NOTE 17 – COMMITMENT AND CONTINGENCIES

Equity investment commitment

On December 26, 2016, Dyeing made an equity investment with one unrelated company in Shengxin, a newly-formed entity which plans to develop, construct and maintain photovoltaic power generation projects in China. Shengxin’s total registered capital is RMB 200 million (approximately $31.8 million). Dyeing has agreed to invest RMB 60,000,000 (approximately $9,543,000) for a 30% equity interest and had invested RMB 59,800,000 (approximately $9,511,000) as of September 30, 2018. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $22.3 million) for a 70% interest. Mr. Xue contributed RMB 60,000,000 (approximately $9.5 million), and he advised Dyeing that he anticipates that he will fund the balance of his commitment during 2018. Since Mr. Xue did not make this payment by the end of 2017, Dyeing has the right to amend the contract, and both parties may adjust each sides’ equity interest to reflect the amount of capital each side has actually invested. As of the date of this report, the contract had not been amended. In April 2018, Shengxin secured and invested in a large solar PV project in GuiZhou province. Shengxin paid RMB40.0 million for the project rights and also engaged a local contractor to proceed with building the project. However, on June 1, 2018, the Chinese government halted installation of new solar farms for the remainder of the year and reduced subsidies for projects already under construction. Accordingly, there is no guarantee that the Chinese government will invest in new solar farm or provide the subsidies needed to fund projects. In September 2018, due to significance doubt about the status of this project and recoverability of the Company’s investment, the Company fully impaired the value of its investment in Shengxin in the amount of $8,835,834. Additionally, for the three months ended September 30, 2018 and 2017, the Company’s share of Shengxin’s net loss were $56,624 and $39,060, respectively. For the nine months ended September 30, 2018 and 2017, the Company’s share of Shengxin’s net loss were $202,469 and $81,871, respectively.

Litigation

On or about November 14, 2017, a complaint was filed in the United States District Court for the Eastern District of New York, captioned “Morris Ackerman v. Cleantech Solutions International, Inc.” The complaint alleged that the Company’s proxy statement, which included a proposal to amend the Company’s long-term incentive plan to provide for the grant of incentive and non-qualified options and stock grants to employees and others, did not comply with the disclosure requirements for proxy statements. The parties reached a confidential settlement on or about December 20, 2017, and the plaintiff voluntarily dismissed the action with prejudice on or about January 2, 2018. In connection with this settlement, the Company paid $50,000.

On February 2, 2018, the law firm of Ellenoff Grossman & Schole LLP (“EGS”) filed a complaint against the Company along with a number of companies and individuals in an effort to recover their legal fees in connection with services provided to the other defendants. The lawsuit contends that the Company is the alter ego or successor in interest of those other defendants. Pursuant to the stipulation of discontinuance dated April 30, 2018, the EGS claim is discontinued without prejudices and without costs as to the Company only.

From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations.

Transfer agreement

On August 4, 2017, the Company’s wholly-owned subsidiary, EC Power (Global) Technology Limited (“EC Power”), entered into a Transfer Agreement (the “Transfer Agreement”) with ECoin Global Limited (“ECoin”), to purchase ECoin Redemption Codes (the “Codes”) produced by ECoin for total future consideration of $20,000,000 (the “Transfer Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four years, and will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin in installments, with each installment payable not later than thirty days after the end of December 31 in each calendar year.

Each installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company. As of the date of this report, EC Power has not taken possession of any redemption codes and as of September 30, 2018, EC Power has not sold any redemption codes.

Lease agreement

On June 29, 2018, the Company’s wholly-owned subsidiary, Sharing Film International Limited, entered into a tenancy agreement for approximately 24,000 square feet in Shaw Studios, which is owned by Shaw Movie City Hong Kong Limited (“Shaw Movie City”). The initial lease term will be for one year, commencing November 1, 2018. The Company will issue new shares to Shaw Movie City to pay the up-front amounts due for rent, management fee and deposit on the spaces. The Company plans to utilize these spaces to explore and develop its film and media production and post-production business and to develop a sharing environment for the film and media production industry.

The rent of the Premises is HK$591,664 (approximately $76,000) per month, that is HK$7,099,970 per annum (approximately $910,000) for the Term. The entire sum of HK$7,099,970 (approximately $910,000) shall be payable in advance on the Handover Date without any deduction or set-off by such means and in such manner. Additionally, the Company shall pay a management fee as follows:

(i)	HK$47,207 (approximately $6,000) per month by cash in Hong Kong currency, payable in advance of each calendar month (commencing from the month of August 2018) for the Management Fee of office A;
(ii)	HK$2,994 (approximately $384) per month by cash in Hong Kong currency, payable in advance of each calendar month (commencing from the month of August 2018) for the Management Fee of flat roof;
(iii)	HK$571,061 (approximately $73,000) being 6 months’ Management Fee for office B (and balcony B) and office C (and balcony C) payable in advance by way of Allotted Shares for Payment, as defined below, in the manner pursuant to the agreement; and
(iv)	HK$95,177 (approximately $12,000) per month by cash in Hong Kong currency, payable in advance of each calendar month (commencing from the month of February 2019) for the Management Fee of office B (and balcony B) and office C (and balcony C).

Additionally, the Company is required to pay a security deposit in the amount of HK$3,137,502 (approximately $402,000) payable as follows: 1) HK$1,637,502 (approximately $210,000) by check and 2) HK$1,500,000 (approximately $192,000) by means of delivering to the Landlord the Company’s the SEII new common shares issued and allotted to and in the name of the Landlord’s nominee, at the Issue Price Per Allotted Share for Deposit, as defined below, provided that in no event shall the number of the Company’s common shares to be issued to the Landlord’s Nominee pursuant to this Agreement will exceed 19.9% of the issued and outstanding shares of the Company’s common stock based on the total issued and outstanding shares of the Company’s common stock on the date of this Agreement.

The issue price per Allotted Share for Payment is to be set and determined based on a 5-days closing average of the Company before the Shares Issued Date less 10% thereof (“Issue Price Per Allotted Share for Payment”). The issue price per Allotted Share for Deposit is to be set and determined based on a 5-days closing average of the Company before the Shares Issued Date (hereinafter called “Issue Price Per Allotted Share for Deposit”).