10-Q

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 June 30, 2010

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

Building 3

No. 28 Feng Tai North Road,

Beijing China 100071

(Address of principal executive offices)

(011) 86-10-63860500

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes    o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes      x No

The number of shares of the issuer’s common stock, $.001 per share, outstanding as at August 16, 2010 was 15,233,652.

TABLE OF CONTENTS

INDEX

		Page
PART 1 - FINANCIAL INFORMATION
	Item 1.  Financial Statements
	Condensed Consolidated Balance Sheets as at June 30, 2010 (unaudited) and December 31, 2009	3
	Condensed Consolidated Statements of Operations for the six Months Ended June 30, 2010 and 2009 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six Months Ended June 30, 2010 and 2009 (unaudited)	5
	Condensed Consolidated Statements of Stockholders' Equity and other comprehensive Income for the six Months Ended June 30, 2010 (unaudited) and 2009	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
	Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4T.  Controls and Procedures	19
PART 2 - OTHER INFORMATION
	Item 1.  Legal Proceedings	20
	Item 1A. Risk Factors	20
	Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3.  Defaults Upon Senior Securities	20
	Item 4.  Removed and Reserved	20
	Item 5.  Other Information	20
	Item 6.  Exhibits	21
	Signatures	22

2

Item 1.  Financial Statements

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

	As of  June 30, 2010		As of  December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,596,126	$	4,980,717
Accounts receivable, net		9,982,618		8,067,944
Inventories		5,122,077		4,547,170
Other receivables and prepayments		3,119,287		1,733,695
Deferred tax assets		587,932		588,016
Total current assets		22,408,040		19,917,542
Property and equipment, net		13,646,414		13,775,554
Goodwill		1,977,652		1,967,153
Land use rights		1,583,016		1,592,140
Investment in Trueframe International Limited		3,740,972		3,812,806
TOTAL ASSETS	$	43,356,094	$	41,065,195
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	1,602,749	$	1,601,002
Taxes payable		1,459,445		1,278,974
Other payables and accrued liabilities		9,794,925		9,977,178
Loan payable-employee		1,998,277		1,266,747
Short-term loans		736,279
Total current liabilities		15,591,675		14,123,901
Long-term liabilities		-		156,410
Total liabilities		15,591,675		14,280,311
Stockholders’ equity
Common stock, $0.001 par value, 66,666,667 shares authorized, 15,233,652 shares issued and outstanding		15,233		15,233
Additional paid-in capital		22,611,909		22,611,909
Accumulated other comprehensive income		801,018		693,016
Retained earnings		3,847,460		3,100,294
Total stockholders’ equity-China Solar		27,275,620		26,420,452
Non-controlling interest in subsidiary		488,799		364,432
Total Stockholder’s Equity		27,764,419		26,784,884
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	43,356,094	$	41,065,195

See accompanying notes to condensed consolidated financial statements.

3

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended June 30,						six months ended June 30,
	2010			2009			2010			2009
				(restated)						(restated)
Revenue, net	$	10,705,927		$	13,306,863		$	14,602,341		$	16,960,658
Cost of revenue		7,713,567			10,023,837			10,448,571			12,791,818
Gross profit		2,992,360			3,283,026			4,153,770			4,168,840
Operating expenses
Depreciation and amortization		104,311			103,285			226,824			191,906
Selling and distribution		729,260			480,587			1,356,329			1,040,072
General and administrative		695,125			650,909			1,291,786			1,550,535
Total operating expenses		1,528,696			1,234,781			2,874,939			2,782,513
Income from operations		1,463,664			2,048,245			1,278,831			1,386,327
Other income (expenses):					0
Other income		146			6,559			161			43,837
Interest income		139			2,451			767			2,456
Other expense		(3,682	)		(41,438	)		(3,801	)		(50,869	)
Reversal of reserve for bad debts		-			127,245			-			127,245
Interest expense		(88,165	)		(39,490	)		(160,340	)		(86,649	)
Loss from non-consolidated subsidiries		(72,000	)		-			(72,000	)		-
Total other  income (expenses)		(163,562	)		55,327			(235,213	)		36,020
gain on sale of discontinued operation net of tax		-			652,753			-			652,753
Income(Loss) From Continuing Operations Before Income Taxes		1,300,102			2,756,325			1,043,618			2,075,100
Income tax expense		105,908			173,135			172,085			198,738
Income(Loss) From Continuing Operations		1,194,194			2,583,190			871,533			1,876,362
Income(Loss) From Discontinued Operations(net of tax)		-			-		-				(512,390	)
Net Income(Loss)		1,194,194			2,583,190			871,533			1,363,972
Less:Net Income Attributable To Non-controlling interest		119,368		76,543				124,367			86,549
Net Income(Loss) Attributable To China Solar Shareholders	$	1,074,826		$	2,506,647		$	747,166		$	1,277,423
Basic and Diluted
continuing operations	$	0.08		$	0.16		$	0.06		$	0.12
discontinued operations	$	0.00		$	0.00		$	0.00		$	(0.03	)
		0.08			0.16			0.06			0.09
Weighted average shares outstanding – Basic and Diluted		15,233,652			16,173,016			15,233,652			16,123,921

See accompanying notes to condensed consolidated financial statements.

4

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)

	six months ended June 30,
	2010			2009
				(restated)
Cash flows from operating activities:
Net effect of discontiuned operation	$	-		$	3,249,424
Net cash used in operating activities		(2,143,894	)		(3,245,825	)
		(2,143,894	)		3,599
Cash flows from investing activities:
Acquisition of companies,net of cash acquired
Disposal of subsidiary		-			439,122
Purchase of property, plant and equipment		(117,516	)		(231,528	)
payment for other intangible assets
Net effect of discontiuned operation		-			(8,420	)
Net cash used in investing activities		(117,516	)		199,174
Cash flows from financing activities:
Proceeds from non-controlling shareholder		-			51,231
Cash received from borrowings		732,732
Proceeds from warrants exercised
Net effect of discontiuned operation
Net cash provided by financing activities		732,732			51,231
Foreign currency translation adjustment		144,087			(10	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(1,384,591	)		253,994
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		4,980,717			2,405,644
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,596,126		$	2,659,638
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	132,453		$	129,318
Cash paid for interest expenses	$	101,715		$	86,649

See accompanying notes to condensed consolidated financial statements

5

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

	Preferred stock				Common stock				Additional		Accumulated other				Non-controlling		Total
	No. of shares		Par value		No. of shares		Par value		paid-in Capital		comprehensive income		Retained Earnings		interest in  subsidiary		stockholders’ equity
Balance as of Jan 1, 2010		-		-		15,233,652		15,233		22,611,909		693,016		3,100,294		364,432		26,784,884
Net income														747,166		124,367		871,533
Foreign currency translation adjustment												108,002						108,002
Balance as of June 30, 2010		-		-		15,233,652		15,233		22,611,909		801,018		3,847,460		488,799		27,764,419

See accompanying notes to condensed consolidated financial statements

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 unaudited condensed consolidated financial statements 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, 2009.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change include assumptions used in determining the fair value of securities owned and non-readily marketable securities.

The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2010 or for any future period.

NOTE 2 - ORGANIZATION AND BUSINESS

China Solar & Clean Energy Solutions, Inc. (“China Solar”), formerly known as Deli Solar (USA) Inc. was incorporated in the State of Nevada on March 21, 1983 as Meditech Pharmaceuticals, Inc. (“Meditech”). In late 2004, the Board of Directors of Meditech contemplated a strategic reorganization with Deli Solar Holding Ltd., a corporation organized in the British Virgin Islands (“Deli Solar (BVI)”). The acquisition of Deli Solar (BVI) was accounted for as a recapitalization of Deli Solar (BVI).

On August 1, 2004, Deli Solar (BVI) purchased Bazhou Deli Solar Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a corporation duly organized under the laws of the People’s Republic of China (“PRC”). As a result of this transaction, Deli Solar (Bazhou) became a wholly-foreign owned enterprise (“WFOE”) under PRC law on March 30, 2005. This acquisition was accounted for as a transfer of entities under common control.

Deli Solar (Bazhou) was incorporated on August 19, 1997 under the laws of the PRC. In the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the United States (“US”).

On November 21, 2005 Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli Solar (Bazhou). The transaction was accounted for as a transfer of entities under common control.

7

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

Deli Solar (Beijing) ownes 91.82% of Tianjin Huaneng Energy Equipment Company (“Tianjin Huaneng”), which manufactures energy saving boilers and environmental protection equipment for industrial customers.

On April 1, 2008, Beijing Deli Solar Technology Development Co., Ltd (“Deli Solar (Beijing)”) acquired 100% of Shenzhen Pengsangpu Solar Industrial Products Corporation (“SZPSP”), which is engaged in the re-sale of energy-saving related heating products such as heat pipes, heat exchangers, pressure water boilers, solar energy heaters and radiators. On July 6, 2009, Deli Solar (Beijing) entered into a termination agreement (the "Termination Agreement") with the three shareholders of SZPSP. The Termination Agreement terminates the equity purchase and complementary agreements. We accounted for SZPSP as a wholly-owned subsidiary from March 31, 2008 until March 31, 2009.

China Solar, Deli Solar (BVI), Deli Solar (Bazhou), Ailiyang, Deli Solar (Beijing) and Tianjin Huaneng are hereinafter referred to as the “Company”.

NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “improving Disclosures about Fair Value Measurements,” which clarifies certain existing requirements in ASC 820 “Fair Value Measurements and Disclosures,” and required disclosures related to significant transfers between each level and additional information about Level 3 activity.  FASB ASU 2010-06 begins phasing in the first fiscal period beginning after December 15, 2009.  The Company is currently assessing the impact on its consolidated results of operations and financial conditions.

In February 2010, the FASB issued FASB ASU 2010-09, “Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements,” which clarifies certain existing evaluation and disclosure requirements in ASC 855 “Subsequent Events” related to subsequent events. FASB ASU 2010-09 requires SEC filers to evaluate subsequent events through the date in which the financial Statements are issued and are effective immediately. The new guidance does not have an effect on the Company’s consolidated results of operations and financial condition.

8

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

NOTE 4-INVESTMENT IN TRUEFRAME INTERNATIONAL LTD.

Trueframe International Limited

In October, 2009 we acquired 28% of the outstanding equity of Truefame International Limited ("Truefame"), which is a holding company that owns 55.78 % of the outstanding common stock of AgriSolar Solutions, Inc. ("AGSO"), which holds Shengzhen Fuwaysun Technology Co., Ltd. ("Fuwaysun") for approximately $3,741,000. Fuwaysun is a PRC company primarily engaged in the development and production of solar pest killing lamps and transportable solar generators.The investment is accounted for under the equity method of accounting.

NOTE 5– BUSINESS DISPOSAL

On July 6, 2009, we entered into the Termination Agreement with the three former shareholders of SZPSP to terminate “The Equity Purchase Agreement” and “Complementary Agreement to the Equity Purchase Agreement”

The key terms of the Termination Agreement are:

Pursuant to the terms of the agreements the Company received RMB 28,800,000 and 939,364 shares of its common stock in exchange for its ownership of SZPSP.  In addition, the Company will receive a portion of the net profit, if any, of SZPSP for the year ended March 31, 2009.  No effect has been given to the profit distribution in the accompanying financial statements.

The operations of SZPSP have been presented as discontinued operations in the accompanying financial statements from the date of acquisition to the date of disposition, for the appropriate periods.

As summary of the operations of SZPSP is follows:

	March 31, 2009
Revenues	$	1,024,103
Income before provision for income taxes from discontinued operations		(501,120	)
Income tax provision		11,270
Income(loss) from discontinued operation, net of tax	$	(512,390	)

NOTE 6 - 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.

9

	June 30, 2010			December 31, 2009
	(Unaudited)
Accounts receivable, cost	$	11,544,327		$	9,621,122
Less : allowance for doubtful accounts		(1,561,709	)		(1,553,178	)
Accounts receivable, net	$	9,982,618		$	8,067,944

Inventories:

	June 30, 2010		December 31, 2009
	(Unaudited)
Raw materials	$	2,265,357	$	1,186,188
Consumables		16,844		16,358
Work-in-process		73,018		57,357
Finished goods		2,766,858		3,287,267
Inventories	$	5,122,077	$	4,547,170

Other receivables and prepayments:

	June 30, 2010		December 31, 2009
	(Unaudited)
Advance to suppliers	$	1,201,129	$	555,781
Other receivables		1,918,158		1,177,914
Other receivables and prepayments(1)	$	3,119,287	$	1,733,695

(1) The amount includes the loan of RMB2, 000,000 for Xiongri. In 2006, we entered into a series of agreements with the three shareholders of Shenzhen Xiongri Solar Co., Ltd. (“Xiongri”) to purchase 60% of the entire equity interests of Xiongri for RMB2, 000,000. The three shareholders agreed to loan RMB2, 000,000 to Xiongri as working capital. We have not completed the transfer of the 60% equity interests. However，the parties came to consensus after negotiation on October 23, 2009 that the agreement shall be revoked and the three shareholders need to return RMB2, 000,000 in following two years after signed.

Other payables and accrued liabilities:

	June 30, 2010		December 31, 2009
	(Unaudited)
Customer deposit	$	3,895,096	$	4,488,561
Salary payable		420,544		521,951
Accrued expenses		221,430		226,430
Other payables		2,905,996		2,551,978
Warranty provision		1,022,132		1,016,549
Current portion of investment payable(1)		1,329,727		1,171,709
Totals	$	9,794,925	$	9,977,178

(1) Represents liability in connection with the acquisition of Tianjin Huaneng,

10

NOTE 7 - STOCKHOLDERS’ EQUITY

Common stock

During the year ended December 31, 2009, 373,566 shares of preferred stock were converted to the same number of shares of common stock.

.

During the year ended December 31, 2009, 939,364 shares of common stock were cancelled due to termination with SZPSP.

Common Stocks Held in Escrow

In connection with the private placement on February 29, 2008, the Company deposited 2,000,000 shares of common stock (“Make Good Shares”) into escrow and we are required to deliver (i) 1,000,000 of the Make Good Shares to the investors on a pro rata basis for no additional consideration in the event that the Company’s after-tax net income for the fiscal year ending December 31, 2008 is less than $4.8 million; and (ii) 1,000,000 of the Make Good Shares to the investors on a pro rata basis for no additional consideration in the event that the Company’s after-tax net income for the fiscal year ending December 31, 2009 is less than $8 million. As of December 31, 2008, the after-tax net income target of $4.8 million has not been met. The registration statement of 1,000,000 of the Make Good Shares to the investors was declared effective on July 20, 2009.

Warrants for services

A summary of the status of the Company’s outstanding common stock warrants:

	Number of Shares		Weighted- average Exercise Price		Weighted- average Remaining Contractual
Outstanding and Exercisable at January 1, 2009		7,091,682	$	2.76	3.53 years
Granted		-		-		-
Exercised		-		-		-
Forfeited		469,150		-		-
Expired		-		-		-
Outstanding and Exercisable at December 31, 2009		6,622,532	$	2.48	2.25 years
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Expired		1,825,719		-		-
Outstanding and Exercisable at June 30, 2010		4,796,813		1.95	2.3 years

NOTE 8 - INCOME TAXES

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

11

NOTE 9 - SEGMENT REPORTING, GEOGRAPHICAL INFORMATION

(a) Business information

During the six months ended June 30, 2010, the Company had primarily three reportable segments, (i) Solar Heater/Biomass Stove/Boiler related products, (ii) Heat pipe related products and (iii) Building integrated energy-saving projects, under the management of Bazhou, Tianjin Huaneng, and Deli Solar (Beijing), respectively.

The Company’s revenue, gross profit and total assets by reportable segment are as follows:

Sales Revenues

	Three months ended  June 30,					Six months ended  June 30,
	2010			2009		2010			2009
Revenue:
Solar heater/Biomass stove/Boiler related products	$	1,786,423		$	1,463,547	$	2,531,834		$	3,011,395
Heat pipe related equipments/Energy-saving projects		8,920,032			11,843,316		12,071,035			13,949,263
Building integrated energy saving projects		(528	)		-		(528	)		-
	$	10,705,927		$	13,306,863	$	14,602,341		$	16,960,658

Gross Profit

	Three months ended  June 30,							Six months ended  SepteJune 30,
	2010				2009			2010				2009
Gross profit:
Solar heater/Biomass stove/Boiler related products		$	394,908			$	319,922		$	504,629			$	648,234
Heat pipe related equipments/Energy-saving projects			2,597,980				2,963,104			3,649,669				3,520,606
Building integrated energy saving projects			(528	)			-			(528	)			-
		$	2,992,360			$	3,283,026		$	4,153,770			$	4,168,840

Total assets

	June 30, 2010		December 31, 2009
Total assets	2010		2009
Solar heater/Biomass stove/Boiler related products	$	20,036,244	$	17,075,566
Heat pipe related equipments/Energy-saving projects	$	19,198,609	$	17,210,210
Building integrated energy saving projects	$	1,394,158	$	1,774,920
Discontinued operation	$		$	-
Other	$	2,727,083	$	5,004,499
	$	43,356,094	$	41,065,195

(b) Geographic information

The Company operates in the PRC and all of the Company’s long lived assets are located in the PRC. In respect of geographical segment reporting, sales are based on the country in which the customer is located and total assets and capital expenditure are based on the country where the assets are located.

12

The Company’s operations are located in PRC, which is the main geographical area. The Company’s revenue, gross profit and total assets by geographical market for the six months ended June30, 2010 and 2009 are analyzed as follows:

Revenue

	Three months ended  June 30,						Six months ended  SepteJune 30,
	2010			2009			2010			2009
Revenue:
PRC		$	9,840,185		$	13,051,551		$	13,165,686		$	16,558,795
Others			865,742			255,312			1,436,655			401,863
		$	10,705,927		$	13,306,863		$	14,602,341		$	16,960,658

Gross profit

	Three months ended  June 30,						Six months ended  SepteJune 30,
	2010			2009			2010			2009
Gross profit:
PRC		$	2,764,919		$	3,058,071		$	3,667,269		$	3,915,410
Others			227,441			224,955			486,501			253,430
		$	2,992,360		$	3,283,026		$	4,153,770		$	4,168,840

Total assets

	June 30,			December 31,
	2010			2009
Total assets:
PRC		$	43,048,967		$	37,720,553
Others		$	307,127		$	3,344,642
		$	43,356,094		$	41,065,195

13

CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

NOTE 10 –NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the six months ended June 30, 2010 and 2009:

	Three months ended  June 30,					Six months ended  SepteJune 30,
	2010			2009		2010			2009
Basic and diluted net income per share calculation
Numerator:
Net income from continuing operations		$	1,074,826	$	2,506,647		$	747,166	$	1,789,813
Net (loss) income from discontinued operation			-		-			-		(512,390	)
		$	1,074,826	$	2,506,647		$	747,166	$	1,277,423
Denominator: - Weighted average ordinary shares outstanding – Basic and Diluted			15,233,652		16,173,016			15,233,652		16,123,921

NOTE 11 - SUBSEQUENT EVENT

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

14

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

The Company has three reportable segments: (i) Solar Heater/Biomass Stove/Boiler related products, (ii) Heat pipe related products and (iii) Building integrated energy-saving projects, under the management of Bazhou, Tianjin Huaneng, and Deli Solar (Beijing), respectively.

Deli Solar (Bazhou) designs, manufactures and sells renewable energy systems to produce hot water and for space heating in the PRC. Bazhou Deli Solar’s principal products are solar hot water heaters and multifunctional space heaters, including coal-fired boilers for residential use. Bazhou Deli Solar also sells component parts for its products and provides after-sales maintenance and repair services.

Deli Solar (Beijing) is principally engaged in building integrated energy-saving projects in major cities in the PRC, including Beijing.

Tianjin Huaneng manufactures heating products such as heating pipes, heat exchangers, specialty heating pipes and tubes, high temperature hot blast boilers, heating filters, normal pressure water boilers, solar energy water heaters and radiators.

Approximately 17.34% of our net revenue for the six months ended June 30, 2010 was derived from sales of our solar heater/biomass stove/boiler related products and 82.66% from sales of our heat pipe related equipment/energy-saving projects, respectively. Approximately 90.16% and 9.84% of our net revenues for the six months ended June 30, 2010, were derived from sales made inside the PRC and outside the PRC, respectively.

RESULTS OF OPERATIONS

Three months ended June 30, 2010 compared to three months ended June 30, 2009

Sales Revenues

	Three months ended  June 30,
	2010				2009
Revenue:
Solar heater/Biomass stove/Boiler related products		$	1,786,423			$	1,463,547
Heat pipe related equipments/Energy-saving projects			8,920,032				11,843,316
Building integrated energy saving projects			(528	)			-
		$	10,705,927			$	13,306,863

Overall: Sales revenue for the three months ended June 30, 2010 were $10,705,927 as compared to $13,306,863 for the three months ended June 30, 2009, a decrease of $2,600,936 or 19.55%. The decrease in sales was primarily attributable to the decline in revenue from our heat pipe related equipments/Energy-saving projects under the management of Tian Jin Hua Neng.

Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for the three months ended June 30, 2010 were $1,786,423 as compared to $1,463,547 for the three months ended June 30, 2009, a increase of $322,876 or 22.06%. The increase in sales revenue derived from solar heaters/biomass stove/boiler related products was due to the increasing demand for solar heater in the second quarter this year.

15

Heat pipe related equipments/Energy-saving projects: Sales revenue for the three months ended June 30, 2010 was $8,920,032 compared to $11,843,316 for the three months ended June 30, 2009, a decrease of $2,923,284 or 24.68%, because we pay little attention to small orders this year. No enough attention to mini-orders results in the decrease of sales in the past six months .However, we believe that new and large order clients will increase, which will lead to the increase of sales volume in the next half year.

Gross Profit

	Three months ended  June 30,
	2010				2009
Gross profit:
Solar heater/Biomass stove/Boiler related products		$	394,908			$	319,922
Heat pipe related equipments/Energy-saving projects			2,597,980				2,963,104
Building integrated energy saving projects			(528	)			-
		$	2,992,360			$	3,283,026

Overall: Gross profit margin for the three months ended June 30, 2010 increased by approximately 3.28% to 27.95%, as compared to 24.67% for the three months ended June 30, 2009. This was primarily due to the increase in sales prices of our heat pipe related equipments.

Solar heater/Biomass stove/Boiler related products: Gross profit margin for the three months ended June 30, 2010 was approximately 22.11%, a slight increase of 0.25% as compared to 21.86% for the three months ended June 30, 2009.

Heat pipe related equipments/Energy-saving projects: Gross profit margin for the three months ended June 30, 2010 was approximately 29.13%, a increase of 4.11% from 25.02% for the three months ended June 30, 2009 due to an increase in the sale prices.

Operating Expenses

Operating expenses for the three months ended June 30, 2010 were $ 1,528,696, as compared to $ 1,234,781 for the three months ended June 30, 2009, an increase of $ 293,915, or 23.80%. The overall increase in operating expenses was primarily due to the increase in the wages of the staff under the management of Tianjin Huaneng.

Depreciation and amortization expenses increased to $ 104,311 for the three months ended June 30, 2010, a increase of $ 1,026 or 0.99%, from $ 103,285 for the three months ended June 30, 2009, primarily as a result of the increase of our manufacturing equipment and building.

Selling and distribution expenses increased to $ 729,260 for the three months ended June 30, 2010, a increase of $ 248,673 or 51.74%, from $ 480,587 for the three months ended June 30, 2009, because we have improved the marketing personnel's wage level this year.

General and administrative expenses were $ 695,125 for the three months ended June 30, 2010 (or approximately 6.49% of sales) compared to $ 650,909 (or approximately 4.89% of sales) for the three months ended June 30, 2009, a increase of 6.79%, because we have improved the wages level of management staff this year.

Net Income

Net income was $ 1,074,826 for the three months ended June 30, 2010, compared to $ 2,506,647 for the three months ended June 30, 2009. The decrease in net income was mainly due to the gain on disposal of SZPSP last year and the increase in the wages of the staff under the management of Tianjin Huaneng.

Six months ended June 30, 2010 compared to six months ended June 30, 2009

Sales Revenue

	Six months ended  June 30,
	2010				2009
Revenue:
Solar heater/Biomass stove/Boiler related products		$	2,531,834			$	3,011,395
Heat pipe related equipments/Energy-saving projects			12,071,035				13,949,263
building integrated energy saving projects			(528	)			-
		$	14,602,341			$	16,960,658

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Overall: Sales revenue for the six months ended June 30, 2010 were $14,602,341 as compared to $16,960,658 for the six months ended June 30, 2009, a decrease of $2,358,317 or 13.90%. The decrease in sales was primarily attributable to the decline in revenue from our heat pipe related equipments/Energy-saving projects under the management of Tian Jin Hua Neng.

Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for the six months ended June 30, 2010 were $2,531,834 as compared to $3,011,395 for the six months ended June 30, 2009, a decrease of $479,561 or 15.92%. The decrease in sales revenue derived from solar heaters/biomass stove/boiler related products was due to strong competition. Moreover, we are foreign invested enterprise and can not get access to China favorable policy or “China’s Home Appliance Subsidy Program For Rual Areas” as is called for domestic enterprises.

Heat pipe related equipments/Energy-saving projects: Sales revenue for the six months ended June 30, 2010 was $ 12,071,035 compared to $13,949,263 for the six months ended June 30, 2009, a decrease of $1,878,228 or 13.46%. The decrease in sales was because we pay little attention to small orders this year. No enough attention to mini-orders results in the decrease of sales in the past six months .However, we believe that new and large order clients will increase, which will lead to the increase of sales volume in the next half year.

Gross Profit

	Six months ended  June 30,
	2010				2009
Gross profit:
Solar heater/Biomass stove/Boiler related products		$	504,629			$	648,234
Heat pipe related equipments/Energy-saving projects			3,649,669				3,520,606
building integrated energy saving projects			(528	)			-
		$	4,153,770			$	4,168,840

Overall: Gross profit margin for the six months ended June 30, 2010 increased by approximately 3.87% to 28.45%, as compared to 24.58% for the six months ended June 30, 2009. This was primarily due to the increase in sales volume and prices of our heat pipe related equipments.

Solar heater/Biomass stove/Boiler related products: Gross profit margin for the six months ended June 30, 2010 was approximately 19.93%, as compared to 21.53% for the six months ended June 30, 2009. This was primarily due to weak market in which we had to sell our products in lower price.

Heat pipe related equipments/Energy-saving projects: Gross profit margin for six months ended June 30, 2010 was approximately 30.23% as compared to 25.24% from the six months ended June 30, 2009, an increase of 5.00%.The increase is mainly due to an increase in the sale prices.

Operating Expenses

Operating expenses for the six months ended June 30, 2010 were $ 2,874,939, as compared to $ 2,782,513 for the six months ended June 30, 2009, an increase of $ 92,426, or 3.32%. The overall increase in operating expenses was primarily due to increase of salary expense.

Depreciation and amortization expenses increased to $ 226,824 for the six months ended June 30, or 18.20%, from $ 191,906 for the six months ended June 30, 2009, primarily as a result of the increase of our manufacturing equipment and building.

Selling and distribution expenses increased to $ 1,356,329 for the six months ended June 30, or 30.41%, from $ 1,040,072 for six months ended June 30, 2009, because we have improved the marketing personnel's wage level this year. 

17

General and administrative expenses were $ 1,291,786 for the six months ended June 30, 2010 (or approximately 8.8% of sales) compared to $ 1,550,535 (or approximately 9.14% of sales) for the six months ended June 30, 2009, a decrease of 16.69%. The decrease was primarily due to the compression of operation cost.

Net Income (loss)

Net income was $ 747,166 for the six months ended June 30, 2010, compared to the net income of $ 1,277,423 for the six months ended June 30, 2009, primarily due to increase of salary expense and strong competition.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operating activities was $ 2,143,894 for the six months ended June 30, 2010, while net cash provided by our operating activities was $ 3,599 for the six months ended June 30, 2009.

Net cash used by investing activities was $ 117,516 for the six months ended June 30, 2010, compared with net cash provided by investing activities in the amount of $ 199,174 for the six months ended June 30, 2009.

Net cash provided by financing activities was $ 732,732 for the six months ended June 30, 2010, compared with net cash provided by financing activities in the amount of $ 51,231 for the six months ended June 30, 2009.

We believe that current cash flow is sufficient to meet anticipated working capital and capital expenditures for at least the next twelve months. We may require additional cash for further development of business, including any investments or acquisitions we may decide to pursue. However, we cannot assure you that such funding will be available.

Cash

Cash and cash equivalents decreased to $ 3,596,126 as of June 30, 2010, compared to $4,980,717 as of December 31, 2009, primarily as a result of the increase in the operating activities in the second quarter of 2010.

Accounts Receivable

Accounts receivable increased to $9,982,618 as of June 30, 2010, from $8,067,944 as of December 31, 2009, primarily due to Tian Jin Hua Neng.

Inventory

Inventories increased to $ 5,122,077 as of June 30, 2010, as compared to $4,547,170 as of December 31, 2009, primarily due to the increase of raw materials considering the rise of the domestic steel prices. 

Other Receivables and Prepayments

Other receivables and prepayments increased to $ 3,119,287 as of June 30, 2010, compared to $1,733,695 as of December 31, 2009, primarily due to the increase of temporary turnover.

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Accounts Payable

Accounts payable increased to $ 1,602,749 as of June 30, 2010, compared to $1,601,002 as of December 31, 2009. This increase was due to the increase in raw materials.

Other Payables and Accrued Liabilities

Other payables and accrued liabilities slightly decreased to $ 9,794,925 as of June 30, 2010 from $9,977,178 as of December 31, 2009.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 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”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report for the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 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. REMOVED AND RESERVED

Item 5. OTHER INFORMATION

RESTATEMENT ON CONSOLIDATED FINANCIAL STATEMENTS

The following are the reasons the restatement is required.

The acquisition of the additional 29.97% interest in Tianjin Hua Neng Energy Equipment Company on October 27, 2009 was not properly recorded. As disclosed in Note 4 to the financial statements of 2008, the Registrant paid $515,026 at the completion of the agreement with the remainder, aggregating approximately $1,047,611 plus interest to be paid over the next three years. We only recorded the amount actually paid and did not record the corresponding debt. In addition there 1,000,000 warrants to purchase the company’s common stock were issued as part of the purchase price and were not valued and included as additional purchase price.

The using right of building of Deli Solar (Beijing) will expire in August, 2011. But the Company never depreciated for it. So the Company decided to correct it.

After further analysis of the Company’s revenue recognition policy, it has decided to change the revenue recognition of its consolidated subsidiary Tianjin Hua Neng. The Company will make the appropriate entries to properly record the revenue and associated costs of revenue.

The following is a summary of the effects of the restatement on the company’s consolidated financial statements.

	As of June 30, 2009
	as previously reported		as restated
ASSETS
Accounts receivable, net	$	8,457,470	$	8,457,470
Inventories		2,701,654		2,701,654
Total current assets		21,526,868		21,526,868
Property, plant and equipment, net		14,108,704		13,891,893
Goodwill		1,910,509		1,966,118
Total assets		39,214,410		39,053,208

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	As of June 30, 2009
	as previously reported		as restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Income tax payables		2,336,230		2,336,230
Other payables and accrued liabilities		5,149,009		6,320,987
Total current liabilities		10,513,980		11,685,958
Long-term debt		-		286,483
Minority interests		1,842,962		333,256
Stockholders’ equity:
Additional paid-in capital		22,966,404		23,073,258
Retained earnings		3,520,184		3,303,373
Total stockholders’ equity		26,857,468		26,747,511
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	39,214,410	$	39,053,208

	For six months ended June 30,2009
	as previously reported			as restated
Revenue, net	$	14,775,569		$	16,960,658
Cost of revenue		11,729,756			12,791,818
Gross profit		3,045,813			4,168,840
Depreciation and amortization		191,906			191,906
Total operating expenses		2,782,513			2,782,513
Income from operations		263,300			1,386,327
Income before income taxes		(392,550	)		1,562,710
Net income		353,134			1,363,972
Net income available to common stockholders	$	154,396		$	1,277,423
Net income per share – basic and diluted	$	0.01		$	0.08

	For three months ended  June 30, 2009
	as previously reported		as restated
Revenue, net	$	9,659,248		13,306,863
Cost of revenue		7,787,925		10,023,837
Gross profit		1,871,323		3,283,026
Depreciation and amortization		103,285		103,285
Total operating expenses		1,234,781		1,234,781
Income from operations		636,542		2,048,245
Income before income taxes		615,327		2,756,325
Net income		442,192		2,583,190
Net income available to common stockholders	$	1,094,945		2,506,647
Net income per share – basic and diluted	$	0.07	$	0.16

Item 6. EXHIBITS.

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.

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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.
August 16, 2010	By:	/s/ Deli Du
		Deli Du
		Chief Executive Officer and President
		(Principal Executive Officer)

August 16, 2010	By:	/s/ Fangsong Zheng
		Fangsong Zheng
		Acting Chief Financial Officer
		(Principal Financial Officer)

22

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.

23

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Deli Du, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of China Solar & Clean Energy Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 16, 2010	By:	/s/ Deli Du
		Name: Deli Du
		Title: Chief Executive Officer

EX-31.2

  
    Unassociated Document
    
    
    
    
    

EX-32.1

  
    Unassociated Document
    
    
    
    
    

EX-32.2

  
    Unassociated Document