10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 001-34591

CLEANTECH SOLUTIONS INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

NEVADA	90-0648920
(State or other jurisdiction of	(I.R.S. Employer
incorporation of organization)	Identification No.)

No. 9 Yanyu Middle Road

Qianzhou Village, Huishan District, Wuxi City

Jiangsu Province, China 214181

(Address of principal executive offices)

(86) 51083397559

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer (Do not check if smaller reporting company)	☐	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 5,236,486 shares of common stock are issued and outstanding as of November 14, 2016.

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-Q

September 30, 2016

TABLE OF CONTENTS

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	3
	Notes to Unaudited Condensed Consolidated Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3	Quantitative and Qualitative Disclosures About Market Risk.	33
Item 4	Controls and Procedures.	33
PART II - OTHER INFORMATION
Item 6.	Exhibits.	34

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 FREE. Our SEC filings are available through our website at http://www.cleantechsolutionsinternational.com/sec.php.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2016		2015
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,913,240	$	18,790,370
Restricted cash		266,388		647,080
Notes receivable		115,453		132,497
Accounts receivable, net of allowance for doubtful accounts		15,716,179		15,823,859
Inventories, net of reserve for obsolete inventories		2,978,728		1,827,084
Advances to suppliers		1,028,939		1,038,884
Deferred tax assets		214,977		220,895
Prepaid expenses and other		858,043		992,055
Total Current Assets		33,091,947		39,472,724
PROPERTY AND EQUIPMENT, net		37,274,206		51,753,964
OTHER ASSETS:
Equipment held for sale		8,708,602		-
Intangible assets, net		5,584,027		3,382,071
Total Assets	$	84,658,782	$	94,608,759
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank loans	$	2,923,810	$	3,081,332
Bank acceptance notes payable		194,921		647,080
Accounts payable		3,157,039		3,489,815
Accrued liability for claimed sale contract dispute		-		5,562,365
Accrued expenses		295,121		798,714
Advances from customers		408,956		433,050
VAT and service taxes payable		109,143		269,284
Income taxes payable		77,643		259,987
Total Current Liabilities		7,166,633		14,541,627
Total Liabilities		7,166,633		14,541,627
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock ($0.001 par value; 10,000,000 shares authorized; 0 share issued and outstanding at September 30, 2016 and December 31, 2015)		-		-
Common stock ($0.001 par value; 50,000,000 shares authorized; 5,236,486 and 3,943,986 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively)		5,236		3,944
Additional paid-in capital		35,268,521		33,803,333
Retained earnings		35,123,965		37,007,776
Statutory reserve		3,555,468		3,555,468
Accumulated other comprehensive income - foreign currency translation adjustment		3,538,959		5,696,611
Total Stockholders' Equity		77,492,149		80,067,132
Total Liabilities and Stockholders' Equity	$	84,658,782	$	94,608,759

See notes to unaudited condensed consolidated financial statements

1

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
REVENUES	$	3,977,592		$	12,025,433		$	12,958,359		$	42,862,498
COST OF REVENUES		3,470,292			10,023,347			12,032,048			35,094,790
GROSS PROFIT		507,300			2,002,086			926,311			7,767,708
OPERATING EXPENSES:
Depreciation		271,991			160,564			806,864			672,656
Selling, general and administrative		430,634			537,601			1,496,370			2,206,587
Research and development		111,840			23,935			196,478			81,195
Total Operating Expenses		814,465			722,100			2,499,712			2,960,438
(LOSS) INCOME FROM OPERATIONS		(307,165	)		1,279,986			(1,573,401	)		4,807,270
OTHER INCOME (EXPENSE):
Interest income		9,074			11,633			31,057			30,150
Interest expense		(54,339	)		(61,131	)		(165,515	)		(175,102	)
Foreign currency transaction (loss) gain		(1	)		-			175			(11	)
Other (expense) income		(2	)		-			391			-
Total Other Expense, net		(45,268	)		(49,498	)		(133,892	)		(144,963	)
(LOSS) INCOME BEFORE INCOME TAXES		(352,433	)		1,230,488			(1,707,293	)		4,662,307
INCOME TAXES		7,103			326,357			176,518			1,289,172
NET (LOSS) INCOME	$	(359,536	)	$	904,131		$	(1,883,811	)	$	3,373,135
COMPREHENSIVE LOSS:
NET (LOSS) INCOME	$	(359,536	)	$	904,131		$	(1,883,811	)	$	3,373,135
OTHER COMPREHENSIVE LOSS:
Unrealized foreign currency translation loss		(315,181	)		(4,217,933	)		(2,157,652	)		(3,415,632	)
COMPREHENSIVE LOSS	$	(674,717	)	$	(3,313,802	)	$	(4,041,463	)	$	(42,497	)
NET (LOSS) INCOME PER COMMON SHARE:
Basic	$	(0.07	)	$	0.23		$	(0.41	)	$	0.86
Diluted	$	(0.07	)	$	0.23		$	(0.41	)	$	0.86
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		5,188,443			3,943,725			4,593,558			3,939,486
Diluted		5,188,443			3,943,725			4,593,558			3,939,486

See notes to unaudited condensed consolidated financial statements

2

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Nine Months Ended
		September 30,
		2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,883,811	)	$	3,373,135
Adjustments to reconcile net (loss) income from operations to net cash (used in) provided by operating activities:
Depreciation		4,458,972			6,166,899
Amortization of intangible assets		107,918			71,966
Stock-based compensation and fees		582,740			285,560
Changes in operating assets and liabilities:
Notes receivable		13,679			(142,843	)
Restricted cash		(4,037	)		-
Accounts receivable		(320,591	)		2,546,105
Inventories		(1,217,043	)		250,193
Prepaid and other current assets		186,417			21,114
Advances to suppliers		(18,133	)		(85,798	)
Accounts payable		(242,558	)		(168,462	)
Accrued expenses		(5,927,351	)		(487,275	)
VAT and service taxes payable		(155,022	)		(323,532	)
Income taxes payable		(177,782	)		(574,783	)
Advances from customers		(12,664	)		369,986
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(4,609,266	)		11,302,265
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of patent use rights		(2,431,892	)		-
Purchase of property and equipment		(14,290	)		(12,573	)
NET CASH USED IN INVESTING ACTIVITIES		(2,446,182	)		(12,573	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans		2,963,868			4,545,012
Repayments of bank loans		(3,039,865	)		(4,382,690	)
Decrease (increase) in restricted cash		372,384			(113,625	)
(Decrease) increase in bank acceptance notes payable		(440,780	)		113,625
Proceeds from sale of common stock		753,400			-
NET CASH PROVIDED BY FINANCING ACTIVITIES		609,007			162,322
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS		(430,689	)		(615,575	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(6,877,130	)		10,836,439
CASH AND CASH EQUIVALENTS - beginning of period		18,790,370			7,835,791
CASH AND CASH EQUIVALENTS - end of period	$	11,913,240		$	18,672,230
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	165,515		$	175,102
Income taxes	$	164,182		$	1,863,955
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for future services	$	76,340		$	-
Stock issued for accrued liabilities	$	54,000		$	-

See notes to unaudited condensed consolidated financial statements 

3

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Cleantech Solutions International, Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex, Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc., and on June 13, 2011, the Company’s corporate name was changed to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into a Nevada corporation.

Through its affiliated companies and subsidiaries, the Company manufactures and sells textile dyeing and finishing machines and sells forged products and fabricated products to a range of clean technology customers including high precision forged rolled rings and related components for the wind power industry and other industries. The Company is the sole owner of Fulland Limited (“Fulland”), a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland owns 100% of the capital stock of Green Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind Energy”), which are wholly foreign-owned enterprises (“WFOE”) organized under the laws of the People’s Republic of China (“PRC” or “China”). Green Power is a party to a series of contractual arrangements, as fully described below, dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”), formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd., and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”), both of which are limited liability companies organized under the laws of, and based in, the PRC. Heavy Industries and Dyeing are sometimes collectively referred to as the “Huayang Companies”.

Fulland was organized by the owners of the Huayang Companies as a special purpose vehicle for purposes of raising capital in accordance with requirements of the PRC State Administration of Foreign Exchange (“SAFE”). On May 31, 2007, SAFE issued an official notice known as Hui Zong Fa [2007] No. 106 (“Circular 106”), which requires the owners of any Chinese company to obtain SAFE’s approval before establishing any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, the owners of the Huayang Companies, Mr. Jianhua Wu and Ms. Lihua Tang, submitted their application to SAFE in early September 2007. On October 11, 2007, SAFE approved their application, permitting these Chinese citizens to establish Fulland as a special purpose vehicle for any foreign ownership and capital raising activities by the Huayang Companies.

Dyeing, which was formed on August 17, 1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for the textile industry. The Company refers to this segment as the dyeing and finishing equipment segment.

Fulland Wind Energy was formed on August 27, 2008. In 2009, the Company began to produce and sell forged products through Fulland Wind Energy. Through Fulland Wind Energy, the Company manufactures and machines all forged products, including wind products such as shafts, rolled rings, gear rims, gearboxes, bearings and other components and finished products and assemblies for the wind power and other industries, including large-scale equipment used in the manufacturing process for the various industries. The Company refers to this segment of its business as the forged rolled rings and related components segment.

Beginning in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries, and it produces and sells a variety of heat exchangers, separators, tanks, towers, cryogenic equipment, and other products. The Company refers to this segment of its business as the petroleum and chemical equipment segment.

Basis of presentation; management’s responsibility for preparation of financial statements

The Company’s unaudited consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power and Fulland Wind Energy, as well as the financial statements of Huayang Companies - Dyeing and Heavy Industries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2015 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2016. The consolidated balance sheet as of December 31, 2015 contained herein has been derived from the audited consolidated financial statements as of December 31, 2015, but does not include all disclosures required by the U.S. GAAP.

4

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of presentation; management’s responsibility for preparation of financial statements (continued)

Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:

Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi (“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter.

Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and the two shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.

Equity Pledge Agreement.  Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.

Option Agreement.   Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.

5

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of presentation; management’s responsibility for preparation of financial statements (continued)

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its (loss) income from operations is consolidated with the Company’s, and the Company’s net (loss) income includes all of the Huayang Companies net (loss) income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net (loss) income in calculating the net (loss) income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.

Use of estimates

The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the three and nine months ended September 30, 2016 and 2015 include the allowance for doubtful accounts, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, accruals for taxes due, and the value of stock-based compensation. Because of the significant decline in revenues from the forged rolled rings and related components and petroleum equipment segments, the Company is evaluating on an ongoing basic, the continuation of these segments. In the event that the Company discontinues either or both of these segments, the Company may suffer an impairment expense with respect to the assets dedicated to those segments.

Cash and cash equivalents 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains with various financial institutions mainly in the PRC and the U.S. At September 30, 2016 and December 31, 2015, cash balances held in PRC and PRC banks of $11,909,903 and $18,777,228, respectively, are uninsured. The funds are primarily held in banks.

Fair value of financial instruments and other assets

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table presents information about equipment held for sale measured at fair value on a nonrecurring basis at September 30, 2016 and December 31, 2015:

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at September 30,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2016		Loss
Equipment held for sale	$	-	$	-	$	8,708,602	$	8,708,602	$	-

6

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair value of financial instruments and other assets (continued)

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at December 31,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2015		Loss
Equipment held for sale	$	-	$	-	$	-	$	-	$	417,171

The Company conducted an impairment assessment on the equipment held for sale based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale as of September 30, 2016 and December 31, 2015. Upon completion of its 2015 impairment analysis, the Company determined that the carrying value exceeded the fair market value on the equipment held for sale. Accordingly, the Company recorded an impairment loss of $0 and $417,171 at September 30, 2016 and December 31, 2015, respectively.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, accounts payable, accrued liabilities, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Concentrations of credit risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

At September 30, 2016 and December 31, 2015, the Company’s cash balances by geographic area were as follows:

Country:	September 30, 2016				December 31, 2015
United States	$	3,337	0.03	%	$	13,142	0.1	%
China		11,909,903	99.97	%		18,777,228	99.9	%
Total cash and cash equivalents	$	11,913,240	100.0	%	$	18,790,370	100.0	%

Restricted cash

Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $266,388 and $647,080 at September 30, 2016 and December 31, 2015, respectively.

7

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Notes receivable

Notes receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $115,453 and $132,497 at September 30, 2016 and December 31, 2015, respectively. 

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. During the nine months ended September 30, 2016 and 2015, accounts with the amount of approximately $1,737,000 and $6,000, respectively, were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The write-offs of accounts receivable against the allowance for doubtful accounts only impact the balance sheet accounts. At September 30, 2016 and December 31, 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $1,418,994 and $3,218,592, respectively. 

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $1,064,035 and $1,093,326 at September 30, 2016 and December 31, 2015, respectively.

Advances to suppliers

Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,028,939 and $1,038,884 at September 30, 2016 and December 31, 2015, respectively.

Equipment held for sale

Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. As of September 30, 2016, the Company reflected certain manufacturing equipment that was previously used in forged rolled rings and related components segment and petroleum and chemical equipment segment as equipment held for sale on the accompanying consolidated balance sheets.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

8

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended September 30, 2016 and 2015.

Advances from customers  

Advances from customers at September 30, 2016 and December 31, 2015 amounted to $408,956 and $433,050, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenues from the sale of dyeing and finishing equipment, forged rolled rings and other components, petroleum and chemical equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. For the three months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were $18,679 and $18,146, respectively. For the nine months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were $56,555 and $61,032, respectively. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions, including the forged rolled rings, are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income taxes

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2016 and December 31, 2015, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

9

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Shipping costs

Shipping costs are included in selling expenses and totaled $28,609 and $174,497 for the three months ended September 30, 2016 and 2015, respectively. Shipping costs totaled $95,087 and $804,993 for the nine months ended September 30, 2016 and 2015, respectively.

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $40,645 and $51,360 for the three months ended September 30, 2016 and 2015, respectively. Employee benefit costs totaled $131,885 and $174,738 for the nine months ended September 30, 2016 and 2015, respectively.

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company did not incur any advertising expenses for the three and nine months ended September 30, 2016. Advertising expenses totaled $10,628 and $29,731 for the three and nine months ended September 30, 2015, respectively.

Research and development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s new dyeing machinery. Research and development costs totaled $111,840 and $23,935 for the three months ended September 30, 2016 and 2015, respectively. Research and development costs totaled $196,478 and $81,195 for the nine months ended September 30, 2016 and 2015, respectively. 

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries and affiliates, whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (loss) income. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2016 and 2015 was $(430,689) and $(615,575), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. 

10

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currency translation (continued)

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. Other than for the purchase of equipment from non-Chinese suppliers, the Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at September 30, 2016 and December 31, 2015 were translated at 6.66938 RMB to $1.00 and at 6.4907 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the nine months ended September 30, 2016 and 2015 were 6.57924 RMB and 6.1606 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

(Loss) income per share of common stock

ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net (loss) income per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the three and nine months ended September 30, 2016 and 2015. The following table presents a reconciliation of basic and diluted net (loss) income per share: 

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net (loss) income for basic and diluted net (loss) income per share of common stock	$	(359,536	)	$	904,131	$	(1,883,811	)	$	3,373,135
Weighted average common stock outstanding - basic and diluted		5,188,443			3,943,725		4,593,558			3,939,486
Net (loss) income per common share - basic and diluted	$	(0.07	)	$	0.23	$	(0.41	)	$	0.86

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Comprehensive loss

Comprehensive loss is comprised of net (loss) income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended September 30, 2016 and 2015 included net (loss) income and unrealized loss from foreign currency translation adjustments. 

Reclassification

Certain reclassifications have been made in prior year same period’s consolidated financial statements to conform to the current period’s financial presentation.

11

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact it may have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

NOTE 2 – ACCOUNTS RECEIVABLE

At September 30, 2016 and December 31, 2015, accounts receivable consisted of the following:

	September 30, 2016			December 31, 2015
Accounts receivable	$	17,135,173		$	19,042,451
Less: allowance for doubtful accounts		(1,418,994	)		(3,218,592	)
	$	15,716,179		$	15,823,859

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. During the nine months ended September 30, 2016 and 2015, accounts with the amount of approximately $1,737,000 and $6,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The write-offs of accounts receivable against the allowance for doubtful accounts only impact the balance sheet accounts. 

NOTE 3 – INVENTORIES

At September 30, 2016 and December 31, 2015, inventories consisted of the following:

	September 30, 2016			December 31, 2015
Raw materials	$	1,324,915		$	690,824
Work-in-process		743,718			1,593,815
Finished goods		1,974,130			635,771
		4,042,763			2,920,410
Less: reserve for obsolete inventories		(1,064,035	)		(1,093,326	)
	$	2,978,728		$	1,827,084

The Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future demand and market conditions.

12

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 4 – PREPAID EXPENSES AND OTHER

At September 30, 2016 and December 31, 2015, prepaid expenses and other consisted of the following:

	September 30, 2016		December 31, 2015
Prepaid income taxes	$	576,879	$	785,471
Prepaid stock-based professional fees		76,340		-
Prepaid valued added tax on purchase		88,201		89,353
Other		116,623		117,231
	$	858,043	$	992,055

NOTE 5 – EQUIPMENT HELD FOR SALE

The Company measures long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell these assets.  The assets held for sale are no longer subject to depreciation as they are not used in operations. As of September 30, 2016, the Company committed to a plan to sell certain manufacturing equipment that was previously used in forged rolled rings and related components segment and petroleum and chemical equipment segment and reflected as equipment held for sale on the accompanying consolidated balance sheets. Although the Company is actively seeking and negotiating with potential buyers, the Company can give no assurances that the sale process will be successful and, if it were successful, there is no assurance as to the amount or timing of any potential proceeds.

NOTE 6 – PROPERTY AND EQUIPMENT

At September 30, 2016 and December 31, 2015, property and equipment consisted of the following:

	Useful life	September 30, 2016			December 31, 2015
Manufacturing equipment	5 - 10 years	$	39,652,919		$	66,381,394
Building and building improvements	5 - 20 years		24,007,378			24,668,268
Vehicles	5 years		189,339			194,552
Office equipment and furniture	5 years		161,612			165,403
			64,011,248			91,409,617
Less: accumulated depreciation			(26,737,042	)		(39,655,653	)
		$	37,274,206		$	51,753,964

For the three months ended September 30, 2016 and 2015, depreciation expense amounted to $1,107,211 and $2,022,385, respectively, of which $835,220 and $1,861,821, respectively, was included in cost of revenues, and the remainder was included in operating expenses. For the nine months ended September 30, 2016 and 2015, depreciation expense amounted to $4,458,972 and $6,166,899, respectively, of which $3,652,108 and $5,494,243, respectively, was included in cost of revenues, and the remainder was included in operating expenses.

NOTE 7 – INTANGIBLE ASSETS

At September 30, 2016 and December 31, 2015, intangible assets consisted of the following:

	Useful life	September 30, 2016			December 31, 2015
Land use rights	45 - 50 years	$	4,048,472		$	4,159,920
Patent use rights	10 years		2,399,024			-
			6,447,496			4,159,920
Less: accumulated amortization			(863,469	)		(777,849	)
		$	5,584,027		$	3,382,071

13

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 7 – INTANGIBLE ASSETS (continued)

Amortization of intangible assets attributable to future periods is as follows:

Twelve-month periods ending September 30:	Amount
2017	$	328,537
2018		328,537
2019		328,537
2020		328,537
2021		328,537
Thereafter		3,941,342
	$	5,584,027

There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The Company amortizes the land use rights over the term of the respective land use right.

In August 2016, the Company purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The Company amortizes the exclusive patent use right over the term of the patent.

For the three months ended September 30, 2016 and 2015, amortization of intangible assets amounted to $62,692 and $23,614, respectively. For the nine months ended September 30, 2016 and 2015, amortization of intangible assets amounted to $107,918 and $71,966, respectively.

NOTE 8 – SHORT-TERM BANK LOANS

Short-term bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon maturities. At September 30, 2016 and December 31, 2015, short-term bank loans consisted of the following:

	September 30, 2016		December 31, 2015
Loan from Agricultural and Commercial Bank, due on June 16, 2016 with annual interest rate of 7.038% at December 31, 2015, secured by certain assets of the Company and repaid in May 2016	$	-	$	693,300
Loan form Agricultural and Commercial Bank, due on May 26, 2017 with annual interest rate of 7.038% at September 30, 2016, secured by certain assets of the Company		674,725		-
Loan from Jiangsu Huishan Mintai Village Town Bank, due on March 1, 2016 with annual interest rate of 10.56% at December 31, 2015, secured by certain assets of the Company and repaid in February 2016		-		770,333
Loan from Jiangsu Huishan Mintai Village Town Bank, due on November 1, 2016 with annual interest rate of 10.56% at September 30, 2016, secured by certain assets of the Company and repaid in October 2016		749,695		-
Loan from Bank of Communications, due on September 3, 2016 with annual interest rate of 5.62% at December 31, 2015, secured by certain assets of the Company and repaid on due date		-		770,333
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% at September 30, 2016, secured by certain assets of the Company		749,695		-
Loan from Bank of China, due on January 12, 2016 with annual interest rate of 7.20% at December 31, 2015, secured by certain assets of the Company and repaid in January 2016		-		385,166
Loan from Bank of China, due on December 26, 2016 with annual interest rate of 5.97% at September 30, 2016, secured by certain assets of the Company		749,695		-
Loan from Bank of China, due on January 25, 2016 with annual interest rate of 7.20% at December 31, 2015, secured by certain assets of the Company and repaid in January 2016		-		462,200
Total short-term bank loans	$	2,923,810	$	3,081,332

14

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 8 – SHORT-TERM BANK LOANS (continued)

Interest related to the short-term bank loans, which was $54,339 and $61,131 for the three months ended September 30, 2016 and 2015, respectively, and $165,515 and $175,102 for the nine months ended September 30, 2016 and 2015, respectively, is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss.

NOTE 9 – BANK ACCEPTANCE NOTES PAYABLE

Bank acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured by the Company’s restricted cash which are deposits with various lenders. At September 30, 2016 and December 31, 2015, the Company’s bank acceptance notes payables consisted of the following:

	September 30, 2016		December 31, 2015
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 9, 2016, collateralized by 100% of restricted cash deposited	$	-	$	308,133
Bank of China, non-interest bearing, due and paid on January 16, 2016, collateralized by 100% of restricted cash deposited		-		107,847
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on March 21, 2016, collateralized by 100% of restricted cash deposited		-		77,033
Bank of China, non-interest bearing, due and paid on March 23, 2016, collateralized by 100% of restricted cash deposited		-		77,033
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on June 29, 2016, collateralized by 100% of restricted cash deposited		-		77,034
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on October 13, 2016, collateralized by 100% of restricted cash deposited		29,988		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on December 28, 2016, collateralized by 100% of restricted cash deposited		44,982		-
Bank of China, non-interest bearing, due on January 6, 2017, collateralized by 100% of restricted cash deposited		44,982		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on January 29, 2017, collateralized by 100% of restricted cash deposited		74,969		-
Total	$	194,921	$	647,080

NOTE 10 – ACCRUED LIABILITY FOR CLAIMED SALE CONTRACT DISPUTE

In December 2015, the Company received a notice of contract termination in writing from its largest customer, which was a customer in the petroleum and chemical equipment segment, alleging breach of contract for late delivery of product and for delivery of product with quality defects. As a result of the claimed breach of contract, the customer demanded payment of a penalty of 20% of the contract price plus penalties for late delivery and damages in the amounts of RMB 36,103,640 ($5,562,365 at December 31, 2015). In the third quarter of 2016, the claimed sale contract dispute was resolved, and the Company made the payment of RMB 36,103,640 RMB to this customer in full satisfaction of the customer’s claims against the Company.

15

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 11 – ACCRUED EXPENSES

At September 30, 2016 and December 31, 2015, accrued expenses consisted of the following:

	September 30, 2016		December 31, 2015
Accrued salaries and related benefits	$	176,881	$	465,514
Accrued professional fees		15,330		171,433
Other payables		102,910		161,767
	$	295,121	$	798,714

NOTE 12 – STOCKHOLDERS’ EQUITY

Common stock issued for services

On March 1, 2016, the Board of Directors approved and authorized the Company to issue 160,000 shares of common stock pursuant to its amended 2010 long-term incentive plan, including 75,000 shares to its former chief financial officer. The shares were valued at $209,600, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company reduced accrued liabilities of $54,000 and recorded stock-based compensation and fees of $130,400 for the nine months ended September 30, 2016 and recorded prepaid expenses of $25,200 which will be amortized over the balance of the corresponding service periods.

On March 1, 2016, the Board of Directors approved and authorized the Company to issue a total of 300,000 shares of common stock to two companies which performed services relating to preparing and implementing a new business plan for the Company with the objective of improving the Company’s long-term growth. Of these shares, 100,000 shares were issued pursuant to an agreement with one consultant and 200,000 shares were issued pursuant to an agreement with a second consultant. The agreements provide for the issuance of an additional 100,000 shares to one consultant and 200,000 to the second consultant if the agreement is in effect in July 2016. On July 1, 2016, the Company issued an additional 100,000 shares of its common stock to the first consultant pursuant to the agreement. A consulting agreement with the second consultant was terminated, and no additional shares of common stock were issued or are issuable pursuant to the consulting agreement with the second consultant. The shares were valued at fair market value using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $441,990 for the nine months ended September 30, 2016 and recorded prepaid expenses of $48,990 which will be amortized over the balance of the corresponding service periods.

On June 30, 2016, the Board of Directors approved and authorized the Company to issue 12,500 shares of common stock pursuant to its amended 2010 long-term incentive plan to a consultant. The shares were valued at $12,500, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $10,350 for the nine months ended September 30, 2016 and recorded prepaid expenses of $2,150, which will be amortized over the rest of service periods.

The Company recorded stock-based compensation and fess of $94,240 for the three months ended September 30, 2016.

Common stock sold for cash

The Company sold a total of 720,000 shares of common stock to an investor during June and July 2016 pursuant to stock purchase agreements. On June 6, 2016, the Company sold 230,000 shares of common stock at a purchase price of $1.00 per share, from which the Company received net proceeds of $230,000. On June 24, 2016, the Company sold 230,000 shares of common stock at a purchase price of $1.10 per share, from which it received net proceeds of $253,000. On July 18, 2016, the Company sold 260,000 shares of common stock at a purchase price of $1.04 per share, from which it received gross proceeds of $270,400. The Company did not engage a placement agent with respect to these sales.

NOTE 13 – STATUTORY RESERVE

The Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. As of December 31, 2015, the Company appropriated the required maximum 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries; accordingly, no additional statutory reserve is required for the three and nine months ended September 30, 2016. As of September 30, 2016, the Company had not appropriated the required maximum 50% of its registered capital to statutory reserve for Fulland Wind Energy. During the three and nine months ended September 30, 2016, the Company did not make any appropriations to statutory reserve for Fulland Wind Energy as it incurred recurring net loss.

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CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 14 – SEGMENT INFORMATION

For the three and nine months ended September 30, 2016 and 2015, the Company operated in three reportable business segments - (1) the manufacture of textile dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the manufacture of petroleum and chemical equipment segment. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations. All of the Company’s operations are conducted in the PRC. Because of the significant decline in revenues from the forged rolled rings and related components and petroleum equipment segments, the Company is evaluating, on an ongoing basic, the continuation of these two segments. In the event that the Company discontinues either or both of these segments, the Company may suffer an impairment expense with respect to the assets dedicated to those segments. Information with respect to these reportable business segments for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended September 30,						Three Months Ended September 30,
	2016			2015			2016			2015
Revenues
Dyeing and finishing equipment	$	3,945,608		$	8,355,273		$	12,390,190		$	23,49,579
Forged rolled rings and related components		31,984			1,420,348			437,433			11,692,962
Petroleum and chemical equipment		-			2,249,812			130,736			7,677,957
		3,977,592			12,025,433			12,958,359			42,862,498
Depreciation
Dyeing and finishing equipment		955,181			850,480			2,924,085			2,572,477
Forged rolled rings and related components		46,897			684,422			1,372,860			2,086,489
Petroleum and chemical equipment		105,133			487,483			162,027			1,507,933
		1,107,211			2,022,385			4,458,972			6,166,899
Interest expense
Dyeing and finishing equipment		31,676			35,561			96,630			107,474
Forged rolled rings and related components		12,140			12,735			36,505			27,740
Petroleum and chemical equipment		10,523			12,835			32,380			39,888
		54,339			61,131			165,515			175,102
Net income (loss)
Dyeing and finishing equipment		12,140			1,170,705			529,555			3,080,537
Forged rolled rings and related components		(113,287	)		(302,083	)		(1,494,138	)		286,505
Petroleum and chemical equipment		(160,175	)		114,609			(269,143	)		500,473
Other (a)		(107,385	)		(79,100	)		(650,085	)		(494,380	)
	$	(359,536	)	$	904,131		$	(1,883,811	)	$	3,373,135

Identifiable long-lived tangible assets at September 30, 2016 and December 31, 2015 by segment	September 30, 2016		December 31, 2015
Dyeing and finishing equipment	$	37,274,206	$	25,782,801
Forged rolled rings and related components		-		14,212,045
Petroleum and chemical equipment		-		11,759,118
Equipment held for sale		8,708,602		-
	$	45,982,808	$	51,753,964

Identifiable long-lived tangible assets at September 30, 2016 and December 31, 2015 by geographical location	September 30, 2016		December 31, 2015
China	$	45,982,808	$	51,753,964
United States		-		-
	$	45,982,808	$	51,753,964

(a) The Company does not allocate any general and administrative expense of its U.S. activities to its reportable segments, because these activities are managed at a corporate level.

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CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016

NOTE 15 – CONCENTRATION

Customers

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended September 30, 2016 and 2015.

		Three Months Ended September 30,					Nine Months Ended September 30,
Customer		2016		2015			2016		2015
	A		*		19	%		*		13	%

* Less than 10%.

No customer accounted for 10% of the Company’s total outstanding accounts receivable at September 30, 2016 and December 31, 2015. At December 31, 2015, the Company had a dispute with its largest customer and the accounts receivable from its largest customer was fully reserved. In the third quarter of 2016, the dispute was resolved by payment by the Company of the amount claimed to be due, and the fully reserved account receivable from this customer was written off with a corresponding debit to the allowance for doubtful account.

Suppliers

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases for the three and nine months ended September 30, 2016 and 2015.

		Three Months Ended September 30,						Nine Months Ended September 30,
Supplier		2016			2015			2016			2015
	A		37	%		27	%		23	%		25	%
	B		18	%		*			10	%		*
	C		16	%		*			*			*
	D		*			14	%		12	%		*
	E		*			*			*			10	%

* Less than 10%.

The four largest suppliers accounted for 6.3% of the Company’s total outstanding accounts payable at September 30, 2016. Three largest suppliers accounted for 13.6% of the Company’s total outstanding accounts payable at December 31, 2015.

NOTE 16 – RESTRICTED NET ASSETS

Regulations in the PRC permit payments of dividends by the Company’s PRC VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIE’s and subsidiary. Heavy Industries and Dyeing had reached the cumulative limit as of December 31, 2015. The statutory reserve funds are not distributable as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIE’s and its subsidiary are restricted in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may further restrict the Company’s PRC VIEs and its subsidiaries from transferring funds to the Company in the form of loans and/or advances.

As of September 30, 2016 and December 31, 2015, substantially all of the Company’s net assets are attributable to the PRC VIE’s and its subsidiaries located in the PRC. Accordingly, the Company’s restricted net assets at September 30, 2016 and December 31, 2015 were approximately $76,236,000 and $79,627,000, respectively.

NOTE 17 – SUBSEQUENT EVENTS

In October 2016, the Company repaid short-term loan from Jiangsu Huishan Mintai Village Town Bank in the principal amount of $749,695, and borrowed the same amount from the same bank. The new loan bears interest rate at 10.56% per annum and is due on July 5, 2017.

In October 2016, the Company repaid the bank acceptance notes payable of $29,988.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Historically we were engaged in two business segments – the dyeing and finishing equipment segment, in which we manufacture and sell textile dyeing and finishing machines, and the forged rolled rings and related components segment, in which we manufacture and sell high precision forged rolled rings, shafts, flanges, and other forged components. As a result of a significant decline in revenues in the forged rolled rings and related components segment, revenue from the dyeing and finishing segment represented 99.2% of our revenue in the three months ended September 30, 2016 and 95.6% of our revenue in the nine months ended September 30, 2016.

In 2015, we entered a third segment, the petroleum and chemical equipment segment, in which we manufactured and sold equipment, such as reaction kettle, heat exchangers, separators, tanks, towers and other components, to the petroleum and chemical industries. Sales in this segment commenced in the first quarter of 2015. However, we had no revenue from this segment since the second quarter of 2016 and nominal revenue from this segment in the nine months ended September 30, 2016. Our largest customer in 2015, which was a customer of this segment, alleged breach of contract by us and demanded payment of a penalty of 20% of the contract price plus penalties for late delivery and damages in the amounts of RMB 36,103,640 ($5,562,365 at December 31, 2015). In the third quarter of 2016, the claimed sale contract dispute was resolved, and we made a payment of RMB 36,103,640 to this customer in full satisfaction of the customer’s claims against us. We are no longer selling products to this customer and we have not been able to generate business in this segment from other customers.

The following table sets forth information as to revenues of our dyeing and finishing equipment, forged rolled rings and related components, and petroleum and chemical equipment segments in dollars and as a percent of revenues (dollars in thousands):

	Three Months Ended September 30,
	2016					2015
	Dollars		%			Dollars		%
Dyeing and finishing equipment	$	3,946		99.2	%	$	8,355		69.5	%
Forged rolled rings and related components		32		0.8	%		1,420		11.8	%
Petroleum and chemical equipment		-		-			2,250		18.7	%
Total	$	3,978		100.0	%	$	12,025		100.0	%

	Nine Months Ended September 30,
	2016					2015
	Dollars		%			Dollars		%
Dyeing and finishing equipment	$	12,390		95.6	%	$	23,491		54.8	%
Forged rolled rings and related components		437		3.4	%		11,693		27.3	%
Petroleum and chemical equipment		131		1.0	%		7,678		17.9	%
Total	$	12,958		100.0	%	$	42,862		100.0	%

Recently, difficult economic conditions, a continuing decline in oil prices and limited availability of credit in China, presented numerous challenges for our business. In our dyeing and finishing equipment segment, we experienced softer demand for our low-emission airflow dyeing machines as many of our potential customers already upgraded to newer models and we believe that much of our remaining potential customer base does not have the ability to make significant capital expenditures at this time. Our forged rolled rings and related products segment and petroleum and chemical equipment segment in particular experienced significant reduction in sales and operated at a loss during the nine months ended September 30, 2016, with no revenue from the petroleum and chemical equipment segment and nominal revenue from the forged rolled rings and related components segment in the third quarter of 2016.

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The key factors that affected our revenue, gross margin and net income (loss) in our segments during the nine months ended September 30, 2016, including the factors which resulted in significant declines in revenues in all of our three segments, particularly in our forged rolled rings and related components segment and petroleum and chemical equipment segment. Our ability to expand our operations and increase our revenue is largely affected by the PRC government’s policy on such matters as the availability of credit, which affects all of our operations, and its policies relating to alternative energy such as wind power, which affect our products for these industries. Our business is also affected by general economic conditions, and we cannot assure you that we will be able to increase our revenues in any segment in the near future, if at all. Because of the nature of our products, our customers’ projection of future economic conditions are an integral part of their decisions as to whether to purchase capital equipment at this time or defer such purchases until a future date. Further, our petroleum and chemical equipment segment was impacted by the loss of our major customer in that segment following the December 2015 contract termination by our largest customer alleging breach of contract for late delivery and for delivery of product with quality defects and the related write-offs at December 31, 2015. Because this customer is a major company in the petroleum and chemical industry, its claim against us for breach of contract, including the claim that our products had quality defects, makes it more difficult to sell products in this segment.

The Future of the Forged Rolled Rings and Petroleum and Chemical Segments

In view of the sharp decline in revenue from both the forged rolled rings and related products and the petroleum and chemical equipment segments and the lack of any revenue in the petroleum and chemical equipment segment, including the loss of our major customer, which was a customer in the petroleum and chemical segment, the negative gross margin for the forged rolled rings and related components segment, and our anticipation that sales in the forged rolled rings and related products will continue to decline from their current low levels and the absence of any orders for our petroleum and chemical equipment segment during 2016 through the date of this report, we are evaluating, on an ongoing basis, the viability of these segments, and, if we determine that it is not likely that we will be able to operate either or both of these segments profitably, we may discontinue operating in either or both of these segments and seek to sell the associated assets. We are not optimistic about the market for either our forged rolled rings and related products or our petroleum and chemical products. We cannot give any assurance that we will be able to improve our revenues from these segments in the near future, if at all, and it may be necessary for us to discontinue operating in one or both of these segments. We cannot assure you that, if we seek to sell the assets related to either or both of these segments, that we will be able to recover the current book value of those assets. In event that we discontinue operations and are unable to recover the current book value, it is likely that we will incur an impairment charge for equipment that is used in these segments but which is not otherwise usable.

Dyeing and Finishing Equipment Segment

Revenues from our dyeing and finishing equipment segment decreased $4.4 million, or 52.8%, for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Revenues from our dyeing and finishing equipment segment decreased $11.1 million, or 47.3%, for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. In the three and nine months ended September 30, 2016, the dyeing and finishing equipment segment revenues accounted for 99.2% and 95.6%, respectively, of our total revenues. The decrease in revenue was primarily attributable to the challenging economic conditions and limited availability of credit in China. In addition, our business was also affected by government actions requiring textile manufacturers in Zhejiang province to temporarily cease operations in order to improve air quality ahead of the G20 Summit which was scheduled for and took place in Hangzhou this September. Further, we experienced a slowdown in shipments of our low-emission airflow dyeing machines as many companies in the dyeing industry had already replaced older dyeing equipment with new equipment, and orders for new low-emission airflow dyeing machines slowed down in 2016.

Currently, we focus on investing in research and development to improve our competitive position. In August 2016 we purchased the technology use right for a patent that covers ozone-ultrasonic textile dyeing equipment. We believe this new patent technology will allow us to develop next generation dyeing and finishing equipment that will appeal to textile manufacturers in China as well as Southeast Asia. We expect our revenue from dyeing and finishing equipment segment will remain at or about its current quarterly level in the near future, although modest declines are possible.

Forged Rolled Rings and Related Components Segment

Through our forged rolled rings and related components division, we produce precision forged rolled rings and other forged components to the wind power and other industries. Our forged rolled rings and other related components are sold to manufacturers of industrial equipment. Forged rolled rings and other forged components for the wind industry are used in wind turbines, which are used to generate wind power.

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Revenues from our forged rolled rings and related components segment decreased $1.4 million, or 97.7%, to $32,000 for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Revenues from our forged rolled rings and related components segment decreased $11.3 million, or 96.3%, to $437,000 for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. The significant decrease was mainly attributable to the reduced demand for construction of wind power facilities, which was our principal customer base during the nine months ended September 30, 2016, due to the effects of lower oil and gas prices. We expect that our revenues from forged rolled rings and related components will continue to decrease in the near future. Although we are optimistic about the long-term future of the wind power industry in China, the continued difficulties in generating revenue from this segment in the near term may make it more difficult, if not impossible, for us to continue to operate in this segment without a significant improvement in revenue, which we do not anticipate in the near future. As a result, we may not be able to continue to operate in this business to enable us to benefit from the long-term development of wind power in China.

Petroleum and Chemical Equipment Segment

Through our petroleum and chemical equipment division, we produce and sell equipment such as coal chemical equipment, formaldehyde plant and downstream products, reaction kettle, heat exchangers, separators, tanks, towers to petroleum and chemical industries. We started to sell our petroleum and chemical equipment in February 2015. No revenue was generated from our petroleum and chemical equipment segment during the third quarter of 2016, as compared with $2.2 million for the three months ended September 30, 2015. Revenues from our petroleum and chemical equipment segment decreased $7.5 million, or 98.3%, to $131,000 for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. Substantially all of the revenue from this segment during the three and nine months ended September 30, 2015 were generated by our largest customer for that period which is the customer that claimed that we breached our contract and to whom we made a payment of RMB 36,103,640 ($5,562,365 at December 31, 2015) in the third quarter of 2016 in settlement of the customer’s claims against us. The market for petroleum products is mainly dominated by three major Chinese petroleum companies, and their capital expenditure and purchasing policy have a significant effect both upon our ability to generate revenue from this segment and the gross margins which we can generate. Furthermore, because we sell our petroleum and chemical equipment products to a very small number of customers, the change in the purchasing policies of one or two customers could have a significant effect on our revenues from this segment. In December 2015, we received a notice of contract termination in writing from our largest customer, which was a customer in this segment, alleging breach of contract for late delivery of product and for delivery of product with quality defects. We did not receive any purchase order and did not generate any revenue from this customer in the nine months ended September 30, 2016 and do not expect any further revenues from this customer. Because this former customer is a major company in the petroleum and chemical industry, its claim against us for breach of contract, including the claim that our products had quality defects, makes it more difficult for us to sell products in this segment. We do not anticipate any revenue from petroleum and chemical equipment segment in the near future, and we may not be able to continue in this segment.

Inventory and Raw Materials

A major element of our cost of revenues is raw materials, principally steel as well as other metals. These metals are subject to price fluctuations. In times of increasing prices, we need to try to establish the price at which we purchase raw materials in order to avoid increases in costs which we cannot recoup through increases in sales prices. Similarly, in times of decreasing prices, we may have purchased metals at prices which are high in terms of the price at which we can sell our products, which also can impair our margins. Three major suppliers provided approximately 71% of our purchases of inventories for the three months ended September 30, 2016.  Two of these three suppliers and one other major supplier provided approximately 45% of our purchases of inventories for the nine months ended September 30, 2016. Two major suppliers provided approximately 41% of our purchases of raw materials for the three months ended September 30, 2015. One of these two suppliers and one other major supplier provided approximately 35% of our purchases of raw materials for the nine months ended September 30, 2015. No other supplier accounted for 10% or more of our purchases during the three and nine months ended September 30, 2016 and 2015. Most of our inventory at September 30, 2016 related to our dyeing and finishing segment.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions.  

We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

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Variable Interest Entities

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of variable interest entities (“VIEs”). The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.

The Huayang Companies are considered VIEs, and we are the primary beneficiary. On November 13, 2007, we entered into agreements with the Huayang Companies pursuant to which we shall receive 100% of the Huayang Companies’ net income/loss. In accordance with these agreements, the Huayang Companies shall pay consulting fees equal to 100% of its net income/loss to our wholly-owned subsidiary, Green Power, and Green Power shall supply the technology and administrative services needed to service the Huayang Companies.

The accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies sales are included in our total sales, their income from operations is consolidated with ours, and our net income/loss includes all of the Huayang Companies’ net income/loss, and their assets and liabilities are included in our consolidated balance sheets. The VIEs do not have any non-controlling interest and, accordingly, we did not subtract any net income/loss in calculating the net income/loss attributable to us. Because of the contractual arrangements, we have pecuniary interest in the Huayang Companies that require consolidation of the Huayang Companies financial statements with our financial statements.

Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting of raw materials, work-in-process and finished goods, are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Advances to Suppliers

Advances to suppliers represent the advance payments for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery.

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Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

	Useful Life
Manufacturing equipment	5 – 10 Years
Building and building improvements	5 – 20 Years
Vehicles	5 Years
Office equipment and furniture	5 Years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Land Use Rights

There is no private ownership of land in the PRC. All land in the PRC is owned by the government and cannot be sold to any individual or company. The government grants a land use right that permits the holder of the land use right to use the land for a specified period. Our land use rights were granted with a term of 45 or 50 years. Any transfer of the land use right requires government approval. We have recorded as an intangible asset the costs paid to acquire a land use right. The land use rights are amortized on the straight-line method over the land use right terms.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

We recognize revenues from the sale of dyeing and finishing equipment, forged rolled rings and other components, petroleum and chemical equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. For the three and nine months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were minimal. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income Taxes

We are governed by the income tax laws of the PRC and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the results for the period as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.

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Stock-based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Currency Exchange Rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIEs is the RMB. All of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiaries. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Recent Accounting Pronouncements  

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. We are currently evaluating the impact it may have on our consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.

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RESULTS OF OPERATIONS

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2016 and 2015

The following table sets forth the results of our operations for the three months ended September 30, 2016 and 2015 indicated as a percentage of revenues (dollars in thousands):

	Three Months Ended September 30,
	2016					2015
		Dollars		Percentage			Dollars		Percentage
Revenues	$	3,977		100.0	%	$	12,025		100.0	%
Cost of revenues		3,470		87.2	%		10,023		83.4	%
Gross profit		507		12.8	%		2,002		16.6	%
Operating expenses		814		20.5	%		722		6.0	%
(Loss) income from operations		(307	)	(7.7	)%		1,280		10.6	%
Other expense, net		(45	)	(1.1	)%		(50	)	(0.4	)%
(Loss) income before provision for income taxes		(352	)	(8.8	)%		1,230		10.2	%
Provision for income taxes		7		0.2	%		326		2.7	%
Net (loss) income		(359	)	(9.0	)%		904		7.5	%
Other comprehensive loss:
Foreign currency translation adjustment		(315	)	(7.9	)%		(4,218	)	(35.1	)%
Comprehensive loss	$	(674	)	(16.9	)%	$	(3,314	)	(27.6	)%

The following table sets forth the results of our operations for the nine months ended September 30, 2016 and 2015 indicated as a percentage of revenues (dollars in thousands):

	Nine Months Ended September 30,
	2016					2015
		Dollars		Percentage			Dollars		Percentage
Revenues	$	12,958		100.0	%	$	42,862		100.0	%
Cost of revenues		12,032		92.9	%		35,095		81.9	%
Gross profit		926		7.1	%		7,767		18.1	%
Operating expenses		2,499		19.3	%		2,960		6.9	%
(Loss) income from operations		(1,573	)	(12.2	)%		4,807		11.2	%
Other expense, net		(134	)	(1.0	)%		(145	)	(0.3	)%
(Loss) income before provision for income taxes		(1,707	)	(13.2	)%		4,662		10.9	%
Provision for income taxes		177		1.3	%		1,289		3.0	%
Net (loss) income		(1,884	)	(14.5	)%		3,373		7.9	%
Other comprehensive loss:
Foreign currency translation adjustment		(2,157	)	(16.7	)%		(3,416	)	(8.0	)%
Comprehensive loss	$	(4,041	)	(31.2	)%	$	(43	)	(0.1	)%

The following table sets forth information as to the revenues, gross profit (loss) and gross margin for our three business segments for the three months ended September 30, 2016 and 2015 (dollars in thousands).

	Three Months Ended September 30, 2016									Three Months Ended September 30, 2015
	Revenues		Cost of revenues		Gross profit		Gross margin			Revenues		Cost of revenues		Gross profit (loss)			Gross margin
Dyeing and finishing Equipment	$	3,946	$	3,451	$	495		12.5	%	$	8,355	$	6,391	$	1,964			23.5	%
Forged rolled rings and related components		32		19		13		40.6	%		1,420		1,698		(278	)		(19.6	)%
Petroleum and chemical equipment		-		-		-		-			2,250		1,934		316			14.0	%
Total	$	3,978	$	3,470	$	508		12.8	%	$	12,025	$	10,023	$	2,002			16.6	%

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The following table sets forth information as to the revenues, gross profit (loss) and gross margin for our three business segments for the nine months ended September 30, 2016 and 2015 (dollars in thousands).

	Nine Months Ended September 30, 2016										Nine Months Ended September 30, 2015
	Revenues		Cost of revenues		Gross profit (loss)			Gross margin			Revenues		Cost of revenues		Gross profit		Gross margin
Dyeing and finishing Equipment	$	12,390	$	10,484	$	1,906			15.4	%	$	23,491	$	18,091	$	5,400		23.0	%
Forged rolled rings and related components		437		1,435		(998	)		(228.1	)%		11,693		10,465		1,228		10.5	%
Petroleum and chemical equipment		131		113		18			13.8	%		7,678		6,539		1,139		14.8	%
Total	$	12,958	$	12,032	$	926			7.1	%	$	42,862	$	35,095	$	7,767		18.1	%

Revenues. For the three months ended September 30, 2016, we had revenues of approximately $4.0 million, as compared to revenues of approximately $12.0 million for the three months ended September 30, 2015, a decrease of approximately $8.0 million or 66.9%. The decrease in revenues for the three months ended September 30, 2016 was attributable to decreases in revenue from all of our three operating segments. The change in revenues is summarized as follows (dollars in thousands):

	Three Months Ended September 30, 2016		Three Months Ended September 30, 2015		Decrease			Percentage Change
Dyeing and finishing equipment	$	3,946	$	8,355	$	(4,409	)		(52.8	)%
Forged rolled rings and related components		32		1,420		(1,388	)		(97.7	)%
Petroleum and chemical equipment		-		2,250		(2,250	)		(100.0	)%
Total revenues	$	3,978	$	12,025	$	(8,047	)		(66.9	)%

For the nine months ended September 30, 2016, we had revenues of approximately $13.0 million, as compared to revenues of approximately $42.9 million for the nine months ended September 30, 2015, a decrease of approximately $29.9 million or 69.8%. The decrease in revenues for the nine months ended September 30, 2016 was attributable to decreases in revenue from all of our three operating segments. The change in revenues is summarized as follows (dollars in thousands):

	Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015		Decrease			Percentage Change
Dyeing and finishing equipment	$	12,390	$	23,491	$	(11,101	)		(47.3	)%
Forged rolled rings and related components		437		11,693		(11,256	)		(96.3	)%
Petroleum and chemical equipment		131		7,678		(7,547	)		(98.3	)%
Total revenues	$	12,958	$	42,862	$	(29,904	)		(69.8	)%

Dyeing and finishing equipment segment

For the three months ended September 30, 2016, revenues from the sale of dyeing and finishing equipment decreased by approximately $4.4 million, or 52.8%, as compared to the three months ended September 30, 2015. For the nine months ended September 30, 2016, revenues from the sale of dyeing and finishing equipment decreased by approximately $11.1million, or 47.3%, as compared to the nine months ended September 30, 2015. We experienced an anticipated slowdown in sales of our low-emission airflow dyeing machines as many customers had replaced older dyeing equipment with our low-emission airflow dyeing machine, and we believe that orders for new low-emission airflow dyeing machines have slowed down in 2016 because the remaining potential customer base included more companies that did not have the ability to make the significant capital expenditures necessary to upgrade their equipment. In addition, our business was also affected by government actions requiring textile manufacturers in Zhejiang province to temporarily cease operations in order to improve air quality ahead of the G20 Summit in Hangzhou during September 2016. Accordingly, our revenues from dyeing and finishing equipment segment decreased in the three and nine months ended September 30, 2016 as compared to the corresponding periods in 2015 and. We expect that our revenues from dyeing and finishing equipment segment will remain at or about it’s the current quarterly level in the near future, although declines are possible.  

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Forged rolled rings and related components segment

For the three months ended September 30, 2016, revenue from the sale of forged rolled rings and related components decreased by approximately $1.4 million, or 97.7%, as compared to the three months ended September 30, 2015. For the nine months ended September 30, 2016, revenue from the sale of forged rolled rings and related components decreased by approximately $11.3 million, or 96.3%, as compared to the nine months ended September 30, 2015. The continuous decline in the prices of oil and coal and the decreased availabilities of credit, significantly affected the requirements by our customers and potential customers for our forged rolled rings and related components. We believe that there is a degree of market saturation for our products in this segment and we expect that our revenues from customers of forged rolled rings and related components will continue to decrease in the near future and we may not be able to continue to operate in this segment.

Petroleum and chemical equipment segment

We sought to expand our business to oil and natural gas industries since 2013. We received the certifications needed to serve these markets in mid-2013. However, we did not generate revenues or incur manufacturing costs from the petroleum and chemical segment until the first quarter of 2015. We did not generate any revenue from petroleum and chemical equipment segment in the third quarter of 2016, as compared with approximately $2.2 million, for the three months ended September 30, 2015. For the nine months ended September 30, 2016, revenue from the sale of petroleum and chemical equipment decreased by approximately $7.5 million, or 98.3%, to approximately $131,000 as compared to the nine months ended September 30, 2015. Our revenue in this segment is highly dependent upon sales to a very small number of Chinese petrochemical companies, whose purchasing policies affect both our revenue and gross margin for this segment, and our revenue from this segment during the three and nine months ended September 30, 2015 were from our largest customer during that period, which is the customer that claimed we breached our contract a result of late delivery of product and to whom we made a significant payment to settle the issue during the third quarter 2016, as described above. We did not generate any revenues from this customer in the nine months ended September 30, 2016, and we do not anticipate any revenue from our petroleum and chemical equipment segment in the near future. We may not be able to continue in this segment.

Cost of revenues. Cost of revenues includes the cost of raw materials, labor, depreciation and other overhead costs.

For the three months ended September 30, 2016, cost of revenues was approximately $3.5 million, as compared with approximately $10.0 million for the three months ended September 30, 2015, a decrease of approximately $6.5 million, or 65.4%. Cost of revenues for the dyeing and finishing equipment segment was approximately $3.5 million for the three months ended September 30, 2016, as compared with approximately $6.4 million for the three months ended September 30, 2015. Cost of revenues related to the manufacture of forged rolled rings and related components segment was approximately $19,000 for the three months ended September 30, 2016 as compared with approximately $1.7 million for the three months ended September 30, 2015. Cost of revenues for the petroleum and chemical equipment segment was $0 for the three months ended September 30, 2016 as compared with approximately $1.9 million for the three months ended September 30, 2015.

For the nine months ended September 30, 2016, cost of revenues was approximately $12.0 million as compared with approximately $35.1 million for the nine months ended September 30, 2015, a decrease of approximately $23.1 million, or 65.7%. Cost of revenues for the dyeing and finishing equipment segment was approximately $10.5 million for the nine months ended September 30, 2016, as compared with approximately $18.1 million for the nine months ended September 30, 2015. Cost of revenues related to the manufacture of forged rolled rings and related components segment was approximately $1.4 million for the nine months ended September 30, 2016 as compared with approximately $10.5 million for the nine months ended September 30, 2015. Cost of revenues for the petroleum and chemical equipment segment was approximately $113,000 for the nine months ended September 30, 2016 as compared with approximately $6.5 million for the nine months ended September 30, 2015.

Gross (loss) profit and gross margin. Our gross profit was approximately $0.5 million for the three months ended September 30, 2016 as compared with approximately $2.0 million for the three months ended September 30, 2015, representing gross margins of 12.8% and 16.6%, respectively. Our gross profit was approximately $0.9 million for the nine months ended September 30, 2016 as compared with approximately $7.8 million for the nine months ended September 30, 2015, representing gross margins of 7.1% and 18.1%, respectively.

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Gross profit for the dyeing and finishing equipment segment was approximately $0.5 million for the three months ended September 30, 2016 as compared to approximately $2.0 million for the three months ended September 30, 2015, representing gross margins of approximately 12.5% and 23.5%, respectively. Gross profit for the dyeing and finishing equipment segment was approximately $1.9 million for the nine months ended September 30, 2016 as compared with approximately $5.4 million for the nine months ended September 30, 2015, representing gross margins of approximately 15.4% and 23.0%, respectively. The decrease in our gross margin for the dyeing and finishing equipment segment for the three and nine months ended September 30, 2016 primarily resulted from (i) the reduced scale of operations, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues; (ii) the decrease in unit sale price in order to compete to other airflow dyeing machinery providers; (iii) the slight increase in raw material costs. We expect that our gross margin from dyeing and finishing equipment segment will continue to be low in the remainder of 2016.

Gross profit for the forged rolled rings and related components segment of was approximately $13,000 for the three months ended September 30, 2016 as compared to a negative gross profit of approximately $278,000 for the three months ended September 30, 2015. We had a gross margin of 40.6% for the three months ended September 30, 2016 as compared with a negative gross margin of (19.6)% for the comparable period of 2015. In the third quarter of 2016, we outsourced our manufacturing for forging products which generated a gross margin of 40.6%. We determined to outsource our manufacturing since the purchase order amounts received from our customers are small. We incurred a negative gross profit from forged rolled rings and related components segment of approximately $1.0 million for the nine months ended September 30, 2016 as compared to gross profit of approximately $1.2 million for the nine months ended September 30, 2015. We had a negative gross margin for the nine months ended September 30, 2016 as compared with a gross margin of 10.5% for the comparable period of 2015. The negative gross margin for the forged rolled rings and related components segment for the nine months ended September 30, 2016 primarily resulted from the reduced scale of operations resulting from much lower revenues and the allocation of fixed costs, mainly consisting of depreciation, to cost of the reduced level of revenues. We are not optimistic about the market for forged rolled rings and related products if we continue to operate in this segment.

Gross profit for the petroleum and chemical equipment segment was approximately $18,000 for the nine months ended September 30, 2016 as compared to gross profit of approximately $1.1 million for the nine months ended September 30, 2015, representing gross margins of approximately 13.8% and 14.8%, respectively. The decrease in our gross margin for the petroleum and chemical equipment segment for the nine months ended September 30, 2016 was 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. We expect that our gross margin from petroleum and chemical equipment segment will continue to be low in the rest of 2016 if we continue to operate in this segment.

Depreciation. Depreciation was approximately $1.1 million and $2.0 million for the three months ended September 30, 2016 and 2015, respectively. Depreciation was approximately $4.5 million and $6.2 million for the nine months ended September 30, 2016 and 2015, respectively. Depreciation for the three and nine months ended September 30, 2016 and 2015 was included in the following categories (dollars in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenues	$	835	$	1,862	$	3,652	$	5,494
Operating expenses		272		161		807		673
Total	$	1,107	$	2,023	$	4,459	$	6,167

The decrease in depreciation expense for cost of revenues for the three and nine months ended September 30, 2016 as compared to the three and nine months ended September 30, 2015 was mainly attributable to the reduction of net book value of manufacturing equipment as of December 31, 2015, as a result of writing down, at December 31, 2015, the carrying values of certain manufacturing equipment used in our forged rolled rings and related components segment and petroleum and chemical equipment segment to their estimated fair values. At December 31, 2015, we conducted an impairment assessment on property and equipment in our forged rolled rings and related components and petroleum and chemical equipment segments to determine the estimated fair market value of property and equipment as of December 31, 2015. Upon completion of the impairment analysis as of December 31, 2015, we determined that the carrying value exceeded the fair market value on certain equipment used in these two segments. Accordingly, we recorded impairment charges relating to the write down of the carrying values of certain manufacturing equipment used in these two segments to their estimated fair values. In addition, we reflected certain manufacturing equipment previously used in our forged rolled rings and related components segment and petroleum and chemical equipment segment as equipment held for sale in the third quarter of 2016. The assets held for sale is no longer subject to depreciation as they are not used in operations.

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There were no events or changes in circumstances that indicate that the carrying amount of the long-lived assets in our forged rolled rings and related components and petroleum and chemical equipment segments at September 30, 2016 may not be fully recoverable. Therefore, we did not recognize any impairment loss during the nine months ended September 30, 2016.

Some manufacturing machinery were temporary idle in the three and nine months ended September 30, 2016. We recorded the related depreciation this machinery as operating expenses rather than as cost of revenues in the three and nine months ended September 30, 2016. Therefore, our depreciation expense, which was included in operating expenses, for the three and nine months ended September 30, 2016 increased as compared to the corresponding periods in 2015.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled approximately $430,000 for the three months ended September 30, 2016, as compared to approximately $537,000 for the three months ended September 30, 2015, a decrease of $107,000 or 19.9%. Selling, general and administrative expenses totaled approximately $1.5 million for the nine months ended September 30, 2016, as compared to approximately $2.2 million for the nine months ended September 30, 2015, a decrease of approximately $0.7 million or 32.2%. Selling, general and administrative expenses for the three and nine months ended September 30, 2016 and 2015 consisted of the following (dollars in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Payroll and related benefits	$	117	$	133	$	340	$	699
Professional fees		113		45		667		155
Travel and entertainment		48		92		118		256
Shipping		29		175		95		805
Other		123		92		276		291
Total	$	430	$	537	$	1,496	$	2,206

● Payroll and related benefits for the three months ended September 30, 2016 decreased by approximately $16,000, or 12.0%, as compared to the three months ended September 30, 2015, mainly due to the stricter control in general and administrative personnel. Payroll and related benefits for the nine months ended September 30, 2016 decreased by approximately $359,000, or 51.4%, as compared to the nine months ended September 30, 2015. The decrease was mainly attributable to a decrease in stock-based compensation of approximately $325,000 which reflected the decrease in stock-based compensation and bonus incurred and paid to our management in the nine months ended September 30, 2016, and a decrease in employee salaries and related benefits of approximately $34,000 due to the reduction in staff resulting from our significant decline in sales and the stricter control in general and administrative personnel. We expect that payroll and related benefits will remain in its current quarterly level with minimal increase in the near future.

● Professional fees for the three months ended September 30, 2016 increased by approximately $68,000, or 151.1%, as compared to the three months ended September 30, 2015. The increase was primarily attributable to an increase in stock-based consulting fees of approximately $57,000 incurred and paid to our consultant, and an increase in other miscellaneous items of approximately $11,000. Professional fees for the nine months ended September 30, 2016 increased by approximately $512,000, or 330.3%, as compared to the nine months ended September 30, 2015. The increase was primarily attributable to an increase in stock-based consulting fees of approximately $393,000 incurred and paid to two companies which performed consulting services relating to preparing and implementing a new business plan for us with the objective of improving our long-term growth, an increase in stock-based consulting fees of approximately $113,000 incurred and paid to our consultant, and an increase in other miscellaneous items of approximately $6,000.

● Travel and entertainment expense for the three months ended September 30, 2016 decreased by approximately $44,000, or 47.8%, as compared to the three months ended September 30, 2015. Travel and entertainment expense for the nine months ended September 30, 2016 decreased by approximately $138,000, or 53.9%, as compared to the nine months ended September 30, 2015. The decrease in the three and nine months ended September 30, 2016 was primarily attributable to the decrease in travel and entertainment activities due to stricter control on corporation expenditure.

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● Shipping expense for the three months ended September 30, 2016 decreased by approximately $146,000, or 83.4%, as compared to the three months ended September 30, 2015. Shipping expense for the nine months ended September 30, 2016 decreased by approximately $710,000, or 88.2%, as compared to the nine months ended September 30, 2015. The decrease for the three and nine months ended September 30, 2016 was mainly attributable to the decrease in our revenues resulting in a decrease in shipping, as compared to the comparable periods in 2015.

● Other selling, general and administrative expenses, which primarily consist of office supplies, vehicle expense, phone expense, amortization of intangible assets, office maintenance, miscellaneous taxes, etc. Other selling, general and administrative expenses for the three months ended September 30, 2016 increased by approximately $31,000, or 33.7%, as compared to the three months ended September 30, 2015. The increase in the three months ended September 30, 2016 was primarily attributable to an increase in amortization for our patent we purchased in August 2016 of approximately $41,000, offset by a decrease in other miscellaneous items of approximately $10,000. Other selling, general and administrative expenses for the nine months ended September 30, 2016 decreased by approximately $15,000, or 5.2%, as compared to the nine months ended September 30, 2015. The decrease in the nine months ended September 30, 2016 was mainly due to stricter control on corporation expending.

Research and development expenses. Research and development expenses were approximately $112,000 for the three months ended September 30, 2016, as compared to approximately $24,000 for the three months ended September 30, 2015, an increase of approximately $88,000, or 367.3%. Research and development expenses were approximately $196,000 for the nine months ended September 30, 2016, as compared to approximately $81,000 for the nine months ended September 30, 2015, an increase of approximately $115,000, or 142.0%. The increase in 2016 periods was primarily attributable to the increase in research and development activities as compared to the comparable periods in 2015. Research and development expenses related to the development of new dyeing and finishing products.

(Loss) income from operations. As a result of the factors described above, for the three months ended September 30, 2016, loss from operations amounted to approximately $0.3 million, as compared to income from operations of approximately $1.3 million for the three months ended September 30, 2015, a change of approximately $1.6 million, or 124.0%. For the nine months ended September 30, 2016, loss from operations amounted to approximately $1.6 million, as compared to income from operations of approximately $4.8 million for the nine months ended September 30, 2015, a change of approximately $6.4 million, or 132.7%.

Other income (expense). Other income (expense) includes interest income, interest expense, foreign currency transaction gain/(loss), and other (expense) income.

For the three months ended September 30, 2016, total other expense, net, amounted to approximately $45,000 as compared to total other expense, net, of approximately $49,000 for the three months ended September 30, 2015, a decrease of approximately $4,000 or 8.5%. The decrease in other expense, net, was primarily attributable to a decrease in interest expense approximately $7,000, offset by a decrease in interest income of approximately $3,000.

For the nine months ended September 30, 2016, total other expense, net, amounted to approximately $134,000 as compared to total other expense, net, of approximately $145,000 for the nine months ended September 30, 2015, a decrease of approximately $11,000 or 7.6%. The decrease in other expense, net, was primarily attributable to an increase in interest income of approximately $1,000, and a decrease in interest expense of approximately $10,000.

Income taxes expense. Income taxes expense was approximately $7,000 for the three months ended September 30, 2016, as compared to approximately $326,000 for the three months ended September 30, 2015, a decrease of approximately $319,000, or 97.8%. Income taxes expense was approximately $0.2 million for the nine months ended September 30, 2016, as compared to approximately $1.3 million for the nine months ended September 30, 2015, a decrease of $1.1million, or 86.3%. The decrease in income taxes expense was primarily attributable to the decrease in taxable income generated by our operating entities in the three and nine months ended September 30, 2016 as compared to the comparable periods in 2015.

Net (loss) income. As a result of the foregoing, our net loss was approximately $(0.4) million, or $(0.07) per share (basic and diluted), for the three months ended September 30, 2016, as compared with net income approximately $0.9 million, or $0.23 per share (basic and diluted), for the three months ended September 30, 2015, a change of approximately $1.3 million, or 139.8%. Our net loss was approximately $(1.9) million, or $(0.41) per share (basic and diluted), for the nine months ended September 30, 2016, as compared with net income approximately $3.4 million, or $0.86 per share (basic and diluted), for the nine months ended September 30, 2015, a change of approximately $5.3 million, or 155.8%.

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Foreign currency translation loss. The functional currency of our subsidiaries and variable interest entities operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation loss of approximately $(0.3) million for the three months ended September 30, 2016, as compared with foreign currency translation loss of approximately $(4.2) million for the three months ended September 30, 2015. We reported a foreign currency translation loss of approximately $(2.2) million for the nine months ended September 30, 2016, as compared to foreign currency translation loss of approximately $(3.4) million for the nine months ended September 30, 2015. This non-cash loss had the effect of increasing our reported comprehensive loss.

Comprehensive (loss). As a result of our foreign currency translation loss, we had comprehensive loss for the three months ended September 30, 2016 of approximately $(0.7) million, compared with comprehensive loss of approximately $(3.3) million for the three months ended September 30, 2015. We had comprehensive loss for the nine months ended September 30, 2016 of approximately $(4.0) million, compared with comprehensive loss of approximately $(42,000) for the nine months ended September 30, 2015.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At September 30, 2016 and December 31, 2015, we had cash balances of approximately approximately$11.9 million and $18.8 million, respectively. These funds are located in financial institutions located as follows (dollars in thousands):

Country:	September 30, 2016				December 31, 2015
United States	$	3	0.03	%	$	13	0.1	%
China		11,910	99.97	%		18,777	99.9	%
Total cash and cash equivalents	$	11,913	100.0	%	$	18,790	100.0	%

The following table sets forth a summary of changes in our working capital from December 31, 2015 to September 30, 2016 (dollars in thousands):

					December 31, 2015 to September 30, 2016
	September 30, 2016		December 31, 2015		Change			Percentage Change
Working capital:
Total current assets	$	33,092	$	39,473	$	(6,381	)		(16.2	)%
Total current liabilities		7,167		14,542		(7,375	)		(50.7	)%
Working capital	$	25,925	$	24,931	$	994			4.0	%

Our working capital increased by $994,000 to $25,925,000 at September 30, 2016 from $24,931,000 at December 31, 2015. This increase in working capital is primarily attributable to:

● An increase in inventories, net of reserve for obsolete inventories, of approximately $1.2 million,

● A decrease in short-term bank loans of approximately $157,000,

● A decrease in bank acceptance notes payable of approximately $452,000,

● A decrease in accounts payable of approximately $333,000,

● A decrease in accrued liability for claimed sale contract dispute of approximately $5.6 million due to the payments made to resolve the dispute in the nine months ended September 30, 2016,

● A decrease in accrued expenses of approximately $504,000,

● A decrease in VAT and service taxes payable of approximately $160,000, and

● A decrease in income taxes payable of approximately $182,000,

Offset by:

● A decrease in cash and cash equivalents of approximately $6,877,000,

● A decrease in restricted cash of approximately $381,000,

● A decrease in accounts receivable, net of allowance for doubtful accounts, of approximately $108,000, and

● A decrease in prepaid expenses and other of approximately $134,000.

31

Because the exchange rate conversion is different for the consolidated balance sheets and the consolidated statements of cash flows, the changes in assets and liabilities reflected on the consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the consolidated balance sheets.

Net cash flow used in operating activities was approximately $4.6 million for the nine months ended September 30, 2016 as compared to net cash flow provided by operating activities of approximately $11.3 million for the nine months ended September 30, 2015, a decrease of approximately $15.9 million.

● Net cash flow used by operating activities for the nine months ended September 30, 2016 primarily reflected net loss of approximately $1.9 million, and changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of approximately $321,000, an increase in inventories of approximately $1.2 million, a decrease in accounts payable of approximately $243,000, a decrease in accrued expenses of approximately $5.9 million, mainly due to the payments made to solve claimed sale contract dispute as described in elsewhere in this report, a decrease in VAT and service taxes payable of approximately $155,000, a decrease in income taxes payable of approximately $178,000, offset by the add-back of non-cash items primarily consisting of depreciation of approximately $4.5 million, amortization of intangible assets of approximately $108,000, and stock-based compensation and fees of approximately $583,000, and changes in operating assets and liabilities primarily consisting of a decrease in prepaid and other current assets of approximately $186,000.

● Net cash flow provided by operating activities for the nine months ended September 30, 2015 primarily reflected net income of approximately $3.4 million, and the add-back of non-cash items primarily consisting of depreciation of approximately $6.2 million, amortization of land use rights of approximately $72,000, and stock-based compensation of approximately $286,000, and changes in operating assets and liabilities primarily consisting of a decrease in accounts receivable of approximately $2.5 million due to the collecting efforts made in 2015, a decrease in inventories of approximately $250,000, and an increase in advances from customers of approximately $370,000, offset by an increase in notes receivable of approximately $143,000, an increase in advances to suppliers of approximately $86,000, a decrease in accounts payable of approximately $168,000, a decrease in accrued expenses of approximately $487,000, a decrease in VAT and service taxes payable of approximately $324,000, and a decrease in income taxes payable of approximately $575,000.

Net cash flow used in investing activities was approximately $2.4 million and $13,000 for the nine months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016, net cash flow used in investing activities reflects the purchase of patent use rights of approximately $2.4 million and purchase of property and equipment of approximately $14,000. For the nine months ended September 30, 2015, net cash flow used in investing activities reflects the purchase of property and equipment of approximately $13,000.

Net cash flow provided by financing activities was approximately $609,000 for the nine months ended September 30, 2016 as compared to net cash flow provided by financing activities of approximately $162,000 for the nine months ended September 30, 2015. During the nine months ended September 30, 2016, we received proceeds from bank loans of approximately $3.0 million, proceeds from the decrease in restricted cash of approximately $372,000, and proceeds from sale of common stock of approximately $753,000, offset by repayments for bank loans of approximately $3.0 million, and decrease in bank acceptance notes payable of approximately $441,000. During the nine months ended September 30, 2015, we received proceeds from bank loans of approximately $4.5 million, and proceeds from the increase in bank acceptance notes payable of approximately $114,000, offset by repayments for bank loans of approximately $4.4 million, and payments for the increase in restricted cash of approximately $114,000.

We generally finance our operations through short term loans from our banks, which we refinance upon expiration. We believe that our cash flow from operations and bank financing will be sufficient to meet our anticipated cash requirements for the next twelve months.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

32

The following tables summarize our contractual obligations as of September 30, 2016 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
Contractual obligations:	Total		Less than 1 year		1-3 years		3-5 years		5+ years
Bank loans (1)	$	2,924	$	2,924	$	-	$	-	$	-
Bank acceptance notes payable		195		195		-		-		-
Total	$	3,119	$	3,119	$	-	$	-	$	-

(1) Bank loans consisted of short term bank loans. Historically, we have refinanced these bank loans for an additional term of six months to one year and we expect to continue to refinance these loans upon expiration.

Off-balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Foreign Currency Exchange Rate Risk

We produce and sell almost all of our products in China. Thus, most of our revenues and operating results may be impacted by exchange rate fluctuations between RMB and US dollars. For the three and nine months ended September 30, 2016, we had unrealized foreign currency translation loss of approximately $(0.3) million and $(2.2) million, respectively, because of changes in the exchange rate.

Inflation

The effect of inflation on our revenue and operating results was not significant.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our management, including Jianhua Wu, our chief executive officer, and Wanfen Xu, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2016.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, Mr. Wu and Ms. Xu concluded that our disclosure controls and procedures were not effective as of September 30, 2016.

33

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). As reported in our Form 10-K for the year ended December 31, 2015, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 and, during our assessment, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff and recently elected chief financial officer, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. Although management believes that these deficiencies do not amount to a material weakness, our internal controls over financial reporting were not effective at December 31, 2015.

We currently have no plans to expand our company-wide Enterprise Resource Planning (“ERP”) system during the rest of 2016 and have not implemented further ERP modules to manage inventory and to expand existing ERP systems to other areas of our factory. Due to our working capital requirements and the lack of local professionals with the necessary experience in implementing the ERP system, we postponed the hiring of professional staff to implement ERP system. We have found that engaging professionals who are based outside of Wuxi is very costly and we have not been able to find qualified personnel in the Wuxi area.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the nine months ended September 30, 2016. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

In light of this significant deficiency, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the nine months ended September 30, 2016 included in this quarterly report on Form 10-Q were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the nine months ended September 30, 2016 are fairly stated, in all material respects, in accordance with the U.S. GAAP.

Changes in Internal Controls over Financial Reporting

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

31.1	Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer
32.1	Section 1350 certification of Chief Executive Officer and Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

34

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 thereunto duly authorized.

		CLEANTECH SOLUTIONS INTERNATIONAL, INC.
Date: November 14, 2016	By:	/s/ Jianhua Wu
		Jianhua Wu, Chief Executive Officer
		and Principal Executive Officer
Date: November 14, 2016	By:	/s/ Wanfen Xu
		Wanfen Xu, Chief Financial Officer
		and Principal Accounting Officer

 35

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Jianhua Wu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cleantech Solutions International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: November 14, 2016	By:	/s/ Jianhua Wu
		Jianhua Wu Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Wanfen Xu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cleantech Solutions International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated:  November 14, 2016	By:	/s/ Wanfen Xu
		Wanfen Xu Chief Financial Officer (Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cleantech Solutions International, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jianhua Wu, chief executive officer of the Company, and Wanfen Xu, chief financial officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2016	By:	/s/ Jianhua Wu
		Jianhua Wu Chief Executive Officer
		(Principal Executive Officer)

Date: November 14, 2016	By:	/s/ Wanfen Xu
		Wanfen Xu Chief Financial Officer (Principal Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 14, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Cleantech Solutions International, Inc.,
Entity Central Index Key	0000819926
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,236,486

XML

Condensed Consolidated Balance Sheets - USD ($)	Sep. 30, 2016	Dec. 31, 2015
CURRENT ASSETS:
Cash and cash equivalents	$ 11,913,240	$ 18,790,370
Restricted cash	266,388	647,080
Notes receivable	115,453	132,497
Accounts receivable, net of allowance for doubtful accounts	15,716,179	15,823,859
Inventories, net of reserve for obsolete inventories	2,978,728	1,827,084
Advances to suppliers	1,028,939	1,038,884
Deferred tax assets	214,977	220,895
Prepaid expenses and other	858,043	992,055
Total Current Assets	33,091,947	39,472,724
PROPERTY AND EQUIPMENT, net	37,274,206	51,753,964
OTHER ASSETS:
Equipment held for sale	8,708,602
Intangible assets, net	5,584,027	3,382,071
Total Assets	84,658,782	94,608,759
CURRENT LIABILITIES:
Short-term bank loans	2,923,810	3,081,332
Bank acceptance notes payable	194,921	647,080
Accounts payable	3,157,039	3,489,815
Accrued liability for claimed sale contract dispute		5,562,365
Accrued expenses	295,121	798,714
Advances from customers	408,956	433,050
VAT and service taxes payable	109,143	269,284
Income taxes payable	77,643	259,987
Total Current Liabilities	7,166,633	14,541,627
Total Liabilities	7,166,633	14,541,627
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock ($0.001 par value; 10,000,000 shares authorized; 0 share issued and outstanding at September 30, 2016 and December 31, 2015)
Common stock ($0.001 par value; 50,000,000 shares authorized; 5,236,486 and 3,943,986 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively)	5,236	3,944
Additional paid-in capital	35,268,521	33,803,333
Retained earnings	35,123,965	37,007,776
Statutory reserve	3,555,468	3,555,468
Accumulated other comprehensive income - foreign currency translation adjustment	3,538,959	5,696,611
Total Stockholders' Equity	77,492,149	80,067,132
Total Liabilities and Stockholders' Equity	$ 84,658,782	$ 94,608,759

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	5,236,486	3,943,986
Common stock, shares outstanding	5,236,486	3,943,986

XML

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
REVENUES	$ 3,977,592	$ 12,025,433	$ 12,958,359	$ 42,862,498
COST OF REVENUES	3,470,292	10,023,347	12,032,048	35,094,790
GROSS PROFIT	507,300	2,002,086	926,311	7,767,708
OPERATING EXPENSES:
Depreciation	271,991	160,564	806,864	672,656
Selling, general and administrative	430,634	537,601	1,496,370	2,206,587
Research and development	111,840	23,935	196,478	81,195
Total Operating Expenses	814,465	722,100	2,499,712	2,960,438
(LOSS) INCOME FROM OPERATIONS	(307,165)	1,279,986	(1,573,401)	4,807,270
OTHER INCOME (EXPENSE):
Interest income	9,074	11,633	31,057	30,150
Interest expense	(54,339)	(61,131)	(165,515)	(175,102)
Foreign currency transaction (loss) gain	(1)		175	(11)
Other (expense) income	(2)		391
Total Other Expense, net	(45,268)	(49,498)	(133,892)	(144,963)
(LOSS) INCOME BEFORE INCOME TAXES	(352,433)	1,230,488	(1,707,293)	4,662,307
INCOME TAXES	7,103	326,357	176,518	1,289,172
NET (LOSS) INCOME	(359,536)	904,131	(1,883,811)	3,373,135
COMPREHENSIVE LOSS:
NET (LOSS) INCOME	(359,536)	904,131	(1,883,811)	3,373,135
OTHER COMPREHENSIVE LOSS:
Unrealized foreign currency translation loss	(315,181)	(4,217,933)	(2,157,652)	(3,415,632)
COMPREHENSIVE LOSS	$ (674,717)	$ (3,313,802)	$ (4,041,463)	$ (42,497)
NET (LOSS) INCOME PER COMMON SHARE:
Basic	$ (0.07)	$ 0.23	$ (0.41)	$ 0.86
Diluted	$ (0.07)	$ 0.23	$ (0.41)	$ 0.86
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	5,188,443	3,943,725	4,593,558	3,939,486
Diluted	5,188,443	3,943,725	4,593,558	3,939,486

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (1,883,811)	$ 3,373,135
Adjustments to reconcile net (loss) income from operations to net cash (used in) provided by operating activities:
Depreciation	4,458,972	6,166,899
Amortization of intangible assets	107,918	71,966
Stock-based compensation and fees	582,740	285,560
Changes in operating assets and liabilities:
Notes receivable	13,679	(142,843)
Restricted cash	(4,037)
Accounts receivable	(320,591)	2,546,105
Inventories	(1,217,043)	250,193
Prepaid and other current assets	186,417	21,114
Advances to suppliers	(18,133)	(85,798)
Accounts payable	(242,558)	(168,462)
Accrued expenses	(5,927,351)	(487,275)
VAT and service taxes payable	(155,022)	(323,532)
Income taxes payable	(177,782)	(574,783)
Advances from customers	(12,664)	369,986
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	(4,609,266)	11,302,265
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of patent use rights	(2,431,892)
Purchase of property and equipment	(14,290)	(12,573)
NET CASH USED IN INVESTING ACTIVITIES	(2,446,182)	(12,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans	2,963,868	4,545,012
Repayments of bank loans	(3,039,865)	(4,382,690)
Decrease (increase) in restricted cash	372,384	(113,625)
(Decrease) increase in bank acceptance notes payable	(440,780)	113,625
Proceeds from sale of common stock	753,400
NET CASH PROVIDED BY FINANCING ACTIVITIES	609,007	162,322
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS	(430,689)	(615,575)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(6,877,130)	10,836,439
CASH AND CASH EQUIVALENTS - beginning of period	18,790,370	7,835,791
CASH AND CASH EQUIVALENTS - end of period	11,913,240	18,672,230
Cash paid for:
Interest	165,515	175,102
Income taxes	164,182	1,863,955
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for future services	76,340
Stock issued for accrued liabilities	$ 54,000

XML

Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Organization and Summary of Significant Accounting Policies [Abstract]

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Cleantech Solutions International, Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex, Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc., and on June 13, 2011, the Company’s corporate name was changed to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into a Nevada corporation.

Through its affiliated companies and subsidiaries, the Company manufactures and sells textile dyeing and finishing machines and sells forged products and fabricated products to a range of clean technology customers including high precision forged rolled rings and related components for the wind power industry and other industries. The Company is the sole owner of Fulland Limited (“Fulland”), a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland owns 100% of the capital stock of Green Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind Energy”), which are wholly foreign-owned enterprises (“WFOE”) organized under the laws of the People’s Republic of China (“PRC” or “China”). Green Power is a party to a series of contractual arrangements, as fully described below, dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”), formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd., and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”), both of which are limited liability companies organized under the laws of, and based in, the PRC. Heavy Industries and Dyeing are sometimes collectively referred to as the “Huayang Companies”.

Fulland was organized by the owners of the Huayang Companies as a special purpose vehicle for purposes of raising capital in accordance with requirements of the PRC State Administration of Foreign Exchange (“SAFE”). On May 31, 2007, SAFE issued an official notice known as Hui Zong Fa [2007] No. 106 (“Circular 106”), which requires the owners of any Chinese company to obtain SAFE’s approval before establishing any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, the owners of the Huayang Companies, Mr. Jianhua Wu and Ms. Lihua Tang, submitted their application to SAFE in early September 2007. On October 11, 2007, SAFE approved their application, permitting these Chinese citizens to establish Fulland as a special purpose vehicle for any foreign ownership and capital raising activities by the Huayang Companies.

Dyeing, which was formed on August 17, 1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for the textile industry. The Company refers to this segment as the dyeing and finishing equipment segment.

Fulland Wind Energy was formed on August 27, 2008. In 2009, the Company began to produce and sell forged products through Fulland Wind Energy. Through Fulland Wind Energy, the Company manufactures and machines all forged products, including wind products such as shafts, rolled rings, gear rims, gearboxes, bearings and other components and finished products and assemblies for the wind power and other industries, including large-scale equipment used in the manufacturing process for the various industries. The Company refers to this segment of its business as the forged rolled rings and related components segment.

Beginning in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries, and it produces and sells a variety of heat exchangers, separators, tanks, towers, cryogenic equipment, and other products. The Company refers to this segment of its business as the petroleum and chemical equipment segment.

Basis of presentation; management’s responsibility for preparation of financial statements

The Company’s unaudited consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power and Fulland Wind Energy, as well as the financial statements of Huayang Companies - Dyeing and Heavy Industries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2015 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2016. The consolidated balance sheet as of December 31, 2015 contained herein has been derived from the audited consolidated financial statements as of December 31, 2015, but does not include all disclosures required by the U.S. GAAP.

Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:

Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi (“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter.

Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and the two shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.

Equity Pledge Agreement.  Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.

Option Agreement.   Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its (loss) income from operations is consolidated with the Company’s, and the Company’s net (loss) income includes all of the Huayang Companies net (loss) income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net (loss) income in calculating the net (loss) income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.

Use of estimates

The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the three and nine months ended September 30, 2016 and 2015 include the allowance for doubtful accounts, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, accruals for taxes due, and the value of stock-based compensation. Because of the significant decline in revenues from the forged rolled rings and related components and petroleum equipment segments, the Company is evaluating on an ongoing basic, the continuation of these segments. In the event that the Company discontinues either or both of these segments, the Company may suffer an impairment expense with respect to the assets dedicated to those segments.

Cash and cash equivalents 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains with various financial institutions mainly in the PRC and the U.S. At September 30, 2016 and December 31, 2015, cash balances held in PRC and PRC banks of $11,909,903 and $18,777,228, respectively, are uninsured. The funds are primarily held in banks.

Fair value of financial instruments and other assets

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table presents information about equipment held for sale measured at fair value on a nonrecurring basis at September 30, 2016 and December 31, 2015:

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at September 30,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2016		Loss
Equipment held for sale	$	-	$	-	$	8,708,602	$	8,708,602	$	-

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at December 31,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2015		Loss
Equipment held for sale	$	-	$	-	$	-	$	-	$	417,171

The Company conducted an impairment assessment on the equipment held for sale based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale as of September 30, 2016 and December 31, 2015. Upon completion of its 2015 impairment analysis, the Company determined that the carrying value exceeded the fair market value on the equipment held for sale. Accordingly, the Company recorded an impairment loss of $0 and $417,171 at September 30, 2016 and December 31, 2015, respectively.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, accounts payable, accrued liabilities, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Concentrations of credit risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

At September 30, 2016 and December 31, 2015, the Company’s cash balances by geographic area were as follows:

Country:	September 30, 2016				December 31, 2015
United States	$	3,337	0.03	%	$	13,142	0.1	%
China		11,909,903	99.97	%		18,777,228	99.9	%
Total cash and cash equivalents	$	11,913,240	100.0	%	$	18,790,370	100.0	%

Restricted cash

Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $266,388 and $647,080 at September 30, 2016 and December 31, 2015, respectively.

Notes receivable

Notes receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $115,453 and $132,497 at September 30, 2016 and December 31, 2015, respectively. 

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. During the nine months ended September 30, 2016 and 2015, accounts with the amount of approximately $1,737,000 and $6,000, respectively, were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The write-offs of accounts receivable against the allowance for doubtful accounts only impact the balance sheet accounts. At September 30, 2016 and December 31, 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $1,418,994 and $3,218,592, respectively. 

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $1,064,035 and $1,093,326 at September 30, 2016 and December 31, 2015, respectively.

Advances to suppliers

Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,028,939 and $1,038,884 at September 30, 2016 and December 31, 2015, respectively.

Equipment held for sale

Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. As of September 30, 2016, the Company reflected certain manufacturing equipment that was previously used in forged rolled rings and related components segment and petroleum and chemical equipment segment as equipment held for sale on the accompanying consolidated balance sheets.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended September 30, 2016 and 2015.

Advances from customers  

Advances from customers at September 30, 2016 and December 31, 2015 amounted to $408,956 and $433,050, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenues from the sale of dyeing and finishing equipment, forged rolled rings and other components, petroleum and chemical equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. For the three months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were $18,679 and $18,146, respectively. For the nine months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were $56,555 and $61,032, respectively. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions, including the forged rolled rings, are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income taxes

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2016 and December 31, 2015, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Shipping costs

Shipping costs are included in selling expenses and totaled $28,609 and $174,497 for the three months ended September 30, 2016 and 2015, respectively. Shipping costs totaled $95,087 and $804,993 for the nine months ended September 30, 2016 and 2015, respectively.

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $40,645 and $51,360 for the three months ended September 30, 2016 and 2015, respectively. Employee benefit costs totaled $131,885 and $174,738 for the nine months ended September 30, 2016 and 2015, respectively.

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company did not incur any advertising expenses for the three and nine months ended September 30, 2016. Advertising expenses totaled $10,628 and $29,731 for the three and nine months ended September 30, 2015, respectively.

Research and development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s new dyeing machinery. Research and development costs totaled $111,840 and $23,935 for the three months ended September 30, 2016 and 2015, respectively. Research and development costs totaled $196,478 and $81,195 for the nine months ended September 30, 2016 and 2015, respectively. 

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries and affiliates, whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (loss) income. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2016 and 2015 was $(430,689) and $(615,575), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. 

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. Other than for the purchase of equipment from non-Chinese suppliers, the Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at September 30, 2016 and December 31, 2015 were translated at 6.66938 RMB to $1.00 and at 6.4907 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the nine months ended September 30, 2016 and 2015 were 6.57924 RMB and 6.1606 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

(Loss) income per share of common stock

ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net (loss) income per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the three and nine months ended September 30, 2016 and 2015. The following table presents a reconciliation of basic and diluted net (loss) income per share: 

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net (loss) income for basic and diluted net (loss) income per share of common stock	$	(359,536	)	$	904,131	$	(1,883,811	)	$	3,373,135
Weighted average common stock outstanding - basic and diluted		5,188,443			3,943,725		4,593,558			3,939,486
Net (loss) income per common share - basic and diluted	$	(0.07	)	$	0.23	$	(0.41	)	$	0.86

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Comprehensive loss

Comprehensive loss is comprised of net (loss) income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended September 30, 2016 and 2015 included net (loss) income and unrealized loss from foreign currency translation adjustments. 

Reclassification

Certain reclassifications have been made in prior year same period’s consolidated financial statements to conform to the current period’s financial presentation.

Recent accounting pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact it may have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

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Accounts Receivable

9 Months Ended

Sep. 30, 2016

Accounts Receivable/Restricted Net Assets [Abstract]

ACCOUNTS RECEIVABLE

NOTE 2 – ACCOUNTS RECEIVABLE

At September 30, 2016 and December 31, 2015, accounts receivable consisted of the following:

	September 30, 2016			December 31, 2015
Accounts receivable	$	17,135,173		$	19,042,451
Less: allowance for doubtful accounts		(1,418,994	)		(3,218,592	)
	$	15,716,179		$	15,823,859

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. During the nine months ended September 30, 2016 and 2015, accounts with the amount of approximately $1,737,000 and $6,000 were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The write-offs of accounts receivable against the allowance for doubtful accounts only impact the balance sheet accounts.

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Inventories

9 Months Ended

Sep. 30, 2016

Inventories [Abstract]

INVENTORIES

NOTE 3 – INVENTORIES

At September 30, 2016 and December 31, 2015, inventories consisted of the following:

	September 30, 2016			December 31, 2015
Raw materials	$	1,324,915		$	690,824
Work-in-process		743,718			1,593,815
Finished goods		1,974,130			635,771
		4,042,763			2,920,410
Less: reserve for obsolete inventories		(1,064,035	)		(1,093,326	)
	$	2,978,728		$	1,827,084

The Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future demand and market conditions.

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Prepaid Expenses and Other

9 Months Ended

Sep. 30, 2016

Prepaid Expenses and Other [Abstract]

PREPAID EXPENSES AND OTHER

NOTE 4 – PREPAID EXPENSES AND OTHER

At September 30, 2016 and December 31, 2015, prepaid expenses and other consisted of the following:

	September 30, 2016		December 31, 2015
Prepaid income taxes	$	576,879	$	785,471
Prepaid stock-based professional fees		76,340		-
Prepaid valued added tax on purchase		88,201		89,353
Other		116,623		117,231
	$	858,043	$	992,055

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Equipment Held for Sale

9 Months Ended

Sep. 30, 2016

Equipment Held for Sale [Abstract]

EQUIPMENT HELD FOR SALE

NOTE 5 – EQUIPMENT HELD FOR SALE

The Company measures long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell these assets.  The assets held for sale are no longer subject to depreciation as they are not used in operations. As of September 30, 2016, the Company committed to a plan to sell certain manufacturing equipment that was previously used in forged rolled rings and related components segment and petroleum and chemical equipment segment and reflected as equipment held for sale on the accompanying consolidated balance sheets. Although the Company is actively seeking and negotiating with potential buyers, the Company can give no assurances that the sale process will be successful and, if it were successful, there is no assurance as to the amount or timing of any potential proceeds.

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Property and Equipment

9 Months Ended

Sep. 30, 2016

Property and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 6 – PROPERTY AND EQUIPMENT

At September 30, 2016 and December 31, 2015, property and equipment consisted of the following:

	Useful life	September 30, 2016			December 31, 2015
Manufacturing equipment	5 - 10 years	$	39,652,919		$	66,381,394
Building and building improvements	5 - 20 years		24,007,378			24,668,268
Vehicles	5 years		189,339			194,552
Office equipment and furniture	5 years		161,612			165,403
			64,011,248			91,409,617
Less: accumulated depreciation			(26,737,042	)		(39,655,653	)
		$	37,274,206		$	51,753,964

For the three months ended September 30, 2016 and 2015, depreciation expense amounted to $1,107,211 and $2,022,385, respectively, of which $835,220 and $1,861,821, respectively, was included in cost of revenues, and the remainder was included in operating expenses. For the nine months ended September 30, 2016 and 2015, depreciation expense amounted to $4,458,972 and $6,166,899, respectively, of which $3,652,108 and $5,494,243, respectively, was included in cost of revenues, and the remainder was included in operating expenses.

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Intangible Assets

9 Months Ended

Sep. 30, 2016

Intangible Assets [Abstract]

INTANGIBLE ASSETS

NOTE 7 – INTANGIBLE ASSETS

At September 30, 2016 and December 31, 2015, intangible assets consisted of the following:

	Useful life	September 30, 2016			December 31, 2015
Land use rights	45 - 50 years	$	4,048,472		$	4,159,920
Patent use rights	10 years		2,399,024			-
			6,447,496			4,159,920
Less: accumulated amortization			(863,469	)		(777,849	)
		$	5,584,027		$	3,382,071

Amortization of intangible assets attributable to future periods is as follows:

Twelve-month periods ending September 30:	Amount
2017	$	328,537
2018		328,537
2019		328,537
2020		328,537
2021		328,537
Thereafter		3,941,342
	$	5,584,027

There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The Company amortizes the land use rights over the term of the respective land use right.

In August 2016, the Company purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The Company amortizes the exclusive patent use right over the term of the patent.

For the three months ended September 30, 2016 and 2015, amortization of intangible assets amounted to $62,692 and $23,614, respectively. For the nine months ended September 30, 2016 and 2015, amortization of intangible assets amounted to $107,918 and $71,966, respectively.

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Short-Term Bank Loans

9 Months Ended

Sep. 30, 2016

Short-Term Bank Loans [Abstract]

SHORT-TERM BANK LOANS

NOTE 8 – SHORT-TERM BANK LOANS

Short-term bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon maturities. At September 30, 2016 and December 31, 2015, short-term bank loans consisted of the following:

	September 30,  2016		December 31, 2015
Loan from Agricultural and Commercial Bank, due on June 16, 2016 with annual interest rate of 7.038% at December 31, 2015, secured by certain assets of the Company and repaid in May 2016	$	-	$	693,300
Loan form Agricultural and Commercial Bank, due on May 26, 2017 with annual interest rate of 7.038% at September 30, 2016, secured by certain assets of the Company		674,725		-
Loan from Jiangsu Huishan Mintai Village Town Bank, due on March 1, 2016 with annual interest rate of 10.56% at December 31, 2015, secured by certain assets of the Company and repaid in February 2016		-		770,333
Loan from Jiangsu Huishan Mintai Village Town Bank, due on November 1, 2016 with annual interest rate of 10.56% at September 30, 2016, secured by certain assets of the Company and repaid in October 2016		749,695		-
Loan from Bank of Communications, due on September 3, 2016 with annual interest rate of 5.62% at December 31, 2015, secured by certain assets of the Company and repaid on due date		-		770,333
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% at September 30, 2016, secured by certain assets of the Company		749,695		-
Loan from Bank of China, due on January 12, 2016 with annual interest rate of 7.20% at December 31, 2015, secured by certain assets of the Company and repaid in January 2016		-		385,166
Loan from Bank of China, due on December 26, 2016 with annual interest rate of 5.97% at September 30, 2016, secured by certain assets of the Company		749,695		-
Loan from Bank of China, due on January 25, 2016 with annual interest rate of 7.20% at December 31, 2015, secured by certain assets of the Company and repaid in January 2016		-		462,200
Total short-term bank loans	$	2,923,810	$	3,081,332

Interest related to the short-term bank loans, which was $54,339 and $61,131 for the three months ended September 30, 2016 and 2015, respectively, and $165,515 and $175,102 for the nine months ended September 30, 2016 and 2015, respectively, is included in interest expense on the accompanying consolidated statements of operations and comprehensive loss.

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Bank Acceptance Notes Payable

9 Months Ended

Sep. 30, 2016

Bank Acceptance Notes Payable [Abstract]

BANK ACCEPTANCE NOTES PAYABLE

NOTE 9 – BANK ACCEPTANCE NOTES PAYABLE

Bank acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured by the Company’s restricted cash which are deposits with various lenders. At September 30, 2016 and December 31, 2015, the Company’s bank acceptance notes payables consisted of the following:

	September 30, 2016		December 31, 2015
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 9, 2016, collateralized by 100% of restricted cash deposited	$	-	$	308,133
Bank of China, non-interest bearing, due and paid on January 16, 2016, collateralized by 100% of restricted cash deposited		-		107,847
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on March 21, 2016, collateralized by 100% of restricted cash deposited		-		77,033
Bank of China, non-interest bearing, due and paid on March 23, 2016, collateralized by 100% of restricted cash deposited		-		77,033
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on June 29, 2016, collateralized by 100% of restricted cash deposited		-		77,034
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on October 13, 2016, collateralized by 100% of restricted cash deposited		29,988		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on December 28, 2016, collateralized by 100% of restricted cash deposited		44,982		-
Bank of China, non-interest bearing, due on January 6, 2017, collateralized by 100% of restricted cash deposited		44,982		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on January 29, 2017, collateralized by 100% of restricted cash deposited		74,969		-
Total	$	194,921	$	647,080

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Accrued Liability for Claimed Sale Contract Dispute

9 Months Ended

Sep. 30, 2016

Accrued Liability For Claimed Sale Contract Dispute [Abstract]

ACCRUED LIABILITY FOR CLAIMED SALE CONTRACT DISPUTE

NOTE 10 – ACCRUED LIABILITY FOR CLAIMED SALE CONTRACT DISPUTE

In December 2015, the Company received a notice of contract termination in writing from its largest customer, which was a customer in the petroleum and chemical equipment segment, alleging breach of contract for late delivery of product and for delivery of product with quality defects. As a result of the claimed breach of contract, the customer demanded payment of a penalty of 20% of the contract price plus penalties for late delivery and damages in the amounts of RMB 36,103,640 ($5,562,365 at December 31, 2015). In the third quarter of 2016, the claimed sale contract dispute was resolved, and the Company made the payment of RMB 36,103,640 RMB to this customer in full satisfaction of the customer’s claims against the Company.

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Accrued Expenses

9 Months Ended

Sep. 30, 2016

Accrued Expenses [Abstract]

ACCRUED EXPENSES

NOTE 11 – ACCRUED EXPENSES

At September 30, 2016 and December 31, 2015, accrued expenses consisted of the following:

	September 30, 2016		December 31, 2015
Accrued salaries and related benefits	$	176,881	$	465,514
Accrued professional fees		15,330		171,433
Other payables		102,910		161,767
	$	295,121	$	798,714

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Stockholders' Equity

9 Months Ended

Sep. 30, 2016

Stockholders' Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 12 – STOCKHOLDERS’ EQUITY

Common stock issued for services

On March 1, 2016, the Board of Directors approved and authorized the Company to issue 160,000 shares of common stock pursuant to its amended 2010 long-term incentive plan, including 75,000 shares to its former chief financial officer. The shares were valued at $209,600, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company reduced accrued liabilities of $54,000 and recorded stock-based compensation and fees of $130,400 for the nine months ended September 30, 2016 and recorded prepaid expenses of $25,200 which will be amortized over the balance of the corresponding service periods.

On March 1, 2016, the Board of Directors approved and authorized the Company to issue a total of 300,000 shares of common stock to two companies which performed services relating to preparing and implementing a new business plan for the Company with the objective of improving the Company’s long-term growth. Of these shares, 100,000 shares were issued pursuant to an agreement with one consultant and 200,000 shares were issued pursuant to an agreement with a second consultant. The agreements provide for the issuance of an additional 100,000 shares to one consultant and 200,000 to the second consultant if the agreement is in effect in July 2016. On July 1, 2016, the Company issued an additional 100,000 shares of its common stock to the first consultant pursuant to the agreement. A consulting agreement with the second consultant was terminated, and no additional shares of common stock were issued or are issuable pursuant to the consulting agreement with the second consultant. The shares were valued at fair market value using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $441,990 for the nine months ended September 30, 2016 and recorded prepaid expenses of $48,990 which will be amortized over the balance of the corresponding service periods.

On June 30, 2016, the Board of Directors approved and authorized the Company to issue 12,500 shares of common stock pursuant to its amended 2010 long-term incentive plan to a consultant. The shares were valued at $12,500, the fair market value on the grant date using the reported closing share price on the date of grant, and the Company recorded stock-based compensation and fees of $10,350 for the nine months ended September 30, 2016 and recorded prepaid expenses of $2,150, which will be amortized over the rest of service periods.

The Company recorded stock-based compensation and fess of $94,240 for the three months ended September 30, 2016.

Common stock sold for cash

The Company sold a total of 720,000 shares of common stock to an investor during June and July 2016 pursuant to stock purchase agreements. On June 6, 2016, the Company sold 230,000 shares of common stock at a purchase price of $1.00 per share, from which the Company received net proceeds of $230,000. On June 24, 2016, the Company sold 230,000 shares of common stock at a purchase price of $1.10 per share, from which it received net proceeds of $253,000. On July 18, 2016, the Company sold 260,000 shares of common stock at a purchase price of $1.04 per share, from which it received gross proceeds of $270,400. The Company did not engage a placement agent with respect to these sales.

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Statutory Reserve

9 Months Ended

Sep. 30, 2016

Statutory Reserve [Abstract]

STATUTORY RESERVE

NOTE 13 – STATUTORY RESERVE

The Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. As of December 31, 2015, the Company appropriated the required maximum 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries; accordingly, no additional statutory reserve is required for the three and nine months ended September 30, 2016. As of September 30, 2016, the Company had not appropriated the required maximum 50% of its registered capital to statutory reserve for Fulland Wind Energy. During the three and nine months ended September 30, 2016, the Company did not make any appropriations to statutory reserve for Fulland Wind Energy as it incurred recurring net loss.

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Segment Information

9 Months Ended

Sep. 30, 2016

Segment Information [Abstract]

SEGMENT INFORMATION

NOTE 14 – SEGMENT INFORMATION

For the three and nine months ended September 30, 2016 and 2015, the Company operated in three reportable business segments - (1) the manufacture of textile dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the manufacture of petroleum and chemical equipment segment. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations. All of the Company’s operations are conducted in the PRC. Because of the significant decline in revenues from the forged rolled rings and related components and petroleum equipment segments, the Company is evaluating, on an ongoing basic, the continuation of these two segments. In the event that the Company discontinues either or both of these segments, the Company may suffer an impairment expense with respect to the assets dedicated to those segments. Information with respect to these reportable business segments for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended September 30,						Three Months Ended September 30,
	2016			2015			2016			2015
Revenues
Dyeing and finishing equipment	$	3,945,608		$	8,355,273		$	12,390,190		$	23,49,579
Forged rolled rings and related components		31,984			1,420,348			437,433			11,692,962
Petroleum and chemical equipment		-			2,249,812			130,736			7,677,957
		3,977,592			12,025,433			12,958,359			42,862,498
Depreciation
Dyeing and finishing equipment		955,181			850,480			2,924,085			2,572,477
Forged rolled rings and related components		46,897			684,422			1,372,860			2,086,489
Petroleum and chemical equipment		105,133			487,483			162,027			1,507,933
		1,107,211			2,022,385			4,458,972			6,166,899
Interest expense
Dyeing and finishing equipment		31,676			35,561			96,630			107,474
Forged rolled rings and related components		12,140			12,735			36,505			27,740
Petroleum and chemical equipment		10,523			12,835			32,380			39,888
		54,339			61,131			165,515			175,102
Net income (loss)
Dyeing and finishing equipment		12,140			1,170,705			529,555			3,080,537
Forged rolled rings and related components		(113,287	)		(302,083	)		(1,494,138	)		286,505
Petroleum and chemical equipment		(160,175	)		114,609			(269,143	)		500,473
Other (a)		(107,385	)		(79,100	)		(650,085	)		(494,380	)
	$	(359,536	)	$	904,131		$	(1,883,811	)	$	3,373,135

Identifiable long-lived tangible assets at September 30, 2016 and December 31, 2015 by segment	September 30, 2016		December 31, 2015
Dyeing and finishing equipment	$	37,274,206	$	25,782,801
Forged rolled rings and related components		-		14,212,045
Petroleum and chemical equipment		-		11,759,118
Equipment held for sale		8,708,602		-
	$	45,982,808	$	51,753,964

Identifiable long-lived tangible assets at September 30, 2016 and December 31, 2015 by geographical location	September 30, 2016		December 31, 2015
China	$	45,982,808	$	51,753,964
United States		-		-
	$	45,982,808	$	51,753,964

(a) The Company does not allocate any general and administrative expense of its U.S. activities to its reportable segments, because these activities are managed at a corporate level.

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Concentration

9 Months Ended

Sep. 30, 2016

Concentration [Abstract]

CONCENTRATION

NOTE 15 – CONCENTRATION

Customers

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the three and nine months ended September 30, 2016 and 2015.

		Three Months Ended September 30,					Nine Months Ended September 30,
Customer		2016		2015			2016		2015
	A		*		19	%		*		13	%

* Less than 10%.

No customer accounted for 10% of the Company’s total outstanding accounts receivable at September 30, 2016 and December 31, 2015. At December 31, 2015, the Company had a dispute with its largest customer and the accounts receivable from its largest customer was fully reserved. In the third quarter of 2016, the dispute was resolved by payment by the Company of the amount claimed to be due, and the fully reserved account receivable from this customer was written off with a corresponding debit to the allowance for doubtful account.

Suppliers

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases for the three and nine months ended September 30, 2016 and 2015.

		Three Months Ended September 30,						Nine Months Ended September 30,
Supplier		2016			2015			2016			2015
	A		37	%		27	%		23	%		25	%
	B		18	%		*			10	%		*
	C		16	%		*			*			*
	D		*			14	%		12	%		*
	E		*			*			*			10	%

* Less than 10%.

The four largest suppliers accounted for 6.3% of the Company’s total outstanding accounts payable at September 30, 2016. Three largest suppliers accounted for 13.6% of the Company’s total outstanding accounts payable at December 31, 2015.

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Restricted Net Assets

9 Months Ended

Sep. 30, 2016

Accounts Receivable/Restricted Net Assets [Abstract]

RESTRICTED NET ASSETS

NOTE 16 – RESTRICTED NET ASSETS

Regulations in the PRC permit payments of dividends by the Company’s PRC VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIE’s and subsidiary. Heavy Industries and Dyeing had reached the cumulative limit as of December 31, 2015. The statutory reserve funds are not distributable as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIE’s and its subsidiary are restricted in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may further restrict the Company’s PRC VIEs and its subsidiaries from transferring funds to the Company in the form of loans and/or advances.

As of September 30, 2016 and December 31, 2015, substantially all of the Company’s net assets are attributable to the PRC VIE’s and its subsidiaries located in the PRC. Accordingly, the Company’s restricted net assets at September 30, 2016 and December 31, 2015 were approximately $76,236,000 and $79,627,000, respectively.

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 17 – SUBSEQUENT EVENTS

In October 2016, the Company repaid short-term loan from Jiangsu Huishan Mintai Village Town Bank in the principal amount of $749,695, and borrowed the same amount from the same bank. The new loan bears interest rate at 10.56% per annum and is due on July 5, 2017.

In October 2016, the Company repaid the bank acceptance notes payable of $29,988.

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Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Organization and Summary of Significant Accounting Policies [Abstract]

Basis of presentation; management's responsibility for preparation of financial statements

Basis of presentation; management’s responsibility for preparation of financial statements

The Company’s unaudited consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power and Fulland Wind Energy, as well as the financial statements of Huayang Companies - Dyeing and Heavy Industries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2015 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2016. The consolidated balance sheet as of December 31, 2015 contained herein has been derived from the audited consolidated financial statements as of December 31, 2015, but does not include all disclosures required by the U.S. GAAP.

Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s wholly foreign-owned enterprise in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:

Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Renminbi (“RMB”) to Fulland that is equal to all of the Huayang Companies’ profits for such quarter.

Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and the two shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.

Equity Pledge Agreement.  Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.

Option Agreement.   Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its (loss) income from operations is consolidated with the Company’s, and the Company’s net (loss) income includes all of the Huayang Companies net (loss) income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net (loss) income in calculating the net (loss) income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.

Use of estimates

Use of estimates

The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the three and nine months ended September 30, 2016 and 2015 include the allowance for doubtful accounts, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, accruals for taxes due, and the value of stock-based compensation. Because of the significant decline in revenues from the forged rolled rings and related components and petroleum equipment segments, the Company is evaluating on an ongoing basic, the continuation of these segments. In the event that the Company discontinues either or both of these segments, the Company may suffer an impairment expense with respect to the assets dedicated to those segments.

Cash and cash equivalents

Cash and cash equivalents 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains with various financial institutions mainly in the PRC and the U.S. At September 30, 2016 and December 31, 2015, cash balances held in PRC and PRC banks of $11,909,903 and $18,777,228, respectively, are uninsured. The funds are primarily held in banks.

Fair value of financial instruments and other assets

Fair value of financial instruments and other assets

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table presents information about equipment held for sale measured at fair value on a nonrecurring basis at September 30, 2016 and December 31, 2015:

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at September 30,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2016		Loss
Equipment held for sale	$	-	$	-	$	8,708,602	$	8,708,602	$	-

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at December 31,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2015		Loss
Equipment held for sale	$	-	$	-	$	-	$	-	$	417,171

The Company conducted an impairment assessment on the equipment held for sale based on the guidelines established in ASC Topic 360 to determine the estimated fair market value of the equipment held for sale as of September 30, 2016 and December 31, 2015. Upon completion of its 2015 impairment analysis, the Company determined that the carrying value exceeded the fair market value on the equipment held for sale. Accordingly, the Company recorded an impairment loss of $0 and $417,171 at September 30, 2016 and December 31, 2015, respectively.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, prepaid expenses and other, short-term bank loans, bank acceptance notes payable, accounts payable, accrued liabilities, advances from customers, VAT and service taxes payable and income taxes payable approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Concentrations of credit risk

Concentrations of credit risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

At September 30, 2016 and December 31, 2015, the Company’s cash balances by geographic area were as follows:

Country:	September 30, 2016				December 31, 2015
United States	$	3,337	0.03	%	$	13,142	0.1	%
China		11,909,903	99.97	%		18,777,228	99.9	%
Total cash and cash equivalents	$	11,913,240	100.0	%	$	18,790,370	100.0	%

Restricted cash

Restricted cash

Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $266,388 and $647,080 at September 30, 2016 and December 31, 2015, respectively.

Notes receivable

Notes receivable

Notes receivable represents trade accounts receivable due from customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $115,453 and $132,497 at September 30, 2016 and December 31, 2015, respectively.

Accounts receivable

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. During the nine months ended September 30, 2016 and 2015, accounts with the amount of approximately $1,737,000 and $6,000, respectively, were written off after exhaustive efforts at collection with a corresponding debit to the allowance for doubtful account. The write-offs of accounts receivable against the allowance for doubtful accounts only impact the balance sheet accounts. At September 30, 2016 and December 31, 2015, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $1,418,994 and $3,218,592, respectively.

Inventories

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $1,064,035 and $1,093,326 at September 30, 2016 and December 31, 2015, respectively.

Advances to suppliers

Advances to suppliers

Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,028,939 and $1,038,884 at September 30, 2016 and December 31, 2015, respectively.

Equipment held for sale

Equipment held for sale

Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. As of September 30, 2016, the Company reflected certain manufacturing equipment that was previously used in forged rolled rings and related components segment and petroleum and chemical equipment segment as equipment held for sale on the accompanying consolidated balance sheets.

Property and equipment

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of long-lived assets

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charge for the three and nine months ended September 30, 2016 and 2015.

Advances from customers

Advances from customers  

Advances from customers at September 30, 2016 and December 31, 2015 amounted to $408,956 and $433,050, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue as customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

Revenue recognition

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenues from the sale of dyeing and finishing equipment, forged rolled rings and other components, petroleum and chemical equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. For the three months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were $18,679 and $18,146, respectively. For the nine months ended September 30, 2016 and 2015, amounts allocated to installation and warranty revenues were $56,555 and $61,032, respectively. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions, including the forged rolled rings, are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income taxes

Income taxes

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of September 30, 2016 and December 31, 2015, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Shipping costs

Shipping costs

Shipping costs are included in selling expenses and totaled $28,609 and $174,497 for the three months ended September 30, 2016 and 2015, respectively. Shipping costs totaled $95,087 and $804,993 for the nine months ended September 30, 2016 and 2015, respectively.

Employee benefits

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $40,645 and $51,360 for the three months ended September 30, 2016 and 2015, respectively. Employee benefit costs totaled $131,885 and $174,738 for the nine months ended September 30, 2016 and 2015, respectively.

Advertising

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company did not incur any advertising expenses for the three and nine months ended September 30, 2016. Advertising expenses totaled $10,628 and $29,731 for the three and nine months ended September 30, 2015, respectively.

Research and development

Research and development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s new dyeing machinery. Research and development costs totaled $111,840 and $23,935 for the three months ended September 30, 2016 and 2015, respectively. Research and development costs totaled $196,478 and $81,195 for the nine months ended September 30, 2016 and 2015, respectively.

Foreign currency translation

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries and affiliates, whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive (loss) income. The cumulative translation adjustment and effect of exchange rate changes on cash for the nine months ended September 30, 2016 and 2015 was $(430,689) and $(615,575), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. 

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. Other than for the purchase of equipment from non-Chinese suppliers, the Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at September 30, 2016 and December 31, 2015 were translated at 6.66938 RMB to $1.00 and at 6.4907 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the nine months ended September 30, 2016 and 2015 were 6.57924 RMB and 6.1606 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

(Loss) income per share of common stock

(Loss) income per share of common stock

ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net (loss) income per share is computed by dividing net (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the three and nine months ended September 30, 2016 and 2015. The following table presents a reconciliation of basic and diluted net (loss) income per share: 

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net (loss) income for basic and diluted net (loss) income per share of common stock	$	(359,536	)	$	904,131	$	(1,883,811	)	$	3,373,135
Weighted average common stock outstanding - basic and diluted		5,188,443			3,943,725		4,593,558			3,939,486
Net (loss) income per common share - basic and diluted	$	(0.07	)	$	0.23	$	(0.41	)	$	0.86

Related parties

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Comprehensive loss

Comprehensive loss

Comprehensive loss is comprised of net (loss) income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended September 30, 2016 and 2015 included net (loss) income and unrealized loss from foreign currency translation adjustments.

Reclassification

Reclassification

Certain reclassifications have been made in prior year same period’s consolidated financial statements to conform to the current period’s financial presentation.

Recent accounting pronouncements

Recent accounting pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact it may have on its consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

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Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Organization and Summary of Significant Accounting Policies [Abstract]

Schedule of equipment held for sale measured at fair value on a nonrecurring basis

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at September 30,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2016		Loss
Equipment held for sale	$	-	$	-	$	8,708,602	$	8,708,602	$	-

	Quoted Prices in Active Markets for Identical Assets		Significant other Observable Inputs		Significant Unobservable Inputs		Balance at December 31,		Impairment
	(Level 1)		(Level 2)		(Level 3)		2015		Loss
Equipment held for sale	$	-	$	-	$	-	$	-	$	417,171

Schedule of cash balances by geographic area

Country:	September 30, 2016				December 31, 2015
United States	$	3,337	0.03	%	$	13,142	0.1	%
China		11,909,903	99.97	%		18,777,228	99.9	%
Total cash and cash equivalents	$	11,913,240	100.0	%	$	18,790,370	100.0	%

Schedule of reconciliation of basic and diluted net (loss) per share

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net (loss) income for basic and diluted net (loss) income per share of common stock	$	(359,536	)	$	904,131	$	(1,883,811	)	$	3,373,135
Weighted average common stock outstanding - basic and diluted		5,188,443			3,943,725		4,593,558			3,939,486
Net (loss) income per common share - basic and diluted	$	(0.07	)	$	0.23	$	(0.41	)	$	0.86

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Accounts Receivable (Tables)

9 Months Ended

Sep. 30, 2016

Accounts Receivable/Restricted Net Assets [Abstract]

Components of accounts receivable

	September 30, 2016			December 31, 2015
Accounts receivable	$	17,135,173		$	19,042,451
Less: allowance for doubtful accounts		(1,418,994	)		(3,218,592	)
	$	15,716,179		$	15,823,859

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Inventories (Tables)

9 Months Ended

Sep. 30, 2016

Inventories [Abstract]

Components of inventories

	September 30, 2016			December 31, 2015
Raw materials	$	1,324,915		$	690,824
Work-in-process		743,718			1,593,815
Finished goods		1,974,130			635,771
		4,042,763			2,920,410
Less: reserve for obsolete inventories		(1,064,035	)		(1,093,326	)
	$	2,978,728		$	1,827,084

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Prepaid Expenses and Other (Table)

9 Months Ended

Sep. 30, 2016

Prepaid Expenses and Other [Abstract]

Schedule of prepaid expenses and other

	September 30, 2016		December 31, 2015
Prepaid income taxes	$	576,879	$	785,471
Prepaid stock-based professional fees		76,340		-
Prepaid valued added tax on purchase		88,201		89,353
Other		116,623		117,231
	$	858,043	$	992,055

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2016

Property and Equipment [Abstract]

Summary of property and equipment

	Useful life	September 30, 2016			December 31, 2015
Manufacturing equipment	5 - 10 years	$	39,652,919		$	66,381,394
Building and building improvements	5 - 20 years		24,007,378			24,668,268
Vehicles	5 years		189,339			194,552
Office equipment and furniture	5 years		161,612			165,403
			64,011,248			91,409,617
Less: accumulated depreciation			(26,737,042	)		(39,655,653	)
		$	37,274,206		$	51,753,964

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Intangible Assets [Abstract]

Summary of intangible assets

	Useful life	September 30, 2016			December 31, 2015
Land use rights	45 - 50 years	$	4,048,472		$	4,159,920
Patent use rights	10 years		2,399,024			-
			6,447,496			4,159,920
Less: accumulated amortization			(863,469	)		(777,849	)
		$	5,584,027		$	3,382,071

Schedule of amortization of intangible assets attributable to future periods

Twelve-month periods ending September 30:	Amount
2017	$	328,537
2018		328,537
2019		328,537
2020		328,537
2021		328,537
Thereafter		3,941,342
	$	5,584,027

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Short-Term Bank Loans (Tables)

9 Months Ended

Sep. 30, 2016

Short-Term Bank Loans [Abstract]

Schedule of short-term bank loans

	September 30,  2016		December 31, 2015
Loan from Agricultural and Commercial Bank, due on June 16, 2016 with annual interest rate of 7.038% at December 31, 2015, secured by certain assets of the Company and repaid in May 2016	$	-	$	693,300
Loan form Agricultural and Commercial Bank, due on May 26, 2017 with annual interest rate of 7.038% at September 30, 2016, secured by certain assets of the Company		674,725		-
Loan from Jiangsu Huishan Mintai Village Town Bank, due on March 1, 2016 with annual interest rate of 10.56% at December 31, 2015, secured by certain assets of the Company and repaid in February 2016		-		770,333
Loan from Jiangsu Huishan Mintai Village Town Bank, due on November 1, 2016 with annual interest rate of 10.56% at September 30, 2016, secured by certain assets of the Company and repaid in October 2016		749,695		-
Loan from Bank of Communications, due on September 3, 2016 with annual interest rate of 5.62% at December 31, 2015, secured by certain assets of the Company and repaid on due date		-		770,333
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% at September 30, 2016, secured by certain assets of the Company		749,695		-
Loan from Bank of China, due on January 12, 2016 with annual interest rate of 7.20% at December 31, 2015, secured by certain assets of the Company and repaid in January 2016		-		385,166
Loan from Bank of China, due on December 26, 2016 with annual interest rate of 5.97% at September 30, 2016, secured by certain assets of the Company		749,695		-
Loan from Bank of China, due on January 25, 2016 with annual interest rate of 7.20% at December 31, 2015, secured by certain assets of the Company and repaid in January 2016		-		462,200
Total short-term bank loans	$	2,923,810	$	3,081,332

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Bank Acceptance Notes Payable (Tables)

9 Months Ended

Sep. 30, 2016

Bank Acceptance Notes Payable [Abstract]

Schedule of bank acceptance notes payable

	September 30, 2016		December 31, 2015
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 9, 2016, collateralized by 100% of restricted cash deposited	$	-	$	308,133
Bank of China, non-interest bearing, due and paid on January 16, 2016, collateralized by 100% of restricted cash deposited		-		107,847
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on March 21, 2016, collateralized by 100% of restricted cash deposited		-		77,033
Bank of China, non-interest bearing, due and paid on March 23, 2016, collateralized by 100% of restricted cash deposited		-		77,033
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on June 29, 2016, collateralized by 100% of restricted cash deposited		-		77,034
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on October 13, 2016, collateralized by 100% of restricted cash deposited		29,988		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on December 28, 2016, collateralized by 100% of restricted cash deposited		44,982		-
Bank of China, non-interest bearing, due on January 6, 2017, collateralized by 100% of restricted cash deposited		44,982		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on January 29, 2017, collateralized by 100% of restricted cash deposited		74,969		-
Total	$	194,921	$	647,080

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Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2016

Accrued Expenses [Abstract]

Schedule of accrued expenses

	September 30, 2016		December 31, 2015
Accrued salaries and related benefits	$	176,881	$	465,514
Accrued professional fees		15,330		171,433
Other payables		102,910		161,767
	$	295,121	$	798,714

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2016

Segment Information [Abstract]

Segment Information

	Three Months Ended September 30,						Three Months Ended September 30,
	2016			2015			2016			2015
Revenues
Dyeing and finishing equipment	$	3,945,608		$	8,355,273		$	12,390,190		$	23,49,579
Forged rolled rings and related components		31,984			1,420,348			437,433			11,692,962
Petroleum and chemical equipment		-			2,249,812			130,736			7,677,957
		3,977,592			12,025,433			12,958,359			42,862,498
Depreciation
Dyeing and finishing equipment		955,181			850,480			2,924,085			2,572,477
Forged rolled rings and related components		46,897			684,422			1,372,860			2,086,489
Petroleum and chemical equipment		105,133			487,483			162,027			1,507,933
		1,107,211			2,022,385			4,458,972			6,166,899
Interest expense
Dyeing and finishing equipment		31,676			35,561			96,630			107,474
Forged rolled rings and related components		12,140			12,735			36,505			27,740
Petroleum and chemical equipment		10,523			12,835			32,380			39,888
		54,339			61,131			165,515			175,102
Net income (loss)
Dyeing and finishing equipment		12,140			1,170,705			529,555			3,080,537
Forged rolled rings and related components		(113,287	)		(302,083	)		(1,494,138	)		286,505
Petroleum and chemical equipment		(160,175	)		114,609			(269,143	)		500,473
Other (a)		(107,385	)		(79,100	)		(650,085	)		(494,380	)
	$	(359,536	)	$	904,131		$	(1,883,811	)	$	3,373,135

Identifiable long-lived tangible assets at September 30, 2016 and December 31, 2015 by segment	September 30, 2016		December 31, 2015
Dyeing and finishing equipment	$	37,274,206	$	25,782,801
Forged rolled rings and related components		-		14,212,045
Petroleum and chemical equipment		-		11,759,118
Equipment held for sale		8,708,602		-
	$	45,982,808	$	51,753,964

Identifiable long-lived tangible assets at September 30, 2016 and December 31, 2015 by geographical location	September 30, 2016		December 31, 2015
China	$	45,982,808	$	51,753,964
United States		-		-
	$	45,982,808	$	51,753,964

(a) The Company does not allocate any general and administrative expense of its U.S. activities to its reportable segments, because these activities are managed at a corporate level.

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Concentration (Tables)

9 Months Ended

Sep. 30, 2016

Concentration [Abstract]

Concentration of revenue from customers

		Three Months Ended September 30,					Nine Months Ended September 30,
Customer		2016		2015			2016		2015
	A		*		19	%		*		13	%

* Less than 10%.

Concentration of purchase from suppliers

		Three Months Ended September 30,						Nine Months Ended September 30,
Supplier		2016			2015			2016			2015
	A		37	%		27	%		23	%		25	%
	B		18	%		*			10	%		*
	C		16	%		*			*			*
	D		*			14	%		12	%		*
	E		*			*			*			10	%

* Less than 10%.

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Organization and Summary of Significant Accounting Policies (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale		$ 417,171
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale	8,708,602
Fair Value, Measurements, Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale
Fair Value, Measurements, Nonrecurring [Member] | Significant Other Observable Inputs Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale
Fair Value, Measurements, Nonrecurring [Member] | Significant Unobservable Inputs Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale	$ 8,708,602

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Organization and Summary of Significant Accounting Policies (Details 1) - USD ($)	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Cash balances by geographic area
Total cash and cash equivalents	$ 11,913,240	$ 18,790,370	$ 18,672,230	$ 7,835,791
Total cash and cash equivalents, percentage	100.00%	100.00%
United States [Member]
Cash balances by geographic area
Total cash and cash equivalents	$ 3,337	$ 13,142
Total cash and cash equivalents, percentage	0.03%	0.10%
China [Member]
Cash balances by geographic area
Total cash and cash equivalents	$ 11,909,903	$ 18,777,228
Total cash and cash equivalents, percentage	99.97%	99.90%

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Organization and Summary of Significant Accounting Policies (Details 2) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reconciliation of basic and diluted net income per share
Net (loss) income for basic and diluted net (loss) income per share of common stock	$ (359,536)	$ 904,131	$ (1,883,811)	$ 3,373,135
Weighted average common stock outstanding - basic and diluted	5,188,443	3,943,725	4,593,558	3,939,486
Net (loss) income per common share - basic and diluted	$ (0.07)	$ 0.23	$ (0.41)	$ 0.86

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Organization and Summary of Significant Accounting Policies (Details Textual)		3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 01, 2008	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Oct. 12, 2007
Organization and Summary of Significant Accounting Policies (Textual)
Cash and cash equivalents uninsured amount		$ 11,909,903		$ 11,909,903		$ 18,777,228
Restricted cash		266,388		266,388		647,080
Notes receivable		115,453		115,453		132,497
Allowance for doubtful accounts		1,418,994		1,418,994		3,218,592
Inventory reserves		1,064,035		1,064,035		1,093,326
Advances to suppliers		1,028,939		1,028,939		1,038,884
Advances from customers		408,956		408,956		$ 433,050
Revenue recognized on installation and warranty		18,679	$ 18,146	56,555	$ 61,032
Shipping costs		28,609	174,497	95,087	804,993
Employee benefit costs		40,645	51,360	131,885	174,738
Advertising expense			10,628		29,731
Research and development		$ 111,840	$ 23,935	196,478	81,195
Cumulative translation adjustment and effect of exchange rate changes on cash				$ (430,689)	(615,575)
Asset and liability translation rate (RMB to USD)		6.66938		6.66938		6.4907
Average translation rates (RMB to USD)		6.57924		6.57924		6.1606
Foreign currency translation description				Asset and liability accounts at September 30, 2016 and December 31, 2015 were translated at 6.66938 RMB to $1.00 and at 6.4907 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the nine months ended September 30, 2016 and 2015 were 6.57924 RMB and 6.1606 RMB to $1.00, respectively. Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate.
Period for non-interest bearing amount				6 months
Impairment loss on equipment held for sale						$ 417,171
Allowance for doubtful cccounts receivable, writen off				$ 1,737,000	$ 6,000
Green Power Environment Technology (Shanghai) Co., Ltd.[Member]
Organization and Summary of Significant Accounting Policies (Textual)
Percentage of capital stock owned by Fulland							100.00%
Operating Agreement [Member]
Organization and Summary of Significant Accounting Policies (Textual)
Term of agreement from October 12, 2007	20 years
Option Agreement [Member]
Organization and Summary of Significant Accounting Policies (Textual)
Term of agreement from October 12, 2007	20 years

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Accounts Receivable (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Components of accounts receivable
Accounts receivable	$ 17,135,173	$ 19,042,451
Less: allowance for doubtful accounts	(1,418,994)	(3,218,592)
Accounts receivable, net	$ 15,716,179	$ 15,823,859

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Accounts Receivable (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Accounts Receivable (Textual)
Allowance for doubtful cccounts receivable, writen off	$ 1,737,000	$ 6,000

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Inventories (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Components of inventories
Raw materials	$ 1,324,915	$ 690,824
Work-in-process	743,718	1,593,815
Finished goods	1,974,130	635,771
Inventory gross	4,042,763	2,920,410
Less: reserve for obsolete inventories	(1,064,035)	(1,093,326)
Inventory net	$ 2,978,728	$ 1,827,084

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Prepaid Expenses and Other (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Prepaid Expenses and Other [Abstract]
Prepaid income taxes	$ 576,879	$ 785,471
Prepaid stock-based professional fees	76,340
Prepaid valued added tax on purchase	88,201	89,353
Other	116,623	117,231
Prepaid expenses and other	$ 858,043	$ 992,055

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Property and Equipment (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Components of property and equipment
Property and equipment, gross	$ 64,011,248	$ 91,409,617
Less: accumulated depreciation	(26,737,042)	(39,655,653)
Property and equipment, net	37,274,206	51,753,964
Manufacturing equipment [Member]
Components of property and equipment
Property and equipment, gross	$ 39,652,919	66,381,394
Manufacturing equipment [Member] | Minimum [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Manufacturing equipment [Member] | Maximum [Member]
Components of property and equipment
Property and equipment, useful life	10 years
Building and building improvements [Member]
Components of property and equipment
Property and equipment, gross	$ 24,007,378	24,668,268
Building and building improvements [Member] | Minimum [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Building and building improvements [Member] | Maximum [Member]
Components of property and equipment
Property and equipment, useful life	20 years
Vehicles [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Property and equipment, gross	$ 189,339	194,552
Office equipment and furniture [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Property and equipment, gross	$ 161,612	$ 165,403

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Property and Equipment (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Property and Equipment (Textual)
Depreciation expense	$ 1,107,211	$ 2,022,385	$ 4,458,972	$ 6,166,899
Depreciation included in cost of revenues and operating expenses	$ 835,220	$ 1,861,821	$ 3,652,108	$ 5,494,243

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Intangible Assets (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Components of land use rights
Intangible assets, Gross	$ 6,447,496	$ 4,159,920
Less: accumulated amortization	(863,469)	(777,849)
Intangible assets, Net	5,584,027	3,382,071
Land use rights [Member]
Components of land use rights
Intangible assets, Gross	$ 4,048,472	4,159,920
Patent use rights [Member]
Components of land use rights
Intangible assets, Useful life	10 years
Intangible assets, Gross	$ 2,399,024
Minimum [Member] | Land use rights [Member]
Components of land use rights
Intangible assets, Useful life	45 years
Maximum [Member] | Land use rights [Member]
Components of land use rights
Intangible assets, Useful life	50 years

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Intangible Assets (Details 1) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Amortization of land use rights attributable to future periods
2017	$ 328,537
2018	328,537
2019	328,537
2020	328,537
2021	328,537
Thereafter	3,941,342
Intangible assets, net	$ 5,584,027	$ 3,382,071

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Intangible Assets (Textual)
Amortization of intangible assets	$ 62,692	$ 23,614	$ 107,918	$ 71,966
Land use rights expiration date			Expire on January 1, 2053 and October 30, 2053
Minimum [Member] | Use Rights [Member]
Intangible Assets (Textual)
Intangible assets, Useful life			45 years
Maximum [Member] | Use Rights [Member]
Intangible Assets (Textual)
Intangible assets, Useful life			50 years

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Short-Term Bank Loans (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Summary of short-term bank loans
Total short-term bank loans	$ 2,923,810	$ 3,081,332
Loan from Agricultural and Commercial Bank, due on June 16, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans		693,300
Loan form Agricultural and Commercial Bank, due on May 26, 2017 [Member]
Summary of short-term bank loans
Total short-term bank loans	674,725
Loan from Jiangsu Huishan Mintai Village Town Bank, due on March 1, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans		770,333
Loan from Jiangsu Huishan Mintai Village Town Bank, due on November 1, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans	749,695
Loan from Bank of Communications, due on September 3, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans		770,333
Loan from Bank of Communications, due on September 5, 2017 [Member]
Summary of short-term bank loans
Total short-term bank loans	749,695
Loan from Bank of China, due on January 12, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans		385,166
Loan from Bank of China, due on December 26, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans	749,695
Loan from Bank of China, due on January 25, 2016 [Member]
Summary of short-term bank loans
Total short-term bank loans		$ 462,200

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Short-Term Bank Loans (Details Textual) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Short-term bank loans (Textual)
Interest expense	$ 54,339	$ 61,131	$ 165,515	$ 175,102
Loan from Agricultural and Commercial Bank, due on June 16, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage					7.038%
Short term bank loan, maturity date					Jun. 16, 2016
Loan form Agricultural and Commercial Bank, due on May 26, 2017 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage	7.038%		7.038%
Short term bank loan, maturity date			May 26, 2017
Loan from Jiangsu Huishan Mintai Village Town Bank, due on March 1, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage					10.56%
Short term bank loan, maturity date					Mar. 01, 2016
Loan from Jiangsu Huishan Mintai Village Town Bank, due on November 1, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage	10.56%		10.56%
Short term bank loan, maturity date			Nov. 01, 2016
Loan from Bank of Communications, due on September 3, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage					5.62%
Short term bank loan, maturity date					Sep. 03, 2016
Loan from Bank of Communications, due on September 5, 2017 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage	5.62%		5.62%
Short term bank loan, maturity date			Sep. 05, 2017
Loan from Bank of China, due on January 12, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage					7.20%
Short term bank loan, maturity date					Jan. 12, 2016
Loan from Bank of China, due on December 26, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage	5.97%		5.97%
Short term bank loan, maturity date			Dec. 26, 2016
Loan from Bank of China, due on January 25, 2016 [Member]
Short-term bank loans (Textual)
Short-term loan, interest rate, stated percentage					7.20%
Short term bank loan, maturity date					Jan. 25, 2016

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Bank Acceptance Notes Payable (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Summary of bank acceptance notes payables
Total	$ 194,921	$ 647,080
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 9, 2016 [Member]
Summary of bank acceptance notes payables
Total		308,133
Bank of China, non-interest bearing, due and paid on January 16, 2016 [Member]
Summary of bank acceptance notes payables
Total		107,847
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on March 21, 2016 [Member]
Summary of bank acceptance notes payables
Total		77,033
Bank of China, non-interest bearing, due and paid on March 23, 2016 [Member]
Summary of bank acceptance notes payables
Total		77,033
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on June 29, 2016 [Member]
Summary of bank acceptance notes payables
Total		77,034
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on October 13, 2016 [Member]
Summary of bank acceptance notes payables
Total	29,988
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on December 28, 2016 [Member]
Summary of bank acceptance notes payables
Total	44,982
Bank of China, non-interest bearing, due on January 6, 2017 [Member]
Summary of bank acceptance notes payables
Total	44,982
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on January 29, 2017 [Member]
Summary of bank acceptance notes payables
Total	$ 74,969

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Bank Acceptance Notes Payable (Details Textual)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 9, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date		Jan. 09, 2016
Percentage of assets collateralized for non-interest bearing notes payables		100.00%
Bank of China, non-interest bearing, due and paid on January 16, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date		Jan. 16, 2016
Percentage of assets collateralized for non-interest bearing notes payables		100.00%
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on March 21, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date		Mar. 21, 2016
Percentage of assets collateralized for non-interest bearing notes payables		100.00%
Bank of China, non-interest bearing, due and paid on March 23, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date		Mar. 23, 2016
Percentage of assets collateralized for non-interest bearing notes payables		100.00%
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on June 29, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date		Jun. 29, 2016
Percentage of assets collateralized for non-interest bearing notes payables		100.00%
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on October 13, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Oct. 13, 2016
Percentage of assets collateralized for non-interest bearing notes payables	100.00%
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on December 28, 2016 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Dec. 28, 2016
Percentage of assets collateralized for non-interest bearing notes payables	100.00%
Bank of China, non-interest bearing, due on January 6, 2017 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Jan. 06, 2017
Percentage of assets collateralized for non-interest bearing notes payables	100.00%
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due on January 29, 2017 [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Jan. 29, 2017
Percentage of assets collateralized for non-interest bearing notes payables	100.00%

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Accrued Liability for Claimed Sale Contract Dispute (Details Textual)	Sep. 30, 2016 CNY (¥)	Dec. 31, 2015 USD ($)	Dec. 31, 2015 CNY (¥)
Accrued Liability For Claimed Sale Contract Dispute (Textual)
Customer demanded payment of penalty percentage		20.00%	20.00%
Contract price plus penalties for late delivery and damages	¥ 36,103,640	$ 5,562,365	¥ 36,103,640

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Accrued Expenses (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Accrued Expenses [Abstract]
Accrued salaries and related benefits	$ 176,881	$ 465,514
Accrued professional fees	15,330	171,433
Other payables	102,910	161,767
Total accrued expenses	$ 295,121	$ 798,714

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Stockholders' Equity (Details) - USD ($)			1 Months Ended				3 Months Ended	9 Months Ended
	Jun. 24, 2016	Jun. 06, 2016	Jul. 31, 2016	Jul. 18, 2016	Jun. 30, 2016	Mar. 31, 2016	Sep. 30, 2016	Sep. 30, 2016	Sep. 30, 2015
Stockholders' Equity (Textual)
Common stock issued for services, value								$ 76,340
Reduced accrued liabilities								(5,927,351)	(487,275)
Stock-based compensation and fee								582,740	$ 285,560
Sale of common stock shares	230,000	230,000	720,000	260,000	720,000
Purchase price of per share to one investor	$ 1.10	$ 1.00		$ 1.04
Net proceeds amount	$ 253,000	$ 230,000		$ 270,400
Board of Directors [Member]
Stockholders' Equity (Textual)
Common stock issued for services, shares						300,000
Board of Directors [Member] | One consultant [Member]
Stockholders' Equity (Textual)
Common stock issued for services, shares						100,000
Additional issuance of shares			100,000			100,000
Board of Directors [Member] | Second consultant [Member]
Stockholders' Equity (Textual)
Common stock issued for services, shares						200,000
Additional issuance of shares						200,000
2010 long-term incentive plan [Member]
Stockholders' Equity (Textual)
Common stock issued for services, shares						160,000
Stock-based compensation and fee								441,990
Prepaid expense							$ 48,990	48,990
2010 long-term incentive plan [Member] | Chief financial officer [Member]
Stockholders' Equity (Textual)
Common stock issued for services, shares						75,000
Common stock issued for services, value								209,600
Reduced accrued liabilities								54,000
Stock-based compensation and fee								130,400
Prepaid expense							25,200	$ 25,200
2010 long-term incentive plan [Member] | Board of Directors [Member]
Stockholders' Equity (Textual)
Common stock issued for services, shares								12,500
Common stock issued for services, value								$ 12,500
Stock-based compensation and fee							94,240	10,350
Prepaid expense							$ 2,150	$ 2,150

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Statutory Reserve (Details Textual)	9 Months Ended
	Sep. 30, 2016
Statutory Reserve (Textual)
Appropriation to the statutory surplus reserve, description	Statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the "PRC GAAP"). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities' registered capital or members' equity.
Appropriations of registered capital to statutory reserves, description	Maximum 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries; accordingly, no additional statutory reserve is required for the three and nine months ended September 30, 2016.
Company had not appropriated required maximum of registered capital to statutory reserves, description	Maximum 50% of its registered capital to statutory reserve for Fulland Wind Energy. During the three and nine months ended September 30, 2016, the Company did not make any appropriations to statutory reserve for Fulland Wind Energy as it incurred recurring net loss.

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Segment Information (Details) - USD ($)		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Segment reporting information revenue [Abstract]
Revenues		$ 3,977,592	$ 12,025,433	$ 12,958,359	$ 42,862,498
Depreciation		1,107,211	2,022,385	4,458,972	6,166,899
Interest expense		54,339	61,131	165,515	175,102
Net income (loss)		(359,536)	904,131	(1,883,811)	3,373,135
Identifiable long-lived tangible assets by segment		45,982,808		45,982,808		$ 51,753,964
Identifiable long-lived tangible assets by geographical location		45,982,808		45,982,808		51,753,964
Dyeing and Finishing Equipment [Member]
Segment reporting information revenue [Abstract]
Revenues		3,945,608	8,355,273	12,390,190	2,349,579
Depreciation		955,181	850,480	2,924,085	2,572,477
Interest expense		31,676	35,561	96,630	107,474
Net income (loss)		12,140	1,170,705	529,555	3,080,537
Identifiable long-lived tangible assets by segment		37,274,206		37,274,206		25,782,801
Forged Rolled Rings and Related Components [Member]
Segment reporting information revenue [Abstract]
Revenues		31,984	1,420,348	437,433	11,692,962
Depreciation		46,897	684,422	1,372,860	2,086,489
Interest expense		12,140	12,735	36,505	27,740
Net income (loss)		(113,287)	(302,083)	(1,494,138)	286,505
Identifiable long-lived tangible assets by segment						14,212,045
Petroleum and Chemical Equipment [Member]
Segment reporting information revenue [Abstract]
Revenues			2,249,812	130,736	7,677,957
Depreciation		105,133	487,483	162,027	1,507,933
Interest expense		10,523	12,835	32,380	39,888
Net income (loss)		(160,175)	114,609	(269,143)	500,473
Identifiable long-lived tangible assets by segment						11,759,118
Other [Member]
Segment reporting information revenue [Abstract]
Net income (loss)	[1]	(107,385)	$ (79,100)	(650,085)	$ (494,380)
Equipment held for sale [Member]
Segment reporting information revenue [Abstract]
Identifiable long-lived tangible assets by segment		8,708,602		8,708,602
China [Member]
Segment reporting information revenue [Abstract]
Identifiable long-lived tangible assets by geographical location		45,982,808		45,982,808		51,753,964
United States [Member]
Segment reporting information revenue [Abstract]
Identifiable long-lived tangible assets by geographical location

[1] The Company does not allocate any general and administrative expense of its U.S. activities to its reportable segments, because these activities are managed at a corporate level.

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Segment Information (Details Textual) - Segment	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Segment Information (Textual)
Number of reportable business segments	3	3

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Concentration (Details) - Revenue [Member]	3 Months Ended			9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015	Sep. 30, 2016		Sep. 30, 2015
Concentration of revenue from customers
Concentration risk percentage	10.00%		10.00%	10.00%		10.00%
Customer A [Member]
Concentration of revenue from customers
Concentration risk percentage		[1]	19.00%		[1]	13.00%

[1] Less than 10%.

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Concentration (Details 1) - Purchase [Member]	3 Months Ended				9 Months Ended
	Sep. 30, 2016		Sep. 30, 2015		Sep. 30, 2016		Sep. 30, 2015
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	10.00%		10.00%		10.00%		10.00%
Supplier A [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	37.00%		27.00%		23.00%		25.00%
Supplier B [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	18.00%			[1]	10.00%			[1]
Supplier C [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	16.00%			[1]		[1]		[1]
Supplier D [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage		[1]	14.00%		12.00%			[1]
Supplier E [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage		[1]		[1]		[1]	10.00%

[1] Less than 10%.

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Concentration (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Revenue [Member]
Concentration (Textual)
Concentration risk percentage	10.00%	10.00%	10.00%	10.00%
Revenue [Member] | Accounts receivable [Member]
Concentration (Textual)
Suppliers accounted for total purchase			No customer		No customer
Concentration risk percentage			10.00%		10.00%
Purchase [Member]
Concentration (Textual)
Concentration risk percentage	10.00%	10.00%	10.00%	10.00%
Purchase [Member] | Accounts payable [Member]
Concentration (Textual)
Suppliers accounted for total purchase			The four largest suppliers		Three largest suppliers
Concentration risk percentage			6.30%		13.60%

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Restricted Net Assets (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Sep. 30, 2016
Restricted Net Assets (Textual)
Annual appropriations required by statutory reserve fund	At least 10% of after-tax profit, if any, of the relevant PRC VIE's and subsidiary.
Company's restricted net assets	$ 79,627,000	$ 76,236,000

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Subsequent Events (Details) - Subsequent Event [Member]	1 Months Ended
	Oct. 31, 2016 USD ($)
Subsequent Events (Textual)
Principal amount	$ 749,695
Short-term loan, interest rate	10.56%
Short term bank loan, maturity date	Jul. 05, 2017
Notes payable	$ 29,988