10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 001-34591

CLEANTECH SOLUTIONS INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

NEVADA	90-0648920
(State or other jurisdiction of incorporation of organization)	(I.R.S. Employer Identification No.)

No. 9 Yanyu Middle Road

Qianzhou Village, Huishan District, Wuxi City

Jiangsu Province, China 214181

(Address of principal executive offices)

(86) 51083397559

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer   ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 1,961,871 shares of common stock are issued and outstanding as of August 14, 2017.

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-Q

June 30, 2017

TABLE OF CONTENTS

		Page No.
	PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements Condensed
	Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and  December 31, 2016	1
	Condensed Consolidated Statements of Operations and Comprehensive Gain (Loss) for the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (Unaudited)	3
	Notes to Unaudited Condensed Consolidated Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk.	35
Item 4	Controls and Procedures.	35
	PART II - OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use Of Proceeds	36
Item 6.	Exhibits.	36

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 FREE. Our SEC filings are available through our website at http://www.cleantechsolutionsinternational.com/sec.php.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	June 30, 2017		December 31, 2016
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,523,416	$	1,481,498
Restricted cash		284,140		551,047
Notes receivable		144,521		133,913
Accounts receivable, net of allowance for doubtful accounts		15,023,701		13,922,371
Inventories, net of reserve for obsolete inventories		3,491,624		2,394,179
Advances to suppliers		1,313,883		1,116,525
Deferred tax assets		395,715		386,381
Receivable from sale of subsidiary		2,831,441		4,838,152
Prepaid expenses and other		578,015		9,074
Assets of discontinued operations		757,146		1,758,986
Total current assets		30,343,602		26,592,126
OTHER ASSETS:
Equity method investment		8,775,355		8,610,759
Property and equipment, net		28,648,360		29,878,675
Intangible assets, net		5,249,763		5,283,695
Total other assets		42,673,478		43,773,129
Total assets	$	73,017,080	$	70,365,255
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term bank loans	$	1,474,709	$	2,159,889
Bank acceptance notes payable		280,195		547,172
Accounts payable		2,338,100		864,870
Accrued expenses		253,649		368,395
Advances from customers		464,832		427,446
Due to related party		132,175		-
VAT and service taxes payable		84,250		47,319
Income taxes payable		60,922		79,467
Liabilities of discontinued operations		411,281		558,661
Total current liabilities		5,500,113		5,053,219
Total liabilities		5,500,113		5,053,219
Commitments and contingencies (see Note 17)
STOCKHOLDERS’ EQUITY:
Preferred stock ($0.001 par value; 10,000,000 shares authorized;  No shares issued and outstanding at June 30, 2017 and December 31, 2016)		-		-
Common stock ($0.001 par value; 12,500,000 shares authorized; 1,810,641 and 1,415,441 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)		1,811		1,415
Additional paid-in capital		36,838,391		35,549,542
Retained earnings		25,863,592		26,531,498
Statutory reserve		2,352,592		2,352,592
Accumulated other comprehensive income - foreign currency translation adjustment		2,460,581		876,989
Total stockholders’ equity		67,516,967		65,312,036
Total liabilities and stockholders’ equity	$	73,017,080	$	70,365,255

See notes to unaudited condensed consolidated financial statements.

1

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE GAIN (LOSS)
(Unaudited)
	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
REVENUES	$	3,711,767		$	3,917,800		$	8,369,221		$	8,444,500
COST OF REVENUES		3,268,923			3,326,835			7,340,523			7,032,314
GROSS PROFIT		442,844			590,965			1,028,698			1,412,186
OPERATING EXPENSES:
Depreciation		269,349			137,945			537,714			275,854
Selling, general and administrative		560,201			245,512			867,860			867,034
Research and development		111,053			66,237			217,130			84,638
Total operating expenses		940,603			449,694			1,622,704			1,227,526
(LOSS) INCOME FROM OPERATIONS		(497,759	)		141,271			(594,006	)		184,660
OTHER INCOME (EXPENSE):
Interest income		5,842			6,396			7,720			14,812
Interest expense		(35,176	)		(32,344	)		(74,866	)		(64,954	)
Loss on equity method investment		(24,456	)		-			(42,811	)		-
Foreign currency transaction gain		-			61			-			169
Other income		30,148			393			47,140			393
Total other expense, net		(23,642	)		(25,494	)		(62,817	)		(49,580	)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(521,401	)		115,777			(656,823	)		135,080
Income taxes provision		21			46,597			11,083			169,415
(LOSS) INCOME FROM CONTINUING OPERATIONS		(521,422	)		69,180			(667,906	)		(34,335	)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES		-			(749,362	)		-			(1,489,940	)
NET LOSS	$	(521,422	)	$	(680,182	)	$	(667,906	)	$	(1,524,275	)
COMPREHENSIVE LOSS:
Net loss	$	(521,422	)	$	(680,182	)	$	(667,906	)	$	(1,524,275	)
Other comprehensive gain:
Unrealized foreign currency translation gain		1,087,468			(2,368,419	)		1,583,592			(1,842,471	)
Comprehensive gain (loss)	$	566,046		$	(3,048,601	)	$	915,686		$	(3,366,746	)
NET (LOSS) INCOME PER COMMON SHARE:
Continuing operations - Basic and diluted	$	(0.30	)	$	0.06		$	(0.46	)	$	(0.03	)
Discontinued operations - basic and diluted		-			(0.67	)		-			(1.39	)
Net loss per common share - basic and diluted	$	(0.30	)	$	(0.61	)	$	(0.46	)	$	(1.42	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		1,730,952			1,121,251			1,455,506			1,073,212

See notes to unaudited condensed consolidated financial statements.

2

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Six Months Ended
	June 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(667,906	)	$	(1,524,275	)
Adjustments to reconcile net loss from operations to net cash provided by operating activities:
Depreciation		1,939,302			1,824,315
Depreciation - discontinued operations		-			1,527,446
Amortization of intangible assets		159,360			45,226
Loss on equity method investment		42,811			-
Stock-based compensation and fees		102,278			488,500
Changes in operating assets and liabilities:
Notes receivable		(7,273	)		61,205
Accounts receivable		(754,586	)		72,898
Inventories		(1,025,428	)		(1,169,339	)
Prepaid and other current assets		1,038,752			(12,704	)
Advances to suppliers		(168,063	)		100,454
Assets of discontinued operations		(276,596	)		544,699
Accounts payable		1,460,922			243,910
Accrued expenses		(117,025	)		(383,895	)
VAT and service taxes payable		35,300			(148,996	)
Income taxes payable		(20,185	)		(140,742	)
Advances from customers		26,691			(44,882	)
Liabilities of discontinued operations		(158,681	)		(679,657	)
Net cash provided by operating activities		1,609,673			804,163
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(13,880	)		(9,338	)
Proceed received from sale of subsidiary in cash		2,094,606			-
Net cash provided by (used in) investing activities		2,080,726			(9,338	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans		-			2,218,686
Repayments of bank loans		(727,294	)		(2,295,192	)
Decrease in restricted cash		276,372			459,038
Increase in restricted cash - discontinued operations		-			(68,856	)
Decrease in bank acceptance notes payable		(276,372	)		(459,038	)
Increase in bank acceptance notes payable - discontinued operations		-			58,145
Advance from related party		132,175			-
Proceeds from sale of common stock, net		860,000			483,000
Net cash provided by financing activities		264,881			395,783
Effect of exchange rate changes on cash and cash equivalents		86,638			(458,073	)
Net increase in cash and cash equivalents		4,041,918			732,535
Cash and cash equivalents - beginning of period		1,481,498			18,790,370
Cash and cash equivalents - end of period	$	5,523,416		$	19,522,905
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid in continuing operations for:
Interest	$	74,866		$	64,954
Income taxes	$	12,808		$	117,451
Cash paid in discontinued operations for:
Interest	$	-		$	46,222
Income taxes	$	-		$	1,313
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for future services	$	298,567		$	72,600
Stock issued for accrued liabilities	$	28,400		$	54,000
Increase in prepaid expenses and other from sale of equipment	$	1,306,677		$	-

See notes to unaudited condensed consolidated financial statements.

3

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION

Cleantech Solutions International, Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex, Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc., and on June 13, 2011, the Company’s corporate name was changed to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into a Nevada corporation.

Through its affiliated companies and subsidiaries, the Company manufactures and sells textile dyeing and finishing machines. The Company is the sole owner of Fulland Limited (“Fulland”), a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland owns 100% of the capital stock of Green Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and, until December 30, 2016, Fulland owned 100% of Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind”). Green Power is and Fulland Wind was a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s Republic of China (“PRC” or “China”). Green Power is a party to a series of contractual arrangements, as fully described below, dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”), formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd., and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”), both of which are limited liability companies organized under the laws of, and based in, the PRC. Heavy Industries and Dyeing are sometimes collectively referred to as the “Huayang Companies.”

Fulland was organized by the owners of the Huayang Companies as a special purpose vehicle for purposes of raising capital in accordance with requirements of the PRC State Administration of Foreign Exchange (“SAFE”). On May 31, 2007, SAFE issued an official notice known as Hui Zong Fa [2007] No. 106 (“Circular 106”), which requires the owners of any Chinese company to obtain SAFE’s approval before establishing any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, the owners of the Huayang Companies, Mr. Jianhua Wu and his wife, Ms. Lihua Tang, submitted their application to SAFE in early September 2007. On October 11, 2007, SAFE approved their application, permitting these Chinese citizens to establish Fulland as a special purpose vehicle for any foreign ownership and capital raising activities by the Huayang Companies.

Dyeing, which was formed on August 17, 1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for the textile industry. The Company refers to this segment as the dyeing and finishing equipment segment. On December 26, 2016, Dyeing and an unrelated individual formed Wuxi Shengxin New Energy Engineering Co., Ltd. (“Shengxin”), a limited liability company organized under the laws of the PRC in which Dyeing has a 30% equity interest and the unrelated third party holds a 70% interest, pursuant to an agreement dated December 23, 2016. Shengxin intends to develop, construct and maintain photovoltaic power generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. At June 30, 2017, Shengxin had not yet commenced operations.

Fulland Wind was formed on August 27, 2008. In 2009, the Company began to produce and sell forged products through Fulland Wind. Through Fulland Wind, the Company manufactured and sold forged products, including wind products such as shafts, rolled rings, gear rims, gearboxes, bearings and other components and finished products and assemblies for the wind power and other industries, including large-scale equipment used in the manufacturing process for the various industries. The Company refers to this segment of its business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind and accordingly, the forged rolled rings and related components business is reflected as a discontinued operations for all periods presented.

Beginning in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries. The Company referred to this segment of its business as the petroleum and chemical equipment segment. Because of a significant decline in revenues from this segment, the Company determined it would not continue to operate in this segment and accordingly, the petroleum and chemical equipment segment is reflected as a discontinued operations for all periods presented (See Note 3). As a result of the discontinuation of the forged rolled rings and the petroleum and chemical equipment business, the Company’s business is limited to the dyeing and finishing equipment business as its sole continuing operations at June 30, 2017 and December 31, 2016.

4

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Recently, the Company formed the following formed a wholly-owned subsidiaries:

● Vantage Ultimate Limited, a company incorporated under the laws of British Virgin Islands on February 1, 2017 and is wholly-owned by the Company (“Vantage”).

● EC Assets Management Limited, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage.

● EC Rental Limited, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage (“EC Rental”).

● Sharing Economy Investment Limited, a company incorporated under the laws of British Virgin Islands on May 18, 2017 and is wholly-owned by Vantage (“Sharing Economy”).

● Global Bike Share (Mobile App) Limited, a company incorporated under the laws of British Virgin Islands May 23, 2017 and is a wholly-owned by Sharing Economy.

● EC Advertising Limited, a company incorporated under the laws of British Virgin Islands August 9, 2017 and is a wholly-owned by Sharing Economy.

● EC (Fly Car) Limited, a company incorporated under the laws of British Virgin Islands May 22, 2017 and is a wholly-owned by Sharing Economy.

● EC Power (Global) Technology Limited, a company incorporated under the laws of British Virgin Islands on May 26, 2017 and is wholly-owned by EC Rental (“EC Power (Global)”).

● ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power (Global).

Reverse split; change in authorized common stock

On February 24, 2017, the Company filed a certificate of change with the State of Nevada which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017, and a reduction in the Company’s authorized common stock from 50,000,000 shares to 12,500,000 shares. These consolidated financial statements have been retroactively restated to reflect this reverse split. 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a loss from continuing operations of $521,422 and $667,906 for the three and six months ended June 30, 2017, respectively. In addition, on December 26, 2016, the Company invested approximately $8,611,000 for a 30% interest in Shengxin, a newly-formed company which plans to develop, construct and maintain solar farms in China, which may require additional investments by the Company. The current cash balance cannot be projected to cover the additional investments if needed from the Company for its ownership interest in Shengxin and pay operating expenses arising from normal business operations for the next twelve months from the issuance date of this report. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately achieve profitable operations, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are currently adequate to continue operating and maintaining its business strategy for the next twelve months.

The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

5

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Basis of presentation; management’s responsibility for preparation of financial statements

The Company’s unaudited condensed consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power and Fulland Wind, as well as the financial statements of the Huayang Companies, including Dyeing, which conducts the Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.

On December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued  the Company’s forged rolled rings and related components business. Additionally, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines in revenues and the loss of its major customer. As such, forged rolled rings and related components segment ’s and petroleum and chemical segment’s assets and liabilities have been classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of June 30, 2017 and December 31, 2016. The operating results of the forged rolled rings and related components and petroleum and chemical segments have been classified as discontinued operations in our unaudited condensed consolidated statements of operations for all periods presented. Unless otherwise indicated, all disclosures and amounts in the notes to the unaudited condensed consolidated financial statements are related to the Company’s continuing operations.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2017. The consolidated balance sheet as of December 31, 2016 contained herein has been derived from the audited consolidated financial statements as of December 31, 2016, but does not include all disclosures required by the generally accepted accounting principles in the U.S. (“U.S. GAAP”).

Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s WFOE in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:

Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Chinese Yuan or Renminbi (“RMB”) to Fulland that are equal to all of the Huayang Companies’ profits for such quarter. To date, no such payments have been made and all profits were reinvested in the Company’s operations. The agreements will remain effective unless terminated by the parties in accordance with the agreements.

Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.

6

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Equity Pledge Agreement.  Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.

Option Agreement.   Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Huayang Companies net income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates during the three and six months ended June 30, 2017 and 2016 include the allowance for doubtful accounts on accounts and other receivables, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, the fair value of equity method investment, accruals for taxes due, and the value of stock-based compensation.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions mainly in the PRC and the U.S. At June 30, 2017 and December 31, 2016, cash balances held in PRC banks of $5,327,725 and $1,480,941, respectively, are uninsured. The funds are primarily held in banks.

7

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Fair value of financial instruments

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table presents information about equipment held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016. At June 30, 2017, the Company did not have any asset measured at fair value.

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2016
Equipment held for sale – discontinued operations	$	-	$	-	$	1,147,035	$	1,147,035

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, assets of discontinued operations, short-term bank loans, bank acceptance notes payable, accounts payable, accrued liabilities, advances from customers, value added taxes and service taxes payable, income taxes payable and liabilities of discontinued operations approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Concentrations of credit risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

8

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

At June 30, 2017 and December 31, 2016, the Company’s cash balances by geographic area were as follows:

Country:	June 30, 2017				December 31, 2016
United States	$	195,691	3.54	%	$	557	*
China		5,327,725	96.46	%		1,480,941	99.96	%
Total cash and cash equivalents	$	5,523,416	100.0	%	$	1,481,498	100.0	%

* Less than 0.1%

Restricted cash

Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $284,140 and $551,047 at June 30, 2017 and December 31, 2016, respectively.

Notes receivable

Notes receivable represents trade accounts receivable due from customers where the customers’ banks have guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $144,521 and $133,913 at June 30, 2017 and December 31, 2016, respectively. 

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At June 30, 2017 and December 31, 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $1,335,893 and $1,797,476, respectively. 

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market value utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $21,688 and $21,177 at June 30, 2017 and December 31, 2016, respectively.

Advances to suppliers

Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,313,883 and $1,116,525 at June 30, 2017 and December 31, 2016, respectively.

Equity method investment

Investments in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting, the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the current period. (See Note 6).

9

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Equipment held for sale

Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December 31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.  During the six months ended June 30, 2017 and 2016, the Company did not record any impairment charges.

Advances from customers   

Advances from customers at June 30, 2017 and December 31, 2016 amounted to $464,832 and $427,446, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenues from the sale of equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

10

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Income taxes

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of June 30, 2017 and December 31, 2016, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Shipping costs

Shipping costs are included in selling expenses, general and administrative and totaled $30,653 and $27,595 for the three months ended June 30, 2017 and 2016, respectively. Shipping costs totaled $59,232 and $57,738 for the six months ended June 30, 2017 and 2016, respectively.

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $39,789 and $25,267 for the three months ended June 30, 2017 and 2016, respectively. Employee benefit costs totaled $74,706 and $52,834 for the six months ended June 30, 2017 and 2016, respectively.

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company did not incur any advertising expenses in the three and six months ended June 30, 2017 and 2016. 

11

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Research and development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s new dyeing machinery. Research and development costs totaled $111,053 and $66,237 for the three months ended June 30, 2017 and 2016, respectively. Research and development costs totaled $217,130 and $84,638 for the six months ended June 30, 2017 and 2016, respectively.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is RMB. For the subsidiaries and affiliates, whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income (loss). The cumulative translation adjustment and effect of exchange rate changes on cash for the six months ended June 30, 2017 and 2016 was $86,637 and $(458,073), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. The Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at June 30, 2017 and December 31, 2016 were translated at 6.7810 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the six months ended June 30, 2017 and 2016 were 6.8748 RMB and 6.6434 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

Loss per share of common stock

ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the six months ended June 30, 2017 and 2016.  In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. 

12

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

The following table presents a reconciliation of basic and diluted net loss per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net (loss) income for basic and diluted net (loss) income per common share	$	(521,422	)	$	(680,182	)	$	(667,906	)	$	(1,524,275	)
From continuing operations		(521,422	)		69,180			(667,906	)		(34,335	)
From discontinued operations	$	-		$	(749,362	)	$	-		$	(1,489,940	)
Weighted average common stock outstanding - basic and diluted		1,730,952			1,121,251			1,455,506			1,073,212
Net loss per share of common stock
From continuing operations – basic and diluted	$	(0.30	)	$	0.06		$	(0.46	)	$	(0.03	)
From discontinued operations – basic and diluted		-			(0.67	)		-			(1.39	)
Net (loss) income per common share - basic and diluted	$	(0.30	)	$	(0.61	)	$	(0.46	)	$	(1.42	)

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Comprehensive gain (loss)

Comprehensive gain (loss) is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive gain (loss) for the three and six months ended June 30, 2017 and 2016 included net loss and unrealized gain from foreign currency translation adjustments. 

Reclassification

Certain reclassifications have been made in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications have no effect on previously reported net loss and related to the reclassification of discontinued operations.

Reverse stock split

The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information has been retroactively adjusted to reflect this reverse stock split.

Recent accounting pronouncements

In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

13

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 3 – DISCONTINUED OPERATIONS

Pursuant to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold 100% of the stock of Fulland Wind to a third party for a sales price of RMB48 million (approximately $6.9 million). The Company’s forging and related components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment of RMB14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license, seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) is due 25 working days after the expiration of such period. The Company expects the final payment to be received within one year. As a result of the sale, the forged rolled rings and related components business is treated as a discontinued operation.

Additionally, in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant decline in revenues and the loss of its major customer. Accordingly, the petroleum and chemical equipment segment business is treated as a discontinued operation.

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the forging and related components segment and petroleum and chemical equipment segment are considered discontinued operations because: (a) the operations and cash flows of the forging and related components segment and petroleum and chemical equipment segment were eliminated from the Company’s operations; and (b) the Company has no interest in the divested operations.

Contemporaneously with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industries entered into a lease with the buyer for a factory building owned by Heavy Industries at an annual rental of RMB 680,566 (approximately $98,000). The lease has a ten-year term, commencing January 1, 2017. The first year’s rent is payable in two installments, the first installment, equals to 30% of the annual rental, being due on signing the lease, which has been paid as of June 30, 2017.

The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016 are set forth below.

	June 30, 2017		December 31, 2016
Assets:
Current assets:
Accounts receivable, net	$	383,118	$	78,407
Inventories, net of reserve for obsolete inventories		31,768		31,019
Advances to suppliers		141,049		200,275
Equipment held for sale		-		1,147,035
Prepaid expenses and other		201,211		302,250
Total current assets		757,146		1,758,986
Total assets	$	757,146	$	1,758,986
Liabilities:
Current liabilities:
Accounts payable	$	410,067	$	458,433
Accrued expenses and other liabilities		1.214		45,280
Advances from customers		-		54,948
Total current liabilities		411,281		558,661
Total liabilities	$	411,281	$	558,661

14

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

The summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements of operations is as follows:

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016
Revenues	$	-	$	143,475		$	-	$	536,266
Cost of revenues		-		528,310			-		1,529,442
Gross loss		-		(384,835	)		-		(993,176	)
Operating expenses		-		345,682			-		458,367
Loss from operations		-		(730,517	)		-		(1,451,543	)
Other expense, net		-		(18,845	)		-		(38,397	)
Loss from discontinued operations before income taxes		-		(749,362	)		-		(1,489,940	)
Income taxes		-		-			-		-
Loss from discontinued operations, net of income taxes	$	-	$	(749,362	)	$	-	$	(1,489,940	)

NOTE 4 – ACCOUNTS RECEIVABLE

At June 30, 2017 and December 31, 2016, accounts receivable consisted of the following:

	June 30, 2017			December 31, 2016
Accounts receivable	$	16,359,594		$	15,719,847
Less: allowance for doubtful accounts		(1,335,893	)		(1,797,476	)
	$	15,023,701		$	13,922,371

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.

NOTE 5 – INVENTORIES

At June 30, 2017 and December 31, 2016, inventories consisted of the following: 

	June 30, 2017			December 31, 2016
Raw materials	$	1,250,199		$	1,003,359
Work-in-process		1,475,058			639,345
Finished goods		788,055			772,652
		3,513,312			2,415,356
Less: reserve for obsolete inventories		(21,688	)		(21,177	)
	$	3,491,624		$	2,394,179

The Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future demand and market conditions.

15

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 6 – EQUITY METHOD INVESTMENT

On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin pursuant to an agreement dated December 23, 2016.  The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $8,705,000) and to date, has invested RMB 59.8 million (approximately $8,676,000), for which it received a 30% interest in Shengxin. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $20.3 million), of which Mr. Xue has contributed RMB 20,000,000 (approximately $2.9 million), for which Mr. Xue received a 70% interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $29.0 million). Mr. Xue has advised Dyeing that he anticipates that he will fund the remaining RMB 120,000,000 (approximately $17.4 million) of his commitment during the first half of 2017. If Mr. Xue does not make this payment by the end of 2017, Dyeing will have the right to amend the contract, and both parties will adjust each side’s equity interest to reflect the amount of capital each side has actually invested.

Shengxin intends to develop, construct and maintain photovoltaic power generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. As of June 30, 2017, Shengxin had not yet commenced operations.

The solar farm industry in China is subject to significant government regulation. In order to construct and operate solar farms in China, it is necessary to obtain a permit for a specific location, to obtain leasehold rights to a significant amount of contiguous land parcels in provinces where there is significant sunlight for most of the year to support a solar farm and to have an agreement to connect with the local grid. The development of solar farms requires significant funding, which, if financing is not available, would have to be provided by Dyeing and Mr. Xue. There are no agreements relating to the funding obligations of either Dyeing or Mr. Xue with respect to any specific project. Shengxin anticipates that to the extent that it obtains permits for solar farms, it will form a new subsidiary for the sole purpose of obtaining the permit for a specific location and constructing the solar farm at that location. The nature of the parties’ respective investments and the respective equity interest in any solar farm project will be determined on a case-by-case basis. To the extent that Mr. Xue develops the project, he may receive an equity interest in the project greater than the percentage of his equity interest in Shengxin, with the specific amount being subject to mutual agreement of the parties.

The Company’s investment in Shengxin is subject to a high degree of risk. The Company cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.

The Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment. For the three and six months ended June 30, 2017, the Company’s share of Shengxin’s net loss was $24,456 and $42,811, respectively, which was included in loss on equity method investment in the accompanying unaudited condensed consolidated statements of operations and comprehensive gain (loss).

16

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company: 

	June 30, 2017		December 31, 2016
Current assets	$	11,613,191	$	11,486,018
Noncurrent assets		5,604		-
Current liabilities		-		-
Noncurrent liabilities		-		-
Equity	$	11,618,795	$	11,486,018

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Net revenue	$	-		$	-	$	-		$	-
Gross profit		-			-		-			-
Loss from operations		(84,990	)		-		(149,936	)		-
Net loss	$	(81,521	)	$	-	$	(142,703	)	$	-

NOTE 7 – PROPERTY AND EQUIPMENT

At June 30, 2017 and December 31, 2016, property and equipment consisted of the following:

	Useful life	June 30, 2017			December 31, 2016
Office equipment and furniture	5 years	$	68,251		$	65,209
Manufacturing equipment	5 -10 years		33,031,395			32,240,010
Vehicles	5 years		173,874			169,773
Building and building improvements	5 - 20 years		21,646,267			21,135,718
			54,919,787			53,610,710
Less: accumulated depreciation			(26,271,427	)		(23,732,035	)
		$	28,648,360		$	29,878,675

For the three months ended June 30, 2017 and 2016, depreciation expense amounted to $971,112 and $869,035, respectively, of which approximately $702,000 and $731,000, respectively, was included in cost of revenues, and the remainder was included in operating expenses. For the six months ended June 30, 2017 and 2016, depreciation expense amounted to $1,939,302 and $1,824,315, respectively, of which approximately $1,402,000 and $1,548,000, respectively, was included in cost of revenues, and the remainder was included in operating expenses.

NOTE 8 – INTANGIBLE ASSETS

At June 30, 2017 and December 31, 2016, intangible assets consisted of the following:

	Useful life	June 30, 2017			December 31, 2016
Land use rights	45 - 50 years	$	3,981,831		$	3,887,915
Patent use rights	10 years		2,359,534			2,303,882
			6,341,365			6,191,797
Less: accumulated amortization			(1,091,602	)		(908,102	)
		$	5,249,763		$	5,283,695

17

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Amortization of intangible assets attributable to future periods is as follows:

Twelve-month periods ending June 30:	Amount
2018	$	323,129
2019		323,129
2020		323,129
2021		323,129
2022		323,129
Thereafter		3,634,118
	$	5,249,763

There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The Company amortizes the land use rights over the term of the respective land use right.

In August 2016, the Company purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The Company amortizes the exclusive patent use right over the term of the patent.

For the three months ended June 30, 2017 and 2016, amortization of intangible assets amounted to $79,829 and $22,627, respectively. For the six months ended June 30, 2017 and 2016, amortization of intangible assets amounted to $159,360 and $45,226, respectively.

NOTE 9 – SHORT-TERM BANK LOANS

Short-term bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon maturities. At June 30, 2017 and December 31, 2016, short-term bank loans consisted of the following:

	June 30, 2017		December 31, 2016
Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 with annual interest rate of 10.56% and repaid on May 26, 2017	$	-	$	719,963
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		737,355		719,963
Loan from Bank of China, due on December 6, 2017 with annual interest rate of 6.09% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		368,677		359,982
Loan from Bank of China, due on December 8, 2017 with annual interest rate of 6.09% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		368,677		359,981
Total short-term bank loans	$	1,474,709	$	2,159,889

Interest related to the short-term bank loans, which was $35,176 and $32,344 for the three months ended June 30, 2017 and 2016, and $74,866 and $64,954 for the six months ended June 30, 2017 and 2016, respectively, is included in interest expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive gain (loss).

18

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 10 – BANK ACCEPTANCE NOTES PAYABLE

Bank acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured by the Company’s restricted cash which are deposits with various lenders. At June 30, 2017 and December 31, 2016, the Company’s bank acceptance notes payables consisted of the following:

	June 30, 2017		December 31, 2016
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited	$	-	$	71,996
Bank of Communication, non-interest bearing, due on September 24, 2017, collateralized by 100% of restricted cash deposited		44,242		-
Bank of Communication, non-interest bearing, due on August 15, 2017, collateralized by 100% of restricted cash deposited		88,483		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited		-		431,978
Bank of Communication, non-interest bearing, due on November 8, 2017, collateralized by 100% of restricted cash deposited		73,735		-
Bank of China, non-interest bearing, due on September 14, 2017, collateralized by 100% of restricted cash deposited		73,735		-
Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited		-		43,198
Total	$	280,195	$	547,172

NOTE 11 – RELATED PARTY TRANSACTIONS

Due to related party

From time to time, the Company receive advances from YSK 1860 Ltd., which is a principal shareholder of the Company for working capital purposes. These advanced and non-interest bearing and are payable on demand. At June 30, 2017 and December 31, 2016, amounts due to this related party amounted to $132,175 and $0, respectively.

Exclusivity agreement

On June 11, 2017, the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) with ECrent Capital Holdings Limited (“ECrent”) the terms of which became effective on the same day. Pursuant to the Exclusivity Agreement, the Company and ECrent agreed to engage in exclusive discussions regarding a potential acquisition by the Company of ECrent and/or any of its subsidiaries or otherwise all or part of ECrent’s business and potential business cooperation between the two companies (collectively, the “Potential Transactions”) for a period of three months commencing from the date of the Exclusivity Agreement (the “Exclusive Period”). Ms. Deborah Yuen, an affiliate of YSK 1860 Ltd., which is a principal shareholder of the Company, controls ECrent Holdings Limited, which is the majority shareholder of ECrent. ECrent agreed that, during the Exclusive Period, neither ECrent nor its agents, representatives or advisors will contact, solicit, discuss or negotiate with any third party with respect to any transaction relating to a transfer or pledge of securities of ECrent and/or its subsidiaries, a sale of ECrent’s business, a business cooperation or any other matters that may adversely affect the Potential Transactions or the parties’ discussion related thereto.

NOTE 12 – ACCRUED EXPENSES

At June 30, 2017 and December 31, 2016, accrued expenses consisted of the following:

	June 30, 2017		December 31, 2016
Accrued salaries and related benefits	$	30,162	$	143,622
Other payables		223,487		224,773
	$	253,649	$	368,395

19

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 13 – STOCKHOLDERS’ EQUITY

Common stock issued for services

On May 8, 2017, the Company issued 15,000 shares of common stock pursuant to its 2016 long-term incentive plan for legal services. The shares were valued at $50,400, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with this issuance, the Company reduced accounts payable by $28,400 and recorded stock-based professional fees of $22,000 during the six months ended June 30, 2017.

On May 18, 2017, pursuant to a consulting agreement, the Company issued 25,000 shares of its common stock to a consultant for business development services provided and to be provided through December 31, 2017. The shares were valued at $84,000, the fair market value on the grant date using the reported closing share price on the date of grant. Pursuant to this consulting agreement, the Company will issue an additional 25,000 share of common stock to this consultant before September 1, 2017. For the six months ended June 30, 2017, the Company recorded stock-based professional fees of $33,600 and prepaid expenses of $50,400 which to amortized over the remaining service period.

On June 22, 2017, pursuant to a one-year consulting agreement effective May 16, 2017, the Company issued 65,200 shares of common stock to a consultant for business development services rendered and to be rendered. These shares were valued at $283,620, the fair market value on the grant date using the reported closing share price on the date of grant. For the six months ended June 30, 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $35,452 and prepaid expenses of $248,168 which to amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 20,000 share of common stock to this consultant before November 1, 2017. The initial fair value of these shares was were valued at $87.000, the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For the six months ended June 30, 2017, the Company recorded stock-based professional fees of $11,225 related to these issuable shares. As of June 30, 2017, there was $78,575 of stock-based professional fees to be recognized through May 2018.

Common stock sold for cash

In June 2017, pursuant to stock purchase agreements, the Company sold an aggregate of 290,000 shares of common stock to three investors at a purchase price of $3.00 per share for net cash proceeds a total of $860,000. The Company did not engage a placement agent with respect to these sales.

NOTE 14 – STATUTORY RESERVE

The Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. The profit must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. This statutory reserve is not distributable in the form of cash dividends. As of June 30, 2017 and December 31, 2016, the Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the six months ended June 30, 2017. Green Power had net losses since its establishment. No appropriation to statutory reserves for it was required as it incurred recurring net loss.

NOTE 15 – SEGMENT INFORMATION

During the three and six months ended June 30, 2016, the Company operated in three reportable business segments - (1) the manufacture of textile dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the manufacture of petroleum and chemical equipment segment. The Company’s reportable segments were strategic business units that offered different products. They were managed separately based on the fundamental differences in their operations. All of the Company’s operations are conducted in the PRC.

20

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

Because of significant declines in revenues from the forged rolled rings and related components segment and petroleum and chemical equipment segment, the Company discontinued these segments and sold the forged rolled rings and related components segment in the fourth quarter of 2016. Pursuant to ASC Topic 205-20, Presentation of Financial Statements-Discontinued Operations, the business of forged rolled rings and related components segment, and petroleum and chemical equipment segment are considered as discontinued operations because: (a) the operations and cash flows of these segments were eliminated from the Company’s operations; and (b) the Company would not have ability to influence the operation or financial policies of the forged rolled rings and related components segment subsequent to the sale. The results of operation of the forged rolled rings and related components and the petroleum and chemical equipment segments have been presented as discontinued operations for the three and six months ended June 30, 2016.

At June 30, 2017 and December 31, 2016, all remaining identifiable long-lived tangible assets belong to the Company’s continuing operations, the textile dyeing and finishing equipment segment and are located in China.

NOTE 16 – CONCENTRATIONS

Customers

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the six months ended June 30, 2017 and 2016.

	Six Months Ended June 30,
Supplier	2017			2016
A		12	%		-
B		-			10	%

No customer accounted for 10% or more of the Company’s total outstanding accounts receivable at June 30, 2017 and 2016.

Suppliers

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases for the six months ended June 30, 2017 and 2016.

	Six Months Ended June 30,
Supplier	2017			2016
A		23	%		*
B		15	%		-
C		11	%		-
D		-			17	%
E		-			14	%

* Less than 10%.

One largest suppliers (who accounted for 10% or more of the Company’s total outstanding accounts payable at June 30, 2017) accounted for 22% of the Company’s total outstanding accounts payable at June 30, 2017. One largest suppliers accounted for 10% of the Company’s total outstanding accounts payable at December 31, 2016.

21

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 17 – COMMITMENT AND CONTINGENCIES

Equity investment commitment

On December 26, 2016, Dyeing made an equity investment with one unrelated company in Shengxin, a newly-formed entity which plans to develop, construct and maintain photovoltaic power generation projects in China. Shengxin’s total registered capital is RMB 200 million (approximately $29.0 million). Dyeing has agreed to invest RMB 60,000,000 (approximately $8,705,000) for a 30% equity interest in Shengxin and had invested RMB 59,800,000 (approximately $8,676,000) as of June 30, 2017. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $20.3 million) for a 70% interest. Mr. Xue contributed RMB 20,000,000 (approximately $2.9 million), and he advised Dyeing that he anticipates that he will fund the balance of his commitment during the the remainder of 2017. If Mr. Xue does not make this payment by the end of 2017, Dyeing will have the right to amend the contract, and both parties will adjust each sides’ equity interest to reflect the amount of capital each side has actually invested. As of June 30, 2017, Shengxin had not commenced operations.

Litigation

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

NOTE 18 – RESTRICTED NET ASSETS

Regulations in the PRC permit payments of dividends by the Company’s PRC subsidiary and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary. Heavy Industries and Dyeing had reached the cumulative limit as of March 31, 2017. The statutory reserve funds are not distributable as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIEs and its subsidiary are restricted in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may further restrict the Company’s PRC VIEs and its subsidiary from transferring funds to the Company in the form of loans and/or advances.

As of June 30, 2017 and December 31, 2016, substantially all of the Company’s net assets are attributable to the PRC VIEs and its subsidiary located in the PRC. Accordingly, the Company’s restricted net assets at June 30, 2017 and December 31, 2016 were approximately $58,477,000 and $57,324,000, respectively.

22

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017

(UNAUDITED)

NOTE 19 – SUBSEQUENT EVENTS

Common stock issued for services

On July 19, 2017, pursuant to one-year consulting agreements, the Company issued an aggregate of 120,000 shares of common stock to two consultants ($60,000 shares each) for business development services to be rendered. These shares were valued at $498,000, the fair market value on the grant date using the reported closing share price on the date of grant. On July 19, 2017, in connection with the issuance of these shares, the Company recorded prepaid expenses of $498,000 which to amortized over the one-year service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 40,000 share of common stock to these consultants (20,000 shares each) in October 2017 unless the agreements are cancelled. The initial fair value of these shares was were valued at $166,000, the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.

On July 31, 2017, pursuant to engagement letters, the Company issued 23,230 shares of common stock and 8,000 shares of common stock for accounting services and investor relation services to be rendered, respectively. These shares were valued at $127,106, the fair market value on the grant date using the reported closing share price on the date of grant. On July 31, 2017, in connection with the issuance of these shares, the Company recorded prepaid expenses of $127,106 which to amortized over the one-year service period.

Transfer agreement

On August 4, 2017, the Company’s wholly-owned subsidiary, EC Power (Global) Technology Limited (“EC Power”), entered into a Transfer Agreement (the “Transfer Agreement”) with ECoin Global Limited (“ECoin”) to purchase ECoin Redemption Codes (the “Codes”) produced by ECoin for total consideration of $20,000,000 (the “Transfer Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four (4) years, and will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin in installments, with each installment payable not later than thirty days after the end of December 31^st in each calendar year. Each installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company. In connection with this Transfer Agreement, the Company shall record a liability and a corresponding asset of $20,000,000.

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We design, manufacture and distribute a line of proprietary high and low temperature dyeing and finishing machinery to the textile industry. Our products feature a high degree of both automation and mechanical-electrical integration. Our products are used in dyeing yarns such as pure cotton, cotton-polyester, terylene, polyester wool, poly-acrylic fiber, nylon, cotton ramie, and wool yarn. We are continuing to seek to utilize our expertise in manufacturing precision products to meet demand in new and existing end markets.

We design and produce airflow dyeing machines, which use air instead of water. Water is used in the traditional dyeing process. We believe that our air-flow technology, which is designed to enable users to meet the stricter environmental standards, results in reduced input costs, fewer wrinkles, less damage to the textile, and reduced emissions. With the China government’s mandate to phase out older machinery in China’s textile industry that does not meet the new environmental standards, although our revenue from this segment declined in 2016, in the long-term we expect to increase our revenue from this segment. Our new after-treatment drying and compacting machine is used in the final finishing of knitted material, such as cotton, and is designed to improve the softness, reduce shrinkage and ensure better dimensional stability. We developed a new garment washing machine for denim. It is made of stainless steel and customized for use by Chinese jeans manufacturers, the machine is capable of stone wash, enzyme wash and other water washing techniques.

Currently, we focus on investing in research and development to improve our competitive position. In August 2016, we purchased the technology use right for a patent that covers ozone-ultrasonic textile dyeing equipment. We believe this new patent technology will allow us to develop next generation dyeing and finishing equipment that will appeal to textile manufacturers in China as well as Southeast Asia. We expect our revenue from dyeing and finishing equipment segment will remain at or about its current quarterly level in the near future, although declines are possible.

On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin, in which Dyeing has a 30% equity interest and the unrelated third party holds a 70% interest, pursuant to an agreement dated December 23, 2016. Shengxin intends to develop, construct and maintain photovoltaic power generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. As of June 30, 2017, Shengxin had not yet commenced operations. During the project construction period, we will have the priority to supply components and equipment such as: solar racking and mounting systems for the projects under the same conditions as the other vendors.

At June 30, 2017, our investment in Shengxin amounted to approximately $8.7 million. Our investment in Shengxin is subject to a high degree of risk. We cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.

Through December 30, 2016, we operated in the forged rolled rings and related components segment, in which we manufactured and sold precision forged rolled rings, shafts, flanges, and other forged components for the energy industry including wind power and other industries. On December 30, 2016, we sold 100% of the stock in Fulland Wind, the subsidiary that operated our forged rolled rings and related components business, to a non-affiliated third party, as a result of which the forged rolled rings and related components business is reflected as a discontinued operations for all periods presented. As of June 30, 2017 the Company received RMB 28,800,000 (approximately $4.2 million) proceeds in cash from the buyer, and the balance of receivable from sale of Fulland is $2,831,441. 

Additionally, during the three and six months ended June 30, 2016, we operated a petroleum and chemical equipment segment, in which we manufactured and sold petroleum and chemical equipment. Because of a significant decline in revenues from this segment, we determined that we would not continue to operate in this segment and accordingly, the petroleum and chemical equipment segment is reflected as a discontinued operations for all periods presented. 

Recently, difficult economic conditions, a continuing decline in oil prices and limited availability of credit in China, presented numerous challenges for our business. As a result, we experienced softer demand for our low-emission airflow dyeing machines as many of our potential customers already upgraded to newer models and we believe that much of our remaining potential customer base does not have the ability to make significant capital expenditures at this time. As a result, if we are to sell our products to the smaller textile manufacturers, it may be necessary for us to design and market a cheaper machine that meets the Chinese government requirements or reduce prices which would impact both revenues and gross margin.

24

Our ability to expand our operations and increase our revenue is largely affected by the PRC government’s policy on such matters as the availability of credit, which affects all of our operations, and its policies relating to the textile industry, environment issues and alternative energy as well as the competitiveness of Chinese textile manufactures at a time when consumers are looking for lower prices and manufactures are looking to produce in countries with lower labor costs than China, all of which affects the market for our dyeing and finishing equipment. Our business is also affected by general economic conditions, and we cannot assure you that we will be able to increase our revenues in the near future, if at all. Because of the nature of our products, our customers’ projection of future economic conditions are an integral part of their decisions as to whether to purchase capital equipment at this time or defer such purchases until a future date.

Recent developments

In June 2017, pursuant to stock purchase agreements, we sold an aggregate of 290,000 shares of common stock to three investors at a purchase price of $3.00 per share for net cash proceeds a total of $860,000.

We have launched a global bike sharing app service and joined together with local sharing bike operators in Hong Kong.  Our one-stop solution allows consumers to locate and pay for sharing bikes using a single platform, without having to download separate apps and create separate payment accounts for each individual bike-sharing operator. Using our platform, consumers will be able to locate and rent the closest sharing bike on a cross-city and cross-region basis. Featuring a single registration, deposit and payment system, bike locking and tracking technology, we expect our platform to provide a seamless and compelling user experience.

On August 4, 2017, our wholly-owned subsidiary, EC Power entered into a Transfer Agreement with ECoin Global Limited (“ECoin”) to purchase ECoin Redemption Codes (the “Codes”) produced by ECoin for total consideration of $20,000,000 (the “Transfer Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four (4) years, and will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin in installments, with each installment payable not later than thirty days after the end of December 31^st in each calendar year. Each installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, the fair value of equity method investment, the fair value of assets held for sale and the valuation of equity transactions.

We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

Variable Interest Entities

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of variable interest entities (“VIEs”). The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.

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Dyeing is considered a VIE, and we are the primary beneficiary. On November 13, 2007, we entered into agreements with the Dyeing pursuant to which we shall receive 100% of Dyeing’s net income. In accordance with these agreements, Dyeing shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, Green Power, and Green Power shall supply the technology and administrative services needed to service Dyeing.

The accounts of the Dyeing are consolidated in the accompanying financial statements. As a VIE, Dyeing’s sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of the Huayang Companies’ net income, and their assets and liabilities are included in our consolidated balance sheets. The VIEs do not have any non-controlling interest and, accordingly, we did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements, we have pecuniary interest in Dyeing that require consolidation of the Dyeing’s financial statements with our financial statements.

Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. 

As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting of raw materials, work-in-process and finished goods, are stated at the lower of cost or market utilizing the weighted average method. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Advances to Suppliers

Advances to suppliers represent the advance payments for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

	Useful Life
Building and building improvements	5 – 20 Years
Manufacturing equipment	5 – 10 Years
Office equipment and furniture	5 Years
Vehicles	5 Years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of income in the year of disposition.

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We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Land Use Rights

There is no private ownership of land in the PRC. All land in the PRC is owned by the government and cannot be sold to any individual or company. The government grants a land use right that permits the holder of the land use right to use the land for a specified period. Our land use rights were granted with a term of 45 or 50 years. Any transfer of the land use right requires government approval. We have recorded as an intangible asset the costs paid to acquire a land use right. The land use rights are amortized on the straight-line method over the land use right terms.

Patent Use Rights

In August 2016, we purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. We amortize the exclusive patent use right over the term of the patent.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

We recognize revenues from the sale of dyeing and finishing equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. For the six months ended June 30, 2017 and 2016, amounts allocated to installation and warranty revenues were minimal. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income Taxes

We are governed by the income tax laws of the PRC and the United States. Income taxes are accounted for pursuant to ASC 740 “Accounting for Income Taxes,” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. The charge for taxes is based on the results for the period as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is changed to equity. Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and we intend to settle its current tax assets and liabilities on a net basis.

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Stock-based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if the award is non-forfeitable. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Currency Exchange Rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiary and VIEs is the RMB. All of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses. 

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiary. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Recent Accounting Pronouncements  

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on our financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.

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RESULTS OF OPERATIONS

Three and Six Months Ended June 30, 2017 and 2016

The following table sets forth the results of our operations for the three months ended June 30, 2017 and 2016 indicated as a percentage of revenues (dollars in thousands):

	Three Months Ended June 30,
	2017						2016
	Dollars			Percentage			Dollars			Percentage
Revenues	$	3,712			100.0	%	$	3,918			100.0	%
Cost of revenues		3,269			88.1	%		3,327			84.9	%
Gross profit		443			11.9	%		591			15.1	%
Operating expenses		941			25.3	%		450			11.5	%
(Loss) income from operations		(498	)		(13.4	)%		141			3.6	%
Other expense, net		(24	)		(0.6	)%		(25	)		(0.7	)%
(Loss) income from continuing operations before provision for income taxes		(521	)		(14.0	)%		116			3.0	%
Provision for income taxes		-			-	%		47			1.2	%
(Loss) income from continuing operations		(521	)		(14.0	)%		69			1.8	%
Loss from discontinued operations, net of income taxes		-			-			(749	)		(19.1	)%
Net loss		(521	)		(14.0	)%		(680	)		(17.4	)%
Other comprehensive gain:
Foreign currency translation adjustment		1,088			29.3	%		(2,369	)		(60.5	)%
Comprehensive gain (loss)	$	566			15.3	%	$	(3,049	)		(77.8	)%

The following table sets forth the results of our operations for the six months ended June 30, 2017 and 2016 indicated as a percentage of revenues (dollars in thousands):

	Six Months Ended June 30,
	2017						2016
	Dollars			Percentage			Dollars			Percentage
Revenues	$	8,369			100.0	%	$	8,444			100.0	%
Cost of revenues		7,340			87.7	%		7,032			83.3	%
Gross profit		1,029			12.3	%		1,412			16.7	%
Operating expenses		1,623			19.4	%		1,227			14.5	%
(Loss) income from operations		(594	)		(7.1	)%		185			2.2	%
Other expense, net		(63	)		(0.8	)%		(50	)		(0.6	)%
(Loss) income from continuing operations before provision for income taxes		(657	)		(7.8	)%		135			1.6	%
Provision for income taxes		11			0.1	%		169			2.0	%
(Loss) income from continuing operations		(668	)		(8.0	)%		(34	)		(0.4	)%
Loss from discontinued operations, net of income taxes		-			-			(1,490	)		(17.6	)%
Net loss		(668	)		(8.0	)%		(1,524	)		(18.1	)%
Other comprehensive gain:
Foreign currency translation adjustment		1,583			18.9	%		(1,843	)		(21.8	)%
Comprehensive gain (loss)	$	916			10.9	%	$	(3,367	)		(39.9	)%

Revenues. For the three months ended June 30, 2017, revenues from the sale of dyeing and finishing equipment was $3,712,000 as compared to $3,918,000 for the three months ended June 30, 2016, a decrease of $206,000, or 5.3%. For the six months ended June 30, 2017, revenues from the sale of dyeing and finishing equipment was $8,369,000 as compared to $8,444,000 for the six months ended June 30, 2016, a decrease of $75,000, or 0.9%.

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Cost of revenues. Cost of revenues includes the cost of raw materials, labor, depreciation and other overhead costs. For the three months ended June 30, 2017, cost of revenues was $3,269,000 as compared to $3,327,000 for the three months ended June 30, 2016, a decrease of $58,000, or 1.7%. The decrease in our cost of revenues for the second quarter of 2017 was primarily attributable to a decrease in our revenues and an increase in our unit sales costs resulting from the increase in our raw material cost. For the six months ended June 30, 2017, cost of revenues was $7,341,000 as compared to $7,032,000 for the six months ended June 30, 2016, an increase of $308,000, or 4.4%. The changes in our cost of revenues for the three and six month periods ended June 30, 2017 as compared to the comparable 2016 periods was primarily attributable to a decrease in our revenues and an increase in our unit sales costs resulting from the increase in our raw material cost. 

Gross profit and gross margin. Our gross profit was $443,000 for the three months ended June 30, 2017 as compared to $591,000 for the three months ended June 30, 2016, representing gross margins of 11.9% and 15.1%, respectively, and our gross profit was $1,029,000 for the six months ended June 30, 2017 as compared to $1,412,000 for the six months ended June 30, 2016, representing gross margins of 12.3% and 16.7%, respectively, a decrease period over period. As explained above, the decrease in our gross margins for the 2017 periods as compared to the 2016 comparable periods was primarily attributed to the increase in raw material cost.

Operating expenses. For the three months ended June 30, 2017, operating expenses were $941,000 as compared to $450,000 for the three months ended June 30, 2016, an increase of $491,000, or 109.2 %. For the six months ended June 30, 2017, operating expenses were $1,623,000 as compared to $1,228,000 for the six months ended June 30, 2016, an increase of $395,000, or 32.2%, and consisted of the following:

Depreciation. Depreciation was $971,000 and $869,000 for the three months ended June 30, 2017 and 2016, respectively. Depreciation was $1,939,000 and $1,824,000 for the six months ended June 30, 2017 and 2016, respectively. Depreciation for the three and six months ended June 30, 2017 and 2016 was included in the following categories (dollars in thousands):

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Cost of revenues	$	702	$	731	$	1,402	$	1,548
Operating expenses		269		138		537		276
Total	$	971	$	869	$	1,939	$	1,824

The decrease in depreciation expense for cost of revenues for the three and six months ended June 30, 2017 as compared to the three and six months ended June 30, 2016 was mainly attributable to the reduction of manufacturing equipment used in our manufacturing of inventories due to our discontinued operations.

In the fourth quarter of 2016, we completed our office building improvement and started to amortize the improvement cost in December 2016. The increase in depreciation expense for operating expenses for the three and six months ended June 30, 2017 as compared to the three and six months ended June 30, 2016 was primarily attributable to the increased depreciation amount from the office building improvements.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $560,000 and $868,000 for the three and six months ended June 30, 2017, as compared to $245,000 and $867,000 for the three and six months ended June 30, 2016, an increase of $315,000, or 128.2% and $1, or 0.1%, respectively. Selling, general and administrative expenses for the three and six months ended June 30, 2017 and 2016 consisted of the following (dollars in thousands):

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Professional fees	$	209	$	80	$	295	$	554
Payroll and related benefits		155		52		234		107
Travel and entertainment		50		29		78		51
Shipping		30		28		59		58
Intangible amortization		79		3		159		6
Other		37		53		43		91
Total	$	560	$	245	$	868	$	867

● Professional fees for the three months ended June 30, 2017 increased by $129,000, or 161.1%, as compared to the three months ended June 30, 2016. During the three months ended June 30, 2017, we incurred stock-based consulting fees of approximately $80,000 for business development services while we did not incur such consulting fees in the comparable 2016 period. We also incurred additional legal fees related to an increase in corporate activities. Professional fees for the six months ended June 30, 2017 decreased by $259,000, or 46.8%, as compared to the six months ended June 30, 2016. During the six months ended June 30, 2016, we incurred and paid stock-based consulting fees of approximately $393,000 to two companies which performed consulting services relating to preparing and implementing a new business plan for us with the objective of improving our long-term growth as compared to approximately $80,000 during the six months ended June 30, 2016, a decrease of $313,000.This decrease was offset by an increase in legal fees due to an increase in business activities.

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● Payroll and related benefits for the three and six months ended June 30, 2017 increased by $103,000 and $127,000, or 198.1% and 118.7%, as compared to the three and six months ended June 30, 2016, respectively. The increase was mainly attributable to an increase in employee salaries and related benefits of approximately $36,000 and $60,000 due to the increase in general and administrative personnel and an increase in compensation incurred of approximately $67,000 and $67,000 for new executive management during the three and six months ended June 30, 2017 as compared to the comparable period in 2016, respectively. We expect that payroll and related benefits to increase in future periods.

● Travel and entertainment expense for the three and six months ended June 30, 2017 increased by $21,000 and $27,000, or 72.4% and 52.9%, as compared to the three and six months ended June 30, 2016, respectively.  The increase in the three and six months ended June 30, 2017 was primarily attributable to the increase in travel and entertainment activities.

● Shipping expense remained roughly consistent for the three and six months ended June 30, 2017 as compared to the corresponding period in 2016.

● Intangible amortization for the three and six months ended June 30, 2017 increased by $76,000 and $153,000, as compared to the three and six months ended June 30, 2016, respectively. The increase for the three and six months ended June 30, 2017 was mainly attributable to the increase in amortization for the exclusive patent use right we purchased in August 2016.

● Other selling, general and administrative expenses for the three months ended June 30, 2017 decreased by $16,000, or 30.2%, as compared to the three months ended June 30, 2016. Other selling, general and administrative expenses for the six months ended June 30, 2017 decreased by $48,000, or 52.7%, as compared to the six months ended June 30, 2016. The decrease was primarily due to stricter control on general corporate spending.

Research and development expenses. Research and development expenses were $111000 and $217,000 for the three and six months ended June 30, 2017, as compared to $66,000 and $85,000 for the three and six months ended June 30, 2016, an increase of $45,000 and $132,000, or 67.7% and 156.5%, respectively. The increase in the three and six months ended June 30, 2017 was primarily attributable to the increase in research and development activities as compared to the corresponding period in 2016. Research and development expenses related to the development of new dyeing and finishing products.

(Loss) income from operations. As a result of the factors described above, for the three and six months ended June 30, 2017, loss from operations amounted to $497,000 and $594,000, as compared to income from operations of $141,000 and $185,000 for the three and six months ended June 30, 2016, respectively.

Other income (expense). Other income (expense) includes interest income, interest expense, loss on equity method investment, foreign currency transaction gain, and other income. For the three months ended June 30, 2017, total other expense, net, amounted to $24,000 as compared to $25, for the three months ended June 30, 2016, a decrease of $2,000, or 7.3%. For the six months ended June 30, 2017, total other expense, net, amounted to $63,000 as compared to $50,000 for the six months ended June 30, 2016, an increase of $13,000, or 26.7%.

Income tax provision.  Income tax expense was $21 and $11,000 for the three and six months ended June 30, 2017, as compared to $47,000 and $169,000 for the three and six months ended June 30, 2016, a decrease of $47,000 and $158,000, or 100% and 93.5%, respectively. The decrease in income tax expense was primarily attributable to the decrease in taxable income generated by our operating entities in the three and six months ended June 30, 2017 as compared to the comparable period of 2016.

(Loss) gain from continuing operations. As a result of the foregoing, our loss from continuing operations was $(521,000), or $(0.30) per share (basic and diluted), for the three months ended June 30, 2017, as compared with gain from continuing operations of $69,000, or $0.06 per share (basic and diluted), for the three months ended June 30, 2016, a change of $591,000, or 853.7%. Our loss from continuing operations was $(668,000), or $(0.46) per share (basic and diluted) for the six months ended June 30, 2017, as compared with $(34,000), or $(0.03) per share (basic and diluted), for the six months ended June 30, 2016, a change of $634,000, or 1,845,3%.

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Loss from discontinued operations, net of income taxes. We did not have any discontinued operations in the three and six months ended June 30, 2017. Our loss from discontinued operations was $749,000, or $(0.67) per share (basic and diluted), for the three months ended June 30, 2016. Our loss from discontinued operations was $1,490,000, or $(1.39) per share (basic and diluted), for the six months ended June 30, 2016.

The summarized operating results of discontinued operations included our consolidated statements of operations is as follows:

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016
Revenues	$	-	$	143,475		$	-	$	536,266
Cost of revenues		-		528,310			-		1,529,442
Gross loss		-		(384,835	)		-		(993,176	)
Operating expenses		-		345,682			-		458,367
Loss from operations		-		(750,517	)		-		(1,451,543	)
Other expense, net		-		(18,845	)		-		(38,397	)
Loss from discontinued operations before income taxes		-		(749,362	)		-		(1,489,940	)
Income taxes		-		-			-		-
Loss from discontinued operations, net of income taxes	$	-	$	(749,362	)	$	-	$	(1,489,940	)

Net loss. As a result of the foregoing, our net loss was $566,000, or $(0.30) per share (basic and diluted), for the three months ended June 30, 2017, as compared with net loss $680,000, or $(0.61) per share (basic and diluted), for the three months ended June 30, 2016, a change of $159,000, or 23.3%. Our net loss was $668,000, or $(0.46) per share (basic and diluted), for the six months ended June 30, 2017, as compared with net loss $1,524,000, or $(1.42) per share (basic and diluted), for the six months ended June 30, 2016, a change of $856,000, or 56.2%.

Foreign currency translation gain. The functional currency of our subsidiaries and variable interest entities operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $1,087,000 and $1,584,000 for the three and six months ended June 30, 2017, as compared to foreign currency translation loss of $2,368,000 and $1,842,000 for the three and six months ended June 30, 2016, respectively. This non-cash gain or loss had the effect of increasing/decreasing our reported comprehensive gain/loss.

Comprehensive gain (loss). As a result of our foreign currency translation gain, we had comprehensive gain for the three months ended June 30, 2017 of $566,000, compared to comprehensive loss of $3,049,000 for the three months ended June 30, 2016. We had comprehensive gain for the six months ended June 30, 2017 of $916,000, compared to comprehensive loss of $3,367,000 for the six months ended June 30, 2016.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2017 and December 31, 2016, we had cash balances of $2,829,000 and $1,481,000, respectively. These funds are located in financial institutions located as follows (dollars in thousands):

Country:	June 30, 2017				December 31, 2016
United States	$	195	3.54	%	$	1	*
China		5,328	96.46	%		1,480	99.96	%
Total cash and cash equivalents	$	5,523	100.0	%	$	1,481	100.0	%

* Less than 0.1%

32

The following table sets forth a summary of changes in our working capital from December 31, 2016 to June 30, 2017 (dollars in thousands): 

	June 30, 2017		December 31, 2016		Change		Percentage Change
Working capital:
Total current assets	$	30,344	$	26,592	$	3,752		14.1	%
Total current liabilities		5,500		5,053		447		8.8	%
Working capital	$	24,844	$	21,539	$	3,305		15.3	%

Our working capital increased by $3,035,000 to $24,844,000 at June 30, 2017 from $21,539,000 at December 31, 2016. This increase in working capital is primarily attributable to:

● An increase in cash and cash equivalent of $4,042,000,

● An increase in accounts receivable, net of allowance for doubtful accounts, of $1,101,000,

● An increase in inventories, net of reserve for obsolete inventories, of $1,097,000,

● An increase in advances to suppliers of $197,000,

● An increase in prepaid expenses and other current assets of $569,000, and,

● An decrease in short-term bank loans of $685,000;

Offset by:

● A decrease in assets of discontinued operations of $1,002,000,

● A decrease in receivable from sale of subsidiary of $2,007,000 due to the collection of this balance,

● An increase in accounts payable of $1,473,000, and,

● An increase in due to related party of $132,000.

Because the exchange rate conversion is different for the consolidated balance sheets and the consolidated statements of cash flows, as explained in more details under Foreign currency translation gain or loss, the changes in assets and liabilities reflected on the consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the consolidated balance sheets.

Net cash flow provided by operating activities was $1,610,000 for the six months ended June 30, 2017 as compared to $804,000 for the six months ended June 30, 2016, a change of $806,000.

● Net cash flow provided by operating activities for the six months ended June 30, 2017 primarily reflected a net loss of $668,000 adjusted for the add-back of non-cash items primarily consisting of depreciation of $1,939,000, amortization of intangible assets of $159,000, and loss on equity method investment of $43,000, and changes in operating assets and liabilities mainly consisting of a decrease in prepaid and other current assets of $1,039,000 and an increase in accounts payable of $1,461,000, offset by an increase in accounts receivable of $755,000, an increase in inventories of $1,025,000, and an increase in advances to suppliers of $168,000.

● Net Cash flow provided by operating activities for the six months ended June 30, 2016 primarily reflected the add-back of non-cash items primarily consisting of depreciation of approximately $3.4 million, amortization of land use rights of $45,000, and stock-based compensation and fees of $489,000, and changes in operating assets and liabilities primarily consisting of a decrease in accounts receivable of $73,000, a decrease in advances to suppliers of $100,000, an increase in accounts payable of $244,000, and a decrease in asset of discontinued operations of $545,000, offset by our net loss of approximately $1.5 million, and changes in operating assets and liabilities primarily consisting of an increase in inventories of approximately $1.2 million, a decrease in accrued expenses of approximately $384,000, a decrease in VAT and service taxes payable of $149,000, a decrease in income taxes payable of $141,000 and a decrease in liabilities of discontinued operations of $680,000.

For the six months ended June 30, 2017, net cash flow provided by investing activities of $2,081,000, which reflects the purchase of property and equipment of $14,000 and proceeds received from sale of subsidiary in cash of $2,095,000. For the six months ended June 30, 2016, net cash flow used in investing activities reflects the purchase of property and equipment of $9,000.

33

Net cash flow provided by financing activities was $265,000 for the six months ended June 30, 2017 as compared to $396,000 for the six months ended June 30, 2016. During the six months ended June 30, 2017, we received proceeds from sale of common stock of $860,000 and proceeds from related party advances of $132,000, offset by repayment of bank loans of $727,000. During the six months ended June 30, 2016, we received proceeds from bank loans of approximately $2.2 million, proceeds from the decrease in restricted cash of $459,000, proceeds from sale of common stock of $483,000, and proceeds from increase in bank acceptance notes payable – discontinued operations of $58,000, offset by repayments for bank loans of approximately $2.3 million, decrease in bank acceptance notes payable of $459,000, and payments for increase in restricted cash – discontinued operations of $69,000.

We have historically funded our capital expenditures through cash flow provided by operations and bank loans. As of June 30, 2017, we have contractual commitments of RMB 0.2 million (approximately $29,000) related to an equity investment commitment. We intend to fund the cost with cash flow from our operations and by obtaining financing mainly from local banking institutions with which we have done business in the past. We believe that the relationships with local banks are in good standing and we have not encountered difficulties in obtaining needed borrowings from local banks.

We may seek to raise capital through additional debt and/or equity financings to fund our operations in the future. Although we have historically raised capital from sales of equity and from bank loans, there is no assurance that we will be able to continue to do so. If we are unable to raise additional capital or secure additional lending in the next 12 months, management expects that we will need to curtail or cease operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should we be unable to continue as a going concern.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize our contractual obligations as of June 30, 2017 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
Contractual obligations:	Total		Less than 1 year		1-3 years		3-5 years		5+ years
Bank loans (1)	$	1,475	$	1,475	$	-	$	-	$	-
Bank acceptance notes payable		280		280		-		-		-
Equity method investment commitment		29		29		-		-		-
Total	$	1,784	$	1,784	$	-	$	-	$	-

(1) Bank loans consisted of short term bank loans. Historically, we have refinanced these bank loans for an additional term of six months to one year and we expect to continue to refinance these loans upon expiration.

Off-balance Sheet Arrangements

Except as discussed below, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Foreign Currency Exchange Rate Risk

We produce and sell almost all of our products in China. Thus, most of our revenues and operating results may be impacted by exchange rate fluctuations between RMB and US dollars. For the three months ended June 30, 2017 and 2016, we had unrealized foreign currency translation gain of $1,087,000 and an unrealized foreign currency translation loss of $2,368,000, respectively, because of changes in the exchange rate. For the six months ended June 30, 2017 and 2016, we had unrealized foreign currency translation gain of $1,584,000 and an unrealized foreign currency translation loss of $1,842,000, respectively, because of changes in the exchange rate.

34

Inflation

The effect of inflation on our revenue and operating results was not significant.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our management, including Jianhua Wu, our chief executive officer, and Wanfen Xu, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2017.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures. 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, Mr. Wu and Ms. Xu concluded that our disclosure controls and procedures were not effective as of June 30, 2017.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). As reported in our Form 10-K for the year ended December 31, 2016, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 and, during our assessment, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff and recently elected chief financial officer, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. Although management believes that these deficiencies do not amount to a material weakness, our internal controls over financial reporting were not effective at December 31, 2016.

We currently have no plans to expand our company-wide Enterprise Resource Planning (“ERP”) system during the rest of 2017 and have not implemented further ERP modules to manage inventory and to expand existing ERP systems to other areas of our factory. Due to our working capital requirements and the lack of local professionals with the necessary experience in implementing the ERP system, we postponed the hiring of professional staff to implement ERP system. We have found that engaging professionals who are based outside of Wuxi is very costly and we have not been able to find qualified personnel in the Wuxi area.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the six months ended June 30, 2017. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

In light of this significant deficiency, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the three months ended June 30, 2017 included in this quarterly report on Form 10-Q were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the three months ended June 30, 2017 are fairly stated, in all material respects, in accordance with the U.S. GAAP.

Changes in Internal Controls over Financial Reporting

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

35

PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 18, 2017, pursuant to a consulting agreement, we issued 25,000 shares of our common stock to a consultant for business development services provided and to be provided through December 31, 2017. The shares were valued at $84,000, the fair market value on the grant date using the reported closing share price on the date of grant.

On June 22, 2017, pursuant to a one-year consulting agreement, effective May 16, 2017, we issued 65,200 shares of common stock to a consultant for business development services rendered and to be rendered. These shares were valued at $283,620, the fair market value on the grant date using the reported closing share price on the date of grant.

In June 2017, pursuant to stock purchase agreements, we sold an aggregate of 290,000 shares of common stock to three investors at a purchase price of $3.00 per share for net cash proceeds a total of $860,000. The Company did not engage a placement agent with respect to these sales.

The above securities were issued in reliance upon the exemptions provided by Section 4(a) (2) under the Securities Act of 1933, as amended.

ITEM 6. EXHIBITS

31.1	Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer
32.1	Section 1350 certification of Chief Executive Officer and Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CLEANTECH SOLUTIONS INTERNATIONAL, INC.
Date: August 14, 2017	By:	/s/ Jianhua Wu
		Jianhua Wu, Chief Executive Officer and
		Principal Executive Officer

Date: August 14, 2017	By:	/s/ Wanfen Xu
		Wanfen Xu, Chief Financial Officer and
		Principal Accounting Officer

37

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Jianhua Wu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cleantech Solutions International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: August 14, 2017	By:	/s/ Jianhua Wu
		Jianhua Wu Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Wanfen Xu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cleantech Solutions International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: August 14, 2017	By:	/s/ Wanfen Xu
		Wanfen Xu Chief Financial Officer (Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cleantech Solutions International, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jianhua Wu, chief executive officer of the Company, and Wanfen Xu, chief financial officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2017	By:	/s/ Jianhua Wu
		Jianhua Wu Chief Executive Officer
		(Principal Executive Officer)

Date: August 14, 2017	By:	/s/ Wanfen Xu
		Wanfen Xu Chief Financial Officer (Principal Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.  

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 14, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	Cleantech Solutions International, Inc.,
Entity Central Index Key	0000819926
Trading Symbol	CLNT
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,961,871

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2017	Dec. 31, 2016
CURRENT ASSETS:
Cash and cash equivalents	$ 5,523,416	$ 1,481,498
Restricted cash	284,140	551,047
Notes receivable	144,521	133,913
Accounts receivable, net of allowance for doubtful accounts	15,023,701	13,922,371
Inventories, net of reserve for obsolete inventories	3,491,624	2,394,179
Advances to suppliers	1,313,883	1,116,525
Deferred tax assets	395,715	386,381
Receivable from sale of subsidiary	2,831,441	4,838,152
Prepaid expenses and other	578,015	9,074
Assets of discontinued operations	757,146	1,758,986
Total current assets	30,343,602	26,592,126
OTHER ASSETS:
Equity method investment	8,775,355	8,610,759
Property and equipment, net	28,648,360	29,878,675
Intangible assets, net	5,249,763	5,283,695
Total other assets	42,673,478	43,773,129
Total assets	73,017,080	70,365,255
CURRENT LIABILITIES:
Short-term bank loans	1,474,709	2,159,889
Bank acceptance notes payable	280,195	547,172
Accounts payable	2,338,100	864,870
Accrued expenses	253,649	368,395
Advances from customers	464,832	427,446
Due to related party	132,175
VAT and service taxes payable	84,250	47,319
Income taxes payable	60,922	79,467
Liabilities of discontinued operations	411,281	558,661
Total current liabilities	5,500,113	5,053,219
Total liabilities	5,500,113	5,053,219
Commitments and contingencies (see Note 17)
STOCKHOLDERS' EQUITY:
Preferred stock ($0.001 par value; 10,000,000 shares authorized; No shares issued and outstanding at June 30, 2017 and December 31, 2016)
Common stock ($0.001 par value; 12,500,000 shares authorized; 1,810,641 and 1,415,441 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively)	1,811	1,415
Additional paid-in capital	36,838,391	35,549,542
Retained earnings	25,863,592	26,531,498
Statutory reserve	2,352,592	2,352,592
Accumulated other comprehensive income - foreign currency translation adjustment	2,460,581	876,989
Total stockholders' equity	67,516,967	65,312,036
Total liabilities and stockholders' equity	$ 73,017,080	$ 70,365,255

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	12,500,000	12,500,000
Common stock, shares issued	1,810,641	1,415,441
Common stock, shares outstanding	1,810,641	1,415,441

XML

Condensed Consolidated Statements of Operations and Comprehensive Gain (Loss) (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
REVENUES	$ 3,711,767	$ 3,917,800	$ 8,369,221	$ 8,444,500
COST OF REVENUES	3,268,923	3,326,835	7,340,523	7,032,314
GROSS PROFIT	442,844	590,965	1,028,698	1,412,186
OPERATING EXPENSES:
Depreciation	269,349	137,945	537,714	275,854
Selling, general and administrative	560,201	245,512	867,860	867,034
Research and development	111,053	66,237	217,130	84,638
Total operating expenses	940,603	449,694	1,622,704	1,227,526
(LOSS) INCOME FROM OPERATIONS	(497,759)	141,271	(594,006)	184,660
OTHER INCOME (EXPENSE):
Interest income	5,842	6,396	7,720	14,812
Interest expense	(35,176)	(32,344)	(74,866)	(64,954)
Loss on equity method investment	(24,456)		(42,811)
Foreign currency transaction gain		61		169
Other income	30,148	393	47,140	393
Total other expense, net	(23,642)	(25,494)	(62,817)	(49,580)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES	(521,401)	115,777	(656,823)	135,080
Income taxes provision	21	46,597	11,083	169,415
(LOSS) INCOME FROM CONTINUING OPERATIONS	(521,422)	69,180	(667,906)	(34,335)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES		(749,362)		(1,489,940)
NET LOSS	(521,422)	(680,182)	(667,906)	(1,524,275)
COMPREHENSIVE LOSS:
Net loss	(521,422)	(680,182)	(667,906)	(1,524,275)
Other comprehensive gain:
Unrealized foreign currency translation gain	1,087,468	(2,368,419)	1,583,592	(1,842,471)
Comprehensive gain (loss)	$ 566,046	$ (3,048,601)	$ 915,686	$ (3,366,746)
NET (LOSS) INCOME PER COMMON SHARE:
Continuing operations - Basic and diluted	$ (0.3)	$ 0.06	$ (0.46)	$ (0.03)
Discontinued operations - basic and diluted		(0.67)		(1.39)
Net loss per common share - basic and diluted	$ (0.30)	$ (0.61)	$ (0.46)	$ (1.42)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted	1,730,952	1,121,251	1,455,506	1,073,212

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (667,906)	$ (1,524,275)
Adjustments to reconcile net loss from operations to net cash provided by operating activities:
Depreciation	1,939,302	1,824,315
Depreciation - discontinued operations		1,527,446
Amortization of intangible assets	159,360	45,226
Loss on equity method investment	42,811
Stock-based compensation and fees	102,278	488,500
Changes in operating assets and liabilities:
Notes receivable	(7,273)	61,205
Accounts receivable	(754,586)	72,898
Inventories	(1,025,428)	(1,169,339)
Prepaid and other current assets	1,038,752	(12,704)
Advances to suppliers	(168,063)	100,454
Assets of discontinued operations	(276,596)	544,699
Accounts payable	1,460,922	243,910
Accrued expenses	(117,025)	(383,895)
VAT and service taxes payable	35,300	(148,996)
Income taxes payable	(20,185)	(140,742)
Advances from customers	26,691	(44,882)
Liabilities of discontinued operations	(158,681)	(679,657)
Net cash provided by operating activities	1,609,673	804,163
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(13,880)	(9,338)
Proceed received from sale of subsidiary in cash	2,094,606
Net cash provided by (used in) investing activities	2,080,726	(9,338)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank loans		2,218,686
Repayments of bank loans	(727,294)	(2,295,192)
Decrease in restricted cash	276,372	459,038
Increase in restricted cash - discontinued operations		(68,856)
Decrease in bank acceptance notes payable	(276,372)	(459,038)
Increase in bank acceptance notes payable - discontinued operations		58,145
Advance from related party	132,175
Proceeds from sale of common stock, net	860,000	483,000
Net cash provided by financing activities	264,881	395,783
Effect of exchange rate changes on cash and cash equivalents	86,638	(458,073)
Net increase in cash and cash equivalents	4,041,918	732,535
Cash and cash equivalents - beginning of period	1,481,498	18,790,370
Cash and cash equivalents - end of period	5,523,416	19,522,905
Cash paid in continuing operations for:
Interest	74,866	64,954
Income taxes	12,808	117,451
Cash paid in discontinued operations for:
Interest		46,222
Income taxes		1,313
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for future services	298,567	72,600
Stock issued for accrued liabilities	28,400	54,000
Increase in prepaid expenses and other from sale of equipment	$ 1,306,677

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Description of Business and Organization

6 Months Ended

Jun. 30, 2017

Description of Business and Organization [Abstract]

DESCRIPTION OF BUSINESS AND ORGANIZATION

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION

Cleantech Solutions International, Inc. (the “Company”) was incorporated in Delaware on June 24, 1987 under the name of Malex, Inc. On December 18, 2007, the Company’s corporate name was changed to China Wind Systems, Inc., and on June 13, 2011, the Company’s corporate name was changed to Cleantech Solutions International, Inc. On August 7, 2012, the Company was converted into a Nevada corporation.

Through its affiliated companies and subsidiaries, the Company manufactures and sells textile dyeing and finishing machines. The Company is the sole owner of Fulland Limited (“Fulland”), a Cayman Island limited liability company, which was organized on May 9, 2007. Fulland owns 100% of the capital stock of Green Power Environment Technology (Shanghai) Co., Ltd. (“Green Power”) and, until December 30, 2016, Fulland owned 100% of Wuxi Fulland Wind Energy Equipment Co., Ltd. (“Fulland Wind”). Green Power is and Fulland Wind was a wholly foreign-owned enterprise (“WFOE”) organized under the laws of the People’s Republic of China (“PRC” or “China”). Green Power is a party to a series of contractual arrangements, as fully described below, dated October 12, 2007 with Wuxi Huayang Heavy Industries, Co., Ltd. (“Heavy Industries”), formerly known as Wuxi Huayang Electrical Power Equipment Co., Ltd., and Wuxi Huayang Dyeing Machinery Co., Ltd. (“Dyeing”), both of which are limited liability companies organized under the laws of, and based in, the PRC. Heavy Industries and Dyeing are sometimes collectively referred to as the “Huayang Companies.”

Fulland was organized by the owners of the Huayang Companies as a special purpose vehicle for purposes of raising capital in accordance with requirements of the PRC State Administration of Foreign Exchange (“SAFE”). On May 31, 2007, SAFE issued an official notice known as Hui Zong Fa [2007] No. 106 (“Circular 106”), which requires the owners of any Chinese company to obtain SAFE’s approval before establishing any offshore holding company structure for foreign financing as well as subsequent acquisition matters in China. Accordingly, the owners of the Huayang Companies, Mr. Jianhua Wu and his wife, Ms. Lihua Tang, submitted their application to SAFE in early September 2007. On October 11, 2007, SAFE approved their application, permitting these Chinese citizens to establish Fulland as a special purpose vehicle for any foreign ownership and capital raising activities by the Huayang Companies.

Dyeing, which was formed on August 17, 1995, produces and sells a variety of high and low temperature dyeing and finishing machinery for the textile industry. The Company refers to this segment as the dyeing and finishing equipment segment. On December 26, 2016, Dyeing and an unrelated individual formed Wuxi Shengxin New Energy Engineering Co., Ltd. (“Shengxin”), a limited liability company organized under the laws of the PRC in which Dyeing has a 30% equity interest and the unrelated third party holds a 70% interest, pursuant to an agreement dated December 23, 2016. Shengxin intends to develop, construct and maintain photovoltaic power generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. At June 30, 2017, Shengxin had not yet commenced operations.

Fulland Wind was formed on August 27, 2008. In 2009, the Company began to produce and sell forged products through Fulland Wind. Through Fulland Wind, the Company manufactured and sold forged products, including wind products such as shafts, rolled rings, gear rims, gearboxes, bearings and other components and finished products and assemblies for the wind power and other industries, including large-scale equipment used in the manufacturing process for the various industries. The Company refers to this segment of its business as the forged rolled rings and related components segment. On December 30, 2016, Fulland sold the stock of Fulland Wind and accordingly, the forged rolled rings and related components business is reflected as a discontinued operations for all periods presented.

Beginning in February 2015, Heavy Industries began to produce equipment for the petroleum and chemical industries. The Company referred to this segment of its business as the petroleum and chemical equipment segment. Because of a significant decline in revenues from this segment, the Company determined it would not continue to operate in this segment and accordingly, the petroleum and chemical equipment segment is reflected as a discontinued operations for all periods presented (See Note 3). As a result of the discontinuation of the forged rolled rings and the petroleum and chemical equipment business, the Company’s business is limited to the dyeing and finishing equipment business as its sole continuing operations at June 30, 2017 and December 31, 2016.

Recently, the Company formed the following formed a wholly-owned subsidiaries:

● Vantage Ultimate Limited, a company incorporated under the laws of British Virgin Islands on February 1, 2017 and is wholly-owned by the Company (“Vantage”).

● EC Assets Management Limited, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage.

● EC Rental Limited, a company incorporated under the laws of British Virgin Islands on May 22, 2017 and is wholly-owned by Vantage (“EC Rental”).

● Sharing Economy Investment Limited, a company incorporated under the laws of British Virgin Islands on May 18, 2017 and is wholly-owned by Vantage (“Sharing Economy”).

● Global Bike Share (Mobile App) Limited, a company incorporated under the laws of British Virgin Islands May 23, 2017 and is a wholly-owned by Sharing Economy.

● EC Advertising Limited, a company incorporated under the laws of British Virgin Islands August 9, 2017 and is a wholly-owned by Sharing Economy.

● EC (Fly Car) Limited, a company incorporated under the laws of British Virgin Islands May 22, 2017 and is a wholly-owned by Sharing Economy.

● EC Power (Global) Technology Limited, a company incorporated under the laws of British Virgin Islands on May 26, 2017 and is wholly-owned by EC Rental (“EC Power (Global)”).

● ECPower (HK) Company Limited, a company incorporated under the laws of Hong Kong on June 23, 2017 and is wholly-owned by EC Power (Global).

Reverse split; change in authorized common stock

On February 24, 2017, the Company filed a certificate of change with the State of Nevada which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017, and a reduction in the Company’s authorized common stock from 50,000,000 shares to 12,500,000 shares. These consolidated financial statements have been retroactively restated to reflect this reverse split.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a loss from continuing operations of $521,422 and $667,906 for the three and six months ended June 30, 2017, respectively. In addition, on December 26, 2016, the Company invested approximately $8,611,000 for a 30% interest in Shengxin, a newly-formed company which plans to develop, construct and maintain solar farms in China, which may require additional investments by the Company. The current cash balance cannot be projected to cover the additional investments if needed from the Company for its ownership interest in Shengxin and pay operating expenses arising from normal business operations for the next twelve months from the issuance date of this report. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately achieve profitable operations, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are currently adequate to continue operating and maintaining its business strategy for the next twelve months.

The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of presentation; management’s responsibility for preparation of financial statements

The Company’s unaudited condensed consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power and Fulland Wind, as well as the financial statements of the Huayang Companies, including Dyeing, which conducts the Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.

On December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued  the Company’s forged rolled rings and related components business. Additionally, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines in revenues and the loss of its major customer. As such, forged rolled rings and related components segment ’s and petroleum and chemical segment’s assets and liabilities have been classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of June 30, 2017 and December 31, 2016. The operating results of the forged rolled rings and related components and petroleum and chemical segments have been classified as discontinued operations in our unaudited condensed consolidated statements of operations for all periods presented. Unless otherwise indicated, all disclosures and amounts in the notes to the unaudited condensed consolidated financial statements are related to the Company’s continuing operations.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2017. The consolidated balance sheet as of December 31, 2016 contained herein has been derived from the audited consolidated financial statements as of December 31, 2016, but does not include all disclosures required by the generally accepted accounting principles in the U.S. (“U.S. GAAP”).

Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s WFOE in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:

Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Chinese Yuan or Renminbi (“RMB”) to Fulland that are equal to all of the Huayang Companies’ profits for such quarter. To date, no such payments have been made and all profits were reinvested in the Company’s operations. The agreements will remain effective unless terminated by the parties in accordance with the agreements.

Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.

Equity Pledge Agreement.  Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.

Option Agreement.   Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Huayang Companies net income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates during the three and six months ended June 30, 2017 and 2016 include the allowance for doubtful accounts on accounts and other receivables, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, the fair value of equity method investment, accruals for taxes due, and the value of stock-based compensation.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions mainly in the PRC and the U.S. At June 30, 2017 and December 31, 2016, cash balances held in PRC banks of $5,327,725 and $1,480,941, respectively, are uninsured. The funds are primarily held in banks.

Fair value of financial instruments

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table presents information about equipment held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016. At June 30, 2017, the Company did not have any asset measured at fair value.

	Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Balance at December 31,  2016
Equipment held for sale – discontinued operations	$	-	$	-	$	1,147,035	$	1,147,035

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, assets of discontinued operations, short-term bank loans, bank acceptance notes payable, accounts payable, accrued liabilities, advances from customers, value added taxes and service taxes payable, income taxes payable and liabilities of discontinued operations approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Concentrations of credit risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

At June 30, 2017 and December 31, 2016, the Company’s cash balances by geographic area were as follows:

Country:	June 30, 2017				December 31, 2016
United States	$	195,691	3.54	%	$	557	*
China		5,327,725	96.46	%		1,480,941	99.96	%
Total cash and cash equivalents	$	5,523,416	100.0	%	$	1,481,498	100.0	%

* Less than 0.1%

Restricted cash

Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $284,140 and $551,047 at June 30, 2017 and December 31, 2016, respectively.

Notes receivable

Notes receivable represents trade accounts receivable due from customers where the customers’ banks have guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $144,521 and $133,913 at June 30, 2017 and December 31, 2016, respectively. 

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At June 30, 2017 and December 31, 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $1,335,893 and $1,797,476, respectively. 

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market value utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $21,688 and $21,177 at June 30, 2017 and December 31, 2016, respectively.

Advances to suppliers

Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,313,883 and $1,116,525 at June 30, 2017 and December 31, 2016, respectively.

Equity method investment

Investments in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting, the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the current period. (See Note 6).

Equipment held for sale

Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December 31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.  During the six months ended June 30, 2017 and 2016, the Company did not record any impairment charges.

Advances from customers   

Advances from customers at June 30, 2017 and December 31, 2016 amounted to $464,832 and $427,446, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenues from the sale of equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income taxes

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of June 30, 2017 and December 31, 2016, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Shipping costs

Shipping costs are included in selling expenses, general and administrative and totaled $30,653 and $27,595 for the three months ended June 30, 2017 and 2016, respectively. Shipping costs totaled $59,232 and $57,738 for the six months ended June 30, 2017 and 2016, respectively.

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $39,789 and $25,267 for the three months ended June 30, 2017 and 2016, respectively. Employee benefit costs totaled $74,706 and $52,834 for the six months ended June 30, 2017 and 2016, respectively.

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company did not incur any advertising expenses in the three and six months ended June 30, 2017 and 2016. 

Research and development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s new dyeing machinery. Research and development costs totaled $111,053 and $66,237 for the three months ended June 30, 2017 and 2016, respectively. Research and development costs totaled $217,130 and $84,638 for the six months ended June 30, 2017 and 2016, respectively.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is RMB. For the subsidiaries and affiliates, whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income (loss). The cumulative translation adjustment and effect of exchange rate changes on cash for the six months ended June 30, 2017 and 2016 was $86,637 and $(458,073), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. The Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at June 30, 2017 and December 31, 2016 were translated at 6.7810 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the six months ended June 30, 2017 and 2016 were 6.8748 RMB and 6.6434 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

Loss per share of common stock

ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the six months ended June 30, 2017 and 2016.  In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. 

The following table presents a reconciliation of basic and diluted net loss per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net (loss) income for basic and diluted net (loss) income per common share	$	(521,422	)	$	(680,182	)	$	(667,906	)	$	(1,524,275	)
From continuing operations		(521,422	)		69,180			(667,906	)		(34,335	)
From discontinued operations	$	-		$	(749,362	)	$	-		$	(1,489,940	)
Weighted average common stock outstanding - basic and diluted		1,730,952			1,121,251			1,455,506			1,073,212
Net loss per share of common stock
From continuing operations – basic and diluted	$	(0.30	)	$	0.06		$	(0.46	)	$	(0.03	)
From discontinued operations – basic and diluted		-			(0.67	)		-			(1.39	)
Net (loss) income per common share - basic and diluted	$	(0.30	)	$	(0.61	)	$	(0.46	)	$	(1.42	)

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Comprehensive gain (loss)

Comprehensive gain (loss) is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive gain (loss) for the three and six months ended June 30, 2017 and 2016 included net loss and unrealized gain from foreign currency translation adjustments. 

Reclassification

Certain reclassifications have been made in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications have no effect on previously reported net loss and related to the reclassification of discontinued operations.

Reverse stock split

The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information has been retroactively adjusted to reflect this reverse stock split.

Recent accounting pronouncements

In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

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Discontinued Operations

6 Months Ended

Jun. 30, 2017

Discontinued Operations [Abstract]

DISCONTINUED OPERATIONS

NOTE 3 – DISCONTINUED OPERATIONS

Pursuant to an agreement dated December 23, 2016, the Company, through its wholly-owned subsidiary Fulland, sold 100% of the stock of Fulland Wind to a third party for a sales price of RMB48 million (approximately $6.9 million). The Company’s forging and related components business was conducted through Fulland Wind. The purchase price is payable in three installments. The Company received the first installment of RMB 14,400,000 (approximately $2.1 million) on December 28, 2016, and received the second installment of RMB14,400,000 (approximately $2.1 million) on April 10, 2017. The Company delivered Fulland Wind’s business license, seals, books and records, business contracts and personnel roster to the third party buyer on December 30, 2016, effectively the sale date. If the equity transfer registration formalities are completed within one year without any third party claims on the equity transfer, a final payment of RMB 19,200,000 (approximately $2.7 million) is due 25 working days after the expiration of such period. The Company expects the final payment to be received within one year. As a result of the sale, the forged rolled rings and related components business is treated as a discontinued operation.

Additionally, in December 2016, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant decline in revenues and the loss of its major customer. Accordingly, the petroleum and chemical equipment segment business is treated as a discontinued operation.

Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the business of the forging and related components segment and petroleum and chemical equipment segment are considered discontinued operations because: (a) the operations and cash flows of the forging and related components segment and petroleum and chemical equipment segment were eliminated from the Company’s operations; and (b) the Company has no interest in the divested operations.

Contemporaneously with the sale of the Fulland Wind stock, pursuant to an agreement dated December 23, 2016, Heavy Industries entered into a lease with the buyer for a factory building owned by Heavy Industries at an annual rental of RMB 680,566 (approximately $98,000). The lease has a ten-year term, commencing January 1, 2017. The first year’s rent is payable in two installments, the first installment, equals to 30% of the annual rental, being due on signing the lease, which has been paid as of June 30, 2017.

The assets and liabilities classified as discontinued operations in the Company’s consolidated financial statements as of June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016 are set forth below.

	June 30, 2017		December 31, 2016
Assets:
Current assets:
Accounts receivable, net	$	383,118	$	78,407
Inventories, net of reserve for obsolete inventories		31,768		31,019
Advances to suppliers		141,049		200,275
Equipment held for sale		-		1,147,035
Prepaid expenses and other		201,211		302,250
Total current assets		757,146		1,758,986
Total assets	$	757,146	$	1,758,986
Liabilities:
Current liabilities:
Accounts payable	$	410,067	$	458,433
Accrued expenses and other liabilities		1.214		45,280
Advances from customers		-		54,948
Total current liabilities		411,281		558,661
Total liabilities	$	411,281	$	558,661

The summarized operating result of discontinued operations included in the Company’s unaudited condensed consolidated statements of operations is as follows:

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016
Revenues	$	-	$	143,475		$	-	$	536,266
Cost of revenues		-		528,310			-		1,529,442
Gross loss		-		(384,835	)		-		(993,176	)
Operating expenses		-		345,682			-		458,367
Loss from operations		-		(730,517	)		-		(1,451,543	)
Other expense, net		-		(18,845	)		-		(38,397	)
Loss from discontinued operations before income taxes		-		(749,362	)		-		(1,489,940	)
Income taxes		-		-			-		-
Loss from discontinued operations, net of income taxes	$	-	$	(749,362	)	$	-	$	(1,489,940	)

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Accounts Receivable

6 Months Ended

Jun. 30, 2017

Accounts Receivable/Restricted Net Assets [Abstract]

ACCOUNTS RECEIVABLE

NOTE 4 – ACCOUNTS RECEIVABLE

At June 30, 2017 and December 31, 2016, accounts receivable consisted of the following:

	June 30, 2017			December 31, 2016
Accounts receivable	$	16,359,594		$	15,719,847
Less: allowance for doubtful accounts		(1,335,893	)		(1,797,476	)
	$	15,023,701		$	13,922,371

The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.

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Inventories

6 Months Ended

Jun. 30, 2017

Inventories [Abstract]

INVENTORIES

NOTE 5 – INVENTORIES

At June 30, 2017 and December 31, 2016, inventories consisted of the following: 

	June 30, 2017			December 31, 2016
Raw materials	$	1,250,199		$	1,003,359
Work-in-process		1,475,058			639,345
Finished goods		788,055			772,652
		3,513,312			2,415,356
Less: reserve for obsolete inventories		(21,688	)		(21,177	)
	$	3,491,624		$	2,394,179

The Company establishes a reserve to mark down its inventories for estimated unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value based on assumptions about the usability of the inventories, future demand and market conditions.

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Equity Method Investment

6 Months Ended

Jun. 30, 2017

Equity Method Investment [Abstract]

EQUITY METHOD INVESTMENT

NOTE 6 – EQUITY METHOD INVESTMENT

On December 26, 2016, Dyeing and Xue Miao, an unrelated individual, formed Shengxin pursuant to an agreement dated December 23, 2016.  The agreement sets forth general terms relating to the proposed business, but does not set forth specific funding obligations for either party. Dyeing has agreed to invest RMB 60,000,000 (approximately $8,705,000) and to date, has invested RMB 59.8 million (approximately $8,676,000), for which it received a 30% interest in Shengxin. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $20.3 million), of which Mr. Xue has contributed RMB 20,000,000 (approximately $2.9 million), for which Mr. Xue received a 70% interest in Shengxin. Shengxin’s registered capital is RMB 200 million (approximately $29.0 million). Mr. Xue has advised Dyeing that he anticipates that he will fund the remaining RMB 120,000,000 (approximately $17.4 million) of his commitment during the first half of 2017. If Mr. Xue does not make this payment by the end of 2017, Dyeing will have the right to amend the contract, and both parties will adjust each side’s equity interest to reflect the amount of capital each side has actually invested.

Shengxin intends to develop, construct and maintain photovoltaic power generation projects, known as solar farms, in China, mainly in the provinces of GuiZhou and YunNan. As of June 30, 2017, Shengxin had not yet commenced operations.

The solar farm industry in China is subject to significant government regulation. In order to construct and operate solar farms in China, it is necessary to obtain a permit for a specific location, to obtain leasehold rights to a significant amount of contiguous land parcels in provinces where there is significant sunlight for most of the year to support a solar farm and to have an agreement to connect with the local grid. The development of solar farms requires significant funding, which, if financing is not available, would have to be provided by Dyeing and Mr. Xue. There are no agreements relating to the funding obligations of either Dyeing or Mr. Xue with respect to any specific project. Shengxin anticipates that to the extent that it obtains permits for solar farms, it will form a new subsidiary for the sole purpose of obtaining the permit for a specific location and constructing the solar farm at that location. The nature of the parties’ respective investments and the respective equity interest in any solar farm project will be determined on a case-by-case basis. To the extent that Mr. Xue develops the project, he may receive an equity interest in the project greater than the percentage of his equity interest in Shengxin, with the specific amount being subject to mutual agreement of the parties.

The Company’s investment in Shengxin is subject to a high degree of risk. The Company cannot give any assurance that Shengxin will be able to obtain any permits, raise any required funding, develop and operate or sell any solar farms or operate profitably or that Dyeing will have the resources to provide any funds that may be required in order to fund any solar farm projects for which Shengxin may obtain permits. There may be a significant delay between the time funds are advanced for any project and the realization of revenue or cash flow from any project.

The Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment. For the three and six months ended June 30, 2017, the Company’s share of Shengxin’s net loss was $24,456 and $42,811, respectively, which was included in loss on equity method investment in the accompanying unaudited condensed consolidated statements of operations and comprehensive gain (loss).

The tables below present the summarized financial information, as provided to the Company by the investee, for the unconsolidated company: 

	June 30, 2017		December 31, 2016
Current assets	$	11,613,191	$	11,486,018
Noncurrent assets		5,604		-
Current liabilities		-		-
Noncurrent liabilities		-		-
Equity	$	11,618,795	$	11,486,018

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Net revenue	$	-		$	-	$	-		$	-
Gross profit		-			-		-			-
Loss from operations		(84,990	)		-		(149,936	)		-
Net loss	$	(81,521	)	$	-	$	(142,703	)	$	-

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Property and Equipment

6 Months Ended

Jun. 30, 2017

Property and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 7 – PROPERTY AND EQUIPMENT

At June 30, 2017 and December 31, 2016, property and equipment consisted of the following:

	Useful life	June 30, 2017			December 31, 2016
Office equipment and furniture	5 years	$	68,251		$	65,209
Manufacturing equipment	5 -10 years		33,031,395			32,240,010
Vehicles	5 years		173,874			169,773
Building and building improvements	5 - 20 years		21,646,267			21,135,718
			54,919,787			53,610,710
Less: accumulated depreciation			(26,271,427	)		(23,732,035	)
		$	28,648,360		$	29,878,675

For the three months ended June 30, 2017 and 2016, depreciation expense amounted to $971,112 and $869,035, respectively, of which approximately $702,000 and $731,000, respectively, was included in cost of revenues, and the remainder was included in operating expenses. For the six months ended June 30, 2017 and 2016, depreciation expense amounted to $1,939,302 and $1,824,315, respectively, of which approximately $1,402,000 and $1,548,000, respectively, was included in cost of revenues, and the remainder was included in operating expenses.

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Intangible Assets

6 Months Ended

Jun. 30, 2017

Intangible Assets [Abstract]

INTANGIBLE ASSETS

NOTE 8 – INTANGIBLE ASSETS

At June 30, 2017 and December 31, 2016, intangible assets consisted of the following:

	Useful life	June 30, 2017			December 31, 2016
Land use rights	45 - 50 years	$	3,981,831		$	3,887,915
Patent use rights	10 years		2,359,534			2,303,882
			6,341,365			6,191,797
Less: accumulated amortization			(1,091,602	)		(908,102	)
		$	5,249,763		$	5,283,695

Amortization of intangible assets attributable to future periods is as follows:

Twelve-month periods ending June 30:	Amount
2018	$	323,129
2019		323,129
2020		323,129
2021		323,129
2022		323,129
Thereafter		3,634,118
	$	5,249,763

There is no private ownership of land in China. Land is owned by the government and the government grants land use rights for specified terms. The Company’s land use rights have terms of 45 and 50 years and expire on January 1, 2053 and October 30, 2053. The Company amortizes the land use rights over the term of the respective land use right.

In August 2016, the Company purchased a patent technology use right for a ten-year term from a third party. The patent covers ozone-ultrasonic textile dyeing equipment. The Company amortizes the exclusive patent use right over the term of the patent.

For the three months ended June 30, 2017 and 2016, amortization of intangible assets amounted to $79,829 and $22,627, respectively. For the six months ended June 30, 2017 and 2016, amortization of intangible assets amounted to $159,360 and $45,226, respectively.

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Short-Term Bank Loans

6 Months Ended

Jun. 30, 2017

Short-Term Bank Loans [Abstract]

SHORT-TERM BANK LOANS

NOTE 9 – SHORT-TERM BANK LOANS

Short-term bank loans represent amounts due to various banks that are due within one year. These loans can be renewed with these banks upon maturities. At June 30, 2017 and December 31, 2016, short-term bank loans consisted of the following:

	June 30, 2017		December 31, 2016
Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 with annual interest rate of 10.56% and repaid on May 26, 2017	$	-	$	719,963
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		737,355		719,963
Loan from Bank of China, due on December 6, 2017 with annual interest rate of 6.09% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		368,677		359,982
Loan from Bank of China, due on December 8, 2017 with annual interest rate of 6.09% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		368,677		359,981
Total short-term bank loans	$	1,474,709	$	2,159,889

Interest related to the short-term bank loans, which was $35,176 and $32,344 for the three months ended June 30, 2017 and 2016, and $74,866 and $64,954 for the six months ended June 30, 2017 and 2016, respectively, is included in interest expense on the accompanying unaudited condensed consolidated statements of operations and comprehensive gain (loss).

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Bank Acceptance Notes Payable

6 Months Ended

Jun. 30, 2017

Bank Acceptance Notes Payable [Abstract]

BANK ACCEPTANCE NOTES PAYABLE

NOTE 10 – BANK ACCEPTANCE NOTES PAYABLE

Bank acceptance notes payable represent amounts due to banks which are collateralized. All bank acceptance notes payable are secured by the Company’s restricted cash which are deposits with various lenders. At June 30, 2017 and December 31, 2016, the Company’s bank acceptance notes payables consisted of the following:

	June 30, 2017		December 31, 2016
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited	$	-	$	71,996
Bank of Communication, non-interest bearing, due on September 24, 2017, collateralized by 100% of restricted cash deposited		44,242		-
Bank of Communication, non-interest bearing, due on August 15, 2017, collateralized by 100% of restricted cash deposited		88,483		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited		-		431,978
Bank of Communication, non-interest bearing, due on November 8, 2017, collateralized by 100% of restricted cash deposited		73,735		-
Bank of China, non-interest bearing, due on September 14, 2017, collateralized by 100% of restricted cash deposited		73,735		-
Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited		-		43,198
Total	$	280,195	$	547,172

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Related Party Transactions

6 Months Ended

Jun. 30, 2017

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 11 – RELATED PARTY TRANSACTIONS

Due to related party

From time to time, the Company receive advances from YSK 1860 Ltd., which is a principal shareholder of the Company for working capital purposes. These advanced and non-interest bearing and are payable on demand. At June 30, 2017 and December 31, 2016, amounts due to this related party amounted to $132,175 and $0, respectively.

Exclusivity agreement

On June 11, 2017, the Company entered into an Exclusivity Agreement (the “Exclusivity Agreement”) with ECrent Capital Holdings Limited (“ECrent”) the terms of which became effective on the same day. Pursuant to the Exclusivity Agreement, the Company and ECrent agreed to engage in exclusive discussions regarding a potential acquisition by the Company of ECrent and/or any of its subsidiaries or otherwise all or part of ECrent’s business and potential business cooperation between the two companies (collectively, the “Potential Transactions”) for a period of three months commencing from the date of the Exclusivity Agreement (the “Exclusive Period”). Ms. Deborah Yuen, an affiliate of YSK 1860 Ltd., which is a principal shareholder of the Company, controls ECrent Holdings Limited, which is the majority shareholder of ECrent. ECrent agreed that, during the Exclusive Period, neither ECrent nor its agents, representatives or advisors will contact, solicit, discuss or negotiate with any third party with respect to any transaction relating to a transfer or pledge of securities of ECrent and/or its subsidiaries, a sale of ECrent’s business, a business cooperation or any other matters that may adversely affect the Potential Transactions or the parties’ discussion related thereto.

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Accrued Expenses

6 Months Ended

Jun. 30, 2017

Accrued Expenses [Abstract]

ACCRUED EXPENSES

NOTE 12 – ACCRUED EXPENSES

At June 30, 2017 and December 31, 2016, accrued expenses consisted of the following:

	June 30, 2017		December 31, 2016
Accrued salaries and related benefits	$	30,162	$	143,622
Other payables		223,487		224,773
	$	253,649	$	368,395

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Stockholders' Equity

6 Months Ended

Jun. 30, 2017

Stockholders' Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 13 – STOCKHOLDERS’ EQUITY

Common stock issued for services

On May 8, 2017, the Company issued 15,000 shares of common stock pursuant to its 2016 long-term incentive plan for legal services. The shares were valued at $50,400, the fair market value on the grant date using the reported closing share price on the date of grant. In connection with this issuance, the Company reduced accounts payable by $28,400 and recorded stock-based professional fees of $22,000 during the six months ended June 30, 2017.

On May 18, 2017, pursuant to a consulting agreement, the Company issued 25,000 shares of its common stock to a consultant for business development services provided and to be provided through December 31, 2017. The shares were valued at $84,000, the fair market value on the grant date using the reported closing share price on the date of grant. Pursuant to this consulting agreement, the Company will issue an additional 25,000 share of common stock to this consultant before September 1, 2017. For the six months ended June 30, 2017, the Company recorded stock-based professional fees of $33,600 and prepaid expenses of $50,400 which to amortized over the remaining service period.

On June 22, 2017, pursuant to a one-year consulting agreement effective May 16, 2017, the Company issued 65,200 shares of common stock to a consultant for business development services rendered and to be rendered. These shares were valued at $283,620, the fair market value on the grant date using the reported closing share price on the date of grant. For the six months ended June 30, 2017, in connection with the issuance of these shares, the Company recorded stock-based professional fees of $35,452 and prepaid expenses of $248,168 which to amortized over the remaining service period. Additionally, pursuant to this consulting agreement, the Company will issue an additional 20,000 share of common stock to this consultant before November 1, 2017. The initial fair value of these shares was were valued at $87.000, the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock. For the six months ended June 30, 2017, the Company recorded stock-based professional fees of $11,225 related to these issuable shares. As of June 30, 2017, there was $78,575 of stock-based professional fees to be recognized through May 2018.

Common stock sold for cash

In June 2017, pursuant to stock purchase agreements, the Company sold an aggregate of 290,000 shares of common stock to three investors at a purchase price of $3.00 per share for net cash proceeds a total of $860,000. The Company did not engage a placement agent with respect to these sales.

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Statutory Reserve

6 Months Ended

Jun. 30, 2017

Statutory Reserve [Abstract]

STATUTORY RESERVE

NOTE 14 – STATUTORY RESERVE

The Company is required to make appropriations to statutory reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. The profit must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. This statutory reserve is not distributable in the form of cash dividends. As of June 30, 2017 and December 31, 2016, the Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the six months ended June 30, 2017. Green Power had net losses since its establishment. No appropriation to statutory reserves for it was required as it incurred recurring net loss.

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Segment Information

6 Months Ended

Jun. 30, 2017

Segment Information [Abstract]

SEGMENT INFORMATION

NOTE 15 – SEGMENT INFORMATION

During the three and six months ended June 30, 2016, the Company operated in three reportable business segments - (1) the manufacture of textile dyeing and finishing equipment segment, (2) the manufacture of forged rolled rings and related components segment, and (3) the manufacture of petroleum and chemical equipment segment. The Company’s reportable segments were strategic business units that offered different products. They were managed separately based on the fundamental differences in their operations. All of the Company’s operations are conducted in the PRC.

Because of significant declines in revenues from the forged rolled rings and related components segment and petroleum and chemical equipment segment, the Company discontinued these segments and sold the forged rolled rings and related components segment in the fourth quarter of 2016. Pursuant to ASC Topic 205-20, Presentation of Financial Statements-Discontinued Operations, the business of forged rolled rings and related components segment, and petroleum and chemical equipment segment are considered as discontinued operations because: (a) the operations and cash flows of these segments were eliminated from the Company’s operations; and (b) the Company would not have ability to influence the operation or financial policies of the forged rolled rings and related components segment subsequent to the sale. The results of operation of the forged rolled rings and related components and the petroleum and chemical equipment segments have been presented as discontinued operations for the three and six months ended June 30, 2016.

At June 30, 2017 and December 31, 2016, all remaining identifiable long-lived tangible assets belong to the Company’s continuing operations, the textile dyeing and finishing equipment segment and are located in China.

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Concentrations

6 Months Ended

Jun. 30, 2017

Concentrations [Abstract]

CONCENTRATIONS

NOTE 16 – CONCENTRATIONS

Customers

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the six months ended June 30, 2017 and 2016.

	Six Months Ended June 30,
Supplier	2017			2016
A		12	%		-
B		-			10	%

No customer accounted for 10% or more of the Company’s total outstanding accounts receivable at June 30, 2017 and 2016.

Suppliers

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s inventories purchases for the six months ended June 30, 2017 and 2016.

	Six Months Ended June 30,
Supplier	2017			2016
A		23	%		*
B		15	%		-
C		11	%		-
D		-			17	%
E		-			14	%

* Less than 10%.

One largest suppliers (who accounted for 10% or more of the Company’s total outstanding accounts payable at June 30, 2017) accounted for 22% of the Company’s total outstanding accounts payable at June 30, 2017. One largest suppliers accounted for 10% of the Company’s total outstanding accounts payable at December 31, 2016.

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Commitment and Contingencies

6 Months Ended

Jun. 30, 2017

Commitment and Contingencies [Abstract]

COMMITMENT AND CONTINGENCIES

NOTE 17 – COMMITMENT AND CONTINGENCIES

Equity investment commitment

On December 26, 2016, Dyeing made an equity investment with one unrelated company in Shengxin, a newly-formed entity which plans to develop, construct and maintain photovoltaic power generation projects in China. Shengxin’s total registered capital is RMB 200 million (approximately $29.0 million). Dyeing has agreed to invest RMB 60,000,000 (approximately $8,705,000) for a 30% equity interest in Shengxin and had invested RMB 59,800,000 (approximately $8,676,000) as of June 30, 2017. Mr. Xue has a commitment to invest RMB 140,000,000 (approximately $20.3 million) for a 70% interest. Mr. Xue contributed RMB 20,000,000 (approximately $2.9 million), and he advised Dyeing that he anticipates that he will fund the balance of his commitment during the the remainder of 2017. If Mr. Xue does not make this payment by the end of 2017, Dyeing will have the right to amend the contract, and both parties will adjust each sides’ equity interest to reflect the amount of capital each side has actually invested. As of June 30, 2017, Shengxin had not commenced operations.

Litigation

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

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Restricted Net Assets

6 Months Ended

Jun. 30, 2017

Accounts Receivable/Restricted Net Assets [Abstract]

RESTRICTED NET ASSETS

NOTE 18 – RESTRICTED NET ASSETS

Regulations in the PRC permit payments of dividends by the Company’s PRC subsidiary and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Subject to certain cumulative limit, a statutory reserve fund requires annual appropriations of at least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary. Heavy Industries and Dyeing had reached the cumulative limit as of March 31, 2017. The statutory reserve funds are not distributable as cash dividends. As a result of these PRC laws and regulations, the Company’s PRC VIEs and its subsidiary are restricted in their abilities to transfer a portion of their net assets to the Company. Foreign exchange and other regulations in PRC may further restrict the Company’s PRC VIEs and its subsidiary from transferring funds to the Company in the form of loans and/or advances.

As of June 30, 2017 and December 31, 2016, substantially all of the Company’s net assets are attributable to the PRC VIEs and its subsidiary located in the PRC. Accordingly, the Company’s restricted net assets at June 30, 2017 and December 31, 2016 were approximately $58,477,000 and $57,324,000, respectively.

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Subsequent Events

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 19 – SUBSEQUENT EVENTS

Common stock issued for services

On July 19, 2017, pursuant to one-year consulting agreements, the Company issued an aggregate of 120,000 shares of common stock to two consultants ($60,000 shares each) for business development services to be rendered. These shares were valued at $498,000, the fair market value on the grant date using the reported closing share price on the date of grant. On July 19, 2017, in connection with the issuance of these shares, the Company recorded prepaid expenses of $498,000 which to amortized over the one-year service period. Additionally, pursuant to these consulting agreements, the Company will issue an additional 40,000 share of common stock to these consultants (20,000 shares each) in October 2017 unless the agreements are cancelled. The initial fair value of these shares was were valued at $166,000, the fair market value on the contract date using the reported closing share price on the date of grant. The Company will recognize stock-based professional fees over the period during which the services are rendered by such consultant. At the end of each financial reporting period prior to issuance of these shares, the fair value of these shares is remeasured using the then-current fair value of the Company’s common stock.

On July 31, 2017, pursuant to engagement letters, the Company issued 23,230 shares of common stock and 8,000 shares of common stock for accounting services and investor relation services to be rendered, respectively. These shares were valued at $127,106, the fair market value on the grant date using the reported closing share price on the date of grant. On July 31, 2017, in connection with the issuance of these shares, the Company recorded prepaid expenses of $127,106 which to amortized over the one-year service period.

Transfer agreement

On August 4, 2017, the Company’s wholly-owned subsidiary, EC Power (Global) Technology Limited (“EC Power”), entered into a Transfer Agreement (the “Transfer Agreement”) with ECoin Global Limited (“ECoin”) to purchase ECoin Redemption Codes (the “Codes”) produced by ECoin for total consideration of $20,000,000 (the “Transfer Consideration”). In accordance with the Agreement, EC Power will market the Codes, which contain a value that enables subscribers to upload certain number of items onto ECrent’s website for rental. The Codes have a validity period of four (4) years, and will not expire until August 3, 2021 (the “Expiry Date”). The Transfer Consideration will be paid by EC Power to ECoin in installments, with each installment payable not later than thirty days after the end of December 31^st in each calendar year. Each installment will represent an amount equal to 50% of the net sale proceeds of the Codes sold during each calendar year. The aggregate of installments shall not exceed the Transfer Consideration. Any balance outstanding of the Transfer Consideration at the Expiry Date will be paid and discharged by the issuance and delivery to ECoin of common stock of the Company in accordance with the terms of the Agreement. The number of shares to be issued or delivered shall be an amount equal to (i) the balance due; divided by (ii) the VWAP of the shares for the period of twenty trading days immediately preceding the Expiry Date, provided always that in no circumstances shall shares be issued or delivered hereunder to the ECoin in excess of 19% of the issued and outstanding ordinary Shares of the Company. In connection with this Transfer Agreement, the Company shall record a liability and a corresponding asset of $20,000,000.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Summary of Significant Accounting Policies [Abstract]

Going concern

Going concern

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a loss from continuing operations of $521,422 and $667,906 for the three and six months ended June 30, 2017, respectively. In addition, on December 26, 2016, the Company invested approximately $8,611,000 for a 30% interest in Shengxin, a newly-formed company which plans to develop, construct and maintain solar farms in China, which may require additional investments by the Company. The current cash balance cannot be projected to cover the additional investments if needed from the Company for its ownership interest in Shengxin and pay operating expenses arising from normal business operations for the next twelve months from the issuance date of this report. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern. Management cannot provide assurance that the Company will ultimately achieve profitable operations, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are currently adequate to continue operating and maintaining its business strategy for the next twelve months.

The Company may seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from bank loans, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and or classification of recorded asset amounts and or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of presentation; management's responsibility for preparation of financial statements

Basis of presentation; management’s responsibility for preparation of financial statements

The Company’s unaudited condensed consolidated financial statements include the financial statements of its wholly-owned subsidiaries, Fulland, Green Power and Fulland Wind, as well as the financial statements of the Huayang Companies, including Dyeing, which conducts the Company’s continuing operations, and Heavy Industries, which operated discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation.

On December 30, 2016, the Company sold and transferred its 100% interest in Fulland Wind to an unrelated party and discontinued  the Company’s forged rolled rings and related components business. Additionally, the Company’s management decided to discontinue its petroleum and chemical equipment segment due to significant declines in revenues and the loss of its major customer. As such, forged rolled rings and related components segment ’s and petroleum and chemical segment’s assets and liabilities have been classified on the consolidated balance sheets as assets and liabilities of discontinued operations as of June 30, 2017 and December 31, 2016. The operating results of the forged rolled rings and related components and petroleum and chemical segments have been classified as discontinued operations in our unaudited condensed consolidated statements of operations for all periods presented. Unless otherwise indicated, all disclosures and amounts in the notes to the unaudited condensed consolidated financial statements are related to the Company’s continuing operations.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2017. The consolidated balance sheet as of December 31, 2016 contained herein has been derived from the audited consolidated financial statements as of December 31, 2016, but does not include all disclosures required by the generally accepted accounting principles in the U.S. (“U.S. GAAP”).

Pursuant to Accounting Standards Codification (“ASC”) Topic 810, the Huayang Companies are considered variable interest entities (“VIE”), and the Company is the primary beneficiary. The Company’s relationships with the Huayang Companies and their shareholders are governed by a series of contractual arrangements between Green Power, the Company’s WFOE in the PRC, and each of the Huayang Companies, which are the operating companies of the Company in the PRC. Under PRC laws, each of Green Power, Dyeing and Heavy Industries is an independent legal entity and none of them is exposed to liabilities incurred by the other parties. The contractual arrangements constitute valid and binding obligations of the parties of such agreements. Each of the contractual arrangements and the rights and obligations of the parties thereto are enforceable and valid in accordance with the laws of the PRC. On October 12, 2007, the Company entered into the following contractual arrangements with each of Dyeing and Heavy Industries:

Consulting Services Agreement. Pursuant to the exclusive consulting services agreements between Green Power and the Huayang Companies, Green Power has the exclusive right to provide to the Huayang Companies general business operation services, including advice and strategic planning, as well as consulting services related to the technological research and development of dyeing and finishing machines, electrical equipment and related components (the “Services”). Under this agreement, Green Power owns the intellectual property rights developed or discovered through research and development, in the course of providing the Services, or derived from the provision of the Services. The Huayang Companies shall pay a quarterly consulting service fees in Chinese Yuan or Renminbi (“RMB”) to Fulland that are equal to all of the Huayang Companies’ profits for such quarter. To date, no such payments have been made and all profits were reinvested in the Company’s operations. The agreements will remain effective unless terminated by the parties in accordance with the agreements.

Operating Agreement. Pursuant to the operating agreement among Green Power, the Huayang Companies and all shareholders of the Huayang Companies, Green Power provides guidance and instructions on the Huayang Companies’ daily operations, financial management and employment issues. The Huayang Companies’ shareholders must designate the candidates recommended by Green Power as their representatives on the boards of directors of each of the Huayang Companies. Green Power has the right to appoint senior executives of the Huayang Companies. In addition, Green Power agrees to guarantee the Huayang Companies’ performance under any agreements or arrangements relating to the Huayang Companies’ business arrangements with any third party. The Huayang Companies, in return, agree to pledge their accounts receivable and all of their assets to Green Power. Moreover, each of the Huayang Companies agrees that, without the prior consent of Green Power, it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of their assets or intellectual property rights in favor of a third party or transfer of any agreements relating to their business operation to any third party. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended only upon Green Power’s written confirmation prior to the expiration of the this agreement, with the extended term to be mutually agreed upon by the parties.

Equity Pledge Agreement.  Under the equity pledge agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders pledged all of their equity interests in the Huayang Companies to Green Power to guarantee the Huayang Companies’ performance of their respective obligations under the consulting services agreement. If the Huayang Companies or the Huayang Companies’ shareholders breach their respective contractual obligations, Green Power, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. The Huayang Companies’ shareholders also agreed that, upon occurrence of any event of default, Green Power shall be granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the Huayang Companies’ shareholders to carry out the security provisions of the equity pledge agreement and take any action and execute any instrument that Green Power may deem necessary or advisable to accomplish the purposes of the equity pledge agreement. The Huayang Companies’ shareholders agreed not to dispose of the pledged equity interests or take any actions that would prejudice Green Power’s interest. The equity pledge agreement will expire two years after the Huayang Companies’ obligations under the consulting services agreements have been fulfilled.

Option Agreement.   Under the option agreement between the Huayang Companies’ shareholders and Green Power, the Huayang Companies’ shareholders irrevocably granted Green Power or its designated person an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in the Huayang Companies for the cost of the initial contributions to the registered capital or the minimum amount of consideration permitted by applicable PRC law. Green Power or its designated person has sole discretion to decide when to exercise the option, whether in part or in full. The term of this agreement, as amended on November 1, 2008, is 20 years from October 12, 2007 and may be extended prior to its expiration by written agreement of the parties.

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, the accounts of the Huayang Companies are consolidated in the accompanying financial statements. As VIEs, the Huayang Companies’ sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Huayang Companies net income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income of the VIEs that is attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Huayang Companies that requires consolidation of the Company’s and the Huayang Companies’ financial statements.

Use of estimates

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates during the three and six months ended June 30, 2017 and 2016 include the allowance for doubtful accounts on accounts and other receivables, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, the fair value of equity method investment, accruals for taxes due, and the value of stock-based compensation.

Cash and cash equivalents

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents. The Company maintains cash with various financial institutions mainly in the PRC and the U.S. At June 30, 2017 and December 31, 2016, cash balances held in PRC banks of $5,327,725 and $1,480,941, respectively, are uninsured. The funds are primarily held in banks.

Fair value of financial instruments

Fair value of financial instruments

The Company adopted the guidance of ASC Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table presents information about equipment held for sale – discontinued operations measured at fair value on a nonrecurring basis at December 31, 2016. At June 30, 2017, the Company did not have any asset measured at fair value.

	Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Balance at December 31,  2016
Equipment held for sale – discontinued operations	$	-	$	-	$	1,147,035	$	1,147,035

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventories, advances to suppliers, deferred tax assets, receivable from sale of subsidiary, prepaid expenses and other, assets of discontinued operations, short-term bank loans, bank acceptance notes payable, accounts payable, accrued liabilities, advances from customers, value added taxes and service taxes payable, income taxes payable and liabilities of discontinued operations approximate their fair market value based on the short-term maturity of these instruments.

ASC Topic 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Concentrations of credit risk

Concentrations of credit risk

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and none of these deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

At June 30, 2017 and December 31, 2016, the Company’s cash balances by geographic area were as follows:

Country:	June 30, 2017				December 31, 2016
United States	$	195,691	3.54	%	$	557	*
China		5,327,725	96.46	%		1,480,941	99.96	%
Total cash and cash equivalents	$	5,523,416	100.0	%	$	1,481,498	100.0	%

* Less than 0.1%

Restricted cash

Restricted cash

Restricted cash mainly consists of cash deposits held by various banks to secure bank acceptance notes payable. The Company’s restricted cash totaled $284,140 and $551,047 at June 30, 2017 and December 31, 2016, respectively.

Notes receivable

Notes receivable

Notes receivable represents trade accounts receivable due from customers where the customers’ banks have guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within six months. Historically, the Company has experienced no losses on notes receivable. The Company’s notes receivable totaled $144,521 and $133,913 at June 30, 2017 and December 31, 2016, respectively.

Accounts receivable

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At June 30, 2017 and December 31, 2016, the Company has established, based on a review of its outstanding balances, an allowance for doubtful accounts in the amounts of $1,335,893 and $1,797,476, respectively.

Inventories

Inventories

Inventories, consisting of raw materials, work in process and finished goods related to the Company’s products are stated at the lower of cost or market value utilizing the weighted average method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. The Company recorded an inventory reserve of $21,688 and $21,177 at June 30, 2017 and December 31, 2016, respectively.

Advances to suppliers

Advances to suppliers

Advances to suppliers represent the cash paid in advance for the purchase of raw material from suppliers. The advance payments are intended to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $1,313,883 and $1,116,525 at June 30, 2017 and December 31, 2016, respectively.

Equity method investment

Equity method investment

Investments in which the Company has the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long term assets on the consolidated balance sheets. Under this method of accounting, the Company’s share of the net earnings or losses of the investee is presented below the income tax line on the consolidated statements of operations. The Company evaluates its equity method investment whenever events or changes in circumstance indicate that the carrying amounts of such investment may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in the current period. (See Note 6).

Equipment held for sale

Equipment held for sale

Long-lived assets are classified as held for sale when certain criteria are met. These criteria include: management’s commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; the assets are being marketed at reasonable prices in relation to their fair value; and it is unlikely that significant changes will be made to the plan to sell the assets. We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value, less associated costs to sell. At December 31, 2016, the Company reflected certain manufacturing equipment that was previously used in the petroleum and chemical equipment segment as part of assets of discontinued operations as equipment held for sale, which was included in the assets of discontinued operations on the accompanying consolidated balance sheets. This equipment was sold in March 2017 to a third party.

Property and equipment

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statements of operations in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of long-lived assets

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.  During the six months ended June 30, 2017 and 2016, the Company did not record any impairment charges.

Advances from customers

Advances from customers   

Advances from customers at June 30, 2017 and December 31, 2016 amounted to $464,832 and $427,446, respectively, and consist of prepayments from customers for merchandise that had not yet been shipped. The Company will recognize the deposits as revenue when customers take delivery of the goods and title to the assets is transferred to customers in accordance with the Company’s revenue recognition policy.

Revenue recognition

Revenue recognition

Pursuant to the guidance of ASC Topic 605 and ASC Topic 360, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the purchase price is fixed or determinable and collectability is reasonably assured.

The Company recognizes revenues from the sale of equipment upon shipment and transfer of title. The other elements may include installation and, generally, a one-year warranty. Equipment installation revenue is valued based on estimated service person hours to complete installation and is recognized when the labor has been completed and the equipment has been accepted by the customer, which is generally within a couple days of the delivery of the equipment. Warranty revenue is valued based on estimated service person hours to complete a service and generally is recognized over the contract period. Based on historical experience, warranty service calls and any related labor costs have been minimal.

All other product sales with customer specific acceptance provisions are recognized upon customer acceptance and the delivery of the parts or service. Revenues related to spare part sales are recognized upon shipment or delivery based on the trade terms.

Income taxes

Income taxes

The Company is governed by the Income Tax Law of the PRC and the U.S. Internal Revenue Code of 1986, as amended. The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes,” which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of June 30, 2017 and December 31, 2016, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award or on issuance if fully-vested and non-forfeitable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

Shipping costs

Shipping costs

Shipping costs are included in selling expenses, general and administrative and totaled $30,653 and $27,595 for the three months ended June 30, 2017 and 2016, respectively. Shipping costs totaled $59,232 and $57,738 for the six months ended June 30, 2017 and 2016, respectively.

Employee benefits

Employee benefits

The Company’s operations and employees are all located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged to the same accounts as the related salary costs in the same period as the related salary costs incurred. Employee benefit costs totaled $39,789 and $25,267 for the three months ended June 30, 2017 and 2016, respectively. Employee benefit costs totaled $74,706 and $52,834 for the six months ended June 30, 2017 and 2016, respectively.

Advertising

Advertising

Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company did not incur any advertising expenses in the three and six months ended June 30, 2017 and 2016.

Research and development

Research and development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials and salaries incurred for the development and improvement of the Company’s new dyeing machinery. Research and development costs totaled $111,053 and $66,237 for the three months ended June 30, 2017 and 2016, respectively. Research and development costs totaled $217,130 and $84,638 for the six months ended June 30, 2017 and 2016, respectively.

Foreign currency translation

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is RMB. For the subsidiaries and affiliates, whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income (loss). The cumulative translation adjustment and effect of exchange rate changes on cash for the six months ended June 30, 2017 and 2016 was $86,637 and $(458,073), respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

All of the Company’s revenue transactions are transacted in the functional currency of the operating subsidiaries and affiliates. The Company did not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Asset and liability accounts at June 30, 2017 and December 31, 2016 were translated at 6.7810 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the six months ended June 30, 2017 and 2016 were 6.8748 RMB and 6.6434 RMB to $1.00, respectively. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate.

Loss per share of common stock

Loss per share of common stock

ASC Topic 260 “Earnings per Share,” requires presentation of both basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company did not have any common stock equivalents and potentially dilutive common stock outstanding during the six months ended June 30, 2017 and 2016.  In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact. 

The following table presents a reconciliation of basic and diluted net loss per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net (loss) income for basic and diluted net (loss) income per common share	$	(521,422	)	$	(680,182	)	$	(667,906	)	$	(1,524,275	)
From continuing operations		(521,422	)		69,180			(667,906	)		(34,335	)
From discontinued operations	$	-		$	(749,362	)	$	-		$	(1,489,940	)
Weighted average common stock outstanding - basic and diluted		1,730,952			1,121,251			1,455,506			1,073,212
Net loss per share of common stock
From continuing operations – basic and diluted	$	(0.30	)	$	0.06		$	(0.46	)	$	(0.03	)
From discontinued operations – basic and diluted		-			(0.67	)		-			(1.39	)
Net (loss) income per common share - basic and diluted	$	(0.30	)	$	(0.61	)	$	(0.46	)	$	(1.42	)

Related parties

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Comprehensive gain (loss)

Comprehensive gain (loss)

Comprehensive gain (loss) is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive gain (loss) for the three and six months ended June 30, 2017 and 2016 included net loss and unrealized gain from foreign currency translation adjustments.

Reclassification

Reclassification

Certain reclassifications have been made in prior year’s consolidated financial statements to conform to the current year’s financial presentation. The reclassifications have no effect on previously reported net loss and related to the reclassification of discontinued operations.

Reverse stock split

Reverse stock split

The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017. All share and per share information has been retroactively adjusted to reflect this reverse stock split.

Recent accounting pronouncements

Recent accounting pronouncements

In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2017

Summary of Significant Accounting Policies [Abstract]

Schedule of equipment held for sale - discontinued operations measured at fair value on a nonrecurring basis

	Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Balance at December 31,  2016
Equipment held for sale – discontinued operations	$	-	$	-	$	1,147,035	$	1,147,035

Schedule of cash balances by geographic area

Country:	June 30, 2017				December 31, 2016
United States	$	195,691	3.54	%	$	557	*
China		5,327,725	96.46	%		1,480,941	99.96	%
Total cash and cash equivalents	$	5,523,416	100.0	%	$	1,481,498	100.0	%

* Less than 0.1%

Schedule of reconciliation of basic and diluted net loss per share

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net (loss) income for basic and diluted net (loss) income per common share	$	(521,422	)	$	(680,182	)	$	(667,906	)	$	(1,524,275	)
From continuing operations		(521,422	)		69,180			(667,906	)		(34,335	)
From discontinued operations	$	-		$	(749,362	)	$	-		$	(1,489,940	)
Weighted average common stock outstanding - basic and diluted		1,730,952			1,121,251			1,455,506			1,073,212
Net loss per share of common stock
From continuing operations – basic and diluted	$	(0.30	)	$	0.06		$	(0.46	)	$	(0.03	)
From discontinued operations – basic and diluted		-			(0.67	)		-			(1.39	)
Net (loss) income per common share - basic and diluted	$	(0.30	)	$	(0.61	)	$	(0.46	)	$	(1.42	)

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Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2017

Discontinued Operations [Abstract]

Schedule of discontinued operations in the Company's consolidated financial statements

	June 30, 2017		December 31, 2016
Assets:
Current assets:
Accounts receivable, net	$	383,118	$	78,407
Inventories, net of reserve for obsolete inventories		31,768		31,019
Advances to suppliers		141,049		200,275
Equipment held for sale		-		1,147,035
Prepaid expenses and other		201,211		302,250
Total current assets		757,146		1,758,986
Total assets	$	757,146	$	1,758,986
Liabilities:
Current liabilities:
Accounts payable	$	410,067	$	458,433
Accrued expenses and other liabilities		1.214		45,280
Advances from customers		-		54,948
Total current liabilities		411,281		558,661
Total liabilities	$	411,281	$	558,661

Summary of discontinued operations included in the Company's unaudited condensed consolidated statements of operations

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2017		2016			2017		2016
Revenues	$	-	$	143,475		$	-	$	536,266
Cost of revenues		-		528,310			-		1,529,442
Gross loss		-		(384,835	)		-		(993,176	)
Operating expenses		-		345,682			-		458,367
Loss from operations		-		(730,517	)		-		(1,451,543	)
Other expense, net		-		(18,845	)		-		(38,397	)
Loss from discontinued operations before income taxes		-		(749,362	)		-		(1,489,940	)
Income taxes		-		-			-		-
Loss from discontinued operations, net of income taxes	$	-	$	(749,362	)	$	-	$	(1,489,940	)

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Accounts Receivable (Tables)

6 Months Ended

Jun. 30, 2017

Accounts Receivable/Restricted Net Assets [Abstract]

Schedule of accounts receivable

	June 30, 2017			December 31, 2016
Accounts receivable	$	16,359,594		$	15,719,847
Less: allowance for doubtful accounts		(1,335,893	)		(1,797,476	)
	$	15,023,701		$	13,922,371

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Inventories (Tables)

6 Months Ended

Jun. 30, 2017

Inventories [Abstract]

Schedule of inventories

	June 30, 2017			December 31, 2016
Raw materials	$	1,250,199		$	1,003,359
Work-in-process		1,475,058			639,345
Finished goods		788,055			772,652
		3,513,312			2,415,356
Less: reserve for obsolete inventories		(21,688	)		(21,177	)
	$	3,491,624		$	2,394,179

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Equity Method Investment (Tables)

6 Months Ended

Jun. 30, 2017

Equity Method Investment [Abstract]

Schedule of summarized financial information of balance sheet

	June 30, 2017		December 31, 2016
Current assets	$	11,613,191	$	11,486,018
Noncurrent assets		5,604		-
Current liabilities		-		-
Noncurrent liabilities		-		-
Equity	$	11,618,795	$	11,486,018

Schedule of summarized financial information of income statement

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Net revenue	$	-		$	-	$	-		$	-
Gross profit		-			-		-			-
Loss from operations		(84,990	)		-		(149,936	)		-
Net loss	$	(81,521	)	$	-	$	(142,703	)	$	-

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2017

Property and Equipment [Abstract]

Summary of property and equipment

	Useful life	June 30, 2017			December 31, 2016
Office equipment and furniture	5 years	$	68,251		$	65,209
Manufacturing equipment	5 -10 years		33,031,395			32,240,010
Vehicles	5 years		173,874			169,773
Building and building improvements	5 - 20 years		21,646,267			21,135,718
			54,919,787			53,610,710
Less: accumulated depreciation			(26,271,427	)		(23,732,035	)
		$	28,648,360		$	29,878,675

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Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2017

Intangible Assets [Abstract]

Summary of intangible assets

	Useful life	June 30, 2017			December 31, 2016
Land use rights	45 - 50 years	$	3,981,831		$	3,887,915
Patent use rights	10 years		2,359,534			2,303,882
			6,341,365			6,191,797
Less: accumulated amortization			(1,091,602	)		(908,102	)
		$	5,249,763		$	5,283,695

Schedule of amortization of intangible assets attributable to future periods

Twelve-month periods ending June 30:	Amount
2018	$	323,129
2019		323,129
2020		323,129
2021		323,129
2022		323,129
Thereafter		3,634,118
	$	5,249,763

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Short-Term Bank Loans (Tables)

6 Months Ended

Jun. 30, 2017

Short-Term Bank Loans [Abstract]

Schedule of short-term bank loans

	June 30, 2017		December 31, 2016
Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 with annual interest rate of 10.56% and repaid on May 26, 2017	$	-	$	719,963
Loan from Bank of Communications, due on September 5, 2017 with annual interest rate of 5.62% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		737,355		719,963
Loan from Bank of China, due on December 6, 2017 with annual interest rate of 6.09% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		368,677		359,982
Loan from Bank of China, due on December 8, 2017 with annual interest rate of 6.09% at June 30, 2017 and December 31, 2016, secured by certain assets of the Company		368,677		359,981
Total short-term bank loans	$	1,474,709	$	2,159,889

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Bank Acceptance Notes Payable (Tables)

6 Months Ended

Jun. 30, 2017

Bank Acceptance Notes Payable [Abstract]

Schedule of bank acceptance notes payable

	June 30, 2017		December 31, 2016
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited	$	-	$	71,996
Bank of Communication, non-interest bearing, due on September 24, 2017, collateralized by 100% of restricted cash deposited		44,242		-
Bank of Communication, non-interest bearing, due on August 15, 2017, collateralized by 100% of restricted cash deposited		88,483		-
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited		-		431,978
Bank of Communication, non-interest bearing, due on November 8, 2017, collateralized by 100% of restricted cash deposited		73,735		-
Bank of China, non-interest bearing, due on September 14, 2017, collateralized by 100% of restricted cash deposited		73,735		-
Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited		-		43,198
Total	$	280,195	$	547,172

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2017

Accrued Expenses [Abstract]

Schedule of accrued expenses

	June 30, 2017		December 31, 2016
Accrued salaries and related benefits	$	30,162	$	143,622
Other payables		223,487		224,773
	$	253,649	$	368,395

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Concentrations (Tables)

6 Months Ended

Jun. 30, 2017

Concentrations [Abstract]

Summary of concentration of revenue from customers

	Six Months Ended June 30,
Supplier	2017			2016
A		12	%		-
B		-			10	%

Summary of concentrations of purchase from suppliers

	Six Months Ended June 30,
Supplier	2017			2016
A		23	%		*
B		15	%		-
C		11	%		-
D		-			17	%
E		-			14	%

* Less than 10%.

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Description of Business and Organization (Details) - shares	1 Months Ended	6 Months Ended
	Feb. 24, 2017	Jun. 30, 2017	Dec. 31, 2016	Dec. 30, 2016	Dec. 26, 2016	Dec. 23, 2016
Description of Business and Organization (Textual)
Percentage of capital stock owned				100.00%
Common stock, shares authorized		12,500,000	12,500,000
Stockholders' equity, reverse stock split, Description	The Company filed a certificate of change with the State of Nevada which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017.	The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017.
Dyeing [Member]
Description of Business and Organization (Textual)
Percentage of capital stock owned					30.00%
Unrelated Third Party [Member]
Description of Business and Organization (Textual)
Percentage of capital stock owned						70.00%
Minimum [Member]
Description of Business and Organization (Textual)
Common stock, shares authorized	50,000,000
Maximum [Member]
Description of Business and Organization (Textual)
Common stock, shares authorized	12,500,000

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Summary of Significant Accounting Policies (Details) - Fair Value, Measurements, Nonrecurring [Member]	6 Months Ended
	Jun. 30, 2017 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale - discontinued operations	$ 1,147,035
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale - discontinued operations
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale - discontinued operations
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equipment held for sale - discontinued operations	$ 1,147,035

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Summary of Significant Accounting Policies (Details 1) - USD ($)	Jun. 30, 2017	Dec. 31, 2016		Jun. 30, 2016	Dec. 31, 2015
Cash balances by geographic area
Total cash and cash equivalents	$ 5,523,416	$ 1,481,498		$ 19,522,905	$ 18,790,370
Total cash and cash equivalents, percentage	100.00%	100.00%
United States [Member]
Cash balances by geographic area
Total cash and cash equivalents	$ 195,691	$ 557
Total cash and cash equivalents, percentage	3.54%		[1]
China [Member]
Cash balances by geographic area
Total cash and cash equivalents	$ 5,327,725	$ 1,480,941
Total cash and cash equivalents, percentage	96.46%	99.96%

[1] Less than 0.1%.

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Summary of Significant Accounting Policies (Details 2) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Reconciliation of basic and diluted net loss per share
Net (loss) income for basic and diluted net (loss) income per common share	$ (521,422)	$ (680,182)	$ (667,906)	$ (1,524,275)
From continuing operations	(521,422)	69,180	(667,906)	(34,335)
From discontinued operations		$ (749,362)		$ (1,489,940)
Weighted average common stock outstanding - basic and diluted	1,730,952	1,121,251	1,455,506	1,073,212
Net loss per share of common stock
From continuing operations - basic and diluted	$ (0.30)	$ 0.06	$ (0.46)	$ (0.03)
From discontinued operations - basic and diluted		(0.67)		(1.39)
Net (loss) income per common share - basic and diluted	$ (0.30)	$ (0.61)	$ (0.46)	$ (1.42)

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Summary of Significant Accounting Policies (Details Textual)		1 Months Ended	3 Months Ended		6 Months Ended
	Nov. 01, 2008	Feb. 24, 2017	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)	Dec. 30, 2016	Dec. 26, 2016 USD ($)
Summary of Significant Accounting Policies (Textual)
Cash and cash equivalents uninsured amount			$ 5,327,725		$ 5,327,725		$ 1,480,941
Restricted cash			284,140		284,140		551,047
Notes receivable			144,521		144,521		133,913
Allowance for doubtful accounts			1,335,893		1,335,893		1,797,476
Inventory reserve			21,688		21,688		21,177
Advances to suppliers			1,313,883		1,313,883		1,116,525
Advances from customers			464,832		464,832		$ 427,446
Shipping costs			30,653	$ 27,595	59,232	$ 57,738
Employee benefit costs			39,789	25,267	74,706	52,834
Research and development			$ 111,053	66,237	217,130	84,638
Cumulative translation adjustment and effect of exchange rate changes on cash					$ 86,638	(458,073)
Asset and liability translation rate (RMB to USD)			6.7810		6.7810		6.9448
Average translation rates (RMB to USD)			6.8748		6.8748		6.6434
Reverse stock split, Description		The Company filed a certificate of change with the State of Nevada which effected a one-for-four reverse split, which became effective in the marketplace on March 20, 2017.			The Company effected a one-for-four reverse stock split of its common stock on March 20, 2017.
Foreign currency translation description					Asset and liability accounts at June 30, 2017 and December 31, 2016 were translated at 6.7810 RMB to $1.00 and at 6.9448 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of operations for the six months ended June 30, 2017 and 2016 were 6.8748 RMB and 6.6434 RMB to $1.00, respectively. Cash flows from the Company's operations are calculated based upon the local currencies using the average translation rate.
Period for non-interest bearing amount					6 months
Loss from continuning operations			$ (521,422)	$ 69,180	$ (667,906)	$ (34,335)
Company invested interest, Amount									$ 8,611,000
Additional investment interest in shengin									30.00%
Interest in Fulland Wind to an unrelated party								100.00%
Operating Agreement [Member]
Summary of Significant Accounting Policies (Textual)
Term of agreement from October 12, 2007	20 years
Option Agreement [Member]
Summary of Significant Accounting Policies (Textual)
Term of agreement from October 12, 2007	20 years

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Discontinued Operations (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Accounts receivable, net	$ 383,118	$ 78,407
Inventories, net of reserve for obsolete inventories	31,768	31,019
Advances to suppliers	141,049	200,275
Equipment held for sale		1,147,035
Prepaid expenses and other	201,211	302,250
Total current assets	757,146	1,758,986
Total assets	757,146	1,758,986
Current liabilities:
Accounts payable	410,067	458,433
Accrued expenses and other liabilities	1,214	45,280
Advances from customers		54,948
Total current liabilities	411,281	558,661
Total liabilities	$ 411,281	$ 558,661

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Discontinued Operations (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Discontinued Operations [Abstract]
Revenues		$ 143,475		$ 536,266
Cost of revenues		528,310		1,529,442
Gross loss		(384,835)		(993,176)
Operating expenses		345,682		458,367
Loss from operations		(730,517)		(1,451,543)
Other expense, net		(18,845)		(38,397)
Loss from discontinued operations before income taxes		(749,362)		(1,489,940)
Income taxes
Loss from discontinued operations, net of income taxes		$ (749,362)		$ (1,489,940)

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Discontinued Operations (Details Textual)			1 Months Ended				6 Months Ended
	Apr. 10, 2017 USD ($)	Apr. 10, 2017 CNY (¥)	Dec. 28, 2016 USD ($)	Dec. 28, 2016 CNY (¥)	Dec. 23, 2016 USD ($) Installments	Dec. 23, 2016 CNY (¥) Installments	Jun. 30, 2017 USD ($)	Jun. 30, 2017 CNY (¥)	Dec. 30, 2016
Discontinued Operations (Textual)
Payment of rent, description							The first year's rent is payable in two installments, the first installment, equals to 30% of the annual rental	The first year's rent is payable in two installments, the first installment, equals to 30% of the annual rental
Ownership percentage									100.00%
Fulland Wind [Member]
Discontinued Operations (Textual)
Sale of stock to third party					$ 6,900,000	¥ 48,000,000
Number of purchase price installments					3	3
Ownership percentage					100.00%	100.00%
Fulland Wind [Member] | First installment [Member]
Discontinued Operations (Textual)
Sale of stock to third party			$ 2,100,000	¥ 14,400,000
Fulland Wind [Member] | Second installment [Member]
Discontinued Operations (Textual)
Sale of stock to third party	$ 2,100,000	¥ 14,400,000
Fulland Wind [Member] | Third installment [Member]
Discontinued Operations (Textual)
Sale of stock to third party							$ 2,700,000	¥ 19,200,000
Heavy Industries [Member]
Discontinued Operations (Textual)
Annual rental lease payment					$ 98,000	¥ 680,566
Lease term					10 years	10 years

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Accounts Receivable (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Components of accounts receivable
Accounts receivable	$ 16,359,594	$ 15,719,847
Less: allowance for doubtful accounts	(1,335,893)	(1,797,476)
Accounts receivable, net	$ 15,023,701	$ 13,922,371

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Inventories (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Components of inventories
Raw materials	$ 1,250,199	$ 1,003,359
Work-in-process	1,475,058	639,345
Finished goods	788,055	772,652
Inventory gross	3,513,312	2,415,356
Less: reserve for obsolete inventories	(21,688)	(21,177)
Inventory, net	$ 3,491,624	$ 2,394,179

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Equity Method Investment (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Equity Method Investment [Abstract]
Current assets	$ 11,613,191	$ 11,486,018
Noncurrent assets	5,604
Current liabilities
Noncurrent liabilities
Equity	$ 11,618,795	$ 11,486,018

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Equity Method Investment (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Equity Method Investment [Abstract]
Net revenue
Gross profit
Loss from operations	(84,990)		(149,936)
Net loss	$ (81,521)		$ (142,703)

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Equity Method Investment (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 CNY (¥)	Dec. 31, 2016 USD ($)	Dec. 30, 2016	Dec. 26, 2016 USD ($)	Dec. 26, 2016 CNY (¥)
Equity Method Investment [Textual]
Equity method investment	$ 8,775,355		$ 8,775,355			$ 8,610,759
Interest received							100.00%
Net loss	(81,521)		(142,703)
Mr. Xue [Member]
Equity Method Investment [Textual]
Agreed to invest								$ 20,300,000	¥ 140,000,000
Interest received								70.00%	70.00%
Contributed amount								$ 2,900,000	¥ 20,000,000
Remaining investment	17,400,000		17,400,000		¥ 120,000,000
Dyeing [Member]
Equity Method Investment [Textual]
Equity method investment								8,676,000	59,800,000
Agreed to invest								$ 8,705,000	¥ 60,000,000
Interest received								30.00%	30.00%
Shengxin [Member]
Equity Method Investment [Textual]
Agreed to invest								$ 29,000,000	¥ 200,000,000
Net loss	$ 24,456		$ 42,811

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Property and Equipment (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Components of property and equipment
Property and equipment, gross	$ 54,919,787	$ 53,610,710
Less: accumulated depreciation	(26,271,427)	(23,732,035)
Property and equipment, net	$ 28,648,360	29,878,675
Office equipment and furniture [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Property and equipment, gross	$ 68,251	65,209
Manufacturing equipment [Member]
Components of property and equipment
Property and equipment, gross	$ 33,031,395	32,240,010
Manufacturing equipment [Member] | Minimum [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Manufacturing equipment [Member] | Maximum [Member]
Components of property and equipment
Property and equipment, useful life	10 years
Vehicles [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Property and equipment, gross	$ 173,874	169,773
Building and building improvements [Member]
Components of property and equipment
Property and equipment, gross	$ 21,646,267	$ 21,135,718
Building and building improvements [Member] | Minimum [Member]
Components of property and equipment
Property and equipment, useful life	5 years
Building and building improvements [Member] | Maximum [Member]
Components of property and equipment
Property and equipment, useful life	20 years

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Property and Equipment (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Property and Equipment (Textual)
Depreciation expense	$ 971,112	$ 869,035	$ 1,939,302	$ 1,824,315
Depreciation included in cost of revenues and operating expenses	$ 702,000	$ 731,000	$ 1,402,000	$ 1,548,000

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Intangible Assets (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Components of intangible assets
Intangible assets, Gross	$ 6,341,365	$ 6,191,797
Less: accumulated amortization	(1,091,602)	(908,102)
Intangible assets, Net	5,249,763	5,283,695
Land use rights [Member]
Components of intangible assets
Intangible assets, Gross	$ 3,981,831	3,887,915
Patent use rights [Member]
Components of intangible assets
Intangible assets, Useful life	10 years
Intangible assets, Gross	$ 2,359,534	$ 2,303,882
Minimum [Member] | Land use rights [Member]
Components of intangible assets
Intangible assets, Useful life	45 years
Maximum [Member] | Land use rights [Member]
Components of intangible assets
Intangible assets, Useful life	50 years

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Intangible Assets (Details 1) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Amortization of intangible assets attributable to future periods
2018	$ 323,129
2019	323,129
2020	323,129
2021	323,129
2022	323,129
Thereafter	3,634,118
Intangible assets, Net	$ 5,249,763	$ 5,283,695

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Intangible Assets (Textual)
Amortization of intangible assets	$ 79,829	$ 22,627	$ 159,360	$ 45,226
Land use rights expiration date			Expire on January 1, 2053 and October 30, 2053.
Minimum [Member] | Land use rights [Member]
Intangible Assets (Textual)
Intangible assets, Useful life			45 years
Maximum [Member] | Land use rights [Member]
Intangible Assets (Textual)
Intangible assets, Useful life			50 years

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Short-Term Bank Loans (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Summary of short-term bank loans
Total short-term bank loans	$ 1,474,709	$ 2,159,889
Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 [Member]
Summary of short-term bank loans
Total short-term bank loans		719,963
Loan from Bank of Communications, due on September 5, 2017 [Member]
Summary of short-term bank loans
Total short-term bank loans	737,355	719,963
Loan from Bank of China, due on December 6, 2017 [Member]
Summary of short-term bank loans
Total short-term bank loans	368,677	359,982
Loan from Bank of China, due on December 8, 2017 [Member]
Summary of short-term bank loans
Total short-term bank loans	$ 368,677	$ 359,981

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Short-Term Bank Loans (Details Textual) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	May 26, 2017	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Short-Term Bank Loans (Textual)
Interest expense		$ 35,176	$ 32,344	$ 74,866	$ 64,954
Loan from Jiangsu Huishan Mintai Village Town Bank, due on July 5, 2017 [Member]
Short-Term Bank Loans (Textual)
Short-term bank loans, interest rate, stated percentage	10.56%
Short-term bank loans, maturity date	Jul. 05, 2017
Loan from Bank of Communications, due on September 5, 2017 [Member]
Short-Term Bank Loans (Textual)
Short-term bank loans, interest rate, stated percentage		5.62%		5.62%		5.62%
Short-term bank loans, maturity date				Sep. 05, 2017		Sep. 05, 2017
Loan from Bank of China, due on December 6, 2017 [Member]
Short-Term Bank Loans (Textual)
Short-term bank loans, interest rate, stated percentage		6.09%		6.09%		6.09%
Short-term bank loans, maturity date				Dec. 06, 2017		Dec. 06, 2017
Loan from Bank of China, due on December 8, 2017 [Member]
Short-Term Bank Loans (Textual)
Short-term bank loans, interest rate, stated percentage		6.09%		6.09%		6.09%
Short-term bank loans, maturity date				Dec. 08, 2017		Dec. 08, 2017

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Bank Acceptance Notes Payable (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Summary of bank acceptance notes payables
Total	$ 280,195	$ 547,172
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total		71,996
Bank of Communication, non-interest bearing, due on September 24, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total	44,242
Bank of Communication, non-interest bearing, due on August 15, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total	88,483
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total		431,978
Bank of Communication, non-interest bearing, due on November 8, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total	73,735
Bank of China, non-interest bearing, due on September 14, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total	73,735
Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited [Member]
Summary of bank acceptance notes payables
Total		$ 43,198

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Bank Acceptance Notes Payable (Details Textual)	6 Months Ended
	Jun. 30, 2017
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on January 29, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Jan. 29, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%
Bank of Communication, non-interest bearing, due on September 24, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Sep. 24, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%
Bank of Communication, non-interest bearing, due on August 15, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Aug. 15, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%
Jiangsu Huishan Mintai Village Town Bank, non-interest bearing, due and paid on May 9, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	May 09, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%
Bank of Communication, non-interest bearing, due on November 8, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Nov. 08, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%
Bank of China, non-interest bearing, due on September 14, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Sep. 14, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%
Bank of China, non-interest bearing, due and paid on January 6, 2017, collateralized by 100% of restricted cash deposited [Member]
Bank Acceptance Notes Payable (Textual)
Debt instrument, maturity date	Jan. 06, 2017
Percentage of assets collateralized for non-interest bearing notes payable	100.00%

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Related Party Transactions (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Related Party Transactions (Textual)
Amounts due to related party	$ 132,175

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Accrued Expenses (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Accrued Expenses [Abstract]
Accrued salaries and related benefits	$ 30,162	$ 143,622
Other payables	223,487	224,773
Total accrued expenses	$ 253,649	$ 368,395

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Stockholders' Equity (Details) - USD ($)		1 Months Ended		6 Months Ended
	May 08, 2017	Jun. 22, 2017	May 18, 2017	Jun. 30, 2017
Stockholders' Equity (Textual)
Stock-based professional fees				$ 78,575
2016 long-term incentive plan [Member]
Stockholders' Equity (Textual)
Common stock issued for services	15,000
Fair market value on the grant date	$ 50,400
Reduced accounts payable				28,400
Stock-based professional fees				22,000
Consulting Agreement [Member]
Stockholders' Equity (Textual)
Common stock issued for services			25,000
Fair market value on the grant date			$ 84,000
Stock-based professional fees				33,600
Additional share of common stock			25,000
Prepaid expense				50,400
One Year Consulting Agreement [Member]
Stockholders' Equity (Textual)
Common stock issued for services		65,200
Fair market value on the grant date		$ 283,620
Stock-based professional fees				$ 35,452
Additional share of common stock				20,000
Additional fair market value on the grant date				$ 87,000
Prepaid expense				$ 248,168
Stock Purchase Agreements [Member] | Three investors [Member]
Stockholders' Equity (Textual)
Sale of common stock shares				290,000
Purchase price of per share				$ 3.00
Net proceeds amount				$ 860,000

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Statutory Reserve (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Statutory Reserve (Textual)
Appropriation to the statutory surplus reserve, description	Appropriation to the statutory reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities' registered capital or members' equity.
Company had not appropriated required maximum of registered capital to statutory reserves, description	The Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the six months ended June 30, 2017.	The Company appropriated the required 50% of its registered capital to statutory reserve for Dyeing and Heavy Industries. Accordingly, no additional statutory reserve for Dyeing and Heavy Industries are required for the six months ended June 30, 2017.

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Segment Information (Details)	6 Months Ended
	Jun. 30, 2016 Segments
Segment Information (Textual)
Number of reportable business segments	3

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Concentrations (Details) - Revenue [Member]	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Concentration of revenue from customers
Concentration risk percentage	10.00%	10.00%
Supplier A [Member]
Concentration of revenue from customers
Concentration risk percentage	12.00%
Supplier B [Member]
Concentration of revenue from customers
Concentration risk percentage		10.00%

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Concentrations (Details 1) - Purchase [Member]	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	10.00%	10.00%
Supplier A [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	23.00%		[1]
Supplier B [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	15.00%
Supplier C [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage	11.00%
Suppliers D [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage		17.00%
Suppliers E [Member]
Concentration of purchase from suppliers
Concentration risk supplier, Percentage		14.00%

[1] Less than 10%

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Concentrations (Details Textual)	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Revenue [Member]
Concentration (Textual)
Concentration risk percentage	10.00%	10.00%
Revenue [Member] | Accounts receivable [Member]
Concentration (Textual)
Suppliers accounted for total purchase	No customer	No customer
Concentration risk percentage	10.00%	10.00%
Purchase [Member]
Concentration (Textual)
Concentration risk percentage	10.00%	10.00%
Purchase [Member] | Accounts payable [Member]
Concentration (Textual)
Suppliers accounted for total purchase	One suppliers		One suppliers
Concentration risk percentage	10.00%		10.00%
Purchase [Member] | Accounts Payable One [Member]
Concentration (Textual)
Suppliers accounted for total purchase	One suppliers
Concentration risk percentage	22.00%

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Commitment and Contingencies (Details)	Jun. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 30, 2016	Dec. 26, 2016 USD ($)	Dec. 26, 2016 CNY (¥)
Commitment and Contingencies (Textual)
Ownership percentage			100.00%
Total equity investments amount	$ 8,775,355	$ 8,610,759
Mr. Xue [Member]
Commitment and Contingencies (Textual)
Agreed to invest				$ 20,300,000	¥ 140,000,000
Ownership percentage				70.00%	70.00%
Contributed amount				$ 2,900,000	¥ 20,000,000
Dyeing [Member]
Commitment and Contingencies (Textual)
Agreed to invest				$ 8,705,000	¥ 60,000,000
Ownership percentage				30.00%	30.00%
Total equity investments amount				$ 8,676,000	¥ 59,800,000
Shengxin [Member]
Commitment and Contingencies (Textual)
Agreed to invest				$ 29,000,000	¥ 200,000,000

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Restricted Net Assets (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Restricted Net Assets (Textual)
Annual appropriations required by statutory reserve fund, description	At least 10% of after-tax profit, if any, of the relevant PRC VIEs and subsidiary.
Company's restricted net assets	$ 58,477,000	$ 57,324,000

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Subsequent Events (Details)

1 Months Ended

6 Months Ended

Aug. 04, 2017

USD ($)

Tradingdays

Jul. 31, 2017

USD ($)

shares

Jul. 19, 2017

USD ($)

shares

Jun. 22, 2017

USD ($)

shares

May 18, 2017

USD ($)

shares

Jun. 30, 2017

USD ($)

shares

Consulting Agreement [Member]

Subsequent Events (Textual)

Common stock issued for services | shares

25,000

Fair market value on the grant date

$ 84,000

Prepaid expense

$ 50,400

Additional share of common stock | shares

25,000

One Year Consulting Agreement [Member]

Subsequent Events (Textual)

Common stock issued for services | shares

65,200

Fair market value on the grant date

$ 283,620

Prepaid expense

$ 248,168

Additional share of common stock | shares

20,000

Subsequent Events [Member] | Investor [Member]

Subsequent Events (Textual)

Common stock issued for services | shares

23,230

Fair market value on the grant date

$ 127,106

Prepaid expense

$ 127,106

Common stock for accounting services | shares

8,000

Subsequent Events [Member] | Consulting Agreement [Member]

Subsequent Events (Textual)

Fair market value on the grant date

$ 166,000

Additional share of common stock | shares

40,000

Subsequent Events [Member] | Consulting Agreement [Member] | Consultant [Member]

Subsequent Events (Textual)

Additional share of common stock | shares

20,000

Subsequent Events [Member] | One Year Consulting Agreement [Member]

Subsequent Events (Textual)

Common stock issued for services | shares

120,000

Fair market value on the grant date

$ 498,000

Prepaid expense

498,000

Subsequent Events [Member] | One Year Consulting Agreement [Member] | Two Consultant [Member]

Subsequent Events (Textual)

Fair market value on the grant date

$ 60,000

Subsequent Events [Member] | Transfer Agreement [Member]

Subsequent Events (Textual)

Total consideration

$ 20,000,000

Expiry Date

Aug. 03, 2021

Validity period

4 years

Percentage of installement of sale proceeds

50.00%

Period of trading days | Tradingdays

20

Subsequent event, description

Excess of 19% of the issued and outstanding ordinary Shares

Liability and corresponding asset

$ 20,000,000