Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

     Cash and cash equivalents — Cash and cash equivalents include cash on hand, cash accounts and interest bearing savings accounts. At times, cash balances may be in excess of the various deposit insurance limits of the country in which such balances are held. Limits in the jurisdictions in which we maintain cash deposits are as follows: U.S. FDIC limits are $250,000 per depositor for interest bearing accounts and unlimited for non-interest bearing accounts, Hong Kong limits are HK$100,000 (US$12,800) per account and in the People’s Republic of China coverage is not afforded on any cash deposit. The Company has not experienced any losses with respect to bank balances in excess of government provided insurance. At June 30, 2011 and December 31, 2010, the Company held $16,207,000 and $2,255,000 in bank balances in excess of the insurance limits.

     Inventories — Inventories are stated at the lower of cost or market, determined by the first in first out cost method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. Provisions are made for obsolete or slow-moving inventory based on management estimates. Inventories are written down based on the difference between the cost of inventories and the net realizable value based upon estimates about future demand from customers and specific customer requirements on certain projects.

     Anti-dilutive Shares — Basic earnings per share are computed by dividing income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by adding other common stock equivalents, including common stock options, warrants, and restricted common stock, in the weighted average number of common shares outstanding for a period, if dilutive. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. For the three and six months ended June 30, 2011 and 2010, potentially dilutive securities excluded from the computation of diluted earnings per share were 5,530,175 and 6,204,070, respectively.

     The following table illustrates the computation of the weighted average shares outstanding used in computing earnings per share in our financial statements:

	Three Months Ended				Six Months Ended
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Weighted Average of Shares Outstanding
Basic		102,926,965		52,292,576		96,919,322		52,292,576
Dilutive effect of warrants outstanding		—		—		—		—
Dilutive effect of stock options outstanding		—		—		—		—
Diluted		102,926,965		52,292,576		96,919,322		52,292,576

     Plant and equipment — Property, plant and equipment is stated at cost including the cost of improvements. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are provided on the straight line method based on the estimated useful lives of the assets as follows:

Plant and machinery	5 years
Furniture, fixtures and equipment	5 years
Computers and software	3 — 5 years
Equipment acquired under capital leases	3 — 5 years
Automobiles	3 years
Leasehold improvements	the shorter of the estimated life or the lease term

     Revenue recognition — The Company’s two primary business segments include photovoltaic installation, integration and sales and cable, wire and mechanical assemblies.

     Photovoltaic installation, integration and sales — In our photovoltaic systems installation, integration and sales segment, there are two revenue streams.

Revenue on product sales is recognized when there is evidence of an arrangement, title and risk of ownership have passed (generally upon delivery), the price to the buyer is fixed or determinable and collectability is reasonably assured. Customers do not have a general right of return on products shipped; therefore we make no provisions for returns.

Revenue on photovoltaic system construction contracts is generally recognized using the percentage of completion method of accounting. At the end of each period, the Company measures the cost incurred on each project and compares the result against its estimated total costs at completion. The percent of cost incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. The Company determines a customer’s credit worthiness at the time the order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. Selling and general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured.

The assets, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

     Cable, wire and mechanical assemblies — In the Company’s cable, wire and mechanical assemblies business, the Company recognizes the sales of goods when there is evidence of an arrangement, title and risk of ownership have passed (generally upon delivery), the price to the buyer is fixed or determinable and collectability is reasonably assured. There are no formal customer acceptance requirements or further obligations related to our assembly services once we ship our products. Customers do not have a general right of return on products shipped; therefore we make no provisions for returns. We make a determination of a customer’s credit worthiness at the time we accept their order.

     Goodwill — Goodwill is the excess of purchase price over the fair value of net assets acquired. The carrying value of goodwill is evaluated for impairment on an annual basis, using a fair-value-based approach. No impairment of goodwill has been identified during any of the periods presented.

     Allowance for doubtful accounts — The Company regularly monitors and assesses the risk of not collecting amounts owed to the Company by customers. This evaluation is based upon a variety of factors, including an analysis of amounts current and past due and relevant history and facts particular to the customer. It requires the Company to make significant estimates, and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts. At June 30, 2011 and December 31, 2010, the Company recorded an allowance of $56,000 and $28,000, respectively.

     Stock-based compensation — The Company measures the stock-based compensation costs of share-based compensation arrangements based on the grant-date fair value of awards and generally recognizes the costs in the financial statements over the employee requisite service period.

     Shipping and handling costs — Shipping and handling costs related to the delivery of finished goods are included in cost of goods sold. During the three months ended June 30, 2011 and 2010, shipping and handling costs expensed to cost of goods sold were $425,000 and $199,000, respectively. During the six months ended June 30, 2011 and 2010, shipping and handling costs expensed to cost of goods sold were $554,000 and $409,000, respectively.

     Advertising costs — Costs for newspaper, television, radio, and other media and design are expensed as incurred. The Company expenses the production costs of advertising the first time the advertising takes place. The costs for this type of advertising were $28,000 and $31,000 during the three months ended June 30, 2011 and 2010, respectively and $43,000 and $92,000 during the six months ended June 30, 2011 and 2010, respectively.

     Product warranties — The Company offers the industry standard of 25 years for our solar modules and industry standard five (5) years on inverter and balance of system components. Due to the warranty period, we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue. In our cable, wire and mechanical assemblies business, historically our warranty claims have not been material. In our solar photovoltaic business, our greatest warranty exposure is in the form of product replacement. Until the third quarter of 2007, the Company purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards we considered our financial exposure to warranty claims immaterial. Certain photovoltaic construction contracts entered into during the year ended December 31, 2007 included provisions under which the Company agreed to provide warranties to the buyer, and during the quarter ended September 30, 2007 and continuing through the fourth quarter of 2010, the Company installed its own manufactured solar panels. As a result, the Company recorded the provision for the estimated warranty exposure on these contracts within cost of sales. Since the Company does not have sufficient historical data to estimate its exposure, we have looked to our own historical data in combination with historical data reported by other solar system installers and manufacturers. The Company now only installs panels manufactured by unrelated third parties and its parent LDK Solar Co., Ltd. We provide their pass through warranty, and reserve for unreimbursed costs to replace these panels. The Company has recorded a warranty expense of $103,000 and $100,000 for the three months ended June 30, 2011 and 2010, respectively, and recorded a warranty expense of $109,000 and $177,000 for the six months ended June 30, 2011 and 2010, respectively.

On December 18, 2009, the Company entered into a 10-year energy output guaranty related to the photovoltaic system installed for Solar Tax Partners 1, LLC (“STP”) at the Aerojet facility in Rancho Cordova, California. The guaranty provides for compensation to STP’s system lessee for shortfalls in production related to the design and operation of the system, but excluding shortfalls outside the Company’s control such as government regulation. The Company believes that probability of shortfalls is unlikely and if they should occur are covered under the provisions of its current panel and equipment warranty provisions.

     Income taxes — The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings.

The Company recognizes uncertain tax positions in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis.

The Company accrues any interest or penalties related to its uncertain tax positions as part of its income tax expense.

     Foreign currency translation — The consolidated financial statements of the Company are presented in U.S. dollars and the Company’s expenditures are substantially all in U.S. dollars.

     All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at period-end exchange rates. All income and expenditure items in the income statements of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at average annual exchange rates. Translation gains and losses arising from the translation of the financial statements of foreign subsidiaries whose functional currency is other than the U.S. dollar are not included in determining net income but are accumulated in a separate component of stockholders’ equity as a component of comprehensive income. The functional currency of the Company’s operations in the People’s Republic of China is the Renminbi.

     Gains and losses resulting from the transactions denominated in foreign currencies are included in other expense, net.

     Aggregate net foreign currency transaction gains (losses) included in the statements of operations were $60,000 for the three months ended June 30, 2011 and ($660,000) for the three months ended June 30, 2010 and $62,000 for the six months ended June 30, 2011 and ($1,195,000) for the six months ended June 30, 2010, primarily due to the fluctuations of the value of China’s Renminbi to the U.S. Dollar in 2011 and the Euro to the U.S. Dollar during the comparative periods in 2010.

     Comprehensive income (loss) — Comprehensive income, as defined, includes all changes in equity during the period from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gain (loss) of available-for-sale securities. For the three months ended June 30, 2011, comprehensive loss was $2,410,000 composed of a net loss of $2,384,000 and currency translation loss of $26,000. For the three months ended June 30, 2010, comprehensive loss was $3,285,000, composed of a net loss of $3,285,000 and a foreign currency translation gain of $0. For the six months ended June 30, 2011, comprehensive loss was $4,166,000 composed of a net loss of $4,129,000 and currency translation loss of $37,000. For the six months ended June 30, 2010, comprehensive loss was $6,501,000, composed of a net loss of $6,501,000 and a foreign currency translation gain of $0.

     Post-retirement and post-employment benefits — The Company’s subsidiaries which are located in the People’s Republic of China contribute to a state pension scheme on behalf of their employees. The Company recorded $15,000 and $19,000 for expense related to its pension contribution for the three months ended June 30, 2011 and 2010, respectively. The Company recorded $30,000 and $37,000 for expense related to its pension contribution for the six months ended June 30, 2011 and 2010, respectively.

     Use of estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Key estimates used in the preparation of our financial statements include: contract percentage of completion and cost estimates, allowance for doubtful accounts, stock-based compensation, warranty reserve, deferred taxes, valuation of inventory, and valuation of goodwill. Actual results could differ from these estimates.