UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
No. 1)
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ________ to ________.
CHINA ENERGY RECOVERY,
INC.
(Exact name of
registrant as specified in its charter)
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Delaware
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33-0843696
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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7F,
No. 267 Qu Yang Road
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Hongkou
District
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Shanghai,
China
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200081
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(Address
of Principal
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(Zip
Code)
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Executive
Office)
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(86) 021
5556-0020
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par
value
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated filer
o
Accelerated
filer
o
Non-Accelerated
filer
o
Smaller
reporting company
x
Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes No
x
The aggregate market value of the
voting and non-voting common equity held by nonaffiliates is $64,599,264, as
computed by reference to the price at which the common equity was last sold as
of the last business day of the registrant's most recently completed second
fiscal quarter.
Number of
shares outstanding of the registrant's common stock as of March 31,
2009:
29,936,172 shares of Common Stock,
$0.001 par value per share
.
Documents Incorporated by Reference:
none
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-K/A amends the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2008, filed with the Securities and
Exchange Commission (“SEC”) on March 30, 2009 (the “Original Annual Report”).
The sole purpose of this Amendment is to include the information required by
Part III of Form 10-K. Accordingly, Items 10, 11, 12, 13 and 14 of Part III of
our Original Annual Report are replaced in their entirety with the information
provided herein. We are also re-filing Exhibit 31.1, Section 302 Certification –
Principal Executive Officer and Exhibit 31.2, Section 302 Certification –
Principal Financial Officer, as required by Rule 12b-15 of the Securities
Exchange Act of 1934 (the “Exchange Act”). As permitted by, and in accordance
with Staff guidance, because the Company is not including financial statements
in this Amendment, paragraph 3 of each of these certifications has been
removed.
Except as
described above, no attempt has been made in this Amendment to modify or update
other disclosures presented in the Original Annual Report. This Amendment does
not reflect events occurring after the filing of the Original Annual Report or
modify or update those disclosures, including the exhibits to the Original
Annual Report affected by subsequent events. Accordingly, this Amendment should
be read in conjunction with our filings with the SEC subsequent to the filing of
the Original Annual Report, including any amendments to those
filings.
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Page
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PART III
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Item
10
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Directors,
Executive Officers and Corporate Governance
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1
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Item
11
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Executive
Compensation
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4
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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7
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Item
13
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Certain
Relationships and Related Transactions, and Director
Independence
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9
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Item
14
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Principal
Accountant Fees and Services
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12
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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13
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PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
Directors
and Executive Officers
The
following table sets forth certain information concerning the directors and
executive officers of our Company as of March 30, 2009:
|
Name
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Age
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Position
with the Company
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Qinghuan
Wu
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62
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Chairman
of the Board and Chief Executive Officer
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Qi
Chen
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38
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General
Manager and Director
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Richard
Liu
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34
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Chief
Financial Officer
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Roger
Ballentine
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46
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Director
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Mengjiao
Jiang
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28
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Director
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Fred
J. Krupica
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56
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Director
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Jialing
Zhou
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54
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Director
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Qinghuan Wu
has been a director, the
Chairman of our Board and our Chief Executive Officer since April 2008. Mr. Wu
has devoted his 40-year career to the design and production of waste heat
boilers and energy recovery systems, and related technological development. Mr.
Wu has been the Executive Director of our subsidiary Haie Hi-tech Engineering
(Hong Kong) Company Limited (which we refer to as Hi-tech), which was founded in
January 2002, Shanghai Hai Lu Kun Lun Hi-tech Engineering Co., Ltd. (which we
refer to as Shanghai Engineering and which has entered into a contractual
relationship with Hi-tech and subsequently with CER (Hong Kong) Holdings Limited
(which we refer to as CER Hong Kong), a wholly-owned subsidiary of the Company
founded in August 2008), which was founded in July 1999, and Shanghai Xin Ye
Environmental Protection Engineering Technology Co., Ltd. (which we refer to as
Shanghai Environmental and which has also entered into a contractual
relationship with Hi-tech and subsequently with CER Hong Kong), which was
founded in May 2007, since their inceptions. Between 1992 and 2004, Mr. Wu
founded or held positions with numerous companies and research institutes
whereby he developed significant expertise related to the energy recovery
business. Mr. Wu was the founder and President of Zhangjiagang Hai Lu Waste Heat
Boiler Research Institute between 1992 and 1998, the Executive Director of
Kunshan Kun Lun Hi-technology Engineering Co., Ltd. between 1996 and 2004 and
the founder and Executive Director of Zhangjiagang Hai Lu Kun Lun Hi-Technology
Engineering Co., Ltd. between 1997 and 2001. Before that, Mr. Wu worked for 23
years as a research engineer at the Nanjing Chemical Industry Research
Institute, the largest research institute under the Chinese Ministry of Chemical
Industry, between 1969 and 1992. Mr. Wu has served as the executive member of
the Chinese Sulfur Industry Association since 1999 and been responsible for
waste heat recovery technology development for the industry. Mr. Wu was granted
the China National Science and Technology Advancement Award and Technology Award
of the Chinese Ministry of Chemical Industry for his technological innovation in
the waste heat recovery field. Mr. Wu holds a bachelor degree in Process
Equipment and Control Engineering from Beijing University of Chemical
Technology, Beijing, China.
Qi Chen
has been a director and
our General Manager since April 2008. He is also the General Manager of our
affiliated company Shanghai Engineering, a position he has held since May 2007,
and the General Manager of our wholly-owned subsidiary, CER Energy Recovery
(Shanghai) Co., Ltd. (which we refer to as CER Shanghai), a position he has held
since February 2009. Mr. Chen joined Shanghai Engineering in 1997 as a member of
its design, engineering, and sales departments. Before joining Shanghai
Engineering, he served as a trader for the Xiamen Trading and Development Co.
for six years. Mr. Chen holds a bachelor degree in engineering from Xiamen
University, Xiamen, China.
Richard Liu
has been our Chief
Financial Officer since April 2008. From October 2006 to March 2008, Mr. Liu was
the Chief Executive Officer and a director of China National Credit Information
Service, Ltd., a credit advisory company in China. Before that, he co-founded
and served as Vice President of Finance and Operations and a director of
PanPacifics Technology Holding Limited, an on-demand global trade management
software developer for the Chinese market, between August 2004 and September
2006. Mr. Liu served as the Director of Finance for Kiwa Bio-Tech Products Group
Corp., a developer, manufacturer, distributor and marketer of bio-technological
products for agricultural, natural resources and environmental conservation,
between September 2003 and August 2004. Before that, he was an assistant Chief
Financial Officer for YesMobile Holdings Company Limited, a Chinese wireless
technology company, between July 2000 and July 2001. Mr. Liu began his career at
Arthur Andersen, LLP, a public accounting firm, where he worked from August 1996
to July 2000 in China. Mr. Liu holds an MBA degree from the UCLA Anderson School
of Management and a bachelor’s degree in hotel management from Shanghai Jiao
Tong University, Shanghai, China. Mr. Liu
is
also a member of the Chinese Institute of Certified Public
Accountants.
Roger Ballentine
has been a member of our
Board of Directors since September 2008. Mr. Ballentine is the President of
Green Strategies Inc., a consulting company that assists clients in the energy
and environmental arena with domestic and international public policy matters,
investment guidance in the "clean tech" marketplace and marketing and business
development strategies, a position that he has held since February 2001. Mr.
Ballentine is also a Venture Partner with Arborview Capital LLC, a private
equity firm focused on the clean technology market place, a position he has held
since May 2008. Mr. Ballentine serves as both a Lecturer on Law at the Harvard
Law School, teaching in the area of energy and climate policy, a position he has
held since May 2007, and as a Senior Fellow at the Progressive Policy Institute
in Washington D.C., a position he has held since 2003. Previous to these
positions, from June 1999 to January 2001, Mr. Ballentine served under President
Bill Clinton as Chairman of the White House Climate Change Task Force and Deputy
Assistant to the President for Environmental Initiatives. Prior to being named
Deputy Assistant to the President, from January 1998 to June 1999, Mr.
Ballentine was Special Assistant to the President for Legislative Affairs, where
he focused on energy and environmental issues. Mr. Ballentine is a graduate of
the University of Connecticut and Harvard Law School. Mr. Ballentine currently
serves on the Boards of Directors of Environmental Power Corporation, a
developer and producer of clean energy, Perillon Software Inc., an environmental
and sustainability driven software company, and ENpartners Corp., an energy
efficient lighting company and on the Advisory Boards of Stratos Renewables
Corporation, a sugarcane ethanol producer, Pure Biofuels Corporation, a Latin
American biofuels company, and Safe Renewables Corporation, a biodiesel
manufacturer. Mr. Ballentine is a founding Board Member of the American Council
on Renewable Energy and serves on the Boards of the Biomass Energy Resource
Center and the International Fund for China's Environment.
Mengjiao Jiang
has been a member of our
Board of Director since September 2008. Ms. Jiang is a Managing Director of ARC
China, Inc., a merchant banking firm affiliated with the Los Angeles,
California-based private equity firm ARC Investment Partners, LLC. She has held
this position since May 2008. From November 2004 to May 2008, Ms. Jiang served
as an Associate Director of Business Development Asia, a cross-border mergers
and acquisitions firm. She started her career at UBS Investment Bank in New York
City where she worked from August 2003 until November 2004. Ms. Jiang is a
graduate of Wellesley College where she received Bachelor of Arts degrees in
political science and economics.
Fred J. Krupica
has been a member of our
Board of Directors since September 2008. Mr. Krupica is the Chief Financial
Officer of Legalzoom.com Inc., a legal document and filing service, a position
he has held since April 2008. In this role, he is responsible for the company's
financial and corporate development aimed at supporting LegalZoom's continued
growth. Between February 2006 and April 2008, Mr. Krupica served as the Chief
Financial Officer of Altra Inc., one of North America's largest renewable fuels
producers. Mr. Krupica served as the Chief Financial Officer for Fastclick,
Inc., an online advertising company, between September 2004 and September 2005.
From December 2002 to September 2004, Mr. Krupica served as the Chief Financial
Officer of WJ Communications, Inc., a developer of radio frequency and fiber
optic communication devices. Between May 2001 and November 2002, Mr. Krupica
served as the Chief Financial Officer of Magnetic Data Technologies, LLC, a
provider of disk drive repair logistics. Between 1975 and May 2001, Mr. Krupica
worked with numerous private and public companies, including Patel Ventures, a
private equity firm, F&G Financial Services, Inc., a financial services
company he founded, Atlantic Richfield Co., a global oil and gas enterprise,
Pullman, Inc., a freight car manufacturer, and PricewaterhouseCoopers, one of
the largest accounting firms in the world. Mr. Krupica currently serves on the
Board of Directors of two private companies, Celerus Diagnostics, a medical
instrument diagnostics company and TMC Communications, a reseller of
telecommunication services. Mr. Krupica is a graduate of the University of
Illinois, where he received a Bachelor of Science degree in Accounting, and the
University of California at Los Angeles, where he received a Master's degree in
Business Administration. He is a member of the American Institute of Certified
Public Accountants.
Jialing Zhou
has been a director
since April 2008. She is also a director of Hi-tech and has served in such
position since Hi-tech’s inception in January 2002. Mrs. Zhou also serves as the
controller of Shanghai Engineering, a position she has held since Shanghai
Engineering’s inception in July 1999. She served as the controller for
Zhangjiagang Hai Lu Waste Heat Boiler Research Institute between 1992 and 1998
and for Zhangjiagang Hai Lu Kun Lun Hi-Technology Engineering Co., Ltd. between
1997 and 2001. Between 1972 and 1992, she was a computer system analyst at the
Nanjing Chemical Industry Research Institute, the largest research institute
under the Chinese Ministry of Chemical Industry.
Family
Relationships
Mr. Qinghuan
Wu, our Chairman of the Board and Chief Executive Officer, and one of our
directors, Mrs. Jialing Zhou, are husband and wife.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
directors and persons who beneficially own more than 10% of our common stock to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (SEC). Officers, directors and ten percent shareholders are
charged by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. Based solely upon our review of the copies of such forms received by
us, or written representations from certain reporting persons that no Forms 5
were required for those persons, we believe that, during the fiscal year ended
December 31, 2008, all filing requirements applicable to our executive
officers, directors and ten percent shareholders were fulfilled.
Code
of Ethics
We do not
currently have a Code of Ethics in place for the Company. Our business
operations are not complex and we have very limited shareholder base. The
Company seeks advice and counsel from outside experts such as our lawyers on
matters relating to corporate governance. We recognize that adopting a Code of
Ethics would be a valuable addition to our corporate structure, and plan to do
so during 2009.
Audit
Committee
The
functions of the Audit Committee include oversight of the integrity of our
financial statements, compliance with legal and regulatory requirements, and the
performance, qualifications and independence of our independent auditors. Fred
Krupica (Chair) and Mengjiao Jiang are the current members of our Audit
Committee.
The Board
of Directors, after making a qualitative assessment of each member of the Audit
Committee, has determined that both Fred Krupica and Mengjiao Jiang are
financial experts within the meaning of all applicable rules. In making this
determination, the Board of Directors considered their ability to understand
generally accepted accounting principles and financial statements, their ability
to assess the general application of generally accepted accounting principles in
connection with our financial statements, including estimates, accruals and
reserves, their experience in analyzing or evaluating financial statements of
similar breadth and complexity as our financial statements, their understanding
of internal controls and procedures for financial reporting, and their
understanding of the audit committee functions.
Item
11. Executive Compensation
Summary
Compensation Table
The
following table sets forth information regarding annual and long-term
compensation with respect to our fiscal years ended December 31, 2008 and
December 31, 2007, paid or accrued by us to or on behalf of those persons who
were our principal executive officer, who we refer to as our “named executive
officers.” There were no other executive officers whose compensation exceed
$100,000 during those two fiscal years.
|
Name
and
principal
position
|
|
Year
|
|
Salary
($)
|
|
|
All
other
compensation
($)
|
|
|
Total
($)
|
|
|
Qinghuan
Wu, Chief Executive Officer
|
|
2008
|
|
|
53,373
|
|
|
|
4,000
|
(1)
|
|
|
57,373
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|
|
|
|
2007
|
|
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3,957
|
|
|
|
4,033
|
(1)
|
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|
7,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Kurdziel, former Chief Executive Officer
(2)
|
|
2008
|
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|
-0-
|
|
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|
-0-
|
|
|
|
-0-
|
|
|
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2007
|
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87,930
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(3)
|
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|
-0-
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87,930
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|
(1)
|
Represents
cost for automobile benefit.
|
|
(2)
|
Mr.
Kurdziel resigned from all his position as Chief Executive Officer on
April 15, 2008.
|
|
(3)
|
Amount
was not paid by the Company in 2007. In 2008, this obligation was assumed
by MMA Acquisition Company.
|
Base
Salary
Our
executive officers receive base salaries that are determined based on their
responsibilities, skills and experience related to their respective positions
within the context of the Chinese market. The amount and timing of an increase
in base compensation depends upon, among other things, the individual’s
performance, and the time interval and any added responsibilities since his or
her last salary increase.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth the equity awards outstanding at December 31, 2008
for each of the named executive officers:
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
that are
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
that are
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Qinghuan
Wu, Chief Executive Officer
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
N/A
|
|
Option
Exercises
None of
our named executive officers exercised any options during the year ended
December 31, 2008.
Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements
We
currently do not have any employment contracts, or termination of employment and
change-in-control arrangements with our named executive officers. We are
currently in negotiations with Mr. Qinghuan Wu, our Chairman of the
Board and Chief Executive officer, to enter into an employment agreement with
the Company. Under his previous employment agreement with Shanghai Engineering,
which has expired, Mr. Wu was employed as its Executive Director for a term of
two years with an annual salary of 30,000 Renminbi (approximately
$4,400 as of April 7, 2009).
Consulting
Agreements
Richard
Liu
On April
15, 2008, the Company entered into a three-month consulting arrangement with
Richard Liu, our Chief Financial Officer. The consulting arrangement provides
that Mr. Liu will provide consulting services to the Company as our interim
Chief Financial Officer. The arrangement has been extended on a month-to-month
basis. Under the extended arrangement, Mr. Liu was paid a gross fee of $42,385
for his consulting services through December 31, 2008 and, on September 18,
2008, he was granted options to purchase 50,000 shares of our common stock at an
exercise price of $2.90, the last sale price of our common stock on the date of
grant.
Roger
Ballentine
On
September 18, 2008, upon his appointment as a director, the Company and Mr.
Ballentine agreed to terminate a Consulting Agreement entered into on April 1,
2008. Pursuant to the terms of the Consulting Agreement, the Company engaged Mr.
Ballentine to provide the Company with various business development, marketing
and other advisory services. As compensation for the services to be rendered by
Mr. Ballentine under the Consulting Agreement, the Company agreed to pay Mr.
Ballentine a cash fee of $5,000 per month and issue 30,000 options to purchase
the Company's common stock at an exercise price of $1.08 per share. The Company
never issued the options to Mr. Ballentine but paid him an aggregate of $25,000
in cash during the term of the agreement. The original term of the Consulting
Agreement was to expire on February 30, 2010. Mr. Ballentine agreed to forfeit
the options issuable to him under the terms of the Consulting
Agreement.
Retirement
Plans and Employee Benefits
Our
Chinese subsidiaries and our affiliated companies are required to provide
certain employee benefits to their respective employees under Chinese law as
described below.
|
|
·
|
Local employee (residents of
Shanghai, China)
. As stipulated by the relevant laws and
regulations for companies operating in Shanghai, these companies are
required to maintain a city-sponsored defined contribution employee
benefit plan for all of their employees who are residents of Shanghai. The
companies contribute to the city-sponsored plan for each of their local
employees and have no further obligations for the actual pension payments
or post-retirement benefits beyond the annual contributions. The city
sponsored plan is responsible for the entire pension and other benefit
obligations payable for all past and present employees. The cost to each
of the companies under the plan are: (a) pension and retirement benefit in
the amount of 22% of the base salary of each employee, (b) medical
insurance in the amount of 12% of the base salary of each employee, (c)
unemployment insurance in the amount of 2% of the base salary of each
employee, (d) injury insurance in the amount of 0.5% of the base salary of
each employee, and (e) maternity insurance in the amount of 0.5% of the
base salary of each employee. In addition, companies operating in Shanghai
must also pay 7% of the base salary of each employee to a housing
provident fund.
|
|
|
·
|
Employees from outside of
Shanghai, China
. For employees who are not the residents of
Shanghai, as stipulated by the relevant laws and regulations for companies
operating in the Shanghai, the employer company is required to contribute
to a city-sponsored comprehensive insurance plan in an amount equal to
12.5% of a benchmark number consisting of 60% of the last year monthly
average salary of the entire workforce in Shanghai (including the
employer’s employees).
|
|
|
·
|
Outsourced employees
.
We have entered into an agreement with a human resource service company to
outsource the employees for manufacturing. The human resource service
company will be responsible for the comprehensive insurance for these
employees.
|
|
|
·
|
Senior management
. Our
Chinese subsidiaries and our affiliated companies pay the premiums for
accident insurance for a few members of their respective senior
management
|
Director
Compensation
Members
of our Board of Directors who are also executive officers do not receive equity
or cash compensation for their services as directors. Our policy is to reimburse
our non-executive directors for reasonable expenses incurred in attending board
of director or committee meetings or in connection with their services as
members of the Board.
On
September 18, 2008, we entered into substantially similar Board of Directors -
Retainer Agreements with each of our independent directors, Roger Ballentine,
Mengjiao Jiang and Fred Krupica. Pursuant to the terms of the Retainer
Agreements, each director has agreed to serve as a director until the earlier of
the termination of the Retainer Agreement or the two year anniversary of the
effective date thereof. Each director will receive compensation for service on
the Company's Board of Directors in the form of options to purchase the
Company's common stock and, in some cases, cash retainer payments. The term of
the options is ten years and the options vest in eight equal installments on
each October 1, January 1, April 1 and July 1 during the term. The retainers are
paid on a quarterly basis during the term of the Retainer Agreement. The
Retainer Agreements automatically renew for successive terms upon the director's
re-election to the Board of Directors for the period of such term, unless the
Board of Directors determines not to renew a Retainer Agreement in its sole
discretion.
Each
Retainer Agreement automatically terminates upon the earlier to occur of (a) the
death of the director, (b) the director's resignation or removal from, or
failure to win election or re-election to, the Company's Board of Directors, or
(c) upon the approval of the Company's Board of Directors, in its sole
discretion. In the event of termination, the director is entitled to receive (i)
payment of the portion of the retainer for service on the Company's Board of
Directors which has accrued to such director through the date of termination,
and (ii) the number of options that are vested as of the date of termination.
The unaccrued portion of the retainer and any unvested options as of the date of
termination will be forfeited by the director upon termination of the Retainer
Agreement. Finally, each director has agreed not to compete with the Company
during the term of the Retainer Agreement and for a period of six months
thereafter.
The
following table sets forth compensation information for the Company’s directors
who are not named executive officers for the year ended December 31,
2008:
|
Name
|
|
Fees
Earned or
Paid
in cash
($)
|
|
|
Option
Awards
(1)
($)
|
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
|
Roger
Ballentine
|
|
$
|
45,000
|
|
|
$
|
17,528
|
|
|
|
-0-
|
|
|
$
|
62,528
|
|
|
Mengjiao
Jiang
|
|
|
-0-
|
|
|
$
|
12,520
|
|
|
|
-0-
|
|
|
$
|
12,520
|
|
|
Fred
Krupica
|
|
$
|
8,583
|
|
|
$
|
35,055
|
|
|
|
-0-
|
|
|
$
|
43,638
|
|
__________
(1) Option
award amounts reflect compensation cost for our directors for the year ended
December 31, 2008, calculated in accordance with SFAS 123(R) and using a
Black-Scholes valuation model.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and
Related
Stockholder Matters
Our
common stock and Series A Convertible Preferred Stock constitute our only voting
securities. Holders of our common stock and Series A Convertible Preferred Stock
vote together as a single class. As of March 31, 2009, we
had 29,936,172 shares of common stock and 667,963 shares of Series A
Convertible Preferred Stock issued and outstanding. Each holder of Series A
Convertible Preferred Stock is entitled to that number of votes equal to the
number of shares of common stock into which such holder’s aggregate number of
shares of Series A Convertible Preferred Stock is convertible immediately after
the close of business on the applicable record date. Currently, each share of
Series A Convertible Preferred Stock is convertible into one-half of a share of
common stock, or an aggregate of 333,982 votes.
The
following table sets forth, as of March 31, 2009, the beneficial ownership of
our common stock by (a) each person or group of persons known to us to
beneficially own more than 5% of our outstanding shares of common stock, (b)
each of our directors and named executive officers and (c) all of our directors
and executive officers as a group. None of
our
officers or directors
hold any shares of our Series A Convertible
Preferred Stock. Except as indicated in the footnotes to the table below, each
stockholder named in the table has sole voting and investment power with respect
to the shares shown as beneficially owned by such stockholder.
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In
computing the number of shares beneficially owned by a person or a group and the
percentage ownership of that person or group, shares of our common stock subject
to options or warrants currently exercisable or exercisable within 60 days after
March 31, 2009 are deemed outstanding, but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Except as
indicated in the table below, the address of each individual named below is 7F,
No. 267 Qu Yang Road, Hongkou District, Shanghai 200081, China.
|
Name
of Beneficial Owner
|
|
Number
of Shares of Common Stock Beneficially Owned
|
|
|
Percentage
of Class
(1)
|
|
|
Qinghuan
Wu
|
|
|
11,454,254
|
(2)
|
|
|
38.3
|
%
|
|
Roger
Ballentine
|
|
|
26,250
|
(3)
|
|
|
*
|
|
|
Mengjiao
Jiang
|
|
|
31,250
|
(4)
|
|
|
*
|
|
|
Fred
J. Krupica
|
|
|
52,500
|
(5)
|
|
|
*
|
|
|
Jialing
Zhou
|
|
|
8,302,836
|
(6)
|
|
|
27.7
|
%
|
|
Adam Roseman
c/o
ARC Investment Partners, LLC
9440
S. Santa Monica Blvd., Suite 401
Beverly
Hills, CA 90210
|
|
|
2,281,750
|
(7)
|
|
|
7.4
|
%
|
|
All
executive officers and directors as a group (7 persons)
|
|
|
19,917,090
|
(8)
|
|
|
66.2
|
%
|
|
*
|
Less
than 1%.
|
|
(1)
|
Based
upon 29,936,172 shares of common stock issued and outstanding as of March
31, 2009. Does not include 667,963 shares of Series A Convertible
Preferred Stock currently exercisable into 333,982 shares of common
stock.
|
|
(2)
|
Does
not include 8,302,836 shares of common stock held by Mrs. Jialing Zhou,
Mr. Wu’s spouse, over which Mrs. Zhou has sole voting and investment
power.
|
|
(3)
|
Includes
26,250 shares of common stock issuable upon exercise of options held by
Mr. Ballentine at the exercise price of $2.90 per
share.
|
|
(4)
|
Includes
18,750 shares of common stock issuable upon exercise of options held by
Ms. Jiang at the exercise price of $2.90 per share.
|
|
(5)
|
Includes
52,500 shares of common stock issuable upon exercise of options held by
Mr. Krupica at the exercise price of $2.90 per
share.
|
|
(6)
|
Does
not include 11,454,254 shares of common stock held by Mr.
Qinghuan Wu, Ms. Zhou’s spouse, over which Mr. Wu has sole voting and
investment power.
|
|
(7)
|
Includes
(a) 680,056 shares of common stock held by R.A. Roseman Holdings, LLC over
which Mr. Roseman has sole dispositive and voting control as the manager
of R.A. Roseman Holdings, LLC; (b) 587,384
shares of common stock underlying Series A Convertible
Preferred Stock and 293,692 shares of common stock issuable upon exercise
of warrants held by RMK Emerging Markets, LLC over which Mr. Roseman has
dispositive and voting control as the chief executive officer of RMK
Emerging Markets, LLC; (c) 46,296 shares of common stock underlying Series
A Convertible Preferred Stock, 23,148 shares of common stock issuable upon
exercise of warrants, and 444,772 shares of common stock held by Tapirdo
Enterprises, LLC over which Mr. Roseman has sole dispositive and voting
control as the manager and sole member of Tapirdo Enterprises,
LLC; (d) 195,454 shares of common stock held by ARC China, Inc. over
which Mr. Roseman has dispositive and voting control as the chief
executive officer of ARC China, Inc.; and (e) 10,948 shares of common
stock held by ARC Investment Partners, LLC over which Mr. Roseman has
dispositive and voting control as the chief executive officer of ARC
Investment Partners, LLC. The foregoing information is based upon a
Schedule 13D filed by Mr. Roseman on August 28, 2008.
|
|
(8)
|
Includes
an aggregate 147,500 shares of common stock issuable upon
exercise of options held by our executive officers and
directors.
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth, as of December 31, 2008, certain information related
to our compensation plans under which shares of our common stock are authorized
for issuance:
|
Plan
Category
|
|
Number
of Securities to be Issued upon Exercise of Outstanding Options Warrants
and Rights
|
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
|
|
Number
of Securities Remaining Available For Future Issuance Under Equity
Compensation Plans (excluding securities reflected in first
column)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
335,000
|
|
|
$
|
2.90
|
|
|
|
3,415,000
|
|
|
Total
|
|
|
335,000
|
|
|
$
|
2.90
|
|
|
|
3,415,000
|
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Transactions
with Related Persons
From time-to-time, our Chinese
subsidiaries and affiliated companies entered into various transactions with Mr.
Qinghuan Wu, one of our directors, a significant shareholder, and our Chairman
of the Board and Chief Executive Officer. The table below sets forth as of
December 31, 2008 and 2007 the approximate amounts we owed to or had due from
Mr. Wu.
|
|
|
2008
|
|
|
2007
|
|
|
Receivable
from shareholder, Mr. Wu
|
|
$
|
-0-
|
|
|
$
|
463,663
|
|
The
receivable from shareholder consists of various advances, described below, that
our Chinese subsidiaries and affiliated companies made from time-to-time to Mr.
Wu for business convenience purposes which occurred before the Share Exchange.
Such advances were due on demand and did not bear interest. During 2007, Vessel
Works Division made advances to Mr. Wu. Mr. Wu and his spouse, Mrs. Jialing
Zhou, own Shanghai Engineering. Our wholly-owned subsidiary, CER Shanghai, has
entered into a contractual relationship with Shanghai Engineering and its
shareholders, Mr. Wu and Mrs. Zhou, pursuant to which CER Shanghai controls
Shanghai Engineering. In turn, Shanghai Engineering has entered into a
cooperating manufacturing agreement with Vessel Works Division pursuant to which
Shanghai Engineering controls Vessel Works Division.
In
December 2003, Vessel Works Division made an advance to Mr. Wu in the amount of
approximately $1,240,000 (RMB 10,000,000) to be used as a partial capital
contribution on behalf of Mr. Wu for Haiyin’s registered capital upon its
formation. Haiyin is one of our former variable interest entities which was
originally formed to derive tax benefits under Chinese law. In exchange for such
capital contribution, Mr. Wu received common stock of Haiyin. Haiyin was owned
by Mr. Wu, 60%, and his spouse, Mrs. Jialing Zhou, 40%. The shareholders of
Haiyin liquidated the company in February 2008 through two
successive decreases of its registered capital. Upon the decreases of the
registered capital of Haiyin, in December 2007, Haiyin made a distribution of
$1,240,000 to Mr. Wu as a return of the capital contributed with the money
received from Vessel Works Division. Mr. Wu paid the distribution received to
Shanghai Engineering. On a consolidated basis, the receivable due from Mr. Wu
for the advance by Vessel Works Division was offset against the payment made by
Mr. Wu to Shanghai Engineering with the money distributed to Mr. Wu from
Haiyin.
In 2007,
Vessel Works Divisions made various advances in the aggregate amount of
approximately $854,304 (RMB 6,231,250) to Mr. Wu for business convenience
purposes. In December 2007, Mr. Wu paid annual bonuses to all of the employees
of Vessel Works Division on its behalf in the amount of approximately $92,457
(RMB 674,378). In December 2007, Mr. Wu paid annual bonuses to all of the
employees of Shanghai Engineering on its behalf in the amount of approximately
$140,471 (RMB 1,024,585) and made a payment of approximately $137,100 (RMB
1,000,000) to Shanghai Engineering, upon receiving a distribution from Haiyin of
return of capital. On a consolidated basis, these bonus payments and the
repayment to Shanghai Engineering were used to offset the receivable due from
Mr. Wu for the $854,304 advance by Vessel Works Division.
The
largest aggregate amount of these advances outstanding in 2007 was approximately
$1,250,547, which was the outstanding balance as of January 1, 2007. In 2007,
Mr. Wu repaid approximately $1,939,870 (RMB 14,149,309), leaving a balance of
approximately $463,663 outstanding as of December 31, 2007. The largest
aggregate amount of these advances outstanding in 2008 was approximately
$463,663, which was the outstanding balance as of January 1, 2008. The remaining
outstanding balance was paid in full on December 30, 2008.
Mr. Wu
was the director of Zhejiang Jiahua Industry Park Investment Development Co.,
Ltd (“Jiahua”) before August, 2008. Jiahua is one of the Company’s
major customers. For the years ended December 31, 2008 and 2007, sales revenue
from Jiahua were $3,384,900 and $923,554, respectively. In 2007, we installed an
energy recovery system for sulfuric manufacturing in Jiahua’s manufacturing
facilities for a purchase price of approximately $563,228. We also conducted an
EPC project for Jiahua valued at approximately $338,210 and performed
miscellaneous services. In 2008, we conducted an EPC project using special
process technologies that we possess, for which we have applied for an invention
patent, for Jiahua, revenue for which was $3,416,746. Receivables and payables
related to Jiahua were related to sales and will be collected according to the
contract terms. Payables related to Jiahua were for business purposes and will
be settled with cash. As of December 31, 2008 and 2007, the amounts
due from/to Jiahua were as follows:
|
|
|
|
2008
|
|
|
|
2007
|
|
|
Accounts
receivable
|
|
$
|
1,006,060
|
|
|
$
|
572,036
|
|
|
Other
payables
|
|
$
|
65,078
|
|
|
$
|
60,819
|
|
|
Deferred
revenue
|
|
$
|
208,270
|
|
|
$
|
-
|
|
On
December 18, 2007, Shanghai Engineering entered into a Loan and Transaction
Expense Agreement with RMK Emerging Growth Opportunity Fund, LP, a Delaware
limited partnership controlled by Adam Roseman, one of our significant
shareholders. Under the agreement, RMK Emerging Growth Opportunity Fund, LP
extended a short-term bridge loan to Shanghai Engineering in an amount of
$725,000. Pursuant to the terms of the agreement, Shanghai Engineering is
required to repay the loan in an amount equal to 1.75 times the principal amount
($1,268,750) upon the earlier to occur of Shanghai Engineering’s sale, next
financing or going public event of at least $5 million as long as such sale,
financing or going public event involves a party that is not a 100% domestic
company in China. Because Shanghai Engineering is a functional subsidiary of
Poise (through contractual relationships and by its status as a variable
interest entity), the closing of the Company’s January 2008 Share Exchange and
the Financing triggered repayment of the loan.
Effective
as of January 9, 2008, the Company issued an Amended and Restated Senior Secured
Promissory Note in the principal amount of $250,000 to Tapirdo Enterprises, LLC.
The note is due on demand and must be repaid by the issuance of 1,666,667 shares
of our common stock. We granted Tapirdo Enterprises, LLC demand and piggyback
registration rights for the shares of our common stock underlying the promissory
note. On January 9, 2008, we repaid the note in full by the issuance of
1,666,667 shares of our common stock. The registration rights survive conversion
of the promissory note. We do not expect to make future payments or otherwise
transfer consideration under the terms of the registration rights. Tapirdo
Enterprises, LLC is owned and controlled by Adam Roseman.
On
January 18, 2008, we entered into a registration rights agreement with a total
of 18 stockholders who acquired their shares at different times while we were
still a shell company in private transactions exempt from registration under the
Securities Act of 1933. Two out of the 18 stockholders were related parties at
the time: RA Roseman Holdings, LLC, an entity wholly-owned by Adam Roseman, and
Kaman Ventures, LLC, an entity wholly-owned by Michael Kurdziel, who was our
sole director and Chief Executive Officer. Pursuant to the terms of the
registration rights agreement, the stockholders have demand registration rights
pursuant to which we are obligated to register shares of our common stock (and
additional shares of our common stock issuable with respect of such registrable
shares of common stock upon stock splits, etc.) on Form S-3 (or on such other
form appropriate for such purpose) within 30 days after receipt of a request. We
are obligated to effect one demand registration on behalf of the investors. In
addition, in the event that we propose to register any of our securities under
the Securities Act after January 18, 2008 by filing any form of registration
statement (other than on Form S-4 or Form S-8 or any successor forms thereof)
that would legally permit the inclusion of the shares subject to the
registration rights agreement, we must provide written notice to the parties to
the registration rights agreement of our intention to do so and shall provide
such parties an opportunity to include in such registration statement all shares
of common stock subject to the registration rights agreement. These piggy-back
registration rights are subject to certain exceptions and conditions. Each party
to the registration rights agreement has one piggyback registration right and a
registration does not count as a piggyback registration until it has become
effective and includes 100% of the shares of common stock subject to the
agreement requested by such stockholder to be included in the registration
statement. We do not expect to make future payments or otherwise transfer
consideration under the term of the registration rights agreement.
On
January 24, 2008, we entered into a Consulting Agreement with ARC Investment
Partners, LLC, which is controlled by Adam Roseman, pursuant to which we engaged
ARC Investment Partners, LLC to provide the Company with various sales,
marketing and other advisory services in connection with the Share Exchange and
Financing, among others. As compensation for the services to be rendered by ARC
Investment Partners, LLC under the Consulting Agreement, we agreed to: (a) issue
to ARC Investment Partners, LLC a warrant to purchase 2,084,976 shares of
our common stock at an exercise price of $2.16 per share; and (b) pay to
ARC Investment Partners, LLC a one-time cash fee of $500,000 upon the successful
listing of our company on NASDAQ or the American Stock Exchange on or before the
first anniversary of the date of the Consulting Agreement, so long as we have
received a total equity investment of at least $20 million following the
execution of the Consulting Agreement and prior to the first anniversary of the
date of the Consulting Agreement. On March 31, 2008, the parties agreed to
terminate the Consulting Agreement with immediate effect and cancel the
warrant.
On
January 25, 2008, we entered into and closed an Asset Purchase Agreement with
MMA Acquisition Company, a Delaware corporation, pursuant to which we sold
substantially all of our assets to MMA Acquisition Company in exchange for MMA
Acquisition Company’s assuming a substantial majority of our outstanding
liabilities. The transferred assets consisted of letters of intent for the
proposed acquisitions of each of MMAWeekly.com, dated June 9, 2007, and
Blackbelt TV, Inc., dated July 16, 2007, and all shares of common stock in
Blackbelt TV, Inc. we owned, among other things. The total book value of the
assets acquired was approximately $317,000. The assumed liabilities consist of
accounts payable, convertible debt, accrued expenses and shareholder advances of
approximately $360,000. MMA Acquisition is owned by ARC Investment Partners,
LLC, and MMA Acquisition’s sole director and officer is Michael Kurdziel, who
was also our sole director and our Chief Executive Officer at the time of the
closing of the sale, and Managing Director of ARC Investment Partners,
LLC.
On April
15, 2008, the Company, Shanghai Engineering and RMK Emerging Growth Opportunity
Fund, LP entered into a Loan Conversion Agreement pursuant to which the parties
agreed to convert the December 18, 2007 loan from RMK Emerging Growth
Opportunity Fund, LP to Shanghai Engineering (see above) into a subscription for
the Company’s Series A Convertible Preferred Stock and warrants in the aggregate
amount of $1,268,750 in the Share Exchange and the Financing. The parties agreed
that such subscription should be credited towards satisfying the minimum amount
of the Financing required under the Share Exchange Agreement. Therefore, upon
the closing of the Financing, the Company issued to RMK Emerging Growth
Opportunity Fund, LP 587,384 shares of the Company’s Series A Convertible
Preferred Stock and warrants to purchase 293,692 shares of the Company’s
common stock at $2.58 per share in full satisfaction of the repayment and
conversion of the loan to RMK Emerging Growth Opportunity Fund, LP.
On June
20, 2008, we entered into a Consulting Agreement with ARC China, Inc., a
Delaware corporation, pursuant to which we engaged ARC China, Inc. to provide
the Company with various sales, marketing and other advisory services. As
compensation for the services to be rendered by ARC China, Inc. under the
Consulting Agreement, we agreed to issue to ARC China, Inc. a warrant to
purchase 750,000 shares of our common stock at an exercise price of $2.16 per
share. The warrant is exercisable in a cash-less manner. The warrant will vest
and be exercisable according to the following schedule: (a) warrants to purchase
250,000 shares of our common stock vested and became exercisable upon execution
of the Consulting Agreement, (b) warrants to purchase 5,000 shares of shares of
our common stock will vest and be exercisable on the date of our receipt of each
$1,000,000 in gross proceeds in each financing during the term of the Consulting
Agreement, up to a maximum of 250,000 shares of our common stock (provided that
warrants shall not vest for increments of less than $1,000,000 in gross proceeds
received in a financing), and (c) warrants to purchase 250,000 shares of our
common stock will vest and become exercisable upon a transfer of the quotation
of our common stock from the OTC Bulletin Board to the NASDAQ Stock Market or
the American Stock Exchange. ARC China, Inc. exercised the vested portion of the
warrant on June 23, 2008 in a cash-less manner and we issued 195,454 shares of
our common stock to ARC China, Inc. on such date. On August 11, 2008, the
parties amended the Consulting Agreement to reduce the aggregate number of
shares of our common stock which may be purchased by ARC China, Inc. upon
exercise of the warrant from 750,000 to 250,000 shares, all of which shares were
immediately vested and exercisable upon issuance of the warrant and all of which
shares were purchased by ARC China, Inc. on a cash-less basis on June 23, 2008
as described above. In addition, we agreed to register the shares of common
stock underlying the warrant. In the event that we propose to register any of
our securities under the Securities Act after June 20, 2008 by filing any form
of registration statement (other than on Form S-4 or Form S-8 or any successor
forms thereof) that would legally permit the inclusion of the shares of common
stock underlying the warrant, we must provide written notice to ARC China, Inc.
of our intention to do so and provide ARC China, Inc. an opportunity to include
in such registration statement the shares of common stock underlying the
warrant. ARC China, Inc. has one piggyback registration right and a registration
does not count as a piggyback registration until it has become effective and
includes 100% of the shares of common stock underlying the warrant requested by
ARC China, Inc. to be included in the registration statement. Adam Roseman, one
of our significant shareholders, is the chief executive officer of ARC China,
Inc.
Director
Independence
We
undertook a review of the independence of our directors and, using the
definitions and independence standards for directors provided in the rules of
The Nasdaq Stock Market, considered whether any director has a material
relationship with us that could interfere with their ability to exercise
independent judgment in carrying out their responsibilities. As a result of this
review, we determined that Roger Ballentine, Mengjiao Jiang and Fred Krupica are
“independent directors” as defined under the rules of The Nasdaq Stock
Market.
Item
14. Principal Accountant Fees and Services
Principal
Accountant Fees and Services
The
following is a summary of fees billed by the principal accountant for services
rendered during each of the years ended December 31, 2008 and
2007.
Audit Fees.
For the years
ended December 31, 2008 and December 31, 2007, the aggregate fees billed for
professional services rendered for the audit of our annual financial statements,
the review of our financial statements included in our quarterly reports, and
services provided in connection with regulatory filings were approximately
$247,694 and 36,345, respectively.
Moore
Stephens Wurth Frazer and Torbet, LLP, our current auditor, performed the audit
of our annual consolidated financial statements for the year ended
December 31, 2008, the review of our quarterly financial statements for the
second and third quarters ended June 30, 2008 and September 30, 2008,
respectively, and the review of our S-1 registration statement and other filings
with the SEC. AJ Robbins P.C. performed the audit of our annual financial
statements for the year ended December 31, 2007 and performed the review of
our quarterly financial statements for the first quarter ended March 31,
2008 and for the first, second and third quarters ended March 31, 2007, June 30,
2007 and September 30, 2007, respectively.
Audit Related Fees.
For the
years ended December 31, 2008 and December 31, 2007, there were no fees billed
for professional services by our independent auditors for assurance and related
services.
Tax Fees.
For the years ended
December 31, 2008 and December 31, 2007, there were no fees billed for
professional services rendered by our independent auditors for tax compliance,
tax advice or tax planning.
All Other Fees.
For the years
ended December 31, 2008 and December 31, 2007, there were no other fees billed
for other professional services by our independent auditors.
Pre-Approval
Policy
The Audit
Committee pre-approves the services to be provided by its independent auditors.
During the year ended December 31, 2008, the Audit Committee reviewed in advance
the scope of the annual audit to be performed by the independent auditors and
the independent auditors’ audit fees and approved them.
Item
15. Exhibits, Financial Statement Schedules
|
|
|
|
|
|
|
Exhibit
(31.1) – Section 302 Certification – Principal Executive
Officer
|
|
|
Exhibit
(31.2) – Section 302 Certification – Principal Financial
Officer
|
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Amendment No. 1 to the Annual Report
on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 29th day of April 2009.
|
|
CHINA
ENERGY RECOVERY, INC.
|
|
|
|
|
|
|
By:
|
/s/
Q
UINGHUAN
W
U
|
|
|
|
Qinghuan
Wu
|
|
|
|
Chief
Executive Officer
|
China Energy Recovery (CE) (USOTC:CGYV)
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