SEC Company Response from CHINA ENERGY SAVINGS TECHNOLOGY, INC. (CIK 0001119601) — Aug 4, 2005
CHINA ENERGY SAVINGS TECHNOLOGY, INC. (CIK 0001119601)
Date: Aug. 4, 2005 · CIK: 0001119601 · Accession: 0001076542-05-000180
AI Filing Summary & Sentiment
File numbers found in text: 000-31047
Referenced dates: July 12, 2005
Letter
Unassociated Document
RICHARDSON & PATEL LLP
Wilshire Boulevard
Suite
Los Angeles, CA 90024
Telephone (310) 208-1182
Facsimile (310) 208-1154
August 4,
VIA EDGAR AND FEDERAL EXPRESS
Securities and Exchange Commission
Division of Corporation Finance
Fifth Street, N.W.
Washington DC, 20549
Attn.:
Patrick Enunwaonye
Gary Todd
Re:
China Energy Savings Technology, Inc.
Form 10-KSB for the fiscal year ended September 30, 2004
Form 10-QSB for the quarter ended December 31, 2004
File No. 000-31047
Messrs. Enunwaonye and Todd:
On behalf of China Energy Savings Technology, Inc. (the "Company"), set forth below are the Company’s supplemental responses to the Staff’s comment letter dated July 12, 2005 with respect to the above referenced periodic reports of the Company (the “Staff Comment Letter”). This response supplements our response to the Staff Comment Letter filed with the Commissioner on July 28, 2005. We have reproduced the Staff’s comment and have followed such comment with the Company’s response. References in this letter to “we,”“our” or “us” mean the Company or its advisors, as the context may require.
Form 10-KSB for the fiscal year September 30, 2004
Revenue and Deferred Revenue Recognition, page F-12
9.
We refer to comment 18. Tell us how you determine the discount rate at inception of an energy savings contract arrangement. Please also identify the expected useful life of the energy savings equipment and the typical term/life of an energy savings contract. Please also provide us a specific example showing us how you applied the accounting model described in your response. Show us how you recorded the arrangement at inception and how you recognized income over time. Provide an explanation for the basis and timing of each amount. That is, provide us a complete example, including journal entries.
Securities and Exchange Commission
Division of Corporation Finance
August 4,
Page
Response:
The discount rate used to determine the net present value of the energy savings sharing contracts was the best lending rates offered by banks in China at the period end. The expected useful life of the energy savings equipment is usually 15 years under normal conditions while the typical term of an energy savings contracts is usually five to seven years. We use a specific example of an energy savings sharing contract of Shenyang Deqin Technology and Development Limited to illustrate the accounting model of such arrangement as follows:
(a)
The Company recognizes its revenue under profit sharing agreements when the amounts are fixed and determinable and collectability is reasonable assured. When the energy savings sharing contract was made between the Company and Shenyang Deqin Technology and Development Limited, the sales invoice of the energy savings equipment had been issued to Shenyang Deqin Technology and Development Limited and the energy savings equipment had been delivered, tested and accepted by this customer, the Company would make the following accounting entries:
Dr.
Notes receivable
RMB14,715,000
Cr.
Sales
RMB14,715,000
Dr.
Cost of sales
RMB6,951,210
Cr.
Inventories
RMB6,951,210
(b)
When Shenyang Deqin Technology and Development Limited made its repayment to the Company in cash according to the actual amount of energy savings computed at an agreed percentage of average energy savings rate of 26.28%, i.e. actual repayment made by Shenyang Deqin Technology and Development Limited on August 2003 was RMB480,311.80, the portion of monthly repayment to notes receivable was RMB245,250, resulting in an interest income of RMB235,061.80.
The details of the accounting entries are as follows:
Dr.
Cash
RMB480,311.80
Cr.
Notes receivable
RMB245,250.00
Cr.
Interest income
RMB235,061.80
Securities and Exchange Commission
Division of Corporation Finance
August 4,
Page
We hope that the information contained in this letter satisfactorily addresses the comments by the Staff. Please do not hesitate to contact the undersigned by telephone at (310) 208-1182, or by facsimile at (310) 208-1154.
Very
truly
yours,
Richardson
&
Patel LLP
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
RICHARDSON
& PATEL LLP
10900
Wilshire Boulevard
Suite
500
Los
Angeles, CA 90024
Telephone
(310) 208-1182
Facsimile
(310) 208-1154
August
4,
2005
VIA
EDGAR AND FEDERAL EXPRESS
Securities
and Exchange Commission
Division
of Corporation Finance
450
Fifth
Street, N.W.
Washington
DC, 20549
Attn.:
Patrick
Enunwaonye
Gary
Todd
Re:
China
Energy Savings Technology, Inc.
Form
10-KSB for the fiscal year ended
September 30, 2004
Form
10-QSB for the quarter ended December
31, 2004
File
No.
000-31047
Messrs.
Enunwaonye and Todd:
On
behalf
of China Energy Savings Technology, Inc. (the "Company"), set
forth
below are the Company’s supplemental responses to the Staff’s comment letter
dated July 12, 2005 with respect to the above referenced periodic reports
of the
Company (the “Staff Comment Letter”). This response supplements our response to
the Staff Comment Letter filed with the Commissioner on July 28, 2005.
We have
reproduced the Staff’s comment and have followed such comment with the Company’s
response. References in this letter to “we,”“our” or “us” mean the Company or
its advisors, as the context may require.
Form
10-KSB for the fiscal year September 30, 2004
Revenue
and Deferred Revenue Recognition, page F-12
9.
We
refer to comment 18. Tell us how you determine the discount
rate at
inception of an energy savings contract arrangement. Please
also identify
the expected useful life of the energy savings equipment and
the typical
term/life of an energy savings contract. Please also provide
us a specific
example showing us how you applied the accounting model described
in your
response. Show us how you recorded the arrangement at inception
and how
you recognized income over time. Provide an explanation for
the basis and
timing of each amount. That is, provide us a complete example,
including
journal entries.
Securities
and Exchange Commission
Division
of Corporation Finance
August
4,
2005
Page
2
Response:
The
discount rate used to determine the net present value of the energy savings
sharing contracts was the best lending rates offered by banks in China
at the
period end. The expected useful life of the energy savings equipment
is usually
15 years under normal conditions while the typical term of an energy
savings
contracts is usually five to seven years. We use a specific example of
an energy
savings sharing contract of Shenyang Deqin Technology and Development
Limited to
illustrate the accounting model of such arrangement as follows:
(a)
The
Company recognizes its revenue under profit sharing agreements
when the
amounts are fixed and determinable and collectability is reasonable
assured. When the energy savings sharing contract was made
between the
Company and Shenyang Deqin Technology and Development Limited,
the sales
invoice of the energy savings equipment had been issued to
Shenyang Deqin
Technology and Development Limited and the energy savings equipment
had
been delivered, tested and accepted by this customer, the Company
would
make the following accounting
entries:
Dr.
Notes
receivable
RMB14,715,000
Cr.
Sales
RMB14,715,000
Dr.
Cost
of sales
RMB6,951,210
Cr.
Inventories
RMB6,951,210
(b)
When
Shenyang Deqin Technology and Development Limited made its
repayment to
the Company in cash according to the actual amount of energy
savings
computed at an agreed percentage of average energy savings
rate of 26.28%,
i.e. actual repayment made by Shenyang Deqin Technology and
Development
Limited on August 2003 was RMB480,311.80, the portion of monthly
repayment
to notes receivable was RMB245,250, resulting in an interest
income of
RMB235,061.80.
The
details of the accounting entries are as follows:
Dr.
Cash
RMB480,311.80
Cr.
Notes
receivable
RMB245,250.00
Cr.
Interest
income
RMB235,061.80
Securities
and Exchange Commission
Division
of Corporation Finance
August
4,
2005
Page
3
We
hope
that the information contained in this letter satisfactorily addresses
the
comments by the Staff. Please do not hesitate to contact the undersigned
by
telephone at (310) 208-1182, or by facsimile at (310)
208-1154.
Very
truly
yours,
Richardson
&
Patel LLP
/s/
Kevin
K. Leung
Enclosures
cc
(w/o
encs.):
Mr.
Sun Li, China Energy Savings Technology,
Inc.
Mr.
Dean Yamagata, Moore Stephens