Attached files
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
|_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
Commission File No: 000-53263
CHINA LITHIUM TECHNOLOGIES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 41-1559888
(State or other jurisdiction of (I.R.S. Employer ID No)
incorporation or organization)
15 West 39th Street Suite 14B, New York, NY 10018
-------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: 212-391-2688
-----------------------------------------------------
Former name, former address and former fiscal year,
(if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 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 (ss.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 |_| 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. See
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|
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares of common stock, $0.001 par value per share, outstanding as
of September 12, 2011 was 21,659,811.
1
AMENDMENT NO. 2
---------------
This amendment is being filed in order to:
o Restate the Statements of Changes in Stockholders Equity for the
reasons described in Note 16 to the financial statements;
o Revise the tables in Note 12 to the financial statements to properly
reflect the Company's domestic pre-tax income;
No effort has been made to update the disclosure, nor has any other aspect of
the disclosures been modified. For current information regarding the Company,
the reader should refer to the recent filings by the Company with the Securities
and Exchange Commission.
2
CHINA LITHIUM TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10Q
FOR THE FISCAL QUARTER ENDED MARCH 31, 2011
TABLE OF CONTENTS
Page No
-------
Part I Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet - September 30, 2010
(unaudited) and June 30, 2010....................................6
Consolidated Statements of Income and Other
Comprehensive Income (Unaudited) - for the
Three Months Ended September 30, 2010 and 2009...................8
Consolidated Statements of Cash Flows (Unaudited) -
for the Three Months Ended September 30, 2010 and 2009 .........10
Notes to Consolidated Financial Statements (Restated, Unaudited) .11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................29
Item 3 Quantitative and Qualitative Disclosures about Market Risk........34
Item 4. Controls and Procedures...........................................35
Part II Other Information
Item 1. Legal Proceedings.................................................35
Items 1A. Risk Factors......................................................35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......35
Item 3. Defaults upon Senior Securities...................................35
Item 4. Reserved..........................................................35
Item 5. Other Information ................................................35
Item 6. Exhibits .........................................................35
3
CHINA LITHIUM TECHNOLOGIES, INC
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
---------
PAGE
---------
UNAUDITED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS 6 & 7
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME 8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 9
CONSOLIDATED STATEMENTS OF CASH FLOWS 10 & 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12 - 28
4
CHINA LITHIUM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, 2010 June 30, 2010
------------------ ------------------
(Unaudited)
Current Assets:
Cash and Cash Equivalents $ 2,498,846 $ 2,761,427
Accounts Receivable 5,049,839 4,054,189
Other Accounts Receivable 56,823 48,621
Advanced to Suppliers 21,704 12,297
Inventory 672,412 786,013
Prepaid Expenses 45,268 68,169
------------------ ------------------
Total Current Assets 8,344,893 7,730,716
------------------ ------------------
Plant & Equipment, net 258,710 261,811
Patent and Other Intangibles, net 73,637 72,907
------------------ ------------------
Total Assets 8,677,240 8,065,434
================== ==================
" Continued on next page"
"The accompanying notes are an integral part of these financial statements"
5
CHINA LITHIUM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 2010 June 30, 2010
------------------ ------------------
(Unaudited)
Current Liabilities:
Accounts Payable 1,702,035 1,832,512
Advance from Customers 3,383 3,329
Payroll Payable 56,022 57,186
Tax Payable 247,137 310,989
Other Accounts Payables 3,542 4,495
Accrued Expenses 45,808 45,074
Loan from Shareholders 123,638 83,492
Warranty Accrual 275,749 237,374
------------------ ------------------
Total Current Liabilities 2,457,314 2,574,452
------------------ ------------------
Total Liabilities 2,457,314 2,574,452
------------------ ------------------
Stockholders' Equity:
Preferred Stock, par value $0.001, 20,000,000 authorized;
0 share issued and outstanding as of June 30 and September 30, 2010 -- --
Comon stock, par value $0.001, 780,000,000 shares authorized; 20,159,811
shares issued and outstanding as of June 30 and September 30, 2010 20,159 20,159
Additional Paid in Capital 969,771 252,771
Reserved Funds 467,186 467,186
Accumulated Other Comprehensive Income 197,279 98,594
Retained Earnings 4,565,530 4,652,271
------------------ ------------------
Total Stockholders' Equity 6,219,925 5,490,982
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 8,677,240 $ 8,065,434
================== ==================
"The accompanying notes are an integral part of these financial statements"
6
CHINA LITHIUM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
September 30,
2010 2009
------------ ------------
Revenues $ 3,704,678 $ 3,923,046
Cost of Goods Sold 2,400,654 2,920,031
------------ ------------
Gross Profit 1,304,024 1,003,015
------------ ------------
Operating Expenses:
Manufacturing Expenses 62,485 26,901
R & D Expenses 20,320 10,715
Sales Expenses 249,855 65,700
General and Administrative Expenses 845,380 129,517
------------ ------------
Total Operating Expenses 1,178,038 232,833
------------ ------------
Income from Operations before Other Expenses
and (Income) 125,985 770,181
------------ ------------
Other Expenses and (Income):
Financial Expenses (Income) (3,504) 228.91
Other Expenses (Income) 182 (1,199)
------------ ------------
Total Other Expense and (Income) (3,323) (970)
------------ ------------
Income Before Income Taxes 129,308 771,152
Provision For Income Taxes 216,048 192,788
------------ ------------
Net Income (86,740) 578,364
Other Comprehensvie Income:
Unrealized Gain (loss) on Foreign Currency
Translation 98,685 35,423
------------ ------------
Comprehensive Income $ 11,945 $ 613,787
============ ============
Earnings Per Common Share-Basic and Diluted $ (0.004) $ 0.03
============ ============
Weighted Average Common Share - Basic and Diluted 20,159,811 20,159,811
============ ============
"The accompanying notes are an integral part of these financial statements"
7
CHINA LITHIUM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Preferred Stock Common Stock Other
--------------- ----------------- Additional Compre- Compre- Total
Paid in hensive Retained Reserved hensive Stockholders'
Shares Amount Shares Amount Capital Income Earnings Funds (A) Income Equity
------ ------ ------ ------ ------- ----------- -------- --------- ------- -------------
Balance - June 30,
2008 (Restated) -- $ -- 19,151,875 $19,151 $139,293 $ 63,394 $ 967,805 $ -- $1,189,643
Net income 1,722,687 1,722,687 1,722,687
Retained earning to
reserved funds -- -- --
Foreign currency
translation gain 7,993 7,993 7,993
---------
Comprehensive Income 1,730,680
------ ----- ---------- ------- -------- --------- ---------- --------- ----------
Balance - June 30,
2009 (Restated) -- $ -- 19,151,875 $19,151 $139,293 $ 71,387 $2,690,492 $ -- $2,920,323
Reverse acquisition
equity adjustments 1,007,936 1,008 113,478 114,486
Net income 2,428,966 2,428,966 2,428,966
Retained earning to
reserved funds (467,186) 467,186 --
Foreign currency
translation gain 27,207 27,207 27,207
---------
Comprehensive Income 2,456,173
------ ----- ---------- ------- -------- --------- ---------- --------- ----------
Balance - June 30,
2010 (Restated) -- $ -- 20,159,811 $20,159 $252,771 $ 98,594 $4,652,272 $ 467,186 $5,490,982
Common stock compensation
on September 2, 2010 717,000 717,000
Net income for the
three months (86,740) (86,740) (86,740)
Foreign currency
translation gain 98,685 98,685 98,685
---------
Comprehensive Income 11,945
------ ----- ---------- ------- -------- --------- ---------- --------- ----------
Balance - September 30,
2010 (Unaudited) -- $ -- 20,159,811 $20,159 $969,771 $ 197,279 $4,565,530 $ 467,186 $6,219,925
====== ===== ========== ======= ======== ========= ========== ========= ==========
Footnote A (Reseved Funds): Restrictived retained earnings for the benefit of
employees
"The accompanying notes are an integral part of these financial statements"
8
CHINA LITHIUM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30,
Cash Flows From Operating Activities: 2010 2009
----------- -----------
Net Income $ (86,740) $ 578,364
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) By Operating Activities:
Depreciation and Amortization Expense 20,659 7,000
Stock-based Compensation Expense 717,000 --
(Increase) or Decrease in Current Assets:
Accounts Receivable (995,650) 28,625
Inventories 113,601 774,671
Prepaid Expenses 22,901 17,158
Advanced to Suppliers (9,407) 586
Other Accounts Receivables (8,202) (3,554)
Increase or (Decrease) in Current Liabilities:
Accounts Payable (130,477) 74,439
Advance from Customers 54 2,773
Taxes Payable (63,853) 170,447
Payroll Payable (1,164) 1,113
Interest Payable -- (32,732)
Warranty Accrual 38,375 28,496
Other Account Payable (953) (117,699)
Accrued Expenses and Other Payables 734 41
----------- -----------
Net Cash (Used) Provided by Operating
Activities (383,122) 1,529,727
----------- -----------
Cash Flows From Investing Activities:
Short Term Investment -- (586,800)
Purchases of Property and Equipment (11,178) (3,890)
Purchases of Intangible Assets (2,091) --
----------- -----------
Net Cash (Used) Provided by Investing
Activities (13,269) (590,690)
----------- -----------
"Continued on next page"
"The accompanying notes are an integral part of these financial statements"
9
CHINA LITHIUM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30,
Cash Flows From Financing Activities: 2010 2009
----------- -----------
Loan from and (Repayment) to Shareholder 40,146 (381,334)
----------- -----------
Net Cash (Used) Provided by Financing
Activities 40,146 (381,334)
----------- -----------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents 93,664 49,376
----------- -----------
Increase in Cash and Cash Equivalents (262,581) 607,078
Cash and Cash Equivalents -Beginning Balance 2,761,427 407,333
----------- -----------
Cash and Cash Equivalents - Ending Balance $ 2,498,846 $ 1,014,411
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid during the Three Months for:
Interest Paid $ -- $ 32,776
=========== ===========
Income Taxes Paid $ 250,981 $ 215,622
=========== ===========
Non-cash Investing and Financing Activities:
Common Stock Transferred for Stock-based
Compensation $ 717,000 $ --
=========== ===========
"The accompanying notes are an integral part of these financial statements"
10
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company was incorporated as Sweet Little Deal, Inc. in 1986 under the laws
of the State of Minnesota. On October 10, 1991, the Company changed its name to
Physicians Insurance Services, Ltd. On July 23, 2008, the Company held a
shareholder meeting approving a migratory merger to Nevada and changed its name
to PI Services, Inc., which became effective January 12, 2009. On May 6, 2010,
PI Services, Inc. changed its name to China Lithium Technologies, Inc. (the
"Company") to reflect the reverse merger of Sky Achieve Holdings, Inc. ("Sky
Achieve") into the Company, which became effective on June 2, 2010.
On March 19, 2010 the Company acquired all of the outstanding capital stock of
Sky Achieve, a British Virgin Islands limited liability corporation registered
in November, 2009 (the "Share Exchange"). Pursuant to ASC 805-10-55-12 et seq.,
Sky Achieve is deemed to be the acquirer in the Share Exchange, as the prior
owner of Sky Achieve obtained the largest portion of the voting rights in the
combined entity, and the assets and earnings of Sky Achieve substantially
exceeded those of PI Services. The effect of the Share Exchange is such that a
reorganization of the entities has occurred for accounting purposes and is
deemed to be a reverse merge recapitalization of Sky Achieve. The financial
statements presented in this report are those of Sky Achieve and its
subsidiaries, including their VIEs, as if the Share Exchange had been in effect
retroactively for all periods presented.
Sky Achieve was organized on November 5, 2009 under the laws of British Virgin
Islands. It had no business activity from its inception until January 5, 2010.
On January 5, 2010, Sky Achieve obtained control over the business of Beijing
Guoqiang Science and Technology Development Co., Ltd ("Beijing Guoqiang") by
entering into five agreements with and the equity owners of Beijing Guoqiang.
The agreements are designed to transfer to Sky Achieve all of the
responsibilities for management of the operations of Beijing Guoqiang, as well
as all of the benefits and all of the risks that arise from the operations of
Beijing Guoqiang. The relationship is purely contractual, however, so the rights
and responsibilities of Sky Achieve with respect to Beijing Guoqiang are
ultimately dependent on the willingness of the courts of the PRC to enforce the
agreements. For accounting purposes, Beijing Guoqiang is deemed to be a variable
interest entity with respect to Sky Achieve, and its balance sheet accounts and
financial results are consolidated with the accounts and results of Sky Achieve
for financial reporting purposes.
The Company issued 19,151,875 shares of its common stock to the shareholders of
Sky Achieve. Those shares represented 95 % of the outstanding shares of the
Company. Mr. Kun Liu, the Chairman of Beijing Guoqiang purchased additional 1%
of the outstanding shares of the Company simultaneously with the share exchange.
As a result of these transactions, persons associated with Beijing Guoqiang
owned securities that represented 96% of the equity in the Company as of the
completion of the Share Exchange.
Beijing Guoqiang designs, manufacturers and markets Polymer Lithium-ion Battery
Modules, Lithium-ion Battery Chargers, Lithium-ion Battery Management Systems as
well as other Lithium-ion Battery Management Devices essential to proper power
utilization ("PLI Battery Products"). During December of 2009, the Company set
up two manufacturing facilities in Hangzhou and Guangzhou to produce power and
battery charger.
11
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
Reverse stock split
On June 2, 2010, the Company implemented a 1-for 2.2 reverse split of its common
stock. All enumerations herein of numbers of common shares or per share amounts
have been adjusted as needed to give retroactive effect to the reverse stock
split.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying financial statements include China Lithium Technologies, Inc.
and its wholly owned subsidiary, Sky Achieve Holdings, Inc., as well as its
variable interest entity, Beijing Guoqiang Global Science and Technology
Development Co, Ltd. All significant inter-company transactions and balances
have been eliminated in the consolidation.
Variable interest entity
The accounts of Beijing Guoqiang have been consolidated with the accounts of the
Company because Beijing Guoqiang is a variable interest entity with respect to
Sky Achieve, which is a wholly-owned subsidiary of the Company. Sky Achieve is
party to five agreements dated January 5, 2010 with the owners of the registered
equity of Beijing Guoqiang and with Beijing Guoqiang. The agreements transfer to
Sky Achieve all of the benefits and all of the risk arising from the operations
of Beijing Guoqiang, as well as complete managerial authority over the
operations of Beijing Guoqiang. Sky Achieve is the guarantor of all of the
obligations of Beijing Guoqiang. By reason of the relationship describe in these
agreements, Beijing Guoqiang is a variable interest entity with respect to Sky
Achieve because the following characteristics in ASC 810-10-15-14 are present:
o The holders of the equity investment in Beijing Guoqiang lack the
direct or indirect ability to make decisions about the entity's
activities that have a significant effect on the success of Beijing
Guoqiang, having assigned their voting rights and all managerial
authority to Sky Achieve. (ASC 810-10-15-14(b)(1)).
o The holders of the equity investment in Beijing Guoqiang lack the
obligation to absorb the expected losses of Beijing Guoqiang, having
assigned to Sky Achieve all revenue and responsibility for all
payables. (ASC 810-10-15-14(b)(2)).
o The holders of the equity investment in Beijing Guoqiang lack the
right to receive the expected residual returns of Beijing Guoqiang,
having granted to Sky Achieve all revenue as well as an option to
purchase the equity interests at a fixed price. (ASC
810-10-15-14(b)(3)).
Because the relationship between Beijing Guoqiang and Sky Achieve is entirely
contractual, the Company's interest in Beijing Guoqiang depends on the
enforceability of those agreements under the laws of the PRC. We are not aware
of any judicial decision as to the enforceability of similar agreements under
PRC law.
12
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassification
Certain prior period amounts have been reclassified to conform to the current
period presentation. These reclassifications had no effect on reported total
assets, liabilities, stockholders' equity or net income.
Cash and cash equivalent
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
Trade accounts receivable
Trade accounts receivable are stated at net realizable value, net of allowances
for doubtful accounts and sales returns. The allowance for doubtful accounts is
established based on the management's assessment of the recoverability of
accounts and other receivables.
The Company determines the allowance based on historical write-off experience,
customer specific facts and current crisis on economic conditions. Bad debt
expense is included in the general and administrative expenses.
Outstanding account balances are reviewed individually for collectability.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote.
Inventories
Inventories are initially stated at the level of the original cost. The cost of
inventories is determined using first-in first-out cost method, and includes
expenditure incurred in acquiring the inventories and bringing them to their
existing location and condition. In case of finished goods and work in progress,
cost includes an appropriate share of production overhead based on normal
operating capacity.
The Company regularly reviews the cost of inventories against their estimated
fair market value and records a lower of cost or market write-down for
inventories that have cost in excess of estimated market value.
Advances to suppliers
The Company makes advances to certain vendors for inventory purchases. The
advances to suppliers were $21,704 and $12,297 as of September 30, 2010 and June
30, 2010 respectively.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Maintenance, repairs and betterments, including replacement of minor items, are
charged to expense; major additions to physical properties are capitalized.
Plant and equipments are depreciated using the straight-line method over 3-5
years estimated useful lives.
13
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leasehold improvements are amortized using the straight-line method over the
term of the leases or the estimated useful lives, whichever is shorter.
Construction in progress
Construction in progress represents direct costs of construction or acquisition
and design fees incurred. Capitalization of these costs ceases and the
construction in progress is transferred to plant and equipment when
substantially all the activities necessary to prepare the assets for their
intended use are completed. No depreciation is provided until it is completed
and ready for intended use. The values of construction in progress were $0 and
$0 as of September 30, 2010 and June 30, 2010 respectively.
Impairment of long-lived assets
The Company accounts for long-lived assets in accordance with ASC 360
"Accounting for the Impairment of Disposal of Long-Lived Assets", which became
effective January 1, 2002. Under ASC 360, the Company reviews long-term assets
for impairment whenever events or circumstances indicate that the carrying
amount of those assets may not be recoverable. The Company has not incurred any
losses in connection with the adoption of this statement.
Revenue recognition
The Company recognizes revenue on product sales when each of the following
conditions has been satisfied:
o Persuasive evidence of a sales arrangement exists in the form of a
written contract or an order and acknowledge.
o The sales price has been fixed and made determinable by sales
contract and/or invoice.
o The product has been delivered to the customer's warehouse - unless
other terms for delivery have been specified in the contract - at which
time the customer takes ownership and the risk of loss passes to the
customers.
o Payment has been received or the Company determines that collection
of the related receivable is probable. Probability of collection is
determined based on recurrent visits by the Company's sales staff and
accounting staff to the customer's premises to assess the health of the
customer's business.
o The 15 day right of return that we afford to customers has expired.
Net sales of products represent the invoiced value of goods, net of Value Added
Taxes ("VAT"), sales returns, trade discounts and allowances. The Company is
subject to VAT which is levied on the majority of the products of the Company at
the rate of 17% on the invoiced value of sales. Output VAT is borne by customers
in addition to the invoiced value of sales and input VAT is borne by the Company
in addition to the invoiced value of purchases to the extent not refunded for
export sales. Our standard contract allows customers, within 15 days after
delivery, to return for cash or exchange products with which they are not
satisfied. Shipping charges on the return
14
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
are allocated between the customer and the Company based on relative fault. We
do not recognize revenue until the 15 day right of return has expired. After the
15 days has expired, the Company provides customers with no additional
post-delivery rights, except as set forth in its product warrant. We record a
provision for warranty claims, which is based on historical warranty claims data
and represents the Company's best estimate of warranty claims it will
experience.
Cost of goods sold
Cost of goods sold consists primarily of material, and related expenses, which
are directly attributable to the production of products. The Company presents
cost of goods sold and manufacturing expenses separately in the income
statement.
Use of estimates
In preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting year. Significant estimates, required by management, include the
recoverability of long-lived assets and valuation allowances for receivables.
Actual results could differ from those estimates.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents and accounts
and other receivables. As of September 30, 2010 and June 30, 2010, substantially
all of the Company's cash and cash equivalents were held by major banks located
in the PRC of which the Company's management believes high credit quality banks.
With respect to accounts receivable, the Company extends credit based on an
evaluation of the customer's financial condition and customer payment practices
to minimize collection risk on account receivable.
Foreign currency translation
The functional currency of Beijing Guoqiang is Chinese Renminbi ("RMB"). For
financial reporting purposes, RMB has been translated into United States Dollars
("USD") as the reporting currency. Assets and liabilities are translated at the
exchange rates at the balance sheet date, equity accounts are translated at
historical exchange rates, and income and expenses items are translated using
the average rate for the period. Translation adjustments arising from the use of
different exchange rates from period to period are included as a component of
stockholders' equity as "Accumulated other comprehensive income." Gains and
losses resulting from foreign currency translation are included in accumulated
other comprehensive income.
RMB is not a fully convertible currency. All foreign exchange transactions
involving RMB must take place either through the People's Bank of China (the
"PBOC") or other institutions authorized to buy and sell foreign exchange. The
exchange rates adopted for the foreign exchange transactions are the rates of
exchange quoted by the PBOC. Translation of amounts from RMB into US dollar has
been made at the following exchange rates for the respective years:
15
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
September 30, 2010
Balance sheet RMB 6.6800 to US $1.00
Statement of income and other comprehensive income RMB 6.7613 to US $1.00
June 30, 2010
Balance sheet RMB 6.7889 to US $1.00
Statement of income and other comprehensive income RMB 6.8180 to US $1.00
Income taxes
The Company accounts for income tax under the provisions of FASB ASC 740
"Accounting for Income Taxes", which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, whenever necessary,
against net deferred tax assets when it is more likely than not that some
portion or the entire deferred tax asset will not be realized. There are no
deferred tax amounts at September 30, 2010 and June 30, 2010.
Fair value of financial instruments
The Company's financial instruments include cash and cash equivalents, accounts
receivable, advances to suppliers, other receivables, accounts payable, accrued
expenses, taxes payable, payroll and other loans payable. Management has
estimated that the carrying amounts approximate their fair value due to the
short-term nature.
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation,
fines and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably
estimated.
Intangible assets
Intangible assets mainly consist of patents. Patents have being amortized using
the straight-line method over the 10 years. Other intangible assets have being
amortized using the straight-line method over the 5 years. The Company also
evaluates intangible assets for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable from its estimated future cash flows.
Comprehensive income
Comprehensive income is defined to include changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, items that are required to be recognized under current accounting
standards as components of comprehensive income are required to be reported in a
financial statement that is presented with the same prominence as other
financial statements. Comprehensive income includes net income and the foreign
currency translation gain, net of tax.
16
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Statement of cash flows
In accordance with Accounting Standards Codification, ASC 230, "Statement of
Cash Flows," cash flows from the Company's operations are calculated based upon
the local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheet.
Reserved funds
Until June 20, 2006, entities organized in the PRC were required to transfer 15%
of their profit after taxation, as determined in accordance with Chinese
accounting standards and regulations, to the surplus reserve fund. Subject to
certain restrictions set out in the Chinese Companies Law, the surplus reserve
fund may be distributed to stockholders in the form of share bonus issues and/or
cash dividends. After June 30, 2006, such reserve is no longer mandatory under
the Chinese Law. However the Company from time to time allocates funds to its
reserve fund for its future development.
Stock-based compensation
The Company adopted the provisions of ASC 718, "stock compensation," which
establishes the accounting for employee stock-based awards. Under the ASC 718,
stock-based compensation is measured at the grant date, based on the calculated
fair value of the award, and is recognized as an expense over the requisite
employee service period (i.e. the vesting period of the grant). The fair value
of shares granted is deemed to be the closing traded price of our common stock
on the date of grant. The stock-based compensation was $717,000 and $0 for the
three months ended September 30, 2010 and 2009, respectively.
Recently issued accounting standards
In April 2010, FASB issued an amendment to Stock Compensation. The amendment
clarifies that an employee stock-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity shares trades should not be considered to contain a condition
that is not a market, performance, or service condition. Therefore, an entity
would not classify such an award as a liability if it otherwise qualifies as
equity. The amendments are effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2010. Our adoption
of this guidance does not have impact on the consolidated financial statements
since our stock-based payment awards have an exercise price denominated in the
same currency of the market in which our Company shares are traded.
In January 2010, FASB issued ASU No. 2010-06 - Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
17
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of its ASU; however, the
Company does not expect the adoption of this ASU to have a material impact on
its financial statements.
In January 2010, FASB issued ASU No. 2010-02 - Accounting and Reporting for
Decreases in Ownership of a Subsidiary - a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, "Non-controlling
Interests in Consolidated Financial Statements - An Amendment of ARB No. 51." If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The Company does not expect the adoption of this ASU to
have a material impact on its financial statements.
In January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The Company does not expect the adoption of this ASU to
have a material impact on its financial statements.
In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting
for decreases in ownership of a subsidiary. Under this guidance, an entity is
required to deconsolidate a subsidiary when the entity ceases to have a
controlling financial interest in the subsidiary. Upon deconsolidation of a
subsidiary, and entity recognizes a gain or loss on the transaction and measures
any retained investment in the subsidiary at fair value. In contrast, an entity
is required to account for a decrease in its ownership interest of a subsidiary
that does not result in a change of control of the subsidiary as an equity
transaction. This ASU clarifies the scope of the decrease
18
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
in ownership provisions, and expands the disclosures about the deconsolidation
of a subsidiary or de-recognition of a group of assets. This ASU is effective
for beginning in the first interim or annual reporting period ending on or after
December 31, 2009. The Company is currently evaluating the impact of this ASU;
however, the Company does not expect the adoption of this ASU to have a material
impact on its financial statements.
In December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity's economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity's involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The Company is currently evaluating the impact of this
ASU; however, the Company does not expect the adoption of this ASU to have a
material impact on its financial statements.
In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting
for Transfers of Financial Assets-an amendment of FASB Statement No. 140. The
amendments in this Accounting Standards Update improve financial reporting by
eliminating the exceptions for qualifying special-purpose entities from the
consolidation guidance and the exception that permitted sale accounting for
certain mortgage securitizations when a transferor has not surrendered control
over the transferred financial assets.
In addition, the amendments require enhanced disclosures about the risks that a
transferor continues to be exposed to because of its continuing involvement in
transferred financial assets. Comparability and consistency in accounting for
transferred financial assets will also be improved through clarifications of the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting. The Company does not expect the adoption of
this ASU to have a material impact on its financial statements.
In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting
for Transfers of Financial Assets-an amendment of FASB Statement No. 140.The
amendments in this Accounting Standards Update improve financial reporting by
eliminating the exceptions for qualifying special-purpose entities from the
consolidation guidance and the exception that permitted sale accounting for
certain mortgage securitizations when a transferor has not surrendered control
over the transferred
19
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
financial assets. In addition, the amendments require enhanced disclosures about
the risks that a transferor continues to be exposed to because of its continuing
involvement in transferred financial assets. Comparability and consistency in
accounting for transferred financial assets will also be improved through
clarifications of the requirements for isolation and limitations on portions of
financial assets that are eligible for sale accounting. The Company does not
expect the adoption of this ASU to have a material impact on its financial
statements.
3. INVENTORIES
The components of inventories at September 30, 2010 and June 30, 2010 are as
follows:
September 30, 2010 June 30, 2010
------------------ ------------------
Raw Materials $ 209,129 $ 440,027
Work in Process 305,263 90,428
Finished Goods 156,261 253,827
Low Value Items 1,759 1,731
------------------ ------------------
Total $ 672,412 $ 786,013
================== ==================
As of September 30, 2010 and June 30, 2010, the Company has not recorded any
reserve for inventory obsolescence.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at September 30, 2010 and June 30, 2010 are
as follows:
September 30, 2010 June 30, 2010
------------------ ------------------
Building and Improvement $ 42,541 $ 41,859
Machinery and Equipment 322,961 307,249
Motor Vehicle 30,042 29,460
Less: Accumulated Depreciation (136,834) (116,757)
------------------ ------------------
Total Property and Equipment, net $ 258,710 $ 261,811
================== ==================
Depreciation expenses for quarter ended September 30, 2010 and year ended June
30, 2010 were $18,140 and $69,021 respectively.
20
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
5. PATENT AND OTHER INTANGIBLES
The net book value of intangible assets as of September 30, 2010 and June 30,
2010 was comprised of the following:
September 30, 2010 June 30, 2010
------------------ ------------------
Intangible Assets $ 110,549 $ 106,719
Less: Accumulated Amortization (36,912) (33,811)
------------------ ------------------
Total Intangible Assets, net $ 73,637 $ 72,907
================== ==================
Amortization expenses for the quarter ended September 30, 2010 and year ended
June 30, 2010 were $2,519 and $10,561 respectively.
Based upon current assumptions, the Company expects that, during the next five
years, its intangible assets will be amortized according to the following
schedule:
Balance at June 30, Amount
-----------------
2011 $ 10,733
2012 10,733
2013 10,733
2014 10,733
2015 10,733
------------------
Total 5 years $ 53,665
==================
6. ACCOUNTS RECEIVABLE
Accounts receivable are uncollateralized, non-interest bearing customer
obligations typically due under terms requiring payment from the invoice date.
Payments of accounts receivable are allocated to the specific invoices
identified on the customer's remittance advice or, if unspecified, are applied
to the oldest unpaid invoices. As September 30, 2010 and June 30, 2010, accounts
receivable and allowance for doubtful account as follow:
September 30, 2010 June 30, 2010
------------------ ------------------
Accounts Receivable $ 5,170,147 $ 4,201,211
Less: Allowance for Doubtful Accounts (120,308) (147,022)
------------------ ------------------
Total Accounts Receivable, net $ 5,049,839 $ 4,054,189
================== ==================
21
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
7. ACCOUNTS PAYABLE
The Company has accounts payable related to the purchase of inventory. The
amount of $1,702,035 and $1,832,512 as of September 30, 2010 and June 30, 2010
respectively, represent the accounts payable by the Company to the suppliers.
8. ACCRUED EXPENSES AND OTHER PAYABLE
Accrued expenses consist of audit fee and the payroll taxes for the current
year. As of September 30, 2010 and June 30, 2010, the balance was $45,808 and
$45,074, respectively.
Other accounts payable consists of miscellaneous items. As of September 30, 2010
and June 30, 2010, the balances were $3,542 and $4,495, respectively.
9. WARRANTY ACCRUAL
The Company provides its customers a 2 years warranty on all products sold. In
anticipation of warranty repairs, the Company accrues 1% of the sales amount as
a "Warranty Accrual." The Company believes that the accrual is adequate based on
its historical warranty experience. If the goods sold have no quality problems
within 2 years, the Company reverses the warranty accrual. As of September 30,
2010 and June 30, 2010, the warranty accrual was $275,749 and $237,374
respectively.
For three months ended September 30, 2010, the company paid $2,337 directly for
warranty claims. Also, the company accrued $36,844 as the warranty accrual with
respect to sales during the period.
10. STOCKHOLDERS' EQUITY
As of September 30, 2010, 780,000,000 shares have been authorized and 20,159,811
shares are outstanding. The Company implemented a 1-for-2.2 reverse split on
June 2, 2010. Retroactive effect is being given to the reverse split in these
financial statements. Income statements have retroactively used the new
outstanding shares to calculate the EPS. Stated capital in the stockholders'
equity section has been reduced accordingly.
11. STOCK-BASED COMPENSATION
On September 2, 2010, a principal shareholder of the Company transferred 358,500
shares of common stock to the Company's employees in recognition of prior
services. The Company has recorded the transfer as a contribution to the
Company's capital and a stock-based compensation expense, which was valued by
the closing stock price of $2.00 at the date of transfer, since these shares
were fully-vested and non-forfeitable. The contribution to capital and
compensation cost recorded to in relation to this transfer during the period
ended September 30, 2010 was $717,000.
22
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
12. INCOME TAXES
In accordance with the relevant tax laws and regulations of PRC, Beijing
Guoqiang is subject to income tax at an effective rate of 25% from January 1,
2008 on income reported in the statutory financial statements after appropriated
tax adjustments. Because there is no income tax in the British Virgin Islands,
Sky Achieve is not subject to taxation in its domicile.
The Company had no uncertain tax positions as of September 30, 2010 and 2009.
The following table sets forth the components of the Company's income before
income tax expense and the components of income tax expense for the three months
ended September 30, 2010 and 2009:
September 30, 2010 September 30, 2009
------------------ ------------------
China Pre-tax Income (Loss) $ 861,673 $ 771,152
Domestic Pre-tax Income (Loss) (732,365) --
------------------ ------------------
Total Pre-tax Income (Loss) $ 129,308 $ 771,152
================== ==================
September 30, 2010 September 30, 2009
------------------ ------------------
China Income Tax Expense $ 216,048 $ 192,788
Domestic Income Tax Expense - -
------------------ ------------------
Total Current Income Tax Expense $ 216,048 $ 192,788
================== ==================
A reconciliation of tax at United States federal statutory rate to provision for
income tax recorded in the financial statements is as follows:
September 30, 2010 September 30, 2009
------------------ ------------------
U.S. Statutory Income Tax Rate 34.0% 34.0%
Foreign Income not Recognized in the
U.S. (34.0%) (34.0%)
China Statutory Income Tax Rate 25.0% 25.0%
Other Items (a) 142.08% -
------------------ ------------------
Effective Consolidated Current Income
Tax Rate 167.08% 25.00%
================== ===================
(a). The 142.08% represents $732,365 (including $717,000 stock-based
compensation expense) corporate expenses incurred by the Company's US office
that are not subject to PRC income tax for the three months ended September 30,
2010. There was no US office as of September 30, 2009.
The Company was incorporated in the United States. It incurred net operating
losses for U.S. income tax purposes for the nine months ended September 30,
2010. Net operating loss carry forwards for United States income tax purposes
amounted to $732,365 as of September 30, 2010, which may be available to reduce
future periods' US taxable income. These carry forwards will expire, if not
utilized, beginning in 2030 through 2031. Management believes that the
realization of the benefits arising from this loss appear to be uncertain due to
Company's limited operating
23
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
12. INCOME TAXES (continued)
history and continuing losses for United States income tax purposes.
Accordingly, the Company has provided a 100% valuation allowance at September
30, 2010 for the temporary difference related to the loss carry-forwards.
Management reviews this valuation allowance periodically and makes adjustments
as warranted. At September 30, 2010 and 2009, the deferred tax assets/
(liabilities) and the related valuation allowance were as follows:
As of As of
September 30, 2010 September 30, 2009
------------------ ------------------
U.S. Holding Company Net Operating
Loss Carry-forward $ 249,004 -
U.S. Holding Company Deferred
Stock-based Compensation Expense - -
Less: Valuation Allowance (249,004) -
------------------ ------------------
Net - -
================== ==================
13. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
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.
The future profitability of the Company is dependent upon the Company's
abilities to secure service contracts and maintain the operating expense at a
competitive level.
Concentration of credit risk
Financial instruments that potentially subject to significant concentrations of
credit risk consist of cash and cash equivalents. As of September 30, 2010 and
June 30, 2010, substantially all of the Company's cash and cash equivalents were
held by major banks which located in the PRC. The Company's management believes
that there are remote chances the Company will loss money on those banks. With
respect to accounts receivable, the Company extends credit based on an
evaluation of the customer's financial condition and customer payment practices
to minimize collection risk on account receivables.
24
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
13. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (continued)
The major customers which represented more than 5% of total Accounts Receivable
as follows:
September 30, 2010 June 30, 2010
Customer Name Amount % Amount %
----------------------------------------------- --------- --------- --------- ---------
Beijing Anhualianhe Co., Ltd 372,532 7.21% 275,539 6.56%
Beijing Renxinyu Trading Co., Ltd 419,328 8.11% 474,070 11.28%
Yangguangsanwei Electronic Appliance Co., Ltd 273,996 5.30% 258,880 6.16%
Beijing Ziqiangfa Technology Co., Ltd 259,460 5.02% 256,231 6.10%
Beijing Jiruiyueda Electronic Facility Co., Ltd 429,731 8.31% 349,617 8.32%
Guangzhou Chuangxin Power Technology Co., Ltd 537,659 10.40% 413,795 9.85%
The major vendors which represented more than 5% of total Accounts Payable as
follows:
September 30, 2010 June 30, 2010
Vendor Name Amount % Amount %
----------------------------------------------- --------- --------- --------- ---------
Heilongjiang Zhongqiang Power Tech Ltd 1,425,686 83.76% 1,593,055 86.93%
Guangzhou Fanyubaiyun Electronic Co., Ltd 50,784 2.98% 98,574 5.38%
There were no major clients whose sales larger than 5% of the total sales for
the quarter ended September 30, 2010.
The major vendors which represented more than 5% of the total purchases for the
quarter ended September 30, 2010:
Three Months Ended
September 30, 2010
Vendor Name Amount %
--------------------------------------- ---------- ----------
Heilongjiang Zhongqiang Power Tech Ltd 1,353,854 61.10%
Beijing Anhualianhe Power Tech Co., Ltd 477,831 21.56%
14. RELATED PARTY TRANSACTIONS
A significant portion of the Company's raw materials were purchased from
Heilongjiang Zhongqiang Power Tech Co., Ltd (Heilongjiang ZQPT), which is a
subsidiary of Advanced Battery Technologies, Inc (ABAT). One of our Company's
directors, Mr. Qiang Fu, is an immediate family member of the CEO of ABAT, which
has exclusive control over the business of Heilongjiang ZQPT. In the three-month
period ended September 30, 2010, purchases from Heilongjiang ZQPT totaled
$1,353,584, or 61.10% of the total purchases for the three-month period. As of
September 30, 2010, the total amount due to Heilongjiang ZQPT was $1,425,686, or
83.76% of the total accounts payable. As of June 30, 2010, the total amount due
to Heilongjiang ZQPT was $1,593,055, or 86.93% of the total accounts payable.
25
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
14. RELATED PARTY TRANSACTIONS (continued)
As of June 30, 2010, there are two supply contacts outstanding between the
Company and Heilongjiang ZQPT, one dated February 24, 2010 and the other dated
March 22, 2010. The February 24 contact contains the parties' agreement to
purchase and sell 3000 units of a specified 72 volt battery for 27,000 RMB per
unit. Delivery will be scheduled by Beijing Guoqiang by notice not less than 25
days before delivery. Heilongjiang ZQPT shall pay transportation costs. Title
transfers ex factory, and national testing standards will apply. The March 22
contract has identical terms, but contemplates the purchase and sale of 60,000
units of a 3.2 volt battery at 105 RMB per unit.
15. SUBSEQUENT EVENT
On October 6, 2010, the Board of Directors voted on the Company's 2010 Stock
Award Plan (the "Plan"), which provides that Three Million (3,000,000) shares of
common stock in the Company (the "Shares") to be administered by the Board of
Directors or by a Committee to be established by the Board.
One Million Five Hundred Thousand ("1,500,000") shares of the Company's common
stock under the Plan to the employees were issued on October 18, 2010.
16. RESTATEMENT
We have restated the Consolidated Statements of Changes in Stockholders' Equity
for the years ended June 30, 2009 and June 30, 2010. The reason for the
restatement is that the Consolidated Statements of Changes in Stockholders'
Equity as originally issued failed to properly account for the reverse merger of
Sky Achieve Holdings into the Company in March 2010. Pursuant to ASC
805-40-45-1, the Consolidated Statements of Changes in Stockholders' Equity of
the Company after the reverse merger should reflect the historic capital
structure of Sky Achieve Holdings (the accounting acquirer) adjusted to reflect
the legal capital of the Company prior to the reverse merger. As a result of the
restatement, the shares issued to the prior owners of Sky Achieve Holdings in
the reverse merger and the capital associated with the shares issued in the
reverse merger are shown as outstanding in the balance at June 30, 2008 and
thereafter, and the shares of the public company outstanding at the time of the
reverse merger and the capital associated with those shares are shown as issued
at the time of the reverse merger. The effect of the restatement on the
Consolidated Statements of Changes in Stockholders' Equity is shown below:
26
CHINA LITHIUM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(RESTATED, UNAUDITED)
16. RESTATEMENT (continued)
As Originally As Restated
Reported
------------------ ------------------
6/30/2008 Balance Common Stock - Shares - 19,151,875
---------------------------------- -------------------------------- ------------------ ------------------
Common Stock - Amount $ 129,340 $ 19,151
-------------------------------- ------------------ ------------------
Additional Paid-in Capital $ 29,104 $ 139,293
-------------------------------- ------------------ ------------------
Comprehensive Income Common Stock - Amount $ (129,340) -
Consolidated Adjustment
---------------------------------- -------------------------------- ------------------ ------------------
Additional Paid-in Capital $ (29,104) -
-------------------------------- ------------------ ------------------
Issuance of Common Stock Common Stock - Shares 1,007,936 -
---------------------------------- -------------------------------- ------------------ ------------------
Common Stock - Amount $ 1,008 -
-------------------------------- ------------------ ------------------
Additional Paid-in Capital $ 157,436 -
-------------------------------- ------------------ ------------------
6/30/2009 Balance Common Stock - Shares 1,007,936 19,151,875
---------------------------------- -------------------------------- ------------------ ------------------
Common Stock - Amount $ 1,008 $ 19,151
-------------------------------- ------------------ ------------------
Additional Paid-in Capital $ 157,436 $ 139,293
-------------------------------- ------------------ ------------------
Common Stock - Shares 19,151,875 1,007,936
-------------------------------- ------------------ ------------------
Common Stock - Amount $ 19,151 $ 1,008
-------------------------------- ------------------ ------------------
Issuance of Common Stock/Reverse Additional Paid-in Capital $ 72,352 $ 113,478
Acquisition Adjustments*
---------------------------------- -------------------------------- ------------------ ------------------
6/30/2010 Balance Additional Paid-in Capital $ 229,788 $ 252,771
---------------------------------- -------------------------------- ------------------ ------------------
Total Stockholders' Equity $ 5,467,999 $ 5,490,982
-------------------------------- ------------------ ------------------
* The effects of the reverse merger on shareholders' equity were identified as
"issuance of common stock" in our original filing and are identified as "reverse
acquisition equity adjustment" in the amended filing.
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis should be read in conjunction with the
company's Financial Statements and Notes thereto appearing elsewhere in this
Report on Form 10-Q/A as well as the company's other SEC filings, including our
annual report on Form 10-K for the year ended June 30, 2010.
Forward Looking Statements
The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business strategy and expectations. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expect", "plan",
"intend", "anticipate", "believe", "estimate", "predict", "potential" or
"continue", the negative of such terms or other comparable terminology. Actual
events or results may differ materially. We disclaim any obligation to publicly
update these statements, or disclose any difference between its actual results
and those reflected in these statements. The information constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
OVERVIEW
We are holding company incorporated in the State of Nevada. Through our
operating entity in China, we design, manufacture and market Polymer lithium-ion
battery safety system, modules of battery, lithium-ion battery chargers and
power supply, as well as other lithium-ion battery management devices essential
to proper power utilization.
Our Corporate History
We were incorporated under the laws of the State of Minnesota on July 7, 1986 as
Sweet Little Deal, Inc. The Company was formed to invest in and develop
recreational real estate, and to invest in other businesses, particularly
medical technology. On October 10, 1991, the Company changed its name to
Physicians Insurance Services, Ltd.
On August 1, 2007, the board members appointed new directors, Michael Friess and
Chloe DiVita, and then resigned as officers and directors of the Company. The
new board members appointed Sanford Schwartz to the board as a Director. On
September 30, 2007, the Company issued 245,455 shares of its common stock to two
individuals, (Sanford Schwartz and Michael Friess), for a $6,116 cash payment.
Additionally, the Company agreed to issue additional shares to these two
individuals resulting in 80% control of the Company for an additional cash
payment following the proposed increase in the Company's authorized capital. The
two individuals were issued 560,902 shares on January 31, 2009 to settle the
agreement.
On January 12, 2009 the Company completed the migratory merger to Nevada. The
Company completed the 1 for 5 reverse split of its common stock effective March
20, 2009. Until March 19, 2010, we were defined as a "shell" company, whose sole
purpose at this time is to locate and consummate a merger or acquisition with a
private entity.
Acquisition of Achieve
On March 19, 2010, the Company acquired all of the outstanding capital stock of
Sky Achieve, a company organized under the laws of British Virgin Islands on
November 5, 2009. It had no business activity from its inception until January
5, 2010. On January 5, 2010, Sky Achieve obtained control over the business of
Beijing GuoQiang Global Science & Technology Development Co., Ltd, a PRC limited
liability company ("Beijing Guoqiang"). Pursuant to the Variable Interest
Agreements ("VIE Agreements") with Beijing Guoqiang and its shareholder, each of
which has a term of ten years, Sky Achieve provides consulting and management
services to Beijing Guoqiang, has exclusive control over Beijing its daily
operations and financial affairs, appoints its senior executives, and approves
all matters requiring shareholder approval. As a result of these contractual
arrangements, the Company is the beneficiary of Beijing Guoqiang. Accordingly,
we have consolidated Beijing Guoqiang's financial results, assets and
liabilities in our financial statements since the execution of the VIE
Agreements.
Change of Name and Reverse Split
Effective on June 2, 2010, we changed our name to China Lithium Technologies,
Inc. and effectuated a reverse split of our common stock in the ratio of 1:2.2
(the "Reverse Split").
28
RESULTS OF OPERATIONS
The quarter Ended September 30, 2010 compared to the quarter Ended September 30,
2009 Total Net Revenues
Total revenues during the quarter Ended September 30, 2010 were $3,704,678 as
compared to total revenues of $3,923,046 for the quarter ended September 30,
2009, a slight decrease of $218,368 or approximately 5.57%. Specifically during
the three months ended September 30, 2010 and 2009, net revenues consisted of
the following:
September 30, September 30,
2010 2009
-------------- --------------
Battery Safety System 2,114,790 2,317,285
Battery Module 843,890 108,052
Battery Pack 64,469 982,818
Battery for Electrical Vehicles 269,759 514,891
Power 326,821 0
Chargers 84,948 0
-------------- --------------
Consolidated Total Revenue $ 3,704,678 $ 3,923,046
============== ==============
During the quarter ended September 30, 2010, as shown in the table above, we
adjusted our product manufacturing structure during the three months ended
September 30, 2010, compared to the same quarter of 2009. The revenues from
battery safety system declined by 8.74% to $2,114,790 during the three months
ended September 30, 2010, compared to $2,317,285 during the three months ended
September 30, 2009. Meanwhile, during the three months ended September 30, 2010,
the revenues from battery pack decreased by 99% to $64, compared to $982,818
during the three months ended September 30, 2009, and likewise the revenues from
the battery for electrical vehicles decreased by 47.60% to $269,759 compared to
the same quarter of 2009. However, during the three months ended September 30,
2010,the revenues from battery module increased by 681% to $843,890, compared to
the three months ended September 30, 2009,and we produced two new types of
products -- power supply and chargers during the three months ended September
30, 2010, which contributed to $326,821 and $84,948 revenues, respectively. We
made the adjustment based on profit margin considerations. We decreased the
production of battery pack and battery for electrical vehicles, because the
margin on battery pack was only approximately 10%. The margins on battery safety
systems and battery modules remained stable, which is 34%.The reason that we
started the production and distribution of the power supply and charger since
October, 2009, was because the margin on power supply was as high as 49%, and on
the charger 25%, both of which are much higher than for the battery packs. As a
result of the product adjustment, we were able to improve our profit margin to
35.2% during the three months ended September 30, 2010, compared to 25.6% during
the three months ended September 30, 2009.
Cost of Goods Sold
Cost of goods sold included direct material cost and direct labor cost. During
the quarter ended September 30, 2010, our total cost of goods sold decreased to
$2,400,654, or by 17.78, compared to $2,920,031 during the quarter ended
September 30, 2009. The decrease in the cost of goods was primarily due to the
change in the type of products we sold, as noted above, which focused on higher
margin products.
Gross Profit
Despite the decrease in our revenues, our gross profit for the quarter ended
September 30, 2010 increased by $301,009, or 30% to $1,304,024, as compared to
$1,003,015 during the quarter Ended September 30, 2009. The increase in gross
profit was a result of the improvement of our profit margin due to our products
adjustments during the first quarter of 2010.
Operating Expenses
Total operating expenses during the quarter ended September 30, 2010 were
$1,178,038, an increase of $945,205 compared to $232,833 during the quarter
ended September 30, 2009. This increase was the result of the following:
Sep 30, 2010 Sep 30, 2009
-------------- --------------
Manufacturing Expenses 62,485 26,901
R & D Expenses 20,320 10,715
Sales Expenses 249,855 65,700
General and Administrative Expenses 845,380 129,517
-------------- --------------
Total Operating Expenses $ 1,178,038 $ 232,833
============== ==============
29
During the quarter ended September 30, 2010, the manufacturing expenses amounted
to $62,485 as compared to $26,901 during the three months ended September 30,
2009, an increase of $35,584 or approximately 132.28%. The manufacturing
expenses include low value consumables, equipment maintenance, plant management
cost. In October, 2009, we started the operation of our new plant in Guangzhou
for the manufacturing of our two new products: power supply and chargers. The
rent for the power supply and charger plant in Guangzhou was $8,000 during the
first quarter of 2010.
During the quarter ended September 30, 2010, we almost doubled our R & D
Expenses, an increase of $9,605 or approximately 89.64%, compared to the first
quarter of 2009. The increase in the R&D expenses was primarily due to the
commencement of the operation of our new research center in Hangzhou, Zhejiang
province in China ("Hangzhou R&D Center") in October, 2009. This is the second
research center, which mainly does the research and development on the battery
protecting system and management system. The R&D expenses of Hangzhou R&D
research center mainly included two parts: the labor costs and the research
material costs. The R&D expenses in Hangzhou R&D Center has been approximately
$18,000 for each quarter since October, 2009.
During the quarter ended September 30, 2010, sales expenses amounted to $249,855
as compared to $65,700 for the same period of 2009, an increase of $184,155 or
approximately 280.3%. During the quarter ended September 30, 2010, we paid a
part of the advertisement fee for the year of 2010, which was $62,000. We also
paid the salesmen training expenses for 2010, which was $44,000. During the
quarter Ended September 30, 2010, general and administrative expenses were
$128,380 as compared to $129,517 for the fiscal year of 2009, a decrease of
$1,137 or approximately 0.88%.
During the three months ended March 31, 2011, the primary increase was in
general and administrative expenses. The cause of the increase was stock
compensation given to our employees to incentivize them. On September 2, 2010,
our Chairman, Kun Liu, transferred 313,500 of his shares to our employees. He
also transferred 25,000 shares to another member of our board of directors, and
20,000 shares to our U.S. securities attorneys. Because these transfers were
made for the benefit of the Company, we account for them as if the Company had
issued the shares. Accordingly, we recorded a compensation expense of $ 717,000,
the market value of the shares, in the first quarter of fiscal 2011.
Income from Operations
We reported income from operations of $125,985 during the quarter ended
September 30, 2010, as compared to income from operations of $770,181 for the
quarter ended September 30, 2009, a decrease of $641,196.
Other Expense and (Income)
During the quarter ended September 30, 2010, the total other income amounted to
$3,323 as compared to other income of $970 for the quarter ended September 30,
2009, an increase of $2,353. The main part of our income during the three months
ended September 30, 2010 was primarily financial income, which was the interest
resulted from our positive cash deposit in the bank during the period. During
the three months ended September 30, 2009, we had a short term bank loan of
$100,000 and therefore we incurred an interest payment of ($228.91) during that
period. We repaid the loan in full by the end of September 30, 2009 and we
therefore did not incur any interest expense during the three months ended
September 30, 2010.
September 30, September 30,
2010 2009
-------------- --------------
Financial Income $ 3,504 $ (228.91)
Other Expenses (182) (1,199)
-------------- --------------
Total Other Income $ 3,323 $ (970)
============== ==============
Income Taxes
During the quarter ended September 30, 2010, our income tax expense was $216,048
as compared to income tax expense of $192,788 for the three months end September
30, 2009. The income tax rate in 2010 was 25% for our industry in China.
Net Income
As a result of these factors, we reported a net loss of $86,740 during the
quarter ended September 30, 2010, a decrease of $665,104 from the net income of
$578,364 that we reported for the quarter ended September 30, 2009. This
translated to basic and diluted net income (loss) per common share of ($0.004)
and $0.03 for the quarters ended September 30, 2010 and 2009, respectively.
30
Other Comprehensive Income
The functional currency of our subsidiaries and affiliate operating in the PRC
is the RMB. The financial statements of our subsidiaries and affiliate are
translated into U.S. dollars using yearend rates of exchange for assets and
liabilities, and average rates of exchange (for the year) for revenues, costs,
and expenses. Net gains and losses resulting from foreign exchange transactions
are included in the consolidated statements of operations. As a result of these
translations, which are a non-cash adjustment, we reported a foreign currency
translation gain of $98,685 during the quarter ended September 30, 2010 as
compared to $35,423 for the same period of 2009. This non-cash gain increased
our reported comprehensive income.
Comprehensive Income
As a result of our foreign currency translation gains, we had a comprehensive
income during the quarter ended September 30, 2010 of $728,945, compared with
$613,787 during the quarter ended September 30, 2009.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations and otherwise operate on an
ongoing basis.
At September 30, 2010 and June 30, 2010, we had a cash balance of $2,498,846 and
$2,761,427, respectively. We had a working capital of $5,887,579 at September
30, 2010, compared to $5,156,264 at June 30, 2010.
As of September 30, 2010, our accounts receivable, net of allowance for doubtful
accounts, was $5,049,839 as compared to $4,054,189 as of June 30, 2010, an
increase of $1,025,650.
September 30, June 30,
2010 2010
-------------- --------------
Accounts receivable $ 5,170,147 $ 4,201,211
Less allowance for doubtful accounts (120,308) (147,022)
-------------- --------------
$ 5,049,839 $ 4,054,189
============== ==============
Our account receivable policy gives the new customers longer time to make the
payments. Recently we have 4 new customers treated by the favorable policy. Our
regular accounts receivable terms are 0 days, 60 days, 90 days. For new
customers, we have a promotional policy which extends their payment period to
60, 90, 120 days, respectively; on the other hand, we shortened the existing
customers' paying period, which were no longer new customers. They come back to
the regular terms from the favorable terms, which let us collect from them for
some old debt and decrease the allowance for doubtful accounts. The chart below
shows the breakdown of our outstanding accounts receivable according to the ages
of the account outstanding as of September 30, 2010.
------------------ -------------------------------------------------------------
Age Terms Amount of Account Receivable Outstanding (US dollars)
As of September 30, 2010
------------------ -------------------------------------------------------------
30 days $1,336,561
------------------ -------------------------------------------------------------
60 days $1,470,121
------------------ -------------------------------------------------------------
90 days $1,435,514
------------------ -------------------------------------------------------------
120 days $ 397,064
------------------ -------------------------------------------------------------
121 days and up $ 410,706
------------------ -------------------------------------------------------------
Total: $5,049,839
------------------ -------------------------------------------------------------
As of September 30, 2010, our inventories totaled $672,412, as compared to
$786,013 as of June 30, 2010, a decrease of $113,601 or approximately 14.45%.
This change included a decrease of $230,898 in raw materials; and a decrease of
$97,566 in finished goods. But we increased $$215,135 in working in progress. We
optimized our inventory management. Under the new "ABC inventory management", we
got our cost controlled effectively. Under the ABC inventory management system,
we separated the raw materials into three levels: level A, level B, and level C,
according to the combined consideration of raw material costs and purchasing
cycle and we manage the inventory of raw materials in different categories with
different care and attention. For those raw materials the cost of which are high
and the purchasing cycle are long, such as the battery cell, we put it into
Level A and provide the most attention on the inventory by stocking up more raw
materials when the market prices are good or maintaining the sufficient supply
of raw materials in a time manner to the demands of manufacturing. For those raw
materials the cost of which were low and easy to get, then we put it into Level
C and we only purchase as the inventory is used up. e The rest of raw materials
are put into Level B.. Because we made plans on our purchasing of raw materials
according to the ABC inventory management, we tend to obtain a good purchasing
price for the raw materials and therefore we are able to lower our costs..
31
As a result, our raw material inventory as of September 30, 2010 decreased
approximately 52.47% to $209,129, compared to $440,027 as of June 30. 2010,
reflected in the chart below. We manufactured our products according to the
contract that we signed with the purchasers, which helped us decreased the
inventories of finished goods for approximately 38.44% to $156,261 as of
September 30, 2010, compared to $ 253,827 as of June 30, 2009 . we increased the
inventories of work in progress, which makes us get prepare for the finished
goods manufacture. Because most of our work in progress is standardized, that
makes it easy for us to finish working on the finished goods.
Components of Inventories at September 30, 2010 and June 30, 2009.
September 30, June 30,
2010 2010
-------------- --------------
Raw materials $ 209,129 $ 440,027
Work in progress 305,263 90,428
Finished goods 156,261 253,827
Low value items 1,759 1,731
-------------- --------------
Total $ 672,412 $ 786,013
============== ==============
As of September 30, 2010, our advanced to suppliers was $21,704 as compared to
$12,297 as of June 30, 2010, an increase of $9,407.
As of September 30, 2010, our Prepaid Expenses was $45,268 as compared to
$68,169 as of June 30, 2010, a decrease of $22,901.
As of September 30, 2010, we had a property and equipment, net of accumulated
depreciation, of $258,710 as compared to $261,811 as of June 30, 2010, a
decrease of $3,101.
September 30, June 30,
2010 2010
-------------- --------------
Building and improvement $ 42,541 $ 41,859
Machinery and equipment 322,961 307,249
Motor Vehicle 30,042 29,460
Less: Accumulated Depreciation (136,834) (116,757)
-------------- --------------
Total property & equipment, net $ 258,710 $ 261,811
============== ==============
As of September 30, 2010, we had intangible assets, net of accumulated
amortization, of $73,907 as compared to $72,907 as of June 30, 2010, which
remained the same level.
Sep 2010 June 2010
-------------- --------------
Intangible Assets $ 110,549 $ 106,719
Less: Accumulated Amortization (36,912) (33,811)
-------------- --------------
Intangible Assets, net $ 73,637 $ 72,907
============== ==============
As of September 30, 2010, we had accounts payable of $1,702,035 as compared to
$1,832,512 as of June 30, 2010.
As of September 30, 2010, we had Payroll payables of $56,022 as compared to
$57,186 as of June 30, 2010, a decrease of $987,878.
As of September 30, 2010, we had a taxes payable of $247,137 as compared to
$310,989 as of June 30, 2010, a decrease of $1,884,000. The income tax decreased
because the net income decreased; the valued-added tax and related tax decrease
because the revenue decreased.
32
As of September 30, 2010, we had a warranty accrual of $275,749 as compared to
$237,374 as of June 30, 2010. This liability is because we have a customer
services policy, under which we provide the customer services within 2 years
after the products sold. We will raise and record 1% of the sales in to this
account in case the customer asks return or exchange.
At September 30, 2010, we had a $123,638 loan from shareholder as compared to
$83,492 at June 30, 2010, an increase of $40,176. The increase was primarily
from our CEO to support the expenses occurred in NY office, including the
expenses on legal fees, accounting fees, transfer agent fees, and press release
fee.
Net cash used in operating activities during the quarter ended September 30,
2010 was $383,123 as compared to net cash provided by operating activities of
$1,574,997 during the quarter ended September 30, 2009. During the quarter ended
September 30, 2010, net cash used in operating activities was primarily
attributable to an increase in net income of $6,626, an increase in adjustments
to depreciation and amortization expense of $13,659, an increase in accounts
receivable of $995,650, a decrease in inventories of $113,601, a decrease in
prepaid expenses and other current assets of $5,292, a decrease in accounts
payable of $130,477, a decrease in tax payables of $63,853, a decrease in
payroll payable of $1,164, and increase in warranty accrual of $50,773, with an
decrease in other account payable of $935 and an increase of accrued expenses of
$734.
Net cash provided by investing activities during the quarter Ended September 30,
2010 amounted to $13,269. During the quarter ended September 30, 2010 net cash
provided by investing activities was attributable to the purchase of property
and equipment of $11,178, and the installments on intangible assets of $2,091.
Net cash provided by financing activities was $40,146 during the quarter Ended
September 30, 2010. The net cash provided by financing activities was
attributable to the loan from shareholder in the amount of $40,146.
We reported a net decrease in cash during the quarter Ended September 30, 2010
of $262,581 as compared to a net increase in cash of $607,078 during the quarter
Ended September 30, 2009.
FOREIGN EXCHANGE EXPOSURE
Our sales are denominated in RMB and US dollars whilst our purchases and
operating expenses are mostly denominated in RMB. As such, we may be exposed to
any significant transactional foreign exchange exposure for our operations.
However, to the extent that we may enter into transactions in currencies other
than RMB in future, particularly as we penetrate into overseas markets, our
financial results may be subject to fluctuations between those foreign
currencies and RMB.
On July 21, 2005, the RMB was unpegged against the US dollars and pegged against
a basket of currencies on a "managed-float currency regime". As at September 30,
2010, the exchange rate was approximately US$1.00 to RMB6.6800 for the balance
sheet, and US$1.00 to RMB6.7613 for the statement of income and other
comprehensive income, respectively. There is no assurance that the PRC's foreign
exchange policy will not be further altered. In the event that the PRC's policy
is altered, significant fluctuations in the exchange rates of RMB against US
dollars may arise. As a result, we will be subject to significant foreign
exchange exposure. In the event that we incur foreign exchange losses, our
financial performance will be adversely affected.
We do not have a formal hedging policy with respect to our foreign exchange
exposure as our foreign exchange gains/ losses for the periods under review have
been relatively insignificant. We will continue to monitor our foreign exchange
exposure in the future and will consider hedging any material foreign exchange
exposure should the need arise. Should we enter into any hedging transaction in
the future, such transaction shall be subject to review by our board of
directors. In addition, should we establish any formal hedging policy in the
future, such policy shall be subject to review and approval by our board prior
to implementation.
INFLATION
During the periods under review, inflation did not have a material impact on our
financial performance.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information required
by this Item.
33
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
The Company's management, with the participation of the Chief Executive Officer
and the Chief Financial Officer has evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by this
quarterly report (the "Evaluation Date"). Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the Evaluation Date, such controls and procedures were not
effective. The weaknesses in the Company's controls and procedures consisted of
(a) a lack of expertise in identifying and addressing accounting issues under
U.S. Generally Accepted Accounting Principles among the personnel in the
Company's accounting department, which has resulted in certain errors in
accounting identified in Note 16 to the Consolidated Financial Statements, (b) a
lack of expertise among Company personnel with regard to the disclosure
requirements arising under the Rules of the Securities and Exchange Commission,
and (c) inadequate review by management personnel of the Company's reports prior
to filing, which has resulted in errors identified on the cover page of this
amended report as the reasons for the amendment.
Changes in Internal Control Over Financial Reporting.
During the three months ended September 30, 2010, there has been no change
in our internal control over financial reporting (as defined in Rule 13a-15(f)
and 15d-15(f) under the Exchange Act) ) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party.
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information required
by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 19, 2010, the Company acquired all of the outstanding capital stock of
Sky Achieve. As a result of the Acquisition, the Company issued 42,134,020
shares of its common stock to the shareholders of Sky Achieve (the "Share
Issuance"). Those shares represent 95 % of the outstanding shares of the
Company. Of the 42,134,020 shares issued, 37,920,618 of the shares were issued
to Kun Liu, who is the Chief Executive Officer of Sky Achieve and now the
Chairman of China Lithium Technologies. The remaining 4,213,402 shares were
issued to Youhua Yu, the Chairman of Sky Achieve. The shares issued have not
been registered under the Securities Act of 1933, as amended, in reliance upon
an exception under Sections 4(2) of said act.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Removed and Reserved
Item 5. Other Information
None
Item 6. Exhibits
31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
34
SIGNATURE
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.
CHINA LITHIUM TECHNOLOGIES, INC.
DATE: September 13, 2011 By: /s/ Kun Liu
---------------------------------
Kun Liu, Chairman and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Chunping Fang
---------------------------------
Chunping Fang, Chief Financial Officer
(Principal Financial Officer)
3