UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K





x
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31, 2010





 ̈
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from ___________ to ___________





Commission file number 000-12561





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


(Name of small business issuer in its charter)





Nevada

95-3819300(State of organization)

(I.R.S. Employer Identification No.)





4/F West Wing Dingheng Plaza,


45A North Fengtai Road,


Beijing, China, 100071


(Address of principal executive offices)





(86) 10-6386-0500


(Registrant's telephone number)





SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:


None





SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:


Common Stock, $0.001 par value per share





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


YES  ̈ NO x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ̈ No x





Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. YES x 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 (Section 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  ̈ No  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K.   x





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 definitions of “large accelerated filer,” “acceleratedfiler,” and smaller reporting companies in Rule 12b-2 of the Exchange Act.




Large accelerated filer
 ̈

Accelerated filer
 ̈Non-accelerated filer

(Do not check if a smaller reporting company)
 ̈

Smaller reporting company
x





The aggregate market value of the registrant’s voting common stock held by non-affiliates as of June 30, 2010 based upon the closing price reported for such date on the OTC Bulletin Board was US $1,749,275.




As of March 31, 2011, the registrant had 15,233,652 shares of its common stock outstanding.





Documents Incorporated by Reference: None.










TABLE OF CONTENTS




PAGEPART IITEM 1.
Business

1ITEM 1A.
Risk Factors

14ITEM 2.
Properties

14ITEM 3.
Legal Proceedings

15PART IIITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

16ITEM 6.
Selected Financial Data

17ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation

17ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk

21ITEM 8.
Financial Statements and Supplementary Data

21ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

22ITEM 9A(T).
Controls and Procedures

22PART IIIITEM 10.
Directors, Executive Officers and Corporate Governance

24ITEM 11.
Executive Compensation

26ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

27ITEM 13.
Certain Relationships and Related Transactions

29ITEM 14.
Principal Accounting Fees and Services

29PART IVITEM 15.
Exhibits, Financial Statement Schedules

31SIGNATURES

35




ii





PART I





ITEM 1. BUSINESS





Overview





We design and provide integrated low carbon solutions for industrial clients and real estate developers in China. We manufacture and distribute solar water heaters, biomass stove, spacing heating devices along with industrial waste heat recovery systems, including hot tube heat exchanger, high temperature hot air furnace, heat pipe evaporator, dust removal and desulfurization system and constant pressure hot water boiler. Our business is conducted through our wholly-owned PRC-based operation subsidiaries, Tianjin Huaneng, Deli Solar (Beijing) and Deli Solar (Bazhou).





Growth Strategy





Organic and Acquisition-Oriented Growth





Our business strategy includes organic growth through our core businesses and acquisition-oriented growth through acquisitions and investments. As part of our business strategy, we review acquisition and strategic investment prospects that we believe would complement our current product and service offerings, increase our market coverage or enhance our technical capabilities, or otherwise offer growth opportunities. Expanding business channels investments in new businesses and we expect to make investments in expanding distribution channels within China and in acquiring world leading cleantech technologies in the future.





One of the key factors for enhancing our organic growth is our human resources growth strategy. We plan to strengthen our technical capability through recruiting specialized personnel, internal training and outside technology collaborations, including our technical research and development and support services, which will help facilitate our plan to enter into the high-end solar technology market. At the same time, we expect to recruit management executives to help execute our growth oriented strategies. Another key factor in the development of our core business and markets is our emphasis on brand recognition. We plan to increase the amount and type of our product advertisements, establish a nationwide sales channel and export channel, hold technology promotion conferences, increase public relations activities and create an after-sales service network.





Government Supportive New Energy Policy and Programs





Chinese government launched a series of policies with subsidy programs, inclusive of the compulsory market share and financial incentives, to support the development of the Chinese new energy industry. China’s National Development and Reform Commission (“NDRC”) requires the renewable energy projects to account for 15% of China’s total energy consumption by the year 2020. Additionally, the Energy Conservation Law was enacted in 2008 along with the Guidelines for Public Building Energy Conservation and the Guidelines for Civilian Building Energy Conservation. During the 12th Five-Year Plan, Chinese Government will issue more specific supporting policies to renewable energy industry after June, 2011, which will be disclosed in the 10-Q2 of 2011.





The application and promotion of cleantech are strongly supported by the PRC government. These policies show the government’s intention to provide the subsidies needed to drive solar adoption by end users throughout the country. This is certainly a long-term positive for the industry as it provides significant business opportunities for low-carbon industries, including the efficiency of energy consumption and the adoption of cleantech. We believe that such government policies may help us promote our new energy products and services in China, further increase our growth opportunities in other low-carbon industries, and develop new markets.




1





Low-Carbon Industry Opportunities





The PRC government’s policy to reduce the CO2 emissions provides significant business opportunities for the low-carbon industry. Our investments in this area will include direct investments, technical collaborations and marketing cooperation. Opportunities in the low-carbon market include the demand for building integrated new energy solutions, energy efficiency evaluations, energy conservation programs, and energy conversion options, utilization of renewable energy, as well as clean energy and new energy alternatives.





We plan to recruit professionals with expertise in energy efficiency evaluation services and provide energy conservation and conversion services through the EPC method (Energy Performance Contracting). The potential market for the reuse of waste heat and energy efficiency projects in China is significant, and the investment cost for such projects is relatively low. We believe that if we can successfully recruit personnel with technological expertise and develop marketable technological products to address the low-carbon industry market, our business in this market should grow rapidly.





Rural Market Opportunities





We market our single solar products and biomass stove primarily for the rural markets of the PRC because the size of the rural market for these products in the PRC is, we believe, about eight times larger than that of the urban market. Further, we believe our rural customers regard purchasing a hot water heater as a long-term investment in a durable good, more so than urban customers.





We have 13 years of marketing and sales experience in rural areas. Presently, we sell our solar water heaters and space heaters primarily in the rural areas of the northern part of the PRC including Hebei, Beijing, Tianjin, Heilongjiang, and Liaoning, where there is prolonged sunny and dry weather. Our marketing and sales team works with our local agents to educate our end users and inform them of the utility, functionality and comparative cost advantages of our products as compared to electricity and gas water heaters. As a result of the feedback from rural customers, we have been able to design our products to address their specific needs and concerns.





Technical Capabilities





Our technical capabilities in the design and manufacturing of industrial waste heat systems are of the leading position as compared to peer companies in China. We have obtained ten (10) patents for our hot tube heat exchanger and high temperature hot air furnace. We will enhance our technical strength through recruiting high-end technical professionals, especially the inventors who have the rights to the patents in the relevant fields. In addition, we further plan on developing the collaborations with industrial design institutions and large construction corporations, capitalizing on the production capacity of Tianjin Huaneng and its ability to participate in the bids of EPC projects (Engineering/Procurement/Construction Contractor).





We have cooperated on low-carbon/green projects with various design institutions. The institutions will recommend our company to real estate developers if any projects related launched. Our company will notice the institutions in advance if any projects obtained. In 2010, the cooperation pattern has turned out with some profits. We believe that more progresses will be achieved in the next years.





Brand Strategy





Brand Identity





We further plan on strengthening our corporate identification system (CIS) to transform our core culture into a vigorous slogan though repetition in our advertisements, enterprise outward appearances, product packaging and product instruction booklets, as well as in various promotional activities and public relations events. We will use the same slogan to create a unified image to the public for all of our different brands.


2





Advertising





Based on various advertising effectiveness studies in the PRC, we believe that large scale advertising on TV and other mass media can have a significant impact on rural residential purchase decisions.





Business Promotion





As a specialty product manufacturer, technical seminars and public relations activities are an important part for our business. We need to communicate with our customers with regard to the company and our culture, technology, values and services and we also invite the participation of governmental officers, who are responsible for the development of energy, financial and tax and technology policies, in our activities. In addition, we organize activities for various industries for them to communicate and exchange ideas about their technologies. Such activities help promote our company our products and services.





For the low net margin and fierce competition in solar water heater market in China, the business promotion strategy is adjusted from single product sales to projects integrated solutions by combing the steps of design, supplying and installing into one stop for higher margin.




Our Brand Strategy





In order to position our products in different tiers of markets, we have utilized a double-brand approach. Our solar hot water heater brands include: “Ailiyang” and “Deli Solar.” Ailiyang is promoted in rural market for lower price. Deli Solar, as the premium products, are mainly applied in urban areas and building projects in matching with real estate developers.





Our Brand Name

ClassificationSolar Water HeatersDeli Solar

PremiumAiliyang

Entry Market





Our Distribution and Agency Network





We use a network of wholesalers, dealers and retailers to distribute our products. After we manufacture and assemble our products, we sell them to our wholesalers, generally located in major cities or provincial hubs, who then sell our products on to a network of smaller distributors, or dealers, in outlying areas. Sometimes when the dealers are closer to our warehouse, we also sell directly to dealers to simplify the payment process and reduce transportation costs. Because these dealers are usually developed by the wholesalers, each direct sale to a dealer will be recorded on the account of the wholesaler who developed the business relationship with such dealer. Our end users purchase their products from either wholesalers or dealers, who also handle the installation and warranty service of the systems for the end users.





In recent years, for the government subsidies to the rural markets on solar water heaters, which is an disadvantage for foreign owned companies for the limitation of subsidies to Chinese local companies, the distribution network is shrinking by 30-40%. We swift the distribution network to project cooperation approach with design institutions. Contracts based on the new approach are increasing.





We also have a marketing department consisting of approximately 87 marketing and sales personnel who collect feedback from our customers and other market information for our management and our product development team. In 2010, we plan on developing four main foreign market regions, such as EU, North America, Africa, Asia Pacific, and recruiting local overseas staffs as managers to develop the regional markets and establish commercial relationships.


3





Our After-Sales Services Network





We are in the process of implementing an after-sales services network in parallel with our national sales and distribution network. Our after-sales services are primarily performed by our sales agents and distributors. We have begun to provide technical training to our 300 domestic distributors in order to provide after-sales services to our end users. We believe local distributors are enthusiastic to have the ability to provide after-sales services to the end users, which also provides the distributors with a new source of revenue. One additional benefit to us provided by the after-sales services network is the ability to receive product feedback from our end users on a constant basis. We can use this information to continuously adjust our production plans, product designs, inventory control and marketing and sales strategies based on the most current customer feedback. With respect to our export markets, we request that our local general agents attend our training courses in the PRC, and that when they sell our products in their home jurisdictions, that they establish service networks in such jurisdictions to fulfill the same service standards and policies as ours.





Corporate Organization and History





Corporate Structure





The following diagram sets forth our current corporate structure:














*
Neither China Solar nor Deli Solar (BVI) has any operations or currently intend to have any operations in the future other than acting as a holding company and management company for Deli Solar (Bazhou) and Deli Solar (Beijing) and raising capital for their operations.




4




Corporate History





China Solar & Clean Energy Solutions, Inc.





We were formerly known as Deli Solar (USA), Inc. until October 29, 2007 when we changed our name to China Solar & Clean Energy Solutions, Inc. Deli Solar (USA), Inc. was formerly known as Meditech Pharmaceuticals, Inc. (“Meditech”). Meditech was incorporated in Nevada on March 21, 1983. On August 15, 2005, Meditech changed its name from Meditech to Deli Solar (USA), Inc. and completed a one six reverse stock split of its common stock. On August 29, 2005 Meditech completed a spin-off of its drug development business to East West Distributors, Inc., its wholly-owned subsidiary.





Deli Solar (Bazhou)





Deli Solar (Bazhou), incorporated under the laws of the PRC in 1997, designs, manufactures and sells renewable energy systems to produce hot water and for space heating in the PRC. Deli Solar (Bazhou)’s principal products are solar hot water heaters and multifunctional space heating products, including coal-fired boilers for residential use. Deli Solar (Bazhou) also sells component parts for its systems, and provides after-sales maintenance and repair services.





In 2004, Deli Solar (BVI) was organized as a limited liability company under the International Business Companies Act of the British Virgin Islands by Mr. Deli Du of Bazhou City, Hebei Province, PRC and others (with Mr. Du owning 80%) as a holding company of Deli Solar (Bazhou). On August 1, 2004, Deli Solar (BVI) purchased all the capital stock of Deli Solar (Bazhou) from Messrs. Deli Du, his brother Xiaosan Du and Xiao’er Du, for RMB6,800,000 (approximately $879,920). As a result of that transaction, Deli Solar (Bazhou) became a wholly foreign-owned enterprise (“WFOE”) under PRC law, by virtue of its status as a wholly-owned subsidiary of a foreign company, Deli Solar (BVI).





Deli Solar (Bazhou) has a wholly owned subsidiary-Beijing Ailiyang Solar Energy Technology Co., Ltd. (“Ailiyang”), which is persisting in the technical innovation in optothermal and photoelectric area, and promoting the new solar-energy products through cooperation with well-known domestic and foreign research institutions. The company also provides overall energy solutions, mainly the research, development and installation and construction services in areas of solar heating, solar project, solar water heater, solar cooling, and solar air source heat pump and other fields.





Reverse Merger and Financing





On March 31, 2005, Meditech entered into a stock contribution agreement with the shareholders of Deli Solar (BVI) under which Meditech acquired all of the issued and outstanding shares of capital stock of Deli Solar (BVI) in exchange for the issuance to the shareholders of Deli Solar (BVI) of 4,067,964 shares of Meditech’s common stock. In connection with such stock contribution, we received net proceeds of $5,748,015 from the sale of 1,642,990 shares of common stock and warrants to a number of accredited investors in a private placement (adjusted to give effect to the one-for-six reverse stock split of the common stock, which became effective on August 15, 2005).





As a result of foregoing transactions, the former shareholders of Deli Solar (BVI) (including Mr. Du) became holders of a majority of the common stock of Meditech and Deli Solar (BVI) became a wholly-owned subsidiary of Meditech. Following (i) Mr. Du’s purchase of the 56,259 shares from a third party for $500,000, (ii) the issuance to him of the additional 3,254,371 shares in exchange for his 80% of the outstanding shares of Deli Solar (BVI) and (iii) the simultaneous issuance by us of an additional 1,642,990 shares to accredited investors in the private placement, Mr. Du became the owner of about 34% of our issued and outstanding common stock.





Deli Solar (Beijing)





During the quarter ended June 30, 2006, we established a new wholly-owned subsidiary, Deli Solar (Beijing) to further develop our business in Beijing. We contributed $1 million into Deli Solar (Beijing) for its registered capital. Deli Solar (Beijing) is principally engaged in the installation of large solar water heaters in construction projects in major cities in the PRC, including Beijing.


5





Tianjin Huaneng





Tianjin Huaneng, incorporated in 1987, manufactures and installs industrial waste heat recovery systems. Tianjin Huaneng’s products are sold throughout the PRC as well as in Singapore, Taiwan and Indonesia. Tianjin Huaneng was formerly a state-owned enterprise with 51% of its equity formerly-owned by Tianjin Municipal Ji County State-owned Assets Administration Commission (“SAAC”) and 49% owned by the employees. On May 18, 2007, Deli Solar (Beijing) entered into an agreement with SAAC to purchase 51% of the equity interests in Tianjin Huaneng for a purchase price of RMB24,100,000 (approximately $3.1 million). The transaction closed on July 1, 2007 and we paid approximately $1,575,600 in July 2007. By supplemental agreement between the parties dated August 8, 2007, the purchase price was reduced to approximately $1,689,741. In addition to the purchase price we are required to pay a finder’s fee of approximately $769,418. In addition, Deli Solar (Beijing) assumed 51% of the liabilities of Tianjin Huaneng and contributed RMB20,000,000 (approximately $2.6 million) as working capital to Tianjin Huaneng. Deli Solar (Beijing) also agreed to employ the 550 current Tianjin Huaneng employees pursuant to new three (3) year employment contracts.All of the employees renewed the contracts in 2010 for another five (5) years.





On October 27, 2008, Deli Solar (Beijing) entered into an agreement to acquire approximately 30% of the outstanding equity interest of Tianjin Huaneng, from the minority shareholders of Tianjin Huaneng for a cash purchase price of RMB10.68 million (approximately $1.5 million). In addition, we agreed to issue to the Tianjin Huaneng shareholders a total of 1,000,000 five (5) year warrants to purchase our common stock at an exercise price of $1.10 per share. We also agreed to increase equity interest in Tianjin Huaneng by contributing an additional RMB 15,740,000 (approximately $2.3 million) to the registered capital of Tianjin Huaneng. As a result of the consummation of the agreement and the additional capital contribution, we now own approximately 92% of the equity interest in Tianjin Huaneng.





Tianjin Huaneng owns 65% shares of Tianjin Huaneng Installation Company since 2008. The remaining 35% of the installation company is hold by the Tianjin Huaneng Installation Company’s staffs.





Tianjin is a city in the PRC which is approximately 50 miles from Beijing. It has a population of 12.72 million (as of December 31, 2010), and is one of only four municipal cities directly governed by the central government in China.





Executive Office





Our executive office is located at 4/F, West Wing Dingheng Plaza, 45A Fengtai Road, Beijing, China, 100071 and our telephone number is +8610 6386 0500.





Products





Solar Water Heater and Boilers and Space Heating Products





Our solar water heaters are primarily used to generate hot water for residential use. We manufacture two types of solar hot water heaters: evacuated tubular solar water heaters and flat plate solar water heaters. There are two major types of evacuated tubular solar water heaters: standard evacuated tubular solar water heaters and evacuated heat pipe solar water heaters. We also manufacture boilers, furnaces, stove heating, and space heating products, Most of our boilers and space heating products are coal-fired, small scale units for residential space heating and cooking.





Solar water heaters use sunlight to heat either water or a heat-transfer fluid in collectors. The solar collector is installed either on roof top on mounted on or near a house facing south. As sunlight passes through the collector's glazing, it strikes an absorbing material. This material converts sunlight into heat, and the glazing prevents the heat from escaping. The two most common types of solar collectors used in solar water heaters in the PRC market are evacuated tube collectors and glazed flat plates. Solar-heated water is stored in an insulated tank until use. Hot water is drawn off the tank when tap water is used, and cold make-up water enters at the bottom of the tank. Solar water heaters tend to have a slightly larger hot water storage capacity than conventional water heaters. This is because solar heat is available only during the day and sufficient hot water must be stored to meet evening and morning requirements.


6





We have also developed two environmentally friendly boilers: smokeless coal-fired boilers and bio-materials furnaces. The former does not produce smoke and the latter utilizes waste materials such as dry hay to generate heat. The development of these products has been completed and we have sent samples of these products to our distributors.





Approximately 26% of our total revenues for 2010 were derived from sales of our solar water heaters and boilers and space heating stayed the same percentage compared to 21% of our total revenues for 2009.





Waste Heat Recovery Systems and Industrial Energy-Saving Industrial System





We also manufacture industrial waste heat recovery systems, heating products such as heating pipes, heat exchangers, specialty heating pipes and tubes, high temperature hot blast stoves, heating filters, normal pressure water boilers, and radiators. These products are used primarily in manufacturing facilities in which the manufacturing processes require the generation of large amounts of heat, such as steel and chemical plants. The waste heat can be used to generate hot water at the manufacturing facilities. Tianjin Huaneng has twenty-years of experience in manufacturing equipments for industrial waste heat recovery. Its waste heat recovery systems and energy-saving heating products have excellent reputations in the marketplace and have a loyal customer in the chemical and metallurgic fields. Based upon Tianjin Huaneng’s technical strength and production capacity, we have revised its operational procedures and incorporated new technologies to increase its production capacity and reduce its operating costs. In addition, we have cooperated with the prestigious domestic industrial design institutions to increase the production capacity of energy-saving industrial kilns in 2010. Moreover, we are planning to expand the production capability of Tianjin Huaneng to maximum its profit generation ability in the near future. Sales of these products and systems comprised approximately 75% of our total net revenues in 2010 compared to 78% of our total revenues for 2009.





Integrated Solar Heating Packages





A number of our products are being used in complete building integrated solar heating packages, which integrate our solar hot water and space heating systems directly into the construction of new multi-family dwellings, commercial office buildings and industrial developments. In 2010, the integrated solar heating packages projects are in good performance. We have signed dozens of projects on designing, supplying and installing solar water heater and radiant floor heating system with real estate developers in China to realize our capability in building integrated energy efficiency solutions. In 2010, we have signed contracts with Beijing Changping Home Inn, Qinxinyuan 7 Days Inn, Tianjin KFC, Bazhou Hairun, and Jinhaihu New Countryside I, and others.





New Product Pipeline





We have the following new product in production:





Densely Covered Regular Tubular Heater:  We have developed a new solar water heater which is designed with densely covered evacuated tubes to improve heating efficiency with only a small cost increase. As an updated regular evacuated tubular heater, this product installs more tubes in one square meter than normal products do. For instance, it has ten tubes on one collector while others only have eight.





Manufacturing





Process, Cost, and Capacity





Deli Solar (Bazhou) assembles and manufactures most of its products in its own production facility in Bazhou. Tianjin Huaneng assembles and manufactures most of its products in its own production facility in Tianjin. Our senior manufacturing personnel include a number of professional engineers and senior technology consultants. Deli Solar (Bazhou) utilizes an automated production line for the manufacture of water tanks, while our other products are manufactured utilizing manual labor.





Set forth below is certain information regarding our current manufacturing capacity:


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Current Manufacturing Capacity





Daily Unit

No.


Annual

Unit No.Solar Water Heaters


500



133,000Boilers and Space Heating Products


120



26,000Biomass Stove


100



21,700





Raw Materials and Principal Suppliers





The primary raw materials for manufacturing our products are stainless steel plate, vacuum tubes, iron and regular steel plate. These raw materials are generally available on the market and we have not experienced any raw material shortage in the past. Because of the general availability of these raw materials, it has not been our standard practice to enter into long-term contracts or arrangements with most of our raw materials suppliers. We believe that this gives us the flexibility to select the most suitable suppliers based on product quality and price terms provided by suppliers each year. We generally have at least three suppliers that are pre-approved for each raw material supply. However, this arrangement does not provide any guarantee that necessary raw materials will continue to be available at prices or delivery terms acceptable to us.





During the past four (4) years, we have purchased stainless steel plate primarily from Lingyi Co. in Shandong Province. Our three (3) suppliers of vacuum tubes are Shangdong Taian Co., Beijing Linuo Co. and Beijing Tianpu Co. Our principal suppliers of steel and iron plate are from the local market in Bazhou City, where Deli Solar (Bazhou) is located, which has approximately 100 steel suppliers. We do not rely on any particular suppliers to procure other raw materials.





During the past four (4) years, we have purchased stainless steel plate primarily from Haihui Co. in Tianjin Province. Our principal supplier of steel and iron plate is from the local market in Tianjin City, where Tianjin Huanneng is located, which has approximately 100 steel suppliers. We do not rely on any particular suppliers to procure other raw materials.





Quality Control





Our manufacturing processes follow strict guidelines and standard operating procedures. Deli Solar (Bazhou) has been issued ISO14000 certification and 3C Certificate in 2011.  Tianjin Huaneng was issued ISO9000 on November 5th, 2004.





Because of our stringent quality control system, most of our products are certified by governmental quality control testing centers, such as the Institute of China Product Quality Association, Hebei Province New Energy Products and Projects Quality Control and Testing Center, and Beijing Technology Supervisory Bureau. We also received awards from Hebei Province Consumers Organization and Hebei Province Administration of Industry and Commerce, as well as endorsement from the China Rural Areas Energy Industry Association. The following table sets forth the brands of our products that are certified by Beijing Technology Supervisory Bureau to have met the National Industry Standard NY-T 343-1998, which is the testing standard for solar hot water heaters’ thermal power:





Brands

Products

Model

NumbersDeli Solar

Solar Water Heaters

DLYG-12/75Ailiyang

Solar Water Heaters

ALY-12/75





Demand for Our Products





In last few years, the majority of the demand for our solar water heaters and space heaters was from residential households. For the increasing oil price and electricity price, the products demand tendency changes from individual and residential households to collective bath & leisure centers in rural areas or companies/organizations bathing centers. Presently, we sell our solar water heaters and space heaters primarily in the rural areas of the northern part of the PRC including Hebei, Beijing, Tianjin, Heilongjiang, and Liaoning, where there is prolonged sunny and dry weather.


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We believe the rural residential market has additional growth potential with supportive government subsidies for the construction of new rural area and adoption of new energy facilities in buildings. Additionally, as the PRC’s rural population has been earning incremental discretionary income in recent years, modern hot water and space heating systems have become increasingly affordable and a priority for discretionary spending.





Due to the national policies for saving energy and reducing the emission of pollutants, as well as the fundamental needs for manufacturing enterprises to efficiently utilize energy and reduce production costs, there remains a strong demand for our waste heat recovery systems and energy saving heating products in the near term. Tianjin Huaneng is primarily engaged in the production of energy conservation and waste heat recycling systems tailored in accordance with contracts from. However, we believe that cleantech will gradually replace the current widely-adopted low-end technology in the industrial market. We expect to enhance the operations of Tianjin Huaneng towards the design and production of energy-saving products and services for high energy-consumption companies including the petrochemical factories, chemical fertilizer plants and power plants.





Seasonality of Business





Sales of our solar hot water heaters and boilers are both affected by seasonality. Spring is usually the high season for solar water heater because it performs the best when solar energy is abundant, while autumn is usually the high season for boilers as customers purchase the space heating products for the winter. The combined supply of solar hot water heaters and space heating devices allows us to provide our distributors, wholesalers and retailers with marketable products throughout the whole year.





Our Product Warranty





We provide a three (3)-year standard warranty to our end users for all of the solar heater and boiler and space heating products we manufacture. Under this standard warranty program, we provide free repair and exchange of component parts in the first year following the purchase, and we charge labor costs for repair and maintenance but provide free exchange of component parts in the second and third years following the purchase. Thereafter, end users are required to pay for any repair and maintenance services, as well as exchange of component parts. Most of our warranty services are performed by our independent sales agents and distributors in return for a 1 – 2% discount of the purchase price they pay for our products. According to the standard terms of our agreement with sales agents, we allow our sales agents and distributors to return any defective product for exchange.





We provide a one (1)-year standard warranty to our customers for all of heat pipe related equipment products we manufacture. Under this standard warranty program, we provide free repair and exchange of component parts in the first year following the purchase. After one year, our customers will pay for our quality margin.





Distribution





The distribution network of the industrial waste heat recovery systems by Tianjin Huaneng gradually expand, while the distribution of single solar products shrank. The PRC is a vast country geographically and the markets for our products span many regions. To penetrate these markets effectively, especially the less-developed rural areas, we have established a distribution and sales network that includes approximately 300 distributors and wholesalers and approximately 400 local appliance retailers covering 26 provinces in China, with a focus on the northern PRC area, north-eastern PRC area, Beijing metropolitan area, and Tianjin metropolitan area. The northern PRC area includes Hebei Province, Henan Province, Shandong Province, Shanxi Province and An’hui Province. The north-eastern PRC area includes Liaoning Province and Heilongjiang Province. Besides, we also have established cooperation relationships with over 200 design institutions regarding to low carbon / green energy projects.We believe that our comprehensive distribution and sales network enables us to efficiently serve the rural communities without having to rely on any particular agent or distributor for our sales.





In the past six (6) years, no single agent or distributor has generated more than 5% of our total net revenues in any single year. In Tianjin Huaneng, all of the revenues are generated from the company’s own sales.


9





We are consolidating our network of distributors, sales agents, and retailers to promote the sales of our single solar products.





We carefully select our distributors and provide support to them. Our contracts with our wholesalers and distributors normally have a three- to five-year term. While most of our agency and distributor contracts are non-exclusive, we are seeking to establish exclusive distribution relationships with some strong distributors. We require new sales agents to deposit a significant amount of cash as a down payment towards the purchase of our systems. We consider the following factors in our selection of a new distributor or wholesaler: (i) local solar energy status and market potential; (ii) local competition; (iii) sales and market potential in the covered area; (iv) presence of alternatives, such as gas or electricity; and (iv) credibility of the candidate. For each candidate we select, we enter into an agency contract with it, under which we provide warranty cards, product testing certificates, product brochures, and other promotional materials. In addition, we help them design store logos and show rooms, provide them with uniforms, and assist them to make marketing plans.





Research and Development Activities





In 2010, Tianjin Huaneng hires 21 new sales and design engineers for enhancing the R&D strength of the company. Deli Solar (Beijing) also hires 6 new engineers in low-carbon building construction design and solar hot water planning, such as Ms Wang Jiwei, Ms Wen, Ms Wang Desheng and others.





In February 2006, we executed a non-binding Cooperation Memorandum (the “Memo”) with the Key Laboratory of Heat Transmission and Energy Saving Education of Beijing University of Industry (“BUI”) in February 2006 for cooperation on research and development of renewable energy technologies. The Memo sets forth a general cooperation framework between the two parties: we make available funding for certain renewable energy research and development projects undertaken by BUI. Further details of each party’s rights and obligations will be on a project by project basis with specific agreements. To date we have not incurred any expenses under this arrangement.





Intellectual Property





Trademarks





Deli Solar (Bazhou) is the holder of the following trademarks registered with the Trademark Offices of the PRC National Industrial and Commerce Administrative Bureau (the “PRC Trademark Offices”):





Trademark

Authorized Scope

Valid Term

Certificate

NumberDeli Solar

Boiler (Space Heating Utility);

03/14/2003 -

1978396Solar Hot Water Utility;

03/13/2013Solar Stove and Solar EnergyCollection HeaterAili Solar (to replace our brand “Ailiyang”)

Approved, pending the trademark

certificate delivery





A registered trademark is protected for a term of ten (10) years, renewable for another term of ten years under the trademark law of the PRC, so long as an application for renewal is submitted to the PRC Trademark Offices within six months prior to the expiration of the initial term.





Patents





Tianjin Huaneng had obtained the following patents in the PRC for its unique solar energy selective absorbing coat and manufacturing technology:





Authorized Scope

Valid Term

Certificate NumberCold water recovery system in solar heating

2015

ZL200620016815XRecycle Heating Product in different temperature system

n/a

Application obtained 7/4/09 UPDATE


10


Invention Patent




Authorized Scope

Valid Term

Certificate NumberSolar Heat Collection and Temperature Maintenance

Decorating Wallboard via Air

2009-2029

ZL200710201483.1





Domain Names





We own and operate a website under the internet domain name http://www.delienergy.com& www.delisolar.com. Tianjin Huaneng owns and operates a website under the internet domain name http://www.tjhuaneng.com/. The information contained in these websites does not form part of this report.




Logos





Our brand logos are the following:










Industry





The PRC’s Economic Growth, Energy Shortage and Renewable Energy Policy





The rapid economic growth of the PRC in recent years has fueled a massive demand for coal, oil and gas, which has caused depletion in the country’s coal and oil reserves and a resulting shortage in supply, as well as serious environmental problems. Recognizing that accelerating the country's transition to efficient and renewable energy would ease this depletion and environmental concerns, the National People's Congress, the PRC’s parliament, passed the China Renewable Energy Promotion Act, which became effective on January 1, 2006. The Act aims to promote the use of renewable energy as an alternative source of energy to the more polluting fuels. Renewable energy currently accounts for a negligible percentage of the country’s total energy supply. The Act, however, does not provide for any incentive schemes for purchasers.





Urban and Rural Market Segmentation for Hot Water and Space Heating Systems in China





Recently the market for hot water and space heating systems in the PRC has shown substantial growth. According to research conducted by the China Hardware Products Association and the China Information Center in 2002, only 71.5% of urban households had modern hot water systems. We do not know the number of rural households that currently have hot water systems but believe that it significantly less due to the fact that modern hot water and heating systems have still not become available to and are not affordable in many households in the country. Only recently have some of these households started to earn the disposable income required to purchase the hot water and space heating systems.


11





In the rural areas of the PRC the infrastructure is insufficient to facilitate delivery of conventional energy solutions that are available in more developed countries. The infrastructure to deliver natural gas or propane, two of the most common energy sources used in the United States, for example, are not well developed in the PRC, even in larger cities. As to electrical energy, while it has become more available in the urban areas of the PRC, it remains much less available in rural areas. Large portions of the PRC’s rural areas do not have electricity production and are not connected to the electric grid, and approximately 60% of rural communities that are grid-connected experience serious shortages of electricity. According to the National Renewable Energy Laboratories eleven rural counties with a total population of approximately 70 million have no electricity at all. In addition, the cost of electricity is high in many rural areas, making it impractical for hot water and space heating purposes.





We believe that for most provinces in the PRC, solar-generated hot water for rural home use is the most readily available and economical solution. Compared with electricity, natural gas or propane, we believe that solar hot water is more readily available, less expensive and more suitable to rural household needs as shown in the following table:





Cost Economics of Solar Water Heaters





Solar

Gas

ElectricInitial Equipment Cost


241



120



72Engineering Life (Years)


15



6



5Equipment Cost (15 years)


241



300



216Annual Additional Energy Cost


—



98



81Total Operating Cost (15 years)


241



1,770



1,431





Projected Growth of Solar Hot Water Industry





The PRC solar hot water industry is an emerging, but fast growing industry. It has experienced an annual growth rate of approximately 30% since 1999 as measured by the square meters of systems installed. The Solar Energy Usage Commission of the PRC Rural Energy Industry Association and the PRC Renewable Energy Industries Association project such growth to continue at an annual average rate of 27.36% until 2015 as shown in the following table:





Annual Sales1999 A


5.0 million m22000 A


6.0 million m22001 A


8.0 million m22002 A


10.0 million m22003 A


12.0 million m22004 A


16.2 million m22015 F


232.0 million m2





A = actual. F = forecast. Source: China Solar Hot Water Industries Development and Research Report (2001 – 2003), jointly published by the solar energy association and commission described above.





The market prospects for the solar energy industry have been recognized by more and more countries, businesses and the financial sector. Many developed countries and regions have developed photovoltaic energy plans. By 2010, the United States plans to install 4.6GW, the EU plans to install 3.7GW, Japan plans to install 5GW, and other developing countries plan to install 1.5GW, with the world’s accumulated installation expected to be 14 – 15GW with anticipated net revenue of $30 billion dollars. According to long-term renewable energy development planning by 2010 China's solar photovoltaic capacity will reach a total of 400MW and by 2020, it is expected to reach 2200MW.





Similarly, we expect the solar water heater market will become more mature. According to the Chinese Solar Energy Society, by 2020, it is predicted that production will reach 45 million square meters, storage volume will reach 300 million square meters, and every thousand people will have 210 square meter to share.


12





Because of the rapid growth in the solar hot water industry, solar hot water heaters have become one of the three major hot water sources along with gas-fired heaters and electric heaters for PRC households and the PRC has become the world's largest producer and consumer of solar hot water heaters.





Growth Projection for Industrial Waste Heat Recovery Systems





The PRC space heating industry is not new, but we believe the systems that we sell are new for our customers. While many rural PRC households have in the past considered hot water a luxury, heat generating facilities for cooking and space heating purposes in one form or another are now considered basic necessities. These heat generating facilities are generally extremely primitive and inefficient, and usually consist of hearths and biomass stoves, which are dirty, unsafe and difficult to handle with respect to fuel. As many rural households have started to earn disposable income in recent years, many of them can afford to modernize their cooking and space heating facilities by using coal-fired boilers, which have become one of the principal means for such modernization among the PRC rural households.





Competition





The solar hot water market in the PRC is highly fragmented. According to statistics from the Chinese Energy Research Association, there are currently over 3,500 solar hot water heater manufacturers producing products under more than 3,000 brands. The top 51 companies have, on average, over 10 million RMB in sales (approximately $1.2 million), with the top ten companies together controlling 17% of the domestic market.





We believe our success lies in our quality control, brand recognition strategy, comprehensive distribution network and advertising.





Government Regulation





We are not subject to any requirements for governmental permits or approvals or any self regulatory professional associations for the manufacture and sale of solar hot water heaters. We are required to obtain a production approval from the Quality and Technology Supervisory and Control Bureau at the provincial level for the manufacture and sale of boilers and space heating products. Other than the foregoing, Deli Solar (Bazhou) is not subject to any other significant government regulation of its business or production, or any other government permits or approval requirements, except for the laws and regulations of general applicability for corporations formed under the laws of the PRC. We are not aware of any PRC environmental law which affects the production or sale of our products.





Employees





As of December 31, 2010 we had approximately 700 full time employees.





Deli Solar (Bazhou) requires each employee to enter into a one (1) year standard employment agreement. Tianjin Huaneng employees have five (5) year agreements. The standard employment agreement contains a confidentiality clause and a covenant-not-to-compete clause, under which an employee must keep confidential all manufacturing technology including drawings and other technology materials, sales and financial information, and trade secrets obtained through his or her employment with us. Breach of this confidentiality clause will result in termination of employment. Further, each employee may not compete against us for a certain period of time following the termination of employment with us. We purchase group workers' compensation policies on behalf of our employees, and the premium is deducted from each employee's paycheck.


13





ITEM 1A. RISK FACTORS





Not applicable because we are a smaller reporting company.





ITEM 2. PROPERTY





All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants landholders a “land use right.” The following are the details regarding our land use rights with regard to the two pieces of land that we use in our business. The land use rights owned by Deli Du, our Chief Executive Officer, President and Director, were transferred to us in October 2005 for a price of RMB20,000 (approximately $2,588). The application for the change of the land use right certificate for this piece of land was submitted to Bazhou City National Land Resources Bureau on January 16, 2006. The application is still pending till now.





Deli Solar (Bazhou)’s factory facilities are located outside of the city of Bazhou in Hebei Province, PRC. Deli Solar (Bazhou) utilizes one factory in Bazhou with a total of over 10,000 square meters of production, warehouse, and office space and space for use as a distribution center and approximately 2,000 square meters of office space and exhibition center in Beijing.





Deli Solar (Bazhou) built a new facility in 2008 with an area 9,900 square meters. Total construction costs were $2,926,287, all of which were paid in 2008.





Tianjin Huaneng’s factory facilities are located outside of the Tianjin municipalities of the PRC. Tianjin Huaneng’s utilizes one factory in Tianjin with over 51,000 square meters of production, warehouse, and office space and space for use as a distribution center.





Tianjin Huaneng built a new facility with over 7,500 square meters in March 2008, which commenced operations in November, 2008. Total construction costs were $984,287.





On March 17, 2006, Deli Solar (Bazhou) entered into an agreement with the local government to acquire land use rights of a parcel of land of 61,530 square meters at the price of approximately $919,858. This piece of land is close to the present Bazhou factory and is used to promote the present manufacturing base at Bazhou City. The land use right has been approved by the local government after payment of approximately $919,858. An official certificate evidencing the land lease has not yet been delivered from the government to us.





The following table sets forth information regarding parcels of lands used by us in our operations:





Registered

Holder

Location

Deed Number

Usage and

Nature

Square

Meters

Construction/Building

on the Land

Term of

Use Right

Transfer PriceDeli Solar

(Bazhou)

Bazhou, Ningnan Village; #98060026

Industrial Transferred Land

15,625

Sq. M

Plant, warehouses, accessories room, convention center

50 years (from November, 1999 to November, 2043)

RMB615,000

(approximately $79,581) was paid to the Langfang Municipal Land Administration Bureau, plus annual land use fee of RMB5122 (approximately $662.79)Mr. Deli Du

Eighty kilometers from Bazhou Jingbao Road North; #20010700405

Office space for Deli Solar Bazhou Granted Land

816

Sq. M

Office building, accessories room

50 years (from June 11, 2001 to June 3, 2051)

RMB 20,000 (approximately $2,588) was paid to the Langfang Municipal Land Administration BureauDeli Solar (Bazhou)

Close to Bazhou Jingbao Road

Factory Facilities

61,530

Sq. M

Factory facilities

Pending the Land Use Right Certificate

approximately $919,858 was paid to Bazhou local governmentTianjin Huaneng Group Energy Equipment Co. Ltd.

No. 119 Yuyang South Road

Ji County, Tianjin

Factory Facilities

4,891.70

Sq. M

Factory facilities

50 years (from September 2004 to September 2054)

Approximately RMB1,054,996 was paid to Ji countyTianjin Huaneng Group Energy Equipment Co. Lt

The north of Jinguo road

Ji County, Tianjin

Factory Facilities

11,318.40

Sq. M

Factory facilities

50 years (from September 2004 to September 2054)

Approximately RMB3,216,931 was paid to Ji countyTotal





94,181.10 Sq. M




14





We lease 19,140 square meters of land (“Leased Land”) from Tianjin Ji County Credit Union Lianshe Branch (“Credit Union”) for an office building pursuant to a 20 year renewal lease at an annual rent of RMB120,000 (approximately $15,528) which commenced on May 1, 2003. The lease is automatically renewable for another 20 year term subject to terms to be negotiated at the expiration of the first 20-year term. We are retaining a majority of the building's usable space for our business and seeking to sublease the rest to parties with business related to ours such as our sales agents, distributors, accessory parts dealers, and after-sales service agents. We also constructed a business center on the Leased Land. The business center is to be used for show rooms, retail stores, and a distribution center for solar related products and space heating products.





We lease our Beijing office facility of approximately 2,000 square meters at No. 28, Fengtai Bei Road, Fengtai District from BeijingDajiangxia Technology and Trade Co., Ltd. pursuant to a renewable lease with a term from October 1, 2005 to August 8, 2011. However, to the Government Public Housing Demolition, the office lease was terminated by December, 2009. No rent related shall be paid any more.





ITEM 3. LEGAL PROCEEDINGS





There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.


15





PART II





ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





Market Information





Our common stock is quoted on the OTCBB under the symbol “CSOL.OB”. There has never been an active public market for shares of our common stock and trading has been characterized by low volume and high volatility.





The following table sets forth the high and low bid prices, in the over-the-counter market, as reported and summarized by the OTCBB, for each fiscal quarter during each of the fiscal years ended December 31, 2008, December 31, 2009 and December 31, 2010. These prices are based on inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.





High



LowYear Ended December 31, 201003/31/2010


0.41



0.2906/30/2010


0.43



0.2409/30/2010


0.39



0.2612/31/2010


0.35



0.25Year Ended December 31, 200903/31/2009


1.00



0.1706/30/2009


0.71



0.2709/30/2009


0.52



0.2912/31/2009


0.70



0.31Year Ended December 31, 200803/31/2008


3.70



1.5006/30/2008


2.36



1.3609/30/2008


1.65



1.0512/31/2008


1.41



0.70





Since the completion of the reverse merger, our common stock has traded sporadically and with high volatility. Consequently, our historical prices may not be an accurate indication of the future prices of our common stock.





Holders





As of March 31, 2011, there were 15,233,652 shares of our common stock issued and outstanding, and there were approximately 2,512 holders of record of our outstanding shares of common stock. This does not reflect the number of persons or entities who held stock in nominee or “street” name through various brokerage firms.





Dividends





We have never declared or paid any cash dividends on our common stock and are restricted from paying dividends both contractually and by virtue of the fact that we are a holding company. We currently intend to retain all earnings, if any, for use in business operations and we do not anticipate declaring any dividends in the near future.





The payment of dividends, if any, is at the discretion of the Board of Directors and is contingent on the Company's revenues and earnings, capital requirements, financial conditions and the ability of our PRC based operating subsidiaries Deli Solar Bazhou, Deli Solar (Beijing) and Tianjin Huaneng to obtain approval to send monies out of the PRC. The PRC’s national currency, the Yuan, is not a freely convertible currency. The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends.


16





In addition, under the terms of the certificate of designation which was filed in the office of Secretary of State for the State of Nevada on June 12, 2007 in connection with the issuance of the Series A Preferred Stock, we are restricted in paying dividends on our common stock.





Securities Authorized for Issuance under Equity Compensation Plans





We currently do not have any equity compensation plans.





Penny Stock Regulations





The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. As of March 31, 2011, the last reported sale price of our common stock was $0.24 per share. Our common stock falls within the definition of penny stock and is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).





For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell the common stock and may affect the ability of investors to sell their common stock in the secondary market.





ITEM 6. SELECTED FINANCIAL DATA





Not applicable because we are a smaller reporting company.





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS





Forward-Looking Information — This item includes “forward-looking statements”. All statements, other than statements of historical facts, included in this item regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside of the Company's control, which could cause actual results to materially differ from such statements. While the Company believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors, especially the timing and magnitude of technological advances; the prospects for future acquisitions; the competition in the solar water heaters and boilers industry and the impact of such competition on pricing, revenues and margins; uncertainties surrounding budget reductions or changes in funding priorities of existing government programs and the cost of attracting and retaining highly skilled personnel.





Overview





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





The Company has three reportable segments: (i) Solar heater/Biomass stove/Building integrated energy projects for households and buildings; (ii) Industrial waste heat recovery/Energy-saving projects for industrial customers; and (iii) Heat pipe related products.


17





Deli Solar (Bazhou) manufactures and distributes solar products in the PRC. The Company’ principal products are solar hot water heaters and multifunctional space heaters, including coal-fired boilers for residential use. Deli Solar (Bazhou) also sells spare parts for its products and provides after-sales maintenance and repair services.





Deli Solar (Beijing) is principally engaged in the service and installation of energy saving equipments in residential and commercial buildings in major cities in the PRC.





Tianjin Huaneng provides waste heat recovery and energy saving solutions for industrial customers. The Company manufactures heating products such as heating pipes, heat exchangers, specialty heating pipes and tubes, high temperature hot blast boilers, heating filters, normal pressure water boilers, solar energy water heaters and radiators.


Approximately 26% of our net revenue for the year ended December 31, 2010 was derived from sales of our solar heater/Biomass stove, 73% from sales of our Building integrated energy projects Industrial waste heat recovery/energy-saving projects, and 1% from sales of our Building integrated energy projects, respectively. Approximately 94.5% and 5.5% of our net revenues for the year ended December 31, 2010, were derived from sales made in domestic the PRC and overseas the PRC, respectively.


18




Recent Developments




There are no material events taken recently.





RESULTS OF OPERATIONS





Results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009





Sales Revenue





2010


2009Solar heater/Biomass stove/Boiler related products

$
7,293,052


$
5,561,891Heat pipe related equipments/Energy-saving projects


21,128,569



20,486,387Building integrated energy-saving projects


121,204



267,393$
28,524,825


$
26,315,671




Overall: Sales revenue for 2010 was $28,524,825 as compared to $26,315,671 for 2009, an increase of $2,209,154 or 8.4% compared to 2009. It is mainly for the increasing market demand in solar heater and biomass stove products.
  Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for 2010 was $7,293,052 as compared to $5,561,891 for 2009, an increase of $1,731,161 or 31.1%. The increase in sales revenue derives mainly  from the recovery of solar heater/biomass stove/boiler market and the increase of raw materials’ price which leads to higher selling price of products related.


Heat pipe related equipments/Energy-savings projects: Sales revenue for 2010 was $21,128,569 compared to $20,486,387 for 2009, an increase of $642,128 or 3.1%.


Cost of revenue





2010


2009Solar heater/Biomass stove/Boiler related products

$
5,767,334


$
4,292,012Heat pipe related equipments/Energy-saving projects


15,943,618



14,416,564Building integrated energy-saving projects


177,434



154,376$
21,888,386


$
18,862,952





Overall: Cost of revenue for 2010 was $21,888,386 as compared to $18,862,952 for 2009, an increase of $3,025,434 or 16.0% compared to 2009.


Solar heater/Biomass stove/Boiler related products: Cost of revenue for these products for 2010 was $5,767,334 as compared to $4,292,012 for 2009, an increase of $1,475,322 or 34.4%. The increase in the cost of revenue was primarily contributable to the increase of revenues from solar heater/biomass stove/boiler related products.




Heat pipe related equipments/Energy-savings projects: Cost of revenue for 2010 was $15,943,618 compared to $14,416,564 for 2009, an increase of $1,527,054 or 10.6%. The increase in cost of revenue of heat pipe related equipments/energy-saving projects was primarily due to the increase of sales of those products.





Gross Profit




Gross profit

2010


2009Solar heater/Biomass stove/Boiler related products

$
1,525,718


$
1,269,879Heat pipe related equipments/Energy-saving projects


5,184,951



6,069,823Building integrated energy-saving projects


(56,230
)


113,017$
6,654,439


$
7,452,719




19





Overall: Gross profit margin for 2010 was $6,654,439 as compared to $7,452,719 for 2009, an decrease of $798,280 or 10.7% compared to 2009. The decrease in gross profit margin derived from Heat pipe related equipments/Energy-savings projects and Building integrated energy-saving projects.


Solar heater/Biomass stove/Boiler related products: Gross profit margin for these products for 2010 was $1,525,718 as compared to $1,269,879 for 2009, a increase of $255,839 or 20.1%. The increase in Gross profit derived from part of the recovery in solar heater/biomass stove/boiler’s market. However we expect there is still fierce competition in the market in the future.




Heat pipe related equipments/Energy-savings projects:  The gross profit of heat pipe related equipments/ Energy-savings projects in 2010 was 5,184,951 compared to $6,069,823 for 2009, a decrease of $884,872 or 14.6%. The decrease in the gross profit was primarily contributable to the higher costs of revenues.
 
 Operating Expenses





Operating expenses for 2010 were $5,629,720 as compared to $6,626,691 for 2009, a decrease of $996,971 or 15.0%. The overall decrease in operating expenses was primarily due to control all kinds of expenses and decrease in reserve for bad debts in 2010.


Depreciation and amortization included in operating expense increased to $502,177 for 2010 from $383,531 for 2009, primarily for the rent of Deli Solar (Beijing) office expired ahead of previously contracted date. Therefore, the residual value of the rent office was completely transferred to the amounts of depreciation and amortization. the previous rent office expired in Deli Solar (Beijing), residual decoration fees of previous office transferred into depreciation and amortization.
 
 Selling and distribution expense increased to $3,151,482, for 2010 or 30.8%, from $2,410,181 for 2009, primarily due to the increase in sales, which led to increase in advertising expense, transport costs and travelling expense.
 
 General and administrative expenses were $1,976,061 (or approximately 6.9% of sales revenue) for 2010, compared to $3,832,979 (or approximately 14.6% of sales revenue) for 2009, primarily due to the reduction of our daily administrative expense, include salary, public fair fee etc. and reduction of bad debt expense in 2010.


Net Income





Net income was $403,818 for 2010, compared to $1,074,345 of net income for 2009, a decrease of $670,527. The decrease in net income was due to primarily reduce in gross profit and other income.





LIQUIDITY AND CAPITAL RESOURCES


Net cash used in operating activities was $951,645 in 2010, while net cash provided by our operating activities was $975,372 for 2009. This was due to an increase in accounts receivable and inventories.
 
 Net cash used in investing activities was $242,136 for 2010, compared with net cash provided by investing activities in the amount of $2,143,883 for 2009, primarily due to the proceeds received from disposal of a subsidiary in 2009.
  Net cash provided by financing activities was $1,247,133 for 2010, compared with $51,240 for 2009. The increase of $1,195,893 was due to the proceeds from bank loan and loan from employees.





20





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





Cash





Cash and cash equivalents increased to $5,048,133 as of December 31, 2010, compared to $4,980,717 as of December 31, 2009. Not significant change have made between in 2010 comparing to 2009.





Accounts Receivable





Accounts receivable increased to $10,011,187 as at December 31, 2010, from $8,067,944 as of December 31, 2009, primarily due to an increase in accounts receivable in connection with an increase of sales under Tianjin Huaneng.





Inventory





Inventories increased to $7,808,225 as of December 31, 2010, as compared to $4,547,170 as at December 31, 2009. This substantial increase was primarily due to an increase in connection with an increase of sales under Tianjin Huaneng.





Other Receivables and Prepayments





Other receivables and prepayments increased to $2,366,870 as at December 31, 2010, compared to $1,733,695 as at 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 7A. QUALITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not Applicable.





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED FINANCIAL STATEMENTS


Index to consolidated financial statements





Report of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets

F-2Consolidated Statements of Operations

F-3Consolidated Statements of Stockholders' Equity

F-4Consolidated Statements of Cash Flows

F-5Consolidated Statements of Comprehensive Income

F-6Notes to Consolidated Financial Statements

F-7 to F-27


21




Paritz & Company, P.A.
15 Warren Street, Suite 25

Hackensack, New Jersey 07601

(201)342-7753

Fax: (201) 342-7598

E-Mail: paritz @paritz.comCertified Public Accountants





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Stockholders and Board of Directors


China Solar & Clean Energy Solutions, Inc.





We have audited the accompanying consolidated balance sheets of China Solar & Clean Energy Solutions, Inc as of December 31, 2010 and 2009 and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Solar & Clean Energy Solutions, Inc as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.





/s/ Paritz & Company, P.A.




Hackensack, New Jersey


April 14, 2011




F-1


CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.CONSOLIDATED BALANCE SHEETS
  As of December 31,2010


2009ASSETSCurrent assets:Cash and cash equivalents

$
5,048,133


$
4,980,717Accounts receivable, net


10,011,187



8,067,944Inventories


7,808,225



4,547,170Other receivables and prepayments


2,366,870



1,733,695Deferred tax assets


745,512



588,016Total current assets


25,979,927



19,917,542Property and equipment, net


13,706,953



13,775,554Goodwill


2,026,468



1,967,153Land use rights,net


1,599,243



1,592,140Investment in Trueframe International Limited


4,339,070



3,812,806TOTAL ASSETS

$
47,651,661


$
41,065,195LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Short-term loan - bank

$
754,979


$
-Accounts payable


3,004,454



1,601,002Customer deposit payable


7,254,392



4,488,561Taxes payable


863,280



1,278,974Other payables and accrued liabilities


4,547,531



4,316,908Employee loan


1,945,823



1,266,747Current portion of long-term liabilities


1,236,354



1,171,709Total current liabilities


19,606,813



14,123,901Long-term liabilities


-



156,410Stockholders’ equityConvertible preferred stock: par value $0.001, 25,000,000 shares authorized, 0 shares issued and outstanding


-



-Common stock, $0.001 par value, 66,666,667 shares authorized, 15,233,652 shares issued and outstanding at December 31, 2010 and 2009


15,233



15,233Additional paid-in capital


22,611,909



22,611,909Accumulated other comprehensive income


1,485,064



693,016Retained earnings


3,504,112



3,100,294Total stockholders’ equity-China Solar


27,616,318



26,420,452Non-controlling interest in subsidiary


428,530



364,432Total Stockholder’s Equity


28,044,848



26,784,884TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
47,651,661


$
41,065,195
 See accompanying notes to financial statements
 F-2
  CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS
  Years ended December 31,2010


2009Revenue

$
28,542,825


$
26,315,671Cost of revenue


21,888,386



18,862,952Gross profit


6,654,439



7,452,719Operating expensesDepreciation and amortization


502,177



383,531Selling and distribution


3,151,482



2,410,181General and administrative


1,976,061



3,832,979Total operating expenses


5,629,720



6,626,691Income from operations


1,024,719



826,028Other income (expenses):Other income (expenses)


(45,603
)


717,750Interest expense, net of interest income


(385,287
)


(214,269
)Equity in earnings of non-consolidated subsidiary


33,855



-Total other  income (expenses)


(397,035
)


503,481Income From Continuing Operations Before Income Taxes


627,684



1,329,509Income tax expense


157,847



266,168Income From Continuing Operations


469,837



1,063,341Loss From Discontinued Operations(net of tax)


-



(512,390
)Gain on disposal of discontinued operation (net of tax)


-



652,753Net Income


469,837



1,203,704Less: Net income attributable to non-controlling interests


66,019



129,359Net income attributable to the Company

$
403,818


$
1,074,345Earnings (losses) per common share - Basic and DilutedContinuing operations

$
0.03


$
0.07Discontinued operations

$
-


$
(0.04
)Gain on sale of discountinued operation

$
-


$
0.050.03



0.08Weighted average common shares outstanding - Basic and Diluted


15,233,652



15,815,125
 See accompanying notes to financial statements
 F-3
  CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years ended December 31,2010


2009Cash flows from operating activities:Net income attributable to the Company

$
403,818


$
1,074,345Loss from discontinued operation


-



512,390Income from continuing operations


403,818



1,586,735Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


780,488



722,561Provision for allowance on accounts receivable


-



708,144Provision for inventory writes downs


-



139,854Gain on disposal of discontinued operation


-



(652,753
)Equity in earnings from non-consolidated subsidiary


(33,855
)


-Noncontrolling interest in income of subsidiary


66,019



129,359Deferred tax


(157,496
)


-Changes in operating assets and liabilities:Accounts receivable


(1,692,898
)


(3,331,052
)Inventories


(3,119,958
)


1,811,220Other receivables and prepayments


(819,379
)


431,902Accounts payable


1,353,773



452,574Tax payable


(455,380
)


(126,083
)Other payables and accrued liabilities


2,723,223



(218,021
)Net cash provided by (used in) operating activities


(951,645
)


1,654,440Net cash used in discontinued operation


-



(679,068
)Net cash provided by (used in) operating activities


(951,645
)


975,372Cash flows from investing activities:Proceeds from disposal of subsidiary


-



2,758,277Payment for acquisition of a subsidiary


-



(130,298
)Purchase of property and equipment


(242,136
)


(484,096
)Net cash provided by (used in) investing activities


(242,136
)


2,143,883Cash flows from financing activities:Proceeds from short-term bank loan


754,979



-Proceeds from employee loans


639,769



-Contribution from (distribution to) non-controlling interest


(147,615
)


51,240Net cash provided by financing activities


1,247,133



51,240Effect of exchange rate on cash and cash equivalents


14,064



(10,660
)Increase in cash and cash equivalents


67,416



3,159,835Cash and cash equivalents, beginning of year


4,980,717



1,820,882Cash and cash equivalents, end of year

$
5,048,133


$
4,980,717Supplemental disclosure of cash flow information:Cash paid for income taxes

$
660,281


$
381,563Cash paid for interest

$
223,431


$
129,012Supplemental disclosure of non-cash financing activities:Preferred shares converted to common shares


-



373
 See accompanying notes to financial statements
 F-4
  CHINASOLAR & CLEAN ENERGY SOLUTION, INC.CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
  Non-Preferred stock


Common stock


Additional


Other








controlling


TotalNo. of


Par


No. of


Par


Paid-in


Comprehensive


Retained


Earnings


Interest In


Stockholders’shares


value


shares


value


Capital


Income


Earnings


Reserve


Subsidiaries


EquityBalance as of January 1, 2009


373,566


$
373



13,799,450


$
13,799


$
23,073,258


$
1,615,082


$
2,025,949


$
963,106


$
194,542


$
27,886,109Disposal subsidiary


















(460,288
)










(963,106
)






(1,423,394
)Preferred share converted


(373,566
)


(373
)


373,566



373























0Net income


























1,074,345







129,359



1,203,704Foreign currency translation  adjustment






















(922,066
)










2,277



(919,789
)Appropriation of dividends


































(12,986
)


(12,986
)Appropriation of statutory surplus reserves






































0Capital contribution from non-controlling shareholder


































51,240



51,240Cancellation common stock










(939,364
)


(939
)


939



















0Shares released and to be released from escrow










2,000,000



2,000



(2,000
)


















00



0



15,233,652



15,233



22,611,909



693,016



3,100,294



0



364,432



26,784,884Balance as of December 31, 20090Net income


























403,818







66,019



469,837Foreign currency translation adjustment






















792,048











11,308



803,356Distribution to non-controlling interest


































(13,229
)


(13,229
)Balance as of December 31, 2010


0


$
0



15,233,652


$
15,233


$
22,611,909


$
1,485,064


$
3,504,112


$
0


$
428,530


$
28,044,848
 See accompanying notes to financial statements
 F-5
  CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  Years ended December 31,2010


2009Net Income attributable to the Company

$
403,818


$
1,074,345Other comprehensive income (loss)Currency translation adjustment


803,356



(919,789
)Comprehensive income


1,207,174



154,556Less: Comprehensive income attributable to non-controlling interests


11,308



2,277Comprehensive Income Attributable To the Company

$
1,195,866


$
152,279
 See accompanying notes to financial statements
 
 F-6





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.
ORGANIZATION AND BUSINESS BACKGROUND





China Solar & Clean Energy Solutions, Inc. (“China Solar” or ” the Company”), formerly known as Deli Solar (USA) Inc. was incorporated in the State of Nevada on March 21, 1983 as Meditech Pharmaceuticals, Inc. (“Meditech”).





Deli Solar (BVI) was formed in June 2004. On August 1, 2004, Deli Solar (BVI) purchased Bazhou Deli Solar Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a corporation duly organized on August 19, 1997 under the laws of the People’s Republic of China (“PRC”) from Messrs. Deli Du, Xiao’er Du, and Xiaosan Du for RMB 6,800,000. 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.





The result of the above transactions is that Deli Solar (BVI) is now China Solar’s direct, wholly-owned subsidiary and Deli Solar (Bazhou) remains a wholly-owned subsidiary of Deli Solar (BVI).





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





On July 1, 2007, Deli Solar (Beijing) acquired 51% of Tianjin Huaneng Energy Equipment Company (“Tianjin Huaneng”), which manufactures energy saving boilers and environmental protection equipment for industrial customers. On October 27, 2008, Deli Solar (Beijing) purchased an additional 29.97% of the outstanding equity interest of Tianjin Huaneng from the minority shareholders of Tianjin Huaneng. Following this transaction, the Company increased the registered capital of Tianjin Huaneng from RMB5.94 million to RMB21.68 million by contributing an additional RMB15,740,000 ($2,295,531). As a result, the Company’s equity interest in Tianjin Huaneng increased to approximately 91.82%.





On April 1, 2008, 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 "SZPSP Shareholders"), terminated the equity purchase and complementary agreements (collectively, the "Equity Purchase and Complementary Agreements") entered into with the SZPSP Shareholders on January 9, 2009 and supplemented on March 25, 2008.


F-7





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis of presentation





These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).





Basis of consolidation





The consolidated financial statements include the financial statements of China Solar, Deli Solar (BVI), Deli Solar (Bazhou), Ailiyang, Deli Solar (Beijing), Tianjin Huaneng and Tianjin Huasheng. All significant intercompany balances and transactions have been eliminated upon consolidation.





Use of estimates





The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities issued in share based payment arrangements, determining the fair value of our common stock, the collectability of accounts receivable and deferred taxes and related valuation allowances. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.





Cash and cash equivalents





The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents.  Cash and cash equivalents kept with financial institutions in People’s Republic of China (“PRC”) are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit on that institution.





Accounts receivable and allowance for doubtful accounts





Accounts receivable consists of amounts due from customers. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on management’s assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment.





Inventories





Inventories include direct materials, labor and factory overhead and are stated at lower of cost or market value, cost being determined on a first-in, first-out basis. The Company periodically reviews historical sales activity to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories. As of December 31, 2010, and 2009, the Company recorded $0 and $139,854 in inventory writes downs, respectively.


F-8





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Property, plant and equipment





Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values. Property, plant and equipment are depreciated over their estimated useful lives as follows:




Depreciable lifeBuildings

6-50 yearsPlant and machinery

10 yearsOffice equipments

7 yearsMotor vehicles

7 yearsComputer equipment

3 years





Goodwill and intangible assets





We account for business combinations in accordance with current authoritative guidance, which requires that the acquisition method of accounting be used for all business combinations. It requires intangible assets acquired in a business combination to be recognized and reported separately from goodwill.





Furthermore, it requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. No impairment of intangibles has been identified since the date of acquisition.





Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. The company generally seeks the assistance of independent valuation experts in determining the fair value of the identifiable tangible and intangible net assets of the acquired business.





We test goodwill for impairment on an annual basis. In this process, we rely on a number of factors including operating results, business plans and future cash flows. Recoverability of goodwill is evaluated using a two-step process. The first step involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the fair value and carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. Goodwill of a reporting unit will be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.





We evaluate intangible assets for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. In the opinion of management, there was no impairment for the year ended December 21, 2010 and 2009.





Land use rights





All lands in the PRC are owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and are stated at amortized cost. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is 50 years and they will expire in 2043, 2046 and 2054.





Impairment of long-lived assets





Long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. In the opinion of management, there has been no impairment as of December 31, 2010 and 2009.





Investments





The Company accounts for non-marketable investments using the equity method of accounting if the investment gives us the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if the Company has an ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions. The Company records its share of the investee’s earnings or losses in earnings (losses) from unconsolidated entities, net of income taxes in the accompanying consolidated statements of operations. The Company evaluates it equity method investment for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such investment may have experienced other than temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary value, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment. In the opinion of management, there was no impairment for the year ended December 31, 2010 and 2009.


F-9





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Revenue recognition





The Company’s sales include furnishing equipment to end users, installing and testing the equipment and providing maintenance.  Revenue is recognized after testing and acceptance by the customer if a formal relationship exists, the price is fixed or determinable, no other significant obligations of the Company exists and collectability is reasonably assured.


The Company provides equipment purchasers with a maintenance warranty ranging from one year to eighteen months. The Company accrues expected warranty costs at the time the related sales revenue is recognized. Warranty reserves have been established by charging cost of sales and recording a warranty provision. The reserves are estimated by management to be adequate to cover expected warranty related costs under unexpired warranty periods.





Revenue from the provision of energy-saving projects are recognized when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.





The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.





Advertising expense





Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2010 and 2009 were $252,998 and $497,117 respectively.





Comprehensive income





Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying statement of changes in owners’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.


F-10





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Deferred income taxes





We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.





ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.





Net income per share





Basic net income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.





Foreign currency translation





The financial records of the Company’s operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates, and income and expenses items are translated using the average rate for the period. The translation adjustments are recorded in accumulated other comprehensive income in the statements of changes in stockholders’ equity and comprehensive income. Realized foreign exchange gains and losses are recognized in the period on which they occur.





Stock-Based Compensation





We recognize compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.


F-11





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Product Warranty





The Company provides a three-year standard warranty to all Deli Solar (Bazhou) manufactured products. Repair and replacement of defective component parts during the first year following purchase are covered under the standard warranty program. In the second and third year, repair services are covered under the warranty program but customers pay for the purchase of the replacement parts. Warranty services are performed by our independent sales agents and distributors in return for a 1%-2% discount of the purchase price they pay for our products. No discount is provided to independent sales agents and distributors unless and until warranty services are provided to the Company. The Company has not experienced any material returns and therefore has not provided any discount to independent sales agents and distributors for warranty services.





Segment reporting





The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in three principal reportable segments: Sales of solar heater or boiler related products, heat pipe related products, integrated energy-saving projects.





Fair value of financial instruments





We have adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.





The estimated fair  value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates fair values because of the short-term maturing of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates which are comparable to rates of returns for instruments of similar credit risk and because of the short term maturity of these instruments.





ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  ASC 820 describes three levels of inputs that may be used to measure fair value:





Level 1 – quoted prices in active markets for identical assets or liabilities.


Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable


Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)


F-12





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Uncertain tax positions





Accounting guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognizing of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.





The Company and its subsidiaries files income tax returns in the U.S. federal jurisdiction and foreign jurisdictions, principally the PRC. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to the reverse merger on March 31, 2005. The Internal Revenue Service (IRS) has not commenced any examinations of the Company's U.S. income tax returns for the year 2005, of which reverse merger taking place, through 2008.





The Company did not have any adjustment to the opening balance of retained earnings as of January 1, 2008 as a result of the implementation of any uncertain tax position.





3.
RECENTLY ISSUED ACCOUNTING STANDARDS





In January 2010, the FASB issued ASU No. 2010-02—Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This update amends Subtopic 810-10 and related guidance to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; and (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity, but does not apply to: (i) sales of in substance real estate; and (ii) conveyances of oil and gas mineral rights. The amendments in this update are effective beginning in the period that an entity adopts Subtopic 810-10. The adoption of the provisions in ASU 2010-02 did not have an impact on the Company’s consolidated financial statements.





Effective January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements,” which requires new disclosures related to transfers in and out of levels 1 and 2 and activity in level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. Except for the expanded disclosure requirement the adoption of the provisions in ASU 2010-06 did not have an impact on the Company’s consolidated financial statements.





In February 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the disclosure requirements related to Subsequent Events (Topic 855). This guidance includes the definition of a Securities and Exchange Commission filer, removes the definition of a public entity, redefines the reissuance disclosure requirements and allows public companies to omit the disclosure of the date through which subsequent events have been evaluated. This guidance is effective for financial statements issued for interim and annual periods ending after February 2010. This guidance did not materially impact the Company’s results of operations or financial position, but did require changes to the Company’s disclosures in its financial statements.





Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.


F-13





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





4.
INVESTMENT IN TRUEFRAME INTERNATIONAL, INC.





During the year ended December 31, 2008 and 2009, we loaned Shenzhen Fuwaysun Technology Co., Ltd. (“Fuwaysun”) approximately $4,000,000 under two loan agreements. In October 23, 2009, our wholly owned subsidiary, Bazhou Deli Solar energy Heating Co. Ltd. (“Bazhou”), entered into an agreement with Trueframe International Co. Ltd. (“Trueframe”), the 55.78% indirect owner of Fuwaysun to acquire 28% of outstanding stock of Trueframe in exchange for the loans of approximately $4,000,000. Trueframe is a BVI company who owns 32,550,000 outstanding shares, or approximately 55.78% of AgriSolar Solutions, Inc. (“AgriSolar”). Agrisolar owns 100% of Fuwaysun through other wholly owned subsidiary.




F-14





On January 8, 2010, Fuwaysun entered into a Share Exchange Agreement with AgriSolar Solutions, Inc., a Colorado corporation (“Agrisolar”). Pursuant to the terms of the Exchange Agreement, the Agrisolar agreed to acquire all of the issued and outstanding shares of common stock in Fuwaysun, in exchange for the issuance of an aggregate of up to 58,055,000 shares of the Agrisolar’s common stock to the shareholders of Fuwaysun, thereby causing Fuwaysun and its wholly-owned subsidiaries, Fuwaysun Technology (HK) Limited, a Hong Kong corporation (“FTHK”), Forboss Solar (ShenZhen) Co, Ltd, a PRC corporation (“Forboss”), and Shenzhen Fuwaysun Technology Company Limited, a PRC corporation (“Fuwaysun”) to become wholly-owned subsidiaries of the Agrisolar (the “Share Exchange”). As a result of the Share Exchange, Trueframe International Limited is the owner of 32,550,000 shares, or approximately 55.78% of Agrisolar issued and outstanding common stock. In October, 2009, the loans, exclusive of RMB 1,000,000 (approximately $146,451) were converted into 28% of the outstanding equity of Trueframe international limited (“Trueframe”). Trueframe is a holding company that owns 55.78 % of Fuwaysun. The remaining RMB 1,000,000 is due when Fuwaysun receives adequate funding. Thus, Deli Solar (BVI) owns indirectly 15.62% of the outstanding common stock of AgriSolar Solutions, Inc.





The investment in Trueframe has been accounted for under the equity method.





Summarized financial information of Trueframe as of December 31, 2010 and for the year then ended assuming a 100% ownership interest is as follows:





BALANCE SHEETCurrent assets


4,969,709Non-current assets


755,198Current liabilities


3,229,152Non-current liabilities


-Stockholders' equity


2,495,755STATEMENT OF OPERATIONSRevenue


5,296,347Gross profit


1,828,345Income before income tax


189,081Net income


120,909





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”





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 included as discontinued operations in the accompanying financial statements from the date of acquisition to the date of disposition.





As summary of the operations of SZPSP for the year ended December 31, 2009 is follows:





Revenues

$
1,024,103Loss before provision for income taxes from discontinued operations


(501,120
)Income tax provision


11,270Loss from discontinued operation

$
(512,390
)


F-15





6.
ACCOUNTS RECEIVABLE, NET





Accounts receivable, net consists of the following:




As of December 31,2010


2009Accounts receivable, cost

$
11,341,103


$
9,621,122Less: allowance for doubtful accounts


1,329,916



1,553,178$
10,011,187


$
8,067,944





For the year ended December 31, 2010 and 2009, the company recorded bad debt expense of $0 and $1,129,533, respectively.





Summary of changes in allowance for doubtful accounts is as follows:





Year ended December 31,2010


2009Beginning balance

$
1,553,178


$
845,034Write-off during the year


(223,262
)


(184,485
)Additional allowance


-



892,629Ending balance

$
1,329,916


$
1,553,178


F-16





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





7.
INVENTORIES





Inventories consisted of the following:





As of December 31,2010


2009Raw materials

$
1,992,316


$
1,186,188Consumables


17,804



16,358Work-in-process


867,726



57,357Finished goods


4,930,379



3,287,267$
7,808,225


$
4,547,170





8.
OTHER RECEIVABLES AND PREPAYMENTS





Other receivables and prepayments consisted of the following:





As of December 31,2010


2009Advance to suppliers

$
867,018


$
555,781Other receivables


1,499,852



1,177,914$
2,366,870


$
1,733,695





9.
PROPERTY, PLANT AND EQUIPMENT, NET





Property, plant and equipment, net, consisted of the following:





As of December 31,2010


2009Buildings

$
14,108,011


$
13,662,321Plant and machinery


2,036,688



1,913,019Office equipments


53,887



49,404Motor vehicles


624,612



507,579Electronic equipment


389,294



350,45117,212,492



16,482,774Less: accumulated depreciation


(3,505,539
)


(2,707,220
)Property, plant and equipment, net

$
13,706,953


$
13,775,554


F-17





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





10.
LAND USE RIGHTS





Intangible assets consisted of the following:





As of December 31,2010


2009Land use rights, at cost

$
1,812,756


$
1,758,200Less: accumulated amortization


213,513



166,060Land use rights, net

$
1,599,243


$
1,592,140





Amortization expense for the years ended December 31, 2010 and 2009 was $42,300 and $55,164, respectively.





11.
OTHER PAYABLES AND ACCRUED LIABILITIES





Other payables and accrued liabilities consisted of the following:





As of December 31,2010


2009Salary payable

$
637,996


$
521,951Accrued expenses and interest payable


294,009



226,430Other payables


2,577,525



2,551,978Warranty provision


1,038,001



1,016,549$
4,547,531


$
4,316,908





12.
LONG-TERM LIABILITIES





As of December 31,2010


2009Loan payable relating to acquisition of Tianjin Huaneng

$
1,236,354


$
1,328,119Less: current portion


1,236,354



1,171,709$
-


$
156,410





The balance of long-term liability represents the installment payments of acquisition the minority interest of Tianjin which is non-interest bearing and due on demand.





13.
LOAN PAYABLE EMPLOYEE





Loan payable – employee consist of loans from employees of TianJin HuaNeng which bear interest rate at 12% per year and have no fixed maturity date.





14.
SHORT-TERM LOAN - BANK





Short-term loan payable to a bank bears interest at 5.31% per annum and is due in March 1, 2011. This loan was renewed in April 2011 with 6.31% interest rate and the new loan is due in April 5, 2012.


F-18





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





15.
STOCK HOLDERS’ 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, 2010, no additional shares of common stock were issued. The outstanding common stock of CSOL remains 15,233,652.





Common Stocks Held in Escrow





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


F-19





Warrants





A summary of the status of the Company’s outstanding common stock warrants as of December 31, 2010:





Number of

Shares


Weighted-

average

Exercise Price

Weighted-

average

Remaining

Contractual

TermOutstanding and Exercisable at January 1, 2009


7,091,682


$
2.76

3.53 yearsGranted


-



-Exercised


-



-



-Forfeited


469,150



-



-Expired


-



-



-Outstanding and Exercisable at December 31, 2009


6,622,532


$
2.48

2.25 yearsGranted


-



-



-Exercised


-



-



-Forfeited


-



-



-Expired


-



-



-Outstanding and Exercisable at December 31, 2010


6,622,532


$
2.48

1.25 years





Registration Rights Agreement





In connection with the private placement, the Company entered into a registration rights agreement with the investors on February 25, 2008 which requires us to file with the SEC a “resale” registration statement providing for the resale of (i) all of the 4,691,499 shares of common stock sold to the investors, (ii) the 2,000,000 “make good shares” and (iii) the 469,150 shares underlying the placement agent warrants (collectively, the “registrable securities”) for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act of 1933, as amended.





The Company agreed, among other things, to prepare and file an initial registration statement within 45 days of the closing date (i.e. April 14, 2008) to register for resale part of the registrable securities (other than the 2,000,000 make good shares and the 469,150 shares underlying the placement agent warrants) and to cause that registration statement to be declared effective by July 28, 2008.





The Company is required to file additional registration statements covering all of the remaining registrable securities (or such lesser number as the SEC deems appropriate) if any registrable securities could not be registered in the initial registration statement, by the 15th day following the date on which we are able to effect the registration of such securities in accordance with any SEC restrictions.





The Company’s failure to meet this schedule and other timetables provided in the registration rights agreement could result in the imposition of liquidated damages. No liquidated damages will accrue in respect of any registrable securities which the SEC has requested (due to the application of Rule 415) the Company to remove from the registration statement and the required effectiveness date for such registrable securities will be tolled until such time as the Company is able to effect the registration of those securities in accordance with any SEC restrictions.





On July 28, 2008, the Company incurred liquidated damages equal to $112,596 which represents 1% of $11,259,587 (the aggregate of investment amount by the investors) due to the fact that the Company failed to have the registration statement declared effective on or prior to that date. The agreement called for the liquidated damages to continue to accrue with respect to all investors at the monthly rate of 1% and pro rated for partial months. The registration statement did not go effective until December 17, 2008. Accordingly, as of December 17, 2008, the Company had incurred $523,026 in liquidated damages for failing to have the registration statement declared effective by July 28, 2008. Due to the fact that the resale restriction period removed in 6 months from the purchase of shares and this overlaps the penalty period, it has been determined that the penalty period of damages ended after one month, since the investors’ damage ceased after the resale restriction had been removed, and were subsequently determined to aggregate the original $112,596. Accordingly the company reversed the overaccrued amount of approximately $410,000 during the year ended December 31, 2009 which amount is classified as other income in the accompanying consolidated statement of operations.


F-20





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





16.
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 its net income from the operation of its subsidiary in the PRC and subject to the PRC tax jurisdiction.





United States of America





China Solar was incorporated in the State of Nevada and is subject to the tax laws of United States of America. As of December 31, 2010, the operation in the United States of America had $ 760,609.51 of net operating profit available for federal tax purposes, which are available to offset prior taxable loss.





British Virgin Island





Under the current BVI law, the Company is not subject to tax on income.





The PRC





On March 16, 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”). The New CIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises with effect from January 1, 2008.





On November 4, 2008, Tianjin Huaneng was classified as an Advanced Technology Enterprise in the PRC, and then the CIT is reduced to 15% for the years of 2008, 2009 and 2010.




F-21





Years ended December 31,The comparison of income tax expense at the U.S. statutory rate of 35% in 2010 and 2009 to

2010


2009the Company's effective tax rate is as follows:U.S. Statutory rate


222,684



465,328Tax rate difference between China and U.S.


(132,371
)


(100,734
)Change in valuation allowance


115,431



(349,993
)Permanent differences


(47,897
)


251,567Effective tax rate


157,847



266,168The provision for income taxes are summarized as follows:Current


315,343



344,059Deferred


(157,496
)


(77,891
)Total


157,847



266,168  As of December 31,The tax effects of temporary differences that give rise to the Company's net deferred tax asset


2010



2009as of December 31, 2010 are as follows:Deferred tax assetsReserves


393,747



413,886Accrued expenses


251,489



174,130Revenue recognition


87,729



-Depreciation and amortization


12,547



-Net loss carry forward


275,563



160,132Gross deferred tax assets


1,021,075



748,148Valuation allowance


(275,563
)


(160,132
)Total deferred tax assets


745,512



588,016




F-22





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





17.
NET INCOME PER SHARE





Basic net income per share is computed using the weighted average number of the ordinary shares outstanding during the year. Diluted net income per share is computed using the weighted average number of ordinary shares and ordinary share equivalents outstanding during the year less number of warrants issued during the year in note 10.





The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2010 and 2009:





2010


2009Basic and diluted net income per share calculationNumerator:Net income from continuing operations

$
403,818


$
933,982Net (loss) income from discontinued operation


-



(512,390
)Gain on sales of discontinued operation


-



652,753$
403,818



1,074,345Denominator: - Weighted average ordinary shares outstanding


15,233,652



15,815,125





For the year ended December 31, 2010 and 2009, warrants have been excluded from the diluted earnings per share calculation as they are anti dilutive.


F-23





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





18.
SEGMENT REPORTING, GEOGRAPHICAL INFORMATION





(a)
Business information





The Company has three reportable segments namely Solar Heater/Biomass Stove/Boiler related products, Heat pipe related products, Building integrated energy-saving projects for the years ended December 31, 2010 and 2009.





An analysis of the Company’s revenue and total assets are as follows:




Years ended of December,312010


2009Revenue:Solar Heater/Biomass Stove/Boiler related products andother

$
7,293,052


$
5,561,891Heat Pipe related products


21,128,569



20,486,387Building integrated energy-saving projects


121,204



267,393$
28,542,825


$
26,315,671




Years ended of December,312010


2009Gross profit:Solar Heater/Biomass Stove/Boiler related products

$
1,525,718


$
1,269,879Heat Pipe related products


5,184,951



6,069,823Building integrated energy-saving projects


(56,230
)


113,017$
6,654,439


$
7,452,719




As of December,312010


2009Total assets:Solar Heater/Biomass Stove/Boiler related products

$
20,640,186


$
17,075,566Heat Pipe related products


22,744,744



17,210,210Building integrated energy-saving projects


1,524,390



1,774,920Administration


2,742,341



5,004,499$
47,651,661


$
41,065,195Total goodwill:Solar Heater/Biomass Stove/Boiler related products

$
-


$
-Heat Pipe related products


2,026,468



1,967,153Energy-saving projects


-$
2,026,468


$
1,967,153


F-24





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(b)
Geographic information





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





The Company’s operations are located in PRC, which is the main geographical area. The Company’s revenue, gross profit from continuing operation and total assets by geographical market are analyzed as follows:


Year ended of December,312010


2009Revenue:PRC

$
26,971,010


$
25,840,921Others


1,571,815



474,750$
28,542,825


$
26,315,671




Year ended of December,312010


2009Gross profit:PRC

$
6,268,715


$
7,127,693Others


385,724



325,026$
6,654,439


$
7,452,719




As of December,312010


2009Total assets:PRC

$
47,629,861


$
37,720,553Others


21,800



3,344,642$
47,651,661


$
41,065,195


F-25





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





19.
CONCENTRATION OF RISK





(a)
Major customer





Approximately 0% and 13% of the Company’s sales were to one customer during the year ended December 31,2010 and 2009, respectively. Approximately $0  and $164,426was due from the customer at December 31, 2010 and 2009, respectively.





(b)
Major vendors





Approximately 17% and 30 % of the Company’s purchase were from one vendor during the year ended December 31,2010 and 2009. Approximately $314,209 and $437,756 was owed to the vendor at December 31, 2010 and 2009, respectively.




F-26





CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





20.
COMMITMENTS AND CONTINGENCIES





(a)
Operating lease commitment





The Company leases buildings under non-cancelable operating lease agreements. Based on the current rental lease agreements, the future minimum rental payments required for the coming years are as follows:




Years ending December 31:2011


112,2922012


116,9352013


69,3722014


19,4302015


19,430Years after


137,089Total

$
474,548





For the years ended December 31, 2010 and 2009, rental expenses were $96,464 and$157,325, respectively.





21.
SUBSEQUENT EVENTS





The Company evaluated subsequent events through the date the financial statements were issued.  No reportable or disclosure transactions occurred through that date.




F-27





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





Effective as of July 16, 2009, we dismissed Cordovano and Honeck (“Cordovano”), our independent registered public accounting firm. The decision to change accountants was recommended by our Audit Committee and approved by our Board of Directors.





Cordovano reported on the Company’s consolidated financial statements for the years ending December 31, 2008 and 2007 and reviewed the Company’s consolidated financial statements for the period ending March 31, 2009. For these periods and up to July 16, 2009, there were no disagreements with Cordovano on any matter of accounting principle or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Cordovano, would have caused it to make reference thereto in its report on the financial statements for such years.





The reports of Cordovano on the financial statements of the Company for the fiscal years ended December 31, 2009 and 2007 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the Company's two most recent fiscal years and subsequent interim period through the date of termination, there were no reportable events as the term is described in Item 304(a)(1)(v) of Regulation S-K.





On July 20, 2009, we appointed Paritz & Company, P.A. (“Paritz”) as its new independent registered public accounting firm for the fiscal year ending December 31, 2009 and Paritz still our independent registered public accounting firm for the fiscal year ending December 31, 2010.During the Company’s two most recent fiscal years and any subsequent interim period prior to the engagement of Paritz, neither the Company nor anyone on the Company’s behalf consulted with Paritz regarding either (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or (ii) any matter that was either the subject of a “disagreement” or a “reportable event.”





ITEM 9A(T). 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.





Management's Annual Report on Internal Control over Financial Reporting.





The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




22





Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010.  The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of December 31, 2010, the Company’s internal control over financial reporting was effective for the purposes for which it is intended.





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.





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, fourth quarter of the fiscal year ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




23




PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Our executive officers and directors as of the date of this prospectus are as follows:





Name

Position

AgeDeli Du

President, CEO, Director

46Yang Mu(1)

Chief Financial Officer

35Joseph J. Levinson

Director

34








(1)
Mr. Yang Mu was appointed as our CFO on March 29, 2011.





As of August 5, 2010, our board of directors consisted of four members. We also have an audit committee and a compensation committee. As of August 5, 2010, Messrs. Zhenhang Jia (our independent director from August 7th, 2007 to August 6, 2010, who retired from the position of our directors on August 6, 2010 upon his agreement with us expired on the same day, without any disputes with us), Zhaolin Ding(our independent director from August 7th, 2007 to August 6, 2010, who retired from the position of our directors on August 6, 2010 upon his agreement with us expired on the same day, without any disputes with us), and Joseph J. Levinson served on the audit committee. From August 6, 2010 to December 31, 2010, Mr. Joseph J. Levinson is the sole member in the audit committee. As of August 5, 2010, Messrs. Zhenghang Jia, Zhaolin Ding and Deli Du served on the compensation committee. From August 6, 2010 to December 31, 2010, Mr. Deli Du is the sole member in the compensation committee. The remaining directors will continue to serve in the Board until our next annual meeting or until their successors are duly elected and qualified. The officers serve at the pleasure of the Board.





Under the terms of the securities purchase agreement entered into on June 13, 2007 with the investors in that financing, we were required, from the time period of July 13, 2007 to July 13, 2010, to increase the size of our Board to five or seven and cause the appointment of a majority of the Board of Directors to be “independent directors,” as defined by the rules of the Nasdaq Stock Market. Prior to November 1, 2007 our Board consisted of four members two of whom were “independent.” Under the terms of the securities purchase agreement we are required to pay those investors liquidated damages equal to one percent (1%) per month of the purchase price of the then outstanding shares of Series A Preferred Stock, in cash or in Series A Preferred Stock at the option of the investors, based on the number of days that such obligation is not met beyond certain grace periods. Accordingly, we were delinquent by 110 days in meeting this obligation and we are required to pay the investors a total of $99,000. The Company is negotiating with the investors for a reduction of the amount due, but no agreement has yet been reached.





Effective July 25, 2008 Mr. Joseph J. Levinson was appointed as a director. Mr. Levinson is qualified as an “independent director” as defined by the rules of the Nasdaq Stock Market and as a result of his appointment we continue to have a majority of “independent directors,” as three of our directors, namely Messrs. Ding, Jia and Levinson, are “independent directors” pursuant to NASDAQ Marketplace Rule 5605(a)(2).





In addition, under the terms of the securities purchase agreement, we were required, from July 13, 2007 to July 13, 2010, to appoint (i) an audit committee comprised of at least three directors, all of whom are independent, and a (ii) compensation committee comprised of at least three directors, a majority of whom are independent. From July 25, 2008 our audit committee has consisted of three members, all of whom are independent, namely Messrs. Zhaolin Ding, Zhenghang Jia and Joseph J. Levinson. Our compensation committee consists of three members two of whom are independent, namely Messrs. Ding and Jia. Accordingly, we were delinquent in this obligation until July 25, 2008. However, under the terms of the securities purchase agreement no liquidated damages were required to be paid for this breach during any period for which liquidated damages were payable for failing to have an independent board. Accordingly, damages accrued for breach of this provision from November 1, 2007 through July 25, 2008. As a result we are required to pay investors a total of approximately $176,800.00. The Company is negotiating with the investors for a reduction of the amount due, but no agreement has yet been reached.





Deli Duhas been our President and CEO since March 31, 2005. Mr. Du founded Deli Solar (Bazhou) in 1997 and has been its controlling equity holder, Chairman and CEO during the past six (6) years. Since June 2004, he has also been a director and general manager of Deli Solar (BVI), Mr. Du is standing committee member of China Solar Energy Utilization Association and China Efficiency Boiler Association. He has been awarded China Outstanding Entrepreneur and China Top 10 Reformer in Enterprise Innovative Practices. Mr. Du graduated from EMBA program in Tsinghua University in 2005.




24




Yang Mu, age 35, has an extensive experience in the finance, audit, and mergers and acquisitions industries. From July 2006 to February 2011, he was the chief financial officer and the financial controller of China Sun Bio-Chem Technology Group Company Ltd., a Singapore Listed Company (SINGAPORE: CSBT). From June 2002 to July 2006, Mr. Wu served as a project manager in the Beijing office of New York Global Group, an accounting consultation service company which assists medium-small sized Chinese enterprises getting publicly listed in the U.S.  Mr. Mu has advised and assisted many companies, including China Housing & Landing (NASDAQ: CHLN), and China Natural Gas (NASDAQ: CHNG), etc., to get publicly listed in the U.S.  He was an audit manager in Beijing Zhonglei CPA Co., Ltd. from July 1998 to June 2002, where he participated in the audit for China Petroleum & Chemical Corporation (Sinopec)’s initial public offering project and other significant projects.





Joseph J. Levinsonhas served on our board of directors since July 25, 2008. He has been a United States Certified Public Accountant for more than 14 years. He speaks, reads and writes Chinese fluently and has vast experience in China working with Chinese companies.  He was previously a Manager in the banking practice of the New York office of Deloitte and Touche and was involved in numerous transactions involving complex financial structures. He also previously worked at KPMG in New York and Hong Kong.  In the 1990s, Mr. Levinson served as an executive of Hong Kong Stock Exchange-listed China Strategic Holdings, where his major responsibilities included its subsidiary China Tire, one of the first Mainland Chinese companies to list on the NYSE.  Mr. Levinson graduated summa cum laude from the University at Buffalo in 1994 with a double major in accounting and finance.





Resignation and Retirement





Effective March 29, 2011, Mr. Fangsong Zheng resigned from his position as Chief Financial Officer of the Company and was subsequently appointed to as the Internal Audit Director of the Company. There were no disagreements between Mr. Zheng and the Company on any matter relating to the Company’s operations, policies or practices, which resulted in her resignation as Chief Financial Officer of the Company.





Mr. Fangsong Zheng was appointed as the successor of Ms. Yinan Zhao, our previous Acting Chief Financial Officer who resigned on August 11, 2010. There were no disagreement between Ms. ZHAO and the Company on any matter relating to the Company’s operations, policies or practices, that resulted in her resignation as Acting Chief Financial Officer of the Company.





Effective August 6, 2010, Mr. Zhaolin Ding retired as the independent director upon his agreement with the Company expired on August 6, 2010, without any disputes with us.





Effective August 6, 2010, Mr. Zhenhang Jia retired as the independent director upon his agreement with the Company expired on August 6, 2010, without any disputes with us.





Board of Directors





Our current directors hold office until the annual meeting of stockholders of the Company following the election or until their successors are duly elected and qualified. Officers are appointed by the Board of Directors and serve at its discretion.





Our directors may receive compensation as determined by us from time to time by vote of the Board of Directors. Such compensation might be in the form of stock options. Directors may be reimbursed by us for expenses incurred in attending meetings of the Board of Directors. Vacancies in the Board are filled by majority vote of the remaining directors.




25




Family Relationships





No family relationships exist among our directors, executive officers, or persons nominated or chosen by us to become directors or executive officers.





Involvement in Certain Legal Proceedings





To the best of our knowledge, none of our directors or executive officers have been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.





Code of Ethics





We have has adopted a Code of Ethics applicable to our Chief Executive Officer and Chief Financial Officer. This Code of Ethics is filed with the Annual Report on Form 10-KSB/A for the fiscal year ended December 21, 2006 filed by the company with the SEC on April 11, 2007.





ITEM 11. EXECUTIVE COMPENSATION





Compensation of Executive Officers





The following table reflects the compensation paid to our principal executive officer during each of our fiscal years ending December 31, 2010, 2009 and 2008. None of our other executive officers was paid a salary and bonus of more than $100,000 in 2008, 2009 and 2010 and so none are included in this table.





Non-QualifiedNon-Equity


DeferredName and









Stock


Option


Incentive Plan


Compensation


All OtherPrincipal



Salary


Bonus


Awards


Awards


Compensation


Earnings


Compensation


TotalPosition

Year

($)


($)


($)


($)


($)


($)


($)


($)Deli Du(1)

2010


80,000



—



—



—



—



—



—



80,000President, CEO

2009


80,000



—



—



—



—



—



—



80,000and Director

2008


80,000



—



—



—



—



—



—



80,000Yang Mu(2)

2011


36,702



—



—



—



—



—



—



36,702CFO








—



—



—



—



—



——



—



—



—



—



—





(1)
Commencing March 31, 2005, Mr. Du receives an annual salary of $80,000.


(2)
Commencing March 29, 2011, Mr. Mu receives an annual salary of RMB240,000 (USD $36,702) and the employment agreement between Mr. Mu and the Company is for five (5) years.





Outstanding Equity Awards at 2010 Fiscal Year End





There were no option exercises or options outstanding in 2010.





Employment Agreements





We have written employment agreements with all of our executive officers. The standard employment agreement, in compliance with PRC labor law and regulations, includes the terms of the employment such as the length of the employment, the provision of labor-related insurances, termination notice, the holiday and sick leave and the labor-related benefits.




26




Compensation Discussion and Analysis





Overview of Compensation Program and Philosophy





The Company’s compensation committee currently has three member’s two of whom are independent, namely Messrs. Zhenhang Jia, and Zhaolin Ding. Under the terms of the June 2007 securities purchase agreement with Barron Partners and the other investors, we were required, prior to August 12, 2007 to appoint a compensation committee comprised of at least three directors, a majority of whom are independent directors.





The Compensation Committee’s goal in determining compensation levels is to adequately reward the efforts and achievements of executive officers for the management of the Company. The Company currently has no pension plan, stock option plan, non-equity incentive plan or deferred compensation arrangement. The Company has not used a compensation consultant in any capacity but believes that it executive compensation package is comparable to similar businesses in its location of its operations.





Director Compensation





Our standard arrangement with our directors provides that we pay each director annual compensation in the amount of $20,000 for serving as a director. There are no other elements of compensation paid to our directors but it is expected that in the future, we may create a remuneration and expense reimbursement plan. It is anticipated that such a plan would be primarily based on stock options.





The following table reflects the compensation of directors for our fiscal year ended December 31, 2010:





Name of

Director

Fees

Earned or

Paid in

Cash

($)


Stock

Awards

($)


Option

Awards

($)


Non-Equity

Incentive Plan

Compensation

($)


Change in

PensionValue

and

Nonqualified

Deferred

Compensation

Earnings


All Other

Compensation

($)


Total

($)Zhaolin Ding(1)


13,656



—



—



—



—



—



13,656Deli Du


20,000



—



—



—



—



—



20,000Zhenhang Jia(2)


13,656



—



—



—



—



—



13,656Joseph J. Levinson


20,000



—



—



—



—



—



20,000


(1)
Effective August 6, 2010, Mr. Zhaolin Ding retired as the independent director upon his agreement with the Company expired on August 6, 2010, without any disputes with us.


(2)
Effective August 6, 2010, Mr. Zhenhang Jia retired as the independent director upon his agreement with the Company expired on August 6, 2010, without any disputes with us.










ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The following table sets forth certain information with respect to the beneficial ownership of the voting securities by (i) any person or group with more than 5% of the Company's securities, (ii) each director, (iii) each executive officer and (iv) all executive officers and directors as a group as of the date hereof.




27




Named and Address of Beneficial Owner

Amount and

Nature of

Beneficial

Ownership


Percent

(%) of

Class (1)Deli Du,

President, CEO and director

No. 28, Fengtai Bei Road

Fengtai District, Beijing, PRC 100071


5,186,225



34.0
%Yang Mu

Chief Financial Officer

No. 28, Fengtai Bei Road

Fengtai District, Beijing, PRC 100071


0



0
%Zhaolin Ding, director (2)

No. 28, Fengtai Bei Road

Fengtai District, Beijing, PRC 100071


0



0
%Zhenhang Jia, director (3)

No. 28, Fengtai Bei Road

Fengtai District, Beijing, PRC 100071


0



0
%Joe Levinson, director

No. 28, Fengtai Bei Road

Fengtai District, Beijing, PRC 100071


0



0
%Quercus Trust 1835

NEWPORT BLVD. A109-PMB 467

COSTA MESA CA 92627


2,348,943



15.42
%ARDSLEY ADVISORY PARTNERS

262 HARBOR DRIVE 4TH FLOOR

STAMFORD CT 06902


1,666,500



10.94
%All directors and officers as a group (6 persons)


5,186,225



34
%




28







(1)
As of the date hereof, we had 15,233,652 outstanding shares of common stock. In determining the percent of common stock owned by a stockholder: (a) the numerator is the number of shares of common stock beneficially owned by such stockholder, including shares the beneficial ownership of which may be acquired, within 60 days upon the conversion of convertible securities or the exercise of warrants held by such stockholder, and (b) the denominator is the sum of (i) 15,233,652, the number of shares outstanding on the date hereof, and (ii) the total number of shares underlying the convertible securities and warrants, which such stockholders has the right to acquire within 60 days following the date hereof.


(2)
Effective August 6, 2010, Mr. Zhaolin Ding retired as the independent director upon his agreement with the Company expired on August 6, 2010, without any disputes with us.


(3)
Effective August 6, 2010, Mr. Zhenhang Jia retired as the independent director upon his agreement with the Company expired on August 6, 2010, without any disputes with us.





ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Since January 1, 2009 we have not engaged in any transactions with any related persons which would require disclosure under Item 404 of Regulation S-K.





As of August 5, 2010, three of the four directors are independent directors under the definition of “independent director” pursuant to NASDAQ Marketplace Rule 5605(a) (2). From August 6, 2010 to December 31, 2010, we have total two directors in the Board and one of them is independent director.




ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit Fees





Fees for the fiscal years ended December 31, 2010 and 2009.





Audit Fees. The audit fee of Paritz & Company, P.A is $105,000 for professional services rendered for the audit of our annual financial statements for the fiscal year ended December 31, 2010 and the reviews of the financial statements included in our Quarterly Reports on Form 10-QSB for the periods ended June 30, 2010 and September 30, 2010. The audit fee of Paritz & Company P.A. is $105,000 for professional services rendered for the audit of our annual financial statements for the fiscal year ended December 31, 2009 and for the reviews of the financial statements included in our Quarterly Reports on Form 10-QSB for the periods ended March 31, 2009, June 30, 2009, September 30 and March 31, 2010.





Audit Related Fees





There were no fees for audit related services for the years ended December 31, 2010 and 2009.





Tax Fees





For the Company’s fiscal years ended December 31, 2010 and 2009, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.




29




All Other Fees





The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2010 and 2009.





30





PART IV





ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





a) Documents filed as part of this Annual Report





3. Exhibits





Exhibits

No.

Description of Exhibits3.1

Certificate of Incorporation.(1)3.2-1

Bylaws.(2)3.2-2

Amendment to Bylaws dated October 17, 2005(3)3.2-3

Articles of Merger of Du Solar, Inc. into the Company(10)4.1

Common Stock Specimen(4)4.2

Form of Warrant(1)4.3

Certificate of Designation as filed with the Secretary of State of Nevada on June 12 , 2007(8)4.4

Series A Preferred Stock Specimen(8)4.5

Form of Class A Warrant(8)4.6

Form of Class B Warrant(8)4.7

Form of Placement Agent Warrant(13)5.1

Legal Opinion of DLA Piper Hong Kong re legality of the common stock being registered.10.1

Stock Contribution Agreement, dated March 28, 2005, entered into by and between the Company and Deli Du(5)10.2

Stock Purchase Agreement, dated March 30, 2005, by and among Deli Du, Halter Capital Corporation, and the Company(5)10.3

Form of Unit Purchase Agreement(1)10.4

Form of Engagement Agreement(1)10.5

Form of Lock Up Agreement between the Company and the members of the Financial Advisor Group(1)10.6

Land Purchase Agreement by and between Deli Solar (Bazhou) and Deli Du (English Translation)(4)10.7

Stock Purchase Agreement by and between Deli Solar (Bazhou) and Ailiyang Shareholders(6).10.8

Land Use Rights Purchase Agreement by and between Deli Solar (Bazhou) and the Governance Commission of Beijiahe Village Chaheji County Bazhou City dated March 16, 2006 (English Translation)(7)





31




10.9

Securities Purchase Agreement dated June 13, 2007 by and among the Company, Barron Partners LP and the other investors named therein(8)10.10

Registration Rights Agreement dated June 13, 2007 by and among the Company, Barron Partners LP and the other investors named(8)10.11

Stock Escrow Agreement dated June 13, 2007 by and between the Company and Tri-State Title & Escrow, LLC, as escrow agent(8)10.12

Closing Escrow Agreement dated June 13, 2007 by and between the Company and Barron Partners, L.P., and the other investors named therein and Tri-State Title & Escrow, LLC, as escrow agent(8)10.13

Investor Relations Consulting Agreement dated July 23, 2007 between the Company and Hayden Communications International, Inc.(9)10.14

Securities Purchase Agreement dated as of February 25, 2008 by and among the Company and the investors named therein(10)10.15

Registration Rights Agreement dated as of February 25, 2008 by and among the Company and the investors named therein(10)10.16

Make Good Escrow Agreement dated as of February 25, 2008 by and between the Company, the investors named therein, Roth Capital Partners, LLC and Tri-State Title & Escrow, LLC, as escrow agent,(10)10.17

Escrow Agreement dated as of February 25, 2008 by and between the Company, Roth Capital Partners, LLC and Tri-State Title & Escrow, LLC, as escrow agent(10)10.18

Waiver and Consent dated as of February 25, 2008.(10)10.19

Equity Purchase Agreement, between Deli Solar (Beijing) Technology Development Co. Ltd. and Shenzhen PengSangPu Solar Industrial Products Corporation, dated as of January 9, 2008.(15)10.20

Complementary Agreement to the Equity Purchase Agreement, between Deli Solar (Beijing) Technology Development Co. Ltd. and Shenzhen Peng Sang Pu Solar Industrial Products Corporation, dated as of January 9, 2008.(15)10.21

Supplementary Agreement to the Equity Purchase Agreement, by and among, Deli Solar (Beijing) Technology Development Co. Ltd., Shenzhen PengSangPu Solar Industrial Products Corporation and its shareholders named therein, dated as of March 25, 2008.(16)10.22

Equity Interest Purchase Agreement, between Deli Solar (Beijing) Technology Development Co. Ltd. and Tianjin Huaneng Group Energy Equipment Co., Ltd., dated as of October 27, 2008.(17)10.23

Termination Agreement to the Equity Purchase Agreement, Complementary Agreement and Supplementary Agreement, by and among Deli Solar (Beijing) Technology Co. Ltd. and the SZPSP shareholders, dated July 6, 2009.(18)10.24

Employment Agreement with new CFO Yang Mu, dated March 29, 2011..(19)14

Code of Ethics.(11)21.1

List of subsidiaries.(12)31.1

Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





32




31.2

Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002







(1)
Incorporated herein by reference to the Registration Statement on Form SB-2 filed with the SEC on November 2, 2005.





(2)
Incorporated herein by reference to the Registration Statement on Form S-1 filed with the SEC in August 2003.





(3)
Incorporated herein by reference to the Registration Statement on Form SB-2 filed with the SEC on March 26, 2001.





(4)
Incorporated herein by reference to the Registration Statement Amendment No. 1 on Form SB-2 filed with the SEC on February 6, 2006.





(5)
Incorporated herein by reference to Schedule 13D filed by the Company on April 18, 2005.





(6)
Incorporated herein by reference to the Current Report on Form 8-K filed by the Company on November 28, 2005.





(7)
Incorporated herein by reference to the Registration Statement Amendment No. 2 on Form SB-2 filed with the SEC on May 22, 2006.





(8)
Incorporated herein by reference to the Current Report on Form 8-K filed by the Company on June 19, 2007.





(9)
Incorporated herein by reference to Amendment No. 2 to the Registration Statement on Form SB-2 filed with the SEC on January 1, 2008..





(10)
Incorporated herein by reference to our Current Report on Form 8-K filed by the Company with the SEC on March 3, 2008.





(11)
Incorporated herein by reference to our Annual Report on Form 10-KSB/A for the fiscal year edned December 21, 2006 filed by the company with the SEC on April 11, 2007.




(12)
Incorporated herein by reference to the Annual Report on Form 10-KSB filed by the Company on April 10, 2008.





(13)
Incorporated herein by reference to the Registration Statement on Form S-1 filed by the Company on April 14, 2008.





(14)
Incorporated herein by reference to Amendment No. 1 the Registration Statement on Form S-1 filed by the Company on June 25, 2008.





(15)
Incorporated herein by reference to Amendment No. 3 to the Registration Statement on Form S-1 filed by the Company on August 27, 2008.





(15)
Incorporated herein by reference to the Current Report on Form 8-K filed by the Company with the SEC on January 15, 2008.





(16)
Incorporated herein by reference to the Current Report on Form 8-K filed by the Company with the SEC on April 1, 2008.




(17)
Incorporated herein by reference to the Current Report on Form 8-K filed by the Company with the SEC on October 31, 2008.




33




(18)
Incorporated herein by reference to the Current Report to Amendment No. 1 on Form 8-K filed by the Company with the SEC on July 15, 2009.




(19)
Incorporated herein by reference to the Current Report on Form 8-K filed by the Company with the SEC on March 29, 2011.




34




SIGNATURES





In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





CHINA SOLAR & CLEAN ENERGY

SOLUTIONS, INC.Date: April 15, 2011
By:
/s/ Deli DuDeli DuChief Executive Officer, President and Director(Principal Executive Officer)





In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Name and Title

Date/s/ Deli Du

April 15, 2011Deli Du,Chief Executive Officer, President and Director(Principal Executive Officer)/s/ Yang Mu

April 15, 2011Yang MuChief Financial Officer(Principal Financial and Accounting Officer)/s/ Joseph J. Levinson

April 15, 2011Joseph J. LevinsonDirector
  35