Tarsier Ltd. - FORM 10-Q - April 22, 2013

Attached files

file	filename
EX-31.1 - RULE 13A-14(A) CERTIFICATION CEO - Tarsier Ltd.	exhibit31-1.htm
EX-32 - RULE 13A-14(B) CERTIFICATION - Tarsier Ltd.	exhibit32.htm
EXCEL - IDEA: XBRL DOCUMENT - Tarsier Ltd.	Financial_Report.xls
EX-31.2 - RULE 13A-14(A) CERTIFICATION CFO - Tarsier Ltd.	exhibit31-2.htm

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2013

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 0-54205


HUAYUE ELECTRONICS, INC. (Name of Registrant in its Charter)

Delaware	20-2188353
(State of Other Jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

300 Somerset St., Room 469, Harrison, NJ 07029
(Address of Principal Executive Offices)

Issuer's Telephone Number: 646-512-5778

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [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 shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

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

Large accelerated filer Accelerated filer _Non-accelerated filer Smaller reporting company [X]

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

April 22, 2013

Common Voting Stock: 31,327,741

HUAYUE ELECTRONICS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED FEBRUARY 28, 2013

TABLE OF CONTENTS

Page No

Part I	Financial Information

Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets – February 28, 2013 and May 31, 2012	2
	Consolidated Income Statements - for the Three and Nine Month Periods Ended February 28, 2013 and 2012	3
	Consolidated Statements of Cash Flows – for the Nine Months Ended February 28, 2013 and 2012	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18

Part II	Other Information

Item 1.	Legal Proceedings	19
Items 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19

HUAYUE ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
			UNIT: USD$
	2/28/2013		5/31/2012
Assets
Current assets:
Cash and cash equivalent	$	1,432,250	$	1,085,784
Accounts receivables, net		11,298,201		3,689,990
Prepaid account		2,152,459		2,389,547
Due from related parties		1,532,728		1,390,074
Other receivables		214,102		1,079,165
Inventory		595,133		1,985,391
Deferred tax assets, current		39,644		38,238
Total current assets		17,264,517		11,658,189
Plant, property and equipment, net		472,363		549,322
Total assets		17,736,880		12,207,511
Liabilities and Stockholders’ Equity
Liabilities:
Current liabilities:
Accounts payable		1,141,701		744,449
Tax payable		976,349		241,698
Short-term debt		2,070,756		6,787,152
Notes payable		1,592,889		1,578,407
Customer deposit		916,370		703,713
Due to related parties		5,097		194,312
Accrued expense and other payables		153,561		607,341
Total current liabilities		6,856,722		10,857,072
Total liabilities		6,856,722		10,857,072
Other long-term payable
Stockholders’ equity
Common stock, par value $0.001 per share; 60,000,000 shares authorized; and 31,327,741 shares and 30,067,741 shares issued and outstanding at February 28, 2013, and May 31, 2012, respectively		31,328		30,068
Additional Paid In Capital		7,117,032		669,932
Statutory reserve		31,263		31,263
Retained earnings		3,690,483		529,803
Accumulated other comprehensive income		10,051		89,373
Total stockholders’ equity		10,880,158		1,350,439
Total liabilities and stockholders’ equity	$	17,736,880	$	12,207,511

See Notes to Consolidated Financial Statements

HUAYUE ELECTRONICS, INC.
CONSOLIDATED INCOME STATEMENTS
										UNIT: USD$
	FOR THE THREE MONTHS ENDED FEBRUARY 28,						FOR THE NINE MONTHS ENDED FEBRUARY 28,
	2013			2012			2013			2012

Sales Revenue	$	3,792,205		$	2,501,290		$	10,664,457		$	5,900,764
Cost of Goods Sold		2,243,997			2,120,285			6,410,839			5,277,426
Gross Profit		1,548,209			381,006			4,253,619			623,339

Selling Expenses		7,731			603			25,163			6,011
G&A Expenses		97,987			102,382			277,175			192,485
Total expenses		105,718			102,985			302,338			198,496
Income from operation		1,442,491			278,021			3,951,281			424,843
Interest Income (Expense)		(40,590	)		(100,269	)		(220,901	)		(278,680	)
Other income (Expense)		(55,454	)		63,797			(5,368	)		143,099
Profit before tax		1,346,447			241,549			3,725,012			289,262
Income tax		215,059			60,387			564,331			72,315

Net income		1,131,388			181,162			3,160,682			216,947
Other comprehensive income
Foreign currency translation adjustment		(324,996	)		73,557			(79,322	)		97,762
Comprehensive income	$	806,393		$	254,719		$	3,081,359		$	314,709
Income (Loss) Per Share, Basic and Diluted	$	0.04		$	0.01		$	0.10		$	0.01
Weighted Average Number of Common Shares, Basic and Diluted		31,327,741			30,067,741			30,529,279			30,067,741

See Notes to Consolidated Financial Statements

HUAYUE ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
				UNIT: USD$
	FOR THE NINE MONTHS ENDED FEBRUARY 28,
Cash Flows From Operating Activities:	2013			2012
Net income	$	3,160,682		$	216,946
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		76,959			88,108
Changes in operating assets and liabilities:
Accounts receivable		(7,608,212	)		(650,826	)
Inventory		1,390,258			62,828
Prepaid account		237,088			(640,337	)
Other receivable		865,063			(723,792	)
Due from related parties		(142,654	)		115,328
Accounts payable		397,252			352,041
Customer deposit		212,657			495,819
Due to related parties		(189,215	)		(108,019	)
Taxes payable		734,651			29,581
Deferred tax assets		(1,406	)		-
Accured expense and other payables		(453,780	)		2,107,266
Net cash provided by (used in) operating activities		(1,320,658	)		1,344,943
Cash flows from investing activities:
Addition to plant and equipment		-			(46,122	)
Long-term Investment		-			30,610
Net cash provided by (used in) investing activities		-			(15,512	)
Cash flows from financing activities:
Short term debt		(4,716,396	)		(594,991	)
Notes payable		14,482			248,626
Capital contribution		6,448,360			-
Net cash provided by (used in) financing activities		1,746,446			(346,365	)
Effect of exchange rate changes on cash and cash equivalents		(79,322	)		97,764
Net increase (decrease) in cash and cash equivalents		346,466			1,080,830
Cash and cash equivalents at beginning of period		1,085,784			2,701,516
Cash and cash equivalents at ending of period	$	1,432,250		$	3,782,346
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest	$	180,959		$	281,105
Income taxes	$	305,106		$	-

See Notes to Consolidated Financial Statements

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

NOTE 1 – ORGANIZATION AND OPERATIONS

Huayue Electronics, Inc. (“Huayue Electronics” or the “Company”) was incorporated under the laws of the State of Delaware on January 13, 2005. The Company was initially named “HXT Holdings, Inc.,” but changed its name to Huayue Electronics, Inc. on November 2, 2011.

On September 2, 2011, Huayue Electronics acquired all of the outstanding capital stock of China Metal Holding, Inc. (“China Metal”), a privately owned corporation formed in the State of Delaware, United States of America, by merging HXT Acquisition Corp., a newly formed Delaware corporation that was wholly owned by the Company, into China Metal. China Metal is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Changzhou Huayue Electronics Company, Limited (“Changzhou Huayue”), a limited liability company organized under the laws of the People’s Republic of China (“China” or “PRC”).

Changzhou Huayue is engaged in developing, manufacturing and selling high frequency induction lights and electrolytic capacitors. Changzhou Huayue’s offices and manufacturing facilities are located in China.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The financial statements reflect the financial position of the Company and its subsidiary, Changzhou Huayue Electronic Co., Ltd., as of February 28, 2013 and May 31, 2012 and the results of operations and cash flows of the Company and its subsidiary, Changzhou Huayue Electronic Co., Ltd., for the three months and nine months ended February 28, 2013 and 2012.

Principles of consolidation

The consolidated financial statements include the financial statements of China Metal Holding, Inc. and Changzhou Huayue Electronics Co., Ltd. All inter-company transactions and balances are eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the allowance for bad debt, the valuation of inventory, and estimated useful lives and impairment of property and equipment.

Cash and cash equivalents

For purposes of the statement of cash flow, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Bad Debt

Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis.

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

Inventory

Inventory is primarily composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost.

Machinery and equipment

Machinery and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation is calculated using the straight-line method over the following useful lives:

Machinery, equipment, and automobiles

7-15 years

Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

Revenue recognition

The Company’s revenue is derived from the sale of products. The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition. Our determination to recognize revenue is based on the following:



Persuasive evidence that an arrangement (sales contract) exists between a willing customer and us that outlines the terms of the sale (including customer information, product specification, quantity of goods, purchase price and payment terms).



Delivery is considered to have occurred when the risks, rewards and ownership of the products are transferred from us to our customers.



Our price to the customer is fixed and determinable as specifically outlined in the sales contract.



For customers to whom credit terms are extended, we assess a number of factors to determine whether collection from them is probable, including past transaction history with them and their credit-worthiness. All credit extended to customers is pre-approved by management. If we determine that collection is not reasonably assured, we defer the recognition of revenue until collection becomes reasonably assured, which is generally upon receipt of payment.

Payments received before satisfaction of all of the relevant criteria for revenue recognition are recorded as customer deposits.

The Company currently does not offer customers a right of return. Therefore, uncertainty regarding customer acceptance does not exist and delivered elements are not subject to general or customer-specified return or refund privileges.

Customer deposit

Revenue from the sale of goods or services is recognized at the time that goods are delivered or services are rendered. Receipts in advance for goods to be delivered or services to be rendered in a subsequent period are carried forward as customer deposit.

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

Prepaid account

Prepaid account represents the payments made and recorded in advance for goods and services received. The Company makes advances for raw materials purchased from certain domestic vendors. In order to maintain a long-term relationship with the vendors, the Company frequently needs to make advances from one and one-half months to three months ahead. The prepaid account was $2,152,459 as of February 28, 2013 and $2,389,547 as of May 31, 2012.

Impairment of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. An impairment loss, measured based on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying amount of the assets.

Income taxes

The Company accounts for income tax under the asset and liability method as stipulated by Accounting Standards Codification (“ASC”) 740, formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “Accounting for Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes will be recognized if significant temporary differences between tax and financial statements occur. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The deferred tax asset at February 28, 2013 and May 31, 2012 were $39,644 and $38,238, respectively.

Value-added tax

Sales revenue represents the invoiced value of goods, net of a Value-Added Tax (“VAT”). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.

The Company recorded $182,532 and $134,962 VAT payable net of payments in the financial statements as of February 28, 2013 and May 31, 2012, respectively.

Advertising costs

Advertising costs for newspaper and television are expensed as incurred. The Company incurred no advertising costs for the three months ended February 28, 2013 and February 28, 2012.

The Company incurred advertising costs of $184 and $8,509 for the nine months ended February 28, 2013 and 2012, respectively.

Mailing and handling costs

The Company accounts for mailing and handling fees in accordance with the FASB ASC 605-45 (Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs). The Company includes shipping and handling fees billed to customers in net revenues. Amounts incurred by the Company for freight are included in cost of goods sold. For the three months ended February 28, 2013 and 2012, the Company incurred $1,289 and $998 mailing and handling costs, respectively. For the nine months ended February 28, 2013 and 2012, the Company incurred $9,540 and $7,482 mailing and handling costs, respectively.

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

Risks and uncertainties

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

Fair value of financial instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

As of February 28, 2013, the Company did not identify any financial instruments that are required to be presented on the balance sheet at fair value other than those whose carrying amounts approximate fair value due to their short maturities.

Foreign currency translation

The accounts of the Company’s Chinese subsidiary are maintained in the RMB and the accounts of the U.S. parent company are maintained in the USD. The accounts of the Chinese subsidiary were translated into USD in accordance with Accounting Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency for the Chinese subsidiary. According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.

Translation adjustments resulting from this process amounted to $(79,322) and $91,744 as of February 28, 2013 and May 31, 2012, respectively.

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective years:

	February 28, 2013	May 31, 2012	February 28, 2012
Period End RMB Exchange Rate (RMB/USD$)	6.2779	6.3449	6.2919
Average Period RMB Exchange Rate (RMB/USD$)	6.2845	6.3277	6.3772

Statutory Reserve

Subsidiaries incorporated in China are required to make appropriations to reserve funds, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (“PRC GAAP”). Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum, and any contributions are not to exceed 50% of the respective companies’ registered capital.

As of February 28, 2013, the Company has appropriated USD $31,263 to the statutory reserve.

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

New accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

NOTE 3 – ACCOUNTS RECEIVABLE, NET

The Company provides an allowance for doubtful accounts related to its receivables. The receivables and allowance balances at February 28, 2013 and May 31, 2012 are as follows:


	February 28, 2013		May 31, 2012
Accounts Receivable	$	11,562,497	$	3,951,883
Less: Allowance for Doubtful Accounts		(264,296)		(261,893)
Accounts Receivable, Net	$	11,298,201	$	3,689,990

NOTE 4 – PREPAID ACCOUNT

The prepaid account consisted of the follows:


	February 28, 2013		May 31, 2012

Prepayment for purchase of raw materials	$	2,125,937	$	2,319,805
Prepayment for advertisement, exhibitions, utilities, consulting fees, etc.		26,522		69,742
Total prepaid account	$	2,152,459	$	2,389,547

NOTE 5 – OTHER RECEIVABLE

The other receivable consisted of the follows:


	February 28, 2013		May 31, 2012
Other Receivable
Receivables from Entities	$	189,694	$	431,503
Receivables from Individuals		24,408		647,662
Total	$	214,102	$	1,079,165

NOTE 6 – INVENTORY

Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was reserved as of February 28, 2013 and May 31, 2012.

The components of inventories as of February 28, 2013 and May 31, 2012 were as follows:


	February 28, 2013		May 31, 2012

Raw materials	$	218,349	$	410,729
Packaging		60,446		59,896
Work-in-progress		242,221		720,229
Finished goods		74,117		794,466
Total Inventories	$	595,133	$	1,985,391

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

NOTE 7 - PLANT, PROPERTY AND EQUIPMENT, NET

The components of plant, property and equipment as of February 28, 2013 and May 31, 2012 were as follows:


	February 28, 2013		May 31, 2012

Machinery	$	1,260,514	$	1,106,702
Electronic Equipment		70,063		182,934
Transportation Equipment		257,367		283,872
Subtotal		1,587,944		1,573,507
Less: Accumulated Depreciation		(1,115,581)		(1,024,186)
Total plant, property and equipment, net	$	472,363	$	549,322

The depreciation expense for the three months ended February 28, 2013 and 2012 was $30,177 and $20,863, respectively.

The depreciation expense for the nine months ended February 28, 2013 and 2012 was $76,959 and $88,108, respectively

NOTE 8 - RELATED PARTY TRANSACTIONS AND BALANCES

An individual or entity is considered to be a related party if the person or the entity has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. An individual or entity is also considered to be related if the person or the entity is subject to common control or common significant influence.

(i) Due from Related Party:

Due from Related Parties, at February 28, 2013 and May 31, 2012, consisted of the following balances:

	Transaction	February 28, 2013		May 31, 2012
Changzhou Hengchuan Plastics Co, Ltd	Prepayment & Other Receivable	$	783,220		375,334
Changzhou Jinyue Electronics Co., Ltd	Accounts receivable		-		49,278
Changzhou Shiji Jinyue Packaging Co.,Ltd	Accounts receivable		-		371,873
Changzhou Shiji Jinyue Packaging Co.,Ltd	Advance to Suppliers		-		61,427
Pan Yile	Other Receivable		-		312,630
Mr. Pan Shudong	Due from Mr. Pan		749,508		187,156
Ms. Xinmei Li	Due from Mr. Pan		-		32,376
Total due from related parties		$	1,532,728	$	1,390,074

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

NOTE 8 - RELATED PARTY TRANSACTIONS AND BALANCES (continued)

(ii) Due to Related Parties

Due to Related Parties at February 28, 2013 and May 31, 2012 consisted of the follows:


		February 28, 2013		May 31, 2012
Changzhou Leyuan International Trade Co.,Ltd	Accounts payable	$	-	$	114,290
Pan Yile	Other payable		5,097		-
Changzhou Hengchuan Plastics Co, Ltd	Accounts payable		0		80,222
Total due to related parties		$	5,097	$	194,312

NOTE 9 – SHORT-TERM DEBT

The Company’s short term debt consisted of the follows:


	February 28, 2013		May 31, 2012
	USD		USD
Loan from China Communication Bank ($0.79 million is due on 10/17/2012 with 8.528% annual interest rate , $0.95 million is due on 12/22/2012 with 8.528% annual interest rate, $0.63 million is due on 12/12/2012 with 8.528% annual interest rate)	$	-	$	3,156,815
Loan from China Industrial and Commercial Bank ($0.48 million is due on 9/10/2013 with 5.810% annual interest rate and $0.47 million is due on 6/10/2013 with 6.560% annual interest rate)		955,733		947,044
Loan from Chinese Bank (6.893% annual interest rate, due on 8/8/2013)		1,115,023		1,420,567
Loan from Changzhou Wujinyintong Agriculture Credit Union (6% annual interest rate, due on 3/18/2013)		-		473,522
Loan from Changzhou Wujinyinfeng Agriculture Credit Union (6% annual interest rate, due on 3/18/2013)		-		789,204
Total short term debt		2,070,756		6,787,152

NOTE 10 – NOTES PAYABLE


	February 28, 2013		May 31, 2012
Notes payable to Huaxian Bank	$	1,592,889	$	1,578,407
Total notes payable	$	1,592,889	$	1,578,407

All notes payable were due within one year and bear 6% annual interest rate on the maturity date.

NOTE 11 - TAX PAYABLE

Tax payable at February 28, 2013 and May 31, 2012 are as follows:


	February 28, 2013		May 31, 2012
Corporate Income Tax	$	702,450	$	106,366
Value-Added Tax		182,532		134,962
Other Tax & Fees		91,367		370
Total Tax Payable	$	976,349	$	241,968

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

NOTE 12 - OTHER PAYABLE

The Company’s other payable, at February 28, 2013 and May 31, 2012, consisted of the follows:


Type of Other payable:	February 28, 2013		May 31, 2012
Maintenance, utilities, and insurance	$	53,717	$	518,795
Payable to service fees		25,709		87,723
Others		74,135		824
Total other payable	$	153,561	$	607,341

NOTE 13 - INCOME TAXES

For the nine months ended February 28, 2013 and 2012, Changzhou Huayue Electronics Co., Ltd recorded income tax provisions of $564,331 and $72,315 respectively.

(i) The components of income (loss) before income tax expense are as follows:

	For the nine months ended February 28,
	2013		2012
P.R.China		3,725,012		289,262

(ii) The components of the income tax benefit (expense) are as follows:

	For the nine months ended February 28,
	2013			2012
Current		(603,975	)		(72,315	)
Deferred:		39,644			-
Total Income tax benefit (expense)		(564,331	)		(72,315	)

(iii) The following table summarizes deferred taxes resulting from differences between financial accounting basis and tax basis of assets and liabilities:

	For the nine months ended February 28,
	2013		2012
Current assets and liabilities
Accounts receivable allowances		39,644		-
Deferred tax assets, net, current		39,644		-

Changzhou Huayue Electronics Co., Ltd is subject to the Enterprise Income Tax (“EIT”) at a statutory rate of 25%. However, according to P.R. China tax law, the effective tax rate for the bad debt expense deduction is only 15%. The Company recognized $39,644 current deferred tax assets at enacted 15% tax deduction rate for the temporary differences between the financial reporting bases and the tax bases of its allowance for accounts receivable.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

HUAYUE ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2013 AND 2012

NOTE 14 – COMMON STOCK AND ADDITIONAL PAID IN CAPITAL

During the nine months ended February 28, 2013, the Company received total of $2,998,295 cash contribution from its shareholders. On July 25, 2012, Ms. Li Xinmei contributed $2,698,230 to the Company. Ms. Li is a member of the Board of Directors, spouse of the CEO, and a principal shareholder of the Company. On July 26, 2012, the Company received $300,065 cash payment from other shareholders. The cash receipts were recorded as additions to the paid in capital. Both transactions did not increase the outstanding shares of the common stock.

On November 21, 2012, the Company’s Board of Directors approved and authorized the sale of 1,260,000 shares at $2.50 per share to Ms. Li Xinmei. The Company received total proceeds of $3,150,000 from Ms. Li Xinmei in the quarter ended February 28, 2013.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

Forward-Looking Statements: No Assurances Intended

In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Huayue Electronics, Inc. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Section 1A titled “Risk Factors” in the Company’s Annual Report on Form 10-K filed on August 28, 2012. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Outline of Our Business

Huayue Electronics, Inc. is a Delaware corporation that functions as a holding company. Through a wholly-owned subsidiary, we own all of the registered capital of Changzhou Huayue Electronic Co., Ltd. (“Changzhou Huayue”), a corporation organized and located in The People’s Republic of China (“PRC”). Since 1999 Changzhou Huayue has been engaged in the production and sale of electrolytic capacitors. Since 2008, however, the growing portion of our business has been the production and sale of energy efficient lighting products. Today, over 95% of our sales revenue comes from lighting products.

We first entered the market for energy efficient lighting in 2008 with a line of induction lights. In contrast to traditional lamps, induction lights do not involve either filaments or electrodes, and no electrical connection goes on inside the glass tube. Instead, energy is transferred through the glass tube solely by electromagnetic induction. Power to create the light is transferred from outside the glass tube by means of a magnetic field. As with a conventional fluorescent lamp, the power excites mercury or a mercury alloy, producing ultraviolet light which hits the phosphors resulting in visible light.

Our participation in the market for induction lighting benefits from our intellectual property. From 2008 to 2010, we obtained 60 patents from the PRC government relating to the induction lighting business, of which 33 are currently in use. Our induction lighting products also benefit from representing high quality at a low cost. The incorporation of smart cards into our lamps provides constant power control and the ability to automatically adjust brightness. We have the facilities to mass produce 300 watt induction lamps with long lives that do not require frequent maintenance, as backed up by our warranties.

After several years of research and development, in 2011 we added a line of LED lights to our product offerings. An LED light contains diodes comprised of a negatively charged semiconductor paired with a positively charged semiconductor. When exposed to a power source, the diode becomes electrically unbalanced, which causes its electrons to seek a different energy level, thus emitting light. The primary advantage of LED lights is efficiency: energy waste is reduced by 50% to 90% compared to conventional incandescent bulbs. In addition, LED lights have a far longer lifetime than conventional lights, are environmentally friendly, and do not produce the infrared radiation that makes incandescent bulbs hot to the touch.

For most of the past four years, our induction lights have been sold directly by our sales staff, as the primary market for our high-wattage bulbs consists of government and industrial applications such as high bays, roadways, tunnels and public facilities, where direct contact with the end user is important. Our electrolytic capacitors are also sold directly by our sales staff, as we have a long-standing group of customers for those products. In 2012 we expanded our target market for lighting to include distributors of lighting products and construction materials. By the end of fiscal 2012 we had 46 such distributors on our customer list. Our sales transactions with distributors are not significantly different than our sales transactions with end users: none of our distributors has been given an exclusive territory, their purchases are based on the same price list as we give to end users, and our revenue recognition policies are the same for each type of sale. However, the relationship with distributors provides us a cost-effective way of expanding the scope of our marketing.

The end users for our LED products consist of residential, office and garage applications. So with the introduction of our line of LED products in 2011, we began to develop a marketing network dedicated to distribution of our LED lights, in order to maximize distribution of these consumer products. We currently have 390 distributors registered as participants in our marketing program. During 2013 we plan to organize these participants into a network of dedicated franchise stores located in urban areas throughout China. Changzhou Huayue believes that this strategic decision will enable us to expand our market throughout China in the coming year.

Results of Operations

Our operations during the third quarter of fiscal 2013 continued our growth trend. Sales revenue totaled $3,792,205 for the three months ended February 28, 2013, an increase of 52% over revenue of $2,501,290 in the three months ended February 28, 2012. For the nine months ended February 28, 2013, the 81% increase in sales is likewise sharp. The improvement is even more noteworthy when one considers that sales in the quarter ended August 31, 2011 included a transaction arranged prior to the September 2011, when we became a public company. $1,493,830 of the sales revenue in that prior quarter was attributable to a sale to a related party (Changzhou Teweile Energy Saving Lighting Technology Co., Ltd.) in which Changzhou Huayue sold goods to Changzhou Teweile at a loss of $109,193, permitting Changzhou Teweile to resell the goods to the ultimate customer at a profit. In the period since we became a public company, there have been no other sales at discount to market, and it is management’s plan that such related party transactions will not be replicated in the future, except in circumstances where the benefit to Changzhou Huayue equals or exceeds the benefit it would receive from an arms-length transaction.

Even if the loss-sale to Changzhou Teweile in 2011 is taken into account, the growth in sales from the first nine months of fiscal 2012 to the first nine months of fiscal 2013 was marked. The primary reason for the improvement has been the addition of LED lighting to our product offerings, as well as the increased effectiveness of our marketing programs. In particular, the new focus on developing distributors as customers appears to be fruitful. The marked improvement in sales in the first nine months of fiscal 2013 indicates that the new distributors are gaining traction in their marketing efforts.

The margins on our sales improved significantly in the third quarter and first nine months of fiscal 2013, both as compared to the comparable periods of fiscal 2012 and as compared to the entirely of fiscal 2012. The improvement as compared to the first nine months of fiscal 2012 (40% vs. 11%) is in large part attributable to the loss-sale that accounted for 25% of revenue in that nine month period. However, our gross margin for the year ended May 31, 2012 was itself only 13%, primarily due to our policy of seeking market position by introducing lighting products while they are still in the final development stages. The 41% gross margin achieved in the third quarter of fiscal 2013 and the 40% achieved in the first nine months of fiscal 2013 are indicative of our maturing position in the lighting market, which permits us to demand higher profits on our lighting sales.

Our selling expenses remain insignificant - $25,163 in the nine months ended February 28, 2013 - due to our reliance on a network of independent distributors. General and administrative expenses decreased by 5% from $102,382 in the third quarter of fiscal 2012 to $97,987 in the third quarter of fiscal 2013, and by 44% in the first nine months of fiscal 2013. The quarter-to-quarter decrease reflected management’s efforts at cost control, but was aberrant. The increase in the nine month period was more characteristic of our growth - the primary reasons for the increase in G&A expenses were our efforts to promote our new lighting products, as well as an increase in the required contribution to the national pension fund. General and administrative expenses will continue to increase in the coming year, as we assume the obligations attendant to being a U.S. public company, including legal and accounting expenses and other expenses related to the nurturing of our new shareholder base.

As a result of our improved gross profit and the relative stability of our G&A expenses, our income from operations increased from $278,021 in the quarter ended February 28, 2012 to $1,442,491 in the quarter ended February 28, 2013, and from $424,843 in the nine months ended February 28, 2012 to $3,951,281 in the nine months ended February 28, 2013.

We rely on short-term bank debt for our liquidity, with the result that interest expenses often exceed our total operating expenses. Nevertheless, interest expense (net of interest income) of $220,901 in the first nine months of fiscal 2013 trailed the $278,680 recorded in the first nine months of fiscal 2012 as we utilized a portion of our cash reserves to reduce our bank lines. As discussed below, we hope to access the international capital markets to obtain equity funding to pay off the debt and reduce this cost and our exposure to increasing interest rates.

Our net profit before tax for the quarter ended February 28, 2013 was $1,346,447, a significant improvement over the quarter ended February 28, 2012 when we achieved only $241,549 in pre-tax income. China imposes a national corporate income tax rate of 25%. Currently, however, a portion of our net pre-tax income is deferred in accordance with Chinese tax regulations that favor technology companies in their growth stage. As a result, we accrued only $215,059 for income tax in the quarter ended February 28, 2013. As a result, our net income for the quarter was $1,131,388. For the nine months ended February 28, 2013 our net income of $3,160,682 was a marked improvement over the net income of $216,947 we recorded in the nine months ended February 28, 2012.

Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars will result in translation adjustments. While our net income will be added to the retained earnings on our balance sheet, the translation adjustments will be added to a line item labeled “accumulated other comprehensive income,” since they will be more reflective of changes in the relative values of U.S. and PRC currencies than the success of our business. The amount deducted from “accumulated other comprehensive income” was ($79,322) during the nine months ended February 28, 2013. During the nine months ended February 28, 2012, our accumulated other comprehensive income increased by $97,762.

Liquidity and Capital Resources

Until recently the operations of the Company had been funded by contributions and short-term loans from our founder, Mr. Shudong Pan, his family, and entities related to them. In recent periods, however, we have developed bank lending relationships, which are now our primary source of liquidity. Today, our current liabilities are in large part made up of short term debt and notes payable to Chinese banks. Most of these debts have been guaranteed by related entities or secured by property owned by related parties. The proceeds of these loans have been utilized primarily to finance the development of our lighting business and the expanded sales effort for the new LED lighting products.

As is common in China, all of our bank borrowing is done on a short-term basis. As a result, the entire amount of $3,663,645 that we owed to lending institutions at February 28, 2013 has been classified as short-term debt, although we have every reason to believe that the institutions will replace the loans as they come due. Because our debts are all classified as short-term, at February 28, 2013 we had only $10,407,795 in working capital, despite cash contributions to capital during the first half of fiscal 2013 that totaled $6,148,295.

The largest component of our current assets was our accounts receivable. Accounts receivable of $11,298,201 at February 28, 2013, are large relative to recent revenue. In our efforts to achieve a substantial beachhead in the induction lighting market, after we are assured that the customer has the capability and intent to make payment, we offer our customers relatively generous payment terms. Our standard payment terms are 90 days after delivery. However, for particularly attractive customers, with strong credit histories, we employ a variety of payment practices:

While the Company’s standard payment policy is 90 days, in many cases the Company has offered customers payment terms beyond 90 days.

The Company promotes its energy efficient lighting products as a self-amortizing expense - i.e. the cost savings from replacing conventional lights with Huayue induction or LED lights will repay the cost of the lights. From time to time, the Company has backed up this promotion with its agreement that the customer can delay a portion of its payment obligation until the cost savings are realized.

The Company recognizes that Chinese government bureaucracies often pay for construction only when an entire project is complete and has been inspected. The Company, therefore, has special payment terms that it often provides to government contractors, in which payment is due 90 days after the actual installation of the lighting products on the jobsite.

Our generous payment terms reduce our liquidity to some extent. The practice is harmful to our cash flow, particularly in light of the requirement that we prepay many of our vendors for raw materials and components, as discussed below. But our generous payment terms do helps us develop long-term, repeat customers. As our lighting business matures, however, we will move toward more conventional payment terms.

The next largest component of our current assets was our prepaid expenses. In China, to secure a guaranteed supply of raw materials and components, it is common practice to make prepayments to your principal suppliers, often to the extent of several months’ requirements. In addition, rather than providing Changzhou Huayue with a line of credit, the Company’s banks pay Changzhou Huayue’s vendors directly, which makes prepayment for raw materials and components a method of assuring that credit is available when needed. These two reasons explain the $2,152,459 prepaid account on our February 28, 2013 balance sheet.

The amount due from related parties occurred because, in order to optimize our cash resources, Changzhou Huayue buys some of its raw materials from related parties and prepays the cost. As a result, at February 28, 2013 entities controlled by our CEO and his family owed $1,532,728 to us. Our plan is that as our business expands and our cash flows become more stable, we will reduce or eliminate the incidence of related party transactions. Nevertheless, during the nine months ended February 28, 2013, our due from related parties account was increased by $142,654.

Cash used in operations during the nine months ended February 28, 2013 was $1,320,658, despite our net income of $3,160,682 during the period. The primary reason for the disparity was the increase of $7,608,212 in our accounts receivable. The effect on cash flows of our high level of accounts receivable is exacerbated by the practice of maintaining a large prepayment balance with our vendors. The spread between these two elements of cash flow means that in some cases we pay for raw materials almost a full year before we receive payment for the goods into which they are incorporated. It is this spread that causes us to rely on bank loans and equity financing to fund our day-to-day operations.

Despite the significant use of cash in operations during the quarter, our cash balance at February 28, 2013 was $1,432,250, an increase of $346,456 from our cash balance at the May 31, 2012 end of our prior fiscal year. The presence of cash in our accounts was the result of capital contributions totaling $5,848,230 by Li Xinmei, a member of our Board. In addition, the prior shareholders of our subsidiary, China Metal Holding, Inc., contributed $300,065, which was required to satisfy the Chinese government regulations applicable to the acquisition of Changzhou Huayue by China Metal Holding. The cash balance that resulted should provide us sufficient liquidity to fund our operations for the coming year.

Our business plan is based on obtaining long term financing of $10 million during the next year. $6 million of this amount would be used to build a new production and distribution center for energy efficient lighting, and $4 million would be used to provide additional liquidity. A further capital raise of $20 million is projected for the following year. We hope to raise the new funds through the sale of equity in the Company, although this may prove not to be feasible. If we are forced to finance our capital needs through the issuance of debt or long term borrowing, the interest rates we pay and our interest cost of financing would increase. However, we believe that the incremental sales supported by the increased production capacity financed by the borrowing will more than offset these added expenses.

We believe growth of our production capacity is critical. If we are unable to raise additional funds through any means, we will be forced to postpone our expansion plans and the growth and profitability of the Company would be reduced.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) promulgated by the Securities and Exchange Commission) as of February 28, 2013. The evaluation revealed that there are material weaknesses in our disclosure controls, specifically:

●	The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.
●	Our accounting personnel lack expertise in identifying and addressing complex accounting issued under U.S. Generally Accepted Accounting Principles.

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of February 28, 2013.

Changes in Internal Controls. There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s third fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A Risk Factors

There have been no material changes from the risk factors included in Section 1A of our Annual Report on Form 10-K filed on August 28, 2012.

Item 2. Unregistered Sale of Securities and Use of Proceeds

(a) Unregistered sales of equity securities

None.

The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the 3rd quarter of fiscal 2013.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information.

None.

Item 6. Exhibits

31.1	Rule 13a-14(a) Certification – CEO
31.2	Rule 13a-14(a) Certification – CFO
32	Rule 13a-14(b) Certification

101.INS	XBRL Instance
101.SCH	XBRL Schema
101.CAL	XBRL Calculation
101.DEF	XBRL Definition
101.LAB	XBRL Label
101.PRE	XBRL Presentation

SIGNATURES

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

	HUAYUE ELECTRONICS, INC.

Date: April 22, 2013	By:	/s/ Pan Shudong
		Pan Shudong, Chief Executive Officer

	By:	/s/ Gan Liuzhi
		Gan Liuzhi, Chief Financial Officer, Chief Accounting Officer

* * * * *

Tarsier Ltd. - FORM 10-Q - April 22, 2013

Attached files

Tarsier Ltd. Reports