CH LIGHTING INTERNATIONAL CORP - FORM 10-Q

Attached files

file	filename
EX-32.1 - CH LIGHTING INTERNATIONAL CORP	v173849_ex32-1.htm
EX-32.2 - CH LIGHTING INTERNATIONAL CORP	v173849_ex32-2.htm
EX-31.2 - CH LIGHTING INTERNATIONAL CORP	v173849_ex31-2.htm
EX-31.1 - CH LIGHTING INTERNATIONAL CORP	v173849_ex31-1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______ to __________

COMMISSION FILE NUMBER: 000-32161

CH LIGHTING INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		20-3828148
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

658 Hongyan Road, Economic Development Zone, Shangyu City, Zhejiang Province,

The People’s Republic of China 312300

(Address of principal executive offices)

(011) 86-575-8212-7538

(Registrant’s Telephone Number, Including Area Code)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o

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 o No o

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of February 10, 2010, the registrant had 120,000,000 shares of common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION		3

ITEM 1. FINANCIAL STATEMENTS		3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		4

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		15

ITEM 4. CONTROLS AND PROCEDURES		15

PART II OTHER INFORMATION		16

ITEM 1. LEGAL PROCEEDINGS		16

ITEM 1A. RISK FACTORS		16

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		16

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		16

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS		16

ITEM 5. OTHER INFORMATION		16

ITEM 6. EXHIBITS		16

SIGNATURES		18

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

		Page
Unaudited Condensed Consolidated Balance Sheets		F-1 - F-2

Unaudited Condensed Consolidated Statements of Income and Other Comprehensive Income		F-3

Unaudited Condensed Consolidated Statements of Cash Flows		F-4 - F-5

Notes to Unaudited Condensed Consolidated Financial Statements		F-6 - F-30

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		September 30,
	2009		2009
(In thousands except par value and number of shares)	(Unaudited)
ASSETS

Current Assets
Cash and cash equivalents	$	920	$	2,792
Restricted cash		46,986		37,342
Accounts receivable, net of allowance for doubtful accounts of $2,167 at December 31, 2009 and September 30, 2009		22,026		18,346
Inventories, net		10,302		12,260
Other receivables		305		395
Due from related parties		261		255
Prepayments		464		284
Deferred tax assets		371		454
Notes receivable from unrelated parties, current portion, net discount of $11 at December 31, 2009		222		-
Notes receivable from related parties, current portion, net discount of $1,892 at December 31, 2009		35,034		-
Short-term notes receivable from unrelated parties		15,159		2,118
Short-term notes receivable from related parties		-		10,573
Total Current Assets		132,050		84,819

Long-Term Assets
Property, plant and equipment, net		12,377		13,786
Construction in progress		1,501		1,500
Prepayment for equipment		1,621		1,897
Deposit for potential acquisition		1,112		-
Long-term notes receivable from unrelated parties, net discount of $71 at September 30, 2009		-		1,041
Long-term notes receivable from related parties, net discount of $2,349 at September 30, 2009		-		34,574
Land use rights, net		829		839
Total Long-Term Assets		17,440		53,637

TOTAL ASSETS		149,490		138,456

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable		17,792		17,645
Short-term bank borrowings		83,558		75,085
Notes payable		18,502		16,041
Accrued expenses and other current liabilities		1,595		2,394
Customer deposits		3,022		2,038
Due to related parties		315		164
Income tax payable		267		200
Financial obligations, sale-lease back, net-current portion		2,106		2,413
Total Current Liabilities		127,157		115,980

Long-Term Liabilities
Financial obligations, sale-lease back, net-long-term portion		215		624
Deferred tax liabilities		1,229		1,304
Total Long-Term Liabilities		1,444		1,928

TOTAL LIABILITIES	$	128,601	$	117,908

See accompanying notes to the condensed consolidated financial statements.

F-1

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		September 30,
	2009		2009
(In thousands except par value and number of shares)	(Unaudited)

	$		$
COMMITMENTS AND CONTINGENCIES

EQUITY

STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 share issued and outstanding		-		-
Common stock, $0.001 par value, 500,000,000 shares authorized, 120,000,000 shares issued and outstanding		120		120
Additional paid-in capital		1,604		1,500
Statutory reserves		1,214		1,168
Accumulated other comprehensive income		1,601		1,601
Retained earnings		16,284		16,093
Total Stockholders’ Equity		20,823		20,482

NON-CONTROLLING INTEREST		66		66

TOTAL EQUITY		20,889		20,548

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	149,490	$	138,456

See accompanying notes to the condensed consolidated financial statements.

F-2

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended December 31,
	2009			2008
(In thousands except net income per share and number of shares)

REVENUES	$	13,760		$	15,097
REVENUES FROM GOVERNMENT SUBSIDIES		1,609			3,092
TOTAL REVENUES		15,369			18,189

COST OF SALES		(12,116	)		(10,987	)

GROSS PROFIT		3,253			7,202

Selling, marketing and distribution expenses		(618	)		(1,854	)
General and administrative expenses		(1,673	)		(1,227	)
TOTAL OPERATION EXPENSES		(2,291	)		(3,081	)

INCOME FROM OPERATIONS		962			4,121

Amortization of discount on notes receivable		516			-
Interest income		265			1,243
Interest expense		(1,461	)		(1,088	)
Other government subsidies		34			193
Other (expenses) income		(4	)		10

INCOME BEFORE INCOME TAXES		312			4,479

Income tax expense		(76	)		(568	)

NET INCOME		236			3,911

OTHER COMPREHENSIVE INCOME

Foreign currency translation gain, net of tax		-			3

COMPREHENSIVE INCOME	$	236		$	3,914

NET INCOME PER SHARE ATTRIBUTABLE TO CONTROLLING INTEREST, BASIC AND DILUTED	$	0.00		$	0.03

WeWEIGHTED-AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED		120,000,000			120,000,000

See accompanying notes to the condensed consolidated financial statements.

F-3

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended December 31,
	2009			2008
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	236		$	3,911
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		390			379
Amortization of land use rights		10			9
Amortization of financial obligations, sale-lease back		99			-
Provision for slow-moving inventories		1			-
Amortization of notes receivable discount		(516	)		-
Government subsidies		-			(6	)
Imputed interest expense		-			(1,000	)
Deferred taxes		8			334
Stock-based employee compensation expense		104			-
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable		(3,680	)		2,506
Other receivables		90			(864	)
Prepayments		(180	)		1,056
Inventories		1,957			(702	)
Increase (Decrease) in:
Accounts payable		147			(1,630	)
Accrued expenses and other accrued liabilities		(799	)		1,755
Customer deposits		984			(370	)
Income tax payable		67			234
Net cash (used in) provided by operating activities:		(1,082	)		5,612

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(56	)		(743	)
Proceeds from disposition of equipment		1,074			-
Deposit for potential acquisition		(1,112	)		-
Prepayment for equipment		276			-
Investment in restricted bank balances, net		-			(16,015	)
Repayment of long-term notes receivable from unrelated party		877			-
Increase in principal of long-term notes receivable from related parties		-			(1,026	)
Repayment of short-term notes receivable from related party		10,573			-
Increase in principal of short-term notes receivable from unrelated parties		(13,041	)		-
Net cash used in investing activities:	$	(1,409	)	$	(17,784	)

See accompanying notes to the condensed consolidated financial statements.

F-4

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended December 31,
	2009			2008
	(In thousand)
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash	$	(9,644	)	$	-
Proceeds from related parties		144			-
Proceeds from bills financing, net		-			17,801
Proceeds from notes payable		11,527			-
Repayment of notes payable		(9,066	)		(2,780	)
Proceeds from short-term bank borrowings		28,730			8,564
Repayment of short-term bank borrowings		(20,257	)		(11,190	)
Repayment of financial obligations, sale-leaseback		(815	)		(796	)
Net cash provided by financing activities		619			11,599

NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,872	)		(573	)

Cash and cash equivalents, at beginning of year		2,792			3,154
Effect on exchange rate changes		-			2
CASH AND CASH EQUIVALENTS, AT END OF YEAR	$	920		$	2,583

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest received	$	237		$	243
Interest paid	$	1,256		$	1,088

SUPPLEMENTAL NON-CASH DISCLOSURES:
Settlement of bills financing with other financial assets	$	-		$	2,918

See accompanying notes to the condensed consolidated financial statements.

F-5

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands except number of shares and par value)

1.	BASIS OF PRESENTATION

CH Lighting International Corporation (“CH Lighting”), formerly known as Sino-Biotics, Inc., was incorporated on July 6, 2005 under the laws of the State of Delaware, and adopted its existing name effective on August 25, 2008. Its common stock is currently trade on the Over-The-Counter Bulletin Board (“OTCBB”) of NASDAQ under the symbol “CHHN”.

On July 16, 2008, CH Lighting entered into a Share Exchange Agreement (the “Exchange Agreement”) with CH International and KEG International Limited (“KEG”), a company incorporated in the British Virgins Islands. Pursuant to the Share Exchange Agreement, CH Lighting acquired all of the issued and outstanding common stock of CH International from KEG in exchange for 93,000,000 newly-issued shares of CH Lighting’s common stock, par value of $0.001, representing 77.5% of CH Lighting’s common stock issued and outstanding upon completion of the share exchange (the “Share Exchange Transaction”).

During the year ended September 30, 2008, CH Lighting (i) implemented a 1 for 1,000 reverse stock split and issued 128 shares for fractional share issuance on December 13, 2007, (ii) converted a $65 convertible promissory note and all related accrued interest into 25,999,998 shares of common stock on January 28, 2008, (iii) converted a $10 convertible promissory note and all related accrued interest into 3,000,000 shares of common stock on January 31, 2008 and (iv) implemented a 6 for 1 forward stock split on March 31, 2008. There were 29,180,616 shares of CH Lighting’s common stocks issued and outstanding immediately before the completion of the Share Exchange Transaction.

Upon completion of the Share Exchange Transaction (including, but not limited to, the cancellation of the 2,180,616 shares of CH Lighting’s common stock concurrent and simultaneous with the consummation of the Share Exchange Agreement), there were 120,000,000 shares of CH Lighting’s common stock issued and outstanding.

The acquisition by CH Lighting of CH International was deemed to be a reverse acquisition in accordance with generally accepted accounting principles. In accordance with the Accounting and Financial Reporting Interpretations and Guidance prepared by the staff of the U.S. Securities and Exchange Commission, CH Lighting (the legal acquirer) is considered the accounting acquiree and CH International (the legal acquiree) is considered the accounting acquirer. The consolidated financial statements of the consolidated entity are in substance be those of CH International, with the assets and liabilities, and revenues and expenses, of CH Lighting being included effective from the date of completion of Share Exchange Transaction. CH Lighting is deemed to be a continuation of business of CH International. The outstanding common stock of CH Lighting prior to the Share Exchange Transaction is accounted for at net book value and no goodwill was recognized.

The unaudited condensed consolidated financial statements of CH Lighting International Corporation and subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of September 30, 2009 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.

F-6

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

1.	BASIS OF PRESENTATION (CONTINUED)

On July 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162). ASC 105-10 establishes the FASB ASC as the source of authoritative accounting principles recognized by the FASB to be applied in preparation of financial statements in conformity with generally accepted accounting principles in the United States of America. The adoption of this standard had no impact on the Company’s condensed consolidated financial statements.

Basis of Consolidation

The condensed consolidated financial statements include the accounts of CH Lighting International Corporation and its wholly-owned subsidiaries. Inter-company accounts and transactions have been eliminated in consolidation.

2.	SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however, actual results when ultimately realized could differ from those estimates.

Revenue Recognition

Operating revenue represents the sale of goods at invoiced value to customers, net of returns, discounts and value-added tax (“VAT”), and is recognized when goods are delivered to customers, the significant risks and rewards of ownership of goods have been transferred to customers, the sales price to the customers is fixed or determinable and the collectability of consideration is reasonably assured.

The Company estimate sales return based on the amount of defective goods actually returned after the reporting period. There was no sales return for the three months ended December 31, 2009 and 2008, respectively.

Shipping and handling costs related to sales to third parties are reported as sales, marketing and distribution expenses.

Research and Development

Research and development activities are expensed and charged to general administrative expenses as incurred. Research and development costs were $536 and $580 for the three months ended December 31, 2009 and 2008, respectively.

F-7

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands except exchange rate)

2.	SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS (CONTINUED)

Foreign Currency Translation

The accompanying condensed consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The condensed consolidated financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

	December 31, 2009		September 30, 2009		December 31, 2008
Period ended RMB: $ exchange rate		6.8372		6.8376		-
Average Period RMB: $ exchange rate		6.8361		6.8464		6.8330

Fair Value of Financial Instruments

FASB ASC 820 (formerly SFAS No. 157 Fair Value Measurements) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market

These tiers include:

• Level 1—defined as observable inputs such as quoted prices in active markets;

• Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

• Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of December 31, 2009 are as follows:

			Fair Value Measurements at Reporting Date Using
	Carrying value as of December 31, 2009 (Unaudited)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	920	$	920		-		-

Restricted cash	$	46,986	$	46,986		-		-

For financial reporting purposes, the Company considers all highly liquid investments purchased with original maturity of three months or less to be cash equivalents. The Company maintains no bank account in the United States of America. The Company maintains its bank accounts in China and Hong Kong.

F-8

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

2.	SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS (CONTINUED)

Retirement Plan Costs

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to operations as incurred. Retirement benefits amounting to $44 and $42 were charged to operations for the three months ended December 31, 2009 and 2008, respectively.

Comprehensive Income

Comprehensive income is defined to include changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation gain, net of tax.

Recently Issued Accounting Pronouncements

Effective January 1, 2009, the Company adopted ASC 805 (formerly SFAS No. 141R, Business Combinations). ASC 805 requires an acquirer to measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. The adoption of ASC 805 did not have any effect on the Company’s condensed consolidated financial statements as of December 31, 2009.

Effective January 1, 2009, the Company adopted ASC 810-10 (formerly SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements). This Statement establishes accounting and reporting standards that require the ownership interests in subsidiaries’ non-parent owners be clearly presented in the equity section of the balance sheet; requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; requires that changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; requires that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value and the gain or loss on the deconsolidation of the subsidiary be measured using the fair value of any noncontrolling equity; requires that entities provide disclosures that clearly identify the interests of the parent and the interests of the noncontrolling owners. The adoption of ASC 810-10 did not have a significant effect on the Company’s condensed consolidated financial statements as of December 31, 2009.

Effective January 1, 2009, the Company adopted ASC 815-10 (formerly SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ), which amends SFAS No. 133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company’s strategies and objectives for using derivatives. The adoption of ASC 815-10 did not have a material effect on the condensed consolidated financial statements as of December 31, 2009.

F-9

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

2.	SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS (CONTINUED)

Recently Issued Accounting Pronouncements (Continued)

Effective January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). ASC 815-40 addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of FASB SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument under paragraphs 6–9 of SFAS 133 is indexed to an entity’s own stock, it is still necessary to evaluate whether it is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). Other applicable authoritative accounting literature, including Issues EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company Own Stock, and EITF 05-2, The Meaning of “Conventional Debt Instrument” in Issue No. 00-19, provides guidance for determining whether an instrument (or an embedded feature) is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). ASC 815-40 does not address that second part of the scope exception in paragraph 11(a) of SFAS 133. The adoption of ASC 815-40 did not have a material effect on the condensed consolidated financial statements as of December 31, 2009.

On April 1, 2009, the FASB approved ASC 805 (formerly FSP FAS 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies ) , which amends Statement 141R and eliminates the distinction between contractual and non-contractual contingencies. Under ASC 805, an acquirer is required to recognize at fair value an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the acquirer applies the recognition criteria in SFAS No. 5, Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of the Amount of a Loss – and interpretation of FASB Statement No. 5,” to determine whether the contingency should be recognized as of the acquisition date or after it. The adoption of ASC 805 did not have a material effect on the condensed consolidated financial statements as of December 31, 2009.

ASC 320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. We are required to adopt ASC 320-10 for our interim and annual reporting periods ending after June 15, 2009. ASC 320-10 does not require disclosures for periods presented for comparative purposes at initial adoption. ASC 320-10 requires comparative disclosures only for periods ending after initial adoption. The adoption of ASC 320-10 did not have a material effect on the condensed consolidated financial statements as of December 31, 2009.

On April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments ) to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in summarized financial information required by APB Opinion No. 28, Interim Financial Reporting . We are required to adopt ASC 825-10 for our interim and annual reporting periods ending after June 15, 2009. ASC 825-10 does not require disclosures for periods presented for comparative purposes at initial adoption. ASC 825-10 requires comparative disclosures only for periods ending after initial adoption. The adoption of ASC 825-10 did not have a material effect on the condensed consolidated financial statements as of December 31, 2009.

F-10

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands except number of customers, suppliers and percentages)

2.	SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS (CONTINUED)

Recently Issued Accounting Pronouncements (Continued)

In June 2009, the FASB issued ASC 810-10 (formerly SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). ASC 810-10 requires an enterprise to perform an analysis and ongoing reassessments to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity and amends certain guidance for determining whether an entity is a variable interest entity. It also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. ASC 810-10 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009 and for all interim reporting periods after that， and is not anticipated to have any material impact on the Company’s consolidated financial statements. The Company is currently evaluating the impact of the adoption of ASC 810-10.

3.	EARNINGS PER SHARE

Basic earnings per share are computed by dividing income available to common stockholders by the weighted-average number of common stocks outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common stocks that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for the three months ended December 31, 2009 and 2008.

4.	CONCENTRATIONS

	Three Months Ended December 31, (Unaudited)
	2009			2008
Major customers with revenues of more than 10% of the Company’s revenues:
Revenues from major customer	$ 1,929			$ 2,272
Percentage of revenues		14	%		15	%
Number		1			1

Major suppliers with purchases of more than 10% of the Company’s purchases:
Purchases from major suppliers	$ 2,968			$ 3,738
Percentage of purchases		29	%		30	%
Number		2			2

Accounts receivable related to the Company’s major customer comprised 14% and 18% of all accounts receivable at December 31, 2009 and September 30, 2009, respectively.

Accounts payable related to the Company’s major suppliers comprised 29% and 25% of all accounts payable at December 31, 2009 and September 30, 2009, respectively.

F-11

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

5.	RESTRICTED CASH

Restricted cash at December 31, 2009 and September 30, 2009 represented time deposits with original maturities between three and twelve months to secure banking facilities granted by various financial institutions as follows:

		December 31,		September 30,
		2009		2009
	Note	(Unaudited)
Notes payable	12	$	17,770	$	13,057
Bills financing	13(b)		24,821		19,890
Collateral for bank acceptance notes issued by a related party	18(c)		1,463		1,463
A short-term bank loan	13(a)		2,925		2,925
Others			7		7

		$	46,986	$	37,342

At December 31, 2009, the Company provided a corporate guarantee for bank acceptance notes issued by Henghui, a related party of the Company. Under the guarantee contract, the maximum guarantee amount is $1,463, due January 28, 2010. See Note 18(c).

6.	INVENTORIES

Inventories consist of the following:

	December 31,		September 30,
	2009		2009
	(Unaudited)
Raw materials	$	2,557	$	3,068
Work-in-progress and semi-finished goods		1,132		2,463
Finished goods		6,771		6,886
		10,460		12,417

Less: Provision for slow-moving inventories		(158)		(157)

Inventories, net	$	10,302	$	12,260

F-12

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

7.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

		December 31,			September 30,
		2009			2009
	Note	(Unaudited)
At cost:
Buildings		$	6,967		$	6,967
Plant and machinery			6,728			7,987
Motor vehicles			1,030			1,002
Furniture, fixtures and office equipment			1,184			1,181
Assets recorded under financial obligations, sale-leaseback	15		3,313			3,313
			19,222			20,450
Less: Accumulated depreciation
Buildings			(1,770	)		(1,683	)
Plant and machinery			(2,699	)		(2,726	)
Motor vehicles			(475	)		(453	)
Furniture, fixtures and office equipment			(803	)		(778	)
Assets recorded under financial obligations, sale-leaseback			(1,098	)		(1,024	)
			(6,845	)		(6,664	)

Property, plant and equipment, net		$	12,377		$	13,786

Depreciation expense was $390 and $379 for the three months ended December 31, 2009 and 2008, respectively.

The Company pledged certain buildings and machinery as collateral against short-term bank loans. See Note 13(a).

8.	LAND USE RIGHTS

Land use rights consist of the following:

	December 31,		September 30,
	2009		2009
	(Unaudited)
Cost of land use rights	$	1,140	$	1,140
Less: Accumulated amortization		311		(301	)
Land use rights, net	$	829	$	839

Amortization expense for the three months ended December 31, 2009 and 2008 was $10 and $9, respectively.

The Company pledged land use rights as collateral against short-term bank loans. See Note 13(a).

F-13

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

9.	RELATED PARTY TRANSACTIONS

(a) Names and Relationship of Related Parties:

		Existing Relationships With the Company

Mr. Zhao		Director and controlling stockholder of the Company

Ms. Gan		Director of the Company and spouse of Mr. Zhao

Shangyu Chenhui Childcare Products Company Limited (“CH Childcare”) *		Under common control of Mr. Zhao

Shaoxing Umbrella Factory (“SX Umbrella”) *		Under common control of Mr. Zhao

Shangyu Hecheng Plastic and Metal Products Company Limited (“Hecheng”)*		Under common control of Mr. Zhao

Shangyu Henghui Electronic Products Manufacturing Company Limited (“Henghui”) *		Under common control of Mr. Zhao

Zhejiang Chenhui Yingbao Childcare Products Company Limited (“Yingbao Childcare”) *		Under common control of Mr. Zhao

* These are direct translation of names in Chinese for identification purpose only and are not official names in English.

F-14

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

9.	RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Summary of Related Party Transactions:

		Three Months Ended September 30, (Unaudited)
				2009		2008
		Note
Mr. Zhao and Ms. Gan	Mr. Zhao and Ms. Gan provided guarantees for short-term bank loans borrowed by the Company		13(a)	$	17,200	$	1,459

Henghui	The Company provided cash as collateral for the bank acceptance notes issued by Henghui		5, 18(c)		1,463		-

	Henghui provided a guarantee for a short-term bank loan borrowed by the Company		13(a)		511		-

	The Company had a long-term receivable from Henghui		9(e)		18,499		25,136

	The Company received interest income from Henghui				-		1,000

Yingbao Childcare	Yingbao Childcare provided a guarantee for the financial obligations, sale-leaseback borrowed by the Company		15		1,931		3,160

	Yingbao Childcare provided a guarantee for the short-term bank loans borrowed by the Company		13(a)		10,823		7,374

	The Company had long-term notes receivable from Yingbao Childcare		9(e)		16,535		-

SX Umbrella	The Company paid a rental fee to SX Umbrella for renting a dorm				4		4

F-15

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

9.	RELATED PARTY TRANSACTIONS (CONTINUED)

	December 31,		September 30,
	2009		2009
	(Unaudited)
Due from employees	$	261	$	255
	$	261	$	255

Amounts due from employees are interest-free, unsecured and have no fixed repayment terms. They primarily represent advances to sales personnel of the Company for business and travelling related expenses.

	December 31,		September 30,
	2009		2009
	(Unaudited)
Due to related parties:
Mr. Zhao	$	272	$	125
SX Umbrella		43		39
	$	315	$	164

Amounts due to related parties represent unsecured advances, which are interest-free and repayable on demand.

(d) Short-term Notes Receivable from Related Party

		December 31,		September 30,
		2009		2009
		(Unaudited)
Henghui, due December 31, 2009, repaid on due date	a)	$	-	$	115
Henghui, due March 31, 2010, repaid on December 31, 2009	b)		-		10,458

Total		$	-	$	10,573

The interest-free and secured by Mr. Zhao notes denoted a) and b) were provided to a related company for its assistance in providing a guarantee for bank loans borrowed by the Company.

F-16

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

9.	RELATED PARTY TRANSACTIONS (CONTINUED)

(e) Long-term Notes Receivable from Related Parties

		December 31,		September 30,
		2009		2009
		(Unaudited)
Yingbao Childcare, due December 31, 2010, net of discount of $893 and $1,108, respectively	a)	$	16,535	$	16,318
Henghui, due December 31, 2010, net of discount of $999 and $1,239, respectively	b)		18,499		18,256

Long-term Notes Receivable From Related Parties			35,034		34,574

Less: Current portion			35,034		-

Long-term portion		$	-	$	34,574

In October 2008, $36,921 interest-free notes were provided to related companies a) and b) for their assistance in developing distribution channels and new markets for the Company. The Company recorded non-cash marketing expense and discounts on the notes receivable of $3,376 based on the present value of the notes receivable using a 5.4% rate.

The amortization of discount, relating to the notes for the three months ended December 31, 2009 and 2008 was $457 and $1,000, respectively.

10.	SHORT-TERM NOTES RECEIVABLE FROM UNRELATED PARTIES

The short-term notes receivable from unrelated parties consist of the following:

		December 31,		September 30,
		2009		2009
		(Unaudited)
Due December 31, 2009, repaid on due date	a)	$	-	$	731
Due March 31, 2010	b)		1,206		948
Due August 3, 2010	c)		439		439
Due November 30, 2010	d)		13,514		-

Total		$	15,159	$	2,118

The unsecured notes denoted a) and c) were provided to an unrelated company for its assistance in providing a guarantee for bank loans borrowed by the Company, and bears a 4.79% and 4.28% interest rate per annum, respectively. Interest income was $13 and $0 for the three months ended December, 31 2009 and 2008, respectively.

The interest-free, unsecured notes denoted b) and d) were provided to unrelated companies for their assistance in providing a guarantee for bank loans borrowed by the Company.

F-17

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

11.	LONG-TERM NOTES RECEIVABLE FROM UNRELATED PARTIES

The long-term notes receivable from unrelated parties consist of the following:

		December 31,		September 30,
		2009		2009
		(Unaudited)
Due December 31, 2010, net of discount of $1 and $2 at December 31, 2009 and September 30, 2009, respectively	a)	$	35	$	34
Due December 31, 2010, net of discount of $1 and $2 at December 31, 2009 and September 30, 2009, respectively	b)		35		34
Due December 31, 2010, net of discount of $8 and $10 at December 31, 2009 and September 30, 2009, respectively	c)		152		151
Due December 31, 2010, repaid on December 31, 2009	d)		-		822

Subtotal			222		1,041

Less: Current portion			222		-

Long-term portion		$	-	$	1,041

In October 2008, interest-free notes were provided to an unrelated company a) for its assistance in developing distribution channels and new markets for the Company. The Company recorded non-cash marketing expense and discounts on the notes receivable of $4 based on the present value of the notes receivable using a 5.4% rate.

In September 2009, interest-free notes were provided to unrelated companies b), c) and d) for their assistance in developing distribution channels and new markets for the Company. The Company recorded non-cash marketing expense and discounts on the notes receivable of $68 based on the present value of the notes receivable using a 5.4% rate. The unamortized discount on note denoted d) was $55, which was transferred to amortization of discount on notes receivable, with the settlement of the principle at December 31, 2009.

The amortization of discount, relating to the notes denoted a), b) and c) for the three months ended December 31, 2009 and 2008 was $4 and $0, respectively.

F-18

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

12.	NOTES PAYABLE

The notes payable consist of the following:

	December 31,		September 30,
	2009		2009
	(Unaudited)
Due February 4, 2010, subsequently repaid on due date	$	694	$	694
Due March 1, 2010		2,039		2,039
Due March 3, 2010		1,316		1,316
Due March 23, 2010		1,677		1,463
Due March 27, 2010		1,463		1,463
Due April 12, 2010		312		-
Due May 3, 2010		574		-
Due May 20, 2010		1,463		-
Due May 25, 2010		1,463		-
Due June 3, 2010		481		-
Due June 9, 2010		1,463		-
Due June 10, 2010		1,463		-
Due June 11, 2010		1,463		-
Due June 17, 2010		1,900		-
Due June 24, 2010		731		-
Due before December 31, 2009, subsequently repaid on due date		-		9,066
	$	18,502	$	16,041

All the notes payable are bank acceptance notes and subject to bank charges of 0.05% of the principal amount as commission on each loan transaction. Bank charges for notes payable were $19 and $10 for the three months ended December 31, 2009 and 2008, respectively.

Notes payable are secured by $17,770 and $13,057 restricted cash at December 31, 2009 and September 30, 2009, respectively. See Note 5.

F-19

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

13.	SHORT-TERM BANK BORROWINGS

The short-term bank borrowings consist of the following:

			December 31,		September 30,
			2009		2009
	Note		(Unaudited)
Short-term bank loans		13(a)	$	56,500	$	55,195
Bills financing		13(b)		27,058		19,890
			$	83,558	$	75,085

(a) Short-Term Bank Loans

The short-term bank loans consist of the following:

		December 31,		September 30,
		2009		2009
		(Unaudited)
Due January 6, 2010, subsequently repaid on due date		$	1,463	$	-
Due January 11, 2010, subsequently repaid on due date			1,463		1,463
Due January 24, 2010, subsequently repaid on due date			2,194		2,194
Due February 3, 2010, subsequently repaid on due date			-		512
Due February 19, 2010			731		731
Due February 25, 2010			995		995
Due March 1, 2010			2,867		2,867
Due March 17, 2010			1,755		1,755
Due March 26, 2010			2,925		2,925
Due March 30, 2010			2,925		2,925
Due April 4, 2010			1,463		1,463
Due April 9, 2010			731		731
Due April 12, 2010			1,463		-
Due April 17, 2010			2,925		2,925
Due April 22, 2010			731		731
Due April 30, 2010			1,755		1,755
Due May 18, 2010			2,194		2,194
Due May 28, 2010			1,711		761
Due June 4, 2010	9(b)		511		-
Due June 7, 2010			731		731
Due June 10, 2010			2,194		2,194
Due June 11, 2010			1,199		-
Due June 14, 2010			439		439
Due June 25, 2010			731		731
Due June 28, 2010			3,642		3,642
Due July 14, 2010			1,463		1,463
Due July 15, 2010	9(b)		5,850		5,850
Due August 3, 2010			1,550		1,550
Due August 4, 2010	9(b)		4,973		4,973
Due August 19, 2010			1,463		1,463
Due August 21, 2010			1,463		1,463
Due before December 31, 2009, subsequently repaid on due date			-		3,769
Total		$	56,500	$	55,195

F-20

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

13.	SHORT-TERM BANK BORROWINGS (CONTINUED)

(a) Short-Term Bank Loans (Continued)

Short-term bank loans are collateralized by land use rights, property, plant and equipment and restricted cash of the Company with carrying values as follows:

			December 31,		September 30,
			2009		2009
	Note		(Unaudited)
Land use rights		8	$	839	$	839
Property, plant and equipment		7		4,371		4,371
Restricted cash		5		2,925		2,925
			$	8,135	$	8,135

Various parties have also provided guarantees against these short-term bank loans as follows:

			December 31,		September 30,
			2009		2009
	Note		(Unaudited)
Personal guarantees provided by related parties		9(b)	$	17,200	$	17,711
Corporate guarantees provided by unrelated parties		18	$	25,230	$	23,927

The weighted average annual interest rates of the short-term bank loans were 5.56% and 5.62% as of December 31, 2009 and September 30, 2009, respectively. Interest expense was $797 and $544 for the three months ended December 31, 2009 and 2008, respectively.

F-21

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

13.	SHORT-TERM BANK BORROWINGS (CONTINUED)

(b) Bills Financing

The bills financing consists of the following:

	December 31,		September 30,
	2009		2009
	(Unaudited)
Due February 20, 2010	$	1,462	$	1,462
Due March 7, 2010		1,462		1,462
Due March 8, 2010		1,462		1,462
Due March 22, 2010		1,462		1,462
Due April 15, 2010		1,756		-
Due April 30, 2010		2,925		-
Due May 12, 2010		1,170		-
Due May 24, 2010		4,388		-
Due May 26, 2010		1,463		-
Due June 1, 2010		1,463		-
Due June 8, 2010		2,633		-
Due June 16, 2010		731		-
Due June 18, 2010		1,463		-
Due June 24, 2010		3,218		-
Due before December 31, 2009, subsequently repaid on due date		-		14,042
Total	$	27,058	$	19,890

The bills are secured restricted cash of the Company of $24,821 and $19,890 at December 31, 2009 and September 30, 2009, respectively. See Note 5.

The weighted average annual interest rates of the bills financing were 2.25% and 2.14% as of December 31, 2009 and September 30, 2009, respectively. Interest expense was $360 and $197 for the three months ended December 31, 2009 and 2008, respectively.

F-22

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

14.	GOVERNMENT SUBSIDIES

Since 2008 the central government of the PRC agreed to grant the Company subsidies for selling energy - saving lighting products at a discount price on a condition that the products are sold to retail customers. Revenues of $1,609 and $3,092 were recorded as revenue derived from government subsidies for the three months ended December 31, 2009 and 2008. Of the total, $1,525 of the government subsidies revenue recognized in the three months ended December 31, 2008 was associated with the sales for the year ended September 30, 2008. As the Company sold their products to distributors rather than retail customers for the year ended September 30, 2008, they were not able to make an appropriate estimate for the amount of the government subsidies receivable then. Therefore, such amount was recorded as revenue derived from government subsidies upon receipt for the three months ended December 31, 2008. The remaining $1,609 and $1,567 of the government subsidies revenue was associated with the sales made during the three months ended December 31, 2009 and 2008, respectively. Since the Company changed their selling strategy and sold products directly to retail customers, they were able to make an appropriate estimate for the amount of government subsidies receivable, and therefore, such amount was recorded as revenue derived from government subsidies for the three months ended December 31, 2009. The government subsidies receivable of $1,609 is included in the accounts receivable balance at December 31, 2009.

For the three months ended December 31, 2009, the Company was granted and received unconditional government subsidies of $34 for its achievement in developing new technology, which were recorded as other income. The Company recognized such government subsidies as income upon receipt because these subsidies are unconditional and for the Company’s past achievement.

F-23

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

15.	FINANCIAL OBLIGATIONS, SALE-LEASEBACK

In September 2007, the Company refinanced its machinery under a sale-leaseback arrangement. Under the sale-leaseback agreement, the facility was sold for RMB 30,000 ($4,376) and concurrently, the Company leased the facility back for an amount aggregating RMB 30,000 ($4,376) with a weighted average interest rate of 8.16%, payable in periodic installments through September 2010. Among the selling price of RMB 30,000 ($4,376), RMB 20,000 ($2,917) was received in cash, and the remaining balance of RMB 10,000 ($1,459) was treated as an interest bearing security deposit to be applied to future lease payments. The transaction was accounted for as a financing arrangement, wherein the property remains on the Company’s books and will continue to be depreciated. A financial obligation in the amount of RMB 20,000 ($2,917), representing the net proceeds of the sale, was presented as “Financial obligations, sale-leaseback” in the Company’s Balance Sheets, and is being reduced by lease payments under the financial obligation. The Company has an option to purchase the facility for RMB 300 ($44) at the expiration of the lease. The financial obligation is guaranteed by Yinbao Childcare, a related party of the Company. See Note 9(b).

In June 2008, the Company refinanced its machinery under a sale-leaseback arrangement. Under the sale-leaseback agreement, the facility was sold for RMB 40,000 ($5,835) and concurrently, the Company leased the facility back for an amount aggregating RMB 40,000 ($5,835) with a weighted average interest rate of 8.16%, payable in periodic installments through June 2011. Among the selling price of RMB 40,000 ($5,835), RMB 26,666 ($3,889) was received in cash, and the remaining balance of RMB 13,334 ($1,946) was treated as an interest bearing security deposit to be applied to future lease payments. The transaction was accounted for as a financing arrangement, wherein the property remains on the Company’s books and will continue to be depreciated. A financial obligation in the amount of RMB 26,666 ($3,889), representing the net proceeds of the sale, was presented as “Financial obligations, sale-leaseback” in the Company’s Balance Sheets, and is being reduced by lease payments under the financial obligation. The Company has an option to purchase the facility for RMB 400 ($58) at the expiration of the lease.

	December 31,			September 30,
	2009			2009
	(Unaudited)
Financial obligations, sale-leaseback	$	6,825		$	6,825
Less: Accumulated amortization		(4,504	)		(3,788	)
Financial obligations, sale-leaseback, net		2,321			3,037

Less: Current portion		2,106			2,413
Long-term portion	$	215		$	624

As of December 31, 2009, future minimum payments required under non-cancellable sale-leaseback are:

Year Ended December 31,	Amount
	(Unaudited)
2010	$	2,391
2011		295
Total minimum lease payments		2,686
Less: Amount representing interest		365
Present value of net minimum lease payments	$	2,321

Amortization of the financial obligations for the three months ended December 31, 2009 and 2008 was $99 and $206, respectively.

F-24

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

16.	INCOME TAXES

(a) Corporation Income Tax (“CIT”)

At December 31, 2009, the Company had US federal net operating loss carryforward of approximately $124 expiring beginning in 2009 in varying amounts through 2028.

FASB ASC 740 (formerly SFAS No. 109 Accounting for Income Taxes) requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company estimates they will not have net operating income in the United States. As such, the Company recorded a 100% valuation allowance against its net deferred tax asset associated with net operating loss carry forward as of December 31, 2009.

The People’s Republic of China

On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”), which was effective on January 1, 2008. Under the new CIT Law, the corporate income tax rate applicable to the Company starting from January 1, 2008 is 25%. The new CIT Law has an impact on the deferred tax assets and liabilities of the Company. The Company adjusted deferred tax balances as of September 30, 2009 based on their best estimates and will continue to assess the impact of such new law in the future. The effects arising from the enforcement of the new CIT law have been reflected in the accounts.

The Company uses FASB ASC 740 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”)). – AN INTERPRETATION OF FASB STATEMENT NO. 109, ACCOUNTING FOR INCOME TAXES. The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2009, the Company did not have a liability for unrecognized tax benefits.

CH Technology received official designation by the local tax authority as a foreign-invested enterprise engaged in manufacturing activities, and it exempts from enterprise income tax for two years commencing from the first profitable year in 2007, followed by a 50% reduction for the next three years.

CH Lighting PRC received official designation by the local tax authority as a High and New-Tech Enterprise, and the applicable income tax is 15% from January 1, 2008 to December 31, 2010.

Dividends payable by a foreign invested enterprise to its foreign investors are subject to a 10% withholding tax, unless any foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding arrangement.

F-25

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands)

16.	INCOME TAXES (CONTINUED)

Income tax expense consist of the following:

	Three Months Ended December 31, (Unaudited)
	2009			2008
Current tax	$	(68	)	$	(234	)

Deferred tax		40			11

Withholding tax		(48	)		(345	)

Income tax expense	$	(76	)	$	(568	)

Reconciliation from the expected income tax expenses calculated with reference to the statutory tax rate in the PRC of 25% is as follows:

	Three Months Ended December 31, (Unaudited)
	2009			2008
Computed “expected” income tax expenses	$	(78	)	$	(1,120	)
Effect on tax incentives / holiday		64			707
Permanent differences		(14	)		190
Withholding tax		(48	)		(345	)

Income tax expense	$	(76	)	$	(568	)

Components of net deferred tax liabilities are as follows:

	December 31,			September 30,
	2009			2009
	(Unaudited)
Deferred tax assets (liabilities):
Current portion:
Provision of doubtful accounts	$	423		$	438
Provision and accruals		88			57
Discount of notes receivable		280			356
Sales cut off		(420	)		(397	)
Subtotal		371			454

Non-current portion:
Depreciation		104			110
Other comprehensive income		(534	)		(534	)
Net operating loss carry forward		307			168
Less: Valuation allowance		(178	)		(168	)
Withholding tax		(928	)		(880	)
Subtotal		(1,229	)		(1,304	)

Net deferred tax liabilities	$	(858	)	$	(850	)

F-26

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousands except net income per share)

16.	INCOME TAXES (CONTINUED)

(b) Value Added Tax (“VAT”)

Enterprises or individuals, who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with Chinese Laws. The VAT standard rate is 17% of the gross sale price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.

On January 1, 2002, the export policy of VAT "Exemption, Credit and Refund" began to apply to all exports by manufacture-based enterprises. In accordance with this policy, exported goods are exempted from output VAT and the input VAT charged for purchases of the raw materials, components and power consumed for the production of the exported goods may be refunded. Beginning July 1, 2008, the refund rates of lighting source products applicable to Zhejiang CH and CH Technology were ranging from 17% to 13%.

The refundable VAT of $299 and $390 at December 31, 2009 and September 30, 2009, respectively, are included in other receivables in the accompanying condensed consolidated balance sheets.

Income before income tax expenses was $312 and $4,479 for the three months ended December 31, 2009 and 2008, which was mainly attributed to subsidiaries with operations in China. Income tax expense related to China income for the three months ended December 31, 2009 and 2008 was $76 and $568, respectively. The combined unaudited pro forma effects of the income tax expense exemption and reduction available to us are as follows:

	Three Months Ended December 31, (Unaudited)
	2009		2008
Effect on tax incentives / holiday	$	64	$	707
Basic net income per share exclude tax holiday effect	$	0.00	$	0.00

17.	DISTRIBUTION OF INCOME

As stipulated by the relevant laws and regulations for sino-foreign joint enterprises in the PRC, the PRC Subsidiaries are required to maintain certain statutory reserves, which include a general reserve fund, an enterprise expansion fund and staff welfare and incentive bonus fund. The statutory reserves are to be appropriated from statutory net income as stipulated by statute or by the board of directors of respective subsidiaries and recorded as a component of stockholders' equity.

All PRC subsidiaries are required by relevant laws and regulation to transfer at least 10% of their after tax profit determined in accordance with the PRC accounting rules and regulations to a statutory surplus reserve until such reserve balance reaches 50% of the PRC Subsidiaries’ registered capital.

For the three months ended December 31, 2009 and 2008, the Company transferred $46 and $93 to the statutory surplus reserve respectively.

The statutory surplus reserve can only be utilized to offset prior years' losses or for capitalization as paid-in capital. No distribution of the remaining reserves shall be made other than upon liquidation of the PRC Subsidiaries.

F-27

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousand)

18.	COMMITMENTS AND CONTINGENCIES

(a)

Operating Lease Commitments

As of December 31, 2009, the Company entered into an operating leases agreement for its office and is required to pay the remainder of the rental fee of $15 within one year.

(b)

Capital Commitments

The Company entered into unconditional purchase commitment for construction projects of $8,721 within one year as of December 31, 2009.

(c)

Contingencies

As of December 31, 2009, the Company provided corporate guarantees for bank loans borrowed by an unrelated company incorporated in the PRC (“Company A”). Associated with the corporate guarantee, Company A also provided a cross guarantee for the bank loans of $25,230 borrowed by the Company. See Note 13(a). If Company A defaults on the repayment of its bank loans when they fall due, the Company is required to repay the outstanding balance. As of December 31, 2009, the guarantee provided for the bank loans borrowed by Company A was approximately $3,656, which consists of the following:

	December 31, 2009
	(Unaudited)
Due May 26, 2010	$	1,170
Due May 26, 2010		293
Due June 10, 2010		731
Due December 1, 2010		921
Due December 28, 2010		541
Total	$	3,656

As of December 31, 2009, the Company provided a corporate guarantee for bank acceptance notes issued by Henghui, a related party of the Company. Under the guarantee contract, the maximum guarantee amount is $1,463, due April 9, 2010. See Note 5.

However, default by Company A and Henghui is considered remote by the management. Based on the information available to the management, the fair values of the guarantees granted by the Company are considered not material and therefore no liability for the guarantor's obligation under the guarantee was recognized as of December 31, 2009.

F-28

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousand except number of shares and years)

19.	GEOGRAPHICAL SALES AND SEGMENTS

Information for the Company’s sales by geographical area for the three months ended December 31, 2009 and 2008 are as following:

	Three Months Ended December 31, (Unaudited)
	2009		2009
China, including Hong Kong	$	7,645	$	10,912
Middle East		2,019		3,503
Korea		1,921		835
Europe		3,030		2,354
United States		313		76
Africa		120		-
South America		35		-
Others		286		509
Total	$	15,369	$	18,189

The Company operates one business segment for the three months ended December 31, 2009 and 2008.

20.	STOCK-BASED EMPLOYEE COMPENSATION ARRANGEMENT

On June 15, 2008, Mr. Zhao and certain key management personnel of CH Lighting (the “Employees”) entered into stock-based employee compensation agreements, which enable those key management personnel to acquire 470 shares (4.7%) of the issued and outstanding common stocks of KEG (the “Award Stocks”) from Mr. Zhao. Pursuant to the stock-based employee compensation agreements, 125 shares of Award Stocks were fully vested immediately and the remaining 345 shares of Award Stocks will be vested on each anniversary date of the original grant on a pro rata basis over 5 years until all awards are vested (the “Vesting Period”). If the Employees are unable to remain in office during the Vesting Period, Mr. Zhao is entitled to re-purchase the unvested Award Stocks.

The Company adopted FASB ASC 718 (formerly SFAS No. 123R, Share-based payment) to recognize an expense for unvested share-based compensation that has been issued or will be issued after that date. The Company adopted FASB ASC 718 on a prospective basis.

Compensation expense attributed to the stock-based employee compensation agreements is based on the fair value of the Award Stocks on the grant date. Compensation expense is recognized between the grant date and the vesting date on a straight-line basis for each individual award stock. Fair value of stock awards is determined using a Direct Comparison Method under Market Approach which assumes sale of the awarded stock in its existing state with the benefit of immediate availability and by making reference to comparable sale transactions as available in the relevant markets. This valuation method was used because at the time of grant the fair value was not determinable by the market price because KEG is a private company. The fair value of the Award Stocks of $8 per award stock was determined by the management with reliance on a valuation report prepared by an independent firm of qualified professional valuation consultants not connected to the Company which has appropriate qualifications and recent experience in the valuation of similar instruments.

As of December 31, 2009, 216 shares of Award Stocks were outstanding and unvested.

F-29

CH LIGHTING INTERNATIONAL CORPORATION

(FORMERLY SINO-BIOTICS, INC.) AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

(UNAUDITED)

(In thousand)

20.	STOCK-BASED EMPLOYEE COMPENSATION ARRANGEMENT (CONTINUED)

The fair value of the stock-based compensation expense for the three months ended December 31, 2009 and 2008 was $104 and $0, respectively.

21.	DEPOSIT FOR POTENTIAL ACQUISITION

The Company paid a refundable deposit to acquire 100% of Min Tai Lighting Corporation (“Min Tai”), a PRC company, for approximately $11,000. On December 18, 2009, the Company paid $1,112 as a refundable deposit.

22.	SUBSEQUENT EVENTS

In preparing the condensed consolidated financial statements, the Company has evaluated all subsequent events and transactions for potential recognition or disclosure through February 12, 2010, the date the condensed consolidated financial statements were issued.

F-30

(In thousands for dollar amounts except par value and number of shares)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

The following discussion of the financial condition and results of operations of CH Lighting International Corporation (the “Company”) is based upon and should be read in conjunction with our unaudited condensed consolidated financial statements and their related notes included in this report. This report contains forward-looking statements. Generally, the words “believes”, “anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

Prior Operations of the Company

The Company’s predecessor, Innovative Coatings, a Georgia corporation, ceased operations in June 2003. On August 1, 2003, ICC Holdings Corp. was formed as a wholly-owned subsidiary of Innovative Coatings. Also on August 1, 2003, Instachem Systems was formed as a wholly-owned subsidiary of ICC Holdings Corp. and ICC Merger Corp. was formed as a wholly-owned subsidiary of Instachem Systems. On August 11, 2003, ICC Holdings Corp. merged with its parent company, Innovative Coatings, to change its U.S. state of incorporation from Georgia to Oklahoma. On August 12, 2003, ICC Merger Corp. bought ICC Holdings Corp. A new corporation with ownership unrelated to the above, Sino-Biotics, Inc. was formed in Delaware on July 6, 2005. On July 18, 2005, Instachem Systems sold ICC Merger Corp. to an individual for US$1. On July 19, 2005, Sino-Biotics, Inc. bought Instachem Systems. As a result of the above, the pre-existing creditors of the original operating entity, Innovative Coatings, were spun off through the sale of ICC Merger in July 2005.

The Share Exchange Transaction

On July 16, 2008 (the “Closing Date”), Sino-Biotics, Inc. entered into a Share Exchange Agreement (the “Exchange Agreement”) with CH International Holdings Limited, a British Virgin Islands investment holding company (“CH International”) and KEG International Limited, a British Virgin Islands company and the sole stockholder of CH International (the “Stockholder”). As a result of the share exchange, Sino-Biotics, Inc. acquired all of the issued and outstanding securities of CH International from the Stockholder in exchange for Ninety-Three Million (93,000,000) newly-issued shares of Sino-Biotics, Inc.’s common stock, par value $0.001 per share (“Common Stock”), representing 77.5% of the issued and outstanding Common Stock as of the Closing Date (the “Exchange”). As a result of the Exchange, CH International became a wholly-owned subsidiary of Sino-Biotics, Inc.

From its inception through the closing of the Exchange, the Company has not had any operations. Prior to the Exchange, the Company was considered a “blank check” company with US$1 in assets and with a net loss of approximately US$80 for the fiscal year ending September 30, 2007. As of June 30, 2008, the Company had approximately US$22 in liabilities. As of July 16, 2008, the Company did not have any liabilities.

CH International, the wholly-owned and chief operating subsidiary of the Company, is an international investment holding company founded in the British Virgin Islands on April 30, 2004. CH International’s wholly-owned operating subsidiaries are as follows: (a) Zhejiang Shaoxing CH Lamps Manufacturing Company (“CH Lamps”), a company organized under the People’s Republic of China (the “PRC”) on December 13, 1999; (b) Zhejiang CH Lighting Company Limited (“CH Lighting PRC”), a company organized under the laws of the PRC on September 27, 2000; (c) CH Lighting (Hong Kong) Limited, a company organized under the laws of Hong Kong on November 10, 2000 and a wholly-owned subsidiary of CH Lighting PRC (“CH Hong Kong”); and (d) Zhejiang CH Lighting Technology Company Limited, a company organized under the laws of the PRC on March 31, 2003 (“CH Technology”).

CH International also owns 90% of Shangyu CH Laboratory Testing Company Limited, a company organized under the laws of the PRC on January 7, 2008 (“CH Lab”).

Our Common Stock is currently traded on the Over-The-Counter Bulletin Board and on the Pink Sheets under the symbol “CHHN.OB”.

(In thousands for dollar amounts)

Current Operations of the Company

Introduction

CH Lamps manufactures and sells fluorescent lamp tubes, bulbs, luminaries and other decorative products. CH Lighting PRC currently manufactures and sells lighting products and luminaries (light fitting parts). In order to increase our sales volume in the international market and upon approval by the PRC’s Ministry of Commerce in November 2005, CH Lighting PRC purchased CH Hong Kong, which is mainly engaged in the export trade and information technology services. CH Technology manufactures and sells sterilized electronic appliances, lighting equipment and luminaries. CH Lab was established on January 7, 2008 in the PRC and currently provides laboratory testing services for lighting sources and electronic products.

Summary of the Company’s Current Business

The Company is dedicated to developing, manufacturing and selling healthy, energy-efficient, environmentally-friendly (green) and innovative high-end products and relevant services in the fluorescent lighting field. The Company offers ten (10) series and over 1,000 types of products, including “special light” sources, “general light” sources and luminaries for the home and for businesses (office buildings), and lighting electronics. The Company is one of the leading producers in China’s “special light” market, including product innovation, specification and sales. Currently, the Company has the product series most collected in the “Government Purchasing List of Energy-Saving Products” in China (a list of compulsory purchase items by which the Chinese government enforces the procurement of energy-efficient products by governmental departments and local authorities).

The Company has three (3) major production facilities: CH Lighting PRC, CH Lamps and CH Technology, collectively covering 62,000m2, with floor area of 70,000m2, having 15 automatic light source production lines, capable of producing 120 million light sources and 17 million sets of luminaries annually.

The Company has also established a Special Light Source Research Center in 2003 and a Light Source and Fitting Inspection and Development Laboratory in January 2008, of which the latter has been declared a state-accredited laboratory. Furthermore, the Company employs an external consulting team composed of over 21 professors and experts in the industry. The Company has 132 patents (including 25 patents pending) and is a participant as well as contributor to various China Lighting Industry Standards.

The Company has 32 established offices in China and has cooperative agreements with over 560 distributors in the Chinese market and over 420 foreign customers in the international market. The Company has established agents in Saudi Arabia and Belgium that distribute self-owned brands in the Middle East and in the European markets. U.S. Agent in progress.

Description of the Company’s Business Segments

The Company is dedicated to developing, manufacturing and selling healthy, energy-saving, green and innovative high-end products and relevant services in the fluorescent lighting field. The Company sets very high and strict quality and environmental standards for all of our products. Our revenues are mostly generated from the sales of our products in China and abroad. For the most part, our sales are seasonal, with the first calendar quarter being the low season, in light of the Chinese New Year festivities, and the fourth calendar quarter being our peak season.

A list of our products and services can be found in our Annual Report on Form 10-K as filed with the SEC on December 29, 2009 and on our website at http://chlighting.com.

Enterprise Marketing Strategy and Methods of Distribution

Domestic Marketing Strategy

The Company owns patents for special lighting lamps and currently holds a leading position in the Chinese domestic market. The Company’s sale of products has yielded positive results since 2006 when it entered the Chinese market. Set forth below are some key features of the Company’s domestic marketing strategy:

(In thousands for dollar amounts)

Effective and Professional Sales Team. The Company is aware of the importance of effective and professional sales teams. As a result, we recruit dynamic and enthusiastic personnel. We offer a very competitive package and we provide full-scale trainings to continuously enhance our personnel’s performance. In addition to day-to-day sales training, the Company’s domestic marketing center holds Marketing Training Camp, hiring renowned teachers from Beijing and other places throughout the country to provide training courses designed to build a cohesive, creative, strong team with effective marketing skills.

Expansion of Sales Network. The Company aims to continue to expand its domestic market share and improve points of sales. At present, it has 32 offices in China and has relationships with more than 450 distributors.

Energy Savings and Emission Reduction. The Company aims to participate actively in government projects involving replacement and procurement of green lighting, group procurement of enterprises and institutions and bidding for major projects. The Company plans to establish contacts with provincial and municipal governments to promote its energy-saving products. Through the Company’s implementation of a corresponding discount policy, the Company plans to increase the intensity of cultivation in the market, making the design and concepts of its products fully recognized by channel partners, consumer groups and lighting designers. At the same time, consistent with national policies of energy-savings and emissions reduction, the Company shall fully utilize its advantage in advanced lighting technology to enhance development with innovative lighting design, to provide complimentary products and to accelerate the upgrading of products. The Company plans to continue to maintain extensive cooperation with key branded enterprises to ensure increasing orders from old customers and to develop new customers.

Strengthen Brand Promotion. In order to continuously enhance our customers’ awareness, the Company aims to continue to collaborate with various media sources to promote its brand. It has established strategic cooperation with CCTV2 (China Television) and with the print media as well as purchased large-scale outdoor advertising on the Shanghai-Hangzhou and Hangzhou - Ningbo Expressways. The Company also plans to continue to maintain its professional website (http://chlighting.com), search engines and exhibitions in China and abroad to develop new customer groups. Furthermore, the Company plans to continue to employ the top products planning corporation in China (Guangzhou Zhonghe Jiuding Planning Company) as the Company’s products promotion planning consultant.

International Marketing Strategy

	·	Participating in International Lighting Fair. The Company currently participates in more than 10 exhibitions abroad annually, such as international lighting fairs in Hong Kong, Frankfurt, Nuremberg, New York, Las Vegas and Italy and plans to continue to do so. The Company continues to improve its influence and to expand its sales in the international market. The purpose of participation in the exhibitions is not only to contact new customers but also to exhibit the strength of the Company and its brand image.
	·	International Market District Management. The global market of the Company is divided into several regions, including Europe, America, Asia and the Middle East. There is a sales team responsible for the promotion of our products and negotiation of the business arrangements in each regional market. The Company plans to adopt specific strategies and practices for each of the regional markets.
	·	Brand Enterprise (Manufacturer) Cooperation. There are two (2) methods employed with respect to the manufacturing of our products. The first is “ODM”, whereby the structure, appearance and technical aspects of our products are developed and designed by the Company. However after the completion of their development and production, such products are sold with trademarks of certain clients. These products are usually mass produced in accordance with the placement of orders by such clients. The other method is “OEM”, whereby our products are made in cooperation with certain third party enterprises such as GE Lighting, Sylvania, and other large multinational groups. For example, our plant growth lamp co-developed by the Company and Huazhong Agricultural University is sold in Europe, the United States and Australia. We have established cooperation with a number of large enterprises such as Interpet, Arcardia of Britain, Croci SpA of Italy, PENN-PLAX and SUNPARK of United States, AVK LIGHTING of Australia and Narva of Germany to develop the global market for plant growth lamps.

(In thousands for dollar amounts)

Product Sales Strategy (Domestic and International Sales)

Domestic Sales through Distributors

The Company entered the high-tech domestic Chinese lighting market in 2006. Currently, 32 offices exist in China, forming a three-level sales network in counties, cities and provinces, with point-of-sale locations across the country. These contribute toward an efficient marketing system. Each office is responsible for providing professional services to its local dealers and consumers. The Company has implemented a regional distribution system in the Chinese domestic market, establishing long-term cooperative relationships with approximately 450 distributors. The Company builds up composite-end sales channels including franchise stores, lighting centers and counters to increase its market competitiveness.

International Sales through Distributors

The Company also implements its distribution system in the international market. In the Middle East, the Company has a regional agent in Saudi Arabia that is solely responsible for the product in the local Middle East market. In the European market, the Company has a regional agent in Belgium who is in charge of regional marketing. The Company has also set up a branch in Hong Kong responsible for marketing the businesses to the Asia-Pacific region.

Domestic Replacement Market

In 2008, the size of China's domestic for the T8 halogen powder lamp was 1 billion lamps. Currently, as a result of the requirements for energy savings and emissions reduction policies, T8 halogen powder lamps are one of the main products which should be replaced. The total replacement market for T8 halogen powder lamps, which have an average useful life of about 2 years, is estimated to be not less than 2.5 billion sets per year. If 15% of the lamps are to be replaced, the replacement market would be at least 220 million per year. Users that are pressing for replacement of such lamps in China include manufacturing enterprises, large-scale commercial enterprises (especially supermarket chains and large stores), colleges and universities, primary and secondary schools and other educational institutions, hospitals, railway stations, airports, libraries and other public buildings and facilities, government agencies, institutions and office buildings.

Our T5-integrated conversion stand product (also known as the “Power-Saving Treasure”) is most suitable to replace the T8 halogen powder lamp and ballast without changing the original lamps, and can provide significant energy-saving benefits to users. It can be used as the energy-saving replacement for units, enterprises, schools, stores, supermarkets and hospitals.

Since the Company offers energy-saving lighting products such as the “Power-Saving Treasure”, we believe that we have the competitive edge in the replacement market and the marketing model of “contract energy management” (as described below). The participation and engagement of the Company in energy-saving lighting rebuilding (and replacement) projects is an important growth point for the development of the Company. The Company has already begun to provide replacement services for users. This has given us positive evaluations and a good reputation in the field of energy-saving lighting since 2005. Typical users include the following:

Government Offices. In October 2007, the Company was the first domestic enterprise appointed by Zhongnanhai (General Office of the State Council) to rebuild energy-saving lighting systems at the central and state agencies held by the Government Offices Administration of the State Council. The first group of users included: Zhongnanhai (General Office of the State Council), the Ministry of Finance, Ministry of Commerce, Ministry of Information Industry, State General Administration of Quality Supervision and Inspection, State Administration of Work Safety Supervision, Ministry of Supervision, the State Tourism Administration, the State Meteorological Administration, the Chinese Academy of Sciences, the Chinese Academy of Social Sciences, the Legal Affairs Office of the State Council, the State Bureau for Letters and Calls and the China Law Society.

Green Lighting Procurement Projects. Recently, the Ministry of Finance and the State Development and Reform Commission jointly held the "National Project to Promote Efficient Lighting Products Tender" whereby more than 30 well-known enterprises bid for projects. The Company won several bids for projects in 2008 and 2009, including the Green Lighting Procurement Project of Central Government Departments under the CPC Central Committee.

(In thousands for dollar amounts)

Primary and Secondary Schools. In 2006, the Company’s products achieved the top integrated score among the three most successful enterprises (the Company, Philips and Matsushita) involved in an energy-saving lighting rebuilding project of Beijing’s primary and secondary schools organized by the Beijing Municipal Development and Reform Commission. The Company’s products were used in the implementation of energy-saving lighting rebuilding in more than 300 primary and secondary schools in the Changping, Huairou, Shunyi and Mentougou Districts of Beijing. In September 2008, the Company was named as the designated supplier of Shanghai Primary and Secondary School Classrooms Light Environment Improvement Projects. The first phase of delivery and installation for the project was completed in November 2008.

Colleges, Universities and other Well-known Enterprises. In August 2008, the Company was named as the sole supplier of Tianjin Vocational College New Campus Lighting Purchasing Project for which a dozen of lighting manufacturers in China submitted bids. In addition, the Company also successfully won the energy-saving lighting products replacement purchasing projects of Visual Arts College of Fudan University, the Ningbo Wanli International Aristocratic School, the Chengdu Institute of Technology, Foxconn (Suzhou) Co., Ltd. and Suning Appliance Chain Store (Suzhou) Co., Ltd.

Domestic Direct Sales

The Company is one of the key lighting products suppliers to the Chinese government. The government procurement market is an important part the Company's business development, and the Company has been very successful in such endeavors. For example, the Company is the only enterprise in the Chinese lighting industry that was awarded the China Energy-Saving Contribution Award for two (2) consecutive years. The Company is a leading company participating in the national efficient lighting products promotion project. In addition, the Company’s products were given the status of “State Inspection-free Qualification” in China.

The Company has a leading position in product technology, product quality, product variety, energy saving and environmental protection. The Company has won national key projects of government procurement of rebuilding energy-saving lighting systems. Additionally, it has won bids for major national projects, including:

Beijing Olympic Project. The Olympic Park National Conference Center was the main press centre and international broadcast centre of 2008 Beijing Olympic Games. In November 2007, when the Olympic Park National Conference Center invited lighting brands in China and abroad to tender bids, the Company won the first place.

Olympic Fire Command Center. The Company won the bid for Beijing lighting systems at the Olympic Fire Command Center.

Construction of Infrastructure Projects. The Company has also won projects in public infrastructure such as the lighting system project of Beijing Subway Line 5, the lighting systems project of the People's Square in Shanghai’s subway system. At the same time, the Company has also won projects for offices, hotels, hospitals and other projects to provide lighting products and services.

Chinese Government Procurement of Green Lighting Project. In March 2008, the Company successfully won the bid for the Chinese Government Procurement of Green Lighting Project as a result of which, the Company’s energy-saving lighting systems were installed in various governmental departments and agencies, including: the Organization Department of the Chinese Government, the Chinese Government Commission for Discipline Inspection, the National Federation of Trade Unions, International Liaison Department of the Chinese Government, and the People's Daily, among others. In addition, the Company also became the designated supplier of the energy-saving lighting systems replacement projects of State Administration for Industry and Commerce and State Administration of Taxation.

Eleventh National Games Competition Venues and Training Facilities Procurement Project. On July 12, 2008, the Company successfully became a designated brand of the Eleventh National Games Competition Venues and Training Facilities Procurement Project.

Guangzhou 2010 Asian Games Venue Construction Projects. In October 2008, the Company successfully became a qualified supplier for the Guangzhou Asian Games Venue Construction Projects.

Hangzhou Civic Center Lighting Project. In September 2008, the Company successfully won the Hangzhou Civic Center Lighting Project. The Company was required to deliver and complete the project within one month. The Hangzhou Civic Center opened in October 2008 as the largest municipal building in the Zhejiang Province.

(In thousands for dollar amounts)

International Direct Sales

The Company’s products have obtained critical certifications in a number of countries (such as the EU's CE, TUV and GS, UL in the United States, South Korea’s KS and Saudi Arabia’s SASO) which have enabled the Company to create opportunities for ODM and OEM production for many large companies in the international market. Through ODM and OEM, the Company's products are sold to major multinational lighting enterprises. The Company plans to use the influence of its brand for self-owned brand sales in the international market and to increase sales for end-users.

Critical Accounting Policies and Estimates

This section should be read together with the Summary of Significant Accounting Policies included as Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for 2009 filed with the SEC.

Estimates Affecting Accounts Receivable and Inventories

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect our reporting of assets and liabilities (and contingent assets and liabilities). These estimates are particularly significant where they affect the reported net realizable value of the Company’s accounts receivable and inventories.

At December 31, 2009, the Company provided a $2,167 reserve against accounts receivable. Management’s estimate of the appropriate reserve on accounts receivable at December 31, 2009 was based on the aged nature of these accounts receivable. In making its judgment, management assessed its customers’ ability to continue to pay their outstanding invoices on a timely basis, and whether their financial position might deteriorate significantly in the future, which would result in their inability to pay their debts to the Company.

At December 31, 2009, the Company provided an allowance against its inventories amounting to $158. Management determination of this allowance is based on potential impairments to the current carrying value of the inventories due to slow moving of aged inventories. In making its estimate, management considered the probable demand for our products in the future and historical trends in the turnover of our inventories.

While the Company currently believes that there is little likelihood that actual results will differ materially from these current estimates, if customer demand for our products decreases significantly in the near future, or if the financial condition of our customers deteriorates in the near future, the Company could realize significant write downs for slow-moving inventories or uncollectible accounts receivable.

Policy Affecting Recognition of Revenue

Among the most important accounting policies affecting our consolidated financial statements is our policy of recognizing revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-10. Under this policy, all of the following criteria must be met in order for us to recognize revenue:

	1.	Persuasive evidence of an arrangement exists;
	2.	Delivery has occurred or services have been rendered;
	3.	The seller’s price to the buyer is fixed or determinable;
	4.	Collectability is reasonably assured.

The majority of the Company’s revenue results from sales contracts with distributors and revenue is recorded upon the shipment of goods. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectability. Based on these factors, the Company believes that it can apply the provisions of FASB ASC 605-10 with minimal subjectivity.

(In thousands for dollar amounts except net income per share)

Recently Issued Accounting Pronouncement

A description of recent accounting pronouncements is set forth under “New Accounting Standards” in Note 2 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q, and such description is incorporated herein by reference. Such description contains all of the information required with respect thereto.

Results of Operations for the Three Months Ended December 31, 2009 Compared with the Three Months Ended December 31, 2008

The following table sets forth a summary of certain key components of our results of operations for the periods indicated, in dollars and as a percentage of revenues.

	Three Months Ended December 31,						Three Months Ended December 31,
	2009			2008			2009			2008

Revenues	$	13,760		$	15,097			89.53	%		83	%
Revenues from government subsidies		1,609			3,092			10.47	%		17	%
TOTAL REVENUES		15,369			18,189			100	%		100	%
COST OF SALES		(12,116	)		(10,987	)		(78.83	)%		(60.40	)%
GROSS PROFIT		3,253			7,202			21.17	%		39.60	%
Selling, marketing and distribution expenses		(618	)		(1,854	)		(4.02	)%		(10.19	)%
General and administrative expenses		(1,673	)		(1,227	)		(10.89	)%		(6.75	)%
INCOME FROM OPERATIONS		962			4,121			6.26	%		22.66	%
Amortization of discount on notes receivable		516			-			3.36	%		-
Interest income		265			1,243			1.72	%		6.83	%
Interest expense		(1,461	)		(1,088	)		(9.51	)%		(5.98	)%
Other government subsidies		34			193			0.22	%		1.06	%
Other expenses		(4	)		10			(0.03	)%		0.05	%
INCOME BEFORE INCOME TAXES		312			4,479			2.03	%		24.62	%
Income tax expense		(76	)		(568	)		(0.49	)%		(3.12	)%
NET INCOME	$	236		$	3,911			1.54	%		21.50	%

NET INCOME PER SHARE, BASIC AND DILUTED	$	0.00		$	0.03

Revenues

	Three Months Ended December 31,				Increase /			Increase /
	2009		2008		(Decrease)			(Decrease)
Domestic revenue	$	6,036	$	7,820	$	(1,784	)		(22.81	)%
Government subsidies		1,609		3,092		(1,483	)		(47.96	)%
Overseas revenue		7,724		7,277		447			6.14	%
Total Revenues	$	15,369	$	18,189	$	(2,820	)		(15.50	)%

Revenues decreased by 15.50% for the three months ended December 31, 2009 compared to the three months ended December 31, 2008. The decrease was primarily due to revenues from domestic sales which decreased $1,784 due to the unfavorable impact caused by the global economic crisis.

The central government of the PRC has agreed to grant the Company subsidies for selling energy - saving lighting products at a discount price on a condition that the products are sold to retail customers. The decrease was primarily due to the fact that there were two government purchasing projects for the three months ended December 31, 2008, while there was only one government purchasing project for the three months ended December 31, 2009.

(In thousands for dollar amounts)

Cost of Sales

	Three Months Ended December 31,						Increase /			Increase /
	2009			2008			(Decrease)			(Decrease)
Revenues	$	15,369		$	18,189		$	(2,820	)		(15.50	)%
Cost of sales		12,116			10,987			1,129			10.28	%
Gross Profit	$	3,253		$	7,202		$	(3,949	)		(54.83	)%
Gross Profit Rate		21.17	%		39.60	%		(18.43	)%		(46.54	)%

Cost of goods sold increased by 10.28% for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008. The increase is attributable to the higher price of raw materials for our major product power-saving lamp.

Gross profit decreased by $3,949, or 54.83%, for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008. This decrease is attributable to lower sales. Gross profit as a percentage of revenues decreased from 39.60% in the prior period to 21.17% in the same period of 2009 due to the fact that in 2008 Zhejiang CH sold energy - saving lighting products in connection with a government purchasing project with a higher margin.

Selling, Marketing and Distribution Expenses

	Three Months Ended December 31,				Increase /			Increase /
	2009		2008		(Decrease)			(Decrease)
Transportation fee	$	201	$	249	$	(48	)		(19.28	)%
Traveling fee		155		255		(100	)		(39.22	)%
Payroll		77		189		(112	)		(59.26	)%
Sales commission		53		812		(759	)		(93.47	)%
Office expense		46		77		(31	)		(40.26	)%
Advertising fee		30		78		(48	)		(61.54	)%
Others		56		194		(138	)		(71.13	)%
Total	$	618	$	1,854	$	(1,236	)		(66.67	)%

Our decrease in selling, marketing and distribution expenses for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008 was primarily due to the following factors: (1) The Company assigned agents to perform sales promotion and supporting activities in connection with a government purchasing project and paid them promotion fees based on the actual sales quantities. Since the government purchasing project for Power-Saving Treasure was ended at December 31, 2008, the sales commission decreased accordingly. (2) Payroll and miscellaneous expenses decreased by $477 for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008. This decrease was due to the implementation by management to decrease expenses.

(In thousands for dollar amounts)

General and Administrative Expenses

	Three Months Ended December 31,				Increase /			Increase /
	2009		2008		(Decrease)			(Decrease)
Research and development	$	788	$	185	$	603			325.95	%
Payroll		307		310		(3	)		(0.97	)%
Office		133		145		(12	)		(8.28	)%
Stock-based employee compensation		104		-		104			100	%
Bad debt provision		-		134		(134	)		(100	)%
Depreciation		89		108		(19	)		(17.59	)%
Tax		50		106		(56	)		(52.83	)%
Others		202		239		(37	)		(15.48	)%
Total	$	1,673	$	1,227	$	446			36.35	%

Our increase in general and administrative expenses of $446, or 36.35% for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008 was primarily due to the following factors: (1) Research and development expense increased $603 for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008. This increase was due to the Company’s new products plan in 2010 as we spent more to develop new products for the three months ended December 31, 2009 than in the prior period; and (2) Miscellaneous expenses decreased by $157 for the three months ended December 31, 2009 as compared with the three months ended December 31, 2008. This decrease was due to the implementation by management to decrease expenses.

Amortization of Discount on Notes Receivable

Amortization of discount on notes receivable was $516 for the three months ended December 31, 2009 compared to $0 for the three months ended December 31, 2008. This increase was attributable to the amortization of a $3,448 discount on notes receivable for the three months ended December 31, 2009. There was no such discount on notes receivable for the three months ended December 31, 2008.

Interest Expense

	Three Months Ended December 31,				Increase /			Increase /
	2009		2008		(Decrease)			(Decrease)
Short-term bank loans	$	797	$	544	$	253			46.51	%
Bills financing		360		197		163			82.74	%
Financial obligations, sale-leaseback		99		206		(107	)		(51.94	)%
Others		205		141		64			45.39	%
Total	$	1,461	$	1,088	$	373			34.28	%

Interest expense increased $373 or 34.28% from $1,088 for the three months ended December 31, 2008 to $1,461 for the three months ended December 31, 2009 was primarily due to the following factors: (1) The average balance of short-tem bank loans increased from $56,981 for the three months ended December 31, 2008 to $79,322 for the three months ended December 31, 2009. (2) Amortization of the financial obligations was $99 and $206 for the three months ended December 31, 2009 and 2008, respectively. The decrease was due to the balance of financial obligations, which is continually decreasing with the repayment of the financial obligations quarterly.

Income Tax Expense

Income tax expense for the three months ended December 31, 2009 was $76 as compared to $568 for the three months ended December 31, 2008. The fluctuation was due to the decrease in income before tax.

(In thousands for dollar amounts)

Liquidity and Capital Resources

We generally finance our operations through our operating profit and borrowings from banks.

During the reporting periods, we arranged a number of bank loans to satisfy our financing needs. As of the date of this report, we have not experienced any difficulty in raising funds through bank loans, and we have not experienced any liquidity problems in settling our payables in the normal course of business and repaying our bank loans when they fall due.

Cash

Our cash balance at December 31, 2009 was $920, representing a decrease of $1,872, or 67%, compared with our cash balance of $2,792 at September 30, 2009. The decrease was mainly attributable to the net cash used in investing activities of $1,409 and net cash used in operating activities of $1,082.

Cash Flow

Cash flows used in operations for the three months ended December 31, 2009 amounted to $1,082, representing a decrease of approximately 119.28% compared with cash flows provided by operations of $5,612 for the three months ended December 31, 2008. This decrease in cash flow was primarily due to the decrease in our net income by 94%, to $236 for the three months ended December 31, 2009, compared with operating income of $3,911 for the three months ended December 31, 2008. The decrease was also primarily due to the increase in our accounts receivable of $3,680 since we provided longer credit terms to major customers for sales promotion.

Our cash flows used in investing activities amounted to $1,409 for the three months ended December 31, 2009. During that period, we provided $13,041 short-term notes receivable to unrelated parties for their assistance in providing a guarantee for bank loans. We received a $10,573 repayment of short-term notes receivable from a related party during the three months ended December 31, 2009.

Our cash flows provided by financing activities amounted to $619 for the three months ended December 31, 2009. During that period, we repaid $20,257 in short-term bank borrowings and received $28,730 from short-term bank borrowings.

We believe that the level of financial resources is a significant factor for our future development and accordingly, we may determine from time to time to raise capital through private debt or equity financing to strengthen the Company’s financial position, to expand our facilities and to provide us with additional flexibility to take advantage of business opportunities. No assurances can be given that we will be successful in raising such additional capital on terms acceptable to us.

Working Capital

Our working capital increased by $36,054 to $4,893, at December 31, 2009, as compared to $(31,161), at September 30, 2009, primarily due to the increase in notes receivable from related parties, current portion of $35,034, short-term notes receivable from unrelated parties of $13,041, restricted cash of $9,644 and account receivable of $3,680. The increase was partly offset by a decrease in short-term notes receivable from related parties of $10,573, inventory of $1,958, an increase in short-term bank borrowings of $8,473, notes payable of $2,461 and customer deposit of $984. The increase in restricted cash represented our pledge deposit for the issuance of notes payable. The increase in notes receivable from related parties, current portion represent the relevant principals transferred from long term to short term, which will come to maturity during the coming year. The increase in short-term notes receivable from unrelated parties represented the increase in relevant principals, which will come to maturity during the coming year.

We currently generate our cash flow through operations. We believe that our cash flow generated from operations will be sufficient to sustain operations for at least the next twelve months. From time to time, we may identify new expansion opportunities for which there will be a need for use of cash.

(In thousands for dollar amounts)

Contingencies

As of December 31, 2009, the Company provided corporate guarantees for bank loans borrowed by an unrelated company incorporated in the PRC (“Company A”). Associated with the corporate guarantee, Company A also provided a cross guarantee for the bank loans of $25,230 borrowed by the Company. If Company A defaults on the repayment of its bank loans when they fall due, the Company is required to repay the outstanding balance. As of December 31, 2009, the guarantee provided for the bank loans borrowed by Company A was approximately $3,656, which consists of the following:

	December 31, 2009
	(Unaudited)
Due May 26, 2010	$	1,170
Due May 26, 2010		293
Due June 10, 2010		731
Due December 1, 2010		921
Due December 28, 2010		541
Total	$	3,656

Default by Company A and Henghui is considered remote by our management. Based on the information available to our management, the fair values of the guarantees granted by the Company are considered not material and therefore no liability for the guarantor's obligation under the guarantee was recognized as of December 31, 2009.

Financial Obligations, Sale-leaseback

As of December 31, 2009, future minimum payments required under a non-cancellable sale-leaseback are:

Three Months Ended December 31,	Amount

2010	$	2,391
2011		295
Total minimum lease payments		2,686

Less: Amount representing interest		365
Present value of net minimum lease payments	$	2,321

Capital Commitments

As of December 31, 2009, the Company had capital expenditure commitments for construction projects of approximately $8,721.

Operating Lease Commitments

As of December 31, 2009, the Company had $15 in rental payments under non-cancelable operating leases.

Off-Balance Sheet Arrangements

None.

(In thousands for dollar amounts)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RMB Exchange Rate

We do not hold any derivative instruments and do not engage in any hedging activities. Because most of our purchases and sales are made in RMB, any exchange rate change affecting the value of the RMB relative to the U.S. dollar could have an effect on our financial results as reported in U.S. dollars. If the RMB were to depreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly reduced. If the RMB were to appreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly increased.

Non-Tariff Technical Trade Barriers Could Have a Materially Adverse Effect on our Exporting Business

Non-tariff technical trade barriers imposed by governments such as the European Unions’s EuP Directive, could adversely affect our export business. In response to the EuP Directive, the Company has launched a project to evaluate the impact of our products on the environment during each stage of a product’s life, from design, material procurement and manufacture, to maintenance, recovery and treatment. This project conforms with the trend of reducing resource consumption and pollution as laid out in the EuP Directive.

The Development of High-Tech Products Takes a Long Time and There Are Many Uncertainties in the Process

The special light source products developed by the Company are an innovation in the industry. As a result, there might be unpredictable or presently unavoidable technical flaws in the products, or the new products may not fit into the market demand. Either way, the new products might not be able to enter mass production and be sold in the markets. To avert such a risk, the Company has set up a new products decision committee and has hired senior experts in China to better oversee and grasp the developmental tendencies of the industry. Prior to the development and trial of new products, we plan on conducting systematic and in-depth research to find market space and identify technical problems and key targets for breakthrough.

Theft of our Key Technologies Could Have a Material Adverse Effect on the Company’s Business and Development

To avert the risk of theft of our technologies, the Company uses management measures, such as performance bonuses and other project rewards, to maintain the stability of its technical team. The Company (and its subsidiaries) also has in place confidentiality agreements with certain technical employees to prevent leakage of core technologies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our management, including our principal executive officer and our principal financial officer, concluded that our disclosure controls and procedures were effective as of the fiscal quarter covered by this report, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act (i) is recorded, processed, summarized and reported within the time period specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow appropriate decisions on a timely basis regarding required disclosure.

Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are named as defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of December 31, 2009, there was no pending or outstanding material litigation with the Company.

ITEM 1A. RISK FACTORS

Not required for a "smaller reporting company".

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

During the quarter ended December 31, 2009, the Company had no unregistered sales of equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits

EXHIBIT NO.	DESCRIPTION	LOCATION
2.1	Agreement and Plan of Reorganization regarding the merger of Innovative Coatings Corporation with and into ICC Holdings Corp.	Incorporated by reference to Instachem Systems, Inc.’s Current Report as filed with the SEC on August 29, 2003
2.2	Stock Purchase Agreement, by and between David Lennox and Instachem Systems, Inc.	Incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 10-KSB as filed with the SEC on January 20, 2006
2.3	Agreement and Plan of Merger between Instachem Systems, Inc. and Sino-Biotics, Inc.	Incorporated by reference to Exhibit 2.3 to the Company’s Annual Report on Form 10-KSB as filed with the SEC on January 20, 2006
2.4	Share Exchange Agreement, dated July 16, 2008, by and among Sino-Biotics, Inc., KEG International Limited and CH International Holdings Limited	Incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K as filed with the SEC on July 16, 2008
3.1	Certificate of Incorporation of Sino-Biotics, Inc.	Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB as filed with the SEC on January 20, 2006
3.2	Certificate of Amendment to Certificate of Incorporation of Sino-Biotics, Inc.	Incorporated by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-KSB as filed with the SEC on January 20, 2006
3.3	Restated Certificate of Incorporation of Sino-Biotics, Inc.	Incorporated by reference to Exhibit 3.6 to the Company’s Annual Report on Form 10-KSB as filed with the SEC on January 20, 2006

3.4	Certificate of Amendment to Certificate of Incorporation of Sino-Biotics, Inc. dated December 13, 2008 (increase of authorized shares).	Incorporated by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K as filed with the SEC on July 16, 2008
3.5	Memorandum and Articles of Association of CH International Holdings Limited	Incorporated by reference to Exhibit 3.6 to the Company’s Current Report on Form 8-K as filed with the SEC on July 16, 2008
3.6	Amended and Restated Bylaws of CH Lighting International Corporation, effective as of August 25, 2008	Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on August 26, 2008
14.1	Code of Ethics	Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on December 29, 2008
16.1	Auditor Letter, dated August 25, 2008	Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on December 29, 2008
21	List of Subsidiaries of CH Lighting International Corporation	Incorporated by reference to Exhibit 21 to the Company’s Current Report on Form 8-K as filed with the SEC on July 16, 2008
31.1	Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Provided herewith
31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Provided herewith
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Provided herewith
32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Provided herewith
99.1	Audit Committee Charter	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on August 26, 2008
99.2	Compensation Committee Charter	Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on August 26, 2008
99.3	Corporate Governance and Nominating Committee Charter	Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on August 26, 2008

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: February 12, 2010	By:	/s/ Zhao Guosong
		Name: Zhao Guosong
		Its: President, Chief Executive Officer and Principal Executive Officer

Date: February 12, 2010	By:	/s/ Huang Hsiao-I
		Name: Huang Hsiao-I
		Its: Chief Financial Officer, Corporate Secretary, and Principal Financial and Accounting Officer

CH LIGHTING INTERNATIONAL CORP - FORM 10-Q - February 12, 2010

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