ITEM 1.
BUSINESS.
Overview
Our company is a smaller reporting company as described by the Rules of the Securities and Exchange Commission Regulations. Initially, our business model was primarily focused on providing consultancy and advisory services to clients in addition to our marketing and distribution efforts. The consultancy and advisory services we were seeking to offer were focused on the development of Clean Development Mechanism (CDM) projects in China, which provided credits that could be sold or traded pursuant to the structures set forth in the Kyoto Protocol, as well as the development of energy efficiency projects in China, which did not generate tradable carbon credits, but were nonetheless energy efficient or conservational and positive for the environment in keeping with China's National Action Plan on Climate Change.
Despite the efforts of our management, during 2009 we were unable to secure any consultancy or advisory agreements or related business. We believe that the global economic turmoil combined with suddenly fallen oil prices, as well as delays in carbon credit approvals negatively affected CDM-based renewable energy projects in China.
In view of the recent global economic turmoil and our limited financial resources, our business plan for 2010 has been to continue to focus on the marketing and distribution of energy efficient products in China. Our objective for 2010 was for the Company to generate a positive cash flow and remain a going concern. According to our plan, we would pursue other renewable energy projects and opportunities once we could attain a balance of cash flows.
Organization
China Renewable Energy Holdings, Inc. ("CREH") was incorporated under the laws of the State of Florida on December 17, 1999. China Renewable Energy Holdings, Inc. was originally organized to provide business services and financing to emerging growth entities, and later redirected its business focus to market and to distribute energy-efficient products in China.
China Clean and Renewable Energy Limited (“CCRL”) was incorporated under the laws of Hong Kong, China on April 19, 2006. China Clean and Renewable Energy Limited was organized to provide consulting services on environmental protection projects in China.
Renewable Energy Enterprises (Shanghai) Co. Ltd (“REEC”) was incorporated under the laws of the People’s Republic of China on February 27, 2009. REEC was organized to provide renewable energy products and equipment in China.
EEP Limited (“EEPL”) was incorporated under the laws of Hong Kong, China on March 23, 2010. The company was organized to market and distribute products and equipment that are environmentally friendly and energy-efficient in China.
C B Resources Limited (“CBRL”) was incorporated under the laws of Hong Kong, China. The company was organized to own and invest in energy related facilities and resources in China.
CREH and its’ wholly owned subsidiaries, CCRL, REEC, EEPL, and CBRL are hereafter referred to as the “Company”.
Our Marketing and Distribution Business
As part of our marketing and distribution business, we typically enter into agreements with the product manufacturers or technology holders to help them market or distribute their products. As part of these agreements, we are typically asked to provide marketing services such as assisting the product manufacturer with business plans, test marketing the products with end user/clients, specifying sales channels, developing potential user/client lists for the products or providing advice as to technical specifications, marketing brochures, packaging, and even logistics. We generate revenues from commissions for products sold and/or from fees from services and consulting provided to technology holders.
In 2010, our redirected business plan was to focus on developing the markets for (1) KMS Blend products, (2) the MB Series resin products, and (3) the H900 Series resin products.
The K-MS products, are proprietary formulated resins developed by EEPL. They are blended under a formulation mainly targeting at the clear ABS and PC markets. The materials itself are composed of K-resins produced by Chevron Phillips and SMMA produced by Nippon Steel Chemical. The K-resins / MS blend product (K-MS) series currently produce by EEPL carry two different grades, CRK 031 and CRK 038. The CRK 031 is a lower priced product compared to CRK 038, and is mainly targeting as a superior clear ABS (CABS) substitute. The CRK 038 is considered a premium product comparing to CABS, and is mainly targeting as a substitute for PC, which has a far better optical clarity and impact strength than CABS. Compared to CABS, both CRK materials are far optically clearer, harder, and more cost effective. Compared to PC, K-MS can serve as a substitute for PC that addresses the BPA issue, yet, at a cheaper price. By including all the soft cost savings such as reduction on electricity cost by elimination of pre-dry process as required by CABS, better production cycle time, lower density etc., the total package offered by K-MS for the CABS and PC market sectors will be very competitive and attractive.
The MB Series are new energy-efficient resin products produced by Chevron Phillips Chemicals (China) Company Limited. The MB Series are considered a desirable substitute for the conventional resin products used widely in the toy industry, household goods industry, and electronic goods industries.
The H 900 series product is a new HIPS product series developed by our major supplier NSCC in Japan. Currently, we are still at a relatively early stage of its development. More studies are needed in order to fully unfold all the possible applications and understand its full potential. At this initial stage, we are optimistic about its future marketability.
Market Outlook
For 2011, our marketing focus continues to be on the CRK and MB lines of products. In particular, we still believe there are a number of competitive advantages in the CRK lines. The technical specifications of K-MS are in the range between CABS and PC in exception of raw material base and processing conditions. K-MS is developed with full focus on the CABS and PC markets. Major application areas include electronics, home appliances, CD/DVD, automobiles, stationary, construction panels, and toys.
In order to create a new market position for K-MS, we follow a strategic account management strategy (SAM) in working with the key customers, such as McDonald’s, Hasbro etc., in the past several months to introduce the K-MS as a replacement and substitute for their current CABS and PC requirements through various production trials. The SAM strategy is a customer centric, total-solution approach, providing to the customers services and support from training, technical support, problem-shooting, to production process re-engineering.
The year of 2009 has been a year of seeding for the K-MS business. We invested a lot of our time and resources on the SAM customers on various production trials. As for Year 2010, we had expected the K-MS Blend business to start kicking off. Based on market feedback, CREH management expects to take up 0.003% (approximately 3,000 tons) of the PC market in China in 2010. At an average selling price of USD
2,600 per ton, the total sales forecast for 2010 is USD 7,800,000 for the year. However, due to our main client’s (Hasbro) slower-than-expected adoption of the materials, the sales of the K-MS products reached only about 40% of what had been expected.
While markets signs had indicated the prospect for K-MS to be positive that the sales regarding the K-MS products should eventually pick up in 2011, the recent misfortunate disaster in Japan however has overshadowed our market prospect to a certain extent. As our supplier of the SMMA materials we need in the blending of the K-MS products is located in southern Japan, the supplier has not suffered a direct impact from the earthquakes; the nuclear leakage issues derived from the earthquakes have created issues in the logistics aspect. Many shipping and transportation companies have indicated reluctance to approach Japan. To be prudent, the management will still need to see more indications to come up a realistic assessment.
Competition
We are a firm focusing on the marketing and distribution of energy efficient or environmentally friendly products in China. While we believe that our experience will support our marketing and distribution business, there are no restrictions or barriers which preclude other firms in the market. Distributors generally operate in a highly competitive market. We are subject to market driven competition from trading, marketing and distribution firms within China and from foreign firms seeking distribution agreements for energy efficient technologies. In addition, we will face competition from engineering service firms who may have technical knowledge or experience in energy efficient products or applications. Because the barriers to entry in our target markets are relatively low and the potential market is large, however, we expect continued growth in existing competitors and the entrance of new competitors in the future. Many of our current and potential competitors have significantly longer operating histories and significantly greater managerial, financial, marketing, technical and other competitive resources, as well as greater name recognition, than we do which may adversely affect our ability to compete with these competitors. Moreover, for certain products or markets, we may face competitors who have obtained exclusive distribution agreements from product manufacturers or technology holders. Such exclusivity will impede our ability to sign marketing and distribution agreements. As a result, there are no assurances we will ever effectively compete in our target markets.
Employees
As of April 8, 2011 we have seven full time employees of which four are executives, one is in sales and marketing, and two in general administration. All based in our Hong Kong and Shanghai offices. We believe our employee relations to be good.
ITEM 1A.
ITEM 1A.
RISK FACTORS.
An investment in our common stock involves a significant degree of risk. You should not invest in our common stock unless you can afford to lose your entire investment. You should consider carefully the following risk factors and other information in this prospectus before deciding to invest in our common stock.
RISKS RELATING TO BUSINESS OPERATIONS
WE HAVE A LIMITED HISTORY OF OPERATIONS UPON WHICH AN EVALUATION OF OUR FUTURE PROSPECTS CAN BE MADE. WE CANNOT ASSURE YOU THAT OUR BUSINESS MODEL WILL BE SUCCESSFUL IN THE FUTURE OR THAT OUR OPERATIONS WILL BE PROFITABLE.
We began operations in April 2006 and our activities through June 30, 2010 were limited to the development of our business model and raising the initial capital to fund our early stage operations. Our operating results in future periods will include significant expenses, including marketing costs and administrative and general overhead expenses, which we will incur as we implement our business model, as well as increased legal and accounting fees we will incur as a public company and there are no assurances we will generate any revenues in future periods. As a result, unless we are able to generate recurring revenue in amounts sufficient to fund our operating expenses we are unable to predict whether we will report profitable operations in the future. There can be no assurances whatsoever that we will be able to successfully implement our business model, identify and provide successful services to our client companies, penetrate our target markets or attain a wide following for our services. We are subject to all the risks inherent in an early stage enterprise and our prospects must be considered in light of the numerous risks, expenses, delays, problems and difficulties frequently encountered in those businesses. It is possible that our business will not be successful and that we will be forced to cease operations in which event you could lose your entire investment in our company.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT. OUR FINANCIAL CONDITION HAS RAISED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
For fiscal year ended December 31, 2010 we reported revenues of $6,158,457, had a net loss of $47,371. We reported revenues of $621,620 for the fiscal year ended December 31, 2009 and a net loss of $455,697. The report of our independent public registered accounting firm on our financial statements for fiscal 2010 and 2009 raised substantial doubt about our ability to continue as going concern as a result of our net losses, cash used in operations and working capital deficit.
Our working capital was in a deficit of $350,020 at December 31, 2010, which is attributable to the net loss we sustained from operations. We cannot provide any assurance, however, that we will have sufficient working capital to pay our operating expenses until such time, if ever, that we generate recurring revenues in an amount sufficient to fund our company. If we are unable to fund our operating expenses, it is possible that we would be unable to continue as a going concern in which event you could lose your entire investment in our company.
WE MAY NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS. ADDITIONAL CAPITAL RAISING EFFORTS IN FUTURE PERIODS MAY BE DILUTIVE TO OUR THEN CURRENT SHAREHOLDERS OR RESULT IN INCREASED INTEREST EXPENSE IN FUTURE PERIODS.
If our efforts to attract prospective clients to our company are successful, of which there are no assurances, it is likely that we will be required to increase our staff which will increase our operating expenses. These additional operating expenses may be incurred prior to our receipt of any corresponding revenues from services to clients which could render our Assumptions as to the sufficiency of our working capital incorrect. In that event, we may need to raise additional working capital to continue to implement our
business model. The timing and amount of our future capital requirements, however, depend on a number of factors, including our operations, our ability to grow revenues, our ability to manage the growth of our business and our ability to control our expenses. If we raise additional capital through the issuance of debt, this will result in interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all. If we do not raise funds as needed, we will be unable to fully implement our business model, fund our ongoing operations or grow our company. In that event, it is unlikely our company will be a success and we could be forced to curtail some or all of our operations.
WE ARE REQUIRED TO CONTRIBUTE AN ADDITIONAL $800,000 TO THE REGISTERED CAPITAL OF OUR SUBSIDIARY, RENEWABLE ENERGY ENTERPRISES (SHANGHAI) COMPANY. IF WE FAIL TO MAKE THIS CONTRIBUTION, THE ABILITY OF THAT COMPANY TO CONTINUE ITS OPERATIONS WOULD BE IN JEOPARDY.
In accordance with the Articles of Association of Renewable Energy Enterprises (Shanghai) Company, we are required to contribute the remaining $800,000 of registered capital to that company prior to May 2010. We do not presently have sufficient funds to make this capital contribution and will in all likelihood need to raise the capital prior to the due date of the contribution. We are in progress to apply for a capital reduction. The application is pending on the approval from State Administration of Foreign Exchange, Shanghai Bureau. If we should fail to make the capital contribution prior to the due date or that our capital reduction application should fail, our business registration for Renewable Energy Enterprises (Shanghai) Company will be revoked and all of its business operations will cease. Although the company is newly formed and does not presently represent a significant portion of our consolidated operations, should the business of Renewable Energy Enterprises (Shanghai) Company expand in the future it is possible that the loss of the ability to conduct business through this Chinese subsidiary could adversely impact our ability to generate revenues in future periods.
BECAUSE OF THE LACK OF A LIQUID PUBLIC MARKET FOR OUR COMMON STOCK IT IS LIKELY THAT THE TERMS OF ANY FINANCING WE MAY BE ABLE TO SECURE WILL BE DETRIMENTAL TO OUR CURRENT SHAREHOLDERS.
Generally, small businesses such as ours which lack a liquid public market for their securities face significant difficulties in their efforts to raise equity capital. While to date we have relied upon the relationships of our executive officers in our capital raising efforts, in the event we should need to raise additional capital there are no assurances that we will be successful utilizing these existing sources. In such an event, we could be required to engage a broker-dealer to assist us in our capital raising efforts. Even if we are successful in finding a broker-dealer willing to assist us in raising capital, there are no assurances that the terms of financings offered by a broker-dealer will be as favorable as those we have offered our inventors to date. If we do not raise funds as needed, we will be unable to fully implement our business model, fund our ongoing operations or grow our company. In that event, it is unlikely our company will be a success and we could be forced to curtail some or all of our operations.
WE ARE A NEW COMPANY OPERATING IN AN EMERGING AREA AND THERE ARE NO ASSURANCES ANY CONSISTENT DEMAND FOR OUR SERVICES WILL DEVELOP.
We are a company focusing on the marketing and distribution of energy efficient or environmentally friendly products in China. If we are unable to find products or technologies that are suitable for the market or are unable to find buyers for said products, we would be unable to generate enough revenues to fund our operating expenses or achieve profitability in which event we would be forced to cease operations.
WE ARE DEPENDENT ON OUR EXECUTIVE OFFICERS. THE LOSS OF THESE KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our future success will be, to a certain extent, dependent upon the management, sales and marketing, and operational expertise of our executive officers Messrs. Huie, Tang and Wong. All of these individuals are located in our Hong Kong and or Shanghai China offices. Although our wholly-owned subsidiary has entered into employment agreements with these individuals, we do not have key man insurance on any of these individuals and there are no assurances that they will remain employed by us or devote sufficient time and attention to our operations. If we should lose the services of one or more of these individuals, our ability to implement our business model would be in jeopardy which would have a material adverse effect upon our business, financial condition, and results of our operations in future periods.
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED PERSONNEL TO SUPPORT OUR GROWTH AND IF WE ARE UNABLE TO RETAIN OR HIRE THESE PERSONNEL IN THE FUTURE, OUR ABILITY TO IMPLEMENT OUR BUSINESS OBJECTIVES COULD BE ADVERSELY AFFECTED.
If we are successful in implementing our business model it is likely we will need to hire additional staff. Competition for senior management personnel in the Peoples Republic of China is intense, the pool of qualified candidates in the Peoples Republic of China is very limited, and we may be unable to attract and retain high-quality personnel in the future. This failure could harm our future growth which could result in limiting our ability to generate revenues and achieve profitable operations in future periods.
RISKS RELATED TO DOING BUSINESS IN CHINA
YOU MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN CHINA OR HONG KONG BASED ON UNITED STATES OR OTHER FOREIGN LAWS.
Substantially all of our assets and operations are in China or Hong Kong. In addition, all of our officers and directors reside within China or Hong Kong. As a result, it may be difficult for our shareholders to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of China would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities law of the United States or any state thereof, or be competent to hear original actions brought in China against us or such persons predicated upon the securities laws of the United States or any state thereof. None of our officers or directors have agreed to accept service of process for any or all proceedings in the United States nor have any of our officers or directors agreed to accept or comply with any or all judgments of courts in the United States obtained against our company, our officers or our directors predicated upon the civil liability provisions of federal or state securities laws. Accordingly, even if a plaintiff was successful in bringing litigation against us, it is extremely unlikely such plaintiff would be able to enforce any judgment against us.
A SUBSTANTIAL PORTION OF OUR BUSINESS OPERATIONS AND CONSOLIDATED ASSETS ARE LOCATED IN THE PEOPLES REPUBLIC OF CHINA AND ARE SUBJECT TO CHANGES RESULTING FROM THE POLITICAL AND ECONOMIC POLICIES OF THE CHINESE
GOVERNMENT.
Our business operations could be restricted by the political environment in the Peoples Republic of China. The Peoples Republic of China has operated as a socialist state since 1949 and is controlled by the Communist Party of China. In recent years, however, the government has introduced reforms aimed at creating a "socialist market economy" and policies have been implemented to allow business enterprises greater autonomy in their operations. Changes in the political leadership of the Peoples Republic of China may have a significant effect on laws and policies related to the current economic reform programs, other policies affecting business and the general political, economic and social environment in the Peoples Republic of China, including the introduction of measures to control inflation, changes in the rate or method of taxation, the imposition of additional restrictions on currency conversion and remittances abroad, and foreign investment. Moreover, economic reforms and growth in the Peoples Republic of China have been more successful in certain provinces than in others, and the continuation or increases of such disparities could affect the political or social stability of the Peoples Republic of China.
The future direction of these economic reforms is uncertain and the uncertainty may decrease the attractiveness of our company as an investment, which may in turn result in limitations on our ability to implement our business model. If we were to encounter any such limitations, it is possible that we could be forced to curtail some or all of our business in which event it is likely that you would lose your entire investment in our company.
THE CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH CHINESE COMPANIES MUST CONDUCT BUSINESS ACTIVITIES.
The Peoples Republic of China only recently has permitted provincial and local economic autonomy and private economic activities. The government of the Peoples Republic of China has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in the Peoples Republic of China or particular regions thereof, which could affect our ability to conduct business in China and could require us to divest ourselves of any interest we then hold in our Chinese subsidiary.
ECONOMIC ACTIVITY IN CHINA MAY STAGNATE
In the period leading up to the first half of 2009, the Chinese economy experienced periods of rapid expansion and high rates of inflation. During those past 10 years, the rate of inflation in China has been as high as 20.7% and as low as 2.2%. These factors have led to the adoption by the Peoples Republic of China government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. By the second half of 2009, however, the global financial crisis caused a severe contraction in Chinese exports and industrial production. In response, the Chinese government announced a massive stimulus package to promote the Chinese economy. There are no assurances that such measures will work and the economic activity in China may continue to stagnate for the future. Any actions by the Peoples Republic of China government to either contain inflation or stimulate growth could have the effect of limiting out ability to grow our revenues in future periods.
GOVERNMENTAL CONTROL OF CURRENCY CONVERSION MAY AFFECT THE VALUE OF YOUR INVESTMENT.
The Peoples Republic of China government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the Peoples Republic of China. We anticipate that substantially all of our revenues will be received in Renminbi, which is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign currency dominated obligations. Under existing Peoples Republic of China foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the Peoples Republic of China State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of the Peoples Republic of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.
The Peoples Republic of China government may also at its discretion 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 of our expenses as they come due.
CHINESE LAWS AND REGULATIONS GOVERNING RENEWABLE ENERGY ENTERPRISES (SHANGHAI) COMPANY'S BUSINESS OPERATIONS ARE SOMETIMES VAGUE AND UNCERTAIN. ANY CHANGES IN SUCH CHINESE LAWS AND REGULATIONS MAY HAVE A MATERIAL AND ADVERSE EFFECT ON OUR BUSINESS.
China's legal system is a civil law system based on written statutes, in which system decided legal cases have little value as precedents unlike the common law system prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations, including but not limited to the laws and regulations governing the enforcement and performance of contractual arrangements with customers in the event a dispute, as well as the imposition of statutory liens, death, bankruptcy and criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new Chinese laws or regulations may have on our business. If the relevant authorities find us in violation of Chinese laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation: levying fines; revoking our business and other licenses; requiring that we restructure our ownership or operations; and requiring that we discontinue any portion or all of our business.
WE MAY BE UNABLE TO ENFORCE OUR RIGHTS DUE TO POLICIES REGARDING THE REGULATION OF FOREIGN INVESTMENTS IN CHINA.
China's regulations and policies with respect to foreign investments are evolving with respect to such matters as the permissible percentage of foreign investment and permissible rates of equity returns. Statements regarding these evolving policies have been conflicting and any such policies, as administered, are likely to be subject to broad interpretation and discretion and to be modified, perhaps on a case-by-case basis. The uncertainties regarding such regulations and policies present risks which may affect our ability to achieve our stated business objectives. If we are unable to enforce legal rights we may have under our contracts or otherwise, our ability to compete with other companies in our industry could be limited which could result in
a loss of revenue in future periods which could impact our ability to continue as a going concern.
FAILURE TO COMPLY WITH THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT COULD SUBJECT US TO PENALTIES AND OTHER ADVERSE CONSEQUENCES.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the Peoples Republic of China. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO HOLDING OUR SECURITIES
OUR CORPORATE ACTIONS WILL SUBSTANTIALLY BE CONTROLLED BY THE TRUSTEES, WHICH INCLUDES THE WIFE OF OUR CHIEF EXECUTIVE OFFICER, OF THE ALLEN HUIE FAMILY TRUST
As of April 8, 2011, the Allen Huie Family Trust beneficially owns 13,662,000, shares of our common stock which represented 56% of our voting securities. Julie Yim G. Moy, the wife of our Chief Executive Officer Allen Huie, King Keung Moy and Debbie Moy are the trustees and each severally have voting and dispositive power of the shares beneficially owned by the Allen Huie Family Trust. Mr. Huie disclaims any beneficial ownership of the shares owned by the Allen Huie Family Trust. In addition, Mr. Huie owns 8,132,800 or 34% of our issued and outstanding shares. As such, Mr. Allen Huie and his wife Julie Yim G. Moy, are currently able to control matters such as electing directors and approving mergers or other business combination transactions. These control shareholders may have interests different from other stockholders. It would be difficult for our shareholders to propose and have approved proposals not supported by the Allen Huie Family Trust. There can be no assurances that matters voted upon by the Allen Huie Family Trust will be viewed favorably by all shareholders of our company.
WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors' independence, audit committee oversight, and the adoption of a code of ethics. While we have adopted certain corporate governance measures such as a code of ethics and established an audit committee, Nominating and Corporate Governance Committee, and Compensation Committee of our board of directors, we presently have only one independent director. It is possible that if we were to have more independent directors on our board, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by our sole director who has an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures and independent directors in formulating their investment
decisions.
WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR INDEPENDENT AUDITORS.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 , the Securities and Exchange Commission adopted rules requiring small business issuers, such as our company, to include a report of management on the company's internal controls over financial reporting in their annual reports for fiscal years ending on or after June 30, 2010. We did not include a management report or an attestation report of our registered public accounting firm regarding internal control over financial reporting in our annual report of December 31, 2010 pursuant to temporary rules of the Securities and Exchange Commission that do not require us to provide the management's report or attestation report in that annual report. We will be required to include the management report in the annual report for the year ended December 31, 2010. In addition, for our fiscal year ending December 31, 2010 the independent registered public accounting firm auditing our financial statements must also attest to and report on management's assessment of the effectiveness of our internal controls over financial reporting as well as the operating effectiveness of our internal controls. In the event we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain financing as needed could suffer.
YOU MAY FIND IT EXTREMELY DIFFICULT OR IMPOSSIBLE TO RESELL OUR SHARES. EVEN IF A PUBLIC MARKET IS ESTABLISHED, WE CANNOT GUARANTEE YOU THAT THERE WILL EVER BE ANY LIQUIDITY IN OUR COMMON STOCK.
While our common stock is quoted on the OTC Bulletin Board, there is not an active market for our common stock and there can be no assurance that an active public market for our common stock will ever be established. If a public market for our common stock does not develop, investors may not be able to re-sell the shares of our common stock that they have purchased and may lose all of their investment. In addition, the OTC Bulletin Board and similar quotation services are often characterized by low trading volumes, and price volatility, which may make it difficult for an investor to sell our common stock on acceptable terms. Accordingly, an investment in our company is suitable only for persons who have no need for liquidity in the investment, and can afford to hold unregistered securities for an indefinite period of time.
IF A PUBLIC MARKET FOR OUR COMMON STOCK EVER DEVELOPS, TRADING WILL BE LIMITED UNDER THE SEC'S PENNY STOCK REGULATIONS, WHICH WILL ADVERSELY AFFECT THE LIQUIDITY OF OUR COMMON STOCK
In the event the trading price of our common stock is less than $5.00 per share, our common stock would be considered a "penny stock," and trading in our common stock would be subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. Generally, the broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction.
SEC regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market. An active and liquid market in our common stock may never develop due to these factors.
FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER’S ABILITY TO BUY AND SELL OUR STOCK
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability! to buy and sell our stock and have an adverse effect on the market for our shares.
ITEM 1B.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not applicable to a smaller reporting company
ITEM 2.
ITEM 2.
PROPERTIES.
Our principal executive office is located at Suite 802, Beautiful Group Tower, 74-77 Connaught Road Central, Hong Kong, which we are leasing from an unrelated third party for approximately $1,925 a month without a lease. We combine our operations with the operations of China Clean & Renewable Energy Limited in the same office space. We do not anticipate any difficulties in securing adequate office space.
Our management does not currently have policies regarding the acquisition or sale of real estate assets primarily for possible capital gain or primarily for income. We do not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
No Director, officer, significant employee, or consultant of CREH has been convicted in a criminal proceeding, exclusive of traffic violations.
No Director, officer, significant employee, or consultant of CREH has been permanently or temporarily enjoined, barred, suspended, or otherwise limited from involvement in any type of business, securities or banking activities.
No Director, officer, significant employee, or consultant of CREH has been convicted of violating a federal or state securities or commodities law.
CREH is not a party to any pending legal proceedings.
No director, officer, significant employee or consultant of CREH has had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
ITEM 4.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5.
STOCKHOLDER MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Since November 13, 2009, our common stock has been quoted on the OTCBB under the symbol CREO. The reported range of high and low bid prices for the common stock as reported on the OTCBB are shown below for the periods indicated. The quotations reflect inter- dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.
On April 8, 2011, the last sale price of our common stock as reported on the OTCBB was $0.13. As of March 31, 2011, there were approximately 61record owners of our common stock.
Dividend Policy
We have never paid cash dividends on our common stock. Payment of dividends will be within the sole discretion of our Board of Directors and will depend, among other factors, upon our earnings, capital requirements and our operating and financial condition.
Under Florida law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Florida statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Florida statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.
In addition, because we are a holding company, any funds we would have available to pay dividends would be generated by our operations in China. The Peoples Republic of China regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with Peoples Republic of China accounting standards and regulations.
Accordingly, it is unlikely that we will pay dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2010.
A description of this plan is contained later in this report under Part III, Item 11. Executive Compensation - Stock Option Plans.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA.
Not applicable to a smaller reporting company.
ITEM 7.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Business
Through EEPL, we continue our efforts to develop proprietary formulated resin products for substituting PC and CABS. In addition to the K-resins/MS blend (KMS) product family, we also developed a new product series, H900. Based on market feedback, CREH management developed a sales forecast near the beginning of 2010 for the new resin products to take up 0.003% (approximately 3,000 tons or $7,800,000 worth of sales) of the PC market in China in 2010. Most of which are expected to be from one major client, Hasbro, in the toys industry.
During 2010, we experienced a slower-than-forecast demand pattern due to the delayed adoption of CRK 038 by our major customer (Hasbro). Since the toy industry operate on strict timetables, the delayed adoption resulted in pushing back the orders for CRK 038 until the next production cycle in early 2011.
The slower than forecast KMS sales had a negative impact of approximately $4,290,000 on our annual sales for 2010. However, during the latter half year of 2010, the sales of the other product line, the MB resins, significantly improved. The increased MB resin sales together with sales from the H900 products developed near the end of 2010 mitigated the negative effect of the slower than expectation KMS sales. As a result, our total annual sales for 2010 reported a total of $6,158,457, which was slightly ahead of our revised sales forecast of $6,100,000 as of September 30, 2010.
The sole distribution service agreement with Hasbro regarding the supply of the KMS products expired on September 30, 2010. We are no longer restricted from supplying the KMS resins to other clients.
Therefore, we expect our client base to grow after the expiration of this exclusive service agreement. However, the recent fluctuations in the styrene monomer (SM) supplies and the possible shortage of other industrial raw materials from Japan derived from the recent disasters add uncertainty to the KMS markets. The price increases of SM, which is an essential component in the KMS formulations, may in the near future hinder the growth in sales of KMS. Nonetheless, we are confident about the market acceptance of CRK 038 and expect a steady take-up by customers going forward.
For the year ended December 31, 2010, we generated revenues of $3,077,990 from the sales of the MB series and the H900 series, and $3,080,467 from the CRK products. Total sales for the twelve months ended December 31, 2010 amounted to $6,158,457 with a cost of sales amounted to $5,678,271. The cost of sales percentage for the three months was 92.2%, which was around our usual 92%.
For the twelve months ended December 31, 2010, the Company made a net loss of $47,371, compared to a net loss of $455,697 for the comparable period in 2009. In view of the recent years’ limited operations, net losses, working capital deficiency and projected cash requirement, our independent registered public accounting firm, in their audit report, which covers the period through December 31, 2010, has expressed a substantial concern about our ability to continue as a going concern. Since the 2008 private placement, in which we raised approximately $560,000 of capital, we have obtained loans in the amounts of $510,659 from a principle stockholder and an executive officer; and $373,983 from an unrelated company. As at December 31, 2010, our cash on hand was $105,426. Our ability to continue as a going concern is dependent upon whether or not we can generate sufficient revenues through the execution of our business plan for the funding of our operations. While the operations in the twelve months ended December 31, 2010 continued to show more positive signs, we shall nonetheless continue to monitor and review our position from time to time, and exercise our best effort to secure the necessary financing to meet our obligations as they become due.
Should the funds generated from operating activities fall short of the cash needs, additional capital would need to be raised. Where necessary, we plan to continue to provide for our capital requirements through the sale of equity securities; however, we have no firm commitments from any third party to provide this financing. Although we maintain reasonably optimistic about our prospect of being solvent, we cannot assure you we will be successful in raising working capital as needed. As such there are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due, or continue to generate positive operating results.
Results of Operations
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
In 2010, management continued to concentrate on business development for our clean resin products. For 2010 we reported revenues of $6,158,457 as compared to $621,620 for 2009. The increase in revenues for 2010 compared to 2009 reflected the implementation of our marketing strategy.
Our cost of sales for 2010 was $5,678,271 compared to $557,962 for 2009. The increase in cost of sales is directly related to our increase in revenues. In addition, cost of sales represented approximately 92.20% of revenues for 2010 and 89.76% for 2009. The increase in the cost-to-revenue ratio in 2010 reflected the increasingly competitive condition in the resin market.
Our total operating expenses for 2010 were $501,814, compared to $508,170, representing a slight 1.25% ($6,356) of decrease despite the dramatic increase in activity level. Our operating expenses include professional fees (which include legal, accounting, and consulting fees), salary expense, and general and administrative expenses.
Our professional fees for 2010 decreased by $29,949, or approximately 23%, as compared to 2009. Such decrease was due to the non-recurrent expenses paid in 2009 for a Post Effective Amendment Number 1
to Form S1 we filed with the Securities and Exchange Commission for updating the prospectus information. Such expenses were not recurrent in 2010.
Salary expense in 2010, amounted to $171,026, was basically kept at a similar level of that of 2009, which amounted to $169,999.
General and administrative expenses increased $66,072, or approximately 40.6%, in 2010 from 2009, and reflected the increased operation level of our company during 2010. Principal components of general and administrative expenses in 2010 were bank charges ($20,758), rent (approximately $29,678), travel ($17,920) and entertainment ($28,875) associated with our sales and marketing, testing expenses ($3,114) incurred in the development of the formulation for the K-MS products, and $7,332 in car expenses related to the company automobile used in China.
We anticipate that our general and administrative expenses will increase moderately in 2011 as we continue to market our services and implement our business plan. As we anticipate the distribution of our newly developed H900 product series and the K-MS series to pick up in 2011, we also plan to increase our staff to strengthen the administrative as well as the marketing functions. However, we are presently unable to quantify the amount of increased operating expenses for 2011 due to the uncertainties related to the actual level of our operations given the H900’s and K-MS distribution business are at its development stage.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash. At December 31, 2010, we had a working capital deficit of $350,020 as compared to a working capital deficit of $277,556 at December 31, 2009. Principal changes in our balance sheet at December 31, 2010 from December 31, 2009 include:
·
Cash increased by $91,421 partly as a result of the improved 2010 operations, and partly as a result of the loan we obtained from a principal shareholder for securing the trade facilities we obtained from banks
·
Deposits and accounts receivable increased by approximately $464,174 which reflects the growth of our operations during 2010
·
Deferred charges were $8,374 in 2010 as compared to $4,468 in 2009. The increase is due to the increase in fund advances to employees to support their more active business development activities
·
Inventory was $330,582 in at December 31, 2010 compared to $43,054 at December 31, 2009. The inventory at December 31, 2010 was mainly for supporting orders we received but to be delivered in early 2011.
·
Accounts payable for 2010 increased by $122,562 compared to 2009 representing the increased orders to support our sales
·
Increases in loan payable to $32,239 at December 31, 2010 were from a non-related third party to partly provide finances for the operations during 2010
·
Increase in note payable from a principal shareholder from $158,210 in 2009 to $510,659 in 2010 for securing the trade facilities we obtained from banks
·
Accrued interest increased by $63,054 in 2010 compared to 2009. The increases reflect the heightened level of use of trade facilities from banks and short term borrowing in terms of
loan and note payable described
Net cash used in operating activities for 2010 was $558,729 as compared to $697,999 for 2009. During 2010, we used cash to fund our net loss and the changes in the current assets and liabilities.
Net cash used in investing activities for 2010 was $28,246, which represented purchases of fixed assets, as compared to $7,141 during 2009.
Net cash provided by financing activities for 2010 was $680,233, which represented the proceeds obtained from the short term borrow discussed above, as compared to $495,861 for 2009. The increases were mainly due to trade facilities we obtained from our bank.
Employees
In view of the further expansion of the new H900 series and the K-MS distribution business, our management anticipates the need to hire additional full- or part- time employees over the next 12 months. The additions, in the range from one to two full-time employees, are for strengthening the administrative and sales and marketing supports. It is expected that the addition will occur near the end of the second quarter to be ended June 30, 2011.
Miscellaneous
No development related expenses have been or will be paid to our affiliates.
Our management does not expect to incur research and development costs.
We do not have any off-balance sheet arrangements.
We currently do not own any significant plant or equipment that we would seek to sell in the near future.
We have not paid for expenses on behalf of our directors. Additionally, we believe that this fact shall not materially change.
We currently do not have any material contracts and or affiliations with third parties.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to a smaller reporting company.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please see our financial statements beginning on page of this annual report.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On January 23, 2009, China Renewable Energy Holdings, Inc. dismissed Webb & Company, P.A. as its independent registered public accounting firm and on February 2, 2009 engaged Deleon & Co., P.A. as our independent registered public accounting firm. Webb & Company, P.A. audited our financial statements for the periods ended December 31, 2007 and 2006. The dismissal of Webb & Company, P.A. and the engagement of Deleon & Co, P.A. were approved by our Board of Directors on January 23, 2009. Webb & Company, P.A. did not resign or decline to stand for re-election.
During our two most recent fiscal years and the subsequent interim period preceding the date of dismissal of Webb & Company, P.A. as our independent registered public accounting firm we had no disagreements with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of Webb & Company, P.A. would have caused it to make reference to the subject matter of the disagreement in connection with its reports.
During our two most recent fiscal years and the subsequent interim period prior to retaining Deleon & Co., P.A. (1) neither we nor anyone on our behalf consulted Deleon & Co., P.A. regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-B, and (2) Deleon & Co., P.A. did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.
ITEM 9A(T).
ITEM 9A(T).
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Our management, solely being our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. Under the supervision and with the participation of our management, including our Chief Executive Officer who serves as our principal executive officer and as our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the "Evaluation Date"). Based on his evaluation as of the end of the period covered by this report, our Chief Executive Officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and were effective at the reasonable assurance level for which they were designed such that the information relating to our company, including our consolidating subsidiary, required to be disclosed by us in reports that it files or submits under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Controls Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2007. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework and in Internal Control over Financial Reporting - Guidance for Smaller Public Companies. Our management has concluded that, as of December 31, 2009, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following individuals serve as our executive officers and members of our Board of Directors:
Allen Huie. Mr. Huie has served as a director, Chief Executive Officer and Secretary of our company since November 8, 2007. Mr. Huie is also the co-founder and has been President and Chief Executive Officer of China Clean & Renewable Energy Limited since September 2006. Mr. Huie is an investment banker and private equity investor in the greater China region. Mr. Huie is a co-founder and Chief Executive Officer of Quantplus Investments, Ltd, a Hong Kong based investment firm with focus in the Asia Pacific region from October 2006 to the present. He has overall supervision of Quantplus Investments, providing strategy and investment oversight for the principal business as an investment company using quantitative based models to make investments in the Asian equity markets, including Japan. From August 2005 to 2009 Mr. Huie has been an advisor for AIP Strategic Investments Ltd., which invests in and operates retail outlets in Southern China that mainly sell herbal tea. From January 2000 to September 2006, Mr. Huie was the founder and Managing Director of Bizexpress International Limited, a travel related service company with operations in Hong Kong and throughout China. He provided overall strategic management and executive management for the company in its principal business of providing on-line hotel and air travel bookings throughout China.
Prior to Bizexpress, Mr. Huie was Managing Director and head of investment banking for Salomon Brothers in Asia, where he was responsible for Salomon's business in Asia. Mr. Huie started his investment banking career with Salomon in New York in 1985 and helped Salomon expand its business in Tokyo, Hong Kong, and China for over 13 years. While at Salomon, Mr. Huie specialized in corporate finance and M&A. Mr. Huie received his BA in Economics from the College of Arts and Sciences at the University of Pennsylvania in 1980, his BSE in Finance from the Wharton School at the University of Pennsylvania in 1980, and his JD in Law from the University of Pennsylvania Law School in 1983. Mr. Huie was also a Senior Fellow at the UCLA School of Public Policy in 1998.
Dr. Wan (Stanley) Chin Tang. Dr. Tang has served as Vice President and Chief Technical Officer of our company since April 24, 2009 and has been Chief Technical Officer and an Executive Director of China Clean & Renewable Energy Limited since September 2006. Prior to joining China Clean & Renewable Energy Limited, from April 2006 to July 2006, Dr Tang was Senior Economist for the China Water Affairs Group Limited (CWAF), a Hong Kong listed company that operates more than 10 water supply plants in China. Prior to CWAF, from June 2003 to March 2006, Dr. Tang was Development Director of Envirochem Industries Limited, an environmental consulting firm in Hong Kong, General Manager from September 2001 to May 2003 of the Environmental Division of Kong Sun Holdings Ltd, a Hong Kong listed company, and Deputy Managing Director of Foshan Fa Lee Environmental Protection Tableware Co., Ltd ,an environmental products manufacturing company in China, from June 2000 to August 2001. Dr. Tang holds a Ph.D. and a M.S. in Industrial Engineering and Operations Research from Virginia Polytechnic Institute and State University (1986 - 1995), and a B.S. in Mechanical Engineering from the University of Tennessee at Knoxville (1983).
Mr. Tim Leung Wong. Mr. Wong has served as Vice President and Financial Controller of our company since April 24, 2009 and has been Financial Controller of China Clean & Renewable Energy Limited since March 2009. Mr. Wong has the professional accounting qualifications of AHKICPA, and FCCA from Hong Kong and England. From May 2005 to March 2009, Mr. Wong was Financial Controller of Team Gain International Limited where he was responsible for supervising the financial operations of the company. From April 2004 to May 2005, Mr. Wong was a non-executive Director and financial consultant to Asia Pacific Wire and Cable Corp., a subsidiary of Pacific Electric Wire & Cable, a NYSE listed company. From December 2003 to April 2004, Mr. Wong was a self employed independent financial controller consultant for Pacific Wire & Cable Corporation Limited (OTCBB:AWRCF). From 2000 to December 2003, Mr. Wong worked as Financial Controller for Pacific Overseas Investment Management, Ltd. a HKEX listed subsidiary of Pacific Wire & Cable Corporation Limited. At Pacific Overseas, Mr. Wong was responsible for internal audit, financial compliance, tax and corporate planning as well as project review for the firm's operations. From June 1998 to November 1999 Mr. Wong was Financial Controller of ThermoQuest (Hong Kong) Limited, where he was responsible for financial and administrative control and from April 1997 to May 1998 he was Group Financial Controller to China Singkong Group, where he supervised all financial operations. Mr. Wong received his BSC Degree from Queen Mary College, University of London in 1979.
Each officer listed above is a full time employee of our company.
Directors are elected at our annual meeting of shareholders and serve for one year or until their successors are elected and qualify. Officers are elected by the Board, and their terms of office are at the discretion of the Board.
There are no family relationships among directors and executive officers. In the last five years, no director, executive officer, promoter or control person of our company has been involved in any legal proceedings material to the evaluation of the ability or integrity of any of the aforementioned persons.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics to provide guiding principles to all of our employees. Our Code of Business Conduct and Ethics does not cover every issue that may arise, but it sets out basic principles to guide our employees and provides that all of our employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. Any employee which violates our Code of Business Conduct and Ethics will be subject to disciplinary action, up to an including termination of his or her employment.
We will provide a copy, without charge, to any person desiring a copy of the Code of Business Conduct and Ethics, by written request to China Renewable Energy Holdings, Inc., Attention: Secretary.
Committees of the Board of Directors
Our Board of Directors has established a Nominating and Corporate Governance Committee, Compensation Committee and an Audit Committee. From time to time, the Board of Directors may establish additional committees.
Audit Committee. We have an audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit Committee of the Board of Directors is responsible for the engagement of our independent public accountants, approves services rendered by our accountants, reviews the activities and recommendations of our internal audit department, and reviews and evaluates our accounting systems, financial controls and financial personnel. The Board has previously adopted a written charter for the Audit Committee on November 7, 2007. The Audit Committee is presently composed of Mr. Huie who will serve as the Chairman of the Audit Committee.
Compensation Committee. The Compensation Committee establishes and administers our executive compensation practices and policies, reviews the individual elements of total compensation for elected officers and recommends salary adjustments to the Board of Directors. In addition, the Committee determines the number of performance shares and other equity incentives awarded to elected officers and the terms and conditions on which they are granted, amends compensation plans within the scope of the Committee's authority and recommends plans and plan amendments to the Board, sets company policy for employee benefit programs and plans and oversees administration of employee retirement plans and various other benefit plans as we may establish from time to time. The Board has previously adopted a written charter for the Compensation Committee on November 7, 2007. The Compensation Committee is presently composed of Mr. Huie who has been serving as the Chairman of the Compensation Committee.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews and makes recommendations to the Board of Directors with respect to:
·
the responsibilities and functions of the Board and Board committees and with respect to Board compensation,
·
the composition and governance of the Board, including recommending candidates to fill vacancies on, or to be elected or re-elected to, the Board,
·
candidates for election as Chief Executive Officer and other corporate officers,
·
monitoring the performance of the Chief Executive Officer and our plans for senior management succession,
·
reviewing and recommending the policies and procedures necessary for the effective management of our company, and
·
compliance with all Securities and Exchange Commission rules and regulations.
The Nominating and Corporate Governance Committee uses various methods to identify director nominees. The Nominating and Corporate Governance Committee assesses the appropriate size and composition of the Board and the particular needs of the Board based on whether any vacancies are expected due to retirement or otherwise. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current board members, stockholders, or other sources. All candidates are evaluated based on a review of the individual's qualifications, skills, independence, and expertise. Our Nominating and Corporate Governance Committee, operates under a written charter which was adopted November 7, 2007. The Nominating and Corporate Governance Committee is presently composed of Mr. Huie who has been serving as the Chairman of the Nominating and Corporate Governance Committee.
Independent Directors
We currently have one director on our Board of Directors who are "independent" within the meaning of Marketplace Rule 4200 of the Financial Regulatory Industry Association (FINRA).
Identifying and Evaluating Director Nominees
We do not have a policy regarding the consideration of any director candidates which may be recommended by our shareholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our shareholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our
Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our shareholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.
Audit Committee Financial Expert
None of our directors is an "audit committee financial expert" within the meaning of Item 401(e) of Regulation S-B. In general, an "audit committee financial expert" is an individual member of the audit committee or Board of Directors who:
·
understands generally accepted accounting principles and financial statements,
·
able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
·
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
·
understands internal controls over financial reporting, and
·
understands audit committee functions.
Since our formation we have relied upon the personal relationships of our CEOs to attract individuals to our Board of Directors. While we would prefer that one or more of our directors be an audit committee financial expert, the individuals whom we have been able to attract to our Board do not have the requisite professional backgrounds. As with most small companies until such time our company further develops its business, acquires a Business Opportunity, achieves a revenue base and has sufficient working capital to purchase directors and officers insurance, we do not have any immediate prospects to attract independent directors. When we are able to expand our Board of Directors to include one or more independent directors, we intend to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include "independent" directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
Compliance With Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934 during the fiscal year ended December 31, 2009 and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended December 31, 2009, as well as any written representation from a reporting person that no Form 5 is required, we are not aware that any officer, director or 10% or greater shareholder failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year ended December 31, 2010.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table summarizes all compensation recorded by us in each of the last two completed fiscal years for our principal executive officer, each other executive officer serving as such whose annual compensation exceeded $100,000 and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer of our company at December 31, 2010. The value attributable to any option awards is computed in accordance with FAS 123R.
(1)
Mr. Huie has served as our Chief Executive Officer since November 8, 2007. For the year ended December 31, 2010, Allen Huie waived compensation due under his employment agreement in the amount of $55,613
No cash compensation, deferred compensation or long-term incentive plan awards were issued or granted to the Company's management during the fiscal years ended December 31, 2010 or 2009, or the period ending on the date of this report.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2010:
Director Compensation
Mr. Allen Huie is currently the one of four members of our Board of Director. Mr.Nelson Poon is an independent director, and Dr. (Stanley) Tang and Mr. Tim Leung Wong are other directors of our Board of Directors. None of our directors receive any compensation in 2010 solely related to his services as a director.
Equity Compensation Plan
Overview
On December 18, 2007, our board of directors authorized, and holders of a majority of our outstanding common stock approved and adopted, our 2007 Stock Option and Stock Award Plan covering 3,000,000 shares of common stock.
The purpose of the plan is to encourage stock ownership by our officers, directors, key employees and consultants, and to give such persons a greater personal interest in the success of our business and an added incentive to continue to advance and contribute to us. Our board of directors, or a committee of the board, will administer the Plan including, without limitation, the selection of the persons who will be awarded stock grants and granted options, the type of options to be granted, the number of shares subject to each option and the exercise price.
Plan options may either be options qualifying as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended or non-qualified options. In addition, the plan allows for the inclusion of a reload option provision, which permits an eligible person to pay the exercise price of the option with shares of common stock owned by the eligible person and receive a new option to purchase shares of common stock equal in number to the tendered shares. Furthermore, compensatory stock amounts may also be issued. Any incentive option granted under the plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any
incentive option granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The term of each plan option and the manner in which it may be exercised is determined by the board of directors or the committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. During fiscal 2010, we did not grant any options under the plan.
Eligibility
Our officers, directors, key employees and consultants are eligible to receive stock grants and non-qualified options under the plan. Only our employees are eligible to receive incentive options.
Administration
The plan will be administered by our board of directors or an underlying committee. The board of directors or the committee determines from time to time those of our officers, directors, key employees and consultants to whom stock grants or plan options are to be granted, the terms and provisions of the respective option agreements, the time or times at which such options shall be granted, the type of options to be granted, the dates such plan options become exercisable, the number of shares subject to each option, the purchase price of such shares and the form of payment of such purchase price. All other questions relating to the administration of the plan, and the interpretation of the provisions thereof and of the related option agreements, are resolved by the board of directors or committee.
Shares Subject to Awards
We have currently reserved 3,000,000 of our authorized but unissued shares of common stock for issuance under the plan, and a maximum of 3,000,000 shares may be issued, unless the plan is subsequently amended, subject to adjustment in the event of certain changes in our capitalization, without further action by our board of directors and stockholders, as required. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the plan, although such shares may also be used by us for other purposes.
The plan provides that, if our outstanding shares are increased, decreased, exchanged or otherwise adjusted due to a share dividend, forward or reverse share split, recapitalization, reorganization, merger, consolidation, combination or exchange of shares, an appropriate and proportionate adjustment will be made in the number or kind of shares subject to the plan or subject to unexercised options and in the purchase price per share under such options. Any adjustment, however, does not change the total purchase price payable for the shares subject to outstanding options. In the event of our proposed dissolution or liquidation, a proposed sale of all or substantially all of our assets, a merger or tender offer for our shares of common stock, the board of directors may declare that each option granted under the Plan terminates as of a date to be fixed by the board of directors; provided that not less than 30 days written notice of the date so fixed shall be given to each participant holding an option, and each such participant shall have the right, during the period of 30 days preceding such termination, to exercise the participant's option, in whole or in part, including as to options not otherwise exercisable.
Terms of Exercise
The plan provides that the options granted thereunder shall be exercisable from time to time in whole or in part, unless otherwise specified by the committee or by the board of directors.
The plan provides that, with respect to incentive stock options, the aggregate fair market value (determined as of the time the option is granted) of the shares of common stock, with respect to which incentive stock options are first exercisable by any option holder during any calendar year shall not exceed $100,000.
Exercise Price
The purchase price for shares subject to incentive stock options must be at least 100% of the fair market value of our common stock on the date the option is granted, except that the purchase price must be at least 110% of the fair market value in the case of an incentive option granted to a person who is a "10% stockholder." A "10% stockholder" is a person who owns, within the meaning of Section 422(b)(6) of the Internal Revenue Code of 1986, at the time the incentive option is granted, shares possessing more than 10% of the total combined voting power of all classes of our outstanding shares. The plan provides that fair market value shall be determined by the board of directors or the committee in accordance with procedures which it may from time to time establish. If the purchase price is paid with consideration other than cash, the Board or the Committee shall determine the fair value of such consideration to us in monetary terms.
The exercise price of non-qualified options shall be determined by the board of directors or the committee, but shall not be less than the par value of our common stock on the date the option is granted.
The per share purchase price of shares issuable upon exercise of a plan option may be adjusted in the event of certain changes in our capitalization, but no such adjustment shall change the total purchase price payable upon the exercise in full of options granted under the plan.
Manner of Exercise
Plan options are exercisable by delivery of written notice to us stating the number of shares with respect to which the option is being exercised, together with full payment of the purchase price therefor. Payment shall be in cash, checks, certified or bank cashier's checks, promissory notes secured by the shares issued through exercise of the related options, shares of common stock or in such other form or combination of forms which shall be acceptable to the board of directors or the committee, provided that any loan or guarantee by us of the purchase price may only be made upon resolution of the board of directors or committee that such loan or guarantee is reasonably expected to benefit us.
Option Period
All incentive stock options shall expire on or before the tenth anniversary of the date the option is granted except as limited above. However, in the case of incentive stock options granted to an eligible employee owning more than 10% of the common stock, these options will expire no later than five years after the date of the grant. Non-qualified options shall expire 10 years and one day from the date of grant unless otherwise provided under the terms of the option grant.
Termination
All plan options are nonassignable and nontransferable, except by will or by the laws of descent and distribution, and during the lifetime of the optionee, may be exercised only by such optionee. If an optionee shall die while our employee or within three months after termination of employment by us because of disability, or retirement or otherwise, such options may be exercised, to the extent that the optionee shall have been entitled to do so on the date of death or termination of employment, by the person or persons to whom the optionee's right under the option pass by will or applicable law, or if no such person has such right, by his executors or administrators.
In the event of termination of employment because of death while an employee or because of disability, the optionee's options may be exercised not later than the expiration date specified in the option or
one year after the optionee's death, whichever date is earlier, or in the event of termination of employment because of retirement or otherwise, not later than the expiration date specified in the option or one year after the optionee's death, whichever date is earlier.
If an optionee's employment by us terminates because of disability and such optionee has not died within the following three months, the options may be exercised, to the extent that the optionee shall have been entitled to do so at the date of the termination of employment, at any time, or from time to time, but not later than the expiration date specified in the option or one year after termination of employment, whichever date is earlier.
If an optionee's employment shall terminate for any reason other than death or disability, optionee may exercise the options to the same extent that the options were exercisable on the date of termination, for up to three months following such termination, or on or before the expiration date of the options, whichever occurs first. In the event that the optionee was not entitled to exercise the options at the date of termination or if the optionee does not exercise such options (which were then exercisable) within the time specified herein, the options shall terminate.
If an optionee's employment shall terminate for any reason other than death, disability or retirement, all right to exercise the option shall terminate not later than 90 days following the date of such termination of employment.
If an optionee's employment with us is terminated for any reason whatsoever, and within three months after the date thereof optionee either (i) accepts employment with any competitor of, or otherwise engages in competition with us, or (ii) discloses to anyone outside our company or uses any confidential information or material of our company in violation of our policies or any agreement between the optionee and our company, the committee, in its sole discretion, may terminate any outstanding stock option and may require optionee to return to us the economic value of any award that was realized or obtained by optionee at any time during the period beginning on that date that is six months prior to the date optionee's employment with us is terminated.
The committee may, if an optionee's employment with us is terminated for cause, annul any award granted under this plan to such employee and, in such event, the committee, in its sole discretion, may require optionee to return to us the economic value any award that was realized or obtained by optionee at any time during the period beginning on that date that is six months prior to the date optionee's employment with us is terminated.
Modification and Termination of Plan
The board of directors or committee may amend, suspend or terminate the plan at any time. However, no such action may prejudice the rights of any holder of a stock grant or optionee who has prior thereto been granted options under the plan. Further, no amendment to this plan which has the effect of (a) increasing the aggregate number of shares subject to this plan (except for adjustments due to changes in our capitalization), or (b) changing the definition of "Eligible Person" under the plan, may be effective unless and until approved by our stockholders in the same manner as approval of this plan is required. Any such termination of the plan shall not affect the validity of any stock grants or options previously granted thereunder. Unless the plan shall theretofore have been suspended or terminated by the board of directors, the plan will terminate on December 18, 2017.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements.
China Clean & Renewable Energy Limited has entered into an employment agreement with Mr. Huie, Mr. Wong and Dr. Tang. On March 15, 2009, with employment to commence May 15, 2009, China Clean & Renewable Energy Limited entered into an employment agreement with Mr. Wong to serve as Vice President and Financial Controller. The term of the agreement is month to month with an initial two month
probationary period. Under the terms of this agreement, Mr. Wong shall receive an annual base salary of $58,464, a bonus in the amount of one month salary ($4,872) after each year, and any other bonus to be determined by the Board of Directors. The agreement also provides for paid vacation after one year, traveling and medical insurance, and such other fringe benefits commensurate with his duties and responsibilities, as well as containing certain non-disclosure agreements. Under the terms of the agreement, either party may terminate the agreement upon one day notice during the first month and upon one month notice or payment in lieu thereof, thereafter. To the extent that Mr. Wong is terminated for cause, or he voluntarily resigns, no severance benefits will be paid.
On March 15, 2009, with employment to commence June 1, 2009, China Clean & Renewable Energy Limited entered into an employment agreement with Dr. Tang to serve as Vice President and Chief Technical Officer. The term of the agreement is month to month with an initial two month probationary period. Under the terms of this agreement, Dr. Tang shall receive an annual base salary of $58,464, a bonus in the amount of one month salary ($4,872) after each year, and any other bonus to be determined by the Board of Directors. The agreement also provides for paid vacation after one year, traveling and medical insurance, and such other fringe benefits commensurate with his duties and responsibilities, as well as containing certain non-disclosure agreements. Under the terms of the agreement, either party may terminate the agreement upon one day notice during the first month and upon one month notice or payment in lieu thereof, thereafter. To the extent that Dr. Tang is terminated for cause, or he voluntarily resigns, no severance benefits will be paid.
On March 15, 2009, with employment to commence May 1, 2009, China Clean & Renewable Energy Limited entered into an employment agreement with Mr. Huie to serve as President and Chief Executive Officer. The term of the agreement is month to month with an initial two month probationary period. Under the terms of this agreement, Mr. Huie shall receive an annual base salary of $58,464, a bonus in the amount of one month salary ($4,872) after each year, and any other bonus to be determined by the Board of Directors. The agreement also provides for paid vacation after one year, traveling and medical insurance, and such other fringe benefits commensurate with his duties and responsibilities, as well as containing certain non-disclosure agreements. Under the terms of the agreement, either party may terminate the agreement upon one day notice during the first month and upon one month notice or payment in lieu thereof, thereafter. To the extent that Mr. Huie is terminated for cause, or he voluntarily resigns, no severance benefits will be paid.
For fiscal 2010 ended December 31, 2010, we owed Mr. Wong, Dr. Tang, and Mr. Allen Huie $3,357, $58,446 and $55,613, respectively, of compensation to them under the terms of employment agreements between the Company and each of the individuals. On March 26, 2009, the Company, Mr. Huie and Dr. Tang entered into an agreement whereby the executive officers’ compensation in arrear will be treated as a contribution to the capital of the Company.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of April 10, 2011, there were 24,580,000 shares of Common Stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of April 10, 2011 by:
·
each person known by us to be the beneficial owner of more than 5% of our common stock;
·
each of our directors;
·
each of our executive officers; and
·
our executive officers, directors and director nominees as a group.
Unless otherwise indicated, the address for each person is Room 802, 8/F, Beautiful Group Tower, 74-77 Connaught Road Central, Hong Kong. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
* less than 1%
(1)
Julie Yim G. Moy, the spouse of Allen Huie our Chief Executive Officer, King Keung Moy, and Debbie Moy are the trustees and each exercise voting control and dispositive power over all of the shares beneficially owned by the Allen Huie Family Trust. Allen Huie disclaims any beneficial ownership of the shares of the Allen Huie Family Trust.
(2)
No shareholder owns any options, warrants, securities convertible into shares of common stock or the right to acquire our securities within 60 days from the date of this prospectus.
(3)
These trusts were established by Mr. Huie for the benefit of his family. None of these trusts are "voting trusts" which were established for the purpose of cumulating votes or other similar purposes.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Loan from Officer
The Company has received the following loans from Mr. Allen Huie:
·
The first loan of $10,000 was received on November 7, 2007. Pursuant to the terms of the loan, the note bears interest at 7% p.a., was unsecured, and matured on November 8, 2008. The loan was extended in the same terms until November 7, 2011, and $4,091.88 of which still remains to be repaid.
·
The second loan of $106,023.40 was received on April 29, 2009. Pursuant to the terms of the loan, the note bears no interest, is unsecured. The original maturation date of April 28, 2010 has been extended to April 28, 2011.
·
The third loan of $25,731.80 was received on May 19, 2009. Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured. The original maturation date of November 18, 2009 was extended for another twelve months to November 18, 2011.
·
The fourth loan of $25,731.80 was received on September 24, 2009. Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured. The original maturation date of March 23, 2010 was extended for another twelve months to March 23, 2011.
·
The fifth loan of $25,731.80 was received on March 30, 2010. Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured, and matured on March 29, 2011.
·
The sixth loan of $18,427.31 was received on February 11, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on February 10, 2011.
·
The seventh loan of $38,597.70 was received on April 12, 2010. Pursuant to the terms of the loan, the note bears interest at 1% p.m., is unsecured, and matured on April 11, 2011.
·
The eighth loan of $45,030.65 was received on May 14, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on May 13, 2011.
·
The ninth loan of $164,683.52 was received on September 14, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on June 30, 2011.
·
The tenth loan of $18,012.26 was received on October 6, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on October 5, 2011.
In addition, the Company received a loan from another stockholder, Mr. Daniel W. Chu, who is also an executive officer:
·
The first loan of $38,597.70 was received from an EEPL director on March 10, 2010. Pursuant to the terms of the loan, the note carried an interest at 1% per month, unsecured, originally matured on June 9, 2010, and was now extended to August 8, 2011.
Subscriptions Receivable from China Clean & Renewable Energy Limited's Founders
In connection with the formation of China Clean & Renewable Energy Limited, the founders were required to contribute capital to China Clean & Renewable Energy Limited. As of December 31, 2007 the amount owing from the founders for subscriptions receivable was $109,712. As of March 31, 2009, all amounts were paid by the founders.
Director Independence
Mr. Huie, Mr. Wong, and Dr. Tang are not considered as "independent" directors. Mr. Poon is considered as an “independent” director.
General
We believe, based on management's experience, that the above transactions are as fair as what could have been obtained from unaffiliated third parties and contain terms that were comparable to the terms we would have received from unaffiliated third parties. All future transactions with affiliates of the issuer, including 5% or greater shareholders are to be as fair as what could have been obtained from unaffiliated third parties and on terms no less favorable than could be obtained from an unaffiliated third party.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Deleon & Co. P.A served as our independent registered public accounting firm for fiscal 2010 and 2009. The following table shows the fees that were billed for the audit and other services provided by such firm for fiscal 2010 and fiscal 2009.
Audit Fees - This category includes the audit of our annual financial statements, and services that are normally provided by the independent auditors in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our registration statements on Form 10-SB and S-1 and other accounting consulting.
Tax Fees - This category consists of professional services rendered by our independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees - This category consists of fees for other miscellaneous items.
Our Board of Directors has adopted a procedure for pre-approval of all fees charged by the our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to fiscal year 2009 and 2010 were pre-approved by the Board of Directors.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA RENEWABLE ENERGY HOLDINGS, INC.
By: /s/ Allen Huie
Allen Huie, Chief Executive Officer, director,
principal executive officer and principal accounting
and financial officer
Date: April 14, 2011
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Allen Huie
Allen Huie
Chief Executive Officer and
Chairman of the Board,
principal executive officer and
principal accounting and financial officer
Date: April 14, 2011
CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders’ of
China Renewable Energy Holdings, Inc.
We have audited the accompanying consolidated balance sheet of China Renewable Energy Holdings, Inc. and Subsidiaries as of December 31, 2009, and 2010, and the related statement of Operations, stockholders’ equity and cash flows for the years ended December 31, 2009 and 2010. China Renewable Energy Holdings, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Renewable Energy Holdings, Inc. and Subsidiaries as of December 31, 20010and 2009, and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has suffered recurring losses from operations, net capital deficiencies, and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
De Leon & Company, P.A.
Pembroke Pines, Florida
April 12, 2011
CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to financial statements
CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to financial statements
CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company paid $4,682 in 2010 and none for interest 2009, respectively.
The Company did not pay taxes in 2010 and 2009
See accompanying notes to financial statements
CHINA RENEWABLE ENERGY HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2010
See accompanying notes to financial statements
CHINA RENEWABLE ENERGY HOLDINGS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A)
Organization
China Renewable Energy Holdings, Inc. ("CREH") was incorporated under the laws of the State of Florida on December 17, 1999. China Renewable Energy Holdings, Inc. was originally organized to provide business services and financing to emerging growth entities, and later redirected its business focus to market and to distribute energy-efficient products in China.
China Clean and Renewable Energy Limited (“CCRL”) was incorporated under the laws of Hong Kong, China on April 19, 2006. China Clean and Renewable Energy Limited was organized to provide consulting services on environmental protection projects in China.
Renewable Energy Enterprises (Shanghai) Co. Ltd (“REEC”) was incorporated under the laws of the People’s Republic of China on February 27, 2008. REEC was organized to provide renewable energy products and equipment in China.
EEP Limited (“EEPL”) was incorporated under the laws of Hong Kong, China on March 23, 2009. The company was organized to market and distribute products and equipment that are environmentally friendly and energy-efficient in China.
C B Resources Limited (“CBRL”) was incorporated under the laws of Hong Kong, China. The company was organized to own and invest in energy related facilities and resources in China.
CREH and its’ wholly owned subsidiaries, CCRL, REEC, EEPL, and CBRL are hereafter referred to as the “Company”.
The accompanying audited consolidated financial statements include the accounts of China Renewable Energy Holdings, Inc. (“CREH”), China Clean Renewable Energy Limited (“CCRL”) (Hong Kong), Renewable Energy Enterprise (Shanghai) and Company Limited (“REEC”), EEP Limited (“EEPL”), and C B Resources Limited (“CBRL”). Both REEC and EEPL are wholly-owned subsidiaries of CCRL, which, together with CBRL, are themselves wholly-owned subsidiaries of CREH.
(B)
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
(C)
Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
(D)
Accounts Receivable
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by actively pursuing past due accounts. There was no provision for doubtful accounts made for 2010. The allowance amount was $43,505 as of December 31, 2009.
CHINA RENEWABLE ENERGY HOLDINGS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (Contd.)
(E)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the “first-in, first-out” (FIFO) method. The Company buys raw material to fill customer orders. Excess raw material is created when a vendor imposes a minimum buy in excess of actual . If excess material is not utilized after two fiscal years it is fully reserved. Any inventory item once designated as reserved is carried at zero value in all subsequent valuation activities. The Company’s inventories consist of raw materials and was $330,582 and $43,054 at December 31, 2010 and 2009, respectively.
(F)
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and trade receivables. The Company places its cash with high credit quality institutions. At times such amounts may be in excess of the FDIC insurance limits. The Company has not experienced any losses in such account and believes that it is not exposed to any significant credit risk on the account. With respect to the trade receivables, most of the Company’s products are custom made pursuant to contracts with customers whose end products are sold to the United States Government. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains allowances for potential credit losses. Actual losses and allowances have historically been within management’s expectations.
(G)
Loss per Share
Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC Topic 260, "Earnings per Share." As of December 31, 2010 and 2009, respectively, there were no common share equivalents outstanding.
(H)
Income Taxes
The Company accounts for income taxes under FASB ASC Topic 740 “Income Taxes”. Under Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Topic 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(I)
Property and Equipment
The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a three to five-year life for automobile and computer equipment.
(J)
Business Segments
The company considers its divisions as one segment for management purpose.
CHINA RENEWABLE ENERGY HOLDINGS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (Contd.)
(K)
Revenue Recognition
The Company recognized revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" and No. 104, "Revenue Recognition". In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.
(L)
Recent Accounting Pronouncements
No recent accounting pronouncements that affect the Company were issued. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
NOTE 2.
CONCENTRATION OF SALES AND PURCHASES
The Company distributed three product lines: the MB resins, H900s resins, and the CRK products in the year ended December 31, 2010. Of the three product lines, the CRK series generated a total of $3,080,467, or 50.02% of the total sales revenue of $6,158,457. The cost of sales for the CRK product line was approximately 92.20%, which was similar to the cost of other product lines.
NOTE 3.
RESTRICTED CASH
The Company entered into loan agreements with two banks to obtain bank facilities for its import and export trade. The first loan agreement requires the Company to set aside a sum of restricted cash in the amount of $128,659 (HKD1,000,000) as security for a revolving credit facility of up to $192,308 (HKD1,500,000) from the lending bank. As of December 31, 2010, there was no outstanding balance in the revolving credit account.
The second bank agreement requires the Company to maintain a restricted sum of cash in the form of a margin deposit to the level of 40% of the bank loans obtained from that lending bank. As of December 31, 2010, the outstanding loan amounted to $295,545; the outstanding margin deposit was $123,960. The margin deposit of $123,960 was released on January 12, 2011 when the loan of $295,545 was repaid.
NOTE 4.
PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2010, property, plant, and equipment consist of the following:
CHINA RENEWABLE ENERGY HOLDINGS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
Depreciation and amortization expense was $5,670 and $4,865 for 2010 and 2009 respectively, and is included in General and Administrative expense in the accompanying Statements of Operations.
NOTE 5.
NOTE PAYABLE
The Company has received the following loans from a principal shareholder:
·
The first loan of $10,000 was received on November 7, 2007. Pursuant to the terms of the loan, the note bears interest at 7% p.a., was unsecured, and matured on November 8, 2008. The loan was extended in the same terms until November 7, 2011, and $4,091.88 of which still remains to be repaid.
·
The second loan of $106,023.40 was received on April 29, 2009. Pursuant to the terms of the loan, the note bears no interest, is unsecured. The original maturation date of April 28, 2010 has been extended to April 28, 2011.\
·
The third loan of $25,731.80 was received on May 19, 2009. Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured. The original maturation date of November 18, 2009 was extended for another twelve months to November 18, 2011.
·
The fourth loan of $25,731.80 was received on September 24, 2009. Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured. The original maturation date of March 23, 2010 was extended for another twelve months to March 23, 2011.
·
The fifth loan of $25,731.80 was received on March 30, 2010. Pursuant to the terms of the loan, the note bears interest at 4% p.a., is unsecured, and matured on March 29, 2011.
·
The sixth loan of $18,427.31 was received on February 11, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on February 10, 2011.
·
The seventh loan of $38,597.70 was received on April 12, 2010. Pursuant to the terms of the loan, the note bears interest at 1% p.m., is unsecured, and matured on April 11, 2011.
·
The eighth loan of $45,030.65 was received on May 14, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on May 13, 2011.
·
The ninth loan of $164,683.52 was received on September 14, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on June 30, 2011.
·
The tenth loan of $18,012.26 was received on October 6, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on October 5, 2011.
In addition, the Company received a loan from another stockholder, who is also an executive officer:
·
The first loan of $38,597.70 was received from an EEPL director on March 10, 2010. Pursuant to the terms of the loan, the note carried an interest at 1% per month, unsecured, originally matured on June 9, 2010, and was now extended to August 8, 2011.
CHINA RENEWABLE ENERGY HOLDINGS, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
NOTE 6.
LOAN PAYABLE
The Company has also received from an unrelated creditor the following loans:
·
The first loan of $96,494.25 was received on May 25, 2009. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured. The original maturation date of November 24, 2009 was extended to November 20, 2011.
·
The second loan of $25,731.80 was received on October 12, 2009. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on October 11, 2011.
·
The third loan of $64,329.50 was received on November 11, 2009. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on November 10, 2011.
·
The fourth loan of $154,390.80 was received on November 26, 2009. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on November 24, 2011.
·
The fifth loan of $33,036.29 was received on January 20, 2010. Pursuant to the terms of the loan, the note bears interest at 1% per month and is unsecured, and matures on January 19, 2011.
NOTE 7.
RELATED PARTY TRANSACTIONS
The only related party transactions were the loans received from the principal stockholder as disclosed in NOTE 3 above.
NOTE 9.
SUBSEQUENT EVENTS
There was no significant event outstanding subsequent to December 31, 2010.
NOTE 10.
COMMITMENTS
There was no major commitment outstanding as at December 31, 2010.
NOTE 11.
GOING CONCERN
The Company sustained a net loss of $1,023,539 since inception, and used cash in operations of $554,591 for the year ended December 31, 2010. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.