HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Year Ended June 30
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(94,245,804
|
)
|
|
$
|
(3,463,774
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,572,017
|
|
|
|
1,376,901
|
|
Amortization
|
|
|
729,209
|
|
|
|
70,953
|
|
Change in fair value of warrants
|
|
|
(2,833,882
|
)
|
|
|
(7,131,724
|
)
|
Bad debt expense
|
|
|
5,715,538
|
|
|
|
10,113,269
|
|
Amortization of prepaid expenses
|
|
|
16,670
|
|
|
|
83,330
|
|
Loss from inventory LCM
|
|
|
-
|
|
|
|
44,388
|
|
Impairment loss on investment
|
|
|
1,530,173
|
|
|
|
-
|
|
Impairment loss of long-lived assets and construction in progress
|
|
|
42,688,520
|
|
|
|
2,431,718
|
|
Impairment loss of intangibles
|
|
|
52,809,815
|
|
|
|
-
|
|
Gain from assets transfer
|
|
|
(5,122,075
|
)
|
|
|
-
|
|
Gain of other payable write off
|
|
|
(13,997
|
)
|
|
|
-
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable, trade
|
|
|
(6,745,750
|
)
|
|
|
(5,009,210
|
)
|
Notes receivable, trade
|
|
|
-
|
|
|
|
-
|
|
Other receivables
|
|
|
4,680,034
|
|
|
|
895,390
|
|
Inventories
|
|
|
2,926,207
|
|
|
|
4,220,150
|
|
Advances to suppliers
|
|
|
3,895,436
|
|
|
|
(958,306
|
)
|
Accounts payable, trade
|
|
|
(42,263
|
)
|
|
|
(2,917,080
|
)
|
Other payables and accrued liabilities
|
|
|
(990,937
|
)
|
|
|
638,907
|
|
Customer deposits
|
|
|
-
|
|
|
|
-
|
|
Taxes payable
|
|
|
20,432
|
|
|
|
135,602
|
|
Net cash provided by operating activities
|
|
|
6,589,343
|
|
|
|
530,514
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Collection of loans receivable
|
|
|
-
|
|
|
|
8,232,037
|
|
Loan receivable to CPL
|
|
|
-
|
|
|
|
(200,000
|
)
|
Purchase of gasification equipment
|
|
|
(72,456
|
)
|
|
|
(13,575,250
|
)
|
Prepayments of construction of underground gasification
|
|
|
-
|
|
|
|
(2,606,926
|
)
|
Payment of coal mine acquisition
|
|
|
(4,747,250
|
)
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,819,706
|
)
|
|
|
(8,150,139
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of short-term loans - Bairui Trust
|
|
|
-
|
|
|
|
(8,146,640
|
)
|
Proceeds from short-term loans - CPL
|
|
|
1,638,416
|
|
|
|
4,227,765
|
|
Repayment of short-term loans - CPL
|
|
|
(3,601,712
|
)
|
|
|
(1,990,699
|
)
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
13,204,539
|
|
Proceeds from (payment to) related parties
|
|
|
174,466
|
|
|
|
215,920
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,788,830
|
)
|
|
|
7,510,885
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(21,889
|
)
|
|
|
(1,647
|
)
|
|
|
|
|
|
|
|
|
|
DECREASE IN CASH
|
|
|
(41,082
|
)
|
|
|
(110,387
|
)
|
|
|
|
|
|
|
|
|
|
CASH, beginning of year
|
|
|
81,605
|
|
|
|
191,992
|
|
|
|
|
|
|
|
|
|
|
CASH, end of year
|
|
$
|
40,523
|
|
|
$
|
81,605
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for income tax
|
|
$
|
1,154,717
|
|
|
$
|
2,053,280
|
|
Cash paid for interest
|
|
$
|
4,137,981
|
|
|
$
|
4,901,566
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Reclassification of short-term loans to Long-term loans
|
|
$
|
-
|
|
|
$
|
29,327,902
|
|
Common stock issued for a service fee
|
|
$
|
-
|
|
|
$
|
100,000
|
|
Issuance of warrants related to the sale of common stock
|
|
$
|
-
|
|
|
$
|
10,047,356
|
|
Transfer of construction in progress plant and equipment
|
|
$
|
6,226,023
|
|
|
$
|
7,052,383
|
|
Reclassification of prepayments to construction in progress
|
|
$
|
2,488,288
|
|
|
$
|
29,947,047
|
|
Reclassification of prepayments to land use right
|
|
$
|
-
|
|
|
$
|
11,902,241
|
|
Reclassification of construction in progress to land use rights
|
|
$
|
-
|
|
|
$
|
11,861,507
|
|
Other payable accrued for land use right registration
|
|
$
|
-
|
|
|
$
|
473,743
|
|
Short term loan transferred according to debt settlement
|
|
$
|
40,123,644
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP.
AND SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of business and organization
Hongli Clean Energy Technologies Corp. (“CETC”
or the “Company”) (formerly known as SinoCoking Coal and Coke Chemical Industries, Inc.) was organized on December
31, 1996, under the laws of the State of Florida. The Company changed its name from SinoCoking Coal and Coke Chemical Industries,
Inc. to Hongli Clean Energy Technologies Corp., effective on July 28, 2015 and its stock is traded on NASDAQ.
The Company was an energy producer which is
in the process of transformation from providing multifunctional energy products to focus on providing clean burning energy located
in the People Republic of China (“PRC” or “China”). The Company currently generates only one kind of product,
synthetic gas, although in the past it also produced raw coal, washed coal, “medium” or mid-coal and coal slurries,
coke, coke powder, coal tar, crude benzol and electricity before the Company closed its coal and coke production in December 2015.
All of the Company’s business operations are conducted by a variable interest entity (“VIE”), Henan Pingdingshan
Hongli Coal & Coking Co., Ltd., (“Hongli”), which is controlled by Top Favour Limited (“Top Favour”)’s
wholly-owned subsidiary, Pingdingshan Hongyuan Energy Science and Technology Development Co., Ltd. (“Hongyuan”), through
a series of contractual arrangements.
Due to the continuing provincial-wide consolidation
program in the Henan province since 2010 that applied to the Company’s coal mines, no raw coal has been mined by the Company
since 2011.
The Company used to wash coal and generate
coke products. Due to increasing stringent environmental requirements and the declining price of coke products, the Company decided
to suspend the production of washed coal and coke products in December 2015 considering the change of policy and the environment
of the market.
The Company also generated electricity from
gas emitted during the coking process, which is used primarily to power the Company’s operations. The Company has not generated
any electricity since July 2014, because one of our coking plants was closed and no gas is emitted without the coking process.
The Company holds equipment and related assets of electricity generation with the plan of using synthetic gas which we generate
in our gasification facility.
The Company generates synthetic gas (“Syngas”)
which is converted from coke using the coke gasification facility since October 2014. Synthetic gas is clean-burning fuel which
has been encouraged by the government. Syngas is the only product that the Company produces currently.
On August 28, 2014, the Company entered into
a cooperative agreement with North China Institute of Science and Technology regarding the current underground coal gasification
(“UCG”) development to refine and implement a technology to convert the Company’s coal mines into producing Syngas.
The UCG project was approved by the local governmental agency to be a Science & Technology Practice Project. The Company initially
planned to implement the UCG technology to all its coal mines once the UCG construction was completed to achieve economic efficiency.
On January 10, 2016, the Company entered into
a Credit and Debt Transfer Agreement with an unrelated third party, Wuhan Guangyao New Energy Automobile Operation Co., Ltd. (“Guangyao”).
As of December 31, 2015, the Company had certain credit assets (advance payments, including short-term and long-term portions,
and accounts receivable) with a book value of RMB 254,160,210.59 and outstanding debts (accounts payable, interest payable, and
short-term loans) with a book value of RMB 274,167,269.37. According to the Credit and Debt Transfer Agreement, the Company transferred
those assets and debts valued at December 31, 2015 to Guangyao in a lump sum. Guangyao will conduct the collection and the clearance
by itself. The Company shall compensate Guangyao regarding the difference of US$3,032,994 (RMB 20,007,058) between
the book value of the transferred credit assets and debts. The Company shall pay US$3,032,994 (RMB 20,007,058) to
Guangyao within 6 months after this Credit and Debt Transfer Agreement becomes effective. If it is not paid off timely, Guangyao
has the right to charge the Company at an annual interest rate of 4.5% for the then unpaid amount after 6 months of the effective
date of this agreement, until it is cleared. With regards to the Credit and Debt Transfer Agreement, Guangyao will be responsible
to discuss and negotiate with the Company’s creditors and debtors, and get unanimous consents from the creditors and debtors
including Bairui Trust Co., Ltd. Guangyao is also responsible for arbitration and lawsuits with other creditors and debtors during
the performance process of this agreement, and enforce the decisions of arbitration and lawsuits. As a result of the transfer,
the Company recorded gain from assets transfer of $5,122,075 as a result of previous reserves provided on advance to suppliers
and prepayments.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 25, 2016, the Company entered into
an Asset Transfer Agreement for 900,000 Tons of Coking Assets in Construction with Guangyao. As of December 31, 2015, the Company’s
900,000 tons of stamp-charging coking assets in construction are worth US$48,440,947 (RMB 319,531,307). Based on
the agreement, the Company agrees to transfer to Guangyao the 900,000 tons of stamp-charging coking assets in construction for
RMB 45,692,140. Guangyao shall pay the Company all the payment agreed in this agreement within 6 months after this agreement becomes
effective. If it is not paid off timely, Guangyao will be charged at an annual interest rate of 4.5% for the then unpaid amount
after 6 months of the effective date of this agreement, until it is cleared. This assets transfer agreement was not subsequently
executed as the Company did not receive any payments from Guangyao as of the date of the report and the Company still have retained
title of the Coking Asset.
Beginning from early 2016, the Chinese Government
implemented a series of policies to cut off or limit the nationwide production capacity of various industries, including governmental
and private companies, to restructure the country’s economy, to focus on crude steel related production and coal and coke
related industries. The change of the policies from the Chinese Government and the environment of macro-economy had significantly
limited the Company’s ability to resume its coal mining and coke production operations in the future.
On March 25, 2016, the Company entered
into an asset and equity transfer agreement with Pingdingshan Hongfeng Coal Processing and Coking Factory
(“Hongfeng”). In accordance with the transfer agreement, the Company sold its coking factory, coal related assets
and the equity interest of subsidiaries, including assets in Baofeng Coking, Underground Coal Gasification project, 100% of
the equity interest of Baofeng Hongchang Coal Co., Ltd. and Baofeng Shuangrui Coal Mining Co., Ltd., 60% of the equity
interest of Baofeng Xingsheng Coal Mining Co., Ltd., 100% of the equity interest of Henan Zhonghong Energy Investment Co.,
Ltd., and 100% of the equity interest of Baofeng Hongrun Coal Chemical Co., Ltd., to Hongfeng for approximately US $2.5
million or RMB 15,843,534.32 and reported an aggregate loss of approximately US $58 million. This transfer agreement was not
subsequently executed, thus the Company still maintains ownership of all its subsidiaries.
The accompanying consolidated financial statements
reflect the activities of the Company and each of the following entities:
Name
|
|
Background
|
|
Ownership
|
|
|
|
|
|
|
|
Top Favour
|
|
A British Virgin Islands company
Incorporated on July 2, 2008
|
|
100%
|
|
|
|
|
|
|
|
Hongyuan
|
|
A PRC limited liability company and deemed a wholly foreign owned
enterprise (“WFOE”)
created on March 18, 2009
Registered capital of $3 million fully funded
|
|
100%
|
|
|
|
|
|
|
|
Hongli
|
|
A PRC limited liability company
created on June 5, 1996
Initial registered capital of US $1,055,248 or 8,808,000 Renminbi
(“RMB”), further increased to US $4,001,248 (RMB 28,080,000) on August 26, 2010, fully funded
85.40% of equity interests held by Jianhua Lv, the Company’s
Chief Executive Officer (“CEO”) and Chairman of the Board of Directors
Operates a branch, Baofeng Coking Factory (“Baofeng Coking”)
|
|
VIE by contractual arrangements
|
|
|
|
|
|
|
|
Baofeng Hongchang Coal Co., Ltd. (“Hongchang Coal”)
|
|
A PRC limited liability company
created on July 19, 2007
Registered capital of US $396,000 (RMB 3,000,000) fully funded
Consolidated and merger Shunli’s coal in July 2014
|
|
VIE by contractual arrangements as a wholly-owned subsidiary of
Hongli
|
|
Baofeng Hongguang Power Co., Ltd. (“Hongguang Power”)
|
|
A PRC limited liability company
created on August 1, 2006
Registered capital of US $2,756,600 (RMB 22,000,000) fully funded
|
|
VIE by contractual arrangements as an indirect wholly-owned subsidiary of Hongli
|
|
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Baofeng Xingsheng Coal Co., Ltd. (“Xingsheng Coal”)
|
|
A PRC limited liability company
created on December 6, 2007
Registered capital of US $559,400 (RMB 3,634,600) fully funded
60% of equity ownership acquired by Hongli on May 20, 2011
|
|
VIE by contractual arrangements as a 60% owned subsidiary of Hongli
|
|
Baofeng Shuangrui Coal Co., Ltd. ( “Shuangrui Coal”)
|
|
A PRC limited liability company
created on March 17, 2009
Registered capital of US $620,200 (RMB 4,029,960) fully funded
60% of equity ownership acquired by Hongli on May 20, 2011
100% of equity ownership acquired by Hongchang on June 20, 2012
|
|
VIE by contractual arrangements as a 100% owned subsidiary of Hongchang
|
|
Zhonghong Energy Investment Company (“Zhonghong”)
|
|
A PRC company
Created on December 30, 2010
Registered capital of US $7,842,800 (RMB 51,000,000) fully funded
equity interests of 100% held by three nominees on behalf of Hongli pursuant to share entrustment agreements
|
|
VIE by contractual arrangements as a wholly-owned subsidiary of Hongli
|
|
Baofeng Hongrun Coal Chemical Co., Ltd. (“Hongrun”)
|
|
A PRC limited liability company
created on May 17, 2011
Registered capital of US $4,620,000 (RMB 30 million) fully funded
|
|
VIE by contractual arrangements as a wholly-owned subsidiary of
Hongli.
|
|
The Company believes that the equity owners
of Hongli do not have the characteristics of a controlling financial interest, and that the Company is the primary beneficiary
of the operations and residual returns of Hongli and, in the event of losses, would be required to absorb a majority of such losses.
Accordingly, the Company consolidates Hongli’s results, assets and liabilities in the accompanying financial statements.
Selected financial data of Hongli and its subsidiaries
is set forth below:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Total current assets
|
|
$
|
120,745
|
|
|
$
|
7,938,342
|
|
Total assets
|
|
$
|
38,461,764
|
|
|
$
|
176,470,756
|
|
Total current liabilities
|
|
$
|
4,646,537
|
|
|
$
|
90,206,205
|
|
Total liabilities
|
|
$
|
4,646,537
|
|
|
$
|
90,206,205
|
|
Presently, the Company’s coke gasification
related operations are carried out by Hongli. Except for coke gasification, other operations were halted as of June 30, 2016. Before
halting operations, the Company was organized and operated as follows: coking operation were carried out by Baofeng, coking coke
and coal trading activities were carried out by Hongli, electricity generation was carried out by Hongguang Power, and coal related
operations were carried out by Hongchang Coal, Shuangrui Coal and Xingsheng Coal, respectively.
Liquidity and going concern issues
The accompanying financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation
of the Company as a going-concern basis. The going-concern basis assumes that assets are realized and liabilities are extinguished
in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability to continue as
a going concern depends upon the liquidation of its current assets. The Company’s operations scale was cut largely and the
remaining business of coke gasification has not made up the discontinuance of the coal and coking business. this raises substantial
doubt about the Company’s ability to continue as a going concern.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In an effort to improve its financial position
and operations, the Company is working to transform its resources to invest in the green and new energy business, included but
not limited to coke gasification and electricity generation.
As of June 30, 2016, the Company’s current
liabilities were $5,709,882. The Company has negotiated with Guangyao to extend the due date of the payable which is still due
on demand. The Company’s shareholder has provided approximately $900,000 to fund the Company’s operations. The Company
may also raise fund through private placement or issue shares to repay its liabilities come due.
In addition, the Company’s shareholders
will continue to provide support to fund the Company’s operational needs. Management believes that if successfully executed,
the foregoing actions would enable the Company to continue as a going-concern.
Note 2 – Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries – Top
Favour and Hongyuan, and its VIEs– Hongli and its subsidiaries. All significant inter-company transactions and balances between
the Company, its subsidiaries and VIEs are eliminated upon consolidation
VIEs are generally entities that lack sufficient equity to finance
their activities without additional financial support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved are evaluated to determine the primary beneficiary of the risks and rewards
of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. As a result of the contractual
arrangements described below, the Company, through Hongyuan, is obligated to absorb a majority of the risk of loss from Hongli’s
activities and the Company is to receive a majority of Hongli’s expected residual returns. The Company accounts for Hongli
as a VIE as it is the primary beneficiary. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
Management makes ongoing assessments of whether Hongyuan is the primary beneficiary of Hongli and its subsidiaries.
Accounting Standards Codification (“ASC”) 810 –
“Consolidation” addresses whether certain types of entities referred to as VIEs, should be consolidated in a company’s
consolidated financial statements. The contractual arrangements entered into between Hongyuan and Hongli are comprised of the following
series of agreements:
|
(1)
|
a Consulting Services Agreement, through which Hongyuan has the right to advise, consult, manage and operate Hongli and its
subsidiaries (“the Operating Companies”), collect, and own all of the respective net profits of the Operating Companies;
|
|
(2)
|
an Operating Agreement, through which Hongyuan has the right to recommend director candidates and appoint the senior executives
of the Operating Companies, approve any transactions that may materially affect the assets, liabilities, rights or operations of
the Operating Companies, and guarantee the contractual performance by the Operating Companies of any agreements with third parties,
in exchange for a pledge by the Operating Companies of their respective accounts receivable and assets;
|
|
(3)
|
a Proxy Agreement, under which the equity holders of the Operating Companies have given their voting control over the Operating
Companies to Hongyuan and will only transfer their equity interests in the Operating Companies to Hongyuan or its designee(s);
|
|
(4)
|
an Option Agreement, under which the equity holders of the Operating Companies have granted Hongyuan the irrevocable right
and option to acquire all of its equity interests in the Operating Companies, or, alternatively, all of the assets of the Operating
Companies; and
|
|
(5)
|
an Equity Pledge Agreement, under which the equity holders of the Operating Companies have pledged all of their rights, title
and interest in the Operating Companies to Hongyuan to guarantee the Operating Companies’ performance of their respective
obligations under the Consulting Services Agreement.
|
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since Top Favour, Hongyuan and Hongli are under common control,
the above contractual arrangements have been accounted for as a reorganization of entities and the consolidation of the Top Favour,
Hongyuan and Hongli has been accounted for at the historical cost similar to a pooling-of-interest and prepared on the basis as
if the contractual arrangements had become effective as of the beginning of the first period presented in the accompanying consolidated
financial statements.
Use of estimates
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of
management estimates and assumptions relate to coal reserves that are the basis for future cash flow estimates and units-of-production
depletion calculations; asset impairments; allowance for doubtful accounts and loans receivable; valuation allowances for deferred
income taxes; reserves for contingencies; stock-based compensation and the fair value and accounting treatment for warrants. Management
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
Accordingly, actual results may differ significantly from these estimates.
Stock-based compensation
The Company records share-based compensation
expense using the grant date fair value of share-based awards. The value of the award is principally recognized as expense ratably
over the requisite service periods. The Company uses the Black-Scholes Merton (“BSM”) option-pricing model, which incorporates
various assumptions including volatility, expected life and interest rates to determine fair value. The Company’s expected
volatility assumption is based on the historical volatility of Company’s stock. The expected life assumption is primarily
based on the simplified method of the terms of the options. The risk-free interest rate for the expected term of the option is
based on the U.S. Treasury yield curve in effect at the time of grant.
Stock-based compensation expense is recognized
based on awards expected to vest. U.S. GAAP requires forfeitures to be estimated at the time of grant and revised in subsequent
periods, if necessary, when actual forfeitures differ from those estimates. There were no estimated forfeitures as the Company
has a short history of issuing options.
Revenue recognition
Coal and coke sales are recognized at the date
of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability is reasonably assured. This generally occurs when coal and coke
is loaded onto trains or trucks at one of the Company’s loading facilities or at third party facilities.
Substantially, if not all, of the electricity
generated by Hongguang Power is typically used internally by Baofeng Coking. Supply of surplus electricity generated by Hongguang
Power to the national power grid is mandated by the local utilities board. The value of the surplus electricity supplied, if it
exists, is calculated based on actual kilowatt-hours produced and transmitted and at a fixed rate determined under contract. During
the years ended June 30, 2016 and 2015, the Company did not generate any electricity power because Hongguang Power was closed since
July 2014.
The Company generally sells syngas under long-term
agreements at fixed prices. In some cases, syngas may be sold with periodic price adjustments. Revenues are recognized when the
products are delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices
are fixed or determinable and collectability is reasonably assured.
Coal, coke and syngas sales represent the invoiced
value of goods, net of a value-added tax (“VAT”), sales discounts and actual returns at the time when product is sold
to the customer.
Foreign currency translation and other comprehensive income
The reporting currency of the Company is the
U.S. dollar. The functional currency of the Company, its subsidiaries and VIEs in the PRC is denominated in RMB.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the subsidiaries and VIEs whose functional
currencies are other than the U.S. dollar, all assets and liabilities accounts were translated at the exchange rate on the balance
sheet date; shareholders’ equity is translated at the historical rates and items in the statement of operations are translated
at the average rate for the period. Items in the cash flow statement are also translated at average translation rates for the periods,
therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances
on the balance sheet. Translation adjustments resulting from this process are included in accumulated other comprehensive income
in the statement of equity. The resulting transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the results of operations.
Translation adjustments included in
accumulated other comprehensive income amounted to $3,234,871 and $11,484,613 as of June 310, 2016 and 2015, respectively The
balance sheet amounts, with the exception of equity, at June 30, 2016 and 2015 were translated at RMB 6.64 to $1 and RMB 6.11
to $1, respectively. The average translation rates applied to income and cash flow statement amounts were at RMB 6.43 to $1
and RMB 6.14 to $1 for the years ended June 30, 2016 and 2015, respectively.
Fair value of financial instruments
The Company uses a three-level valuation hierarchy
for disclosures of fair value measurement. The carrying amounts reported in the accompanying consolidated balance sheets
for receivables, payables and short term loans qualify as financial instruments are a reasonable estimate of fair value because
of the short period of time between the origination of such instruments, their expected realization and, if applicable, the
stated rate of interest is equivalent to rates currently available. The three levels of valuation hierarchy are defined as follows:
Level 1
|
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
Level 2
|
Inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability,
either directly or indirectly, for substantially the full term of the financial instruments.
|
Level 3
|
Inputs to the valuation methodology are unobservable.
|
The Company determined that the carrying value
of its long-term loans approximated their fair value using level 2 inputs by comparing the stated loan interest rate to the rate
charged by the Bairui Trust on similar loans (see Note 13).
The following table sets forth by level within
the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring
basis as of June 30, 2016:
|
|
Carrying value at
June 30, 2016
|
|
|
Fair value measurement at
June 30, 2016
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Warrants liability
|
|
$
|
81,767
|
|
|
$
|
—
|
|
|
$
|
81,767
|
|
|
$
|
—
|
|
The following is a reconciliation of the beginning
and ending balances of warrants liability measured at fair value on a recurring basis using observable inputs as of June 30, 2016
and 2015:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning fair value
|
|
$
|
2,915,649
|
|
|
$
|
16
|
|
Realized gain recorded in earnings
|
|
|
(2,833,882
|
)
|
|
|
(7,131,724
|
)
|
Granted financial instrument
|
|
|
|
|
|
|
10,07,357
|
|
Ending fair value
|
|
$
|
81,767
|
|
|
$
|
2,915,649
|
|
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Number of shares exercisable
|
|
|
163,493
|
|
|
|
172,166
|
|
Range of exercise price
|
|
$
|
63.8
|
|
|
$
|
60.00-480.00
|
|
Stock price
|
|
$
|
2.80
|
|
|
$
|
17.5
|
|
.Expected term (years)
|
|
|
2.24
|
|
|
|
0.00-3.24
|
|
Risk-free interest rate
|
|
|
0.61
|
|
|
|
0.02-1.34
|
%
|
Expected volatility
|
|
|
110.99%-120.46
|
%
|
|
|
51-88
|
%
|
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to assets and liabilities that
are recorded at fair value on a recurring basis, the Company is required to record certain financial assets and liabilities at
fair value on a non-recurring basis. Generally, assets are recorded at fair value on a non-recurring basis as a result of impairment
charges. For the year ended June 30, 2015, the Company’ s two long term investments were not considered impaired, the Company
wrote off one of the investments amounted to $1,530,273 for the year ended June 30, 2016.
The Company did not identify any other assets and liabilities that
are required to be presented on the consolidated balance sheets at fair value.
Cash
The Company considers all highly liquid investments
with original maturities of three months or less at the time of purchase to be cash equivalents for cash flow statement purposes.
Cash includes cash on hand and demand deposits in accounts maintained with state owned banks within the PRC and with banks in Hong
Kong and in the United States of America.
Balances at financial institutions or state
owned banks within the PRC are not covered by insurance. Balances at financial institutions in Hong Kong may, from time
to time, exceed Hong Kong Deposit Protection Board’s insured limits. As of June 30, 2016 and 2015, the Company
had $40,523 and $37,911 of cash deposits, including restricted cash, which were not covered by insurance, respectively.
The Company has not experienced any losses in such accounts.
Accounts receivables, trade
During the normal course of business, the Company
extends unsecured credit not exceeding three months to its customers. Management regularly reviews the aging of receivables and
changes in payment trends by its customers, and records an allowance when management believes collection of amounts due are at
risk. Accounts receivables are considered past due after three months from the date credit was granted. Accounts considered uncollectible
after exhaustive efforts to collect are written off. The Company regularly reviews the credit worthiness of its customers and,
based on the results of the credit review, determines whether extended payment terms can be granted to or, in some cases, partial
prepayment is required from certain customers. As of June 30, 2016 and 2015, $5,715,538 and $217,905 allowance for doubtful accounts
was provided, respectively.
Other receivables and deposits
Other receivables include a security deposit
made by the Company for the auction of non-performing assets, interest receivable on loans, advances to employees for general business
purposes and other short term non-traded receivables from unrelated parties, primarily as unsecured demand loans, with no stated
interest rate or due date. Management regularly reviews the aging of other receivables and deposits and changes in payment trends
and records a reserve when management believes collection of amounts due are at risk. Accounts considered uncollectible are written
off after exhaustive efforts at collection. As of June 30, 2016 and 2015, an allowance for doubtful accounts was not necessary.
Inventories
Inventories are stated at the lower of cost
or market, using the weighted average cost method. Inventories consist of raw materials, supplies, work in process, and finished
goods. Raw materials mainly consist of coal (mined and purchased), rail, steel, wood and additives used by the Company. The cost
of finished goods includes (1) direct costs of raw materials, (2) direct labor, (3) indirect production costs, such as allocable
utilities cost, and (4) indirect labor related to the production activities, such as assembling and packaging. Management compares
the cost of inventories with the market value and an allowance is made for writing down the inventory to its market value, if lower
than cost. On an ongoing basis, inventories are reviewed for potential write-down for estimated obsolescence or unmarketable inventories
equal to the difference between the cost of the inventory and the estimated net realizable value based upon forecasts for future
demand and market conditions. When inventories are written-down to the lower of cost or market, they are not marked up subsequently
based on changes in underlying facts and circumstances. As of June 30, 2016 and 2015, amount to $0 and $44,597, respectively, was
reported as allowance for impairment.
Advances to suppliers
The Company advances monies or may legally
assign its notes receivable-trade (which are guaranteed by banks) to certain suppliers for raw material purchases. Such advances
are interest-free and unsecured. Management regularly reviews the aging of advances to suppliers and changes in material receiving
trends and records an allowance when management believes receipt of the materials due are at risk. Advances aged over one year
and considered uncollectible are written off after exhaustive efforts at collection. As of June 30, 2016 and 2015, the allowance
for advances to suppliers was $0 and $1,512,785, respectively.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plant and equipment, net
Plant and equipment are stated at cost. Expenditures
for maintenance and repairs are charged to operations as incurred, while additions, renewals and betterments that extend the useful
life are capitalized. When items of plant and equipment are retired or otherwise disposed, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is included in operations. Mine development costs are
capitalized and amortized by the units of production method over the estimated total recoverable proven and probable reserves.
Depreciation of plant and equipment is provided using the straight-line method for substantially all assets with estimated lives
as follows:
|
Estimated useful life
|
Building and plant
|
20 years
|
Machinery and equipment
|
10-20 years
|
Other equipment
|
3-5 years
|
Transportation equipment
|
5-7 years
|
Construction-in-progress (“CIP”)
includes direct costs of constructions for our coke gasification facility, UCG underground safety improvement, and the Company’s
new coking plant. Interest incurred during the period of construction, if material, is capitalized. For the years ended June 30,
2016 and 2015, no interest was capitalized for construction in process. CIP is not depreciated until such time the asset in question
is completed and put into service.
Security deposit
Secure deposit was from Henan Coal Seam Gas
and is related to a joint venture between the Company and them (see Note 12). Management regularly reviews these deposits and changes
in payment trends and records a reserve when management believes collection of amounts due are at risk. Accounts considered uncollectible
are written off after exhaustive efforts at collection. As of June 30, 2016 and June 30, 2015, the allowance for the deposits was
$0 and $4,887,984, respectively.
Intangible assets
Costs to obtain land use rights are recorded
based on the fair value at acquisition and amortized over 36 to 40 years, the contractual period of the rights. Intangible assets
with finite lives are amortized over their useful lives and reviewed at least annually for impairment.
Mining rights are capitalized at fair value
when acquired, including amounts associated with any value beyond proven and probable reserves, and amortized to operations as
depletion expense using the units-of-production method over the estimated proven and probable recoverable amounts. The Company’s
materials that may contain coal are controlled through direct ownership by our VIEs which generally last until the recoverable
materials that may contain coal are depleted. As of June 30, 2016, the Company has provided 100% reserve on its intangible assets
due to the suspension of coal and coking related operations.
Impairment of long - lived assets
The Company evaluates long-lived tangible and
intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable
from its estimated future cash flows, in accordance with the accounting guidance regarding “Disposal of Long-Lived Assets.”
Recoverability is measured by comparing an asset’s carrying value to the related projected undiscounted cash flows generated
by the long-lived asset or asset group, considering a number of factors including past operating results, budgets, economic projections,
market trends and product development cycles. When the carrying value of the asset exceeds the related undiscounted cash flows,
the asset is considered impaired, and a second test is performed to measure the amount of impairment loss to the extent that the
carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash
flow models, quoted market values and third party independent appraisals, as considered necessary. As of June 30, 2016, the Company
has provided $42,688,520 reserve on impairment on its long-lived assets mainly on buildings, equipment and construction in progress.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term investments
Investments in equity securities of privately-held
companies in which the Company holds less than a 20% voting interest and to which the Company does not have the ability to exercise
significant influence are accounted for under the cost method.
Entities in which the Company has the ability
to exercise significant influence, but does not have a controlling interest, are accounted for under the equity method. Significant
influence is generally considered to exist when the Company has between 20% and 50% of ownership interest in the voting rights,
but other factors, such as representation on the board of directors, voting rights and the impact of commercial arrangements, are
considered in determining whether the equity method of accounting is appropriate.
The Company evaluates potential impairment
whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. For investments
carried at cost, the Company recognizes impairment in the event that the carrying value of the investment exceeds the Company’s
proportionate share of the net book value of the investee. Impairment charges amounted to $1,530,273 and $0 for the year ended
June 30, 2016 and 2015, respectively.
Asset retirement cost and obligations
The Company accounts for the asset
retirement cost and obligations to retire tangible long-lived assets in accordance with U.S. GAAP, which requires that the
Company’s legal obligations associated with the retirement of long-lived assets be recognized at fair value at the time
the obligations are incurred. Such obligations are incurred when development commences for underground mines or construction
begins for support facilities, refuse areas and slurry ponds. If an entity has a conditional asset retirement obligation, a
liability should be recognized when the fair value of the obligations can be reasonably estimated.
The obligation’s fair value is determined
using discounted cash flow techniques and is accreted over time to its expected settlement value. Upon initial recognition of a
liability, a corresponding amount is capitalized as part of the carrying amount of the related long-lived asset. Amortization of
the related asset is calculated on a unit-of-production method by amortizing the total estimated cost over the salable materials
that may contain coal as determined under SEC Industry Guide 7, multiplied by the production during the period.
Asset retirement costs generally include the
cost of reclamation (the process of bringing the land back to its natural state after completion of exploration activities) and
environmental remediation (the physical activity of taking steps to remediate, or remedy, any environmental damage caused).
In May 2009, the Henan Bureau of Finance and
the Bureau of Land and Resource issued regulations requiring mining companies to file an evaluation report regarding the environmental
impact of their mining (the “Evaluation Report”) before December 31, 2010. The relevant authorities would then determine
whether to approve the Evaluation Report after performing on-site investigation, and the asset retirement obligation would be determined
by the authorities based on the approved filing. Such requirement was extended along with the extension of the provincial mine
consolidation schedule, although the specific extension date has not been finalized by the relevant provincial authorities.
The Company did not record any asset retirement
obligation as of June 30, 2016 and 2015 because the Company did not have sufficient information to reasonably estimate the fair
value of such obligation. The range of time over which the Company may settle the obligation is unknown and cannot be reasonably
estimated. In addition, the settlement method for the obligation cannot be reasonably determined. The amount of the obligation
to be determined by the relevant authorities is affected by several factors, such as the extent of remediation required in and
around the mining area, the methods to be used to remediate the mining site, and any government grants which may or may not be
credited to the mining companies.
The Company will recognize the liability in the period in which
sufficient information is available to reasonably estimate its fair value.
Income taxes
The Company accounts for income taxes in accordance
with the accounting principles generally accepted in the United States for income taxes. Under the asset and liability method as
required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax
consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision
for income taxes consists of taxes currently due plus deferred taxes. The accounting principles generally accepted in the United
States for accounting for uncertainty in income taxes clarify the accounting and disclosure for uncertain tax positions. A
tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not”
test, no tax benefit is recorded.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The charge for taxation is based on the results
for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
Deferred income taxes are provided on the asset
and liability method for temporary differences arising from differences between the carrying amount of assets and liabilities in
the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle,
deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent
that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred
tax is calculated at the tax rates that are expected to apply in the period when the asset is realized or the liability is
settled. Deferred tax is charged or credited in the income statement, except when its related to items credited or charged
directly to equity.
An uncertain tax position is recognized as
a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax
benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense
in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years
ended June 30, 2016 and 2015.
The Company did not file its U.S. federal income tax returns, including, without limitation, information returns on Internal
Revenue Service (“IRS”) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations”
and "Report of Foreign Bank and Financial Accounts" for the fiscal years ended June 30, 2016. Failure to furnish any income
tax returns and information returns with respect to any foreign business entity required, within the time prescribed by the
IRS, subjects the Company to certain civil penalties. Management is of the opinion that penalties, if any, that may be assessed
would not be material to the consolidated financial statements.
In addition, because the Company did not generate any income
in the United States or otherwise have any U.S. taxable income, the Company does not believe that it has any U.S. Federal
income tax liabilities with respect to any transactions that the Company or any of its subsidiaries may have engaged in through
June 30, 2016. However, there can be no assurance that the IRS will agree with this position, and therefore the Company ultimately
could be liable for U.S. Federal income taxes, interest and penalties. The tax years ended June 30, 2016, 2015 and 2014 remain
open to examination by the IRS.
Chinese income taxes
The Company’s PRC subsidiary and VIEs
are governed by the national and local income tax laws (the “Income Tax Laws”), and are generally subject to a statutory
income tax rate of 25% of taxable income, which is based on the net income reported in the statutory financial statements after
appropriate tax adjustment.
Value added tax
Sales revenue represents the invoiced value
of goods, net of VAT. All of the Company’s coal and coke are sold in the PRC and subject to VAT at a rate of 17% of the
gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost
of producing finished products. The Company records VAT payable and VAT receivable net of payments in its consolidated financial
statements. The VAT tax return is filed to offset the VAT payables against the receivables.
Warrants liability
A contract is designated as an asset or a liability
and is carried at fair value on the Company’s balance sheet, with any changes in fair value recorded in its results of operations.
The Company then determines which options, warrants and embedded features require liability accounting and records the fair value
as a derivative liability. The changes in the values of these instruments are shown in the accompanying consolidated statements
of income and other comprehensive income as “change in fair value of warrants.”
In connection with the Company’s share
exchange transaction in February 2010 with Top Favour, whereby Top Favour became a wholly-owned subsidiary of the Company (the
“Share Exchange”), the Company adopted the provisions of an accounting standard regarding instruments that are indexed
to an entity’s own stock. This accounting standard specifies that a contract that would otherwise meet the definition of
a derivative but is both (a) indexed to the Company’s own stock and (b) classified in equity in the statement of financial
position would not be considered a derivative financial instrument. It provides a new two-step model to be applied in determining
whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the
scope exception within the standards. As a result of adopting this accounting standard, all warrants issued after the Share Exchange
are recorded as a liability because their strike price is denominated in U.S. dollars, while the Company’s functional currency
is denominated in RMB.
All warrants issued before the Share Exchange,
which were treated as equity pursuant to the derivative treatment exemption prior to the Share Exchange, are also no longer afforded
equity treatment for the same reason. Since such warrants are no longer considered indexed to the Company’s own stock, all
future changes in their fair value will be recognized currently in earnings until they are exercised or expire.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Noncontrolling interests
Noncontrolling
interests mainly consist of a 40% equity interest of Xingsheng Coal owned by unrelated parties. For the years ended June 30, 2016,
net loss attributable to such noncontrolling interests amounted to $4,354,504 due to impairment reserve on mining rights. The
balance of noncontrolling interest was $0 and $4,331,600 for the years ended June 30, 2016 and 2015, respectively.
Earnings (loss) per share
The Company reports earnings per share in accordance
with the provisions of ASC – 260 “Earnings per Share.” This standard requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings
per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common
shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted into common stock. Dilution is computed by applying
the treasury stock method. Under this method, option and warrants are assumed to be exercised at the beginning of the period (or
at the time of issuance, if later), and as if funds obtained thereby are used to purchase common stock at the average market price
during the period. If the Company has a loss, no potential shares, issuable are included in the fully diluted shares as they would
be anti-dilutive.
Comprehensive income
Accounting standards regarding comprehensive
income establishes requirements for the reporting and display of comprehensive income (loss), its components and accumulated balances
in a full set of general purpose financial statements. This accounting standard defines comprehensive income to include all changes
in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, it also requires
all items recognized under current accounting standards as components of comprehensive income (loss) to be reported in financial
statement that is presented with the same prominence as other financial statements. The Company's only current component of comprehensive
income are the foreign currency translation adjustments.
Recently issued accounting pronouncements
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with
Customers” (“ASU 2014-9”). ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition
of revenue across all industries through the application of the following five- step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the
performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The updated guidance related to revenue recognition
which affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance requires that
an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for us starting on
January 1, 2018. We are currently evaluating the impact this guidance will have on our combined financial position, results of
operations and cash flows.
In April 2015, the FASB issued guidance to
simplify the presentation of debt issuance costs. This new guidance requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with
debt discounts. This new guidance will be effective for us beginning July 1, 2016. We are currently evaluating the impact of this
standard on our consolidated financial statements.
In September 2015, the FASB issued ASU No.
2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires
that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting
period in which the adjustment amounts are determined. Entities are currently required to retrospectively apply adjustments made
to provisional amounts recognized in a business combination. ASU 2015-16 is effective for fiscal years beginning after December
15, 2015, including interim periods within those fiscal years. The guidance is to be applied prospectively to measurement period
adjustments that occur after the effective date of the guidance with earlier application permitted for financial statements that
have not been issued. The Company elected to adopt ASU 2015-16 early, effective in the year ended June 30, 2016.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The standard requires that deferred tax liabilities and
assets be classified as noncurrent in a classified statement of financial position. Entities are currently required to separate
deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position.
The amendments, which require non-current presentation only (by jurisdiction), are effective for financial statements issued for
annual periods beginning after December 15, 2016 with earlier application permitted as of the beginning of an interim or annual
reporting period. The guidance is to be applied either prospectively to all deferred tax liabilities and assets or retrospectively
to all periods presented. The Company elected to early adopt this standard, effective as of June 30, 2016. There was no impact
from this adoption.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The standard requires several targeted changes including that equity investments (except those accounted for under the equity method
of accounting, or those that result in consolidation of the investee) be measured at fair value with changes in fair value recognized
in net income. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. Amendments are
to be applied as a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. This standard
is effective for fiscal years starting after December 15, 2017, including interim periods within those fiscal years. The standard
does not permit early adoption with the exception of certain targeted provisions. The Company is currently assessing the impact
and timing of adopting this guidance on its consolidated financial statements.
In February 2016, the FASB issued a new standard
related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and
lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees
for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet
the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from
leases. We anticipate this standard will have a material impact on our consolidated balance sheets, and we are currently evaluating
its impact.
In March 2016, the Financial Accounting Standards
Board (“FASB”) issued a new standard that changes the accounting for certain aspects of share-based payments to employees.
The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest
or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity
apart from other income tax cash flows. The standard also allows us to repurchase more of an employee’s shares for tax withholding
purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld
shares should be presented as a financing activity on our cash flows statement, and provides an accounting policy election to account
for forfeitures as they occur. The Company is currently assessing the impact and timing of adopting this guidance on its consolidated
financial statements.
Note 3 – Concentration risk
For the year ended June 30, 2016, 79.35%
of the Company’s total revenues were from two main customers who individually accounted for 68.06% and 11.29% of total
revenues. For the year ended June 30, 2015, 57.6% of the Company’s total revenues were from four main customers who
individually accounted for 22.6%, 13.0%, 11.9% and 10.1% of total revenues. Accounts receivable from one main customer was
100% of the total accounts receivable balance at June 30, 2016 with 100% allowance provided. Accounts receivable of four main
customers were 34.7%, 0.1%, 2.3%, and 20.7% of the total accounts receivable balance at June 30, 2015, respectively.
For the year ended June 30, 2016, two main
suppliers provided 22.26% of total raw material purchases, with each supplier individually accounting for 12.32% and 9.95% of total
raw material purchases. For the year ended June 30, 2015, two main suppliers provided 52.3% of total raw material
purchases, with each supplier individually accounting for 33.7% and 18.6% of total raw material purchases. Accounts payable to
the two main suppliers as of June 30, 2016 were $0 of total accounts payable balance at June 30, 2015, respectively. Accounts payable
to the two main suppliers were 7.3% and 7.2% of total accounts payable balance at June 30, 2015.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Other receivables and deposits
Other receivables consisted of the following:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Security deposit for auction
|
|
$
|
-
|
|
|
$
|
4,910,949
|
|
Advances to employees
|
|
|
2,492
|
|
|
|
18,018
|
|
Total
|
|
$
|
2,492
|
|
|
$
|
4,928,967
|
|
Security deposit for auction
On January 26, 2013, Hongli entered into an
agreement with Pingdingshan Rural Credit Cooperative Union (“PRCCU”) to pay $3,249,285 a security deposit to bid at
an auction for some non-performing assets, including certain mining rights subject to the ongoing mine consolidation program. On
January 23, 2015, PRCCU issued a notice indicating that the transaction is terminated due to PRCCU’s internal issues. On
September 25, 2015, the Company had received the refund of the deposit of $4,910,949 or RMB 30 million from PRCCU.
Note 5 – Loans receivable
On June 8, 2011, Capital Paradise Limited (“CPL”)
or previously known as Ziben Tiantang Co., Ltd., an unrelated party, borrowed $10,044,200 from Top Favour, one of the Company’s
consolidated entities, in an unsecured loan at an annual interest rate of 9.45%, with interest due every six months. The loan matured
on June 7, 2012. On June 8, 2012, Top Favour and CPL entered into a supplemental agreement to extend the maturity date to December
7, 2012, and to decrease the interest rate to 7% annually.
On December 8, 2012, both parties entered into
another supplemental agreement to extend the maturity date to June 8, 2013, with 7% annual interest rate. On June 8, 2013 both
parties entered into another supplemental agreement to extend the maturity date to December 7, 2013, with 7% annual interest rate.
In August and September 2012, Top Favour loaned
an additional $350,000 to CPL. This loan is unsecured and has an annual interest rate of 7%, and is due on August 11, 2013. On
August 2, 2013, the Company and CPL entered into a supplemental agreement to extend the remaining balance due to December 31, 2013.
On October 7, 2014, Top Favour loaned an additional
$200,000 to CPL with a short term maturity date of January 31, 2015. The additional loan of $200,000 was interest free and was fully repaid in January 2015.
On January 27, 2014, both parties agreed on
a repayment schedule whereby CPL will repay 50% of the outstanding principal and accrued interest thereon before June 30, 2014,
and the balance and accrued interest thereon before December 31, 2014.
On August 2014, the Company collected $4.5
million from CPL as a repayment and all remaining principal was settled on January 15, 2015. On January 28, 2015 all outstanding
interest payable, which both parties agreed with the amount accrued as of December 31, 2014 was cleared.
For the years ended June 30, 2016 and 2015,
interest incomes from loans receivable amounted to $0 and $164,400, respectively.
Note 6 – Inventories
Inventories consisted of the following:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Raw materials
|
|
$
|
-
|
|
|
$
|
31,074
|
|
Work in process
|
|
|
-
|
|
|
|
839,729
|
|
Supplies
|
|
|
401
|
|
|
|
21,277
|
|
Finished goods
|
|
|
143,137
|
|
|
|
2,344,222
|
|
Total
|
|
|
143,538
|
|
|
|
3,236,202
|
|
Less: impairment reserve
|
|
|
(41,034
|
)
|
|
|
(44,597
|
)
|
Total
|
|
$
|
102,504
|
|
|
$
|
3,191,605
|
|
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 – Advances to suppliers
Advances to suppliers are monies deposited
with or advanced to unrelated vendors for future inventory purchases, which consist mainly of raw coal purchases. Most of the Company’s
vendors require a certain amount of funds to be deposited with them as a guarantee to ensure that the Company will receive its
purchases on a timely basis and with favorable pricing.
Advances to suppliers of amounted to $0
and $8,216,127 as of June 30, 2016 and 2015, respectively. For the years ended June 30, 2016 and 2015, the Company provided
allowance to $0 and $1,512,785, respectively.
Note 8 –Plant and equipment, net
Plant and equipment consisted of the following:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Buildings and improvements
|
|
$
|
12,763,909
|
|
|
$
|
11,196,358
|
|
Mine development cost
|
|
|
11,419,165
|
|
|
|
11,828,890
|
|
Machinery and equipment
|
|
|
17,598,553
|
|
|
|
15,606,700
|
|
Other equipment
|
|
|
212,076
|
|
|
|
413,449
|
|
Total
|
|
|
41,993,703
|
|
|
|
39,045,397
|
|
Less accumulated depreciation
|
|
|
(17,934,453
|
)
|
|
|
(17,852,012
|
)
|
Less: impairment reserve
|
|
|
(24,032,619
|
)
|
|
|
(2,443,143
|
)
|
Total plant and equipment, net
|
|
$
|
26,631
|
|
|
$
|
18,750,242
|
|
As of June 30, 2016 and 2015, the Company has
an impairment reserve for its plant and equipment of $24,032,619 and $2,443,143, respectively.
Depreciation expense (including amounts
in cost of goods sold) amounted to $1,572,017 and $1,376,901 for the years ended June 30, 2016 and 2015, respectively. No
depreciation expense was incurred for mining-related assets due to the shutdown of all coal mine operations since September
2011.
Note 9 – Construction in progress
(“CIP”)
CIP at June 30, 2016 and 2015 amounted to $37,004,732
and $65,420,768, respectively. CIP included the following projects:
|
1)
|
Construction project to build a new coking plant with annual production capacity of 900,000 tons
of cokes was commenced on February 2010. Due to a lack of funding and change of market conditions, the Company placed construction
on hold in October 2012. The Company provided an impairment reserve for CIP in the amount of $8,679,988 for the year ended June
30, 2016. As of June 30, 2016 and 2015, the Company reported $18,059,710 and $28,779,513 in the net construction in progress account.
|
|
2)
|
Upgrade project to increase annual production capacity of the coke gasification facilities was
commenced in November 2014, which is to reform the coke gasification equipment and to double the production capacity. The project
was completed at July 2015. As of June 30, 2016 and 2015, the Company reported $0 and $6,553,513, respectively, in the construction
in progress account.
|
|
3)
|
Underground coal gasification (‘UCG”) underground safety construction was
commenced in June 2015 to ensure that the Company’s coal mines will be complying with the legal safety requirements for
underground coal gasification operations. The Company provided impairment reserve for CIP in the amount of $11,496,327
for the year ended June 30, 2016. As of June 30, 2016 and 2015, the Company reported $18,945,020 and $30,087,742, respectively
in the net construction in progress account.
|
HONGLI
CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY
KNOWN AS SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Prepayments
Prepayments presented advances for constructions
which consisted of the following:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Baofeng new coking plant (1)
|
|
$
|
-
|
|
|
$
|
20,715,228
|
|
Gasification facility - Baofeng (2)
|
|
|
-
|
|
|
|
2,619,172
|
|
|
|
|
|
|
|
|
23,334,400
|
|
Less: allowance for doubtful account
|
|
|
-
|
|
|
|
(3,660,366
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
19,674,034
|
|
|
(1)
|
In October, 2012, the Company had made prepayments of approximately US$19.5 million (RMB 126.5
million) toward construction of its new coking plant. These prepayments were restructured and sold on January 25, 2016 through
a Credit and Debt Transfer Agreement (See Note 20).
|
|
(2)
|
The Company entered into a construction agreement on June 16, 2015 to build an underground
coal gasification facility which was approved by the Science and Technology Bureau of Baofeng County as an advanced
technology development project with using the refining technology authorized from the North China Institutes of Science and
Technology. The Company made prepayments of US $2,464,686 approximately (RMB 16 million) in June 2015 to a contractor. These
prepayments were restructured and sold on January 25, 2016 through a Credit and Debt Transfer Agreement (See Note 20).
|
Note 11 – Intangible assets
Intangible assets consisted of the following:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Land use rights (1)
|
|
$
|
24,310,475
|
|
|
$
|
26,441,707
|
|
Mining rights (2)
|
|
|
40,851,646
|
|
|
|
44,432,997
|
|
Total intangible assets
|
|
|
65,162,121
|
|
|
|
70,874,704
|
|
Accumulated amortization – land use rights
|
|
|
(1,459,417
|
)
|
|
|
(819,795
|
)
|
Accumulated depletion – mining rights
|
|
|
(12,595,511
|
)
|
|
|
(13,699,724
|
)
|
Intangible assets impairment reserve
|
|
|
(51,107,193
|
)
|
|
|
-
|
|
Total intangible assets, net
|
|
$
|
-
|
|
|
$
|
56,355,185
|
|
|
(1)
|
The Company’s land use rights are mainly held by Baofeng coking plant
|
|
(2)
|
The Company’s mining rights are held by its subsidiaries, Hongchang Coal and Shuangrui Coal.
|
Amortization expense for the years ended June
30, 2016 and 2015 amounted to $729,209 and $70,953, respectively. During the year ended June 30, 2016, the Company recorded an
impairment loss of approximately US $51 million for the land use right and mining rights due to the suspension of its
coal operations. No depletion was incurred due to the shutdown of all coal mine operations since September 2011. Depletion expense
will be charged to cost of revenue in the period incurred using the unit-of-production method.
Note 12 – Long-term investments and
refundable deposit
Long-term investments consist of investments
accounted for using both the cost and equity methods.
In February 2011, the Company invested approximately
US$1.2 million (RMB 8 million) in Pingdingshan Xinhua District Rural Cooperative Bank (“Cooperative Bank”). This investment
represents 2.86% interest in the Cooperative Bank, and is accounted for under the cost method. No investment income was received
or recognized for the years ended June 30, 2016 and 2015.
HONGLI
CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY
KNOWN AS SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
April 2011, Hongyuan CSG was established by Zhonghong (49%) and Henan Coal Seam Gas (51%) as a joint venture. The total registered
capital of Hongyuan CSG is approximately US$15.85 million (RMB 100 million). As of June 30, 2012, approximately US$3.17 million
(RMB 20 million) was funded, of which US$1.6 million (RMB 9.8 million) was paid by Zhonghong. The remaining registered capital
was due on April 20, 2013, of which approximately US$6.2 million (RMB 39.2 million) should be paid by Zhonghong. Zhonghong’s
investment in Hongyuan CSG is accounted for under the equity method since Zhonghong has significant influence but not con
trol.
The Company wrote off this investment of $1,530,173 during the year ended June 30, 2016 as the carrying value will not be recoverable
by Management’s estimate.
In addition, a deposit of US $4,881,224 (RMB
30,000,000) was made on December 23, 2011 to Henan Coal Seam Gas in connection with the joint venture. Due to management’s
review of the collectability of the deposit, the Company provided a $4,881,224 allowance against this deposit during the year ended
June 30, 2015.
On May 26, 2015, the Company filed a complaint
against Henan Province Coal Seam Gas Development and Utilization Co., Ltd. (Henan Coal Seam Gas”) with the Intermediated
People’s Court in Zhengzhou City. In the complaint the Company indicated that Henan Coal Seam Gas should pay back a loan
from the Company of US$4,712,584 (RMB 30,000,000), with accrued interest. The Company obtained a favorable judgement on this case
during the year ended June 30, 2016 in the amount of US$3 million (RMB$19,800,000) and is in the process of collecting the outstanding
balance.
For the years ended June 30, 2016 and 2015,
there was no equity investment income or loss reported in our financial statements.
Note 13 – Loans
Loans from Bairui Trust
On April 2, 2011, Hongli entered into a loan
agreement with Bairui Trust pursuant to which the Company borrowed approximately US $58.4 million (RMB 360 million)
with annual interest at 6.3%, of which approximately US$29.2 million (RMB 180 million) would be due on April 2, 2013, and approximately
$29.2 million (RMB 180 million) on April 2, 2014. The loan was issued on April 3, 2011 and is guaranteed by Hongyuan and the Company’s
CEO.
On November 30, 2011, the parties entered into
a supplemental agreement pursuant to which approximately US$4.88 million (RMB 30 million) with annual interest of 6.3% became due
on October 2, 2012, approximately US$16.23 million (RMB 100 million) with annual interest of 6.3%, became due on April 2, 2013,
approximately US$8.11 million (RMB 50 million) with annual interest of 6.3% became due on October 2, 2013, and approximately US$29.2
million (RMB 180 million) with annual interest of 6.3% became due on April 2, 2014.
For the loan due October 2, 2012, the parties
entered into a separate agreement on October 8, 2012 to extend the due date to April 2, 2013 with an annual interest rate of 8.7%
starting October 3, 2012. Such payment was repaid in full on December 25, 2012.
For the loan due April 2, 2013,
the Company repaid US$3.25 million (RMB 20 million) on April 3, 2013, and entered into a separate agreement with Bairui Trust
on April 23, 2013 to extend the due date for the remaining US$13.01 million (RMB 80 million) as follows: (a) US $3.25
million (RMB 20 million) was extended to December 2, 2013 with an annual interest rate of 6.3% starting April 23, 2013; (b)
US $4.88 million (RMB 30 million) was extended to January 2, 2014 with an annual interest rate of 6.3% starting April 23,
2013; and (c) US $4.88 million (RMB 30 million) was extended to February 2, 2014 with an annual interest rate of 6.3%
starting April 23, 2013. For the period between April 3, 2013 and April 23, 2013, Bairui Trust charged an additional 9.45%
annual interest rate on the entire $13.01 million outstanding.
During 2013, the Company repaid certain amounts
of the loan with an interest at 6.3% to 9.45%.
On October 1, 2013, the parties executed an
extension agreement, for the remaining balance of approximately US$50.3 million (RMB 310 million) with a 9.9% interest rate as
follows:
Loan Amount
(in USD)
|
|
|
Loan Amount
(in RMB)
|
|
|
Extended Loan
Repayment Date
|
|
New Interest Rate Period
|
$
|
8,114,380
|
|
|
¥
|
50,000,000
|
|
|
October 2, 2016
|
|
October 3, 2013 – October 2, 2016
|
|
3,245,752
|
|
|
|
20,000,000
|
|
|
December 2, 2016
|
|
December 3, 2013 – December 2, 2016
|
|
4,868,628
|
|
|
|
30,000,000
|
|
|
January 2, 2017
|
|
January 3, 2014 – January 2, 2017
|
|
4,868,628
|
|
|
|
30,000,000
|
|
|
February 2, 2017
|
|
February 3, 2014 – February 2, 2017
|
|
29,211,770
|
|
|
|
180,000,000
|
|
|
April 2, 2017
|
|
April 3, 2014 – April 2, 2017
|
$
|
50,309,158
|
|
|
¥
|
310,000,000
|
|
|
|
|
|
HONGLI
CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY
KNOWN AS SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
April 2, 2014, the Company entered into another supplement agreement with Bairui Trust which replaced the extension agreement
dated October 1, 2013, and repaid the principal US$324,929 (RMB 2,000,000). Per the supplement agreement, loans from Bairui Trust
were changed as follows:
Loan Amount
(in USD)
|
|
|
Loan Amount
(in RMB)
|
|
|
Extended Loan
Repayment Date
|
|
New Interest Rate Period
|
$
|
2,928,734
|
|
|
¥
|
18,000,000
|
|
|
April 2, 2015
|
|
December 3, 2013 – April 2, 2015
|
|
4,881,224
|
|
|
|
30,000,000
|
|
|
April 2, 2015
|
|
January 3, 2014 – April 2, 2015
|
|
4,881,224
|
|
|
|
30,000,000
|
|
|
April 2, 2015
|
|
February 3, 2014 – April 2, 2015
|
|
8,135,373
|
|
|
|
50,000,000
|
|
|
January 2, 2015
|
|
October 3, 2013 – January 2, 2015
|
|
29,287,340
|
|
|
|
180,000,000
|
|
|
October 2, 2015
|
|
April 3, 2014 – October 2, 2015
|
$
|
50,113,895
|
|
|
¥
|
308,000,000
|
|
|
|
|
|
According to the new supplement agreement dated
April 2, 2014, the annual interest rate was changed from 9.9% to 11.88% and, for the period between December 3, 2013 and April
2, 2014, Bairui Trust charged the Company an additional 7.2% annual interest rate on US$12.9 million (RMB 80 million) of the outstanding
US $50.3 million (RMB 310 million) loan principal.
On January 20, 2015, Hongli repaid the
loan of US $8,135,373 (RMB 50,000,000) to Bairui Trust which was due on January 2, 2015. On April 3, 2015, Hongli and Bairui
Trust reached an agreement to extend the outstanding loans of US $12,743,849 (RMB 78,000,000) which due on April 2, 2015 to
April 2, 2016 with the annual interest rate of 11.88%.
On October 8, 2015, the Company and
Bairui Trust entered into a supplemental agreement to extend the due date of one of its outstanding loans. The extended loan
of US $29,287,340 or RMB 180 million was due on October 2, 2015. In accordance with the supplemental agreement, the due date
was re-scheduled to April 7, 2016.
The principal of the loan from Bairui Trust and its related accrued
interest payable was restructured and sold through a credit and debt transfer agreement on January 10, 2016. (See Note 20).
As of June 30, 2016 and 2015, the loans from Bairui Trust were $0
and $42,234,154, respectively.
Interest expense on these loan amounted to $2,402,934 and $5,487,146
for the years ended June 30, 2016 and 2015, respectively.
Loan from Capital Paradise Limited
On January 26, 2015, Top Favour and Capital Paradise Limited entered
into an unsecured loan agreement in the amount of $2,960,000 with an annual interest rate of 7% and due on January 27, 2016. As
of June 30, 2016 and 2015, the outstanding loan from Capital Paradise Limited was $273,769 and $2,237,066.
Interest expense on these loan amounted to $93,099 and $65,321 years
ended June 30, 2016 and 2015, respectively.
Note 14 – Other payables and accrued
liabilities
Other payables mainly consisted of accrued
salaries, interests payable, utilities, professional services, and other general and administrative expenses.
Other payables and accrued liabilities consisted of the following:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
Retention payable (1)
|
|
$
|
-
|
|
|
$
|
955,343
|
|
Registration payable (2)
|
|
|
-
|
|
|
|
475,969
|
|
Other payable (4)
|
|
|
3,016,627
|
|
|
|
200,933
|
|
Interest payable
|
|
|
129,734
|
|
|
|
2,658,239
|
|
Accrued liabilities (3)
|
|
|
775,812
|
|
|
|
213,205
|
|
Total
|
|
$
|
940,543
|
|
|
$
|
4,503,689
|
|
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(1)
|
Retention payable is retainage held by the Company for the security of the construction of the first stage coke gasification
facility which was completed in September 2014. The amount was to be paid one year after the construction was completed, if there
are no quality defections during the period. On January 10, 2016, the payable was sold with other assets and liabilities
through the Credit and Debt Transfer Agreement. (See Note 20)
|
|
(2)
|
Registration payable is the amount the Company accrued for the land use right registration with relevant authorities to obtain
the certificate, which was used as part of Baofeng new coking plant. On January 10, 2016, the payable was sold with other assets
and liabilities through the Credit and Debt Transfer Agreement. (See Note 20)
|
|
(3)
|
As of June 30, 2016 and 2015, $170,000 and $90,000 of salary payable included in accrued liabilities was payables to the Company’s
CFO. As of June 30, 2016 and 2015, $205,000 and $0 of salary payable included in accrued liabilities was payables to the Company’s
CEO.
|
|
(4)
|
On January 10, 2016, the Company entered into a Credit and Debt Transfer Agreement and 3,102,182 was payable to Guoyao, see
Note 20 for details.
|
Note 15 – Related party payables
Other payables-related parties represent advances
from Mr. Jianhua Lv, the CEO of the Company for working capital purpose. Advances from the CEO amounted to $870,660 and $736,596
at June 30, 2016 and 2015, respectively. Such advances are interest free, due on demand and will be settled in cash.
During the year ended June 30, 2016, the
Company was borrowed $370,512 from Mr. Jianhua Lv, the CEO of the Company, mainly used to pay off daily expenses, of which
$236,449 was repaid before June 30, 2016.
During the year ended June 30, 2015, the Company
borrowed $5,043,623 from Mr. Jianhua Lv, the CEO of the Company, mainly used to pay off its interest payable to Baidu Trust, of
which $4,827,703 advances was repaid before June 30, 2015.
Note 16 – Acquisition payable
On August 10, 2010, Hongli acquired 60%
of the equity interest of Shuangrui Coal (see Note 20). During the year ended June 30, 2012, Hongli agreed to acquire the
remaining 40%. The title thereof was transferred to Hongli, and which had full control of Shuangrui Coal by June 30, 2012.
The purchase price thereof was tentatively set at US$4,544,053 approximately (RMB 29 million), subject to certain price
adjustments to be finalized at closing. As of June 30, 2015 , the entire purchase price has been paid.
Note 17 – Taxes
Income tax
CETC is subject to the United States federal
income taxes, Top Favour is a tax-exempt company incorporated in the British Virgin Islands.
All of the Company’s businesses are conducted
by its PRC subsidiary and VIEs,. All of them are subject to a 25% enterprise income tax rate in China.
The provision for income taxes consisted of
the following:
|
|
For the year ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
US current income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
BVI current income tax expense
|
|
|
-
|
|
|
|
-
|
|
PRC current income tax expense
|
|
|
1,051,040
|
|
|
|
2,045,865
|
|
Total
|
|
$
|
1,051,040
|
|
|
$
|
2,045,865
|
|
HONGLI
CLEAN ENERGY TECHNOLOGIES CORP. AND SUBSIDIARIES
(FORMERLY
KNOWN AS SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes assets – U.S.
CETC has incurred a net operating loss for
income tax purposes for 2016. As of June 30, 2016, the estimated net operating loss carry forwards for U.S. income tax purposes
was approximately $3,063,000, which may be available to reduce future years taxable income. The net operating loss carry forward
will expire through 2036 if not utilized. Management believes that the realization of the benefits arising from this loss appears
to be uncertain due to the Company’s limited operating history and continuing losses for U.S. income tax purposes. Accordingly,
the Company has provided a 100% valuation allowance at June 30, 2016 and 2015, respectively. Management reviews this valuation
allowance periodically and makes adjustments as necessary.
The following table reconciles the valuation allowance for the years
ended June 30, 2016 and 2015 which consisted of the following:
|
|
For the year ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
1,042,000
|
|
|
$
|
1,042,000
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Ending balance
|
|
$
|
1,042,000
|
|
|
$
|
1,042,000
|
|
Deferred tax assets – China
The Company’s subsidiaries and VIEs has
incurred a net operating loss for the income tax purpose for 2016. As of June 30, 2016, the estimated net operating loss carry
forwards for China income tax purposes was approximately $96,051,036, which may be available to reduce future years taxable income.
The net operating loss carry forward will expire through 2021 if not utilized. Management believes that the realization of the
benefits arising from this loss appears to be uncertain due to the Company’s continuing losses for China income tax purposes.
Accordingly, the Company has provided a 100% valuation allowance at June 30, 2016. Management reviews this valuation allowance
periodically and makes adjustments as necessary.
The following table reconciles the valuation allowance for the years
ended June 30, 2016 and 2015 which consisted of the following:
|
|
For the year ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions
|
|
|
24,012,759
|
|
|
|
-
|
|
Ending balance
|
|
$
|
24,012,759
|
|
|
$
|
-
|
|
Value added tax
The Company incurred VAT on sales and VAT on
purchases in the PRC as follows:
|
|
For the year ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
VAT on sales
|
|
$
|
3,877,561
|
|
|
$
|
13,537,063
|
|
VAT on purchase
|
|
$
|
1,686,278
|
|
|
$
|
10,070,299
|
|
Sales and purchases are recorded net of VAT collected and paid,
as the Company acts as an agent for the PRC government.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Taxes payable
Taxes payable consisted of the followings:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
VAT
|
|
$
|
303,187
|
|
|
$
|
101,327
|
|
Income tax
|
|
|
197,282
|
|
|
|
633,098
|
|
Other
|
|
|
12,536
|
|
|
|
173,047
|
|
Total
|
|
$
|
413,005
|
|
|
$
|
907,472
|
|
Note 18 – Capital transactions
Common Stock
:
On September 24, 2014, the Company completed
a registered sale of its common stock with two institutional investors under its shelf registration statement on Form S-3 pursuant
to a Securities Purchase Agreement executed on September 18, 2014. Gross proceeds from the offering were approximately $14.3 million
in exchange of 281,885 shares of the Company’s common stock. After payment of expenses, the Company received approximately
$13.2 million in net proceeds. In addition, the Company issued to the investors Series A warrants (“Warrants A”) to
purchase an aggregate of 140,942 common shares and Series B warrants (“Warrants B”) to purchase an aggregate of 164,474
common shares. Under the Purchase Agreement, the investors also had an option to purchase additional 164,474 shares of the Company’s
common stock and warrants – Series C (“Warrants C”) to purchase 82,237 shares of the Company’s common stock.
If fully exercised, the Company would receive aggregate gross proceeds from the warrants of approximately $36.2 million.
Options
:
Under the 2002 Stock Option Plan for Directors,
options exercisable for 167 shares of the Company’s common stock at $360.00 per share were granted on October 11, 2002, and
expired on October 15, 2012. Options exercisable for 313 shares of the Company’s common stock at $960.00 per share were granted
on November 16, 2004, and expired on November 16, 2014.
Under the 1999 Stock Option Plan, options exercisable
for 606 shares of the Company’s common stock at $960.00 per share were granted on November 14, 2004, and expired on November
14, 2014. Such options were fully vested before the Share Exchange on February 5, 2010.
The following is a summary of changes in options activities:
|
|
Options
|
|
Outstanding, June 30, 2014
|
|
|
919
|
|
Granted
|
|
|
164,474
|
|
Forfeited
|
|
|
(919
|
)
|
Exercised
|
|
|
|
|
Outstanding, June 30, 2015
|
|
|
164,474
|
|
Granted
|
|
|
-
|
|
Forfeited
|
|
|
(164,474
|
)
|
Exercised
|
|
|
-
|
|
Outstanding, June 30, 2016
|
|
|
-
|
|
Warrants
As of June 30, 2016 and 2015, warrants that
were exercisable for 163,493 shares and 172,167 shares, respectively, of the Company’s common stock were recorded as derivative
instruments. The value of warrant liabilities was $82,387 and $2,626,168 at June 30, 2016 and 2015, respectively. The decrease
in fair value of warrants was $2,833,882 and $7,131,724 for the years ended June 30, 2016 and 2015, respectively, and was recorded
as gain on change in fair value
of warrants.
On September 24, 2014, the Company closed an
offering with two institutional investors pursuant to a securities purchase agreement (“Purchase Agreement”) dated
on September 18, 2014. The initial offering included A and B Warrants. The A Warrants are to purchase an aggregate of
140,942 shares of the Company’s common stock, which is exercisable immediately as of the date of the issuance, which was
September 24, 2014, at an exercise price of $63.8 per common share and expire after four years from the date of issuance. The B
Warrants to purchase 164,474 shares of common stock at an exercise price of $60.08 became six months starting from September
24, 2014 and may become exercisable only to the extent that the Company does not have an effective registration statement available
for the shares underlying such warrants and in any event expire after certain registration conditions are satisfied. The expiration
date for the B Warrants will be (1) if no registration failure has occurred, the date will be July 25, 2015, or (2) if a registration
failure has occurred, the date will be September 24, 2018. As of June 30, 2015, Warrants B were not exercisable.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Purchase Agreement, the investors
also had an option to purchase additional 164,474 shares of the Company’s common stock and C Warrants to purchase 82,237
shares of the Company’s common stock for a period beginning six months and one day from September 24, 2014 and ending ten
months from September 24, 2014. The expiration date for Warrants C will be the fourth anniversary of September 24, 2014.
The following is a summary of changes in warrant activities:
|
|
|
Existing
Warrants
at $48 (1)
|
|
|
Investor
Warrants
at $12 (2)
|
|
|
|
Callable
|
|
|
Warrants at $12 (3)
|
|
|
Callable
Warrants
at $6 (4)
|
|
|
Callable
Warrants
at $15 (5)
|
|
|
A
Warrants at
$6.38 (7)
|
|
|
Placement
Agent
Warrants
at $6.38
(8)
|
|
|
B
Warrants at
$ 6.08
(9)
|
|
|
C
Warrants
at $6.08
(10)
|
|
|
|
Total
|
|
Outstanding, June 30, 2014
|
|
|
|
3,697
|
|
|
|
59,045
|
|
|
|
308,203
|
|
|
|
11,716
|
|
|
|
3,024
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
390,685
|
|
Granted
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,942
|
|
|
|
22,527
|
|
|
|
164,474
|
|
|
|
82,237
|
|
|
|
410,180
|
|
Expired
|
|
|
|
-
|
|
|
|
(59,045
|
)
|
|
|
(308,203
|
)
|
|
|
(11,716
|
)
|
|
|
(3,024
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(381,988
|
)
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, June 30, 2015
|
|
|
|
3,697
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
140,942
|
|
|
|
22,527
|
|
|
|
164,474
|
|
|
|
82,237
|
|
|
|
418,877
|
|
Granted
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
|
(3,697)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(164,474
|
)
|
|
|
(82,237)
|
|
|
|
(255,408)
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding June 30, 2016
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,942
|
|
|
|
22,527
|
|
|
|
-
|
|
|
|
—
|
|
|
|
163,469
|
|
|
(1)
|
The warrants underlying 3,697 shares were exercisable at any time until April 9, 2017
|
|
(2)
|
The warrants underlying 59,045 shares were exercisable at any time until February 5, 2015. The warrants
were expired as of June 30,
2016.
|
|
(3)
|
The warrants underlying 308,203 shares and 11,716 shares were exercisable at any time
until March 11, 2015 and March 18, 2015, respectively. Theses warrant expired as of June 30, 2016.
|
|
(4)
|
The warrants underlying 3,024 shares were exercisable until March 11, 2015, these warrants were
expired as of June 30, 2016.
|
|
(5)
|
The warrants underlying 5,000 shares were exercisable until July 1, 2015, these warrants were expired
June 30, 2016.
|
|
(6)
|
The callable warrants are exercisable for a period of five years from the date of
issuance, and are callable at the Company’s election six months after the date of issuance if the Company’s common
stock trades at a price equal to at least 150% of the exercise price with an average trading volume of at least 15,000 shares
of common stock (as adjusted for any stock splits, stock dividends, combination and the like) per trading date for at least 10
consecutive trading days, and the underlying shares of common stock are registered.
|
|
(7)
|
A Warrants underlying 140,942 shares are exercisable at any time until September 24,
2018, with remaining contractual term of 2.24 years as of June 30, 2016.
|
|
(8)
|
The warrants issued to the placement agent underlying 22,527 shares are exercisable
at any time until September 24, 2018, with remaining contractual term of 2.24 years as of June 30, 2016.
|
|
(9)
|
B Warrants to purchase 1164,474 shares of common stock are exercisable for six months
starting from September 24, 2014 and may become exercisable only to the extent that the Company does not have an effective registration
statement available for the shares underlying such warrants and in any event expire after certain registration conditions are
satisfied. The expiration date for B Warrants will be (1) if no registration failure has occurred, the date will be July 25, 2015,
or (2) if a registration failure has occurred, the date will be September 24, 2018. As of June 30, 2016, B Warrants were not exercisable.
|
|
(10)
|
Under the Share Purchase agreement, the investors were granted an option to purchase
an additional 164,474 shares of the Company’s common stock and C Warrants to purchase 82,237 shares of the Company’s
common stock for a period beginning March 25, 2015 and ending July 24, 2015. The expiration date for the C Warrants will be the
fourth anniversary of September 24, 2014, if the related option was exercised. Because that the option expired on July 24, 2015
without exercising. As a result, the C Warrants were expired accordingly.
|
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 – Earnings (loss) per share
The following is a reconciliation of the basic
and diluted earnings (loss) per share computation:
|
|
For the years ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net loss attributable to controlling interest
|
|
$
|
(89,831,300
|
)
|
|
$
|
(3,463,774
|
)
|
Weighted average shares used in basic and diluted computation
|
|
|
2,396,022
|
|
|
|
2,329,183
|
|
Loss per share – Basic and Diluted
|
|
$
|
(37.52
|
)
|
|
$
|
(1.49
|
)
|
The Company had warrants and options exercisable
for 167,167 shares and 583,351 shares of common stock in the aggregate at June 30, 2016 and 2015, respectively. For the years ended
June 30, 2016 and 2015, all outstanding options and warrants were excluded from the diluted loss per share calculation because
they would be anti-dilutive.
Note 20- Credit and Debt Transfer Agreement
On January 10, 2016, the Company entered
into a Credit and Debt Transfer Agreement with an unrelated third party, Wuhan Guangyao New Energy Automobile Operation Co.,
Ltd. (“Guangyao”). As of December 31, 2015, The Company had certain credit assets (advance payments, including
short-term and long-term portions, and accounts receivable) with a book value of US$39,712,532 (RMB 254,160,210)
and outstanding debts (accounts payable, interest payable and short-term loans) with a book value of US$39,712,532 (RMB 274,167,269). According to the Credit and Debt Transfer Agreement, the Company transferred credit assets
and debts valued at December 31, 2015 to Guangyao in a lump sum. Guangyao will conduct the collection and clearance itself.
The Company shall compensate Guangyao regarding the difference of US$3,032,994 (20,007,059) between book
value of the transferred credit assets and debts. The Company shall pay RMB 20,007,059 to Guangyao within 6 months after
this Credit and Debt Transfer Agreement becomes effective. If it is not paid off timely, Guangyao has the right to charge the
Company interest at 4.5% for the then unpaid amount after 6 months of the effective date of this agreement, until it is paid.
Guangyao will be responsible to discuss and negotiate with the Company’s creditors and debtors, and get unanimous
consent from the creditors and debtors including Bairui Trust Co., Ltd. Guangyao is also responsible for arbitration and
lawsuits with other creditors and debtors under this agreement, and enforce the decisions of any arbitration and
lawsuits.
Note 21 – Commitments and contingencies
Lease agreement
On April 12, 2013, the Company signed a lease
agreement with Pingdingshan Hongfeng Coal Processing and Coking, Factory (“Hongfeng Coal”). Per the agreement, the
Company may utilize Hongfeng Coal’s coke production facility, which has an annual capacity of 200,000 metric tons. In exchange,
the Company agreed to pay Hongfeng Coal US $9.60 (RMB 60) per metric ton of coke produced from the leased facility. This agreement
was terminated on November 30, 2015.
On November 25, 2015, the Company entered into
a lease agreement with Pingdingshan Hongfeng Coal Processing and Coking Factory (“Hongfeng”) to lease an area for coke
gasification facilities to be built here. Per the agreement, the land use right is to US$7,908 (RMB 50,000) per month.
Purchase commitment
The Company’s purchase commitment had been transferred as
part of the Credit and Debt Transfer Agreement signed on January 2016. (See Note 20), no further payments were necessary for these
contracts.
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22 – Statutory reserves
Applicable PRC laws and regulations require
that before a foreign invested enterprise can legally distribute profits, it must first satisfy all tax liabilities, provide for
losses in previous years, and make allocations, in proportions determined at the discretion of the board of directors, after the
statutory reserves. The statutory reserves include the statutory surplus reserve fund and the enterprise expansion fund.
Each of the Company’s subsidiaries
and VIEs in the PRC is required to transfer 10% of its net income, as determined in accordance with the PRC Company Law, to a
statutory surplus reserve fund until such reserve balance reaches 50% of each such entity’s registered capital. The
transfer must be made before distribution of any dividends to shareholders. The surplus reserve fund is non-distributable
other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholdings
or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such
issue above is not less than 25% of the registered capital.
The enterprise fund may be used to acquire
plant and equipment or to increase the working capital to expend on production and operation of the business. No minimum contribution
is required.
As of June 30, 2016, the statutory surplus
reserves of Hongli had reached 50% of its registered capital. Hongguang Power and Hongyuan did not make any contribution to the
statutory reserve due to their respective operating losses. Hongchang Coal is required by the PRC government to provide a reserve
for safety and maintenance expenses charged to the cost of production based on the actual quantity of coal mined. The amount is
determined within the unit price range provided bythe Ministry of Finance of PRC. Hongchang Coal reserved amount to $1,404,365
as of June 30, 2016.
The component of statutory reserves and the
future contributions required pursuant to PRC Company Law are as follows in USD:
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
|
50% of registered
capital
|
|
|
Future contributions
required as of
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hongli
|
|
$
|
2,067,215
|
|
|
$
|
2,067,215
|
|
|
$
|
2,064,905
|
|
|
$
|
-
|
|
Hongguang Power
|
|
|
-
|
|
|
|
-
|
|
|
|
1,514,590
|
|
|
|
1,514,590
|
|
Hongchang Coal
|
|
|
218,361
|
|
|
|
218,361
|
|
|
|
218,361
|
|
|
|
-
|
|
Shuangrui Coal
|
|
|
-
|
|
|
|
-
|
|
|
|
310,105
|
|
|
|
-
|
|
Xingsheng Coal
|
|
|
-
|
|
|
|
-
|
|
|
|
279,682
|
|
|
|
-
|
|
Hongrun
|
|
|
-
|
|
|
|
-
|
|
|
|
2,310,000
|
|
|
|
-
|
|
Hongyuan
|
|
|
-
|
|
|
|
-
|
|
|
|
12,500,000
|
|
|
|
6,250,000
|
|
Zhonghong
|
|
|
-
|
|
|
|
-
|
|
|
|
1,521,990
|
|
|
|
-
|
|
Statutory surplus reserve
|
|
|
|
|
|
|
2,285,576
|
|
|
|
20,719,633
|
|
|
|
7,764,590
|
|
Mine reproduction reserve
|
|
|
1,404,365
|
|
|
|
1,404,365
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,689,941
|
|
|
$
|
3,689,941
|
|
|
$
|
20,719,633
|
|
|
$
|
7,764,590
|
|
Note 23 – Revenues by products
The Company’s chief operating decision maker evaluates performance
and determines resource allocations based on a number of factors, the primary measure being income from operations. The Company
considers itself, including its coal mining and coking operations and the sales of its coal and coke products, to be operating
within one reportable segment. All of the Company’s products are sold within the PRC. Major products and respective for the
years ended June 30, 2016 and 2015 are summarized as follows in USD:
HONGLI CLEAN ENERGY TECHNOLOGIES CORP. AND
SUBSIDIARIES
(FORMERLY KNOWN AS SINOCOKING COAL AND COKE
CHEMICAL INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
For the year ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Coke
|
|
$
|
2,653,727
|
|
|
$
|
25,902,868
|
|
Coal tar
|
|
|
578,270
|
|
|
|
1,818,648
|
|
Crude benzol
|
|
|
253,234
|
|
|
|
1,077,307
|
|
Electricity Coal
|
|
|
211,952
|
|
|
|
-
|
|
Clean Coal
|
|
|
|
|
|
|
-
|
|
Coal slurries
|
|
|
|
|
|
|
102,327
|
|
Mid-coal
|
|
|
|
|
|
|
1,503,353
|
|
Washed coal
|
|
|
|
|
|
|
2,765,054
|
|
Syngas
|
|
|
15,256,476
|
|
|
|
12,443,527
|
|
Total
|
|
$
|
18,953,657
|
|
|
$
|
45,613,084
|
|
Note 24 – Litigation and Contingency
The Company is currently involved in a legal
proceeding in the ordinary course of its business. The proceeding, described in the paragraph below, is a claim for a commercial
dispute. Although management of the Company cannot predict the ultimate outcome of the legal proceeding with certainty, it believes
that the ultimate resolution of the legal proceeding, including any amounts it may be required to pay in excess of the amount reserved,
will not have a materials effect on the Company’s consolidated financial statements.
On May 26, 2015, the Company filed a
complaint against Henan Province Coal Seam Gas Development and Utilization Co., Ltd. (Henan Coal Seam Gas”) with the
Intermediated People’s Court in Zhengzhou City. In the complaint the Company indicated that Henan Coal Seam Gas should
pay back a loan from the Company of approximately US $4,712,584 (RMB 30,000,000), with accrued interest. On December 23,
2015, the Court issued a judgment that Henan Coal Seam Gas must repay approximately US$3,093,750 (RMB 19,800,000) to us and pay US$24,096( RMB 154,942) of the case fee while we are required to pay US$12,413(RMB 79,820) of
case fee.
On June 28, 2017, a class action lawsuit was filed against the Company in the U.S. District Court for the District of New
Jersey on behalf of the shareholders who purchased the Company's common stock between September 28, 2012 and April 7, 2017
(the “Class Period”). The complaint alleges that during the Class Period, the Company issued materially false
and/or misleading statements and/or failed to disclose the advert facts pertaining to the Company's business, operational
and financial results, which were known to the Company or recklessly disregarded by the Company. As of the date of this report,
the Company is unable to determine the likely outcome of this class action lawsuit or estimate the potential liabilities of
this action, the amount of which could be material to the financial statements.
Note 25 – Subsequent events
On October 27, 2016, the Company effected a 1-for-10 reverse stock
split, all shares and per share amounts used in the Company’s consolidated financial statements and notes thereto have been
retroactively restated to reflect the 1-for-10 reverse stock split.
On April 7, 2017, the Company received a Determination
letter (the “Letter”) from the Nasdaq Stock Market LLC (the “Nasdaq”) notifying the Company of the
Nasdaq Hearings Panel’s determination (the “Determination”) to i) delist the Company’s securities
from the Nasdaq Capital Market and ii) suspend the trading of Company’s common stock, effective April 11, 2017 due to
its failure to comply with Nasdaq Listing Rule 5250(c)(1) (the “Reporting Rule”). As of the date of Letter, the
Company had not timely filed its Form 10-K for the year ended June 30, 2016 and Form 10-Qs for the quarters ended September
30, 2016 and December 31, 2016. Pursuant to the Letter, unless the Company requests a review of the Determination by the
Nasdaq Listing and Hearing Review Council (the “Council”) by April 22, 2017, a Form 25-NSE will be filed with the
SEC, causing the Company’s securities to be removed from listing and registration on the Nasdaq Capital Market. The
registrant requested an appeal and on April 24, 2017, the registrant wired payment to The NASDAQ Stock Market LLC in
connection with the requested appeal. There can be no assurance that the Council will grant the Company’s request for
additional time to regain compliance.
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