UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
| ¨ | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
|
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2015
OR
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
OR
|
¨ |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report: ______________________
Commission File Number: 001-35755
Delta Technology Holdings Limited
(Exact name of the Registrant as specified
in its charter)
British Virgin Islands
(Jurisdiction of incorporation or organization)
16 Kaifa Avenue
Danyang, Jiangsu, China 212300
(Address of principal executive offices)
Xin Chao
Chief Executives Officer
16 Kaifa Avenue
Danyang, Jiangsu, China 212300
Tel: +86 511-8673-3102
Email: chaoxin77@sina.com
(Name, Telephone, E-mail and/or Facsimile Number
and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act:
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Title of each class |
Name of exchange on which registered |
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Ordinary Shares |
NASDAQ Capital Market |
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Redeemable Ordinary Share Purchase Warrants |
NASDAQ Capital Market |
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Securities registered or to be registered pursuant
to Section 12(g) of the Act:
Not Applicable.
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
Not Applicable.
As of November 16, 2015, the issuer had 9,567,034 ordinary shares
outstanding (including 1,500,000 ordinary shares subject to certain net income performance targets).
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes
¨ No
x
If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
¨
No x
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
x
No ¨
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate website, 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
x
No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act.
¨
Large Accelerated filer |
¨
Accelerated filer |
x
Non-accelerated filer |
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
x
US GAAP |
¨ |
International Financial Reporting Standards
as issued by the International Accounting Standards Board |
¨
Other |
If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.
¨
Item 17 ¨
Item 18
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
¨
No x
TABLE OF CONTENTS
INTRODUCTORY NOTES
Except as otherwise indicated by the context and for the purposes
of this report only, references in this report to:
|
· |
all references to the “Company,”
“we,” “us,” “our company” and “our” refer to Delta Technology Holdings Limited,
formerly CIS Acquisitions Ltd. (together with its subsidiaries and affiliated entities, except the contact indicates otherwise); |
|
· |
“Elite” refers
to Elite Ride Limited, which is our wholly owned subsidiary and a company organized in the BVI; |
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· |
“Delta” refers to Delta
Advanced Materials Limited, a Hong Kong company, as well as Delta’s three wholly-owned operating subsidiaries in the
PRC: Jiangsu Yangtze Delta Fine Chemical Co., Ltd (“Jiangsu Delta”), Jiangsu Delta Logistics Co., Ltd (“Jiangsu
Logistics”), and Binhai Deda Chemical Co., Ltd (“Binhai Deda”). |
|
· |
“Acquisition”
refers to our acquisition of Elite on September 19, 2014, pursuant to a share exchange transaction among us, Elite, Delta
and shareholders of Elite; |
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· |
“BVI” are to
the British Virgin Islands; |
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· |
“Hong Kong”
are to the Hong Kong Special Administrative Region of the People’s Republic of China; |
|
· |
“PRC” and “China”
are to the People’s Republic of China; |
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· |
“SEC” are to
the Securities and Exchange Commission; |
|
· |
“Exchange Act”
are to the Securities Exchange Act of 1934, as amended; |
|
· |
“Securities Act”
are to the Securities Act of 1933, as amended; |
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· |
“Renminbi”
and “RMB” are to the legal currency of China; |
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· |
“Hong Kong dollars,”
“HKD” and “HK$” are to the legal currency of Hong Kong; and |
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· |
“U.S. dollars,”
“dollars” and “$” are to the legal currency of the United States. |
Our financial statements are expressed in
U.S. dollars, which is our reporting currency. Certain of our financial data in this annual report on Form 20-F is translated
into U.S. dollars solely for the reader’s convenience. Unless otherwise noted, all convenient translations from Renminbi
to U.S. dollars in this annual report on Form 20-F were made at a rate of RMB6.1375 to US$1.00, the average exchange rate for
the fiscal year ended June 30, 2015 as set forth on www.oanda.com. We make no representation that any Renminbi or U.S.
dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate,
at the rate stated above, or at all.
GLOSSARY OF TECHNICAL TERMS
To facilitate a better understanding of our
business, the following glossary provides a description of some technical terms and abbreviations used in this annual report.
The terms and their assigned meanings may not correspond to standard industry or common meanings or usages of these terms, as
the case may be.
Benzene |
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An organic chemical compound
with molecular formula C6H6. Its molecule is composed of 6 carbon atoms joined in a ring, with 1 hydrogen
atom attached to each carbon atom. |
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Chlorobenzonitrile |
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A chemical element with molecular formula
C7H4CLN, commonly used in producing medicine, pesticide, dye intermediate. |
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Chlorobenzyl chloride |
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A chemical element with molecular formula
C7H6C12 and is commonly used as an intermediate for manufacturing organic compounds used
in the end applications of pharmaceuticals, pesticides and dyes. |
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Chlorotoluene |
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A group of three isomeric chemical
compounds with molecular formula C7H7Cl. They (ortho-chlorotoluene, meta-chlorotoluene, and para-chlorotoluene)
consists of a disubstituted benzene ring with one chlorine atom and one methyl group. |
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Chlorine |
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A chemical element with symbol Cl and
atomic number 17. Chlorine is in the halogen group and is the second lightest halogen after fluorine. The element is a yellow-green
gas under standard conditions, where it forms diatomic molecules. |
Fumaric acid |
|
A chemical
compound with molecular formula
C4H4O4. It is a white crystalline compound which can
be used as food additive and in the manufacture of polyester resins and polyhydric alcohols
and as a mordant for dyes. |
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Hydrolyzed polymaleic acid |
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A brownish-yellow transparent liquid
which is used as a scale-retarding and dispersing agent for water-cooling systems, oil field water-injection and low-pressure
boilers and also as a rinsing agent for textiles. |
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Maleic Anhydride or MA
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An organic compound with the formula
C2H2(CO)2O. It is the acid anhydride of maleic acid and in its pure state it is a colourless
or white solid with an acrid odour. It is mainly used in unsaturated resin, water treatment agents
such as manufacture of paint, polyester resins, pesticides, and fumaric acid. |
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O-Chloro benzonitrile
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A chemical compound
with molecular formula C7H4CLN.
It is used in dye intermediate, drug and fine chemicals. |
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O-chlorobenzaldehyde |
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A chemical compound
with molecular formula C7H5CIO.
It is a colourless or light yellow oily liquid mainly used as pharmaceutical material to produce o-chloro benzoyl, o-chloro
benzoylchloride. It is also widely used to produce highly-effective acaricide in pesticide industry and pharmaceutical industry. |
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O-chlorobenzoic acid |
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A chemical compound
with molecular formula C7H5CIO2.
It is a white crystalline powder which can be used as preservative for glues and paints. |
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O-chlorobenzyl chloride |
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A chemical element with molecular formula
C7H6CI2, commonly used in the production of o-benzyl, o-dichlorobenzene. |
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OCT |
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O-chlorotoluene, a colourless transparent
liquid with a molecular formula of C7H7Cl. It is used as a solvent in making chemicals, pharmaceuticals,
synthetic rubber and dyes, and as an insecticide and bactericide. |
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Phthalic anhydride |
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An organic compound with molecular
formula C6H4(CO)2O. This colourless solid is an important industrial chemical, especially
for the large-scale production of plasticizers for plastics. |
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PCT |
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P-chlorotoluene, a clear liquid with
molecular formula CH3C6H4Cl. It is commonly used as a solvent and as an intermediate for
organic synthesis (especially for dyes). |
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Styrene |
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An organic compound with a chemical
formula of C8H8. It is a derivative of benzene and takes the form of a colourless oily liquid. It is
used in the production of rubber, plastic, insulation, fiberglass, pipes and automobile. |
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Toluene |
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A clear, colourless liquid with a molecular
formula of C7H8. It is widely used as an industrial feedstock and as a solvent. |
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UPR |
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Unsaturated polyester resin, a family
of condensation polymers formed by the reaction of organic acids and alcohols in the presence of catalysts. |
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2,4DCT |
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2,4-Dichloro toluene, a clear liquid
with molecular formula C7H6Cl2. It can be used as high boiling point solvent and as intermediate
for the synthesis of various organic chemicals of chlorinated-nitrated pesticides and medicinal products. |
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3,4 DCT |
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3,4-Dichloro toluene, a clear liquid
with molecular formula C7H6Cl2. It can be used as high boiling point solvent and as intermediate
for the synthesis of various organic chemicals of chlorinated-nitrated pesticides and medicinal products. |
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2,4-Dichloro-chloride |
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A clear liquid with molecular formula
C7H3Cl3O. It is used as an intermediate for the synthesis of pharmaceuticals,
agrochemicals, rubber chemicals and dyes. |
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2,4-Dichlorobenzaldehyde |
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A pure, colourless,
or slightly yellow crystalline with molecular formula C7H4Cl2O.
It is primarily used for acid blue dye and pesticide diluted Hexaconazole. |
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2,4-Dichlorobenzonitrile |
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A white powder with molecular formula
C7H3Cl2N. It is mainly used as a herbicide. |
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3,4-Dichlorobenzonitrile |
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A white and crystalline powder with
molecular formula C7H3Cl2N. It is mainly used as an intermediate in the manufacture of highly
effective herbicide and bactericide. |
FORWARD-LOOKING STATEMENTS
In addition to historical information, this
report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,”
“plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions
which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and
industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins
or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any
statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions
or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could
cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Potential
risks and uncertainties include, among other things, the possibility that we may not be able to maintain or increase our net revenues
and profits due to our failure to anticipate consumer preferences and develop new menswear products, our failure to execute our
business expansion plan, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties
related to China’s legal system and economic, political and social events in China, a general economic downturn, a downturn
in the securities markets, and other risks and uncertainties which are generally set forth under Item 3 “Key information—D.
Risk Factors” and elsewhere in this report.
Readers are urged to carefully review and
consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise
interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects.
The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as
required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations
or future events.
PART I
ITEM 1. |
IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
ITEM 2. |
OFFER STATISTICS AND
EXPECTED TIMETABLE |
Not applicable.
A. Selected Financial Data
The selected consolidated financial data present
the results for the four fiscal years ended and as of June 30, 2015, 2014, 2013 and 2012. Our historical results do not necessarily
indicate results expected for any future periods. The selected consolidated financial data below should be read in conjunction
with our consolidated financial statements and notes thereto, “Item 5. Operating and Financial Review and Prospects”
below, and the other information contained in this Form 20-F.
We have not included financial information
for the year ended June 30, 2011, as such information is not available on a basis that is consistent with the consolidated financial
information for the years ended June 30, 2012, 2013, 2014 and 2015 and cannot be obtained without unreasonable effort or expense.
| |
For the Years Ended June 30, | |
| |
2015 | | |
2014 | | |
2013 | | |
2012 | |
Statement of Income Date | |
| | |
| | |
| | |
| |
Revenue | |
$ | 202,009,160 | | |
$ | 175,327,717 | | |
$ | 124,218,213 | | |
$ | 95,627,051 | |
Cost of Sales | |
$ | (182,692,715 | ) | |
$ | (157,904,729 | ) | |
$ | (99,733,216 | ) | |
$ | (69,686,610 | ) |
Gross Profit | |
$ | 19,316,445 | | |
$ | 17,422,988 | | |
$ | 24,484,997 | | |
$ | 25,940,441 | |
Income from operations | |
$ | 12,258,404 | | |
$ | 11,634,940 | | |
$ | 17,842,614 | | |
$ | 19,088,375 | |
Net Income | |
$ | 5,135,757 | | |
$ | 6,828,308 | | |
$ | 11,705,736 | | |
$ | 10,471,574 | |
Comprehensive income | |
$ | 5,372,660 | | |
$ | 7,144,747 | | |
$ | 13,315,616 | | |
$ | 11,803,575 | |
Earnings per share - basic | |
| 1.44 | | |
| 1.53 | | |
| 0.29 | | |
| 0.26 | |
Earnings per share – diluted | |
| 1.44 | | |
| 1.53 | | |
| 0.20 | | |
| 0.22 | |
Weighted average shares - basic | |
| 6,462,577 | | |
| 4,560,000 | | |
| 40,000,000 | | |
| 40,000,000 | |
Weighted average shares – diluted | |
| 6,462,577 | | |
| 4,560,000 | | |
| 58,191,973 | | |
| 58,191,973 | |
| |
| | | |
| | | |
| | | |
| | |
Balance Sheet Data | |
| | | |
| | | |
| | | |
| | |
Working Capital (deficiency) | |
$ | (10,419,909 | ) | |
$ | (27,362,427 | ) | |
$ | (14,773,509 | ) | |
$ | 16,818,269 | |
Total assets | |
$ | 225,724,786 | | |
$ | 206,531,300 | | |
$ | 167,039,000 | | |
$ | 143,644,914 | |
Total liabilities | |
$ | 167,316,820 | | |
$ | 151,071,926 | | |
$ | 118,724,373 | | |
$ | 108,645,903 | |
Total equity | |
$ | 58,407,966 | | |
$ | 55,459,374 | | |
$ | 48,314,627 | | |
$ | 34,999,011 | |
Exchange Rate Information
We conduct our business in China and
substantially all of our revenues are denominated in Renminbi. However, periodic reports will be expressed in U.S. dollars
using the then current exchange rates. This Annual Report contains translations of Renminbi amounts into U.S. dollars at
specified rates solely for the convenience of the reader. No representation is made that the Renminbi amounts referred to in
this Annual Report could have been or could be converted into U.S. dollars at any particular rate or at all. On November 16,
2015, the daily exchange rate reported on wwww.oanda.com was RMB6.3740 to US$1.00.
The following table sets forth information concerning exchange
rates between the Renminbi and the U.S. dollar for the periods indicated.
| |
Renminbi per U.S. Dollar Noon Buying Rate | |
| |
Average
(1) | | |
High | | |
Low | | |
Period- End | |
| |
| | |
| | |
| | |
| |
Year ended June 30, 2015 | |
| 6.1375 | | |
| 6.2080 | | |
| 6.0933 | | |
| 6.1088 | |
Year ended June 30, 2014 | |
| 6.1467 | | |
| 6.1922 | | |
| 6.0901 | | |
| 6.1577 | |
Year ended June 30, 2013 | |
| 6.2814 | | |
| 6.3872 | | |
| 6.1583 | | |
| 6.1882 | |
Year ended June 30, 2012 | |
| 6.3630 | | |
| 6.4773 | | |
| 6.2936 | | |
| 6.3197 | |
Year ended June 30, 2011 | |
| 6.6367 | | |
| 6.8205 | | |
| 6.4640 | | |
| 6.4640 | |
May 2015 | |
| 6.0839 | | |
| 6.0948 | | |
| 6.0748 | | |
| 6.0880 | |
June 2015 | |
| 6.0910 | | |
| 6.1010 | | |
| 6.0836 | | |
| 6.0888 | |
July 2015 | |
| 6.0906 | | |
| 6.1997 | | |
| 6.0847 | | |
| 6.1997 | |
August 2015 | |
| 6.3179 | | |
| 6.4028 | | |
| 6.1996 | | |
| 6.3785 | |
September 2015 | |
| 6.3592 | | |
| 6.3736 | | |
| 6.3459 | | |
| 6.3538 | |
October 2015 | |
| 6.3416 | | |
| 6.3527 | | |
| 6.3130 | | |
| 6.3185 | |
November 2015 (through November 16, 2015) | |
| 6.3477 | | |
| 6.3740 | | |
| 6.3081 | | |
| 6.3740 | |
Source: http://www.oanda.com/currency/historical-rates-classic?srccont=rightnav
|
(1) |
Annual averages are calculated from month-end rates. Monthly and
interim period averages are calculated using the average of the daily rates during the relevant period. |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the following
risk factors in addition to the other information included or incorporated by reference in this report, including matters addressed
in the section entitled “Forward-Looking Statements”. We caution you not to place undue reliance on the forward-looking
statements contained in this report, which speak only as of the date hereof.
The risks and uncertainties described below
include all of the material risks applicable to us; however they are not the only risks and uncertainties that we face. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks related to Our Business
We are subject to the PRC's environmental
protection measures.
Our business activities produce certain pollutants
such as waste water and waste gas, during the production process. The PRC has in recent years tightened its environmental protection
measures to be more in line with steps taken by developed countries.
Under the PRC Environmental Protection Law,
any enterprise which discharges pollutants is required to be registered with the relevant PRC governmental departments and to
obtain a pollutant discharge permit. Any such enterprise is also required to have waste water, waste gas, solid waste and noise
pollution treatment facilities that meet the relevant environmental standards and to have the pollutants treated before discharge.
The provincial and municipal governments of provinces, autonomous regions and municipalities may also set their own guidelines
for the discharge of pollutants within their own provinces or districts.
On October 20, 2012, Jiangsu Delta obtained
the Pollutant Discharge Permit of Zhenjiang issued by the Environment Protection Agency of Dantu District, Zhenjiang City for
discharge of the key production wastes, including inter alia, ammonia, nitrogen, totel phosphorus, petroleum waste, benzene, toluene,
dimethylbenzene, chlorobenzene, soot, hydrochloric acid, hydrochloric acid, maleic anhydride and sulphur dioxide. Such discharges
must be made in compliance with national environmental regulation. The Pollutant Discharge Permit is valid from May, 2015 to May,
2018, after which it will be due for renewal.
Additionally, our facilities may be subject
to periodic and annual environmental inspections. Penalties may be imposed for the discharge of pollutants that fail to meet relevant
environmental standards. The relevant governmental authorities may refuse to issue or renew a pollutant discharge permit if an
enterprise fails environmental inspections and in cases of severe violation of environmental standards, are also empowered to
shut down any enterprise that causes substantial environmental problems.
There is no assurance that the current PRC
environmental protection laws and regulations will not be amended in the future. In June 2012, as the local environmental protection
criteria were amended where more stringent standards were introduced by the relevant local authorities, Jiangsu Delta’s
production activities were temporarily suspended for approximately 45 days to enhance its waste water treatment facilities in
order to meet the revised standards. In July 2012, Jiangsu Delta was certified to have satisfied the new criteria and re-commenced
its operations. If more stringent environmental protection laws and regulations are introduced in the future, incident as such
might happen again and we may need to utilize significant financial and/or other resources to ensure compliance, which will result
in an increase in our operating costs and have an adverse effect on our profitability and prospects.
Furthermore, if we are unable to comply
with such stringent environmental protection standards, penalties (including fines and/or shutdown of processing facilities) may
be imposed on us, which in turn may adversely affect our financial performance.
We depend on our key personnel for
continued success.
We believe our success to date can largely
be attributed to the contributions, expertise and experience of our key management team, which is headed by our Chairman and Chief
Executive Officer, Xin Chao. He is responsible for identifying business opportunities and implementing overall business strategies
to achieve our corporate goals.
Our key management team also
includes Xin Chao, Changguang Wu, Jianmin Xia, Ming Chao and Hongming Dong. The continued success of our business is
therefore dependent, to a large extent, on our ability to retain the services of our directors and executive officers. Each
of Chao Xin, Wu Changguang and Ming Chao has more than 14 years of experience in the fine chemical and/or related industries.
The loss of the services of our key personnel without a suitable and timely replacement, or the inability to attract and
retain other qualified personnel, could adversely affect our operations and hence, our financial results.
We are subject to fluctuations in the
prices of principal raw materials in our operations.
The key components and raw materials used
in our production and manufacturing processes are Toluene, Chlorine, Benzene, Styrene and Phthalic Anhydride, Maleic Anhydride,
Propylene glycol and Ethylene diglycol which in aggregate constituted approximately 75% of our total cost of sales. As these materials
constitute key components of our manufacturing processes, any fluctuation in the prices of such raw materials which may in turn
have an impact on our production costs. In line with industry practice, we do not have long-term supply contracts with our suppliers.
A shortage of any key raw materials or components could limit our production, and is likely to increase the costs of our products,
thereby depressing the margins for our products. Further, although we produce a number of intermediary materials such as MA, PCT
and OCT in-house for the production of PCT/OCT downstream products and UPR products, there can be no assurance that we will be
able to continue to do so in a cost-effective manner.
There is no assurance that we will be
able to obtain an adequate supply of key raw materials at competitive prices. Market prices of such raw materials may also be
volatile due to factors beyond our control, such factors include, inter alia, general economic conditions, changes in the
level of global demand and the availability of supply. Any substantial increase in the prices of these raw materials is
likely to have a material adverse impact on our production costs. In the event of any significant increase in the cost of
such raw materials, and should we be unable to pass on such costs to our customers on a timely basis, our business,
profitability and financial performance will be adversely affected.
We are vulnerable to fluctuations in
the prices of our products.
We are subject to fluctuations in demand for
our products and services due to a variety of factors, including general economic conditions, competition, product obsolescence,
shifts in buying patterns, financial difficulties and budget constraints of our actual and potential customers and other factors.
Some of our products may experience great price fluctuation.
While such factors may, in some periods, increase
product sales, fluctuations in demand can also negatively impact in product sales. If demand for our products declines or the
prices of our products decline because of general economic conditions or for other reasons, our revenues and gross margin could
be adversely affected.
We may be affected by disruptions to
our processing facilities.
Our processing facilities are located at Zhenjiang
City, Jiangsu Province, the PRC. The production facilities are subject to operational risks, such as industrial accidents, which
could cause personal injury or loss of human life, the breakdown or failure of equipment, power supplies or processes, performance
below expected levels of output or efficiency, obsolescence, labor disputes, natural disasters and the need to comply with relevant
regulatory and requirements. From time to time, e may need to carry out planned shutdowns of our processing plants for routine
maintenance, statutory inspections and testing and may need to shut down various plants for capacity expansions and equipment
upgrades. In addition, due to the nature of our business, and despite compliance with requisite safety requirements and standards,
the production process is still subject to operational risks, including discharges or releases of hazardous substances, exposure
to contamination and leakages from other factories and operations in the vicinity. These operational risks may cause personal
injury or loss of human life and could result in the imposition of civil and criminal penalties. The occurrence of any of these
events could have a material adverse effect on the productivity and profitability of a particular production facility and on our
business, results of operations and financial condition.
Although we have taken precautions to minimize
the risk of any significant operational problems at our production facilities, there can be no assurance that our business, results
of operations and financial condition may not be adversely affected by disruptions caused by operational hazards at our production
facilities, or at other factories and facilities in the vicinity. Moreover, our production processes are continuously being modified
and updated. As a result of manufacturing process updates and improvements, from time to time, we may experience shutdowns, and
disruptions to the operations.
The occurrence of any of the above events
may cause us to stop or suspend our processing operations and we may not be able to deliver the products to our customers on a
timely basis, which would have an adverse impact on its business, financial position and profitability.
Our insurance coverage may not adequately
protect us against certain operating and other hazards which may have an adverse effect on our business.
We make substantial investments in complex
manufacturing and production facilities and transportation equipment. Many of the production processes, raw materials and certain
finished products are potentially destructive and dangerous in uncontrolled or catastrophic circumstances, including operating
hazards, fires and explosions, and natural disasters such as typhoons, floods, earthquakes and major equipment failures for which
insurance may not be obtainable at a reasonable cost or at all. We maintain insurance policies covering losses due to fire and
other calamities. We also maintain insurance policies for fixed assets, such as vehicles, machineries, facilities and buildings
which cover against damage caused by certain accidents and natural disasters. Should an accident or natural disaster occur, it
may cause significant property damage, disruption to operations and personal injuries and our insurance coverage may be inadequate
to cover such loss. Should an uninsured loss or a loss in excess of insured limits occur, we could suffer from damage to our reputation
or lose all or a portion of production capacity as well as future revenues anticipated to derive from the relevant facilities.
While we maintain coverage from insurance policies for our production facilities which are in line with the industry norms, we
cannot assure you that our insurance coverage would be sufficient to cover all our potential losses.
Our profitability may be affected by
a failure to compete effectively in a competitive environment.
We operate in a highly competitive
environment and are subject to competition from both existing competitors and new market entrants. Rapid technological
advances and aggressive pricing strategies by our competitors may continue to increase competition. In order to remain
competitive, we must continue to improve our materials supply chain, foster production self-sufficiency, upgrade technology
and manufacturing process and introduce new products to the market in a timely manner. Our ability to do so depends on
factors both within and outside of our control and may be constrained by the distinct characteristics and production
requirements of individual products. There can be no assurance that we will be able to continue to improve production
efficiency and maintain reasonable margins for all of our existing products, or that we will be able to successfully
introduce new products that are able to command higher margins. Some of our competitors may have superior financial,
marketing, manufacturing, research and development and technological resources, greater brand name recognition and larger
customer bases than it.
Accordingly, these competitors may have the
ability to respond more quickly to new or emerging technologies, adapt more quickly to changes in customer requirements and devote
greater resources to the development, promotion and sales of their products and/or services. There is no assurance that we will
be able to continue competing successfully against present and future competitors.
Our management believes that the important
factors to achieving success in our industry include maintaining customer loyalty by cultivating long-term customer relationships
and maintaining the quality of our products and services. If we are unable to attain these, we may lose customers to our competitors
and this will adversely affect our market share. Increased competition may also force us to lower our prices, thus reducing our
profit margins and affecting our financial performance and condition. Such competition may have a material adverse effect on our
business, financial position and results of operations.
Our business may be adversely affected
if our customers place lower than expected orders.
As is customary in our industry, we do not
obtain firm and long-term volume purchase commitments from our customers. Although we may from time to time enter into sales agreements
with our key customers which normally include general terms of sale, specification requirements and pricing policy, such agreements
generally do not specify a minimum purchase volume or a specific purchase price. The precise terms for each shipment, such as
pricing, product specifications and quantities, are normally confirmed at the time each order is placed.
Accordingly, we face the risk that our customers
might place lower than expected orders, if at all, or cancel existing plans for orders. Although the customers might be contractually
obliged to purchase products on specific terms from us for particular orders, we may be unable to or, for other business reasons,
choose not to enforce our contractual rights if the customers terminate their orders. Cancellations, reductions or instructions
to delay production by a significant customer could materially and adversely affect our results of operations by reducing our
sales volume, as well as by possibly causing a delay in the customers’ repayment of our expenditures for inventory and resulting
in lower utilization of the manufacturing facilities, all of which may result in lower gross margins.
Our reputation may suffer if we fail
to manufacture products within the acceptable quality range and optimal production yields.
Product quality can be affected by a number
of factors, including the level of contaminants in the manufacturing environment, the contamination of raw materials, equipment
malfunction, process adjustments made to manufacture new products, interruptions in availability of utilities, deficiencies in
quality control and inadequate sample testing. Many of our customers require stringent quality requirements in the procurement
of their supplies.
We have in place stringent quality control
processes as set out in the section “Quality Control” of this report and ensure that our raw materials, manufacturing
systems and processes and products meet the highest standards of quality. If we fail to maintain high quality production standards,
our reputation may suffer and customers may cancel their orders or return their products for replacement, which will materially
and adversely affects our results of operations and financial condition.
We may be unable to adapt to technological
changes and other industry standards.
We operate in a technologically dependent
industry and are required to quickly adapt to technological changes and industry standards as well as the changing needs of customers.
In the event that we are unable to keep up with the technological developments and develop new products on time, or if we fail
to anticipate and adapt to changes in our customers’ requirements, our current products and technology may face the risk
of becoming obsolete and we would not be able to fully meet our customers’ needs. This may then result in a decrease in
demand for our products and have a negative impact on our financial performance.
We may be exposed to risk of infringement
of our intellectual property rights.
We rely primarily on patent, trademark, trade
secret, copyright law and other contractual restrictions to protect our intellectual property. Nevertheless, these afford only
limited protection and the actions we may take to protect our intellectual property rights may not be adequate. Third parties
may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material
adverse effect on our business, financial condition, results of operations and prospects. As of the date of this report, we own
nine patents in respect of UPR production and are in the midst of applying for four more patents.
Although our senior management personnel would,
under the relevant PRC laws relating to duties of directors or the terms of their employment contracts, have a general duty of
confidentiality, there is no assurance that there will be no unauthorized disclosure of our trade secrets or other proprietary
information. In the event that there is a leakage of such trade secrets or proprietary information to our competitors and other
third parties, it may limit our ability to maintain our competitive edge and to grow our business.
Further, as we have not yet received patent
protection for some of our proprietary information, there is no assurance that we will obtain adequate remedies in the event of
an unauthorized disclosure of the proprietary information to our competitors or other third parties. Should there be a loss of
proprietary information, our operations, financial position and prospects may be adversely affected.
We may not be able to ensure the successful
implementation of our future plans and strategies.
We intend to expand product lines and our
distribution network. Such initiatives involve various risks including but not limited to the investment costs in establishing
a distribution network within the PRC, setting up of new production facilities and offices and working capital requirements. There
is no assurance that such future plans can be successfully implemented as the successful execution of such future plans will depend
on several factors, some of which are not within our control, such as retaining and recruiting qualified and skilled staff, and
the continued demand for our products by our customers. Failure to implement any part of our future plans or executing such plan
costs effectively, may lead to a material adverse change in our operating environment or affect our ability to respond to market
or industry changes, which may, in turn, adversely affect our business and financial results.
We are exposed to the credit risks of
our customers.
Our business and financial results are dependent
on the credit worthiness of our customers and this risk increases with, inter alia, the customer’s proportion of purchases
from us. We usually offer our customers credit terms of up to 120 days. Although there has not been any material collection problem
for trade receivables or any other allowance for doubtful debts during the past three fiscal years, there is no assurance that
we will not encounter bad debt problems in the future. Should we experience any unexpected delay or difficulty in collections
from our customers, our cash flow and financial results may be adversely affected.
In addition, any deterioration in the financial
position of our customers may materially affect our profits and cash flow as these customers may default on their payments to
us. We cannot assure you that such defaults will not increase in the future or that we will not experience cash flow problems
as a result of such defaults. Should these develop into actual events, our business and financial results will be adversely affected.
We may require additional funding for
future growth.
Our business and the nature of the industry
in which we operate may require us to make substantial capital expenditures in terms of both plants, equipment and for research
and development capabilities. In particular, we may expand our production capacity in certain of our production facilities to
cater to the expected increase in demand. These capital expenditures will be spent in advance of any additional sales to be generated
by new or upgraded production facilities as a result of these expenditures. There is a risk that we may in the future incur operating
losses if our net operating revenue does not adequately recover our capital expenditures.
In connection with our business strategy,
we have continued to make regular capital investments and expenditures. We expect to incur further capital expenditures for FY2016
in connection with the construction and the expansion of production facilities.
The additional funding and capital expenditures
is expected to be funded from proceeds from existing cash balances and credit lines, cash inflow from operations and existing
and future bank borrowing. However, in the event of adverse market conditions in the future or changes in our growth, manufacturing
process, product technologies, prices of machinery and equipment or interest rates, our actual expenditures may exceed our planned
expenditures and we may not have sufficient sources of liquidity to effect the current operational plan and would need to secure
additional financing from external sources. Our failure to obtain any required financing could impair our ability to both serve
our existing clients base and develop new clients and could result in both a decrease in revenue and an increase in our loss.
To the extent that we require financing, we
would intend to seek funding for our capital needs through the issuance of debt, preferred stock, common equity, loan guarantees,
or a combination of these types of instruments. We may also seek to obtain financing through a private placement or a public offering,
a consequence of which could include the sale or issuance of stock to third parties. To the extent additional funding is required,
we cannot assure you that it will be able to get additional financing on any terms acceptable to us, and, if it is able to raise
funds, it may be necessary for us to sell our securities at a price which is at a significant discount from the market price and
on other terms which may be disadvantageous to us. In connection with any such financing, we may be required to provide registration
rights to the investors. The price and terms of any financing which would be available to us could result in the issuance of a
significant number of shares. If we are required to issue a significant number of shares, stockholders could suffer substantial
dilution.
We are dependent on our “DELTA”
brand.
We rely on our “DELTA” brand in
the marketing and distribution of our products. We believe that we have built significant goodwill in our brand in terms of the
quality of products and services and it is widely recognized by the fine chemical industry in the PRC. We consider our “DELTA”
brand to be vital in promoting product recognition and customer loyalty. Hence, if there are any major defects in our products
or adverse publicity on our brand, the goodwill in our brand will be adversely affected and our customers may lose confidence
in our products. This will adversely affect our sales of products, hence affecting our business and financial performance.
In order to protect our trademark, we have
applied to register our “DELTA” label as a trademark in the PRC. We rely on PRC trademark laws but there is no assurance
that this means of protecting our trademark will be effective or that our competitors will not adopt product names or trademarks
that are similar to that of ours. We are also vulnerable to attempts by third parties to pass off their products as ours by using
our trademark. Adequate protection of our intellectual property is important to our business. Although we may take legal action
against those who infringe our intellectual property rights, it may need to incur substantial time and resources and there is
no assurance that we will be able to stop or prevent such infringement completely. Unauthorized use of our trademarks could adversely
affect our performance and business reputation. Should such counterfeit products be of inferior quality, the goodwill in our brand
may be eroded. Hence, our business and financial performance will be adversely affected if we are unable to protect our intellectual
property rights effectively.
Defective or non-compliant products
may lead to negative publicity which would adversely affect our business and profits.
Our products are sold mainly to manufacturers.
Although we have not faced any adverse claims or complaints regarding our products to-date, there can be no assurance that our
products will not cause personal injury or health complications on users. Further, in the event that our products are defective
or non-compliant with specifications, we may be liable to complaints, lawsuits and claims from our customers which in turn
could generate negative publicity and materially and adversely affect our business and financial condition. Any successful product
liability claim against us may adversely affect our business and reputation. A product liability claim, even without merit, could
result in us incurring significant expenses and expending substantial time and efforts of our management in defending such a claim.
Even if we are able to successfully defend any such claim, there can be no assurance that our customers will not lose confidence
in our products, thereby affecting our business and reputation.
Because our contracts are individual
purchase orders and not long-term agreements, the results of our operations can vary significantly from quarter to quarter.
We currently do not have any long-term contracts
with our customers for our products. While we do not depend on any single customer for a significant portion of our revenues,
there is a risk that existing customers will elect not to do business with us in the future or will experience financial difficulties.
There is also a risk that our customers will attempt to impose new or additional requirements on it that reduce the profitability
of those customers for us. If we do not develop relationships with new customers, we may not be able to increase, or even maintain,
our revenue, and our financial condition, results of operations, business and/or prospects may be materially adversely affected.
Potential claims alleging infringement
of third party’s intellectual property by us could harm our ability to compete and result in significant expense to us and
loss of significant rights.
From time to time, third parties may assert
patent, copyright, trademark and other intellectual property rights to technologies that are important to our business. Any claims
that our products or processes, whether in relation to the specific circumstances set out above or otherwise, infringe the intellectual
property rights of others, regardless of the merit or resolution of such claims, could cause us to incur significant costs in
responding to, defending, and resolving such claims, and may divert the efforts and attention of our management and technical
personnel away from the business. As a result of such intellectual property infringement claims, we could be required or otherwise
decide it is appropriate to pay third-party infringement claims; discontinue manufacturing, using, or selling particular products
subject to infringement claims; discontinue using the technology or processes subject to infringement claims; develop other technology
not subject to infringement claims, which could be time-consuming and costly or may not be possible; and/or license technology
from the third-party claiming infringement, which license may not be available on commercially reasonable terms. The occurrence
of any of the foregoing could result in unexpected expenses or require us to recognize an impairment of our assets, which would
reduce the value of the assets and increase expenses. In addition, if we alter or discontinue the production of affected items,
our revenue could be negatively impacted.
Risks Relating to Doing Business in the
PRC
Our subsidiaries, main operations and
assets are located in the PRC. Shareholders may not be accorded the same rights and protection that would be accorded under the
US law. In addition, it would be difficult to enforce a U.S. judgment against our PRC subsidiaries and our officers and directors.
Our PRC subsidiaries, Jiangsu Delta, Jiangsu
Logistic and Binhai Deda were established in the PRC, and their main operations and assets are located in the PRC. Our PRC subsidiaries,
main operations and assets are therefore subject to the relevant laws and regulations of the PRC. In addition, a majority of our
officers and directors are non-residents of the U.S., and substantially all their assets are located outside the U.S. As a result,
it could be more difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S.
against any of our PRC subsidiaries or any of these persons.
Our business is subject to certain PRC
laws and regulations.
Our business and operations in the PRC are
subject to government rules and regulations, including environmental, working safety, road transportation and health regulations.
Any changes in such government regulations may have a negative impact on our business.
Breaches or non-compliance with these PRC
laws and regulations may result in the suspension, withdrawal or termination of our business licenses or permits, or the imposition
of penalties, by the relevant authorities. Our PRC subsidiaries’ business licenses are also granted for a finite period
and any extension thereof is subject to the approval of the relevant authorities. Any suspension, withdrawal, termination or refusal
to extend our PRC subsidiaries’ business licenses or permits would cause the cessation of production of certain or all of
our products, and this would adversely affect our PRC subsidiaries’ business, financial performance and prospects.
Uncertainty in the PRC legal system
may make it difficult for us to predict the outcome of any disputes that we may be involved in.
The PRC legal system is based on the PRC Constitution
and is made up of written laws, regulations, circulars and directives. The PRC government is still in the process of developing
its legal system, so as to meet the needs of investors and to encourage foreign investment. As the PRC economy is generally developing
at a faster pace than its legal system, some degree of uncertainty exists in connection with whether and how existing laws and
regulations will apply to certain events or circumstances.
Some of the laws and regulations, and the
interpretation, implementation and enforcement thereof, are still subject to policy changes. There is no assurance that the introduction
of new laws, changes to existing laws and the interpretation or application thereof or the delays in obtaining approvals from
the relevant authorities will not have an adverse impact on our PRC subsidiaries’ business, financial performance and prospects.
Further, precedents on the interpretation,
implementation and enforcement of the PRC laws and regulations are limited, and unlike other common law countries such as the
United States, decisions on precedent cases are not binding on lower courts. As such, the outcome of dispute resolutions may not
be consistent or predictable as in the other more developed jurisdictions and it may be difficult to obtain swift or equitable
enforcement of the laws in the PRC, or obtain enforcement of judgment by a court of another jurisdiction.
New rules on mergers and acquisitions
of domestic enterprise by foreign investors.
In particular, on August 8, 2006, Ministry
of Commerce (“MOC”), China Security and Regulatory Commission (“CSRC”), State Administration of Foreign
Exchange (“SAFE”) and State Administration for Industry and Commerce of the PRC (“SAIC”), State Administration
for Taxation (“SAT”) and National Development and Reform Commission (“NDRC”) promulgated the Provisions
on the Mergers and Acquisitions of Domestic Enterprise by Foreign Investors (“M&A Regulations” or “Provision
10”), which came into effect on September 8, 2006 and was revised on June 22, 2009 by MOC. The Provision 10 was supplemented
by the Provisions on indirect issuance of securities overseas by a domestic enterprise or overseas listing of its securities for
trading issued by CSRC on by the Guidelines on Domestic Enterprises indirectly issuing securities overseas or listing and trading
their securities overseas ("CSRC Guidelines") issued by the CSRC on September 21, 2006.
In the opinion of our PRC Counsel, Jingtian
& Gongcheng, based on its understanding of current PRC laws and regulations, Provision 10 does not apply to each of Jiangsu
Delta acquisition by Zhengxin International, Jiangsu Delta acquisition by Delta and Zhengxin R&D acquisition by Jiangsu Delta
(collectively the “PRC Acquisitions”), and hence the PRC Acquisitions are not subject to the MOC’s approval.
However, there is no assurance that the relevant
Chinese government agency, including the CSRC, would reach the same conclusion as the PRC Counsel. If the CSRC or any other Chinese
regulatory bodies subsequently determine that we need to obtain the CSRC approval for our acquisition of PRC subsidiaries, we
may face regulatory actions or other sanctions from the CSRC or other Chinese regulatory bodies. This may have a material adverse
impact on our business, financial condition, results of operations, remittance of profits as well as the trading prices of our
shares.
Failure of our PRC resident shareholders
to comply with regulations on foreign exchange registration of overseas investment by PRC residents could cause us to lose our
ability to contribute capital to our PRC subsidiaries and remit profits out of the PRC as dividends.
The Notice on Relevant Issues Concerning Foreign
Exchange Administration for Domestic Residents to Engage in Overseas Financing and Round Trip Investment via Overseas Special
Purpose Vehicles (“Circular 75”), issued by the SAFE and effective on November 1, 2005, regulates the foreign exchange
matters in relation to the use of a “special purpose vehicle” by PRC residents to seek offshore equity financing and
conduct a “round trip investment” in China. Under Circular 75, a “special purpose vehicle” refers to an
offshore entity directly established or indirectly controlled by PRC resident natural or legal persons (“PRC residents”)
for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents in onshore companies,
while “round trip investment” refers to the direct investment in China by such PRC residents through the “special
purpose vehicles,” including, without limitation, establishing foreign-invested enterprises and using such foreign-invested
enterprises to purchase or control onshore assets through contractual arrangements. Circular 75 requires that, before establishing
or controlling a “special purpose vehicle”, PRC residents and PRC entities are required to complete a foreign exchange
registration with the competent local branches of the SAFE for their overseas investments. After the completion of a round-trip
investment or the overseas equity financing, the PRC residents are required to go through foreign exchange registration alteration
formalities of overseas investment in respect of net assets of special purpose vehicles that such PRC residents hold and the variation
thereof.
In addition, an amendment to the registration
is required if there is a material change in the “special purpose vehicle,” such as increase or reduction of share
capital and transfer of shares. Failure to comply with the registration procedures set forth in Circular 75 may result in restrictions
on the foreign exchange activities of the relevant foreign-invested enterprises, including the payment of dividends and other
distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate
and the capital inflow from the offshore parent, and may also subject the relevant PRC residents to penalties under PRC foreign
exchange administration regulations.
We have requested our current PRC resident
shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the scope
of the Circular 75 and urges PRC residents to register with the local SAFE branch as required under the Circular 75. Our affiliates
subject to the SAFE registration requirements, including Mr. Xin Chao and Mr. Lei Shen, have informed it that they have made their
initial registrations with SAFE dated June 5, 2013. The failure of our PRC resident shareholders and/or beneficial owners to timely
amend their SAFE registrations pursuant to the Circular 75 or the failure of our future shareholders and/or beneficial owners
who are PRC residents to comply with the registration requirement set forth in the Circular 75 may subject such shareholders,
beneficial owners and/or our PRC subsidiaries to fines and legal sanctions. Any such failure may also limit our ability to contribute
additional capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise
adversely affect our business.
The PRC government could restrict access in
the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining
sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain expenses as they come due or may
restrict which limit the payment of dividends from the Company.
Our results and financial conditions
are highly susceptible to changes in the PRC’s political, economic and social conditions as our revenue is currently wholly
derived from our operations in the PRC.
Since 1978, the PRC government has undertaken
various reforms of its economic systems. Such reforms have resulted in economic growth for the PRC in the last three decades.
However, many of the reforms are unprecedented or experimental, and are expected to be refined and modified from time to time.
Other political, economic and social factors may also lead to further readjustment of the reform measures. This refinement and
adjustment process may consequently have a material impact on our operations in the PRC or a material adverse impact on our financial
performance. Our results and financial condition may be adversely affected by changes in the PRC’s political, economic and
social conditions and by changes in policies of the PRC government or changes in laws, regulations or the interpretation or implementation
thereof.
Dividends payable to us by our PRC subsidiaries
may be subject to PRC withholding taxes, dividends distributed to our non-PRC investors and gains realized by our non-PRC shareholders
from the transfer of our securities may be subject to PRC withholding taxes under the EIT Law.
The EIT Law imposes a 10% withholding income
tax on dividends generated on or after January 1, 2008 and distributed by a resident enterprise to its foreign investors, if such
foreign investors are considered as non-resident enterprises without any establishment or place of business within China or if
the received dividends have no connection with such foreign investors’ establishment or place of business within China,
unless such foreign investors’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding
arrangement. The British Virgin Islands, where we are incorporated, does not have such tax treaty with China. According to the
Arrangement between Mainland of China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to Taxes on Income in August 2006, dividends paid by a foreign invested enterprise,
or FIE, to its foreign investors in Hong Kong will be subject to withholding tax at a preferential rate of no more than 5% (if
the foreign investor owns directly at least 25% of the shares of the FIE). The State Administration of Taxation further promulgated
a circular, or Circular 601, on October 27, 2009, which provides that tax treaty benefits will be denied to “conduit”
or shell companies without business substance and that a beneficial ownership analysis will be used based on a “substance-over-form”
principle to determine whether or not to grant the tax treaty benefits. Our subsidiaries in China are directly invested in and
held by a Hong Kong registered entity. If we are regarded as a non-resident enterprise and our Hong Kong entity regarded as resident
enterprise, then our Hong Kong entity may be required to pay a 10% withholding tax on any dividends payable to it. If our Hong
Kong entity is regarded as non-resident enterprises, then our subsidiaries in China will be required to pay a 5% withholding tax
for any dividends payable to our Hong Kong entities provided that specific conditions are met. However, it is still unclear at
this stage whether Circular 601 applies to dividends from our PRC subsidiaries paid to our Hong Kong subsidiary and if our Hong
Kong subsidiary were not considered as “beneficial owners” of any dividends from our PRC subsidiaries, the dividends
payable to our Hong Kong subsidiary would be subject to withholding tax at a rate of 10%. In either case, the amount of funds
available to us, including the payment of dividends to our shareholders, could be materially reduced. In addition, because there
remains uncertainty regarding the concept of “the place of de facto management body,” if we are regarded as a resident
enterprise, under the EIT Law, any dividends to be distributed by us to our non-PRC shareholders will be subject to PRC withholding
tax. We also cannot guarantee that any gains realized by such non-PRC shareholders from the transfer of our shares will not be
subject to PRC withholding tax. If we are required under the EIT Law to withhold PRC income tax on dividends payable to our non-PRC
shareholders or any gains realized by our non-PRC shareholders from transfer of our shares, their investment in our shares may
be materially and adversely affected.
We may be subject to a significant withholding
tax should equity transfers by our non-resident enterprises be determined to have been done without a reasonable business purpose.
In December 2009, the State Administration
of Tax in China issued a circular on strengthening the management of proceeds from equity transfers by non-resident enterprises
and requires foreign entities to report indirect sales of resident enterprises. If the existence of the overseas intermediary
holding company is disregarded due to lack of reasonable business purpose or substance, gains on such sale are subject to PRC
withholding tax. Due to limited guidance and implementation history of the circular, significant judgment is required in determining
the existence of a reasonable business purpose by considering multiple factors, such as the form and substance of the arrangement,
time of establishment of the foreign entity, relationship between each step of the arrangement, relationship between each component
of the arrangement, implementation of the arrangement and the changes in the financial position of all parties involved in the
transaction. Although we believe that our transactions during all the periods presented would be determined to have reasonable
business purposes, should this not be the case, we would be subject to a significant withholding tax that could materially and
adversely impact our financial position, results of operations and cash flows.
Uncertainty in the interpretation of
PRC tax regulations may have a negative impact on our business operations, our acquisition or restructuring strategy or the value
of our investment in it.
Pursuant to the Notice on Strengthening Administration
of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration
of Taxation in December 2009, with retroactive effect from January 1, 2008, where a non-resident enterprise transfers the equity
interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company,
or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate
of less than 12.5% or (ii) does not impose income tax on foreign income of its residents, the non-resident enterprise, being the
transferor, must report to the competent tax authority of the PRC resident enterprise this Indirect Transfer. Using a “substance
over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable
commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived
from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that,
where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price
lower than fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of
the transaction.
On March 28, 2011, the State Administration
of Taxation released SAT Public Notice (2011) No. 24, or SAT Public Notice 24, to clarify several issues related to Circular 698.
SAT Public Notice 24 became effective on April 1, 2011. According to SAT Public Notice 24, the term “effective tax rate”
refers to the effective tax rate on the gain derived from disposition of the equity interests of an overseas holding company;
and the term “does not impose income tax” refers to the cases where the gain derived from disposition of the equity
interests of an overseas holding company is not subject to income tax in the country/region where the overseas holding company
is a resident.
There is uncertainty as to the application
of SAT Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that
the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having
no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or made any formal
declaration as to the process and format for reporting an Indirect Transfer to the competent tax authority of the relevant PRC
resident enterprise. In addition, there are no formal declarations with regard to how to determine whether a foreign investor
has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. SAT Circular 698 may be determined by the tax authorities
to be applicable to previous investments by non-resident investors in its company, if any of such transactions were determined
by the tax authorities to lack reasonable commercial purpose. As a result, we and our existing non-resident investors may be at
risk of being taxed under SAT Circular 698 and may be required to expend valuable resources to comply with SAT Circular 698 or
to establish that we should not be taxed under SAT Circular 698, which may have a material adverse effect on our financial condition
and results of operations or such non-resident investors’ investments in us. We have conducted and may conduct transactions
involving our corporate structure. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any
capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC
tax authorities with respect thereto. Any PRC tax imposed on a transfer of our shares or any adjustment of such gains would cause
us to incur additional costs and may have a negative impact on the value of your investment in us.
PRC regulation of loans and direct investment
by offshore holding companies to PRC entities may delay or prevent us from using the proceeds from the offerings of any securities
to make loans or additional capital contributions to our PRC operating subsidiaries.
As an offshore holding company, our ability
to make loans or additional capital contributions to our PRC operating subsidiaries is subject to PRC regulations and approvals.
These regulations and approvals may delay or prevent us from using the proceeds we received in the past or will receive in the
future from the offerings of securities to make loans or additional capital contributions to our PRC operating subsidiaries, and
impair our ability to fund and expand our business which may adversely affect our business, financial condition and result of
operations.
For example, the SAFE promulgated the Circular
on the Relevant Operating Issues concerning Administration Improvement of Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises, or Circular 142, on August 29, 2008. Under Circular 142, registered capital of a foreign-invested
company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable
governmental authority and may not be used for equity investments in the PRC. In addition, foreign-invested companies may not
change how they use such capital without the SAFE’s approval, and may not in any case use such capital to repay RMB loans
if they have not used the proceeds of such loans. Furthermore, the SAFE promulgated a circular on November 9, 2010, or Circular
59, which requires the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds
to be settled in the manner described in the offering documents. In addition, to strengthen Circular 142, on November 9, 2011,
the SAFE promulgated the Circular on Further Clarifying and Regulating Relevant Issues Concerning the Administration of Foreign
Exchange under Capital Account, or Circular 45, which prohibits a foreign invested company from converting its registered capital
in foreign exchange currency into RMB for the purpose of making domestic equity investments, granting entrusted loans, repaying
inter-company loans, and repaying bank loans that have been transferred to a third party. Circular 142, Circular 59 and Circular
45 may significantly limit our ability to transfer the net proceeds from offerings of our securities or any future offering to
our PRC subsidiaries and convert the net proceeds into RMB, which may adversely affect our liquidity and our ability to fund and
expand our business in the PRC.
Currency fluctuations and restrictions
on currency exchange may adversely affect our business, including limiting our ability to convert RMB into foreign currencies
and, if RMB were to decline in value, reducing our revenues and profits in U.S. dollar terms.
Our reporting currency is the U.S. dollar
and our operations in China use RMB as functional currencies. The majority of our revenues derived and expenses incurred are in
Chinese RMB with a relatively small amount in U.S. dollars. We are subject to the effects of exchange rate fluctuations with respect
to any of these currencies. For example, the value of the RMB depends to a large extent on Chinese government policies and China’s
domestic and international economic and political developments, as well as supply and demand in the local market. Starting July
2005, the Chinese government changed its policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the
RMB has fluctuated within a narrow and managed band against a basket of certain foreign currencies. It is possible that the Chinese
government will adopt a more flexible currency policy, which could result in more significant fluctuations of the RMB against
the U.S. dollar.
The income statements of our China operations
are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens
against foreign currencies, the translation of these foreign currency-denominated transactions results in reduced revenues, operating
expenses and net income for our non-U.S. operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies,
the translation of RMB denominated transactions results in increased revenues, operating expenses and net income for our non-U.S.
operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our non-U.S. subsidiaries
into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the non-U.S. subsidiaries’
financial statements We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we
may do so in the future. The availability and effectiveness of any hedging transaction may be limited and we may not be able to
successfully hedge our exchange rate risks.
Although Chinese governmental policies were
introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into
foreign exchange for most of the capital items, such as foreign direct investment, loans or securities, requires the approval
of the State Administration of Foreign Exchange, or SAFE. These approvals, however, do not guarantee the availability of foreign
currency. We cannot be sure that we will be able to obtain all required conversion approvals for our operations or that Chinese
regulatory authorities will not impose greater restrictions on the convertibility of RMB in the future. Because a significant
amount of our future revenues are in the form of RMB, our inability to obtain the requisite approvals or any future restrictions
on currency exchanges could limit our ability to utilize revenue generated in RMB to fund our business activities outside China,
or to repay non-RMB-denominated obligations, including our debt obligations, which would have a material adverse effect on our
financial condition and results of operations.
Restrictions on paying dividends or
making other payments to us bind our subsidiaries in China.
We are a holding company and do not have any
assets or conduct any business operations in China other than our investments in our subsidiaries in China. As a result, if our
non-China operations require cash from China, we would depend on dividend payments from our subsidiaries in China. We cannot make
any assurance that we can continue to receive payments from our subsidiaries in China. In addition, under Chinese law, our subsidiaries
are only allowed to pay dividends to us out of their distributable earnings, if any, as determined in accordance with Chinese
accounting standards and regulations. Moreover, our Chinese subsidiaries are required to set aside at least 10% of their respective
after-tax profit each year, if any, to fund certain mandated reserve funds, unless these reserves have reached 50% of their registered
capital. These reserve funds are not payable or distributable as cash dividends. For Chinese subsidiaries with after-tax profits
for the periods presented, the difference between after-tax profits as calculated under PRC accounting standards and U.S. GAAP
relates primarily to share-based compensation expenses and intangible assets amortization expenses, which are not pushed down
to our subsidiaries under PRC accounting standards. In addition, under the EIT Law and its implementing Rules, dividends generated
from our PRC subsidiaries after January 1, 2008 and payable to their immediate holding company incorporated in Hong Kong generally
will be subject to a withholding tax rate of 10% (unless the PRC tax authorities determine that our Hong Kong subsidiary is a
resident enterprise). If certain conditions and requirements under the Arrangement between the Mainland of China and the Hong
Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes
on Income entered into between Hong Kong and the PRC and other related PRC laws and regulations are met, the withholding rate
could be reduced to 5%.
The Chinese government also imposes controls
on the convertibility of RMB into foreign currencies and the remittance of currency out of China in certain cases. We have experienced
and may continue to experience difficulties in completing the administrative procedures necessary to obtain and remit foreign
currency. If we or any of our subsidiaries are unable to receive substantially all of the economic benefits from our operations
through these contractual or dividend arrangements, we may be unable to effectively finance our operations or pay dividends on
our ordinary shares.
PRC laws and regulations establish more
complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us
to pursue growth through acquisitions in China.
A number of PRC laws and regulations, including
the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors adopted by six PRC regulatory agencies
in 2006, or the M&A Rules, the Antimonopoly Law, and the Rules of Ministry of Commerce on Implementation of Security Review
System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the Ministry of Commerce in August
2011, or the Security Review Rules, have established procedures and requirements that are expected to make merger and acquisition
activities in China by foreign investors more time consuming and complex. These include requirements in some instances that the
Ministry of Commerce be notified in advance of any change of control transaction in which a foreign investor takes control of
a PRC domestic enterprise, or that the approval from the Ministry of Commerce be obtained in circumstances where overseas companies
established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also
require certain merger and acquisition transactions to be subject to merger control review or security review.
The Security Review Rules were formulated
to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which was promulgated in 2011. Under these
rules, a security review is required for mergers and acquisitions by foreign investors having “national defense and security”
concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises
have “national security” concerns. In addition, when deciding whether a specific merger or acquisition of a domestic
enterprise by foreign investors is subject to the security review, the Ministry of Commerce will look into the substance and actual
impact of the transaction. The Security Review Rules further prohibits foreign investors from bypassing the security review requirement
by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements
or offshore transactions.
There is no requirement for
foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular 6 to
submit such transactions to the Ministry of Commerce for security review. As we have already obtained the “de facto control”
over our affiliated PRC entities prior to the effectiveness of these rules, we do not believe we are required to submit our existing
contractual arrangements to the Ministry of Commerce for security review.
However, as these rules are relatively new
and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that the Ministry
of Commerce will not apply these national security review-related rules to the acquisition of equity interest in our PRC subsidiaries.
If we are found to be in violation of the Security Review Rules and other PRC laws and regulations with respect to the merger
and acquisition activities in China, or fail to obtain any of the required approvals, the relevant regulatory authorities would
have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking our PRC subsidiaries’
business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations. Any of these
actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial
condition and results of operations. Further, if the business of any target company that we plan to acquire falls into the ambit
of security review, we may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution
or through any contractual arrangement. We may grow our business in part by acquiring other companies operating in our industry.
Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required
approval processes, including approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or maintain our market share.
The PRC Labor Contract Law and its implementing
rules may adversely affect our business and results of operations.
The PRC Labor Contract Law became effective
and was implemented on January 1, 2008. The PRC Labor Contract Law has reinforced the protection for employees who, under the
PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed
terms under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Furthermore,
the PRC Labor Contract Law establishes additional restrictions and increases the costs involved with dismissing employees. As
the PRC Labor Contract Law is relatively new, there remains significant uncertainty as to its interpretation and application by
the PRC Government. In the event that we decide to significantly reduce our workforce, the PRC Labor Contract Law could adversely
affect our ability to do so in a timely and cost effective manner, and our results of operations could be adversely affected.
In addition, for employees whose contracts include non-competition terms, the Labor Contract Law requires us to pay monthly compensation
after such employment is terminated, which will increase our operating expenses.
Failure by our PRC shareholders or beneficial
owners to make required foreign exchange filings and registrations may prevent us from distributing dividends and expose us to
liabilities under the PRC laws.
The Circular on Relevant Issues concerning
Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted by Domestic Residents through
Overseas Special Purpose Vehicles (“SAFE Circular No. 37”), which was promulgated by SAFE and became effective on
July 14, 2014, requires a PRC individual resident (“PRC Resident”) to register with the local SAFE branch before he
or she contributes assets or equity interests in an overseas special purpose vehicle (“Offshore SPV”) that is directly
established or controlled by the PRC Resident for the purpose of conducting investment or financing. Following the initial registration,
the PRC Resident is also required to register with the local SAFE branch for any major change in respect of the Offshore SPV,
including, among other things, any major change of a PRC Resident shareholder, name or term of operation of the Offshore SPV,
or any increase or reduction of the Offshore SPV’s registered capital, share transfer or swap, merger or division. Failure
to comply with the registration procedures of SAFE Circular No. 37 may result in penalties and sanctions, including the imposition
of restrictions on the ability of the Offshore SPV’s PRC subsidiary to distribute dividends to its overseas parent.
Our existing PRC Resident shareholders and
beneficial owners currently are subject to the registration procedures under SAFE Circular No. 37. However, as SAFE Circular No.
37 was recently promulgated, it is unclear how this regulation and any future regulation concerning offshore or cross-border transactions
will be interpreted, amended or implemented by the relevant government authorities. It cannot be predicted that how these regulations
will affect our business operations or future strategies. Any failure by our PRC Resident shareholders or beneficial owners to
make the updates with SAFE may subject the relevant PRC Resident shareholders or beneficial owners to penalties, restrict our
overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends,
or affect our ownership structure and capital inflow from our offshore subsidiaries. As such, our business, financial condition,
results of operations and liquidity as well as our ability to pay dividends or make other distributions to our shareholders may
be materially and adversely affected.
There are defects in our titles of or
rights to use our properties.
We have not received the record of completion
acceptance from the relevant authority for our facilities used in our production and storage (“Properties”). We do
not have valid title or right to the said Properties. Any dispute or claim in relation to the title to the Properties, including
any litigation involving allegations of illegal or unauthorized use of the Properties, may materially and adversely affect our
operations, financial condition, reputation and future growth. However, we are in the process of applying to relevant authority
to obtain the completion acceptance for the Properties.
One of our subsidiaries is manufacturing
certain products that are beyond its business scope.
Jiangsu Delta has been producing UPR, which
is beyond the business scope of Jiangsu Delta. As a result, Jiangsu Delta may be imposed penalty and the business license of Jiangsu
Delta may be revoked by relevant authority. However, Jiangsu Delta is applying to relevant authority to enlarge its business scope
to include production of UPR. In the event that such approval is not obtained, Jiangsu Delta will have to suspend production of
UPR, which might adversely affect our financial prospect and results of operation.
One of our subsidiaries is conducting
certain business that is beyond its approved production capacity.
Jiangsu Delta is producing 30,000 tons of
PCT/OCT series and downstream products per annum which are beyond the approved annual production capacity of 10,000 tons. As a
result, Jiangsu Delta might be imposed penalty of RMB 500,000 to RMB 1,000,000 by relevant authority. However, Jiangsu Delta is
applying to relevant authority to increase Jiangsu Delta’s annual approved production capacity to 30,000 tons. In the event
that such application is denied, Jiangsu Delta will have to reduce its actual production under the approved capacity. As a result,
our production might not keep up with the demand of our customers, which may adversely affect our revenue and financial conditions.
Risks Relating to Our Securities
The market price of our ordinary shares
is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.
The market price of our ordinary shares and
warrants is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause
the market price of our ordinary shares to fluctuate significantly. These factors include:
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our earnings releases,
actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations
of financial market analysts and investors; |
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changes in financial estimates
by us or by any securities analysts who might cover our stock; |
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speculation about our business
in the press or the investment community; |
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significant developments
relating to our relationships with our customers or suppliers; |
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stock market price and
volume fluctuations of other publicly traded companies and, in particular, those that are in the same industry as we are; |
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customer demand for our
products; |
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investor perceptions of
the chemical industry in general and our company in particular; |
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the operating and stock
performance of comparable companies; |
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general economic conditions
and trends; |
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major catastrophic events; |
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announcements by us or
our competitors of new products, significant acquisitions, strategic partnerships or divestitures; |
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changes in accounting standards,
policies, guidance, interpretation or principles; |
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loss of external funding
sources; |
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failure to maintain compliance
with NASDAQ rules; |
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sales of our ordinary shares,
including sales by our directors, officers or significant shareholders; and |
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additions or departures
of key personnel. |
Securities class action litigation is often
instituted against companies following periods of volatility in their share price. This type of litigation could result in substantial
costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience
significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example,
in July 2008, the securities markets in the United States, China and other jurisdictions experienced the largest decline in share
prices since September 2001. These market fluctuations may adversely affect the price of our ordinary shares, warrants and other
interests in our company at a time when you want to sell your interest in us.
If we fail to comply with the continued listing requirements
of NASDAQ, we would face possible delisting, which would result in a limited public market for our shares and make obtaining future
debt or equity financing more difficult for us.
Our ordinary shares are traded and listed
on the NASDAQ Capital Market under the symbol “DELT” and our warrants are traded and listed on the NASDAQ Capital
Market under the symbol “DELTW.” The ordinary shares and warrants may be delisted if we fail to maintain certain listing
requirements of the Nasdaq Stock Market, or NASDAQ.
We cannot ensure you that we will continue
to comply with the requirements for continued listing on The NASDAQ Capital Market in the future. If our securities lose their
status on The NASDAQ Capital Market, our securities would likely trade in the over-the-counter market. If our securities were
to trade on the over-the-counter market, selling our securities could be more difficult because smaller quantities of securities
would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In
addition, in the event our securities are delisted, broker-dealers have certain regulatory burdens imposed upon them, which may
discourage broker-dealers from effecting transactions in our securities, further limiting the liquidity of our securities. These
factors could result in lower prices and larger spreads in the bid and ask prices for our securities. Such delisting from The
NASDAQ Capital Market and continued or further declines in our share price could also greatly impair our ability to raise additional
necessary capital through equity or debt financing, and could significantly increase the ownership dilution to shareholders caused
by our issuing equity in financing or other transactions.
While we believe that we currently have
adequate internal control procedures in place, we are still exposed to potential risks from legislation requiring companies to
evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002.
Under the supervision and with the participation
of our management, we have evaluated our internal controls systems in order to allow management to report on the system and process
evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements
of Section 404. As a result, we have incurred additional expenses and a diversion of management’s time.
If we fail to maintain effective internal
control over financial reporting in the future, a material misstatement of our financial statements may not be prevented or detected
on a timely basis. In addition, we may not be able to conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. This could in turn result in the loss of investor confidence in the reliability
of our financial statements and negatively impact the trading price of our shares. Furthermore, if we are not able to continue
to meet the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation
by regulatory authorities, such as the SEC or the NASDAQ. Any such action could adversely affect our financial results and the
market price of our ordinary shares and warrants.
As a foreign private issuer, we have
limited reporting requirements under the Securities Exchange Act of 1934, which makes us less transparent than a United States
issuer.
As a foreign private issuer, the rules and
regulations under the Exchange Act provide us with certain exemptions from the reporting obligations of United States issuers.
We are exempt from the rules prescribing the furnishing and content of proxy statements, and our officers, directors and principal
stockholders are exempt from the reporting and short-swing profit recovery provisions. Also, we are not required to publish financial
statements as frequently, as promptly or containing the same information as United States companies. The result is that we will
be less transparent than a U.S. issuer.
We are an “emerging growth company” and may not
be subject to requirements that other public companies are subject to, which could harm investor confidence in us and our securities.
We are an “emerging growth company”
as defined in the Jumpstart Our Business Act of 2012, or the JOBS Act, and, for as long as we continue to be an emerging growth
company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies,
including an exemption from the requirement to comply with the auditor attestation requirements of Section 404 and an exemption
from the requirement to adopt and comply with new or revised accounting standards at the same time as other public companies.
We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have
total annual gross revenues of at least US$1.0 billion; (b) the last day of our fiscal year following the fifth anniversary
of the completion of our initial public offering; (c) the date on which we have, during the previous three-year period, issued
more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated
filer” under the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds
US$700 million as of the last business day of our most recently completed second fiscal quarter.
The JOBS Act provides that an emerging growth
company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for
complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. However, we will elect to “opt out”
of this provision and, as a result, we will comply with any new or revised accounting standards as required when they are adopted
for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
If some investors find our securities less attractive because we
may rely on these exemptions, there may be a less active trading market for our securities and their price may be more volatile.
We may be classified as a passive foreign
investment company for United States federal income tax purposes, which could result in adverse United States federal income tax
consequences to U.S. Holders.
Based on the market price of our ordinary
shares, the value of our assets, and the composition of our assets and income, we do not believe that we were a passive foreign
investment company (a “PFIC”) for United States federal income tax purposes for its taxable year ended June 30, 2015
and we do not expect to be one for our taxable year ending June 30, 2016 or become one in the foreseeable future. Nevertheless,
the application of the PFIC rules is subject to ambiguity in several respects and, in addition, we must make a separate determination
each year as to whether we are a PFIC (after the close of each taxable year). Accordingly, we cannot assure you that we will not
be a PFIC for the current or any other taxable year.
A non-United States corporation, such as us,
will be classified as a PFIC for United States federal income tax purposes for any taxable year, if either (1) 75% or more of
its gross income for such year consists of certain types of “passive” income, or (2) 50% or more of its average quarterly
assets as determined on the basis of fair market value during such year produce or are held for the production of passive income.
Because there are uncertainties in the application of the relevant rules and PFIC status is a fact-intensive determination made
on an annual basis, no assurance can be given with respect to our PFIC status for the current or any other taxable year.
If we are characterized as a PFIC for any
year, a U.S. holder may incur significantly increased United States income tax on gain recognized on the sale or other disposition
of our ordinary shares and on the receipt of distributions on our notes or ordinary shares to the extent such gain or distribution
is treated as an “excess distribution” under the United States federal income tax rules.
We have outstanding exercisable securities
that may dilute your holdings.
Our outstanding exercisable securities may
adversely affect the market price of our shares.
As of the date of this report, we have issued
and outstanding securities exercisable into 6,625,320 ordinary shares (warrants for the purchase of 6,065,320 shares and a unit
purchase option for 280,000 shares and warrants to purchase 280,000 shares). The sale or possibility of sale of the shares underlying
these securities could have an adverse effect on the market price for its securities or its ability to obtain future financing.
If and to the extent these securities are converted or exercised, you may experience dilution to your holdings.
One of our stockholders holds
a significant percentage of our outstanding voting securities.
Mr. Xin Chao, who is our Chief Executive Officer
and Chairman of the Board, directly or indirectly owns approximately 25% of our outstanding voting securities. As a result, he
possesses significant influence, giving him the ability, among other things, to elect a majority of its Board of Directors and
to authorize or prevent proposed significant corporate transactions. His ownership and control may also have the effect of delaying
or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage
a potential acquirer from making a tender offer, all of which may prevent it from implementing its business strategies.
Risk Relating to British Virgin Islands
Rights of shareholders under British
Virgin Islands law differ from those under United States law, and, accordingly, our shareholders may have fewer protections.
Our corporate affairs are governed by our
Memorandum and Articles of Association, the BVI Business Companies Act, 2004 (as amended, the “BVI Act”) and the common
law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority
shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed
by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin Islands is derived in
part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has
persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes
or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed
body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially
interpreted bodies of corporate law. As a result of the foregoing, holders of our ordinary shares may have more difficulty in
protecting their interests through actions against our management, directors or major shareholders than they would as shareholders
of a U.S. company.
The laws of the British Virgin Islands
provide limited protection for minority shareholders, so minority shareholders will have limited or no recourse if they are dissatisfied
with the conduct of our affairs.
Under the laws of the British Virgin Islands,
there is limited statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with
shareholder. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent
documents of a British Virgin Islands company and are entitled to have the affairs of the company conducted in accordance with
the BVI Act and the memorandum and articles of association of the company. As such, if those who control the company have persistently
disregarded the requirements of the BVI Act or the provisions of the company’s memorandum and articles of association, then
the courts will likely grant relief. Generally, the areas in which the courts will intervene are the following: (i) an act complained
of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (ii) acts
that constitute fraud on the minority where the wrongdoers control the company; (iii) acts that infringe on the personal rights
of the shareholders, such as the right to vote; and (iv) acts where the company has not complied with provisions requiring approval
of a special or extraordinary majority of shareholders, which are more limited than the rights afforded to minority shareholders
under the laws of many states in the United States.
It may be difficult to enforce judgments
against us or our executive officers and directors in jurisdictions outside the United States.
Under our Memorandum and Articles of Association,
as amended, we may indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited
exceptions. Furthermore, to the extent allowed by law, the rights and obligations among or between us, any of our current or former
directors, officers and employees and any current or former shareholder will be governed exclusively by the laws of the British
Virgin Islands and subject to the jurisdiction of the British Virgin Islands courts, unless those rights or obligations do not
relate to or arise out of their capacities as such. Although there is doubt as to whether United States courts would enforce these
provisions in an action brought in the United States under United States securities laws, these provisions could make judgments
obtained outside of the British Virgin Islands more difficult to enforce against our assets in the British Virgin Islands or jurisdictions
that would apply British Virgin Islands law.
British Virgin Islands companies may
not be able to initiate shareholder derivative actions, thereby depriving shareholders of one avenue to protect their interests.
British Virgin Islands companies may not
have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which
any such action may be brought, and the procedures and defenses that may be available in respect of any such action, may
result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a
company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they
believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce
judgments of courts in the United States based on certain liability provisions of United States securities law or to impose
liabilities, in original actions brought in the British Virgin Islands, based on certain liability provisions of the United
States securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments
obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the
non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if
shareholders were to sue the Company successfully, they may not be able to recover anything to make up for the losses
suffered.
ITEM 4. |
INFORMATION ON THE COMPANY |
A. History and Development of the Company
We were formed under the name of “CIS
Acquisitions Ltd.” on November 28, 2011, under the laws of the British Virgin Islands. We were formed to acquire, through
a merger, stock exchange, asset acquisition, stock purchase or similar acquisition transaction, one or more operating businesses.
Although we were not limited to a particular geographic region or industry, we intended to focus on operating businesses with
primary operations in Russia and Eastern Europe. We had no operations and generated no operating revenues until we completed the
acquisition of Elite as more fully discussed below.
We are an emerging growth company, as defined
in the Jumpstart Our Business Startups Act.
Initial Public Offering
On December 21, 2012, we consummated our initial
public offering of 4,000,000 units at a public offering price of $10.00 per unit, generating gross proceeds of $40,000,000. Each
unit consisted of one callable Class A Share, par value $0.0001 per share, and one redeemable warrant. Each redeemable warrant
included in the units entitles the holder to purchase one ordinary share at a price of $10.00. Immediately prior to the consummation
of the IPO, we completed a private placement of 4,500,000 warrants at a price of $0.75 per warrant, for an aggregate purchase
price of $3,375,000, to our founding shareholders and their designees. We sold to the underwriters of the IPO, as additional compensation,
an aggregate of 136,000 Class A Shares for $2,720.
A total of $41,600,000, which included a portion
of the $3,375,000 of proceeds from the private placement of warrants to the founding shareholders and their designees, were placed
in trust (the “Trust Account”) pending the completion of our initial acquisition transaction.
Acquisition of Elite
On September 19, 2014, upon closing of a Stock
Purchase Agreement dated September 16, 2014, by and among the Company, Elite Ride Limited, a British Virgin Islands corporation
(“Elite”), Delta and the shareholders of Elite (the “Elite Shareholders”), we acquired all the outstanding
shares of Elite, in exchange for the issuance to the Elite Shareholders an aggregate of 6,060,000 ordinary shares, of which 4,560,000
shares were issued at closing and 1,500,000 shares (“Earnout Payment Shares”) are held in escrow and will be released
upon meeting of certain performance targets as specified in the stock purchase agreement (the “Acquisition”).
The Earnout Payment Shares, if any, will be
issued as follows: (a) 500,000 shares shall be issued if the Company achieves Adjusted Net Income (as defined in the stock purchase
agreement) of at least $8 million for the period starting July 1, 2014 and ending June 30, 2015; (b) 500,000 shares shall be issued
if the Company achieves Adjusted Net Income of at least $9.2 million for the period starting July 1, 2015 and ending June 30,
2016; (c) 500,000 shares shall be issued if the Company achieves Adjusted Net Income of at least $10.6 million for the period
starting July 1, 2016 and ending June 30, 2017 (collectively, the “Net Income Targets”). Further, during the thirteen
(13) months post-closing, all material acquisitions made by the Company must be accretive to Company earnings. The Net Income
Targets are to be met on an all-or-nothing basis, and there shall be no partial awards.
Concurrently with the Acquisition, we also
issued 500,000 ordinary shares to Kyle Shostak and CIS Acquisition Holding Co. Ltd. (collectively, the “CIS Sponsor”).
In addition, if the 10 trading day volume weighted average price (the “VWAP”) of our ordinary shares is lower than
$5.00 per share on the principal stock exchange on which such stock is traded on the earlier to occur of (i) the 395th day after
the closing and (ii) the 30th day after the SEC declares a registration statement filed by us effective during the first 12 months
after the closing, then we will issue the CIS Sponsor, proportionally in accordance with their respective share ownership
in the Company, an additional number of ordinary shares equal to (i) (a) $5.00 minus the VWAP, divided by the VWAP, multiplied
by (ii) the lesser of (a) 1,500,000 and (b) the total number of our ordinary shares of owned by CIS Sponsor on such date. The
total number of ordinary shares will be reduced by the number of ordinary shares CIS Sponsor sells during 13 months post-closing.
We have agreed that in the event that there
is any exercise of the redeemable warrants which were issued in the IPO or the warrants to purchase ordinary shares issued to
any CIS Sponsor, any proceeds of such exercise shall be paid to certain shareholders of Elite. We will not retain any portion
of the proceeds of such exercise.
In addition, we entered into a Call Agreement
(the “Call Agreement”) with the CIS Sponsor pursuant to which we are permitted, between the 360th and
390th after the closing date, to require the CIS Sponsor to sell to us up to 1,500,000 ordinary shares at a price
of $5.00 per share.
In connection with the Acquisition, we amended
the 4,500,000 warrants owned by the CIS Sponsor to provide that such warrants may be redeemed in the event our ordinary shares
trade at a price of $17.50 per share for a period of ten (10) consecutive trading days and that such warrants may not be exercised
on a cashless basis.
Immediately after the closing, our Board of
Directors consisted of five directors, composed of four nominees designated by Elite, of which at least two designees qualify
as an independent director under the Exchange Act of 1934, as amended (the “Exchange Act”), and the rules of The NASDAQ
Stock Market, and one nominee designated by us, who qualify as an independent director under the Exchange Act, and the rules of
The NASDAQ Stock Market. The parties to the Purchase Agreement entered into a mutually agreed upon voting agreement relating to
nominees to our Board of Directors for a period of thirteen (13) months following the closing (the “Voting Agreement”).
We entered into a Registration Rights Agreement
with the CIS Sponsor and any other such parties with the rights to require us to register any of our securities held by such parties
under the Securities Act of 1933, as amended, to terminate such demand registration rights and grant such parties piggyback registration
rights.
Due to the short amount of time available
before September 21, 2014, we did not conduct a tender offer to redeem publicly traded shares. Instead, we redeemed all holders
of publicly traded shares that have not elected to convert their Series A Shares into Series C Shares promptly after September
21, 2014.
As a result of the consummation of the Acquisition,
Elite is now our wholly subsidiary. Elite is the holding company of all the shares of Delta Advanced Materials Limited, a Hong
Kong corporation (“Delta”), which, in turn, holds all the equity interests in three operating subsidiaries in the
PRC: Jiangsu Yangtze Delta Fine Chemical Co., Ltd (“Jiangsu Delta”), Jiangsu Delta Logistics Co., Ltd (“Jiangsu
Logistics”), and Binhai Deda Chemical Co., Ltd (“Binhai Deda”) (collectively, the “PRC Subsidiaries”).
We
are, through our indirectly owned PRC Subsidiaries, engaged in the business of producing and distributing organic compound including
para-chlorotoluene (“PCT”), ortho-chlorotoluene (“OCT”), PCT/OCT downstream products, unsaturated polyester
resin (“UPR”), maleic acid (“MA”) and other by-product chemicals. The
end application markets of our products include automotive, pharmaceutical, agrochemical, dye & pigments, aerospace, ceramics,
coating-printing, clean energy and food additives. We currently have approximately 260 employees, 30% of whom are highly-qualified
experts and technical personnel. We serve nearly 350 clients in various industries.
Following the Acquisition,
we changed our name from “CIS Acquisition Ltd.” to “Delta Technology Holdings Limited” to more accurately
reflect our current business and operations.
B. Business Overview
Headquartered in Zhenjiang city, Jiangsu province,
we are a fast-growing fine and specialty chemical manufacturer, primarily engaged in manufacturing and selling of organic compound
including para-chlorotoluene (“PCT”), ortho-chlorotoluene (“OCT”), PCT/OCT downstream products, unsaturated
polyester resin (“UPR”), maleic acid (“MA”) and other by-product chemicals and distributing fine and specialty
chemicals to end application markets including Automotive, Pharmaceutical, Agrochemical, Dye & Pigments, Aerospace, Ceramics,
Coating-Printing, Clean Energy and Food Additives.
We collaborate with reputable universities,
such as the East China Normal University in order to secure our position as a market leader. We also closely monitor the market
for development, trends and technological innovations and solicit customer feedback so as to keep abreast with market demands
and industrial development.
As at the date of this report, we have a diversified
clientele with more than 350 customers based either in domestic or overseas market. Approximately 90% of our sales are to
domestic customers based in Jiangsu province, Anhui province, Zhejiang province, Hubei province, Guangdong province and Chongqing
Metropolitan, and the rest of its products are exported via distributors or trading companies to countries outside the PRC which
include but not limited to India, Brazil, Japan, European Union member countries and America.
Our revenue for the fiscal years ended June
30, 2013, 2014 and 2015 were approximately $124 million, $175 million and $202 million, respectively, and our profit before tax
for the fiscal years ended June 30, 2013, 2014 and 2015 were $13.4 million, $9.4 million, and $15.9 million, respectively.
Our Subsidiaries
Elite Ride Limited
Elite owns 100% of the ordinary shares of
Delta and was formed solely in contemplation of the Acquisition. It has not commenced any operations, has only nominal assets
and has no liabilities or contingent liabilities, nor any outstanding commitments other than as set forth herein. Elite has not
incurred any obligations, engaged in any business activities or entered into any agreements or arrangements with any third parties
other than as set forth herein.
Delta
Delta, formerly China Deltachem Holdings Limited,
was incorporated in Hong Kong as an investment holding company on June 17, 2010. Delta acquired Jiangsu Delta for a consideration
of $28.8 million pursuant to a sale and purchase agreement dated May 20, 2010 by and between Delta and Zhengxin International
Investment Limited, a Hong Kong corporation (“Zhengxin International”) and currently holds the entire equity interest
in Jiangsu Delta.
On May 26, 2011, Delta carried out a bonus
share issue, whereby an additional 39,990,000 ordinary shares of Delta were allotted and issued as bonus shares at a price of
HK$1.00 each to all the then shareholders of Delta at the ratio in proportion to their existing shareholding percentage, and credited
as fully paid up on a capitalization of the reserve of HK$39,990,000 from the capital reserve of Delta. Subsequent to the bonus
issue, Delta’s total issued and paid-up share capital increases to HK$40 million, comprising 40 million shares of HK$1.00
each. After the bonus share issue, Delta was owned as to 39,104,000 shares by Mr. Yu Lan (97.76%), 448,000 shares by Mr. Shen
Lei (1.12%) and 448,000 shares by Mr. Hong Yan (1.12%). On December 12, 2011, Mr. Yu Lan transferred all of his 39,104,000 shares
in Delta to Mr. Xin Chao at a total consideration of HK$67,102,464.
Delta entered into a series of Securities
Purchase Agreements dated January 31, 2011, May 16, 2011 and June 30, 2011, respectively, with the funds managed by Korea Investment
Partners Co. Ltd. and Kleiner, Perkins, Caufield & Byers (the “Noteholders”), pursuant to which it has issued
convertible notes (“Convertible Notes”) for an aggregate principal amount of US$18 million. The Convertible Notes
have a compound interest rate of 6.00% per annum if converted into shares and a compound interest rate at maturity of 15.00% if
redeemed or liquidated. The principal and interests accrued on such Convertible Notes are convertible in whole or in part into
the ordinary shares in Delta, on such terms and subject to the conditions of the Securities Purchase Agreements. On September
13, 2014, each of Mr. Xin Chao, Mr. Shen Lei and Mr. Hong Yan transferred all of their respective shareholdings in Delta to Elite.
Elite became the sole shareholder of Delta after the transfer.
On September 15, 2014, Delta entered into
a Settlement Deed with the Noteholders pursuant to which all of the outstanding obligations under Convertible Notes were settled.
Pursuant to the Settlement Deed, Delta agreed to (i) cause Elite to issue an aggregate of 20,347 of its shares in consideration
for the forgiveness of an aggregate of $8,897,000 of the Convertible Notes due to the Noteholders, and (ii) cause Master Kingdom
Holdings Ltd., a British Virgin Islands company (“Master Kingdom”), which is 100% owned by Mr. Xin Chao, the principal
shareholder of Elite, to enter into a Novation Deed with each of the Noteholders with respect to the repayment of the balance
of the Convertible Notes to the Noteholders. Accordingly, on September 18, 2014, Delta, Master Kingdom and the Noteholders entered
in a Novation Deed pursuant to which Master Kingdom agreed to assume and repay the remaining indebtedness due to the Noteholders
in the aggregate amount of $19,322,981.28. As a result of the foregoing, Delta has no more Convertible Notes outstanding.
Jiangsu Delta
On June 15, 2007, Jiangsu Delta was established
by S&S International Investment Holding (HK) Limited (“S&S International”), a Hong Kong based investment holding
company, as a wholly foreign-owned enterprise (with an initial registered capital of US$42 million, which was later reduced to
US$ 28.8 million) located in Zhenjiang city, Jiangsu province, the PRC.
Pursuant to a share transfer agreement entered
into on April 13, 2008, Mr. Xin Chao acquired the entire equity interest in Jiangsu Delta from S&S International through Zhengxin
International and became the controller of Jiangsu Delta since then. On May 21, 2008, the acquisition of Jiangsu Delta by Zhengxin
International was approved by the Jiangsu Foreign Trade and Economic Cooperation Department in accordance with “The Approval
of Alteration of Equities in and Amendment of the Articles of Association of Jiangsu Yantze River Delta Fine Chemical Co, Ltd.”
issued by the same authority.
Jiangsu Delta commenced its commercial operations
in 2009 with one production line and approximately 150 employees. It was primarily engaged in the manufacturing and production
of fine chemicals such as OCT and PCT as well as their down-steam products with approximately 100 customers.
With a view to expanding its business and
catering for the demand of its customers, in 2010, Jiangsu Delta’s principal business scope was expanded to be producing
and selling a variety of fine chemicals such as (i) pharmaceutical, pesticide and dye intermediates (mainly including Cis-Anhydride,
P-(O) Chlorotoluene, (2, 4 Dichlorotoluene)), (ii) unsaturated polyester resin, (iii) maleic acid and (iv) other by-products chemicals,
all of which are mainly used in pharmaceutical and agriculture industries. In addition, during the same period, Delta installed
additional production facilities to substantially increase its production capacity from 7,000 tonnes to 25,000 tonnes per annum.
Due to the corporate restructuring effort
to consolidate the business of Jiangsu Delta under a pure investment holding entity, pursuant to a sale and purchase agreement
dated May 20, 2010 between Zhengxin International and Delta, Jiangsu Delta was acquired by Zhengxing International for a consideration
of US$28.8 million.
On August 30, 2010, the acquisition of Jiangsu
Delta by Delta was approved by the Jiangsu Foreign Trade and Economic Cooperation Department in accordance with “The Approval
of Share Transfer of and Amendment of the Articles of Association of Jiangsu Chang San Jiao Chemical Co., Ltd.” issued by
the same authority.
Jiangsu Zhengxin R&D
On August 18, 2012, Zhengxin International
and Jiangsu Delta entered into a sale and purchase agreement, pursuant to which the entire equity interest of Jiangsu Zhengxin
New Material R&D Co., Limited (“Jiangsu Zhengxin R&D”) was acquired by Jiangsu Delta from Zhengxin International
at a consideration of RMB3.3 million. The acquisition of Jiangsu Zhengxin R&D was approved by the Danyang Bureau of Commerce
on September 18, 2012 in accordance with “The Approval and Transfer of and the Alteration of Nature of Zhengxin New Material
R&D Co., Limited”. On March 12, 2015, we sold Jiangsu Zhengxin R&D to a third party for a total sales price of RMB64,555,386.90
(approximately $10.5 million) as the Company would like to focus on and allocate more resources to the core business.
Jiangsu Logistics
On December 17, 2013, Jiangsu Delta Logistics
Co., Ltd (“Jiangsu Logistics”) was established by Jiangsu Delta with an initial registered capital of RMB 10 million
(approximately $1.63millions) located in Dantu District, Zhenjiang City, Jiangsu Province, PRC.
Binhai Deda
On June 8, 2013, Binhai Deda Chemical Co.,
Ltd (“Binhai Deda”) was established by Jiangsu Delta with an initial registered capital of RMB 5 million (approximately
$814,664) located in Binhai County, Zhenjiang City, Jiangsu Province, PRC.
Products
Our products can be broadly divided into
two major series, namely (i) PCT/OCT and (ii) UPR, which account for approximately 19.06% and 42.19%, respectively of our total
revenue in the fiscal year 2015. PCT/OCT together with its downstream products can be widely used in pharmaceuticals, pesticides,
dyes and consumables manufacturing industries, whereas UPR is commonly used as (i) renovation materials for bathroom and kitchen,
(ii) manufacturing materials for trains, cars, aircrafts and vessels, and (iii) infrastructure materials such as anti-collusion
pipes and oil and gas pipelines. UPR is a light weight, relatively wear resistant and highly anti-corrosive material, and its
unique features make it a popular replacement material for plastic and steel. In the fiscal year 2015, we sold approximately 60%
of the PCT/OCT we produced and consumed the balance as raw materials for the manufacturing of PCT/OCT downstream products.
In addition, we manufacture MA, which is an
intermediate product in producing UPR. We consume most of the MA we produce as a production intermediary. A by-product of the
production process of MA is heat energy, which we consume efficiently for manufacturing our PCT/OCT products, where large-scale
heat energy is required.
We place great emphasis on the research and
development of our products to ensure our continued success. As of the date of this report, we have successfully registered nine
patents in the PRC in relation to UPR production technologies, and PCT/OCT production technology, and environmental protection
equipment technology, and it is also in the process of applying for four more patents in relation to PCT/OCT and MA productions
technologies and production of PCT/OCT environmental protection equipment.
Production Process
We primarily engage in manufacturing and sale
of organic compound including PCT, OCT, UPR, MA and other by-product chemicals. Please see below the production flow diagrams
for more details on how PCT/OCT, MA and UPR products are manufactured by us.
The business operations model begins with
the sourcing of raw materials, which are then delivered to us and stored in our warehouses until being processed in-house in our
factory:
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg24a.jpg)
Our Supply Chain Management (SCM)
The following diagram illustrates our business
model with detailed service proposals in our Supply Chain Management business:
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg24b.jpg)
We started the servicing of third party clients
in raw material procurement and trading in 2012, with an objective to expand our operations beyond being a conventional manufacturer.
During the fiscal years ended June 30, 2013, 2014 and 2015, our revenue were approximately $11 million, $49 million and $31 million
and our gross profit (loss) was $(659,199), $(330,982) and $781,711, respectively.
In 2013, Jiangsu Logistics with business approval
in handling dangerous and toxic chemicals was founded, marking our launch of logistics and transportation services.
We have gathered from operating this new business
that we shall make good use of our knowledge and experiences in manufacturing, logistics and international trade in the chemical
business to act as a service provider in supply chain management for third-party clientele including manufacturers, distributors
and retailers of chemical products. We have recently added a business division handling Internet financing to deploy the opportunities
in supply chain financing.
Purchase of Raw Materials
The major raw materials which we purchase
include: Toluene, Chlorine, Benzene, Styrene and Phthalic Anhydride. Toluene and Chlorine are the two major raw materials for
the PCT/OCT production. Benzene is the major raw material for MA production. Styrene and Phthalic Anhydride are the two major
raw materials for UPR production.
We source our raw materials from a spread
of proximate suppliers, and use our own PCT/OCT and MA production as raw materials for PCT/OCT downstream products and UPR products.
Most of our suppliers are located within the Yangtze River Delta region, and due to the hazardous nature of the raw materials,
we emphasize on the need for a short transportation time and the safety requirements.
PCT/OCT raw materials take about one week
for delivery on request, while MA raw materials take about three to five days, and UPR raw materials take about seven to ten days.
Delivery and Storage
About 90% of the raw materials we use are
delivered to us by the suppliers, which buy insurance and bear all risks until goods are delivered to our warehouses, and the
remainder is picked up by our employees.
We have on-site warehousing capacity, which
allows us to store up to 6,000 tonnes of liquid or solid chemical materials.
The newly incorporated Jiangsu Logistics owns
six chemical products and trucks for transporting chemicals and is planning to increase its capacity to 6,000 tons.
Manufacturing and Processing
Manufacturing and processing occurs at our
factory in Zhenjiang, which has an annual production capacity of 30,000 tons of PCT/OCT production and PCT/OCT downstream production,
25,000 tons of MA production and 18,000 tons of UPR production. Please see below the production flow diagrams for the various
products for more details on how PCT/OCT, MA and UPR products are manufactured in our factory.
(a) PCT/
OCT
PCT/OCT forms the basic or intermediate
products from which down-stream extended products can be further manufactured. Our annual capacity for PCT/OCT series are at 30,000
tons, and the factory operates at almost its maximum capacity presently. The simplified production process for the PCT/OCT products
is as follows:
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg25.jpg)
Step 1: Chlorination Process
Chorine and Toluene, which form
the basic reactants for the production of PCT/OCT, are delivered into the Chlorination Tower for a controlled reaction to take
place in the presence of various catalysts. Depending on the temperature and the types of catalyst used, the reaction will produce
a mixture of crude products with a certain isomeric ratio of PCT/OCT.
The exhaust is delivered to the
Chlorination Tower, cooled and condensed before being treated for safe discharge. The crude product solution is then delivered
into the Distillation Tower where the products are isolated and purified.
Step 2: Fractional Distillation
Within the Distillation Tower, the
crude reactant product undergoes separation by way of fractional distillation and PCT and OCT are segregated based on their different
boiling points, and separately delivered to a PCT Tower and an OCT Tower for storage or packaging as necessary.
Step 3: Further Processing
The isolated, purified compounds
can then undergo further value-added treatment pursuant to customized treatments to manufacture down-stream derivative products.
We re-process about 40% of the PCT/OCT products received through the manufacturing process into some 13 different downstream chemical
products such as:
(1) 2,4-Dichloro toluene (“2,4DCT”)
2,4
(2) 3,4-Dichloro toluene (“3,4DCT”)
3,4
(3) O-chlorobenzaldehyde
(4) p-chlorobenzaldehyde
(5) 2,4-Dichlorobenzaldehyde 2,4
(6) O-chlorobenzyl chloride
(7) Chlorobenzyl chloride
(8) 2,4-Dichloro-chloride 2,4
(9) O-chlorobenzoic acid
(10) O-Chloro benzonitrile
(11) Chlorobenzonitrile
(12) 2,4-Dichlorobenzonitrile 2,4
(13) 3,4-Dichlorobenzonitrile 3,4
(b) UPR
Our UPR products are high-end resin
products. Due to UPR’s combination of unique strengths such as its lightness, toughness, durability, strength and anti-corrosive
properties, it is widely used by various industries, like the construction industry, industrial equipment industry, transport
industry and the infrastructure industry. Our production capacity for UPR was expanded from 9,000 tonnes in May 2010, to 18,000
tonnes annually in December 2010, and the factory operates at almost its maximum capacity presently. The simplified production
process for the UPR products is as follows:
Step 1: Reaction
Di-ols and Di-acids, including MA,
are the basic reactants for the production of UPR, which is a form of polyester. The reactants are delivered from their storage
tanks into a stainless steel reactor for a controlled esterification process in the presence of various catalysts. Depending on
the temperature and the types of catalyst used, the reaction will produce a crude mixture of semi-finished product or resin. We
can customize the qualities and characteristics of the UPR by varying the temperature, ratio and types of chemical reactants or
catalysts, which will result in the production of polyesters of different structures.
Step 2: Dilution and Further
Procession
The semi-finished product or resin
is transported into the Dilution Tank where Styrene and other chemicals are added in a dilution process. The Dilution Tank is
linked to a cooling and condensation mechanism which will condense the vapours or exhaust from the Dilution Tank. In the Dilution
Tank, the resin can be further adjusted as to viscosity, reactivity and other characteristics through the addition of chemical
inhibitors or promoters.
Step 3: Packaging
The final product is then transferred
to the storage tanks or sent for packaging.
(c) MA
MA accounts for 3% of our total
sales volume. Most of the MA produced, i.e. approximately 70%, is used for our own production of UPR, while about 30% will be
sold to customers. The oxidation process in the production of MA produces heat which is converted into steam for use in the production
of PCT/ OCT and other production areas where steam is needed.
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg27.jpg)
Step 1: Oxidation
Benzene and air are catalyzed and
oxidized through a fixed bed Oxidation Reactor to generate MA vapor. The MA vapor is condensed and cooled to form MA in liquid
form which is delivered to the Crude Anhydride Tank. The vapor is passed through the Absorption Tower for further extraction and
isolation.
Step 2: Distillation
The MA solution and vapor which
has been absorbed in the absorption tower shall be dissolved and distilled as part of the purification process to extract the
finished product. The MA can be delivered to the storage tanks and packaged for sale, or be utilized for further production and
processing.
Delivery or Pick-up by the Customers
We deliver around 60% of the products sold
to the customer sites while customers pick up about 40% of the finished products directly from our warehouses. We usually use
three transportation companies to truck the products to our customer sites. The newly incorporated Jiangsu Logistics will be responsible
for transporting the chemicals. Delivery typically takes up to one week, although actual time will vary depending on the location
of our customers.
Production Facilities, Capacity and Utilization
Our production facilities are located in Zhenjiang
city, Jiangsu province, the PRC.
We have three main production lines centered
on our core products:
|
(a) |
Our PCT/OCT series production
facility was designed by Tianjin University and built in 2008. It was first put into use in January 2009 and went through
an expansion during 2011. |
|
(b) |
Our MA production line
was designed by the China Academy of Science started operation in late 2010. The current capacity of the MA Production line
is at 12,500 tonnes per annum, which is fully utilized and went through an expansion during 2013. |
|
(c) |
Our UPR production line
had two phases of development in May and December 2010 respectively. |
We may from time to time look into further expansion of our existing
facilities to improve output capacity.
Quality Control
We are committed to providing our customers
with quality and reliable products. Through our corporate quality management system, we are committed to ensuring that the products
we produce are of high quality and are able to meet the expectations of our customers.
Our quality assurance department is currently
comprised of 13 quality assurance personnel. They are responsible for overall quality control at every stage of our production
process and ensure that it is in accordance with our quality control guidelines.
Quality Assurance and Safety Processes
We conduct quality checks on all the products
manufactured and oversee the implementation of the quality controls at every stage of our production process in line with our
quality management system. The following quality control procedures have been implemented:
(a) Establishment
of quality control standards
For manufacturing of chemical systems
and components and catalysts, we have set in place stringent quality control standards to implement strict measures for quality
control in the manufacturing. Such standards follow strictly in accordance with the national and industry standards as well as
the standards and guidance set in accordance with the ISO 9001 Quality System. We also take into account customers’ specifications
and requirements and quality feedback from our previous customers to supplement our quality control standards.
For our system design, we ensure
the design of every project is carried out in line with (i) the relevant PRC laws and regulations; (ii) the relevant technical
specifications and industry standards; and (iii) our customers’ requirements.
(b) Quality
control during procurement
Direct materials are purchased only
from pre-selected suppliers after evaluation and testing by our procurement personnel, quality control personnel and production
personnel based on stringent selection criteria such as quality of their raw materials and services, material sources, pricing,
accreditations, track record, financial condition and market reputation.
Our quality assurance department
will conduct random sample inspection upon receipt of the raw materials. Raw materials that do not meet our quality requirements
are returned to the suppliers for them to remedy the problems or defects or for exchange. Procurement plans from the various suppliers
are subject to review by our senior management on an annual basis .
(c) Quality
control during manufacturing process
Quality guidelines are provided
to the relevant production workers at each production stage before production commences.
Before the production, incoming
direct materials are inspected by way of sampling by our quality control personnel to ensure that they are supplied by approved
suppliers, and that the quality, grade and quantity of such direct materials conform to its specifications and requirements as
well as our quality control standards. Direct materials which fail to comply with these specifications will be rejected.
We continuously monitor our manufacturing
process and carry out sample-testing at systematic intervals throughout the process to ensure consistency in the quality of the
chemical systems and components and catalysts. Our quality control personnel and production personnel conduct sample-testing and
inspections at the various stages of production to ensure that defective semi-completed products do not proceed to the next stage
of the production.
(d) Quality
control on finished products
We conduct overall inspections and
testing on finished products before they are dispatched to customers. We have implemented a strict sample-based testing system,
which is carried out every batch of our finished products before they are arranged for packing. For OCT/PCT and MA products, the
main criterion to be examined is its degree of purity, whereas for UPR products, the focus is on its shock-resistance and chromaticity.
This final stage of inspection is carried out to ensure that the finished products that are packed and delivered conform to the
exact specifications of our customers. We also provide after sales servicing, and will attend to complaints, if any, regarding
defects in the products or the services.
To continually improve our quality management
system, we will take into account the feedbacks from our employees who are involved in each of the quality control processes and
feedbacks from these employees or our customers.
Certification and Awards
In recognition of our quality assurance efforts,
we were awarded certification of GB/T19001-2008 idt ISO9001:2008 (quality management systems) by China Federation of Logistics
Certification Center GB/T24001-2004/ISO14001:2004 (environmental management systems) by China Certification Centre Inc.
For the last three fiscal years and up to
the date of this report, we have not experienced any material claims from our customers for defective or poor quality products,
nor have we experienced any product liability claims from end users of our products. In addition, we have not experienced significant
amount of return cases for our products over the same period.
Research and Development
We place great emphasis on research and
development. Our research and development team is headed by our Chief Engineer Mr. Yuan Huaizhou and supported by about 36
research and development staff. Our research team members are required to have at least five years of experience in the
research of fine chemical industry as well as a bachelor degree in chemistry or chemical engineering or other relevant
professional qualifications. All the employees under our research and development department are required to execute
confidentiality undertakings, which restrict them from revealing any trade secrets and/or know-how with regard to our
products or technologies involved in our production process to our competitors for at least three years after termination of
their employment.
In-house Research and Development Activities
Our in-house research and development activities
focus mainly on:
|
(a) |
improving the quality of
our end products so as to achieve certain special features, such as fire-resistance, shock-resistance, wear-resistance and
anti-corrosive properties etc.; |
|
(b) |
improving production techniques
to cut down on production lead-time for efficiency and adopting automatic production process to reduce the chances of human
mistakes and also make full use of the side products such as steam and heat energy to achieve the goal of zero waste; |
|
(c) |
adopting environmentally
production process to achieve zero-pollution; and |
|
(d) |
developing and testing
catalysts to increase production efficiency and purity. |
Technology Collaborations
We collaborate with technology partners, comprising
renowned universities and in the manner as follows:
In 2012, we entered into discussions for partnership
arrangements with a group of professors from East China Normal University to development a joint research and development center.
The joint research center, under the name of “Delta Chemical Advanced Materials R&D Centre”, will be located at
our facilities in Zhenjiang, Jiangsu Province.
Pursuant to the collaborative arrangement,
the university and we will each contribute around three to five research staff to carry out the research and development operations
of the joint research center.
The joint research center will be equipped
with world-class chemical research facilities and product testing equipment. Its research focus will be placed on development
of the following products:
|
(a) |
new UPR products for (i)
renovation of kitchen, bathroom and man-made marble counter, and (ii) manufacturing high pressure oil pipeline and high voltage
electrical equipment; |
|
(b) |
new PCT/OCT downstream
products, such as pharmaceutical bulk drug; and |
|
(c) |
directional catalyst to
be used in PCT/OCT production process. |
Sales and Marketing
Our sales and marketing department is headed
by our Deputy General Manager, Mr Shi Weiping, who has been involved in the chemical industry since 1989 and has experience of
approximately 24 years in the industry in relation to the sales and marketing of chemical products. Mr. Shi is currently supported
by seven sales and marketing personnel who are in charge of the sales for different product categories such as PCT/OCT and MA
products and they are dedicated to sales and marketing activities in various areas, ranging from southern, northern and eastern
China regions as well as overseas market.
Our sales and marketing department is responsible
for the sales and marketing functions of the Company, and its key roles and responsibilities include sourcing for new customers,
confirming and collating orders from customers, providing after-sales service, maintaining customer relationships, and ensuring
timely payments and delivery of goods/services.
Our sales personnel keep in touch with our
customers by paying regular visits to them to understand their needs, business development and market policies and to obtain their
feedback and suggestions. Following the customer visits, our sales personnel will report to Mr. Shi on a daily basis.
Our sales and marketing department is also
tasked with formulating and planning our marketing strategies and activities which primarily include the following specific marketing
activities:
Direct Sales and Marketing
Direct sales and marketing activities involve
regular meetings with and frequent visits to new and existing customers. Through such interactions, we are able to promote our
products, obtain feedback on our products, and understand our customers’ demands based on the latest developments and trends
relating to the chemical industry. In addition, we may engage in discussions with our customers relating to new chemical products
in the market and to explore opportunities for business collaboration. This will allow us to better understand and serve our customers.
Further, our sales and marketing department
cooperates with other departments to put in place an effective and systematic procedure for direct sales, arrange promotional
activities and to collate customer data and feedback. We provide our sales and marketing employees with necessary training to
familiarize them with the sales and marketing practice in the industry and how to promote awareness for our brand. These employees
are also rewarded with incentive remuneration package linked to their sales performance.
Advertisements, Publications and Participation
in Industrial Conferences
We have a diversified customer base with more
than 350 customers in China and countries such as India, Brazil, Japan, European Union member countries and America. Due to our
diversified clientele, our sales and marketing efforts are conducted through a variety of channels, including but not limited
to websites, billboards and brochures. We also participated in various regional and international seminars and exhibitions to
showcase and promote our products, create and enhance market awareness of our brand and products, gain market updates and industry
knowledge, establish networks with customers and suppliers, keep abreast of the latest technology and identify latest trends.
We have annually, since our establishment, participated in related industrial conferences held in the PRC, such as China International
Pharmaceuticals Exhibition, China International Fine Chemicals Exhibition and China Import and Export Fair.
Awards and Certificates
As an endorsement of the quality of our products
and services, we have been conferred, inter alia, the following awards or certificates:
Award/ Certification |
|
Awarding Authority |
|
Year |
|
|
|
|
|
Municipal Key Project Completion Award |
|
Zhenjiang City Major Project Office |
|
2008 |
|
|
|
|
|
Credit Rating AAA |
|
Credit Rating Agency Recognised by the Nanjing Branch Office of
The People’s Bank of China: Jiangsu Yuandong International Rating and Consulting Co., Ltd |
|
2010 |
|
|
|
|
|
Advanced Enterprise of Utilizing Foreign Capitals |
|
People’s Government of Gao Zi Town, Dantu Economic Development
Zone |
|
2011 |
|
|
|
|
|
Outstanding Unit |
|
Transparent and Democratic Factory Operations Management Team of
Zhenjiang City |
|
2011 |
|
|
|
|
|
Credit Rating Certificate of AAA |
|
United Credit Management Limited Company Jiangsu Branch |
|
2011 |
|
|
|
|
|
Certificate for Vice President Unit |
|
Precursor Chemicals Industry Association of Zhenjiang City |
|
2012 |
|
|
|
|
|
GB/T19001-2008 ISO9001:2008 |
|
China Federation of Logistics Certification Center |
|
2012 |
|
|
|
|
|
Outstanding Tax Contribution Unit |
|
CPC Working Committee of Gao Zi Sub-District & CPC Working
Committee of Dantu Economic Development Zone |
|
2012 |
|
|
|
|
|
GB/T24001-2004/ISO14001:2004
Environmental Management System Certificate |
|
Hua Xia Certification Centre Inc. |
|
2012 |
|
|
|
|
|
Production Safety Standards: Level Three Enterprise |
|
Administration of Work Safety of Zhenjiang City, Jiangsu Province |
|
2013 |
|
|
|
|
|
GB/T24001-2004/ISO14001:2004 Environmental Management System Certification |
|
Beijing Zhongjing Quality Certification Center |
|
2015 |
Intellectual Property
Patents
As of the date of this report, the status
of our patents and the patent applications in the PRC is as follows:
Patents Granted
Patent Number |
|
Description |
|
Patentee |
|
Date of
Application |
|
Date of Grant |
|
Expiry Date |
ZL201120123193.1 |
|
Efficient resin heater for the purposes of improving UPR production
process |
|
Jiangsu Delta |
|
April 18, 2011 |
|
November 16, 2011 |
|
April 18, 2021 |
|
|
|
|
|
|
|
|
|
|
|
ZL201120123195.0 |
|
Recovery hot and cold container in one for the purposes of improving
UPR production process |
|
Jiangsu Delta |
|
April 18, 2011 |
|
November 30, 2011 |
|
April 18, 2021 |
|
|
|
|
|
|
|
|
|
|
|
ZL201120316710.7 |
|
Efficient resin stirrer for the purposes of improving UPR production
process |
|
Jiangsu Delta |
|
August 26, 2011 |
|
June 13, 2012 |
|
August 26, 2021 |
|
|
|
|
|
|
|
|
|
|
|
ZL201420088028.0 |
|
A toluene chlorination tail gas gas-liquid separation tank |
|
Jiangsu Delta |
|
February 28, 2014 |
|
August 13, 2013 |
|
February 28, 2024 |
|
|
|
|
|
|
|
|
|
|
|
ZL201420091459.2 |
|
A kind of industrial wastewater desalting flash tank device |
|
Jiangsu Delta |
|
February 28, 2014 |
|
August 13, 2014 |
|
February 28, 2024 |
ZL201210558267.3 |
|
Chlorobenzyl chloride continuous distillation system in relation
to OCT production process |
|
Jiangsu Delta |
|
December 20, 2012 |
|
December 10, 2014 |
|
December 20, 2032 |
ZL201420292343.5 |
|
A kind of maleic anhydride crude anhydride tank |
|
Jiangsu Delta |
|
June 3, 2014 |
|
November 12, 2014 |
|
June 3, 2024 |
ZL201420088028.0 |
|
A toluene chlorination exhaust gas-liquid separation tank |
|
Jiangsu Delta |
|
February 28, 2014 |
|
August 13, 2014 |
|
February 28, 2024 |
ZL201420091625.9 |
|
A kind of exhaust gas absorber that absorbs toluene chlorination |
|
Jiangsu Delta |
|
February 28, 2014 |
|
October 1, 2014 |
|
February 28, 2024 |
Patents Pending
No. |
|
Application
Number |
|
Description |
|
Patent
Applicant |
|
Application Date |
|
Status |
1 |
|
201110451557.3 |
|
High pressure FRP pipe resin for oilfield |
|
Jiangsu Delta |
|
December 29, 2011 |
|
Pending |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
201110451717.4 |
|
New model of UPR for quartz tub |
|
Jiangsu Delta |
|
December 29, 2011 |
|
Pending |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
201210541517.2 |
|
Waste water desalination technology to be used for wastewater disposal
during the production process of PCT/OCT, MA and UPR |
|
Jiangsu Delta |
|
December 14, 2012 |
|
Pending |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
201210541010.7 |
|
Efficient utilization of excess heat energy generated from steam
exhaust systems resulting from PCT/OCT and MA productions process |
|
Jiangsu Delta |
|
December 14, 2012 |
|
Pending |
Trademarks
As of the date of this report, we do not own
any registered trademark. However, we have filed applications to the PRC Trademark Bureau in respect of the following trademarks:
Trademark |
|
Class
(1) |
|
Application
Number |
|
Date of
Application |
|
Status |
|
Place of
Registration |
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg31a.jpg) |
|
1 |
|
12218845 |
|
March 5, 2013 |
|
Pending |
|
The PRC |
|
|
|
|
|
|
|
|
|
|
|
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg31b.jpg) |
|
1 |
|
12218774 |
|
March 5, 2013 |
|
Pending |
|
The PRC |
| (1) | Class
1 refers to Chemicals used in industry, science and photography, as well as in agriculture,
horticulture and forestry; unprocessed artificial resins, unprocessed plastics; manures;
fire extinguishing compositions; tempering and soldering preparations; chemical substances
for preserving foodstuffs; tanning substances; adhesives used in industry. |
Seasonality
We generally do not experience any seasonality
in our business. We only experience a slight decrease in the number of orders for our products during festive seasons, in particular,
the Chinese New Year, as many of the factories of our customers may be closed.
Staff Training
We recognize that our employees are an important
resource and we thus aim to equip our staff with the relevant skills and knowledge which will enable them to perform their jobs
effectively. We have implemented comprehensive training policies and programs aimed specifically at improving the skill sets of
our staff and increasing our competitiveness and productivity. Our human resource department oversees our staff training programs.
We conduct training programs for all levels
of our staff, including those holding management and supervisory positions. In recognition of staff with potential, we also conduct
training programs to upgrade their skills. Such upgrading programs are conducted on a periodic basis and tailored in accordance
with the specific requirements of each department. Our internal training programs include:
We conduct orientation programs
for our new employees during which they are provided with information on the Company, including our history, enterprise culture,
business concept and employment rules. They are required to undergo operational training sessions so as to familiarize themselves
with our operational procedures, policies and practices.
Occasionally, we will invite external
professionals or instructors to conduct seminars and talks for employees and management of relevant departments in relation to
their respective scope of work.
|
(b) |
Production and Manufacturing Staff |
Our staff involved in the manufacturing
and production processes are required to undergo in-house operational training sessions so as to familiarize themselves with our
operational procedures, policies and practices. The production managers and engineers at our production facility periodically
update and educate our production staff on matters relating to our production techniques and processes, including compliance with
the assurance procedures required under GB/T19001-2008 idt ISO9001:2008 (quality management systems) and other environmental management
and quality assurance procedures such as the GB/T24001-2004/ISO14001:2004 requirements.
Upon completion of the various
training programs, our staff will sit for examinations which may be conducted orally or by written tests. For new employees, upon
passing the examinations and tests, they will undergo on-the-job training during which they will learn the specific skills which
are relevant for their respective positions. They will only commence work in their respective positions if they have been assessed
to be fit for deployment.
|
(c) |
Sales and Marketing Staff |
Our sales and marketing staff were
trained on information relating to our products, including, inter alia, our products’ qualities, characteristics
and their applications. They are also constantly updated on market information and market demand of our products.
We recognize the importance of training our
staff and developing their skills, as our success is largely dependent on the quality and skills of our staff. It is our policy
to maintain a competent work force and we are committed to providing training to our staff, in order for us to remain competitive
and meet the increasing market demand for high quality products. As our staff training is mainly conducted in-house, our training
expenses in the last three fiscal years have not been significant.
Insurance
We have in place the following insurance policies:
We have in place social insurance
for employees of Jiangsu Delta, including fundamental pension insurance and fundamental medical insurance, unemployment insurance,
work-related insurance and maternity insurance in respect of which the insurance premium is borne by us and the employees in a
specific proportion governed by the relevant PRC regulations.
Jiangsu Delta has obtained the Social
Insurance Registration Certificate issued by the Social Labor Insurance Fund Management Centre of Dantu, Zhenjiang on June 23,
2010 which will expire on October 30, 2020.
According to the relevant PRC laws
and local regulations in respect of social insurance contribution, Jiangsu Delta pays social insurance premiums for employees
according to the following rate:
| |
Rate | |
Type | |
Enterprise | | |
Individual | |
| |
| | |
| |
Fundamental Medical Insurance | |
| 9 | % | |
| 2.5 | % |
Fundamental Pension Insurance | |
| 21 | % | |
| 8 | % |
Unemployment Insurance | |
| 2 | % | |
| 1 | % |
Work-related Injury Insurance | |
| 1.8 | % | |
| - | |
Maternity Insurance | |
| 0.6 | % | |
| - | |
To our best knowledge, Jiangsu Delta
has since its establishment handled the fundamental medical insurance, fundamental pension insurance, unemployment insurance,
work-related Injury insurance and maternity insurance for employees according to relevant laws and regulations in the PRC, and
neither company has any overdue payment and had been in compliance with applicable PRC social insurance laws and regulations as
of the date of this report.
We have all property all-risks insurance
for our machinery and equipment including machineries, and facilities against damage caused by certain accidents and natural disasters
such as fire.
|
(c) |
Motor Vehicle Insurance |
We purchase and maintain compulsory
traffic accident liability insurance for all company-owned motor vehicles.
|
(d) |
Insurance for employers’ liability. |
We also purchase insurance for employer’s
liability.
All insurance coverage is obtained at market
rates from independent insurance companies.
Major Suppliers
The key components and raw materials used
in our production and manufacturing processes are comprised mainly of Toluene, Chlorine, Benzene, Styrene and Phthalic Anhydride,
Maleic Anhydride, Propylene glycol and Ethylene diglycol which in the aggregate constituted approximately 85% of our total cost
of sales.
Our suppliers are carefully selected by our
purchasing department, and are assessed on criteria such as the geographical location, quality of materials supplied, length of
business relationship with us, as well as their reputation, pricing, reliability, track record, service, punctuality and response
time. To facilitate timely purchases of materials, we keep a list of qualified suppliers who have demonstrated reliability in
product quality and delivery time as well as pricing competiveness. This list is subject to review by our management on an annual
basis.
Our raw materials are currently sourced from
within the PRC and therefore, all of our purchases are transacted in RMB. Accordingly, we are not subjected to any significant
risk in exchange rates fluctuation in the purchase of raw materials.
Except for Chemical Sales Eastern China Branch
of China Petroleum & Chemical Corporation, with whom a one year contract was entered into, we do not any have long-term arrangements
with our other major suppliers.
The major suppliers accounting for 5% or more
of our cost of sales for each the last three fiscal years ended June 30, 2013, 2014 and 2015 are as follows:
Suppliers | |
FY2015 | | |
FY2014 | | |
FY2013 | |
| |
| | |
| | |
| |
Supplier A | |
| 20.4 | % | |
| 13.0 | % | |
| 0.0 | % |
Supplier B | |
| 20.0 | % | |
| 10.7 | % | |
| 7.6 | % |
Supplier C | |
| 11.2 | % | |
| 9.8 | % | |
| 9.9 | % |
Supplier D | |
| 8.0 | % | |
| 7.6 | % | |
| 24.0 | % |
Supplier E. | |
| 7.5 | % | |
| 4.8 | % | |
| 11.3 | % |
Most of materials are mass chemical products,
prices of which are quite transparent. However, due to limited purchase volume, we are not able to buy products directly through
major international chemical suppliers, such as SK Chemicals. Except for Sinopec, we procure our materials through chemical wholesalers,
such as Southern Petrochemical Group. We may switch our suppliers from one to another depending on the commercial terms agreed
upon. As a result, some suppliers in previous years did not further sell their products to us during recent years. The percentage
of purchase is also varied from year to year.
Our business or profitability is not materially
dependent on any single supplier. We do not consider ourselves materially dependent on any single abovementioned supplier as we
believe that there are other qualified suppliers that we are able to work with should any of these suppliers provide unacceptable
or uncompetitive terms.
As of the date of this report, we are not
aware of any information or arrangement which would lead to a cessation or termination of our relationships with any of our current
major suppliers.
Major Customers
Our customers are mainly from the chemical
industry in the PRC. As of the date of this report, we have a customer base of approximately 350 different customers (of which
certain customers belong to the same group of companies) across 11 provinces in the PRC.
The major customers accounting for 5% or more
of our total revenue for the last three fiscal years ended June 30, 2015, 2014, 2013 are as follows:
Customer | |
FY2015 | | |
FY2014 | | |
FY2013 | |
Customer A | |
| 15.7 | % | |
| 5.4 | % | |
| 7.1 | % |
Customer B | |
| 7.7 | % | |
| 3.6 | % | |
| 5.1 | % |
Customer C | |
| 6.2 | % | |
| 4.7 | % | |
| 0.0 | % |
Customer D | |
| 5.6 | % | |
| 2.5 | % | |
| 0.0 | % |
Except materials sales’ customers, our
customer base is diversified. For the past three fiscal years, we have generally reduced our reliance on each of our major customers,
whose purchases as a percentage of our total revenue has shown a declining trend. This is a result of increased sales volume to
a more diversified customer base and an increase in the number of products we produce.
As at the date of this report, we do not have
any long-term arrangement or arrangements with any of our major customers and our business or profitability is not materially
dependent on any single customer. As of the date of this report, we are not aware of any information or arrangement which would
lead to a cessation or termination of our relationships with any of our current major customers.
Competition
Although the barriers to entry in this industry
are relatively high in terms of capital investment and the manufacturing expertise required, we operate in a competitive environment.
Our competitors are located in the Yangtze River Delta region of China, especially in Jiangsu province where we are located.
Our management of believes that the demand
for our products is increasing, both within and outside the PRC. Our management considers, amongst others, the following to be
our main competitors as we compete with them in at least one of the categories of the products sold by us:
Name |
|
Place of Origin |
|
|
|
Danyang Zhongchao Chemical Co., Ltd. |
|
Danyang City, Jiangsu Province |
|
|
|
Jiangsu Zhenfang Chemical Co., Ltd. |
|
Huai’An City, Jiangsu Province |
|
|
|
Jiangsu Lianhua Technology Co., Ltd. |
|
Xiangshui City, Jiangsu Province |
|
|
|
Changzhou Yabang Chemical Co., Ltd. |
|
Changzhou City, Jiangsu Province |
We believe that improving our production efficiency
and seizing market opportunities will consolidate our market position and market share in the industry. We believe that our record
for quality products and reputation for good service have gained the confidence of our customers.
Environmental Protection and Corporate
Social Responsibilities
We have always been committed to adopting
an environmentally friendly business model.
We have obtained all of the environmental
permits and approvals necessary to conduct our business, including those for our production facilities, such as Dangerous Chemical
Operation Permit, Pollutant Discharge Permit, etc. In addition, we were granted an Environmental Management System Certificate
by China Certification Centre Inc. on July 6, 2012 which certifies that the environmental management system adopted by Jiangsu
Delta during its manufacturing process is in line with the standards of GB/T24001-2004/ISO 14001:2004.
Apart from complying with all the relevant
environmental laws and regulations, we have gone a step further in order to minimize our impact on the environment by undertaking
a wide range of self-initiated measures to build a greener future.
Our manufacturing processes generate noise,
waste water, gaseous wastes and other industrial wastes. However, we have devoted efforts to reduce such wastes to acceptable
levels under applicable regulations. We have installed various types of anti-pollution equipment in our facilities to reduce,
treat, and where feasible, recycle the waste generated in our manufacturing process. Our operations are subject to regulation
and periodic monitoring by local environmental protection authorities. We are currently in compliance with all applicable environmental
laws and have not breached any applicable environmental laws or regulations since our establishment.
Our current water treatment system has been
awarded pioneer status with regard to the water treatment technology applied in our industry in the PRC. Our system allows us
to recycle almost the entire portion of the waste water produced in our production, resulting in significant cost savings in our
utilities expenses and also improved our environmental friendliness through a reduction in waste water production and disposal.
As a testimony to our continued efforts to
achieve zero-pollution, we have a dedicated team of in-house researchers engaging in research and development activities focusing
mainly on, inter alia, making full use of the by-products such as waste water generated during our production process to
attain the goal of zero waste generation.
In order to ensure that we comply with the
relevant PRC environmental laws and regulations, we have appointed specialized personnel to oversee environmental protection related
matters within the Company. As a responsible corporate entity, we have committed to ensure that we comply with all the applicable
PRC environmental laws and regulations in the future by (i) providing regular training upon the promulgation of new environmental
laws and regulations with respect to the latest PRC environmental laws and regulations and encouraging our team staff to attend
environmental protection training sessions organized by the local environmental protection authorities, (ii) conducting on-site
inspections regularly, (iii) providing relevant training to our employees regarding compliance with PRC environmental laws and
regulations in general, (iv) providing timely reports to the directors any incident or non-compliance with the relevant PRC environmental
laws and regulations and (v) providing timely reports to and coordinating with competent authorities in the case that any incident
or non-compliance arises.
Licenses, Permits and Government Regulations
PRC Laws and Regulations Relating to
Our Business
Generally, the fine chemical industry is
subject to stringent environmental protection, health and safety laws and regulation in the PRC. We have identified the main
laws and regulations that affect our operations and the relevant regulatory bodies.
PRC Legal System
The PRC legal system is based on the PRC Constitution
and is made up of written laws, regulations and directives. Decided court cases do not constitute binding precedents.
The National People’s Congress of the
PRC (“NPC”) and the Standing Committee of the NPC are empowered by the PRC Constitution to exercise the legislative
power of the state. The NPC has the power to amend the PRC Constitution and to enact and amend primary laws governing the state
organs and civil and criminal matters. The Standing Committee of the NPC is empowered to interpret, enact and amend laws other
than those required to be enacted by the NPC.
The State Council of the PRC is the highest
organ of state administration and has the power to enact administrative rules and regulations. Ministries and commissions under
the State Council of the PRC are also vested with the power to issue orders, directives and regulations within the jurisdiction
of their respective departments. Administrative rules, regulations, directives and orders promulgated by the State Council and
its ministries and commissions must not be in conflict with the PRC Constitution or the national laws and, in the event that any
conflict arises, the Standing Committee of the NPC has the power to annul such administrative rules, regulations, directives and
orders.
At the regional level, the people’s
congresses of provinces and municipalities and their standing committees may enact local rules and regulations and the people’s
government may promulgate administrative rules and directives applicable to their own administrative area. These local laws and
regulations may not be in conflict with the PRC Constitution, any national laws or any administrative rules and regulations promulgated
by the State Council.
Rules, regulations or directives may be enacted
or issued at the provincial or municipal level or by the State Council of the PRC or its ministries and commissions in the first
instance for experimental purposes. After sufficient experience has been gained, the State Council may submit legislative proposals
to be considered by the NPC or the Standing Committee of the NPC for enactment at the national level.
The power to interpret laws is vested by the
PRC Constitution in the Standing Committee of the NPC. According to the Decision of the Standing Committee of the NPC Regarding
the Strengthening of Interpretation of Laws passed on 10 June 1981, the Supreme People’s Court has the power to give general
interpretation on application of laws in judicial proceedings apart from its power to issue specific interpretation in specific
cases. The State Council and its ministries and commissions are also vested with the power to give interpretation of the rules
and regulations which they promulgated. At the regional level, the power to give interpretation of regional laws is vested in
the regional legislative and administration organs which promulgate such laws. All such interpretations carry legal effect.
Judicial System
The People’s Courts are the judicial
organs of the PRC. Under the PRC Constitution and the Law of Organization of the People’s Courts of the PRC, the People’s
Courts comprise the Supreme People’s Court, the local people’s courts, military courts and other special people’s
courts. The local people’s courts are divided into three levels, namely, the basic people’s courts, intermediate people’s
courts and higher people’s courts. The basic people’s courts are divided into civil, criminal and administrative divisions.
The intermediate people’s courts have divisions similar to those of the basic people’s courts and, where the circumstances
so warrant, may have other special divisions (such as intellectual property divisions). The judicial functions of people’s
courts at lower levels are subject to supervision of people’s courts at higher levels. The people’s procuratorates
also have the right to exercise legal supervision over the proceedings of people’s courts of the same and lower levels.
The Supreme People’s Court is the highest judicial organ of the PRC. It supervises the administration of justice by the
people’s courts of all levels.
The people’s courts adopt a two-tier
final appeal system. A party may before the taking effect of a judgment or order appeal against the judgment or order of the first
instance of a local people’s court to the people’s court at the next higher level. Judgments or orders of the second
instance of the same level and at the next higher level are final and binding. Judgments or orders of the first instance of the
Supreme People’s Court are also final and binding if no appeals are made before they take effect. If, however, the Supreme
People’s Court or a people’s court at a higher level finds an error in a final and binding judgment which has taken
effect in any people’s court at a lower level, or the presiding judge of a people’s court finds an error in a final
and binding judgment which has taken effect in the court over which he presides, a retrial of the case may be conducted according
to the judicial supervision procedures.
The PRC civil procedures are governed by the
Civil Procedure Law of the People’s Republic of China (the “Civil Procedure Law”) adopted on April 9, 1991 and
amended on October 28, 2007. and August 31, 2012 The Civil Procedure Law contains regulations on the institution of a civil action,
the jurisdiction of the people’s courts, the procedures in conducting a civil action, trial procedures and procedures for
the enforcement of a civil judgment or order. All parties to a civil action conducted within the territory of the PRC must comply
with the Civil Procedure Law. A civil case is generally heard by a court located in the defendant’s place of domicile. The
jurisdiction may also be selected by express agreement by the parties to a contract provided that the jurisdiction of the people’s
court selected has some actual connection with the dispute, that is to say, the plaintiff or the defendant is located or domiciled,
or the contract was executed or implemented in the jurisdiction selected, or the subject-matter of the proceedings is located
in the jurisdiction selected. A foreign national or foreign enterprise is accorded the same litigation rights and obligations
as a citizen or legal person of the PRC. If any party to a civil action refuses to comply with a judgment or order made by a people’s
court or an award made by an arbitration body in the PRC, the aggrieved party may apply to the people’s court to enforce
the judgment, order or award. The time limit on the right to apply for such enforcement is two years.
A party seeking to enforce a judgment or order
of a people’s court against a party who or whose property is not within the PRC may apply to a foreign court with jurisdiction
over the case for recognition and enforcement of such judgment or order. A foreign judgment or ruling may also be recognized and
enforced according to PRC enforcement procedures by the people’s courts in accordance with the principle of reciprocity
or if there exists an international or bilateral treaty with or acceded to by the foreign country that provides for such recognition
and enforcement, unless the people’s court considers that the recognition or enforcement of the judgment or ruling will
violate fundamental legal principles of the PRC or its sovereignty, security or social or public interest.
Arbitration and Enforcement of Arbitral
Awards
The Arbitration Law of the PRC (the “Arbitration
Law”) was promulgated by the Standing Committee of the NPC on 31 August 1994 and came into effect on 1 September 1995. It
is applicable to, among other matters, trade disputes involving foreign parties where the parties have entered into a written
agreement to refer the matter to arbitration before an arbitration committee constituted in accordance with the Arbitration Law.
Under the Arbitration Law, an arbitration committee may, before the promulgation by the PRC Arbitration Association of arbitration
regulations, formulate interim arbitration rules in accordance with the Arbitration Law and the PRC Civil Procedure Law. Where
the parties have by an agreement provided arbitration as a method for dispute resolution, the parties are not permitted to institute
legal proceedings in a people’s court.
Under the Arbitration Law, an arbitral award
is final and binding on the parties and if a party fails to comply with an award, the other party to the award may apply to the
people’s court for enforcement. A people’s court may refuse to enforce an arbitral award made by an arbitration committee
if there were mistakes, an absence of material evidence or irregularities over the arbitration proceedings, or the jurisdiction
or constitution of the arbitration committee.
A party seeking to enforce an arbitral award
of a foreign affairs arbitration body of the PRC against a party who or whose property is not within the PRC may apply to a foreign
court with jurisdiction over the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body may be
recognized and enforced by the PRC courts in accordance with the principles of reciprocity or any international treaty concluded
or acceded to by the PRC.
In respect of contractual and non-contractual
commercial-law-related disputes which are recognized as such for the purposes of the PRC laws, the PRC has acceded to the Convention
on the Recognition and Enforcement of Foreign Arbitral Award (the “New York Convention”) adopted on 10 June 1958 pursuant
to a resolution of the Standing Committee of the NPC passed on 2 December 1986. The New York Convention provides that all arbitral
awards made by a state which is a party to the New York Convention shall be recognized and enforced by other parties to the New
York Convention subject to their right to refuse enforcement under certain circumstances including where the enforcement of the
arbitral award is against the public policy of the state to which the application for enforcement is made. It was declared by
the Standing Committee of the NPC at the time of the accession of the PRC that (1) the PRC would only recognize and enforce foreign
arbitral awards on the principle of reciprocity; and (2) the PRC would only apply the New York Convention in disputes considered
under PRC laws to be arising from contractual and non-contractual mercantile legal relations.
Foreign Exchange Control
Prior to 31 December 1993, enterprises in
the PRC requiring foreign currency were required to obtain approval from the State Planning Committee and the Ministry of Foreign
Trade and Economic Cooperation before it could convert RMB into foreign currency, and such conversion had to be effected at the
official rate prescribed by the State Administration of Foreign Exchange (“SAFE”). RMB reserved by Foreign Investment
Enterprises (“FIEs”) could also be converted into foreign currency at swap centers with the prior examination and
verification by SAFE. The exchange rates used by swap centers were largely determined by the supply of and demand for foreign
currencies and RMB.
On December 28, 1993, the People’s Bank
of China (“PBOC”) announced that the dual exchange rate system for RMB against foreign currencies would be abolished
with effect from January 1, 1994 and be replaced by the unified exchange rate system. Under the new system, the PBOC publishes
the RMB exchange rate against the United States dollar daily. The daily exchange rate is set by reference to the RMB/US$ trading
price on the previous day on the “inter-bank foreign exchange market”.
On April 1, 1996, the Foreign Exchange Control
Regulations of the PRC (as amended on January 14, 1997) came into effect. On 20 June 1996, the Regulations on Sale and Purchase
of and Payment in Foreign Exchange were promulgated by the People’s Bank of China and came into effect on 1 July 1996.
On October 25, 1998, the PBOC and SAFE issued
a Joint Announcement on Abolishment of Foreign Exchange Swap Business which stated that from December 1, 1998, foreign exchange
transactions for FIEs may only be conducted at designated banks.
On October 21, 2005, SAFE promulgated the
Notice of the State Administration of Foreign Exchange on Relevant Issues concerning Foreign Exchange Administration for Domestic
Residents to Engage in Financing and in Return Investment via Overseas Special Purpose Companies (“Notice 75”) which
came into effect on November 1, 2005. Under Notice 75, PRC residents, including PRC Companies and PRC resident individuals, have
to register their foreign investments with the local SAFE prior to incorporating or taking control of a special purpose vehicle
(the “SPV”). Where a PRC resident contributes the assets or stock rights of a domestic enterprise that it owns into
a SPV, or engages in capital financing abroad after contributing assets or stock rights into the SPV, it has to register such
change. Other than the abovementioned registration requirement, Notice 75 also requires PRC residents to register, modify or record
with the local foreign exchange authority within 30 days from the date of increase/decrease of capital, share transfer, mergers
or division, change in long term equity or debt investments and guarantees in or by the SPV. In addition, the proceeds from overseas
listing of the SPV shall, according to the repatriation plan submitted to the foreign exchange administration for record, be repatriated
according to current regulations for the administration of foreign exchange. In addition, the foreign exchange income from profits,
bonus and capital change obtained by the PRC residents from the SPV shall be repatriated within 180 days.
On August 12, 2007, SAFE promulgated the Notice
on the Retaining of Foreign Exchange Earnings by Domestic Entity, which provides that from August 12, 2007, domestic entity may
retain its recurrent foreign exchange earnings according to their needs for operation.
On August 1, 2008, the revised Foreign Exchange
Control Regulations of the PRC was adopted by the State Council and was promulgated for implementation on August 5, 2008. In summary,
taking into account the promulgation of the recent new regulations and to the extent the existing provisions stipulated in previous
regulations do not contradict these new regulations, the present position under the PRC law relating to foreign exchange control
are as follows:
(a) The
previous dual exchange rate system for RMB was abolished and a managed floating exchange rate system based largely on supply and
demand with reference to a basket of currencies was introduced. The People’s Bank of China, will announce the closing price
of foreign currencies against the RMB in the inter-bank foreign exchange market after the closing of the market on each working
day, and will make it the central parity for trading against the RMB on the following working day.
(b) Foreign
exchange earnings of domestic entities may be transferred to China or held abroad according to the regulations stipulated by SAFE.
(c) FIEs
may have their own foreign currency accounts and are also permitted to retain their recurrent exchange earnings according to their
needs of operation and the sums retained may be deposited into foreign exchange bank accounts maintained with designated banks.
(d) Reservation
or sale of capital account foreign exchange earnings to designated banks shall be approved by the foreign exchange control administration
unless stated otherwise. Foreign exchange funds from capital account shall only be used according to the purpose approved by the
foreign exchange control administration and the relevant competent authorities.
(e) Where
a foreign enterprise makes a direct investment or carries out the issuance and/or business of securities or other derivatives
within the PRC, or where a domestic entity makes a direct investment or carries out the issuance and/or business of securities
or other derivatives outside the PRC, it shall go through the registration procedure according to the relevant regulations stipulated
by SAFE. A guarantee or a commercial loan provided to the entity outside the PRC by a domestic entity shall be subject to approval
and registration with relevant foreign exchange administration. The utilization of foreign debts by an enterprise shall be in
compliance with relevant regulations and has to undergo foreign debt registration with the foreign exchange control administration.
(f) FIEs
which require foreign exchange for their ordinary trading activities such as trade services and payment of interest on foreign
debts may purchase foreign exchange from designated foreign exchange banks if the application is supported by proper payment notices
or supporting documents.
(g) FIEs
may require foreign exchange for the payment of dividends that are payable in foreign currencies under applicable regulations,
such as distributing profits to their foreign investors. They can withdraw funds from their foreign exchange bank accounts kept
with designated foreign exchange banks, subject to the due payment of tax on dividends. Where the amount of the funds in foreign
exchange is insufficient, the FIE may, upon the presentation of the resolutions of the directors on the profit distribution plan
and other relevant documents, purchase foreign exchange from designated foreign exchange banks.
(h) FIEs
may apply to the Bank of China or other designated foreign exchange banks to remit profit out of the PRC to the foreign parties
if the requirements provided by the PRC laws, rules and regulations are met.
The Circular on Relevant Issues concerning
Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted by Domestic Residents through
Overseas Special Purpose Vehicles (“SAFE Circular No. 37”), which was promulgated by SAFE and became effective on
July 14, 2014, requires a PRC individual resident (“PRC Resident”) to register with the local SAFE branch before he
or she contributes assets or equity interests in an overseas special purpose vehicle (“Offshore SPV”) that is directly
established or controlled by the PRC Resident for the purpose of conducting investment or financing. Following the initial registration,
the PRC Resident is also required to register with the local SAFE branch for any major change in respect of the Offshore SPV,
including, among other things, any major change of a PRC Resident shareholder, name or term of operation of the Offshore SPV,
or any increase or reduction of the Offshore SPV’s registered capital, share transfer or swap, merger or division. Failure
to comply with the registration procedures of SAFE Circular No. 37 may result in penalties and sanctions, including the imposition
of restrictions on the ability of the Offshore SPV’s PRC subsidiary to distribute dividends to its overseas parent.
In addition, according to the SAFE Circular
No. 37, a PRC Resident that participates in an employee share incentive plan of a non-listed Offshore SPV could, by submitting
required documents, apply for registration with the local SAFE branch before exercising stock options.
Strict supervision and control by foreign
exchange control administration has been imposed upon FIEs established in the manner of acquisitions of the PRC enterprises by
foreign enterprises with PRC residents as shareholders.
Taxation
Income Tax
The New Income Tax Law was promulgated by
NPC on March 16, 2007 and came into effect on January 1, 2008. The Chinese domestic enterprises and FIEs are treated equally on
the income tax rate, and the enterprise income tax rate shall be 25%. In accordance with the New Income Tax Law and its implementing
regulations, the non-resident enterprise which has not set up institutions or establishments in China, or has set up institutions
or establishments but the income has no relationship with such institutions or establishments, it shall pay enterprise income
tax on such income sourced from China, and the income tax rate shall be 20%, subject to reduction as provided by any applicable
double taxation treaty, unless the relevant income is specially exempted from tax under the applicable tax laws, regulations,
notices and decisions which relate to FIEs and their investors.
The enterprises that were approved and established
prior to the promulgation hereof and that, in accordance with the effective tax laws and administrative regulations, enjoy a special
lower tax rate shall, in accordance with the provisions of the State Council, progressively transit to the tax rate specified
herein within 5 years following the implementation hereof. Those enterprises that enjoy a fixed-term tax exemption or tax reduction
shall, in accordance with the provisions of the State Council, continue to enjoy such exemption or reduction after the implementation
hereof until the expiration of the term of such exemption or reduction. However, if an enterprise did not enjoy such preferential
treatment because it has not yet achieved profitability, the term of such preferential treatment shall be calculated from 1 January
2008 until the expiration of the term of such exemption or reduction.
According to the Notice on Strengthening Administration
of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprise (Circular Guoshuihan [2009] No. 698) implemented on
January 1, 2008, except for the purchase and sale of equity through a public securities market, where a foreign corporate investor
indirectly transfers the equity of a PRC resident enterprise by disposing the equity of an overseas holding company (the “Indirect
Transfer”) located in a tax jurisdiction that (i) has an effective tax rate of less than 12.5%, or (ii) does not tax its
residents on their foreign income, the foreign corporate investor shall report the Indirect Transfer to the competent PRC tax
authority within 30 days from the date when the equity transfer agreement was made. In this case, the PRC tax authority will examine
the true nature of the Indirect Transfer. Should it deem the foreign investor to have made the Indirect Transfer without reasonable
commercial purpose and in order to avoid the PRC tax, the PRC tax authority may disregard the existence of the overseas holding
company that is used for tax planning purpose and re-characterize the Indirect Transfer. As a result, gains derived from such
Indirect Transfer by the foreign investor may be subject to the EIT Law.
Value-Added Tax
Pursuant to the Provisional Regulations on
Value-added Tax of PRC, last amended on November 5, 2008 and took effect from January 1, 2009, and its implementation rules which
were revised on December 15, 2008 and took effect from January 1, 2009, all entities or individuals in PRC engaging in the sale
of goods, the provision of processing services, repairs and replacement services, and the import of goods are required to pay
value-added tax (“VAT”). The amount of VAT payable in the sale or import of goods except as otherwise provided by
paragraph (2) and paragraph (3) of Article 2 of the Provisional Regulations on Value-added Tax of PRC. The tax rate is also 17%
for those providing processing services repairs and replacement services.
In November 2011, the Ministry of Finance
(“MOF”) and the State Administration of Tax (“SAT”) promulgated the Pilot Plan for Imposition of Value-Added
Tax to Replace Business Tax (the “Pilot Plan”). Since January 1, 2012, the PRC government has been implementing a
pilot program in certain provinces and municipalities, to levy a 6% VAT on revenue generated from certain kinds of services in
lieu of the 5% business tax. According to the Notice Regarding the Nationwide Implementation of B2V Transformation Pilot Program
in respect of Transportation and Certain Modern Service Industries jointly issued by the MOF and SAT effective from August 1,
2013 (the “B2V Circular 37”), such policy has been implemented nationwide. In addition, the MOF and SAT released the
Notice on Including Railway Transportation and Postal Services Sectors into the Pilot Scheme on Switching from Business Tax to
VAT on December 12, 2013, which further expanded the scope of taxable services for value-added tax and replaced the B2V Circular
37 as of January 1, 2014.
Business Tax
Pursuant to the Interim Regulation of the
People’s Republic of China on Business Tax (“Business Tax Regulation”) last amended on November 10, 2008 and
took effect from 1 January, 2009, business that provide services (including entertainment business), assign intangible assets
or sell immovable property became liable to business tax at a rate ranging from 3% to 20% of the charges of the services provided,
intangible assets assigned or immovable property sold, as the case may be.
Tax on Dividends from PRC Enterprise with
Foreign Investment
According to the New Income Tax Law and the
Implementation Rules, income such as dividends and profits distribution from the PRC derived from a foreign enterprise which has
no establishment in the PRC is subject to a 10% withholding tax, subject to reduction as provided by any applicable double taxation
treaty.
Stamp Duty
Under the PRC Interim Regulations on Stamp
Duty promulgated by the State Council on August 6, 1988 and amended in January 6, 2011, for building property transfer instruments,
including those in respect of property ownership transfer, the duty rate shall be 0.05% of the amount stated therein; for permits
and certificates relating to rights, including real estate title certificates and land use right certificates, stamp duty shall
be levied on an item basis at an annual rate of RMB5 per item.
Urban Maintenance Tax
Under the PRC Interim Regulations on Urban
Maintenance Tax promulgated by the State Council on February 8, 1985 and amended on January 8, 2011, any taxpayer, whether an
individual or otherwise, of product tax, value-added tax or business tax shall be required to pay urban maintenance tax. The tax
rate shall be 7% for a taxpayer whose domicile is in an urban area, 5% for a taxpayer whose domicile is in a county and a town,
and 1% for a taxpayer whose domicile is not in any urban area or county or town.
Education Surcharge
Under the Interim Provisions on Imposition
of Education Surcharge promulgated by the State Council on April 28, 1986 (last amended by the State Council on August 20, 2005),
any taxpayer, whether an individual or otherwise, of product tax, value-added tax or business tax shall pay an education surcharge,
unless such obliged taxpayer is instead required to pay a rural area education surcharge as provided by the Notice of the State
Council on Raising Funds for Schools in Rural Areas. Education surcharge shall be calculated and levied at a rate of 1% on the
actual amount of product tax, value-added tax and business tax paid by the taxpayer.
According to the Circular on Issues Concerning
Policies on Unifying Local Education Surtax promulgated by ministry of finance on November 17, 2010, the rate at which local education
surtax is levied should be 2% of the value-added tax, the business tax or the consumption tax actually paid by entities and individuals
(including foreign-invested enterprises, foreign enterprises and foreign individuals).
Wholly Foreign-Owned Enterprise
WFOE is governed by the Law of the People’s
Republic of China Concerning Enterprises with Sole Foreign Investments, which was promulgated on April 12, 1986 and was subsequently
amended on October 31, 2000, and its Implementation Regulations promulgated on December 12, 1990 and was subsequently amended
on April 12, 2001 (together the “Foreign Enterprises Law”).
Procedures for Establishment of a WFOE
The establishment of a WFOE will have to be
approved by Ministry of Commerce (or its delegated authorities) (the “MOC”). If two or more foreign investors jointly
apply for the establishment of a WFOE, a copy of the contract between the parties must also be submitted to MOC (or its delegated
authorities) for its record. A WFOE must also obtain a business licence from the State Administration of Industry and Commerce
(or its delegated authorities) before it can commence business.
Nature
A WFOE is a limited liability company under
the Foreign Enterprise Law. It is a legal entity which may independently assume civil obligations, enjoy civil rights and has
the right to own, use and dispose of property. It is required to have a registered capital contributed by the foreign investor(s).
The liability of the foreign investor(s) is limited to the amount of registered capital contributed. The foreign investor may
make its contributions by instalments and the registered capital must be contributed within the period as approved by the MOC
(or its delegated authorities) in accordance with relevant regulations.
Profit Distribution
The Foreign Enterprise Law provides that after
payment of taxes, a WFOE must make contributions to a reserve fund and at least 10% of the after-tax profits must be allocated
to the reserve fund. If the accumulative amount of allocated reserve funds reaches 50% of an enterprise’s registered capital,
the WFOE will not be required to make any additional contribution. The WFOE is prohibited from distributing dividends unless the
losses (if any) of previous years have been made up.
In accordance with the Notice of the Ministry
of Finance on the Issue of Handling Financial Issues by Relevant Enterprises after the Implementation of the Company Law promulgated
by the Ministry of Finance on March 15, 2006 and effective April 1, 2006, from January 1, 2006 on, enterprises established in
accordance with the Company Law shall distribute profits pursuant to Article 167 of the Company Law and shall no longer make contributions
to the reserve fund. After an enterprise ceases to make contributions to the reserve fund, it may continue to make contributions
to the employee bonus and welfare fund as decided by the board of directors if the purpose, use conditions, and procedures thereof
shall be made clear, and such funds shall be manage as debts.
Company Law
The establishment and operation of corporate
entities in China is governed by the PRC Company Law, which was promulgated by the Standing Committee of the NPC on December 29,
1993 and became effective on July 1, 1994 (“1993 PRC Company Law”). It was subsequently amended on December 25, 1999,
August 28, 2004, October 27, 2005 and December 28, 2013.
The PRC Company Law generally governs 2 types
of companies — limited liability companies and joint stock limited companies. Both types of companies have the status of
legal persons, and the liability of a company to its debtors is limited to the value of assets owned by the company. Liabilities
of shareholders of a limited liability company are limited to the amount of registered capital they have contributed.
The amendments to the PRC Company Law adopted
in October 2005 seek to reform various aspects of the 1993 PRC Company Law and simplify the establishment and operation of companies
incorporated in China by lowering capitalisation requirements, increasing shareholder and creditor protection, improving corporate
governance, and relaxing rules regarding the establishment of subsidiaries. Further, the restriction relating to the total investment
of a company in other entities exceeding 50% of its net assets has been removed, the incorporation of one shareholder limited
liability companies in addition to wholly State-owned enterprises is permitted, and the Chinese Company Law shall apply to foreign
invested limited liability companies. Where laws on foreign investment have other stipulations, such stipulations shall apply.
The amendments to the PRC Company Law adopted
in December 2013 took effect on March 1, 2014. These amendments cover three aspects: (a) replacing the paid-up capital registration
system by subscribed capital registration system; (b) relaxing the requirements for registered capital registration; and (c) streamlining
the registration items and requirements for registration documents.
PRC Laws and Regulations Relating to Foreign
Investment
On October 31, 2007, the National Development
and Reform Commission (“NDRC”) and MOC, jointly promulgated the Catalogue of Industries for Guiding Foreign Investment
(as amended in 2007), which came into effect on December 1, 2007 (the “Catalogue”), as amended on December 24, 2011
and came into effect on January 30, 2012. The Catalogue lists out the industries and economic activities which are encouraged,
restricted or prohibited by the PRC government for foreign investment. The Catalogue does not specify which business activities
are in the permitted category. Instead, if the business activities are not listed in any of the encouraged, restricted or the
prohibited categories, they shall be construed as being in the permitted category. Pursuant to the Catalogue, the wholesale of
refined oil falls under the restricted category. None of our Group’s business activities are listed in the prohibited category.
Labor Law
Pursuant to the Labor Law of the PRC promulgated
by Standing Committee of the NPC on July 5, 1994 and was subsequently amended on August 27, 2009, the Labor Contract Law of the
PRC promulgated by Standing Committee of the NPC on June 29, 2007 and was subsequently amended on December 28, 2012 and the Labour
Contract Law Implementation Rules of the PRC promulgated by the State Council on September 18, 2008, companies must enter into
employment contracts with their employees, based on the principles of equality, consent and agreement through consultation. Companies
must establish and effectively implement system of ensuring occupational safety and health, educating employees on occupational
safety and health, preventing work-related accidents and reducing occupational hazards. Companies must also pay for their employees’
social insurance premium.
Social Insurance Law
Employers in China are required to contribute,
on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment
insurance, basic medical insurance, work-related injury insurance, maternity insurance, and housing provident funds. These payments
are made to local administrative authorities and an employer who fails to contribute may be fined and be ordered to make-up for
the missed contributions. The various laws and regulations that govern the employers’ obligation to contribute to the social
security funds include PRC Social Insurance Law promulgated by the Standing Committee of the NPC on October 28, 2010 and became
effective July 1, 2011; the Interim Regulations on the Collection and Payment of Social Security Funds, which were promulgated
by the State Council and became effective on January 22, 1999; the Interim Measures concerning the Maternity Insurance, which
were promulgated by the Ministry of Labour on December 14, 1994 and became effective on January 1, 1995; the Regulations on Occupational
Injury Insurance, which were promulgated by the State Council on April 27, 2003 and became effective on January 1, 2004 and was
amended on December 20, 2010; the Regulations on Management of the Housing Provident Fund, which were promulgated and became effective
on April 3, 1999 and was amended on March 24, 2002.
Where the enterprises fail to pay the full
amount of the social insurance premiums, the relevant department aforesaid has the authority to check and decide on the amount
of social insurance premiums that the enterprises should pay as the supplementary payment. If the enterprises does not pay for
the social insurance premiums after the relevant department has charged the full amount of the supplementary payment, the relevant
department is authorized to either inquire about the deposit account of such enterprises, or apply to the related department at
or above the county level for making the decision of the allocation of social insurance premiums. The relevant department can
also inform the bank or other financial institution to execute the allocation by written notice. If the amount of the deposit
account is smaller than the amount of social insurance premiums required to pay by the enterprises, the enterprises may provide
a security and delay the date to pay the social insurance premiums. If the amount of the deposit account is smaller than the amount
of the social insurance premiums needed to pay by the enterprises, and the enterprises fails to provide a security, the relevant
department shall apply to the court for the levying, sealing and auctioning of the property of such enterprises.
If the enterprises do not pay the full amount
of social insurance premiums as scheduled, the social insurance premium collection institution shall order them to make the payment
or make up the difference within a stipulated period and impose a daily fine equivalent to 0.05% of the overdue payment from the
date on which the payment is overdue. If payment is not made within the stipulated period, the relevant administration department
shall impose a fine from one to three times the amount of overdue payment.
Environmental Protection Regulations
In accordance with the Environmental Protection
Law of the PRC adopted by the Standing Committee of the NPC on December 26, 1989, which has been amended on April 24, 2014 and
will take effect on January 1, 2015, the Administration Supervisory Department of Environmental Protection of the State Council
sets the national guidelines for the discharge of pollutants. The provincial and municipal governments of provinces, autonomous
regions and municipalities may also set their own guidelines for the discharge of pollutants within their own provinces or districts
in the event that the national guidelines are inadequate.
A company or enterprise which causes environmental
pollution and discharges other polluting materials which endanger the public should implement environmental protection methods
and procedures into their business operations. This may be achieved by setting up a system of accountability within the company’s
business structure for environmental protection; adopting effective procedures to prevent environmental hazards such as waste
gases, water and residues, dust powder, radioactive materials and noise arising from production, construction and other activities
from polluting and endangering the environment. The environmental protection system and procedures should be implemented simultaneously
with the commencement of and during the operation of construction, production and other activities undertaken by the company.
Any company or enterprise which discharges environmental pollutants should report and register such discharge with the Administration
Supervisory Department of Environmental Protection and pay any fines imposed for the discharge. A fee may also be imposed on the
company for the cost of any work required to restore the environment to its original state. Companies which have cause severe
pollution to the environment are required to restore the environment or remedy the effects of the pollution within a prescribed
time limit.
If a company fails to report and/or register
the environmental pollution caused by it, it will receive a warning or be penalized. Companies which fail to restore the environment
or remedy the effects of the pollution within the prescribed time will be penalized or have their business licenses terminated.
Companies or enterprises which have polluted and endangered the environment must bear the responsibility for remedying the danger
and effects of the pollution, as well as to compensate the any losses or damages suffered as a result of such environmental pollution.
Governmental Regulations in Relation to
the Company’s Businesses
Pursuant to the Implementation Measures for
Work Safety Licenses of Enterprises Producing Hazardous Chemicals (“Measures of Producing Hazardous Chemicals”) promulgated
by State Administration of Work Safety on August 5, 2011 which took effect on December 1, 2011, where an enterprise is established
in accordance with relevant laws and has obtained the industrial and commercial business licenses or industrial and commercial
approval documents for engaging in the production of end products or intermediate products that are included in the Catalogue
of Hazardous Chemicals, the enterprise shall obtain the work safety licenses for hazardous chemicals in accordance with the provisions
of Measures of Producing Hazardous Chemicals. The enterprise that has not obtained the work safety licenses shall not engage in
the production activities of hazardous chemicals.
Save as otherwise disclosed, we are not
subject to any special legislation or regulatory controls in the PRC other than those generally applicable to companies and businesses
in the PRC, which will have a material effect on our business operations. Changes in the PRC governmental rules and regulations
will have a significant impact on our business, and Foreign exchange control and tax policies in the PRC may limit our ability
to utilize our revenue effectively and affect our ability to receive dividends and other payments from our subsidiaries in the
PRC.
Please also refer to the Section “Risk
Factors – Risks Relating to Doing Business in the PRC” of this report for details on the applicable PRC laws and regulations.
Licenses, Permits and Approvals
As of the date of this report, we have obtained
all material licenses, permits and approvals from the relevant government authorities for our business operations in the PRC,
and have complied with all relevant PRC environmental laws and regulations, and have not been fined under any related PRC environmental
laws or regulations. Please see the table below for the material licenses, permits and approvals that we have received as of the
date of this report:
Entity |
|
Licenses, Permits and
Certificates |
|
Serial Number |
|
Valid Term/
Renewal Period |
|
Authority |
Jiangsu Delta |
|
Registration Certificate for Using Hazardous Chemicals |
|
321110234 |
|
June 23, 2014 to June 22, 2017 |
|
Jiangsu Province Administration of Work Safety Chemical Registration
Centre |
Jiangsu Delta |
|
Trading License for Hazardous Chemicals |
|
Su Zhen An Jing (Yi) Zi 2012001347 |
|
December 24, 2014 to December 23, 2017 |
|
Administration of Work Safety of Zhenjiang City |
Jiangsu Delta |
|
Record Keeping Certificate of Non-Pharmaceutical Precursor Chemical
Production |
|
(Su) 3S32111200031 |
|
May 23, 2014 to April 27, 2017 |
|
Administration of Work Safety of Zhenjiang City |
Jiangsu Delta |
|
Record Keeping Certificate of Class 2 and Class 3 Precursor Chemical
Purchase |
|
[2014] Certificate No. 102888 |
|
To November 28, 2014 |
|
Police Station of Jiangsu Zhenjiang, Dantu Bureau |
Jiangsu Delta |
|
Approval of Purchasing Highly Toxic Chemical |
|
(Zhenjiang) Gong Ju Zhun Guo Zi [2014] No. 01962 |
|
One-time approval and valid for 15 days. |
|
Zhenjiang Police Station |
Jiangsu Delta |
|
Pollutant Discharge Permit |
|
Zhen Tu Huan No. 3211212012062 |
|
May 2015 to May 2018 |
|
Environment Protection Agency of Dantu District, Zhenjiang City |
Jiangsu Delta |
|
Business License |
|
321100400012550 |
|
June 15, 2007 to June 14, 2027 |
|
Administration of Industry and Commerce of Zhenjiang, Jiangsu Province |
Jiangsu Delta |
|
Work Safety License |
|
(Su) WH An Xu Zheng Zi [L00230] |
|
April 28, 2014 to April 27, 2017 |
|
Administration of Work Safety of Jiangsu Province |
Jiangsu Delta |
|
Financial Registration Certificate for Foreign-invested Enterprises |
|
No.3211210203 |
|
June 15, 2007 to June 14, 2027 |
|
Local Financial Bureau of Dantu District, Zhenjiang City |
Entity |
|
Licenses, Permits and
Certificates |
|
Serial Number |
|
Valid Term/
Renewal Period |
|
Authority |
Jiangsu Delta |
|
Organization Code Certificate |
|
No.66274328-4 |
|
June 11, 2015 to June 10, 2019 |
|
Jiangsu Zhenjiang Administration of Quality Supervision, Inspection
and Quarantine |
Jiangsu Delta |
|
Tax Registration Certificate |
|
Zhen Guo Shui Tu Deng Zi 321121662743284 |
|
N.A.
(Note: issued on January 19,2009) |
|
National Tax Bureau of Zhenjiang, Jiangsu Province and Local Tax
Bureau of Dantu, Zhenjiang |
Jiangsu Delta |
|
Tax Registration Certificate |
|
Su Di Shui Zi No.321181796133836 |
|
N.A.
(Note: issued on January 19, 2009) |
|
National Tax Bureau of Danyang, Jiangsu Province and Local Tax
Bureau of Danyang |
Jiangsu Delta |
|
Approval Certificate for Establishment of Enterprises with Investment
of Taiwan, Hong Kong, Macao and Overseas Chinese in the PRC |
|
Shang Wai Zi Su Fu Zi [2007] NO.73674 |
|
N.A.
(Note: issued on June 6, 2014) |
|
People’s Government of Jiangsu Province |
Jiangsu Delta |
|
Foreign Exchange Registration Card |
|
No.00085568 |
|
N.A. |
|
State Foreign Exchange Administration |
Jiangsu Delta |
|
Bank Account Permit |
|
No. J3140002471102 |
|
N.A.
(Note: issued on July 16, 2008) |
|
People’s Bank of China, Zhenjiang Branch |
Jiangsu Delta |
|
Social Insurance Registration Certificate |
|
She Xian Su Zi No.32112115000942 |
|
June 23, 2010 to October 30, 2020 |
|
Social Labour Insurance Fund Management Centre, Dantu District,
Zhenjiang City |
Jiangsu Delta |
|
Environmental Management System Certificate |
|
04415E10738R0M |
|
September 29, 2015 to September 28, 2018 |
|
China Certification Centre Inc. |
Jiangsu Logistic |
|
Business License |
|
321121000087016 |
|
December 17, 2013 to Long |
|
Administration of Industry and Commerce of Dantu, Zhenjiang |
Jiangsu Logistic |
|
Road transportation operation Certificate |
|
Su Jiao Yun Guan Xu Ke Zhen Zi No. 321112303680 |
|
May 21, 2014 to December 11, 2017 |
|
Zhenjiang Administration of Transportation and Management |
Jiangsu Logistic |
|
Organization Code Certificate |
|
No. 08692663-9 |
|
December 17, 2013 to December 16, 2017 |
|
Zhenjiang Dantu Administration of Quality Supervision, Inspection
and Quarantine |
Jiangsu Logistic |
|
Tax Registration Certificate |
|
Zhen Guo Shui Deng Zi 321121086926639 |
|
N.A.
(Note: issued on June 12, 2014) |
|
State Tax Bureau of Dantu, Zhenjiang city, Jiangsu Province and
Local Tax Bureau of Dan, Zhenjiang city |
Entity |
|
Licenses, Permits and
Certificates |
|
Serial Number |
|
Valid Term/
Renewal Period |
|
Authority |
Binhai Deda |
|
Business license |
|
320922000222858 |
|
June 8, 2013 to June 7, 2043 |
|
Administration of Industry and Commerce of Binhai, Yanhai |
Binhai Deda |
|
Trading Licence
for Hazardous Chemicals |
|
Su (Yan) An Jing Zi (Bin) 000011 |
|
June 7, 2013 to June 6, 2016 |
|
Administration of Work Safety of Binhai |
Binhai Deda |
|
Bank Account Permit |
|
No. J3112001078201 |
|
N.A.
(Note: issued on June 19, 2013) |
|
People’s Bank of China, Binhai Branch |
Binhai Deda |
|
Organization Code Certificate |
|
No. 07101823-2 |
|
June 8, 2013 to June 7, 2017 |
|
Yancheng Binhai Administration of Quality Supervision,
Inspection and Quarantine |
Properties
We currently own the following land use rights
in the PRC:
Owner |
|
Location |
|
Certificate of
State-
owned Land Use
Right
No. |
|
Tenure |
|
Approximate
Gross Floor
Area
(sqm) |
|
Use of
Property |
Jiangsu
Delta |
|
Chenfeng
Village, Gaozi Town, Dantu District, Zhenjiang |
|
Zhen
Tu Guo Yong (2008) No.199 (1) |
|
October
19, 2008 to July 29, 2058 |
|
53,369 |
|
Industrial |
Jiangsu Delta |
|
Chenfeng Village,
Gaozi Town, Dantu District, Zhenjiang |
|
Zhen Tu Guo Yong
(2011) No.1037 |
|
August 1, 2011
to August 31, 2060 |
|
26,023 |
|
Industrial |
Note:
|
(1) |
This land use right has been mortgaged to the Industrial and Commercial Bank of China, Zhenjiang Branch.
The period of the mortgage is commencing from May 31, 2013 and ending on December 31, 2017. During the term of the mortgage, Jiangsu
Delta’s rights to transfer, lease, mortgage or otherwise dispose of this land use right shall be subject to the prior written
approval of the relevant bank.
|
We currently own
and possess the Building Ownership Certificates for the following buildings in the PRC:
Location |
|
Certificate of Real
Estate Ownership No. |
|
Approximate Gross
Floor Area
(sq m) |
|
Use of Property |
Building 3 No. 1 Fine Chemical Park Gaozi Zhen Dantu Ecnomic and
Development Zone Zhenjiang City (1) |
|
Zhen Fang Quan
Zheng Zi No. 1201007277100110 |
|
1,140.9 |
|
Industrial |
North of Development Zone Road, South of Hu Ning Expressway |
|
Dan Fang Quan Zheng
Kai Fa Qu Zi No. 02032188 |
|
12,119.44 |
|
Research and Development |
Note:
| (1) | This property has been mortgaged to the Industrial
and Commercial Bank of China, Zhenjiang Branch. The period of the mortgage is one year commencing from June 20, 2015 and ending
on June 19, 2016. During the term of the mortgage, our rights to transfer, lease, mortgage or otherwise dispose of this property
shall be subject to the prior written approval of the relevant bank. |
As of the date of this report, we do not lease
any properties.
We believe there are no regulatory requirements
or environmental issues that may materially affect our utilization of the above properties and fixed assets, all of which are
located in the PRC.
C. Organizational Structure
The chart below presents our corporate structure as of the date
of this report.
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tpg44.jpg)
D. Property, Plants and Equipment
Information regarding our property, plants
and equipment is described “Item 4. B. Business Overview.”
ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
Not required.
ITEM 5. |
OPERATING AND FINANCIAL
REVIEW AND PROSPECTS |
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The information in this report contains forward-looking
statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the
statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements.
These forward-looking statements can be identified by the use of words such as "believes," "estimates," "could,"
"possibly," "probably," anticipates," "projects," "expects," "may," "will,"
or "should" or other variations or similar words. No assurances can be given that the future results anticipated by
the forward-looking statements will be achieved. Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from management's expectations.
The following discussion and analysis should
be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that
the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily
be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Overview
We are a fine and specialty chemical manufacturer,
primarily engaged in manufacturing and selling of organic compound including para-chlorotoluene (“PCT”), ortho-chlorotoluene
(“OCT”), PCT/OCT downstream products, unsaturated polyester resin (“UPR”), maleic acid (“MA”)
and other by-product chemicals.
We collaborate with reputable universities,
such as the East China Normal University in order to secure our position as a market leader. We also closely monitor the market
for development, trends and technological innovations and solicit customer feedback so as to keep abreast with market demands
and industrial development.
This discussion and analysis focuses on
the business results, comparing results of operations for the fiscal year ended June 30, 2015, and 2014, respectively.
The Fiscal Years Ended June 30, 2015
and June 30, 2014
Results of Operations
In the fiscal year ended June 30, 2015, our
revenue increased by 15.22% year over year but net income decreased by 79.5% year over year due to change in fair value of warrants.
Our net profit margin was driven down by 3.82% resulting from the rapid growth of our SCM business which has the lowest margin
for the fiscal year ended June 30, 2015.
The following table summarizes the results
of our operations during the fiscal years ended June 30, 2015 and 2014, respectively, and provides information regarding the dollar
and percentage increase (or decrease) for the fiscal year ended June 30, 2015 as compared to 2014.
| |
The Fiscal Year Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | | |
Change rate | |
Net Revenue | |
$ | 202,009,160 | | |
$ | 175,327,717 | | |
$ | 26,681,443 | | |
| 15.22 | % |
Cost of Sales | |
$ | (182,692,715 | ) | |
$ | (157,904,729 | ) | |
$ | 24,787,986 | | |
| 15.70 | % |
Gross Profit | |
$ | 19,316,445 | | |
$ | 17,422,988 | | |
$ | 1,893,457 | | |
| 10.87 | % |
Gross Margin | |
| 9.56 | % | |
| 9.94 | % | |
| 0.38 | % | |
| 3.82 | % |
Operating Expenses | |
$ | (7,058,041 | ) | |
$ | (5,788,048 | ) | |
$ | 1,269,993 | | |
| 21.94 | % |
Operating Income | |
$ | 12,258,404 | | |
$ | 11,634,940 | | |
$ | 623,464 | | |
| 5.36 | % |
Operating Margin | |
| 6.07 | % | |
| 6.64 | % | |
| 0.57%- | | |
| 8.58 | % |
Change in fair value of convertible bonds | |
$ | - | | |
$ | (156,199 | ) | |
| $
N/A | | |
| N/A | % |
Change in fair value of warrants | |
$ | (7,906,529 | ) | |
$ | - | | |
| $
N/A | | |
| N/A | |
Gain on disposal of a subsidiary | |
$ | 1,178,093 | | |
$ | - | | |
| $
N/A | | |
| N/A | |
Other loss - net | |
$ | (394,211 | ) | |
$ | (2,043,954 | ) | |
$ | 1,649,743 | | |
| 80.71 | % |
Income taxes | |
$ | (3,729,238 | ) | |
$ | (2,606,479 | ) | |
$ | 1,122,759 | | |
| 43.08 | % |
Net Income | |
$ | 1,406,519 | | |
$ | 6,828,308 | | |
| 5,421,789 | | |
| 79.4 | % |
Net Profit Margin | |
| 0.70 | % | |
| 3.89 | % | |
| 3.19 | % | |
| 82.01 | % |
Revenue
Revenue for the fiscal year ended June
30, 2015 was $202,009,160, an increase of 15.22% as compared with revenue of $175,327,717 for the fiscal year ended June 30, 2014.
In the fiscal year ended June 30, 2015, we sold 21,095 tons of UPR, a decrease of 29.72% as compared with 30,014 tons of UPR in
the fiscal year ended June 30, 2014. In the fiscal year ended June 30, 2015, we sold 53,829 tons of PCT/OCT, an increase of 40.60%
as compared with 38,285 tons in the fiscal year ended June 30, 2014. The increase was due primarily to higher demand in our products
and our increased production output. In the fiscal year ended June 30, 2015, we sold 74,371 tons of chemicals in the SCM segment,
an increase of 87.16% as compared with 39,736 tons in the fiscal year ended June 30, 2014. The increase in the sales in SCM segment
was due primarily to the adjustment in operating strategy to enter the logistics business.
The following table shows a breakdown of revenues from for our
main products and service:
| |
The Fiscal Year Ended June 30, | |
| |
2015 | | |
2014 | |
| |
Sales | | |
% of total sales | | |
Sales | | |
% of total sales | |
UPR | |
| 38,513,560 | | |
| 19.06 | % | |
| 56,230,919 | | |
| 32.07 | % |
PCT/OCT | |
| 85,234,434 | | |
| 42.19 | % | |
| 67,634,632 | | |
| 38.58 | % |
SCM | |
| 78,261,166 | | |
| 38.75 | % | |
| 51,462,166 | | |
| 29.35 | % |
Total revenue | |
$ | 202,009,160 | | |
| 100.00 | % | |
$ | 175,327,717 | | |
| 100.00 | % |
Gross Profit
Gross profit increased 10.87% to $19,316,445
for the fiscal year ended June 30, 2015, as compared with $17,422,988 for the fiscal year ended June 30, 2015. The gross margin
decreased by 3.82% from 9.94% for the fiscal year ended June 30, 2014 to 9.56 % for the same period of 2015, mainly because the
SCM had a gross loss margin of 0.38% in the fiscal year ended June 30, 2015.
Operating Income
Operating income was $12,258,404 for the fiscal
year ended June 30, 2015, representing a 5.36% increase as compared with $11,634,940 for the fiscal year ended June 30, 2014.
The operating margin decreased by 8.58% from 6.64% for the fiscal year ended June 30, 2014 to 6.07% for the fiscal year ended
June 30, 2015. The decrease was mainly due to a sale volume increase of 52.08% in SCM which had a gross loss margin of 0.38% for
the fiscal year ended June 30, 2015 as compared with the fiscal year ended June 30, 2014.
Cost of Sales
Cost of sales was $182,692,715 for the fiscal
year ended June 30, 2015, representing a 15.70% increase as compared with $157,904,729 for the same period of 2014. The increase
in cost of sales was due to sales growth.
Operating Expenses
The table below provides a detailed breakdown
of our operating expenses for the periods indicated:
| |
The Fiscal Year Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Selling expenses | |
$ | 2,384,459 | | |
$ | 2,306,021 | | |
| 3.40 | % |
General & Administrative expenses | |
$ | 4,673,582 | | |
$ | 3,482,027 | | |
| 34.22 | % |
Total operating expenses | |
$ | 7,058,041 | | |
$ | 5,788,048 | | |
| 21.94 | % |
Operating expenses were $7,058,041 for the
fiscal year ended June 30, 2015, representing a 21.94% increase as compared with $5,788,048 for the fiscal year ended June 30,
2014. The increase was primarily due to two factors: (i) an increase in selling expenses of 3.4% to $2,384,459 for the fiscal
year ended June 30, 2015 from $2,306,021 for the fiscal year ended June 30, 2014 attributable to the increase in sales revenue,
and (ii) an increase in general and administration expenses of 34.22% to $4,673,582 for the fiscal year ended June 30, 2015 from
$3,482,027 for the fiscal year ended June 30, 2014, mainly due to more professional fees incurred for various corporate actions
during 2015.
Change in Fair Value of Warrants
Change in fair value of warrants was $7,906,529
for the fiscal year ended June 30, 2015. This is recorded as a non-cash loss, which resulted from the change in fair value of
warrants issued connection with the Public Offering on December 21, 2012.
Gain on Disposal of A Subsidiary
The Company recorded a gain of $1,178,093
from the disposal of Jiangsu Zhengxin R&D during the year ended June 30, 2015 when the Company sold the subsidiary to Zhenjiang
Xinshun Chemical Trading Company Ltd at a sale price of $10,518,189 (RMB64.555million) on March 12, 2015 pursuant to a sale and
purchase agreement.
Net Income
Net income was $1,406,519 for the fiscal year
ended June 30, 2015, a decrease of 79.4% as compared with $6,828,308 for the fiscal year ended June 30, 2014. The decrease in
net income in the fiscal year ended June 30, 2015 was mainly due to the change in fair value of the warrants of $7,906,529.
The net profit margin dropped from 3.89% for
the fiscal year ended June 30, 2014 to 0.70% for the fiscal year ended June 30, 2015 due to 1) non-cash loss of $7,906,529resulting
from change in the fair value of the warrants, and 2) decrease in gross profit margin and increase in operating expenses for the
fiscal year ended June 30, 2015 as compared with the fiscal year ended June 30, 2014.
Earnings per Share
Basic and diluted earnings per share (“EPS”)
for the fiscal year ended June 30, 2015 were $1.44 and $1.44 compared with EPS $1.53 and $1.53 for the same period of 2014. The
weighted average number of shares outstanding to calculate basic EPS was 6,462,577 and 4,560,000 for the fiscal year ended June
30, 2015 and 2014, respectively. The weighted average number of shares outstanding to calculate diluted EPS was 6,462,577 and
4,560,000 for the fiscal year ended June 30, 2015 and 2014.
Liquidity and Capital Resources
We have historically financed our operations
and capital expenditures principally through debt and equity offerings and cash provided by operations.
The table below presents information about
our cash flow for the periods indicated:
| |
The Fiscal Year Ended June 30, | | |
| |
| |
2015 | | |
2014 | | |
Change | |
Net cash provided by (used in) operating activities | |
$ | (15,139,370 | ) | |
$ | 3,865,600 | | |
| 491.64 | % |
Net cash provided by (used in) investing activities | |
$ | 15,187,228 | | |
$ | (24,076,576 | ) | |
| 163.08 | % |
Net cash provided by (used in) financing activities | |
$ | (8,705,226 | ) | |
$ | 25,303,850 | | |
| 134.40 | % |
Effect of foreign currency translation on cash and cash equivalents | |
$ | (170,970 | ) | |
$ | 6,941 | | |
| N/M | |
Beginning cash and cash equivalent | |
$ | 9,045,950 | | |
$ | 3,946,135 | | |
| 129.24 | % |
Ending cash and cash equivalent | |
$ | 217,612 | | |
$ | 9,045,950 | | |
| 97.59 | % |
Operating Activities
For the fiscal year ended June 30, 2015, net
cash used in operating activities was $15,139,370. This was primarily attributable to: 1) our net income of $278,707, adjusted
by an add-back of non-cash charges mainly consisting of depreciation and amortization, change in fair value of warrants, deferred
income taxes and allowance for doubtful accounts of $6,452,324, $79,353, $7,906,529, $848,541 and $1,199,110, respectively, and
non-cash gain from disposals of property accounts and disposal of a subsidiary of $74,860 and $1,1978,093, respectively; 2) an
increase of $31,839,651 in working capital, primarily due to: (i) an increase of $46,117,191 from trade and other receivables;
(ii) a decrease of $4,290,812 in inventories, principally of raw material; partially offset by an increase of $9,384,469
in trade and other payables, an increase of $454,930 in advance from customers deposit, and an increase of $147,329 in income
tax payables.
Investing Activities
For the fiscal year ended June 30, 2015, net
cash provided by investing activities was $15,187,228. This was primarily attributable to: (i) $8,829,460 from disposals of property
and equipment, and (ii) $10,518,189 from disposals of a subsidiary; partially offset by $4,160,421 capital expenditure for purchase
of new plant and equipment.
Financing Activities
For the fiscal year ended June 30, 2015, net
cash used in financing activities were $8,705,226, primarily attributable to: (i) a short-term bank loan borrowing of $52,751,379,
(ii) a cash capital contribution of $5,210,000 (iii) repayment of bank borrowings of $60,142,218, (iv) a change in restricted
cash of $3,498,222, and (v) due to a shareholder of $2,844,070.
Cash and Cash Equivalents
Our cash and cash equivalents as at July 1,
2014, were $9,045,950 and decreased to $217,612 by June 30, 2015. The decrease was mainly due to increase in net cash used in
operating activities and financing activities.
In future periods, we believe that our existing
cash, cash equivalents and cash flows from operations, combined with cash availability under our revolving credit facility, will
be insufficient to meet our presently anticipated future cash needs for at least the next year. We may, however, require additional
cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may
decide to pursue.
Trade Receivables, net
Trade receivables, net were $53,818,279 as
of June 30, 2015, representing a 0.94% increase as compared with $53,318,673 as of June 30, 2014. This increase in trade receivables
was primarily attributable to increase in sales.
Inventory
Inventory consists of raw materials, finished
goods. As of June 30, 2015, the recorded value of our inventory decreased 30.66% to $9,751,596 from $14,062,567 as of June 30,
2014. This decrease is mainly due to a decrease of 25.48% in raw material from $8,338,302 as of June 30, 2014 to $6,213,300 as
of June 30, 2015 and decrease of 38.19% in finished goods from $5,724,265 as of June 30, 2014 to $3,538,296 as of June 30, 2015.
The decrease in inventories was primarily due to the Company’s efforts to minimizing its inventory level when the price of
raw materials has been dropping.
Accounts Payable
Accounts payable were $45,279,369 as of June
30, 2015, an increase of 26.30 % from $35,850,810 as of June 30, 2014. The increase was primarily attributable to a larger purchase
volume.
Obligations under Material Contracts
There was no material contractual obligation
as of June 30, 2015.
Critical Accounting Policies
The consolidated financial statements have
been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial
statements include the financial statements of the Company, and its wholly-owned subsidiaries. All intercompany accounts, transactions,
and profits have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could materially differ from those estimates.
Segment Reporting
The Company operates in one business and geographical
segment of manufacturing and sales of organic compounds in the PRC. ASC 280, Segment Reporting, establishes standards for reporting
information about operating segments. Given the economic characteristics of the similar nature of the products sold, the type
of customer and the method of distribution, the Company operates as one reportable segment as defined by ASC 280, Segment Reporting.
Foreign Currency Translation
The Company’s financial statements are
presented in the U.S. dollar ($), which is the Company’s reporting currency and functional currency. The Company’s
subsidiaries in the PRC use Renminbi (“RMB”) as their functional currencies. Transactions in foreign currencies are
initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded
amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements
of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange
ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation
in the statements of income.
In accordance with ASC 830, Foreign Currency
Matters, the Company translated the assets and liabilities into US $ using the rate of exchange prevailing at the applicable balance
sheet date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments
resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income.
Revenue Recognition
Revenue principally represents organic compound
sale revenue. Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary
course of the Company’s activities and is recorded net of value added tax (“VAT”). Consistent with the criteria
of ASC 605 “Revenue Recognition” (“ASC 605”), the Company recognizes revenue when the following four revenue
recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been
provided, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue from the sale of goods is recognized
upon delivery when the significant risks and rewards of ownership of goods have transferred t the buyer, continuing managerial
involvement usually associated with ownership and effective control have ceased and the coasts incurred or to be incurred in respect
of the transaction can be measured reliably.
Interest income is recognized on a time-proportion
basis using the effective interest method.
Borrowing Costs
Borrowing costs are recognized in profit
or loss using the effective interest method except for those costs that are directly attributable to assets under construction.
Borrowing costs on general borrowings are capitalized by applying a capitalization rate to construction or expenditures that are
financed by general borrowings. Borrowing costs on general financing during the years ended June 30, 2015 and 2014 were capitalized
at a rate of 7.11% and 7.11% , respectively.
Leases
The Company accounts for its leases under
the provisions of ASC 840, Leases. Certain of the Company’s operating leases provide for minimum annual payments that change
over the life of the lease. The aggregate minimum annual payments are expensed on the straight-line basis over the minimum lease
term. The Company recognizes a deferred rent liability for minimum step rents when the amount of rent expense exceeds the actual
lease payments and it reduces the deferred rent liability when the actual lease payments exceeds the amount of straight-line rent
expense. Rent holidays and tenant improvement allowances for store remodels are amortized on the straight-line basis over the
initial term of the lease and any option period that is reasonably assured of being exercised.
Restricted Cash
Restricted cash are cash deposited in fixed
deposit accounts maintained in the PRC and Hong Kong for the purpose of securing bank borrowings.
Trade Receivables
Trade receivables are recorded at the invoiced
amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but
mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful
accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment
history, the customer’s current credit worthiness and the economic environment.
Trend Information
Other than as disclosed elsewhere in this
annual report, we are not aware of any trends, uncertainties, demands, commitments or events since the beginning of our fiscal
year 2016 that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity
or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating
results or financial condition.
Off-balance Sheet Arrangements
We did not have any off-balance sheet arrangements
as of June 30, 2015.
Tabular Disclosure of Contractual Obligations
None.
ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES |
A. Directors and Senior Management
Our directors and executive officers are as
follows:
Name |
|
Age |
|
Position |
Xin Chao |
|
38 |
|
Chairman and Chief Executive
Officer |
Hongming Dong |
|
46 |
|
Chief Financial Officer |
Borys Priadko |
|
59 |
|
Independent Director (1)(2)(3) |
Richard Liu |
|
45 |
|
Independent Director (1)(2)(3) |
Changguang Wu |
|
47 |
|
Director |
George Kaufman |
|
40 |
|
Independent Director (1)(2)(3) |
(1) |
Member of audit committee. |
(2) |
Member of compensation committee. |
(3) |
Member of governance and nominating
committee. |
Below is a summary of the business experience
of each of our executive officers and directors:
Xin Chao has over 10 years
of experience in the fine chemical industry. From 1999 to 2000, Mr. Chao worked as a sales manager at Sinopec International
Corporation where he was actively involved in international trading matters. From 2000 to 2002, he worked at Lianshui County
Zhengxin Chemical Co., Ltd. as the general manager in charge of the entire business operations of the company. Subsequently,
in August 2002 and August 2003, Mr. Chao co-founded (i) Danyang Beijiate Materials Trading (“Beijiate Materials”)
and (ii) Danyang Beijiate Chemicals Co., Ltd. (“Beijiate Chemicals”) respectively, where he was responsible for
the daily operations of both Beijiate Materials and Beijiate Chemicals. Mr. Chao co-found Jiangsu Delta, and he was the
general manager of Jiangsu Delta when it was incorporated as a wholly foreign-owned enterprise on 15 June 2007. Mr. Chao
subsequently acquired the entire equity interest in Jiangsu Delta from S&S International through Hong Kong Huilong
International Investment Limited (formerly known as Hong Kong Zhengxin International Investment Limited) (which was
controlled by Mr. Chao) on April 13, 2008. Since its incorporation, Mr. Chao has been actively involved in the operations
and management of Jiangsu Delta. Mr. Xin Chao graduated from Nanjing University with a Bachelor’s Degree in
International Trading.
Hongming Dong has rich experience in
accounting and finance of chemical industry. He has been working as Finance Manager of the Company since 2010. Before joining
the Company, he was Finance Manager at Danyang Liansheng Chemical Limited for over five years. Mr. Dong holds a bachelor’s
degree in accounting from Nanjing Economic College.
Changguang Wu has been with Delta
as its Executive Director since 2007 and has been actively involved in the daily operations of Delta since its establishment in
2007. From 1989 to 1992, Mr. Wu was a loan officer of People’s Bank of Danyang City. From 1992 to 2002, he worked as a chief
planner at Danyang City Trust and Investment Co., Ltd. Subsequently, in August 2002 and August 2003, Mr. Wu co-founded (i) Danyang
Beijiate Materials Trading (“Beijiate Materials”) and (ii) Danyang Beijiate Chemicals Co., Ltd. (“Beijiate Chemicals”)
respectively with Mr. Xin Chao, where he was mainly responsible for the management of both Beijiate Materials and Beijiate Chemicals.
While he was involved in the management of Beijiate Materials and Beijiate Chemicals, he was also the general manager of Danyang
Liansheng Chemicals Co., Ltd. (“Liansheng Chemicals”). He officially left Liansheng Chemicals and joined the Target
Group in November 2007. Mr. Wu graduated from Banking School of Jiangsu in 1989 with a diploma in Economic Management.
Borys Priadko has more than 35 years
of experience in corporate management and accounting. He has been operating his own firm, Borys’s Management Services Pty
Ltd for the past eight years. Prior to that, he worked for two years with Lehman Brown Consulting in China. Before moving into
the private consulting and service sector, Mr. Priadko worked for Siemens – Building Technologies Division for ten years
in the role of either Financial Controller or General Manager in various countries and entities. Mr Priadko is a member of CPA
Australia and has a bachelor degree in Financial Administration from New England University, Armidale, New South Wales, Australia..
Richard Liu has over twenty years’
experience in business and legal practice. He is a partner and director of securities investment section of Shanghai Huiye Law
Firm since December 12, 2006. He was a legal assistant at Baker& McKenzie’s Shanghai office from May 2004 through October
2006. Prior to that, he was Senior Consultant of Overseas Consulting department, Shanghai Foreign Service Company from June 2001
to April 2004. He received his bachelor’s degree in law from the Art College of Shanghai University.
George Kaufman is a Managing Director
of Investment Banking with Chardan Capital Markets, LLC, a New York based investment bank. Mr. Kaufman is a director of Prime
Acquisition Corp., a company that owns and operates office, commercial and industrial properties in Italy and is focused on building
a portfolio of high-yield assets primarily in Europe. Mr. Kaufman founded Detroit Coffee Company, LLC, a national roaster, wholesaler
and retail distributor of high-end specialty coffees, in January 2002 and currently serves as its chief executive officer. Mr.
Kaufman received a Bachelor of Arts degree in Economics from the University of Vermont in 1999.
B. Compensation
Director Compensation
We currently do not pay any compensation to members of our board of directors. Future compensation to
be paid to our directors, if any, will be determined in the future. Mr. Changguang Wu received an annual base salary of RMB289,920
(approximately $47,257) for the fiscal year ended June 30, 2015 for his services as president of Jiangsu Delta.
Executive Compensation
Overview of Executive Compensation
We paid annual
base salaries to Xin Chao and Hongming Dong of approximately RMB462,000 (approximately $75,275) and RMB108,000 (approximately
$17,597), respectively, in the fiscal year ended June 30, 2015 for their services as officers of the Company.
Grants of Plan Based Awards
None of
the named executives of the Company currently participates in or have account balances in any plan based award programs.
Future bonus plans will be adopted by the board of directors.
Employment Agreements
On June 15, 2007,
we, through Delta, entered into an employment agreement with Xin Chao pursuant to which Xin Chao agreed to act as the chairman
and Chief Executive Officer of Delta. The employment agreement does not have a definite term. The employment agreement provides
for a base salary of RMB462,000 a year, with performance based bonus.
Mr. Hongming
Dong entered into an employment agreement with the Company, dated August 17, 2015, pursuant to which he will serve as the Chief
Financial Officer of the Company from September 1, 2015 until the earlier of his resignation or termination by the Company. In
consideration for his employment, the Company will pay Mr. Dong an annual salary of RMB 900,000 (approximately $14,048). Mr. Dong
is also entitled to benefits such as vacation, sick and holiday pay, insurance, and pension, in accordance with rules, regulations
and the Company’s benefits policies established and in effect from time to time.
Outstanding
Equity Awards at Fiscal Year-End; Option Exercises and Stock Vested
None.
Pension Benefits
None of the named
executives currently participates in or has account balances in qualified or nonqualified defined benefit plans sponsored by us.
Nonqualified
Deferred Compensation
None of the named
executives currently participates in or has account balances in nonqualified defined contribution plans or other deferred compensation
plans maintained by us.
Other than as disclosed above, we have not
entered into any agreements or arrangements with our executive officers or directors, and have not made any agreements to provide
benefits upon termination of employment.
C. Board Practices
Board Committees
Our Board of Directors has established an
audit committee, a compensation committee and a governance and nominating committee.
Audit Committee. Immediately
following the transaction contemplated by the Purchase Agreement, the audit committee consists of Borys Priadko, Richard Liu and
George Kaufman. Borys Priadko is the chair of the Audit Committee, and our Board of Directors believes that Mr. Priadko qualify
as “audit committee financial experts”, as such term is defined in the rules of the Securities and Exchange Commission.
The Board of Directors has adopted an audit
committee charter, providing for the following responsibilities of the Audit Committee:
| • | appointing and replacing our independent auditors and
pre-approving all auditing and permitted non-auditing services to be performed by the
independent auditors; |
| • | reviewing and discussing the annual audited financial
statements with management and the independent auditors; |
| • | annually reviewing and reassessing the adequacy of our
audit committee charter; |
| • | such other matters that are specifically delegated to
our audit committee by our Board of Directors from time to time; |
| • | meeting separately and periodically with management, the
internal auditors and the independent auditors; and |
| • | reporting regularly to the Board of Directors. |
Compensation Committee. Immediately
following the transaction contemplated by the Purchase Agreement, our compensation committee consists of Borys Priadko, Richard
Liu and George Kaufman. The members of the compensation committee do not have any direct or indirect material relationship with
us other than as a director. George Kaufman serves as Chair of the Compensation Committee.
Our Board of Directors adopted a compensation
committee charter, providing for the following responsibilities of the Compensation Committee:
| • | reviewing and making recommendations to the board regarding
our compensation policies and forms of compensation provided to our directors and officers; |
| • | reviewing and making recommendations to the board regarding
bonuses for our officers and other employees; |
| • | administering our incentive-compensation plans for our
directors and officers; |
| • | reviewing and assessing the adequacy of the charter annually; |
| • | administering our share option plans, if they are established
in the future, in accordance with the terms thereof; and |
| • | such other matters that are specifically delegated to
the compensation committee by our Board of Directors from time to time. |
Governance and Nominating Committee. Immediately
following the transaction contemplated by the Purchase Agreement, our governance and nominating committee consists of Borys Priadko,
Richard Liu and George Kaufman. The members of the Governance and Nominating Committee do not have any direct or indirect material
relationship with us other than as a director. Richard Liu serves as Chair of the Governance and Nominating Committee.
Our Board of Directors adopted a governance
and nominating committee charter, providing for the following responsibilities of the Governance and Nominating Committee:
| • | overseeing the process by which individuals may be nominated
to our Board of Directors; |
| • | identifying potential directors and making recommendations
as to the size, functions and composition of our Board of Directors and its committees; |
| • | reviewing candidates proposed by our stockholders; |
| • | developing the criteria and qualifications for the selection
of potential directors; and |
| • | making recommendations to the Board of Directors on new
candidates for board membership. |
In making nominations, the Governance and
Nominating Committee is required to submit candidates who have the highest personal and professional integrity, who have demonstrated
exceptional ability and judgment and who shall be most effective, in conjunction with the other nominees to the board, in collectively
serving the long-term interests of the stockholders. In evaluating nominees, the Governance and Nominating Committee is required
to take into consideration the following attributes, which are desirable for a member of the board: leadership, independence,
interpersonal skills, financial acumen, business experiences, industry knowledge, and diversity of viewpoints.
Code of Ethics
On March 19, 2012, our Board of Directors
adopted a code of ethics that applies to our directors, officers and employees.
Director Independence
Our Board of Directors has determined that
Borys Priadko, Richard Liu and George Kaufman qualify as independent directors under the rules of the Nasdaq Marketplace Rules
because they are not currently employed by us, and do not fall into any of the enumerated categories of people who cannot be considered
independent in the Nasdaq Marketplace Rules.
D. Employees
As of June 30, 2015, we have a total of 260
full-time employees, all of whom are located in Zhenjiang, Jiangsu Province, the PRC. We do not experience any significant seasonal
fluctuations in our number of employees. The number of temporary employees employed by us during the periods under review was
insignificant.
None of our employees are represented by a
union. We believe that our relationship with our employees has historically been good and this is expected to continue.
The functional distribution of our full-time
employees as of June 30, 2015 is as follows:
Function | |
Number | |
Management | |
| 6 | |
Sales and marketing | |
| 9 | |
Research and Development | |
| 25 | |
Safety and environmental protection | |
| 15 | |
Production | |
| 16 | |
Procurement | |
| 5 | |
New Material | |
| 34 | |
Logistics | |
| 16 | |
Quality control | |
| 11 | |
Administration | |
| 29 | |
Production workers | |
| 94 | |
Total | |
| 260 | |
E. Share Ownership
The following table sets forth information
regarding the beneficial ownership of our ordinary shares as of November 16, 2015:
|
· |
each person known by us to be the beneficial
owner of more than 5% of our outstanding ordinary shares; |
|
· |
each of our executive officers and directors; and |
|
· |
all our executive officers and directors as a group. |
Unless otherwise indicated, we believe that
all persons named in the table have sole voting and investment power with respect to all ordinary shares beneficially owned by
them. The following table does not include securities underlying warrants or options that are not exercisable within 60 days of
November 16, 2015. All shares have identical voting rights.
Name and Address of Beneficial Owner(1) | |
Amount of
Beneficial Ownership | | |
Approximate
Percentage of Outstanding
Ordinary Shares(2) | |
Directors and Executive Officers: | |
| | | |
| | |
Xin Chao, CEO and Chairman (3) | |
| 2,410,200 | | |
| 25.2 | % |
Hongming Dong, CFO | |
| 0 | | |
| 0 | |
Borys Priadko, Director | |
| 0 | | |
| 0 | |
Richard Liu, Director | |
| 0 | | |
| 0 | |
Changguang Wu, Director | |
| 0 | | |
| 0 | |
George Kaufman, Director | |
| 128,400 | (11) | |
| 1.3 | % |
All directors and executive officers as a group (6 individuals) | |
| 2,538,600 | | |
| 26.3 | % |
Five Percent Holders: | |
| | | |
| | |
CIS Acquisition Holding Ltd. (4) | |
| 5,428,368 | (7) | |
| 41.2 | % |
Master Kingdom Holdings Ltd. (3) | |
| 2,410,200 | | |
| 25.2 | % |
KIP Growth Capital Fund No. 17 (5) | |
| 967,900 | | |
| 10.1 | % |
KPCB China Fund, L.P. (6) | |
| 1,066,700 | | |
| 11.1 | % |
AQR Capital Management, LLC (8) | |
| 990,000 | (9) | |
| 9.4 | % |
Pine River Capital Management L.P. (10) | |
| 774,000 | | |
| 8.1 | % |
*Less than one percent
| (1) | Unless otherwise noted, the business
address for each of our beneficial owners is c/o Delta Technology Holdings Limited, 16
Kaifa Avenue, Danyang, Jiangsu, China. |
| (2) | Based
on 9,567,034 ordinary shares
outstanding (including 1,500,000 ordinary shares subject to certain net income performance
targets). |
| (3) | Held through Master Kingdom Holdings
Ltd. (“Master Kingdom”). Mr. Xin Chao is the owner of Master Kingdom and
as such, is deemed to hold voting and dispositive power of the securities held by Master
Kingdom. |
| (4) | Messrs. Danilitskiy and Vazhnov
share voting and dispositive power over the founders’ shares owned by CIS Acquisition
Holding Co. Ltd. CIS Acquisition Holding Co. Ltd. is owned by Zelda Finance Ltd. and
SPAC Investments Ltd. Anatoly Danilitskiy controls Zelda Finance Ltd. and Taras Vazhnov
controls SPAC Investments Ltd. The business address of Zelda Finance Ltd. is Withfield
Tower, 3rd floor, 4792 Coney Drive, Belize City, Belize. The mailing address of SPAC
Investments Ltd. is FH Chambers, P.O. Box 4649, Road Town, Tortola, British Virgin Islands. |
| (5) | Korean Investment Partners Co.,
Ltd. (“KIP”), as the general investor of KIP Growth Capital Fund No. 17 (“KIPGCF”),
has voting and investment power over securities held by KIPGCF. The address of KIPGCF
is 2bfl., Gangnam Finance Center 737 Yeoksam-dong, Gangnam-gu, Seoul, Korea. |
| (6) | KPCB China Associates, Ltd. is
the general manager of KPCB China Fund, L.P. (“KPCB”) and holds voting and
dispositive power of the securities held by KPCB. The address for KPCB is P.O. Box 309,
GT Ugland House, South Church Street, Georgetown, Grand Cayman, Cayman Islands. |
| (7) | Consists of 1,828,773 ordinary
shares and 3,599,595 ordinary shares underlying warrants exercisable within 60 days from
November 16, 2015. |
| (8) | Bradley
D. Asness has voting and investment power over securities held by AQR
Capital Management Holdings, LLC. The address for AQR Capital Management Holdings, LLC
is 2 Greenwich Plaza, Greenwich, CT 06830. |
| (9) | Consists of 990,000 ordinary shares
underlying warrants exercisable within 60 days from November 16, 2015. |
| (10) | Pine
River Capital Management LLC is the general manager of Pine River Capital Management
L.P., and holds voting
control and investment discretion over securities held by Pine River Capital Management
L.P. As Manager and President of Pine River Capital Management LLC, Brian Taylor makes
voting and investment decisions on behalf of Pine River Capital Management LLC in its
capacity as general manager to Pine River Capital Management L.P. As a result of the
foregoing, Mr. Taylor may be deemed to have beneficial ownership (as determined under
Section 13(d) of the Securities Exchange of 1934, as amended) of these securities held
by Pine River Capital Management L.P. The address for Pine River Capital Management LLC
is 601 Carlson Parkway, Suite 330, Minnetonka, MN 55305. |
| (11) | Consists of 44,400 ordinary shares
and 84,000 ordinary shares underlying warrants within 60 days from November 16, 2015. |
ITEM
7. |
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS |
A. Major Shareholders
Please refer to Item 6 “Directors, Senior
Management and Employees—E. Share Ownership.”
B. Related Party Transactions
As of June 30, 2015 and 2014, we had short-term
borrowings from banks which were repayable within one year and charged at interest rates ranging from 3.9% to 8.2% and from 3.9%
to 8.7% per annum, respectively. Such borrowings primarily consist of loans denominated in Renminbi, and U.S. dollars. Bank borrowings
are secured over certain bank deposits, certain trade receivables, certain plant and machinery, and certain land use rights. The
bank borrowings are guaranteed by a number of unrelated parties, as well as Mr. Changguang Wu for the year ended June 30, 2015
and Mr. Xin Chao, our Chief Executive Officer and Chairman, for the years ended June 30, 2015 and 2014.
C. Interests of Experts and Counsel
Not applicable.
ITEM
8. |
FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial
Information
Financial Statements
We have appended consolidated financial statements
filed as part of this report. See Item 18 “Financial Statements.”
Legal Proceedings
We are not involved in any other legal proceedings.
We have no knowledge of any proceedings pending or threatened against any of our subsidiaries or any facts likely to give rise
to any litigation, claims or proceedings which might have a material effect on our financial position or profitability.
B. Significant Changes
None.
ITEM
9. |
THE OFFER AND LISTING |
A. Offer and Listing Details
Our units, Class A Shares and redeemable warrants
have been listed on the NASDAQ Capital Market under the symbols CISAU, CISAA and CISAW, since December 19, 2012. Beginning March
18, 2013, the Class A Shares and redeemable warrants underlying the units began to trade separately on a voluntary basis. The
units and Class A Shares were delisted on October 1, 2014 following the mandatory separation of the units and the redemption of
Class A Shares in accordance with our Amended and Restated Memorandum and Articles of Association. The trading of redeemable warrants
was suspended until our ordinary shares were successfully listed on the NASDAQ Capital Market on June 1, 2015. Our ordinary shares
and redeemable warrants are currently trading under the ticker symbol “DELT” and “DELTW”.
The following table sets forth the range of
high and low market prices for our redeemable warrants for the periods indicated, as reported by the NASDAQ Capital Market. These
prices do not include retail mark-ups, markdowns, or commissions.
| |
Warrants (1) | |
| |
High | | |
Low | |
Annual Highs and Lows | |
| | | |
| | |
Fiscal
Year Ended June 30, 2013(1) | |
$ | 1.43 | | |
$ | 0.01 | |
Fiscal Year Ended June 30, 2014 | |
$ | 0.47 | | |
$ | 0.11 | |
Fiscal Year Ended June 30, 2015 | |
$ | 1.48 | | |
$ | 0.12 | |
Quarterly Highs and Lows | |
| | | |
| | |
2014 | |
| | | |
| | |
First Quarter (Fiscal quarter ended September 31,
2013) | |
$ | 0.40 | | |
$ | 0.29 | |
Second
Quarter (Fiscal quarter ended December 31, 2013) (1) | |
$ | 0.36 | | |
$ | 0.26 | |
Third Quarter (Fiscal quarter ended March 31, 2014) | |
$ | 0.26 | | |
$ | 0.18 | |
Fourth Quarter (Fiscal quarter ended June 30, 2014) | |
$ | 0.39 | | |
$ | 0.11 | |
2015 | |
| | | |
| | |
First Quarter (Fiscal quarter ended September 30,
2014) | |
$ | 0.47 | | |
$ | 0.12 | |
Second Quarter (Fiscal quarter ended December 31,
2014) | |
$ | 0.47 | | |
$ | 0.23 | |
Third Quarter (Fiscal quarter March 31, 2015) | |
$ | 0.38 | | |
$ | 0.22 | |
Fourth Quarter (Fiscal quarter ended June 30, 2015) | |
$ | 1.48 | | |
$ | 0.18 | |
2016 | |
| | | |
| | |
First Quarter (Fiscal quarter ended September 30,
2015) | |
$ | 0.50 | | |
$ | 0.07 | |
| |
| | | |
| | |
Monthly Highs and Lows | |
| | | |
| | |
May 2015 | |
$ | 0.29 | | |
$ | 0.18 | |
June 2015 | |
$ | 1.48 | | |
$ | 0.29 | |
July 2015 | |
$ | 0.50 | | |
$ | 0.30 | |
August 2015 | |
| 0.35 | | |
| 0.17 | |
September 2015 | |
$ | 0.18 | | |
$ | 0.07 | |
October 2015 | |
$ | 0.14 | | |
$ | 0.05 | |
November 2015 (Through November 16, 2015) | |
$ | 0.12 | | |
| 0.12 | |
(1) Such warrants were eligible to begin separately trading on
March 18, 2013.
Our ordinary shares commenced trading on the NASDAQ Capital Market
on June 1, 2015. The table below shows the monthly high and low prices.
| |
Ordinary
Shares | |
| |
High | | |
Low | |
Annual Highs and
Lows | |
| | | |
| | |
Fiscal
Year Ended June 30, 2015(2) | |
$ | 38.25 | | |
$ | 4.56 | |
2016 | |
| | | |
| | |
First Quarter
(Fiscal quarter ended September 30, 2015) | |
$ | 5.00 | | |
$ | 1.63 | |
Monthly Highs and
Lows | |
| | | |
| | |
June 2015 | |
$ | 38.25 | | |
$ | 4.56 | |
July 2015 | |
$ | 5.00 | | |
$ | 2.88 | |
August 2015 | |
| 3.10 | | |
| 1.63 | |
September 2015 | |
$ | 2.50 | | |
$ | 1.98 | |
October 2015 | |
$ | 2.80 | | |
$ | 2.17 | |
November 2015 (Through
November 16, 2015) | |
$ | 2.55 | | |
$ | 1.72 | |
(2) Our ordinary shares commenced trading
on June 1, 2015.
B. Plan of Distribution
Not applicable.
C. Markets
See our disclosures above under “A. Offer and Listing Details.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM
10. |
ADDITIONAL INFORMATION |
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following represents a summary of certain
key provisions of our articles of incorporation and bylaws. The summary does not purport to be a summary of all of the provisions
of our articles of incorporation and bylaws. For more complete information you should read our amended and restated articles of
incorporation and bylaws, each listed as an exhibit to this report.
Summary
Registered Office. Under our Amended
and Restated Memorandum of Association, the address of our registered office is FH Chambers, P.O. Box 4649, Road Town, Tortola,
British Virgin Islands.
Objects and Purposes. Under Clause
4(1) of our Amended and Restated Memorandum of Association, we have the capacity to carry on or undertake any business or activity.
Directors. Under Article 74 of our
Articles of Association, no contract or transaction between us and one or more of our Directors (an “Interested Director”)
or officers, or between us and any of their affiliates (an “Interested Transaction”), will be void or voidable solely
for this reason, or solely because the director or officer is present at or participates in the meeting of our board or committee
which authorizes the contract or transaction, or solely because any such director’s or officer’s votes are counted
for such purpose, if:
|
(a) |
The material facts
as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed
or are known to the our Board of Directors or the committee, and the board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or |
|
(b) |
The material facts as to the director’s
or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to our shareholders
entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of our shareholders;
or |
|
(c) |
The contract or transaction is fair
as to us as of the time it is authorized, approved or ratified, by the board, a committee or the Shareholders. |
A majority of independent directors must vote
in favor of any Interested Transaction and determine that the terms of the Interested Transaction are no less favorable to us
than those that would be available to us with respect to such a transaction from unaffiliated third parties.
Our board shall review and approve all payments
made to the founders, officers, directors, special advisors, consultants and their respective affiliates, other than the payment
of an aggregate of $7,500 per month to CIS Acquisition Holding Co. Ltd., an affiliate of Anatoly Danilitskiy, our former Chairman
and Chief Executive Officer, and Taras Vazhnov, our former director, for office space, administrative services and secretarial
support, and any Interested Director shall abstain from such review and approval. Such fees were paid as incurred only out of
interest earned on the trust account or assets not held in trust, if any.
Rights, Preferences and Restrictions Attaching
to Our Ordinary Shares. We are authorized to issue 155,000,000 shares divided into: (i) 150,000,000 ordinary shares; and (ii)
5,000,000 preferred shares, each par value $0.0001 per share. As of November 16, 2015, 9,567,034 ordinary shares were outstanding
(including 1,500,000 Ordinary Shares in escrow that are subject to certain net income targets). Each share, regardless if it is
part of a class of ordinary shares, has the right to one vote at a meeting of shareholders or on any resolution of shareholders,
the right to an equal share in any dividend paid by us, and the right to an equal share in the distribution of surplus assets.
We may by a resolution of the Board of Directors redeem our shares for such consideration as the Board of Directors determines.
Alteration of Rights. If, at any time,
our authorized number of shares is divided into different classes of shares, the rights attached to any class (unless otherwise
provided by the terms of issue of the shares of that class) may, whether or not we are being wound-up, be varied with the consent
in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a resolution passed by a
majority of the votes cast at a separate meeting of the holders of the shares of the class at which meeting the necessary quorum
shall be two persons at least holding or representing by proxy one-third of the issued shares of the class.
Meetings. At least 10 days’ (exclusive
of the date that notice is given and the date on which event for which notice is given is to take effect) notice of a meeting
shall be given to each shareholder entitled to attend and vote thereat, stating the date, place, and time at which the meeting
is to be held, and if different, the record date for determining shareholders entitled to attend and vote at the meeting, and
the general nature of the business to be conducted at the meeting. A meeting shall, notwithstanding the fact that it is called
on shorter notice than otherwise required, be deemed to have been properly called if it is attended, or such notice is waived,
by 90% of the shareholders entitled to attend and vote thereat. The inadvertent failure to give notice of a meeting to, or the
non-receipt of a notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting.
Limitations on the Right to Own Securities.
There are no limitations on the rights to own our securities, or limitations on the rights of non-resident or foreign shareholders
to hold or exercise voting rights on our securities, contained in our Amended and Restated Memorandum and Articles of Association
(or under British Virgin Islands law).
C. Material Contracts
Information concerning our material contracts
governing the business of the Company is included elsewhere in this report or in the information incorporated by reference herein.
See the description of the Voting Agreement,
the Registration Rights Agreement and the Call Agreement under Item 4. A.
D. Exchange Controls
BVI Exchange Controls
There are no material exchange controls
restrictions on payment of dividends, interest or other payments to the holders of our ordinary shares or on the conduct of our
operations in the BVI. There are no material BVI laws that impose any material exchange controls on us or that affect the payment
of dividends, interest or other payments to nonresident holders of our ordinary shares. BVI law and our memorandum and articles
of association do not impose any material limitations on the right of non-residents or foreign owners to hold or vote our ordinary
shares.
PRC Exchange Controls
Under the Foreign Currency Administration
Rules promulgated in 1996 and revised in 1997, and various regulations issued by SAFE and other relevant PRC government authorities,
RMB is convertible into other currencies without prior approval from SAFE only to the extent of current account items, such as
trade related receipts and payments, interest and dividends and after complying with certain procedural requirements. The conversion
of RMB into other currencies and remittance of the converted foreign currency outside PRC for the purpose of capital account items,
such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office.
Payments for transactions that take place within China must be made in RMB. Unless otherwise approved, PRC companies must repatriate
foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated
foreign exchange banks subject to a cap set by SAFE or its local office. Unless otherwise approved, domestic enterprises
must convert all of their foreign currency proceeds into RMB.
On October 21, 2005, SAFE issued the Notice
on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents
Conducted via Offshore Special Purpose Companies, which became effective as of November 1, 2005. According to the notice, a special
purpose company, or SPV, refers to an offshore company established or indirectly controlled by PRC residents for the special purpose
of carrying out financing of their assets or equity interest in PRC domestic enterprises. Prior to establishing or assuming control
of an SPV, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration
procedures with the relevant local SAFE branch. The notice applies retroactively. As a result, PRC residents who have established
or acquired control of these SPVs that previously made onshore investments in China were required to complete the relevant overseas
investment foreign exchange registration procedures by March 31, 2006. These PRC residents must also amend the registration with
the relevant SAFE branch in the following circumstances: (i) the PRC residents have completed the injection of equity investment
or assets of a domestic company into the SPV; (ii) the overseas funding of the SPV has been completed; (iii) there is a material
change in the capital of the SPV. Under the rules, failure to comply with the foreign exchange registration procedures may result
in restrictions being imposed on the foreign exchange activities of the violator, including restrictions on the payment of dividends
and other distributions to its offshore parent company, and may also subject the violators to penalties under the PRC foreign
exchange administration regulations.
On August 29, 2008, SAFE promulgated Notice
142 which regulates the conversion by a foreign-funded enterprise of foreign currency into RMB by restricting how the converted
RMB may be used. Notice 142 requires that RMB funds converted from the foreign currency capital of a foreign-funded enterprise
may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used
for equity investments within the PRC unless specifically provided for otherwise. In addition, SAFE strengthened its supervision
over the flow and use of RMB funds converted from the foreign currency capital of a foreign-funded enterprise. The use of such
RMB capital may not be changed without SAFE’s approval, and may not, in any case, be used to repay or prepay RMB loans if
such loans are outstanding. Violations of Notice 142 will result in severe penalties, such as heavy fines as set out in the relevant
foreign exchange control regulations.
E. Taxation
British Virgin Islands Taxation
Under the law of the British Virgin Islands
as currently in effect, a holder of our shares who is not a resident of the British Virgin Islands is not liable for British Virgin
Islands income tax on dividends paid with respect to our shares, and all holders of our securities are not liable to the British
Virgin Islands for income tax on gains realized on the sale or disposal of such securities. The British Virgin Islands does not
impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Act.
There are no capital gains, gift or inheritance
taxes levied by the British Virgin Islands on companies incorporated or re-registered under the BVI Act. In addition, securities
of companies incorporated or re-registered under the BVI Act are not subject to transfer taxes, stamp duties or similar charges.
There is no income tax treaty or convention
currently in effect between the United States and the British Virgin Islands, although a Tax Information Exchange Agreement is
in force.
PRC Taxation
Under the PRC Enterprise Income Tax Law, or
the EIT Law, and its implementation rules that became effective on January 1, 2008, a non-resident enterprise is generally
subject to PRC enterprise income tax with respect to PRC-sourced income. A circular issued by the State Administration of Taxation
on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified
as a “resident enterprise” with its “de facto management body” located within China if the following requirements
are satisfied: (i) the senior management and core management departments in charge of its daily operations function are mainly
in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies
in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’
meetings are located or kept in the PRC; and (iv) at least half of the enterprise’s directors with voting right or
senior management reside in the PRC. In addition, the State Administration of Taxation issued a bulletin on August 3, 2011,
effective as of September 1, 2011, to provide more guidance on the implementation of the above circular. The bulletin clarified
certain matters relating to resident status determination, post-determination administration and competent tax authorities. It
also specifies that when provided with a copy of a PRC tax resident determination certificate from a resident PRC-controlled offshore
incorporated enterprise, the payer should not withhold 10% income tax when paying the PRC-sourced dividends, interest and royalties
to the PRC-controlled offshore incorporated enterprise. Although both the circular and the bulletin only apply to offshore enterprises
controlled by PRC enterprises and not those by PRC individuals, the determination criteria set forth in the circular and administration
clarification made in the bulletin may reflect the State Administration of Taxation’s general position on how the “de
facto management body” test should be applied in determining the tax residency status of offshore enterprises and the administration
measures should be implemented, regardless of whether they are controlled by PRC enterprises or PRC individuals. If we are deemed
to be a PRC resident enterprise, dividends distributed to our non-PRC enterprise shareholders by us, or the gain our non-PRC enterprise
shareholders may realize from the transfer of our ordinary shares, may be treated as PRC-sourced income and therefore be subject
to a 10% PRC withholding tax pursuant to the EIT Law.
U.S. Federal Income Taxation
General
The following are the material U.S. federal
income tax consequences to an investor of the acquisition, ownership and disposition of our securities.
The discussion below of the U.S. federal income
tax consequences to “U.S. Holders” will apply to a beneficial owner of our securities that is treated for U.S. federal
income tax purposes as:
| · | an
individual citizen or resident of the United States; |
| · | a
corporation (or other entity treated as a corporation) that is created or organized (or
treated as created or organized) in or under the laws of the United States, any state
thereof or the District of Columbia; |
| · | an
estate whose income is includible in gross income for U.S. federal income tax purposes
regardless of its source; or |
| · | a
trust if (i) a U.S. court can exercise primary supervision over the trust’s administration
and one or more U.S. persons are authorized to control all substantial decisions of the
trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations
to be treated as a U.S. person. |
If a beneficial owner of our securities is
not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income
tax purposes, such an owner will be considered a “Non-U.S. Holder.” The material U.S. federal income tax consequences
of the acquisition, ownership and disposition of our securities applicable specifically to Non-U.S. Holders are described below
under the heading “Non-U.S. Holders.”
This discussion is based on the Internal Revenue
Code of 1986, as amended (the “Code”), its legislative history, Treasury regulations promulgated thereunder, published
rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations,
possibly on a retroactive basis.
This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to any particular holder of our securities based on such holder’s individual
circumstances. In particular, this discussion considers only holders that own and hold our securities as capital assets within
the meaning of Section 1221 of the Code, and does not address the alternative minimum tax. In addition, this discussion does not
address the U.S. federal income tax consequences to holders that are subject to special rules, including:
| · | financial
institutions or financial services entities; |
| · | persons
that are subject to the mark-to-market accounting rules under Section 475 of the Code; |
| · | governments
or agencies or instrumentalities thereof; |
| · | regulated
investment companies; |
| · | real
estate investment trusts; |
| · | certain
expatriates or former long-term residents of the United States; |
| · | persons
that actually or constructively own 5% or more of our public shares; |
| · | persons
that acquired our securities pursuant to the exercise of employee options, in connection
with employee incentive plans or otherwise as compensation; |
| · | persons
that hold our securities as part of a straddle, constructive sale, hedging, conversion
or other integrated transaction; |
| · | persons
whose functional currency is not the U.S. dollar; |
| · | controlled
foreign corporations; or passive foreign investment companies. |
This discussion does not address any aspect
of U.S. federal non-income tax laws, such as gift or estate tax laws, state, local or non-U.S. tax laws or, except as discussed
herein, any tax reporting obligations applicable to a holder of our securities. Additionally, this discussion does not consider
the tax treatment of partnerships or other pass-through entities or persons who hold our securities through such entities. If
a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our
securities, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner
and the activities of the partnership. This discussion also assumes that any distributions made (or deemed made) by us on our
securities and any consideration received (or deemed received) by a holder in consideration for the sale or other disposition
of our securities will be in U.S. dollars.
We have not sought, and will not seek a ruling
from the Internal Revenue Service (“IRS”) or an opinion of counsel as to any U.S. federal income tax consequence described
herein. The IRS may disagree with the description herein, and its determination may be upheld by a court. Moreover, there can
be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the
accuracy of the statements in this discussion.
THIS DISCUSSION OF THE MATERIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR SECURITIES IS NOT TAX ADVICE. EACH HOLDER OF OUR
SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS,
AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATIES.
U.S. Holders
Taxation of Cash Distributions
Subject to the passive foreign investment
company (“PFIC”) rules discussed below, a U.S. Holder generally will be required to include in gross income as ordinary
income the amount of any cash dividend paid on our shares. A cash distribution on such shares generally will be treated as a dividend
for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined
under U.S. federal income tax principles). Such dividend generally will not be eligible for the dividends-received deduction generally
allowed to domestic corporations in respect of dividends received from other domestic corporations. The portion of such distribution,
if any, in excess of such earnings and profits generally will constitute a return of capital that will be applied against and
reduce (but not below zero) the U.S. Holder’s adjusted tax basis in such shares. Any remaining excess will be treated as
gain from the sale or other taxable disposition of such shares and will be treated as described under “— Taxation
on the Disposition of Securities” below.
With respect to non-corporate U.S. Holders,
dividends on our shares may be subject to U.S. federal income tax at the lower applicable long-term capital gains tax rate (see
“— Taxation on the Disposition of Securities ” below) provided that (1) such shares are readily tradable
on an established securities market in the United States, (2) we are not a PFIC, as discussed below, for either the taxable year
in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Under published
IRS authority, our shares are considered for purposes of clause (1) above to be readily tradable on an established securities market
in the United States only if they are listed on certain exchanges, which presently include the NASDAQ Capital Market. Although
our ordinary shares and warrants are currently listed and traded on the NASDAQ Capital Market, we cannot guarantee that our securities
will continue to be listed on the NASDAQ Capital Market. U.S. Holders should consult their own tax advisors regarding the availability
of the lower rate for any cash dividends paid with respect to our securities.
A U.S. Holder may be eligible to claim
a foreign tax credit with respect to any PRC withholding tax imposed on dividends paid by us. However, the foreign tax credit rules
are complex, and their application in connection with Section 7874 of the Code and the Agreement Between the Government of the
United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the
Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC Tax Treaty, is not entirely clear at this time. U.S.
Holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit
rules and the U.S.-PRC Tax Treaty.
Possible Constructive Distributions
with Respect to Redeemable Warrants
The terms of each redeemable warrant provide
for an adjustment to the number of ordinary shares for which the redeemable warrant may be exercised in certain events. An adjustment
that has the effect of preventing dilution generally is not taxable. However, the U.S. Holders of the redeemable warrants would
be treated as receiving a constructive distribution from us if, for example, the adjustment increases the redeemable warrant holders’
proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of ordinary shares that
would be obtained upon exercise) as a result of a distribution of cash to the holders of our shares, which is taxable to the U.S.
Holders of such shares as described under “— Taxation of Cash Distributions” above. Such constructive distribution
would be subject to tax as described under that section in the same manner as if the U.S. Holders of the redeemable warrants received
a cash distribution from us equal to the fair market value of such increased interest.
Taxation on the Disposition of Securities
Upon a sale or other taxable disposition of
our securities (which, in general, would include a distribution in connection with our liquidation or a redemption of redeemable
warrants), and subject to the PFIC rules discussed below, a U.S. Holder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the securities. See “—
Exercise or Lapse of Redeemable Warrants” below for a discussion regarding a U.S. Holder’s basis in the ordinary share
acquired pursuant to the exercise of a warrant.
The regular U.S. federal income tax rate on
capital gains recognized by U.S. Holders generally is the same as the regular U.S. federal income tax rate on ordinary income,
except that long-term capital gains recognized by non-corporate U.S. Holders generally are subject to U.S. federal income tax
at a maximum regular rate of 20%. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s
holding period for the securities exceeds one year. The deductibility of capital losses is subject to various limitations.
Additional Taxes
U.S. Holders that are individuals, estates
or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% Medicare contribution tax on unearned
income, including, without limitation, dividends on, and gains from the sale or other taxable disposition of, our securities,
subject to certain limitations and exceptions. Under recently issued regulations, in the absence of a special election, such unearned
income generally would not include income inclusions under the qualified electing fund, or QEF rules discussed below under “— Passive
Foreign Investment Company Rules,” but would include distributions of earnings and profits from a QEF. U.S. Holders should
consult their own tax advisors regarding the effect, if any, of such tax on their ownership and disposition of our securities.
Exercise or Lapse of Redeemable Warrants
Subject to the PFIC rules discussed below,
a U.S. Holder generally will not recognize gain or loss upon the acquisition of ordinary shares on the exercise of redeemable
warrants for cash. Ordinary shares acquired pursuant to the exercise of redeemable warrants for cash will have a tax basis equal
to the U.S. Holder’s tax basis in the redeemable warrants, increased by the amount paid to exercise the redeemable warrants.
The holding period of such ordinary shares should begin on the day after the date of exercise of the redeemable warrants. If redeemable
warrants are allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s
adjusted tax basis in the redeemable warrants.
The tax consequences of a cashless exercise
of redeemable warrants are not clear under current tax law. A cashless exercise may be tax-free, either because it is not a realization
event (i.e., not a transaction in which gain or loss is realized) or because the transaction is treated as a recapitalization
for U.S. federal income tax purposes. In either tax-free situation, a U.S. Holder’s tax basis in the ordinary shares received
would equal the U.S. Holder’s basis in the redeemable warrants. If the cashless exercise were treated as not being a realization
event, the U.S. Holder’s holding period in the ordinary shares could be treated as commencing on the date following the
date of exercise of the redeemable warrants. If the cashless exercise were treated as a recapitalization, the holding period of
the ordinary shares received would include the holding period of the redeemable warrants.
It is also possible that a cashless exercise
could be treated as a taxable exchange in which gain or loss is recognized. In such event, a U.S. Holder could be deemed to have
surrendered a number of redeemable warrants with a fair market value equal to the exercise price for the number of redeemable
warrants deemed exercised. For this purpose, the number of redeemable warrants deemed exercised would be equal to the number of
ordinary shares issued pursuant to the cashless exercise of the redeemable warrants. In this situation, the U.S. Holder would
recognize capital gain or loss in an amount equal to the difference between the fair market value of the redeemable warrants deemed
surrendered to pay the exercise price and the U.S. Holder’s tax basis in such redeemable warrants deemed surrendered. Such
gain or loss would be long-term or short-term depending on the U.S. Holder’s holding period in the redeemable warrants.
In this case, a U.S. Holder’s tax basis in the ordinary shares received would equal the sum of the fair market value of
the redeemable warrants deemed surrendered to pay the exercise price and the U.S. Holder’s tax basis in the redeemable warrants
deemed exercised, and a U.S. Holder’s holding period for the ordinary shares should commence on the date following the date
of exercise of the redeemable warrants. There also may be alternative characterizations of any such taxable exchange that would
result in similar tax consequences, except that a U.S. Holder’s gain or loss would be short-term.
Due to the absence of authority on the U.S.
federal income tax treatment of a cashless exercise of redeemable warrants it is unclear which, if any, of the alternative tax
consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should
consult their tax advisors regarding the tax consequences of a cashless exercise of redeemable warrants.
Passive Foreign Investment Company Rules
A foreign (i.e., non-U.S.) corporation will
be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the
gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively,
a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined
based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation
in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income.
Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from
the active conduct of a trade or business) and gains from the disposition of passive assets.
Based on the composition of our assets and
the nature of the Company’s income and subsidiaries’ income for our taxable year ended June 30, 2015, we do not expect
to be treated as a PFIC for such year under the tax laws as enacted and construed at the present time.
If we are determined to be a PFIC for any
taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our shares or redeemable warrants
and, in the case of our shares, the U.S. Holder did not make either a timely qualified electing fund (“QEF”) election
for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) such shares, a QEF election along with
a purging election, or a mark-to-market election, each as described below, such holder generally will be subject to special rules
for regular U.S. federal income tax purposes with respect to:
| · | any
gain recognized by the U.S. Holder on the sale or other disposition of its shares or
redeemable warrants; and |
| · | any
“excess distribution” made to the U.S. Holder (generally, any distributions
to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125%
of the average annual distributions received by such U.S. Holder in respect of the shares
during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S.
Holder’s holding period for the shares). |
Under these rules,
| · | the
U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S.
Holder’s holding period for the shares or redeemable warrants; |
| · | the
amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized
the gain or received the excess distribution, or to the period in the U.S. Holder’s
holding period before the first day of our first taxable year in which we are a PFIC,
will be taxed as ordinary income; |
| · | the
amount allocated to other taxable years (or portions thereof) of the U.S. Holder and
included in its holding period will be taxed at the highest tax rate in effect for that
year and applicable to the U.S. Holder; and |
| · | the
interest charge generally applicable to underpayments of tax will be imposed in respect
of the tax attributable to each such other taxable year of the U.S. Holder. |
In general, if we are determined to be a PFIC,
a U.S. Holder may avoid the PFIC tax consequences described above in respect to our shares by making a timely QEF election (or
a QEF election along with a purging election). Pursuant to the QEF election, a U.S. Holder will be required to include in income
its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on
a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable
year ends. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the
QEF rules, but if deferred, any such taxes will be subject to an interest charge.
A U.S. Holder may not make a QEF election
with respect to its redeemable warrants. As a result, if a U.S. Holder sells or otherwise disposes of a redeemable warrant (other
than upon exercise of the redeemable warrant), any gain recognized generally will be subject to the special tax and interest charge
rules treating the gain as an excess distribution, as described above, if we were a PFIC at any time during the period the U.S.
Holder held the redeemable warrants. If a U.S. Holder that exercises such redeemable warrants properly makes a QEF election with
respect to the newly acquired ordinary shares (or has previously made a QEF election with respect to our shares), the QEF election
will apply to the newly acquired ordinary shares, but the adverse tax consequences relating to PFIC shares, adjusted to take into
account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired
ordinary shares (which generally will be deemed to have a holding period for purposes of the PFIC rules that includes the period
the U.S. Holder held the redeemable warrants), unless the U.S. Holder makes a purging election with respect to such shares. The
purging election creates a deemed sale of such shares at their fair market value. The gain recognized by the purging election
will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above.
As a result of the purging election, the U.S. Holder will increase the adjusted tax basis in its ordinary shares acquired upon
the exercise of the redeemable warrants by the gain recognized and will also have a new holding period in such ordinary shares
for purposes of the PFIC rules.
The QEF election is made on a shareholder-by-shareholder
basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching
a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund),
including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for
the taxable year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement
with such return and if certain other conditions are met or with the consent of the IRS.
In order to comply with the requirements of
a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will endeavor to provide
to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFIC annual information
statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will
have timely knowledge of our status as a PFIC in the future or of the required information to be provided.
If a U.S. Holder has made a QEF election with
respect to our shares and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election
for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a QEF election, along
with a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale or other taxable
disposition of our shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above,
for regular U.S. federal income tax purposes, U.S. Holders of a QEF are currently taxed on their pro rata shares of the QEF’s
earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were
previously included in income generally should not be taxable as a dividend to such U.S. Holders. The adjusted tax basis of a
U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed
but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property
the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.
Although a determination as to our PFIC status
will be made annually, the initial determination that we are a PFIC generally will apply for subsequent years to a U.S. Holder
who held shares or redeemable warrants while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent
years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder
holds (or is deemed to hold) our shares, however, will not be subject to the PFIC tax and interest charge rules discussed above
in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such
shares for any of our taxable years that end within or with a taxable year of the U.S. Holder and in which we are not a PFIC.
On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and during which
the U.S. Holder holds (or is deemed to hold) our shares, the PFIC rules discussed above will continue to apply to such shares
unless the holder files on a timely filed U.S. income tax return (including extensions) a QEF election and a purging election
to recognize under the rules of Section 1291 of the Code any gain that the U.S. Holder would otherwise recognize if the U.S. Holder
had sold our shares for their fair market value on the “qualification date.” The qualification date is the first day
of our tax year in which we qualify as a QEF with respect to such U.S. Holder. The purging election can only be made if such U.S.
Holder held our ordinary shares on the qualification date. The gain recognized by the purging election will be subject to the
special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging
election, the U.S. Holder will increase the adjusted tax basis in its ordinary shares by the amount of the gain recognized and
will also have a new holding period in the shares for purposes of the PFIC rules.
Alternatively, if a U.S. Holder, at the close
of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election
with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable
year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) our shares and for which we are determined to be
a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its shares. Instead, in general,
the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its shares at the end
of its taxable year over the adjusted tax basis in its shares. The U.S. Holder also will be allowed to take an ordinary loss in
respect of the excess, if any, of the adjusted tax basis of its shares over the fair market value of its shares at the end of
its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election).
The U.S. Holder’s adjusted tax basis in its shares will be adjusted to reflect any such income or loss amounts, and any
further gain recognized on a sale or other taxable disposition of the shares will be treated as ordinary income. Currently, a
mark-to-market election may not be made with respect to our redeemable warrants.
The mark-to-market election is available only
for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission,
including the NASDAQ Capital Market, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure
that the market price represents a legitimate and sound fair market value. Although our ordinary shares are listed and traded
on the NASDAQ Capital Market, we cannot guarantee that our shares will continue to be listed and traded on the NASDAQ Capital
Market. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market
election in respect to our shares under their particular circumstances.
If we are a PFIC and, at any time, have a
foreign subsidiary that is classified as a PFIC, a U.S. Holder generally would be deemed to own a portion of the shares of such
lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a
distribution from, or dispose of all or part of our interest in, or the U.S. Holder otherwise were deemed to have disposed of
an interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no
later than 90 days after the request the information that may be required to make or maintain a QEF election with respect to the
lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC,
and we do not plan to make annual determinations or otherwise notify U.S. Holders of the PFIC status of any such lower-tier PFIC.
There also is no assurance that we will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders
are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.
A U.S. Holder that owns (or is deemed to own)
shares in a PFIC during any taxable year of the U.S. Holder may have to file an IRS Form 8621 (whether or not a QEF election or
mark-to-market election is or has been made) with such U.S. Holder’s U.S. federal income tax return and provide such other
information as may be required by the U.S. Treasury Department.
The rules dealing with PFICs and with the
QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly,
U.S. Holders of our shares and redeemable warrants should consult their own tax advisors concerning the application of the PFIC
rules to our shares and redeemable warrants under their particular circumstances.
Non-U.S. Holders
Dividends (including constructive dividends)
paid or deemed paid to a Non-U.S. Holder in respect to our securities generally will not be subject to U.S. federal income tax,
unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United
States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that
such holder maintains or maintained in the United States).
In addition, a Non-U.S. Holder generally will
not be subject to U.S. federal income tax on any gain attributable to a sale or other taxable disposition of our securities unless
such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable
income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains or maintained in the
United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable
year of sale or other disposition and certain other conditions are met (in which case, such gain from U.S. sources generally is
subject to U.S. federal income tax at a 30% rate or a lower applicable tax treaty rate).
Dividends and gains that are effectively connected
with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income
tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains or maintained in the United
States) generally will be subject to regular U.S. federal income tax at the same regular U.S. federal income tax rates applicable
to a comparable U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes,
may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
The U.S. federal income tax treatment of a
Non-U.S. Holder’s exercise of redeemable warrants, or the lapse of redeemable warrants held by a Non-U.S. Holder, generally
will correspond to the U.S. federal income tax treatment of the exercise or lapse of redeemable warrants by a U.S. Holder, as
described under “ U.S. Holders — Exercise or Lapse of Redeemable Warrants ” above.
Backup Withholding and Information Reporting
In general, information reporting for U.S.
federal income tax purposes should apply to distributions made on our securities within the United States to a U.S. Holder (other
than an exempt recipient) and to the proceeds from sales and other dispositions of our securities by a U.S. Holder (other than
an exempt recipient) to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office)
outside the United States will be subject to information reporting in limited circumstances. In addition, certain information
concerning a U.S. Holder’s adjusted tax basis in its securities and adjustments to that tax basis and whether any gain or
loss with respect to such securities is long-term or short-term also may be required to be reported to the IRS, and certain holders
may be required to file an IRS Form 8938 (Statement of Specified Foreign Financial Assets) to report their interest in our securities.
Moreover, backup withholding of U.S. federal
income tax at a rate of 28% generally will apply to dividends paid on our securities to a U.S. Holder (other than an exempt recipient)
and the proceeds from sales and other dispositions of shares or warrants by a U.S. Holder (other than an exempt recipient), in
each case who
| · | fails
to provide an accurate taxpayer identification number; |
| · | is
notified by the IRS that backup withholding is required; or |
| · | in
certain circumstances, fails to comply with applicable certification requirements. |
A Non-U.S. Holder generally may eliminate
the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties
of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup withholding is not an additional tax.
Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s
U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely
furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and
the availability of and procedures for obtaining an exemption from backup withholding in their particular circumstances.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have filed this report on Form 20-F with
the SEC under the Exchange Act. Statements made in this report as to the contents of any document referred to are not necessarily
complete. With respect to each such document filed as an exhibit to this report, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
We are subject to the informational requirements
of the Exchange Act as a foreign private issuer and file reports and other information with the SEC. Reports and other information
filed by us with the SEC, including this report, may be inspected and copied at the public reference room of the SEC at 100 F
Street, N.E., Washington D.C. 20549. You can also obtain copies of this report by mail from the Public Reference Section of the
SEC, 100 F. Street, N.E., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from
the SEC’s Internet site at http://www.sec.gov. The SEC’s telephone number is 1-800-SEC-0330.
As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers,
directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section
16 of the Exchange Act.
I. Subsidiary Information
Not applicable.
ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK |
Interest Rate Risk
We deposit surplus funds with Chinese banks
earning daily interest. We do not invest in any instruments for trading purposes. Most of our outstanding debt instruments carry
fixed rates of interest. Our operations generally are not directly sensitive to fluctuations in interest rates and we currently
do not have any long-term debt outstanding. Management monitors the banks’ prime rates in conjunction with our cash requirements
to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions
in an effort to reduce our exposure to interest rate risk.
Foreign Exchange Risk
While our reporting currency is the U.S. dollar,
substantially all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. Substantially all of
our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations
may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S.
dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline.
Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at
the average exchange rates and equity is translated at historical exchange rates. Any resulting translation adjustments are not
included in determining net income but are included in determining other comprehensive income, a component of equity. An average
appreciation (depreciation) of the RMB against the U.S. dollar of 5% would increase (decrease) our comprehensive income by $0.45
million based on our outstanding revenues, costs and expenses, assets and liabilities denominated in RMB as of June 30, 2015.
As of June 30, 2015, our accumulated other comprehensive income was $10 million. We have not entered into any hedging transactions
in an effort to reduce our exposure to foreign exchange risk.
The value of RMB against the U.S. dollar and
other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005,
RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange
market to prevent significant short-term fluctuations in the exchange rate, RMB may appreciate or depreciate significantly in
value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift
restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market.
Inflation
Inflationary factors such as increases in
the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may
have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses
as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.
ITEM 12. |
DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES |
Not applicable.
ITEM 13. |
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS |
None.
ITEM 15. |
CONTROLS AND PROCEDURES |
Evaluation of
Disclosure Controls and Procedures
Our management, with
the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered
by this report, as required by Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our management has concluded that,
as of June 30, 2015, our disclosure controls and procedures were effective to ensure that the information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that information required to be disclosed in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and
chief financial officer, to allow timely decisions regarding required disclosure.
Management’s
Annual 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) under
the Exchange Act. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated
the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of
June 30, 2015.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal
Control Over Financial Reporting
There were no changes
in our internal control over financial reporting that occurred during the period covered by this annual report on Form 20-F that
have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
Our board of directors has determined
that Borys Priadko, an independent director, is our audit committee financial expert as defined by the rules of the NASDAQ Stock
Market, Inc. Rule 10A-3 under the Exchange Act.
Our board of directors has adopted a code
of ethics that applies to our directors, officers, employees and agents, including certain provisions that specifically apply
to our chief executive officer, chief financial officer, vice presidents and any other persons who perform similar functions for
us. We have posted a copy of our code of business conduct and ethics on our website at http://www.deltath.com.
ITEM 16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table
sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Dominic K.F. Chan & Co., our independent registered public accounting firms, for the periods indicated. We did not
pay any other fees to our independent registered public accounting firm during the periods indicated below.
| |
For the Year Ended June 30, | |
| |
2014 | | |
2015 | |
Audit fees(1) | |
$ | 250,000 | | |
$ | 138,000 | |
Audit related fees(2) | |
| - | | |
| - | |
Tax fees(3) | |
| - | | |
| - | |
(1) |
“Audit fees” means the aggregate fees billed for professional
services rendered by our independent registered public accounting firm for the audit of our annual financial statements and
the review of our comparative interim financial statements. |
(2) |
“Audit related fees” means the fees billed for review
of response letter to a regulatory body. |
(3) |
“Tax fees” represents the aggregated fees billed for
professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax
planning. |
Pre-Approval of Services
Our board of directors evaluated and approved in advance the
scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.
ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS |
Following the Acquisition, the units which
were sold in our initial public offering ceased to exist and were mandatorily separated into their component parts: one Class
A Share and one warrant to purchase one ordinary share, in order to complete the redemption of Class A Shares and the distribution
of the balance of funds held in our Trust Account pursuant to our organizational documents. A total of 3,500,000 Class A Shares
were redeemed at $10.40 per share upon liquidation of the Trust Account and the remainder Class A Shares were converted into Class
C Shares which, along with all other classes of ordinary share, were later consolidated into one class of ordinary share.
ITEM 16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTS |
During 2012,
Marcum LLP (“Marcum”) was engaged to act as the Company’s independent registered public accounting firm.
Upon consummation of the Acquisition, Delta’s accounting firm, Dominic K.F. Chan & Co (“Dominic Chan”),
became the Company’s principal independent registered public accounting firm and Marcum’s engagement as the
Company’s principal independent register public accounting firm therefore ended.
The
reports of Marcum on the Company’s financial statements as of and for the years ended October 31, 2013 and 2012 contained
no adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting
principles. During the years ended October 31, 2013 and 2012, and
the subsequent interim period through the date of the termination of Marcum’s engagement (“Engagement Period”),
there were no “disagreements,” as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions
to Item 16F of Form 20-F, with Marcum on any matter of accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of Marcum, would have caused it to make reference
to the subject matter of the disagreements in connection with its reports on the consolidated financial statements of the Company.
Furthermore, no “reportable events,” as that term is defined in Item 16F(a)(1)(v) of Form 20-F, occurred within the
periods covered by Marcum’s reports on the consolidated financial statements of the Company, or subsequently up to the date
of the termination of Marcum’s engagement.
The Company provided
Marcum with a copy of the foregoing disclosure and requested that Marcum furnish it with a letter addressed to the Securities
and Exchange Commission stating whether or not Marcum agrees with the statements made above, and if not, stating the respects
in which it does not agree. The Company will file such letter by amendment once the letter is available.
During the years
ended October 31, 2013 and 2012 and the subsequent interim period prior to Dominic Chan’s appointment, neither the Company
nor anyone on its behalf consulted Dominic Chan regarding either (i) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial
statements, and either a written report was provided to the Company or oral advice was provided that Dominic Chan concluded was
an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue;
or (ii) any matter that was either the subject of a “disagreement” or a “reportable event” as described
above.
ITEM 16G. |
CORPORATE GOVERNANCE |
Pursuant to the home country rule exemption
set forth under Nasdaq Listing Rule 5615, we elected to be exempt from the requirement under NASDAQ Listing Rule 5635 to obtain
shareholder approval of a business combination. Except for the foregoing, there are no material differences in the Company’s
corporate governance practices from those of U.S. domestic companies under the listing standards of the NASDAQ.
ITEM 16H. |
MINE SAFETY DISCLOSURE |
Not applicable.
PART III
ITEM 17. |
FINANCIAL STATEMENTS |
We have elected to provide financial statements pursuant to Item
18.
ITEM 18. |
FINANCIAL STATEMENTS |
The financial statements are filed as part
of this report beginning on page F-1.
The list of exhibits in the Exhibit Index to this report is incorporated
herein by reference.
SIGNATURE
The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
Date: November 17, 2015 |
DELTA TECHNOLOGY HOLDINGS LIMITED |
|
|
|
/s/ Xin Chao |
|
Xin Chao |
|
Chief Executive Officer and Chairman |
DELTA TECHNOLOGY HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered
Public Accounting Firm
| To: | The Board of Directors
and Shareholders of
Delta Technology Holdings Limited |
We have audited the accompanying consolidated
balance sheets of Delta Technology Holdings Limited and its subsidiaries (collectively, the “Company”) as of June
30, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash
flows for each of the years ended June 30, 2015 and 2014. These consolidated financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2015 and
2014, and the results of its operations and comprehensive income, and its cash flows for each of the years ended June 30, 2015
and 2014 in conformity with accounting principles generally accepted in the United States of America.
/s/ Dominic K.F. Chan & Co
Dominic K.F. Chan & Co
Certified Public Accountants
Hong Kong, November 16, 2015
DELTA TECHNOLOGY HOLDINGS LIMITED
Consolidated Balance
Sheets
as at June 30, 2015
and 2014
| |
2015 | | |
2014 | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 217,612 | | |
$ | 9,045,950 | |
Restricted cash | |
| 26,552,715 | | |
| 22,855,107 | |
Trade and other receivables | |
| 120,374,988 | | |
| 77,745,875 | |
Inventories | |
| 9,751,596 | | |
| 14,062,567 | |
| |
| 156,896,911 | | |
| 123,709,499 | |
| |
| | | |
| | |
Non-current assets | |
| | | |
| | |
Property, plant and equipment | |
| 65,260,454 | | |
| 76,439,788 | |
Land use rights | |
| 2,833,833 | | |
| 5,724,636 | |
Deferred tax assets | |
| 733,588 | | |
| 657,377 | |
| |
| 68,827,875 | | |
| 82,821,801 | |
| |
| | | |
| | |
Total assets | |
$ | 225,724,786 | | |
$ | 206,531,300 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Trade and other payables | |
$ | 45,279,369 | | |
$ | 35,850,810 | |
Advances from customers | |
| 2,233,691 | | |
| 1,776,624 | |
Due to a shareholder | |
| - | | |
| 2,857,432 | |
Bank borrowings | |
| 73,986,211 | | |
| 81,377,050 | |
Income tax payables | |
| 962,072 | | |
| 814,051 | |
Deferred tax liabilities | |
| 1,948,948 | | |
| 1,020,209 | |
Dividend payable | |
| 35,000,000 | | |
| - | |
Warrants liabilities | |
| 7,906,529 | | |
| - | |
Convertible bonds - current portion | |
| - | | |
| 27,375,750 | |
| |
| 167,316,820 | | |
| 151,071,926 | |
Total liabilities | |
$ | 167,316,820 | | |
$ | 151,071,926 | |
| |
| | | |
| | |
Capital and reserves | |
| | | |
| | |
Ordinary shares, $0.0001 par value per share, 150,000,000 shares authorized 8,720,994 and 6,897,059 shares issued and outstanding at June 30, 2015 and June 30, 2014 respectively | |
$ | 872 | | |
$ | 456 | |
Preferred shares, par value $0.0001 per share, 5,000,000 shares authorized; none issued or outstanding | |
| - | | |
| - | |
Additional paid-in capital | |
| 41,427,773 | | |
| 8,852,257 | |
Statutory reserves | |
| 7,180,500 | | |
| 6,196,949 | |
Retained earnings | |
| (206,982 | ) | |
| 34,370,050 | |
Accumulated other comprehensive income | |
| 10,005,803 | | |
| 6,039,662 | |
Total equity | |
| 58,407,966 | | |
| 55,459,374 | |
| |
| | | |
| | |
Total liabilities and equity | |
$ | 225,724,786 | | |
$ | 206,531,300 | |
See notes to consolidated financial statements.
DELTA TECHNOLOGY HOLDINGS LIMITED
Consolidated Statements
of Operations and Comprehensive Income
as at June 30, 2015
and 2014
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenue | |
$ | 202,009,160 | | |
$ | 175,327,717 | |
Cost of sales | |
| (182,692,715 | ) | |
| (157,904,729 | ) |
Gross profit | |
| 19,316,445 | | |
| 17,422,988 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Selling expenses | |
| (2,384,459 | ) | |
| (2,306,021 | ) |
General and administrative expenses | |
| (4,673,582 | ) | |
| (3,482,027 | ) |
Total operating expenses | |
| (7,058,041 | ) | |
| (5,788,048 | ) |
| |
| | | |
| | |
Other income (expenses): | |
| | | |
| | |
Interest expenses | |
| (5,295,616 | ) | |
| (4,000,626 | ) |
Interest income | |
| 5,433,346 | | |
| 1,948,743 | |
Change in fair value of convertible bonds | |
| - | | |
| (156,199 | ) |
Change in fair value of warrants | |
| (7,906,529 | ) | |
| - | |
Gain on disposal of a subsidiary | |
| 1,178,093 | | |
| - | |
Other (loss) / gain - net | |
| (531,941 | ) | |
| 7,929 | |
Total other expenses | |
| (7,122,647 | ) | |
| (2,200,153 | ) |
| |
| | | |
| | |
Income before income taxes | |
| 5,135,757 | | |
| 9,434,787 | |
| |
| | | |
| | |
Income taxes | |
| (3,729,238 | ) | |
| (2,606,479 | ) |
| |
| | | |
| | |
Net income | |
$ | 1,406,519 | | |
$ | 6,828,308 | |
| |
| | | |
| | |
Other comprehensive income | |
| | | |
| | |
Foreign currency translation adjustments | |
| 3,966,141 | | |
| 316,439 | |
Total other comprehensive income | |
| 3,966,141 | | |
| 316,439 | |
| |
| | | |
| | |
Comprehensive income | |
$ | 5,372,660 | | |
$ | 7,144,747 | |
| |
| | | |
| | |
Earnings per share attributable to equity holders of the Company | |
| | | |
| | |
- Basic | |
$ | 1.44 | | |
$ | 1.53 | |
- Diluted | |
$ | 1.44 | | |
$ | 1.53 | |
| |
| | | |
| | |
Weighted average shares used in calculating earnings per ordinary share | |
| | | |
| | |
- Basic | |
| 6,462,577 | | |
| 4,560,000 | |
- Diluted | |
| 6,462,577 | | |
| 4,560,000 | |
See notes to consolidated financial statements.
DELTA TECHNOLOGY HOLDINGS LIMITED
Consolidated Statements
of Shareholders’ Equity
as at June 30, 2015
and 2014
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
| | |
| | |
Additional | | |
| | |
| | |
other | | |
| |
| |
Share capital | | |
paid-in | | |
Statutory | | |
Retained | | |
comprehensive | | |
| |
| |
Ordinary share | | |
Amount | | |
capital | | |
reserves | | |
earnings | | |
income | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance as of July 1, 2013 | |
| 4,560,000 | | |
$ | 456 | | |
$ | 8,852,257 | | |
$ | 3,219,995 | | |
$ | 30,518,696 | | |
$ | 5,723,223 | | |
$ | 48,314,627 | |
Net income for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,828,308 | | |
| - | | |
| 6,828,308 | |
Appropriation to statutory reserves | |
| - | | |
| - | | |
| - | | |
| 2,976,954 | | |
| (2,976,954 | ) | |
| - | | |
| - | |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 316,439 | | |
| 316,439 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of June 30, 2014 | |
| 4,560,000 | | |
$ | 456 | | |
$ | 8,852,257 | | |
$ | 6,196,949 | | |
$ | 34,370,050 | | |
$ | 6,039,662 | | |
$ | 55,459,374 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of July 1, 2014 | |
| 4,560,000 | | |
$ | 456 | | |
$ | 8,852,257 | | |
$ | 6,196,949 | | |
$ | 34,370,050 | | |
$ | 6,039,662 | | |
$ | 55,459,374 | |
Dividends proposed | |
| - | | |
| - | | |
| - | | |
| - | | |
| (35,000,000 | ) | |
| (35,000,000 | ) | |
| | |
Reverse acquisition | |
| 2,337,059 | | |
| 234 | | |
| 32,575,516 | | |
| - | | |
| - | | |
| - | | |
| 32,575,750 | |
Exercise of warrants | |
| 1,823,935 | | |
| 182 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 182 | |
Net income for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,406,519 | | |
| - | | |
| 1,406,519 | |
Appropriation to statutory reserves | |
| - | | |
| - | | |
| - | | |
| 983,551 | | |
| (983,551 | ) | |
| - | | |
| - | |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,966,141 | | |
| 3,966,141 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of June 30, 2015 | |
| 8,720,994 | | |
$ | 872 | | |
$ | 41,427,773 | | |
$ | 7,180,500 | | |
$ | (206,982 | ) | |
$ | 10,005,803 | | |
$ | 58,407,966 | |
See notes to consolidated financial statements.
DELTA TECHNOLOGY HOLDINGS LIMITED
Consolidated Statements
of Cash Flows
as at June 30, 2015
and 2014
| |
2015 | | |
2014 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 1,406,519 | | |
$ | 6,828,308 | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |
| | | |
| | |
Change in fair value of warrants | |
| 7,906,529 | | |
| - | |
Change in fair value of convertible bonds | |
| - | | |
| 156,199 | |
Depreciation of property, plant and equipment | |
| 6,452,324 | | |
| 4,816,403 | |
Amortization of land use rights | |
| 79,353 | | |
| 41,600 | |
Gain on disposal of a subsidiary | |
| (1,178,093 | ) | |
| - | |
| |
| | | |
| | |
Gain on disposals of property, plant and equipment | |
| (14,002 | ) | |
| (113.953 | ) |
Deferred income taxes | |
| 848,541 | | |
| 822,200 | |
Allowance for doubtful accounts | |
| 1,199,110 | | |
| 177,179 | |
Changes in assets and liabilities, net of effects of acquisitions: | |
| | | |
| | |
Trade and other receivables | |
| (46,117,191 | ) | |
| (16,343,386 | ) |
Inventories | |
| 4,290,812 | | |
| (191,049 | ) |
Trade and other payables | |
| 9,384,469 | | |
| 8,428,337 | |
Advances from customers | |
| 454,930 | | |
| (665,038 | ) |
Income tax payables | |
| 147,329 | | |
| (91,200 | ) |
Net cash (used in) provided by operating activities | |
| (15,139,370 | ) | |
| 3,865,600 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Acquisitions of | |
| | | |
| | |
- Land use rights | |
| (5,695 | ) | |
| (478,184 | ) |
- Property, plant and equipment | |
| (4,154,726 | ) | |
| (23,957,404 | ) |
Disposals of property and equipment | |
| 8,829,460 | | |
| 359,012 | |
Proceeds from disposal of a subsidiary | |
| 10,518,189 | | |
| - | |
Net cash provided by (used in) investing activities | |
| 15,187,228 | | |
| (24,076,576 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Cash received from capital contribution | |
| 5,210,000 | | |
| - | |
Proceeds from bank borrowings | |
| 52,751,379 | | |
| 129,232,006 | |
Repayment of bank borrowings | |
| (60,142,218 | ) | |
| (108,797,261 | ) |
Due to a shareholder | |
| (2,844,070 | ) | |
| 2,857,432 | |
Change in restricted cash | |
| (3,680,317 | ) | |
| 2,011,673 | |
Net cash (used in) provided by financing activities | |
| (8,705,226 | ) | |
| 25,303,850 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (170,970 | ) | |
| 6,941 | |
| |
| | | |
| | |
(Decrease) increase in cash and cash equivalents | |
| (8,828,338 | ) | |
| 5,099,815 | |
| |
| | | |
| | |
Cash and cash equivalents at beginning of year | |
| 9,045,950 | | |
| 3,946,135 | |
| |
| | | |
| | |
Cash and cash equivalents at end of year | |
$ | 217,612 | | |
$ | 9,045,950 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Interest paid | |
$ | 5,433,346 | | |
$ | 2,240,872 | |
Tax paid | |
$ | 2,693,055 | | |
$ | 5,109,044 | |
| |
| | | |
| | |
Major non cash transactions: | |
| | | |
| | |
Warrant exercise | |
$ | 182 | | |
$ | - | |
See notes to consolidated financial statements.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 1 - Organization and Business Operations
Delta Technology Holdings Limited (formerly known as CIS Acquisition
Limited, the “Company,” or “Delta Technology,” or “we”) was formed on November 28, 2011, under
the laws of the British Virgin Islands. We were formed to acquire, through a merger, stock exchange, asset acquisition, stock
purchase or similar acquisition transaction, one or more operating businesses. Although we were not limited to a particular geographic
region or industry, we intended to focus on operating businesses with primary operations in Russia and Eastern Europe. We are
an emerging growth company, as defined in the Jumpstart Our Business Startups Act.
On December 21, 2012, our IPO of 4,000,000 units was consummated
at a public offering price of $10.00 per unit, generating gross proceeds of $40,000,000. Each unit consists of one callable Class
A Share, par value $0.0001 per share, and one redeemable warrant. Each redeemable warrant included in the units entitles the holder
to purchase one ordinary share at a price of $10.00. Immediately prior to the consummation of the IPO, we completed a private
placement of 4,500,000 warrants at a price of $0.75 per warrant, for an aggregate purchase price of $3,375,000, to our founding
shareholders and their designees. We sold to the underwriters of the IPO, as additional compensation, an aggregate of 136,000
Class A Shares for $2,720. A total of $41,600,000, which included a portion of the $3,375,000 of proceeds from the private placement
of warrants to the founding shareholders and their designees, was placed in trust (the “Trust Account”) pending the
completion of our initial acquisition transaction. On March 18, 2012, the ordinary shares and warrants underlying the units sold
in the IPO began to trade separately.
On September 16, 2014, a Stock Purchase Agreement (the “Purchase
Agreement”) was entered into by and among Delta Technology, Elite Ride Limited, a British Virgin Islands corporation (“Elite”),
Delta Advanced Materials Limited, a Hong Kong corporation (“Delta”) and the shareholders of Elite (the “Elite
Shareholders”). Upon closing of the Purchase Agreement on September 19, 2014, Delta Technology acquired all of the shares
of Elite from Elite Shareholders in exchange for the issuance to Elite Shareholders an aggregate of 6,060,000 ordinary shares,
of which 4,560,000 shares were issued at closing and 1,500,000 shares (“Earnout Payment Shares”) are held in escrow
and will be released upon meeting of certain performance targets as specified in the Purchase Agreement (the “Acquisition”).
The Earnout Payment Shares, if any, will be issued as follows:
(a) 500,000 shares shall be issued if the Company achieves Adjusted Net Income (as defined in the stock purchase agreement) of
at least $8 million for the period starting July 1, 2014 and ending June 30, 2015; (b) 500,000 shares shall be issued if the Company
achieves Adjusted Net Income of at least $9.2 million for the period starting July 1, 2015 and ending June 30, 2016; (c) 500,000
shares shall be issued if the Company achieves Adjusted Net Income of at least $10.6 million for the period starting July 1, 2016
and ending June 30, 2017 (collectively, the “Net Income Targets”). Further, during the thirteen (13) months post-closing,
all material acquisitions made by the Company must be accretive to Company earnings. The Net Income Targets are to be met on an
all-or-nothing basis, and there shall be no partial awards..
As a result of the consummation of the Acquisition, Elite is
now our wholly subsidiary. Elite was incorporated under British Virgin Islands law on September 13, 2014 solely in contemplation
of the Acquisition. It is currently the holding company of all the shares of Delta Advanced Materials Limited, a Hong Kong corporation
(“Delta”), which, in turn, holds all the equity interests in four operating subsidiaries in the PRC: Jiangsu Yangtze
Delta Fine Chemical Co., Ltd (“Jiangsu Delta”), Jiangsu Zhengxin New Material Research and Development Co., Ltd (“Jiangsu
Zhengxin”), Jiangsu Delta Logistics Co., Ltd (“Jiangsu Logistics”), and Binhai Deda Chemical Co., Ltd (“Binhai
Deda”) (collectively, the “PRC Subsidiaries”).
The Acquisition was accounted for as a reverse acquisition
in accordance with US GAAP. Under this method of accounting, Delta Technology was treated as the “acquired” company
for financial reporting purposes. This determination was primarily based on Elite comprising the ongoing operations of the combined
entity, Elite senior management comprising the senior management of the combined company, and the former holders of Elite having
a controlling interest in terms of the voting power of the combined entity. In accordance with guidance applicable to these circumstances,
the Acquisition was considered to be a capital transaction in substance. Accordingly, for accounting purposes, the Acquisition
was treated as the equivalent of Elite issuing stock for the net assets of Delta Technology, accompanied by a recapitalization.
The net assets of Delta Technology will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations
prior to the Acquisition will be those of Elite.
Delta (formerly known as China Deltachem Holdings
Limited) was incorporated in Hong Kong on June 17, 2010. The address of its registered office is Suite D, 19th Floor, Ritz
Plaza, 122 Austin Road, Hong Kong. The reporting currency of Delta is the United States Dollar (“$”).The
principal activity of Delta is investment holding andcurrently operates four wholly-owned subsidiaries in the People’s
Republic of China (“PRC”): Jiangsu Delta, Jiangsu Zhengxin R&D, Jiangsu Logistics, and Binhai Deda. Jiangsu
Delta is the principal operating subsidiary of the Company and is engaged in the production of fine specialty chemicals.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 1 - Organization and Business Operations (Continued)
On June 15, 2007, Jiangsu Delta was established by S&S
International Investment Holding (HK) Limited (“S&S International”), a Hong Kong based investment holding company,
as a wholly foreign-owned enterprise (with an initial registered capital of US$42 million, which was later reduced to US$ 28.8
million) located in Zhenjiang City, Jiangsu Province, the PRC.
Pursuant to a share transfer agreement entered into on April
13, 2008, Mr. Xin Chao acquired the entire equity interest in Jiangsu Delta from S&S International through Zhengxin International
Investment Limited, a Hong Kong corporation (“Zhengxin International”) and became the controller of Jiangsu Delta
since then. On May 21, 2008, the acquisition of Jiangsu Delta by Zhengxin International was approved by the Jiangsu Foreign Trade
and Economic Cooperation Department in accordance with “The Approval of Alteration of Equities in and Amendment of the Articles
of Association of Jiangsu Yantze River Delta Fine Chemical Co, Ltd.” issued by the same authority.
Due to the corporate restructuring effort to consolidate the
business of Jiangsu Delta under a pure investment holding entity, pursuant to a sale and purchase agreement dated May 20, 2010,
Delta Advanced for a consideration of US$28.8 million. Delta Advanced, formerly known as China Deltachem Holdings Limited, as
a pure investment holding vehicle controlled by Mr. Chao and had an initial issued and paid-up share capital of HK$10,000 comprising
10,000 shares of HK$1.00 each. The said shares were issued at a total subscription price of HK$68,640,000 (equivalent to $8,800,000)
with a premium of HK$6,863 per share.
On August 30, 2010, the acquisition of Jiangsu Delta by Delta
Advanced was approved by the Jiangsu Foreign Trade and Economic Cooperation Department in accordance with “The Approval
of Share Transfer of and Amendment of the Articles of Association of Jiangsu Chang San Jiao Chemical Co., Ltd.” issued by
the same authority.
On May 26, 2011, Delta Advanced carried out a bonus share issue,
whereby an additional 39,990,000 ordinary shares of Delta Advanced were allotted and issued as bonus shares at a price of HK$1.00
each to all the then shareholders of Delta Advanced at the ratio in proportion to their existing shareholding percentage, and
credited as fully paid up on a capitalization of the reserve of HK$39,990,000 from the capital reserve of Delta Advanced. Subsequent
to the bonus issue, Delta Advanced’s total issued and paid-up share capital increases to HK$40 million, comprising 40 million
shares of HK$1.00 each.
Delta Advanced entered into a series of Securities Purchase
Agreements dated January 31, 2011, May 16, 2011 and June 30, 2011, respectively, with the funds managed by Korea Investment Partners
Co. Ltd. And Kleiner, Perkins, Caufield & Byers (the “Bondholders”), pursuant to which it has issued convertible
bonds (“Convertible Bonds”) for an aggregate principal amount of US$18 million. The Convertible Bonds have an interest
rate of 6.00% per annum and a guaranteed interest rate at maturity of 15.00%. The principal and interests accrued on such Convertible
Notes are convertible in whole or in part into the ordinary shares in Delta Advanced, on such terms and subject to the conditions
of the Securities Purchase Agreements.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial
statements include the financial statements of the Company, and its wholly-owned subsidiaries. All intercompany accounts,
transactions, and profits have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and 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. Actual results could materially
differ from those estimates.
Segment Reporting
The Company operates in one business and geographical segment
of manufacturing and sales of organic compounds in the PRC. ASC 280, Segment Reporting, establishes standards for reporting
information about operating segments. Given the economic characteristics of the similar nature of the products sold, the type
of customer and the method of distribution, the Company operates as one reportable segment as defined by ASC 280, Segment Reporting.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Foreign Currency Translation
The Company’s financial statements are presented in the
U.S. dollar ($), which is the Company’s reporting currency and functional currency. The Company’s subsidiaries in
the PRC use Renminbi (“RMB”) as their functional currencies. Transactions in foreign currencies are initially recorded
at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the
settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary
assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the
balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements
of income.
In accordance with ASC 830, Foreign Currency Matters, the Company
translated the assets and liabilities into US $ using the rate of exchange prevailing at the applicable balance sheet
date and the statements of income and cash flows are translated at an average rate during the reporting period. Adjustments
resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income.
Revenue Recognition
Revenue principally represents organic compound sale revenue.
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the
Company’s activities and is recorded net of value added tax (“VAT”). Consistent with the criteria of ASC 605
“Revenue Recognition” (“ASC 605”), the Company recognizes revenue when the following four revenue recognition
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided,
(iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue from the sale of goods is recognized upon delivery
when the significant risks and rewards of ownership of goods have transferred t the buyer, continuing managerial involvement usually
associated with ownership and effective control have ceased and the coasts incurred or to be incurred in respect of the transaction
can be measured reliably.
Interest income is recognized on a time-proportion basis using
the effective interest method.
Borrowing Costs
Borrowing costs are recognised in profit or loss using the
effective interest method except for those costs that are directly attributable to assets under construction. Borrowing costs
on general borrowings are capitalised by applying a capitalization rate to construction or expenditures that are financed by general
borrowings. Borrowing costs on general financing during the years ended June 30, 2015 and 2014 were capitalized at a rate of 7.11%,
and 7.11% respectively.
Leases
The Company accounts for its leases under the provisions of
ASC 840, Leases. Certain of the Company’s operating leases provide for minimum annual payments that change over the life
of the lease. The aggregate minimum annual payments are expensed on the straight-line basis over the minimum lease term. The Company
recognizes a deferred rent liability for minimum step rents when the amount of rent expense exceeds the actual lease payments
and it reduces the deferred rent liability when the actual lease payments exceeds the amount of straight-line rent expense. Rent
holidays and tenant improvement allowances for store remodels are amortized on the straight-line basis over the initial term of
the lease and any option period that is reasonably assured of being exercised.
Restricted Cash
Restricted cash are cash deposited in fixed deposit accounts
maintained in the PRC and Hong Kong for the purpose of securing bank borrowings.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Trade Receivables
Trade receivables are recorded at the invoiced amount and do
not bear interest. The Company extends unsecured credit to its customers inthe ordinary course of business but mitigates the associated
risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and
determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s
current credit worthiness and the economic environment.
Inventories
Inventories are carried at the lower of cost and net realizable
value. Cost is determined using the monthly average cost method, except for materials-in-transit. The cost of finished goods comprises
raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity) but excludes
costs of idle plant and abnormal waste. Net realizable value is the estimated selling price in the ordinary course of business,
less the applicable variable selling expenses.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. The cost
of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable
to bringing the asset to the location and condition necessary for it to be capable of operating the manner intended by management.
Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs are charged to
expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows:
Buildings |
|
10 or 20 years |
Machinery |
|
10 or 20 years |
Vehicles |
|
4 years |
Plant and equipment |
|
3 to 5 years |
Software |
|
5 years |
Construction in progress represents buildings and related premises
under construction, which is stated at actual construction cost less any impairment loss. Construction in progress is transferred
to the respective category of property and equipment when completed and ready for its intended use.
Costs of repairs and maintenance are expensed as incurred and
asset improvements are capitalized. The cost and related accumulated depreciation and amortization of assets disposed of or retired
are removed from the accounts, and any resulting gain or loss is reflected in the consolidated income statements.
Land Use Rights
According to the laws of the PRC, the government owns all the
land in the PRC. Companies or individuals are authorized to possess and use the land only through the land use rights
granted by the government. The land use rights represent cost of the rights to use the land in respect of properties located
in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 to 52 years.
Long-lived Assets
The Company reviews long-lived assets for impairment annually
or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets are reviewed for recoverability at the lowest
level in which there are identifiable cash flows, usually at the store level. The carrying amount of a long-lived asset is not
considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. If the
asset is determined not to be recoverable, then it is considered to be impaired and the impairment to be recognized is the amount
by which the carrying amount of the asset exceeds the fair value of the asset, determined using discounted cash flow valuation
techniques, as defined in ASC 360, Property, Plant, and Equipment.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Long-lived Assets (Continued)
The Company determined the sum of the undiscounted cash flows
expected to result from the use of the asset by projecting future revenue and operating expense for each store under consideration
for impairment. The estimates of future cash flows involve management judgment and are based upon assumptions about expected future
operating performance. The actual cash flows could differ from management’s estimates due to changes in business conditions,
operating performance and economic conditions.
The Company’s evaluation resulted in no long-lived asset
impairment charges during the years ended June 30, 2015 and 2014.
Goodwill
The Company allocates goodwill to reporting units based on
the reporting unit expected to benefit from the business combination. The Company evaluatestheir reporting units on an annual
basis and, if necessary, reassigns goodwill using a relative fair value allocation approach. Goodwill is tested for impairment
at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include
a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition
of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment,
including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill
to reporting units, and determination of the fair value of each reporting unit. The Company first assesses qualitative factors
to determine whether it is more likely than not that goodwill is impaired. If the more likely than not threshold is met, we perform
a quantitative impairment test. The Company’s evaluation resulted in goodwill impairment charges of nil during the years
ended June 30, 2015 and 2014.
Accrual and Disclosure of Loss Contingencies
We determine whether to disclose or accrue for loss contingencies
based on an assessment of whether the risk of loss is remote, reasonably possible or probable, and whether it can be reasonably
estimated. We analyze, if any, our litigation and regulatory matters based on available information to assess the potential liabilities.
Our assessment is developed based on an analysis of possible outcomes under various strategies. We accrue for loss contingencies
when such amounts are probable and reasonably estimable. If a contingent liability is only reasonably possible, we will disclose
the potential range of the loss, if estimable. We record losses related to contingencies in cost of operations or selling, general
and administrative expenses, depending on the nature of the underlying transaction leading to the loss contingency.
Convertible bonds
Convertible bonds are presented as current liabilities unless
the Group has an unconditional right to defer settlement for at least 12 months after the balance sheet date, in which case they
are presented as non-current liabilities. On issuance of convertible foreign currency bonds, the proceeds from convertible bonds
issued are allocated to the liability component presented on the balance sheet. The liability component including the conversion
option is recognised initially at its fair value, determined using the Binomial Valuation Model. It is subsequently carried at
its fair value with fair value changes recognised in profit or loss. When the conversion option is exercised, the carrying amount
of the liability component is derecognised with a corresponding recognition of share capital.
Retirement Benefit Plans
Full time employees of the Company in the PRC participate in
a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund
and other welfare benefits are provided to employees. Chinese labor regulations require the Company to make contributions to the
government for these benefits based on certain percentages of the employees’ salaries. The Company accounts the mandated
defined contribution plan under the vested benefit obligations approach based on the guidance of ASC 715, Compensation—Retirement
Benefits.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Retained Earnings - Appropriated
The income of the Company’s PRC subsidiaries is distributable
to their shareholder after transfer to reserves as required by relevant PRC laws and regulations and the subsidiary’s Articles
of Association. As stipulated by the relevant laws and regulations in the PRC, these PRC subsidiaries are required
to maintain reserves which are non-distributable to shareholders. Appropriations to the reserves are approved by the respective
boards of directors.
Reserves include statutory reserves and discretionary reserves. Statutory
reserves can be used to make good previous years’ losses, if any, and may be converted into capital in proportion to the
existing equity interests of shareholders, provided that the balance after such conversion is not less than 25% of the registered
capital. The appropriation to the statutory reserves must not be less than 10% of net profit after taxation. Such
appropriation may cease to apply if the balance of the fund is equal to 50% of the entity’s registered capital.
Research and Development Costs
Research and development costs are expensed as incurred. The
research and development costs were not material for the years ended June 30, 2015 and 2014.
Advertising Expenses
Advertising expenses are expensed as incurred. The advertising
expenses were not material for the years ended June 30, 2015 and 2014.
Income Taxes
The Company follows ASC 740, Income Taxes, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to
be realized.
The Company adopted ASC 740-10-25, which provides criteria
for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
resolution. The Company did not recognize any additional liabilities for uncertain tax positions as a result of the implementation
of ASC 740-10-25.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments
that are readily convertible to known amounts of cash and have original maturities of three months or less to be cash equivalents.
Share Based Payment
The Group operates an equity-settled, share based compensation
plan. The value of the brokerage services received by Red Horse Capital Inc. in exchange for grant of warrants is recognised as
an expense with a corresponding increase in the additional paid-in capital of approximately $7,943 during the year ended June
30, 2011.
Goods and services received or acquired in an equity-settled
share based payment transaction, which do not qualify for recognition as assets, are recognised as expenses with a corresponding
increase in equity. The Company measures the goods and services received at fair value of the goods and services received, unless
that fair value cannot be estimated reliably.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Comprehensive Income
The Company has adopted FASB Accounting Standard Codification
Topic 220 (“ASC 220”) “Comprehensive income” (formerly known as SFAS No. 130, “Reporting Comprehensive
Income”), which establishes standards for reporting and display of comprehensive income, its components and accumulated
balances. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments
of the Company.
Fair Value Measurements
ASC 820 defines fair value as the price that would be received
from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value,
the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market
participants would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy that requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
| · | Level 1 –
Valuations based on unadjusted quoted prices in active markets for identical assets or
liabilities that the Company holds. An active market for the asset or liability is a
market in which transactions for the asset or liability occur with sufficient frequency
and volume to provide pricing information on an ongoing basis. |
| · | Level 2 –
Valuation based on quoted prices in markets that are not active for which all significant
inputs are observable, either directly or indirectly. |
| · | Level 3 –
Valuations based on inputs that are unobservable and significant to the overall fair
value measurement. |
The Company adopted ASC 820, Fair Value Measurements and Disclosures,
on January 1, 2008 for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). ASC 820 defines fair
value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company has
also adopted ASC 820, on January 1, 2009 for non financial assets and non financial liabilities, as these items are not recognized
at fair value on a recurring basis. The adoption of ASC 820 for all financial assets and liabilities and non-financial assets
and non-financial liabilities did not have any impact on the Company’s consolidated financial statements.
Financial instruments include cash, accounts receivable, prepayments
and other receivables, short-term borrowings from banks, accounts payable and accrued expenses and other payables. The carrying
amounts of cash, accounts receivable, prepayments and other receivables, short-term loans, accounts payable and accrued expenses
approximate their fair value due to the short term maturities of these instruments. See footnote 10 regarding the fair value of
the Company’s warrants, which are classified as Level 3 liabilities in the fair value hierarchy.
The fair values of the convertible bonds are determined using
Binomial Valuation Model.
The fair values of current financial assets and liabilities
carried at amortized cost approximate their carrying amounts.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Guidance
The FASB has issued Accounting Standards
Update (ASU) No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items.
The FASB issued this ASU as part of its initiative to reduce
complexity in accounting standards. The objective of the simplification initiative is to identify, evaluate, and improve areas
of U.S. GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided
to the users of financial statements.
This ASU eliminates from U.S. GAAP the concept of extraordinary
items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present,
and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual
activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item.
If an event or transaction meets the criteria for extraordinary
classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the
item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose
applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.
The FASB heard from stakeholders that the concept of extraordinary
items causes uncertainty because it is unclear when an item should be considered both unusual and infrequent. Additionally, some
stakeholders said that although users find information about unusual or infrequent events and transactions useful, they do not
find the extraordinary item classification and presentation necessary to identify those events and transactions. Other stakeholders
noted that it is extremely rare in current practice for a transaction or event to meet the requirements to be presented as an
extraordinary item.
This ASU will also align more closely U.S. GAAP income statement
presentation guidance with IAS 1, Presentation of Financial Statements, which prohibits the presentation and disclosure of extraordinary
items.
The amendments in this ASU are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments
prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial
statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.
The effective date is the same for both public business entities and all other entities.
The FASB has issued an Accounting Standards Update (ASU) No.
2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation
guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized
debt obligations, collateralized loan obligations, and mortgage-backed security transactions).
The ASU focuses on the consolidation evaluation for reporting
organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should
consolidate certain legal entities.
In addition to reducing the number of consolidation models
from four to two, the new standard simplifies the FASB Accounting Standards Codification™ and improves current GAAP by:
-Placing more emphasis on risk of loss when determining a controlling
financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely
on its fee arrangement, when certain criteria are met.
-Reducing the frequency of the application of related-party
guidance when determining a controlling financial interest in a variable interest entity (VIE).
-Changing consolidation conclusions for public and private
companies in several industries that typically make use of limited partnerships or VIEs.
The ASU will be effective for periods beginning after December
15, 2015, for public companies. For private companies and not-for-profit organizations, the ASU will be effective for annual periods
beginning after December 15, 2016; and for interim periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in an interim period.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Guidance
The FASB has issued Accounting Standards Update (ASU) No. 2015-03,
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this
ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for
debt issuance costs are not affected by the amendments in this ASU.
For public business entities, the amendments are effective
for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December
15, 2015, and interim periods within fiscal years beginning after December 15, 2016.
Early adoption of the amendments is permitted for financial
statements that have not been previously issued.
The amendments should be applied on a retrospective basis,
wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying
the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting
principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a
description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial
statement line items (i.e., debt issuance cost asset and the debt liability).
The FASB has issued Accounting Standards Update (ASU) No. 2015-04,
Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit
Obligation and Plan Assets. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this
ASU provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end
that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical
expedient should be applied consistently to all plans if an entity has more than one plan. Employee benefit plans are not within
the scope of the amendments.
If a contribution or significant event (such as a plan amendment,
settlement, or curtailment that calls for a remeasurement in accordance with existing requirements) occurs between the month-end
date used to measure defined benefit plan assets and obligations and an entity’s fiscal year-end, the entity should adjust
the measurement of defined benefit plan assets and obligations to reflect the effects of those contributions or significant events.
However, an entity should not adjust the measurement of defined benefit plan assets and obligations for other events that occur
between the month-end measurement and the entity’s fiscal year-end that are not caused by the entity (e.g., changes in market
prices or interest rates).
If an entity applies the practical expedient and a contribution
is made between the month-end date used to measure defined benefit plan assets and obligations and the entity’s fiscal year-end,
the entity should not adjust the fair value of each class of plan assets for the effects of the contribution. Instead, the entity
should disclose the amount of the contribution to permit reconciliation of the total fair value of all the classes of plan assets
in the fair value hierarchy to the ending balance of the fair value of plan assets.
An entity is required to disclose the accounting policy election
and the date used to measure defined benefit plan assets and obligations in accordance with the amendments in this ASU.
The amendments are effective for public business entities for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December
15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. The amendments
should be applied prospectively.
IFRS does not have a practical expedient that permits an entity
to measure defined benefit plan assets and obligations as of the month-end that is closest to the entity’s fiscal year-end
(or the month-end that is closest to the date of a significant event that occurred in an interim period), whereas the amendments
in this Update provide that practical expedient.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Guidance
The FASB has issued Accounting Standards Update No. 2015-05,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud
Computing Arrangement. Existing GAAP does not include explicit guidance about a customer’s accounting for fees paid in a
cloud computing arrangement. Examples of cloud computing arrangements include: (a) software as a service; (b) platform as a service;
(c) infrastructure as a service; and (d) other similar hosting arrangements.
The amendments add guidance to Subtopic 350-40, Intangibles
- Goodwill and Other - Internal-Use Software, which will help entities evaluate the accounting for fees paid by a customer in
a cloud computing arrangement. The guidance already exists in the FASB Accounting Standards Codification™ in paragraphs
985-605-55-121 through 55-123, but it is included in a Subtopic applied by cloud service providers to determine whether an arrangement
includes the sale or license of software.
The amendments provide guidance to customers about whether
a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then
the customer should account for the software license element of the arrangement consistent with the acquisition of other software
licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement
as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As
a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other
licenses of intangible assets.
For public business entities, the amendments will be effective
for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities,
the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning
after December 15, 2016. Early adoption is permitted for all entities.
An entity can elect to adopt the amendments either: (1) prospectively
to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition,
the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition
method, and a qualitative description of the financial statement line items affected by the change. For retrospective transition,
the disclosure requirements at transition include the requirements for prospective transition and quantitative information about
the effects of the accounting change.
The FASB has issued ASU No. 2015-06, Earnings Per Share (Topic
260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (a consensus of the FASB Emerging
Issues Task Force). The amendments apply to master limited partnerships subject to the Master Limited Partnerships Subsections
of Topic 260, Earnings per Share, that receive net assets through a dropdown transaction.
The amendments specify that for purposes of calculating historical
earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction
should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited
partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result
of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the
dropdown transaction occurs for purposes of computing earnings per unit under the two-class method also are required.
Current GAAP does not contain guidance for master limited partnerships
that specifies how historical earnings per unit should be affected when a dropdown transaction occurs that is accounted for as
a transaction between entities under common control.
The amendments are effective for fiscal years beginning after
December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted. The amendments should be applied
retrospectively for all financial statements presented.
The FASB has issued Accounting Standards Update 2015-07, Fair
Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent). The amendments apply to reporting entities that elect to measure the fair value of an investment using the net asset
value per share (or its equivalent) practical expedient.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Guidance
Topic 820, Fair Value Measurement, permits a reporting entity,
as a practical expedient, to measure the fair value of certain investments using the net asset value per share of the investment.
Currently, investments valued using the practical expedient are categorized within the fair value hierarchy on the basis of whether
the investment is redeemable with the investee at net asset value on the measurement date, never redeemable with the investee
at net asset value, or redeemable with the investee at net asset value at a future date. For investments that are redeemable with
the investee at a future date, a reporting entity must consider the length of time until those investments become redeemable to
determine the classification within the fair value hierarchy.
The amendments remove the requirement to categorize within
the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.
The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at
fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which
the entity has elected to measure the fair value using that practical expedient.
The amendments are effective for public business entities for
fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments
are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity
should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for
which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy
in all periods presented in an entity’s financial statements. Earlier application is permitted.
The FASB has issued ASU No. 2015-08, Business Combinations
(Topic 805): Pushdown Accounting-Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115. This ASU amends various
SEC paragraphs of the FASB Accounting Standards CodificationTM pursuant to the issuance of SEC Staff Accounting Bulletin No. 115.
The FASB has issued Accounting Standards Update (ASU) No. 2015-10,
Technical Corrections and Improvements. The amendments cover a wide range of Topics in the FASB Accounting Standards Codification™
(Codification). The amendments generally fall into one of the types of amendments listed below.
1. Amendments Related to Differences between Original Guidance
and the Codification. These amendments arose because of differences between original guidance (e.g., FASB Statements, EITF Issues,
and so forth) and the Codification. These amendments principally carry forward pre-Codification guidance or subsequent amendments
into the Codification. Many times, either the writing style or phrasing of the original guidance did not directly translate into
the Codification format and style. As a result, the meaning of the guidance might have been unintentionally altered. Alternatively,
amendments in this section may relate to guidance that was codified without some text, references, or phrasing that, upon review,
was deemed important to the guidance.
2. Guidance Clarification and Reference Corrections. These
amendments provide clarification through updating wording, correcting references, or a combination of both. In most cases, the
feedback suggested that, without these enhancements, guidance may be misapplied or misinterpreted.
3. Simplification. These amendments streamline or simplify
the Codification through minor structural changes to headings or minor editing of text to improve the usefulness and understandability
of the Codification.
4. Minor Improvements. These amendments improve the guidance
and are not expected to have a significant effect on current accounting practice or create a significant administrative cost to
most entities.
The amendments represent changes to clarify the Codification,
correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant
effect on current accounting practice or create a significant administrative cost to most entities. In addition, some of the amendments
will make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications,
and improving the presentation of guidance in the Codification.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 2 - Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Guidance
Transition guidance varies based on the amendments. The amendments
that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments
will be effective upon issuance.
The FASB has issued Accounting Standards Update (ASU) No, 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory.
Topic 330, Inventory, currently requires an entity to measure
inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less
an approximately normal profit margin.
The amendments do not apply to inventory that is measured using
last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory
that is measured using first-in, first-out (FIFO) or average cost.
An entity should measure in scope inventory at the lower of
cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using
LIFO or the retail inventory method.
The amendments more closely align the measurement of inventory
in GAAP with the measurement of inventory in International Financial Reporting Standards.
For public business entities, the amendments are effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities,
the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning
after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning
of an interim or annual reporting period.
The FASB has issued Accounting Standards Update (ASU) No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all
entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply
the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods
within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15,
2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09
to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning
after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning
after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the
guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods
within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance
in ASU 2014-09.
The Company has considered all new accounting pronouncements
and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition,
or cash flows, based on current information.
Note 3 - Concentration of Credit Risk
The Company maintains cash in bank deposit accounts in PRC
and Hong Kong. The Company performs ongoing evaluations of this institution to limit its concentration risk exposure.
The Company sells organic compound principally in the PRC.
Because of this, the Company is subject to regional risks, such as the economy, regional financial conditions and unemployment,
weather conditions, power outages, and other natural disasters specific to the region in which the Company operates.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 3 - Concentration of Credit Risk
(Continued)
Details of major customers accounting for 10% or more of the
Group’s sales or trade receivables are as follows:
| |
Sales | | |
Trade receivables | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Customer A | |
| 15.7 | % | |
| 5.4 | % | |
| 2.87 | % | |
| 6.8 | % |
Customer B | |
| 7.7 | % | |
| 3.6 | % | |
| 0.00 | % | |
| 2.6 | % |
Customer C | |
| 6.2 | % | |
| 4.7 | % | |
| 9.61 | % | |
| 5.6 | % |
Customer D | |
| 5.6 | % | |
| 2.5 | % | |
| 0.00 | % | |
| 2.0 | % |
Details of suppliers accounting for 10% or more of the Group’s
purchases or trade payables are as follows:
| |
Purchases | | |
Trade payables | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Supplier A | |
| 20.4 | % | |
| 13.0 | % | |
| 0.29 | % | |
| 12.9 | % |
Supplier B | |
| 20.0 | % | |
| 10.7 | % | |
| 0.00 | % | |
| 29.4 | % |
Supplier C | |
| 11.2 | % | |
| 9.8 | % | |
| 11.66 | % | |
| 0.0 | % |
Supplier D | |
| 8.0 | % | |
| 7.6 | % | |
| 0.00 | % | |
| 2.2 | % |
Supplier E | |
| 7.5 | % | |
| 4.8 | % | |
| 0.00 | % | |
| 0.0 | % |
Note 4 - Trade and other receivables
| |
2015 | | |
2014 | |
Notes receivable | |
$ | 2,553,350 | | |
$ | 780,736 | |
| |
| | | |
| | |
Trade receivables | |
| 56,339,927 | | |
| 54,742,846 | |
Less: Allowance for doubtful accounts | |
| (2,521,648 | ) | |
| (1,424,173 | ) |
Trade receivables - net | |
| 53,818,279 | | |
| 53,318,673 | |
| |
| | | |
| | |
Other receivables | |
| 41,376,604 | | |
| 11,112,406 | |
Prepayments and deposits | |
| 22,626,755 | | |
| 12,534,060 | |
| |
| | | |
| | |
| |
$ | 120,374,988 | | |
$ | 77,745,875 | |
Bank borrowings are secured on trade receivables of the Group
with carrying amounts of nil and $6,983,127 for the years ended June 30, 2015 and 2014
respectively.
Age analysis of trade and other receivables:
| |
2015 | | |
2014 | |
Within 3 months | |
$ | 54,555,488 | | |
$ | 34,040,404 | |
From 3 to 6 months | |
| 52,203,130 | | |
| 8,767,953 | |
Past due over 6 months | |
| 13,616,370 | | |
| 23,046,895 | |
| |
| | | |
| | |
| |
$ | 120,374,988 | | |
$ | 65,855,252 | |
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 5 - Inventories
| |
2015 | | |
2014 | |
Finished goods | |
$ | 6,213,300 | | |
$ | 8,338,302 | |
Raw materials | |
| 3,538,296 | | |
| 5,724,265 | |
| |
| | | |
| | |
| |
$ | 9,751,596 | | |
$ | 14,062,567 | |
The cost of inventories recognized as an expense and included
in cost of sales amounts to $151,232,213 and $116,976,856 for the years ended
June 30, 2015 and 2014 respectively.
Note 6 - Property, plant and equipment
| |
2015 | | |
2014 | |
Buildings | |
$ | 13,480,382 | | |
$ | 14,197,999 | |
Machinery | |
| 53,540,780 | | |
| 51,900,300 | |
Vehicles | |
| 1,911,054 | | |
| 1,803,008 | |
Plant and equipment | |
| 13,409,412 | | |
| 4,823,706 | |
Software | |
| 97,151 | | |
| 43,858 | |
Construction in progress | |
| 4,000,155 | | |
| 18,397,073 | |
| |
| 86,438,934 | | |
| 91,165,944 | |
Less: Accumulated depreciation | |
| (21,178,480 | ) | |
| (14,726,156 | ) |
| |
| | | |
| | |
Net book value | |
$ | 65,260,454 | | |
$ | 76,439,788 | |
Borrowing costs capitalized during the years ended June 30,
2015 and 2015 were $ nil and $824,669, respectively.
Buildings with net book value of approximately $379,902 and
$313,286 were used as collateral of short term bank borrowings for the years ended June 30, 2015 and 2014, respectively.
The depreciation expenses for the years ended June 30, 2015
and 2014 were $6,452,324 and $4,816,403, respectively.
Note 7 - Land Use Rights
| |
2015 | | |
2014 | |
Land use rights | |
$ | 3,222,872 | | |
$ | 5,982,880 | |
Less: Accumulated amortization | |
| (389,039 | ) | |
| (258,244 | ) |
| |
| | | |
| | |
Land use rights - net | |
$ | 2,833,833 | | |
$ | 5,724,636 | |
Land use rights with net book value of approximately $
1,898,402 and $2,394,716 were used as collateral of short term bank borrowings for the years ended June 30, 2015 and
2014, respectively.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 7 - Land Use Rights (Continued)
The amortization expenses for the years ended June 30, 2015
and 2014 were $130,795 and $41,600, respectively.
Years ending June 30, | |
| |
2016 | |
$ | 79,353 | |
2017 | |
| 79,353 | |
2018 | |
| 79,353 | |
2019 | |
| 79,353 | |
2020 | |
| 79,353 | |
Thereafter | |
| 2,437,068 | |
| |
| | |
Total | |
$ | 2,833,833 | |
Note 8 - Trade and other payables
| |
2015 | | |
2014 | |
| |
| | |
| |
Notes payable | |
$ | 24,626,954 | | |
$ | 13,073,063 | |
Trade payables | |
| 6,658,065 | | |
| 19,658,604 | |
Accruals | |
| 358,747 | | |
| 408,406 | |
Other taxes payable | |
| 2,364,945 | | |
| 853,681 | |
Other payables | |
| 11,270,658 | | |
| 1,857,056 | |
| |
| | | |
| | |
| |
$ | 45,279,369 | | |
$ | 35,850,810 | |
Note 9 - Due to a Shareholder
The amount due to a shareholder was unsecured, interest free
and has no fixed repayment date.
Note 10 - Bank Borrowings
As of June
30, 2015 and 2014, the Company had short-term borrowings from banks which were repayable within one year and charged at interest
rates ranging from 3.9% to 8.2%and from 3.9% to 8.7% per annum, respectively. Such borrowings primarily consist of loans denominated
in Renminbi, and U.S. dollars. Bank borrowings are secured over certain bank deposits, certain trade receivables, certain plant
and machinery, and certain land use rights. The bank borrowings are guaranteed by a number of unrelated parties, key management
of the Company and the ultimate controlling party of the Company.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 11 - Convertible Bonds
The Company has entered into a series of securities purchase
agreements dated January31, 2011, May16, 2011 and June30, 2011 with certain investment funds, pursuant to which it has issued
certain bonds for an aggregate principal amount of $18,000,000. Details of the convertible bonds issuance are as follows:
|
|
First batch |
|
Second batch |
|
Third batch |
Issue date |
|
January31, 2011 |
|
May16, 2011 |
|
June 30, 2011 |
Principal amount |
|
$ 4 million |
|
$ 10 million |
|
$ 4 million |
Interest rate |
|
6% per annum |
|
6% per annum |
|
6% per annum |
Type |
|
Unsecured convertible bond |
|
Unsecured convertible bond |
|
Unsecured convertible bond |
Conversion Date |
|
Within 3 years after issue date |
|
Within 3 years after issue date |
|
Within 3 years after issue date |
Underlying share |
|
Ordinary Share |
|
Ordinary Share |
|
Ordinary Share |
Guaranteed interest rate at maturity |
|
15% per annum |
|
15% per annum |
|
15%per annum |
Conversion price |
|
$ 0.8625 per share1 |
|
$ 1.04per share1 |
|
$ 1.04 per share1 |
Adjustments to conversion price |
In the event of a share split, share dividends, reverse
share split or similar transaction, the Conversion Price shall be automatically adjusted proportionately.
Upon the issuance of new share or other equity-linked
instruments at a price lower than the then existing Conversion price or on terms more favourable, the Conversion price
shall be automatically adjusted downward to the same prices as that of the new equity. |
|
|
Number of shares convertible |
Number of shares convertible = (Principle + 6%
conversion interest compounded annually) / Conversion price If an IPO occurs on or before the eighteen (18) month anniversary
of the closing date of the initial closing, no conversion interest shall be payable for the first 18 months period. |
|
|
Payment condition when conversion right is not exercised until maturity date |
On the maturity date the Company shall pay Guaranteed interest, calculated from initial issue date and compounded annually,
on the then outstanding and unconverted principal amount. |
|
|
Put option |
In the event that an IPO has not been consummated on or prior to the two-year anniversary of the original issue date,
the holder of note shall have the right exercisable for a thirty (30) day period following the two-year anniversary of the
original issue date to require the Company to redeem with 15% interest rate per annum. |
1The conversion price is adjusted by the bonus shares
| |
2015 | | |
2014 | |
Current portion | |
$ | - | | |
$ | 27,375,750 | |
Non-current portion | |
| - | | |
| - | |
| |
| | | |
| | |
| |
$ | - | | |
$ | 27,375,750 | |
The carrying amount of the convertible bonds at the balance
sheet date is derived as follows:
Face value of convertible bonds | |
$ | - | | |
$ | 18,000,000 | |
Loss on valuation of convertible bonds | |
| - | | |
| 9,375,750 | |
| |
| | | |
| | |
| |
$ | - | | |
$ | 27,375,750 | |
Loss on valuation of convertible bonds: | |
| | | |
| | |
At beginning of year | |
$ | - | | |
$ | 9,219,551 | |
Provided for the year | |
| - | | |
| 156,199 | |
| |
| | | |
| | |
At end of year | |
$ | - | | |
$ | 9,375,750 | |
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 11 - Convertible Bonds
As per the settlement agreement, the Company had issued 20,346
shares to the bonds holders for consideration of US$8,897,000 and remaining balance of the convertible bonds will be repaid by
Master Kingdom.
Note 12 - Income Taxes
The income tax provision consisted of the following:
| |
2015 | | |
2014 | |
Current income tax expense | |
$ | 2,876,710 | | |
$ | 1,784,278 | |
Deferred taxation | |
| 852,528 | | |
| 822,200 | |
| |
| | | |
| | |
| |
$ | 3,729,238 | | |
$ | 2,606,478 | |
The difference between the income tax expenses and the expected
income tax computed at statutory Enterprise Income Tax rate (“EIT”) of the PRC was as follows:
| |
2015 | | |
2014 | |
Income before income taxes | |
$ | 5,135,757 | | |
$ | 9,434,787 | |
Income tax computed at statutory EIT rate (25%) | |
| 1,283,939 | | |
| 2,358,696 | |
Effect of different tax rates available to different jurisdictions | |
| 123,830 | | |
| 23,964 | |
Non-deductible expenses | |
| 1,976,633 | | |
| 25,773 | |
Change in valuation allowance and others | |
| 344,836 | | |
| 198,046 | |
| |
| | | |
| | |
Income tax expenses | |
$ | 3,729,238 | | |
$ | 2,606,479 | |
Dividends paid by Jiangsu Delta to the Company are subject
to the withholding tax of 5%. The Company's PRC entities historically have not paid any dividends.
The tax effects of temporary differences that give rise to
the Company's net deferred tax assets and liabilities are summarized as follows:
| |
2015 | | |
2014 | |
Deferred tax assets | |
| | | |
| | |
Current portion: | |
| | | |
| | |
Receivables provision | |
$ | 525,720 | | |
$ | 449,509 | |
Tax losses carried forward | |
| 207,868 | | |
| 207,868 | |
Less: Valuation allowance | |
| - | | |
| - | |
| |
| | | |
| | |
Total deferred tax assets | |
$ | 733,588 | | |
$ | 657,377 | |
| |
2015 | | |
2014 | |
Deferred tax liabilities | |
| | | |
| | |
Revenue cut-off difference derived from Value Added Tax
reporting system to calculate PRC Corporation Income Tax in accordance with the PRC State Administration of Taxation | |
$ | 1,948,948 | | |
$ | 1,020,209 | |
| |
| | | |
| | |
Total deferred tax liabilities | |
$ | 1,948,948 | | |
$ | 1,020,209 | |
| |
| | | |
| | |
Net deferred tax liabilities | |
$ | (1,215,360 | ) | |
$ | (362,832 | ) |
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 13 - Earnings Per Share
The Company calculates earnings per share in accordance with
ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share
are computed using the weighted average number of shares outstanding during the fiscal year. Potentially dilutive common shares
consist of convertible bonds (using the if-converted method) and exercisable warrants. The following table sets forth the computation
of basic and diluted net income per common share:
| |
2015 | | |
2014 | |
Numerator: | |
| | | |
| | |
Net income attributable to ordinary shareholders for computing | |
| | | |
| | |
net income per ordinary share – basic | |
$ | 1,406,519 | | |
$ | 6,828,308 | |
Loss on valuation of warrants | |
| 7,906,529 | | |
| - | |
Loss on valuation of convertible bonds | |
| - | | |
| 156,199 | |
Net income attributable to ordinary shareholders for computing net income per ordinary share – diluted | |
$ | 9,313,048 | | |
$ | 6,984,507 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Weighted average number of shares used in calculating net income per ordinary share – basic | |
| 6,462,577 | | |
| 4,560,000 | |
Adjustments for | |
| | | |
| | |
- Execution of convertible bonds | |
| - | | |
| - | |
- Execution of stock warrant | |
| - | | |
| - | |
| |
| | | |
| | |
Weighted average number of shares used in calculating net income per ordinary share – diluted | |
| 6,462,577 | | |
| 4,560,000 | |
The 8,057,403 warrants were not included in the computation
of diluted earnings per share as their effects would have been anti-dilutive since the average share price for the years ended
June 30, 2015 was lower than the warrants exercise price.
Net income per ordinary share – basic | |
$ | 1.44 | | |
$ | 1.53 | |
Net income per ordinary share – diluted | |
$ | 1.44 | | |
$ | 1.53 | |
Note 14 - Commitments
| |
2015 | | |
2014 | |
Capital commitments | |
| | | |
| | |
Capital expenditures contracted for are analyzed as follows: | |
| | | |
| | |
Contracted but not provided for: | |
| | | |
| | |
Property, plant and equipment | |
$ | 3,337,864 | | |
$ | 8,180,814 | |
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 15–Related party transactions
In addition to the information disclosed elsewhere in the financial
statements, the following transaction took place between the Company and related parties at terms agreed between the parties:
Guarantees in favor of the Company’s bank borrowings were
received from a key management for the year ended June 30, 2015.
Guarantees in favor of the Company’s bank borrowings were
received from the ultimate controlling party for the years ended June 30, 2015 and 2014.
The immediate and ultimate controlling party of the Company
is Mr Chao Xin.
Note 16 – Disposal of wholly owned subsidiary
On March 12, 2015, Zhenjiang Xinshun Chemical Trading Company
Ltd and Jiangsu Delta entered into a sale and purchase agreement, pursuant to which the entire equity interest of Jiangsu Zhengxin
R&D was sold to Zhenjiang Xinshun at a consideration of $10,518,189 (RMB64.555 million).
Assets and liabilities at the date of disposal: | |
| | |
Cash and cash equivalents | |
$ | 4,154 | |
Trade and other receivables | |
| 1,012,013 | |
Property, plant and equipment | |
| 9,297,970 | |
Land use right | |
| 2,850,240 | |
Trade and other payables | |
| (13,879,652 | ) |
Net Liabilities | |
$ | (715,275 | ) |
| |
| | |
Consideration received | |
$ | 10,518,189 | |
Less: Amount required repaying toDanyangBeijiate | |
| (10,055,371 | ) |
Gain on disposal | |
$ | 1,178,093 | |
Note 17 - Warrants
On December 21, 2012, the company issued 4,000,000 public warrants
to the shareholder in connection with the Public Offering. Each class A share will be entitled to one public warrant. Each public
warrant entitles the holders to purchase from the Company one ordinary shares at an exercise price of $10.00 commencing on the
later of (a) December 18, 2013 and (b) the consolidation of each series of the Company’s ordinary shares into one class of
ordinary shares and will expire on the earlier of December 18, 2017 and the date of the Company’s dissolution and liquidation
of the Trust Account, unless such public warrant are earlier redeemed.
The public warrants may be redeemed by the Company at a price
of $0.01 per public warrant in whole but not in part upon 30 days prior written notice after the public warrants become exercisable,
only in the event that the last sale price of the ordinary shares is at least $15.00 per share for any 20 trading days within a
30 trading day period ending on the third business day prior to the date on which notice of redemption is given. In the event that
there is no effective registration statement or prospectus covering the ordinary shares issuable upon exercise of the public warrants,
holders of the public warrants may elect to exercise them on a cashless basis by paying the exercise price by surrendering their
public warrants for that number of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of
shares underlying the redeemable warrants, multiplied by the difference between the exercise price of the public warrants and the
“fair market value” by (y) the fair market value. The “fair market value” means the average reported last
sale price of our ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the public
warrants notice is sent to the warrant agent. The Company would receive additional proceeds to the extent the redeemable warrants
are exercised on a cashless basis.
DELTA TECHNOLOGY HOLDINGS LIMITED
Notes to Consolidated
Financial Statements
as at June 30, 2015
and 2014
Note 17 - Warrants (Continued)
In connection with the Private Placement, on December 21, 2012,
the founders (CIS Acquisition Holding Co Ltd) and certain of their designees purchased 4,500,000 warrants (the “Placement
Warrants”) at a price of $0.75 per warrants for an aggregate purchase price of $3,375,000. The Placement warrants are identical
to the public warrants, except that the Placement warrants are (i) subject to certain transfer restrictions described below, (ii)
cannot be redeemed by the Company, and (iii) may be exercised during the applicable exercise period, on a for cash or cashless
basis, at any time after the consolidation of each series of the Company’s ordinary shares into one class of ordinary shares
after consummation of an Acquisition Transaction or post-acquisition tender offer, as the case may be, even if there is not an
effective registration statement relating to the shares underlying the Placement warrants, so long as such warrants are held by
the founders or their designees, or their affiliates. Notwithstanding the foregoing, if the Placement warrants are held by the
holders other than the founders or their permitted transferees, the Placement warrants will only be exercisable by the holders
on the same basis as the public warrants included in the units being sold in the Public offering.
As of June 30, 2015, there were 3,357,403 Public warrants and
4,500,000 Placement warrants outstanding. The Company has engaged Ample Appraisal Ltd to have a valuation for all the outstanding
warrants (Placement and Public warrants) as at June 30, 2015. The fair value of the public warrants and Placement warrants was
$3,490,791 and $4,415,738 respectively.
Note 18 - Subsequent Event
There were no events or transactions other than those disclosed
in this report, if any, that would require recognition or disclosure in our consolidated financial statements for the year ended
June 30, 2015.
EXHIBIT INDEX
Exhibit
No. |
|
Description |
1.1* |
|
Amended and Restated Memorandum of Association |
1.2* |
|
Amended and Restated Articles of Association |
2.1(1) |
|
Specimen Unit Certificate |
2.2(1) |
|
Specimen Public Warrant Certificate |
2.3(1) |
|
Specimen Placement Warrant Certificate |
2.4(1) |
|
Form of Warrant Agreement |
2.5(1) |
|
Form of Unit Purchase Option |
4.1(1) |
|
Form of Letter Agreement by and among the Registrant, Chardan Capital
Markets, LLC and the founders |
4.2(1) |
|
Form of Services Agreement between the Registrant and Chardan Capital
Markets, LLC |
8.1* |
|
List of Subsidiaries of the Company |
10.1(2) |
|
Stock Purchase Agreement by and among CIS Acquisition Ltd., Elite
Ride Limited, Delta Advanced Materials Limited, and the shareholders of Elite Ride Limited, dated September 16, 2014 |
10.2 (3) |
|
Registration Rights Agreement by and among CIS Acquisition Ltd.
and the holders of Elite Ride Limited, dated September 19, 2014 |
10.3(3) |
|
Voting Agreement by and among the Company, Elite Ride Limited,
Delta Advanced Materials Limited, and certain shareholders of Elite Ride Limited dated September 19, 2014 |
10.4(3) |
|
Call Agreement by and among CIS Acquisition Ltd. and CIS Sponsors
dated September 19, 2014 |
11.1(1) |
|
Code of Ethics |
12.1* |
|
Certification of the Chief Executive Officer (Principal Financial
Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended. |
12.2* |
|
Certification of the Chief Financial Officer (Principal Financial
Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended |
13.1** |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
13.2** |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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 |
* |
Filed herewith. |
** |
Furnished herewith. |
(1) |
Incorporated herein by reference to the Company’s Registration
Statement on Form F-1 (File No. 333-180224). |
(2) |
Incorporated herein by reference to the Company’s Form 6-K
(File No. 001-35755) filed on September 19, 2014. |
(3) |
Incorporated herein by reference to the exhibits to the Company’s
Form 20-F filed on September 25, 2014. |
Exhibit
1.1
![](http://www.sec.gov/Archives/edgar/data/1543268/000114420415066519/tex1-1logo1.jpg)
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
CIS Acquisition Ltd.
Incorporated on
the 28th of November, 2011
Incorporated on 28 November 2011
Amended and restated on 13 February 2012
Amended and restated on 19 December 2012
Amended and restated 21 December 2012
FH Corporate Services Ltd.
FH Chambers
P.O. Box 4649
Road Town
Tortola
British Virgin Islands
TERRITORY OF THE BRITISH VIRGIN ISLANDS
BVI BUSINESS COMPANIES ACT, 2004
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
CIS Acquisition Ltd.
The name of the
company is CIS Acquisition Ltd.
The Company is
a company limited by shares.
|
3. |
REGISTERED OFFICE AND REGISTERED AGENT |
The registered office of the Company
is FH Chambers. P.O. Box 4649, Road Town, Tortola, British Virgin Islands VG1110.
The registered agent of the Company
is FH Corporate Services Ltd., FH Chambers, P.O. Box 4649, Road Town, Tortola, British Virgin Islands VG1110.
|
(1) |
Subject to the Act, any other British Virgin Islands legislation and the provisions of clause 4(2) below, the Company has, irrespective of corporate benefit: |
|
i. |
full capacity to
carry on or undertake any business or activity, do any actor enter into any transaction; and |
|
ii. |
for the purposes of paragraph (i), full rights, powers and privileges. |
|
(2) |
In the event an Acquisition Transaction is not consummated prior to the Termination Date, then on the Termination Date the capacity and purposes of the Company shall automatically, with no action required by the Board or the shareholders, be limited to effecting and implementing the dissolution and liquidation of the Company and the taking of any other actions expressly required to be taken under this Memorandum and the Articles on or after the Termination Date and the Company’s powers shall thereupon be limited to those set forth in the Act and any other British Virgin Islands legislation and as otherwise may be necessary to implement the limited purposes of the Company as provided in this Memorandum and the Articles. This Clause 4(2) may not be amended without the affirmative vote of at least 80% of the holders of outstanding IPO Shares. |
|
5. |
NUMBER AND CLASSES OF SHARES |
The Company is authorised to issue
up to 155,000,000 shares of par value of US$0.0001 divided into the following classes of shares:
|
i. |
25,000,000 class A shares with a par value of US$0.0001 (“Class A Shares”); |
|
ii. |
25,000,000 class B
shares with a par value of US$0.0001 (“Class B Shares); |
|
iii. |
25,000,000 class C shares with a par value of US$0.0001 (“Class C Shares”); |
|
iv. |
75,000,000 ordinary shares with a par value of US$0.0001 (“Ordinary Shares”);and |
|
v. |
5,000,000 preferred shares with a par value of US$0.0001 (“Preferred Shares”). |
|
6. |
RIGHTS ATTACHING TO SHARES |
| (1) | The Class A, Class B, Class C Shares and Ordinary Shares
confers on the holder: |
| a. | Except as specified in this Memorandum or in the Articles,
the right to one vote at a meeting of the Members or on any Resolution of Members; |
| b. | an equal share in any distribution made by the Company; |
| c. | unless otherwise agreed by the Member, the right to an
equal share in the distribution of the surplus assets of the Company on a winding up. |
| (2) | Preferred Shares.
The Board may, by amendment to this Memorandum in accordance with clause 10 below, from time to time create and constitute
(or re-designate, as the case may be), such further class or classes of Preferred Shares (and designate series within such
Preferred Shares) with such name or names and with such preferred, deferred or other rights or such restrictions, whether in regard
to voting, dividends, distributions, liquidations or otherwise as the Board may, by resolution of Directors determine (a “Preferred
Share Designation”) and as may be permitted by the Act. |
The Shares of the Company shall initially
be issued in one of three classes as follows:
| i. | Class A Shares.
Holders of Class A Shares are entitled to cause the Company to redeem all or a portion of such Class A Shares in connection
with the Acquisition Transaction for a pro rata portion of the Trust Account, based on the total number of IPO Shares, as described
in Article 131 of the Articles of Association. If the Company elects to grant the holders of IPO Shares redemption rights by means
of a Post-Acquisition Tender Offer, then each Class A Share outstanding as of the closing of the Acquisition Transaction will
automatically be converted into a Class B Share immediately following consummation of the Acquisition Transaction. |
| ii. | Class B Shares.
Holders of Class B Shares have the same rights as holders of Class A Shares, except that Class B Shares may not be
issued until such time as all issued and outstanding Class A Shares are converted into Class B Shares pursuant to Article 131
of the Articles, and holders of Class B Shares have the right to participate in a Post-Acquisition Tender Offer. |
| iii. | Class C Shares.
Holders of Class C Shares have the same rights as holders of Class A Shares, except that holders of Class C Shares
are not entitled to (1) cause the Company to redeem all or any portion of such Class C Shares in connection with the Acquisition
Transaction, (2) share ratably in the Trust Account or (3) participate in a Post-Acquisition Tender Offer. |
| iv. | Automatic Conversion.
The Class A Shares, Class B Shares and Class C Shares will be automatically converted into Ordinary Shares (i) five
business days after the consummation of an Acquisition Transaction if no Class B Shares are issued and outstanding or, (ii) if
any Class B Shares are issued and outstanding, then five business days after the completion of the Post Acquisition Tender Offer.
The conversion shall be on a one-for-one basis of the then issued and outstanding Class B and Class C Shares. Following the automatic
conversion, only one class of Shares will be authorized, which will be referred to as “Ordinary Shares”. |
|
7. |
VARIATION OF CLASS RIGHTS |
The rights attached to any class
or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not the
Company is being wound-up, may be varied with the consent in writing of all the holders of the issued shares of that class or series
or with the sanction of a resolution passed by a majority of the Votes cast at a separate meeting of the holders of the shares
of the class or series.
|
8. |
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU |
Rights conferred upon the holders
of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of
issue of the shares of that class, be deemed to be varied by the creation
or issue of further shares ranking pari passu therewith.
The Company shall issue registered
shares only, and such shares may be in full or fractional form. The Company is not authorised to issue bearer shares, convert registered
shares to bearer shares, or exchange registered shares for bearer shares.
|
10. |
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION |
The Company may amend its Memorandum
or Articles by a Resolution of Members or a Resolution of Directors, save that no amendment may be made by a Resolution of Directors
(other than any such amendments required to increase the number of Ordinary Shares and create and constitute the Preferred Shares
and the rights, restrictions and preferences attached thereto pursuant to the provisions of this Memorandum):
| a. | to restrict the rights or powers of the Members to amend
the Memorandum or Articles; |
| b. | to change the percentage of Members required to pass a
Resolution of Members to amend the Memorandum or Articles; |
| c. | in circumstances where the Memorandum or Articles cannot
he amended by the Members; |
| d. | to clauses 6, 7, 8 or this clause 10; |
The meanings of words in this Memorandum
are as defined in this Memorandum or as defined in the Article annexed hereto. Additionally, certain of
the terms contained in this Memorandum that are listed in the first column of the table below, unless the context otherwise requires,
shall bear the meaning set opposite them respectively in the second column.
“Acquisition Transaction” |
|
the acquisition by the Company, whether by merger, share exchange, asset or stock acquisition or other similar type of transaction, of one or more Target Businesses, provided, however, that to qualify as an Acquisition Transaction, the Company must acquire a controlling interest in the Target Business representing control of more than 50% of the voting rights of the Target Business and control of the majority of any governing body of the Target Business. |
“Act” |
|
BVI Business Companies Act, 2004, as amended. |
“Company” |
|
CIS Acquisition Ltd. |
“Class A Shares” |
|
shall have the meaning set forth in Clause 5(i) above. |
“Class B Shares” |
|
shall have the meaning set forth in Clause
5(ii) above. |
“Class C Shares” |
|
shall have the meaning set forth in Clause 5(iii) above. |
“Exchange Act” |
|
Securities Exchange Act of 1934, as amended. |
“Filing Date” |
|
shall have the meaning set forth Clause
131(C) above. |
“Form 6-K” |
|
shall have the meaning set forth in Clause 131(C) above. |
“Founders” |
|
the shareholders of the Company prior to the IPO, the directors and officers of the Company, and their affiliates. |
“IPO Shares” |
|
the shares of the Company included in the units issued in the IPO, excluding any Class C Shares issued prior to the conversion of any Class A Shares or Class B Shares into Ordinary Shares. |
“Ordinary Shares” |
|
shall have the meaning set forth in Clause 5(iv) above. |
“Post-Acquisition Tender Offer” |
|
shall have the meaning set forth in Clause 131(C) above. |
“Pre-Acquisition Tender Offer” |
|
shall have the meaning set forth in Clause 131(B) above. |
“Redemption Threshold Percentage” |
|
shall have the meaning set forth in Clause 131(A) above. |
“Registration Statement” |
|
the Company’s registration statement on Form F-l filed with the SEC with respect to an IPO. |
“SEC” |
|
Securities Exchange Commission. |
“Shares” |
|
collectively, the Class A Shares, Class B Shares, Class C Shares, the Ordinary Shares and Preferred Shares. |
“Target Acquisition Period” |
|
the period from the effectiveness of the Registration Statement filed in connection with the Company’s initial public offering of securities with the Securities and Exchange Commission up to and including the first to occur of (x) consummation by the Company of an Acquisition Transaction or (y) the Termination Date, provided, however, that if the Company elects to complete a Post-Acquisition Tender Offer and has consummated an Acquisition Transaction prior to the Termination Date, the Target Acquisition Period shall terminate upon consummation of the Post-Acquisition Tender Offer. |
“Target Business” |
|
one or more operating businesses whose fair market value, either individually or collectively, is equal to at least 80% of the amount in the trust account (excluding deferred underwriting discounts and commissions and taxes payable) at the time of such Acquisition Transaction. |
“Termination Date” |
|
18 months (or-21 months, if the Company enters into a letter of intent, agreement in principle or definitive agreement with respect to an Acquisition Transaction prior to the expiration of such 18 month period) after the consummation of the IPO. |
“Trust Account” |
|
shall have the meaning set forth in Article 131(C) above. |
We, CODAN TRUST COMPANY (B.V.I.) LTD., registered
agent of the Company, of Commerce House, Wickhams Cay 1, PO Box 3140, Road Town, Tortola, British Virgin Islands VG 1110 for the
purpose of incorporating a BVI Business Company under the laws of the British Virgin lslands hereby sign these Memorandum of Association
on the 28th of November, 2011:
|
Incorporator |
|
|
|
CODAN TRUST COMPANY (B.V.I.) Ltd |
|
|
|
Sgd. Michael Wood |
|
|
|
Per: |
|
Michael Wood |
|
For and on behalf of |
|
Codan Trust Company (B.V.I) Ltd. |
Exhibit 1.2
TERRITORY OF THE BRITISH VIRGIN ISLANDS
BVI BUSINESS COMPANIES ACT, 2004
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
CIS ACQUISITION LTD.
(a company limited by shares)
INTERPRETATION
1. (1) Terms defined in the Memorandum shall have the same meaning when used herein. In addition, certain of the terms contained in these Articles that are listed the first column of the table below, unless the context otherwise requires, shall bear the meaning set opposite them respectively in the second column.
“Act” |
|
the BVI Business Companies Act, 2004, as amended. |
|
|
|
“Auditor” |
|
the independent auditor of the Company which shall be a recognized firm of independent accountants. |
|
|
|
“Articles” |
|
these Articles in their present form or as supplemented or amended or substituted from time to time. |
|
|
|
“Board” or |
|
|
|
|
|
“Directors” |
|
the board of directors of the Company. |
|
|
|
“Class A Shares” |
|
shall have the meaning set forth in Clause 5(i) of the Memorandum. |
|
|
|
“Class B Shares” |
|
shall have the meaning set forth in Clause 5(ii) of the Memorandum. |
|
|
|
“Class C Shares” |
|
shall have the meaning set forth in Clause 5(iii) of the Memorandum. |
|
|
|
“clear days” |
|
in relation to the period of a notice, that period excluding the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect. |
|
|
|
“clearing house” |
|
a clearing house recognized by the laws of the jurisdiction in which the shares of the Company (or depositary receipts therefor) are listed or quoted on a stock exchange or interdealer quotation system in such jurisdiction. |
|
|
|
“Company” |
|
CIS Acquisition Ltd. |
|
|
|
“competent regulatory authority” |
|
a competent regulatory authority in the territory where the shares of the Company (or depositary receipts therefor) are listed or quoted on a stock exchange or interdealer quotation system in such territory. |
“debenture” and “debenture holder” |
|
include debenture stock and debenture stockholder, respectively. |
|
|
|
“Designated Stock Exchange” |
|
the OTC Bulletin Board, the NASDAQ Stock Market, the NYSE Amex or such other exchange or interdealer quotation system upon which the Company’s securities are listed or quoted. |
|
|
|
“dollars” and “$” |
|
dollars, the legal currency of the United States of America. |
|
|
|
“Exchange Act” |
|
the Securities Exchange Act of 1934, as amended. |
|
|
|
“head office” |
|
such office of the Company as the Directors may from time to time determine to be the principal office of the Company. |
|
|
|
“IPO” |
|
the Company’s initial public offering of securities (including the IPO Shares). |
|
|
|
“IPO Shares” |
|
the shares of the Company included in the units issued in the IPO, excluding any Class C Shares issued prior to the conversion of any Class A Shares or Class B Shares into Ordinary Shares. |
|
|
|
“Member” |
|
a duly registered holder from time to time of the shares of the Company |
|
|
|
“month” |
|
a calendar month |
|
|
|
“FINRA” |
|
The Financial Industry Regulatory Authority. |
|
|
|
“Memorandum” |
|
the memorandum of association of the Company in its present form or a supplemented or amended or substituted from time to time. |
|
|
|
“NASD Rules” |
|
the rules set forth in the NASD Manual as part of the FINRA rulebook. |
|
|
|
“Notice” |
|
written notice unless otherwise specifically stated and as further defined in these Articles. |
|
|
|
“Office” |
|
the registered office of the Company for the time being. |
|
|
|
“Ordinary Shares” |
|
shall have the meaning set forth in Clause 5(iv) of the Memorandum. |
|
|
|
“paid up” |
|
paid up or credited as paid up. |
|
|
|
“Preferred Shares” |
|
shall have the meaning set forth in Clause 5(v) of the Memorandum. |
|
|
|
“Register” |
|
the register of Members of the Company to be maintained at such place within or outside the British Virgin Islands as the Board shall determine from time to time. |
|
|
|
“Registration Statement” |
|
the Company’s registration statement filed with the SEC with respect to an IPO. |
|
|
|
“Resolution of Directors” |
|
A resolution of the directors passed either at a meeting of directors, or by way of a Written Resolution, in either case in accordance with the provisions of these Articles. |
|
|
|
“Resolution of Members” |
|
a resolution passed by the holders of a majority of in excess of
fifty (50) per cent of the votes of those members (or their duly appointed proxies) entitled to vote and voting on the
resolution either at a meeting of members, or by way of Written Resolution, in either case in accordance with the provisions of these Articles, |
“SEC” |
|
the United States Securities and Exchange Commission. |
|
|
|
“Seal” |
|
common seal or any one or more duplicate seals of the Company (including a securities seal) for use in the British Virgin Islands or in any place outside the British Virgin Islands. |
|
|
|
“Secretary” |
|
any person, firm or corporation appointed by the Board to perform any of the duties of secretary of the Company and includes any assistant, deputy, temporary or acting secretary. |
|
|
|
“Statutes” |
|
the Act and every other law of the British Virgin Islands for the time being in force applying to or affecting the Company, its Memorandum of Association and/or these Articles. |
|
|
|
“Trust Account” |
|
the trust account established by the Company at the consummation of its IPO and into which a certain amount of the net proceeds of the IPO arc deposited. |
|
|
|
“Written Resolution” |
|
a resolution of members or directors (as applicable) consented to in writing or by telex, telegram, cable or other written electronic communication, without the need for any notice. A Written Resolution may consist of several documents, including written electronic communications, in like form each signed or assented to by one or more members or directors (as applicable). A Written Resolution of directors shall be passed if so consented by all of those directors entitled to vote on the resolution. A Written Resolution of members shall be passed if so consented by the holders of all the votes of those members entitled to vote on the resolution |
|
|
|
“year” |
|
a calendar year. |
(2) In
these Articles, unless there be something within the subject or context inconsistent with such construction:
| (a) | words importing the singular include the plural and vice versa; |
| (b) | words importing a gender include both gender and the neuter; |
| (c) | words importing persons include companies, associations and bodies of persons whether corporate or not; |
| (i) | “may” shall be construed as permissive; |
| (ii) | “shall” or “will” shall be construed as imperative; |
| (e) | expressions referring to writing shall, unless the contrary intention appears, be construed as including printing, lithography,
photography and other modes of representing words or figures in a visible form, and including where the representation takes the
form of electronic display, provided that both the mode of service of the relevant document or notice and the Member’s election
comply with all applicable Statutes, rules and regulations; |
| (f) | references to any law, ordinance, statute or statutory provision shall be interpreted as relating to any statutory modification
or re-enactment thereof for the time being in force; |
| (g) | save as aforesaid words and expressions defined in the Statutes shall bear the same meanings in these Articles if not inconsistent
with the subject in the context; |
| (h) | references to a document being executed include references to it being executed under hand or under seal or by electronic signature
or by any other method and references to a notice or document include a notice or document recorded or stored in any digital, electronic,
electrical, magnetic or other retrievable form or medium and information in visible form whether having physical substance or not. |
SHARES
2. (1) [Reserved]
(2) (a) Subject
to the Act, the Memorandum and these Articles, the Company shall have all the powers conferred upon it by the Act to purchase
or otherwise acquire its own Shares and such power shall be exercisable by the Board in such manner, upon such terms and subject
to such conditions as it thinks fit, including but not limited to, the purchase of Shares at a price lesser than fair value. Without
prejudice to the foregoing, Sections 60,61 and 62 of the Act shall not apply to the Company.
| (b) | Subject to sub-paragraph (e) below, a share that the Company purchases, redeems or otherwise acquires
may be cancelled or held by the Company as a Treasury Share. |
| (c) | The Company may only hold a share that has been purchased, redeemed or otherwise acquired as a
Treasury Share if the number of shares purchased, redeemed or otherwise acquired when aggregated with shares of the same class
already held by the Company as Treasury Shares, does not exceed 50% of the shares of that class previously issued by the Company,
excluding shares that have been cancelled. |
| (d) | Treasury Shares may be transferred by the Company and the provisions of the Act, the Memorandum
and these Articles that apply to the issue of shares apply to the transfer of Treasury Shares. All the rights and obligations attaching
to a Treasury share are suspended and shall not be exercised by or against the Company while it holds the share as a Treasury Share. |
(3) A share may
be issued for consideration in any form, including money, a promissory note or other written obligation to contribute money or
property, real property, personal property (including goodwill and know-how), services rendered or a contract for future services.
(4) Before issuing
Shares for a consideration other than money, the Directors shall pass a Resolution of Directors stating: (a) the amount to be credited
for the Shares; (b) their determination of the reasonable present cash value of the non-money consideration for the issue; and
(c) that, in their opinion, the present cash value of the non-money consideration for the issue is not less than the amount to
be credited for the issue of the Shares.
(5) The consideration
for a share with par value shall not be less than the par value of the share.
(6) The Company
may issue fractions of a Share and fractional shares shall have the same corresponding fractional liabilities, limitations, preferences,
privileges, qualifications, restrictions, rights and other attributes of a Share or series of Shares.
(7) No notice
of a trust, whether expressed, implied or constructive, shall be entered in the share register.
(8) No Share shall
be issued to bearer.
ALTERATION OF AUTHORISED SHARES
3. The Directors or Members may from
time by Resolution of Directors or Resolution of Members to change the maximum number of shares that the Company is authorised
to issue, or to authorize the Company to issue an unlimited number of shares, by amendment to the Memorandum in accordance with
the provisions set out in the Memorandum
4. The Company may by Resolution of Directors
| (a) | combine its shares, including issued shares, into a smaller number of shares; or |
| (b) | sub-divide its shares, or any of them, into a greater number of shares, |
provided that, where shares
are divided or combined, the aggregate par value (if any) of the new shares must be equal to the aggregate par value (if any) of
the original shares.
5. A division or combination of shares,
including issued shares, of a class or series shall be for a larger or smaller number, as the case may be, of shares in the same
class or series.
6. The Board may settle as it considers
expedient any difficulty which arises in relation to any consolidation and division under the last preceding Article and in particular
but without prejudice to the generality of the foregoing may issue certificates in respect of fractions of Shares or arrange for
the sale of the Shares representing fractions and the distribution of the net proceeds of sale (after deduction of the expenses
of such sale) in due proportion amongst the Members who would have been entitled to the fractions, and for this purpose the Board
may authorize some persons to transfer the shares representing fractions to their purchaser or resolve that such net proceeds be
paid to the Company for the Company’s benefit. Such purchaser will not be bound to see to the application of the purchase
money nor will his title to the Shares be affected by any irregularity or invalidity in the proceedings relation to the sale.
ALLOTMENT OF SHARES
7. (1) Subject to the Act, the Memorandum
and these Articles and, where applicable, the rules of the Designated Stock Exchange and without prejudice to any special rights
or restrictions for the time being attached to any shares or any class of shares. the unissued shares of the Company (whether forming
part of the original or any increased authorised shares) shall be at the disposal of the Board, which may offer, allot, grant options
over or otherwise dispose of them to such persons, at such times and for such consideration and upon such terms and conditions
as the Board may in its absolute discretion determine but so that no shares shall be issued at a discount In particular and without
prejudice to the generality of the foregoing, subject to amending Clause 5 of the Memorandum of Association the Board is hereby
empowered to authorize by Director Resolution from time to time the issuance of one or more classes or series of preferred shares
and to fix the designations, powers, preferences and relative, participating, optional and other rights, if any, and the qualifications,
limitations and restrictions thereof, if any, including, without limitation, the number of shares constituting each such class
or series, dividend rights, conversion rights, redemption privileges, voting powers, full or limited or no voting powers, and liquidation
preferences, and to increase or decrease the size of any such class or series (but not below the number of shares of any class
or series of preferred shares then outstanding) to the extent permitted by the Act.
(2) Neither the
Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares,
to make, or make available, any such allotment, offer, option or shares to Members or others with registered addresses in any particular
territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities,
this would or might, in the opinion of the Board, be unlawful or impracticable. Members affected as a result of the foregoing sentence
shall not be, or be deemed to be, a separate class of members for any purpose whatsoever. Except as otherwise expressly provided
in the resolution or resolutions providing for the establishment of any class or series of preferred shares, no vote of
the holders of Preferred shares of or Ordinary shares shall be a prerequisite to the issuance of any shares of any class or series
of the preferred shares authorized by and complying with the conditions of the Memorandum and Articles of Association.
(3) The
Board may issue options, warrants or convertible securities or securities of similar nature conferring the right upon the holders
thereof to subscribe for, purchase or receive any class of shares or securities in the Company on such terms as it may from time
to time determine.
8. The
Company may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted
by the Act. Subject to the Act, the commission may be satisfied by the payment of cash or by the allotment of fully or partly paid
shares or partly in one and partly in the other.
9. Except
as required by law, no person shall be recognized by the Company as holding any share upon any trust and the Company shall not
be bound by or required in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial
interest in any share or any fractional part of a share or (except only as otherwise provided by these Articles or by law) any
other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.
10. Subject
to the Act and these Articles, the Board may at any time after the allotment of shares but before any person has been entered in
the Register as the holder, recognize a renunciation thereof by the allottee in favor of some other person and may accord to any
allottee of a share a right to effect such renunciation upon and subject to such terms and conditions as the Board considers fit
to impose.
SHARE CERTIFICATES
11. Shares
of the Company’s stock may be issued in certificated or uncertificated form. If in certificated form, every share certificate
shall be issued under the Seal of a facsimile thereof and shall specify the number and class and distinguishing numbers (of any)
of the shares to which it relates, and the amount paid up thereon and may otherwise be in such form as the Directors may from time
to time determine. No certificate shall be issued representing shares of more than one class. The Board may be resolution determine,
either generally or in any particular case or cases, that any signatures on any such certificates (or certificates in respect of
other securities) need not be autographic but may be affixed to such certificates by some mechanical means or may be printed thereon.
12. (1)
In the case of a share held jointly several persons, the Company shall not be bound to issue more than one certificate therefor
and delivery of a certificate to one of several joint holders shall be sufficient delivery to all such holders.
(2) Where
a share stands in the names of two or more persons, the person first named in the Register shall as regards service of notices
and, subject to the provisions of these Articles, all or any other matters connected with the Company, except the transfer of the
shares, be deemed the sole holder thereof.
13. Every
person whose name is entered, upon an allotment of shares, as a Member in the Register shall be entitled, without payment, to receive
one certificate for all such shares of any one class or several certificates each for one or more of such shares of such class
upon payment for every certificate after the first of such reasonable out-of-pocket expenses as the Board from time to time determines.
Notwithstanding any other provision in these Articles, the Company may issue shares in uncertificated or scripless form, and provide
for the recordation and transfer of its shares by electronic or other means not involving any issuance of certificates, including
provisions for notice to purchasers in substitution for any required statements on certificates, and as may be required by applicable
laws. Any system so adopted shall not become effective as to issued and outstanding certificated securities until the certificates
therefor have been surrendered to the Company. Where the Company issues shares in uncertificated or scripless form, the Company
shall upon the issue of such shares enter the name of the subscriber or its nominee in the register of members of the Company and
may deliver such shares in uncertificated or scripless form by any method of transferring or dealing in securities introduced by
the Designated Stock Exchange or any relevant clearing house, or operated in accordance with the rules of any competent regulatory
authority and which have been approved by the Board for such purpose.
14. Share
certificates, if issued, shall be issued within the relevant time limit as prescribed by the Act or as the Designated Stock Exchange
may from time to time determine, whichever is the shorter, after allotment or, except in the case of a transfer which the Company
is for the time being entitled to refuse to register and does not register, after lodgment of a transfer with the Company.
15. (1) Upon every transfer of shares
the certificate held by the transferor (if any) shall be given up to be cancelled, and shall forthwith he cancelled accordingly,
and a new certificate may be issued to the transferee in respect of the shares transferred to him at such fee as is provided in
paragraph (2) of this Article, If any of the shares included in the certificate so given up shall be retained by the transferor
a new certificate for the balance may be issued to him at the aforesaid fee payable by the transferor to the Company in respect
thereof.
(2) The
fee referred to in paragraph (1) above shall be an amount not exceeding the relevant maximum amount as the Designated Stock Exchange
may from time to time determine provided that the Board may at any time determine a lower amount for such fee.
16. If a share certificate shall be
damaged or defaced or alleged to have been lost, stolen or destroyed a new certificate representing the same shares may be issued
to the relevant Member upon request and on payment of such fee as the Company may determine and subject to compliance with such
terms (if any) as to evidence and indemnity and to payment of the costs and reasonable out-of-pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board may think fit and, in case of damage or defacement, on delivery
of the old certificate to the Company provided always that where share warrants have been issued, no new share warrant shall be
issued to replace one that has been lost unless the Board has determined that the original has been destroyed.
LIEN
17. The
Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to
contribute money or property or a confirmation thereof to the Company and the Company shall also have a first and paramount lien
on every share registered in the name of a Member (whether or not jointly with other Members) for all the debts arid liabilities
of such Member or his estate to the Company whether the same shall have been incurred before or after notice to the Company of
any equitable or other interest of any person other than such Member, and whether the period for the payment or discharge of the
same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such Member or his
estate and any other person, whether a Member of the Company or not. The Company’s lien on a share shall extend to all dividends
or other moneys payable thereon or in respect thereof. The Board may at any time, generally or in any particular case, waive any
lien that has arisen or declare any share exempt in whole or in part, from the provisions of this Article.
18. In
the absence of express provisions regarding sale in the promissory note or other binding obligation to contribute money or property,
the Company may sell in such manner as the Board determines any share on which the Company has a lien, but no sale shall be made
unless some sum in respect of which the lien exists is presently payable, or the liability or engagement in respect of which such
lien exists is liable to he presently fulfilled or discharged nor until the expiration of fourteen clear days after a notice in
writing, stating and demanding payment of the sum presently payable, or specifying the liability or engagement and demanding fulfillment
or discharge thereof and giving notice of the intention to sell in default, has been served on the registered holder for the time
being of the share or the person entitled thereto by reason of his death or bankruptcy.
19. The
net proceeds of the sale shall be received by the Company and applied in or towards payment or discharge of the debt or liability
in respect of which the lien exists, so far as the same is presently payable, and any residue shall (subject to a like lien for
debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the person entitled to the share
at the time of the sale. To give effect to any such sale the Board may authorize some person to transfer the shares sold to the
purchaser thereof. The purchaser shall be registered as the holder of the shares so transferred and he shall not be bound to see
to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the
proceedings relating to the sale.
CALL ON SHARES AND FORFEITURE
20. Where
a share is not fully paid for on issue, the directors may, subject to the terms on which the share was issued, at any time serve
upon the Member a written notice of call specifying a date for payment to be made.
21. The
written notice of call shall name a further date not earlier than the expiration of fourteen days from the date of service of the
notice on or before which the payment required by the notice is to be made and shall contain a statement that in the event of non-payment
at or before the time named in the notice, the share will be liable to be forfeited.
22. Where
a notice complying with the foregoing provisions has been issued and the requirements of the notice have not been complied with,
the directors by Resolution of Directors may, at any time before tender of payment forfeit and cancel the share to which the notice
relates.
23. Upon
forfeiture and cancellation pursuant to this Article the Company shall be under no obligation to refund any moneys to that Member
and that Member shall be discharged from any further obligation to the Company as regards the forfeited share.
24. The
Board may, if it thinks fit, receive from any Member willing to advance the same, and either in money or money’s worth, all
or any part of the moneys uncalled and unpaid or instalments payable upon any shares held by him and upon all or any of the money
so advanced (until the same would, but for such advance, become presently payable) pay interest at such rate (if any) as the Board
may decide. The Board may at any time repay the amount so advanced upon giving to such Member not loss than one month’s Notice
of its intention in that behalf, unless before the expiration of such notice the amount so advanced shall have been called up on
the shares in respect of which it was advanced. Such payment in advance shall not entitle the holder of such share or shares to
participate in respect thereof in a dividend subsequently declared.
25. When
any Share has been forfeited. Notice of the forfeiture shall be served upon the person who was before forfeiture the holder of
the share. No forfeiture shall be invalidated by any omission or neglect to give such Notice.
26. The
Board may accept the surrender of any Share liable to be forfeited hereunder and, in such case, references in these Articles to
forfeiture will include surrender.
27. Any
Share so forfeited shall be deemed the property of the Company and may be sold, re-allotted or otherwise disposed of to such person,
upon such terms and in such manner as the Board determines, and at any time before a sale, re-allotment or disposition the forfeiture
may be annulled by the Board on such terms as the Board determines.
28. A
declaration by a Director or the Secretary that a Share has been forfeited on a specified date shall be conclusive evidence of
the facts therein stated as against all persons claiming to be entitled to the Share, and such declaration shall (subject to the
execution of an instrument of transfer by the Company if necessary) constitute a good title to the Share, and the person to whom
the Share is disposed of shall be registered as the holder of the Share and shall not be bound to see to the application of the
consideration (if any), nor shall his title to the Share be affected by any irregularity in or invalidity of the proceedings in
reference to the forfeiture, sale or disposal of the Share. When any Share shall have been forfeited, notice of the declaration
shall be given to the Member in whose name it stood immediately prior to the forfeiture, and an entry of the forfeiture, with the
date thereof; shall forthwith be made in the register, but no forfeiture shall be in any manner invalidated by any omission or
neglect to give such notice or make any such entry.
29. Notwithstanding
any such forfeiture as aforesaid, the Board may at any time, before any Shares so forfeited shall have been sold, re-allotted
or otherwise disposed of, permit the Shares forfeited to be bought back upon the terms of payment of all calls and interest
due upon and expenses incurred in respect of the Share, and upon such further terms (if any) as it thinks fit.
REGISTER OF MEMBERS
30. (1)
The Company shall keep a register of members containing:
(a) the
names and addresses of the persons who hold registered shares in the Company;
(b) the
number of each class and series of registered shares held by each person;
(c) the
date on which the name of each person was entered in the share register; and
(d) the
date on which any person ceased to be a Member.
(2) The Company shall
keep the register of members or a copy of the register of members at the office of its registered agent.
31. [RESERVED]
RECORD DATES
32. (1)
For the purpose of determining the Members entitled to notice of or to vote at any meeting of Members, or any adjournment thereof,
or entitled to vote on any Written Resolution, or entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares or for purpose of
any other lawful action, the Board may fix, in advance, a date as the record date for any such determination of Members, which
date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, not more than sixty (60)
days prior to any other such action.
(2) If
the Board does not fix a record date for any meeting of Members, the record date for determining the Members entitled to
a notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice
is given, or. If in accordance with these Articles notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. If a Written Resolution is to be passed, the record date for determining the Members
entitled to vote on the Written Resolution, when no prior action by the Board is necessary, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company by delivery to
its registered office. The record date for determining the Members for any other purpose shall be at the close of business on
the day on which the Board adopts the resolution relating thereto.
(3) A
determination of the Members of record entitled to notice of or to vote at a meeting of the Members shall apply to any adjournment
of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
TRANSFER OF SHARES.
33. Subject
to these Articles, any Member may transfer all or any of his shares by an instrument of transfer in the usual or common form or
in a form prescribed by the Designated Stock Exchange or in any other form approved by the Board and may be under hand or, if the
transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner
of execution as the Board may approve from time to time.
34. (1)
No transfer shall be made to an infant or to a person of unsound mind or under other legal disability.
35 [RESERVED]
36. [RESERVED]
37. [RESERVED]
TRANSMISSION OF SHARES
38. If
a Member dies, the survivor or survivors where the deceased was a joint holder, and his legal personal representatives where he
was a sole or only surviving holder, will be the only persons recognized by the Company as having any title to his interest in
the shares; but nothing in this Article will release the estate of a deceased Member (whether sole or joint) from any liability
in respect of any share which had been solely or jointly held by him,
39. Any
person becoming entitled to a share in consequence of the death or bankruptcy or winding-up of a Member may, upon such evidence
as to his title being produced as may be required by the Board, elect either to become the holder of the share or to have some
person nominated by him registered as the transferee thereof. If he elects to become the holder he shall notify the Company in
writing either at the Registration Office or Office, as the case may be, to that effect. If he elects to have another person registered
he shall execute a transfer of the share in favor of that person. The provisions of these Articles relating to the transfer
and registration of transfers of shares shall apply to such notice or transfer as aforesaid as if the death or bankruptcy of the
Member had not occurred and the notice or transfer were a transfer signed by such Member.
UNTRACEABLE MEMBERS
40. The
Company may cease sending checks for dividend entitlements or dividend warrants by post if such checks or warrants have been left
uncashed on two consecutive occasions. However, The Company may exercise the power to cease sending checks for dividend entitlements
or dividend warrants after the first occasion on which such a check or warrant is returned undelivered.
MEETING OF MEMBERS
| 41. | No business shall be transacted at any meeting unless
a quorum of members is present at the time when the meeting proceeds to business. At any meeting of the Members any Member(s)
entitled to vote and present in person or proxy or (in the case of a Member being a corporation) by its duly authorised representative
representing not less than one-third in nominal value of the total issued voting shares in the Company throughout the meeting
shall form a quorum for all purposes. |
| 42. | If, within half an hour from the time appointed for the
meeting, a quorum is not present, the meeting shall be dissolved. |
| 43. | At every meeting the chairman of the Board of Directors
of the Company shall preside at every meeting shall serve as the chairman (the “Chairman”) of the meeting.
If at any meeting the chairman is not present within fifteen (15) minutes after the time appointed for holding the meeting, or
is not willing to act as chairman, the Directors present shall choose an officer of the Company who is present to serve as Chairman |
| 44. | The Chairman may, with the consent of the meeting, adjourn
any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than
the business left unfinished at the meeting from which the adjournment took place. |
NOTICE OF MEETINGS OF MEMBERS
45. (1)
A meeting of Members may be called by not less than ten (10) clear days’ Notice, but a meeting of Members may be called by
shorter notice if Members holding a 75 per cent majority of the total voting rights on all the matters to be considered at the
meeting have waived notice of the meeting and, for this purpose, the presence of a Member shall be deemed to constitute a waiver
on his part.
(2) The
notice shall specify the time and place of the meeting and the general nature of the business.
| 46. | The accidental omission to give Notice of a meeting or
(in cases where instruments of proxy are sent out with the Notice) to send such instrument of proxy to, or the non-receipt of
such Notice or such instrument of proxy by, any person entitled to receive such Notice shall not invalidate any resolution passed
or the proceedings at that meeting. |
VOTING
47. Subject
to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Memorandum
or these Articles, at any meeting of Members every Member present in person or by proxy or, in the case of a Member being a corporation,
by its duly authorized representative shall have one vote for every fully paid share of which he is the holder but so that no amount
paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up
on the share.
48. The
result of the vote shall be deemed to be the resolution of the meeting at which the vote was demanded. The Company shall only be
required to disclose the voting figures on a vote if such disclosure is required by the rules of the Designated Stock Exchange
or any other low or rule applicable to the Company.
49. Votes
may be given either personally or by proxy.
50. A
person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.
51. All
questions submitted to a meeting shall be decided by a simple majority of votes except where a greater majority is required by
these Articles or by the Act. In the case of an equality of votes the chairman of such meeting shall not be entitled to a second
or casting vote and the resolution shall fail.
52. Where
there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share
as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior
who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders,
and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the joint
holding. Several executors or administrators of a deceased Member in whose name any share stands shall for the purposes of this
Article be deemed joint holders thereof.
53. (1)
A Member who is a patient for any purpose relating to mental health or in respect of whom an order has been made by any court having
jurisdiction for the protection or management of the affairs of persons incapable of managing their own affairs may vote by his
receiver, committee, curator bonis or other person in the nature of a receiver, committee or curator bonis appointed by such court,
and such receiver, committee, curator bonis or other person may vote, and may otherwise act and be treated as if he were the registered
holder of such shares for the purposes of meetings of Members, provided that such evidence as the Board may require of the authority
of the person claiming to vote shall have been deposited at the Office, head office or Registration Office, as appropriate, not
less than forty-eight (48) hours before the time appointed for holding the meeting, or adjourned meeting, as the case may be.
(2) Any
person entitled to be registered as the holder of any shares may vote at any meeting of Members in respect thereof in
the same manner as if he were the registered holder of such shares, provided that forty-eight (48) hours at least
before the time of the holding of the meeting or adjourned meeting, as the case may be, at which he proposes to vote, he
shall satisfy the Board of his entitlement to such shares, or the Board shall have previously admitted his right to vote at
such meeting in respect thereof.
54. No
Member shall, unless the Board otherwise determines, be entitled to attend and vote and to be reckoned in a quorum at any general
meeting unless he is duly registered and all calls or other sums presently payable by him in respect of shares in the Company have
been paid.
55. If:
(a) any
objection shall be raised to the qualification of any voter; or
(b) any
votes have been counted which ought not to have been counted or which might have been rejected; or
(c) any
votes are not counted which ought to have been counted;
then the objection or
error shall not vitiate the decision of the meeting or adjourned meeting on any resolution unless the same is raised or pointed
out at the meeting or, as the case may be, the adjourned meeting at which the vote objected to is given or tendered or at which
the error occurs. Any objection or error shall be referred to the chairman of the meeting and shall only vitiate the decision of
the meeting on any resolution if the chairman decides that the same may have affected the: decision of the meeting. The decision
of the chairman on such matters shall be final and conclusive.
PROXIES
56. Any
Member entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend
and vote instead of him. A Member who is the holder of two or more shares may appoint more than one proxy to represent him and
vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a Member. In addition, a proxy
or proxies representing either a Member who is an individual or a Member which is a corporation shall be entitled to exercise the
same powers on behalf of the Member which he or they represent as such Member could exercise.
57. The
instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing
or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized
to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof
it shall be assumed, unless the contrary appears, that such officer was duly authorized to sign such instrument of proxy on behalf
of the corporation without further evidence of the facts.
58. The
instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is
signed, or a certified copy of such power or authority, shall be delivered to such place or one of such places (if any) as may
be specified for that purpose in or by way of note to or in any document accompanying the notice convening the meeting (or, if
no place is so specified at the Registration Office or the Office, as may be appropriate) not less than forty-eight (48) hours
before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to
vote and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after
the expiration of twelve (12) months from the date named in it as the date of its execution, except at an adjourned meeting in
cases where the meeting was originally held within twelve (12) months from such date. Delivery of an instrument appointing a proxy
shall not preclude a Member from attending and voting in person at the meeting convened and in such event, the instrument appointing
a proxy shall be deemed to be revoked.
59. Instruments
of proxy shall be in any common form or in such other form as the Board may approve (provided that this shall not preclude the
use of the two-way form) and the Board may, if it thinks fit, send out with the notice of any meeting forms of instrument of proxy
for use at the meeting. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a vote and to
vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy
shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it
relates.
60. (1)
A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity
of the principal, or revocation of the instrument of proxy or of the authority under which it was executed, provided that no intimation
in writing of such death, insanity or revocation shall have been received by the Company at the Office or the Registration Office
(or such other place as may be specified for the delivery of instruments of proxy in the notice convening the meeting or other
document sent therewith) two hours at least before the commencement of the meeting or adjourned meeting, at which the instrument
of proxy is used.
(2) Anything
which under these Articles a Member may do by proxy he may likewise do by his duly appointed attorney and the provisions of these
Articles relating to proxies and instruments appointing proxies shall apply mutatis mutandis in relation to any such attorney and
the instrument under which such attorney is appointed.
CORPORATIONS ACTING BY REPRESENTATIVES;CLEARING HOUSES
61. Any
corporation which is a Member may by resolution of its directors or other governing body authorize such person as it thinks
fit to act as its representative at any meeting of the Company or at any meeting of any class of Members. The person so
authorized shall be entitled to exercise the same powers on behalf of such corporation as the corporation could exercise if
it were an individual Member and such corporation shall for the purposes of these Articles be deemed to be present in person
at any such meeting if a person so authorized is present thereat.
62. If
a clearing house (or its nominee(s)), being a corporation, is a Member, it may authorize such persons as it thinks fit to act as
its representatives at any meeting of the company or at any meeting of any class of Members provided that the authorization shall
specify the number and class of shares in respect of which each such representative is so authorized. Each person so authorized
under the provisions of this Article shall be deemed to have been duly authorized without further evidence of the facts and he
entitled to exercise the same rights and powers on behalf of the clearing house (or its nominees)) as if such person was the registered
holder of the shares of the Company held by the clearing house (or its nominee(s)) including the right to vote individually.
63. Any
reference in these Articles to a duly authorized representative of a Member being a corporation shall mean a representative authorized
under the provisions of this Article.
WRITTEN RESOLUTIONS OF MEMBERS
64. Any
Written Resolution of the Members shall be deemed to have been passed at a meeting held on the date on which it was signed by the
last Member to sign, and where the resolution states a date as being the date of his signature thereof by any Member the statement
shall be prima facie evidence that it was signed by him on that date. Such a resolution may consist of several documents in the
like form, each signed by one or more relevant Members.
BOARD OF DIRECTORS
65. (1)
Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two (2). There shall
be no maximum number of Directors unless otherwise determined from time to time by the Directors. The first director or directors
shall be appointed by the registered agent of the Company and thereafter by the Members or the Directors for such terms as the
Members or Directors may determine.
(2) No Director shall be required to hold
any shares of the company by way of qualification and a Director who is not a Member shall be entitled to receive notice of and
to attend and speak at any general meeting of the Company and of all classes of shares of the Company .
66. Notwithstanding
the provisions of section 114 of the Act, each director holds office until his successor takes office or until his earlier death,
resignation or removal by Resolution of Members or a resolution passed by the majority of the remaining Directors.
DISQUALIFICATION OF DIRECTORS
67 The office of a Director shall be
vacated if the Director:
(1) resigns
his office by notice in writing delivered to the Company at the Office or tendered at a meeting of the Board;
(2) becomes
of unsound mind or dies;
(3) without
special leave of absence from the Board, is absent from meetings of the Board for six consecutive months and the Board resolves
that his office be vacated; or
(4) becomes
bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;
(5) is
prohibited by law from being a Director; or
(6) ceases
to be a Director by virtue of any provision of the Statutes or is removed from office pursuant to these Articles.
EXECUTIVE DIRECTORS
(68) The
Board may from time to time appoint any one or more of its body to be a managing director, joint managing director or deputy
managing director or to hold any other employment or executive office with the Company for such period (subject to
their continuance as Directors) and upon such terms as the Board may determine and the Board may revoke or terminate any of
such appointments. Any such revocation or termination as aforesaid shall be without prejudice to any claim for damages that
such Director may have against the Company or the Company may have against such Director. A Director appointed to an
office under this Article shall be subject to the same provisions as to removal as the other Directors of the Company, and
he shall (subject to the provisions of any contract between him and the Company) ipso facto and immediately cease to hold
such office if he shall cease to hold the office of Director for any cause.
(69) Notwithstanding
Articles 70, 71, 72 and 73, an executive director appointed to an office under Article 68 hereof shall receive such remuneration
(whether by way of salary, commission, participation in profits or otherwise or by all or any of those modes) and such other benefits
(including pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time determine,
and either in addition to or in lieu of his remuneration as a Director.
DIRECTORS’ FEES AND EXPENSES
(70) The
Directors shall receive such remuneration as the Board may from time to time determine. Each Director shall be entitled to be repaid
or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred by him in attending meetings
of the Board or committees of the board or general meetings or separate meetings of any class of shares or of debenture of the
Company or otherwise in connection with the discharge of his duties as a Director. The ordinary remuneration of the Directors shall
from time to time be determined by the Company in general meeting and shall (unless otherwise directed by the resolution by which
it is voted) be divided amongst the Board in such proportions and in such manner as the Board may agree or, failing agreement,
equally, except that any Director who shall hold office for part only of the period in respect of which such remuneration is payable
shall be entitled only to rank in such division for a proportion of remuneration related to the period during which he has held
office. Such remuneration shall be deemed to accrue from day to day.
(71) Each
Director shall be entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected
to be incurred by him in attending meetings of the Board or committees of the Board or general meetings or separate meetings of
any class of shares or of debentures of the Company or otherwise in connection with the discharge of his duties as a Director.
(72) Any
Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of
the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution
for any ordinary remuneration provided for by or pursuant to any other Article.
(73) The
Board shall obtain the approval of the Company Resolution of Members before making any payment to any Director or past Director
of the Company by way of compensation for loss of office, or as consideration for or in connection with his retirement from office
(not being payment to which the Director is contractually entitled).
DIRECTORS’ INTERESTS
(74) (1)
No contract or transaction between the Company and one or more of its Directors (an “Interested Director”) or
officers, or between the Company and any of their affiliates (an “Interested Transaction”), shall be void or
voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of
the Board or committee which authorizes the contract or transaction, or solely because any such Director’s or
officer’s votes are counted for such purpose, if
| (a) | The material facts as to the Director’s or officer’s relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative Votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or |
| (b) | The material facts, as to the Director’s or officer’s relationship or interest and
as to the contract or transaction are disclosed or are known to the Shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the Shareholders; or |
| (c) | The contract or transaction is fair as to the Company as of the time it is authorized,
approved or ratified, by the Board, a committee or the Shareholders. |
(2) A majority of the
disinterested Directors must vote in favour of any Interested Transaction and determine that the terms of the Interested Transaction
are no less favourable to the Company than those that would be available to the Company with respect to such a transaction from
unaffiliated third parties.
(3) Subject
to Article 74(4), the Directors shall review and approve by Board Resolution all payments to our founders, officers, directors,
special advisers, consultants and their respective affiliates with any Interested Director abstaining from such review and approval.
(4) The
Company shall pay an aggregate of US$7,500 per month to CIS Acquisition Holding Co Ltd. for office space, administrative services,
and secretarial support, to begin to accrue immediately after the IPO and to be paid at the time of an Acquisition Transaction
or in the event of the Company’s liquidation, only from the interest earned (if any) on the Trust Account or any assets not
held on trust (if any).
(5) The
provisions of this Article 74 may not be amended without the affirmative vote of the holders of 80% of the issued IPO Shares.
GENERAL POWERS OF THE DIRECTORS
(75) (1)
The business of the Company shall be managed and conducted by the Board, which may pay all expenses incurred in forming and registering
the Company and may exercise all powers of the Company (whether relating to the management of the business of the Company or otherwise)
which are not by the Statutes, the Memorandum or by these Articles required to be exercised by the Members.. The general powers
given by this Article shall not be limited or restricted by any special authority or power given to the Board by any other Article.
(2) Without prejudice to the
general powers conferred by these Articles it is hereby expressly declared that the Board shall have the following powers:
| (a) | To give to any person the right or option of requiring at a future date that an allotment shall
be made to him of any share at par or at such premium as may be agreed. |
| (b) | To give to any Directors, officers or employees of the Company an interest in any particular business
or transaction or participation in the profits thereof or in the general profits of the Company either in addition to or in substitution
for a salary or other remuneration. |
| (c) | To resolve that the Company be deregistered in the British Virgin islands and continued in a named
jurisdiction outside the British Virgin Islands subject to the provisions of the Act. |
76. The
Board may by power of attorney appoint any company. firm or person or any fluctuating body of persons, whether nominated
directly or indirectly by the Boards to be the attorney or attorneys of the Company for such purposes and with such powers.
authorities and discretions (not exceeding those vested in or exercisable by the Board under these Articles) and for such
period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the
protection and convenience of persons dealing with any such attorney as the Board may think fit, and may also authorize any
such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. Such attorney or attorneys
may. if so authorized under the Seal of the Company, execute any deed or instrument under their personal seal with the same
effect as the affixation of the Company’s Seal.
77. The
Board may entrust to and confer upon a managing director, joint managing director, deputy managing director, an executive
director or any Director any of the powers exercisable by it upon such terms and conditions and with such restrictions as it
thinks fit, and either collaterally with, or to the exclusion of, its own powers, and may from time to time revoke or vary
all or any of such powers but no person dealing in good faith and without notice of such revocation or variation shall be
affected thereby.
78. All
checks, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not, and all receipts
for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner
as the Board shall from time to time by resolution determine. The Company’s banking accounts shall be kept with such banker
or bankers as the Board shall from time to time determine.
79. (l) The
Board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it
is associated in business) in establishing and making contributions out of the Company’s moneys to any schemes or funds for
providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used
in this and the following paragraph shall include any Director or ex-Director who may hold or have held any executive office or
any office of profit under the Company or any of its subsidiary companies) and ex-employees of the Company and their dependants
or any class or classes of such person.
(2) The Board may pay, enter into
agreements to pay or make grants of revocable or irrevocable pensions or other benefits to employees and ex-employees and their
dependants, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees
or their dependants are or may become entitled under any such scheme or fund as mentioned in the last preceding paragraph. Any
such pension or benefit may, as the Board considers desirable, be granted to an employee either before and in anticipation of or
upon or at any time after his actual retirement, and may be subject or not subject to any terms or conditions as the Board may
determine.
80. A
director, in exercising his powers or performing his duties, shall act honestly and in good faith and in what the director believes
to be in the best interests of the Company. Notwithstanding the foregoing, if the Company is a wholly-owned subsidiary, a director
may, when exercising powers or performing duties as a director, act in a manner which he believes is in the best interests of the
Company’s parent (as defined in the Act) even though it may not be in the best interests of the Company.
BORROWING POWERS
81. The
Board may exercise all the powers of the Company to raise or borrow money and to mortgage or charge all or any part of the undertaking,
property and assets (present and future) of the Company and, subject to the Act, to issue debentures, bonds and other securities,
whether outfight or as collateral security for any debt, liability or obligation of the Company or of any third party.
82. Debentures,
bonds and other securities may be made assignable free from any equities between the Company and the person to whom the same may
be issued.
83. Any
debentures, bonds or other securities may be issued at a discount (other than shares), premium or otherwise and with any special
privileges as to redemption, surrender, drawings, allotment of shares.
84. The
Board shall cause a proper register to be kepi, in accordance with the provisions of the Act, of all charges specifically
affecting the property of the Company mid of uny series of debentures issued by the Company and shall duly comply with the
requirements of the Act in regard to the registration of charges and debentures therein specified and otherwise.
PROCEEDINGS OF THE DIRECTORS
85. The
Board may meet for the dispatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions
arising at any meeting shall be determined by a majority of votes. In the case of any equality of votes the chairman of the meeting
shall not have an additional or casting vote and the resolution shall fail.
86. A
meeting of the Board may be convened by the Secretary on request of a Director or by any Director. The Secretary shall convene
a meeting of the Board of which notice may be given in writing or by telephone or in such other manner as the Board may from time
to time determine whenever he shall be required so to do by the president or chairman, as the case may be, or any Director.
87. (l) The
quorum necessary for the transaction of the business of the Board shall be equal to a majority of the Board.
(2) Directors may participate in any meeting of the Board by means of a conference telephone or other communications equipment through which all persons participating in the meeting can communicate with each other simultaneously and instantaneously and, for the purpose of counting a quorum, such participation shall constitute presence at a meeting as if those participating were present in person.
(3) Any Director who ceases to be a Director at a Board meeting may continue to be present and to act as a Director and be counted in the quorum until the termination of such Board meeting if no other Director objects and if otherwise a quorum of Directors would not be present.
88. The
continuing Directors or a sole continuing Director may act notwithstanding any vacancy in the Board but, if and so long as the
number of Directors is reduced below the minimum number fixed by or in accordance with these Articles, the continuing Directors
or Director, notwithstanding that the number of Directors is below the number fixed by or in accordance with these Articles as
the quorum or that there is only one continuing Director, may act for the purpose of filling vacancies in the Board or of summoning
meetings of the Members of the Company but not for any other purpose.
89. The
Chairman of the Board shall be the chairman of all meetings of the Board. If the Chairman of the Board is not present at any meeting
within five (5) minutes after the time appointed for holding the same, the Directors present may choose one of their number to
be chairman of the meeting.
90. A
meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for
the time being vested in or exercisable by the Board.
91. (1) The
Board may delegate any of its powers, authorities and discretions to committees, consisting of such Director or Directors
and other persons as it thinks fit, and they may, from time to time, revoke such delegation or revoke the appointment of
and discharge any such committees either wholly or in part, and either as to persons or purposes. Any committee so formed
shall, in the exereise of the powers, authorities and discretions so delegated, conform to any regulations which may be
imposed on it by the Board.
(2) All
acts done by any such committe in conformity with such regulations, and in fulfillment of the purposes for which it was
appointed, but not otherwise, shall have like force and effect as if done by the Board, and the Board (or if the Board delegates
such power, the committee) shall have power to remunerate the members of any such committee, and charge Such remuneration to the
current expenses of the Company.
92. The
meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained
in these Articles for regulating the meetings and proceedings of the Board so far as the same are applicable and are not
superseded by any regulations imposed by the Board under the last preceding Article, indicating, without limitation,
any committee charter adopted by the Board for purposes or in respect of any such committee.
93. A
resolution in writing signed by all the Directors except such as are temporarily unable to act through ill-health or
disability shall (provided that such number is sufficient to constitute a quorum and further provided that a copy of such
resolution has been given or the contents thereof communicated to all the Directors for the time being entitled to receive
notices of Board meetings in the same manner as notices of meetings are required to be given by these Articles) be as valid
and effectual as if a resolution had been passed at a meeting of the Board duly convened and held. Such resolution may be
contained in one document or in several documents in like form each signed by one or more of the Directors and for this
purpose a facsimile signature of a Director shall be treated as valid.
94. All
acts bona fide done by the Board or by any committee or by any person acting as a Director or members of a committee, shall, notwithstanding
that it is afterwards discovered that there was some defect in the appointment of any member of the Board or such committee or
person acting as aforesaid or that they or any of them were disqualified or had vacated office, be as valid as if every such person
had been duly appointed and was qualified and had continued to be a Director or member of such committee.
OFFICERS
95. (1)
The officers of the Company shall consist of the President/Chief Executive Officer, the Treasurer/Chief Financial Officer and Secretary
and such additional officers (who may or may not be Directors) as the Board may from time to time determine, all of whom shall
be deemed to be officers for the purposes of the Act and these Articles.
| (2) | The Directors shall, as soon as may be after each appointment or election of Directors, elect amongst
the Directors a chairman and if more than one Director is proposed for this office, the election to such office shall take place
in such manner as the Directors may determine. |
| (3) | The officers shall receive such remuneration as the Directors may from time to time determine. |
96. (1)
The Secretary and additional officers, if any, shall be appointed by the Board and shall hold office on such terms and for such
period as the Board may determine. If thought fit, two or more persons may be appointed as joint Secretaries. The Board may also
appoint from time to time on such terms as it thinks tit one or more assistant or deputy Secretaries.
(2)
The Secretary shall attend all meetings of the Members and shall keep correct minutes of such meetings and enter the same in the proper books provided for the purpose. He shall perform such other duties as are prescribed by these Articles or as may be prescribed by the Board.
97. The
officers of the Company shall have such powers and perform such duties in the management, business and affairs of the Company as
may be delegated to them by the Directors from time to time.
98. A
provision of the Act or of these Articles requiring or authorizing a thing to be done by or to a Director and the Secretary shall
not be satisfied by its being done by or to the same person acting both as Director and as or in place of the Secretary.
REGISTER OF DIRECTOS AND OFFICERS
99. The
Company shall cause to be kept in one or more books at its Office a Register of Directors and officers in which there shall
be entered the full names and addresses of the Directors and officers and such other particulars as required by the Act or as
the Directors may determine.
MINUTES
100. In
accordance with the Act. the Company Shall keep the following records at the office of its registered agent or at such other place
as the Directors may determine:
(1) minutes
of all meetings and all resolutions of members and of classes of members; and
(2) minutes
of all meetings and all resolutions of directors and committees of directors.
SEAL
101. (l) The
Company shall have one or more Seals, as the Board may determine. For the purpose of sealing documents creating or evidencing securities
issued by the Company, the Company may have a securities seal which is a facsimile of the Seal of the Company with the addition
of the word “Securities” on its face or in such other form as the Board may approve. The Board shall provide for the
custody of each Seal and no Seal shall be used without the authority of the Board or of a committee of the Board authorized by
the Board in that behalf. Subject as otherwise provided in these Articles, any instrument to which a Seal is affixed shall be signed
autographically by one Director and the Secretary or by two Directors or by such other person (including a Director) or persons
as the Board may appoint, either generally or in any particular case, save that as regards any certificates for shares or debentures
or other securities of the Company the Board may by resolution determine that such signatures or either of them shall be dispensed
with or affixed by some method or system of mechanical signature. Every instrument executed in manner provided by this Article
shall be deemed to be sealed and executed with the authority of the Board previously given.
(2) Where
the Company has a Seal for use abroad, the Board may by writing under the seal appoint any agent or committee abroad to be the
duly authoized agent of the Company for the purpose of affixing and using such Seal and the Board may impose restrictions on the
use thereof as may be thought fit. Wherever in these Articles reference is made to the Seal, the reference shall, when and so far
as may be applicable, be deemed to include any such other Seal as aforesaid.
AUTHENTICATION OF DOCUMENTS
102. Any
Director or the Secretary or any person appointed by the Board for the purpose may authenticate any documents affecting the constitution
of the Company and any resolution passed by the Company or the Board or any committee, and any books, records, documents and accounts
relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies or extracts, and if
any books, records, documents or accounts are elsewhere than at the Office or the head office the local manager or other officer
of the Company having the custody thereof shall be deemed to be a person so appointed by the Board. A document purporting to be
a copy of a resolution, or an extract from the minutes of a meeting, of the Company or of the Board or any committee which is so
certified shall be conclusive evidence in favor of all persons dealing with the Company upon the faith thereof that such resolution
has been duly passed or, as the case may be, that such minutes or extract is a true and accurate record of proceedings at a duly
constituted meeting.
DIVIDENDS AND OTHER PAYMENTS
103. Subject
to the Act and the provisions of the Memorandum, the Board may from time to time recommend and pay to all Members on a pro rata
basis a dividend or a distribution at such time and of such an amount as they think fit if they are satisfied, oh reasonable grounds
that immediately after the payment of the dividend or distribution, the value of the Company’s assets exceeds its liabilities
and the Company is able to pay its debts as they fall due. The resolution shall include a statement to that effect.
104. Before
declaring and paying any dividend, the Board may set aside out of the profits of the Company such sums as it determines as reserves
which shall, at the discretion of the Board, be applicable for any purpose to which the profits of the Company may be properly
applied and pending such application may, also at such discretion, either be employed in the business of the Company or be invested
in such investments as the Board may from time to time think fit and so that it shall not be necessary to keep any investments
constituting the reserve or reserves separate or distinct from any other investments of the Company. The Board may also without
placing the same to reserve carry forward any profits which it may think prudent not to distribute.
105. Subject
to the provisions of the Memorandum, except in so far as the rights attaching to, or the terms of issue of, any share otherwise
provide:
| (a) | all dividends shall be declared and paid according to the amounts paid up on the shares in respect
of which the dividend is paid; and |
| (b) | all dividends shall be apportioned and paid pro rata according to the amounts paid up on the shares
during any portion or portions of the period in respect of which the dividend is paid. |
106. The
Board may deduct from any dividend or other moneys payable to a Member by the Company on or in respect of any shares all sums of
money (if any) presently payable by him to the Company on account of calls or otherwise.
107. No
dividend or other moneys payable by the Company on or in respect of any share shall bear interest against the Company.
108. Any
dividend, interest or other sum payable in cash to the holder of shares may be paid by check or warrant sent through the post addressed
to the holder at his registered address or, in the case of joint holders, addressed to the holder whose name stands first in the
Register in respect of the shares at his address as appearing in the Register or addressed to such person and at such address as
the holder or joint holders may in writing direct. Every such check or warrant shall, unless the holder or joint holders otherwise
direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands
first on the Register in respect of such shares, and shall be sent at his or their risk and payment of the check or warrant by
the bank on which it is drawn shall constitute a good discharge to the Company notwithstanding that it may subsequently appear
that the same has been stolen or that any endorsement thereon has been forged. Any one of two or more joint holders may give effectual
receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.
108. Any
dividend, interest or other sum payable in cash to the holder of shares may be paid by check or warrant sent through the post
addressed to the holder at his registered address or, in the case of joint holders, addressed to the holder whose name stands
first in the Register in respect of the shares at his address as appearing in the Register or addressed to such person and at
such address as the holder or joint holders may in writing direct. Every such check or warrant shall, unless the holder or joint
holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder
whose name stands first on the Register in respect of such shares, and shall be sent at his or their risk and payment of the check
or warrant by the bank on which it is drawn shall constitute a good discharge to the Company notwithstanding that it may subsequently
appear that the same has been stolen or that any endorsement thereon has been forged. Any one of two or more joint holders may
give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such
joint holders.
109. All
dividends or bonuses unclaimed for one (1) year after having been declared may be invested or otherwise made use of by the Board
for the benefit of the Company until claimed. Any dividend or bonuses unclaimed after a period of six (6) years from the date of
declaration shall be forfeited and shall revert to the Company. The payment by the Board of any unclaimed dividend or other sums
payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof.
110. Whenever
the Board has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied
wholly or in part by the distribution of specific assets of any kind and in particular of paid up shares, debentures or
warrants to subscribe securities of the Company or any other company, or in any one or more of such ways, and where any
difficulty arises in regard to the distribution the Board may settle the same as it thinks expedient, and in particular may
issue certificates in respect of fractions of shares, disregard fractional entitlements or round the same up or down, and may
fix the value for distribution of such specific assets, or any thereof, and may determine that cash payments shall be made to
any Members upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such
specific insets in trustees as may seem expedient to the Board and may appoint any person to sign any requisite instruments
of transfer and other documents on behalf of the persons entitled to the dividend, and such appointment shall be effective
and binding on the Members. The Board may resolve that no such assets shall by made available to Members with registered
addresses in any particular territory or territories where, in the absence of a registration statement or other special
formalities, such distribution of assets would or might, in the opinion of the Board, be unlawful or impracticable and in
such event the only entitlement of the Members aforesaid shall be to receive cash payments as aforesaid, Members affected as
a result of the foregoing sentence shall not be or be deemed to be a separate class of Members for any purpose
whatsoever.
111. (I)
Whenever the Board has resolved that a dividend be paid or declared on any class of shares of the Company, the Board may further
resolve either:
| (a) | that
such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the
Members entitled thereto will be entitled to elect to receive such dividend (or part thereof if the Board so determines) in cash
in lieu of such allotment. In such case, the following provisions shall apply: |
| (i) | the
basis of any such allotment shall be determined by the Board; |
| (ii) | the
Board, after determining the basis of allotment, shall give not less than ten (10) days’ Notice to the holders of the relevant
shares of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to
be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order
to be effective; |
| (iii) | the
right of election may be exercised in respect of the whole or part of that portion of the dividend in respect of which the right
of election has been accorded; and |
| (iv) | the
dividend (or that part of the dividend to be satisfied by the allotment of shares as aforesaid) shall not be payable in cash on
shares in respect whereof the cash election has not been duly exercised (“the non-elected shares”) and in satisfaction
thereof shares of the relevant class shall be allotted credited as fully paid up to the holders of the non-elected shares on the
basis of allotment determined as aforesaid and for such purpose the Board shall capitalize and apply out of any part of the undivided
profits of the Company (including profits carried and standing to the credit of any reserves or other special account, share premium
account, capital redemption reserve other than the Subscription Rights Reserve) as the Board may determine, such sum as may be
required to pay up in full the appropriate number of shares of the relevant class for allotment and distribution to and amongst
the holders of the non-elected shares on such basis; or |
| (b) | that
the Members entitled to such dividend shall be entitled to elect to receive an allotment of shares credited as fully paid up in
lieu of the whole or such part of the dividend as the Board may think fit. In such case, the following provisions shall apply; |
| (i) | the
basis of any such allotment shall be determined by the Board; |
| (ii) | the
Board, after determining the basis of allotment, shall give not less than ten (10) days’ Notice to the holders of the relevant
shares of the right of election accorded to them and shall send with such notice forms of election and specify the procedure to
be followed and the place at which and the latest date and time by which duly completed forms of election must be lodged in order
to be effective; |
| (iii) | the
right of election may be exercised in respect of the whole or part of that portion of the dividend in respect of which the rights
of election has been accorded; and |
| (iv) | the
dividend (or that part of the dividend in respect of which a right of election has been accorded) shall not be payable in cash
on shares in Respect whereof the share election has been duly exercised ("the elected shares") and in lieu thereof shares
of the relevant class shall be allocated credited a fully paid up to the holders of the elected shares on the basis of allotment
determined as aforesaid and for such purpose the Board shall capitalize and apply out of any part of the undivided profits of
the Company (including profits carried and standing to the credit of any, reserves or other special account, share premium account.
capital redemption reserve other than the Subscription Rights Reserve) as the Board may determine, such sum as may be required
to pay up in full the appropriate number of shares of the relevant class for allotment and distribution to and amongst the holders
of the elected shares on such basis. |
(2)(a)
The shares allotted pursuant to the provisions of paragraph (1) of this Article shall rank pari passu in all respects with shares
of the same class (if any) then in issue save only as regards participation in the relevant dividend or in any other distributions,
bonuses or rights paid, made, declared or announced prior to or contemporaneously with the payment or declaration of the relevant
dividend unless, contemporaneously with the announcement by the Board of their proposal to apply the provisions of sub-paragraph
(a) or (b) of paragraph (2) of this Article in relation to the relevant dividend or contemporaneously with their announcement
of the distribution, bonus or rights in question, the Board shall specify that the shares to be allotted pursuant to the provisions
of paragraph (1) of this Article shall rank for participation in such distribution, bonus or rights.
| (b) | The
Board may do all acts and things considered necessary or expedient to give effect to any capitalization pursuant to the provisions
of paragraph (1) of this Article, with full power to the Board to make such provisions as it thinks fit in the case of shares
becoming distributable in fractions (including provisions whereby, in whole or in part, fractional entitlements are aggregated
and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of
fractional entitlements accrues to the Company rather than to the Members concerned). The Board may authorize any person to enter
into on behalf of all Members interested, an agreement with the Company providing for such capitalization and matters incidental
thereto and any agreement made pursuant to such authority shall be effective and binding on all concerned. |
| (3) | The
Company may upon the recommendation of the Board by Resolution of Members resolve in respect of any one particular dividend of
the Company that notwithstanding the provisions of paragraph (1) of this Article a dividend may be satisfied wholly in the form
of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend
in cash in lieu of such allotment. |
| (4) | The
Board may on any occasion determine that rights of election and the allotment of shares under paragraph (1) of this Article shall
not be made available or made to any shareholders with registered addresses in any territory where, in the absence of a registration
statement or other special formalities, the circulation of an offer of such rights of election or the allotment of shares would
or might, in the opinion of the Board, be unlawful or impracticable, and in such event the provisions aforesaid shall be read
and construed subject to such determination. Members affected as a result of the foregoing sentence shall not be or be deemed
to be a separate class of Members for any purpose whatsoever. |
| (5) | Any
resolution of the Board declaring a dividend on shares of any class may specify that the same shall be payable or
distributable to the persons registered as the holders of such shares at the close of business on a particular date,
notwithstanding that it may be a date prior to that on which the resolution is passed, and thereupon the dividend shall be
payable or distributable to them in accordance with their respective holdings so registered, but without prejudice to the
rights inter see in respect of such dividend of transferors and transferees of any such shares. The provisions of this
Article shall mutatis mutandis apply to bonuses. capitalization issues, distributions of realized capital profits or offers
or grants by the Company to the Members. |
SUBSCRIPTION
RIGHTS RESERVE
112. The
following provisions shall have effect to the extent that they are not prohibited by and are in compliance with the Act:
| (1) | If,
so long as any of the rights attached to any warrants issued by the Company to subscribe for shares of the Company shall
remain exercisable, the Company does any act or engages in any transaction which, as a result of any adjustments to the
subscription price in accordance with the provisions of the conditions of the warrants, would reduce the subscription price
to below the par value of a share, then the following provisions shall apply: |
| (a) | as
from the date of such act or transaction the Company shall establish and thereafter (subject as provided in this Article) maintain
in accordance with the provisions of this Article a reserve (the “Subscription Rights Reserve”) the amount of which
shall at no time be less than the sum which for the time being would be required to be capitalized and applied in paying up in
full the nominal amount of the additional shares required to be issued and allotted credited as fully paid pursuant to sub-paragraph
(c) below on the exercise in full of all the subscription rights outstanding and shall apply the Subscription Rights Reserve in
paying up such additional shares in full as and when the same are allotted; |
| (b) | the
Subscription Rights Reserve shall not be used for any purpose other than that specified above unless all other reserves of the
Company (other than share premium account) have been extinguished and will then only be used to make good losses of the Company
if and so far as is required by law; |
| (c) | upon
the exercise of all or any of the subscription rights represented by any warrant, the relevant subscription rights shall be exercisable
in respect of a nominal amount of shares equal to the amount in cash which the holder of such warrant is required to pay on exercise
of the subscription rights represented thereby (or, as the case may be the relevant portion thereof in the event of a partial
exercise of the subscription rights) and, in addition, there shall be allotted in respect of such subscription rights to the exercising
warrant holder, credited as fully paid, such additional nominal amount of shares as is equal to the difference between: |
| (i) | the
said amount in cash which the holder of such warrant is required to pay on exercise of the subscription rights represented thereby
(or, as the case may be, the relevant portion thereof in the event of a partial exercise of the subscription rights); and |
| (ii) | the
nominal amount of shares in respect of which such subscription rights would have been exercisable having regard to the provisions
of the conditions of the warrants, had it been possible for such subscription rights to represent the right to subscribe for shares
at less than par and immediately upon such exercise so much of the sum standing to the credit of the Subscription Rights Reserve
as is required to pay up in full such additional nominal amount of shares shall be capitalized and applied in paying up in full
such additional nominal amount of shares which shall forthwith be allotted credited as fully paid to the exercising warrant holders;
and |
| (d) | if,
upon the exercise of the subscription rights represented by any warrant, the amount standing to the credit of the Subscription
Rights Reserve is not sufficient to pay up in fall such additional nominal amount of shares equal to such difference as aforesaid
to which the exercising warrantholder entitled, the Board shall apply any profits or reserves then or thereafter becoming available
(including, to the extent permitted by law. share premium account) for such purpose until such additional nominal amount of shares
of the up and allotted as aforesaid and until then no dividend or other distribution shall be paid or made on the fully paid shares
of the Company then, in issue Pending such payment and allotment, the exercising warrantholder shall be issued by the Company
with a certificate evidencing his right to the allotment of such additional nominal amount of shares. The rights represented by
any such certificate shall be in registered form and shall be transferable in whole or in part in units of one share in the like
manner as the shares for the time being are transferable, and the company shall make such arrangements in relation to the maintenance
of a register therefor and other matters in relation thereto as the Board may think fit and adequate particulars thereof shall
be made known to each relevant exercising warrantholder upon the issue of such certificate. |
| (2) | Shares
allotted pursuant to the provisions of this Article shall rank pari passu in all respects with the other shares allotted on the
relevant exercise of the subscription rights represented by the warrant concerned. Notwithstanding anything contained in paragraph
(1) of this Article, no fraction of any share shall be allotted on exercise of the subscription rights. |
| (3) | The
provision of this Article as to the establishment and maintenance of the Subscription Rights Reserve shall not be altered or added
to in any way which would vary or abrogate, or which would have the effect of varying or abrogating the provisions for the benefit
of any warrantholder or class of warrantholders under this Article without the sanction of a special resolution of such warrantholders
or class of warrantholders. |
ACCOUNTING
RECORDS
113. The
Company shall keep records that: (a) are sufficient to show and explain the Company’s transactions; and (b) will, at any
time, enable the financial position of the Company to be determined with reasonable accuracy. The abovementioned records shall
be kept at the Office or, at such other place or places as the Board decides and shall always be open to inspection by the Directors.
No Member (other than a Director) shall have any right of inspecting any accounting record or book or document of the Company except
as conferred by the Act or authorized by the Board.
AUDIT
114. Subject
to applicable law and rules of the Designated Stock Exchange:
| (1) | The
Directors or a committee thereof may appoint an auditor to audit the accounts of the Company and such auditor shall hold office
until the Directors or committee thereof appoint another auditor. Such auditor may be a Member but no Director or officer or employee
of the Company shall, during his continuance in office, be eligible to act as an auditor of the Company. |
115. The
remuneration of the Auditor shall be fixed by the Directors or a committee thereof in such manner as they may determine.
116. The
Auditor shall at all reasonable times have access to all access kept by the Company and to all accounts and vouchers relating thereto:
and he may call on the Directors of officers of the Company for any information in their possesion relating to the books or affairs
of the Company.
117. Any
Notice or document, whether or not, to be given or issued under these Articles from the Company to a Member shall be in
writing or by cubic, telex or facsimile transmission message or other form of electronic transmission or communication and
any such Notice and document may be served or delivered by the Company on or to any Member either personally or by sending
it through the post in a prepaid envelope addressed to such Member at his registered address as appearing in the Register or
at any other address supplied by him to the Company for the purpose or, as the case may be, by transmitting it to any
such address or transmitting it to any telex or facsimile transmission number or electronic number or address or website
supplied by him to the Company for the giving of Notice to him or which the person transmitting the notice reasonably and
bona fide believes at the relevant time will result in the Notice being duly received by the Member or may also be served
by advertisement in appropriate newspapers in accordance with the requirements of the Designated Stock Exchange or, to
the extent permitted by the applicable laws, by placing it on the Company’s website and giving to the member a
notice stating that the notice or other document is available there (a “notice of availability”). The notice
of availability may be given to the Member by any of the means set out above (other than by placing it on the
Company’s website). In the case of joint holders of a share all notices shall be given to that one of the joint holders
whose name stands first in the Register and notice so given shall be deemed a sufficient service on or delivery to all the
joint holders.
118. Any
Notice or other document:
| (a) | if
served or delivered by post, shall where appropriate be sent by airmail and shall be deemed to have been served or delivered on
the day following that on which the envelope containing the same, properly prepaid and addressed, is put into the post; in proving
such service or delivery it shall be sufficient to prove that the envelope or wrapper containing the notice or document was properly
addressed and put into the post and a certificate in writing signed by the Secretary or other officer of the Company or other
person appointed by the Board that the envelope or wrapper containing the notice or other document was so addressed and put into
the post shall be conclusive evidence thereof; |
| (b) | if
sent by electronic communication, shall be deemed to be given on the day on which it is transmitted from the server of the Company
or its agent. A notice placed on the Company’s website is deemed given by the Company to a Member on the day following that
on which a notice of availability is deemed served on the Member; and |
| (c) | if
served or delivered in any other manner contemplated by these Articles, shall be deemed to have been served or delivered at the
time of personal service or delivery or, as the case may be, at the time of the relevant dispatch or transmission; and in proving
such service or delivery a certificate in writing signed by the Secretary or other officer of the Company or other person appointed
by the Board as to the act and time of such service, delivery, dispatch or transmission shall be conclusive evidence thereof. |
119. (1)
Any Notice or other document delivered or sent by post to or left at the registered address of any Member in pursuance of these
Articles shall, notwithstanding that such Member is then dead or bankrupt or that any other event has occurred, and whether or
not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served delivered in respect of
any share registered in the name of such Member as sole or joint holder Unless his name shall, at the time of the service or delivery
of the notice or document, have been removed from the Register as the holder of the share, and such service or delivery shall for
all purposed be deemed a sufficient service or delivery of such Notice or document on all persons interested (whether jointly with
or as claiming through for under him) in the share.
| (2) | A
notice may be given by the Company to the person entitled to a share in consequence of the death, mental disorder or
bankruptcy of a Member by sending it through the post in a prepaid letter, envelope or wrapper addressed to him by name, or
by the title of representative of the deceased, or trustee of the bankrupt, or by any like description. at the address, if
any, supplied for the purpose by the person claiming to be so entitled, or (until such an address has been so supplied) by
giving the notice in any manner in which the same might have been given if the death, mental disorder or bankruptcy had not
occurred. |
| (3) | Any person who by operation of law, transfer or other
means whatsoever shall become entitled any share shall be bound by every notice in respect of such share which prior
to his name and address being entered on the Register shall have been duly given to the person from whom he derives his title
to such share. |
SIGNATURES
120. For
the purposes of these Articles, a cable or telex or facsimile or electronic transmission message purporting to come from a holder
of shares or, as the case may be, a Director, or, in the case of a corporation which is a holder of shares from a director or
the secretary thereof or a duly appointed attorney or duly authorized representative thereof for it and on its behalf, shall in
the absence of express evidence to the contrary available to the person relying thereon at the relevant time be deemed to be a
document or instrument in writing signed by such holder or Director in the terms in which it is received.
WINDING
UP
121. (1) The
provisions of Articles 121(2) and 122 are subject to the provisions of the Memorandum and Article 131 untill the
conversion of the Class A, Class B and Class C Shares into one class of Ordinary Shares after the consummation of an
Acquisition Transaction or Post-Acquisition Tender Offer, as the case may
be, and may not be amended during the Target Acquisition Period without the affirmative vote of the holders of at least
80% of the outstanding IPO Shares.
(2) The
Board shall have power in the name and on behalf of the Company to present a petition to the court for the Company to be wound
up.
(3) A
resolution that the Company be wound up by the court or be wound up voluntarily shall be a Resolution of Members.
122. If
the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of
a Resolution of Members and any other sanction required by the Act, divide among the Members in specie or kind the whole or any
part of the assets of the Company and whether or not the assets shall consist of properties of one kind or shall consist of properties
to be divided as aforesaid of different kinds, and may for such purpose set such value as he deems fair upon any one or more class
or classes of property and may determine how such division shall be carried out as between the Members or different classes of
Members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit
of the Members as the liquidator with the like authority shall think fit, and the liquidation of the Company may be closed and
the Company dissolved, but so that no contributory shall be compelled to accept any shares or other property in respect of which
there is a liability.
INDEMNITY
123. (1)
Subject to the Act the Directors. Secretary and other officers and every
Auditor for the time being of the Company and the liquidator or trustees (if any) for the time being acting in relation to any
of the affairs of the Company and everyone of them, and everyone of their heirs, executors and administrators, shall be indemnified
and secured harmless out of the assets and profits of the Company from and against all action, costs, charges, losses, damages
and expenses which they or any of them, their or any their heirs, executors or administrators, shall or may incur or sustain by
or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, in their respective
offices or trusts (including, without limitation, all expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by the Directors, Secretary and other officers and every Auditor or on their behalf in defending any proceedings in which
judgment is given in his favour, or in which he is acquitted); and none of them shall be answerable for the acts, receipts , neglects
or defaults of the other or others of them or for joining in any receipts for the sake of conformity, or for any bankers or other
persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for
insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested,
or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation
thereto; PROVIDED THAT this indemnity shall not extend to any matter in respect of any actual fraud or wilful default on the part
of any of said persons.
(2)
Each Member agrees to waive any claim or right of action he might have,
whether individually or by or in the right of the Company, against any Director on account of any action taken by such Director,
or the failure of such Director to take any action in the performance of his duties with or for the Company; PROVIDED THAT such
waiver shall not extend to any matter in respect of any actual fraud or willful default which may attach to such Director.
INFORMATION
124.
No Member shall be entitled to require discovery of or any information respecting
any detail of the Company’s trading or any matter which is or may be in the nature of a trade secret or secret process which
may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the
interests of the members of the Company to communicate to the public.
MATERIAL
CHANGES
125. Notwithstanding
section 175 of the Act, the Board may sell, transfer, lease, exchange or otherwise dispose of the assets of the Company
without the sale, transfer, lease, exchange or other disposition being authorised
by a Resolution of Members.
126. To
130 [Reserved]
ACQUISITION
TRANSACTION PROVISIONS
131. The
provisions (A) through (I) of this Article 131 shall apply during the period commencing upon the effectiveness of the
Registration Statement filed in connection with the IPO and terminating upon the conversion of each class of Shares (other
than the Preferred Shares) into one class of Ordinary Shares after consummation of an Acquisition Transaction or
Post-Acquisition Tender Offer, as the case may be, and may not be amended during the Target Acquisition Period without the
affirmative vote of at least 80% of the issued and outstanding IPO Shares. The Company (i) may not consummate an Acquisition
Transaction with a Target Business that is a portfolio company of, or has otherwise received a financial investment from the
Founders, their affiliates or that is affiliated with the Founders, the Directors or officers of the Company, or (ii)
consummate an Acquisition Transaction with any underwriter that is a party to the underwriting agreement entered into in
connection with the IPO, or selling group member, or any of their affiliates, unless in each case the Company obtains an
opinion from an unaffiliated, independent investment banking firm that is a member of the Financial Industry Regulatory
Authority, that the Acquisition Transaction with such Target Business is fair to the shareholders from a financial point of
view.
In
the event of any conflict between this Article 131 and any other provision of the Memorandum or the Articles, the provisions
of this Article 131 shall prevail.
| A. | The
Company shall not consummate any Acquisition Transaction if more than 87.5% (the “Redemption Threshold Percentage”)
interest of the holders of IPO Shares exercise their redemption rights described below, or, if the Company seeks to allow shareholders
to redeem their shares pursuant to a Post-Acquisition Tender Offer more than the Redemption Threshold Percentage interest of
the holders of IPO Shares exercise such redemption rights, or. if such Acquisition Transaction is submitted for approval to the
Company’s Shareholders, holders of at least a majority of IPO Shares voted at such meeting are not voted in favor of the
Acquisition Transaction. Prior to distribution of the funds in the Trust Account, other than as provided for in paragraph (F)
of this Article 131 or in connection with the dissolution and liquidation of the Company, the Company must grant holders of IPO
Shares such redemption rights by means of a shareholder vote, a Pre-Acquisition Tender Offer, or a Post- Acquisition Tender Offer. |
| B. | Prior
to the consummation of an Acquisition Transaction, the Company may initiate an issuer tender offer (“Pre-Acquisition Tender
Offer”) to holders of Class A Shares by filing tender offer documents with the SEC in accordance with Rule 13e-4 and Regulation
14E of the Exchange Act. Such tender offer documents shall include information substantially similar to that which would be required
in connection with a proxy statement compliant with U.S. securities regulations regarding the solicitation of shareholder votes
to approve an acquisition transaction. In the event he Company elects to conduct a Pre-Acquisition Tender Offer, the closing of
the Acquisition Transaction will be cross-conditioned on the closing of the Pre-Acquisition Tender Offer, and the offer price
shall be in cash equal to a prorata portion of the Trust Account equal lo the quotient determined by dividing (i) the amount in
the Trust Account, as of two business days prior to the liquidation of the Trust Account, by (ii) the total number of IPO Shares
that were originally issued in the IPO. “Trust Account” shall mean the trust account established by the Company at
the consummation of its IPO and into which a certain amount of the net proceeds of the IPO are deposited. |
| C. | Prior
to the consummation of an Acquisition Transaction, the Company may elect to grant holders of Class B Shares their redemption
rights by means of a Post-Acquisition Tender Offer by filing a Current Report of Foreign Private Issuer on Form 6-K with the
SEC(“Form 6-K”) disclosing that it has entered into a definitive Acquisition Transaction agreement, intends to
consummate the Acquisition Transaction without a shareholder vote or a Pre-Acquisition Tender Offer, and that includes
disclosure regarding the Target Business and the proposed transaction similar to that which would be included in a proxy
statement compliant with U.S. securities regulations regarding the solicitation of shareholder votes to approve an
acquisition transaction. Within 30 days of the closing of the Acquisition Transaction without a shareholder vote or
Pre-Acquisition Tender Offer or shareholder votes (the “Filing Date”), the Company may commence an issuer tender
offer to holders of Class B Shares (“Post-Acquisition Tender Offer”) by filing tender offer documents with the
SEC in accordance with Rule l3e-4 and Regulation 14E of the Exchange Act. The tender offer documents would include
substantially the same information about the target business as is contained in the Form 6-K. In the event the Company elects
to effect a Post-Acquisition Tender Offer, the offer price shall be in cash equal to a pro-rata portion of the Trust
Account equal to the quotient determined by dividing (i) the amount in the Trust Account, as of two business days prior to
the liquidation of the Trust Account, by (ii) the
total number of outstanding IPO Shares excluding any Class C Shares. If such Post-Acquisition Tender Offer is not initiated
by the Filing Date or is not completed by the earlier of (i) the six month anniversary of the closing of the Acquisition
Transaction and (ii) the 21 month anniversary of the consummation of the IPO, then, within five business days of the Filing
Date or such six month or 21 month anniversary, as applicable, with respect to each issued and outstanding Class B Shares,
the Company shall distribute a pro-rata portion of the Trust Account equal to the quotient determined by dividing (i) the
amount in the Trust Account, as of two business days prior to the liquidation of the Trust Account, by (ii) the total number
of outstanding IPO Shares excluding any Class C Shares, and distribute any remaining funds to the Company. If the Company
structures the Acquisition Transaction in this manner, then it may, after the Forn 6-K is filed with the SEC, seek that
holders of 5% or more of the IPO shares who are also accredited investors elect to convert their Class A Shares into Class C
Shares, on a one-for-one basis immediately prior to consummation of the Acquisition Transaction, with any remaining Class A
Shares automatically converting to Class B Shares immediately following consummation of the Acquisition Transaction. Such
opportunity to convert would only be available to these certain shareholders, and not to otherholders of IPO Shares. Holders
of Class A Shares who elect to convert their shares into Class C Shares prior to consummation of the Acquisition Transaction
shall not be entitled to participate in the Post-Acquisition Tender Offer, while holders of Class A Shares that have their
shares automatically converted to Class B Shares shall be entitled to participate in the issuer Post-Acquisition Tender
Offer. |
| D. | In
the event that the Company submits an Acquisition Transaction for approval by its shareholders and such Acquisition Transaction
is approved and is consummated by the Company, any shareholder of the Company holding IPO Shares may, contemporaneous with such
vote, demand that the Company redeem such holder’s IPO Shares for cash. If so demanded, the Company shall, promptly after
consummation of the Acquisition Transaction, redeem such holder’s IPO Shares for cash at a per share price equal to (i) the
amount held in the Trust Account as of two business days prior to the consummation of the Acquisition Transaction (net of amounts
released to the Company in accordance with Article 131(F) below), divided by (ii) the total number of issued and outstanding IPO
Shares. |
| E. | Immediately
after the Company’s IPO the amount of the net offering proceeds received by the Company in the IPO (including the proceeds
of any exercise of the underwriter’s over-allotment option) specified in the Registration Statement at the time it goes
effective shall be deposited and thereafter held in the Trust Account. Neither the Company nor any officer, director or employee
of the Company shall disburse any of the proceeds held in the Trust Account until (i) the later of consummation by the Company
of an Acquisition Transaction or consummation of a Post-Acquisition Tender Offer, as applicable, (ii) the failure to commence
a Post-Acquisition Tender Offer by the Filing Date or complete a Post-Acquisition Tender Offer by the earlier of six months after
the closing of the Acquisition Transaction and 21 months after the consummation of the IPO, or (iii) the liquidation of the Company
as discussed in Article 131(G) below, in each case in accordance with the terms of the investment management trust agreement governing
the Trust Account; provided, however, that (1) the interest earned on the Trust Account may be released to the Company to fund
the Company’s working capital requirements and general corporate requirements, (2) the Company shall be entitled to withdraw
such amounts from the Trust Account as would be required to pay taxes on the interest earned on the Trust Account, (3) the Company
shall be entitled to withdraw a pro rata portion of the Trust Account for each Class A Shares converted into a Class C Shares
upon consummation of an Acquisition Transaction, and (4) the Trust Account shall be liquidated in the event that an action, suit
or proceeding is initiated following the consummation of an Acquisition Transaction, as provided in the investment management
trust agreement governing the Trust Account. Notwithstanding the foregoing, in no event may interest earned on the Trust Account
be released if such release would reduce the balance in the Trust Account below the per share balance immediately following the
consummation of the Company’s IPO. |
| F. | In
the event that the Company does not consummate an Acquisition Transaction within 18 months (or 21 months, if the Company enters
into a letter of intent, agreement in principle or definitive agreement with respect to an Acquisition Transaction prior to the
expiration of such 18 month period) after the consummation of the IPO (“Termination Date”), the directors and officers
of the Company shall take all such action necessary to dissolve the Company and liquidate the Trust Account to holders of the
IPO Shares as soon as reasonably practicable. In the event the Company is so dissolved, the Company shall promptly adopt and implement
a plan of distribution which provides that only the holders of IPO Shares shall be entitled to share ratably in the Trust Account
plus any other net assets of the Company not used for or reserved to pay obligations and claims or such other corporate expenses
relating to or arising during the Company’s remaining existence, including costs of dissolving and liquidating the Company. |
| G. | A
holder of IPO Shares shall be entitles to receive funds from the Trust Account only in the event of a liquidation of the
Trust Account to holders of IPO Shares (I) in connection with the dissolution of the Company pursuant to the terms of the
investment management trust agreement governing the Trust Account, (ii) in the event that such of holders shares are redeemed
in accordance with this Article 131, or (iii) in
the event that an action is brought, against the Company or the trustee of the Trust Account and funds are released pursuant
to the investment management trust agreement relating to the Trust Account. In no other circumstances shall a holder of IPO
Shares have any right or interest of any kind in or to the Trust Account. A holder of any other shares of the Company shall
not have any right or interest of any kind in or to the Trust Account. |
| H. | Unless
and until the Company has consummated in Acquisition Transaction as permitted under this Article
131, the Company may not consummate any other acquisition transaction, whether by merger, share exchange, stock purchase, asset
acquisition or otherwise. |
| I. | During the Target Acquisition Period, the Company (i) may not issue any units,
Shares, warrants, or any options or other securities convertible into or exchangeable for Shares, or any Preferred Shares, that
participate in any manner in the proceeds of the Trust Account, or that vote as a class with the IPO Shares on any vote to approve
an Acquisition Transaction or to amend this Article 131 or (ii) cancel any security issued by it that is publicly trading. |
We,
CODAN TRUST COMPANY (B.V.I.) LTD., registered agent of the Company, of Commerce House, Wickhams Cay 1, PO Box 3140, Road Town,
Tortola, British Virgin Islands VG 1110 for the purpose of incorporating a BVI Business Company under the laws of the British Virgin
Islands hereby sign these Articles of Association on the 28th of November, 2011:
|
Incorporator |
|
|
|
CODAN TRUST COMPANY (B.V.I.) Ltd |
|
|
|
Sgd. Michael Wood Per: |
|
Michael Wood |
|
For and on behalf of |
|
Codan Trust Company (B.V.I) Ltd. |
Exhibit 8.1
List of Subsidiaries
Subsidiary |
|
Jurisdiction of Organization |
|
|
|
Elite Ride Limited |
|
British Virgin Islands |
|
|
|
Delta Advanced Materials Limited |
|
Hong Kong |
|
|
|
Jiangsu Yangtze Delta Fine Chemical Co., Ltd |
|
People’s Republic of China |
|
|
|
Jiangsu Delta Logistics Co., Ltd |
|
People’s Republic of China |
|
|
|
Binhai Deda Chemical Co., Ltd |
|
People’s Republic of China |
|
|
|
Exhibit 12.1
Certification by the Principal Executive
Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
of 2002
I, Xin Chao, certify that:
1. I
have reviewed this Annual Report on Form 20-F of Delta Technology Holdings Limited;
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 report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this
report;
4. The
Company’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 control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this 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 Company’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;
and
d. Disclosed
in this report any change in the Company’s internal control over financial reporting that occurred during the period covered
by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting; and
5. The
Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing
the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the Company’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 Company’s
internal control over financial reporting.
Date: November 17, 2015 |
|
|
|
/s/ Xin Chao |
|
Name: |
Xin Chao |
|
Title: |
Chief Executive Officer |
|
Exhibit 12.2
Certification by the Principal Financial
Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act
of 2002
I, Hongming Dong, certify that:
1. I
have reviewed this Annual Report on Form 20-F of Delta Technology Holdings Limited;
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 report, fairly present in all material
respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this
report;
4. The
Company’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 control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this 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 Company’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;
and
d. Disclosed
in this report any change in the Company’s internal control over financial reporting that occurred during the period covered
by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting; and
5. The
Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing
the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the Company’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 Company’s
internal control over financial reporting.
Date: November 17, 2015 |
|
|
|
/s/ Homing Dong |
|
Name: |
Hongming Dong |
|
Title: |
Chief Financial Officer |
|
EXHIBIT 13.1
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
Annual Report of Delta Technology Holdings Limited (the “Company”) on Form 20-F for the fiscal year ended June
30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Xin Chao,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(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.
November 17, 2015 |
|
|
|
/s/ Xin Chao |
|
Name: |
Xin Chao |
|
Title: |
Chief Executive Officer |
|
EXHIBIT 13.2
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
Annual Report of Delta Technology Holdings Limited (the “Company”) on Form 20-F for the fiscal year ended June
30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hongming Dong,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(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.
November 17, 2015 |
|
|
|
/s/ Hongming Dong |
|
Name: |
Hongming Dong |
|
Title: |
Chief Financial Officer |
|
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