SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
quarterly period ended
September 30,
2010
OR
¨
TRANSITION REPORT UNDER SECTION 13 OF
15(d) OF THE EXCHANGE ACT OF 1934
For the
transition period from ___________ to ____________.
Commission
File Number:
000-52235
LIANDI
CLEAN TECHNOLOGY INC.
(Exact
name of small business issuer as specified in its charter)
NEVADA
|
75-2955368
|
(State or Other Jurisdiction
|
|
of Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
4th
Floor Tower B. Wanliuxingui Building, No. 28
Wanquanzhuang
Road, Haidian District
Beijing, 100089,
China
(Address
of principal executive offices)
+1
86-10-5872-0171
(Issuer's
telephone number)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check 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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large 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.
Large
accelerated filer
o
Accelerated filer
o
Non-accelerated
filer (Do not check if a smaller reporting company)
o
Smaller
reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
As of
November 15, 2010, the registrant had 29,971,117 shares of common stock
outstanding.
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
Item
1. Financial Statements
|
F-1-F-39
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
40-67
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
68
|
|
|
Item
4(T). Controls and Procedures
|
68
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
Item
1. Legal Proceedings
|
68
|
|
|
|
Item
1A. Risk Factors
|
68
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
68
|
|
|
|
Item
3. Defaults Upon Senior Securities
|
68
|
|
|
Item
4. [Removed and Reserved]
|
68
|
|
|
|
Item
5. Other Information
|
68
|
|
|
|
Item
6. Exhibits
|
69
|
|
|
|
Signatures
|
70
|
PART
I. FINANCIAL INFORMATION
Item 1.
Financial Statements
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED BALANCE SHEETS
(AMOUNTS
EXPRESSED IN US DOLLARS)
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
52,455,484
|
|
|
$
|
59,238,428
|
|
Restricted
cash
|
|
|
8,277,571
|
|
|
|
2,964,864
|
|
Notes
receivable
|
|
|
463,686
|
|
|
|
-
|
|
Accounts
receivable, net of $nil allowance
|
|
|
5,440,303
|
|
|
|
2,295,231
|
|
Deferred
costs of revenue
|
|
|
157,611
|
|
|
|
1,168,025
|
|
Inventories
|
|
|
2,352,600
|
|
|
|
30,103
|
|
Prepaid
expenses and deposits
|
|
|
15,724,294
|
|
|
|
657,257
|
|
Other
receivables, net of $nil allowance
|
|
|
3,809,285
|
|
|
|
3,416,284
|
|
Pledged
trading securities
|
|
|
11,592
|
|
|
|
11,592
|
|
Prepaid
land use right – current portion
|
|
|
46,868
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
88,739,294
|
|
|
|
69,781,784
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
11,325,390
|
|
|
|
151,660
|
|
Intangible
assets, net
|
|
|
4,994,237
|
|
|
|
5,192,738
|
|
Prepaid
land use right – non-current portion
|
|
|
1,812,222
|
|
|
|
-
|
|
Deposit
for land use rights
|
|
|
1,186,522
|
|
|
|
-
|
|
Goodwill
|
|
|
357,635
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
108,415,300
|
|
|
$
|
75,126,182
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Short
term bank loans
|
|
$
|
2,536,897
|
|
|
$
|
-
|
|
Accounts
payable
|
|
|
3,012,261
|
|
|
|
11,926
|
|
Deferred
revenue
|
|
|
320,414
|
|
|
|
2,481,771
|
|
Other
payables and accrued expenses
|
|
|
8,865,200
|
|
|
|
3,496,612
|
|
Provision
for income tax
|
|
|
148,357
|
|
|
|
59,763
|
|
Due
to shareholders
|
|
|
10,636,668
|
|
|
|
8,461,161
|
|
Due
to non-controlling interests
|
|
|
5,136,607
|
|
|
|
-
|
|
Preferred
stock dividend payable
|
|
|
579,241
|
|
|
|
184,820
|
|
Deferred
tax liability
|
|
|
691,776
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
31,927,421
|
|
|
|
14,696,053
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
31,927,421
|
|
|
|
14,696,053
|
|
Commitments
and Contingencies (Note 24)
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(AMOUNTS
EXPRESSED IN US DOLLARS)
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
8%
Series A contingently redeemable convertible preferred stock (25,000,000
shares authorized; par value: $0.001 per share; 6,572,283 and 7,086,078
shares issued and outstanding, respectively; aggregate liquidation
preference amount: $23,582,232 and $24,986,093, including accrued but
unpaid dividend of $579,241 and $184,820 at September 30, 2010 and March
31, 2010, respectively)
|
|
|
14,991,475
|
|
|
|
14,059,018
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock (par value: $0.001 per share; 50,000,000 shares authorized;
29,872,567 and 29,358,772 shares issued and outstanding,
respectively)
|
|
|
29,873
|
|
|
|
29,359
|
|
Additional
paid-in capital
|
|
|
20,922,857
|
|
|
|
19,891,932
|
|
Statutory
reserves
|
|
|
1,138,733
|
|
|
|
1,138,733
|
|
Retained
earnings
|
|
|
32,993,591
|
|
|
|
25,245,926
|
|
Accumulated
other comprehensive income
|
|
|
778,956
|
|
|
|
65,161
|
|
|
|
|
|
|
|
|
|
|
Total
LianDi Clean shareholders’ equity
|
|
|
55,864,010
|
|
|
|
46,371,111
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
5,632,394
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
61,496,404
|
|
|
|
46,371,111
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
108,415,300
|
|
|
$
|
75,126,182
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(AMOUNTS
EXPRESSED IN US DOLLARS) (Unaudited)
|
|
Three months ended
September 30,
|
|
|
Six months ended
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and installation of equipment
|
|
$
|
33,682,153
|
|
|
$
|
18,584,322
|
|
|
$
|
40,031,287
|
|
|
$
|
25,028,997
|
|
Sales
of software
|
|
|
-
|
|
|
|
3,042,254
|
|
|
|
2,805,799
|
|
|
|
3,743,042
|
|
Services
|
|
|
1,134,607
|
|
|
|
-
|
|
|
|
1,137,708
|
|
|
|
23,373
|
|
Sales
of industrial chemicals
|
|
|
8,490,510
|
|
|
|
-
|
|
|
|
8,490,510
|
|
|
|
-
|
|
|
|
|
43,307,270
|
|
|
|
21,626,576
|
|
|
|
52,465,304
|
|
|
|
28,795,412
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of equipment sold
|
|
|
(26,303,920
|
)
|
|
|
(15,312,464
|
)
|
|
|
(31,335,336
|
)
|
|
|
(20,325,521
|
)
|
Amortization
of intangibles
|
|
|
(150,631
|
)
|
|
|
(149,317
|
)
|
|
|
(300,115
|
)
|
|
|
(298,660
|
)
|
Cost
of industrial chemicals
|
|
|
(7,797,118
|
)
|
|
|
-
|
|
|
|
(7,797,118
|
)
|
|
|
-
|
|
|
|
|
(34,251,669
|
)
|
|
|
(15,461,781
|
)
|
|
|
(39,432,569
|
)
|
|
|
(20,624,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
9,055,601
|
|
|
|
6,164,795
|
|
|
|
13,032,735
|
|
|
|
8,171,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
(429,879
|
)
|
|
|
(261,632
|
)
|
|
|
(570,821
|
)
|
|
|
(537,282
|
)
|
General
and administrative expenses
|
|
|
(1,248,683
|
)
|
|
|
(254,934
|
)
|
|
|
(1,795,056
|
)
|
|
|
(570,938
|
)
|
Research
and development cost
|
|
|
(69,543
|
)
|
|
|
(9,223
|
)
|
|
|
(128,853
|
)
|
|
|
(18,304
|
)
|
Total
operating expenses
|
|
|
(1,748,105
|
)
|
|
|
(525,789
|
)
|
|
|
(2,494,730
|
)
|
|
|
(1,126,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
7,307,496
|
|
|
|
5,639,006
|
|
|
|
10,538,005
|
|
|
|
7,044,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
33,733
|
|
|
|
35,826
|
|
|
|
59,747
|
|
|
|
47,102
|
|
Interest
and bank charges
|
|
|
(114,702
|
)
|
|
|
(165,116
|
)
|
|
|
(260,333
|
)
|
|
|
(297,546
|
)
|
Exchange
gains (losses), net
|
|
|
(57,170
|
)
|
|
|
(188,971
|
)
|
|
|
(126,938
|
)
|
|
|
(280,858
|
)
|
Investment
income
|
|
|
6,748
|
|
|
|
-
|
|
|
|
6,748
|
|
|
|
-
|
|
Value
added tax refund
|
|
|
1,428
|
|
|
|
-
|
|
|
|
370,611
|
|
|
|
122,638
|
|
Other
|
|
|
289,535
|
|
|
|
580
|
|
|
|
292,342
|
|
|
|
19,075
|
|
Total
other income (expenses), net
|
|
|
159,572
|
|
|
|
(317,681
|
)
|
|
|
342,177
|
|
|
|
(389,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax
|
|
|
7,467,068
|
|
|
|
5,321,325
|
|
|
|
10,880,182
|
|
|
|
6,655,118
|
|
Income
tax expense
|
|
|
(84,646
|
)
|
|
|
-
|
|
|
|
(84,646
|
)
|
|
|
(817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
|
7,382,422
|
|
|
|
5,321,325
|
|
|
|
10,795,536
|
|
|
|
6,654,301
|
|
Income
attributable to noncontrolling interests
|
|
|
(124,430
|
)
|
|
|
-
|
|
|
|
(124,430
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to LianDi Clean shareholders
|
|
|
7,257,992
|
|
|
|
5,321,325
|
|
|
|
10,671,106
|
|
|
|
6,654,301
|
|
Preferred
stock deemed dividend
|
|
|
(809,331
|
)
|
|
|
-
|
|
|
|
(1,951,844
|
)
|
|
|
-
|
|
Preferred
stock dividend
|
|
|
(477,698
|
)
|
|
|
-
|
|
|
|
(971,597
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
5,970,963
|
|
|
$
|
5,321,325
|
|
|
$
|
7,747,665
|
|
|
$
|
6,654,301
|
|
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(CONTINUED)
(AMOUNTS
EXPRESSED IN US DOLLARS) (Unaudited)
|
|
Three months ended
September 30,
|
|
|
Six months ended
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to LianDi Clean shareholders
|
|
$
|
7,257,992
|
|
|
$
|
5,321,325
|
|
|
$
|
10,671,106
|
|
|
$
|
6,654,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income attributable to LianDi Clean
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
558,906
|
|
|
|
7,410
|
|
|
|
713,795
|
|
|
|
16,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income attributable to LianDi Clean Shareholders
|
|
|
7,816,898
|
|
|
|
5,328,735
|
|
|
|
11,384,901
|
|
|
|
6,671,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income attributable to non-controlling interests
|
|
|
184,912
|
|
|
|
-
|
|
|
|
184,912
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
|
$
|
8,001,810
|
|
|
$
|
5,328,735
|
|
|
$
|
11,569,813
|
|
|
$
|
6,671,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share attributable to LianDi Clean shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,679,646
|
|
|
|
27,354,480
|
|
|
|
29,526,643
|
|
|
|
27,354,480
|
|
Diluted
|
|
|
36,618,829
|
|
|
|
27,354,480
|
|
|
|
30,016,764
|
|
|
|
27,354,480
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS
EXPRESSED IN US DOLLARS) (Unaudited)
|
|
For the Six Months
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$
|
10,795,536
|
|
|
$
|
6,654,301
|
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
Depreciation
of property and equipment
|
|
|
368,816
|
|
|
|
17,072
|
|
Amortization
of intangible assets
|
|
|
321,325
|
|
|
|
292,004
|
|
Share-based
compensation costs
|
|
|
12,051
|
|
|
|
-
|
|
Decrease
(increase) in assets:
|
|
|
-
|
|
|
|
|
|
Accounts
receivable
|
|
|
(709,176
|
)
|
|
|
(1,862,813
|
)
|
Notes
receivable
|
|
|
(127,067
|
)
|
|
|
-
|
|
Prepayment
to suppliers
|
|
|
(9,269,517
|
)
|
|
|
-
|
|
Inventories
|
|
|
301,866
|
|
|
|
(8,366
|
)
|
Deferred
costs, prepaid expenses and other current assets
|
|
|
(1,018,594
|
)
|
|
|
10,892,219
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(1,034,364
|
)
|
|
|
4,404,203
|
|
Deferred
revenue and accruals
|
|
|
1,220,755
|
|
|
|
(12,650,130
|
)
|
Net
cash provided by operating activities
|
|
|
861,631
|
|
|
|
7,738,490
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of short-term investments
|
|
|
-
|
|
|
|
39,513
|
|
Purchase
of property, plant and equipment
|
|
|
(100,322
|
)
|
|
|
(2,757
|
)
|
Purchase
of intangible assets
|
|
|
-
|
|
|
|
(14,055
|
)
|
Acquisition
of subsidy, net of cash and cash equivalents acquired
|
|
|
2,325,060
|
|
|
|
-
|
|
Payment
of deposit for land use rights
|
|
|
(963,604
|
)
|
|
|
-
|
|
Repayment
from (advance to) other entities
|
|
|
(5,245,995
|
)
|
|
|
16,087,017
|
|
Net
cash (used in) provided by investing activities
|
|
|
(3,984,861
|
)
|
|
|
16,109,718
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Increase
in restricted cash
|
|
|
(5,291,511
|
)
|
|
|
(3,797,180
|
)
|
Repayment
to non-controlling interests
|
|
|
(665,797
|
)
|
|
|
-
|
|
Advance
from (repayment to) shareholders
|
|
|
2,166,611
|
|
|
|
(9,365,298
|
)
|
Payment
of preferred stock dividend
|
|
|
(577,176
|
)
|
|
|
-
|
|
Net
cash used in financing activities
|
|
|
(4,367,873
|
)
|
|
|
(13,162,478
|
)
|
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS
EXPRESSED IN US DOLLARS) (Unaudited)
|
|
For the Six Months
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Effect
of foreign currency translation on cash
|
|
|
708,159
|
|
|
|
(15,624
|
)
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(6,782,944
|
)
|
|
|
10,670,106
|
|
Cash
and cash equivalents, beginning of period
|
|
|
59,238,428
|
|
|
|
5,018,813
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
52,455,484
|
|
|
$
|
15,688,919
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for interests
|
|
$
|
190,597
|
|
|
$
|
260,132
|
|
|
|
|
|
|
|
|
|
|
Non-cash
activities
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of preferred stock
|
|
$
|
1,019,388
|
|
|
$
|
-
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
LIANDI
CLEAN TECHNOLOGY INC
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(AMOUNTS
EXPRESSED IN US DOLLARS) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Paid-in
|
|
|
Statutory
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Controlling
|
|
|
|
|
|
|
Of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserves
|
|
|
Earnings
|
|
|
Income
|
|
|
Interests
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2010
|
|
|
29,358,772
|
|
|
$
|
29,359
|
|
|
$
|
19,891,932
|
|
|
$
|
1,138,733
|
|
|
$
|
25,245,926
|
|
|
$
|
65,161
|
|
|
$
|
-
|
|
|
$
|
46,371,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
equity interests in acquired subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,447,482
|
|
|
|
5,447,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Net
income for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,671,106
|
|
|
|
-
|
|
|
|
124,430
|
|
|
|
10,795,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
713,795
|
|
|
|
60,482
|
|
|
|
774,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
payments to independent directors
|
|
|
-
|
|
|
|
-
|
|
|
|
12,051
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock converted into common stock
|
|
|
513,795
|
|
|
|
514
|
|
|
|
1,018,874
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,019,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(971,597
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(971,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock deemed dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,951,844
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,951,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2010
|
|
$
|
29,872,567
|
|
|
$
|
29,873
|
|
|
$
|
20,922,857
|
|
|
$
|
1,138,733
|
|
|
$
|
32,993,591
|
|
|
$
|
778,956
|
|
|
$
|
5,632,394
|
|
|
$
|
61,496,404
|
|
The
accompanying notes form an integral part of these condensed consolidated
financial statements.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
1 DESCRIPTION
OF BUSINESS AND ORGANIZATION
Nature
of operations
LianDi
Clean Technology Inc. (formerly known as Remediation Services Inc.) (“LianDi
Clean” or the “Company”) is a holding company and, through its subsidiaries,
primarily engages in the distribution of clean technology for refineries
(unheading units for the delayed coking process), the distribution of a wide
range of petroleum and petrochemical valves and equipments, providing systems
integration, developing and marketing optimization software for the
polymerization process and providing related technical and engineering services
to large domestic Chinese petroleum and petrochemical companies and other energy
companies.
Corporate
organization
LianDi
Clean was incorporated in the State of Texas on June 25, 1999 under the name
Slopestyle Corporation. On December 12, 2007, the Company changed its
name from Slopestyle Corporation to Remediation Services, Inc. (“Remediation”)
and re-domiciled from Texas to Nevada. On February 26, 2010,
Remediation completed a reverse acquisition of China LianDi Clean Technology
Engineering Ltd. (“China LianDi”), which is further described below. The reverse
acquisition of China LianDi resulted in a change-in-control of
Remediation.
On March
17, 2010, Remediation caused to be formed a corporation under the laws of the
State of Nevada called LianDi Clean Technology Inc. ("Merger Sub") and on the
same day, acquired one hundred shares of Merger Sub's common stock for
cash. Accordingly, Merger Sub became a wholly-owned subsidiary of
Remediation.
Effective
as of April 1, 2010, Merger Sub was merged with and into Remediation. As a
result of the merger, the Company’s corporate name was changed to “LianDi Clean
Technology Inc.” Prior to the merger, Merger Sub had no liabilities
and nominal assets and, as a result of the merger, the separate existence of the
Merger Sub ceased. LianDi Clean was the surviving corporation in the
merger and, except for the name change provided for in the Agreement and Plan of
Merger, there was no change in the directors, officers, capital structure or
business of the Company.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
1 DESCRIPTION
OF BUSINESS AND ORGANIZATION (CONTINUED)
Details
of LianDi Clean’s subsidiaries as of September 30, 2010 are as
follows:
Subsidiaries’ names
|
|
Place and date of
incorporation
|
|
Percentage of
ownership
|
|
Principal activities
|
|
|
|
|
|
|
|
China
LianDi Clean Technology Engineering Ltd. (“China LianDi”)
|
|
British
Virgin Islands
July
28, 2004
|
|
100%
(directly
by the Company)
|
|
Holding
company of the other subsidiaries
|
|
|
|
|
|
|
|
Hua
Shen Trading (International) Limited (“Hua Shen HK”)
|
|
Hong
Kong
January
20, 1999
|
|
100%
(through
China LianDi)
|
|
Delivering
of industrial valves and other equipment with the related integration and
technical services
|
|
|
|
|
|
|
|
Petrochemical
Engineering Limited (“PEL HK”)
|
|
Hong
Kong
September
13, 2007
|
|
100%
(through
China LianDi)
|
|
Delivering
of industrial valves and other equipment with the related integration and
technical services, and investment holding
|
|
|
|
|
|
|
|
Bright
Flow Control Ltd. (“Bright Flow”)
|
|
Hong
Kong
December
17, 2007
|
|
100%
(through
China LianDi)
|
|
Delivering
of industrial valves and other equipment with the related integration and
technical services
|
|
|
|
|
|
|
|
Beijing
JianXin Petrochemical Engineering Ltd. (“Beijing JianXin”)
|
|
People’s
Republic of China (“PRC”)
May
6, 2008
|
|
100%
(through
PEL HK)
|
|
Delivering of
industrial valves and other equipment with the related integration and
technical services, developing and marketing optimization software for
polymerization processes, and provision of delayed coking solutions for
petrochemical, petroleum and other energy companies
|
|
|
|
|
|
|
|
Anhui
Jucheng Fine Chemicals Co., Ltd. (“Anhui Jucheng”)
|
|
People’s
Republic of China (“PRC”)
January
28, 2005
|
|
51%
(through
Beijing JianXin)
|
|
Developing,
manufacturing and selling of organic and inorganic chemicals and high
polymer fine chemicals with related technical services, and recycle and
sales of discarded product or used
packing
|
In July
2004, China LianDi was founded and owned as to 60% by Mr. Jianzhong Zuo (“Mr.
Zuo,” the Chief Executive Officer and Chairman of the Company) and 40% by
another third-party minority shareholder. On October 2, 2007, Mr. Zuo acquired
from such minority shareholder the remaining 40% interest in China LianDi for
US$1, and accordingly became the sole shareholder of China LianDi. On March 6,
2008, SJ Asia Pacific Limited (a company incorporated in the British Virgin
Islands and wholly owned by SJI Inc., a company incorporated in Japan and whose
shares are listed on the Jasdaq Securities Exchange, Inc. in Japan) acquired a
51% interest in China LianDi from Mr. Zuo in exchange for: (i) US$1.00;
(ii) the commitment to investing HK$60,000,000 (or approximately $7.7 million)
in China LianDi; and (iii) the provision of financial support for China LianDi
by way of an unlimited shareholder’s loan bearing interest at a rate not
exceeding 5% per annum. As a result, China LianDi had been owned 51% by SJ Asia
Pacific Limited and 49% by Mr. Zuo.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
1 DESCRIPTION
OF BUSINESS AND ORGANIZATION (CONTINUED)
On
January 8, 2010, Mr. Zuo transferred a 25%, 14% and 10% interest in China LianDi
to China LianDi Energy Resources Engineering Technology Ltd. (“LianDi Energy,” a
company wholly owned by Mr. Zuo), Hua Shen Trading (International) Ltd. (“Hua
Shen BVI,” a company incorporated in the British Virgin Islands and wholly owned
by SJ Asia Pacific Limited, and of which Mr. Zuo is a director and holds voting
and dispositive power over the shares held by it) and Rapid Capital Holdings Ltd
(“Rapid Capital”), respectively. On February 10, 2010, SJ Asia
Pacific Limited and LianDi Energy transferred 28.06% and 1.47% interest in China
LianDi to Rapid Capital (26.53%) and TriPoint Capital Advisors, LLC (“TriPoint”)
(3%), respectively. On February 12, 2010, Rapid Capital transferred
its 31.53% interest in China LianDi to LianDi Energy (15.53%), Hua Shen BVI
(11%) and Dragon Excel Holdings Ltd (5%), respectively. As a result, immediately
before the Share Exchange as defined below, China LianDi was owned 48% by SJ
Asia Pacific Limited (including 25% through Hua Shen BVI) and 39% by Mr. Zuo
through LianDi Energy. The remaining 13% was held as to 5% by Dragon Excel
Holdings Limited (“Dragon Excel”), 5% by Rapid Capital and 3% by
TriPoint.
Dragon
Excel and Rapid Capital are held by two individuals unaffiliated to China LianDi
at the time of the transfers. The transfers of 5% interests in China LianDi from
Mr. Zuo to each of Dragon Excel and Rapid Capital were effected for Mr. Zuo’s
own personal reasons. The transfer of 3% interest of China LianDi from the
principal shareholder, SJ Asia Pacific Limited to TriPoint was entered into for
consulting services related to facilitating the private placement.
Hua Shen
HK was founded by Mr. Zuo in 1999. On January 8, 2008, China LianDi
acquired 100% ownership interest in Hua Shen HK from Mr. Zuo. As Hua Shen HK and
China LianDi had been under common control, the acquisition of Hua Shen HK by
China LianDi has been accounted for using the “as if” pooling method of
accounting.
In 2007,
China LianDi established PEL HK and Bright Flow, as wholly-owned subsidiaries,
in Hong Kong. In 2008, PEL HK established Beijing JianXin, as a wholly-owned
subsidiary, in the PRC.
Anhui
Jucheng was founded on January 28, 2005. On July 5, 2010, Beijing
JianXin acquired a 51% equity interest in Auhui Jucheng (See Note
2).
Reverse
Acquisition
On
February 26, 2010, Remediation consummated the transactions contemplated by the
Share Exchange Agreement (the “Exchange Agreement”), by and among (i) China
LianDi and China LianDi’s shareholders, (collectively, the “China LianDi
Shareholders”), who together owned shares constituting 100% of the issued and
outstanding ordinary shares of China LianDi (the “China LianDi Shares”) and (ii)
the former principal stockholder of Remediation. Immediately prior to the Share
Exchange, 4,690,000 shares of Remediation’s common stock then outstanding were
cancelled and retired, so that immediately prior to the Share Exchange,
Remediation had 28,571,430 shares issued and outstanding. Pursuant to the terms
of the Exchange Agreement, the China LianDi Shareholders transferred to
Remediation all of the China LianDi Shares in exchange for the issuance of
27,354,480 shares of Remediation’s common stock, par value $0.001 per share
(such transaction, the “Share Exchange”), representing approximately 96% of
Remediation’s shares of common stock then issued and outstanding. The Share
Exchange resulted in a change in control of Remediation.
China
LianDi also paid $275,000 to Remediation’s former principal shareholder, owner
of the cancelled shares, as a result of the Share Exchange having been
consummated.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
1 DESCRIPTION
OF BUSINESS AND ORGANIZATION (CONTINUED)
Reverse
Acquisition-Continued
As a
result, the Share Exchange has been accounted for as a reverse acquisition
whereby China LianDi is deemed to be the accounting acquirer (legal acquiree)
and Remediation to be the accounting acquiree (legal acquirer). The
financial statements before the Share Exchange are those of China LianDi with
the results of Remediation being consolidated from the closing date. The equity
section and earnings per share of the Company have been retroactively restated
to reflect the reverse acquisition and no goodwill has been
recorded.
NOTE
2
ACQUISITION
Anhui
Jucheng was founded on January 28, 2005 and was wholly owned by a third party
individual. On July 5, 2010, Beijing JianXin, a wholly-owned subsidiary of the
Company, injected capital of RMB 40.8 million (approximately $6,023,652) into
Anhui Jucheng in the form of cash and as a result, the Company indirectly became
an owner of a 51% equity interest in Anhui Jucheng.
Anhui
Jucheng is engaged in the business of developing, manufacturing and selling
organic and inorganic chemical products and high polymer fine chemical products,
and providing chemical professional services. The acquisition of Anhui Jucheng
will enable the Company to improve its product structure and diversify its
channels of business opportunities in the future.
Net assets of Anhui Jucheng as of July 5, 2010:
|
|
Book value
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
Prepaid
land use right
|
|
$
|
102,831
|
|
|
$
|
1,850,864
|
|
Inventories
|
|
|
2,632,798
|
|
|
|
2,590,922
|
|
Property,
plant and equipment, net (including buildings)
|
|
|
10,255,673
|
|
|
|
11,282,723
|
|
Cash
and cash equivalents
|
|
|
2,325,060
|
|
|
|
2,325,060
|
|
Other
current assets
|
|
|
7,036,246
|
|
|
|
7,038,678
|
|
Deferred
tax liability
|
|
|
-
|
|
|
|
(693,771
|
)
|
Amount
due to shareholder
|
|
|
(6,074,352
|
)
|
|
|
(6,074,352
|
)
|
Other
current liabilities
|
|
|
(12,011,494
|
)
|
|
|
(13,226,465
|
)
|
|
|
|
|
|
|
|
|
|
Net
assets
|
|
$
|
4,266,762
|
|
|
$
|
5,093,659
|
|
Cash
injection by Beijing JianXin
|
|
|
|
|
|
|
6,023,652
|
|
|
|
|
|
|
|
|
11,117,311
|
|
Non-controlling
interest’s share of net assets
|
|
|
|
|
|
|
(5,447,482
|
)
|
|
|
|
|
|
|
|
|
|
Net
assets acquired
|
|
|
|
|
|
$
|
5,669,829
|
|
Total
purchase consideration
|
|
|
|
|
|
|
6,023,652
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$
|
353,823
|
|
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
3 SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of preparation and consolidation
These
interim condensed consolidated financial statements are unaudited. In
the opinion of management, all adjustments and disclosures necessary for a fair
presentation of these interim condensed consolidated financial statements have
been included. The results reported in the condensed consolidated
financial statements for any interim periods are not necessarily indicative of
the results that may be reported for the entire year. The (a)
condensed consolidated balance sheet as of March 31, 2010, which was derived
from audited financial statements, and (b) the unaudited interim condensed
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information not misleading. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying footnotes of the Company for
the year ended March 31, 2010.
These
condensed consolidated financial statements include the financial statements of
LianDi Clean and its subsidiaries. All significant inter-company
balances or transactions have been eliminated on consolidation.
Revenue
recognition
Revenue
is recognized when the following four criteria are met as prescribed by the SEC
Staff Accounting Bulletin No. 104 (“SAB 104”): (i) persuasive evidence of an
arrangement exists, (ii) product delivery has occurred or the services have been
rendered, (iii) the fees are fixed or determinable, and (iv) collectibility is
reasonably assured.
Multiple-deliverable
arrangements
The
Company derives revenue from fixed-price sale contracts with customers that may
provide for the Company to deliver equipment with varied performance
specifications specific to each customer and provide the technical services for
installation, integration and testing of the equipment. In instances where the
contract price is inclusive of the technical services, the sale contracts
include multiple deliverables. A multiple-element arrangement is separated into
more than one unit of accounting if all of the following criteria are
met:
LIANDI CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
3 SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
recognition -Continued
|
•
|
The delivered item(s) has value
to the customer on a stand-alone
basis;
|
|
•
|
There is objective and reliable
evidence of the fair value of the undelivered item(s);
and
|
|
•
|
If
the arrangement includes a general right of return relative to the
delivered item(s), delivery or performance of the undelivered item(s) is
considered probable and substantially in the control of the
Company.
|
The
Company’s multiple-element contracts generally include customer-acceptance
provisions which provide for the Company to carry out installation, test runs
and performance tests at the Company’s cost until the equipment can meet the
performance specifications within a specified period (“acceptance period”)
stated in the contracts. These contracts generally provide the customers with
the right to deduct certain percentages of the contract value as compensation or
liquidated damages from the balance payment stipulated in the contracts, if the
performance specifications cannot be met within the acceptance period. There is
generally no provision giving the customers a right of return, cancellation or
termination with respect to any uninstalled equipment.
The
delivered equipment has no standalone value to the customer until it is
installed, integrated and tested at the customer’s site by the Company in
accordance with the performance specifications specific to each customer. In
addition, under these multiple-element contracts, the Company has not sold the
equipment separately from the installation, integration and testing services,
and hence there is no objective and reliable evidence of the fair value for each
deliverable included in the arrangement. As a result, the equipment and the
technical services for installation, integration and testing of the equipment
are considered a single unit of accounting pursuant to ASC Subtopic 605-25,
Revenue
Recognition — Multiple-Element Arrangements
. In addition, the
arrangement generally includes customer acceptance criteria that cannot be
tested before installation and integration at the customer’s site. Accordingly,
revenue recognition is deferred until customer acceptance, indicated by an
acceptance certificate signed off by the customer.
The
Company may also provide its customers with a warranty for one year following
the customer’s acceptance of the installed equipment. Some contracts require
that 5% to 15% of the contract price be held as retainage for quality warranty
and only due for payment by the customer upon expiration of the warranty period.
For those contracts with retainage clauses, the Company defers the
recognition of the amounts retained as revenue until expiration of the warranty
period when collectibility can reasonably be assured. The Company has not
provided for warranty costs for those contracts without retainage clauses, as
the relevant estimated costs were insignificant based on historical
experience.
Product
only
Revenue
derived from sales contracts that require delivery of products only is
recognized when the titles to the products pass to customers. Titles to the
products pass to the customers when the products are delivered and accepted by
the customers.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
3 SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
recognition -Continued
Software
sale
The
Company recognizes revenue from the delivery of data processing platform
software when the software is delivered to and accepted by the customer,
pursuant to ASC Topic 985,
Software
(formerly Statement
of Position, or SOP 97-2,
Software Revenue Recognition
,
as amended), and in accordance with SAB 104. Costs of software revenue include
amortization of software copyrights.
Service
The
Company recognizes revenue from provision of services when the service has been
performed, in accordance with SAB 104.
The
Company is subject to business tax of 5% and value added tax of 17% on the
revenues earned for services provided and products sold in the PRC,
respectively. The Company presents its revenue net of business tax and related
surcharges and value added tax, as well as discounts and returns. There were no
product returns for the six months ended September 30, 2010 and
2009.
Research
and development expenses
Research
and development costs are charged to expense when incurred.
Advertising
and promotion costs
Advertising
and promotion costs are charged to expense when incurred. During the
six months ended September 30, 2010 and 2009, advertising and promotion costs
were insignificant.
Shipping
and handling cost
Shipping
and handling costs are charged to expense when incurred. Shipping and
handling costs were included in selling expenses in the statements of income and
comprehensive income and amounted to $152,247 and $132,104 for the six months
ended September 30, 2010 and 2009, respectively.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
3 SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings
per share
The
Company reports earnings per share in accordance with the provisions of FASB ASC
Topic 260, “Earnings per Share.” FASB ASC Topic 260 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 dilutive
effects of convertible securities (using the as-if converted method), and
options and warrants and their equivalents (using the treasury stock
method).
All per
share data including earnings per share has been retroactively restated to
reflect the reverse acquisition consummated on February 26, 2010 (see Note 1 for
further details), whereby the 27,354,480 shares of common stock issued by
Remediation Services, Inc. (nominal acquirer) to the Company’s shareholder
(nominal acquiree) are deemed to be the number of shares outstanding for the
periods prior to the reverse acquisition. For periods after the reverse
acquisition, the number of shares considered to be outstanding is the actual
number of shares outstanding during those periods.
The
following table is a reconciliation of the net income and the weighted average
shares used in the computation of basic and diluted earnings per share for the
periods presented:
|
|
For the three months
|
|
|
For the six months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME ATTRUBUTABLE TO LIANDI CLEAN SHAREHOLDERS
|
|
$
|
7,257,992
|
|
|
$
|
5,321,325
|
|
|
$
|
10,671,106
|
|
|
$
|
6,654,301
|
|
Preferred
stock deemed dividend
|
|
|
(809,331
|
)
|
|
_
|
|
|
|
(1,951,844
|
)
|
|
_
|
|
Preferred
stock dividend
|
|
|
(477,698
|
)
|
|
_
|
|
|
|
(971,597
|
)
|
|
_
|
|
NET
INCOME AVAILABLE TO COMMON SHAREHOLDERS-BASIC
|
|
$
|
5,970,963
|
|
|
$
|
5,321,325
|
|
|
$
|
7,747,66
5
|
|
|
$
|
6,654,301
|
|
Preferred
stock deemed dividend
|
|
|
809,331
|
|
|
_
|
|
|
|
-
|
|
|
_
|
|
Preferred
stock dividend
|
|
|
477,698
|
|
|
_
|
|
|
|
-
|
|
|
_
|
|
NET
INCOME AVAILABLE TO COMMON SHAREHOLDERS - DILUTED
|
|
$
|
7,257,992
|
|
|
$
|
5,321,325
|
|
|
$
|
7,747,665
|
|
|
$
|
6,654,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,679,646
|
|
|
|
27,354,480
|
|
|
|
29,526,643
|
|
|
|
27,354,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive convertible preferred stock
|
|
|
6,765,204
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Effect
of dilutive warrants
|
|
|
173,979
|
|
|
|
-
|
|
|
|
490,121
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,618,829
|
|
|
|
27,354,480
|
|
|
|
30,016,764
|
|
|
|
27,354,480
|
|
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
3 SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings
per share-Continued
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
The
diluted earnings per share calculation for the six months ended September 30,
2010 did not include the warrants and options to purchase up to 2,165,199 and
34,000 shares of common stock, respectively, and the effect of convertible
preferred stock, because their effect was anti-dilutive. No convertible
securities or potential common shares existed as of September 30,
2009.
The
diluted earnings per share calculation for the three months ended September 30,
2010 did not include the warrants and options to purchase up to 4,330,398 and
34,000 shares of common stock, respectively, because their effect was
anti-dilutive. No convertible securities or potential common shares existed as
of September 30, 2009.
The
Company has evaluated the determination of its functional currency based on the
guidance in ASC Topic, “Foreign Currency Matters,” which provides that an
entity’s functional currency is the currency of the primary economic environment
in which the entity operates; normally, that is the currency of the environment
in which an entity primarily generates and expends cash.
Historically,
the sales and purchase contracts of the Company’s Hong Kong subsidiaries, Hua
Shen HK, PEL HK and Bright Flow have substantially been denominated and settled
in the U.S. dollar. Therefore, Hua Shen HK, PEL HK and Bright Flow generate and
expend their cash predominately in the U.S. dollar. Accordingly, it has been
determined that the functional currency of Hua Shen HK, PEL HK and Bright Flow
is the U.S. dollar.
Historically,
the sales and purchase contracts of Beijing JianXin and Anhui Jucheng have
predominantly been denominated and settled in Renminbi (the lawful currency of
Mainland China). Accordingly, it has been determined that the functional
currency of Beijing JianXin and Anhui Jucheng is Renminbi.
Historically,
the Company’s sales and purchase contracts have substantially been entered into
by its Hong Kong subsidiaries and denominated and settled in the U.S.
dollar.
On its
own, the Company raises finances in the U.S. dollar, pays its own operating
expenses primarily in the U.S. dollar, and expects to receive a dividend if and
when declared by its subsidiaries (including Beijing JianXin which is a wholly
foreign-owned enterprise with a registered capital denominated in the U.S.
dollar) in U.S. dollars.
Therefore,
it has been determined that the Company’s functional currency is the U.S. dollar
based on the sales price, expense and financing indicators, in accordance with
the guidance in ASC 830-10-85-5.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 3
|
SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Foreign
currency -Continued
The
Company uses the United States dollars (“U.S. Dollar” or “US$” or “$”) for
financial reporting purposes. The subsidiaries within the Company maintain their
books and records in their respective functional currency, being the primary
currency of the economic environment in which their operations are conducted.
Assets and liabilities of a subsidiary with functional currency other than U.S.
Dollar are translated into U.S. Dollars using the applicable exchange rates
prevailing at the balance sheet date. Items on the statements of income and
comprehensive income and cash flows are translated at average exchange rates
during the reporting period. Equity accounts are translated at historical rates.
Adjustments resulting from the translation of the Company’s financial statements
are recorded as accumulated other comprehensive income.
The
Company’s PRC subsidiaries maintain their books and records in Renminbi (“RMB”),
the lawful currency in the PRC, which may not be freely convertible into foreign
currencies. The exchange rates used to translate amounts in RMB into U.S.
Dollars for the purposes of preparing the consolidated financial statements are
based on the rates as published on the website of People’s Bank of China and are
as follows:
|
September 30, 2010
|
|
March 31, 2010
|
Balance
sheet items, except for equity accounts
|
US$1=RMB
6.7011
|
|
US$1=RMB6.8263
|
|
Three months ended September 30,
|
|
2010
|
|
2009
|
Items
in the statements of income and cash flows
|
US$1=RMB
6.7725
|
|
US$1=RMB
6.8310
|
|
Six months ended September 30,
|
|
2010
|
|
2009
|
Items
in the statements of income and cash flows
|
US$1=RMB
6.7974
|
|
US$1=RMB
6.8305
|
No
representation is made that the RMB amounts could have been, or could be,
converted into U.S. dollars at the above rates.
The value
of RMB against U.S. dollars and other currencies may fluctuate and is affected
by, among other things, changes in China’s political and economic conditions.
Any significant revaluation of RMB may materially affect the Company’s financial
condition in terms of U.S. dollar reporting.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 3
|
SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Financial
instruments
The
Company values its financial instruments as required by FASB ASC 320-12-65
(formerly SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments”). The estimated fair value amounts have been determined by the
Company, using available market information or other appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Consequently, the estimates are not
necessarily indicative of the amounts that could be realized or would be paid in
a current market exchange.
Fair
value measurements
The
Company’s financial instruments primarily consist of cash and cash equivalents,
restricted cash, trading securities, accounts receivable, other receivables,
accounts payable, other payables and due to shareholders.
As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented due to the
short maturities of these instruments and that the interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at the respective reporting
periods.
ASC Topic
820,
Fair Value Measurement
and Disclosures
, defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. This topic also
establishes a fair value hierarchy which requires classification based on
observable and unobservable inputs when measuring fair value. There are three
levels of inputs that may be used to measure fair value:
Level 1
|
-
Quoted
prices in active markets for identical assets or
liabilities.
|
Level 2
|
-
Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
|
Level 3
|
-
Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities.
|
Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter.
The
carrying values of cash and cash equivalents, trade and other receivables and
payables, and short-term debts approximate fair values due to their short
maturities.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 3
|
SUMMARIES
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Fair
value measurements-Continued
Assets
and liabilities measured at fair value on a recurring basis are summarized as
follows:
|
|
As of September 30, 2010 (Unaudited)
|
|
|
|
Fair value measurement using inputs
|
|
|
Carrying
|
|
Financial instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
$
|
11,592
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,592
|
|
Total
|
|
$
|
11,592
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,592
|
|
|
|
As of March 31, 2010
|
|
|
|
Fair value measurement using inputs
|
|
|
Carrying
|
|
Financial instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
amount
|
|
Short-term
investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
$
|
11,592
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,592
|
|
Total
|
|
$
|
11,592
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,592
|
|
There was
no asset or liability measured at fair value on a non-recurring basis as of
September 30, 2010 and March 31, 2010
.
Recent
accounting pronouncements
In July
2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses.” This ASU amends Topic 310 to improve the disclosures that an
entity provides about the credit quality of its financing receivables and the
related allowance for credit losses. As a result of these amendments, an entity
is required to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its financing receivables
and related allowance for credit losses. For public entities, the disclosures as
of the end of a reporting period are effective for interim and annual reporting
periods ending on or after December 15, 2010. The disclosures about activity
that occurs during a reporting period are effective for interim and annual
reporting periods beginning on or after December 15, 2010. Except for the
expanded disclosure requirements, the adoption of this ASU is not expected to
have a material impact on the Company’s consolidated financial
statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial
statements upon adoption.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
Restricted
cash as of September 30, 2010 and March 31, 2010 represented the Company’s bank
deposits held as collateral for the Company’s credit facilities as discussed in
Note 17.
NOTE 5
|
ACCOUNTS
RECEIVABLE, NET
|
The
Company’s accounts receivable at September 30, 2010 (unaudited) and March 31,
2010 are summarized as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
5,440,303
|
|
|
$
|
2,295,231
|
|
Less:
Allowance for doubtful debts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
5,440,303
|
|
|
$
|
2,295,231
|
|
As of
September 30, 2010 and March 31, 2010, the balance of accounts receivable
included $27,413 and $1,297,457, respectively, of billed but not paid by
customers under retainage provision in contracts.
Based on
the Company’s assessment of collectibility, there has been no allowance for
doubtful accounts recognized during the six months ended September 30, 2010 and
2009.
The
Company’s inventories at September 30, 2010 (Unaudited) and March 31, 2010
consisted of the following:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1,294,328
|
|
|
$
|
-
|
|
Work
in process
|
|
|
105,953
|
|
|
|
-
|
|
Finished
goods, consisting of parts
|
|
|
1,022,200
|
|
|
|
61,046
|
|
Consumables
|
|
|
3,247
|
|
|
|
-
|
|
Less:
Allowance for stock obsolescence
|
|
|
(73,128
|
)
|
|
|
(30,943
|
)
|
|
|
$
|
2,352,600
|
|
|
$
|
30,103
|
|
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 7
|
PREPAID
EXPENSES AND DEPOSITS
|
The
Company’s prepaid expenses and deposits at September 30, 2010 (Unaudited) and
March 31, 2010 consisted of the following:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Prepaid
operating expenses
|
|
$
|
127,354
|
|
|
$
|
145,544
|
|
Tender
deposits
|
|
|
962,266
|
|
|
|
205,908
|
|
Rental
deposits
|
|
|
81,276
|
|
|
|
70,947
|
|
Prepayments
to suppliers
|
|
|
14,261,507
|
|
|
|
-
|
|
Advances
to staff for normal business purposes
|
|
|
291,891
|
|
|
|
234,858
|
|
Total
|
|
$
|
15,724,294
|
|
|
$
|
657,257
|
|
Prepayments
to suppliers as of September 30, 2010 represented deposits or advance payments
for the purchases of equipment for sales to customers and purchases of raw
materials for the production and sales of chemical products.
Tender
deposits as of September 30, 2010 represented deposit payments made to bid for
contracts.
The
Company’s other receivables at September 30, 2010 (unaudited) and March 31, 2010
are summarized as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Other
receivables from unrelated entities
|
|
$
|
3,809,285
|
|
|
$
|
3,416,284
|
|
Less:
Allowance for doubtful debts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
3,809,285
|
|
|
$
|
3,416,284
|
|
Other
receivables from unrelated entities represented temporary loans advanced to
unrelated entities, which were unsecured, non-interest bearing and repayable on
demand.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 9
|
PLEDGED
TRADING SECURITIES
|
The
Company’s pledged trading securities at September 30, 2010 (unaudited) and March
31, 2010 are summarized as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Marketable
equity securities
|
|
$
|
11,592
|
|
|
$
|
11,592
|
|
As of
September 30, 2010 and March 31, 2010, all of the Company’s trading securities
were pledged as collateral for the Company’s credit facilities (see Note
17). Marketable equity securities are reported at fair value based on
quoted market prices in active markets (Level 1 inputs), with gains or losses
resulting from changes in fair value recognized currently in
earnings.
NOTE 10
|
PREPAID
LAND USE RIGHTS AND DEPOSIT FOR LAND USE
RIGHTS
|
The
Company has recorded as prepaid land use rights the lump sum payments paid to
acquire long-term rights to utilize the land underlying its building and
production facility. This type of arrangement is common for the use
of land in the PRC. The prepaid land use rights are expensed on the
straight-line basis over the term of the land use rights of 50
years. As of September 30, 2010, the Company has obtained the
relevant PRC property ownership and land use rights certificates.
The
expense amortized on prepaid land use right for the six months ended September
30, 2010 and 2009 were $14,302 and Nil, respectively. The estimated
amortization expense of the prepaid land use rights over each of the next five
years and thereafter will be $46,868 per annum. Land use rights with net book
value of $1,859,090 as of September 30, 2010, have been pledged as collateral
against the short-term bank loans (see Note 14).
As of
September 30, 2010, the deposit for land use rights of $1,186,522 represented
the payment made by Anhui Jucheng to a local authority to acquire 50-year right
to use a parcel of land which will be used for expansion of its manufacturing
facilities. As of September 30, 2010, no land use right transfer agreement has
been signed and the relevant formalities were not completed, and therefore Anhui
Jucheng had not yet obtained the legal title to the land use
rights.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 11
|
PROPERTY
AND EQUIPMENT
|
The
Company’s property and equipment at September 30, 2010 (unaudited) and March 31,
2010 are summarized as follows:
|
|
September 30
|
|
|
March
31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Office
equipment
|
|
$
|
667,736
|
|
|
$
|
85,607
|
|
Leasehold
improvements
|
|
|
186,016
|
|
|
|
127
,
970
|
|
Buildings
|
|
|
5,948,
898
|
|
|
|
-
|
|
Plant
and machinery
|
|
|
7,338,
261
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
cost
|
|
|
14,140,911
|
|
|
|
213
,
577
|
|
Less:
Accumulated depreciation
|
|
|
(
2,815,521
|
)
|
|
|
(
61
,
917
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
11,325,390
|
|
|
$
|
151,660
|
|
Depreciation
expenses in the aggregate for the six months ended September 30, 2010 and 2009
were $368,816 and $17,072, respectively.
Buildings
and plant and machinery were acquired as a result of acquisition of Anhui
Jucheng (Note 2).
Buildings
with net book value of $3,687,140 as of September 30, 2010 have been pledged as
collateral against the short-term bank loans (see Note 14).
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 12
|
INTANGIBLE
ASSETS
|
The
Company’s intangible assets at September 30, 2010 (unaudited) and March 31, 2010
are summarized as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Computer
software and program
|
|
$
|
36,238
|
|
|
$
|
19,923
|
|
Software
copyright
|
|
|
6,088,553
|
|
|
|
5,976,915
|
|
Less:
Accumulated amortization
|
|
|
(1,130,554
|
)
|
|
|
(804,100
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
4,994,237
|
|
|
$
|
5,192,738
|
|
In
December 2008, the Company’s subsidiary, Beijing JianXin, purchased a software
copyright on data processing platform software for application in petrochemical
production pursuant to an agreement dated October 1, 2008 from a company
unaffiliated to the Company at the time of the agreement. The agreement provides
that the purchase price shall be based on the valuation of RMB40,800,000 (or
$5,941,459). The agreement stipulates that the seller shall provide assistance
for the registration of the software copyright in the name of Beijing JianXin.
The agreement also provides that the seller shall dismiss all human resources
for the business activities related to the software from the date Beijing
JianXin is granted the software copyright and at the same time, provide
assistance for Beijing JianXin to re-employ the necessary staff from the seller
to ensure a smooth transitioning of the activities related to the software. The
agreement provides for Beijing JianXin to pay the purchase price within 1 year
from the date it obtains the software copyright, but no later than March 31,
2010. The purchase price for the software copyright was fully paid before March
31, 2010.
This
software copyright has been registered with the National Copyright
Administration of the People’s Republic of China in the name of Beijing JianXin
and is protected under the relevant copyright law of the PRC for 50 years from
November 11, 2008, the date of first publication of the software. This software
copyright is amortized over its estimated useful life of ten years using the
straight-line method. Amortization expenses for the six months ended September
30, 2010 and 2009 were $307,023 and $292,004, respectively. The estimated
amortization expense of software copyright over each of the next five years and
thereafter will be $608,855 per annum.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
The
Company’s goodwill at September 30, 2010 (unaudited) and March 31, 2010 are
summarized as follows:
|
|
Amount
|
|
Balance
as of April 1, 2010
|
|
$
|
-
|
|
Arising
from acquisition of Anhui Jucheng on July 5, 2010 (Note 2)
|
|
|
353,823
|
|
Exchange
realignment
|
|
|
3,812
|
|
Balance
as of September 30, 2010
|
|
$
|
357,635
|
|
Goodwill
of $353,823 arose from the Company’s acquisition of Anhui Jucheng on July 5,
2010. Impairment of goodwill is tested at least annually at the reporting unit.
The test consists of two steps. First, we identify potential impairment by
comparing the fair value of the reporting unit to its carrying amount, including
goodwill. If the fair value of the reporting unit is greater than its carrying
amount, goodwill is not considered impaired. Second, if there is impairment
identified in the first step, an impairment loss is recognized for any excess of
the carrying amount of the reporting unit’s goodwill over the implied fair value
of goodwill. The implied fair value of goodwill is determined by allocating the
fair value of the reporting unit in a manner similar to a purchase price
allocation, in accordance with Topic 805 ,”Business Combinations.”
NOTE 14
|
SHORT
TERM BANK LOANS
|
The
Company’s Short-term bank loans at September 30, 2010 (unaudited) and March 31,
2010 consisted of the following:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Bank
loan granted by HuiShang Bank Huaibei Suixi Branch, with interest rate of
5.84% p.a., guaranteed by a third party, Bangbu Tongli Automobile Co.,
Limited, and maturing on March 17, 2011.
|
|
$
|
1,939,980
|
|
|
$
|
-
|
|
Bank
loan granted by Industrial and Commercial Bank of China Huaibei Xiangnan
Branch with an interest rate of 5.84% p.a.,
secured by buildings
of $3,687,140 and land use rights of $1,859,090, respectively, and
maturing on January 20, 2011.
|
|
|
596
,917
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,536,897
|
|
|
$
|
-
|
|
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 15
|
OTHER
PAYABLES AND ACCRUED EXPENSES
|
The
Company’s other payables and accrued expenses at September 30, 2010 (unaudited)
and March 31, 2010 are summarized as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Business
tax and value added tax payable
|
|
$
|
2,411,022
|
|
|
$
|
2,003,706
|
|
Accrued
operating expenses
|
|
|
1,003,788
|
|
|
|
1,376,358
|
|
Advance
from customers
|
|
|
5,198,413
|
|
|
|
-
|
|
Salary
payables
|
|
|
72,320
|
|
|
|
61,047
|
|
Other
payables
|
|
|
179,657
|
|
|
|
55,501
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,865,200
|
|
|
$
|
3,496,612
|
|
NOTE 16
|
DUE
TO SHAREHOLDERS AND DUE TO NON-CONTROLLING
INTERESTS
|
The
Company’s due to shareholders and due to non-controlling interests at September
30, 2010 (unaudited) and March 31, 2010 are summarized as follows:
Due to shareholders
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Due
to Mr. Zuo (shareholder, CEO and chairman of the Company, see Note
1)
|
|
$
|
3,068,631
|
|
|
$
|
936,565
|
|
Due
to
SJ Asia Pacific Limited
(shareholder of the Company, see Note 1)
|
|
|
7,568,037
|
|
|
|
7,524,596
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,636,668
|
|
|
$
|
8,461,161
|
|
The
amount due to Mr. Zuo is unsecured, bears interest at 3% per annum and is
payable on demand. The amount due to SJ Asia Pacific Limited is also unsecured,
bears interest at 3% to 5% per annum and is payable on demand.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 16
|
DUE
TO SHAREHOLDERS AND DUE TO NON-CONTROLLING
INTERESTS-CONTINUED
|
Amount due to non-controlling interests
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Due
to Mr. Fang (Auhui Jucheng non-controlling shareholder , see also Note
2)
|
|
$
|
5,136,607
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,136,607
|
|
|
$
|
-
|
|
Amount
due to non-controlling interests as of September 30, 2010 is unsecured, interest
free and payable on demand.
NOTE 17
|
CREDIT
FACILITIES
|
As of
September 30, 2010, the Company had available banking facilities (“General
Facilities”), which consisted of overdraft, guarantee line and import trade
finance and facilities for negotiation of export documentary credit discrepant
bills against letters of indemnity, up to an aggregate amount of HK$112.3
million (equivalent to approximately $14.4 million). Collaterals for the General
Facilities include the Company’s bank deposits classified as restricted cash and
trading securities as described in Notes 4 and 9, respectively, an unlimited
guarantee from Mr. Jianzhong Zuo (CEO and Chairman of the Company), a standby
letter of credit of not less than HK$95 million (or approximately $12.2 million)
issued by a bank which is in turn guaranteed by SJI Inc. (the holding company of
SJ Asia Pacific Ltd., a stockholder of the Company) and an undertaking from Hua
Shen HK to maintain a tangible net worth of not less than HK$5 million (or
approximately $644 thousand).
As of
September 30, 2010, there were outstanding import shipping guarantees of
$3,037,555 issued by the banks on behalf of the Company under the General
Facilities. There was no other borrowing under the General Facilities as of
September 30, 2010.
On August
6, 2009, the Company obtained a banking facility for import facilities up to
HK$6 million (equivalent to approximately $774 thousand) under a Special Loan
Guarantee Scheme sponsored and guaranteed by the Government of the Hong Kong
Special Administrative Region (“Government Sponsored Facility”). Collateral for
the Government Sponsored Facility include a guarantee for HK$6 million from
China LianDi. As of September 30, 2010, there was no borrowing under the
Government Sponsored Facility.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 18
|
COMMON
STOCK, PREFERRED STOCK AND WARRANTS
|
(a) Common
Stock
The
Company is authorized to issue 50,000,000 shares of common stock, $0.001 par
value. The Company had 1,216,950 common shares outstanding prior to the Share
Exchange with China LianDi, and, as described in Note 1, and issued 27,354,480
common shares to the shareholders of China LianDi in connection with the Share
Exchange. For accounting purposes, the shares issued to the
shareholders of China LianDi are assumed to have been outstanding on April 1,
2008 and the 1,216,950 shares held by the existing shareholders of the Company
prior to the Share Exchange on February 26, 2010 are assumed to have been issued
on that date in exchange for the net assets of the Company.
On
February 26, 2010, the Company sold 787,342 shares of common stock to certain
accredited investors.
On June
25, 2010, 200,000 shares of preferred stock were converted into 200,000 shares
of common stock at a conversion price of $3.50 per share.
For the
period from July 1, 2010 to September 30, 2010, 313,795 shares of preferred
stock were converted into 313,795 shares of common stock at a conversion price
of $3.50 per share.
At
September 30, 2010, 29,872,567 shares of common stock were issued and
outstanding.
(b) Preferred
Stock
The
Company is authorized to issue 25,000,000 shares of preferred stock, $0.001 par
value, of which one series of preferred stock has been designated as Series A
Preferred Stock, or the preferred shares, of which the Company issued 7,086,078
shares to certain accredited investors in a private placement on February 26,
2010. Each preferred share is convertible into one share of common stock, at a
conversion price of $3.50 per share (subject to certain adjustments) at any time
at the holder’s option, and will automatically convert at the earlier to occur
of the following: (i) twenty-four (24) months following February 26, 2010, and
(ii) such time that the volume weighted average price of the common stock is no
less than $5.00 for a period of ten (10) consecutive trading days with the daily
volume of the common stock equal to at least 50,000 shares per day. The
designation, rights, preferences and other terms and provisions of the preferred
shares are set forth in the Certificate of Designation filed with the Nevada
Secretary of State on March 4, 2010. The preferred shares are entitled to a
cumulative dividend at an annual rate of 8%, payable quarterly, at the Company’s
option, in cash or in additional shares of Series A Preferred
Stock. The Series A Preferred Stock has class voting rights such that
the Company, prior to taking certain corporate actions (including certain
issuances or redemptions of its securities or changes in its organizational
documents), is required to obtain the affirmative vote or consent of the holders
of a majority of the shares of the Series A Preferred Stock then issued and
outstanding. The Series A Preferred Stock has no other voting rights with the
Common Stock or other equity securities of the Company. The Preferred Shares
have a liquidation preference of $3.50 per share, plus any accrued but unpaid
dividends. If the Company cannot issue shares of common stock registered for
resale under the registration statement for any reasons, holders of the Series A
Preferred Stock, solely at the holder’s option, can require the Company to
redeem from such holder those Series A Preferred Stock for which the Company is
unable to issue registered shares of common stock at a price equal the Series A
liquidation preference amount, provided that the Company shall have the sole
option to pay such redemption price in cash or restricted shares of common
stock.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 18
|
COMMON STOCK, PREFERRED STOCK
AND WARRANTS-CONTINUED
|
(b) Preferred
Stock (continued)
At
September 30, 2010, 6,572,283 preferred shares were outstanding with an
aggregate liquidation preference of $23,582,232.
The
Company has evaluated the terms of the Series A Preferred Stock and determined
that the Series A Preferred Stock, without embodying an obligation for the
Company to repurchase or to settle by transferring assets, is not a liability in
accordance with the guidance provided in ASC Topic 480, Distinguishing
Liabilities from Equity.
Because
the event that may trigger redemption of the Series A Preferred Stock, the
delivery of registered shares, is not solely within the Company’s control, the
Series A Preferred Stock has been classified as mezzanine equity (out of
permanent equity) in accordance with the requirement of ASC
480-10-S99.
The
Series A Preferred Stock holder may request for redemption of the preferred
stock in the event that the Company cannot issue shares of common stock
registered for resale under the registration statement. However, according to
the registration rights agreement between the Company and the investors (who are
also the preferred stock holders), the Company is contractually permitted to
prepare, file and cause the registration statement to be declared effective
within 180 calendar days after the closing date of the private placement on
February 26, 2010. The registration statement was declared effective on August
20, 2010 and remained effective as of September 30, 2010. Therefore, the Company
has determined that the Series A Preferred Stock is not currently redeemable.
. Accordingly, as of September 30, 2010, the Company has not adjusted
the carrying value of the Series A Preferred Stock to its redemption value or
recognized any accretion charges as it is considered not probable that the
Series A Preferred Stock will become redeemable, in accordance with the
requirements of SEC Staff Guidance on redeemable preferred stock in ASC
480-10-S99.
In
conjunction with the private placement on February 26, 2010, the Company entered
into a make good escrow agreement with the investors pursuant to which LianDi
Energy delivered into an escrow account 1,722,311 shares of common stock to be
used as a share escrow for the achievement of a fiscal year 2011 net income
performance threshold of $20.5 million. The Company has evaluated the terms of
this escrow arrangement based on the guidance provided in ASC 718-10S99 and
concluded that because the escrow shares would be released to the Company’s
principal stockholder or distributed to the investors without regard to the
continued employment of any of the Company’s directors or officers, the escrow
arrangement is in substance an inducement to facilitate the private placement,
rather than compensatory.
Accordingly,
the Company has accounted for the escrow share arrangement according to its
nature and reflected it as a reduction of the proceeds allocated to the newly
issued securities in the private placement, based on its at fair value of
$4,925,810 as of February 26, 2010.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 18
|
COMMON STOCK, PREFERRED STOCK
AND WARRANTS-CONTINUED
|
(b) Preferred
Stock (continued)
The
aggregate fair value of the escrow shares as of February 26, 2010 is allocated
to the different securities issued in the private placement according to their
respective allocated net proceeds as follows:
|
|
Net proceeds of
private
placement
allocated to
|
|
|
Allocation of
escrow shares
|
|
Discount
on common stock
|
|
$
|
1,309,380
|
|
|
$
|
373,260
|
|
Dividend
on preferred stock
|
|
|
14,059,018
|
|
|
|
4,007,745
|
|
Discount
on warrants
|
|
|
1,911,156
|
|
|
|
544,805
|
|
Total
|
|
$
|
17,279,554
|
|
|
$
|
4,925,810
|
|
The
amount of the escrow shares allocated to preferred stock is accreted similar to
a dividend to the preferred stock, regardless of the probability of meeting 2011
net income targets, over the period from the date of issuance of securities in
the private placement to March 31, 2011, using the effective interest
method. Accretion of such preferred stock deemed dividend for the six
and three months ended September 30, 2010 was $1,951,844 and $809,331,
respectively.
(c) Warrants
On
February 26, 2010, the Company issued Series A Warrants to purchase up to
1,968,363 shares of common stock at an exercise price of $4.50 and Series B
Warrants to purchase up to 1,968,363 shares of common stock at an exercise price
of $5.75, for cash. These warrants are exercisable at any time for
three years from February 26, 2010.
Also on
February 26, 2010, the Company issued (i) warrants to purchase 787,342 shares of
common stock at an exercise price of $3.50, (ii) Series A Warrants to purchase
196,836 shares of common stock, and (iii) Series B Warrants to purchase 196,836
shares of common stock, which were issued to the placement agent in connection
with the private placement and expire in three years on February 26,
2013.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 18
|
COMMON
STOCK, PREFERRED STOCK AND
WARRANTS-CONTINUED
|
(c) Warrants
(Continued)
Warrants
issued and outstanding at September 30, 2010 (Unaudited) and changes during the
six months then ended, are as follows:
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
|
Number
of
underlying
shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Life
(years)
|
|
|
Number
of
underlying
shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Life
(years)
|
|
Balance, April 1,
2010
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.91
|
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.91
|
|
Granted /
Vested
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September
30, 2010
|
|
|
5,117,
740
|
|
|
$
|
4.88
|
|
|
|
2.
41
|
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.
41
|
|
The
Company has evaluated the terms of the warrants issued in the private placement
with reference to the guidance provided in ASC 815-40-15. The Company
has concluded that these warrants are indexed to the Company’s own stock,
because the warrants have no contingent exercise provision and fixed strike
prices which are only subject to adjustments in the event of stock splits,
combinations, dividends, mergers or other customary corporate
events. Therefore, these warrants have been classified as
equity.
LIANDI CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 19
|
SHARE-BASED
COMPENSATION
|
Options
granted to Independent Directors
On August
10, 2010, the Company granted options to three of its independent directors, Mr.
Joel Paritz, Mr. Hongjie Chen and Mr. Xiaojun Li, to purchase 24,000, 5,000 and
5,000 shares of the Company’s common stock, respectively, at a strike price of
$5.99 per share, in consideration for their services to the Company. These
options shall become vested and exercisable pursuant to the following vesting
schedule:
Date
|
|
Percentage Vested
|
|
August
17, 2010
|
|
|
25
|
%
|
November
17, 2010
|
|
|
50
|
%
|
February
17, 2011
|
|
|
75
|
%
|
May
17, 2011
|
|
|
100
|
%
|
These
options will expire August 10, 2015.
In
accordance with the guidance provided in ASC Topic 718,
Stock Compensation
(formerly
SFAS 123R), the compensation costs associated with these options are recognized,
based on the grant-date fair values of these options, over the requisite service
period, or vesting period. Accordingly, the Company recognized compensation
expense of $ 12,051 for the six months ended September 30, 2010.
Options
issued and outstanding at September 30, 2010 (Unaudited) and their movements
during the six months then ended are as follows:
|
|
Number of
underlying
shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Aggregate
Intrinsic
Value
(1)
|
|
|
Weighted-
Average
Contractual Life
Remaining in
Years
|
|
Outstanding
at March 31, 2010
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
34,000
|
|
|
|
5.99
|
|
|
|
-
|
|
|
|
5
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at September 30, 2010
|
|
|
34,000
|
|
|
$
|
5.99
|
|
|
$
|
-
|
|
|
|
4.86
|
|
Exercisable
at September 30, 2010
|
|
|
8,500
|
|
|
$
|
5.99
|
|
|
$
|
-
|
|
|
|
4.86
|
|
(1)
|
The intrinsic value of the stock
option at September 30, 2010 is the amount by which the market value of
the Company’s common stock of $3.50 as of September 30, 2010 exceeds the
exercise price of the
option.
|
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 20
|
STATUTORY
RESERVES
|
The
Company’s subsidiaries, Beijing JianXin and Anhui Jucheng, as PRC companies, are
required on an annual basis to make appropriations of retained earnings set at
certain percentage of after-tax profit determined in accordance with PRC
accounting standards and regulations (“PRC GAAP”) to statutory
reserves.
The
general reserve fund requires annual appropriations of 10% of after-tax profit
(as determined under PRC GAAP at each year-end and after setting off against any
accumulated losses from prior years) until such fund has reached 50% of Beijing
JianXin’s registered capital, whereas enterprise expansion fund appropriation is
at its discretion. Appropriation to the general reserve must be made before
distribution of dividends to stockholders. The general reserve fund and
statutory reserve fund can only be used for specific purposes, such as setting
off the accumulated losses, enterprise expansion or increasing the registered
capital. The enterprise expansion fund was mainly used to expand production and
operation; it also may be used for increasing the registered capital. There was
no transfer from retained earnings of Beijing JianXin to statutory reserves
during the year ended March 31, 2010 and thereafter because the statutory
reserves of $1,138,733 at March 31, 2009 already reached 50% of Beijing
JianXin’s registered capital of $2,200,000. Therefore, any further transfer to
the statutory reserves is at the Company’s discretion and Beijing JianXin
decided not to make any appropriations to the statutory reserves during the
quarter ended September 30, 2010.
There was
no transfer from retained earnings of Anhui Jucheng to statutory common reserves
for the three months ended September 30, 2010.
There are no legal requirements in the PRC to fund these
reserves by transfer of cash to restricted accounts, and the Company has not
done so.
NOTE 21
|
OTHER
INCOME – VALUE ADDED TAX REFUND
|
Beijing
JianXin has been recognized by the PRC government as a software enterprise with
its own software copyright. Under the PRC government’s preferential policies for
software enterprises, Beijing JianXin is entitled to a refund of 14% value added
tax in respect of its sales of self-developed software products. The Company
recognizes the value added tax refund as revenue only when it has been received
and there is no condition to the use of the fund received.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
The
entities within the Company file separate tax returns in the respective tax
jurisdictions in which they operate.
Under the
Inland Revenue Ordinance of Hong Kong, only profits arising in or derived from
Hong Kong are chargeable to Hong Kong profits tax, whereas the residence of a
taxpayer is not relevant. Therefore, Hua Shen HK, PEL HK and Bright Flow are
generally subject to Hong Kong income tax on its taxable income derived from the
trade or businesses carried out by them in Hong Kong at 16.5% for the years
ended March 31, 2011 and 2010.
In March
2007, the PRC government enacted the PRC Enterprise Income Tax Law, or the New
EIT Law, and promulgated related regulation, Implementing Regulations for the
PRC Enterprise Income Tax Law. The law and regulations became effective from
January 1, 2008. The PRC Enterprise Income Tax Law, among other things, imposes
a unified income tax rate of 25% for both domestic and foreign invested
enterprises registered in the PRC.
Beijing
JianXin and Anhui Jucheng, being established in the PRC, are generally subject
to PRC enterprise income tax (“EIT”). Beijing JianXin has been recognized by the
relevant PRC tax authority as a software enterprise with its own software
copyright and is entitled to tax preferential treatment – a tax holiday for
two-year EIT exemption for the calendar years ended December 31, 2009 and 2010,
and a 50% reduction on its EIT rate for the three ensuing calendar years ending
December 31, 2011, 2012 and 2013. Anhui Jucheng is subject to an EIT
rate of 25% for the year ending December 31, 2010 under the New EIT
Law.
No
provision for other overseas taxes is made as neither LianDi Clean or China
LianDi has any taxable income in the U.S or the British Virgin
Islands.
The
Company’s income tax expense consisted of:
|
|
For the three months
|
|
|
For the six months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
– PRC
|
|
$
|
(94,116
|
)
|
|
$
|
-
|
|
|
$
|
(94,116
|
)
|
|
$
|
(817
|
)
|
Deferred
|
|
|
9,470
|
|
|
|
-
|
|
|
|
9,470
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(84,646
|
)
|
|
$
|
-
|
|
|
$
|
(84,646
|
)
|
|
$
|
(817
|
)
|
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 22
|
INCOME
TAXES (CONTINUED)
|
A
reconciliation of the provision for income taxes to the Company’s effective
income tax is as follows:
|
|
For
the
Three
Months
|
|
|
For the Six Months
|
|
|
|
Ended
September
3
0,
|
|
|
Ended September 30,
|
|
|
|
20
10
|
|
|
200
9
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income
|
|
$
|
7,467,068
|
|
|
$
|
5,321,325
|
|
|
$
|
10,880,182
|
|
|
$
|
6,655,118
|
|
United
States federal corporate income tax rate
|
|
|
3
5
|
%
|
|
|
3
5
|
%
|
|
|
3
5
|
%
|
|
|
3
5
|
%
|
Income
tax computed at United States statutory corporate income tax
rate
|
|
|
2,613,474
|
|
|
|
1,862,463
|
|
|
|
3,808,064
|
|
|
|
2,329,291
|
|
Rate differential for PRC
earnings
|
|
|
(722,576
|
)
|
|
|
(318,312
|
)
|
|
|
(1,082,565
|
)
|
|
|
(517,476
|
)
|
Impact of tax holiday of Beijing
Jian
X
in
|
|
|
(1,887,322
|
)
|
|
|
(1,753,944
|
)
|
|
|
(2,772,308
|
)
|
|
|
(1,871,194
|
)
|
Non-deductibl
e expenses and non-
taxable
income
|
|
|
81,070
|
|
|
|
209,793
|
|
|
|
131,455
|
|
|
|
60,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
$
|
84,646
|
|
|
$
|
-
|
|
|
$
|
84,646
|
|
|
$
|
817
|
|
The
company’s deferred income tax assets at September 30, 2010 (unaudited) and March
31, 2010 were as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Tax
effect of net operating losses carried forward
|
|
$
|
266,570
|
|
|
$
|
96,250
|
|
Less:
Valuation allowance
|
|
|
(266,570
|
)
|
|
|
(96,250
|
)
|
Net
deferred tax assets
|
|
$
|
−
|
|
|
$
|
−
|
|
The net
operating losses carried forward were approximately $762,000 and $457,000 at
September 30, 2010 and March 31, 2010, respectively, which will expire in years
through 2030. A full valuation allowance has been recorded because it is
considered more likely than not that the deferred tax assets will not be
realized through sufficient future earnings of the entity to which the operating
losses relate.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE 22
|
INCOME
TAXES
(CONTINUED)
|
The
Company’s deferred income tax liabilities at September 30, 2010 (unaudited) and
March 31, 2010 were as follows:
|
|
September 30
|
|
|
March 31
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Tax
effect of acquisition revaluation
|
|
$
|
693,771
|
|
|
$
|
-
|
|
Reversal
during the period
|
|
|
(9,470
|
)
|
|
|
-
|
|
Exchange
realignment
|
|
|
7,475
|
|
|
|
-
|
|
Net
deferred tax liabilities
|
|
$
|
691,776
|
|
|
$
|
−
|
|
Deferred
tax liabilities arose on the revaluation of Anhui Jucheng’s properties, plant
and equipment and land use right upon the acquisition of Anhui Jucheng on July
5, 2010. Reversal during the nine months ended September 30, 2010 was
due to the depreciation and amortization of these revalued properties, plant and
equipment and the land use right.
As of
September 30, 2010 and March 31, 2010, the Company did not have any other
significant temporary differences and carryforwards that may result in deferred
tax assets or liabilities.
As of
September 30, 2010 and March 31, 2010, the Company has no material unrecognized
tax benefits which would favorably affect the effective income tax rate in
future periods and does not believe that there will be any significant increases
or decreases of unrecognized tax benefits within the next twelve months. No
interest or penalties relating to income tax matters have been imposed on the
Company during the six month periods ended September 30, 2010 and 2009, and no
provision for interest and penalties is deemed necessary as of September 30,
2010 and March 31, 2010.
According
to the PRC Tax Administration and Collection Law, the statute of limitations is
three years if the underpayment of taxes is due to computational errors made by
the taxpayer or its withholding agent. The statute of limitations extends to
five years under special circumstances, which are not clearly defined. In the
case of a related party transaction, the statute of limitation is ten years.
There is no statute of limitation in the case of tax evasion.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
23 CERTAIN
RISKS AND CONCENTRATION
Credit
risk and concentration of customers
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents, trading
securities, accounts receivable, and prepayments and other current assets. As of
September 30, 2010 and March 31, 2010, substantially all of the Company’s cash
and cash equivalents and trading securities were held by major financial
institutions located in the PRC and Hong Kong, which management believes are of
high credit quality.
The
Company primarily derived its revenue from petroleum, petrochemical and energy
companies operating in the PRC and had certain risk of concentration of
customers as follows:
·
|
As
of September 30, 2010, two customers individually accounted for 69% and
13% of the accounts receivables of the Company,
respectively. As of March 31, 2010, two customers individually
accounted for 50% and 45% of the accounts receivables of the Company,
respectively. Except the afore-mentioned, there was no other
single customer who accounted for more than 10% of the Company’s accounts
receivable as of September 30, 2010 or March 31,
2010.
|
·
|
During
the six months ended September 30, 2010, three customers individually
accounted for 30%, 28%, and 10% of the Company’s net revenue,
respectively. During the six months ended September 30, 2009,
three customers individually accounted for 65%, 18% and 13% of the
Company’s net revenue, respectively. Except for the
afore-mentioned, there was no other single customer who accounted for more
than 10% of the Company’s net revenue for the six months ended September
30, 2010 or 2009.
|
Risk
arising from operations in foreign countries
The
majority of the Company’s operations are conducted within the PRC. The Company’s
operations in the PRC are subject to various political, economic, and other
risks and uncertainties inherent in the PRC. Among other risks, the Company’s
operations in the PRC are subject to the risks of restrictions on transfer of
funds, export duties, quotas, and embargoes, domestic and international customs
and tariffs, changing taxation policies, foreign exchange restrictions and
political conditions and governmental regulations.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
24 COMMITMENTS
AND CONTINGENCIES
Operating
Leases Commitments
In the
normal course of business, the Company entered into operating lease agreements
for the rental of offices. The Company was obligated under operating leases
requiring minimum rentals as of September 30, 2010 (Unaudited) as
follows:
|
|
Amount
|
|
Remainder
of fiscal year ending March 31, 2011
|
|
$
|
126,065
|
|
Fiscal
year ending March 31, 2012
|
|
|
223,547
|
|
Fiscal
year ending March 31, 2013
|
|
|
223,547
|
|
Fiscal
year ending March 31, 2014
|
|
|
14,158
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
587,317
|
|
During
the six months ended September 30, 2010 and 2009, rental expenses under
operating leases amounted to $246,149 and $178,267, respectively.
NOTE
25 SEGMENT
DATA
The
Company follows FASB ASC Topic 280, Segment Reporting, which requires that
companies disclose segment data based on how management makes decision about
allocating resources to segments and evaluating their performance. Reportable
operating segments include components of an entity about which separate
financial information is available and which operating results are regularly
reviewed by the chief operating decision maker (“CODM”) to make decisions about
resources to be allocated to the segment and assess each operating segment’s
performance. Before the acquisition of Anhui Jucheng in July 2010, the Company
operated in one reportable business segment - the delivering of petroleum and
petrochemical equipment and provision of related technical services using the
Company’s proprietary technology and know-how, as well as selling of data
processing software for petrochemical, petroleum and other energy companies.
Upon the acquisition of Anhui Jucheng, the Company operated in one more
reportable business segment – the developing, manufacturing and selling of
organic and inorganic chemicals and high polymer fine chemicals with related
technical services, and recycle and sales of discarded product or used
packing.
LIANDI
CLEAN TECHNOLOGY INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Unaudited)
NOTE
25 SEGMENT DATA
(CONTINUED) (Unaudited)
|
|
For the three months ended
September 30, 2010
|
|
|
For the six months ended
September 30, 2010
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of petroleum and petrochemical equipment and related
services
|
|
$
|
34,816,760
|
|
|
$
|
21,626,576
|
|
|
$
|
43,974,794
|
|
|
$
|
28,795,412
|
|
Sale
of chemical products
|
|
|
8,490,510
|
|
|
|
-
|
|
|
|
8,490,510
|
|
|
|
-
|
|
Total
|
|
$
|
43,307,270
|
|
|
$
|
21,626,576
|
|
|
$
|
52,465,304
|
|
|
$
|
28,795,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of petroleum and petrochemical equipment and related
services
|
|
$
|
10,155
|
|
|
$
|
8,574
|
|
|
$
|
25,934
|
|
|
$
|
17,072
|
|
Sale
of chemical products
|
|
|
342,882
|
|
|
|
-
|
|
|
|
342,882
|
|
|
|
-
|
|
Total
|
|
$
|
353,037
|
|
|
$
|
8,574
|
|
|
$
|
368,816
|
|
|
$
|
17,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of petroleum and petrochemical equipment and related
services
|
|
$
|
155,047
|
|
|
$
|
145,253
|
|
|
$
|
307,023
|
|
|
$
|
292,004
|
|
Sale
of chemical products
|
|
|
14,302
|
|
|
|
-
|
|
|
|
14,302
|
|
|
|
-
|
|
Total
|
|
$
|
169,349
|
|
|
$
|
145,253
|
|
|
$
|
321,325
|
|
|
$
|
292,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of petroleum and petrochemical equipment and related
services
|
|
$
|
61,714
|
|
|
$
|
145,286
|
|
|
$
|
142,041
|
|
|
$
|
260,132
|
|
Sale
of chemical products
|
|
|
48,556
|
|
|
|
-
|
|
|
|
48,556
|
|
|
|
-
|
|
Total
|
|
$
|
110,270
|
|
|
$
|
145,286
|
|
|
$
|
190,597
|
|
|
$
|
260,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of petroleum and petrochemical equipment and related
services
|
|
$
|
7,338,648
|
|
|
$
|
5,321,325
|
|
|
$
|
10,932,763
|
|
|
$
|
6,654,301
|
|
Sale
of chemical products
|
|
|
253,939
|
|
|
|
-
|
|
|
|
253,939
|
|
|
|
-
|
|
Other
(a)
|
|
|
(210,165
|
)
|
|
|
|
|
|
|
(391,166
|
)
|
|
|
|
|
|
|
$
|
7,382,422
|
|
|
$
|
5,321,325
|
|
|
$
|
10,795,536
|
|
|
$
|
6,654,301
|
|
|
|
As of September 30,
|
|
|
As of September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
long-lived tangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of petroleum and petrochemical equipment and related
services
|
|
|
182,978
|
|
|
|
131,367
|
|
|
|
182,978
|
|
|
|
131,367
|
|
Sale
of chemical products
|
|
|
11,142,412
|
|
|
|
-
|
|
|
|
11,142,412
|
|
|
|
-
|
|
|
|
|
11,325,390
|
|
|
|
131,367
|
|
|
|
11,325,390
|
|
|
|
131,367
|
|
(a)
The Company does not allocate its general and administrative expenses of its
U.S. activities to its reportable segments because these activities are managed
at a corporate level.
Item 2.
Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
You should read the following
discussion and analysis of our financial condition and results of operations in
conjunction with our consolidated financial statements and the related notes
included elsewhere in this interim report. Our consolidated financial statements
have been prepared in accordance with U.S. GAAP. We conducted minimal operations
during periods up through the date of the Share Exchange. However, we have
included elsewhere in this report the historical consolidated financial
statements of China LianDi, our recently acquired subsidiary.
Our consolidated financial statements
and the financial data included in this interim report reflect our
reorganization and have been prepared as if our current corporate structure had
been in place throughout the relevant periods.
The following discussion and analysis
contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including, without limitation, statements regarding our expectations,
beliefs, intentions or future strategies that are signified by the words
“expect,” “anticipate,” “intend,” “believe,” or similar language. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Our business and financial performance are
subject to substantial risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements. In evaluating
our business, you should carefully consider the information set forth under the
heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2010. Readers are cautioned not to place undue reliance on these
forward-looking statements.
Company
Structure and Reorganization
Our
company was incorporated in the State of Texas on June 25, 1999 under the name
Slopestyle Corporation. On December 12, 2007, we changed our name from
Slopestyle Corporation to Remediation Services, Inc. (“Remediation”) and
re-domiciled from Texas to Nevada. On February 26, 2010, we completed a reverse
acquisition of China LianDi Clean Technology Engineering Ltd. (“China LianDi”),
which is further described below. The reverse acquisition of China LianDi
resulted in a change-in-control of our company.
On
February 26, 2010, we consummated the transactions contemplated by the Share
Exchange Agreement (the “Exchange Agreement”), by and among (i) China LianDi and
China LianDi’s shareholders, (collectively, the “China LianDi Shareholders”),
who together owned shares constituting 100% of the issued and outstanding
ordinary shares of China LianDi (the “China LianDi Shares”) and (ii) the former
principal stockholder of our company.
Immediately
prior to the Share Exchange, 4,690,000 shares of our common stock then
outstanding were cancelled and retired, so that immediately prior to the Share
Exchange, we had 28,571,430 shares issued and outstanding. Pursuant to the terms
of the Exchange Agreement, the China LianDi Shareholders transferred to us all
of the China LianDi Shares in exchange for the issuance of 27,354,480 shares of
our common stock, par value $0.001 per share (such transaction, the “Share
Exchange”), representing approximately 96% of our shares of common stock then
issued and outstanding. China LianDi also paid $275,000 to our former principal
shareholder, owner of the cancelled shares, as a result of the Share Exchange
having been consummated.
As a
result, the Share Exchange has been accounted for as a reverse acquisition
whereby China LianDi is deemed to be the accounting acquirer (legal acquiree)
and us to be the accounting acquiree (legal acquirer). The financial statements
before the Share Exchange are those of China LianDi with the results of us being
consolidated from the closing date. The equity section and earnings per share of
our company have been retroactively restated to reflect the reverse acquisition
and no goodwill has been recorded.
On March
17, 2010, we caused to be formed a corporation under the laws of the State of
Nevada called LianDi Clean Technology Inc. (“Merger Sub”) and on the same day,
acquired one hundred shares of Merger Sub’s common stock for cash. Accordingly,
Merger Sub became a wholly-owned subsidiary of us.
Effective
as of April 1, 2010, Merger Sub was merged with and into our company. As a
result of the merger, our corporate name was changed to “LianDi Clean Technology
Inc.” Prior to the merger, Merger Sub had no liabilities and nominal assets and,
as a result of the merger, the separate existence of the Merger Sub ceased.
LianDi Clean was the surviving corporation in the merger and, except for the
name change provided for in the Agreement and Plan of Merger, there was no
change in the directors, officers, capital structure or business of our
company.
Our
company now became a holding company and, through our subsidiaries, is primarily
engaged in distributing clean technology for refineries (unheading units for the
delayed coking process), distributing a wide range of petroleum and
petrochemical valves and equipments, providing systems integration, developing
and marketing optimization software for the polymerization process and providing
related technical and engineering services to large domestic Chinese petroleum
and petrochemical companies and other energy companies.
Details
of our company’s subsidiaries as of September 30, 2010 were as
follows:
Subsidiaries’ names
|
|
Place and date of
incorporation
|
|
Percentage of
ownership
|
|
Principal activities
|
China
LianDi Clean Technology Engineering Ltd. (“China LianDi”)
|
|
British
Virgin Islands
July
28, 2004
|
|
100%
(directly
by our company)
|
|
Holding
company of the other subsidiaries
|
|
|
|
|
|
|
|
Hua
Shen Trading
(International)
Limited (“Hua Shen HK”)
|
|
Hong
Kong
January
20, 1999
|
|
100%
(through
China LianDi)
|
|
Delivering
industrial valves and other equipment with the related integration and
technical services
|
|
|
|
|
|
|
|
Petrochemical
Engineering
Limited (“PEL HK”)
|
|
Hong
Kong
September
13, 2007
|
|
100%
(through
China LianDi)
|
|
Delivering
industrial valves and other equipment with the related integration and
technical services, and investment holding
|
|
|
|
|
|
|
|
Bright
Flow Control Ltd.
(“Bright
Flow”)
|
|
Hong
Kong
December
17, 2007
|
|
100%
(through
China LianDi)
|
|
Delivering
industrial valves and other equipment with the related integration and
technical services
|
|
|
|
|
|
|
|
Beijing
JianXin
Petrochemical
Engineering Ltd. (“Beijing JianXin”)
|
|
People’s
Republic of China (“PRC”)
May
6, 2008
|
|
100%
(through
PEL HK)
|
|
Delivering
industrial valves and other equipment with the related integration and
technical services, developing and marketing optimization software for
polymerization processes, and provision of delayed coking solutions for
petrochemical, petroleum and other energy companies
|
|
|
|
|
|
|
|
Anhui
Jucheng Fine Chemicals Co., Ltd.
(“Anhui
Jucheng”)
|
|
People’s
Republic of China (“PRC”)
January
28, 2005
|
|
51%
(through
Beijing JianXin)
|
|
Developing,
manufacturing and selling of organic and inorganic chemicals and high
polymer fine chemicals with related technical services, and recycle and
sales of discarded product or used
packing
|
In July
2004, China LianDi was founded and owned as to 60% by Mr. Jianzhong Zuo, the
Chief Executive Officer and Chairman of our company, and 40% by another
third-party minority shareholder. On October 2, 2007, Mr. Zuo acquired from such
minority shareholder the remaining 40% interest in China LianDi for US$1, and
accordingly became the sole shareholder of China LianDi. On March 6, 2008, SJ
Asia Pacific Limited (a company incorporated in the British Virgin Islands and
wholly owned by SJI Inc., a company incorporated in Japan and whose shares are
listed on the Jasdaq Securities Exchange, Inc. in Japan) acquired a 51% interest
in China LianDi from Mr. Zuo in exchange for: (i) US$1.00; (ii) the commitment
to invest HK$60,000,000 (or approximately $7.7 million) in China LianDi; and
(iii) the provision of financial support for China LianDi by
way of an unlimited
shareholder’s loan bearing interest at a rate not exceeding 5% per annum. As a
result, at such times China LianDi was owned 51% by SJ Asia Pacific Limited and
49% by Mr. Zuo.
On
January 8, 2010, Mr. Zuo transferred a 25%, 14% and 10% interest in China LianDi
to China LianDi Energy Resources Engineering Technology Ltd. (“LianDi Energy,” a
company wholly owned by Mr. Zuo), Hua Shen Trading (International) Ltd. (“Hua
Shen BVI,” a company incorporated in the British Virgin Islands and wholly owned
by SJ Asia Pacific Limited and of which Mr. Zuo is a director and holds voting
and dispositive power over the shares held by it) and Rapid Capital Holdings
Ltd. (“Rapid Capital”), respectively. On February 10, 2010, SJ Asia Pacific
Limited and LianDi Energy transferred 28.06% and 1.47% of their respective
interests in China LianDi to Rapid Capital (26.53%) and TriPoint Capital
Advisors, LLC (“TriPoint”) (3%), respectively. On February 12, 2010, Rapid
Capital transferred its 31.53% interest in China LianDi to LianDi Energy
(15.53%), Hua Shen BVI (11%) and Dragon Excel Holdings Ltd (5%). As a result,
immediately before the Share Exchange as defined below, China LianDi was owned
48% by SJ Asia Pacific Limited (including 25% through Hua Shen BVI) and 39% by
Mr. Zuo through LianDi Energy. The remaining 13% was held 5% by Dragon Excel
Holdings Limited (“Dragon Excel”), 5% by Rapid Capital and 3% by
TriPoint.
Dragon
Excel and Rapid Capital are held by two individuals unaffiliated to China LianDi
at the time of the transfers. The transfers of 5% interests in China LianDi from
Mr. Zuo to each of Dragon Excel and Rapid Capital were effected for Mr. Zuo’s
own personal reasons. The transfer of 3% interest of China LianDi from our
principal shareholder, SJ Asia Pacific Limited to TriPoint was entered into for
consulting services related to facilitating the private placement.
Hua Shen
HK was founded by Mr. Zuo in 1999. On January 8, 2008, China LianDi acquired
100% ownership interest in Hua Shen HK from Mr. Zuo. As Hua Shen HK and China
LianDi had been under common control, the acquisition of Hua Shen HK by China
LianDi has been accounted for using the “as if” pooling method of accounting. In
2007, China LianDi established PEL HK and Bright Flow, as wholly-owned
subsidiaries, in Hong Kong. In 2008, PEL HK established Beijing JianXin, as a
wholly-owned subsidiary, in the PRC.
Private
Placement
On
February 26, 2010 and immediately following the Share Exchange, we completed a
private placement transaction pursuant to a securities purchase agreement with
certain investors (collectively, the “Investors”) and sold 787,342 units at a
purchase price of $35 per unit, consisting of, in the aggregate, (a) 7,086,078
shares of Series A convertible preferred stock, par value $0.001 per share (the
“Series A Preferred Stock”) convertible into the same number of shares of common
stock, (b) 787,342 shares of common stock, (c) Series A Warrants to
purchase up to 1,968,363 shares of common stock, at an exercise price of $4.50
per share for a three-year period, and (d) Series B Warrants to purchase up to
1,968,363 shares of common stock, at an exercise price of $5.75 per share for a
three-year period. We also issued to the placement agent in the private
placement (i) warrants to purchase 787,342 shares of common stock at an exercise
price of $3.50, (ii) Series A Warrants to purchase 196,836 shares of common
stock, and (iii) Series B Warrants to purchase 196,836 shares of common stock,
which expire in three years on February 26, 2013. We received aggregate gross
proceeds of approximately $27.56 million from the private
placement.
Acquisition
of Anhui Jucheng
Anhui
Jucheng Fine Chemicals Co., Ltd. (“Anhui Jucheng”) was founded on January 28,
2005 and was wholly owned by a third party individual. On July 5, 2010, Beijing
JianXin, our wholly-owned subsidiary, injected capital of RMB 40.8 million
(approximately US$6,023,652) into Anhui Jucheng in the form of cash and as a
result, we indirectly became an owner of a 51% equity interest in Anhui
Jucheng.
Anhui
Jucheng is engaged in the business of developing, manufacturing and selling of
organic and inorganic chemical products and high polymer fine chemical products,
and providing of chemical professional services. The acquisition of Anhui
Jucheng will enable us to improve our product structure and diversify our
channels of business opportunities in the future.
Net
assets of Anhui Jucheng as of July 5, 2010:
|
|
Book value
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
Prepaid
land use right
|
|
$
|
102,831
|
|
|
$
|
1,850,864
|
|
Inventories
|
|
|
2,632,798
|
|
|
|
2,590,922
|
|
Property,
plant and equipment, net (including buildings)
|
|
|
10,255,673
|
|
|
|
11,282,723
|
|
Cash
and cash equivalents
|
|
|
2,325,060
|
|
|
|
2,325,060
|
|
Other
current assets
|
|
|
7,036,246
|
|
|
|
7,038,678
|
|
Deferred
tax liability
|
|
|
-
|
|
|
|
(693,771
|
)
|
Amount
due to shareholder
|
|
|
(6,074,352
|
)
|
|
|
(6,074,352
|
)
|
Other
current liabilities
|
|
|
(12,011,494
|
)
|
|
|
(13,226,465
|
)
|
|
|
|
|
|
|
|
|
|
Net
assets
|
|
$
|
4,266,762
|
|
|
$
|
5,093,659
|
|
Cash
injection by Beijing JianXin
|
|
|
|
|
|
|
6,023,652
|
|
|
|
|
|
|
|
|
11,117,311
|
|
Non-controlling
interest’s share of net assets
|
|
|
|
|
|
|
(5,447,482
|
)
|
|
|
|
|
|
|
|
|
|
Net
assets acquired
|
|
|
|
|
|
$
|
5,669,829
|
|
Total
purchase consideration
|
|
|
|
|
|
|
6,023,652
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$
|
353,823
|
|
Basis
of preparation and consolidation and use of estimates
Our
interim condensed consolidated financial statements are unaudited. In
the opinion of management, all adjustments and disclosures necessary for a fair
presentation of these interim condensed consolidated financial statements have
been included. The results reported in the condensed consolidated
financial statements for any interim periods are not necessarily indicative of
the results that may be reported for the entire year. The condensed
consolidated balance sheet as of March 31, 2010 was derived from audited
financial statements, and the unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to those rules and regulations, though
we believe that the disclosures made are adequate to make the information not
misleading. The unaudited condensed financial statements should be
read in conjunction with our consolidated financial statements and accompanying
footnotes for the year ended March 31, 2010.
Our
condensed interim consolidated financial statements include the financial
statements of our company and our subsidiaries. All significant inter-company
transactions and balances between our company and our subsidiaries have been
eliminated upon consolidation.
Recent
Accounting Pronouncements
In July
2010, the FASB issued ASU 2010-20, “Receivables (Topic 310): Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses.” This ASU amends Topic 310 to improve the disclosures that an
entity provides about the credit quality of its financing receivables and the
related allowance for credit losses. As a result of these amendments, an entity
is required to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its financing receivables
and related allowance for credit losses. For public entities, the disclosures as
of the end of a reporting period are effective for interim and annual reporting
periods ending on or after December 15, 2010. The disclosures about activity
that occurs during a reporting period are effective for interim and annual
reporting periods beginning on or after December 15, 2010. Except for the
expanded disclosure requirements, the adoption of this ASU is not expected to
have a material impact on our consolidated financial statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on our Consolidated Financial Statements
upon adoption.
Critical
Accounting Policies and Estimates
The
following discussion and analysis is based upon our consolidated financial
statements, which have been prepared in conformity with US GAAP. Certain
accounting policies and estimates are particularly important to the
understanding of our financial position and results of operations and require
the application of significant judgment by our management or can be materially
affected by changes from period to period in economic factors or conditions that
are outside of the control of management. As a result, they are subject to an
inherent degree of uncertainty. In applying these policies, our management uses
its judgment to determine the appropriate assumptions to be used in the
determination of certain estimates. Those estimates are based on our historical
operations, our future business plans and projected financial results, the terms
of existing contracts, our observance of trends in the industry, information
provided by customers and information available from other outside sources, as
appropriate. The following discusses significant accounting policies and
estimates.
Revenue
is recognized when the following four criteria are met as prescribed by the SEC
Staff Accounting Bulletin No. 104 (“SAB 104”): (i) persuasive evidence of an
arrangement exists, (ii) product delivery has occurred or the services have been
rendered, (iii) the fees are fixed or determinable, and (iv) collectibility is
reasonably assured.
Multiple-deliverable
arrangements
We derive
revenue from fixed-price sale contracts with customers that may provide for us
to deliver equipment with varied performance specifications specific to each
customer and provide the technical services for installation, integration and
testing of the equipment. In instances where the contract price is inclusive of
the technical services, the sale contracts include multiple deliverables. A
multiple-element arrangement is separated into more than one unit of accounting
if all of the following criteria are met:
|
•
|
The delivered item(s) has value
to the customer on a stand-alone
basis;
|
|
•
|
There is objective and reliable
evidence of the fair value of the undelivered item(s);
and
|
|
•
|
If
the arrangement includes a general right of return relative to the
delivered item(s), delivery or performance of the undelivered item(s) is
considered probable and substantially in the control of the
Company.
|
Our
multiple-element contracts generally include customer-acceptance provisions
which provide for us to carry out installation, test runs and performance tests
at our cost until the equipment can meet the performance specifications within a
specified period (“acceptance period”) stated in the contracts. These contracts
generally provide the customers with the right to deduct certain percentages of
the contract value as compensation or liquidated damages from the balance
payment stipulated in the contracts, if the performance specifications cannot be
met within the acceptance period. There is generally no provision giving the
customers a right of return, cancellation or termination with respect to any
uninstalled equipment.
Our
delivered equipment has no standalone value to the customer until it is
installed, integrated and tested at the customer’s site by us in accordance with
the performance specifications specific to each customer. In addition, under
these multiple-element contracts, we have not sold the equipment separately from
the installation, integration and testing services, and hence there is no
objective and reliable evidence of the fair value for each deliverable included
in the arrangement. As a result, the equipment and the technical services for
installation, integration and testing of the equipment are considered a single
unit of accounting pursuant to ASC Subtopic 605-25,
Revenue
Recognition — Multiple-Element Arrangements
. In addition, the
arrangement generally includes customer acceptance criteria that cannot be
tested before installation and integration at the customer’s site. Accordingly,
revenue recognition is deferred until customer acceptance, indicated by an
acceptance certificate signed off by the customer.
We may
also provide our customers with a warranty for one year following the customer’s
acceptance of the installed equipment. Some contracts require that 5% to 15% of
the contract price be held as retainage for quality warranty and only due for
payment by the customer upon expiration of the warranty period. For
those contracts with retainage clauses, we defer the recognition of the
amounts retained as revenue until expiration of the warranty period when
collectibility can reasonably be assured. We have not provided for warranty
costs for those contracts without retainage clauses, as the relevant estimated
costs were insignificant based on historical experience.
Product
only
Revenue
derived from sales contracts that require delivery of products only is
recognized when the titles to the products pass to customers. Titles to the
products pass to the customers when the products are delivered and accepted by
the customers.
Software
sale
We
recognize revenue from the delivery of data processing platform software when
the software is delivered to and accepted by the customer, pursuant to ASC Topic
985,
Software
(formerly
Statement of Position, or SOP 97-2,
Software Revenue Recognition
,
as amended) and in accordance with SAB 104. Costs of software revenue include
amortization of software copyrights.
Service
We
recognize revenue from provision of services when the service has been
performed, in accordance with SAB 104.
We are
subject to business tax of 5% and value added tax of 17% on the revenues earned
for services provided and products sold in the PRC, respectively. We present our
revenue net of business tax and related surcharges and value added tax, as well
as discounts and returns. There were no product returns for the six months ended
September 30, 2010 and 2009.
|
•
|
Deferred revenue and
costs
|
Deferred
revenue represents payments received from customers on equipment delivery and
installation contracts prior to customer acceptance. As revenues are deferred,
the related costs of equipment paid to suppliers are also deferred. The deferred
revenue and costs are recognized in the consolidated statements of income in the
period in which the criteria for revenue recognition are satisfied as discussed
above.
The
entities within our company file separate tax returns in the respective tax
jurisdictions in which they operate.
Under the
Inland Revenue Ordinance of Hong Kong, only profits arising in or derived from
Hong Kong are chargeable to Hong Kong profits tax, whereas the residence of a
taxpayer is not relevant. Therefore, Hua Shen HK, PEL HK and Bright Flow are
generally subject to Hong Kong income tax on its taxable income derived from the
trade or businesses carried out by them in Hong Kong at 16.5% for the six months
ended September 30, 2010 and 2009.
In March
2007, the PRC government enacted the PRC Enterprise Income Tax Law (“New EIT
Law”), and promulgated related regulations, Implementing Regulations for the PRC
Enterprise Income Tax Law. The law and regulations became effective January 1,
2008. The PRC Enterprise Income Tax Law, among other things, imposes a unified
income tax rate of 25% for both domestic and foreign invested enterprises
registered in the PRC.
Beijing
JianXin, being established in the PRC, is generally subject to PRC income tax.
Beijing JianXin has been recognized by the relevant PRC tax authority as a
software enterprise with its own software product and is entitled to tax
preferential treatment — a two year tax holiday through EIT exemption
(from its first profitable year) for the calendar years ended December 31, 2009
and 2010 and a 50% reduction on its EIT rate for the three ensuing calendar
years ending December 31, 2011, 2012 and 2013.
Anhui
Jucheng, established in the PRC, is generally subject to PRC income tax. The
applicable income tax rate of Anhui Jucheng is 25% for the year ending December
31, 2010.
No
provision for other overseas taxes is made as neither we nor China LianDi have
any taxable income in the U.S. or the British Virgin Islands.
FASB ASC
Topic 220
Comprehensive
Income
establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements.
Comprehensive income and loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Accumulated other comprehensive income arose from
foreign currency translation adjustments.
We report
earnings per share in accordance with the provisions of FASB ASC Topic 260,
“Earnings per Share.” FASB ASC Topic 260 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 dilutive effects of
convertible securities (using the as-if converted method, and options and
warrants and their equivalents (using the treasury stock method).
All per
share data including earnings per share has been retroactively restated to
reflect the reverse acquisition consummated on February 26, 2010, whereby the
27,354,480 shares of common stock issued by Remediation (nominal acquirer) to
our shareholders (nominal acquiree) are deemed to be the number of shares
outstanding for the periods prior to the reverse acquisition. For periods after
the reverse acquisition, the number of shares considered to be outstanding is
the actual number of shares outstanding during those periods.
We have
evaluated the determination of our functional currency based on the guidance in
ASC Topic, “Foreign Currency Matters,” which provides that an entity’s
functional currency is the currency of the primary economic environment in which
the entity operates; normally, that is the currency of the environment in which
an entity primarily generates and expends cash.
Historically,
the sales and purchase contracts of our Hong Kong subsidiaries, Hua Shen HK, PEL
HK and Bright Flow have substantially been denominated and settled in the U.S.
dollar. Therefore, Hua Shen HK, PEL HK and Bright Flow generate and expend their
cash predominately in the U.S. dollar. Accordingly, it has been determined that
the functional currency of Hua Shen HK, PEL HK and Bright Flow is the U.S.
dollar.
Historically,
the sales and purchase contracts of Beijing JianXin and Anhui Jucheng have
predominantly been denominated and settled in Renminbi (the lawful currency of
Mainland China). Accordingly, it has been determined that the functional
currency of Beijing JianXin and Anhui Jucheng is Renminbi.
Historically,
a substantial proportion of our sales and purchase contracts have been entered
into by our Hong Kong subsidiaries and denominated and settled in the U.S.
dollar.
On our
own, we raise financing in the U.S. dollar, pay our own operating expenses
primarily in the U.S. dollar, and expect to receive any dividends that may be
declared by our subsidiaries (including Beijing JianXin which is a wholly
foreign-owned enterprise with a registered capital denominated in the U.S.
dollar) in U.S. dollars.
Therefore,
it has been determined that our functional currency is the U.S. dollar based on
the sales price, expense and financing indicators, in accordance with the
guidance in ASC 830-10-85-5.
We use
United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting
purposes. Our subsidiaries maintain their books and records in their respective
functional currency, being the primary currency of the economic environment in
which their operations are conducted. Assets and liabilities of a subsidiary
with functional currency other than U.S. Dollars are translated into U.S.
Dollars using the applicable exchange rates prevailing at the balance sheet
date. Items on the statements of income and comprehensive income and cash flows
are translated at average exchange rates during the reporting period. Equity
accounts are translated at historical rates. Adjustments resulting from the
translation of our financial statements are recorded as accumulated other
comprehensive income.
Our PRC
subsidiaries maintain their books and records in Renminbi (“RMB”), the lawful
currency in the PRC, which may not be freely convertible into foreign
currencies. The exchange rates used to translate amounts in RMB into U.S.
Dollars for the purposes of preparing the consolidated financial statements are
based on the rates as published on the website of People’s Bank of China and are
as follows:
|
|
As of September 30, 2010
|
|
As of March 31, 2010
|
Balance
sheet items, except for equity accounts
|
|
US$1=RMB6.7011
|
|
US$1=RMB6.8263
|
|
|
For the six months ended
September 30, 2010
|
|
For the six months ended
September 30, 2009
|
Items
in statements of income and cash flows
|
|
US$1=RMB6.7974
|
|
US$1=RMB6.8305
|
|
|
|
|
|
|
|
For the three months ended
September 30, 2010
|
|
For the three months ended
September 30, 2009
|
Items
in statements of income and cash flows
|
|
US$1=RMB6.7725
|
|
US$1=RMB6.8310
|
No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the above rates.
The value
of RMB against US$ and other currencies may fluctuate and is affected by, among
other things, changes in China’s political and economic conditions. Any
significant revaluation of RMB may materially affect our financial condition in
terms of US$ reporting.
|
•
|
Common Stock,
Preferred Stock and
Warrants
|
We are
authorized to issue 50,000,000 shares of common stock, $0.001 par value. We had
1,216,950 common shares outstanding prior to the Share Exchange with China
LianDi, and issued 27,354,480 common shares to the shareholders of China LianDi
in connection with the Share Exchange. For accounting purposes, the shares
issued to the shareholders of China LianDi are assumed to have been outstanding
on April 1, 2008 and the 1,216,950 shares held by our existing shareholders
prior to the Share Exchange on February 26, 2010 are assumed to have been issued
on that date in exchange for our net assets.
On
February 26, 2010, we sold 787,342 shares of common stock to certain accredited
investors.
For the
six months ended September 30, 2010, 513,795 shares of preferred stock in the
aggregate were converted into the same number of shares of common stock at a
conversion price of $3.50 per share.
At
September 30, 2010, 29,872,567 shares of common stock were issued and
outstanding.
We are
authorized to issue 25,000,000 shares of preferred stock, $0.001 par value, of
which one series of preferred stock has been designated as Series A Preferred
Stock, or preferred shares, of which we issued 7,086,078 shares to certain
accredited investors in a private placement on February 26, 2010. Each preferred
share is convertible into one share of common stock, at a conversion price of
$3.50 per share (subject to certain adjustments) at any time at the holder’s
option, and will automatically convert at the earlier to occur of the following:
(i) twenty-four (24) months following February 26, 2010, and (ii) such time that
the volume weighted average price of the common stock is no less than $5.00 for
a period of ten (10) consecutive trading days with the daily volume of the
common stock equal to at least 50,000 shares per day. The designation, rights,
preferences and other terms and provisions of the preferred shares are set forth
in the Certificate of Designation filed with the Nevada Secretary of State on
March 4, 2010. The preferred shares are entitled to a cumulative dividend at an
annual rate of 8%, payable quarterly, at our option, in cash or in additional
shares of Series A Preferred Stock. The Series A Preferred Stock has class
voting rights such that we, prior to taking certain corporate actions (including
certain issuances or redemptions of its securities or changes in its
organizational documents), are required to obtain the affirmative vote or
consent of the holders of a majority of the shares of the Series A Preferred
Stock then issued and outstanding. The Series A Preferred Stock has no other
voting rights with our common stock or other equity securities. The preferred
shares have a liquidation preference of $3.50 per share, plus any accrued but
unpaid dividends. If we cannot issue shares of common stock registered for
resale under the registration statement for any reasons, holders of the Series A
Preferred Stock, solely at the holder’s option, can require us to redeem from
such holder those Series A Preferred Stock for which we are unable to issue
registered shares of common stock at a price equal to the Series A liquidation
preference amount, provided that we shall have the sole option to pay such
redemption price in cash or restricted shares of common stock.
At
September 30, 2010, 6,572,283 preferred shares were outstanding, with an
aggregate liquidation preference of $23,582,232.
We have
evaluated the terms of the Series A Preferred Stock and determined that the
Series A Preferred Stock, without embodying an obligation for us to repurchase
or to settle by transferring assets, is not a liability in accordance with the
guidance provided in ASC Topic 480, Distinguishing Liabilities from
Equity.
Because
the event that may trigger redemption of the Series A Preferred Stock, the
delivery of registered shares, is not solely within our control, the Series A
Preferred Stock has been classified as mezzanine equity (out of permanent
equity) in accordance with the requirement of ASC 480-10-S99.
The
Series A Preferred Stock holder may request redemption of the preferred stock in
the event that our company cannot issue shares of common stock registered for
resale under the registration statement The related registration statement was
declared effective on August 20, 2010 and remained effective as of September 30,
2010. Therefore, we have determined that the Series A Preferred Stock is not
currently redeemable. Accordingly, as of September 30, 2010, we have not
adjusted the carrying value of the Series A Preferred Stock to its redemption
value or recognize any accretion charges as it is considered not probable that
the Series A Preferred Stock will become redeemable, in accordance with the
requirements of SEC Staff Guidance on redeemable preferred stock in ASC
480-10-S99.
If the
preferred stock is currently redeemable, we will adjust the amount of the
preferred stock to its maximum redemption amount at each balance sheet date, in
accordance with the requirement of ASC 480-10-S99 (or paragraph 14 of ASU
2009-04). If it is probable that the preferred stock will become redeemable, we
will accrete changes in the redemption value over the period from the date of
issuance of the preferred stock to the earliest redemption date (the
Effectiveness Date), using the interest method, in accordance with the guidance
in ASC 480-10-S99 (or paragraph 15 of ASU 2009-04).
In
conjunction with the private placement on February 26, 2010, we entered into a
make good escrow agreement with the investors pursuant to which LianDi Energy
delivered into an escrow account 1,722,311 shares of common stock to be used as
a share escrow for the achievement of a fiscal year 2011 net income performance
threshold of $20.5 million. We have evaluated the terms of this escrow
arrangement based on the guidance provided in ASC 718-10S99 and concluded that
because the escrow shares would be released to our principal stockholder or
distributed to the investors without regard to the continued employment of any
of our directors or officers, the escrow arrangement is in substance an
inducement to facilitate the private placement, rather than
compensatory.
Accordingly,
we have accounted for the escrow share arrangement according to its nature and
reflected it as a reduction of the proceeds allocated to the newly issued
securities in the private placement, based on its fair value of $4,925,810 as of
February 26, 2010.
The
aggregate fair value of the escrow shares as of February 26, 2010 is allocated
to the different securities issued in the private placement according to their
respective allocated net proceeds as follows:
|
|
Net proceeds of
private placement
allocated to
|
|
|
Allocation of
escrow shares
|
|
Discount
on common stock
|
|
$
|
1,309,380
|
|
|
$
|
373,260
|
|
Dividend
on preferred stock
|
|
|
14,059,018
|
|
|
|
4,007,745
|
|
Discount
on warrants
|
|
|
1,911,156
|
|
|
|
544,805
|
|
Total
|
|
$
|
17,279,554
|
|
|
$
|
4,925,810
|
|
The
amount of the escrow shares allocated to preferred stock is accreted similar to
a dividend to the preferred stock, regardless of the probability of meeting 2011
net income targets, over the period from the date of issuance of securities in
the private placement to March 31, 2011, using the effective interest method.
Accretion of such preferred stock deemed dividend for the six and three months
ended September 30, 2010 was $1,951,844 and $809,331, respectively.
On
February 26, 2010, we issued Series A Warrants to purchase up to 1,968,363
shares of common stock at an exercise price of $4.50 and Series B Warrants to
purchase up to 1,968,363 shares of common stock at an exercise price of $5.75,
for cash. These warrants are exercisable at any time until February 26,
2013.
Also on
February 26, 2010, we had issued (i) warrants to purchase 787,342 shares of
common stock at an exercise price of $3.50, (ii) Series A Warrants to purchase
196,836 shares of common stock, and (iii) Series B Warrants to purchase 196,836
shares of common stock, which were issued to the placement agent in connection
with the private placement and expire in three years on February 26,
2013.
Warrants
issued and outstanding at September 30, 2010 (Unaudited) and changes during the
six months then ended, are as follows:
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
Number of
underlying
shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Cont
ractual
Life (years)
|
|
|
Number of
underlying
shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contractual
Life (years)
|
|
Balance,
April 1, 2010
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.91
|
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.91
|
|
Granted
/ Vested
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2010
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.41
|
|
|
|
5,117,740
|
|
|
$
|
4.88
|
|
|
|
2.41
|
|
We have
evaluated the terms of the warrants issued in the private placement with
reference to the guidance provided in ASC 815-40-15. We have concluded that
these warrants are indexed to our own stock, because the warrants have no
contingent exercise provision and fixed strike prices which are only subject to
adjustments in the event of stock split, combinations, dividends, mergers or
other customary corporate events. Therefore, these warrants have been classified
as equity.
|
·
|
Options granted to independent
directors
|
On August
10, 2010, we granted options to purchase 24,000, 5,000 and 5,000 shares of
common stock to three of our independent directors, Mr. Joel Paritz, Mr. Hongjie
Chen and Mr. Xiaojun Li, respectively, at a strike price of $5.99 per share, in
consideration for the services they provided. These options will expire August
10, 2015 and shall become vested and exercisable pursuant to the following
vesting schedule:
Date
|
|
Percentage Vested
|
|
August
17, 2010
|
|
|
25
|
%
|
November
17, 2010
|
|
|
50
|
%
|
February
17, 2011
|
|
|
75
|
%
|
May
17, 2011
|
|
|
100
|
%
|
In
accordance with the guidance provided in ASC Topic 718, Stock Compensation ,
(formerly SFAS 123R), the compensation costs associated with these options are
recognized, based on the grant-date fair values of these options, over the
requisite service period, or vesting period. Accordingly, we recognized
compensation expense of $12,051 for the six and three months ended September 30,
2010.
Options
issued and outstanding at September 30, 2010 (Unaudited) and their movements
during the six months then ended are as follows:
|
|
Number of
underlying
shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Aggregate
Intrinsic
Value
(1)
|
|
|
Weighted-
Average
Contractual Life
Remaining in
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2010
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
34,000
|
|
|
|
5.99
|
|
|
|
-
|
|
|
|
5
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at September 30, 2010
|
|
|
34,000
|
|
|
$
|
5.99
|
|
|
$
|
-
|
|
|
|
4.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2010
|
|
|
8,500
|
|
|
$
|
5.99
|
|
|
$
|
-
|
|
|
|
4.86
|
|
(1) The
intrinsic value of the stock option at September 30, 2010 is the amount by which
the market value of our common stock of $3.50 as of September 30, 2010 exceeds
the exercise price of the option.
A. Results
of Operations for the Six and Three Months Ended September 30, 2010 and 2009
(Unaudited)
The
following table sets forth a summary, for the periods indicated, of our
consolidated results of operations. Our historical results presented below are
not necessarily indicative of the results that may be expected for any future
period. All amounts are presented in US$.
|
|
Three months ended
September 30,
|
|
|
Six months ended
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and installation of equipment
|
|
$
|
33,682,153
|
|
|
$
|
18,584,322
|
|
|
$
|
40,031,287
|
|
|
$
|
25,028,997
|
|
Sales
of software
|
|
|
-
|
|
|
|
3,042,254
|
|
|
|
2,805,799
|
|
|
|
3,743,042
|
|
Services
|
|
|
1,134,607
|
|
|
|
-
|
|
|
|
1,137,708
|
|
|
|
23,373
|
|
Sales of chemical products
|
|
|
8,490,510
|
|
|
|
-
|
|
|
|
8,490,510
|
|
|
|
-
|
|
|
|
|
43,307,270
|
|
|
|
21,626,576
|
|
|
|
52,465,304
|
|
|
|
28,795,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of equipment sold
|
|
|
(26,303,920
|
)
|
|
|
(15,312,464
|
)
|
|
|
(31,335,336
|
)
|
|
|
(20,325,521
|
)
|
Amortization
of intangibles
|
|
|
(150,631
|
)
|
|
|
(149,317
|
)
|
|
|
(300,115
|
)
|
|
|
(298,660
|
)
|
Cost
of sales of chemical products
|
|
|
(7,797,118
|
)
|
|
|
-
|
|
|
|
(7,797,118
|
)
|
|
|
-
|
|
|
|
|
(34,251,669
|
)
|
|
|
(15,461,781
|
)
|
|
|
(39,432,569
|
)
|
|
|
(20,624,181
|
)
|
Gross
profit
|
|
|
9,055,601
|
|
|
|
6,164,795
|
|
|
|
13,032,735
|
|
|
|
8,171,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
(429,879
|
)
|
|
|
(261,632
|
)
|
|
|
(570,821
|
)
|
|
|
(537,282
|
)
|
Research
and development
|
|
|
(1,248,683
|
)
|
|
|
(254,934
|
)
|
|
|
(1,795,056
|
)
|
|
|
(570,938
|
)
|
Total
operating expenses
|
|
|
(69,543
|
)
|
|
|
(9,223
|
)
|
|
|
(128,853
|
)
|
|
|
(18,304
|
)
|
|
|
|
(1,748,105
|
)
|
|
|
(525,789
|
)
|
|
|
(2,494,730
|
)
|
|
|
(1,126,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
7,307,496
|
|
|
|
5,639,006
|
|
|
|
10,538,005
|
|
|
|
7,044,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
33,733
|
|
|
|
35,826
|
|
|
|
59,747
|
|
|
|
47,102
|
|
Interest
and bank charges
|
|
|
(114,702
|
)
|
|
|
(165,116
|
)
|
|
|
(260,333
|
)
|
|
|
(297,546
|
)
|
Exchange
gains (losses), net
|
|
|
(57,170
|
)
|
|
|
(188,971
|
)
|
|
|
(126,938
|
)
|
|
|
(280,858
|
)
|
Investment
income
|
|
|
6,748
|
|
|
|
-
|
|
|
|
6,748
|
|
|
|
-
|
|
Value
added tax refund
|
|
|
1,428
|
|
|
|
-
|
|
|
|
370,611
|
|
|
|
122,638
|
|
Other
|
|
|
289,535
|
|
|
|
580
|
|
|
|
292,342
|
|
|
|
19,075
|
|
Total
other expenses, net
|
|
|
159,572
|
|
|
|
(317,681
|
)
|
|
|
342,177
|
|
|
|
(389,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax
|
|
|
7,467,068
|
|
|
|
5,321,325
|
|
|
|
10,880,182
|
|
|
|
6,655,118
|
|
Income
tax expense
|
|
|
(84,646
|
)
|
|
|
-
|
|
|
|
(84,646
|
)
|
|
|
(817
|
)
|
NET
INCOME
|
|
|
7,382,422
|
|
|
|
5,321,325
|
|
|
|
10,795,536
|
|
|
|
6,654,301
|
|
Income
attributable to noncontrolling interest
|
|
|
(124,430
|
)
|
|
|
-
|
|
|
|
(124,430
|
)
|
|
|
-
|
|
NET
INCOME ATTRIBUTABLE TO LIANDI CLEAN SHAREHOLDERS
|
|
|
7,257,992
|
|
|
|
5,321,325
|
|
|
|
10,671,106
|
|
|
|
6,654,301
|
|
Preferred
stock deemed dividend
|
|
|
(809,331
|
)
|
|
|
-
|
|
|
|
(1,951,844
|
)
|
|
|
-
|
|
Preferred
stock dividend
|
|
|
(477,698
|
)
|
|
|
-
|
|
|
|
(971,597
|
)
|
|
|
-
|
|
NET
INCOME AVAILABLE TO COMMON STOCKHOLDERS OF LIANDI CLEAN
|
|
|
5,970,963
|
|
|
|
5,321,325
|
|
|
|
7,747,665
|
|
|
|
6,654,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
|
0.19
|
|
|
$
|
0.26
|
|
|
|
0.24
|
|
Diluted
|
|
$
|
0.20
|
|
|
|
0.19
|
|
|
$
|
0.26
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,679,646
|
|
|
|
27,354,480
|
|
|
|
29,526,643
|
|
|
|
27,354,480
|
|
Diluted
|
|
|
36,618,829
|
|
|
|
27,354,480
|
|
|
|
30,016,764
|
|
|
|
27,354,480
|
|
Non-GAAP
Measures
To
supplement the unaudited condensed consolidated statement of income and
comprehensive income presented in accordance with Accounting Principles
Generally Accepted in the United States of America ("GAAP"), we also provided
non-GAAP measures of net income available to common stockholders and the basic
and diluted earnings per share for the six and three months ended September 30,
2010, which are adjusted from results based on GAAP to exclude the non-cash
charges recorded, which related to the escrow share arrangement allocated to the
Series A preferred stock, treated as a deemed dividend, and a
deduction of net income available to common stockholders in conjunction to the
Private Placement we consummated on February 26, 2010. The non-GAAP financial
measures are provided to enhance the investors' overall understanding of our
current performance in on-going core operations as well as prospects for the
future. These measures should be considered in addition to results prepared and
presented in accordance with GAAP, but should not be considered a substitute for
or superior to GAAP results. We use both GAAP and non-GAAP information in
evaluating and operating business internally and therefore deem it important to
provide all of this information to investors.
The
following table presented reconciliations of our non-GAAP financial measures to
the unaudited condensed consolidated statements of income and comprehensive
income for the six and three months ended September 30, 2010 (Unaudited) (all
amounts in US dollars):
|
|
Three months
ended
September
30,
|
|
|
Six
months
ended
September
30
|
|
|
|
20
10
|
|
|
20
10
|
|
|
20
10
|
|
|
20
10
|
|
|
|
(US
$)
|
|
|
(US
$)
|
|
|
(US
$)
|
|
|
(US
$)
|
|
|
|
GAAP
|
|
|
NON
GAAP
|
|
|
GAAP
|
|
|
NON
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to LianDi Clean shareholders
|
|
|
7,257,992
|
|
|
|
7,257,992
|
|
|
|
10,671,106
|
|
|
|
10,671,106
|
|
Preferred
stock deemed dividend
|
|
|
(809,331
|
)
|
|
|
-
|
|
|
|
(1,951,844
|
)
|
|
|
-
|
|
Preferred
stock dividend
|
|
|
(477,698
|
)
|
|
|
(477,698
|
)
|
|
|
(971,597
|
)
|
|
|
(971,597
|
)
|
Net
income attributable to common shareholders-Basic
|
|
|
5,970,963
|
|
|
|
6,780,294
|
|
|
|
7,747,665
|
|
|
|
9,699,509
|
|
Preferred
stock deemed dividend
|
|
|
809,331
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred
stock dividend
|
|
|
477,698
|
|
|
|
477,698
|
|
|
|
-
|
|
|
|
971,597
|
|
Net
income attributable to common shareholders-Diluted
|
|
|
7,257,992
|
|
|
|
7,257,992
|
|
|
|
7,747,665
|
|
|
|
10,671,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.23
|
|
|
$
|
0.26
|
|
|
$
|
0.33
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,679,646
|
|
|
|
29,679,646
|
|
|
|
29,526,643
|
|
|
|
29,526,643
|
|
Diluted
|
|
|
36,618,829
|
|
|
|
36,618,829
|
|
|
|
30,016,764
|
|
|
|
36,934,971
|
|
(1)
|
For
the six months ended September 30, 2010, the effect of the potential
dilutive convertible preferred stock was not included, because the effect
is anti-dilutive upon recognition of the deemed dividend in accordance
with US GAAP.
|
|
|
(2)
|
For
the six months ended September 30, 2010, the effect of the potential
dilutive convertible preferred stock was included, because the effect is
dilutive regardless of the recognition of the deemed dividend under
NON-GAAP measures.
|
|
|
(3)
|
For
the three months ended September 30, 2010, the effect of the potential
dilutive convertible preferred stock was included under both GAAP and
NON-GAAP measures, because the effect is dilutive with and without
recognition of the deemed dividend.
|
Net
Revenue:
Net
revenue represents our gross revenue net of business tax, value added tax and
related surcharges as well as discounts and returns. There were no material
discounts and returns for the six and three months ended September 30, 2010 and
2009.
The
following tables set forth the analysis of our net revenue:
|
|
Three months ended
September 30
|
|
|
Six months ended
September 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
US$
M
|
|
|
US$
M
|
|
|
US$
M
|
|
|
US$
M
|
|
Sales
and installation of equipment
|
|
|
33.7
|
|
|
|
18.6
|
|
|
|
40.0
|
|
|
|
25.0
|
|
Sales
of software
|
|
|
-
|
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
3.8
|
|
Technical
services
|
|
|
1.1
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
0.02
|
|
Sales
of chemical products
|
|
|
8.5
|
|
|
|
-
|
|
|
|
8.5
|
|
|
|
-
|
|
|
|
|
43.3
|
|
|
|
21.6
|
|
|
|
52.5
|
|
|
|
28.8
|
|
We
generated our revenue from delivery of equipment with the related technical
engineering services (including but not limited to installation, integration and
system testing), and sales of our optimization software and sales of chemical
products. Generally, sales of equipment, the related technical services and the
optimization software are included in one agreement as a total solution package.
However, in some cases, customers sign agreements with us to purchase equipment,
software products or consultancy services individually. Under the total solution
agreements, we have neither objective nor reliable evidence for us to separate
our total revenue amount into separate categories. Therefore, the revenue amount
indicated as sales of software and technical consultancy services in the above
tables was calculated based on the total revenue amount of individual
agreements.
For the
six months ended September 30, 2010, our total net revenue increased to US$52.5
million from US$28.8 million for the same period of 2009. For the three months
ended September 30, 2010, our total revenue increased to US$43.3 million from
US$21.6 million for the same period of 2009. Without regard to the US$8.5
million revenue generated by our newly acquired majority owned subsidiary Anhui
Jucheng, discussed separately below, our total revenue increased to US$44.0
million and US$34.8 million for the six and three months ended September 30,
2010, respectively. This increase was mainly due to the increase of the
distribution and service contracts we signed with our customers and the
successful and timely implementation of our contracts. These achievements were
mainly a result of our successful establishment of an experienced sales and
implementation team.
For the
six and three months ended September 30, 2010, we completed 26 and 19 projects
related to sales and installation of equipment, respectively as compared to 19
and 3 projects for the same period of 2009. During the six months ended
September 30, 2010, one of these completed projects had a contract value greater
than $3 million, ten had a contract value greater than $2 million and six had
contract values of more than $1 million. For the same period of 2009, one of
these completed projects had a contract value of more than $13 million, one had
a contract value greater than $4 million and two had a contract value greater
than $1 million.
For the
six and three months ended September 30, 2010 and 2009, we sold 32 sets and 43
sets of our data processing software, respectively, and achieved US$2.8 million
and US$3.7 million of software revenue, respectively. For the three months ended
September 30, 2010, we sold nil and 35 sets of our data processing software,
respectively, and achieved US$ nil and US$3.0 million of software revenue,
respectively.
For the
three months ended September 30, 2010, we also achieved approximately US$1.1
million of technical services revenue related to the software pre-installation
test services.
As of
September 30, 2010 and 2009, we had 30 and 19 signed but uncompleted contracts,
respectively, with total contract amounts of approximately US$56 million and
US$32 million, respectively. These achievements were mainly a result of our
successful establishment of an experienced sales and implementation team. We
have served the Chinese petroleum and petrochemical industries since 2004
through our four operating subsidiaries. We worked for approximately one year to
establish relationships with international industrial equipment manufacturers,
such as Cameron, DeltaValve and Poyam Valves. We also analyzed the domestic
market and the local customers’ needs. As a result, we are one of the few
domestic companies able to provide localized services for international
companies lacking local offices in China. This process also allowed us to meet
the high standards and requirements set by our customers, the major petroleum
and petrochemical companies in China, and to become an approved vendor. Along
with the rapid growth of the petroleum and petrochemical industries and the
rapid growth of the fixed assets investments within these industries, we
successfully increased the size and scope of projects performed for our
customers from the second half of our fiscal year 2009 and in our fiscal year
2010. We believe, with the successful implementation of our contracts, and our
continued efforts in developing the business and enhancing our client
relationships, our revenue will continue to increase in fiscal year
2011.
The
revenue amount we received from our customers on delivery and installation
contracts prior to the completion of related technical services and the delivery
of acceptance certificates was recorded as deferred revenue. As of September 30,
2010, approximately US$0.32 million was recorded as deferred revenue.
Accordingly, the related equipment purchase costs that actually occurred for
these uncompleted projects (for each reporting period) were recorded as deferred
costs of revenue. As of September 30, 2010, we recorded approximately US$0.16
million deferred costs. We track and record the deferred revenue and deferred
costs of revenue on a project basis. The deferred revenue and deferred cost will
be recognized as revenue and cost of revenue with the completion of the related
technical services and receipt of an acceptance certificate from our customers
on a matching basis. The gross margin of each reporting period reflects the
actual gross profitability of contracts completed in each reporting
period.
Our newly
acquired majority owned subsidiary, Anhui Jucheng, is primarily engaged in
manufacturing and selling of the industrial chemical product, Polyacrylamide.
Polyacrylaminde is mainly used in the following areas: (1) tertiary oil
recovery; (2) wastewater, organic wastewater disposal and sewage treatments; (3)
auxiliary for papermaking industry; and (4) flocculant for river water
treatments.
For the
three months ended September 30, 2010, Anhui Jucheng sold approximately 4,200
tons of Polyacrylamide products, and achieved approximately US$8.5 million of
net revenue.
Cost
of sales:
Cost of
sales consist of the equipment purchase cost recognized in-line with the
contract revenue, which is recognized in each reporting period, and the
amortization amount of our software copyright.
Cost of
sales of Anhui Jucheng represented the manufacturing cost of the chemical
product, polyacrylamide, sold in each reporting period, which mainly consists of
raw material cost (mainly consist of acrylonitrile, acrylic acid and acrylamide
solution), salary cost of manufacturing department and other manufacturing
overhead such as electricity, water, depreciation and other manufacturing
supplies.
For the
six months ended September 30, 2010, our total cost of sales increased to
US$39.4 million from US$20.6 million for the same period of 2009. For the three
months ended September 30, 2010, our total cost of sales increased to US$34.3
million from US$15.5 million for the same period of 2009. Without
regard to the cost of sales of US$7.8 million incurred by Anhui Jucheng, for the
six and three months ended September 30, 2010, our total cost of sales increased
to US$31.6 million and US$26.5 million, respectively. This increase
is in line with the increases in our total net revenue recognized in each
reporting period.
Gross
margin:
|
|
Three months ended
September 30
|
|
|
Six months ended
September 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
US$
M
|
|
|
US$
M
|
|
|
US$
M
|
|
|
US$
M
|
|
Equipment sales and installation, software sales
and technical services
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
34.8
|
|
|
|
21.6
|
|
|
|
44.0
|
|
|
|
28.8
|
|
Cost
of sales
|
|
|
26.5
|
|
|
|
15.5
|
|
|
|
31.6
|
|
|
|
20.6
|
|
Gross
margin
|
|
|
8.3
|
|
|
|
6.1
|
|
|
|
12.4
|
|
|
|
8.2
|
|
Overall
gross margin (%)
|
|
|
24
|
%
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
28
|
%
|
Without
regard to the gross profit generated by our newly acquired majority owned
subsidiary Anhui Jucheng, discussed separately below, for the six and three
months ended September 30, 2010, our gross profit increased to US$12.4 million
and US$8.3 million as compared to US$8.2 million and US$6.1 million for the same
period of 2009. The level of our overall gross margin was affected by
the relative percentage of our separate software sales and technical services
volume for each reporting period. The cost of our software sales
consisted of the amortization of our purchased software copyright during each
reporting period, and other direct installation and testing costs related to the
software sales were insignificant based on our historical experience, and we did
not separate these software related expenses from our total expenses in the
normal course of business. We normally do not incur any additional special costs
when performing separate technical services, and we did not consider
the allocation of a proportion of our expenses as the cost of technical
services as necessary, because it was considered insignificant based on our
experience.
Our
overall gross margins were 28% for both the six months ended September 30, 2010
and 2009. This was mainly because (1) the total percentage of our separate
software sales and technical consultancy services revenue (which had much higher
margin compared with the equipment sales and installation revenue) compared
to our total revenue (excluding the sales of Anhui Jucheng) of each
reporting period maintained relatively stable, which was 9% and 13%,
respectively; (2) during the six months ended September 30, 2010, we achieved
approximately US$1.1 million in technical consultant services (2.5% of our
total revenue, excluding the sales of Anhui Jucheng), which contributed a gross
margin of 100% for this period. Therefore, although the percentage of our
software sales (which we believe contributes a general gross margin of 85%-95%)
decreased to 6.4% for the six months ended September 30, 2010 from 13% for the
same period of 2009, our overall gross margin was not affected significantly;
and (3) our overall gross margin for the equipment sales and installation
revenue improved for the six months ended September 30, 2010 to 22% as compared
to 19% for the same period of 2009, which also offset the negative effect of the
decrease of the software sales percentage during the six months ended September
30, 2010.
For the
three months ended September 30, 2010 and 2009, our overall gross margins were
24% and 28%, respectively. The decrease of the overall gross margin was mainly
because we did not have any software revenue recognized for the three months
ended September 30, 2010, while in the same period of 2009, 14% of the total
revenue was contributed by the software sales revenue. However, for
the three months ended September 30, 2010, our overall gross margin for
equipment sales and installation projects also improved to 22% as compared to
18% for the same period of 2009.
We
believe that our overall gross margin is typically between 25%-35% on a fiscal
year basis. Typically, our gross margin reflects the actual gross profitability
of the contracts that we completed in each reporting period with all revenue and
cost of revenue being recognized on a matching basis in the same reporting
period. Generally, the factors that normally affect our gross margin in each
reporting period include (1) the percentage of the software sales and separate
technical consultancy services for each reporting period; and (2) whether we
completed any larger revenue contracts that had lower gross margin as compared
to other contracts in the reporting period. Normally, the relatively lower gross
margin contracts were signed as a result of a more intense commercial
competition for certain individual contracts. As of September 30, 2010, we do
not have any material uncompleted contract signed with gross margin below our
average gross margin. Therefore, we believe that these existing uncompleted
contracts will not have an adverse impact on our future gross margin. We will
continue to monitor and review our sales contracts to determine if there will be
any adverse impact on our gross margin in future reporting periods.
Sale of chemical products
|
|
Three months ended
September 30, 2010
|
|
|
|
|
US$
M
|
|
|
Net
revenue
|
|
|
8.49
|
|
Cost
of sales
|
|
|
7.80
|
|
Gross
margin
|
|
|
0.69
|
|
Overall
gross margin (%)
|
|
|
8
|
%
|
Anhui
Jucheng achieved an 8% gross margin for the three months ended September 30,
2010. Management believes that the overall gross margin of Anhui
Jucheng should normally approximate 10%-15%. The relatively lower
gross margin for the three months ended September 30, 2010 was mainly because
during this period, the overall market supply of the raw material for producing
polyacrylamide was relatively insufficient, which caused an increase
in the raw material purchase price. We will gradually
increase our product selling price and we believe that the overall gross margin
will be improved in the future. Meanwhile, management is making
efforts to sell our products to end users directly in the future, instead of
selling through distributors. If this can be achieved, we believe our gross
margin of this segment will be further improved to approximately
20%.
Operating
expense
Our
operating expenses include: selling expenses, general and administrative
expenses and research and development expenses.
The
following tables set forth the analysis of our operating expenses (excluding
those of Anhui Jucheng):
|
|
For the three months ended September
30,
|
|
|
For the six months ended September
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
US$
M
|
|
|
%
of
Revenue
|
|
|
US$
M
|
|
|
%
of
Revenue
|
|
|
US$
M
|
|
|
%
of
Revenue
|
|
|
US$
M
|
|
|
%
of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
34.8
|
|
|
|
100
|
%
|
|
|
21.6
|
|
|
|
100
|
%
|
|
|
44.0
|
|
|
|
100
|
%
|
|
|
28.8
|
|
|
|
100
|
%
|
–
Selling expenses
|
|
|
0.12
|
|
|
|
0.3
|
%
|
|
|
0.26
|
|
|
|
1.2
|
%
|
|
|
0.26
|
|
|
|
0.6
|
%
|
|
|
0.54
|
|
|
|
1.9
|
%
|
–
G&A expenses
|
|
|
0.96
|
|
|
|
2.8
|
%
|
|
|
0.25
|
|
|
|
1.2
|
%
|
|
|
1.51
|
|
|
|
3.4
|
%
|
|
|
0.57
|
|
|
|
2.0
|
%
|
–
R&D expenses
|
|
|
0.07
|
|
|
|
0.2
|
%
|
|
|
0.01
|
|
|
|
0.05
|
%
|
|
|
0.13
|
|
|
|
0.3
|
%
|
|
|
0.02
|
|
|
|
0.1
|
%
|
Total
operating expenses
|
|
|
1.15
|
|
|
|
3.3
|
%
|
|
|
0.52
|
|
|
|
2.4
|
%
|
|
|
1.90
|
|
|
|
4.3
|
%
|
|
|
1.13
|
|
|
|
4.0
|
%
|
The
following tables set forth the analysis of the operating expenses of Anhui
Jucheng:
|
|
For the three
months
ended
September 30, 2010
|
|
|
For the three months
ended September 30,
2009
|
|
|
|
US$
M
|
|
|
%
of
Revenue
|
|
|
US$
M
|
|
|
%
of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
8.49
|
|
|
|
100
|
%
|
|
|
-
|
|
|
|
-
|
|
–
Selling expenses
|
|
|
0.31
|
|
|
|
3.7
|
%
|
|
|
-
|
|
|
|
-
|
|
–
G&A expenses
|
|
|
0.29
|
|
|
|
3.4
|
%
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
0.60
|
|
|
|
7.1
|
%
|
|
|
-
|
|
|
|
-
|
|
|
1.
|
Equipment sales and
installation, software sales and technical
services
|
Selling
expenses:
Our
selling expenses decreased to US$0.26 million for the six months ended September
30, 2010 from US$0.54 million for the same period of 2009. For the
three months ended September 30, 2010, our selling expenses decreased to US$0.12
million from US$0.26 million for the same period of 2009. Our selling
expenses mainly include freight, marketing research and development expenses,
salary expenses and traveling expenses.
For the
six months ended September 30, 2010 and 2009, the decrease in selling expenses
was mainly due to the following reasons: (1) freight expenses decreased by
approximately US$0.1 million due to more contracts using FOB terms for the six
months ended September 30, 2010 where we only bore the land freight from the
overseas manufacturing facilities to the oversea ports; however, for the six
months ended September 30, 2009, we had some contracts using CIF terms where we
bore air freight for these shipments, which is significantly higher than the
land freight; (2) marketing research and development expenses and traveling
expenses incurred for the six months ended September 30, 2010 decreased
approximately US$0.18 million as compared to the same period of 2009, which was
mainly a result of our successful brand and client relationship building
activities performed in prior years which enabled us to decrease some of our
market research and development and traveling costs in this year. The reasons
for the decrease of the selling expenses for the three months ended September
30, 2010 were the same as those discussed for the six months ended September 30,
2010.
We
believe that the percentage of our total selling expenses compared to the total
net revenue for the corresponding period for each reporting period may not be
stable, because our average total solution business cycle is normally from six
months to twelve months, and a significant portion of our sales activities
(including but not limited to attending bidding invitation meetings, providing
customers surveys and analysis, presenting proposals to customers, and
finalizing total solution packages with customers) were performed before the
contracts were signed, in consideration of the pre-market activities that may
not generate revenue. In accordance with the principles set by US GAAP, our
expenses for the “pre-contract” stage were expensed and recorded in earnings
when they occurred. Therefore, the amount of “pre-contract” expenses directly
relate to the marketing activities and number of contracts we participated in
during each reporting period, but not to the corresponding contract revenue
being recognized.
General and administrative
expenses:
Our
general and administrative expenses increased to US$1.51 million for the six
months ended September 30, 2010 from US$0.57 million for the same period of
2009. For the three months ended September 30, 2010, our general and
administrative expenses increased to US$0.96 million from US$0.25 million for
the same period of 2009. Our general and administrative expenses mainly include:
(1) salary and benefits for management and administrative departments (finance,
importation, human resources and administration); (2) office rental and other
administrative supplies; (3) management’s traveling expenses; (4) general
communication and entertainment expenses; and (5) professional service charges
(including but not limited to legal, audits, financial consultancy and investor
relations). We expect that our general and administrative expenses will increase
in future periods as we hire additional personnel and incur additional costs in
connection with the expansion of our
business. We also expect
to incur increased professional services costs in the future in connection with
disclosure requirements under applicable securities laws, and our efforts to
continue to improve our internal control systems in-line with the expansion of
our business.
For the
six months ended September 30, 2010 and 2009, our general and administrative
expenses increased due to the following reasons: (1) an approximate US$0.07
million increase of rental expenses due to renting an additional office and four
apartments for the expansion of our business and increase of staff; (2) an
approximate US$0.07 million increase of salary expenses due to the increase of
staff in connection with the expansion of our
business; (3) an
approximate US$0.13 million increase in general office administration expenses,
such as communication, utilities and depreciation, which was in-line with the
expansion of our business support activities; and (4) an approximate US$0.67
million increase in professional services charges related to our U.S. reporting
requirements as a public company, including but not limited to legal, accounting
and investor relations. The reasons for the increase of the general and
administrative expenses for the three months ended September 30, 2010 were the
same as discussed above for the six months ended September 30,
2010.
Research and development
expenses:
Research
and development expenses represent the salary expenses and other related
expenses of our research and development department. Our research and
development expenses increased to US$0.13 and US$0.07 million for the six and
three months ended September 30, 2010 as compared with US$0.02 and US$0.01
million for the same period of 2009, due to an increase of the technical staff
to meet our R&D needs. We expect our research and development expenses to
increase in the future as we plan to hire additional R&D personnel to
strengthen the functionality of our current software products and develop
additional competitive industrial software products.
|
2.
|
Sale of chemical
products
|
Selling
expenses:
For the
three months ended September 30, 2010, Anhui Jucheng incurred approximately
US$0.31 million of selling expenses, which mainly consist of (1) freight expense
of approximately US$0.12 million; (2) salary expense of sales department of
approximately US$0.07 million; (3) products packing material cost of
approximately US$0.07 million; and (4) other general expenses incurred by the
sales department, such as traveling expenses, communication expenses and other
similar expenses of approximately US$0.05 million.
General and administrative
expenses:
For the
three months ended September 30, 2010, Anhui Jucheng incurred approximately
US$0.29 million of general and administrative expenses, which mainly consist of
(1) salary and welfare of management and administrative staff of approximately
US$0.13 million; (2) traveling expenses of approximately US$0.05 million; (3)
insurance and other taxes of approximately US$0.03 million; and (4) office
administration expenses, such as communication, utilities, depreciation and
other office supplies, of approximately US$0.08 million.
Operating
profits
As a
result of the foregoing, our operating profit increased to US$10.5 million for
the six months ended September 30, 2010, US$10.4 million of which was generated
from our equipment sales and installation, software sales and technical
services, and US$0.1 million was generated from our sales of chemical products,
as compared to the US$7.0 million operating profit we achieved for the same
period of 2009.
For the
three months ended September 30, 2010, our operating profit increased to US$7.3
million, of which US$7.2 million was from our equipment sales and installation,
software sales and technical services, and US$0.1 million was from our sales of
chemical products, as compared to the US$5.6 million of operating profit we
achieved for the same period of 2009.
Other
income and expenses
Our other
income and expenses mainly include interest income, interest expenses, bank
charges, exchange gains or losses, value added tax refund, other income and
expenses.
Interest income, interest
expenses, bank charges and exchange gains or losses:
|
|
Interest
income represents the interest income we earned from cash deposits we kept
in the commercial banks.
|
|
|
Interest
expenses represented the interest expenses incurred for the working
capital loans we borrowed from our shareholders (annual interest rate of
3% to 5%), and the short-term bank loans of approximately US$2.5 million
borrowed by our newly acquired subsidiary, Anhui Jucheng. For
the six months ended September 30, 2010, we incurred approximately US$0.14
million in interest expenses for the shareholder loans we borrowed, and
approximately US$0.05 million in interest expenses for the short-term bank
loans borrowed by Anhui Jucheng. We also incurred approximately US$0.07
million in bank handling charges for the six months ended September 30,
2010 for the international contract settlements with our overseas
equipment suppliers. The decrease of the interest expenses and bank
charges for the six and three months ended September 30, 2010, as compared
to the same period of 2009, was mainly a result of the decrease of the
principal amount we borrowed from our shareholders in these
periods.
|
|
|
Exchange
loss occurred for the six months ended September 30, 2010 was mainly due
to the devaluation of the US dollar against the Renminbi, Japanese Yen and
Euro. Exchange losses arose from our bank deposits and
shareholder loans denominated in currencies other than
Renminbi.
|
Value added tax
refund:
Our PRC
subsidiary, Beijing JianXin, has been recognized by the PRC government as a
software enterprise with its own software copyright. The standard value added
tax rate for sales of products of PRC enterprises is 17%. Under the PRC
government’s preferential policies for software enterprises, Beijing JianXin is
entitled to a refund of 14% value added tax in respect to sales of
self-developed software products. We pay 17% value added tax for our software
sales and the tax authorities will refund us 14% of the value added tax that we
pay normally within about 2 months. This refund is regarded as subsidy income
granted by the PRC government and we recognize the value added tax refund as
other income and only when it has been received. There is no condition to the
use of the refund received. We received approximately US$0.37 million and
US$0.12 million of value added tax refund for the six months ended September 30,
2010 and 2009, respectively. So long as the PRC government’s preferential
policies for software enterprises remain unchanged, Beijing JianXin will
continue to be eligible for this refund. As our software sales are not
considered a significant source for our revenue contribution on an annual basis,
this refund will not have any significant impact on our future
operations.
Other
:
For the
six and three months ended September 30, 2010, Anhui Jucheng received
approximately US$0.29 million subsidy income and awards from its provincial and
regional governments for its technologies contribution and development in the
polyacrylamide production field.
Income
before income tax
As a
result of the foregoing, our income before income tax increased to US$10.9
million for the six months ended September 30, 2010, US$10.5 million of which
was generated from our equipment sales and installation, software sales and
technical services, and US$0.4 million was generated from our sale of chemical
products, as compared to US$6.7 million income before income tax we achieved for
the same period of 2009.
For the
three months ended September 30, 2010, our income before income tax increased to
US$7.5 million, of which US$7.1 million was from our equipment sales and
installation, software sales and technical services, and US$0.4 million was from
our sale of chemical products, as compared to the US$5.3 million income before
income tax we achieved for the same period of 2009.
Income
tax expenses
The
entities within our company file separate tax returns in the respective tax
jurisdictions in which they operate.
Under the
Inland Revenue Ordinance of Hong Kong, profits arising in or derived from Hong
Kong are chargeable to Hong Kong profits tax, and the residence of a taxpayer is
not relevant. Therefore, Hua Shen HK, PEL HK and Bright Flow are generally
subject to Hong Kong profits tax on its taxable income derived from the trade or
businesses carried out by them in Hong Kong at 16.5% for the six and three
months ended September 30, 2010 and 2009.
Beijing
JianXin, being established in the PRC, is generally subject to PRC income tax.
Beijing JianXin has been recognized by the relevant PRC tax authority as a
software enterprise with its own software product and is entitled to tax
preferential treatment — a two year tax holiday through EIT exemption
(from its first profitable year) for the calendar years ended December 31, 2009
and 2010 and a 50% reduction on its EIT rate for the three ensuing calendar
years ending December 31, 2011, 2012 and 2013.
Anhui
Jucheng is subject to 25% income tax for the year ending December 31,
2010.
No
provision for other overseas taxes is made as neither we nor China LianDi have
any taxable income in the U.S. or the British Virgin Islands.
Net
income
As a
result of the foregoing, our net income increased to US$10.8 million for the six
months ended September 30, 2010, US$10.5 million of which was generated from our
equipment sales and installation, software sales and technical services and
US$0.3 million was generated from our sale of chemical products, as compared to
the US$6.7 million net income we achieved for the same period of
2009.
For the
three months ended September 30, 2010, our net income increased to US$7.4
million, US$7.1 million of which was generated from our equipment sales and
installation, software sales and technical services and US$0.3 million was
generated from our new sales of chemical products, as compared to the US$5.3
million net income we achieved for the same period of 2009.
Income
attributable to non-controlling interest
Net
income generated from our newly acquired majority owned subsidiary Anhui Jucheng
was allocated to the non-controlling shareholder of Anhui Jucheng based on his
respective percentage of the ownership in the entity. Based on the percentage
ownership of Anhui Jucheng, US$0.12 million of Anhui Jucheng’s net income was
attributable to the 49% noncontrolling interest shareholders of Anhui Jucheng
for the six and three months ended September 30, 2010.
Net
income available to LianDi Clean shareholders
Net
income available to LianDi Clean shareholders was US$10.7 million and US$7.3
million for the six and three months ended September 30, 2010, respectively, as
compared to US$6.7 million and US$5.3 million for the same period of 2009,
respectively.
Preferred
stock deemed dividend
The
amount allocated to the escrow share arrangement is attributed to the different
newly issued securities in the private placement according to those newly issued
securities’ respective fair value at February 26, 2010, as
follows:
|
|
Allocation of
escrow shares
|
|
Discount
on common stock
|
|
$
|
373,260
|
|
Dividend
on preferred stock
|
|
|
4,007,745
|
|
Discount
on warrants
|
|
|
544,805
|
|
Total
|
|
$
|
4,925,810
|
|
The
amount of the escrow shares allocated to preferred stock is accreted similar to
a dividend to the preferred stock, regardless of the probability of meeting 2011
net income targets, over the period from the date of issuance of securities in
the private placement to March 31, 2011, using the effective interest
method. Accretion of such preferred stock deemed dividend for the six
and three months ended September 30, 2010 was approximately US$1.95 million and
US$0.81 million, respectively, which were recorded as a deduction to the net
income available to common stockholders of LianDi Clean for the six and three
months ended September 30, 2010, respectively.
Preferred
stock dividend
In
accordance with the securities purchase agreement we entered into with our
investors on February 26, 2010, the holders of the Series A Preferred Stock are
entitled to a cumulative dividend at an annual rate of 8%. The amount of the
preferred stock dividend we accrued was calculated by the liquidation preference
amount of the Series A Preferred Stock which was US$3.50 per share and the
actual number of days each share was outstanding within the reporting period.
The total preferred stock dividend accrued was approximately US$0.97 million and
US$0.48 million for the six and three months ended September 30, 2010,
respectively.
B. Liquidity
and capital resources
Cash and
cash equivalents consist of all cash balances and highly liquid investments with
an original maturity of three months or less. Restricted cash is excluded from
cash and cash equivalents. As of September 30, 2010, we had cash and
cash equivalents of approximately US$52.5 million.
Our
liquidity needs include: net cash used in operating activities, which mainly
consists of: (a) cash required for importing the equipment to be distributed to
our customers and cash required for our newly acquired subsidiary, Anhui Jucheng
to purchase raw materials for the manufacturing of chemical products; (b)
related freight and other distribution expenses for our shipments of equipment
to customers and manufacturing expenses for the production of chemical products;
and (c) our general working capital needs, which include payment for staff
salary and benefits, payment for office rent and other administrative supplies.
Our net cash used in investing activities mainly consist of the investments in
computers and other office equipment and upgrading and enhancing the existing
manufacturing facilities for our newly acquired subsidiary, Anhui Jucheng.
Before June 30, 2009, we financed our liquidity needs primarily through working
capital loans obtained from our shareholders. From the second half of our fiscal
year 2010, along with the significant increase of our net income and our
efficient management of the collection of the trade receivables and other
receivables, we started to generate positive cash flow from our operating
activities, and repaid a significant portion of the shareholder loan from our
Japanese shareholder. Currently, we primarily finance our liquidity needs
through net cash generated from our own operating activities.
The
following tables provide detailed information about our net cash flow for the
periods indicated:
|
|
Six months ended September
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Amount
in thousands of US dollars)
|
|
Net
cash provided by operating activities
|
|
|
862
|
|
|
|
7,738
|
|
Net
cash (used in) provided by investing activities
|
|
|
(3,985
|
)
|
|
|
16,110
|
|
Net
cash used in financing actives
|
|
|
(4,368
|
)
|
|
|
(13,162
|
)
|
Effect
of foreign currency exchange rate changes
|
|
|
708
|
|
|
|
(16
|
)
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(6,783
|
)
|
|
|
10,670
|
|
Net
cash provided by operating activities:
As a
result of our company’s normal business operations, a very significant portion
of our cash was used to import equipment from our suppliers. Before the
equipment was shipped to our customers, the prepayment was recorded as
prepayment to suppliers. After the equipment was shipped and before it was
accepted by our customers, the payments were recorded as deferred
cost. For the six months ended September 30, 2010, we achieved
approximately US$10.8 million in net income and managed the collection of our
trade receivables by a net increase of only approximately US$0.9 million.
However, during the same period, we spent approximately US$9 million as the
prepayments to our equipment suppliers for the uncompleted contracts we
performed during the period, and to our raw material suppliers for purchasing
raw materials of chemical products. Therefore, in the aggregate, we
generated approximately US$0.9 million of cash inflow during the six months
ended September 30, 2010. For the three months ended September 30,
2009, the approximately US$7.7 million in net cash inflow from operating
activities was mainly generated as a result of the approximately US$6.7 million
of net income generated for that period.
Net
cash used in investing activities:
For the
six months ended September 30, 2010, our net cash used in investing activities
included three noteworthy transactions.
First, we
had an approximately US$2.3 million net cash inflow in connection with the Anhui
Jucheng acquisition, representing Anhui Jucheng’s cash and cash equivalents upon
acquisition by us.
We injected capital of RMB40.8 million (approximately
US$6 million) into Anhui Jucheng in the form of cash in exchange for its 51%
equity interest. Anhui Jucheng then became a subsidiary of us and
thus the capital contribution has no impact on our consolidated cash
flows. Second, during the six months ended September 30, 2010, our newly
acquired subsidiary, Anhui Jucheng spent approximately US$0.1 million cash to
purchase the equipment for the upgrading of its current manufacturing facilities
and incurred approximately US$0.96 million as a deposit for land use rights to
further upgrade its manufacturing facilities. Third, during the six months ended
September 30, 2010, we were repaid approximately US$5.2 million in third
party loans. In the aggregate, these transactions resulted
in a net cash outflow of investing activities for about US$4 million for the six
months ended September 30, 2010. For the six months ended September 30, 2009,
the approximately US$16 million cash inflow generated from investing activities
mainly represented the temporary loan to a third party in February 2009 and
collected in September 2009.
Net
cash used in financing activities:
Our net
cash used in financing activities included the following transactions: (1) the
loans we borrowed from or repaid to our shareholders and noncontrolling
shareholder of our newly acquired subsidiary, Anhui Jucheng; (2) cash used in
the payment of the cash dividend to the convertible preferred stockholders; and
(3) cash provided by or used for the decrease or increase of our restricted cash
balance, which represents our bank deposits held as collateral for our credit
facilities.
For the
six months ended September 30, 2010, (1) we paid approximately US$0.58 million
cash for the dividend of convertible preferred stock; (2) as of September 30,
2010, the restricted cash balance increased by approximately US$5.3 million
as collateral for issuance of letters of credit to our suppliers as
compared to that of March 31, 2010, which was recorded as a cash outflow of our
financing activities; (3) Mr. Zuo temporarily deposited approximately US$2.2
million into our bank account, which temporarily increased the amount due to
him, which will be settled shortly; and (4) we also repaid approximately US$0.67
million to the noncontrolling shareholder of Anhui Jucheng. In
the aggregate, this resulted in a net cash outflow of financing activities
of approximately US$4.4 million for the six months ended September 30,
2010. For the six months ended September 30, 2009, the restricted
cash balance increased by approximately US$3.8 million as compared to that of
March 31, 2009, which was recorded as a cash outflow of our financing
activities, and we also repaid approximately US$9.4 million loan to shareholders
during the period, which resulted in a net cash outflow of approximately US$13.2
million for the period.
As of
September 30, 2010, we still owe our shareholders approximately US$10.6 million,
which consisted of approximately US$3 million due to Mr. Zuo and approximately
US$7.6 million due to our Japanese shareholder, SJ Asia Pacific Limited. We did
not sign any written agreement with Mr. Zuo in regards to the loan we borrowed
from him. Based on the loan agreements we signed with our Japanese shareholder,
these outstanding loans bear interest at 3%-5% per annum. Any delayed repayment
of these loans without the prior consent from our Japanese shareholder is
subject to a 1% penalty. Although we did not receive any commitment from our
Japanese shareholder not to demand repayment of the loan, we believe that, along
with the rapid growth of our revenue and cash generated from operating
activities in fiscal year 2010, our financial position has improved to the point
which allows us to repay our shareholders’ loan using money earned from
operations on demand without having any significant adverse impact on our
financial position and operations.
Credit
Facilities:
As of
September 30, 2010, we had available banking facilities (“General Facilities”),
which consisted of overdraft, guarantee line and import trade finance and
facilities for negotiation of export documentary credit discrepant bills against
letters of indemnity, up to an aggregate amount of HK$112.3 million (equivalent
to approximately US$14.4 million) as compared to an aggregate amount of general
facilities of HK$62.3 million (equivalent to approximately US$8 million) as of
March 31, 2010. Collateral for the General Facilities include our bank deposits
classified as restricted cash, trading securities, unlimited guarantee from Mr.
Zuo (our CEO and Chairman), a standby letter of credit of not less than HK$95
million (or approximately US$12.2 million) issued by a bank which is in turn
guaranteed by SJI Inc. (a stockholder of our company) and undertaking from Hua
Shen HK to maintain a tangible net worth at not less than HK$5 million (or
approximately US$644 thousand). We readily meet this requirement and complied
with this requirement during all periods presented. There is a small risk of
non-compliance, especially, considering that our bank’s requirement for tangible
net worth is far below our current tangible net worth. As of
September 30, 2010, there were outstanding import shipping guarantees of
$3,037,555 issued by the banks on behalf of our company under the General
Facilities. There was no other borrowing under the General Facilities as of
September 30, 2010. In addition, on August 6, 2009, we obtained a banking
facility for import facilities up to HK$6 million (equivalent to approximately
US$774 thousand) under a Special Loan Guarantee Scheme sponsored and guaranteed
by the Government of the Hong Kong Special Administrative Region (“Government
Sponsored Facility”). Collateral for the Government Sponsored Facility include a
guarantee for HK$6,000,000 from us. As of September 30, 2010, there was no
borrowing under the Government Sponsored Facility. Going forward, we do not
expect any negative changes in our general credit facilities, especially in
light of the fact that our sales have been growing rapidly.
Use
of proceeds from private placement:
We intend
to use the proceeds that we received in the private placement to build and
develop a new manufacturing facility in China and to upgrade our software
research and development department. Although we expect these costs to be
material, management is still in discussions and negotiations with relevant
parties and is currently unable to definitively quantify these expected
costs.
However,
based on our dialogue to date, we believe that the following table sets forth
the range of estimated costs to build and design our new manufacturing
facility:
Land
use rights (approximately 400,000 sq ft.) located in special
China Economic Development Zone:
|
$5
to 8 million
|
|
Factory
construction:
|
$5
to 8 million
|
|
Factory
equipment:
|
$6
to 8 million
|
|
|
|
|
Total
estimated cost:
|
$16
to $24 million
|
|
We do not
intend to use such proceeds to repay any portion of the shareholder
loans.
Recent
event:
In
September 2010, we entered into a strategic alliance with System Kikou Co., Ltd,
located in Tokyo, Japan, one of the world
’
s leading
automated oil sludge treatment companies. The alliance was consummated to
capitalize on a recent Chinese government mandate which was promulgated after a
major fatal accident (unrelated to the Company) in June 2010 that killed six
workers in China. The mandate is that all China
’
s oil refiners
switch to automated cleaning technology to protect the safety of workers; System
Kikou is one of the world
’
s leaders in this
cleaning technology.
C. Off-Balance
Sheet Arrangements
Our
company did not have any significant off-balance sheet arrangements as of
September 30, 2010.
D. Tabular
Disclosure of Contractual Obligations
The
following table sets forth our company’s contractual obligations as of September
30, 2010 (Unaudited):
|
|
Amount
|
|
|
|
|
|
Remainder
of fiscal year ending March 31, 2011
|
|
$
|
126,065
|
|
Fiscal
year ending March 31, 2012
|
|
|
223,547
|
|
Fiscal
year ending March 31, 2013
|
|
|
223,547
|
|
Fiscal
year ending March 31, 2014
|
|
|
14,158
|
|
Thereafter
|
|
|
-
|
|
Total
minimum lease payments
|
|
$
|
587,317
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Not
Applicable.
Item
4(T). Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures as of
the end of the fiscal quarter ended September 30, 2010, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this
evaluation, our principal executive officer and principal financial officer have
concluded that during the period covered by this report, the Company’s
disclosure controls and procedures were effective as of such date to ensure that
information required to be disclosed by us in our Exchange Act reports is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Control over Financial Reporting
There was
no change in our internal control over financial reporting that occurred during
the second fiscal quarter of 2010 covered by this Quarterly Report on Form 10-Q
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors
There
have been no material changes in the Company’s risk factors from those
previously disclosed in the Company’s Form-10K for the year ended March 31,
2010.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. [Removed and Reserved]
Item
5. Other Information
None.
Item
6. Exhibits.
(b) Exhibits
Exhibit No.
|
|
Description
|
31.1
|
|
Certification
of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.2
|
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
LIANDI
CLEAN TECHNOLOGY INC.
|
|
|
Date:
November 18, 2010
|
By:
|
/s/ Jianzhong Zuo
|
|
|
Jianzhong
Zuo, Chief Executive Officer and President
(Principal
Executive Officer)
|
|
|
|
|
|
|
Date:
November 18, 2010
|
By:
|
/s/ Yong Zhao
|
|
|
Yong
Zhao, Chief Financial
(Principal
Financial Officer)
|
EXHIBIT
INDEX
Exhibit No.
|
|
Description
|
31.1
|
|
Certification
of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.2
|
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
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