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EXCEL - IDEA: XBRL DOCUMENT - Chisen Electric Corp | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - Chisen Electric Corp | v326470_ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - Chisen Electric Corp | v326470_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - Chisen Electric Corp | v326470_ex32-1.htm |
EX-32.2 - EXHIBIT 32.2 - Chisen Electric Corp | v326470_ex32-2.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
¨ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2012
OR
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______ to __________
COMMISSION FILE NUMBER: 333-128532
CHISEN ELECTRIC CORPORATION
(Exact name of registrant as specified in its charter)
Nevada | 20-2190950 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation or organization) | Identification No.) |
No. 1188, Taihu Avenue, Changxing Economic Development Zone, Changxing, Zhejiang Province,
The People’s Republic of China
(Address of principal executive offices)
(86) 572-6267666
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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 ¨
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 x No ¨
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:
Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer ¨ | 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 ¨ 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 November 16, 2012, the registrant had 500,000,000 shares of common stock, par value $0.001 per share, issued and outstanding.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION | 3 | |
ITEM 1. FINANCIAL STATEMENTS | 3 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION | 27 | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 36 | |
ITEM 4. CONTROLS AND PROCEDURES | 37 | |
PART II OTHER INFORMATION | 38 | |
ITEM 1. LEGAL PROCEEDINGS | 38 | |
ITEM 1A. RISK FACTORS | 38 | |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 38 | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 38 | |
ITEM 4. (Removed and Reserved). | 38 | |
ITEM 5. OTHER INFORMATION | 38 | |
ITEM 6. EXHIBITS | 38 | |
SIGNATURES | 47 | |
EXHIBIT 31.1 | ||
EXHIBIT 31.2 | ||
EXHIBIT 32.1 | ||
EXHIBIT 32.2 |
-2- |
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Financial Statements of
Chisen Electric Corporation
For the six months ended September 30, 2012
-3- |
Chisen Electric Corporation |
Index to Consolidated Financial Statements |
For the six months ended September 30, 2012 |
Page | ||
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income | 5 – 6 | |
Unaudited Condensed Consolidated Balance Sheets | 7 – 8 | |
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity | 9 | |
Unaudited Condensed Consolidated Statements of Cash Flows | 10 – 11 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 12 – 26 |
-4- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Statements of Operations and |
Other Comprehensive Income |
For the six months ended September 30, 2012 and 2011 |
Three months ended September 30 | Six months ended September 30 | |||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Note | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||
Operating revenues: | ||||||||||||||||||
Net sales to third parties | 22,746 | 36,422 | 43,168 | 71,821 | ||||||||||||||
Cost of sales | (19,695 | ) | (29,859 | ) | (38,541 | ) | (63,323 | ) | ||||||||||
Gross profit | 3,051 | 6,563 | 4,627 | 8,498 | ||||||||||||||
Operating expenses: | ||||||||||||||||||
Sales, marketing and distribution | (11,069 | ) | (2,121 | ) | (16,838 | ) | (4,641 | ) | ||||||||||
General and administrative | (5,037 | ) | (2,080 | ) | (7,466 | ) | (3,785 | ) | ||||||||||
Operating (loss) income | (13,055 | ) | 2,362 | (19,677 | ) | 72 | ||||||||||||
Other (expenses) income, net | (1,100 | ) | 213 | (2,075 | ) | 201 | ||||||||||||
Allowance for doubtful debts | 8 | (13,478 | ) | - | (13,478 | ) | - | |||||||||||
Interest income | 662 | 402 | 1,228 | 705 | ||||||||||||||
Interest expense | (3,563 | ) | (1,555 | ) | (7,021 | ) | (2,837 | ) | ||||||||||
(Loss) Income before income taxes | (30,534 | ) | 1,422 | (41,023 | ) | (1,859 | ) | |||||||||||
Income taxes expense | 4 | - | (531 | ) | - | (82 | ) | |||||||||||
(Loss) Income before extraordinary items | (30,534 | ) | 891 | (41,023 | ) | (1,941 | ) | |||||||||||
Extraordinary gain (less applicable income taxes of US$0) | - | - | - | 13,053 | ||||||||||||||
Extraordinary loss (less applicable income taxes of US$0) | - | - | - | (1,840 | ) | |||||||||||||
Net (loss) income including non-controlling interests | (30,534 | ) | 891 | (41,023 | ) | 9,272 | ||||||||||||
Less: Net loss (income) attributable to non-controlling interests | 76 | (11 | ) | 155 | (11 | ) | ||||||||||||
Net (loss) income attributable to CIEC common stockholders | (30,458 | ) | 880 | (40,868 | ) | 9,261 | ||||||||||||
Amounts attributable to CIEC common stockholders | ||||||||||||||||||
(Loss) Income before extraordinary item | (30,458 | ) | 880 | (40,868 | ) | (1,952 | ) | |||||||||||
Extraordinary gain (less applicable income taxes of US$0) | - | - | - | 13,053 | ||||||||||||||
Extraordinary loss (less applicable income taxes of US$0) | - | - | - | (1,840 | ) | |||||||||||||
Net (loss) income attributable to CIEC common stockholders | (30,458 | ) | 880 | (40,868 | ) | 9,261 | ||||||||||||
Other comprehensive income | ||||||||||||||||||
Foreign currency translation adjustment | 9 | 625 | 9 | 1,041 | ||||||||||||||
Comprehensive (loss) income | (30,449 | ) | 1,505 | (40,859 | ) | 10,302 |
The financial statements should be read in conjunction with the accompanying notes.
-5- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Statements of Operations and |
Other Comprehensive Income |
For the six months ended September 30, 2012 and 2011 |
Three months ended September 30 | Six months ended September 30 | |||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Note | Shares | Shares | Shares | Shares | ||||||||||||||
(Losses) Earnings per share | 3 | |||||||||||||||||
Weight average number of common stock outstanding - basic and diluted | 500,000,000 | 500,000,000 | 500,000,000 | 500,000,000 | ||||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||||
Net (loss) income per share of common stock outstanding before extraordinary items - basic and diluted | (0.061 | ) | 0.002 | (0.082 | ) | (0.004 | ) | |||||||||||
Net (loss) income per share of common stock outstanding after extraordinary items - basic and diluted | (0.061 | ) | 0.017 | (0.082 | ) | 0.019 |
The financial statements should be read in conjunction with the accompanying notes.
-6- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Balance Sheets |
As of September 30, 2012 and March 31, 2012 |
As of September 30, | As of March 31, | |||||||||
2012 | 2012 | |||||||||
Note | US$’000 | US$’000 | ||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | 10,381 | 13,804 | ||||||||
Restricted bank balances | 5 | 71,669 | 90,628 | |||||||
Other financial assets | 6 | 105 | 662 | |||||||
Trading securities | 79 | 79 | ||||||||
Trade receivables, net | 8 | 3,436 | 12,705 | |||||||
Deposit paid for land auctions | - | 31,262 | ||||||||
Other receivables, net | 14,523 | 15,804 | ||||||||
Prepayments | 564 | 3,150 | ||||||||
Due from a related party | 16(b) | 26 | 5 | |||||||
Inventories | 9 | 25,428 | 22,414 | |||||||
Income taxes receivable | 17 | 17 | ||||||||
Assets classified as held for sale | 7 | 32,206 | - | |||||||
Total current assets | 158,434 | 190,530 | ||||||||
Available-for-sale financial assets | 10 | 2,980 | 2,980 | |||||||
Long-term land lease prepayments, net | 12 | 5,011 | 5,061 | |||||||
Property, plant and equipment, net | 11 | 55,049 | 46,121 | |||||||
Deposit for acquisition of land and property, plant and equipment | 8,320 | 12,144 | ||||||||
Total assets | 229,794 | 256,836 |
The financial statements should be read in conjunction with the accompanying notes.
-7- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Balance Sheets |
As of September 30, 2012 and March 31, 2012 |
As of September 30, | As of March 31 | |||||||||
2012 | 2012 | |||||||||
Note | US$’000 | US$’000 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Trade payables | 20,609 | 18,792 | ||||||||
Notes payable | 13 | 14,184 | 17,918 | |||||||
Accrued expenses and other accrued liabilities | 23,532 | 20,124 | ||||||||
Due to related parties | 16(b) | 3,927 | 3,749 | |||||||
Short-term bank borrowings | 14 | 181,166 | 168,837 | |||||||
Government subsidies | 15 | 21 | 47 | |||||||
Total current liabilities | 243,439 | 229,467 | ||||||||
Deferred tax liabilities | 4(c) | 460 | 460 | |||||||
Total non-current liabilities | 460 | 460 | ||||||||
Total liabilities | 243,899 | 229,927 | ||||||||
Commitments and contingencies | 17 | - | - | |||||||
Stockholders’ equity: | ||||||||||
Preferred stock, US$0.001 par value each: | ||||||||||
10,000,000 shares authorized and no shares issued and outstanding | - | - | ||||||||
Common stock, US$0.001 par value each: | ||||||||||
1,000,000,000 shares authorized | - | - | ||||||||
500,000,000 shares issued and outstanding | 500 | 500 | ||||||||
Capital reserves | 144 | 144 | ||||||||
Statutory reserves | 4,003 | 4,003 | ||||||||
Accumulated other comprehensive income | 3,965 | 3,956 | ||||||||
(Accumulated losses) Retained earnings | (22,978 | ) | 17,890 | |||||||
Total CIEC stockholders’ (deficit) equity | (14,366 | ) | 26,493 | |||||||
Non-controlling interests | 261 | 416 | ||||||||
Total stockholders’ (deficit) equity | (14,105 | ) | 26,909 | |||||||
Total liabilities and stockholders’ equity | 229,794 | 256,836 |
The financial statements should be read in conjunction with the accompanying notes.
-8- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity |
For the six months ended September 30, 2012 |
Common stock issued | Accumulated
other | Total
CIEC stockholders’ | Non- | Total stockholders’ | ||||||||||||||||||||||||||||||||
Number of shares | Amount | Capital reserves | Statutory reserves | comprehensive income | Retained earnings | (deficit) equity | controlling interests | (deficit) equity | ||||||||||||||||||||||||||||
US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||||||||||||||||||
Balance as of April 1, 2012 | 500,000,000 | 500 | 144 | 4,003 | 3,956 | 17,890 | 26,493 | 416 | 26,909 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | (40,868 | ) | (40,868 | ) | (155 | ) | (41,023 | ) | |||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | 9 | - | 9 | - | 9 | |||||||||||||||||||||||||||
Balance as of September 30, 2012 | 500,000,000 | 500 | 144 | 4,003 | 3,965 | (22,978 | ) | (14,366 | ) | 261 | (14,105 | ) |
The financial statements should be read in conjunction with the accompanying notes.
-9- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Statements of Cash Flows |
For the six months ended September 30, 2012 and 2011 |
Six months ended September 30, | ||||||||
2012 | 2011 | |||||||
US$’000 | US$’000 | |||||||
Cash flows from operating activities | ||||||||
Net (loss) income | (41,023 | ) | 9,272 | |||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
Depreciation of property, plant and equipment | 1,687 | 542 | ||||||
Allowance for doubtful debts | 13,478 | - | ||||||
Impairment loss on other receivable | 1,248 | - | ||||||
Impairment loss on plant and machinery and leasehold Improvement | 836 | 1,840 | ||||||
Net compensation gain on disposal of land use rights and Buildings | - | (13,053 | ) | |||||
Amortization of long-term land lease prepayments | 51 | 46 | ||||||
Exchange differences | - | 21 | ||||||
Provision for warranty costs | 11,753 | 224 | ||||||
Government grant recognized | (26 | ) | (25 | ) | ||||
Reversal of provision for inventories | - | (188 | ) | |||||
Deferred taxes | - | (613 | ) | |||||
Changes in assets and liabilities: | ||||||||
Other financial assets | 558 | 741 | ||||||
Trade receivables, net | (4,205 | ) | 11,234 | |||||
Other receivables | (323 | ) | (24 | ) | ||||
Prepayment | 1,998 | (3,455 | ) | |||||
Due from related parties | (14 | ) | 1 | |||||
Inventories | (3,005 | ) | 415 | |||||
Trade payables | 1,813 | 5,430 | ||||||
Notes payable | (3,740 | ) | (15,572 | ) | ||||
Accrued expenses and other accrued liabilities | (8,355 | ) | (901 | ) | ||||
Due to related parties | 834 | (2,022 | ) | |||||
Income taxes payable | - | 622 | ||||||
Net cash used in operating activities | (26,435 | ) | (5,465 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property, plant and equipment and construction in progress | (11,436 | ) | (16,559 | ) | ||||
Addition of long-term land lease prepayment | - | (741 | ) | |||||
Compensation received for loss on plant and machinery and leasehold improvement | 951 | 5,065 | ||||||
Investment in restricted bank balances, net | 18,991 | (765 | ) | |||||
Refund of deposit paid for land auctions | 31,273 | - | ||||||
Deposit paid for acquisition of land and property, plant and equipment | 3,827 | - | ||||||
Acquisition of assets classified as held for sale | (32,206 | ) | - | |||||
Net cash provided by (used in) investing activities | 11,400 | (13,000 | ) |
The financial statements should be read in conjunction with the accompanying notes.
-10- |
Chisen Electric Corporation |
Unaudited Condensed Consolidated Statements of Cash Flows |
For the six months ended September 30, 2012 and 2011 |
Six months ended September 30, | ||||||||
2012 | 2011 | |||||||
US$’000 | US$’000 | |||||||
Cash flows from financing activities | ||||||||
Proceeds from short-term bank loans | 65,664 | 21,680 | ||||||
Repayment of short-term bank loans | (37,211 | ) | (17,688 | ) | ||||
Proceeds from bills financing | 100,612 | 41,363 | ||||||
Repayment of bills financing | (116,788 | ) | (30,132 | ) | ||||
Due to a related party | (665 | ) | - | |||||
Capital contributed by non-controlling interest | - | 372 | ||||||
Net cash provided by financing activities | 11,612 | 15,595 | ||||||
Net decrease in cash and cash equivalents | (3,423 | ) | (2,870 | ) | ||||
Cash and cash equivalents, beginning of period | 13,804 | 7,630 | ||||||
Effect on exchange rate changes | - | 188 | ||||||
Cash and cash equivalents, end of period | 10,381 | 4,948 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Interest received | 1,228 | 705 | ||||||
Interest paid | 7,594 | 2,280 | ||||||
Tax paid | - | 80 |
The financial statements should be read in conjunction with the accompanying notes.
-11- |
Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
Chisen Electric Corporation (“Chisen Electric”), formerly known as World Trophy Outfitters, Inc., was formed as a Nevada corporation on January 13, 2005. Its common stock currently is traded on the Over-The-Counter Bulletin Board and on the OTC Markets under the symbol “CIEC”.
Chisen Electric is an investment holding company with no operations. The principal activities of its subsidiaries (together with Chisen Electric, collectively referred as “the Company”) are the manufacture and sales of sealed lead-acid battery products and relevant components, and investment holding.
Details of Chisen Electric’s subsidiaries as of September 30, 2012 are as follows:
Name |
Place and date of establishment / incorporation |
Percentage of effective equity interest / voting right attributable to the Company |
Principal activities | |||
Fast More Limited (“Fast More”) |
Hong Kong December 17, 2007 |
100%
|
Investment holding
| |||
Zhejiang Chisen Electric Co., Limited * (“Zhejiang Chisen”) |
Zhejiang, February 25, 2002 |
100% | Manufacture and sales of sealed lead-acid battery products and relevant components | |||
Chisen Electric Jiangsu Co., Limited * (“Chisen Jiangsu”) | Jiangsu, PRC August 23, 2010 |
98% | Manufacture and sales of sealed lead-acid battery products and relevant components |
* | These are direct translation of the name in Chinese for identification purpose only and are not the official name in English. |
-12- |
Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of presentations
The accompanying unaudited condensed consolidated financial statements as of September 30, 2012 have been prepared based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods and include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows as of September 30, 2012 and for all periods presented. Information as of March 31, 2012 was derived from the audited consolidated financial statements of the Company for the year ended March 31, 2012.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Chisen Electric's Form 10-K filed on July 2, 2012 for the year ended March 31, 2012 (“2012 Form 10-K”) . The results of operations for both the three months and six months ended September 30, 2012 are not necessarily indicative of the operating results to be expected for the full year ending March 31, 2013.
The Company had negative working capital of US$85,005,000 as of September 30, 2012 and incurred loss of US$30,458,000 and US$40,868,000 for both the three months and six months ended September 30, 2012, respectively. These conditions raised substantial doubt about the Company’s ability to continue as going concern.
Continuation of the Company as a going concern is dependent upon attaining profitable operations in the future, exercising tight cost and cash flow controls measures, and the financial support from a controlling stockholder of the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As more detailed in the Company’s Form 10-K for the year ended March 31, 2012, the controlling stockholder had undertaken to make available adequate funds to the Company as and when required to maintain the Company as a going concern for the year from April 1, 2012 to March 31, 2013. Having taken into consideration the undertaking provided by the controlling stockholder, management believes that the Company will be able to settle its liabilities when they become due. However, there can be no assurance that the financing from the controlling stockholder will continue. If we cannot obtain financing, we may be forced to cease or further suspend our operations which would have a materially adverse effect on our business.
The condensed consolidated financial statements and accompanying notes are presented in United States dollars and prepared in conformity with USGAAP which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
-13- |
Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Basis of consolidation
The consolidated financial statements include the financial information of Chisen Electric and its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.
Fair value measurements
ASC 820 establishes a three-tier fair value hierarchy to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are defined as follows:
Level 1: | Observable inputs, such as unadjusted quoted market prices in active markets for the identical asset or liabilities. |
Level 2: | Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. |
Level 3: | Unobservable inputs reflecting the entity’s own assumptions in measuring the asset or liability at fair value. |
The Company’s financial instruments consist principally of cash and cash equivalents, restricted bank balances, other financial assets, trade receivables and payables, deposits, prepayment and other receivables, notes payable, accrued expenses and other liabilities, amount due from/to related parties and short-term borrowings which are carried at amounts that generally approximate their fair values because of the short-term maturity of these instruments.
The Company’s trading securities are measured at fair value on recurring basis. The trading securities are listed on a stock exchange in the PRC with quoted price in active market (Level 1 inputs).
Recent accounting pronouncement
As of the date this quarterly report is filed, there are no recently issued accounting pronouncements which adoption would have a material impact on the Company’s financial statements.
3. | (LOSSES) EARNINGS PER SHARE |
Basic (losses) earnings per share is computed by dividing (loss) income available to common stockholders by the weighted-average number of common stocks outstanding during the period. Diluted (losses) earnings per share is computed similar to basic (losses) 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 both the three months and six months ended September 30, 2012 and 2011. As a result of a forward stock split in November 2011, the calculation of basic and diluted (losses) earnings per common stock for all periods presented are adjusted retrospectively.
-14- |
Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
4. | INCOME TAXES |
Chisen Electric had a net operating loss carry-forward for income tax reporting purposes that might be offset against future taxable income. No tax benefit has been reported in the financial statements, because Chisen Electric believes that it is more likely than not that the carry-forwards will finally expire and therefore cannot be used. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.
Chisen Electric’s subsidiaries are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdictions in which each entity domiciles and operates.
Hong Kong Profits Tax has not been provided as Fast More had no assessable profit for the period.
Zhejiang Chisen and Chisen Jiangsu are subject to state and local enterprise income taxes in the PRC at a standard rate of 25%. Since January 1, 2011, Zhejiang Chisen has been designated by the local tax authority as “New and High Technology Enterprises”. As a result, the effective tax rate applicable to Zhejiang Chisen was 15% commencing on January 1, 2011.
Dividends payable by a foreign invested enterprise in the PRC to its foreign investors in Hong Kong are subject to a 10% withholding tax. No deferred tax expenses on undistributed profits were charged to the statement of operations for both the three months and six months ended September 30, 2012 and 2011 as the management considered that there is no change in the expected amount of profits to be distributed in the foreseeable future.
(a) | Income tax expenses are comprised of the following: |
Three months ended September 30, | Six months ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||
Current taxes arising in the PRC: | ||||||||||||||||
Corporate income tax | - | 660 | - | 695 | ||||||||||||
Deferred taxes arising in the PRC: | ||||||||||||||||
Benefit of tax loss recognized | - | (129 | ) | - | (613 | ) | ||||||||||
- | 531 | - | 82 |
The FASB ASC Topic 740 “Income Taxes” clarifies the accounting and disclosure for uncertainty in tax positions, as defined, and prescribes the measurement process and a minimum recognition threshold for a tax position, taken or expected to be taken in a tax return, that is required to be met before being recognized in the financial statements. Under ASC 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the tax authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.
-15- |
Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
4. | INCOME TAXES (CONTINUED) |
(a) | Income tax expenses are comprised of the following (continued): |
Subject to the provision of ASC 740, the Company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns. As of September 30, 2012 and March 31, 2012, the Company has identified the following jurisdictions as “major” tax jurisdictions, as defined, in which it is required to file income tax returns namely the United States, Hong Kong and the PRC. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements.
As of September 30, 2012 and March 31, 2012, the Company had no unrecognized tax benefits or accruals for the potential payment of interest and penalties. The Company’s policy is to record interest and penalties in this connection as a component of the provision for income tax expense. For both the three months and six months ended September 30, 2012 and 2011, no interest or penalties were recorded.
(b) | Reconciliation from the expected income tax expenses calculated with reference to the statutory tax rate in the PRC of 25% (2011: 25%) is as follows: |
Three months ended September 30, | Six months ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||
Expected income tax expenses | (7,633 | ) | 355 | (10,256 | ) | (465 | ) | |||||||||
Effect on tax incentives / holiday | 2,793 | 93 | 3,279 | 415 | ||||||||||||
Unrecognized tax losses and temporary difference | 4,988 | - | 6,853 | - | ||||||||||||
Others | (148 | ) | 83 | 124 | 132 | |||||||||||
Income tax expenses | - | 531 | - | 82 |
(c) | Components of deferred tax liabilities were as follows: |
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Withholding tax on undistributed earnings of a PRC subsidiary | 460 | 460 |
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
4. | INCOME TAXES (CONTINUED) |
(d) | Components of deferred tax assets were as follows: |
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Depreciation and impairment | 240 | 1,036 | ||||||
Provisions and accruals | 3,498 | 623 | ||||||
Tax losses carried forward | 8,054 | 3,280 | ||||||
11,792 | 4,939 | |||||||
Valuation allowance | (11,792 | ) | (4,939 | ) | ||||
Net deferred tax assets | - | - |
As it is not probable that taxable profits will be available against which the deductible temporary differences and the unused tax losses of Zhejiang Chisen and Chisen Jiangsu can be utilized, valuation allowance of US$11,792,000 was made as of September 30,2012.
5. | RESTRICTED BANK BALANCES |
Restricted bank balances represented time deposits with original maturity within six months to secure banking facilities granted by various financial institutions as follows:
As of September 30, | As of March 31, | |||||||||||
Note | 2012 | 2012 | ||||||||||
US$’000 | US$’000 | |||||||||||
Notes payable | 13 | 25,568 | 21,562 | |||||||||
Short-term bank loans | 14 | 6,973 | - | |||||||||
Bills financing | 14 | 39,128 | 69,066 | |||||||||
71,669 | 90,628 |
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
6. | OTHER FINANCIAL ASSETS |
Other financial assets represented notes receivable from customers for the settlement of trade receivable balances and trade deposits. As of September 30, 2012 and March 31, 2012, all notes receivable were guaranteed by established banks in the PRC and had maturities of 6 months or less from the date of issue. The fair value of the notes receivable approximated their carrying value.
7. | ASSETS CLASSIFIED AS HELD FOR SALE |
During the six months ended September 30, 2012, on May 4, 2012 and June 28, 2012, the Company acquired two parcels of land located at Xuyi County, Jiangsu Province, PRC with an aggregate consideration of US$32,206,000. Total area of the lands is approximately 83,658 m². The Company intends to sell this land in the foreseeable future and seeks to make a short-term gain from the disposal of such assets. The land is carried at the lower of its carrying amount and fair value less costs to sell.
The management, based on the professional valuation conducted by Greater China Appraisal Limited and the recent market condition, estimated that the fair value of the lands is higher than its carrying amount.
8. | TRADE RECEIVALBES, NET |
Trade receivables consist of:
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Trade receivables | 16,920 | 12,711 | ||||||
Less Allowance for doubtful debts (Note) | (13,484 | ) | (6 | ) | ||||
3,436 | 12,705 |
Note: | In order to comply with the tightened environment protection policy, the Company has adopted the internal batteries formation technique to produce lead acid batteries since July 2011. However, this technique is relatively new and complicated for the Company and up to the date of this report, the Company is still unable to handle it well as compared to its original production technique, the external batteries formation technique. As such, the Company was unable to produce batteries with stable quality. During the six months ended September 30, 2012, the return rate of those internal formation batteries within the warranty period has increased significantly to 30% as compared with 10% of external formation batteries during the six months ended September, 2011. |
Batteries are a significant part of electric bicycles. The quality of batteries directly affects the quality of electric bicycles. In September 2012, two of our factory customers which are major electric bicycles manufacturers, claimed that they had suffered losses from the poor quality of the Company’s battery products and denied to settle their outstanding debts with the Company.
Up to the date of this report, the Company is still negotiating with them for the settlement. However, management expects that the negotiation will not be finalized within a short period of time and it is highly likely that these factory customers would not make any settlement to the Company during the negotiation period. Management believes that the opportunity to recover the debts from these customers is remote and therefore has made an allowance for doubtful debts amounting to US$13,478,000 during the 3 and 6 months ended September 30, 2012.
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
9. | INVENTORIES |
Inventories consisted of the following:
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Raw materials | 3,617 | 4,132 | ||||||
Work-in-progress and semi-finished goods | 19,047 | 14,371 | ||||||
Finished goods | 2,764 | 3,911 | ||||||
25,428 | 22,414 |
10. | AVAILABLE-FOR-SALE FINANCIAL ASSETS |
Available-for-sale financial assets as of September 30, 2012 and March 31, 2012 represented investment in unlisted equity securities and are recorded at cost. The management has estimated that the recoverable amount of the assets exceed their carrying value.
11. | PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment is summarized as follows:
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Buildings | 26,275 | 13,714 | ||||||
Leasehold improvements | 1,568 | 1,532 | ||||||
Plant and machinery | 25,374 | 24,807 | ||||||
Motor vehicles | 1,559 | 1,547 | ||||||
Furniture, fixtures and office equipment | 4,450 | 4,281 | ||||||
Construction in progress | 4,416 | 9,196 | ||||||
63,642 | 55,077 | |||||||
Accumulated depreciation and impairment loss | (8,593 | ) | (8,956 | ) | ||||
55,049 | 46,121 |
Depreciation expenses were approximately US$852,000 and US$238,000 for the three months ended September 30, 2012 and 2011, respectively, and US$1,690,000 and US$542,000 for the six months ended September 30, 2012 and 2011 respectively.
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
12. | LONG-TERM LAND LEASE PREPAYMENTS, NET |
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Prepaid land use rights | 5,164 | 5,163 | ||||||
Accumulated amortization | (153 | ) | (102 | ) | ||||
5,011 | 5,061 |
Lease prepayment as of September 30, 2012 and March 31, 2012 represented land use rights located in the PRC, which are amortized over the leasehold periods.
Amortization expense for the three months ended September 30, 2012 and 2011 were US$26,000 and US$22,000 respectively, and US$51,000 and US$46,000 for the six months ended September 30, 2012 and 2011, respectively.
13. | NOTES PAYABLE |
Notes payable were issued by the Company to creditors with the banker’s acceptance payable at the maturity date for the purchase of raw materials for production exclusively. The Company is obligated to repay the notes within nine months from date of issuance and service fees would be charged by banks for the issuance of the notes. The notes payable were collateralized by restricted bank balances as set out in Note 5 and long-term land lease prepayments with carrying amount of US$4,741,000 (as of March 31, 2012: US$760,000) as of September 30, 2012.
In addition, various parties have issued guarantee against these notes payable as follows:
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Corporate and personal guarantees issued by related parties (Note 16(d)) | 19,123 | 4,277 | ||||||
Corporate guarantees issued by third parties | - | 1,584 | ||||||
Corporate guarantees jointly issued by related parties and third parties (Note 16(d)) | 6,339 | 3,960 |
As of September 30, 2012 and March 31, 2012, the Group had unutilized banking facilities of approximately US$8,500,000 and US$17,991,000, respectively, to meet the liquidity needs.
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
14. | SHORT-TERM BANK BORROWINGS |
Short-term bank borrowings comprise of the followings:
As of September 30, | As of March 31, | |||||||||||
Note | 2012 | 2012 | ||||||||||
US$’000 | US$’000 | |||||||||||
Short-term bank loans | (i) | 80,554 | 52,090 | |||||||||
Bills financing | (ii) | 100,612 | 116,747 | |||||||||
181,166 | 168,837 |
(i) | Short-term bank loans |
Short-term bank loans represent amounts due to various banks which are due within 12 months, and these loans can normally be renewed with the banks upon expiry/maturity.
The loans are collateralized by assets of the Company with carrying values as follows:
As of September 30, | As of March 31, | |||||||||||
Note | 2012 | 2012 | ||||||||||
US$’000 | US$’000 | |||||||||||
Restricted bank balances | 5 | 6,973 | - | |||||||||
Long-term land lease prepayments and buildings | 4,741 | 4,142 | ||||||||||
Trade receivables | 14,263 | 11,090 | ||||||||||
25,977 | 15,232 |
Various parties have also issued guarantee against these short-term bank loans as follows:
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Corporate and personal guarantees issued by related parties (Note 16(d)) | 35,182 | 24,524 | ||||||
Corporate guarantees issued by third parties | - | 1,426 | ||||||
Corporate and personal guarantees issued jointly by realized parties and a third party (Note 16((d)) | 23,423 | 11,881 |
The weighted average annual interest rates of the short-term bank loans were 6.51% and 6.01% as of September 30, 2012 and March 31, 2012 respectively.
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
14. | SHORT-TERM BANK BORROWINGS (CONTINUED) |
(ii) | Bills financing |
Bills financing represents amounts due to various banks which are repayable within nine months from the date of issue.
The bills financing are collateralized by assets of the Company with carrying values as follows:
As of September 30, | As of March 31, | |||||||||||
Note | 2012 | 2012 | ||||||||||
US$’000 | US$’000 | |||||||||||
Restricted bank balances | 5 | 39,128 | 69,066 | |||||||||
Long-term land lease prepayments | 4,742 | - | ||||||||||
Available-for-sale financial assets | 2,980 | - | ||||||||||
46,850 | 69,066 |
Also, certain related parties and third parties have issued guarantees against these bills financing to the extent of US$55,106,000 and US$59,414,000 as of September 30, 2012 and March 31, 2012, respectively.
The weighted average annual interest rates of the bills financing were 3.70% and 4.29% as of September 30, 2012 and March 31, 2012, respectively.
15. | GOVERNMENT SUBSIDIES |
During the year ended March 31, 2008, the Company received a government grant of approximately US$231,000 for the purpose of subsidizing its acquisition of property, plant and equipment, of which approximately US$13,000 and US$13,000 were credited to the statement of operations for the three months ended September 30, 2012 and 2011 respectively, and US$26,000 and US$25,000 were credited to the statement of operations for the six months ended September 30, 2012 and 2011, respectively.
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
16. | RELATED PARTY TRANSACTIONS |
(a) | Names and relationship of related parties: |
Name of related party | Existing relationships with the Company | |
Mr. Xu Kecheng | Director and controlling stockholder of Chisen Electric | |
Zhejiang Chisen Glass Company Limited (“Chisen Glass”)* | A company controlled by a close family member of Mr. Xu Kecheng | |
Mr. Xu Keyong | A close family member of Mr. Xu Kecheng | |
Mr. Xu Zhaoyu | A close family member of Mr. Xu Kecheng | |
Ms. Zhou Fang Qin | Spouse of Mr. Xu Kecheng | |
Changxing Chisen Xinguangyuan Company Limited (“Xinguangyuan”)* | A company controlled by a close family member of Mr. Xu Kecheng | |
Zhejiang Ai Ge Organism Products Company Limited (“Ai Ge Organism”)* | A company controlled by Mr. Xu Kecheng | |
Zhejiang Changxing Nuo Wan Te Ke Glass Company Limited (“Nuo Wan Te Ke”)* | A company controlled by a close family member of Mr. Xu Kecheng | |
Zhejiang Changxing Ruilang Electronic Company Limited (“Ruilang Electronic”) * | A company controlled by a close family member of Mr. Xu Kecheng | |
* | These are direct translation of the name in Chinese for identification purpose only and are not the official names in English. |
(b) | Summary of balances with related parties: |
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Due from a related party: | ||||||||
Ms. Zhou Fang Qin | 26 | 5 | ||||||
Due to related parties: | ||||||||
Ms. Zhou Fang Qin | 155 | 824 | ||||||
Mr. Xu Keyong | 2 | 2 | ||||||
Chisen Glass | 1,307 | 1,219 | ||||||
Ruilang Electronic | 2,147 | 1,387 | ||||||
Ai Ge Organism | 316 | 316 | ||||||
Xinguangyuan | - | 1 | ||||||
3,927 | 3,749 |
All amounts due from / to related parties represent unsecured advances which are interest-free and repayable on demand.
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
16. | RELATED PARTY TRANSACTIONS (CONTINUED) |
(c) | Summary of related party transactions: |
Three months ended September 30, | Six months ended September 30, | |||||||||||||||||
Name of related party | Nature of transactions | 2012 | 2011 | 2012 | 2011 | |||||||||||||
US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||||
Ruilang Electronic | Purchase of raw materials | 1,388 | 50 | 2,711 | 919 | |||||||||||||
Chisen Glass | Purchase of raw materials | 759 | 4 | 1,612 | 382 |
(d) | Other arrangements: |
˙ | As of September 30, 2012, Chisen Glass provided guarantees, in aggregate, amounting to US$6,339,000, US$2,271,000 and US$2,482,000 to secure the short-term bank loans, bills financing and notes payable of the Company, respectively. |
˙ | As of September 30, 2012, Ruiling Electronic, Chisen Glass, Mr. Xu Kecheng and Ms. Zhou Fang Qin provided guarantees, in aggregate, amounting to US$11,094,000 to secure notes payable of the Company. |
˙ | As of September 30, 2012, Mr. Xu Kecheng, Ms. Zhou Fang Qin and a third party provided guarantees, in aggregate, amounting to US$11,094,000, US$7,924,000 and US$6,339,000 to secure the short-term bank loans, bills financing and notes payable of the Company, respectively. |
˙ | As of September 30, 2012, Xinguangyuan, Mr. Xu Kecheng and Ms. Zhou Fang Qin, provided guarantees, in aggregate, amounting to US$16,609,000, US$2,377,000 and US$3,962,000 to secure the short-term bank loans, bills financing and notes payable of the Company, respectively. |
˙ | As of September 30, 2012, Chisen Glass and a third party provided guarantees, in aggregate, amounting to US$3,962,000 and US$1,981,000 to secure the short-term bank loans and bills financing of the Company, respectively. |
˙ | As of September 30, 2012, Xinguangyuan provided guarantees, in aggregate, amounting to US$32,945,000 to secure the bills financing of the Company. |
˙ | As of September 30, 2012, Xinguangyuan, Chisen Glass and a third party provided guarantees, in aggregate, amounting to US$3,613,000 to secure the short-term bank loans of the Company. |
˙ | As of September 30, 2012, Mr. Xu Kecheng, Ms. Zhou Fang Qin, Xinguangyuan and a third party provided guarantees, in aggregate, amounting to US$4,754,000 to secure the short-term bank loans of the Company. |
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Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
16. | RELATED PARTY TRANSACTIONS (CONTINUED) |
˙ | As of September 30, 2012, Chisen Glass and Xinguangyuan provided guarantees, in aggregate, amounting to US$4,438,000 to secure the bills financing of the Company. |
˙ | As of September 30, 2012, Ruiling Electronic, Mr. Xu Kecheng and Ms. Zhou Fang Qin provided guarantees, in aggregate, amounting to US$1,585,000 to secure the bills financing of the Company. |
˙ | As of September 30, 2012, Xinguangyuan, Chisen Glass, Mr. Xu Kecheng and Ms. Zhou Fang Qin provided guarantees, in aggregate, amounting to US$5,895,000 to secure the short-term bank loans of the Company. |
˙ | As of September 30, 2012, Xinguangyuan, Mr. Xu Kecheng and Ms. Zhou Fang Qin and a third party provided guarantees, in aggregate, amounting to US$1,585,000 to secure the bills financing of the Company. |
˙ | As of September 30, 2012, Mr. Xu Kecheng and Ms. Zhou Fang Qin provided guarantees, in aggregate, amounting to US$6,339,000 and US$1,585,000 to secure the short-term bank loans and notes payable of the Company, respectively. |
17. | COMMITMENTS AND CONTINGENCIES |
(a) | Operating lease commitments |
The following table summarizes the approximate future minimum rental payments under non-cancelable operating leases in effect as of September 30, 2012 and March 31, 2012:
As of September 30, | As of March 31, | |||||||
2012 | 2012 | |||||||
US$’000 | US$’000 | |||||||
Within one year | 29 | 451 | ||||||
One to two years | - | 329 | ||||||
Two to three years | - | 99 | ||||||
Total | 29 | 879 |
(b) | Capital commitments |
As of September 30, 2012 and March 31, 2012, the Company had outstanding capital expenditure commitments relating to various construction projects and purchase of land and machineries for an aggregate amount of approximately US$116,753,000 and US$122,845,000 respectively.
-25- |
Chisen Electric Corporation |
Notes to Unaudited Condensed Consolidated Financial Statements |
For the six months ended September 30, 2012 and 2011 |
18. | PROVISION FOR WARRANTY |
Provision for warranty is included in accrued expenses and other accrued liabilities as of September 30, 2012 and March 31, 2012. Estimated warranty costs are recognized at the time when the Company sells its products and are included in sale, marketing and distribution expenses. The Company uses historical failure rates and costs to repair product defects during the warranty period to estimate warranty costs while are reviewed periodically in light of actual experience. The reconciliation of the changes in the warranty obligation is as follows:
Three months ended September 30, | Six months ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||
Beginning balance | 2,375 | 367 | 1,218 | 301 | ||||||||||||
Exchange realignment | 1 | 5 | 1 | 9 | ||||||||||||
Accrual for warranties issued during the period | 8,229 | 85 | 11,753 | 224 | ||||||||||||
Settlement made during the period | (3,219 | ) | (135 | ) | (5,586 | ) | (212 | ) | ||||||||
Closing balance | 7,386 | 322 | 7,386 | 322 |
19. | RETIREMENT PLAN COSTS |
Contributions to defined contribution retirement schemes are charged to cost of sales, sales, marketing and distribution costs and general and administrative expenses in the consolidated statements of operations and other comprehensive income as and when the related employee services are provided. Retirement plan costs were US$793,000 and US$274,000 for the three months ended September 30, 2012 and 2011, respectively, and US$1,438,000 and US$387,000 for the six months ended September 30, 2012 and 2011, respectively.
20. | SEGMENTAL INFORMATION |
During the six months ended September 30, 2012 and 2011, all revenue of the Company represented income from sales of sealed lead-acid battery products and relevant components and therefore no financial information by business segment is presented. Furthermore, as all revenue is derived from the PRC, no geographical segment is presented.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
As used in this report, unless otherwise indicated, the terms “we”, “our”, “us”, the “Company” and “Chisen” refer to Chisen Electric Corporation, a Nevada corporation together with our subsidiaries, which include our wholly-owned subsidiary, Fast More Limited, a Hong Kong investment holding company (“Fast More”), its 100% owned and chief operating subsidiary, Zhejiang Chisen Electric Co., Ltd., a wholly foreign owned entity (“WFOE”) organized under the laws of the PRC (f/k/a Changxing Chisen Electric Co., Ltd. and hereinafter referred to as “CCEC”) and CCEC’s subsidiary, Chisen Electric Jiangsu Co., Ltd. (“CEJC”). “China” or “PRC” refers to the People’s Republic of China. “RMB” or “Renminbi” refers to the legal currency of China and “$”, “US$” or “U.S. Dollars” refers to the legal currency of the United States. The “Registrant” refers only to Chisen Electric Corporation, the Nevada corporation.
The following discussion of our financial condition and results of operations of the Company is based upon and should be read in conjunction with our 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.
Company Overview
We produce and sell sealed lead-acid motive batteries, also known as valve regulated lead-acid motive batteries (VRLA batteries) in China's personal transportation device market. Our motive battery products, sold under our own brand name “Chisen”, are predominantly used in electric bicycles and are distributed and sold in China. Among all types of batteries for electric bicycles, the lead-acid motive battery is the preferred choice of electric bicycle manufacturers in China, accounting for 95% of the market share because of its cost efficiency.
For the six months ended September 30, 2012 and 2011, sales revenues were US$43,168,000 and US$71,821,000, respectively, and our net (loss) income attributable to the Registrant’s common stockholders during the same periods amounted to US$(40,868,000) and US$9,261,000, respectively. As of September 30, 2012, we have negative equity of US$14,105,000. The Company also had negative working capital of US$38,937,000 and US$85,005,000 as of March 31, 2012 and September 30, 2012, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The negative equity was mainly attributable to the decrease of profits generated from selling activities as well as the increase of allowance made on certain doubtful debts.
Due to the tightened environment protection policy introduced by the PRC government in 2011, our plants in Zhejiang Province could not fully comply with the new policy, we were forced to scale down our operations and relocate our plant to Jiangsu Province. In our new plant, we have introduced the internal batteries formation technique to produce lead acid batteries in order to fully comply with the new policy. However, this technique is relatively new and complicated to us, and we were unable to handle it well as compared to our original production technique. As such, the Company was unable to produce batteries with stable quality. Due to poor product quality and shortage of supplies, we have lost our market share. During the six months ended September 30, 2012, our revenue decreased by 39.90% as compared with the corresponding period in 2011.
Since we were the preferred supplier of electric bicycle manufacturers, our product quality directly affected the quality of our customers’ products. During the period ended September 30, 2012, two of our electric bicycle manufacturer factory customers claimed that they had suffered losses from the poor product quality of our batteries and denied to settle their outstanding debts with us. Up to the date of this report, the Company is still negotiating with its customers for a settlement. However, management expects that the negotiation will not be finalized within a short period of time and it is highly likely that these factory customers will not make any settlement to the Company during the negotiation period. Management believes that the opportunity to recover its debts from these customers is remote and therefore has made an allowance for doubtful debts of US$13,478,000.
-27- |
In order to recover our market share, we must produce batteries with stable and good quality. During the period ended September 30, 2012, we have appointed experts to inspect our production facilities and production technique. Having consulted with our experts, we temporarily suspended our production in September 2012 to improve our production facilities and each production process. We provided additional training to our workers to ensure that all of them can produce high quality batteries in accordance with the improved production process. We enhanced our quality control inspection in order to identify the defected products in the earlier stage of production and to prevent their distribution into the market.
In order to recover our market share, we are undertaking several activities to rebuild the confidence of our customers. For example, we invited our distributors and factory customers to visit our plant in order to present our quality control and our efforts made with respect to environment protection. We introduced a new advertising campaign to invite Sun Yang, a gold medal winner at the 2012 London Olympic Games, as our celebrity to promote our product and to improve our Company’s image.
We cannot ensure that all these activities will enable the Company to recover the market share, however, we intend to make every effort to rebuild our image and to recover our market share.
Development Strategy of the Company
Our first priority is to improve the quality of our products and to repair the relationships we have with our current dissatisfied customers as described above.
Despite our recent setbacks, we still strive to create an international first-class brand and become one of the leaders in providing “green” energy in the global electric bicycle market. Through our continuous researching and developing of new chemical energy technologies, we intend to provide energy-saving and highly-effective energy solutions to our customers for improving quality of life while maintaining a sustainable ecological environment. Our goal is to become the largest battery developer and producer with a first-class sales and service network in China. With our expansion plans in Changxing County (Zhejiang Province) and Jiangsu Province, our product research and development capability and our cooperative partnerships with clients, we believe that we are positioned to capture additional business opportunities in China's personal transportation device markets. In light of the prevailing economic trends for developing alternative transportation devices that reduce the reliance on oil and produce lesser emissions, we plan to explore the motive battery market for electric-powered motorcycles and electric cars. Leveraging our experience and expertise in producing lead-acid motive battery products for electric bicycles, we plan to expand our product mix to include valve regulated lead-acid back-up batteries, the lithium-ion battery, lead-acid power storage batteries dedicated for solar and wind power and lead-acid motive batteries for electric cars.
Production Capacity
On September 6, 2010, CEJC entered into a Project Investment Contract and a Supplemental Agreement to the Project Investment Contract with the Jiangsu Xuyi Economic Development Zone Administrative Committee, pursuant to which CEJC shall invest, in the aggregate, approximately RMB1,200,000,000 (approximately US$177,000,000) to manufacture VRLA batteries, as well as our newest product, lithium-ion batteries, and other related products in the Jiangsu Xuyi Economic Development Zone (“Plant A”). At the date of this report, CEJC has completed all construction related to the first stage and has invested over RMB422,000,000 (approximately US$62,000,000) in assets for the production of VRLA batteries only. Currently, the Company does not plan to construct lithium-ion battery production facilities in Plant A.
Augment Marketing and Promotion Efforts to Increase Brand Awareness
The Company introduced a new advertising campaign to invite Sun Yang, a gold medal winner at the 2012 London Olympic Games, as our celebrity to promote our products and to help improve our Company’s image. The celebrity contract term is two years commencing June 1, 2012. The amounts we decide to allocate to this strategy will be funded by our operating cash flows.
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Expand Sales Network and Distribution Channels
We intend to invest resources to expand our sales and distribution networks by: (1) adding new distributors in key sales regions in China; (2) developing new marketing strategies in different channels; (3) improving communication between sales teams and distributors; and (4) improving our brand awareness and promotion effort. We do not have any specific timetable for this strategy as we consider expanding our sales network and distribution channels to be part of our core business, and the amounts we decide to allocate to this strategy will be funded by our operating cash flows.
Build Partnerships with New and Existing Clients
We aim to establish a win-win long-term partnership with all of our new customers. We continue to utilize our customer relationship management to provide tailor-made management policies that focus the needs of different customers. We do not have any specific timetable for this strategy as we consider building partnerships with new and existing clients to be part of our core business, and the amounts we decide to allocate to this strategy will be funded by our operating cash flows.
Vertical Integration Strategy
During the period ended September 30, 2012, we have continued our strategy to implement a vertical integration strategy of producing lead plates at Plant A which has enabled us to reduce processing costs as compared to the same period in last year.
Recent Accounting Pronouncements
As of the date of this report, there are no recently issued accounting pronouncements the adoption of which would have a material impact on the Company’s financial statements.
Corporate Information
Our offices are located in the Changxing Economic Development Zone at the bank of the Taihu Lake in the County of Changxing in Zhejiang Province, in close proximity to major national transportation systems, including National Highways 104 and 318, the Shanghai – Jiangsu – Zhejiang – Anhui – Hangzhou – Nanjing Expressway, the Changxing – Huzhou – Shanghai Channel, the Xuancheng – Hangzhou Railway and the Xinyi – Changxing Railway. Our registered office is located at No. 1188, Taihu Avenue, Economic Development Zone, Changxing County, Zhejiang Province, PRC. Our telephone number is (86) 572-6267666 and our corporate website in English is located at www.chisenelectric.com. Information available on our website is not made a part of this report.
We are a reporting company under Section 13 of the Securities Exchange Act of 1934, as amended. Our shares of common stock are not currently listed on any national securities exchange however our common stock is quoted under the symbol “CIEC” on the OTCBB and the OTCQB.
Critical Accounting Policies, Estimates and Assumptions
For the six months ended September 30, 2012 as compared to the fiscal year ended March 31, 2012, there were no changes in the methodology for computing critical accounting estimates. Apart from the allowance made on certain doubtful debts as disclosed in Note 8 to the Condensed Consolidated Financial Statements, no additional accounting estimates met the standards for critical accounting policies, and there were no material changes to the important assumptions underlying the critical accounting estimates.
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Results of Operations for the Three Months Ended September 30, 2012 Compared With the Three Months Ended September 30, 2011
The following table sets forth a summary of certain key components of our results of operations for periods indicated, in U.S. Dollars and as a percentage of revenues.
For The Three Months ended September 30 (Unaudited) | ||||||||||||||||
(in thousands) | ||||||||||||||||
2012 (US$) | 2011 (US$) | 2012 | 2011 | |||||||||||||
Revenues | 22,746 | 36,422 | 100.00 | % | 100.00 | % | ||||||||||
Cost of sales | (19,695 | ) | (29,859 | ) | 86.59 | % | 81.98 | % | ||||||||
Gross profit | 3,051 | 6,563 | 13.41 | % | 18.02 | % | ||||||||||
Sales, marketing and distribution | (11,069 | ) | (2,121 | ) | 48.66 | % | 5.82 | % | ||||||||
General and administrative expenses | (5,037 | ) | (2,080 | ) | 22.14 | % | 5.71 | % | ||||||||
Operating (loss) income | (13,055 | ) | 2,362 | 57.39 | % | 6.49 | % | |||||||||
Other (expenses) income, net | (1,100 | ) | 213 | 4.84 | % | 0.58 | % | |||||||||
Allowance for doubtful debts | (13,478 | ) | - | 59.25 | % | - | % | |||||||||
Interest income | 662 | 402 | 2.91 | % | 1.10 | % | ||||||||||
Net (loss) income from operations before interest and tax expenses | (26,971 | ) | 2,977 | 118.57 | % | 8.17 | % | |||||||||
Interest expenses | (3,563 | ) | (1,555 | ) | 15.66 | % | 4.27 | % | ||||||||
(Loss) Income before income taxes | (30,534 | ) | 1,422 | 134.24 | % | 3.90 | % | |||||||||
Income taxes expenses | - | (531 | ) | - | % | 1.46 | % | |||||||||
Net (loss) income including non-controlling interest | (30,534 | ) | 891 | 134.24 | % | 2.45 | % | |||||||||
Net loss (income) attributable to non-controlling interest | 76 | (11 | ) | 0.33 | % | 0.03 | % | |||||||||
Net (loss) income attributable to CIEC common shareholders | (30,458 | ) | 880 | 133.90 | % | 2.42 | % | |||||||||
Other comprehensive income | 9 | 625 | 0.04 | % | 1.72 | % | ||||||||||
Comprehensive (loss) income | (30,449 | ) | 1,505 | 133.87 | % | 4.13 | % |
Revenues and Cost of Sales
In July 2011, we introduced the internal batteries formation technique into our batteries production. This technique is relatively new and complicated to us, and as a result we were unable to handle it well as compared with our original production technique, the external batteries formation technique. As such, the Company was unable to produce batteries with stable quality.
In order to address this the products quality issue, the Company suspended operations in September 2012 temporarily to improve our production facilities as well as production processes during the period of suspension. Our production level decreased accordingly.
Due to the unstability of our product quality and the suspension of battery production in September 2012, our sales volume decreased significantly. In addition, in response to the price cutting strategy adopted by other major competitors, the average selling price per unit also decreased when compared with the corresponding period in 2011. As a result, our revenue decreased accordingly by US$13,676,000 or 37.55% to US$22,746,000 for the three months ended September 30, 2012 as compared with US$36,422,000 for the corresponding period in 2011.
Cost of sales for the three months ended September 30, 2012 and 2011 were US$19,695,000 and US$29,859,000, respectively. The decrease in cost of sales of US$10,164,000 or 34.04% was mainly attributable to the decrease in sales volume as stated above.
After adopting the new production processes, we consumed more lead when producing each battery in accordance with quality standard requirement. As such, the cost of sales per battery increased. Together with the decrease in the average selling price per unit, our gross profit ratio decreased by 4.61% to 13.41% for the three months ended September 30, 2012 as compared with the corresponding period in 2011.
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Depreciation and Amortization
Depreciation and amortization expense for the three months ended September 30, 2012 and 2011 was US$852,000 and US$238,000, respectively. The increase of US$614,000 or 257.98% was mainly attributable to the additional depreciation charges of US$189,000 incurred as a result of the change of estimated useful life on certain machinery at our Jingér Road Plant (“Plant B”). During the three months ended December 31, 2012, we were advised by the local government authority that the external battery formation technique, which was used in Plant B to produce battery products, would be prohibited after October 31, 2012. Our management reviewed the machinery in Plant B and identified that certain machinery cannot be used after that date and therefore, their estimated useful life was adjusted accordingly.
In order to expand our production capacity, we have invested significantly in plant and machinery at Plant A and the increase in depreciation expense was in line with the increase in the property, plant and equipment.
General and Administrative Expenses
General and administrative expenses were US$5,037,000 and US$2,080,000 for the three months ended September 30, 2012 and 2011, respectively. The increase of US$2,957,000 or 142.16% was mainly attributable to the written-off of advance payment to suppliers of US$693,000. During the period, one of our suppliers was forced to stop operations by the local government and therefore ceased to supply goods to us. No refund was made during the period. Management believes that the opportunity to recuperate the advance payment is remote and has decided to write off the relevant balance. The increase of general and administrative expenses was also attributable to the impairment loss on disqualified machinery amounting to US$836,000 as a result of the adoption of our improved product quality standard; and an additional allowance for doubtful debt on other receivables amounting to US$555,000 was made for the period due to the default of payment by a debtor; increase in research and development expenses of US$158,000 for the improvement of existing products; and the increase in depreciation charge of US$190,000 for the continued expansion of administration facilities in Plant A.
Sales, Marketing and Distribution
Sales, marketing and distribution expenses for the three months ended September 30, 2012 and 2011 were US$11,069,000 and US$2,121,000, respectively.
The increase of US$8,948,000 or 421.88% was mainly attributable to the increase of warranty expenses of US$8,144,000. In July 2011, we introduced the internal battery formation technique into our production for purposes of complying with the tightened environmental protection policy discussed above. This technique, however, is relatively new and complicated to the Company and we were unable to handle it well as compared to the external battery formation technique which we used before. The Company found that the return rate significantly increased during the period after the Company adopted the new production technique. Under the new production technique, we were unable to repair the majority of returned defected batteries. Due to the shortage of repaired batteries for warranty purpose, the Company temporarily used more new batteries for providing warranty services. As the cost of new batteries is higher than the cost of repaired batteries, the cost of warranty for the three months ended September 30, 2012 increased significantly.
Allowance for Doubtful Debts
In order to comply with the tightened environment protection policy, we have adopted the internal batteries formation technique to produce lead acid batteries since July 2011. However this technique is relatively new and complicated to us, and we were unable to handle it well as compared to our original production technique. As such we could not produce batteries with stable quality. During the period ended September 30, 2012, the return rate of internal formation batteries increased significantly to 30% as compared with 10% of external formation batteries during the period ended September 30, 2011.
Batteries are a significant part of electric bicycles. The quality of batteries directly affects the quality of electric bicycles. In September 2012, two of our factory customers which are also major electric bicycle manufacturers claimed that they had suffered losses from the poor product quality of our batteries and denied to settle their outstanding debt with us. Up to the date of this report, we are still negotiating with them for the settlement. However, management expects that negotiations will not be finalized within a short period of time and that it is highly likely that these factory customers would not make any settlement to the Company during the negotiation period. Management, based on the current situation, believes that the opportunity to recover the debts from these customers is remote and therefore has decided to make an allowance for doubtful debts of US$13,478,000 for the period.
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Interest Income
Interest income was US$662,000 and US$402,000 for the three months ended September 30, 2012 and 2011, respectively. The increase of US$260,000 or 64.68% was mainly attributable to an increase in average restricted bank balances for the period.
Interest Expense
Interest expense for the three months ended September 30, 2012 and 2011 was US$3,563,000 and US$1,555,000, respectively. The increase of US$2,008,000 or 129.13% was mainly attributable to the increase in banking facilities utilized by the Company.
Income Taxes Expenses
The Company suffered loss during the period. There was no income tax expenses recorded during the three months ended September 30, 2012.
Net (Loss) Income Including Non-Controlling Interest
Net loss including non-controlling interest was US$30,534,000 for the three months ended September 30, 2012 while there was an income before income tax expense of US$891,000 for the corresponding period in 2011. The loss was mainly attributable to the following reasons:
1. | The market had lost confidence in our products due to unstability of our product quality. Our sales dropped significantly and therefore our gross profits decreased by US$3,512,000 as compared with the corresponding period in 2011; |
2. | In order to deal with the higher volume of returned batteries resulting from our poor quality products, the Company had to provide sufficient warranties provision. The warranty expenses for the three months ended September 30, 2012 increased by US$8,144,000 as compared to the corresponding period in 2011; |
3. | Two electric bicycles manufacturer factory customers denied to settle their outstanding debts of US$13,478,000 by claiming that they suffered losses from poor quality products; and |
4. | We had an increase in interest expenses of US$2,008,000 as a result of the increase in bank loan balances for the period. |
Results of Operations for the Six Months Ended September 30, 2012 Compared With the Six Months Ended September 30, 2011
The following table sets forth a summary of certain key components of our results of operations for periods indicated, in U.S. Dollars and as a percentage of revenues.
For The Six Months ended September 30 (Unaudited) | ||||||||||||||||
(in thousands) | ||||||||||||||||
2012 (US$) | 2011 (US$) | 2012 | 2011 | |||||||||||||
Revenues | 43,168 | 71,821 | 100.00 | % | 100.00 | % | ||||||||||
Cost of sales | (38,541 | ) | (63,323 | ) | 89.28 | % | 88.17 | % | ||||||||
Gross income | 4,627 | 8,498 | 10.72 | % | 11.83 | % | ||||||||||
Sales, marketing and distribution | (16,838 | ) | (4,641 | ) | 39.01 | % | 6.46 | % | ||||||||
General and administrative expenses | (7,466 | ) | (3,785 | ) | 17.30 | % | 5.27 | % | ||||||||
Operating (loss) income | (19,677 | ) | 72 | 45.58 | % | 0.10 | % | |||||||||
Other (expenses) income, net | (2,075 | ) | 201 | 4.81 | % | 0.28 | % | |||||||||
Allowance for doubtful debts | (13,478 | ) | - | 31.22 | % | - | % | |||||||||
Interest income | 1,228 | 705 | 2.84 | % | 0.98 | % | ||||||||||
Net income from operations before interest and tax expenses | (34,002 | ) | 978 | 78.77 | % | 1.36 | % | |||||||||
Interest expenses | (7,021 | ) | (2,837 | ) | 16.26 | % | 3.95 | % | ||||||||
Loss before income taxes | (41,023 | ) | (1,859 | ) | 95.03 | % | 2.59 | % | ||||||||
Income taxes expenses | - | (82 | ) | - | % | 0.11 | % | |||||||||
Loss before extraordinary items | (41,023 | ) | (1,941 | ) | 95.03 | % | 2.70 | % | ||||||||
Extraordinary gain (less applicable taxes of US$0) | - | 13,053 | - | % | 18.17 | % | ||||||||||
Extraordinary loss (less applicable taxes of US$0) | - | (1,840 | ) | - | % | 2.56 | % | |||||||||
Net (loss) income including non-controlling interest | (41,023 | ) | 9,272 | 95.03 | % | 12.91 | % | |||||||||
Net loss (income) attributable to non-controlling interest | 155 | (11 | ) | 0.36 | % | 0.02 | % | |||||||||
Net (loss) income attributable to CIEC common shareholders | (40,868 | ) | 9,261 | 94.67 | % | 12.89 | % | |||||||||
Other comprehensive income | 9 | 1,041 | 0.02 | % | 1.45 | % | ||||||||||
Comprehensive income | (40,859 | ) | 10,302 | 94.65 | % | 14.34 | % |
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Revenues and Cost of Sales
In July 2011, we introduced the internal batteries formation technique into our batteries production. However this technique is relatively new and complicated to us, and as a result we were unable to handle it well as compared with our original production technique. As such, the Company was unable to produce batteries with stable quality.
In order to address this products quality issue, the Company suspended operations in September 2012 temporarily to improve our production facilities as well as production processes during the period of suspension. Our production level decreased accordingly.
Due to unstability of our product quality and the suspension of battery production in September 2012, our sales volume decreased significantly. In addition, in response to the price cutting strategy adopted by other competitors, the average selling price per unit also decreased when compared with the corresponding period in 2011. As a result, our revenue decreased accordingly by US$28,653,000 or 39.90% to US$43,168,000 for the six months ended September 30, 2012 as compared with US$71,821,000 for the corresponding period in 2011.
Cost of sales for the six months ended September 30, 2012 and 2011 were US$38,541,000 and US$63,323,000, respectively. The decrease in cost of sales of US$24,782,000 or 39.14% was mainly attributable to the decrease in sales volume as stated above.
Our gross profit ratio decreased by 1.11% to 10.72% for the six months ended September 30, 2012 when compared with the corresponding period of last year. The decrease was mainly attributable to the impact of the decrease in average selling price of products in response to the price war implemented by two major competitors during the period, which outweighs the effect of the decrease in cost of sales per unit which was mainly attributable to the decrease in the cost of lead plates, one of the major components of our battery, upon the vertical integration of production process in July 2011.
Depreciation and Amortization
Depreciation and amortization expenses were US$1,690,000 and US$542,000 for the six months ended September 30, 2012 and 2011, respectively. The increase of US$1,480,000 or 211.81% was mainly attributable to the additional depreciation charges of US$431,000 incurred as a result of the change of estimated useful life on certain machinery at Plant B. During the three months ended December 31, 2011, we were advised by the local governmental authority that the external battery formation technique, which was used in Plant B to produce battery products, would be prohibited after October 31, 2012. Our management reviewed the machinery in Plant B and identified that certain machinery cannot be used after that date and therefore, their estimated useful life was adjusted accordingly.
In order to expand our production capacity, we have invested significantly in plant and machinery at Plant A and the increase in depreciation expense was in line with the increase in the property, plant and equipment.
General and Administrative Expenses
General and administrative expenses were approximate US$7,466,000 and US$3,785,000 for the six months ended September 30, 2012 and 2011, respectively.
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The increase of US$3,681,000 or 97.25% was mainly attributable to written-off of advance payment to suppliers of US$693,000. During the period, one of our suppliers was forced to stop operations by the local government and therefore ceased to supply goods to us. No refund was made during the period. Management believes that the opportunity to recuperate the advance payment is remote and decided to write off the relevant balance. The increase of general and administrative expenses was also attributable to the impairment loss on disqualified machinery amounting to US$836,000 as a result of the adoption of our improved product quality standard; the increase in research and development expenses of US$389,000 for the improvement in existing products; the increase in depreciation charges of US$428,000 for the continued expansion of our administration facilities in Plant A; and an additional allowance for doubtful debt on other receivables amounting to US$555,000 which was made for the period due to the default of payment by a debtor.
Sales, Marketing and Distribution
Sales, marketing and distribution expense were US$16,838,000 and US$4,641,000 for the six months ended September 30, 2012 and 2011, respectively, an increase of US$12,197,000 or 262.81%, which was mainly attributable to the increase in warranty expense of US$11,529,000.
In July 2011, we introduced the internal battery formation technique into our production for purposes of complying with the tightened environmental protection policy discussed above. This technique, however, is relatively new and complicated to us and we were unable to handle it well as compared to the external battery formation technique which we used before. The Company found that the return rate significantly increased after the Company adopted the new production technique. Under the internal formation technique, we are unable to repair the majority of returned defected batteries. Due to the shortage of repaired batteries for warranty purpose, the Company temporarily used more new batteries for providing warranty services. As the cost of new batteries is higher than the cost of repaired batteries, the cost of warranty for the six months ended September 30, 2012 increased significantly.
Allowance for Doubtful Debts
In order to comply with the tightened environment protection policy, we have adopted the internal batteries formation technique to produce lead acid batteries since July 2011. However, this technique is relatively new and complicated to us, we were unable to handle it well as compared to our original production technique. As such we could not produce batteries with stable quality. During the period ended September 30, 2012, the return rate of internal formation batteries increased significantly to 30% as compared with 10% of external formation batteries during the period ended September 30, 2011.
Batteries are a significant part of electric bicycles. The quality of batteries directly affects the quality of electric bicycles. In September 2012, two of our factory customers which are also major electric bicycles manufacturers claimed that they had suffered losses from the poor product quality of our batteries and denied to settle their outstanding debts to us. Up to the date of this report, we are still negotiating with them for the settlement. However, management expects that the negotiations will not be finalized within a short period of time and that it is highly likely that these factory customers will not make any settlement to the Company during the negotiation period. Management, based on the current situation, believes that the opportunity to recover its debts from these customers is remote and therefore has decided to make an allowance of doubtful debt of US$13,478,000.
Interest Income
Interest income was US$1,228,000 and US$705,000 for the six months ended September 30, 2012 and 2011, respectively. The increase of US$523,000 or 74.18% was mainly attributable to the increase in average restricted bank balances for the period.
Interest Expense
Interest expense was US$7,021,000 and US$2,837,000 for the six months ended September 30, 2012 and 2011, respectively. The increase of US$4,184,000 or 147.48% was mainly attributable to the increase in banking facilities utilized by the Company.
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Income Taxes Expenses
The Company suffered loss during the period, therefore there was no income tax expenses recorded during the six months ended September 30, 2012.
Net (Loss) Income Including Non-Controlling Interest
Net loss including non-controlling interest for the six months ended September 30, 2012 was US$41,023,000 while there was a net income including non-controlling interest of US$9,272,000 for the corresponding period in 2011. The loss was mainly attributable to the following reasons:
1. | The market lost confidence in our products due to the unstability of our product quality. Our sales dropped significantly and therefore so did our gross profits. Our gross profits was decreased by US$3,871,000 as compared with the corresponding period in 2011; |
2. | In order to address the higher volume of returned batteries resulting from our poor quality products, the Company was forced to provide sufficient warranties provision. The warranty expenses for the six months ended September 30, 2012 increased by US$11,529,000 as compared to the corresponding period in 2011; |
3. | Two electric bicycles manufacturer factory customers denied to settle their outstanding debts with us of US$13,478,000 by claiming that they suffered losses from our poor quality products. As discussed above, the loss was mainly due to the poor quality of our products; |
4. | We had an increase in interest expenses of US$4,184,000 as a result of the increase in average bank loan balances for the period; and |
5. | We had a net gain on extraordinary items of US$11,213,000 which resulted in 2010 while there was no such item for the current period. |
Liquidity and Capital Resources
The Company generally finances its operations through operating activities and borrowings from banks.
During the reporting periods, the Company entered into a number of short-term bank loans to satisfy its financing needs. As of the date of this report, we have not experienced any difficulty in raising funds by 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. However, there is no assurance that banks will continue to lend us money.
The Company had negative working capital of US$85,005,000 as of September 30, 2012 and incurred loss of US$30,458,000 and US$40,868,000 for both the three months and six months ended September 30, 2012 respectively. These conditions raised substantial doubt about the Company’s ability to continue as going concern.
Continuation of the Company as a going concern is dependent upon attaining profitable operations in the future, exercising tight cost and cash flow controls measures, and the financial support from a controlling stockholder of the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As more detailed in the Company’s Form 10-K for the year ended March 31, 2012, the controlling stockholder had undertaken to make available adequate funds to the Company as and when required to maintain the Company as a going concern for the year from April 1, 2012 to March 31, 2013. Having taken into consideration the undertaking provided by the controlling stockholder, management believes that the Company will be able to settle its liabilities when they become due. However, there can be no assurance that the financing from the controlling stockholder will continue. If we cannot obtain financing, we may be forced to cease or further suspend our operations which would have a materially adverse effect on our business.
The following table sets forth the summary of our cash flows, in U.S. Dollars, for the periods indicated:
Six Months Ended September 30, | ||||||||
(in thousands) | ||||||||
2012(US$) | 2011(US$) | |||||||
Net cash used in operating activities | (26,435 | ) | (5,465 | ) | ||||
Net cash provided by (used in) investing activities | 11,400 | (13,000 | ) | |||||
Net cash provided by financing activities | 11,612 | 15,595 | ||||||
Net decrease in cash and cash equivalents | (3,423 | ) | (2,870 | ) | ||||
Cash and cash equivalents, beginning of period | 13,804 | 7,630 | ||||||
Effect on exchange rate changes | - | 188 | ||||||
Cash and cash equivalents at end of period | 10,381 | 4,948 |
Operating Activities
Net cash used in operating activities was US$26,435,000 and US$5,465,000 for the six months ended September 30, 2012 and 2011, respectively.
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The increase in cash outflow of US$20,970,000 was mainly attributable to an increase in trade receivables of US$15,439,000, an increase in inventories of US$3,420,000 and a decrease in accrued expenses and other accrued liabilities of US$7,454,000, offsetting the decrease in prepayment of US$5,453,000.
Investing Activities
Net cash provided by investing activities was US$11,400,000 for the six months ended September 30, 2012 while there was net cash used in investing activities of US$13,000,000 for the corresponding period in 2011.
The increase in net cash inflow of US$24,400,000 was mainly attributable to the decrease in investment of property, plant and equipment and restricted bank balances of US$5,123,000 and US$19,756,000, respectively; and a refund of deposit paid for land auctions of US$31,273,000 offsetting the increase in cash outflow from acquisition of assets classified as held for sale of US$32,206,000.
Financing Activities
Net cash provided by financing activities was US$11,612,000 and US$15,595,000 for the six months ended September 30, 2012 and 2011, respectively.
The decrease in net cash inflow of US$3,983,000 which was mainly attributable to the increase in repayment of short-term bank loans of US$19,523,000 and bills financing of US$86,656,000 offsetting the increase inflow of proceeds from short-term bank loans of US$43,984,000 and bills financing of US$59,249,000.
Capital Commitment
As of September 30, 2012 and March 31, 2012, the Company had outstanding capital expenditure commitments of approximately US$116,753,000 and US$122,845,000, respectively, indicating a decrease of US$6,092,000 or 4.96%
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions of foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates Risk
Our exposure to interest rate risk for changes in interest rates relates primarily to the interest-bearing bank loans and interest income generated by our bank deposits. We have not used any derivative financial instruments in our investment portfolio or for cash management purposes. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. Nevertheless, our future interest expense or interest income may expect to be decreased due to changes in interest rates in the PRC.
Foreign Exchange Rates Risk
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.
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Contractual Obligations
Payments Due By Period | ||||||||||||||||||||
Contractual Obligations (US$) | Total |
Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
|||||||||||||||
Bank Indebtedness | (SEE TABLE BELOW) | |||||||||||||||||||
Other Indebtedness | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Capital Lease Obligations | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Operating Lease Obligations | (SEE TABLE BELOW) | |||||||||||||||||||
Purchase Obligations | (SEE TABLE BELOW) | |||||||||||||||||||
Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under US GAAP | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total: | 0 | 0 | 0 | 0 | 0 |
Bank indebtedness (US$) | September 30, 2012 | March 31, 2012 | ||||||
Short-term bank borrowings | US$ | 181,166,000 | US$ | 52,090,000 | ||||
Notes payable (within (1) year) | US$ | 14,184,000 | US$ | 116,747,000 | ||||
Total | US$ | 195,350,000 | US$ | 168,837,000 | ||||
Purchase Obligations (US$) | September 30, 2012 | March 31, 2012 | ||||||
Construction projects and purchase of machinery | US$ | 116,753,000 | US$ | 122,845,000 | ||||
Total | US$ | 116,753,000 | US$ | 122,845,000 | ||||
Operating Lease Obligations (US$) | September 30, 2012 | March 31, 2012 | ||||||
Within one (1) year | US$ | 29,000 | US$ | 451,000 | ||||
1-3 years | US$ | 0 | US$ | 428,000 | ||||
3-5 years | US$ | 0 | US$ | 0 | ||||
Over five (5) years | US$ | 0 | US$ | 0 | ||||
Total | US$ | 29,000 | US$ | 879,000 |
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 and accounting 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 and accounting 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 and accounting officer, as appropriate to allow appropriate decisions on a timely basis regarding required disclosure.
Changes in 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.
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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 September 30, 2012, there was no pending or outstanding material litigation with the Company.
ITEM 1A. RISK FACTORS
Not required for a “smaller reporting company”.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. Mine Safety Disclosures.
None.
ITEM 5. OTHER INFORMATION
During the six months ended September 30, 2012, on May 4, 2012 and June 28, 2012, the Company acquired two parcels of land located at Xuyi County, Jiangsu Province, PRC with an aggregate consideration of US$32,206,000. Total area of the lands is approximately 83,658 m². The Company intends to sell this land in the foreseeable future and seeks to make a short-term gain from the disposal of such assets. The land is carried at the lower of its carrying amount and fair value less costs to sell.
ITEM 6. EXHIBITS
(a) Exhibits
EXHIBIT NO. | DESCRIPTION | LOCATION | ||
2.1 | Share Exchange Agreement, dated November 12, 2008, by and among World Trophy Outfitters, Inc., Fast More Limited, Cheer Gold Development Ltd. and Floster Investment Limited | Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
3.1 | Articles of Incorporation of World Trophy Outfitters, Inc. (n/k/a Chisen Electric Corporation) | Incorporated by reference to Exhibit 3(i).1 to the Registrant’s Registration Statement on Form SB-2 as filed with the SEC on September 23, 2005 | ||
3.2 | Certificate of Amendment to Articles of Incorporation of Chisen Electric Corporation (name change) | Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009 | ||
3.3 | Amended and Restated Bylaws of Chisen Electric Corporation | Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009 | ||
3.4 | Certificate of Incorporation of Fast More Limited, dated December 17, 2007 | Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 |
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3.5 | Memorandum and Articles of Association of Fast More Limited, dated as of December 17, 2007 | Incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
3.6 | Certificate of Incorporation of Changxing Chisen Electric Co., Ltd. | Incorporated by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
3.7 | Articles of Association of Changxing Chisen Electric Co., Ltd. | Incorporated by reference to Exhibit 3.6 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
3.8 | Business Registration Certificate of Changxing Chisen Electric Co., Ltd. (English Translated Version and Mandarin Version) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
3.9 | Certificate of Change to Articles of Incorporation of Chisen Electric Corporation (Forward Split) | Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on November 28, 2011 | ||
10.1 | Agreement on Establishment of Changxing Chisen Physical Chemistry Power Research and Development Center, dated April 30, 2008 | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.2 | Form of Labor Contract | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.3 | Lease Agreement, dated March 30, 2008, by and between Changxing Chisen Electric Co., Ltd. and Changxing Xiangyi Industrial Park Investment Co., Ltd. | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.4 | Contract For Loan on Guarantee, by and among Zhejiang Changxing Agricultural Cooperative Bank, Changxing Chisen Electric Co., Ltd. and Zhejiang Chisen Glass Co., Ltd. | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.5 | Renminbi Loan Contract, dated January 11, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Corporation (Changxing Branch) | Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.6 | Renminbi Loan Contract, dated April 11, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Corporation (Changxing Branch) | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.7 | Renminbi Loan Contract, dated March 31, 2008, by and between Changxing Chisen Electric Co., Ltd. and Bank of China (Hong Kong) Limited Shanghan Branch | Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 |
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10.8 | Loan Contract (Short Term), dated August 15, 2008, by and between Changxing Chisen Electric Co., Ltd. and Bank of China Changxing Branch | Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.9 | Acceptance Agreement, dated August 25, 2008, by and between Changxing Chisen Electric Co., Ltd. and Industrial Bank Co., Ltd. Hangzhou Branch | Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.10 | Acceptance Agreement of Commercial Bill, dated September 18, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Bank Co., Ltd. Changxing Branch | Incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.11 | Cooperation Agreement, dated April 20, 2008, by and between Changxing Chisen Electric Co., Ltd. and Xiamen University | Included by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K as filed with the SEC on June 28, 2010 | ||
10.11 | Acceptance Agreement of Commercial Bill, dated July 29, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Changxing Branch Co., Ltd. | Incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.12 | Acceptance Agreement of Commercial Bill, dated September 9, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Changxing Branch Co., Ltd. | Incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.13 | Components Purchase Contract, effective as of January 1, 2008, by and between Changxing Chisen Electric Co., Ltd. and Jiansu Xinri Electric Bicycle Co., Ltd. | Incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.14 | Supply Contract, dated April 22, 2008, by and between Changxing Chisen Electric Co., Ltd. And Jiangsu Yadea Science & Technology Development Co., Ltd. | Incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.15 | Sales Contract of Battery, dated November 10, 2007, by and between Changxing Chisen Electric Co., Ltd. and Hu Qinzhong, Yancheng Office | Incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.16 | Sales Contract of Battery, dated February 17, 2008, by and between Changxing Chisen Electric Co., Ltd. and Song Chunwei | Incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
10.17 | Compensation Agreement of Corporate Relocation Acquisition, dated August 20, 2010, by and between the Company’s chief operating subsidiary, Changxing Chisen Electric Co., Ltd., and the Administrative Committee of Changxing Economic Development Zone, Zhejiang | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on August 24, 2010. |
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10.18 | Investment Agreement, dated August 20, 2010, by and between the Company’s chief operating subsidiary, Changxing Chisen Electric Co., Ltd., and the Administrative Committee of Changxing Economic Development Zone, Zhejiang | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K as filed with the SEC on August 24, 2010. | ||
10.19 | Supplemental Agreement, dated August 20, 2010, by and between the Company’s chief operating subsidiary, Changxing Chisen Electric Co., Ltd., and the Administrative Committee of Changxing Economic Development Zone, Zhejiang | Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K as filed with the SEC on August 24, 2010. | ||
10.20 | Xuyi Economic Development Zone Project Investment Contract, dated September 6, 2010, by and between Chisen Electric Jiangsu Co., Ltd. and Jiangsu Xuyi Economic Development Zone Administrative Committee | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 13, 2010. | ||
10.21 | Xuyi Economic Development Zone Project Investment Contract Supplemental Agreement, dated September 6 2010, by and between Chisen Electric Jiangsu Co., Ltd. and Jiangsu Xuyi Economic Development Zone Administrative Committee | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on September 13, 2010. | ||
10.22 | Electrode Purchase Contract, dated August 2, 2010, by and between Changxing Chisen Electric Co., Ltd. and Jiangsu XiangFa Electric Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.25 | Sales Contract, dated August 31, 2009, by and between Changxing Chisen Electric Co., Ltd. and Anqing Burui Power Supply Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.26 | Contract, dated November 24, 2009, by and between Changxing Chisen Electric Co., Ltd. and Anyang City Yubei Gold and Lead Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.27 | Parts Acquisition Contract, dated January 1, 2010, by and between Changxing Chisen Electric Co., Ltd. and Jiangsu Xinri E-Vehicle Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.29 | Contract, dated August 1, 2010, by and between Changxing Chisen Electric Co., Ltd. and Tianjin Aima Technology Company Limited (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 |
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10.30 | Supplementary Agreement of Changxing Chisen Electric Co., Ltd. Relocation Project (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.31 | Contract of Guaranty of Maximum Amount, dated on our about February 10, 2010, by and between Agricultural Bank of China (Changxing County Branch) and Zhejiang Chisen Glass Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.32 | Guarantee Contact, dated on or about April 2, 2010, by and between China Construction Bank Corporation (Changxing Branch) and Zhejiang Chisen Glass Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.33 | Contract Guarantee of Maximum Amount, dated on or about April 14, 2009, by and between Shanghai Pudong Development Bank (Huzhou Branch) and Zhejiang Changxing Chisen Xinguangyuan Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.34 | Guarantee Contract, dated on or about January 12, 2010, by and between Changxing Economic Development Zone and Zhejiang Changxing Ruilang Electric Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.35 | Contract of Guarantee with a Maximum Amount, dated on or about July 1, 2008, by and between Bank of China (Changxing Branch) and Mr. Xu Kecheng (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.36 | Contract of Guarantee, undated, by and between CITIC Trust Co., Ltd. and Zhejiang Changxing Xinguangyuan Co., Ltd. (RMB40,000,000) (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.37 | Contact of Guarantee, undated, by and between CITIC Trust Co., Ltd. and Zhejiang Changxing Chisen Xinguangyuan Co., Ltd. (RMB60,000,000) (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.38 | Guarantee Contract (64720012302010005), dated January 13, 2010, by and among China Construction Bank Corporation, on the one hand, and Mr. Xu Kecheng and Ms. Zho Fangqin, on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 |
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10.39 | Guarantee Contract (64720012302010004), dated January 13, 2010, by and among China Construction Bank Corporation, on the one hand, and Mr. Xu Kecheng and Ms. Zho Fangqin, on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.40 | Contract of Guarantee of Maximum Amount (33905201000030826), undated, by and between Agricultural Bank of China Changxing County Sub-branch, on the one hand, and Zhejiang Chisen Glass Co., Ltd., on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.41 | Contract of Guarantee with a Maximum Amount (BOC 130), dated October 25, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and Bank of China Ltd., on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.42 | Contract of Guarantee (3350012010AM00077300), dated November 16, 2010, by and between Zhejiang Changxing Chisen Xinguangyuan Co., Ltd. and Bank of Communication (Huzhou Branch) (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.43 | Contract of Guarantee (3350012010AM00077301), dated November 16, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and Bank of Communication (Huzhou Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.44 | Guarantee Contract (6435009992012194), dated September 27, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and China Construction Bank Corporation (Changxing Sub-Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.45 | Guarantee Contract (64720012302010012), dated April 19, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and China Construction Bank Corporation (Changxing Sub-Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.46 | Guarantee Contract (647200123020100201), dated October 9, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and China Construction Bank Corporation (Changxing Sub-Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 |
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10.47 | Guarantee Contract (64720092302010036), dated October 18, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and China Construction Bank Corporation (Changxing Sub-Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.48 | Guarantee Contract (647200923020100381), dated November 10, 2010, by and between Xu Kecheng and Zho Fangqin, on the one hand, and China Construction Bank Corporation (Changxing Sub-Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.49 | Contract of Guarantee (P2009M17SZJZH0001JF14-0081-1) under Trust Loan Contract No. P2009M17SZJZH0001JF14-0081-1 , undated, by and between Xu Kecheng and CITIC Trust Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.50 | Contract of Guarantee (P2009M17SZJZH0001JF14-0081-2) under Trust Loan Contract No. P2009M17SZJZH0001JF14-0081-2), undated, by and between Xu Kecheng and CITIC Trust Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.51 | Contract of Guarantee (003), by and between Zhejiang Changxing Chisen Xinguangyuan Co., Ltd. and the Bank of China (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.52 | Contract by and between Changxing Chisen Electric Co., Ltd. and Zhejiang Chisen Glass Co., Ltd. dated March 8, 2010 (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.53 | Contract by and between Changxing Chisen Electric Co., Ltd. and Zhejiang Chisen Glass Co., Ltd., dated December 20, 2010 (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.54 | Contract by and between Changxing Chisen Electric Co., Ltd. and Zhejiang Changxing Ruilang Electronic Company Limited dated October 18, 2010 (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.55 | Summary of Oral Loan Agreement with Ai Ge Organism Products Company Limited | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 |
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10.56 | Electrode Purchase Contract, dated August 2, 2010, by and between Changxing Chisen Electric Co., Ltd. and Jiangsu XiangFa Electric Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.57 | Electrode Plate Supply Contract, by and between Changxing Chisen Electric Co., Ltd. and Anqing Borui Power Supply Co., Ltd., dated August 2, 2010 (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.58 | Guarantee Contract (6472009992011036), dated March 31, 2011, by and between Xu Kecheng, on the one hand, and China Construction Bank Corporation (Changxing Sub-Branch) on the other hand (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.59 | Shanghai Pudong Development Bank Contract of Guarantee of Maximum Amount, dated March 31, 2011, by and between Shanghai Pudong Development Bank Huzhou Sub-branch and Zhejiang Chisen Glass Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
10.60 | Shanghai Pudong Development Bank Contract of Guarantee of Maximum Amount, dated March 31, 2011, by and between Shanghai Pudong Development Bank Huzhou Sub-branch and Zhejiang Changxing Chisen Xingguangyuan Co., Ltd. (English Translated and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
14.1 | Code of Business Conduct and Ethics | Incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009 | ||
16.1 | Letter to SEC from Pritchett, Siler & Hardy, P.C. | Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K as filed with the SEC on January 21, 2009 | ||
17 | Resignation of Mathew Evans, dated November 12, 2008 | Incorporated by reference to Exhibit 17 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008 | ||
21 | List of Subsidiaries | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
31.1 | Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Provided herewith |
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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, dated January 15, 2009 | Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009 | ||
99.2 | Compensation Committee Charter, dated January 15, 2009 | Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009 | ||
99.3 | Corporate Governance and Nominating Committee Charter, dated January 15, 2009 | Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009 | ||
99.4 | China Battery Industry Association Certificate of Ranking (English Translated Version) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
99.5 | China News Article entitled “Electric Bicycles are Involved in Government’s Subsidy Program” (English and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
99.6 | Subsidize Policy on New Energy Vehicle (English and Mandarin Versions) | Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on June 14, 2011 | ||
101. INS | XBRL Instance Document | Furnished herewith | ||
101. CAL | XBRL Taxonomy Extension Calculation Link base Document | Furnished herewith | ||
101. DEF | XBRL Taxonomy Extension Definition Link base Document | Furnished herewith | ||
101. LAB | XBRL Taxonomy Label Link base Document | Furnished herewith | ||
101. PRE | XBRL Extension Presentation Link base Document | Furnished herewith | ||
101. SCH | XBRL Taxonomy Extension Scheme Document | Furnished herewith |
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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 to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 19, 2012 | By: | /s/ Xu Kecheng | |
Name: Xu Kecheng | |||
Its: President, Chief Executive Officer and Principal Executive Officer |
Date: November 19, 2012 | By: | /s/ Liu Chuanjie | |
Name: Liu Chuanjie | |||
Its: Chief Financial Officer, Principal Financial and Accounting Officer |
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