UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 16, 2016
CLEANTECH SOLUTIONS INTERNATIONAL, INC.
(Exact name of registrant as specified in Charter)
| Nevada | 001-34591 | 90-0648920 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File No.) | (IRS
Employee Identification No.) |
No. 9 Yanyu Middle Road
Qianzhou Village, Huishan District, Wuxi City
Jiangsu Province, People’s Republic of China
(Address of Principal Executive Offices)
(86) 51083397559
(Registrant’s Telephone number)
Copies to:
Asher S. Levitsky PC
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas; Suite 1100
New York, New York 10105
Phone: (212) 370-1300
Fax: (646) 895-7182
E-mail: alevitsky@egsllp.com
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On May 16, 2016, the Company issued a press release announcing its financial results for the quarter ended March 31, 2016. A copy of the Company’s May 16, 2016 press release is included as Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| 99.1 | Press release issued on May 16, 2016 relating to its financial results for the quarter ended March 31, 2016. |
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SIGNATURES
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 hereunto duly authorized.
| Date: May 19, 2016 | Cleantech Solutions International, Inc. | |
| By: | /s/ Jianhua Wu | |
| Jianhua Wu | ||
| Chief Executive Officer | ||
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Exhibit 99.1
For Immediate Release
Cleantech Solutions International Reports First Quarter 2016 Results
Wuxi, Jiangsu Province, China – May 16, 2016 – Cleantech Solutions International, Inc. (“Cleantech Solutions” or “the Company”) (NASDAQ: CLNT), a manufacturer of textile dyeing and finishing machines as well as metal components and assemblies used in various clean technology and manufacturing industries and, since the first quarter of 2015, the petroleum and chemical industries, today announced its financial results for the three months ended March 31, 2016.
“In the first quarter of 2016, challenging economic conditions, falling steel prices, a continuous decline in oil prices and limited availability of credit in China presented numerous challenges for our business. Our forged rolled rings and related components segment and petroleum and chemical equipment segment both experienced significant reductions in sales and generated losses during the quarter. Given the sharp declines in revenue and future outlook, we are currently evaluating the long-term viability of these two segments on an ongoing basis. The dyeing equipment segment, which accounted for 92% of total revenue in the quarter, experienced softer demand for our low-emission airflow dyeing machines although it remained profitable,” said Mr. Jianhua Wu, Chairman and CEO of Cleantech Solutions. “We continue working with our strategic advisors to assist us in implementing a new business plan with the objective of improving our long-term growth.”
First Quarter 2016 Results
Revenue for the first quarter of 2016 decreased by 68.6% to $4.9 million, compared to $15.6 million for the same period of 2015.
The Company experienced a significant decline in sales of forged rolled rings and related components to customers in the wind power and other industries and to dyeing and finishing equipment customers compared to the comparable quarter last year. Furthermore, sales of equipment to customers in the petroleum and chemical industries declined due to the loss of its largest customer.
| ● | Revenue from the sale of forged rolled rings and related products to the wind power and other industries fell by 96.4% to $0.3 million, compared with $7.3 million for the comparable period of the prior year. The significant decrease was mainly due to reduced demand for construction of wind power facilities, which was the Company’s principal customer base during the quarter, due to the effects of lower oil and gas prices. | |
| ● | Revenue from sales of equipment to customers in the petroleum and chemical industries fell 92.9% to $0.1 million, compared to $1.8 million for the comparable period last year. Revenue in this segment is highly dependent upon sales to a very small number of Chinese petrochemical companies, whose purchasing policies affect both revenue and gross margin for this segment. In December 2015, the Company received a notice of contract termination in writing from the Company’s largest customer in 2015 that alleged breach of contract for late delivery of product and for delivery of product with quality defects. Accordingly, the Company has not generated any revenues from this customer in the first quarter of 2016 and does not expect any further revenues from this customer in the future. |
Gross profit for the first quarter of 2016 was $0.2 million, compared to gross profit of $3.1 million for the same period in 2015. Gross margin was 4.3% during the first quarter of 2016 compared to 19.6% for the same period a year ago. The decline in gross margin for the first quarter of 2016 was primarily attributable to (i) the reduced scale of operations resulting from lower revenues, including the allocation of fixed costs mainly consisting of depreciation, to cost of revenues in the forged rolled rings and related products segment, as a result of which cost of revenue from this segment were greater than revenues, resulting in a negative gross profit from the segment, (ii) lower gross margin in the petroleum and chemical segment, primarily attributed to the reduced scale of operations resulting from lower revenues, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues, and (iii) a decline in gross margin from the dyeing and finishing equipment segment reduced scale of operations, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues, and the slight increase in raw material costs.
Operating expenses decreased 28.6% to $0.9 million, compared to $1.2 million in the comparable period last year, due to decreases in selling, general and administrative expenses, depreciation and research and development expenses.
Loss from operations was $0.7 million, compared to operating income of $1.8 million in the same period of 2015.
Net loss for the first quarter of 2016 was $0.8 million, or $(0.21) per basic and diluted share, compared to net income of $1.2 million, or $0.32 per basic and diluted share, in the first quarter of 2015.
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EBITDA, a non-GAAP measurement, which adds interest expense, income taxes, depreciation and amortization to net (loss) income, was $1.0 million, compared to $3.9 million in the first quarter of 2015. The calculation of EBITDA is shown in a table following the financial statements.
Financial Condition
As of March 31, 2016, Cleantech Solutions held cash and cash equivalents of $18.9 million compared to $18.8 million at December 31, 2015. Accounts receivable were $16.2 million at March 31, 2016 compared to $15.8 million at December 31, 2015. Inventories were $2.1 million at March 31, 2016 compared to $1.8 million at December 31, 2015. The Company had $3.0 million in short-term bank loans payable at March 31, 2016, down slightly from $3.1 million at December 31, 2015. Working capital was $26.6 million at March 31, 2016 compared to $24.9 million at December 31, 2015. Stockholders’ equity was $80.4 million at March 31, 2016. In the first quarter of 2016, the Company generated $0.1 million in cash flow from operations compared to $5.0 million in the first quarter of 2015.
Business Outlook
“We are continuing to evaluate the viability of the our forged rolled rings and related components segment and our petroleum and chemical equipment segment on an ongoing basis, and may exit these businesses if we determine that it will be unlikely we can operate them profitably. In our core dyeing equipment business, we are focused on re-engaging with our existing clients, exploring opportunities to expand into Southeast Asia and introducing newer, more energy-efficient and environmentally-friendly models that we believe will entice textile manufacturers to upgrade their equipment. We continue working with our strategic advisors to develop a new business plan focused on long-term growth,” Mr. Wu concluded.
Use of Non-GAAP Financial Measures
The Company has included in this press release certain non-GAAP financial measures. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of the Company and when planning and forecasting future periods. Readers are cautioned not to view non-GAAP financial measures on a stand-alone basis or as a substitute for GAAP measures, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP measures with non-GAAP measures also included herein.
About Cleantech Solutions International
Cleantech Solutions is a manufacturer of metal components and assemblies, primarily used in clean technology and other industries and dyeing and finishing equipment for the textile industry and forged rolled rings and related products, and a supplier of fabricated products and machining services to a range of clean technology customers, and a supplier of products for the petroleum and chemical industries. The Company's website is www.cleantechsolutionsinternational.com. Any information on the Company's website or any other website is not a part of this press release.
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Safe Harbor Statement
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website, including factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year ended December 31, 2015 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-Q for the quarter ended March 31, 2016. All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.
Company Contacts:
Cleantech Solutions International, Inc.
Ryan Hua, Vice President of Operations
E-mail: ryanhua@cleantechsolutionsinternational.com
+86-510-8339-7559
Web: www.cleantechsolutionsinternational.com
Compass Investor Relations
Elaine Ketchmere, CFA
Email: eketchmere@compass-ir.com
+1-310-528-3031
Web: www.compassinvestorrelations.com
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CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| REVENUES | $ | 4,919,491 | $ | 15,646,465 | ||||
| COST OF REVENUES | 4,706,611 | 12,574,433 | ||||||
| GROSS PROFIT | 212,880 | 3,072,032 | ||||||
| OPERATING EXPENSES: | ||||||||
| Depreciation | 160,738 | 344,696 | ||||||
| Selling, general and administrative | 711,378 | 874,545 | ||||||
| Research and development | 18,401 | 28,698 | ||||||
| Total Operating Expenses | 890,517 | 1,247,939 | ||||||
| (LOSS) INCOME FROM OPERATIONS | (677,637 | ) | 1,824,093 | |||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | 11,962 | 5,833 | ||||||
| Interest expense | (55,714 | ) | (57,343 | ) | ||||
| Foreign currency transaction gain (loss) | 114 | (11 | ) | |||||
| Total Other Expense, net | (43,638 | ) | (51,521 | ) | ||||
| (LOSS) INCOME BEFORE INCOME TAXES | (721,275 | ) | 1,772,572 | |||||
| INCOME TAXES | 122,818 | 530,138 | ||||||
| NET (LOSS) INCOME | $ | (844,093 | ) | $ | 1,242,434 | |||
| COMPREHENSIVE (LOSS) INCOME: | ||||||||
| NET (LOSS) INCOME | $ | (844,093 | ) | $ | 1,242,434 | |||
| OTHER COMPREHENSIVE INCOME: | ||||||||
| Unrealized foreign currency translation gain | 525,948 | 472,980 | ||||||
| COMPREHENSIVE (LOSS) INCOME | $ | (318,145 | ) | $ | 1,715,414 | |||
| NET (LOSS) INCOME PER COMMON SHARE: | ||||||||
| Basic | $ | (0.21 | ) | $ | 0.32 | |||
| Diluted | $ | (0.21 | ) | $ | 0.32 | |||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
| Basic | 4,100,689 | 3,934,653 | ||||||
| Diluted | 4,100,689 | 3,934,653 | ||||||
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CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 18,948,981 | $ | 18,790,370 | ||||
| Restricted cash | 255,897 | 647,080 | ||||||
| Notes receivable | 119,031 | 132,497 | ||||||
| Accounts receivable, net of allowance for doubtful accounts | 16,192,325 | 15,823,859 | ||||||
| Inventories, net of reserve for obsolete inventories | 2,068,206 | 1,827,084 | ||||||
| Advances to suppliers | 1,080,998 | 1,038,884 | ||||||
| Deferred tax assets | 222,362 | 220,895 | ||||||
| Prepaid expenses and other | 1,135,994 | 992,055 | ||||||
| Total Current Assets | 40,023,794 | 39,472,724 | ||||||
| PROPERTY AND EQUIPMENT, net | 50,408,449 | 51,753,964 | ||||||
| OTHER ASSETS: | ||||||||
| Land use rights, net | 3,381,601 | 3,382,071 | ||||||
| Total Assets | $ | 93,813,844 | $ | 94,608,759 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loans | $ | 3,024,240 | $ | 3,081,332 | ||||
| Bank acceptance notes payable | 245,041 | 647,080 | ||||||
| Accounts payable | 3,380,071 | 3,489,815 | ||||||
| Accrued expenses | 5,814,769 | 6,361,079 | ||||||
| Advances from customers | 697,789 | 433,050 | ||||||
| VAT and service taxes payable | 94,297 | 269,284 | ||||||
| Income taxes payable | 206,050 | 259,987 | ||||||
| Total Current Liabilities | 13,462,257 | 14,541,627 | ||||||
| Total Liabilities | 13,462,257 | 14,541,627 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock ($0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively) | - | - | ||||||
| Common stock ($0.001 par value; 50,000,000 shares authorized; 4,403,986 and 3,943,986 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively) | 4,404 | 3,944 | ||||||
| Additional paid-in capital | 34,405,473 | 33,803,333 | ||||||
| Retained earnings | 36,163,683 | 37,007,776 | ||||||
| Statutory reserve | 3,555,468 | 3,555,468 | ||||||
| Accumulated other comprehensive income - foreign currency translation adjustment | 6,222,559 | 5,696,611 | ||||||
| Total Stockholders' Equity | 80,351,587 | 80,067,132 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 93,813,844 | $ | 94,608,759 | ||||
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CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | (844,093 | ) | $ | 1,242,434 | |||
| Adjustments to reconcile net (loss) income from operations to net cash provided by operating activities: | ||||||||
| Depreciation | 1,674,728 | 2,074,507 | ||||||
| Amortization of land use rights | 22,599 | 24,086 | ||||||
| Stock-based compensation and fees | 428,250 | 274,400 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable | 14,145 | 2,054 | ||||||
| Accounts receivable | (259,741 | ) | 2,330,169 | |||||
| Inventories | (225,787 | ) | (939,030 | ) | ||||
| Prepaid and other current assets | (26,969 | ) | (4,835 | ) | ||||
| Advances to suppliers | (34,725 | ) | (31,318 | ) | ||||
| Accounts payable | (131,047 | ) | 873,118 | |||||
| Accrued expenses | (516,730 | ) | (515,767 | ) | ||||
| VAT and service taxes payable | (174,300 | ) | (242,190 | ) | ||||
| Income taxes payable | (54,883 | ) | (360,739 | ) | ||||
| Advances from customers | 258,198 | 322,533 | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 129,645 | 5,049,422 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (9,332 | ) | (4,755 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (9,332 | ) | (4,755 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from bank loans | 1,529,176 | 2,200,202 | ||||||
| Repayments of bank loans | (1,605,635 | ) | (2,281,691 | ) | ||||
| Decrease in restricted cash | 389,940 | 81,489 | ||||||
| Decrease in bank acceptance notes payable | (400,644 | ) | (81,489 | ) | ||||
| NET CASH USED IN FINANCING ACTIVITIES | (87,163 | ) | (81,489 | ) | ||||
| EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | 125,461 | 56,931 | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 158,611 | 5,020,109 | ||||||
| CASH AND CASH EQUIVALENTS - beginning of period | 18,790,370 | 7,835,791 | ||||||
| CASH AND CASH EQUIVALENTS - end of period | $ | 18,948,981 | $ | 12,855,900 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 55,714 | $ | 57,343 | ||||
| Income taxes | $ | 177,701 | $ | 890,876 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Stock issued for future services | $ | 110,350 | $ | - | ||||
| Stock issued for accrued liabilities | $ | 64,000 | $ | - | ||||
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RECONCILIATION OF NET (LOSS) INCOME TO EBITDA
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| Net (loss) income | $ | (844,093 | ) | $ | 1,242,434 | |||
| Add: income taxes | 122,818 | 530,138 | ||||||
| Add: interest expense | 55,714 | 57,343 | ||||||
| Add: depreciation and amortization | 1,697,327 | 2,098,593 | ||||||
| EBITDA | $ | 1,031,766 | 3,928,508 | |||||
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