UNIVERSAL SOLAR TECHNOLOGY, INC. - Quarter Report: 2010 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
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for
the quarterly period ended June 30, 2010
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
for
the transition period from __________ to __________
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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|
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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 x
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
The
number of shares of Common Stock outstanding as of August 12, 2010 was
22,599,974 shares.
TABLE
OF CONTENTS
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PART
I - FINANCIAL INFORMATION
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1
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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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8
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Item
3.Quantitative and Qualitative Disclosures About Market
Risk
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11
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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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13
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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. Other Information
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13
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Item
5. 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.
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
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June 30, 2010
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December 31, 2009
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|||||||
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(Unaudited)
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(Audited)
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|||||||
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ASSETS
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||||||||
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CURRENT
ASSETS:
|
||||||||
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Cash
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$ | 911,276 | $ | 1,115,047 | ||||
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Prepaid
expenses and other current assets
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786,268 | 319,123 | ||||||
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Inventories
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298,827 | 42,956 | ||||||
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TOTAL
CURRENT ASSETS
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1,996,371 | 1,477,126 | ||||||
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Deposits
for future deliveries of property and equipment
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596,310 | 312,362 | ||||||
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Land
use right, net of accumulated amortization of $16,824 and $11,452,
respectively
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408,212 | 411,391 | ||||||
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Property
and equipment, net of accumulated depreciation of $11,524 and $3,446,
respectively
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3,930,891 | 3,294,946 | ||||||
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TOTAL
ASSETS
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$ | 6,931,784 | $ | 5,495,825 | ||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
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CURRENT
LIABILITIES:
|
||||||||
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Accounts
payable and accrued expenses
|
$ | 371,642 | $ | 154,813 | ||||
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Due
to related parties-current portion
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19,213 | 5,675,528 | ||||||
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TOTAL
CURRENT LIABILITIES
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390,855 | 5,830,341 | ||||||
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Due
to related parties- non-current portion
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7,277,288 | 22,485 | ||||||
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TOTAL
LIABILITIES
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7,668,143 | 5,852,826 | ||||||
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STOCKHOLDERS'
DEFICIENCY:
|
||||||||
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Preferred
stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares
issued and outstanding
|
- | |||||||
|
Common
stock, $0.0001 par value, 90,000,000 shares authorized, issued and
outstanding 22,599,974 shares and 22,574,974 shares,
respectively
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2,260 | 2,260 | ||||||
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Additional
paid-in capital
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598,048 | 553,826 | ||||||
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Accumulated
deficit
|
(1,381,722 | ) | (925,466 | ) | ||||
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Accumulated
other comprehensive income (loss)
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45,055 | 12,379 | ||||||
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TOTAL
STOCKHOLDERS' DEFICIENCY
|
(736,359 | ) | (357,001 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
$ | 6,931,784 | $ | 5,495,825 | ||||
See notes
to consolidated financial statements.
1
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended
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Three Months Ended
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Six Months Ended
|
Six Months Ended
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|||||||||||||
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June 30, 2010
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June 30, 2009
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June 30, 2010
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June 30, 2009
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|||||||||||||
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SALES
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$ | - | $ | - | $ | - | $ | 660,051 | ||||||||
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COSTS
AND EXPENSES:
|
||||||||||||||||
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Cost
of sales
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- | - | - | 589,460 | ||||||||||||
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Selling,
general and administrative expenses
|
189,327 | 78,717 | 350,815 | 162,197 | ||||||||||||
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TOTAL
COSTS AND EXPENSES
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189,327 | 78,717 | 350,815 | 751,657 | ||||||||||||
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LOSS
FROM OPERATIONS
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(189,327 | ) | (78,717 | ) | (350,815 | ) | (91,606 | ) | ||||||||
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Interest
expense
|
(17,358 | ) | (11,566 | ) | (102,667 | ) | (19,805 | ) | ||||||||
|
Dividend
and interest income
|
490 | - | 686 | - | ||||||||||||
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Gain
(loss) on foreign currency transactions
|
(1,419 | ) | (2,165 | ) | (3,460 | ) | (2,419 | ) | ||||||||
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NET
LOSS
|
(207,614 | ) | (92,448 | ) | (456,256 | ) | (113,830 | ) | ||||||||
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OTHER
COMPREHENSIVE INCOME (LOSS):
|
||||||||||||||||
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Foreign
currency translation adjustment
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16,878 | 438 | 32,676 | 28,889 | ||||||||||||
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COMPREHENSIVE
LOSS
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$ | (190,736 | ) | $ | (92,010 | ) | (423,580 | ) | $ | (84,941 | ) | |||||
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Loss
per common share -basic and diluted
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$ | (0.01 | ) | $ | (0.00 | ) | (0.02 | ) | $ | (0.01 | ) | |||||
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Weighted
average number of shares outstanding -basic and
diluted
|
22,599,974 | 22,574,974 | 22,599,974 | 22,574,974 | ||||||||||||
See notes
to consolidated financial statements.
2
UNIVERSAL
SOLAR TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Six Month Ended
|
Six Mnth Ended
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|||||||
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June 30, 2010
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June 30, 2009
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|||||||
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OPERATING
ACTIVITIES:
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||||||||
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Net
loss
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$ | (456,256 | ) | $ | (113,830 | ) | ||
|
Adjustments
to reconcile net loss to net
cash used in operating activities: |
0
0
|
|||||||
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Imputed
interest on loans from related parties
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44,374 | 20,424 | ||||||
|
Increase
in long term interest payable to affiliated parties
|
57,945 | |||||||
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Stock
issued for services
|
0 | |||||||
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Depreciation
of property and equipment
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7,936 | 59 | ||||||
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Amortization
of land use right and intangible assets
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5,637 | 6,171 | ||||||
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Changes
in operating assets and liabilities:
|
0 | |||||||
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Accounts
receivable
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0 | |||||||
|
Prepaid
expenses and other current assets
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(463,956 | ) | (27,488 | ) | ||||
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Inventory
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(254,806 | ) | ||||||
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Accounts payable and accrued expenses
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230,735 | (783 | ) | |||||
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NET
CASH USED IN OPERATING ACTIVITIES
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(828,391 | ) | (115,447 | ) | ||||
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INVESTING
ACTIVITIES:
|
||||||||
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Deposits
for future deliveries of equipment
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(281,398 | ) | (237,492 | ) | ||||
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Acquisition
of property and equipment
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(619,262 | ) | (47,779 | ) | ||||
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Acquisition
of Intangible Assets
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(5,842 | ) | ||||||
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NET
CASH USED IN INVESTING ACTIVITIES
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(906,502 | ) | (285,271 | ) | ||||
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FINANCING
ACTIVITIES:
|
||||||||
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Loans
from related parties
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1,524,273 | 612,685 | ||||||
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Sale
of common stock
|
||||||||
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NET
CASH PROVIDED BY FINANCING ACTIVITIES
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1,524,273 | 612,685 | ||||||
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EFFECT
OF EXCHANGE RATE CHANGES ON CASH
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6,849 | 20,148 | ||||||
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INCREASE
IN CASH
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(203,771 | ) | 232,115 | |||||
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CASH
- BEGINNING OF PERIOD
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1,115,047 | 259,025 | ||||||
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CASH
- END OF PERIOD
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$ | 911,276 | $ | 491,140 | ||||
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Supplemental
disclosures of cash flow information:
|
||||||||
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Interest
paid
|
$ | - | $ | - | ||||
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Income
taxes paid
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$ | - | $ | - | ||||
3
UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2010
(Unaudited)
1. INTERIM FINANCIAL
STATEMENTS
The
unaudited financial statements 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, 2010 and the results of operations and cash
flows for the periods ended June 30, 2010 and 2009. 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 six months ended June
30, 2010 is not necessarily indicative of the results to be expected for any
subsequent periods of the entire year ending December 31, 2010. The
balance sheet at December 31, 2009 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, 2009 as included in our report
on Form 10-K.
2.
BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Universal
Solar Technology, Inc. (the “Company”) is a Nevada corporation in the
development stage. It is engaged in the manufacture and distribution of Silicon
ingots, wafers, solar cells, modules, and other PV application products. The
Company was incorporated under the laws of the State of Nevada on July 24, 2007.
It operates through its wholly-owned subsidiaries, including Kuong U Science
& Technology (Group) Ltd. (“KUST”), 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. On May 9th, 2008, the Company filed a registration statement
on Form S-1 with the Securities and Exchange Commission (SEC), and raised
capital of $300,000 from a self-underwritten offering of 2,000,000 shares of our
common stock.
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.
Currency
translation
The
reporting currency of the Company is U.S. dollars (USD). The functional currency
of KUST is Hong Kong dollars (HKD). The functional currency of NUST is Renminbi
(RMB). The subsidiaries’ functional currencies have been translated into USD for
reporting purpose.
Income
statement items were converted at the average exchange rates during the three
month period. Balance sheet items were converted at the period-end exchange
rates, except for equity accounts which were calculated at the historical rates.
Gains and losses from foreign currency transactions were recognized on an actual
basis.
RMB
related transactions must take place through PRC authorized institutions. No
representation is made that the RMB amounts could have been, or could be,
converted into USD at the rates applied in the translation.
4
Going
concern
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, 2010, the Company had a stockholders’
deficiency of $736,359. Further, the Company has incurred net losses of $ 1,
381,722 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.
Uses of estimates in the
preparation of financial statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net revenue and expenses during each reporting period.
Actual results could differ from those estimates.
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 August
2009, the FASB updated the accounting standards to provide additional guidance
on estimating the fair value of a liability in a hypothetical transaction where
the liability is transferred to a market participant. The standard is effective
for the first reporting period, including interim periods, beginning after
issuance. The adoption of this standard did not have a material effect on the
Company’s consolidated results of operations and financial
condition
In
June 2009, FASB established Accounting Standards Codification TM (“ASC”) as
the single source of authoritative accounting principles recognized by the FASB
in the preparation of financial statements in conformity with the GAAP. The
Codification supersedes all non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the
Codification non-authoritative. The Codification was effective for financial
statements issued for interim and annual periods ending after September 15,
2009. We adopted the new guidance for the quarter ended September 30, 2009,
which changed the way we reference accounting standards in our disclosures.
Adoption of the Codification did not have any impact on the Company’s results of
operations or financial position.
In
May 2009, FASB issued new guidance establishing general standards of
accounting for disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued, or
subsequent events. An entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009. Adoption of this standard did
not have a material impact on the Company’s results of operations or financial
position.
5
3. DUE TO RELATED PARTIES-NON-CURRENT
PORTION
|
June 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Due
to Company’s chairman and chief executive officer, non-interest bearing,
due on demand
|
$ | 8,836 | $ | |||||
|
Due
to Company’s president，Ms. Lin
Chen, non-interest bearing, due on demand
|
368 | 368 | ||||||
|
Due
to Zhuhai Yuemao Laser Facility Engineering Co., Ltd. (“Yuemao
Laser”) , non-interest bearing, due on demand
|
10,009 | 1,120 | ||||||
|
Due
to Mr. Wenshen Chen, Company’s chairman and chief executive officer, due
12/1/2013 , at 1% per annum
|
3,031,319 | 2,207,336 | ||||||
|
Due
to Zhuhai Yuemao Laser Facility Engineering Co., Ltd. (“Yuemao
Laser”) due 12/1/2013 , at 1% per annum
|
245,385 | 236,889 | ||||||
|
Due
to Yuemao Technology Ltd. (“Yuemao Technology”) , due 12/1/2013 , at 1%
per annum
|
3,927,424 | 3,252,300 | ||||||
|
Interest
Payable , due 12/1/2013with the principals, not interest
bearing
|
73,160 | 14,860 | ||||||
|
Total
|
7,296,501 | 5,712,873 | ||||||
|
Current
portion
|
(19,213 | ) | (5,675,528 | ) | ||||
|
Non-current
portion
|
$ | 7,277,288 | 37,345 | |||||
On May 5,
2010, NUST amended the previous oral loan agreement with Yuemao Technology and
formed a Line of Credit Agreement. By June 30, 2010, NUST has received the total
cash amount of RMB 26,670,000. According to the Line of Credit Agreement, NUST
may continue to borrow from Yuemao Technology at the interest rate of 1 percent
per annum, NUST promises to pay the principal and the interest balance by
12/1/2013.
On May 5,
2010, KUST amended the previous oral loan agreement with Yuemao Laser Technology
and formed a Line of Credit Agreement. By June 30, 2010, KUST has received the
total cash amount of HKD 1,914,979. According to the Line of Credit
Agreement, KUST may continue to borrow from Yuemao Technology at the interest
rate of 1 percent per annum, KUST promises to pay the principal and the interest
balance by 12/1/2013.
On May 5,
2010, KUST amended the previous oral loan agreement with Mr. Wenshen Cheng and
formed a Line of Credit Agreement. By June 30, 2010, KUST has received the total
cash amount of HKD 23,480,825. According to the Line of Credit Agreement,
KUST may continue to borrow from Mr. Wenshen Chen at the interest rate of 1
percent per annum, KUST promises to pay the principal and the interest balance
by 12/1/2013.
On May 5,
2010, the Company amended the previous oral loan agreement with Mr. Wenshen
Cheng and formed a Line of Credit Agreement. By June 30, 2010, Universal Solar
Technology has received the total cash amount of HKD 22,485. According to
the Line of Credit Agreement, Universal Solar Technology may continue to borrow
from Mr. Wenshen Chen at the interest rate of 1 percent per annum, Universal
Solar Technology promises to pay the principal and the interest balance by
12/1/2013.
As of
June 30, 2010, total interest payable under the above Line of Credit Agreements
was $73,160.
6
For those
non-interest bearing payables due to related parties, interest has been imputed
at 5 percent per annum. As of June 30, 2010, total imputed interest was $
178,252.
Both
Yuemao Laser and Yuemao Technology are PRC companies and controlled by the
Company’s chairman and chief executive officer.
4.
MAJOR CUSTOMER
The
Company has two major customers in India, Kotak Urja Private Limited, and Suman
Lakshmi Enterprises. The sales to Kotak Urja Private Limited accounted for
approximately 92% of total revenue in 2009. Under the terms of the purchase
agreements, the Company is obligated to replace nonworking modules for a period
of one year from the date of deliveries. Up to the expiration date of the
warranty, there is no request for replacement.
5.
RELATED PARTY TRANSACTIONS
The
Company has no related party transaction other than described in Note 2 during
the reporting period.
6.
INCOME TAXES
The
Company has not recorded a provision for United States federal income tax for
the periods presented since it incurred net losses in such periods.
The
Company’s Chinese subsidiaries are governed by the Income Tax Law of the
People’s Republic of China concerning private enterprises, which are generally
subject to tax at a statutory rate of 25% on taxable income.
As of
June 30, 2010, the Company had approximately $1,381,722 of net operating loss
carry forwards for income tax purposes in the United States.
Based on
management's present assessment, the Company has not determined it to be more
likely than not that a deferred tax asset attributable to the future utilization
of the net operating loss carryforward as of June 30, 2010 will be realized.
Accordingly, the Company has provided a 100% allowance against the deferred tax
asset in the financial statements at June 30, 2010. The Company will continue to
review this valuation allowance and make adjustments as
appropriate.
7.
COMMITMENTS AND CONTINGENCIES
The
Company signed of a sales contract for $32,600,000 with C.T.O. spol.s.r.o.
Group, part of the largest electricity producer in the Czech Republic. The
contract calls for the delivery of 20MW of monocrystaline solar modules to be
delivered by the end of 2010. After signing the contract, C.T.O. requested to
amend the contract and delay the payment. As of today, we have not received the
deposit of 15% of the total amount of the sales contract from our counter
party.
7
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.
DISCLAIMER
REGARDING FORWARD-LOOKING STATEMENTS
This
document contains certain forward-looking statements, which are made under the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Terms such as “anticipate”, “may”, “will”, “should”, “believe”, “estimate”,
“expect”, “intend”, “plan”, predict”, “project”, “target”, “will likely result”,
“will continue” and similar expressions are intended to identify forward-looking
statement and based upon our expectations at the time they made. The
forward-looking statements are not guarantee for future performance and actual
results may differ from those indicated or implied in the forward-looking
statements due to a various factors including, but not limited to changes to our
assumptions, risks and uncertainties involved, many of which are beyond our
control. We discuss risks and uncertainties in great details under item IA “Risk
Factors” below.
The
company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, your attention is directed to any further
disclosures made on related subjects in our subsequent annual and periodic
reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q
and 8-K.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and
accompanying notes and the other financial information appearing in Part I, Item
1 and elsewhere in this report. The Company’s fiscal year end is December
31.
OVERVIEW
OF OUR BUSINESS
We are a
development stage enterprise that manufactures silicon ingots, wafers, high
efficiency solar photovoltaic (“PV”) modules and other PV application products
in the EU, North America, Asia and Africa. The Company was incorporated
under the laws of the State of Nevada on July 24, 2007. It operates through its
wholly-owned subsidiaries, including Kuong U Science & Technology (Group)
Ltd. (“KUST”), 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. On May
9th, 2008, the Company filed a registration statement on Form S-1 with the
Securities and Exchange Commission (SEC), and raised capital of $300,000 from a
self-underwritten offering of 2,000,000 shares of our common stock.
The
company’s focus during 2010 has been on completing the development of its
Nanyang factory. The new factory covers an area of 71337 square meters in
Nanyang City, Henan province. Upon full completion, the Nanyang factory will
have advanced manufacturing technologies and equipments. We expect that by the
end of 2010, the Nanyang factory will have annual production capacity of up to
50MW silicon ingots, 20MW solar wafers, and 30 MW solar PV modules. Our products
have passed multiple standard tests and achieved the certificates of VDE, TUV,
IEC61215, IEC 61730, CE and ISO 9001:2000.
RESULTS
OF OPERATIONS
As of to
date, we have completed testing of 8 ingot growers and continue to acquire more
equipments to expand the production volume. We obtained operating permits for
our high pressure container to be used in our silicon ingots department. During
the second quarter of 2010 we have accepted delivery of water cooling system,
multi-wire saw and framing machine. We have produced 100,000 pieces of wafers
and each may sell at $2-$3 in the current market. We have hired a total of
114 employees as of June 30, 2010 and a total of 158 employees as of the date of
the filing this report. For the PV module departments, two assembling groups are
under training and expect to start production in August of 2010. We expect to be
in full production by September, 2010.
8
Three
Months Ended June 30, 2010 Compared to Three Months Ended June 30,
2009
Revenue
Recognition
Affected
by the significant price decrease for solar products, it was not cost effective
for the Company to sell products manufactured by a related party as it has done
in the past. As a result, there were no revenues recognized during the three
months ended June 30, 2010 or the three months ended June 30, 2009. Instead, the
Company has focused its efforts on completing the construction of its
manufacturing facilities in order to become more vertically integrated. As a
vertically integrated company, we will be able to increase the profit margin of
our products and sell our products at lower prices.
Cost
of Sales
The cost
of sales for the three months ended June 30, 2010 and the three months ended
June 30, 2009 were both zero, as we had no sales for reasons stated
above.
Gross
Profit
Gross
profit is affected by numerous factors, including our average selling prices,
foreign exchange rates, our manufacturing costs and the effective utilization of
our production facilities. Because we had no sales for reasons discussed above
for the three months ended June 30, 2010 and the three months ended June 30,
2009, we had no gross profits during those periods.
Selling,
General and Administrative
Selling,
general and administrative expense consists primarily of salaries and other
personnel-related costs, professional fees, advertisement, and other selling
expenses. It was $189,327 for the three months ended June 30, 2010, compared to
$78,717 for the three months ended June 30, 2009 an increase of $110,610 or
141%. The increase was mainly associated with the increase in personnel
associated with the Nanyang factory. We expect these expenses to increase
further in the near future, both in absolute dollars and as a percentage of net
sales, in order to support the completion of manufacturing construction,
installation of equipment, improvement of our information processes and systems,
compliance and other infrastructure required for a public company.
Interest
Expense
Net
interest expense was $17,358 for the three months ended June 30, 2010, compared
to $11,566 for the three months ended June 30, 2009, an increase of $5,792 or
50%. The majority of the $17, 358 interest expense was attributable to the
interest expense on the loans from related parties. The increase in interest
expense is due to increased borrowing from related parties.
Net
Loss
Net loss
for the three months ended June 30, 2010 was $207,614 compared to $92,448 for
the second quarter of 2009 as a result of the combination of the absence of
revenue, and increase in administration and personal expenses. The number of
employees has increase from 4 to 114 at the end of the second quarter of 2010
compared to the same period in 2009.
Foreign
Currency Gain (Loss)
Foreign
currency gain (loss) consists of gains and losses resulting from holding assets
and liabilities and conducting transactions denominated in currencies other than
our functional currencies. During the three months ended June 30, 2010, we
recognized a foreign currency translation gain of $16,878, compared to $438 for
the three months ended June 30, 2009 an increase of $16,440 or 3,753%. The
increase in foreign currency translation gain was mainly due to the fluctuation
between US Dollar and Chinese Yuan during the reporting period.
9
Six
Months Ended June 30, 2010 Compared to Six Months Ended June 30,
2009
Revenue
Recognition
Affected
by the significant price decrease for solar products, it was not cost effective
for the Company to sell products manufactured by a related party as it has done
in the past. As a result, there were no revenues recognized during the six
months ended June 30, 2010 compared to $660,051 for the six months ended June
30, 2009, generated from our major two customers of solar PV modules
manufactured by a related party. Instead, the Company has focused its efforts on
completing the construction of its manufacturing facilities in order to become
more vertically integrated. As a vertically integrated company, we will be able
to increase the profit margin of our products and sell our products at lower
prices.
Cost
of Sales
The cost
of sales for the six months ended June 30, 2010 was zero, as we had no sales,
comparing to $589,460 for the six months ended June 30, 2009 which constitutes a
100% decrease. The cost of sales in the amount of $589,460 was the cost
associated with the solar PV modules manufactured by a related party which was
sold by KUST.
Gross
Profit
Gross
profit is affected by numerous factors, including our average selling prices,
foreign exchange rates, our manufacturing costs and the effective utilization of
our production facilities. Our gross profit for the six months ended June 30,
2010 was zero, compared to $70,591 for the six months of 2009 because we had no
sales for reasons discussed above.
Selling,
General and Administrative
Selling,
general and administrative expense consists primarily of salaries and other
personnel-related costs, professional fees, advertisement, and other selling
expenses. It was $350,815 for the six months ended June 30, 2010, compared to
$162,197 for the same period in 2009, an increase of $188,618 or 116%. The
increase was mainly associated with the expenses related to the increase in
personnel from 4 to 114 related to the new manufacturing facilities in Nanyang.
We expect these expenses to increase further in the near future, both in
absolute dollars and as a percentage of net sales, in order to support the
completion of manufacturing construction, installation of equipment, improvement
of our information processes and systems, compliance and other infrastructure
required for a public company.
Interest
Expense
Net
interest expense was $102,667 for the six months ended June 30, 2010, compared
to $19,805 for the six months ended June 30, 2009, an increase of $82,862 or
418%. The majority of the interest expense was attributable to the interest
expense on the loans from related parties and the increase was due to increased
borrowing from related parties.
Net
Loss
Net loss
for the six months ended June 30, 2010 was $456,256 compared to $113,830 for the
same period in 2009, an increase of $342,426 or 301%. The increase was due to
the increase of increase in payroll expenses as a result of a significant
increase in employees as a result of the large hiring to staff our new
manufacturing facilities in Nanyang. The number of employees has increase from 4
to 114 at the end of the second quarter of 2010 compared to the same period a
year ago.
Foreign
Currency Gain (Loss)
Foreign
currency gain (loss) consists of gains and losses resulting from holding assets
and liabilities and conducting transactions denominated in currencies other than
our functional currencies. During the six months ended June 30, 2010, we
recognized a foreign currency translation gain of $32,676, compared to $28,889
for the three months ended June 30, 2009, an increase of $3,787 or 13%. This
increase was mainly due to the fluctuation between US Dollar and Chinese Yuan
during the reporting period.
10
LIQUIDITY
AND CAPITAL RESOURCES
Our
operation is primarily funded through paid-in capital and short term and long
term loans from the related parties. As of June 30, 2010, we had $911,276 in
cash, cash equivalents and marketable securities, compared with $1,115,047 ended
December 31, 2009. We do not have any off balance sheet arrangements that are
reasonably likely to have a current or future effect on our financial condition,
operating results and cash flows.
Operating
Activities
For the
six months ended June 30, 2010, cash used in operating activities was $828,391
compared with $115,447 used during the six months ended June 30, 2009. This was
primarily attributable to cash used in prepaid expenses, other current assets
and inventory. Offset to the increase was an increase in imputed interest on
advances from related parties and interest payable on long term loans from
related parties of $44,374 and $57,945 respectively and net increase in accounts
payable and accrued expenses of $230,735.
Investment
Activities
For the
six months ended June, 2010, cash used in investment activities was $906,502
compared to $285,271 for the six months ended June 30, 2009. The increase is
primarily related to cash paid as deposits for future deliveries of equipment
and acquisition of property and equipment as a result of a series equipment
purchases for our new manufacturing facilities in Nanyang.
Financing
Activities
Financing
activities provided net cash inflow of $1,524,273 during the first six months of
2010 as compared to $612,685 for the same period 2009. The increase was due to
increased borrowing from related parties. The company may continue to borrow
from the related parties to finance the future development.
Off-Balance
Sheet Arrangements
As of
June 30, 2010, we have not entered into any financial guarantees or other
commitments to guarantee the payment obligations of any other parties. We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, operating results and cash
flows.
The
recent and unprecedented disruption in the credit markets has had a significant
impact on a number of financing activities. Additional financing is desirable
within the next 9 months in order to meet our current and projected cash flow
deficits from business operations and future development. We will continue to
seek financing from related parties and other sources.
In
addition, we continues to enhance our sale and marketing efforts such as
participating in international trade shows and increasing our sales staff in
order to generate sales. We entered into a sales contract with C.T.O., spol.
s.r.o. on June 18, 2010 to sell 20MW of monocrystalline solar modules for an
aggregate sales price of $32,600,000. Although pursuant to the agreement 15% of
the aggregate sales price was due on June 28, 2010, to date we have not received
any payment and there is no guaranty that we ever will.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Not
required.
11
Item 4T. Evaluation of Disclosure Controls and
Procedures
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.
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.
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.
CEO
AND CFO CERTIFICATIONS
We have
attached as exhibits to this Quarterly Report on Form 10-Q the certification of
our Chief Executive Officer and Chief Financial Officer which are required in
accordance with the Exchange Act. We recommend that this Item 4 be read in
conjunction with those certifications for a more complete understanding of the
subject matter presented.
LIMITATION
ON THE EFFECTIVENESS OF CONTROLS
The
inherent limitations of the control systems, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives are being met. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Control systems can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
12
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
As of
this quarter reported ended June 30, 2010, there is no pending litigation made
against Universal Solar Technology, Inc. In the ordinary conduct of our
business, we are subject to periodic lawsuits, investigations and claims,
including, but not limited to, routine employment matters.
Item
1A. Risk Factors
There
have been no material changes from risk factors as previously disclosed in our
annual report on Form 10-K filed on March 31, 2010.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
For a
description of the unregistered sales of equity securities and use of proceeds,
refer to our Annual Report on Form 10-K for the year ended December 31, 2009
filed with Securities and Exchange Commission. No advertising and general
solicitation was employed in offering the securities. The offerings and sales
were made to a limited number of persons, all of whom were accredited investors
and executive officers of our company. All of our shareholders are provide with
access to our Securities and Exchange Commission filings.
Item
3. Defaults upon Senior Securities
None.
Item
4. Other Information
None.
Item
5. 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.
|
||
|
Date:
August 16, 2010
|
By:
|
/s/ Wensheng Chen
|
|
Wensheng
Chen
|
||
|
Chief
Executive Officer
|
||
|
By:
|
/s/ Lijie Zhu
|
|
|
Lijie
Zhu
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
|
||
14