CHINA SOLAR & CLEAN ENERGY SOLUTIONS, INC. - SB-2 - 20051102 - STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of October 21, 2005, certain information
with respect to the beneficial ownership of our common stock, our only shares of
voting securities, by (i) any person or group with more than 5% of the common
stock, (ii) each director, (iii) each executive officer and (iv) all executive
officers and directors as a group.
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Beneficial
Ownership
of Common Stock
----------------------------
Name and Relationship Number
Address of With of
Beneficial Owner Company Shares Percentage (a)
---------------- ----------- ----------- --------------
Shareholders of 5% or More
Lake Street Fund L.P.
C/o Wedbush Morgan Securities
Attn: Carmen Rivera
Clearance Dept
1000 Wilshire Blvd.
Los Angeles, CA 90017 Stockholder 514,280(1) 7.72%
Lagunitas Partners L.P.
C/o Gruber McBaine
50 Osgood Place
San Francisco, CA 94133 Stockholder 340,000(1) 5.24%
Lynk Capital Partners Limited
Attn: David Moy
Tung Chai Building, Rm 1001
86-90 Wellington Street
Central, Hong Kong Stockholder 481,440(1) 7.27%
MidSouth Investor Fund L.P.
C/o Heidtke & Company, Inc.
201 4th Avenue North, Suite 1950
Nashville, TN 37219 Stockholder 342,860(1) 5.28%
Yousu Lin
c/o Deli Solar Energy Heating Co., Ltd.
68 An Li Road, C3 Sunshine Plaza, Suite 1303
Chao Yang District, Beijing, PRC 100101 Stockholder 240,000(2) 3.9%(2)
Yunchun Wang
c/o Deli Solar Energy Heating Co., Ltd.
68 An Li Road, C3 Sunshine Plaza, Suite 1303
Chao Yang District, Beijing, PRC 100101 Stockholder 320,000(2) 5.21%(2)
Qian Wang
c/o Deli Solar Energy Heating Co., Ltd.
68 An Li Road, C3 Sunshine Plaza, Suite 1303
Chao Yang District, Beijing, PRC 100101 Stockholder 240,000(2) 3.9%(2)
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Directors and Officers
Deli Du (3) Stockholder,
c/o Deli Solar Energy Heating Co., Ltd. President, CEO
68 An Li Road, C3 Sunshine Plaza, Suite 1303 & a Director
Chao Yang District, Beijing, PRC 100101 3,202,886(2) 52.12%(2)
John D. Kuhns Stockholder,
The Farm House Chairman, and
558 Lime Rock Road a Director
Lakeville, CT 06039 75,851(4) 1.22%
Kelly Chow
c/o The Farm House
558 Lime Rock Road
Lakeville, CT 06039 Director 0 0
Yunjun Luo
c/o Deli Solar Energy Heating Co., Ltd.
68 An Li Road, C3 Sunshine Plaza, Suite 1303
Chao Yang District, Beijing, PRC 100101 Director 0 0
Ravinder Soin
c/o Deli Solar Energy Heating Co., Ltd.
68 An Li Road, C3 Sunshine Plaza, Suite 1303
Chao Yang District, Beijing, PRC 100101 Director 0 0
Officers and Directors as a group 4,078,737 66.36%
----------- ------------
(a) As of October 21, 2005 we had 6,145,277 outstanding shares. In
determining the percent of common stock owned by a Selling
Stockholder on October 21, 2005, (a) the numerator is the number of
shares of common stock beneficially owned by such Selling
Stockholder, including shares the beneficial ownership of which may
be acquired, within 60 days upon the exercise of the warrants held
by such Selling Stockholder, and (b) the denominator is the sum of
(i) the total 6,145,277 shares outstanding on October 21, 2005, and
(ii) the total number of shares underlying the warrants, which each
of the Selling Stockholders has the right to acquire within 60 days
upon the exercise of its warrants.
(1) Includes shares that may be acquired upon exercise of warrants. Each
warrant entitles the holder to purchase 10 shares of our common
stock (increased from the original 8 shares to 10 shares in August
2005) at the exercise price of $3.85 per share at any time within
the five year period commencing March 31, 2005.
(2) On March 31, 2005, Messrs. Yousu Lin, Yunchun Wang, Qian Wang and
Deli Du acting in concert, acquired beneficial ownership of a total
of 4,002,886 shares of the Company's Common Stock. For purpose of
Section 13(d)(3) of the Exchange Act, they may be considered
collectively as a "group", and thus each the beneficial owner of the
entire 4,002,886 shares. The percentage of ownership of the group as
a whole is 65.14%. All of the shares owned by Yousu Lin, Yunchun
Wang, and Qian Wang, and most of the shares owned by Deli Du,
totaling 4,000,000 shares, are subject to a 12-month lock up
agreement, commencing from March 31, 2005.
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(3) As a closing condition to the unit purchase agreement under which
the seventeen Selling Stockholders identified as Accredited
Investors subscribed their shares from the Company in the private
placement transaction closed on March 31, 2005, Mr. Du agreed to
place 10% of his equity interest in the Company (approximately
320,289 shares) into escrow for the benefit of the Accredited
Investors in the event we fail to attain specified levels of net
income.
(4) Includes 20,763 warrants to Mr. Kuhns and 52,907 warrants to Kuhns
Bros. & Co., Inc., each warrant entitles the holder to purchase one
share of the Company's Common Stock at $3.85 per share at any time
within the ten-year period commencing from March 31, 2005. Mr.
Kuhns, one of our Directors, is the Chairman and 45% shareholder of
Kuhns Brothers, Inc., which is the holding company for its 100%
subsidiaries, Kuhns Bros. & Co., Inc. and Kuhns Brothers Securities
Corporation. The shares held by Mr. Kuhns and the shares issuable to
Mr. Kuhns upon the exercise of his warrants are subject to a
one-year lock up agreement commencing from March 31, 2005.
Except for the disclosure made above, the Company knows of no other
beneficial owners (as a group or otherwise) of more than five percent (5%) of
the Company's shares of Common Stock.
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following are our officers and directors. Some of our officers and
directors are residents of the PRC and, therefore, it may be difficult for
investors to effect service of process within the United States upon them or to
enforce judgments against them obtained from the United States courts.
Name Position Age
--------------------- ------------------------------ --------------
John D. Kuhns Director, Chairman. 55
Deli Du President and CEO and Director 40
Jianmin Li Treasurer and CFO 36
Jing Wang Secretary 36
Kelly Chow Director 46
Yunjun Luo Director 69
Ravinder Soin Director 52
Mr. John D. Kuhns was appointed a director and chairman of the Company on
March 31, 2005. He has been a 45% shareholder, a director and chairman of Kuhns
Brothers, Inc., a holding company founded in 1987 for its 100% subsidiary, Kuhns
Bros. & Co., Inc., an investment banking firm specializing in providing
financing for power technology ventures, and, more recently, manufacturing
operations within the PRC. Additionally, Kuhns Brothers, Inc. owns 100% of Kuhns
Brothers Securities Corporation, a broker dealer, registered with the Securities
and Exchange Commission, in which Mr. Kuhns is the Chairman. Since 2002 Mr.
Kuhns has been a director and chairman of Distributed Power, Inc., a public
company that owns electric generating projects. Mr. Kuhns is also a director of
China Sciences Conservational Power Limited, a company listed on the Hong Kong
Stock Exchange. Neither of the foregoing Kuhns companies, nor Distributed Power,
Inc. or China Sciences Conservational Power Limited are affiliated with the
Company. Mr. Kuhns holds a bachelors degree in sociology and fine arts from
Georgetown University, a master's degree in fine arts from the University of
Chicago and an MBA degree from the Harvard Business School.
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Mr. Deli Du was appointed as a director, president and chief executive
officer of the Company on March 31, 2005. Mr. Du was the founder of Bazhou Deli
Solar Energy Heating Co. Ltd. (PRC) in 1997 and during the past five (5) years
had been its controlling equity holder, chairman and chief executive officer.
Since June, 2004 he has also been a director and manager of Deli Solar Holding
Ltd. (BVI). Deli Solar Holding Ltd. (BVI) is now our wholly-owned subsidiary,
and, in turn, owns all the equity of Bazhou Deli Solar Energy Heating Co., Ltd.
(PRC). Mr. Du is a standing member of the China Solar Energy Utilization
Association, the China Efficiency Boiler Association and the Beijing New Energy
and Renewable Energy Union.
Mr. Jianmin Li was appointed our treasurer and chief financial officer on
March 31, 2005. Prior thereto, commencing October, 2001, he had been the senior
finance manager for Tianjin Exist Food Co. Ltd., one of the largest distributors
of fast food consumer goods in the Province of Tianjin, PRC. Mr. Li holds a
bachelor's degree in economics from the Business College of Beijing Forestry
University (1991) and has completed the MBA program at Katholicke University
Leuven Vlerick Management School in Belgium (2001).
Ms. Jing Wang was appointed our secretary in May, 2005. She is the
corporate officer in charge of our compliance with U.S. securities laws and
regulations. Ms. Wang holds a bachelor's degree in architecture from the Beijing
Jiao Tong University, a master's degree in real estate finance from the
University of New South Wales (Australia), a post graduate degree in commerce
from the Chinese Academy of Social Sciences, with English studies at ACCL in
Sydney, Australia. From March, 2002 to February, 2005 she was with Northcroft
(Australia) Pty., Ltd., a company engaged in project, cost and risk management
analysis, in which she held the position of business development manager.
Mr. Kelly Chow was appointed as a director of the Company in June, 2005.
Mr. Chow holds a Bachelor of Arts degree from the University of Toronto. From
1996 until May, 2005 he was associated with the investment banking firm of
Merrill Lynch, Pierce, Fenner & Smith and most currently held the office of vice
president. While at Merrill Lynch he was engaged primarily in investments and
asset management. Presently Mr. Chow is an independent investor and consultant
specializing in U.S.-Chinese business and corporate financial affairs.
Mr. Yunjun Luo was appointed to be a director of the Company in June,
2005. He holds a bachelor's degree in pyrology from the Southeast University
(PRC) with further studies and research within the PRC at The Academy of Social
Sciences (structural mechanics), the Commission of Science, Techno and Industry
for National Defense (space satellites) and the Beijing Solar Energy Research
Institute (solar heaters). For over five (5) years he has been associated with
the Beijing New Energy and Renewable Energy Association, holding the positions
of director and vice professor. He is presently a director and chief consultant
to Beijing Ailiyang Solar Energy Technology Co., Ltd.
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Mr. Ravinder Soin was appointed as a director of the Company in June,
2005. Mr. Soin holds chemical engineering degrees from the following
institutions in India: B.S. from Punjab University, M.E. from Biria Institute of
Technology & Science (affiliated with Massachusetts Institute of Technology),
Ph. D. from MS University. From 1992 to 2003 he was employed by BP Solar Pty
Ltd., an Australian corporation engaged in development and exploitation of solar
photovoltaic equipment, where he held the position of director of business
development. From 2003 to the present he has been associated as a director of
AUS Renewable Energy Ltd., an Australian corporation engaged in the renewable
energy business. Neither of these companies is an affiliate of ours. Mr. Soin is
currently a member of the Institution of Engineers (Australia), the Australian
and New Zealand Solar Energy Society and the Australian China Business Council.
None of Messrs. Du, Luo, Chow or Soin is a member of any boards of
directors of companies with securities registered with the SEC. They, together
with Mr. Kuhns, each will be paid a fee at the annual rate of $20,000 to act in
his capacity as a director. Except as set forth above, all directors hold office
until the next annual meeting of the shareholders of the Company, and until
their successors have been elected, or appointed and qualified. Our officers
serve at the discretion of the Board of Directors.
The following are the officers and directors of Deli Solar (PRC):
Name Positions Age
---- --------- ---
Deli Du Chairman and Director 40
Yunjun Luo Director 69
Hao Dong CEO 30
Xueling Wu Controller 24
Mr. Hao Dong was appointed as the chief executive officer of Deli Solar
(PRC) in January, 2005. He has been working for Deli Solar (PRC) since 1997,
holding positions in the technology department (from 1997 to 1999),
manufacturing department (from 1999 to 2004) and sales department. Mr. Dong
graduated from Bazhou City Technical College in 1995 and worked as technical
staff for Bazhou City Hua Xin Construction Co., Ltd. before joining Deli Solar
(PRC). Mr. Dong is an assistant engineer on mechanics, a certification
recognized by the Technology Department Bazhou Municipal Government.
Ms. Xueling Wu was appointed as controller of Deli Solar (PRC) in January,
2005. Prior to that, Ms. Wu had worked for Deli Solar (PRC) since 2001 as a
staff accountant, inventory controller and sales person. She graduated from
Hebei Provincial Fisheries College.
FAMILY RELATIONSHIPS
There are no family relationships among our directors or officers.
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AUDIT COMMITTEE FINANCIAL EXPERT
Our full Board of Directors currently serves as our audit committee. The
Board of Directors does not currently have an audit committee "financial expert"
as defined under Rule 401(e) of Regulation S-B because we only recently
consummated the transaction with Deli Solar (BVI) and the Board of Directors is
in the process of searching for a suitable candidate for this Board position.
EXECUTIVE COMPENSATION
The following is a summary of the compensation we paid to our CEO
for the three years ended December 31, 2004, 2003, and 2002, respectively. Our
other two most highly compensated officers were employed in 2005.
(1) Mr. Du received this annual compensation of $1,451 from Deli Solar
(PRC) for his services as CEO of the company. Mr. Du is presently
paid a salary at the annual rate of $80,000.
(2) Starting from March 2005, Mr. Li receives a salary from the Company
at the annual rate of $20,000.
(3) Starting from May 2005, Ms. Wang received a salary at the annual
rate of $30,000.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Under an engagement agreement, Kuhns Brothers, Inc. through its 100%
subsidiaries, Kuhns Brothers Securities Corporation, and Kuhns Bros. & Co. Inc.,
rendered investment banking and financing services to Deli Solar (PRC), during
the six (6) month period ended June 30, 2005. Kuhns Brothers, Inc. is 45% owned
by John D. Kuhns, the Chairman of our Board of Directors. In return for these
investment banking and financing services rendered by Kuhns Brothers, Inc., we
paid it $150,000 and a financing fee of $574,802, plus 121,342 shares of our
common stock, along with warrants to purchase 171,429 shares of our common stock
at $3.85 per share at any time prior to March 30, 2015. Under the engagement
agreement, Kuhns Brothers, Inc. will also be entitled to a fee equals to 9% of
the proceeds from exercise of the warrants held by the seventeen Accredited
Investors. In addition we have entered into an agreement, dated April 1, 2005,
with Kuhns Brothers, Inc. to render financial advisory and consulting services
to the Company and its subsidiaries for the period ending December 31, 2005, for
which Kuhns Brothers, Inc. is paid $10,000 per month commencing April 1, 2005.
Pursuant to a Consultancy Agreement dated June, 2005 between Deli Solar
(PRC) and AUS Renewable Energy Ltd., a Hong Kong company controlled by our
director, Ravinder Soin, Deli Solar (PRC) has retained Mr. Soin as its
consultant to assist the Company to market its products and services to markets
outside of PRC for an annual consulting fee of US$60,000, payable on a bimonthly
basis. Under the agreement, we are obligated to reimburse Mr. Soin for certain
travel and transportation expenses associated with the consulting services.
We currently use Beijing Ailiyang Solar Energy Technology Co., Ltd.
("Ailiyang") as one of our distributors to market and sell our products.
Ailiyang was formed on July 28, 1997 as a limited liability company in the PRC
and is owned by Deli Du, one of our directors and our CEO and President, Xiufeng
Liu, and Xiao'san Du (collectively, "Ailiyang Shareholders"). In 2003 and 2004,
sales through Ailiyang were approximately $149,995, or 1.6%, and $33,888, or
0.56%, of our total sales, respectively. We do not have a formal distributorship
agreement with Ailiyang and sales usually are made via purchase orders by
Ailiyang. We sell our products to Ailiyang at the same price as we sell to other
non-affiliated distributors, but we provide a longer time period to pay and a
larger amount of trade credit to Ailiyang. As of June 30, 2005, sales payable
from Ailiyang to Deli Solar (PRC) totaled $625,845.
We entered into a stock purchase agreement, dated February 24, 2005, with
the Ailiyang Shareholders pursuant to which we will purchase all of the stock of
Ailiyang from all Ailiyang Shareholders for a total purchase price of RMB
500,000. The purchase is conditioned on the completion of the registration of
the stock transfer with the local Commercial Bureau and change of business
license with the local Administration of Industry and Commerce. The business
registration change is in process. Upon the change of business registration is
completed, we will make payment of the purchase price. Once we complete our
purchase of Ailiyang, Ailiyang will become a wholly owned subsidiary of Deli
Solar (PRC) and Ailiyang's sole business will be acting as a distributor for our
products.
Mr. Deli Du, our Director and CEO, borrowed from Deli Solar (PRC) $49,208
in 2003 and additional funds in 2004. As of 2004, the accumulative total amount
of Mr. Du's borrowing was $406,498. The borrowings were reflected as part of our
accounts receivable in the respective year. During the first fiscal quarter of
2005, Mr. Deli Du has repaid all of his borrowings from Deli Solar (PRC).
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PLAN OF DISTRIBUTION
The Selling Stockholders may sell the common stock directly or through
brokers, dealers or underwriters who may act solely as agents or may acquire
common stock as principals. Such sales may be made at prevailing market prices,
at prices related to such prevailing market prices, or at variable prices
negotiated between the sellers and purchasers. The Selling Stockholders may
distribute the common stock in one or more of the following methods:
o ordinary brokers transactions, which may include long or short sales
through the facilities of the Over-the-Counter Bulletin Board (if a
market maker successfully applies for inclusion of our common stock
in such market) or other market;
o transactions involving cross or block trades or otherwise on the
open market;
o purchases by brokers, dealers or underwriters as principal and
resale by these purchasers for their own accounts under this
prospectus;
o sales "at the market" to or through market makers or into an
existing market for the common stock;
o sales in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales made
through agents;
o through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise); or
o any combination of the above, or by any other legally available
means.
In addition, the Selling Stockholders may enter into hedging transactions
with broker-dealers who may engage in short sales of common stock, or options or
other transactions that require delivery by broker-dealers of the common stock.
The Selling Stockholders and/or the purchasers of common stock may
compensate brokers, dealers, underwriters or agents with discounts, concessions
or commissions (compensation may be in excess of customary commissions). The
Selling Stockholders and any broker dealers acting in connection with the sale
of the shares being registered may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, as amended, and any profit
realized by them on the resale of shares as principals may be deemed
underwriting compensation under the Securities Act. We do not know of any
arrangements between the Selling Stockholders and any broker, dealer,
underwriter or agent relating to the sale or distribution of the shares being
registered.
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We and the Selling Stockholders and any other persons participating in a
distribution of our common stock will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, these parties and other
persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions subject to specified exceptions or
exemptions.
The Selling Stockholders may sell any securities that this prospectus
covers under Rule 144 of the Securities Act rather than under this prospectus if
they qualify.
We cannot assure you that the Selling Stockholders will sell any of their
shares of common stock.
In order to comply with the securities laws of certain states, if
applicable, the Selling Stockholders will sell the common stock in jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states, the Selling Stockholders may not sell or offer the common stock unless
the holder registers the sale of the shares of common stock in the applicable
state or the applicable state qualifies the common stock for sale in that state,
or the applicable state exempts the common stock from the registration or
qualification requirement.
We have agreed to indemnify the Selling Stockholders whose shares we are
registering from all liability and losses resulting from any misrepresentations
we make in connection with the registration statement.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of (i) 66,666,667
shares of common stock, par value $.001 per share, of which there are 6,145,255
shares issued and outstanding, and (ii) 25,000,000 shares of preferred stock,
par value $.0001 per share, of which no shares have been designated or issued.
The following is a summary of the material terms of our capital stock.
This summary is subject to and qualified in its entirety by our Articles of
Incorporation, as amended, and Bylaws, and by the applicable provisions of
Nevada law.
Common Stock
Every stockholder of record is entitled to one vote for each share on all
matters to be voted on by the stockholders. Our charter documents do not provide
for cumulative voting rights and thus, under the applicable Nevada corporate
statute, holders of common stock do not have cumulative voting rights. Holders
of common stock are entitled to share ratably in dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion from
funds legally available therefore.
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Under the Nevada corporate statute NRS 78.265, stockholders in
corporations organized before October 1, 1991 have a preemptive right to acquire
unissued shares, unless such a preemptive right is denied by the articles of
incorporation. However, a preemptive right does not exist to acquire shares if
the shares upon issuance are registered pursuant to Section 12 of the Securities
Exchange Act of 1934, which is the case for the Company. Thus, holders of the
Company's common stock have no preemptive rights. There are no conversion or
redemption rights or sinking fund provisions with respect to the Company's
common stock.
Preferred Stock
The Company's Board of Directors is authorized under the Restated Articles
of Incorporation to provide for the issuance of shares of preferred stock, by
resolution or resolutions for the issuance of such stock, and, by filing a
certificate of designations under Nevada law, to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof without any further vote or action by the
shareholders. Any shares of preferred stock so issued are likely to have
priority over the Company's common stock with respect to dividend or liquidation
rights.
The issuance of shares of preferred stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of preferred stock might impede
a business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a business combination by
including voting rights that would provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power of the holders of the
common stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of the stockholders of the Company, the Board of Directors could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
market price of such stock. The Board of Directors does not at present intend to
seek stockholder approval prior to any issuance of currently authorized
preferred stock, unless otherwise required by law.
MARKET PRICE OF AND DIVIDENDS ON OUR
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock was reported on NASDAQ through April 30, 1986, at which
time it was delisted because of failure to meet the minimum capital, surplus and
asset requirements of the NASD by-laws. Thereafter, our common stock was traded
on the over-the-counter Bulletin Board under the trading symbol "MDPM.OB." After
the completion of the Reverse Merger on March 31, 2005, we obtained the new
symbol "DLSL.OB" under which our common stock is now traded. As of October 28,
2005, the last reported bid price for our common stock was $6.75 per share and
the last reported asked price was $16.75 per share.
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The following table sets forth, for the quarters indicated, the closing
prices of our common stock as reported by the NASD Over-the-Counter Bulletin
Board, as adjusted for all previously effected stock splits. These prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
As of October 21, 2005, we had 6,145,277 shares of common stock issued and
outstanding, and there were approximately 2498 holders of record of our
outstanding shares.
Dividends
The payment of dividends, if any, is to be within the discretion of the
Company's Board of Directors. The Company presently intends to retain all
earnings, if any, for use in its business operations and accordingly, the Board
of Directors does not anticipate declaring any dividends in the near future.
Dividends, if any, will be contingent upon the Company's revenues and
earnings, capital requirements, financial conditions and the ability of Deli
Solar (PRC) to obtain approval to get monies out of the PRC. The PRC's national
currency, the Yuan, is not a freely convertible currency. Effective January 1,
1994, the PRC foreign exchange system underwent fundamental changes. This reform
was stated to be in line with the PRC's commitment to establish a socialist
market economy and to lay the foundation for making the Yuan convertible in the
future. The currency reform is designed to turn the dual exchange rate system
into a unified and managed floating exchange rate system.
A China Foreign Exchange Trading Centre was formed in April, 1994 to
provide an interbank foreign exchange trading market whose main function is to
facilitate the matching of long and short term foreign exchange positions of the
state-designated banks, and to provide clearing and settlement services. The
People's Bank of China publishes the state managed exchange rate daily based on
the daily average rate from the previous day's inter-bank trading market, after
considering fluctuations in the international foreign exchange markets. Based on
these floating exchange rates, the state-designated banks list their own
exchange rates within permitted margins, and purchase or sell foreign exchange
with their customers.
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The State Administration of Foreign Exchange of the PRC ("SAFE")
administers foreign exchange dealings and requires that they be transacted
through designated financial institutions. All Foreign Investment Enterprises
("FIEs") may buy and sell foreign currency from designated financial
institutions in connection with current account transactions, including, but not
limited to, profit repatriation. With respect to foreign exchange needed for
capital account transactions, such as equity investments, all enterprises in the
PRC (including FIEs) are required to seek approval of the SAFE to exchange Yuan
into foreign currency. When applying for approval, such enterprises will be
subject to review by the SAFE as to the source and nature of the Yuan funds.
Pursuant to a public notice issued by SAFE on January 24, 2005, and a
subsequent public notice issued by SAFE on April 8, 2005, acquisitions of PRC
domestic companies by offshore companies established and controlled by PRC
domestic residents are subject to examination, approval or verification by the
central bureau of SAFE. In the case of the acquisition of Deli Solar (PRC) by
Deli Solar (BVI), no such approval or verification was obtained. To our
knowledge, the central bureau of SAFE has not approved or verified any
transactions subject to the January 24 and April 8 SAFE notices, and has
conducted no enforcement actions in connection therewith. However, there is a
possibility that SAFE may choose to examine such transactions and conduct such
enforcement actions in the future, which could include restricting PRC
companies' ability to distribute profits to their offshore parent companies. If
enforcement actions are conducted by SAFE, the penalties that may be assessed or
the remedial measures that may be required in connection with such enforcement
actions are uncertain, due to the absence of any provision for penalties or
remedial measures in the January 24 and April 8 SAFE notices.
Equity Compensation Plan Information
We do not have any equity compensation plans.
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Transfer Agent
Our stock transfer agent is Securities Transfer Corporation, located at
2591 Dallas Parkway, Suite 102, Sisco, TX 75034. Their telephone number is
469-633-0101, and their facsimile is 469-633-0088.
Penny Stock Regulations
The SEC has adopted regulations which generally define "penny stock" to be
an equity security that has a market price of less than $5.00 per share. Our
common stock, if the price of which drops below $5.00 per share, may fall within
the definition of penny stock and subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000, or annual incomes exceeding $200,000 or
$300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's prior written consent to the transaction. Additionally,
for any transaction, other than exempt transactions, involving a penny stock,
the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's Common Stock and
may affect the ability of investors to sell their Common Stock in the secondary
market.
LEGAL PROCEEDINGS
We know of no material, active, pending or threatened proceeding against
us, Deli Solar (BVI) or Deli Solar (PRC), nor are we involved as a plaintiff in
any material proceeding or pending litigation. We also know of no proceedings in
which any of our or our subsidiaries' directors, officers, or affiliates, or any
registered or beneficial shareholder is an adverse party or has a material
interest adverse to our interests.
LEGAL MATTERS
Our counsel, Guzov Ofsink, LLC, located at 600 Madison Avenue, 14th Floor,
New York, New York 10022, is passing upon the validity of the issuance of the
common stock that we are offering under this prospectus.
EXPERTS
Child, Sullivan & Company, independent certified public accountants,
located at 1284 W. Flint Meadow Dr., Suite D, Kaysville, Utah, have audited our
financial statements included in this registration statement to the extent, and
for the periods set forth in their reports. We have relied upon such reports,
given upon the authority of such firm as experts in accounting and auditing.
69
INTEREST OF NAMED EXPERTS AND COUNSEL
No "expert" or "counsel" as defined by Item 509 of Regulation S-B
promulgated pursuant to the Securities Act, whose services were used in the
preparation of this Form SB-2, was hired on a contingent basis or will receive a
direct or indirect interest in us.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICAITON
FOR SECURITIES ACT LIABILITIES
Our Bylaws provide that we will indemnify our directors and officers from
all costs and expenses of liability incurred by them in connection with any
action, suit or proceeding in which they are involved by reason of their acting
as our directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our Directors, officers and controlling persons, we have
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On August 11, 2003, we engaged MGB Partners, LLP and simultaneously
dismissed Corbin & Company, LLP as our independent auditor. This change of our
independent auditor was approved by our Board of Directors. Corbin & Company,
LLP had not issued any opinion on our financial statements. We are unaware of
any past disagreements between us and Corbin & Company, LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
In June, 2005, after the completion of the Reverse Merger, we engaged
Child, Sullivan & Company, a professional corporation of Certified Public
Accountants, as our principal independent accountant with the approval of our
Board of Directors. Accordingly, we dismissed MGB Partners, LLP on the same
date. The reason to change our principal independent accountant was based on the
fact that our operating company, Deli Solar (PRC), and our subsidiary, Deli
Solar (BVI), have been audited by Child, Sullivan & Company in the past and it
was in our best interests to continue to retain such firm's services. In
connection with the audit of our financial statements and in the subsequent
interim period through the date of dismissal, there were no disagreements with
MGB Partners, LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which
disagreements, if not resolved to the satisfaction of MGB Partners, LLP, would
have caused MGB Partners, LLP to make reference to the subject matter of the
disagreements in connection with their report.
70
FINANCIAL STATEMENTS
Deli Solar (PRC)'s audited financial statements for the fiscal years ended
December 31, 2004 and 2003, together with the report of independent certified
public accountants thereon and the notes thereto, and the Company's unaudited
interim financial statements for the six-months ended June 30, 2005, including
the notes thereto, are presented beginning at page F-1.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, a registration statement on Form SB-2, as
amended, under the Securities Act for the common stock offered by this
prospectus. We have not included in this prospectus all the information
contained in the registration statement and you should refer to the registration
statement and its exhibits for further information.
The registration statement and other information may be read and copied at
the SEC's Public Reference Room at 450 Fifth Street N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site (HTTP://WWW.SEC.GOV.) that contains the registration statements, reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC such as us.
You may also read and copy any reports, statements or other information
that we have filed with the SEC at the addresses indicated above and you may
also access them electronically at the web site set forth above. These SEC
filings are also available to the public from commercial document retrieval
services.
Deli Solar (USA), Inc.
Unaudited Consolidated Financial Statements
Index
I. Consolidated Balance Sheet as of June 30, 2005
II. Consolidated Statements of Operations for the Six Months and Three Months
Ended June 30, 2005 and 2004
III. Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2005 and 2004
IV. Notes to Unaudited Consolidated Financial Statements
I. Consolidated Balance Sheet
DELI SOLAR (USA), INC. Consolidated Balance Sheet (unaudited)
June 30, 2005
-------------
Assets
Current assets
Cash and cash equivalents $ 4,927,967
Trade accounts receivable 436,075
Allowance for doubtful accounts (88,600)
-------------
Net trade accounts receivable 347,475
Prepaid expenses 677,522
Related party receivable 625,845
Inventories 365,345
-------------
Total current assets 6,944,154
Property, plant and equipment
Buildings 1,575,401
Machinery and equipment 42,236
Vehicles 68,851
Computer equipment 11,035
Office equipment 4,039
Construction in progress 1,206,636
-------------
Total 2,908,198
Accumulated depreciation (139,404)
-------------
Net property, plant and equipment 2,768,794
Prepaid land lease 67,344
-------------
Total other assets 67,344
-------------
Total assets $ 9,780,292
=============
Liabilities and stockholders' equity
Current liabilities
Trade accounts payable 77,472
Other payables 47,208
Accrued expenses 4,962
Deposits 4,615
Short-term notes payable 96,618
-------------
Total current liabilities 230,875
Stockholders' equity
Preferred stock: par value $.001;
25,000,000 shares authorized, no shares
issued and outstanding --
Common stock: par value $.001;
66,666,667 shares authorized, 6,144,058
shares issued and outstanding 6,144
Additional paid in capital 5,705,481
Retained earnings 3,837,792
-------------
Total stockholders' equity 9,549,417
-------------
Total Liabilities and stockholders' equity $ 9,780,292
=============
See notes to unaudited consolidated financial statements.
F-1
II. Consolidated Statements of Operations
DELI SOLAR (USA), INC. Consolidated Statements of Operations
(unaudited)
Six months ended Six months ended Three months ended Three months ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------------ ------------------ ------------------ ------------------
Sales revenues $ 5,824,938 $ 4,061,530 $ 4,625,905 $ 3,122,646
Cost of goods sold 4,451,893 2,876,789 3,501,779 2,138,110
------------------ ------------------ ------------------ ------------------
Gross profit 1,373,045 1,184,741 1,124,126 984,536
Operating expenses
Advertising 264,575 82,439 204,508 80,362
Other selling expenses 78,411 39,237 71,707 35,613
Salaries and benefits 79,822 75,450 50,856 63,124
Depreciation 15,308 14,406 8,013 6,360
Other general and administrative 532,368 64,853 503,933 16,339
------------------ ------------------ ------------------ ------------------
Total operating expenses 970,484 276,385 839,017 201,798
------------------ ------------------ ------------------ ------------------
Net operating income 402,561 908,356 285,109 782,738
Other income (expense)
Interest income -- -- -- --
Interest expense (13,713) -- (2,856) --
Other -- (7,411) -- (8,979)
------------------ ------------------ ------------------ ------------------
Total other income (expense) (13,713) (7,411) (2,856) (8,979)
------------------ ------------------ ------------------ ------------------
Net income before taxes 388,848 900,945 282,253 773,759
Taxes -- -- -- --
------------------ ------------------ ------------------ ------------------
Net income $ 388,848 $ 900,945 $ 282,253 $ 773,759
================== ================== ================== ==================
Basic earnings per share $ 0.07 $ 0.20 $ 0.05 $ 0.17
================== ================== ================== ==================
Denominator for basic EPS 5,291,649 4,429,768 6,144,058 4,429,768
------------------ ------------------ ------------------ ------------------
Fully diluted earnings per share $ 0.06 $ 0.20 $ 0.04 $ 0.17
================== ================== ================== ==================
Denominator for diluted EPS 6,067,341 4,429,768 7,686,919 4,429,768
------------------ ------------------ ------------------ ------------------
See notes to unaudited consolidated financial statements.
F-2
III. Consolidated Statements of Cash Flow
DELI SOLAR (USA), INC. Consolidated Statements of Cash Flows
Six months ended Six months ended
June 30, 2005 June 30, 2004
------------------- -------------------
Cash flows from operating activities:
Net income $ 388,848 $ 900,945
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization 15,308 14,406
Changes in operating liabilities and assets:
Trade accounts receivable (220,020) (80,796)
Prepaid expenses (324,478) (215,822)
Inventories (66,347) (1,639)
Other receivables 18,116 (12,652)
Prepaid land lease 742 742
Trade accounts payable 29,501 2,585
Other payables (35,038) 89,303
Accrued expenses (207,272) (29,781)
Deposits (7,833) 6,947
------------------- -------------------
Net cash provided by (used in)operations (408,473) 674,238
Cash flows from investing activities;
Purchases of property, plant and equipment (239,549) (937,356)
------------------- -------------------
Net cash used in investing activities (239,549) (937,356)
Cash flows from financing activities;
Capital contribution received from shareholders 5,184,630
Related party receivables 136,387 (151,072)
Payables to related party (499,500) --
Proceeds from short-term notes payable (436,595) 120,773
------------------- -------------------
Net cash provided by (used in) financing activities 4,384,922 (30,299)
Increase (decrease) in cash and cash equivalents 3,736,900 (293,417)
Cash and cash equivalents, beginning of period 1,191,067 1,109,110
Cash and cash equivalents, end of period $ 4,927,967 $ 815,693
=================== ===================
Supplement disclosures of cash flow information:
Interest paid in cash $ 13,713 $ 11,622
=================== ===================
See notes to unaudited consolidated financial statements.
F-3
I. Notes to Unaudited Consolidated Financial Statements
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005
Note 1: Summary of Significant Accounting Policies
a) Revenue recognition
Revenue from the sale of goods is recognized on the transfer of risks and
rewards of ownership, which generally coincides with the time when the goods are
delivered to customers and the title has passed. Interest income is recognized
when earned, taking into account the principal amounts outstanding and the
interest rates applicable. Sundry income includes compensations received from
the State Bureau as incentive to relocate from the previous factory premises,
profit from the sales of raw materials to third parties and write-offs of long
outstanding trade payables.
b) Taxes
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 reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date. A valuation allowance
is provided for deferred tax assets if it is more likely than not these items
will either expire before the Company is able to realize their benefits, or that
future deductibility is uncertain.
Currently, the Company has recorded no income taxes and no deferred taxes
because it pays a fixed tax as assessed, and annually adjusted, by the State
Administration of Taxation of Bazhou and Bazhou Local Taxation Bureau.
Therefore, there is no income tax, per se, and there are no temporary
differences in assets or liabilities.
c) Foreign currencies:
The accompanying financial statements are presented in United States (US)
dollars. The functional currency is the Renminbi (RMB). The financial statements
are translated into US dollars from RMB at exchange rates of 8.28 for assets and
liabilities, and weighted average exchange rates for revenues and expenses.
Capital accounts are translated at their historical exchange rates when the
capital transactions occurred. On July 21, 2005, China changed its foreign
currency exchange policy from a fixed RMB/USD exchange rate into a flexible rate
under the control of China's government.
d) Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
e) Cash
Cash represents cash on hand and deposits held in financial institutions. For
the purposes of the cash flow statements, cash cosists of cash on hand and
deposits held on call with the banks.
F-4
f) Accounts receivable
Provision is made against accounts receivable to the extent that they are
considered to be doubtful. Accounts receivable on the balance sheet are stated
net of such provision. As of June 30, 2005, provision for doubtful accounts
totaled $88,600.
g) Inventories
Inventories consist of raw materials, consumables and goods held for resale and
are stated at the lower of cost or market value. Cost is calculated using the
first in first out method and includes any overhead costs incurred in bringing
the inventories to their present location and condition.
h) Fixed assets
Fixed assets are stated at cost less accumulated depreciation. The cost of an
asset is comprised of its purchase price and any directly attributable costs of
bringing the asset to its present working condition and location for its
intended use. Expenditures incurred after assets have been put into operation,
such as repairs and maintenance and overhaul costs, are normally charged to the
statement of operations in the period in which they are incurred. In situations
where it can be clearly demonstrated that the expenditure has resulted in an
increase in the future economic benefits expected to be obtained from the use of
the asset, the expenditure is capitalized as an additional cost of the asset.
When assets are sold or retired, their cost and accumulated depreciation are
eliminated from the financial statements and any gain or loss resulting from
their disposal is included in the statement of operations. Where the recoverable
amount of an asset has declined below its carrying amount, the carrying amount
is reduced to reflect the decline in value. Expected future cash flows have been
discounted in determining the recoverable amount. There were no fixed assets
impairments during the six months ended June 30, 2005.
i) Construction-in-progress
All facilities purchased for installation, self-made or subcontracted are
accounted for under construction-in-progress. Construction-in-progress is
recorded at acquisition cost, including cost of facilities, installation
expenses and the interest capitalized during the course of construction for the
purpose of financing the project. Upon completion and readiness for use of the
project, the cost of construction-in-progress is to be transferred to fixed
assets.
j) Related party transaction
Transactions with related parties can be substantiated by the Company as `arms
length' transactions. Accounts receivable from related parties at June 30, 2005,
was $625,845.
Note 2: Subsequent Events
On July 21, 2005, China changed its foreign currency exchange policy from a
fixed RMB/USD exchange rate of 8.28 to 8.11. China will continue to adjust its
exchange rate in the near future. Even though we have no direct import or export
at present, we think this adjustment will influence our purchasing price of some
of our raw materials. The change of China's foreign currency exchange rate will
have influence on the performance of BaZhou Deli Solar Heating Company in China.
F-5
Child, Sullivan & Company
A Professional Corporation of CERTIFIED PUBLIC ACCOUNTANTS
1284 W. Flint Meadow Dr., Suite D, Kaysville, UT 84037 PHONE: (801) 927-1337 FAX: (801) 927-1344
------------------------------------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Stockholders
Bazhou Deli Solar Energy Heating Co., Ltd.
We have audited the accompanying balance sheet of Bazhou Deli Solar Energy
Heating Co., Ltd. as of December 31, 2004 and the related statements of
operations, changes in equity, and cash flows for the years ended December 31,
2004 and 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits 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 Bazhou Deli Solar Energy
Heating Co., Ltd. as of December 31, 2004 and the results of its operations and
its cash flows for the years ended December 31, 2004 and 2003, in conformity
with accounting principles generally accepted in the United States of America.
Child, Sullivan & Company
Kaysville, Utah
March 22, 2005, except for Notes 2, 3 and 9, which are dated August 24, 2005
F-6
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
BALANCE SHEETS
December 31,
Assets 2004 2003
----------- -----------
Current assets
Cash and cash equivalents $ 1,191,067 $ 1,109,110
Trade accounts receivable 216,055 208,797
Allowances for doubtful accounts (88,600) (85,002)
----------- -----------
Net trade accounts receivable 127,455 123,795
Prepaid expenses 353,044 29,180
Related party receivable 556,493 83,096
Inventories 298,998 360,740
----------- -----------
Total current assets 2,527,057 1,705,921
Property, plant and equipment
Buildings 1,575,401 911,150
Machinery and equipment 42,236 41,716
Vehicles 61,474 66,236
Computer equipment 5,818 4,972
Office equipment 3,512 3,512
Construction in progress 980,208 226,177
----------- -----------
Total 2,668,649 1,253,763
Accumulated depreciation (124,096) (95,100)
----------- -----------
Net property, plant and equipment 2,544,553 1,158,663
Other receivables 18,116 --
Prepaid land lease 68,086 69,571
----------- -----------
Total other assets 86,202 69,571
----------- -----------
Total assets $ 5,157,812 $ 2,934,155
=========== ===========
See notes to financial statements.
F-7
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
BALANCE SHEETS (CONTINUED)
December 31,
Liabilities and Equity 2004 2003
---------- ----------
Current liabilities
Trade accounts payable $ 47,971 $ 39,342
Other payables 81,746 98,229
Accrued expenses 212,234 212,256
Deposits 12,448 5,501
Short-term notes payable 533,213 289,855
---------- ----------
Total current liabilities 887,612 645,183
Equity
Preferred stock: par value $.001; 25,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock: par value $.001; 66,666,667 shares
authorized, 4,429,768 shares issued and outstanding 4,430 4,430
Additional paid in capital 816,826 816,826
Retained earnings 3,448,944 1,467,716
---------- ----------
Total Equity 4,270,200 2,288,972
---------- ----------
Total Liabilities and Equity $5,157,812 $2,934,155
========== ==========
See notes to financial statements.
F-8
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
STATEMENTS OF OPERATIONS
Year ended
December 31,
2004 2003
----------- -----------
Sales revenues $ 9,380,246 $ 6,011,870
Cost of goods sold 6,633,836 4,783,989
----------- -----------
Gross profit 2,746,410 1,227,881
Operating expenses
Advertising 249,084 278,329
Other selling expenses 86,217 11,648
Salaries and benefits 170,008 168,181
Depreciation 31,471 27,054
Other general and administrative expenses 118,739 82,354
----------- -----------
Total operating expenses 655,519 567,566
----------- -----------
Net operating income 2,090,891 660,315
Other income (expense)
Interest expense (43) (63,508)
Gain (loss) on asset disposal (3,971) 5,446
Other 50,148 (8)
----------- -----------
Total other income (expense) 46,134 (58,070)
----------- -----------
Net income before taxes 2,137,025 602,245
Taxes -- --
----------- -----------
Net income $ 2,137,025 $ 602,245
=========== ===========
Basic and fully diluted earnings per share $ 0.48 $ 0.14
=========== ===========
Weighted average common shares outstanding 4,429,768 4,429,768
----------- -----------
See notes to financial statements.
F-9
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
STATEMENTS OF CHANGES IN EQUITY
Common Stock Additional Retained Total
Shares Amount Paid in capital Earnings Equity
----------- ----------- ----------- ----------- -----------
Balances at January 1, 2002 4,429,768 $ 4,430 $ 816,826 $ 598,275 $ 1,419,531
Net income -- -- -- 267,196 267,196
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 4,429,768 4,430 816,826 865,471 1,686,727
Net income -- -- -- 602,245 602,245
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 4,429,768 4,430 816,826 1,467,716 2,288,972
Net income 2,137,025 2,137,025
Dividends paid -- -- -- (155,797) (155,797)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 4,429,768 $ 4,430 $ 816,826 $ 3,448,944 $ 4,270,200
=========== =========== =========== =========== ===========
See notes to financial statements.
F-10
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
STATEMENTS OF CASH FLOWS
Year ended
December 31,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 2,137,025 $ 602,245
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 31,471 27,054
Provision for allowance on accounts receivable 3,598 29,501
(Gain) Loss on disposal of fixed assets 3,971 (5,446)
Changes in operating liabilities and assets:
Trade accounts receivable (7,258) 9,889
Prepaid expenses (323,864) (22,247)
Inventories 61,742 (53,781)
Other receivables (18,116) --
Prepaid land lease 1,485 1,486
Trade accounts payable 8,629 (157,777)
Other payables (16,483) 27,425
Accrued expenses (22) 114,525
Deposits 6,947 (756)
----------- -----------
Net cash provided by operations 1,889,125 572,118
Cash flows from investing activities:
Purchases of property, plant and equipment (1,421,332) (306,655)
----------- -----------
Net cash used in investing activities (1,421,332) (306,655)
Cash flows from financing activities:
Proceeds from short-term notes payable 243,358 78,502
Related party receivables (473,397) 36,000
Payment of dividends (155,797) --
----------- -----------
Net cash provided by (used in) financing activities (385,836) 114,502
----------- -----------
Increase in cash and cash equivalents 81,957 379,965
Cash and cash equivalents, beginning of period 1,109,110 729,145
----------- -----------
Cash and cash equivalents, end of period $ 1,191,067 $ 1,109,110
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid in cash $ 56,006 $ 74,333
=========== ===========
See notes to financial statements.
F-11
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. Nature of operations
Bazhou Deli Solar Energy Heating Co., Ltd. (the Company) was incorporated on
August 19, 1997 under the laws of the People's Republic of China (the PRC). In
the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the United
States (US).
The Company primarily manufactures and sells solar energy heaters, heating
stoves, related accessories, and other solar energy products within the PRC.
2. Basis of Presentation
The accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP). This
basis differs from that used in the statutory accounts of the Company, which
were prepared in accordance with the accounting principles and relevant
financial regulations applicable to enterprises in the PRC. All necessary
adjustments have been made to present the financial statements in accordance
with US GAAP. These statements have been retroactively restated to show the
effects due to a reverse merger effected on March 31, 2005, wherein the Company
assumed the capital structure of Meditech Pharmaceuticals, Inc. and a 1:6
reverse stock split that was effected on August 2, 2005 (see note 9).
3. Summary of Significant Accounting Policies
Economic and Political Risks
The Company faces a number of risks and challenges as a result of having primary
operations and markets in the PRC. Changing political climates in the PRC could
have a significant effect on the Company's business.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents includes
cash on hand and demand deposits held by banks. Cash deposits in banks are not
insured by any government agency or entity.
Trade Accounts Receivable
Trade accounts receivable are recognized and carried at original invoice amount
less an allowance for any uncollectible amounts. Management reviews past due
accounts on a regular basis and determines collectibility based on a customer's
current financial condition and recent payment history, and success in recent
collection efforts. An estimate for doubtful accounts is made when collection of
the full amount becomes questionable.
F-12
3. Summary of Significant Accounting Policies (continued)
Inventories
Inventories consist of raw materials and low cost consumables for the
construction of the Company's products, as well as finished goods. The
inventories are valued at the lower of cost (first-in, first-out method) or
market. Impairment and changes in market value are evaluated on a per item
basis. If the cost of the inventory exceeds the market value evaluation based on
total inventory, provisions are made for the difference between the cost and the
market value. Provision for potential obsolete or slow moving inventory is made
based on analysis of inventory levels, age of inventory and future sales
forecasts. Inventories consisted of the following:
December 31, December 31,
2004 2003
------- -------
Raw materials 38,148 166,753
Consumables 14,394 --
Finished goods 246,456 193,987
------- -------
Totals 298,998 360,740
Property, Plant, and Equipment
Property, plant and equipment is carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the useful lives of the assets. Amortization of
leasehold improvements is calculated on a straight-line basis over the life of
the asset or the term of the lease, whichever is shorter. Major renewals and
betterments are capitalized and depreciated; maintenance and repairs that do not
extend the life of the respective assets are charged to expense as incurred.
Upon disposal of assets, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
Depreciation related to property and equipment used in production is reported in
cost of sales. Property and equipment are depreciated over their estimated
useful lives as follows:
Buildings 50 years
Machinery and equipment 10 years
Vehicles 7 years
Computer equipment 3 years
Office equipment 7 years
F-13
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. Summary of Significant Accounting Policies (continued)
Property, Plant, and Equipment (continued)
Land and buildings have historically been owned by the government in the PRC. As
is generally the case with most businesses in the PRC, the Company has leased
such assets on a lease term of 50 years and is depreciating the building over
that term.
Construction in progress consists of the development of a new building intended
for use as a warehouse and for additional operating capacity. During the years
ended December 31, 2004 and 2003, respectively, the Company capitalized
interest, related to the new building under construction, totaling approximately
$55,963, and $10,825. The capitalized interest is included in construction in
progress on the balance sheet. This new building will be owned by the Company,
not by the PRC, but the land on which the building sits is still owned by the
PRC and is under a 50 year lease, similar to the other land and buildings.
Long-term assets of the Company are reviewed annually to assess whether the
carrying value has become impaired, according to the guidelines established in
Statement of Accounting Standards (SFAS) No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The Company also evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. No impairment of assets was recorded in the
periods reported.
Registered Capital
Companies in the PRC are not held by stock ownership as is the case in the US.
Those creating a company register and pay in a given amount of required
registered capital at formation of the company, as required by laws in the PRC
governing business entity formation. These statements have been retroactively
restated to show the effects due to a reverse merger effected on March 31, 2005,
wherein the Company assumed the capital structure of Meditech Pharmaceuticals,
Inc.
Revenue Recognition
Revenues are recognized when (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred and title has passed according to the sale terms, (3)
the seller's price to the buyer is fixed or determinable; and (4) collectibility
is reasonably assured.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense amounted to
$249,084 and $278,329 for the years ended December 31, 2004 and 2003,
respectively.
F-14
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. Summary of Significant Accounting Policies (continued)
Foreign Currency and Comprehensive Income
The accompanying financial statements are presented in United States (US)
dollars. The functional currency is the Renminbi (RMB). The financial statements
are translated into US dollars from RMB at year-end exchange rates for assets
and liabilities, and weighted average exchange rates for revenues and expenses.
Capital accounts are translated at their historical exchange rates when the
capital transactions occurred.
The exchange rate for RMB to US dollars has varied by only 100ths during 2004
and 2003. Thus, the consistent exchange rate used has been 8.28 RMB per each US
dollar. Since there have been no greater fluctuations in the exchange rate,
there is no gain or loss from foreign currency translation and no resulting
other comprehensive income or loss.
RMB is not freely convertible into the currency of other nations. All such
exchange transactions must take place through authorized institutions. There is
no guarantee the RMB amounts could have been, or could be, converted into US
dollars at rates used in translation.
Taxes
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 reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date. A valuation allowance
is provided for deferred tax assets if it is more likely than not these items
will either expire before the Company is able to realize their benefits, or that
future deductibility is uncertain.
Currently, the Company has recorded no income taxes and no deferred taxes
because it pays a fixed tax as assessed, and annually adjusted, by the State
Administration of Taxation of Bazhou and Bazhou Local Taxation Bureau.
Therefore, there is no income tax, per se, and there are no temporary
differences in assets or liabilities.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
3. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
In May 2004, the Emerging Issues Task Force of the FASB came to a consensus
regarding EITF 02-14 "Whether an Investor Should Apply the Equity Method of
Accounting to Investments Other Than Common Stock". The consensus of the task
force is that the equity method of accounting is to be used for investments in
common stock or in-substance common stock, effective for reporting periods
beginning after September 15, 2004. The Company currently has no equity
investments, and therefore no impact will be made on the financial statements of
the Company.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs". SFAS No.
151 requires that items such as idle facility expense, excessive spoilage,
double freight, and rehandling costs be recognized as current period charges and
that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The statement is
effective for fiscal periods beginning after June 15, 2005. The Company believes
that the application of SFAS No. 151 will have no significant impact on the
financial statements.
In December 2004, the FASB issued Statement No. 153, "Exchange of Non-Monetary
Assets". SFAS No. 153 confirms that exchanges of nonmonetary assets are to be
measured based on the fair value of the assets exchanged, except for exchanges
of nonmonetary assets that do not have commercial substance. Those transactions
are to be measured at entity specific values. The Company believes that the
application of SFAS No. 153 will have no significant impact on the financial
statements, as the Company has no immediate plans for the exchange of
nonmonetary assets.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," which amends SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123, as revised, requires public entities to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. The cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award. No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. The effective date for the
Company is the first reporting period beginning after December 15, 2005.
Management expects that the application of SFAS No. 123 (revised 2004) may have
an adverse effect on its results of operations in the future, should the Company
choose to compensate its employees with equity instruments of the Company.
F-15
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
4. Prepaid Land Lease
The Company paid in advance for the lease of one of its buildings and land for a
fifty year time period, consisting of approximately $75,000 (see note 6). The
amount is being amortized and recorded as rent expense over the 50 year term of
the lease.
5. Short-Term Notes Payable
Short-term notes payable consist of renewable notes. The notes bear interest at
rates ranging from 7.98% to 8.85%, are collateralized by the Company's inventory
and building, and fall due between February and May 2005.
6. Leases
The Company leases land and buildings under non-cancelable lease arrangements
accounted for as operating leases. One of the leases is a fifty year lease (see
note 4) and the other, which was not paid in advance, is a twenty year lease.
Rent expense under non-cancelable leases was $13,901, and $7,186 during the
years ended December 31, 2004 and 2003, respectively.
Future minimum lease payments of lease obligations are as follows:
Transactions with related parties can be substantiated by the Company as `arms
length' transactions. Sales to a related party consisted of $149,995, and
$33,888 during the years ended December 31, 2004, and 2003, respectively.
Accounts receivable from related parties at December 31, 2004, and 2003,
respectively, were $556,493, and $83,096.
F-16
BAZHOU DELI SOLAR ENERGY HEATING CO., LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
8. Contingencies
The Company has not, historically, carried any property or casualty insurance.
No amounts have been accrued for any liability that could arise from the lack of
insurance. Management believes the chances of such an obligation arising are
remote.
Deposits in banks in the PRC are not insured by any government entity or agency,
and are consequently exposed to risk of loss. Management believes the
probability of a bank failure, causing loss to the Company, is remote.
9. Subsequent Events
Deli Solar Holding Ltd., a BVI company, acquired 100% ownership in the Company
from its previous owners, after which Deli Solar Holding Ltd. was acquired by
Meditech Pharmaceuticals, Inc. (Meditech) on March 31, 2005. Both acquisition
transactions are treated as reverse mergers, in which Bazhou Deli Solar is
treated as the accounting acquirer. These financial statements have been
retroactively restated to show the adopted capital structure of Meditech for all
periods presented.
On August 2, 2005, the Company effected a 1:6 reverse stock split. These
financial statements have been retroactively restated to show the effect of the
reverse stock split as if it had occurred at the beginning of the periods
presented.
F-17
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article VI, Sections 1 and 2 of our By-Laws, we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that such person is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with such action or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in the best interests of the Company and, in the case of a criminal action
or proceeding, had no reasonable cause to believe the conduct of such person was
unlawful.
II-1
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Although we will receive no proceeds from the sale of shares pursuant to
this prospectus, we have agreed to bear the costs and expenses of the
registration of the shares. Our expenses in connection with the issuance and
distribution of the securities being registered, other than the underwriting
discount, are estimated as follows:
SEC Registration Fee $ 5,465.55
Printing and Engraving Expenses* $ 5,000
Professional Fees and Expenses* $ 150,000
Transfer Agent's Fees* $ 2,500
Miscellaneous Expenses* $ 3,000
-------------------------------- -----------
Total $165,965.55
-------------------------------- -----------
* Estimates
RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth recent sales by the Company of unregistered
securities during the fiscal year ended December 31, 2004, without giving
effect to a 1 for 6 reverse split effected in May 2005:
1. During the twelve months ended December 31, 2004, we granted 3,000,000
shares of our common stock as payment against a loan given to Meditech. The loan
of $30,000 was paid off through this issuance.
2. During the twelve months ended December 31, 2004, we issued an
aggregate of 9,800,000 shares of our common stock for cash of $142,222.
II-2
No underwriter was involved in any of the above issuances of securities.
All of the above securities were issued in reliance upon the exemptions set
forth in Section 4(2) of the Securities Act on the basis that they were issued
under circumstances not involving a public offering.
The following sets forth recent sales by the Company of unregistered
securities during the six months ended June 30, 2005, without giving effect to a
1 for 6 reverse split effected in May 2005:
1. On March 31, 2005, pursuant to the Stock Contribution Agreement, the
former shareholders of Deli Solar (BVI) contributed all the shares of capital
stock of Deli Solar (BVI), par value US$0.05 per share, in exchange for
24,000,000 shares of common stock of the Company. The exchange qualified as
exempt transactions under Section 4(2) and/or Regulation S under the Securities
Act, as amended.
2. On March 31, 2005, pursuant to subscriptions executed by seventeen
accredited investors, the Company issued a total of 10,285,744 shares of common
stock, accompanied by warrants entitling the warrant holders to purchase eight
(8) shares of common stock (which was increased to 10 shares in August, 2005)
for each ten (10) shares issued, in private placements qualifying as exempt
transactions under Section 4(2) of the Securities Act, as amended, and Rule 506
of Regulation D thereunder. The total purchase price paid for the common shares
and warrants was $6,000,015. The shares with the warrants were sold as "Units"
at $35.00 per unit consisting of sixty (60) shares plus a warrant to purchase
sixty (60) shares. The exercise price per share of the individual
warrants was $0.642 per share (all pre-reverse split figures).
The offering to the seventeen accredited investors was accomplished
through Kuhns Brothers Securities Corporation, an NASD member and SEC registered
broker dealer, as placement agent. John Kuhns, the chairman and 45% shareholder
of Kuhns Brother Securities Corporation, is the Chairman of our Board of
Directors.
Further information regarding these transactions is contained in out
Current Report on Form 8-K filed with the SEC on April 6, 2005.
Other than the securities mentioned above, we have not issued or sold any
securities without registration for the past three years from the date of this
registration statement.
II-3
EXHIBITS
3.1 Certificate of Incorporation. Includes all amendments and restatements.
3.2-1 Bylaws.(1)
3.2-2 Amendment to Bylaws dated October 17,2005 (2)
4.1 Common Stock Specimen*
4.2 Form of Warrant.
5.1 Legal Opinion of Guzov Ofsink, LLC re legality of the common stock being
registered.
10.1 Stock Contribution Agreement, dated March 28, 2005, entered into by and
between the Company and Deli Du, is hereby incorporated by reference to
Exhibit A to Schedule 13D filed by the Company on April 18, 2005.
10.2 Stock Purchase Agreement, dated March 30, 2005, by and among Deli Du,
Halter Capital Corporation, and the Company, is hereby incorporated by
reference to Exhibit B to Schedule 13D filed by the Company on April 18,
2005.
10.3 Form of Unit Purchase Agreement.
10.4 Form of Engagement Agreement.
10.5 Form of Lock Up Agreement between the Company and the members of the
Financial Advisor Group.
10.6 Summary of Land Purchase Agreement by and between Deli Solar (PRC) and
Deli Du.*
10.7 Summary of Stock Purchase Agreement by and between Deli Solar (PRC) and
Ailiyang Shareholders.*
10.8 Form of Registration Rights Amendment.
21.1 List of subsidiaries.
23.1 Consent of counsel to the use of the opinion annexed at Exhibit 5.1 is
contained in the opinion filed at Exhibit 5.1
23.2 Consent of accountants for use of their report.
---------------------
* To be filed by amendment.
(1) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission in
August 1983.
(2) Incorporated herein by reference to the Registrant's Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission
on March 26, 2001.
II-4
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement(or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly in
Beijing, PRC, on October 25, 2005.
DELI SOLAR (USA), INC.
By: /s/ Deli Du
-----------------------------------
Deli Du
Chief Executive Officer & President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Name and Title Date
-------------- ----
/s/ Deli Du
--------------------------------------- October 25, 2005
Deli Du
Director
/s/ Jianmin Li
--------------------------------------- October 25, 2005
Jianmin Li
Chief Financial Officer
/s/ Yunjun Luo
--------------------------------------- October 25, 2005
Yunjun Luo
Director
/s/ John D. Kuhns
--------------------------------------- October 25, 2005
John D. Kuhns
Director
/s/ Kelly Chow
--------------------------------------- October 25, 2005
Kelly Chow
Director
/s/ Ravinder Soin
--------------------------------------- October 25, 2005
Ravinder Soin
Director
II-6
Exhibit 5.1 - Opinion re legality of the common stock being registered
GUZOV OFSINK, LLC
600 Madison Avenue
New York, New York 10022
November 1, 2005
Board of Directors
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to Deli Solar (USA), Inc., a Nevada corporation
(the "Company"), in connection with the filing of a Registration Statement on
Form SB-2 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), with respect to the registration under the
Securities Act of 1933, as amended (the "Act"), of 3,952,025 shares of the
Company's $.001 par value per share common stock (the "Common Stock") for resale
(the "Shares").
In our capacity as counsel, we are familiar with the proceedings taken by
the Company in connection with the authorization, issuance and sale of the
Shares. In addition, in connection with the registration of the foregoing
securities, we have reviewed such documents and records as we have deemed
necessary to enable us to express an opinion on the matters covered hereby,
including, but not limited to, certain agreements relating to the authorization,
issuance, registration and sale of such securities and copies of resolutions of
the Company's Board of Directors authorizing the issuance of such securities and
their registration pursuant to the Registration Statement.
In rendering this opinion, we have (a) assumed (i) the genuineness of all
signatures on all documents examined by us, (ii) the authenticity of all
documents submitted to us as originals, and (iii) the conformity to original
documents of all documents submitted to us as photostatic or conformed copies
and the authenticity of the originals of such copies; and (b) relied on (i)
certificates of public officials and (ii) as to matters of fact, statements and
certificates of officers and representatives of the Company.
Based upon the foregoing, we are of the opinion that the Shares have been
validly issued and are fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
Nothing herein shall be deemed to relate to or constitute an opinion
concerning any matters not specifically set forth above. The foregoing opinions
relate only to matters of the internal law of the State of Nevada without
reference to conflict of laws and to matters of federal law, and we do not
purport to express any opinion on the laws of any other jurisdiction. We assume
no obligation to supplement this opinion if, after the date hereof, any
applicable laws change, or we become aware of any facts that might change our
opinions, as expressed herein.
The opinion expressed herein may be relied upon by the Company in
connection with the registration of the Shares, as contemplated by, and in
conformity with, the Registration Statement. With the exception of the
foregoing, the opinion expressed herein may not be relied upon by any other
person without our prior written consent.
We express no opinion as to compliance with the securities or "blue sky"
laws of any state or country in which the Shares are proposed to be offered and
sold.
The Farm House
558 Lime Rock Road
Lime Rock, Connecticut 06039
Mr. Deli Du
Chairman & Chief Executive Officer
Deli Solar Holding Ltd.
August 12, 2004
AGREEMENT PROVIDING FOR INVESTMENT BANKING SERVICES
Dear Mr. Du:
This letter agreement (the "Agreement") is written to set forth the
understanding and agreement between Kuhns Brothers, Inc. and its related
subsidiaries (altogether, "Kuhns Brothers") and Deli Solar Holding Ltd. and its
related subsidiaries and joint venture affiliates (altogether, the "Company").
The Company hereby engages Kuhns Brothers on an exclusive basis for the
two year period commencing the date hereof to provide it with investment banking
services, and Kuhns Brothers hereby accepts such engagement.
I. INVESTMENT BANKING SERVICES
1. Financial Advisory Services
Kuhns Brothers, through its subsidiary Kuhns Bros. & Co., Inc. (the
"Advisor") and its subsidiary Kuhns Brothers Securities Corporation (the
"Placement Agent"), will assist the Company with its current investment banking
requirements, including what is presently expected to be a transaction involving
the merger of the Company in a reverse takeover with a public shell purchased by
the Company and the simultaneous issuance of approximately $6-8 million of
equity in the form of units including one share of common stock and one warrant
(or things of equivalent value invested in it or its controlled subsidiaries or
affiliates) from institutional and high-net-worth individual financial investors
("Financial Investors") or, at the option of the Company, strategic investors
("Strategic Investors"), to be provided over the period of this Agreement
(altogether, the "Financing").
With respect to Financial Investors, Kuhns Brothers will provide the
following financial advisory and placement agency services relating to the
Financing:
(i) provide advice regarding the financial structure of the Company or its
subsidiaries or any projects or programs undertaken by any of the
foregoing; (ii) assist in structuring the Financing with respect to what
is usual and standard practice on terms and conditions equivalent for
organizations in similar financings; (iii) assist in preparing and
documenting the offering memorandum and related materials relating to the
Financing; (iv) when the structuring of the Financing has reached an
appropriate stage, assist in the process to obtain and execute such
Financing; and (v) assist in obtaining and executing such Financing on the
most favorable terms and conditions consistent with current market
conditions and the nature of and risks inherent in the Company.
With respect to Strategic Investors, Kuhns Brothers will provide the
following services:
(i) assist in the evaluation of a Strategic Investor from a financial
point of view; (ii) provide advice and assistance with respect to the form
and structure of the transaction involving the Strategic Investor; and,
when the structuring of the strategic relationship has reached an
appropriate stage, (iii) act as the Company's agent to assist the Company
in locating and obtaining, on the most favorable terms and conditions,
such Strategic Investors in the form of Company clients, customers or
vendors, and assist the parties to enter into sales, vendor, licensing or
related strategic agreements. (Such agreements with Strategic Investors,
whether they result in a financial investment and or license arrangement,
sales or vendor agreement or otherwise, shall also be considered Financing
for purposes of this Agreement.)
Kuhns Brothers shall not be required to undertake duties not reasonably
within the scope of the financial advisory services in which it is generally
engaged. In performance of its duties, Kuhns Brothers shall provide the Company
with the benefits of its best judgment and efforts, but it is understood and
acknowledged by the parties that the value of Kuhns Brothers' advice may not be
measurable in a quantitative manner.
The Company acknowledges that Kuhns Brothers and its affiliates are in the
business of providing financial advisory services of all types contemplated by
this Agreement to others. Nothing herein contained shall be construed to limit
or restrict Kuhns Brothers or its affiliates in conducting such business with
respect to others or rendering such advice to others.
The Company recognizes and confirms that Kuhns Brothers, in acting
pursuant to this Agreement, will be using information in reports and other
information provided by third parties, including information provided by or on
behalf of the Company. Kuhns Brothers does not assume responsibility for and may
rely on, without independent verification, the accuracy and completeness of any
such reports and information. The Company hereby warrants that any information
relating to the Company that is furnished to Kuhns Brothers by or on behalf of
the Company will be accurate and will not contain any material misstatements of
fact or omissions. The Company agrees that any information or advice rendered by
Kuhns Brothers or its representatives in connection with this Agreement is for
confidential use of the Company's Board of Directors, management and employees,
as well as attorneys, accountants and other agents of the Company on a
need-to-know basis and, except as otherwise required by law, the Company will
not, and will not permit any third party to, disclose or otherwise refer to such
advice or information in any manner without Kuhns Brothers' prior written
consent.
2
2. Merger and Acquisition Services
Relating to its assistance with respect to the Financing, Kuhns Brothers
shall provide the Company with services related to merger and acquisition
transactions.
For purposes of this Agreement, the term "merger and acquisition
transaction" means: (i) any merger, consolidation, reorganization or other
business combination including strategic partnerships or joint ventures pursuant
to which the business or businesses of a third party, including projects,
stand-alone assets or technologies, are combined with that of the Company in
either a direct ownership, joint venture or strategic alliance fashion; (ii) the
acquisition, directly or indirectly, by the Company of all or a substantial
portion of the assets or equity of a third party by way of negotiated purchase
or otherwise; or (iii) the acquisition, directly or indirectly, by a third party
of all or a substantial portion of the assets or equity of the Company by way of
negotiated purchase or otherwise (the "Transaction(s)").
Kuhns Brothers' merger and acquisition services may include, but will not
necessarily be limited to:
(i) Assistance in the identification of businesses, organizations, assets
or technologies that may constitute potential Transactions; (ii)
assistance in the evaluation of such third parties from a financial point
of view; (iii) assistance with respect to the form and structure of the
Transaction; (iv) conducting discussions and negotiations regarding a
Transaction; and (v) providing other related advice and assistance as the
Company may reasonably request in connection with a Transaction.
The Company acknowledges that Kuhns Brothers and its affiliates are in the
business of providing merger and acquisition services (of all types contemplated
by this agreement) to others. Nothing herein contained shall be construed to
limit or restrict Kuhns Brothers or its affiliates in conducting such business
with respect to others or in rendering such advice to others.
3
3. Strategic Planning Services
Relating to its assistance with respect to the Financing, Kuhns Brothers
shall provide the Company with strategic planning services. Kuhns Brothers
strategic planning services shall include, but not be limited to, the following:
(i) advice regarding the Company's business plan; (ii) advice regarding
formation of the Company's corporate goals and their implementation; (iii)
advice regarding corporate organization, personnel and the related
selection of needed specialty skills; (iv) general corporate documentation
preparation and assistance, including services relating to assisting the
Company in preparation of its business plan and related materials,
including regulatory and filing documentation; (v) assistance regarding
preparation and organization of the Company's corporate paperwork; and
(vi) assistance in negotiating with creditors and otherwise restructuring
the Company's obligations.
II. COMPENSATION
In consideration of rendering such services, the Company agrees to pay
Kuhns Brothers on the following basis:
(i) for financial advisory services--
(a) a signing fee of $30,000, payable upon the execution of this
Agreement;
(b) a documentation fee of $20,000, payable upon the completion of
documentation associated with any Financing or Transaction; and
(c) a purchase fee of $100,000, payable upon the successful purchase of
the public shell, payable from the proceeds of the Financing; and
(d) a financing fee, payable upon closing(s) of the Financing, equal to
the following percentages of the total Financing value:
------------------------------------------ -----------------------
Corporate Financing Fee
------------------------------------------ -----------------------
Public equity offering 10.00%, plus warrants
------------------------------------------ -----------------------
Exercise of Warrants or Subscription 9.00%
Rights
------------------------------------------ -----------------------
4
With respect to warrants provided as compensation as indicated in the
tables above, the warrant "coverage", that is the percent of the dollar
amount of securities issued for which Kuhns Brothers shall receive
warrants to purchase the Company's equity securities, shall be 10%. For
example, if the Company issues $1 million of securities, Kuhns Brothers
shall receive warrants to buy $100,000 of common stock of the Company.
Such warrants will have a strike price that is 110% of the price of the
equity securities, or underlying equity securities, offered in the
Financing, or 100% of the price of the Company's common stock as set by
the most recent third party sale and shall be outstanding for a period of
10 years.
In connection with our financial advisory services, you agree that if
during the period Kuhns Brothers is retained by you or within 2 years thereafter
a Financing is consummated with a third party, acting either as a Financial
Investor or as a Strategic Investor, who was introduced directly or indirectly
by Kuhns Brothers ("Introduced Investors"), or if the Company enters into a
definitive agreement with Introduced Investors which at any time thereafter
results in a Financing, you will pay Kuhns Brothers a financing fee equal to the
fees indicated above with respect to such Financing. It is understood that for
purposes of this Agreement, Kuhns Brothers shall be deemed to have introduced
such Introduced Investors to the Company not only by physical introductions and
meetings, but also by arranging or facilitating telephonic or correspondence
meetings between the parties, whether or not Kuhns Brothers participated in such
meetings, telephone calls or correspondence.
Additionally, if during the period Kuhns Brothers is retained by you or
within 2 years thereafter, a Financing is consummated with a third party not
introduced to the Company by Kuhns Brothers, Kuhns Brothers will be paid a fee
equal to 50% of its compensation due pursuant to the language above.
Notwithstanding anything contained herein, Kuhns Brothers' fees payable in
connection with a Financing shall be paid at the level of the compensation table
above at any time as there is a closing of the Financing or Transaction, or
tranche of the Financing or Transaction, or finalization of related
documentation or purchase of a public shell (the "Closings"), and at the option
of Kuhns Brothers, shall be paid in cash or in the securities of the Company
being offered in the Financing.
In the event that Kuhns Brothers is successful in raising the Financing,
but the Company declines to accept the Financing, Kuhns Brothers will be paid a
fee equal to 50% of its compensation due pursuant to the language above.
(ii) for merger and acquisition services--
(a) a merger and acquisition fee equal to the "Lehman Formula" based on
$5 million increments, that is, 5% of the first $5 million, 4% of
the second $5 million, etc., of the consideration paid in the
Transaction, or the Lehman Formula of the equity value of the
organization being acquired, at the option of Kuhns Brothers.
5
In the event that Kuhns Brothers is involved in both merger and
acquisition services and financial advisory services with respect to a
Transaction, Kuhns Brothers shall be paid for each service.
For purpose of this Agreement, "consideration" means the aggregate value,
whether in cash, securities, assumption (or purchase subject to) of debt or
liabilities (including, without limitation, indebtedness for borrowed money,
pension liabilities or guarantees) or other property, obligations or services,
paid or payable directly or indirectly (in escrow or otherwise) or otherwise
assumed in connection with a Transaction, or the net present value of the
estimated benefits to the Company of any joint venture, licensing or marketing
agreement ("Consideration"). The value of Consideration shall be determined as
follows:
(a) the value of securities, liabilities, obligations, property and
services shall be the fair market value as shall mutually be agreed
upon at the date of the closing of the Transaction;
(b) the value of indebtedness, including indebtedness assumed, shall be
the face amount; and/or
(c) the net present value of the estimated benefits to the Company of
any joint venture, licensing or marketing agreement, as mutually
determined by the parties. If the parties cannot come to such mutual
determination, the net present value described above shall be
determined by arbitration.
If the Consideration payable in a Transaction includes contingent payments
to be calculated by reference to uncertain future occurrences, such as future
financial or business performance, then any fees of Kuhns Brothers relating to
such Consideration shall be payable at the time of the receipt of such
Consideration.
The Company acknowledges that Kuhns Brothers and its affiliates are in the
business of providing merger and acquisition services (of all types contemplated
by this Agreement) to others. Nothing herein contained shall be construed to
limit or restrict Kuhns Brothers or its affiliates in conducting such business
with respect to others or in rendering such advice to others.
The Company also acknowledges that Kuhns Brothers and its affiliates have
or may have ownership interests in businesses, assets or technologies identified
by them or others to the Company as potential Transactions. Nothing herein
contained shall be construed to limit or restrict the ability of Kuhns Brothers
or its affiliates to be compensated for its ownership interest in such a
Transaction on a basis separate and apart from the compensation described
herein.
In connection with our merger and acquisition services, you agree that if
during the period Kuhns Brothers is retained by you or within 2 years
thereafter, a Transaction is consummated with a third party introduced by Kuhns
Brothers or the Company enters into a definitive agreement with a third party
introduced by Kuhns Brothers which at any time thereafter results in a
Transaction ("Third Parties"), you will pay Kuhns Brothers a transaction fee
equal to the Lehman Formula times the Consideration.
6
It is understood that for purposes of this Agreement, Kuhns Brothers shall
be deemed to have introduced such Third Parties to the Company not only by
physical introductions and meetings, but also by arranging or facilitating
telephonic or correspondence meetings between the parties, whether or not Kuhns
Brothers participated in such meetings, telephone calls or correspondence.
Additionally, if during the period Kuhns Brothers is retained by you or
within 2 years thereafter, a Transaction is consummated with a third party not
introduced to the Company by Kuhns Brothers, Kuhns will be paid a fee equal to
50% of its compensation due pursuant to the language above.
(iii) for strategic planning services--
Upon execution of this Agreement:
(a) a monthly retainer of $10,000 per month for the duration of this
Agreement, payable on the first of the month.
(iv) for expenses--
(a) the Company shall pay directly the reasonable expenses incurred by
Kuhns Brothers in relation to the Financing, including expenses
related to Kuhns Brothers' due diligence, and shall reimburse Kuhns
Brothers for any expenses reasonably incurred by it related to the
Financing, subject to such expenses being authorized in advance by
the Company (including, without limitation, reasonable professional
and reasonable legal fees and disbursements incurred by Kuhns
Brothers in connection with its engagement hereunder with respect to
services to be rendered by it, as well as any such fees or expenses
reasonably incurred directly by personnel of Kuhns Brothers in
connection with work on behalf of the Company).
(b) In the event the Financing does not close due to a material
misrepresentation by the Company that is discovered during the due
diligence process, the Company will reimburse Kuhns Brothers for its
out of pocket expenses, plus a breakage fee of $50,000.
III. RIGHT TO BOARD PARTICIPATION OR OBSERVER STATUS
Kuhns Brothers has the right, in its sole discretion, to name a
representative to the Company's board of directors during the time of this
Agreement and for such period of time after the termination of this Agreement as
any Financial or Strategic Investor introduced by Kuhns Brothers owns 5% or more
of the Company's common stock. In its sole discretion, Kuhns Brothers may not
exercise its board participation right, but shall instead choose to be named an
Observer to the Company's board of directors. Observer status, if exercised,
shall entitle Kuhns Brothers to be present at all board meetings, including
physical and telephonic sessions, as well as to receive all information provided
to the Company's board members for such meetings; Observer status shall not
enable Kuhns Brothers to vote or otherwise participate at such board meetings.
IV. RIGHT TO SUB-CONTRACT OR SYNDICATE
Kuhns Brothers has the right, in its sole discretion, to sub-contract any
of its rights to provide services hereunder to qualified third parties in its
sole discretion, so long as Kuhns Brothers remains the prime contractor of such
services to the Company. Kuhns Brothers has the right to enter into any finder,
inter dealer or syndication agreements with qualified parties with respect to
placing and arranging the Financing.
V. ADDITIONAL INVESTMENT BANKING SERVICES
The Company agrees that Kuhns Brothers shall have the right, but not the
obligation, which right is exercisable in Kuhns Brothers' sole discretion, to
provide investment banking services to the Company on an exclusive basis in
relation to the Company's financing for a period of 2 years from the date of the
expiration of this Agreement and such additional period of time as may be
necessary to complete any project or Transaction already commenced pursuant to
the Company's written request or engagement of Kuhns Brothers prior to the
expiration of such 2 year period. Such services may include underwriting and
acting as a placement agent for the Company's securities on a lead-managed or
co-managed basis and providing other financial advisory services. Such right
shall terminate with respect to any transaction or service if the Company shall
request Kuhns Brothers to lead such transaction or to provide such service and
Kuhns Brothers shall fail to notify the Company within fifteen (15) days
thereafter that Kuhns Brothers will accept the engagement. In the event that
Kuhns Brothers agrees to provide such investment banking services, Kuhns
Brothers shall be paid as described in paragraph II above. The remaining terms
of such engagement shall be contained in specific engagement agreements relating
to the specific transaction. Notwithstanding the above or any oral
representations or assurances previously or subsequently made by the parties,
this Agreement does not constitute a commitment by or obligation of Kuhns
Brothers to act as underwriter or placement agent in connection with any future
offering of the Company's corporate securities. Such a commitment on the part of
Kuhns Brothers will exist only upon the execution of a final, written engagement
agreement and then only in accordance with the terms and conditions thereof. In
any event, Kuhns Brothers may determine in its sole discretion, for any reason
(including, without limitation, the results of its due diligence investigation,
a material change in the Company's financial condition; business or prospects,
the lack of appropriate internal Kuhns Brothers committee approvals or then
current market conditions) not to participate in such an offering of the
Company's securities. In the event that Kuhns Brothers, with respect to any
particular transaction, elects not to provide investment banking or financial
advisory services to the Company, nothing contained herein shall be deemed to
prevent the Company from utilizing the services of another investment banking
firm for such transaction, but such retention of another investment banking firm
shall be without prejudice to Kuhns Brothers' rights hereunder with respect to
subsequent transactions.
8
Upon the execution of a publicly traded equity or debt capital markets
transaction lead or co-managed by Kuhns Brothers, Kuhns Brothers, in accordance
with its customary practices, will provide market making and research services
to investors in the securities of the Company (subject, however, to the
Company's continuation or its engagement of Kuhns Brothers as a financial
advisor and subject to its customary right not to make a market in such
securities at any time or to suspend research coverage).
For the purpose of this agreement, "cause" means the failure by Kuhns
Brothers to perform in a material respect its obligations hereunder in
accordance with the skill and diligence normally provided by recognized
investment banking companies; provided, however, that the Company shall first
give Kuhns Brothers reasonable prior written notice of the Company's intent to
terminate the engagement (such notice to specify in reasonable detail the facts
alleged to give rise to the Company's right to terminate for cause) and shall
have provided Kuhns Brothers a reasonable opportunity to cure by performing such
obligations (the reasonableness of such opportunity to be measured not only by
Kuhns Brothers' ability to perform during such period but also by the adverse
effect on the Company resulting from providing such additional period to enable
Kuhns Brothers to perform).
VI. INDEMNIFICATION
The Company shall indemnify Kuhns Brothers and hold it harmless against
any and all losses, claims, damages or liabilities to which Kuhns Brothers may
become subject arising in any manner out of or in connection with the rendering
of service by Kuhns Brothers hereunder, unless it is finally judicially
determined that such losses, claims, damages or liabilities resulted from the
gross negligence, bad faith and willful misconduct of Kuhns Brothers.
The Company shall reimburse Kuhns Brothers promptly for any legal or other
expenses reasonably incurred by it in connection with investigating, preparing
to defend or defending, or providing evidence in or preparing to serve or
serving as a witness with respect to, or otherwise relating to, any lawsuits,
investigations, claims or other proceedings arising in any manner out of or in
connection with the rendering of services by Kuhns Brothers hereunder (including
without limitation, in connection with the enforcement of this Agreement and the
indemnification obligations set forth herein); provided, however, that in the
event of a final judicial determination is made to the effect specified above,
Kuhns Brothers will remit to the Company any amounts reimbursed under such
paragraph.
The Company agrees that the indemnification and reimbursement commitments
set forth in this paragraph shall apply if either the Company or Kuhns Brothers
is a formal party to any such lawsuits, claims or other proceedings and that
such commitments shall extend upon the terms set forth in this paragraph to any
controlling person, affiliate, director, officer, employee, or agent of Kuhns
Brothers (each, with Kuhns Brothers, an "Indemnified Person"). The Company
further agrees that, without Kuhns Brothers' prior written consent, which
consent will not be unreasonably withheld, it will not enter into any settlement
of a lawsuit, claim or any other proceeding arising out of the transactions
contemplated by this Agreement unless such settlement includes an implicit and
unconditional release from the party bringing such lawsuit, claim or other
proceeding of all Indemnified Persons.
9
The Company further agrees that the Indemnified Persons are entitled to
retain separate counsel of their choice in connection with any matters in
respect of which Indemnification, reimbursement or contribution may be sought
under this Agreement. Fees for counsel will be payable only if management and
counsel to the Company have has been consulted and allowed to participate fully
in the selection of reasonable and appropriate counsel to the Indemnified
Person(s). Each Indemnified person shall give notice to the Company within
thirty (30) days of the assertion against such Indemnified Person of any claim
or the commencement of any action or proceeding relating to any foregoing,
provided further that if the Indemnified person fails to notify the Company,
then the Company shall be relieved of any liability that it may have to such
Indemnified Person as to such claim hereunder.
The Company and Kuhns Brothers agree that if any indemnification or
reimbursement sought pursuant to the preceding paragraph is judicially
determined to be unavailable for a reason other than the gross negligence, bad
faith or willful misconduct of Kuhns Brothers, then whether or not Kuhns
Brothers is the Indemnified Person, the Company and Kuhns Brothers shall
contribute to the losses, claims, damages, liabilities and expenses for which
such indemnification or reimbursement is held unavailable (i) in such proportion
as is appropriate to reflect the relative benefits to the Company on the one
hand, and Kuhns Brothers on the other hand, in connection with the transactions
to which such indemnification or reimbursement relates, or (ii) if the
allocation provided by clause (i) above is judicially determined not to be
permitted, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) but also the relative faults of the Company
on the one hand, and Kuhns Brothers on the other hand, as well as any other
equitable considerations; provided, however, that in no event shall the amount
to be contributed by Kuhns Brothers pursuant to this paragraph exceed the amount
of the fees actually received by Kuhns Brothers hereunder.
VII. MISCELLANEOUS
Except as contemplated by the terms hereof or subpoena issued by a court
of competent jurisdiction, Kuhns Brothers shall keep confidential all non-public
information provided to it by the Company, and shall not disclose such
information to any third party, other than such of its employees and advisors as
Kuhns Brothers determines to have a need to know.
10
Except as required by applicable law, any advice to be provided by Kuhns
Brothers under this Agreement shall not be disclosed publicly or made available
to any third parties without the prior approval by Kuhns Brothers, and
accordingly such advice shall not be relied upon by any person or entity other
than the Company.
The term of Kuhns Brothers' engagement hereunder shall extend from the
date hereof until terminated as set forth below. Subject to the provisions of
this Agreement that shall survive any termination or expiration of the
understanding between the parties, either party may terminate Kuhns Brothers'
engagement hereunder at any time by giving the other party at least 10 days
written notice.
The Company agrees that Kuhns Brothers has the right to place
advertisements in financial and other newspapers and journals describing the
Company's Financing and Kuhns Brothers' related services to the Company
hereunder, provided that Kuhns Brothers will submit a copy of any such
advertisements to the Company for its prior approval, which approval shall not
be unreasonably withheld.
Nothing in this Agreement, expressed or implied, is intended to confer or
does it confer on any person or entity other than the parties hereto or their
respective successors and assigns, and to the extent expressly set forth herein,
the Indemnified Persons, any rights or remedies under or by reason of this
Agreement or as a result of the services to be rendered by Kuhns Brothers
hereunder.
Neither the execution and delivery of this letter Agreement by the Company
nor the consummation of the transactions contemplated hereby will, directly or
indirectly, with or without the giving of notice or lapse of time, or both: (i)
violate any provisions of the Certificate of Incorporation or By-laws of the
Company; or (ii) violate, or be in conflict with, or constitute a default under,
any agreement, lease, mortgage, debt or obligation of the Company or require the
payment, any pre-payment or other penalty with respect thereto.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
This Agreement may not be amended or modified except in writing signed by
each of the parties and shall be governed by and construed and enforced in
accordance with the laws of the State of Connecticut. The Company and Kuhns
Brothers hereby irrevocably and unconditionally consent to submit to the
exclusive jurisdiction of the courts of the State of Connecticut and of the
United States District Courts located in Connecticut for any lawsuits, actions
or other proceedings arising out of or relating to this Agreement and agree not
to commence any such lawsuit, action or other proceeding except in such courts.
The Company further agrees that service of any process, summons, notice or
document by mail, return receipt requested, to the Company's address set forth
above shall be effective service of process for any lawsuit, action or other
proceeding brought against the Company in any such court. The Company and Kuhns
Brothers hereby irrevocably and unconditionally waive any objection to the
laying of venue of any lawsuit, action or other proceeding arising out of or
relating to this Agreement in the courts of the State of Connecticut or the
United States District Courts located in the State of Connecticut, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such lawsuit, action or other proceeding brought in any
such court has been brought in an inconvenient forum. Any right to trial by jury
with respect to any lawsuit, claim or other proceeding arising out of or
relating to this Agreement or the services to be rendered by Kuhns Brothers
hereunder is expressly and irrevocably waived.
11
This agreement is subject to the approval of the board of directors of
both companies.
If the foregoing correctly sets forth the understanding and agreement
between Kuhns Brothers and the Company, please so indicate in the space provided
for that purpose below, whereupon this letter shall constitute a binding
agreement as of the date hereof.
Kuhns Brothers, Inc.
By:
Name: John D. Kuhns
Title: Chairman
AGREED:
By:
Name:
Title:
Jinpan International Limited
Cc: Delphinian Quest Advisors
Mr. Paul Chan
paulchan@att.net
12
October 25, 2005
Deli Solar (USA), Inc.
68 An Li Road, C3 Sunshine Plaza, Suite 1303
Chao Yang District, Beijing, China 100101
Attn: Deli Du, Chief Executive Officer
Re: Deli Solar (USA), Inc. common stock and warrants
Dear Sirs:
The undersigned, being the holder of common stock and warrants to purchase
common stock of Deli Solar (USA), Inc., a Nevada Corporation (the "Company"), as
of the date written above, for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, covenants and agrees as
follows:
1. From March 31, 2005 to March 31, 2006, the undersigned agrees not to
sell the 45,503 shares of common stock of the company issued to the
undersigned in connection with the reverse merger and private
placement financing completed on March 31, 2005.
2. From March 31, 2005 to March 31, 2006, the undersigned agrees not to
sell the 32,143 shares of common stock issuable upon the exercise of
the warrants held by the undersigned, which warrants were issued to
the undersigned in connection with the reverse merger and private
placement financing completed on March 31, 2005.
Very truly yours,
Name:
Title:
Agreed to and Accepted:
DELI SOLAR (USA), INC.
By:
Deli Du, Chief Executive Officer
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of this ____ day of March, 2005 between the Company,
known or to be known as Deli Solar (USA), Inc. and more fully defined in
Article I hereto, a Nevada corporation, and each of the Investors listed
on Exhibit A. hereto
WITNESSETH THAT
WHEREAS, the parties hereto have executed a Unit Purchase Agreement
simultaneously herewith providing for the purchase by Investors and sale by the
Company of units (the"Units") consisting of shares of the Company's Common Stock
(par value $0.01 per share; the "Shares") and warrants to purchase eight (8)
additional Shares for each ten (10) Shares purchased within the Units (the
"Warrants");
WHEREAS, the Investors are "accredited investors" as that term is used in Rule
506 of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act", and are purchasing the Units with investment purposes and
not with a view to sell other otherwise distribute the underlying securities to
the public;
WHEREAS, the Investors have no arrangements in place, directly or indirectly
through or with affiliates or otherwise, to sell or otherwise distribute the
securities to third parties once the registration statement became effective
WHEREAS, several of the Investors are subject to regulations that require their
securities investments be registered with the Securities Act in order to meet
valuation and liquidity criteria; and they desire to registration of the
securities not to facilitate an immediate distribution to the public, but (i)
for valuation purposes and (ii) to protect against future contingencies where
the securities must be sold to meet liquidity requirements; and
WHEREAS, pursuant to the terms of the Unit Purchase Agreement the parties have
agreed to enter into this Registration Agreement;
NOW THEREFORE, it is agreed as follows:
ARTICLE I
REGISTRATION RIGHTS
Section 1.1 Registration. The Company shall upon execution of this Agreement use
its best reasonable efforts to effect the registration of the Shares purchased
pursuant to the Unit Purchase Agreement, and the Shares underlying the Warrants
included within the Units, at the earliest possible date and. if possible,
within 90 days, along with those share of the Company's common stock (par value
$0.001 per share) requested to be registered pursuant to "piggy back rights"
granted to third parties.
Section 1.2 General Registration Provisions. The Company will pay expenses
associated with the registration of the Shares, including without limitation
legal, accounting, printing and distribution fees and expenses except for
registration fees associated with the Shares.
Section 1.3 Registration Procedures.
(a) If and whenever the Company is required by the provisions
of Section 1.1 hereof to effect the registration of the Shares, the Company will
as promptly as practicable:
(i) furnish to each Investor participating in the
registration such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminarv prospectus and
any summary prospectus) in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such
registration statement or prospectus. and such other documents, as such
Investor may reasonably request to facilitate the disposition of the
Shares owned by it;
(ii)use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions, if applicable, as shall
be reasonably appropriate for distribution of the Shares: provided.
however, that the Company shall not be required. solely in order to
accomplish the foregoing, to qualify to do business as a foreign
corporation in any jurisdiction where it would not otherwise be required
to qualify, subject itself to taxation in any such jurisdiction or consent
to general service of process in any such jurisdiction;
(iii) advise each Investor participating in such
registration, promptly after it shall receive notice or obtain knowledge
thereof. of the issuance of any stop order by the SEC or any state
securities commission or agency suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding
for that purpose and use its best efforts to prevent the issuance of any
stop order to obtain its withdrawal if such stop order should be issued;
(iv) notify each Investor participating in such
registration upon the Company's discovery that, or upon the happening of
any event as a result of which any prospectus included in any registration
statement which includes Shares, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at any
such Investor's request prepare and furnish to such Investor a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such Shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein necessary to make the statements therein riot misleading in the
light of the circumstances then existing;
(v) use its best efforts to cause all such Shares to be
listed on each securities exchange or inter-dealer quotation system on
which the common stock of the Company is then listed or will be listed
provided that the applicable listing requirements are satisfied.
(b) Each Investor included in such registration agrees that,
upon receipt of any notice from the Company of the occurrence of any event of
the kind described in Section 1.3(a)(iv) it will forthwith discontinue the
disposition of' Shares pursuant to the registration statement relating to such
Shares until its receipt of a supplemented or amended prospectus from the
Company and. if so directed by the Company, will deliver to the Company all
copies, other than permanent file copies, then in such Investor's possession, of
the prospectus relating to such Shares of Company at the time of receipt of such
notice.
(c) Each Investor shall take such actions and furnish the Company with such
information regarding itself and relating to the distribution of the Shares as
the Company may from time to time reasonably request and as shall be required in
connection with the registration and any qualification or compliance referred to
in this Agreement.
ARTICLE II
INDEMNIFICATION
Section 2.1 Indemnification by the Company. In the event of any registration of
Shares pursuant to Section 1.1 hereof, the Company agrees to indemnify and hold
harmless the seller of the Shares and its directors and officers (each, an
"Indemnified Person") from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees and costs of
investigation) to which such Indemnified Person becomes subject under the
Securities Act or otherwise, insofar as such losses, claims. Damages,.
liabilities or expenses arise out of or based upon (i) any untrue statement or
alleged untrue statement of material fact contained in any registration
statement under which such securities were registered or qualified under the
Securities Act or otherwise, any preliminary prospectus. final prospectus or
summary prospectus included therein, or any amendment or supplement thereto, or
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
provided that the Company shall not be liable to such Indemnified Person in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement made in reliance upon
and in conformity with information furnished to the Company by such seller of
Shares.
Section 2.2 Indemnificadtion by the Investor. Each of the Investors agrees to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 1.1), the Company and its directors and officers and each other
person, if any, who controls the Company within the meaning of the Securities
Act arising out of or based upon (1) any untrue statement or alleged untrue
statement of material fact contained in any registration statement under which
such securities were registered or qualified under the Securities Act, or
otherwise, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made solely in reliance upon and in conformity with
information furnished to the Company by such Investor for use in the preparation
of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement.
Section 2.3 Defense of Glaim. If any action or proceeding (including any
governmental investigation) shall be brought or directed against any party
hereto (or its officers, directors or agents), the party against whom
indemnification is sought shall be permitted to (or. if requested. shall) assume
the defense of such claim, including the employment of counsel and the payment
of all expenses, unless a conflict of interest may exist with respect to such
claim or differing or additional defenses may be available to the other party.
If defense of a claim is assumed by an indemnifying party, the indemnified party
shall not be liable for any settlement of such action or proceedings effected
without their prior written consent. No indemnifying party shall consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
indemnified party of release from all liability in respect to such claim or
litigation. Any party entitled to indemnification hereunder agrees to give
prompt written notice to the other party of any written notice of the
commencement of any action, suit, proceedings or investigation or threat thereof
for which such party may claim indemnification or contribution pursuant to this
Agreement: provided. however. that failure to give such notice shall not limit
any party's right to indemnification or contribution hereunder. Notwithstanding
the foregoing, an indemnified party hereunder shall always have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such indemnified party.
Section 2.4 Contribution. If the indemnification provided for in Sections 2.1 or
2.2 hereof is unavailable to a party that would have been an indemnified party
under any such Subsections in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each party that would have been an indemnifying party thereunder shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative fault of such indemnifying party on the
one hand and such indemnified party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof). The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such indemnifying
party or such indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a contributing party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 2.4 shall include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
ARTICLE III
MISCELLANEOUS
Section 3.1 Fees and Expenses. Except as herein otherwise expressly provided,
all Costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such expenses.
Section 3.2 Amendment and Modification. This Agreement may be amended, modified
and supplemented itt any and all respects, but only by a written instrument
signed by all of the parties hereto expressly stating that such instrument is
intended to amend, modify or supplement this Agreement.
Section 2.3 Notices.. All notices and other communications hereunder shall be in
writing and shall be deemed given if mailed, delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
if to the Investors to: See Investor signature page below.
If to the Company:
Deli Solar (USA), Inc.
c/o Kuhns Bros. & Co., Inc. , Financial Advisor
558 Lime Rock Road
Lime Rock, Connecticut 06039
Tel. 860 435 7000 Fax: 860 435 6540
with a copy to:
James M. Rae, Esq.
Stairs Dillenbeck Finley & Rendon
330 Madison Avenue, 29th Fl.
New York, NY 10017
Telephone: (212) 697-2700
Telecopy:(212) 687 3523
IN WITNESS WHEREOF the parties hereto have cause these presents to executed on
their behalf this __ day March __, 2005.
Deli Solar (USA), Inc.
By ________________________ By ___________________________
Deli Du Pres. Sec.
Investors:
Exhibit 21.1 - List of Subsidiaries
Name Jurisdictions Percentage Owned
Deli Solar (BVI) British Virgin Islands 100%
Deli Solar (PRC) PRC 100% (by Deli Solar (BVI))
Exhibit 23.2 - Consent of accountants for use of their report
To the Board of Directors
Deli Solar (USA), Inc. and Subsidiaries
Consent of Independent Accountants
Deli Solar (USA), Inc. and Subsidiaries
Audited Financial Statements
December 31, 2003 and 2004
We consent to the incorporation in the Registration Statement on Form SB-2
for Deli Solar (USA), Inc. and its subsidiaries of our report dated March 22,
2005 on our audits of the consolidated financial statements of Deli Solar (USA),
Inc. and its operating subsidiary Bazhou Deli Solar Energy Heating Co., Ltd. as
of December 31, 2003 and 2004 and for the years then ended, which report is
incorporated in the Form SB-2.
/s Child Sullivan & Company
Child, Sullivan & Company
Kaysville, Utah
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