WEB NEWS Investor Alert
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
Comments & Business Outlook
For the Year Ended
December 31,
2015
(Audited)
December 31,
2014
(Audited)
Revenues
$
12,789,892
$
11,797,813
Cost of revenues
7,728,244
7,425,857
Gross margin
5,061,648
4,371,956
Operating expenses
Selling, general and administrative
9,801,377
3,309,079
Professional and legal fees
1,778,612
486,654
One-time professional and legal fees
911,456
-
Depreciation and amortization
564,839
82,342
Operating expenses
13,056,284
3,878,075
(Loss) income from operations
(7,994,636
)
493,881
Other expense (income)
Interest expense, net
281,411
147,069
Loss on debt extinguishment
-
57,502
Loss on derivative liability
9,292,720
-
Other income
(5,619
)
(20,000
)
Other expenses, net
9,568,512
184,571
(Loss) income before income tax benefit
(17,563,148
)
309,310
Income tax benefit
451,858
161,255
Net (loss) income
$
(17,111,290
)
$
470,565
Net (loss) income per common share – basic
$
(0.22
)
$
0.01
Weighted average common shares – basic
78,227,127
48,500,156
Net (loss) income per common share – diluted
$
(0.22
)
$
0.01
Weighted average common share - diluted
78,227,127
48,668,720
Investor Alert
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
· A commitment by the Company to pay its 2016 annual Nasdaq fees, concurrent with the resumption of its common stock trading on Nasdaq.
The Company believes it is addressing the issues raised by the Nasdaq Staff and Panel. There can be no assurance, however, that the Council will grant the Company’s request for additional time to file its Forms 10-K and 10-Q. In addition, while the Company is working diligently with its auditors, there can be no assurance that the Company will be successful in filing its Forms 10-K and 10-Q by the dates set forth above. Therefore, there can be no assurance that the Company will be successful in its appeal or that its common stock will remain listed on Nasdaq.
Investor Alert
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
· The Company has not yet paid its 2016 annual fee to Nasdaq and therefore is not in compliance with Listing Rule 5250(f).
Investor Alert
Item 8.01 Other Events.
Auditor trail
On March 17, 2016, BDO USA, LLP (“BDO”) informed 6D Global Technologies, Inc. (the “Company”) of its resignation as the Company’s independent registered public accounting firm, effective immediately. BDO has served as the Company’s independent registered public accounting firm since October 22, 2014. The Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) did not request, recommend, or approve the resignation of BDO.
By letter dated March 15, 2016, BDO informed the Chairman of the Audit Committee that it could not rely on the representations of Tejune Kang, the CEO of the Company, due to certain inconsistencies in prior statements and insisted that Mr. Kang separate or be separated from the Company as a condition of its continued representation of the Company as its independent registered public accounting firm. The Chairman of the Audit Committee discussed this matter with BDO, and later shared this information with the Board. The Board met on March 17, 2016 to consider the matter. At the meeting, Mr. Kang refused the request to resign in the belief that it was not in the best interests of the Company or its shareholders. A motion was subsequently made by Mr. Hartung at the meeting to terminate Mr. Kang and such motion was not seconded, and therefore was not voted upon. BDO subsequently resigned as the Company’s independent registered public accounting firm.
By letter dated March 21, 2016, BDO informed the Company of the following matters which represent disagreements and/or reportable events under Item 304(a)(1)(iv) and (v) of Regulation S-K:
·
Stock grant agreements;
·
Advisors not compensated by the Company;
·
Investigative procedures; and
The Chairman of the Audit Committee had previously discussed these matters with BDO prior to receipt of the March 21, 2016 letter. The foregoing summary of BDO’s letter regarding disagreements and/or reportable events under Item 304(a)(1)(iv) and (v) of Regulation S-K is qualified in its entirety by reference to the letter filed as Exhibit 16.2 hereto. The Company disagrees with BDO’s conclusions.
The Company’s financial statements for the fiscal year ended December 31, 2014, the only fiscal year for which a report on the Company’s financial statements was issued by BDO, did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
The Company has authorized BDO to respond fully to all inquiries of the successor independent registered public accounting firm.
The Company is currently searching for a replacement independent registered public accounting firm, and intends to engage one as quickly as possible.
In accordance with Item 304(a)(3) of Regulation S-K, the Company provided BDO with a copy of the disclosures it is making in this Current Report on Form 8-K prior to the time this Form 8-K was filed with the Securities and Exchange Commission (the “SEC”). The Company requested that BDO furnish a letter addressed to the SEC stating whether or not it agrees with the statements made herein, and a copy of that letter is attached hereto as Exhibit 16.3 .
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
By letter dated March 21, 2016, BDO notified the Company that the financial statements for the fiscal year ended December 31, 2014 should not be relied upon because of the financial statements failure to reflect a currently estimated $226,000 of additional stock compensation expense and because of BDO’s inability to rely on the representations provided by the CEO. In addition, BDO notified the Company that the interim financial statements for the periods ended September 30, 2014, March 31, 2015, June 30, 2015, and September 30, 2015, should also not be relied upon. BDO further believes that the nine month period ended September 30, 2015 will have an additional stock compensation expense currently estimated at $501,000. The Company continues to evaluate its estimation of such expenses.
Deal Flow
Item 1.01 Entry into a Material Definitive Agreement.
Investor Alert
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
The Staff’s decision is based largely on the Company’s past relationship with Benjamin Wey, who is currently facing criminal and civil charges. The Staff has also questioned whether the Company appropriately satisfied the initial listing shareholder and price requirements following its acquisition of Cleantech Innovations, Inc. in the fall of 2014.
The Company disagrees with the conclusions underlying the Staff’s determination and intends to timely request a hearing and present its case against delisting to the Panel. However, there can be no assurances that the Panel will grant the Company’s request for termination of the trading halt and the continuation of the listing of its common stock on The Nasdaq Capital Market.
Comments & Business Outlook
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
For the Nine Months Ended
September 30,
2015
September 30,
2014
September 30,
2015
September 30,
2014
Selling, general and administrative
(Loss) income from operations
Loss on debt extinguishment
Loss on derivative liability
(Loss) income before income tax benefit (expense)
Income tax benefit (expense)
Accretion of equity issuance costs
Deemed dividend for preferred stock
Net (loss) income attributable to common stockholders
Net (loss) income per common share attributable to common stockholders – basic
Weighted average common shares – basic
Net (loss) income per common share attributable to common stockholders – diluted
Weighted average common share - diluted
Management Dis cussion and Analysis
Our revenue increased by approximately 15% to $3,115,726 during the three months ended September 30, 2015, from $2,709,066 during the three months ended September 30, 2014. Revenues generated by two major segments of our business, Content Management Systems (“CMS”) and Information Technology Staffing (“IT Staffing”), were 92% and 8% respectively. The increase in revenue was primarily due to an increase in the number of professional service projects and contracts with newly added clients as well as clients of the acquired businesses of 41% offset by the decrease in revenues from existing clients of 26% predominately related to the decrease of IT Staffing clients as we focus on the digital marketing service offerings. There was also an increase in the amount of pass through expenses invoiced to our clients. We continue to expand our services being offered in multiple areas of the digital marketing segment through organic efforts and acquisitions and our sales and marketing efforts continue to lend to our ability to win more business. 6D Global is primarily focused on digital technology solutions and becoming a one stop provider to Chief Marketing Officers. We anticipate these digital marketing service offerings will continue to drive growth in our client base and sales results.
For the foregoing reasons, we had a net loss attributable to common shareholder of $17,300,982 for the three months ended September 30, 2015, or $(0.22) per share (basic and diluted), which includes $10,880,000 of deemed dividends for preferred stock and $12,264 of accretion of equity issuance costs as compared to net income of $31,589 for the three months ended September 30, 2014, or $0.00 per share (basic and diluted).
Deal Flow
6D GLOBAL TECHNOLOGIES, INC.
Name of Selling Stockholder
Number of Shares of Common Stock Owned Prior to Offering (1)(2)
Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus(3)(4)
Number of Shares of Common
Stock Owned After Offering (2)
Number
Percent
Discover Growth Fund (5)
6,000,000 6,000,000 0 *
Roger H. Klein Sr. (13)
7,247 7,247 0 *
Alexander Pustylnik
47,102 47,102 0 *
Thomas August Heinrich Gohmann
7,247 7,247 0 *
Udo Baumheier
14,493 14,493 0 *
Christian Giordano
16,426 16,426 0 *
Anna Lotan Ltd (6)
166,667 166,667 0 *
John Jeffrey Hurst
28,986 28,986 0 *
David Dorfmann
47,102 47,102 0 *
Nicolas Matile
47,102 47,102 0 *
Albert Viviani
94,203 94,203 0 *
William Scholander (7)
87,981 87,981 0 *
Charles Herbert Simpson
74,348 74,348 0 *
Qixiang Zhou
30,000 30,000 0 *
Martin Angus Ranch (8)
39,856 39,856 0 *
Alexander Kibrik (9)
26,096 26,096 0 *
Janice Li
28,986 28,986 0 *
Nancy Palmero and Herman Palmero
43,479 43,479 0 *
Brian Squires
21,740 21,740 0 *
Roger Snaith
188,406 188,406 0 *
Mansa Nicome
14,493 14,493 0 *
Alphonso Vanlow
7,247 7,247 0 *
Talman Harris (10)
87,981 87,981 0 *
Thomas Finn and Maureen Finn
17,247 17,247 0 *
Charles Morgan Simpson (11)
49,427 49,427 0 *
Arnold Nicklaus D'Cruz
28,986 28,986 0 *
Daniel Finn
36,232 36,232 0 *
David Gibbs
28,986 28,986 0 *
Eduard Kaziev
29,469 29,469 0 *
Jerry Cahn
10,000 10,000 0 *
Jiahua Wang
170,000 170,000 0 *
Kevin Flood and Regina Flood
10,000 10,000 0 *
Lorraine Olsen
24,155 24,155 0 *
Mark Ghitis
21,740 21,740 0 *
Ross Robbins
39,268 16,908 22,360 *
Ming-Hsuan Sung
21,740 21,740 0 *
Inet Global Ag (12)
48,310 48,310 0 *
Deal Flow
7,640,388 Shares of Common Stock
Comments & Business Outlook
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
For the Six Months Ended
June 30,
2015
June 30,
2014
June 30,
2015
June 30,
2014
Selling, general and administrative
(Loss) income from operations
Loss on debt extinguishment
(Loss) income before income tax benefit
Net (loss) income per common share – basic and diluted
Weighted average common shares – basic and diluted
Management Discussion and Analysis
Revenues
Our revenue increased by approximately 10% to $3,220,343 during the three months ended June 30, 2015, from $2,935,412 during the three months ended June 30, 2014. The increase in revenue was primarily due to an increase in the number of professional service projects and contracts that we had with our current clients and newly added clients as well as additional revenue from acquired businesses. There was also an increase in the amount of pass through expenses invoiced to our clients. This was partially offset by a decrease in our staffing services revenue. We continue to expand our services being offered in multiple areas of the digital marketing segment through organic efforts and acquisitions and our sales and marketing efforts continue to lend to our ability to win more business. 6D Global is primarily focused on digital technology solutions and becoming a one stop provider to Chief Marketing Officers. We anticipate these digital marketing service offerings will continue to drive growth in our client base and sales results.
For the foregoing reasons, we had a net loss of $1,762,637 for the three months ended June 30, 2015, or $(0.02) per share (basic and diluted), as compared to net income of $408,922 for the year ended June 30, 2014, or $0.01 per share (basic and diluted).
Deal Flow
Item 1.01. Entry into a Material Definitive Agreement.
Comments & Business Outlook
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Selling general and administrative
(Loss) income from operations
Loss on debt extinguishment
(Loss) income before income taxes benefit
Net (loss) income per common share – basic and diluted
Weighted average common shares – basic and diluted
Management Discussion and Analysis
Revenues
Our revenue increased by approximately 23% to $3,275,585 during the quarter ended March 31, 2015, from $2,654,575 during the quarter ended March 31, 2014. The increase in revenue was primarily due to an increase in the number of professional service projects and contracts that we had with our current clients and newly added clients as well as additional revenue from acquired businesses. This was partially offset by a decrease in our staffing services revenue. We continue to expand our services being offered in multiple areas of the digital marketing segment through organic efforts and acquisitions and our sales and marketing efforts continue to lend to our ability to win more business. 6D Global is primarily focused on digital technology solutions and becoming a one stop provider to Chief Marketing Officers. We anticipate these digital marketing service offerings will continue to drive growth in our client base and sales results.
For the foregoing reasons, we had a net loss of $377,645 for the quarter ended March 31, 2015, or $(0.01) per share (basic and diluted), as compared to net income of $290,496 for the year ended March 31, 2014, or $0.01 per share (basic and diluted).
Comments & Business Outlook
6D GLOBAL TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Selling general and administrative
Income (loss) from operations
Loss on debt extinguishment
Realized gain on sale of marketable securities
-
Income (loss) before income taxes benefit
Net income (loss) per common share - basic
Weighted average common shares - basic
Net income (loss) per common share - diluted
Weighted average common shares - diluted
Management Discussion and Analysis
Revenues
Our revenue increased by approximately 22% to $11,797,813 during the year ended December 31, 2014, from $9,640,286 during the year ended December 31, 2013. The increase in revenue was primarily due to an increase in the number of professional service projects and contracts that we had with our current clients as well as with newly added clients. We continue to expand our services being offered and our sales and marketing efforts continue to lend to our ability to win more business. The relevance of our service offerings in today’s market as well as our focus on growth continues to drive increases in our client base and sales results.
For the foregoing reasons, we had net income of $470,565 for the year ended December 31, 2014, or $0.01 per share (basic and diluted), as compared to a net loss of $812,563 for the year ended December 31, 2013, or ($0.02) per share (basic and diluted).
Acquisition Activity
Item 1.01 Entry into a Material Definitive Agreement.
The acquisition of SwellPath is expected to be immediately accretive to the Company’s revenue and earnings in 2015 and beyond. The Company’s Board of Directors has also approved the transaction.
Similar to the Company’s other, recent acquisition, Storycode, SwellPath is headquartered in Portland, Oregon and has an additional office in Minneapolis, Minnesota. SwellPath is a professional services firm that delivers analytics consulting, search engine optimization, and digital advertising services to medium and large scale enterprises across North America. SwellPath enables clients to align and maximize their digital marketing initiatives by tracking both online and offline marketing campaigns and performing more effective targeting to enhance return on investment. SwellPath complements the Company’s overall acquisition strategy to provide a full service digital marketing solutions offering to its customers particularly in areas where the Company’s customers have expressed needs, while leveraging the Company’s partnership with Adobe to expand its Adobe SiteCatalyst offering and Google Analytics Premium offering.
The purchase price for the SwellPath Shares was comprised of: (i) cash in the amount of Three Hundred Thousand Dollars ($300,000); (ii) Three Hundred Thousand (300,000) shares of the Company’s common stock, par value $0.00001 per share (the “Common Stock”); and (iii) up to an additional Three Hundred Thousand (300,000) shares of Common Stock and Six Hundred Fifty Thousand Dollars ($650,000), based upon the achievement by SwellPath of certain performance milestones within the first and second anniversaries of the closing of the transaction. In addition, the Company acquired all of the goodwill associated with SwellPath from its founder, Adam Ware, for cash in the amount Three Hundred Thousand Dollars ($300,000). Also, the Company agreed to an employment agreement with Mr. Ware to serve as Vice-President, containing customary terms, conditions and covenants for such an agreement.
Acquisition Activity
Item 1.01 Entry into a Material Definitive Agreement.
The Company believes this strategic acquisition is highly synergistic to its current business model and customer expansion, and will be immediately accretive to the Company’s sales and earnings in 2015 and beyond. The Company’s Board of Directors has also approved this transaction.
Storycode is headquartered in Portland, Oregon and provides mobile development and creative design services for medium and large businesses. Storycode creates mobile applications that feature award-winning UX (user experience) and UI (user interface) design working exclusively with the Adobe DPS platform. Storycode was founded by Katherine Topaz and Jason Porath, accomplished entrepreneurs and technology industry executives who have over 45 years of combined experience in creative and digital marketing. Storycode employees will join the Company as part of its expanding team of technology experts.
In consideration for the Interests, the Registrant paid the members of Storycode: cash in the amount of Three Hundred Thousand Dollars ($300,000); an additional Three Hundred Thousand Dollars ($300,000) paid in escrow to be earned by the members upon the one year anniversary of their employment; an aggregate of Three Hundred Thousand (300,000) shares of the Registrant’s common stock, par value $0.00001 per share (the “Common Stock”); and additional, potential earnout shares of Common Stock based on Storycode’s financial performance for the three years following the closing of the acquisition. The Company also agreed to employment agreements with Ms. Topaz and Mr. Porath.
CFO Trail
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On December 23, 2014, 6D Global Technologies, Inc. (the “Company”) announced the appointment of Mark Szynkowski, 46, to serve as the Chief Financial Officer of the Company. As the Company’s Chief Financial Officer, Mr. Szynkowski will have overall responsibility for leading all aspects of corporate finance for the Company.
Deal Flow
Item 1.01 Entry into a Material Definitive Agreement
Comments & Business Outlook
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
For the Nine Months Ended
September 30,
2014
September 30,
2013
September 30,
2014
September 30,
2013
Revenues
$ 2,709,066 $ 2,238,832 $ 8,299,053 $ 7,066,986
Total revenues
2,709,066 2,238,832 8,299,053 7,066,986
Cost of revenues
1,713,409 1,568,487 4,952,021 4,765,377
Gross margin
995,657 670,345 3,347,032 2,301,609
Operating expenses
Compensation
601,977 763,135 1,573,378 2,116,535
Selling, general and administrative
272,412 346,510 931,398 811,303
Total operating expenses
874,389 1,109,645 2,504,776 2,927,838
Income (loss) from operations
121,268 (439,300 ) 842,256 (626,229 )
Other income (expense)
Interest expense, net
(81,934 ) (50,137 ) (105,869 ) (90,073 )
Loss on debt extinguishment
- - (57,502 ) -
Realized gain on sale of marketable securities
- (3,435 ) - 1,382
Other expense, net
(81,934 ) (53,572 ) (163,371 ) (88,691 )
Income before income taxes expense
39,334 (492,872 ) 678,885 (714,920 )
Income tax expense (benefit)
7,745
- (52,122 ) -
Net income (loss)
$ 31,589 $ (492,872 ) $ 731,007 $ (714,920 )
Net income (loss) per common share - basic
$ 0.00 $ (0.01 ) $ 0.02 $ (0.02 )
Weighted average common shares - basic
39,499,702
38,215,054
38,696,586
38,215,054
Net income (loss) per common share - diluted
$ 0.00 $ (0.01 ) $ 0.02 $ (0.02 )
Weighted average common shares - diluted
39,615,792
38,215,054
38,839,722
38,215,054
Management Discussion and Analysis
Revenue increased by approximately 21% to $2,709,066 during the three months ended September 30, 2014, from $2,238,832 during the corresponding three months ended September 30, 2013. The increase in revenue was primarily due to an increase in the number of professional service projects and contracts that we had with our current clients as well as with newly added clients. We continue to expand our services being offered and our sales and marketing efforts continue to lend to our ability to win more business. The relevance of our service offerings in today’s market as well as our focus on growth, continues to drive increases in our client base and sales results.
For the foregoing reasons, we had net income of $31,589 for the three months ended September 30, 2014, or $0.00 per share (basic and diluted), as compared to a net loss of $492,872 for the three months ended September 30, 2013, or ($0.01) per share (basic and diluted).
Auditor trail
Item 4.01 Changes in Registrant’s Certifying Accountant.
As previously disclosed in the Company's Current Report filed on Form 8-K dated October 1, 2014 (the “Exchange 8-K”), the Company completed a share exchange (the “Exchange”) on September 29, 2014 with Six Dimensions, Inc. (“OldCo”) and disposed of the Company’s former business and assets (the “Prior Business and Assets”). The foregoing description of the Exchange does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Exchange 8-K and is incorporated herein by reference.
During the years ended December 31, 2012 and 2013, and during the interim period from the end of the most recently completed fiscal year through October 22, 2014, the date of engagement of BDO as the Company’s independent registered public accounting firm, the Company did not consult with BDO on (i) the application of accounting principles to a specific transaction, either completed or proposed, (ii) the type of audit opinion that may be rendered on the Company’s financial statements or (iii) any matter that either was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of SEC Regulation S-K, or a “reportable event,” within the meaning of Item 304(a)(1)(v) of SEC Regulation S-K.
Following the engagement of BDO, on October 24, 2014, the Company notified independent registered public accounting firm Goldman Kurland & Mohidin LLP (“GKM”), who had been the independent registered accounting firm of CleanTech Innovations, Inc. (the Company’s predecessor and the legal acquiror under the Exchange), that it had been dismissed as the Company’s independent registered public accounting firm. The dismissal of GKM was approved by the Audit Committee of the Company’s board of directors.
The report of GKM on the Company’s consolidated financial statements for the fiscal years ended December 31, 2012 and 2013 raised substantial doubt about the Company’s ability to continue as a going concern with respect to the Company's Prior Business and Assets, noting that the Company had insufficient revenues to cover its operating costs and repay its indebtedness. The reports of GKM regarding the Company’s financial statements for the fiscal years ended December 31, 2012 and 2013 did not contain any other adverse opinion or disclaimer of opinion and were not otherwise qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2012 and 2013, and during the interim period from the end of the most recently completed fiscal year through October 24, 2014, the date of dismissal, there were no disagreements with GKM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of GKM, would have caused it to make reference to such disagreement in its reports and no “reportable events” within the meaning of Item 304(a)(1)(v) of SEC Regulation S-K.
The Company provided GKM with a copy of this Current Report on Form 8-K prior to its filing with the Securities and Exchange Commission and requested that GKM furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. A copy of the letter, dated October 27, 2014, is filed as Exhibit 16.1 to this Current Report on Form 8-K.
The report of Li & Co. on OldCo’s consolidated financial statements for the fiscal years ended December 31, 2012 and 2013 raised substantial doubt about OldCo’s ability to continue as a going concern, noting that OldCo had an accumulated deficit at December 31, 2013, a net loss and net cash used in operating activities for the year then ended. The reports of independent registered public accounting firm Li & Co. regarding OldCo’s financial statements for the fiscal years ended December 31, 2012 and 2013 did not contain any other adverse opinion or disclaimer of opinion and were not otherwise qualified or modified as to uncertainty, audit scope or accounting principles.
The Company provided each of Marcum and Li & Co. with a copy of this Current Report on Form 8-K prior to its filing with the Securities and Exchange Commission and requested that each of Marcum and Li & Co. furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. A copy of the letter from Marcum, dated October 27, 2014, is filed as Exhibit 16.2 to this Current Report on Form 8-K, and a copy of the letter from Li & Co., dated October 24, 2014, is filed as Exhibit 16.3 to this Current Report on Form 8-K.
Deal Flow
Item 1.01 Entry into a Material Definitive Agreement
On September 29, 2014, in connection with the Exchange, the Company completed a private placement equity offering (the “Private Placement”) to accredited investors (the “Purchasers”). Pursuant to the Private Placement, the Company raised $4,556,100 in gross proceeds, of which $3,562,500 was placed by the Placement Agent (as hereinafter defined) and $993,600 was a direct offering by the Company, and issued 2,201,015 shares of Common Stock to the Purchasers thereunder.
Debt Conversion
The securities issued in the Private Placement and pursuant to the Debt Conversion Agreement are intended to be exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D and/or Regulation S promulgated thereunder because, among other things, (i) the transaction did not involve a public offering, (ii) the investors are accredited investors, (iii) the investors took the securities for investment and not resale and (iv) the Company took appropriate measures to restrict the transfer of the securities.
The foregoing description of the terms of the Debt Conversion Agreement is qualified in its entirety by reference to the provisions of the Debt Conversion Agreement, a copy of which is attached hereto as Exhibit 10.1 and is incorporated herein by reference. Additional information about the Exchange, the Private Placement and the debt conversion was provided in the Company’s Schedule 14C Information Statement filed on September 4, 2014 (the “Information Statement”), and all such information is incorporated herein by reference.
Notable Share Transactions
Share Exchange
· The Company converted from a Nevada corporation to a Delaware corporation under the name 6D Global Technologies, Inc., as disclosed below.
· The Company’s Articles of Incorporation were amended to change the Company’s authorized capital stock to 160,000,000 of which 150,000,000 shares are designated Common Stock par value $0.00001 and 10,000,000 shares are designated Preferred Stock, par value $0.00001.
· All of the outstanding capital stock of Six Dimensions was exchanged for 38,664,871 newly issued shares of the Company’s Common Stock that were issued to Six Dimensions shareholders.
Item 5.01 Changes in Control of the Registrant
Share Structure
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
one (1)-for-two and three-tenths (2.3) reverse stock split (the “Reverse Split”) of the authorized and issued and outstanding shares of its common stock, par value $0.00001 per share (the “Common Stock”). Pursuant to the Certificate of Change, the Reverse Split will become effective at 5:00 a.m. Eastern Standard Time on September 25, 2014 (the “Effective Time”).
The Reverse Split was duly approved by the Board of Directors of the Company without shareholder approval, in accordance with the authority conferred by Section 78.207 of the Nevada Revised Statutes. At the Effective Time, the Company’s Articles of Incorporation will also be deemed amended and the authorized number of shares of Common Stock will accordingly decrease from sixty-six million, six hundred sixty-six thousand, six hundred sixty-seven (66,666,667) shares to twenty-eight million, nine hundred eighty-five thousand, five hundred seven (28,985,507) shares.
Investor Alert
Item 8.01. Other Events
On September 8, 2014, CleanTech Innovations, Inc. (the “Company”) received a written decision from The NASDAQ Stock Market LLC (“NASDAQ”) indicating that the NASDAQ Hearings Panel (the “Hearings Panel”) had determined to maintain the listing of the Company’s common stock on the NASDAQ until December 5, 2014.
The decision is subject to the Company closing, by December 5, 2014, the proposed business combination (the “Merger”) with Six Dimensions, Inc. (“Six Dimensions”). The proposed details of the Merger were previously disclosed in the Company’s Form 8-K filed on June 17, 2014 and Schedule 14C Information Statement filed on September 4, 2014, which had cleared SEC staff comments.
If the Merger closes prior to December 5, 2014, the Listing Qualifications Staff (the “Staff”) of The NASDAQ will determine whether the resulting post-Merger entity, 6D Global Technologies, Inc., meets all initial listing standards. If the Staff determines that 6D Global Technologies, Inc. qualifies for initial listing, 6D Global Technologies, Inc. will continue its NASDAQ listing pursuant to the terms of the Staff’s approval. If 6D Global Technologies, Inc. does not meet listing standards, the Staff will issue a Staff Delisting Determination and begin delisting proceedings.
Investor Alert
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
The August 20, 2014 letter also stated that in a letter dated June 30, 2014, NASDAQ informed the Company that it no longer complied with NASDAQ Listing Rules 5605(b)(1), 5605(c)(2), 5605(d)(2) and 5605(e)(1) regarding NASDAQ’s corporate governance standards. NASDAQ granted the Company a period of 45 calendar days, until August 14, 2014, to submit a plan to regain compliance.
As disclosed in the Company’s Form 8-K filed on June 17, 2014, the Company, Initial Koncepts, Inc., d/b/a Six Dimensions (“Six Dimensions”), and the shareholders of Six Dimensions entered into an Agreement and Plan of Share Exchange on June 13, 2014, pursuant to which, subject to certain conditions, the Company will acquire all of the shares of Six Dimensions’ common stock in exchange for shares of the Company’s common stock and Six Dimensions will become a wholly-owned subsidiary of the Company (the “Merger”). Once the Merger has been consummated, the Company anticipates that its Board of Directors will form committees and adopt related committee charters in compliance with NASDAQ listing standards, including an audit committee, corporate governance and nominations committee and compensation committee.
NASDAQ’s delisting determination will not immediately result in the delisting of the Company’s common stock. Pursuant to the Delisting Determination letter NASDAQ sent the Company on August 4, 2014, and as disclosed in the Company’s Form 8-K filed on August 8, 2014, a hearing before the NASDAQ Hearings Panel (the “Hearings Panel”) is scheduled for September 4, 2014. NASDAQ has instructed the Company to address these additional matters to the Hearings Panel at this time.
Under NASDAQ rules, the suspension of trading and delisting of the Company’s securities will be stayed during the pendency of the appeal. The Company’s common stock will continue to list on The NASDAQ Capital Market while such appeal is pending. However, there can be no assurance that the NASDAQ Hearings Panel will grant the Company’s request for continued listing.
Comments & Business Outlook
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2014 AND 2013
(UNAUDITED)
Six Months ended June 30,
Three Months ended June 30,
2014
2013
2014
2013
Net sales
$ - $ - $ - $ -
Cost of goods sold
- - - -
Gross profit
- - - -
Operating expenses
General and administrative
330,035 - 357,833 -
Total operating expenses
330,035 - 357,833 -
Loss from operations
(330,035 ) - (357,833 ) -
Non-operating income (expenses)
Interest expense
(444,515 ) (941,077 ) (222,719 ) (599,104 )
Total non-operating expenses
(444,515 ) (941,077 ) (222,719 ) (599,104 )
LOSS FROM CONTINUING OPERATIONS
(774,550 ) (941,077 ) (580,552 ) (599,104 )
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
(452,974 ) (1,342,692 ) (1,097,928 ) (774,824 )
LOSS ON DISPOSAL OF SUBSIDIARIES
(10,711,186 ) - (10,711,186 ) -
Net loss
(11,938,710 ) (2,283,769 ) (12,389,666 ) (1,373,928 )
Foreign currency translation gain
- 601,097 - 507,690
Comprehensive loss
$ (11,938,710 ) $ (1,682,672 ) $ (12,389,666 ) $ (866,238 )
Basic and diluted weighted average shares outstanding
7,766,672 8,327,607 7,211,900 8,327,607
Basic and diluted loss per share from continuing operations
$ (0.10 ) $ (0.11 ) $ (0.08 ) $ (0.07 )
Basic and diluted loss per share from discontinued operations
$ (1.44 ) $ (0.16 ) $ (1.64 ) $ (0.09 )
Basic and diluted loss per share
$ (1.54 ) $ (0.27 ) $ (1.72 ) $ (0.16 )
Management Discussion and Analysis
NET LOSS
Net loss for the three months ended June 30, 2014 was $12.39 million compared to net loss of $1.37 million for the same period of 2013. The increase in net loss was mainly due to the increased operating expenses of our U.S. parent company, increased operating loss from our China Subsidiaries, despite the fact that we had less interest expense for the three months ended June 30, 2014.
Investor Alert
Item 3.01.Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
NASDAQ’s delisting determination will not immediately result in the delisting of the Company’s common stock. The Company has appealed the delisting determination and a hearing before the NASDAQ Hearing Panel is scheduled for September 4, 2014. Under NASDAQ rules, the delisting of the Company’s common stock will be stayed during the pendency of the appeal. The Company’s common stock will continue to list on the NASDAQ Capital Market while such appeal is pending. However, there can be no assurance that the NASDAQ Hearing Panel will grant the Company’s request for continued listing.
Investor Alert
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
The deficiency letter states that the Registrant has until August 14, 2014 (the “Compliance Deadline”) to submit a plan to regain compliance. If NASDAQ accepts the plan of compliance, it can grant an extension of up to 180 calendar days from June 30, 2014 (until December 27, 2014) for the Registrant to evidence compliance. The Registrant intends to submit a plan to regain compliance or to regain compliance in advance of the Compliance Deadline.
These deficiencies are the result of the resignations, effective June 11, 2014, of Bei Lu, Dianfu Lu, Shuyan Liu and Zili Zhao from the Registrant’s Board of Directors (the “Board”) as previously disclosed in the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on June 16, 2014.
Also, as previously disclosed by the Registrant in the Registrant’s Current Report on Form 8-K filed with the SEC on June 17, 2014, upon completion of the contemplated agreement and plan of share exchange between the Registrant and Initial Koncepts, Inc. d/b/a Six Dimensions (the “Exchange Agreement”), it is anticipated that the Board will be reconstituted to consist of five directors, including four who are independent, and that the Registrant will otherwise regain compliance with the above-referenced NASDAQ Listing Rules.
The Registrant has filed a Certificate of Change pursuant to Section 78.209 of the Nevada Revised Statutes (the “Certificate of Change”) with the Secretary of State of the State of Nevada to effect a one (1)-for-three (3) reverse stock split (the “Reverse Split”) of the authorized and issued and outstanding shares of the common stock, par value $0.00001 per share, of the Registrant (the “Common Stock”). Pursuant to the Certificate of Change, the Reverse Split will become effective at 5:00 a.m. Eastern Standard Time on July 14, 2014 (the “Effective Time”).
The Reverse Split was duly approved by the Board of Directors of the Registrant without shareholder approval, in accordance with the authority conferred by Section 78.207 of the Nevada Revised Statutes. At the Effective Time, the Registrant’s Articles of Incorporation will also be deemed amended and the authorized number of shares of the Registrant’s Common Stock will accordingly decrease from two hundred million (200,000,000) shares to sixty-six million, six hundred and sixty-six thousand, six hundred and sixty-seven (66,666,667) shares.
Pursuant to the Certificate of Change, holders of the Registrant’s Common Stock will be deemed to hold one (1) post-split share of the Registrant’s Common Stock for every three (3) shares of the Registrant’s issued and outstanding Common Stock held immediately prior to the Effective Time. No fractional shares of the Registrant’s Common Stock will be issued in connection with the Reverse Split. Stockholders who are entitled to a fractional post-split share will receive in lieu thereof one (1) whole post-split share. In addition, the shares to be exchanged pursuant to the Exchange Agreement will be adjusted to reflect the Reverse Split.
Reverse Merger Activity
On June 13, 2014, CleanTech Innovations, Inc., a Nevada corporation (the “Registrant”), entered into an Agreement and Plan of Share Exchange (the “Merger Agreement”) with Initial Koncepts, Inc. d/b/a Six Dimensions (www.sixdimensions.com), a California Corporation (“Newco”) and the shareholder of Newco, Mr. Tejune Kang, founder and CEO, who is an American technology executive born and raised in the Silicon Valley, California (the “Newco Shareholder”), pursuant to which, subject to certain conditions, Newco will become a wholly-owned subsidiary of the Registrant (the “Merger”).
Pursuant to the terms of the Merger Agreement, the Registrant will acquire all of the shares of Newco (the “Newco Shares”) from the Newco Shareholder solely in exchange for 266,787,609 newly issued shares of the Registrant’s common stock (the “Exchange Shares”). At the effective time of the Merger (the “Closing”), the Exchange Shares will be issued to the Newco shareholders on a pro rata basis, in proportion to the ratio that the number of Newco Shares held by the Newco shareholders bear to the pro rata portion of Newco Shares held by all the holders of shares of Newco as of the Closing. It is anticipated that upon completion of the Merger and the issuance of the Exchange Shares, the current stockholders of Newco will own approximately 50% of the then outstanding shares of the Registrant’s common stock and the then-current holders of the outstanding common stock of the Registrant will own the balance.
Corporate Structure Info.
Item 1.01. Entry into a Material Definitive Agreement.
On June 11, 2014, Cleantech Innovations, Inc. (the “Registrant”) entered into a Divesture and Exchange Agreement (the “Exchange Agreement”) with certain controlling shareholders of the Registrant, including Ping Chen, Shengfen Lin, Wenge Chen, Bei Lu and Dianfu Lu (collectively, the “Controlling Shareholders”). Bei Lu and Dianfu Lu were also officers and directors of the Registrant. The Controlling Shareholders collectively own 15,229,403 shares of the Registrant’s common stock (the “Controlling Shares”), or 61.0% of the total number of the Registrant’s outstanding shares.
Pursuant to the Exchange Agreement, the Controlling Shareholders agree to transfer all of the Controlling Shares to the Registrant in exchange for the transfer by the Registrant of its wholly owned Chinese subsidiary, Liaoning Creative Bellows Co., Ltd. (“Creative Bellows”), to the Controlling Shareholders or their designees. Creative Bellows wholly owns Lianoning Creative Wind Power Equipment Co., Ltd., a Chinese corporation which, together with Creative Bellows (the “China Subsidiaries”), represents all of the Registrant’s China-based business.
The Exchange Agreement is subject to various conditions, including that the Controlling Shares and the Registrant’s ownership interests in Creative Bellows (the “Subsidiary Interests”) be deposited into and held in escrow pursuant to the terms of a separately-executed Escrow Agreement (the “Escrow Agreement”). The release of the Controlling Shares and the Subsidiary Interests and consummation of the Exchange Agreement is further subject to the requirement that the Registrant promptly form a wholly owned British Virgin Islands corporation (the “BVI Subsidiary”). Upon formation of the BVI Subsidiary, the Registrant is required to effectuate the transfer of the Subsidiary Interests to the BVI Subsidiary followed by its transfer of all of the Registrant’s ownership interest in the BVI Subsidiary to the Controlling Shareholders. With respect to the contemplated transfer of the Controlling Shares to the Registrant, each Controlling Shareholder has executed and delivered an irrevocable proxy to Mr. Terry McEwen, formerly the Chairman of the Registrant’s Audit Committee and now the Registrant’s interim Chairman of the Board and Chief Executive Officer. As such, Mr. McEwen now has the authority to vote the Controlling Shares in his discretion. The Exchange Agreement is also subject to customary representations and warranties of the parties and provides for cross-indemnification in the case of certain liabilities to either party.
Comments & Business Outlook
CLEA NTECH INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended December 31,
2013
2012
Net sales
$ 5,894,264 $ 4,821,340
Cost of goods sold
8,062,625 3,972,934
Gross profit (loss)
(2,168,361 ) 848,406
Operating expenses
Selling
840,239 336,712
General and administrative
2,018,818 2,495,498
Bad debt
7,911,884 4,203,145
Total operating expenses
10,770,941 7,035,355
Loss from operations
(12,939,302 ) (6,186,949 )
Non-operating income (expenses)
Interest income
730 6,073
Interest expense
(3,635,046 ) (1,322,278 )
Subsidy income
- 171,089
Other income
610,759 290,830
Other expenses
(468,461 ) (259,576 )
Total non-operating expenses, net
(3,492,018 ) (1,113,862 )
Loss before income tax
(16,431,320 ) (7,300,811 )
Income tax expense
- -
Net loss
(16,431,320 ) (7,300,811 )
Foreign currency translation gain
1,001,556 76,076
Comprehensive loss
$ (15,429,764 ) $ (7,224,735 )
Basic and diluted weighted average shares outstanding
24,982,822 24,982,822
Basic and diluted loss per share
$ (0.66 ) $ (0.29 )
Management Discussion and Analysis
NET SALES
Net sales for the year ended December 31, 2013 increased to $5.89 million from $4.82 million for the comparable period of 2012, an increase of $1.07 million or 22%. Net sales for the year ended December 31, 2013, consisted of $0.85 million in sales of bellows expansion joints, $3.32 million in sales of pressure vessels, $1.06 million in sales of wind towers, and $0.67 million in other sales. Net sales for the comparable period of 2012 consisted of $0.82 million in sales of bellows expansion joints, $3.58 million in sales of pressure vessels and $0.42 million in other sales. The increase was due to the sale of wind tower projects for $1.06 million in the year ended December 31, 2013 while we only had $165 sales in wind tower accessories in the comparable period of 2012. Our ability to raise capital to finance our already signed wind tower contracts has proven impossible in 2012 since a decision by the NASDAQ Listing Qualifications Department in January 2011 to delist our common stock. However, on July 11, 2013, the SEC reversed the 2011 delisting of the Company’s stock on the NASDAQ Stock Market, LLC, and ordered the Company’s stock listed on the NASDAQ Stock Market. We hope we can reconnect to the capital market and raise capital to support our winder tower operations as a result of SEC decision of ordering our stock listed on the NASDAQ Stock Market. We re-launch the sales of wind tower projects in 2013 was a positive reaction from our customers as a result of SEC decision of ordering our stock listed on the NASDAQ Stock Market.
Net loss for the year ended December 31, 2013 was $16.43 million compared to net loss of $7.30 million for the 2012 period. Net loss as a percentage of net sales for the year ended December 31, 2013 was 279% compared to 151% for the 2012 period. The increase in net loss was attributable to increased bad debt provision and inventory impairment provision.
Deal Flow
Item 1.02 Entry into a Material Definitive Agreement.
On August 17, 2013 CleanTech Innovations, Inc., or the “Company,” entered into a promissory note with NYGG(Asia) for a line of credit of up to $10 million. The loan amount will be disbursed from time to time as directed in writing by the lender as advances to the Company to pay expenses that are approved by the lender. The applicable interest rate for this line of credit is 3% during the first six months following each advance, and 0% thereafter, to be paid on the first day of each month. The promissory note carries a default interest rate of 24% per annum.
The foregoing summary of the promissory note does not purport to be complete and is qualified in its entirety by reference to the full text of the promissory note executed by the Company which is attached hereto as Exhibit 10.29.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01, “Entry into a Material Definitive Agreement,” is incorporated herein by reference.
Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement.
On December 13, 2010, the Company entered into a loan with NYGG(Asia) for $10 million. The loan bore interest of 10% payable in advance at the beginning of each quarter with a maturity of March 1, 2012. The loan was amended to mature on March 1, 2013, and to decrease the interest rate to 8.5%, effective March 1, 2012, payable quarterly in advance. The Company defaulted on the loan on March 1, 2013. The Company will accrued interest, from the date of the default, at the lesser of 24% or the maximum permissible legal amount. After August 13, 2013, the interest rate on the $10 million loan will be 8.5%.
Investor Alert
SHENYANG, China, July 29, 2013 /PRNewswire / -- CleanTech Innovations, Inc. ("CleanTech") (Nasdaq: CTEK - News), today announced that the company has received a favorable decision from the U.S. Securities Exchange Commission (SEC), setting aside the wrongful 2011 delisting of CleanTech common stock by the NASDAQ Stock Market. In a decision on July 11, 2013, the SEC found that the record did not support allegations made by NASDAQ against CleanTech. NASDAQ relisted CleanTech on the NASDAQ Stock Market as a result of the decision.
CleanTech is an innovative, U.S-registered public company engaged in the design and manufacture of five-hundred-foot steel towers to support turbines for wind energy. In July 2010, CleanTech retained licensed attorneys, auditors and broker-dealers to assist the company in going public through a reverse merger. CleanTech applied for the listing on NASDAQ at that time and passed all financial standards for NASDAQ listing.
In August 2010, the NASDAQ listing staff raised questions with CleanTech about the company. NASDAQ conducted a thorough review, including statements from involved parties, interviews, and hundreds of pages of correspondence between CleanTech and its U.S. law firms, which CleanTech voluntarily provided after NASDAQ insisted that CleanTech waive its attorney-client privilege.
After reviewing hundreds of pages of emails and other documents, NASDAQ approved the CleanTech stock listing on December 10, 2010. The listing approval was unqualified. Only a month later, in January 2011, NASDAQ acted to delist CleanTech citing a lack of disclosure even though the company had complied with all NASDAQ requests for information.
CleanTech then asked the NASDAQ Listing and Hearing Review Council to review the delisting decision. On May 19, 2011, the Hearing Review Council remanded the delisting decision back to the NASDAQ Listing Qualifications Panel because it found that the record lacked sufficient fact and detail on issues critical to the NASDAQ decision to delist CleanTech. On May 26, 2011, the decision of the Hearing Review Council was stayed, however, based on the NASDAQ claim that CleanTech's email submission of its delisting appeal brief to the NASDAQ constituted an unallowed "ex parte communication." CleanTech had followed both the instruction of the NASDAQ Law Department and widely accepted appellate procedures in submitting the brief.
Former Senator Arlen Specter accepted legal representation of CleanTech, citing a "terrible miscarriage of justice" by NASDAQ. In December 2011, Specter advised CleanTech and brought a lawsuit alleging that NASDAQ violated CleanTech's rights to due process. The suit was later dismissed on procedural grounds, with the court leaving it to the SEC to first evaluate these and other claims.
Company Rebuttal
Our ability to raise capital to finance our already signed wind tower contracts has proven impossible since a decision by the NASDAQ Listing Qualifications Department in January 2011 to delist our common stock. We believe the delisting decision constituted: (i) an abuse of NASDAQ’s discretionary authority, (ii) disregard of attorney client privilege, (iii) breach of NASDAQ’s listing rules as approved by the SEC, and (iv) material procedural unfairness. NASDAQ’s staff subjectively determined the economic fairness of the terms of an institutional financing transaction entered into during turbulent market times, which terms we believe were more favorable compared to similar transactions entered into at the same time, and which we fully disclosed in our current reports and registration statements filed with the SEC. We believe NASDAQ’s delisting decision caused irreparable harm to our operations, our reputation and our shareholders. It has also negatively impacted our ability to execute on already announced and signed contracts and as a result, we have had no choice but to transfer fulfillment of certain contracts to third parties and lose such related revenues. We are continuing our appeal of NASDAQ Listing Qualifications determination to delist the Company’s common stock to the SEC.
Comments & Business Outlook
CLEANTECH INNOVATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS INCOME AND COMPREHENSIVE INCOME (LOSS)
2012
2011
Net sales
$ 585,856 $ 3,932,665
Cost of goods sold
392,458 2,859,117
Gross profit
193,398 1,073,548
Operating expenses
Selling
74,817 289,892
General and administrative
2,303,339 607,231
Total operating expenses
2,378,156 897,123
Income (loss) from operations
(2,184,758 ) 176,425
Non-operating income (expense)
Interest income
3,102 10,105
Interest expense
(395,880 ) (327,019 )
Other income
3,853 4,472
Other expenses
(7,530 ) (12,582 )
Subsidy income
- 800,111
Total non-operating income (expense), net
(396,455 ) 475,087
Income (loss) before income tax
(2,581,213 ) 651,512
Income tax expense
- (153,385 )
Net income (loss)
(2,581,213 ) 498,127
Foreign currency translation gain
39,998 397,097
Comprehensive Income (loss)
$ (2,541,215 ) $ 895,224
Basic weighted average shares outstanding
24,982,822 24,971,019
Diluted weighted average shares outstanding
24,982,822 25,216,184
Basic earnings (loss) per share
(0.10 ) 0.02
Diluted earnings (loss) per share
(0.10 ) 0.02
Net sales for the three months ended March 31, 2012 decreased to $0.59 million from $3.93 million for the comparable period of 2011, a decrease of $3.35 million or 85.1%. Net sales for the three months ended March 31, 2012, consisted of $0.46 million in sales of bellows expansion joints, $0.08 million in sales of pressure vessels and $0.05 million in other sales. Net sales for the comparable period of 2011 consisted of $3.47 million in sales of wind towers and $0.46 million in sales of bellows expansion joints. The decrease in total net sales was attributable to certain of our wind tower projects being delayed in 2011 and the lack of new orders for our wind towers due to the PRC government’s decision to slow wind farm construction. In addition, the first quarter is typically the off-season for wind tower sales, which have been the Company’s primary product. January and February are also considered the holiday season in China, and the general slowing of the Chinese economy during these months, have affected many industries in China negatively. We currently believe the delays and our decrease in wind tower sales is a temporary condition while we seek additional capital to finance completion of wind tower contracts which were scheduled for completion from 2011
Investor Alert
On February 21, 2012, CleanTech Innovations, Inc., or the Company,
decided not to appeal the dismissal of the Company’s suit against the NASDAQ Stock Market, LLC and NASDAQ OMX Group to the Second Circuit Court of Appeals. The Company will continue its appeal of NASDAQ Listing Qualifications determination to delist the Company’s common stock to the Securities and Exchange Commission.
Investor Alert
On January 31, 2012, the United States District Court for the Southern District of New York
dismissed CleanTech Innovations, Inc.’s
suit against the NASDAQ Stock Market, LLC and NASDAQ OMX Group on the basis of a lack of federal subject matter jurisdiction. The Company currently plans to appeal to the Second Circuit Court of Appeals.
Investor Alert
CTEK has filed for a temporary injunctive relief against NASDAQ from being delisted. The GeoTeam finds it peculiar that although they constantly refer to a consultant in their complaint, that this consultant is never named. Here is the full document.
On January 5, 2012, CleanTech Innovations, Inc., or the Company, filed an amended complaint in the United States District Court for the Southern District of New York against the NASDAQ Stock Market, LLC and NASDAQ OMX Group, referred to collectively as NASDAQ, attached hereto as Exhibit 99.13. The complaint is based partly on NASDAQ Listing Qualifications Staff’s extensive discriminatory and racially biased remarks captured on testimony records. The Company alleges in the complaint that NASDAQ engaged in racially-motivated discriminatory acts and policies against the Company in connection with the determination of the NASDAQ Listing Qualifications Department, led by Michael Emen, NASDAQ Senior Vice President and head of Listing Qualifications, under its so called “broad discretionary authority” to delist the Company’s common stock for engaging in a fully disclosed financing transaction negotiated at arm’s length with Chinese institutional investors. The Company further alleges that NASDAQ’s discriminatory actions and racist remarks made by Michael Emen resulted in a violation of the Company’s equal protection rights under the United States Constitution, amounted to selective prosecution and intentionally breached the Company’s attorney-client privilege. The Company is seeking a permanent injunction enjoining NASDAQ from using its discriminatory policies against the Company and is also seeking at least $300 million in monetary damages. The Company is represented by former United States Senator Arlen Specter, Esq., former Chairman of the United States Senate Committee on the Judiciary, and Fensterstock & Partners LLP in this action.
On January 8, 2012, The China LiaoNing Provincial Government Small and Medium Enterprises Bureau, a major provincial government regulatory agency, sent official letters to The United States Department of Commerce and The Office of the United States Trade Representative, expressing the agency’s grave concerns regarding the racially-motivated discriminatory acts of NASDAQ against the Company and the resulting damage to the Company and China-U.S. business and trade relations. The English translations of the official letters are attached as Exhibit 99.14.
Excerpt from letter:
We have been deeply troubled that officials within the Nasdaq Stock Market (“Nasdaq”) have acted in a racist manner that has been discriminatory against CleanTech Innovations, Inc. (“CleanTech”), a well-respected company located in our province. We know CleanTech very well and it enjoys an excellent reputation, widely regarded as a leading wind tower manufacturer serving the clean energy industry. We understand from its founder and Chairman, Ms. Bei Lu, that CleanTech fully complies with all Nasdaq listing requirements and has never violated any U.S. securities laws, however was delisted based upon arbitrary and capricious decisions by the Staff of Nasdaq simply because CleanTech is a China based company. Due to such unjustified delisting, CleanTech has lost more than $200 million in shareholders’ value; its good name and reputation have been unfairly tarnished which has caused direct harm to our local economy due to CleanTech’s customer concerns and loss of customer orders. CleanTech’s tarnished reputation associated with the Nasdaq delisting has caused CleanTech irreparable harm and inability to raise any capital in any global capital markets in the world. This has prevented CleanTech from participating in a $100 million job-creating project in New Jersey, part of the “Select USA” program supported and advocated personally by President Obama and the Administration.
Investor Alert
we seek additional capital to finance completion of wind tower contracts which had been scheduled for completion in 2011. Our ability to raise capital from the capital markets to finance our already signed wind tower supply contracts has proven impossible since a decision by the NASDAQ Listing and Hearing Review Council in January 2011 to delist our common stock. That decision is currently before the Board of Directors of NASDAQ. Should the decision be made final by the Board, we have prepared an appeal to the SEC since we believe the Council decision was unwarranted, improper and excessive.
The delisting decision has caused irreparable harm to our operations , our reputation and our shareholders. It has also negatively impacted our ability to execute on already announced and signed contracts and as a result, we had no choice but to transfer fulfillment of certain contracts to third parties and lose such related revenues.
Comments & Business Outlook
THREE MONTHS ENDED SEPTEMBER 30,
2011
2010
2011
2010
Net sales
$ 15,949,664 $ 14,739,702 $ 5,825,720 $ 13,056,465
Cost of goods sold
11,979,772 10,519,685 4,211,809 9,324,522
Gross profit
3,969,892 4,220,017 1,613,911 3,731,943
Operating expenses
Selling
1,011,944 207,756 393,395 100,321
General and administrative
1,758,983 804,446 650,311 440,053
Total operating expenses
2,770,927 1,012,202 1,043,706 540,374
Income from operations
1,198,965 3,207,815 570,205 3,191,569
Non-operating income (expenses)
Interest income
16,752 5,436 2,379 2,088
Interest expense
(991,165 ) (264,162 ) (331,910 ) (50,576 )
Other income
7,150 - 1,287 -
Other expenses
(105,214 ) (59,258 ) (79,407 ) (15,797 )
Subsidy income
1,049,648 1,009,940 51,759 2,644
Total non-operating income (expenses), net
(22,829 ) 691,956 (355,892 ) (61,641 )
Income before income tax
1,176,136 3,899,771 214,313 3,129,928
Income tax expense
(418,530 ) (996,785 ) (159,640 ) (808,059 )
Net Income
757,606 2,902,986 54,673 2,321,869
Foreign currency translation gain
1,671,051 395,594 750,211 351,325
Comprehensive Income
$ 2,428,657 $ 3,298,580 $ 804,884 $ 2,673,194
Basic weighted average shares outstanding
24,978,902 17,447,008 24,982,822 22,021,207
Diluted weighted average shares outstanding
25,067,819 17,609,141 24,982,822 22,502,319
Basic earnings per share
$ 0.03 $ 0.17 $ 0.00 $ 0.11
Diluted earnings per share
$ 0.03 $ 0.16 $ 0.00 $ 0.10
The increase in total net sales was attributable to our continued increase in sales of high grade pressure vessels, which have experienced increased demand in the China market in 2011, and the resale of certain raw materials. We believe the decrease in wind towers sales is a temporary condition while we seek additional capital to finance completion of wind tower contracts which had been scheduled for completion in 2011. Our ability to raise capital from the capital markets to finance our already signed wind tower supply contracts has proven impossible since a decision by the NASDAQ Listing and Hearing Review Council in January 2011 to delist our common stock. That decision is currently before the Board of Directors of NASDAQ. Should the decision be made final by the Board, we have prepared an appeal to the SEC since we believe the Council decision was unwarranted, improper and excessive. The delisting decision has caused irreparable harm to our operations, our reputation and our shareholders. It has also negatively impacted our ability to execute on already announced and signed contracts and as a result, we had no choice but to transfer fulfillment of certain contracts to third parties and lose such related revenues.
CFO Trail
On September 20, 2011, CleanTech Innovations, Inc. (the “Company”) promoted Mr. Sheng Ma, the Company’s Accounting Supervisor, to the position of Chief Financial Officer, replacing Ms. Nan Liu,
who voluntarily resigned , effective September 20, 2011. The Company thanks Ms. Liu for her services and notes that Ms. Liu is not resigning because of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Comments & Business Outlook
Previously released 2011 first quarter financial results :
CLEANTECH INNOVATIONS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)
2011
2010
Net sales
$ 3,932,665 $ 232,118
Cost of goods sold
2,859,117 112,567
Gross profit
1,073,548 119,551
Operating expenses
Selling
289,892 53,978
General and administrative
607,231 162,468
Total operating expenses
897,123 216,446
Income (loss) from operations
176,425 (96,895 )
Non-operating income (expense)
Interest income
10,105 3,341
Interest expense
(327,019 ) (103,986 )
Other income
4,472 -
Other expenses
(12,582 ) (42,376 )
Subsidy income
800,111 373,229
Total non-operating income
475,087 230,208
Income before income tax
651,512 133,313
Income tax expense
(153,385 ) (38,160 )
Net Income
498,127 95,153
Foreign currency translation
397,097 1,374
Comprehensive Income
$ 895,224 $ 96,527
Basic weighted average shares outstanding
24,971,019 15,122,000
Diluted weighted average shares outstanding
25,216,184 15,122,000
Basic earnings per share
$ 0.02 $ 0.01
Diluted earnings per share
$ 0.02 $ 0.01
2011 Order Backlog :
CleanTech has signed contracts and received orders totaling more than $50 million (including VAT tax) for the delivery of our wind tower products in 2011 to various wind energy companies in China. CleanTech anticipates fulfilling these orders, as well as potentially receiving new orders, in 2011.
Management Comments:
Bei Lu, Chairman & CEO of CleanTech, commented: "CleanTech is very pleased with our first quarter financial results in what is normally the slowest seasonal quarter each year. Our strongest quarters typically are the second half of each year. During the first quarter, we noticed strong customer demand for wind towers. Our product quality is excellent and we also have expanded our production capacity. We anticipate the positive market trend to continue throughout 2011.”
Business Outlook
Ms. Lu continued: “Since the recent nuclear crisis in Japan, China has put a greater sense of urgency into expanding its wind energy industry through funding and other financial support. We believe the current favorable market environment for the wind energy industry in China has presented the best historical opportunity for a wind energy equipment supplier like CleanTech to expand further. CleanTech is in an excellent position to potentially win additional wind tower supply contracts in 2011 from China’s largest energy companies.”
3-Year Share Lockup, Total Commitment to CleanTech’s Long-Term Shareholders
Investor Alert
On February 28, 2011, CleanTech Innovations, Inc. received notification that the NASDAQ Listing Qualifications Panel had determined to delist the Company’s securities from The NASDAQ Stock Market (“NASDAQ”), effective with the open of business on March 2, 2011, pursuant to NASDAQ’s discretionary authority under Listing Rule 5101. In response, the Company has filed an appeal of the Panel’s determination with the NASDAQ Listing and Hearing Review Council; however, such appeal will not stay the delisting set for March 2, 2011.
As reported previously, on January 13, 2011, the NASDAQ Listing Qualifications Staff (the “Staff”) notified the Company that it had determined to delist the Company’s securities from NASDAQ, pursuant to its discretionary authority under Listing Rule 5101, based upon the Staff’s assertion that the Company intentionally failed to adhere to its obligations to timely disclose material information regarding a financing to the Staff during the listing application process . The financing at issue was consummated on December 13, 2010
Liquidity Requirements
In connection with the rapid development and expansion of our business, we expect to incur significant capital and operational expenses. Management anticipates that our existing capital resources, cash flows from operations, the proceeds from our recent private placement and current short-term bank loans
will be adequate to satisfy our liquidity requirements for the next 12 months. However, if available funds are not sufficient to meet our plans for expansion, current operating expenses and loan obligations as they come due, our plans include considering pursuing alternative financing arrangements.
CFO Trail
On September 20, 2011, CleanTech Innovations, Inc. (the “Company”) promoted Mr. Sheng Ma, the Company’s Accounting Supervisor, to the position of Chief Financial Officer, replacing Ms. Nan Liu, who voluntarily resigned, effective September 20, 2011. The Company thanks Ms. Liu for her services and notes that Ms. Liu is not resigning because of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
Comments & Business Outlook
2010 Year Highlights :
Record revenue of $22.29 million , an increase of $19.56 million or 716% compared to $2.73 million in 2009. Significant revenue increase was due to market entry into high margin wind tower manufacturing business in early 2010 and winning of significant wind tower supply contracts through some of China's largest power companies.
Net income for the year ended December 31, 2010, increased to $4.22 million from $0.83 million for the year ended December 31, 2009. The increase in net income was attributable to the increased sales of our products.
In December 2010, CleanTech completed a $20 million bridge financing in a combination of long-term debt and equity through institutional investors. The successful financing enabled CleanTech to expand its product backlog significantly and positioned CleanTech for potentially strong results in 2011, anticipated to be the best year of financial performance in CleanTech's corporate history.
Bei Lu, Chairman & CEO of CleanTech, commented: "CleanTech is very pleased with its outstanding performance in 2010 as we expanded into the fast-growing and highly profitable wind tower manufacturing business. We experienced vibrant and strong customer demand from China's largest power companies. CleanTech is in a strong financial position to continue bidding on new contract opportunities and anticipates winning additional wind tower supply contracts throughout 2011 . The entire management team and company insiders voluntarily locked up their shares for 3 years through at least December 2013. CleanTech management's fundamental interest is totally aligned with those of our public shareholders. We look forward to delivering a year of record earnings growth in 2011 for our shareholders."
CleanTech Innovations, Inc. and Subsidiaries
Years Ended December 31, 2010 and 2009
2010
2009
Net sales
$ 22,291,095 $ 2,730,954
Cost of goods sold
15,811,154 1,301,400
Gross profit
6,479,941 1,429,554
Operating expenses
Selling
348,960 62,088
General and administrative
1,736,761 365,172
Total operating expenses
2,085,721 427,260
Income from operations
4,394,220 1,002,294
Non-operating income (expense)
Interest income
7,566 464
Interest expense
(425,325 ) (129,760 )
Other income
3,190 -
Other expenses
(42,894 ) -
Subsidy income
1,230,815 240,465
Total non-operating income
773,352 111,169
Income before income tax
5,167,572 1,113,463
Income tax expense
(948,731 ) (282,098 )
Net Income
4,218,841 831,365
Foreign currency translation
741,049 3,841
Comprehensive Income
$ 4,959,890 $ 835,206
Basic weighted average shares outstanding
18,841,531 15,122,000
Diluted weighted average shares outstanding
19,135,111 15,122,000
Basic earnings per share
$ 0.22 $ 0.05
Diluted earnings per share
$ 0.22 $ 0.05
GeoTeam® Note : Subtracting subsidy income from result yields
Adjusted 2010 EPS of $0.17 compared to $0.04 in the previous year.
Adjusted 2010 fourth quarter EPS was $0.05 compared to EPS of $0.04 in the previous year.
Backlog of orders expected to be delivered in 2011 was $39.6 million, which included $27.1 million in wind tower contracts, net of VAT.
Other notes :
Our business is subject to seasonal fluctuations in sales volumes because we sell products that are installed outdoors and, consequently, weather conditions may affect demand for our products. Sales of our wind towers to the wind power industry in the northern provinces of China are affected by seasonal variations in both weather and customer operations. Customers generally request delivery during the second, third and fourth calendar quarters when the weather conditions in the northern provinces of China, where our manufacturing facilities and our customers’ wind farms are located, are more favorable for the installation of wind towers by the customer. Utilities typically place requests for proposals for new wind tower contracts in the fourth and first calendar quarters according to their internal operational schedules and annual budget requirements. In order to satisfy delivery schedules under these contracts, we manufacture most of our wind towers during the second and third calendar quarters for delivery in the second, third and fourth calendar quarters. As we expect the majority of our future revenues and earnings will be from the sale of wind towers to the wind power industry in China, our business will become more affected by the industry’s seasonal variations. Our business is subject to seasonal fluctuations in sales volumes because we sell products that are installed outdoors and, consequently, weather conditions may affect demand for our products. Sales of our wind towers to the wind power industry in the northern provinces of China are affected by seasonal variations in both weather and customer operations. Customers generally request delivery during the second, third and fourth calendar quarters when the weather conditions in the northern provinces of China, where our manufacturing facilities and our customers’ wind farms are located, are more favorable for the installation of wind towers by the customer. Utilities typically place requests for proposals for new wind tower contracts in the fourth and first calendar quarters according to their internal operational schedules and annual budget requirements. In order to satisfy delivery schedules under these contracts, we manufacture most of our wind towers during the second and third calendar quarters for delivery in the second, third and fourth calendar quarters. As we expect the majority of our future revenues and earnings will be from the sale of wind towers to the wind power industry in China, our business will become more affected by the industry’s seasonal variations.
Comments & Business Outlook
NEW YORK, Jan. 21, 2011 /PRNewswire / -- CleanTech Innovations, Inc. announced Friday that CleanTech has signed two initial wind tower supply contracts totaling US$11 million (RMB 72,732,000, including VAT tax) with a subsidiary of China HuaNeng Group, the largest energy company in China. CleanTech will supply these wind towers to HuaNeng in 2011. HuaNeng has been a long-standing customer of CleanTech. China HuaNeng Group posted US$35 billion in revenue for 2010 and had total assets ofUS$99 billion.
