##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 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:September 30, 2008
 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 Number: 000-53105
 CLEAR SKIES SOLAR, INC.
  DELAWARE
    
    30-0401535(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)200 Old Country Road, Suite 610Mineola, New York
    
    11501-4241(Address of Principal Executive Offices)
    
    (Zip code)
 (516) 282-7652  (Registrants Telephone Number, Including Area Code)
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
  þ o
  o þ
   Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)




---



##### 



Table of Contents
 PagePART I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheet as at September 30, 2008 (unaudited) and Condensed
Consolidated Balance Sheet as at December 31, 2007
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the three months ended
September 30, 2008 and September 30, 2007 and for the nine months ended September 30, 2008 and
September 30, 2007
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2008 and September 30, 2007
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4T. Controls and Procedures
    
    
    19PART II OTHER INFORMATION
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 6. Exhibits
    
    
    20Signatures
    
    
    21Section 302 Certification of Principal Executive OfficerSection 302 Certification of Principal Financial OfficerSection 906 Certification of Principal Executive Officer and Principal Financial Officer
   2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
CLEAR SKIES SOLAR, INC.
 
 Condensed Consolidated Balance Sheets
 September 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCash and
cash equivalents
    
    $
    250,684
    
    
    $
    4,866,842Accounts receivable, less allowance for doubtful
accounts of $41,775 and $32,775 at September 30, 2008
and December 31, 2007, respectively
    
    
    612,512
    
    
    
    92,291Inventory
    
    
    315,248
    
    
    
    25,120Costs and estimated earnings in excess of billings
    
    
    289,627
    
    
    
    27,641Total current assets
    
    
    1,468,071
    
    
    
    5,011,894Property and equipment, net
    
    
    200,715
    
    
    
    13,293Prepaid expenses and investor relations fees
    
    
    279,643
    
    
    
    645,644Security deposits
    
    
    113,634
    
    
    
    3,300Other assets
    
    
    45,118
    
    
    
    25,597$
    2,107,181
    
    
    $
    5,699,728LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and accrued expenses
    
    $
    935,349
    
    
    $
    788,469Billings in excess of costs and estimated earnings
    
    
    17,400
    
    
    
    35,007Due to related parties
    
    
    
    
    
    
    104,410Customer deposits
    
    
    
    
    
    
    5,000Obligation to issue options and warrants
    
    
    
    
    
    
    9,401Payroll liabilities
    
    
    45,957
    
    
    
    140,729Provision for estimated warranty liability
    
    
    32,900
    
    
    
    7,742Estimated loss on uncompleted contracts
    
    
    82,769
    
    
    
    Total current liabilities
    
    
    1,114,375
    
    
    
    1,090,758Commitments
and contingenciesStockholders EquityPreferred stock, $.001 par value, 10,000,000 shares
authorized, none issued and outstandingCommon stock, $.001 par value, 100,000,000 shares
authorized, 31,662,733 and 30,883,723 shares
issued and outstanding at September 30, 2008 and
December 31, 2007, respectively
    
    
    31,663
    
    
    
    30,883Additional
paid-in capital
    
    
    10,520,603
    
    
    
    9,247,682Accumulated deficit
    
    
    (9,559,460
    )
    
    
    (4,669,595
    )Total stockholders equity
    
    
    992,806
    
    
    
    4,608,970$
    2,107,181
    
    
    $
    5,699,728
   3




---



##### Table of Contents



Clear
Skies Solar, Inc.
 
 Unaudited Condensed Consolidated Statements of Operations
 For the three months ended Sept. 30,
    
    
    For the nine months ended Sept. 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesContract revenue
    
    $
    1,041,501
    
    
    $
    64,281
    
    
    $
    2,313,165
    
    
    $
    82,081Subcontract revenue
    
    
    
    
    
    
    (39,019
    )
    
    
    
    
    
    
    210,614Other
    
    
    
    
    
    
    27,645
    
    
    
    15,000
    
    
    
    27,645Total revenues
    
    
    1,041,501
    
    
    
    52,907
    
    
    
    2,328,165
    
    
    
    320,340Cost of revenues
    
    
    914,457
    
    
    
    3,151
    
    
    
    1,960,359
    
    
    
    289,152Gross margin
    
    
    127,044
    
    
    
    49,756
    
    
    
    367,806
    
    
    
    31,188Operating expensesSelling expenses
    
    
    399,408
    
    
    
    245,112
    
    
    
    884,222
    
    
    
    359,610General and administrative expenses
    
    
    1,463,942
    
    
    
    1,255,985
    
    
    
    4,404,508
    
    
    
    1,527,214Total operating expenses
    
    
    1,863,350
    
    
    
    1,501,097
    
    
    
    5,288,730
    
    
    
    1,886,824Loss from operations
    
    
    (1,736,306
    )
    
    
    (1,451,341
    )
    
    
    (4,920,924
    )
    
    
    (1,855,636
    )Other
income (expense)Amortization of debt discount
    
    
    
    
    
    
    250,844
    
    
    
    
    
    
    
    250,844Interest income
    
    
    3,487
    
    
    
    
    
    
    
    45,801
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    (14,741
    )
    
    
    Net loss
    
    $
    (1,732,819
    )
    
    $
    (1,702,185
    )
    
    $
    (4,889,864
    )
    
    $
    (2,106,480
    )Loss per share, basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.25
    )
    
    $
    (0.16
    )
    
    $
    (0.36
    )Weighted average common shares
outstanding, basic and diluted
    
    
    31,556,792
    
    
    
    6,905,346
    
    
    
    31,248,371
    
    
    
    5,841,493
   4




---



##### Table of Contents



Clear Skies Solar, Inc.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 For the nine months ended September 30,
    
    2008
    
    
    2007Net loss
    
    $
    (4,889,864
    )
    
    $
    (2,106,480
    )Adjustment to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    10,952
    
    
    
    4,512Amortization of debt discount
    
    
    
    
    
    
    250,844Stock-based compensation
    
    
    664,663
    
    
    
    748,652Issuance of
187,991 shares of common stock as liquidated damages for the
late filing and late effectiveness of a registration statement
    
    
    109,505
    
    
    
    Estimated
loss on uncompleted contracts
    
    
    82,769
    
    
    
    Bad debt expense
    
    
    9,000
    
    
    
    Increase (decrease) in cash and cash equivalents attributable to changes in operating
assets and liabilities:Accounts receivable
    
    
    (529,221
    )
    
    
    (866,007
    )Inventory
    
    
    (290,128
    )
    
    
    Costs and estimated earnings in excess of billings
    
    
    (261,986
    )
    
    
    56,761Prepaid expenses and investor relations fees
    
    
    366,001
    
    
    
    Security deposits
    
    
    (110,334
    )
    
    
    Other assets
    
    
    (19,523
    )
    
    
    (115
    )Accounts payable and accrued expenses
    
    
    631,274
    
    
    
    49,466Warranty
liability
    
    
    25,158
    
    
    
    1,642Customer deposits
    
    
    (5,000
    )
    
    
    Billings in excess of costs and estimated earnings
    
    
    (17,607
    )
    
    
    821,968Due to related parties
    
    
    (104,410
    )
    
    
    (17,863
    )Payroll liabilities
    
    
    (94,772
    )
    
    
    50,264Obligations to issue an option and warrant
    
    
    (9,401
    )
    
    
    Net cash used in operating activities
    
    
    (4,432,924
    )
    
    
    (1,006,356
    )Net cash flows used investing activitiesPurchases of equipment
    
    
    (198,374
    )
    
    
    (97
    )Net cash flows from financing activitiesProceeds from loan payable, stockholder
    
    
    
    
    
    
    98,400Proceeds
from exercise of a warrant
    
    
    15,140
    
    
    
    Proceeds from convertible Bridge Notes and common stock
    
    
    
    
    
    
    745,000Proceeds from issuance of common stock
    
    
    
    
    
    
    95,000Net cash provided by financing activities
    
    
    15,140
    
    
    
    938,400Net decrease in cash and cash and cash equivalents
    
    
    (4,616,158
    )
    
    
    (68,053
    )Cash and
cash equivalents, beginning of the period
    
    $
    4,866,842
    
    
    $
    111,439Cash and
cash equivalents at end of period
    
    $
    250,684
    
    
    $
    43,386Supplemental Disclosures of cash flow informationCash paid for interest
    
    $
    14,741
    
    
    $
    14,534Supplemental disclosure of non-cash financing and investment activitiesValue of shares of common stock issued to consultants
    
    $
    566,750
    
    
    
    Reclassification of prepaid investor relations to other receivable
    
    $
    167,988
    
    
    
    Issuance of stock out of obligation to issue stock
    
    
    
    
    
    $
    894,000Recognition of debt discounts related to common stock and
embedded conversion feature associated with Bridge Notes
    
    
    
    
    
    $
    745,000
   5




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of presentation and nature of operations
   Nature of Operations
 ®
   6




---



##### Table of Contents



2. Business combination and subsequent financing
 The reverse merger
      The private placement
   7




---



##### Table of Contents



3. Summary of significant accounting policies
 Accounts Receivable and Allowance for Doubtful Accounts
  Inventories
  Revenue
Recognition
   8




---



##### Table of Contents



Cost Recognition
   Loss Per Share
  Recent Accounting Pronouncements
    9




---



##### Table of Contents



Stock Based Compensation
  4. Liquidity and capital resources
   10




---



##### Table of Contents



5. Prepaid expenses and investor relations fees
  September 30,
    
    
    December 31,2008
    
    
    2007Payments to US public and investor relations firms
    
    $
    262,313
    
    
    $
    14,000Payment to a European investor relations firm
    
    
    
    
    
    
    394,790Prepayment of compensation to be amortized over
the periods in which the services will be rendered
    
    
    
    
    
    
    201,610Prepaid insurance premiums
    
    
    17,330
    
    
    
    35,244Totals
    
    $
    279,643
    
    
    $
    645,644
  6. Stock-based compensation and common stock issued and agreed to be issued
     11




---



##### Table of Contents



7. Related party transactions
   8. Stock Options and Warrants
   12




---



##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    ContractualShares Underlying
    
    
    Price per
    
    
    TermOptions
    
    

Share
    
    
    (Years)Employees:Outstanding, January 1, 2008
    
    
    Granted  February 6, 2008
    
    
    1,045,000
    
    
    $
    1.59
    
    
    
    7.68Granted  March 31, 2008
    
    
    500,000
    
    
    $
    1.25
    
    
    
    7.15Granted  April 14,2008
    
    
    225,000
    
    
    $
    1.52
    
    
    
    9.50Granted  May 1, 2008
    
    
    50,000
    
    
    $
    1.30
    
    
    
    9.58Granted  July 28, 2008
    
    
    510,000
    
    
    $
    0.98
    
    
    
    5.91Cancelled/forfeited
    
    
    (365,000
    )
    
    $
    1.47
    
    
    
    N/AOutstanding, September 30, 2008
    
    
    1,965,000Non-employees:Granted  April 2, 2008
    
    
    100,000
    
    
    $
    1.50
    
    
    
    2.25Granted  June 20, 2008
    
    
    50,000
    
    
    $
    1.21
    
    
    
    1.25Outstanding, September 30, 2008
    
    
    2,115,000
  Risk free rate
    
    2.67%  3.08%Stock price volatility
    
    121%Dividend yield
    
    0Term
    
    5  10 years
       13




---



##### Table of Contents



9. Contracts
  As of September 30, 2008 and December 31, 2007
    
    2008
    
    
    2007Costs
incurred on contracts
    
    $
    2,250,251
    
    
    $
    355,183Estimated earnings, less foreseeable losses
    
    
    451,971
    
    
    
    30,6102,702,222
    
    
    
    385,793Billings to date
    
    
    (2,429,995
    )
    
    
    (393,159
    )Net costs and estimated earnings/losses in excess of billings
    
    $
    272,227
    
    
    $
    (7,366
    )These amounts are included in the accompanying
September 30, 2008 and December 31, 2007 balance sheets under the following captions:Costs and estimated earnings in excess of billings
    
    $
    289,627
    
    
    $
    27,641Billings in excess of costs and estimated earnings
    
    
    (17,400
    )
    
    
    (35,007
    )$
    272,227
    
    
    $
    (7,366
    )
 10. Commitments and Contingencies
 Litigation
  Lease commitments
  Employment agreements
   14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This discussion should be read in conjunction with our unaudited condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q and the notes thereto, as well
as the other sections of this Quarterly Report and our Annual Report for the year
ended December 31, 2007 on Form 10-KSB as amended, including the Certain Risks and Uncertainties
and Description of Business sections thereof. This discussion contains a number of
forward-looking statements, all of which are based on our current expectations and could be
affected by the uncertainties and risk factors described throughout this Quarterly Report and our
Annual Report for the year ended December 31, 2007 on Form 10-KSB as amended. Our actual results
may differ materially.
 Overview
 ®
       ® ®
   15




---



##### Table of Contents



Results of Operations: Comparison of Three Month Periods Ended September 30, 2008 and 2007
     Results of Operations: Comparison of Nine Month Periods Ended September 30, 2008 and 2007
      16




---



##### Table of Contents



Liquidity and Capital Resources
      17




---



##### Table of Contents




    
    payment of operating expenses;
    
    towards our $500,000 budget for the engagement of investor relations and
public relations firms for the twelve months following the closing of the
reverse merger;
    
    possibly for strategic acquisitions, if and to the extent we determine
appropriate;
    
    furnishing our new offices;
    
    completion of beta testing and commercialization of XTRAX®; and
    
    for general working capital purposes.
 Commitments and Contingencies
  2009
    
    $
    100,0532010
    
    $
    103,3992011
    
    $
    104,6432012
    
    $
    106,0072013
    
    $
    109,717
 Certain Risks and Uncertainties
  Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
   18




---



##### Table of Contents



Item 4T. Controls and Procedures.
   Remediation Plans
  
    
    Hire additional accounting personnel (a full time CFO was hired in
January 2008 and another full time senior level accountant was hired
in February 2008 who was replaced by an experienced controller in
June 2008);
    
    Purchase and install new accounting software;
    
    Establish a detailed timeline for review and completion of financial
reports to be included in our Forms 10-Q and 10-K (established in
connection with this Form 10-Q);
    
    Engage the use of a third party accounting service provider as needed
to further support and supplement our internal staff in accounting and
related areas when necessary; and
    
    Employ the use of appropriate supplemental SEC and U.S. GAAP
checklists in connection with our closing process and the preparation
of our Forms 10-Q and 10-K.
   Changes in Internal Control over Financial Reporting
  
    
    The purchase and installation of new accounting software;
    
    The retention of an outside service provider to review and
test our internal control over financial reporting; and
    
    The establishment of a timeline for review and completion of the financial
reports to be included in our Forms 10-Q and 10-K.
  19




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
     
 Item 6. Exhibits.
  Exhibit No.
    
    Description10.1
    
    
    Clear Skies Solar, Inc. 2008 Equity Incentive Plan (1)10.2
    
    
    Summary sheet of amendment, dated July 28, 2008, to the terms of Employment Agreement,
dated December 31, 2007, by and between Clear Skies Holdings, Inc. and Arthur L.
Goldberg (1)10.3
    
    
    Summary sheet of amendment, dated July 28, 2008, to the terms of Employment Agreement,
dated March 19, 2008, by and between Clear Skies Solar, Inc. and Thomas J. Oliveri (1)31.1
    *
    
    Section 302 Certification of Principal Executive Officer31.2
    *
    
    Section 302 Certification of Principal Financial Officer32.1
    *
    
    Section 906 Certification of Principal Executive Officer and Principal Financial Officer
 *
    
    Filed herewith(1)
    
    Incorporated hereby by reference to the copy of such document
included as an exhibit to our form 10-Q for the
three and six months ended June 30, 2008 filed on August 12, 2008.  20




---



##### Table of Contents



SIGNATURES
  CLEAR SKIES SOLAR, INC.Date:
November 13, 2008
    By:
    /s/ Ezra J. GreenName:
    Ezra J. GreenTitle:
    Chairman & Chief Executive Officer
(Principal Executive Officer)Date: November 13, 2008
    By:
    /s/ Arthur L. GoldbergName:
    Arthur L. GoldbergTitle:
    Chief Financial Officer
(Principal Financial and
Accounting Officer)  21




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Clear Skies Solar, Inc. 2008 Equity Incentive Plan (1)10.2
    
    
    Summary sheet of amendment, dated July 28, 2008, to the terms of Employment Agreement,
dated December 31, 2007, by and between Clear Skies Holdings, Inc. and Arthur L.
Goldberg (1)10.3
    
    
    Summary sheet of amendment, dated July 28, 2008, to the terms of Employment Agreement,
dated March 19, 2008, by and between Clear Skies Solar, Inc. and Thomas J. Oliveri (1)31.1
    *
    
    Section 302 Certification of Principal Executive Officer31.2
    *
    
    Section 302 Certification of Principal Financial Officer32.1
    *
    
    Section 906 Certification of Principal Executive Officer and Principal Financial Officer
 *
    
    Filed herewith(1)
    
    Incorporated hereby by reference to the copy of such document
included as an exhibit to our form 10-Q for the
three months ended June 30, 2008 filed on August 12, 2008.  22