   
$
116
   
$
   
$
(9,709
 
$
(9,593
)
2012
 
$
   
$
   
$
   
$
   
$
(5,979
 
$
(5,979
Provision for income taxes:
                                               
2013
 
$
8,036
   
$
(199,860
)
 
$
   
$
   
$
   
$
(191,824
)
2012
 
$
(23,899
 
$
(257,619
 
$
   
$
   
$
   
$
(281,518
Net income (loss):
                                               
2013
 
$
24,108
   
$
(599,582
)
 
$
(45,312
 
$
(159,307
 
$
(831,441
 
$
(1,611,534
)
2012
 
$
(71,697
 
$
(772,857
 
$
   
$
   
$
(552,359
)
 
$
(1,396,913

Operating segments do not sell products to each other, and accordingly, there is no inter-segment revenue to be reported.
 
Total Assets

The following table sets forth the total assets by segment at June 30, 2013 and December 31, 2012:

   
TCS
                         
   
Baokai
   
Wendeng
   
ORC
   
LED
   
Corporate
   
Consolidated
 
Total assets:
                                               
2013
 
$
531,576
   
$
13,433,493
   
$
3,360,260
   
$
732,303
   
$
109,568
   
$
18,167,200
 
2012
 
$
1,841,600
   
$
14,070,312
   
$
3,370,300
   
$
769,056
   
$
461,781
   
$
20,513,049
 
 
 
Goodwill, Intangible and Long-Lived Assets

The following table sets forth the carrying amounts of goodwill, intangible and long-lived assets by segment at June 30, 2013 and December 31, 2012:

   
TCS
                         
   
Baokai
   
Wendeng
   
ORC
   
LED
   
Corporate
   
Consolidated
 
Goodwill:
                                               
2013
 
$
   
$
   
$
1,342,834
   
$
   
$
   
$
1,342,834
 
2012
 
$
   
$
   
$
1,342,834
   
$
   
$
   
$
1,342,834
 
Intangible assets:
                                               
2013
 
$
   
$
2,336,677
   
$
1,490,658
   
$
650,000
   
$
   
$
4,477,335
 
2012
 
$
   
$
2,590,983
   
$
1,543,425
   
$
728,000
   
$
   
$
4,862,408
 
Property, plant and equipment:
                                               
2013
 
$
   
$
7,913,460
   
$
   
$
   
$
   
$
7,913,460
 
2012
 
$
   
$
7,547,128
   
$
   
$
   
$
   
$
7,547,128  

Amortization expense totaled $146,895 for Wendeng, $26,384 for ORC and $39,000 for LED for the three months ended June 30, 2013. Depreciation expense totaled $172,349 for Wendeng for the three months ended June 30, 2013.

Amortization expense totaled $292,138 for Wendeng, $52,767 for ORC and $78,000 for LED for the six months ended June 30, 2013. Depreciation expense totaled $342,761 for Wendeng for the six months ended June 30, 2013.

Capital expenditures totaled $589,404 for Wendeng during the six months ended June 30, 2013.

Except as noted above, no other reportable segment recorded depreciation or amortization expense, nor did they incur any capital expenditures during the six months ended June 30, 2013.
 
Customer Concentration and Credit Risk

For the three month period ended June 30, 2013, one customer accounted for 100% of Baokai's sales; four customers accounted for 100% of Wendeng’s sales, at individual concentration levels of 12%, 21%, 24% and 43%; and one customer accounted for 69% of ORC’s revenue; and three customers accounted for 100% of LED's sales, at individual concentration levels of 13%, 28% and 59%.
 
For the six month period ended June 30, 2013, two customers accounted for 100% of Baokai's sales, at individual concentration levels of 31% and 69%; four customers accounted for 100% of Wendeng’s sales, at individual concentration levels of 19%, 21%, 22% and 38%; two customers accounted for 98% of ORC’s revenue, at individual concentration levels of 40% and 58%; and four customers accounted for 93% of LED's sales, at individual concentration levels of 10%, 20%, 23% and 40%.
 
At June 30, 2013, one customer accounted for approximately 84% of Baokai’s accounts receivable. At June 30, 2013, two customers accounted for approximately 98% of Wendeng’s accounts receivable. Concentration levels for these two customers were 17% and 81% of Wendeng’s total trade receivables.
 
Geographic Information

All of the Company’s long-lived assets are located in China.
 

During the three and six months ended June 30, 2013, all of the Company’s sales for the Wendeng and Baokai segments were in China; all of the Company’s sales for the ORC segment were in the United States; and all of the Company’s sales for the LED segment were in the United States with the exception of $5,407 in sales in Costa Rica.

20.
DEFINED CONTRIBUTION PLAN

Pursuant to the relevant Chinese regulations, the Company is required to make contributions at a rate of 28% of employees’ salaries and wages to a defined contribution retirement plan organized by a state-sponsored social insurance plan in respect of the retirement benefits for the Company’s employees in the China. The only obligation of the Company with respect to the retirement plan is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in the future years. The defined contribution plan contributions were charged to the statements of operations. The Company contributed $10,178 and $17,055 for the three and six month period ended June 30, 2013, respectively, compared to $3,634 and $11,710 for the same three and six month periods ended June 30, 2012, respectively.
 
21.
SUBSEQUENT EVENTS

On April 25, 2013, the Company entered into a letter of intent to acquire a 60% interest in 1-800 NY Bulbs Ltd, a Mamaroneck, New York based company with over 25 years of experience and a strong reputation for providing premium lighting design, supply and logistics, and installation service options to a variety of clients and high profile enterprises.

On July 31, 2013, the letter of intent expired without a consensual agreement to extend the terms. At this time, the Company is no longer pursuing the acquisition of a controlling interest in 1-800 NY Bulbs Ltd.

The Company has evaluated subsequent events from the balance sheet through the date the financial statements were issued, and determined there are no other events to disclose.
 
 
 
Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the PSLRA, and are included in this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Some of the factors that could cause results or events to differ materially from current expectations include, but are not limited to: general economic, market or business conditions; general stock market performance; the performance of the solar energy industry in general; an increasingly competitive business environment; changing regulatory conditions or requirements; changing government incentive programs for solar energy projects that utilize PV panels; changing alternative energy technologies; the price of trichlorosilane (“TCS”) sold within China and outside of China; the price of, and demand for, polysilicon; the price of, and demand for, solar PV panels; the level of production by the Wendeng factory; the decision by the NASDAQ Capital Market to accept our application for listing; our ability to successfully manage our TCS business in China; that Wendeng is one of the lowest cost producers of TCS and that we will emerge as one of the strongest TCS manufacturers in 2013; generating revenue from ORC units and LED lighting sales; entering into definitive agreements on LED trials currently in process, obtaining financing for ORC and LED installations; the acceptance of the lighting market to LED technology; the price of electricity in various jurisdictions worldwide; our successful management of outside contractors; the market acceptance of the ORC technology; and a decision by the two current ORC clients to order additional ORC units.  These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the Securities and Exchange Commission.

TCS Overview 

Since November 2011, the low price of polysilicon coupled with the significant oversupply of polysilicon has had a material adverse impact on the price that we could sell TCS for and the level of plant utilization at Wendeng and our exclusive supplier to Baokai. TCS is critical raw material necessary to produce polysilicon and represent approximately 20% of the cost of polysilicon. The low cost of polysilicon has negatively impacted our revenues and results of operations. Our Wendeng facility, except for a brief period when it operated in November 2012, has been closed since December 2011. Our Wendeng facility sold some of its existing TCS inventory during 2012 and 2013 at a loss. At various times during 2012 and 2013 we had expected Wendeng to open.  However, the ongoing low pricing of polysilicon and the “dumping” of pre-existing polysilicon inventories below cost by many polysilicon companies in order to generate cash flow, has resulted in continuing low price bids from our customers to supply them TCS at levels which would not enable us to operate profitably. During 2013 our cash operating losses at Wendeng have been negligible. These losses are significantly less than the loss we would have incurred by producing TCS and selling it at the market price below our cash cost of production. Therefore, our operating losses were lower by staying closed rather than manufacturing TCS at a significantly higher loss. The world polysilicon prices have decreased drastically from selling at a high of $475 per kilogram (“kg”) in 2008 to a low of $15.83 per kg in December 2012.
 
 
Polysilicon average spot prices have been recently increasing somewhat, most recently trading at a range between approximately $17.00 to $20.00 per kg. according to Mercom Solar Market Intelligence Report. Due to the current polysilicon oversupply situation, we believe that due to published reports in many publications worldwide, an industry consolidation has occurred and is continuing. Due to our manufacturing process and low cost of production, we believe we will eventually emerge as one of the strongest remaining stand-alone TCS entities.
 
Despite recent modest upticks in polysilicon pricing and receiving a significant conditional order in March 2013 from GCL-Poly Energy Holdings Ltd, the world's biggest polysilicon manufacturer, market conditions have not allowed us to open the Wendeng facility to fulfill the order at a pricing level that will enable us to operate at a cash profit. We believe that due to the slowly rising prices in 2013 and due the continuing consolidation of TCS manufacturers that Wendeng will open in 2013, however, due to ongoing need of many polysilicon makers in China to sell their existing inventory below cost to generate cash flow, the constantly changing prices of raw materials necessary to manufacture TCS, and since the TCS industry operates on a “spot price” market; there can be no assurances as to the timing.

Baokai, our TCS distribution company, has been open and closed at various periods during 2012 and through early 2013. This pattern is expected to continue during the remainder of 2013 based upon the market conditions described above. During periods when the Baokai distribution segment isn’t open it operates at an approximate breakeven level because we did not incur any significant marketing or business development expenses directly associated with Baokai operations.
 
ORC Overview

Prior to our acquisition of TPE in August 2012, TPE entered into two separate agreements with a large steel company in California (1 unit) and an aerospace company in Dallas (1 unit) to sell them ORC units. These ORC units are in the process of being built and are the first ORC units that will operate with our proprietary TPE fluids. These units will generate a breakeven gross margin for us because the cost of these ORC units includes very substantial one-time initial R&D and engineering work of approximately $400,000-$500,000. The unit in Dallas has been completed and is now going through its initial testing phase by the client. The unit in California has taken longer than anticipated to complete and is not expected to be operational until 2014. The R&D expenditures and engineering work on the initial two units can be leveraged and will reduce the cost of future ORC units. These costs were substantially borne TPE prior to our acquisition of them, and do not impact our profitability. During the six month period ended June 30, 2013 we have recorded $214,890 in revenue from these two ORC units. If the ORC units operate successfully at each location we expect to receive additional orders for ORC units from both companies although there can be no assurances as to the amount, and of timing, when additional units will be ordered.

We do not expect to record ORC revenue from any new ORC projects in 2013 if we enter into them in 2013 due to the long lead time to negotiate a power purchase agreement with a potential end user, and the time it takes to manufacture the product. The amount of time to complete an ORC project has taken significantly longer than we initially anticipated when we acquired TPE. Currently, the amount of time to complete a project is estimated between nine and twelve months, if adequate financing can be obtained.

On January 18, 2013, we entered into a definitive agreement to install up to four of our ORC units at the Zibo Qilin Fushan Iron & Steel Company (“Qilin”). Qilin, a steel producing company that is located in the Shandong province of China, is the subsidiary of a $28 billion Chinese entity. TPE determined that the Qilin plant can host four ORC units and generate up to 1.3 Megawatts of incremental electrical energy, annually. In the first phase of the project, we will install two ORC units that will generate approximately 650 Kilowatts of supplemental electricity. We will retain ownership of the ORC units and sell the supplemental electricity generated back to Qilin at a price discounted from the price they pay to their local utility company to purchase electricity. We would expect to generate approximately $550,000 in revenue annually, for a twenty-year period. Upon successful completion of the first phase, we can at our discretion install two additional ORC units also generating 650 Kilowatts of supplemental electricity. The successful completion of the project is expressly contingent on our obtaining financing on favorable terms in order to build our ORC units. To date we have been unsuccessful in obtaining financing for this installation. If we cannot secure financing on this project by the end of 2013, the project may be cancelled.
 

We continue to assess other potential ORC projects in the United States and internationally and believe that we will enter into additional contracts that will generate ORC revenue beginning in 2014, although there can be no assurances.

LED Overview

During the latter half of 2012 and throughout the first half of 2013, we have focused the majority of our LED marketing efforts in territories in Latin America and other parts of the world where the cost per kilowatt hour of electricity is very high, and in which the opportunity to generate significant energy savings where changing from traditional lighting to LED lighting is the most compelling. Additionally, we have made significant LED bid proposals and are involved in trials in Europe, Latin America and the United States. A summary of some our activity (which is not all inclusive) is as follows:

Signed Agreements

  
In May 2013 we entered into an agreement with a Germany company and an initial purchase order for the sale and installation of its LED lighting products at two public schools.
  
In August, 2013 we received a small initial purchase order from a division of a Fortune 100 oil company for our  Lightsky brand LED High Bay lights at the oil company’s Texas facility; as well as the commencement of trials using our LED lighting products at three additional locations for the same oil company.
 

Signed Letters of Intent (“LOI”)

  
On July 16, 2013 we signed a Letter of Intent (“LOI”) with Empresa de Servicios Públicos de Heredia (“ESPH”), a utility company based in Heredia, Costa Rica, for the installation of 19,000 of its Model SL3 LED streetlights to replace existing lighting in ESPH’s territory. If we are successful in winning the project and financing can be arranged, the project could generate more than $21 million in revenue for ForceField over the ten-year term of the agreement based upon a shared savings model.
  
On July 25, 2013 we expanded the size and scope of our proposal under our previously announced LOI with ESPH to now include a 30-day residential home trial of smart electric meters (“smart meters”) that, if successful, could result in the installation of approximately 80,000 smart meters in residential homes located in Heredia’s jurisdiction. The total value of the project could exceed $20 million in revenue if fully implemented.

LED Streetlights Installed or Being Tested at:

  
CNFL(Costa Rica Utility) Costa Rica
  
Coopelesca (Costa Rica Utility) Costa Rica
  
ESPH (Costa Rica Utility) Costa Rica
  
At key locations in Nicaragua, Austria, and Germany
 
 
LED High Bay Lights Installed (Designed for Usage in Large Warehouse Facilities with High Ceilings) and Being Tested at:

  
A division of Jacobson Warehouse Co. Inc., in Plaquemine, LA
  
A division of International Paper in Bogalusa, LA
  
JohnPac, Inc. in Crowley, LA
  
Harbor Pallets & Packaging, Inc, LA
  
A division of a Fortune 100 oil company

LED Tubes and Other Products Installed and Being Tested at:

  
A division of one of the largest privately held companies in the world located in Costa Rica
  
One location in Costa Rica of a national brands franchisee that operates various brands of franchises at 150 locations across Latin America.
  
Harbor Pallets & Packaging, Inc., Louisiana
  
Hospital Clinica Biblica, Costa Rica
  
Key locations in the United States, Germany and Ireland

The realization of revenue from the activity summarized above will be dependent on the successful completion of initial trials, consummation of definitive agreements, delivery of LED product by our LED supplier, and the ability of both the Company and the end-users to obtain financing on reasonable terms.  We believe we will be successful in obtaining some of these bids and generating significant revenue over a multi-year period, however there can be no assurances that all the conditions necessary to commence the projects we are successful in obtaining, can be met.

Also as part of our LED marketing activity, we expect to be able to offer non-recourse third party financing to potential LED clients. In March 2013 we entered into an agreement with two of the top ten U.S. banks to provide such financing with potential credit limits in the millions of dollars. This program enables them to obtain, in some cases up to 100% financing for an LED project with us, at competitive rates depending on the credit-worthiness of the client. Additionally, we are in discussions with banks in Latin America to provide similar type financing, and financing directly to us for LED contracts we are able to obtain. There can be no assurances that these financing programs will be successful or that our targeted clients will qualify for such financing.  To date all financing of LED projects has come from funding we have provided, or has been paid for the sub-distributor or the client.
 
We have recorded $78,109 in revenues from the sale of our LED products for the six month period ended June 30, 2013. We believe we that the initial orders, trials and bid proposals currently outstanding will generate will result in significant LED revenue in 2013 and beyond, although there can be no assurances.
 
 
Results of Operations for the Three and Six Months Ended June 30, 2013 and 2012

The following table sets forth operations by segment for the three months ended June 30, 2013 and 2012:

   
TCS
                         
   
Baokai
   
Wendeng
   
ORC
   
LED
   
Corporate
   
Consolidated
 
Sales:
                                               
2013
 
$
16,944
   
$
139,495
   
$
6,535
   
$
54,510
   
$
   
$
217,484
 
2012
 
$
527,052
   
$
(462
 
$
   
$
   
$
   
$
526,590
 
Cost of goods sold:
                                               
2013
 
$
16,605
   
$
183,408
   
$
(5,915
 
$
27,360
   
$
   
$
221,458
 
2012
 
$
516,511
   
$
(3,292
 
$
   
$
   
$
   
$
513,219
 
Gross margin:
                                               
2013
 
$
339
   
$
(43,913
 
$
12,450
   
$
27,150
   
$
   
$
(3,974
2012
 
$
10,451
   
$
2,830
   
$
   
$
   
$
   
$
13,371
 
Operating expenses:
                                               
2013
 
$
64,092
   
$
395,259
   
$
25,678
   
$
89,572
   
$
388,951
   
$
963,552
 
2012
 
$
110,836
   
$
571,903
   
$
   
$
   
$
288,557
   
$
971,296
 
Other income (expense):
                                               
2013
 
$