UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2009
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________To ______________________
Commission file number: 000-53480
CHINA WIND ENERGY INC.
(Exact name of registrant as specified in its charter)
| Nevada | | N/A |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
| | | |
No.2 Haibin Road, Binxi Developing Area Heilongjiang Province People’s Republic of China 150000 | | +86 451 87009618 |
| (Address of principal executive offices) (Zip Code) | | (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of December 10, 2009 the registrant’s outstanding common stock consisted of 51,902,250 shares.
Table of Contents
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
| | | October 31, 2009 | | | July 31, 2009 | |
| Assets | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 19,938 | | | $ | 65,233 | |
| Accounts receivable, net of allowance for doubtful account of $- and $-, respectively | | | 599,167 | | | | 891,776 | |
| Inventories, net of allowance for obsolescence of $1,021,934 and $1,021,028, respectively | | | 684,665 | | | | 648,043 | |
| Prepaid expenses | | | 188,054 | | | | 125,899 | |
| Total current assets | | | 1,491,824 | | | | 1,730,951 | |
| | | | | | | | | |
| Prepayment and deposit | | | 39,070 | | | | 10,945 | |
| Due from related parties | | | 299,149 | | | | 298,884 | |
| Property and equipment, net of accumulated depreciation of $679,642 and $549,659, respectively | | | 9,139,413 | | | | 9,214,594 | |
| Construction in progress | | | 819,623 | | | | 797,016 | |
| Goodwill | | | 8,110,960 | | | | 8,110,960 | |
| Intangible assets, net of accumulated amortization of $71,247 and $66,902, respectively | | | 1,827,235 | | | | 1,839,116 | |
| Total Assets | | $ | 21,727,274 | | | $ | 22,002,466 | |
| | | | | | | | | |
| Liabilities & Stockholders' Equity | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 2,091,139 | | | $ | 1,962,075 | |
| Customer deposit | | | 14,513 | | | | 131,333 | |
| Other payables | | | 17,178 | | | | 18,056 | |
| Short term loans | | | 2,190,265 | | | | 2,111,505 | |
| Due to related parties | | | 76,161 | | | | 76,108 | |
| Wages payable | | | 51,801 | | | | 66,081 | |
| Total current liabilities | | | 4,441,057 | | | | 4,365,158 | |
| | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Common stock; 400,000,000 shares authorized; 0.0001 par value; 51,902,250 shares issued and outstanding, respectively | | | 5,191 | | | | 5,191 | |
| Additional paid-in capital | | | 20,335,701 | | | | 20,335,701 | |
| Accumulated other comprehensive income | | | 56,018 | | | | 50,301 | |
| Accumulated deficit during development stage | | | (4,772,950 | ) | | | (4,478,842 | ) |
| Total China Wind Energy Stockholders' Equity | | | 15,623,960 | | | | 15,912,351 | |
| Non-controlling interest | | | 1,662,257 | | | | 1,724,957 | |
| Total Stockholders' Equity | | | 17,286,217 | | | | 17,637,308 | |
| Total Liabilities & Stockholders' Equity | | $ | 21,727,274 | | | $ | 22,002,466 | |
The accompanying notes are an integral part of these financial statements
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
| | | Three Months Ended | | | Three Months Ended | | | November 27, 2006 (Inception) to | |
| Revenue | | $ | 184,438 | | | $ | - | | | $ | 415,129 | |
| Cost of goods sold | | | (173,713 | ) | | | (111,194 | ) | | | (932,658 | ) |
| Gross profit (Loss) | | | 10,725 | | | | (111,194 | ) | | | (517,529 | ) |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Selling expenses | | | 8,345 | | | | 22,835 | | | | 113,481 | |
| General and administrative | | | 294,905 | | | | 580,197 | | | | 3,319,286 | |
| Total operating expenses | | | 303,250 | | | | 603,032 | | | | 3,432,767 | |
| | | | | | | | | | | | | |
| Loss from operations | | | (292,525 | ) | | | (714,226 | ) | | | (3,950,296 | ) |
| | | | | | | | | | | | | |
| Other income (expenses) | | | | | | | | | | | | |
| Interest income | | | 71 | | | | 265 | | | | 1,071 | |
| Interest expense | | | (65,603 | ) | | | (14,329 | ) | | | (313,482 | ) |
| Loss on disposal of assets | | | - | | | | (9,263 | ) | | | (1,651,934 | ) |
| Government subsidy income | | | - | | | | - | | | | 161,205 | |
| Total other expenses | | | (65,532 | ) | | | (23,327 | ) | | | (1,803,140 | ) |
| | | | | | | | | | | | | |
| Net loss | | | (358,057 | ) | | | (737,553 | ) | | | (5,753,436 | ) |
| Less: Net loss attributable to non-controlling interest | | | (63,949 | ) | | | (118,848 | ) | | | (980,486 | ) |
| Net loss attributable to China Wind Energy Inc. | | | (294,108 | ) | | | (618,705 | ) | | | (4,772,950 | ) |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | | | | | |
| Foreign currency translation | | | 5,717 | | | | (1,376 | ) | | | 56,018 | |
| | | | | | | | | | | | | |
| Comprehensive loss | | | (352,340 | ) | | | (738,929 | ) | | | (5,697,418 | ) |
| Comprehensive loss attibutabe to Non – controlling interest | | | (63,949 | ) | | | (118,848 | ) | | | (980,486 | ) |
| Comprehensive loss attributable to China Wind Energy Inc. | | | (288,391 | ) | | | (620,081 | ) | | | (4,716,932 | ) |
| | | | | | | | | | | | | |
| Net Loss Per Share, Basic and Diluted | | | (0.01 | ) | | | (0.01 | ) | | | | |
| | | | | | | | | | | | | |
| Weighted Average Shares Outstanding, Basic and Diluted | | | 51,902,250 | | | | 51,902,250 | | | | | |
The accompanying notes are an integral part of these financial statements
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
| | | Three Months Ended October 31, 2009 | | | Three Months Ended October 31, 2008 | | | November 27, 2006 (Inception) to October 31, 2009 | |
| Cash Flows From Operating Activities | | | | | | | | | |
| Net Loss | | $ | (358,057 | ) | | $ | (737,553 | ) | | $ | (5,753,436 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | | | | | |
| Depreciation | | | 129,989 | | | | 21,539 | | | | 619,814 | |
| Amortization | | | 12,091 | | | | 77,000 | | | | 111,744 | |
| Loss on disposal of assets | | | - | | | | 9,263 | | | | 1,651,934 | |
| Loss (Gain) on physical count of inventories | | | - | | | | - | | | | 26,831 | |
| Provision (Reversal) on allowance of obsolescence | | | - | | | | 111,194 | | | | - | |
| Common stock issued for services | | | - | | | | | | | | 17,850 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Accounts receivable, net | | | 293,400 | | | | (3,427 | ) | | | 312,588 | |
| Prepaid expenses | | | (62,046 | ) | | | 1,409 | | | | 204,258 | |
| Advances to suppliers | | | - | | | | (76,856 | ) | | | - | |
| Inventories | | | (36,047 | ) | | | (222,171 | ) | | | (172,491 | ) |
| Prepayment and deposit | | | (28,116 | ) | | | 245,587 | | | | 529,634 | |
| Accounts payable and accrued liabilities | | | 127,371 | | | | 183,756 | | | | 331,629 | |
| Customer deposit | | | (116,936 | ) | | | 79,772 | | | | (34,009 | ) |
| Other payables | | | (893 | ) | | | 81,998 | | | | (18,370 | ) |
| Wages payable | | | (14,339 | ) | | | 16,218 | | | | 51,679 | |
| Deferred charges | | | - | | | | (656 | ) | | | - | |
| Net cash used in operating activities | | | (53,583 | ) | | | (212,927 | ) | | | (2,120,345 | ) |
| | | | | | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | | | | | |
| Purchases of property and equipment | | | (46,683 | ) | | | (216,395 | ) | | | (1,320,457 | ) |
| Cash paid for construction in progress | | | (21,900 | ) | | | - | | | | (420,458 | ) |
| Proceeds from sale of land use right | | | - | | | | - | | | | 73,285 | |
| Proceeds from sale of fixed assets | | | - | | | | 7,313 | | | | 99,278 | |
| Cash paid to acquire intangibles | | | - | | | | - | | | | (1,407 | ) |
| Cash acquired on acquisition | | | - | | | | - | | | | 314,713 | |
| Collection of loans made to related parties | | | - | | | | 35,345 | | | | 993,502 | |
| Net cash used in investing activities | | | (68,583 | ) | | | (173,737 | ) | | | (261,544 | ) |
| | | | | | | | | | | | | |
| Cash Flows From Financing Activities | | | | | | | | | | | | |
| Proceeds from related party loans | | | - | | | | - | | | | 69,319 | |
| Proceeds from short term loans | | | 76,888 | | | | 675,325 | | | | 2,584,823 | |
| Repyament of short term loans | | | - | | | | - | | | | (548,441 | ) |
| Proceeds from issuance of common stock | | | - | | | | - | | | | 100,001 | |
| Net cash provided by financing activities | | | 76,888 | | | | 675,325 | | | | 2,205,702 | |
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash | | | (17 | ) | | | (517 | ) | | | 196,125 | |
| Net increase (decrease) in cash and cash equivalents | | | (45,295 | ) | | | 288,144 | | | | 19,938 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 65,233 | | | | 80,348 | | | | - | |
| Cash and cash equivalents, end of period | | $ | 19,938 | | | $ | 368,492 | | | $ | 19,938 | |
| Supplemental disclosure information: | | | | | | | | | | | | |
| Interest expense paid | | $ | 21,890 | | | $ | - | | | $ | 59,693 | |
| Income taxes paid | | $ | - | | | $ | - | | | $ | - | |
The accompanying notes are an integral part of these financial statements
Notes to Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of China Wind Energy Inc. and Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America and rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in China Wind Energy’s annual report on Form 10-K for the year ended July 31, 2009 filed with the SEC on October 29, 2009. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the 2009 annual report on Form 10-K have been omitted.
Basis of Presentation
The consolidated financial statements include all the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. The Company regularly evaluates estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets, and goodwill. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Foreign currency translation
The reporting currency is the U.S. dollar. The functional currency of the Company is the local currency, the Chinese Renminbi (“RMB”). The financial statements of the Company are translated into United States dollars in accordance with ASC 830, “Foreign Currency Translation”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.
Reclassifications
Certain October 31, 2008 amounts have been reclassified to conform to the current period presentation.
Recently adopted accounting pronouncements
In June 2009, the FASB issued new standards setting forth a single source of authoritative GAAP for all non-governmental entities (“Codification”). The Codification, which commenced July 1, 2009, changes the referencing and organization of accounting guidance. The Codification is effective for the Company beginning the quarter ended September 30, 2009. The Codification does not change GAAP and only affects how specific references to GAAP literature are disclosed in the notes to the Company’s consolidated financial statements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted new accounting guidance on business combinations. This guidance requires an entity to measure the business acquired at fair value and to recognize goodwill attributable to any non-controlling interests (previously referred to as minority interests) rather than just the portion attributable to the acquirer. The standards also result in fewer exceptions to the principle of measuring assets acquired and liabilities assumed in a business combination at fair value. In addition, the standards require payments to third parties for consulting, legal, audit and similar services associated with an acquisition to be recognized as expenses when incurred rather than capitalized as part of the business combination. Its adoption did not have a material impact on our consolidated financial statements.
During the first quarter of fiscal 2010,in accordance with U.S. GAAP, the Company adopted the standard on consolidation as it relates to noncontrolling interests. The standard changed the accounting and reporting for minority interests, which were recharacterized as noncontrolling interests and classified as a component of equity. The standard requires retrospective adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of the standard will be applied prospectively. The adoption of the guidance did not have a material impact on the Company’s financial statements.
In May 2009, the FASB issued ASC 855, Subsequent Events. This standard is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. FASB ASC 855 is effective for fiscal years and interim periods ended after June 15, 2009. The Company adopted this standard effective June 15, 2009, and has evaluated any subsequent events through December 10, 2009.
As reflected in the accompanying consolidated financial statements, the Company has accumulated deficits of $4,772,950 at October 31, 2009 that includes a loss of $358,057 for the three months ended October 30, 2009. The Company also had a working capital deficiency of $2,949,233 as of October 30, 2009. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements have been prepared on a going basis and do not include any adjustments that might result from outcome of this uncertainty.
At October 31, 2009, the Company has suffered losses from development stage activities to date. Although additional sources of equity or debt financing, there is no assurance these activities will be successful.
Short term loans consist of the following:
| | | October 31, 2009 | | | July 31, 2009 | |
| | | | | | | | | |
12-month Bank Loan bearing interest at 5.841% per annum and maturing in February 2010 | | $ | 1,467,000 | | | $ | 1,465,700 | |
| Loans from individuals | | | 723,265 | | | | 645,805 | |
| Short term loan | | $ | 2,190,265 | | | $ | 2,111,505 | |
The Company pledged the building and land located in Binxi city as collateral of the bank loan.
Loans from individuals were made by individuals to cover the Company’s temporary cash shortages. The short term loans are unsecured and due on demand. Not all of the loans are interest-bearing. For interest bearing loans, the interest rate is ranging from 14% to 40% per annum.
Interest expenses for short term loans are $65,603 and $14,329 for the quarter ended October 31, 2009 and 2008, respectively.
4. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through December 10, 2009, which is the date the financial statements were issued, and has concluded that no such events or transactions took place which would require disclosure herein.
Forward-Looking Statements
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and the risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
Liquidity and Capital Resources
As of October 31, 2009 we had cash of $19,938, total current assets of $1,491,824, total current liabilities of $4,441,057 and a working capital deficit of $2,949,233 compared to a working capital deficit of $2,634,207 as of July 31, 2009. The increase in working capital deficit was due to a decrease in accounts receivable.
Since November 27, 2006 (inception) to October 31, 2009, our accumulated deficit was $4,772,950. We are dependent on the funds raised through our equity or debt financing, investing activities, and revenue generated through the sales of our products to fund our operations. We anticipate that we will incur substantial losses over the next year and our ability to generate any revenues in the next 12 months continues to be uncertain.
As of October 31, 2009 we had total assets of $21,727,274 compared to $22,002,466 as of July 31, 2009. Our total liabilities increased from $4,365,158 as of July 31, 2009 to $4,441,057 as of October 31, 2009 due to an increase in accounts payable and short term loans. Our total assets as of October 31, 2009 were primarily made up of property, equipment and goodwill.
We used net cash of $53,583 in operating activities for the three months ended October 31, 2009, compared to $212,927 for the three months ended October 31, 2008 and $2,120.345 from inception to October 31, 2009.
We used net cash of $68,583 in investing activities for the three months ended October 31, 2009 including $46,683 in purchases of property and equipment and $21,900 in cash paid for construction. This compares to $173,737 spent on investing activities for the three months ended October 31, 2008, comprised primarily of $216,395 in purchases of property and equipment which are offset by $7,313 gained in sales fixed assets and $35,345 proceed from related parties loans receivable.
We received net cash of $76,888 from financing activities for the three month period ended October 31, 2009, comprised entirely of short term loans. During the three month period ended October 31, 2008 we received $675,325; also entirely from short term loans. From our inception to October 31, 2009 we received a total of $2,205,702 from investing activities.
Our cash position decreased by $45,295 during the three months ended October 31, 2009 compared to an increase of $288,144 during the three months ended October 31, 2008. This is due in part to significantly higher amount of cash received from short term loans during the three month period ended October 31, 2008.
During the three months ended October 31, 2009 we secured short term loans from an institutions and individuals to meet our ongoing cash requirements. Below is a table of these loans at October 31, 2009 and July 31, 2009.
| | | October 31, 2009 | | | July 31, 2009 | |
| | | | | | | | | |
12-month Bank Loan bearing interest at 5.841% per annum and maturing in February 2010 | | $ | 1,467,000 | | | $ | 1,465,700 | |
| Loans from individuals | | | 723,265 | | | | 645,805 | |
| Total short term loans | | $ | 2,190,265 | | | $ | 2,111,505 | |
Not all of the loans from individuals are interest-bearing. For interest bearing loans, the interest rate is ranging from 14% to 40% per annum. Interest expenses for short term loans were $65,603 for the three months ended October 31, 2009 compared to $14,329 for the three months ended October 31, 2008.
We expect that our total expenses will increase over the next year as we increase our business operations. We have not been able to reach the break-even point since our inception and have had to rely on outside capital resources. Over the next 12 months, we plan to begin manufacturing and selling of our wind turbines. However, we do not anticipate that we will generate sufficient revenues to fund our proposed operations.
Our approximate monthly cash requirement during the three month period ended October 31, 2009 was $17,861 compared to $70,976 during the three months ended October 31, 2008. At the moment, we do not have sufficient cash to cover our expenses for one month. Additionally, we expect to require approximately $2,635,161 in financing to fund our business operations over the next 12 months (beginning December 2009), as follows:
| Description | Estimated expenses $ |
| Research and development of wind turbines | 732,064 |
| Marketing | 117,130 |
| Salaries | 585,652 |
| Equipment maintenance | 29,283 |
| Development of distribution chain | 146,413 |
| Utilities | 219,619 |
| Professional Fees | 220,000 |
| General and administrative expenses | 585,000 |
| Total | 2,635,161 |
At present, our cash requirements for the next 12 months outweigh the funds available to maintain or develop our operations. Of the $2,635,161 that we require for the next 12 months, we had $19,938 in cash as of October 31, 2009. In order to improve our liquidity, we intend to pursue additional equity financing from private investors or possibly a registered public offering. We currently do not have any arrangements in place for the completion of any further private placement financings and there is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to be within the amount of capital resources that are available to us.
Results of Operations for the Three Months Ended October 31, 2009 and from November 27, 2006 (inception) to October 31, 2009
Revenues
Since our inception to October 31, 2009 we have generated gross revenues of $415,129 from the sale of combine harvesters manufactured by us. We generated $184,438 in revenue during the three months ended October 31, 2009 compared no revenues during the three months ended October 31, 2008. Our cost of goods sold was $173,713 for the three months ended October 31, 2009 compared to $111,194 for the three months ended October 31, 2008. The reason that the cost of goods was so high during the period in 2008 was due to much of our combine harvester inventory being marked down on obsolescence. During the period ended in 2009, the reason for the high cost of good sold was large expenditures on labor, raw materials and overhead.
Expenses
During the three months ended October 31, 2009, we had total operating expenses of $303,250, including $8,345 in selling expenses and $294,905 in general and administrative costs. By comparison, for the three months ended October 31, 2008, we had total operating expenses of $603,032 which were made up of $580,197 in general and administrative costs and $22,835 in selling expenses. For the period from inception to October 31, 2009 our total operating expenses were $3,432,767.
The main reason for the decrease in expenses is the significant decrease in the activity of the company due to having completed a majority of the work to switch our manufacturing facility from the production of combine harvesters to the production of wind turbines.
Net Loss
Since our inception on November 27, 2006 to October 31, 2009, we incurred a net loss of $5,753,436. For the three months ended October 31, 2009, we incurred net loss of $358,057 compared to $737,553 for the three months ended October 31, 2008. Our net loss per share was $0.01 for the three months ended October 31, 2009 and $0.01 for the three months ended October 31, 2008.
Our net loss for the three months ended October 31, 2009 was the result of limited revenue of $184,438 counted against $173,713 in cost of goods sold, $8,345 in selling expenses, $294,905 in general and administrative expenses and $65,603 in interest expenses. Comparatively, during the three months ended October 31, 2008 we generated no revenues and spent $111,194 in cost of goods sold, $22,835 in selling expenses and $714,226 in general and administrative expenses.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Off-Balance Sheet Arrangements
As of October 31, 2009 we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in the Annual Report on Form 10-K filed with SEC on October 29, 2009. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by our management.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. We regularly evaluate estimates and assumptions related to obsolete inventory, useful life and recoverability of long lived assets, and goodwill. We base our estimates and assumptions on current facts, historical experience and various other factors that we believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Foreign currency translation
The reporting currency is the U.S. dollar. Our functional currency is the local currency, the Chinese Renminbi (“RMB”). Our financial statements are translated into United States dollars in accordance with ASC 830, “Foreign Currency Translation”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.
Not applicable.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms 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. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2009. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls and disclosed in our Annual Report for the year ended July 31, 2009, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Controls
During the quarter covered by this period there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our majority owned subsidiary, Harbin SQ, was named as a defendant in a lawsuit in which the plaintiffs alleged that illegal transfers and misleading promotion of Harbin SQ’s shares to the public occurred through securities brokers. The plaintiffs, 51 current stockholders representing 1,018,000 outstanding shares, acquired Harbin SQ’s shares through securities brokers from Harbin SQ’s initial stockholders and sought monetary damages from Harbin SQ, including the costs of acquiring the shares, expenses and imputed interest.
In September 2008 the claims of the plaintiffs were refuted in a judgment of the Court of Bin County, Heilongjiang Province. On May 25, 2009, several of the plaintiffs appealed the decision to a higher court, but a date for the hearing has not been set.
Our management is not aware of any other legal proceedings that have been threatened against us or any of our subsidiaries.
None.
None.
None.
None.
Exhibit Number | Exhibit Description |
| 31.1 | |
| 32.1 | |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | China Wind Energy Inc. |
| | (Registrant) |
| | |
| | /s/ Shouquan Sun |
| Date: December 10, 2009 | Shouquan Sun |
| | President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director |
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