UNIVERSAL SOLAR TECHNOLOGY, INC. - Quarter Report: 2009 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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QUARTERLY
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
for
the quarterly period ended June 30, 2009
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
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for the transition period from
__________ to
__________
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Commission
file number: 333-150768
UNIVERSAL SOLAR TECHNOLOGY,
INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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26-0768064
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|
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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No.
1 Pingbei Road 2,
Nanping
Science & Technology Industrial Park,
Zhuhai
City, Guangdong Province,
The
People’s Republic of China
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519060
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(Address
of principal executive offices)
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(Zip
Code)
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86-756-8682610
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerate filer, an accelerate
filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer,” accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer
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o
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Accelerated
filer
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o
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||
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Non-accelerated
filer
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o
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Smaller
reporting company
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x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
Indicate
the number of shares outstanding of each of the issuer's classes of common stock
$0.0001 par value per share, as of August 7, 2009 was 22,599,974 shares.
TABLE
OF CONTENTS
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PART I - FINANCIAL
INFORMATION
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Item
1. Financial Statements
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1
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|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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9
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Item
3.Quantitative and Qualitative Disclosures About Market
Risk
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12
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Item
4T. Controls and Procedures
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12
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PART
II - OTHER INFORMATION
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Item
1. Legal Proceedings
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13
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Item
1A. Risk Factors
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13
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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13
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Item
3. Defaults Upon Senior Securities
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13
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Item
4. Submission of Matters to a Vote of Security Holders
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13
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Item
5. Other Information
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13
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Item
6. Exhibits
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13
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SIGNATURES
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14
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Except
as otherwise required by the context, all references in this report to "we",
"us”, "our", “Universal Solar Technology” or "Company" refer to the consolidated
operations of Universal Solar Technology, Inc., and its wholly owned
subsidiaries.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
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UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
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||||||||
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CONSOLIDATED
BALANCE SHEETS
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||||||||
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ASSETS
|
||||||||
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June
30,
2009
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December
31,
2008
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|||||||
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(Unaudited)
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(Audited)
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|||||||
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CURRENT
ASSETS:
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||||||||
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Cash
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$ | 491,140 | $ | 259,025 | ||||
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Prepaid expenses and other current
assets
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54,154 | 26,666 | ||||||
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TOTAL
CURRENT ASSETS
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545,294 | 285,691 | ||||||
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Deposits
for future deliveries of equipment
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237,330 | - | ||||||
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Land
use right, net of accumulated amortization
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||||||||
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of $6,167 and $0,
respectively
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416,677 | 423,420 | ||||||
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Property
and equipment, net of accumulated depreciation
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||||||||
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of
$59 and $0, respectively
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47,688 | - | ||||||
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TOTAL
ASSETS
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$ | 1,246,989 | $ | 709,111 | ||||
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LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
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CURRENT
LIABILITIES:
|
||||||||
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Accounts payable and accrued
expenses
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$ | 41,667 | $ | 42,450 | ||||
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Due
to related parties-current portion
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1,352,476 | 749,298 | ||||||
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TOTAL
CURRENT LIABILITIES
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1,394,143 | 791,748 | ||||||
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Due
to related parties- non-current portion
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22,485 | 22,485 | ||||||
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TOTAL
LIABILITIES
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1,416,628 | 814,233 | ||||||
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STOCKHOLDERS'
DEFICIENCY:
|
||||||||
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Preferred stock, $0.0001 par
value,
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||||||||
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10,000,000 shares
authorized,
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||||||||
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0 shares issued and
outstanding
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- | - | ||||||
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Common stock, $0.0001 par
value,
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||||||||
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90,000,000 shares
authorized,
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||||||||
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22,574,974
shares issued and outstanding
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2,257 | 2,257 | ||||||
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Additional paid-in
capital
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436,697 | 416,273 | ||||||
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Deficit
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(617,734 | ) | (503,904 | ) | ||||
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Accumulated
other comprehensive income (loss)
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9,141 | (19,748 | ) | |||||
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TOTAL
STOCKHOLDERS' DEFICIENCY
|
(169,639 | ) | (105,122 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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$ | 1,246,989 | $ | 709,111 | ||||
See notes
to consolidated financial statements.
1
|
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||||||||
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CONSOLIDATED STATEMENTS OF
OPERATIONS
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||||||||||||||||
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(Unaudited)
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||||||||||||||||
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Three
Months
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Three
Months
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Six
Months
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Six
Months
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|||||||||||||
|
ended
|
ended
|
ended
|
ended
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|||||||||||||
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June
30, 2009
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June
30, 2008
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June
30, 2009
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June
30, 2008
|
|||||||||||||
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SALES
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$ | - | $ | - | $ | 660,051 | $ | - | ||||||||
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COSTS
AND EXPENSES:
|
||||||||||||||||
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Cost of goods
sold
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- | - | 589,460 | - | ||||||||||||
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Selling,
general and administrative expenses
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78,717 | 173,506 | 162,197 | 204,077 | ||||||||||||
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TOTAL
COSTS AND EXPENSES
|
78,717 | 173,506 | 751,657 | 204,077 | ||||||||||||
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LOSS
FROM OPERATIONS
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(78,717 | ) | (173,506 | ) | (91,606 | ) | (204,077 | ) | ||||||||
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Dividend
and interest income-net
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(11,566 | ) | (6,000 | ) | (19,805 | ) | (6,000 | ) | ||||||||
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Gain
(loss) on foreign currency transactions
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(2,165 | ) | - | (2,419 | ) | - | ||||||||||
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NET
LOSS
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(92,448 | ) | (179,506 | ) | (113,830 | ) | (210,077 | ) | ||||||||
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OTHER
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||
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Foreign
currency translation adjustment
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438 | 7,023 | 28,889 | 22,144 | ||||||||||||
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COMPREHENSIVE
INCOME (LOSS)
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$ | (92,010 | ) | $ | (172,483 | ) | $ | (84,941 | ) | $ | (187,933 | ) | ||||
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Loss per common share -basic and
diluted
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$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
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Weighted average number of shares
outstanding
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||||||||||||||||
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-basic and
diluted
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22,574,974 | 20,942,408 | 22,574,974 | 20,646,364 | ||||||||||||
See notes
to consolidated financial statements.
2
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UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
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CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
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||||||||||||||||||||||||
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(Unaudited)
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||||||||||||||||||||||||
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COMMON
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ADDITIONAL
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OTHER
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||||||||||||||||||||||
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STOCK
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PAID-IN
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ACCUMULATED
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COMPREHENSIVE
|
|||||||||||||||||||||
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SHARES
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AMOUNT
|
CAPITAL
|
DEFICIT
|
INCOME
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TOTAL
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|||||||||||||||||||
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BALANCE
- DECEMBER 31, 2008
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22,574,974 | $ | 2,257 | $ | 416,273 | $ | (503,904 | ) | $ | (19,748 | ) | $ | (105,122 | ) | ||||||||||
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Imputed
interest on shareholder loan
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- | - | 20,424 | - | - | 20,424 | ||||||||||||||||||
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Foreign
currency translation adjustment
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- | - | - | - | 28,889 | 28,889 | ||||||||||||||||||
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Net
Income (loss)
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- | - | - | (113,830 | ) | - | (113,830 | ) | ||||||||||||||||
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BALANCE
- MARCH 31, 2009
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22,574,974 | $ | 2,257 | $ | 436,697 | $ | (617,734 | ) | $ | 9,141 | $ | (169,639 | ) | |||||||||||
See notes
to consolidated financial statements.
3
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UNIVERSAL
SOLAR TECHNOLOGY INC. AND SUBSIDIARIES
|
||||||||
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CONSOLIDATED
STATEMENTS OF CASH FLOWS
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||||||||
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(Unaudited)
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||||||||
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Six
Months
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Six
Months
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|||||||
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Ended
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Ended
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|||||||
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June
30, 2009
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June
30, 2008
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|||||||
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OPERATING
ACTIVITIES:
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||||||||
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Net loss
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$ | (113,830 | ) | $ | (210,077 | ) | ||
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Adjustments
to reconcile net loss to net
|
||||||||
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cash
used in operating activities:
|
||||||||
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Imputed
interest on stockholder loan
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20,424 | 6,000 | ||||||
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Stock
issued for services
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- | 9,423 | ||||||
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Depreciation
of property and equipment
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59 | - | ||||||
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Amortization
of land use right
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6,171 | - | ||||||
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Changes
in operating assets and liabilities:
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||||||||
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Prepaid expenses and other current
assets
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(27,488 | ) | (4,817 | ) | ||||
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Accounts payable and accrued
expenses
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(783 | ) | (17,500 | ) | ||||
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NET
CASH USED IN OPERATING ACTIVITIES
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(115,447 | ) | (216,971 | ) | ||||
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INVESTING
ACTIVITIES:
|
||||||||
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Deposits
for future deliveries of equipment
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(237,492 | ) | - | |||||
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Property
and equipment additions
|
(47,779 | ) | - | |||||
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NET
CASH USED IN INVESTING ACTIVITIES
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(285,271 | ) | - | |||||
|
FINANCING
ACTIVITIES:
|
||||||||
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Increase
(decrease) in due to related parties
|
612,685 | 338,331 | ||||||
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NET
CASH PROVIDED BY FINANCING ACTIVITIES
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612,685 | 338,331 | ||||||
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EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
20,148 | 22,144 | ||||||
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INCREASE
(DECREASE) IN CASH
|
232,115 | 143,504 | ||||||
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CASH
- BEGINNING OF PERIOD
|
259,025 | 91,184 | ||||||
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CASH
- END OF PERIOD
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$ | 491,140 | $ | 234,688 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
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Interest
paid
|
$ | - | $ | - | ||||
|
Income
taxes paid
|
$ | - | $ | - | ||||
See
notes to consolidated financial statements.
4
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
1. INTERIM FINANCIAL
STATEMENTS
The
unaudited financial statements as of June 30, 2009 and for the three and six
months ended June 30, 2009 and 2008 have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with instructions to Form 10-Q. In the
opinion of management, the unaudited financial statements have been prepared on
the same basis as the annual financial statements and reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the
financial position as of June 30, 2009 and the results of operations and cash
flows for the periods ended June 30, 2009 and 2008. The financial data and other
information disclosed in these notes to the interim financial statements related
to these periods are unaudited. The results for the three and six
months ended June 30, 2009 is not necessarily indicative of the results to be
expected for any subsequent quarter of the entire year ending December 31,
2009. The balance sheet at December 31, 2008 has been derived from
the audited financial statements at that date.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to the Securities and
Exchange Commission’s rules and regulations. These unaudited
financial statements should be read in conjunction with our audited financial
statements and notes thereto for the year ended December 31, 2008 as included in
our report on Form 10-K.
The
Company has evaluated subsequent events through the filing date of this Form
10-Q and determined that there were no subsequent events to recognize or
disclose in these financial statements.
2.
ORGANIZATION AND BUSINESS OPERATIONS
Universal
Solar Technology, Inc. (the “Company”) was incorporated in the State of Nevada
on July 24, 2007. The Company operates through its wholly-owned
subsidiaries, Kuong U Science & Technology (Group) Ltd. (“Kuong U”), a
company incorporated in Macau, Peoples Republic of China (“PRC”) on May 10,
2007, and Nanyang Universal Solar Technology Co., Ltd. (“NUST”), a company
incorporated in Nanyang, PRC on September 8, 2008. The Company sells
solar photovoltaic (“PV”) modules.
The
financial statements have been prepared on a "going concern" basis, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. At June 30, 2009, the Company had negative working
capital of $848,849 and a stockholders’ deficiency of $169,639. Further, the
Company has incurred net losses of $617,734 since inception. These
factors raise substantial doubt as to the Company’s ability to continue as a
going concern. The Company plans to improve its financial condition by raising
capital in a private placement of its securities. However, there is no assurance
that the Company will be successful in accomplishing this objective. The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
5
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
3.
LAND USE RIGHT
On December 1, 2008, NUST acquired the right to use a parcel of land
approximating 71,280 square meters
for forty (40) years for its office and production
facilities from the local government in the PRC. The cost
of RMB 2,886,300 ($422,843
translated at the June 30, 2009 exchange rate) is being amortized
using the straight line method over the 40 year term of the
contract.
4. DUE TO RELATED
PARTIES
Due to related parties consist
of:
|
June 30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Due to Company’s chairman and chief
executive officer for chairman’s payment of various
professional fees and
other expenses on behalf of the Company, non-interest bearing, due on
demand (interest
imputed at 5%)
|
$ | 906,716 | $ | 698,836 | ||||
|
Due to Zhuhai Yuemao Laser
Facility Engineering Co., Ltd. (“ Yuemao Laser”) , a PRC company controlled by
the
Company’s chairman and chief executive
officer, non-interest bearing, due on demand
|
445,760 | 50,462 | ||||||
|
Due to Company’s chairman and chief executive
officer pursuant to loan agreement dated November 2, 2008, interest at 5%,
due November 1, 2013
|
22,485 | 22,485 | ||||||
|
Total
|
1,374,961 | 771,783 | ||||||
|
Current
portion
|
(1,352,476 | ) | (749,298 | ) | ||||
|
Non-current
portion
|
$ | 22,485 | $ | 22,485 | ||||
6
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
5. RELATED PARTY
TRANSACTIONS
In the six months ended June 30, 2009, Kuong U purchased solar PV
modules from Yuemao Laser
at a total cost of $589,460 and sold the modules to two customers
for total sales of $660,051.
The company rents its executive office
space from the Company’s chairman and chief executive officer
under a verbal month to month agreement. Rent expense for the
six months ended June 30, 2009 and 2008 was $8,256 and $8,388, respectively.
6. MAJOR CUSTOMER
In the six months ended June 30, 2009, one customer located in
India accounted for approximately 97% of
sales. Under the terms of
these sales, the Company is obligated to replace nonworking modules for a period
of one year from the date of deliveries.
7. COMMITMENTS AND
CONTINGENCIES
Prototype
Product Development Agreement
On April 29, 2008, Kuong U entered into
an agreement with Yuemao
Laser whereby Yuemao Laser is to develop certain prototype solar energy products
for Kuong U. Under the agreement, Kuong U is
obligated to pay a royalty
fee quarterly to Yuemao
Laser equal to 1% of Kuong U’s sales from the prototype
products.
Equipment
Agreements
On February 19, 2009 and February 23,
2009, NUST contracted to acquire certain production equipment for a total of
10,600,000 RMB( $1,552,900 translated at the June 30, 2009 exchange rate). The agreements
provide for NUST’s payment of certain deposits prior to the delivery of
the equipment. As of June 30, 2009, a total of 1,620,000 RMB ($237,330 translated at the June 30, 2009 exchange rate) has been paid to
the vendors.
Vulnerability due to
Operations in PRC
The
Company’s operations may be adversely affected by significant political,
economic and social uncertainties in the PRC. Although the PRC
government has been pursuing economic reform policies for more than 20 years,
there is no guarantee that the PRC government’s pursuit of economic reforms will
be consistent or effective.
The PRC
has adopted currency and capital transfer regulations. These
regulations require that the Company comply with complex regulations for the
movement of capital. Because most of the Company’s future revenues
will be in RMB, any inability to obtain the requisite approvals, or any future
restrictions on currency exchanges, will limit the Company’s ability to fund its
business activities outside China or to pay dividends to its
shareholders.
7
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Unaudited)
The
Company’s assets will be predominantly located inside China. Under
the laws governing foreign invested enterprises in China, dividend distribution
and liquidation are allowed, but subject to special procedures under the
relevant laws and rules. Any dividend payment will be subject to the decision of
the board of directors and subject to foreign exchange rules governing such
repatriation. Any liquidation is subject to both the relevant
government agency’s approval and supervision, as well as the foreign exchange
control.
In
addition, the results of business and prospects are subject, to a significant
extent, to the economic, political and legal developments in China.
While
China’s economy has experienced significant growth in the past twenty years,
growth has been irregular, both geographically and among various sectors of the
economy. The Chinese government has implemented various measures to
encourage economic growth and guide the allocation of resources. Some
of these measures benefit the overall economy of China, but may also have a
negative effect on the Company. The Company’s sales and financial
condition may be adversely affected by the government control over capital
investments or changes in tax regulations.
Foreign
companies conducting operations in the PRC face significant political, economic
and legal risks. The Communist regime in the PRC includes a stifling
bureaucracy which may hinder Western investment. Any new government regulations
or utility policies pertaining to the Company’s PV products may result in
significant additional expenses to the Company, Company distributors and end
users and, as a result, could cause a significant reduction in demand for the
Company’s PV products
8
Information Regarding
Forward-Looking Statements
The
following discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 relating to future events or our future performance. Actual
results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this
report. Although management believes that the assumptions made and expectations
reflected in the forward-looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to be correct or
that actual results will not be different from expectations expressed in this
report.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
The
following discussion should be read in conjunction with the Financial Statements
and Notes thereto appearing elsewhere in this Form 10-Q.
Overview
Universal
Solar Technology, Inc. was incorporated in the State of Nevada on July 24, 2007.
It operates through its wholly owned subsidiary, Kuong U Science &
Technology (Group) Ltd. (“Kuong U”), a company incorporated in
Macau, Special Administrative Region of the People's Republic of China
(Macau SARC) on May 10, 2007.
We are
focusing on becoming a vertically integrated designer, manufacturer, and
distributor of silicon ingots, wafers and high efficiency solar PV products.
Currently we market high efficiency solar PV modules and sloar lighting systems
while outsourcing the current production of these products to a related third
party. We are developing our own vertically integrated manufacturing center
based in Nanyang which is located in Henan Province in China. The manufacturing
center is being built to allow for rapid integration and scalability across each
production phase. The production departments will consist of silicon ingot
production lines, silicon wafer production lines, PV modules and system
production lines, and solar lighting assembly lines. The production departments
are scheduled to be completed in phases. We expect all of the departments to be
completed and operational by April 2010. As each production area completes
testing and the initial launch of production, additional manufacturing lines,
equipment and staffing will be added over time. We believe this vertically
integrated manufacturing center, when completed, will enable us to compete
aggressively with our competitors while avoiding potential disruptions to
business and operations due to supply issues.
Limited
Operating History; Need For Additional Capital
There is
no historical financial information about us upon which to base an evaluation of
our performance. We cannot guarantee that we will be successful in our business
operations. Our business is subject to risks inherent in the establishment of a
new business enterprise, including limited capital resources and possible cost
overruns due to price and cost increases in services and products.
To become
profitable, we have to sell our products and generate revenue. In addition,
because our new WFOE manufacturing setup in China will require additional
investment, we are seeking both equity and debt financing to provide the capital
required to implement our business plan in China.
We have
no assurance that future financing will be available to us on acceptable terms.
If financing is not available on satisfactory terms, we may be unable to
continue, develop or expand our operations into China. Equity financing could
result in additional dilution to existing shareholders.
9
RESULTS
OF OPERATIONS
Comparison
of Three Months Ended June 30, 2009 to June 30, 2008
Revenue. We did not generate any
revenue for the three months ended June 30, 2009 and 2008. Because our
Nanyang manufacturing facilities have not been completed yet, we have
minimized marketing efforts. We made outsource sales to two customers in the
first quarter 2009 but none in the second quarter 2009.
Cost of Sales. Our
cost of sales were $0 for the quarters ended June 30, 2009 and June 30, 2008 due
to the fact that we did not sell any products during those periods.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses
decreased by $94,789 or 54.63% to $78,717 for the quarter ended June 30, 2009
from $173,506 for the same period in 2008. The decrease was mainly due lower
professional fees in 2009. The higher professional fees in 2008 were associated
with our registration statement on From S-1 filed on May 9, 2008 which was
declared effective on June 30, 2008.
Net Loss. Net loss
decreased by $87,058 or 48% from $179,506 for the quarter ended June 30, 2008 to
$92,448 for the same period in 2009. The decrease in net loss is
mainly due to the decrease in selling, general and administrative expenses for
reasons discussed above.
Comparison
of Six Months Ended June 30, 2009 to June 30, 2008
Revenue. Our
revenue for the quarter ended June 31, 2009 was $660,051 compared to $0 for the
six months ended June 30, 2008. The increase was due to limited sales of
products manufactured by a related party during the first quarter in
2009.
Cost of Sales. Our
cost of sales increased from $0 for the six months ended June 30, 2008 to
$589,460 for the six months ended June 30, 2009. The increase was mainly due to
expenses associated with the limited sales of products manufactured by a related
party during the first quarter in 2009.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses
decreased by $41,880 or 20.5% from $204,077 for the period ended June 30, 2008
to $162,197. This decrease was mainly due to the decrease of
professional fees for the first quarter discussed above.
Net Loss. Net loss
decreased by $96,247 or 45.8% from $210,077 for the six months ended June 30,
2009 as compared to $113,830 for the six months ended June 30, 2008. This
decrease was mainly due to the decrease of selling, general and administrative
expenses during the six months ended June 30, 2009 and the limited revenue
generated form the sales of products manufactured by a related party during the
first quarter in 2009.
LIQUIDITY
AND CAPITAL RESOURCES
As of
June 30, 2009, we had total assets of $1,246,989 and total liabilities of
$1,416,628 and we had cash of $491,140.
Net cash
used in operating activities for the six months ended June 30, 2009 was $115,447
which is a decrease of $101,524 from net cash used in operating activities of
$216,971 for the same period in 2008. The reason for the $101,524
improvement was primarily to the $96,247 reduced net loss.
Net cash
used in investing activities for the quarter ended June 30, 2009 was $285,271,
an increase from $0 for the same period in 2008. This increase was due to
deposits for future deliveries of equipment and acquisition of property and
equipment.
Net cash
provided by financing activities for the quarter ended March 31, 2009 was
$612,685, compared to $338,331 from the same period in 2008. This increase was
due to an increase in loans from related parties.
10
We are
actively seeking additional external funding, but to date we have not
consummated any financing transactions other than our public offering and
transactions with related parties.
Without
additional funding, the Company will not be able to pursue its business model.
If adequate funds are not available or are not available on acceptable terms
when required, we would be required to significantly curtail our operations and
would not be able to fund the development of the business envisioned by our
business model. These circumstances could have a material adverse
effect on our business and result in our inability to continue to operate as a
going concern.
CRITICAL
ACCOUNTING POLICIES
Basis
of presentation
The
consolidated financial statements include the accounts of the Company and all of
its subsidiaries. All significant inter-company accounts and
transactions have been eliminated. These financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America.
Certain
amounts included in the 2008 financial statement have been reclassified to
conform to the 2009 financial statement presentation.
Property
and equipment
Property
and equipment are recorded at cost. Depreciation is provided in
amounts sufficient to amortize the cost of the related assets over their useful
lives using the straight line method for financial reporting
purposes.
Nanyang
UST obtained the right to use a parcel of land for its office and production
facilities. Pursuant to the contract from the local government of the
PRC, the contract expires in 2048. This land use right was recorded
at cost and is being amortized over the life of the lease.
Maintenance,
repairs and minor renewals are charged to expense when
incurred. Replacements and major renewals are
capitalized.
Impairment
of long-lived assets
The
Company accounts for the impairment of long-lived assets in accordance with SFAS
No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”. Long-lived
assets are reviewed for impairment when circumstances indicate the carrying
value of an asset may not be recoverable. For assets that are to be
held and used, an impairment is recognized when the estimated undiscounted cash
flows associated with the asset or group of assets is less than their carrying
value. If impairment exists, an adjustment is made to write the asset
down to its fair value, and a loss is recorded as the difference between the
carrying value and fair value. Fair values are determined based on
quoted market values, discounted cash flows or internal and external appraisals,
as applicable. Assets to be disposed of are carried at the lower of
carrying value or estimated net realizable value.
Research
and development costs
Research
and development costs are charged to expenses as incurred.
Deferred
income taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (ASFAS 109") which
requires that deferred tax assets and liabilities be recognized for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. In addition, SFAS 109 requires recognition of future tax
benefits, such as carryforwards, to the extent that realization of such benefits
is more likely than not and that a valuation allowance be provided when it is
more likely than not that some portion of the deferred tax asset will not be
realized.
11
Currency
translation
The
reporting currency of the Company is the United States dollar. The functional
currency of Kuong U is the Hong Kong dollar. The functional currency of NUST is
the Chinese Yuan (”RMB”). Revenue and expense accounts of our two
subsidiaries are translated into United States dollars at the average rates
during the period, and balance sheet items are translated at year-end
rates. Translation adjustments arising from the use of differing
exchange rates from period to period are included as a separate component of
shareholders’ equity. Gains and losses from foreign currency
transactions are recognized in current operations.
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into USD at
the rates used in translation.
Comprehensive
income (loss)
Comprehensive
income (loss) is defined to include all changes in equity except those resulting
from investments by shareholders and distributions to
shareholders. Among other disclosures, all items that are required to
be recognized under current accounting standards as components of comprehensive
income (loss) are required to be reported in a financial statement that is
presented with the same prominence as other financial
statements. Comprehensive income includes net income (loss) and the
foreign currency translation adjustment, net of tax.
NEW
ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and
SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements. SFAS 141 (R)
requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. SFAS No. 160 clarifies that a
non-controlling interest in a subsidiary should be reported as equity in the
consolidated financial statements. SFAS No. 141 (R) and SFSS No. 160
are effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. The
Company has not yet determined the effect on its financial statements, if any,
upon adoption of SFAS No. 141 (R) or SFAS No.
160. SFAS 141 (R) will significantly affect the
accounting for future business combinations and the Company will determine the
accounting as new combinations are determined.
EITF
Issue 07-1, Accounting for
Collaborative Arrangements Related to the Development and Commercialization of
Intellectual Property is effective for financial statements issued for
fiscal years beginning after December 15, 2008. This issue addresses
the income statement classification of payments made between parties in a
collaborative arrangement. The adoption of EITF07-1 is not expected
to have a significant impact on the Company’s results of operations, cash flows
or financial position.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Not
required.
Item 4T. Evaluation of Disclosure Controls and
Procedures
a) Evaluation of Disclosure Controls
and Procedures. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end
of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation
Date”). The purpose of this evaluation is to determine if, as of the Evaluation
Date, our disclosure controls and procedures were operating effectively such
that the information, required to be disclosed in our Securities and Exchange
Commission (“SEC”) reports (i) was recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and (ii) was
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
12
Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were operating effectively.
(b) Changes in Internal Control
over Financial Reporting. The Company’s management, with the
participation of the Chief Executive Officer and Chief Financial Officer, has
evaluated the Company’s internal control over financial reporting, as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, during the
fiscal quarter covered by this report, and they have concluded that there was no
change to the Company’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
None.
Item
1A. Risk Factors.
As of the
date of this filing, there have been no material changes from the risk factors
disclosed in the Company’s Annual Report on Form 10-K filed on April 10,
2009. We operate in a changing environment that involves numerous known and
unknown risks and uncertainties that could materially affect our operations. The
risks, uncertainties and other factors set forth in our Annual Report on
Form 10-K may cause our actual results, performances and achievements to be
materially different from those expressed or implied by our forward-looking
statements. If any of these risks or events occurs, our business, financial
condition or results of operations may be adversely affected.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
|
Exhibit No.
|
|
Title of Document
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
32.1
|
Certification
pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive
Officer)
|
|
|
32.2
|
Certification
pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Financial
Officer)
|
13
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
|
Universal Solar Technology,
Inc.
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|||
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Date:
August 13, 2009
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By:
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/s/
Wensheng Chen
|
|
|
Wensheng
Chen
|
|||
|
Chief
Executive Officer
|
|||
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By:
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/s/
Ling Chen
|
||
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Ling
Chen
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
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|||
14