COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

12.

COMMITMENTS AND CONTINGENCIES

As of March 31, 2012, we had commitments with five coal suppliers to purchase 430,000 MT of wash clean coal to be delivered in 2012 for a total of $55,815,510 (RMB 352,307,500). At March 31, 2012, $18,891,673 (RMB 119,248,018) of this commitment representing approximately 169,650 MT has been paid and is included in prepaid coal (see Note 3).

In July 2011, the Company entered into 3 construction contracts with Tongchuan New District Gui Qin Construction Co. Ltd. for the construction of main office building, road formation and coal storage facility, at our Tongchuan facility. The total amount of the 3 construction contracts is $3,763,171 (RMB 24,000,000). As of December 31, 2011, the Company has paid $2,998,259 (RMB 19,121,700) to Gui Qin as deposit. The outstanding balance due under the contract is $764,912 (RMB 4,878,300) which will be paid when construction is completed. Construction commenced in July 2011, and as of March 31, 2012, the main office building and coal storage facility were still under construction and are expected to be completed by November 2012.

On March 10, 2011, the Company entered into a contract with Jiangsu Qiulin Heavy Industry Joint Stock (Limited) Company (“Qiulin”) to purchase a 750,000 MT production line for its Dongguan facility for approximately $10,898,000 (RMB 69,500,000) and in April 2011, the Company paid approximately $3,269,000 (RMB 20,850,000) as a deposit. The production line was originally scheduled to be completed in August 2011 and due to various reasons, delivery was delayed by Qiulin. In December 2011, Qiulin entered into a revised agreement with the Company and both parties agreed to extend the delivery date to April 30, 2012, reduce total cost by 10%, and if delivery was not made by April 30, 2012, the Company could cancel the contract and get a full refund of its deposit. In April 2012, Qiulin informed the Company that the 750,000 MT production line would not be delivered by April 30, 2012 and the Company’s management decided to terminate the contract. The Company expects the deposit to be fully refunded in 2012.

On July 11, 2011, the Company entered into an Equity Acquisition Agreement (the “Agreement”) to purchase 100% of the outstanding equity interest in Crown Energy Limited (“Crown Energy”). Crown Energy owns 60% of the equity interest in Nanhai Clean Energy Fuel Co., Ltd., a company primarily engaged in the production and sale of clean energy coal-water slurry fuel. Pursuant to the terms of the Agreement, the Company will engage a valuation expert chosen by the parties to appraise the value of Crown Energy’s assets. The parties will then determine the purchase price of the equity interest and determine the payment terms, with all such terms to be memorialized in a supplemental agreement. The Agreement also provides that the current management of Crown Energy and its board of directors will be reappointed after the consummation of the acquisition. The Company engaged Shaanxi Rongde Law Firm to conduct a comprehensive investigation and evaluation of Nanhai Clean Energy Fuel Co., Ltd’s assets, ownership structure, liabilities, and credit worthiness. At March 31, 2012, this investigation and evaluation was still in progress.

The Company’s Board of Directors declared June 13, 2011 as the record date for holders of shares of common stock of the company to receive a special dividend in the form of a contingent value right, or CVR. This CVR entitles each holder of CVRs to receive a portion of the proceeds, if any, we may receive from a favorable judgment or settlement relating to the complaint filed by us on May 9, 2011 in the Supreme Court of the State of New York against Geoinvesting LLC, Alfred Little and other unidentified persons acting with, for or through them. Shareholders of our common stock as of June 13, 2011 will receive one CVR for each share of common stock outstanding as of such date. Each holder will be entitled to receive such holder's pro rata share of 90% of the proceeds of the lawsuit, if any, that may be received by the company, less certain legal and other expenses that will be deducted from such proceeds. Each holder entitled to receive CVRs will be evidenced in a register to be maintained by our transfer agent. The actual distribution date of the proceeds is unknown at this time, and will be based upon whether we are successful in obtaining a judgment in our favor, or a settlement, in connection with the lawsuit. If such judgment or settlement is achieved, then a distribution date will be declared at such time. The CVRs will expire upon the entry of a final, non-appealable judgment or settlement in the underlying lawsuit. We believe that we have sufficient cash flow to meet our obligations on a timely basis in the foreseeable future.

In November 2010, the Company entered into an agreement with Tongchuan City Investment and Development Co., Ltd. (“TCID”) to develop a new heat supply company (the “Joint Venture”) for the purpose of providing heating for the new district in Tongchuan. TCID has stated that 15 new heat supply plants will need to be built to supply an area of 16.4 million square meters. The Joint Venture requires an investment of $13,300,000 (RMB 85,000,000) by TCID, for which it receives an 85% stake in the Joint Venture, and $2,3000,000 (RMB 15,000,000) by the Company, for which it receives a 15% stake in the Joint Venture. As of December 31, 2011, the construction of the heating supply pipelines has been started in Tongchuan New District, and of which 3 heating supply plants are expected to be finished in the fourth quarter of 2012. At March 31, 2012, the Company had not yet made any investment to the Joint Venture and future investment will be made subject to timeline as determined by Tongchuan government authority.

We have entered into agreements with two local universities in 2009 pursuant to which we will invest a total of $789,000 (RMB5 million) in research projects conducted by these two universities over a term of 30 months and 36 months. $474,000 (RMB3 million) and $315,000 (RMB2 million) will be granted to these two universities at various stages of the research programs. The agreements, as amended, specify that we will own and have exclusive intellectual property rights to the outcome of the research and development projects.

On May 6, 2011, a complaint was filed in the Federal District Court for the Central District of California against the Company and certain of its current and former officers and directors. The complaint, brought as a putative class action on behalf of all persons other than the Defendants who purchased the common stock of the Company between April 6, 2009 and May 5, 2011, was based entirely on matters raised by short sellers (and matters related thereto) and alleged violations of Sections 10(b) and 20(a) of the Exchange Act of 1934 and rules promulgated thereunder. On September 8, 2011, the putative class counsel filed a First Amended Complaint, now asserting claims under Sections 11 and 15 of the Securities Act of 1933 on behalf of all persons (other than the Defendants) who acquired Sino Clean common stock pursuant or traceable to the December 21, 2010 Registration Statement and Prospectus. The Company moved to dismiss the First Amended Complaint for failure to meet pleading requirements, and the Court granted that motion but gave Plaintiff leave to amend his complaint. Plaintiff filed a Second Amended Complaint on or about March 5, 2012. On April 20, 2012, the Company moved to dismiss the Second Amended Complaint. The Company continues to deny the allegations and intends to defend the litigation vigorously. No prediction can be made, however, as to the final outcome of the matter.

On May 9, 2011, the Company filed a complaint in the Supreme Court of the State of New York against Geoinvesting LLC, an individual calling himself “Alfred Little”, and unidentified persons acting with, for, or through them. The suit seeks, among other relief, $55 million in compensatory damages and $10 million in punitive damages resulting from the defendants’ fraud, defamation, and tortuous interference with the Company’s business relationships. The Court dismissed the complaint against Geoinvesting LLC, primarily on jurisdictional grounds, and reserved judgment with regard to “Alfred Little”.

We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business.

- Definition

The entire disclosure for commitments and contingencies.

+ References

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+ Details

Sino Clean Energy Inc 10-Q