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EXCEL - IDEA: XBRL DOCUMENT - TRANSIT MANAGEMENT HOLDING CORP | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - TRANSIT MANAGEMENT HOLDING CORP | v240230_ex32-2.htm |
EX-32.1 - EXHIBIT 32.1 - TRANSIT MANAGEMENT HOLDING CORP | v240230_ex32-1.htm |
EX-10.1 - TRANSIT MANAGEMENT HOLDING CORP | v240230_ex10-1.htm |
EX-31.1 - EXHIBIT 31.1 - TRANSIT MANAGEMENT HOLDING CORP | v240230_ex31-1.htm |
EX-31.2 - EXHIBIT 31.2 - TRANSIT MANAGEMENT HOLDING CORP | v240230_ex31-2.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended
September 30, 2011
OR
TRANSITION
REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
From the
transition period from ___________ to ____________.
Commission
File Number 000-53106
CHINA
GREEN LIGHTING LIMITED
(Exact
name of small business issuer as specified in its charter)
Colorado
|
26-0812035
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(IRS
Employer Identification No.)
|
No.
18, Seventh Xinggong Road,
Jiangdong
District, Jiangshan City,
Zhejiang,
People’s Republic of China
324019
(Address
of principal executive offices)
+86 (570) 435-2001
(Issuer's
telephone number)
N/A
(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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. 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 o Accelerated
filer o Non-accelerated
filer o (Do not check
if a smaller reporting company) Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As of
November 10, 2011, there were 40,202,200 shares of common stock of the
issuer outstanding.
CHINA
GREEN LIGHTING LIMITED
FORM
10-Q
Quarterly
Period Ended September 30, 2011
TABLE
OF CONTENTS
PART
I – FINANCIAL INFORMATION
|
||||
Item
1. Financial Statements
|
F-1 - F-24 | |||
Condensed
Consolidated Balance Sheets at September 30, 2011 (Unaudited) and December
31, 2010
|
F-1 | |||
Condensed
Consolidated Statements of Operations and Comprehensive Income (Loss) for
the Three Months and Nine Months Ended September 30, 2011 and 2010
(Unaudited)
|
F-2 | |||
Condensed
Consolidated Statements of Changes in Stockholders’ Equity for the Nine
Months Ended September 30, 2011 (Unaudited)
|
F-3 | |||
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2011 and 2010 (Unaudited)
|
F-4 | |||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-5 | |||
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
25 - 29 | |||
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
29 | |||
Item
4. Controls and Procedures
|
29 | |||
PART
II – OTHER INFORMATION
|
||||
Item
1. Legal Proceedings
|
31 | |||
Item
1A. Risk Factors
|
31 | |||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
31 | |||
Item
3. Defaults upon Senior Securities
|
31 | |||
Item
4. Removed and Reserved
|
31 | |||
Item
5. Other Information
|
31 | |||
Item
6. Exhibits
|
32 | |||
SIGNATURES
|
33 |
Part
I Financial Information
Item
1. Financial Statements
CHINA
GREEN LIGHTING LIMITED
CONDENSED
CONSOLIDATED BALANCE SHEETS
(AMOUNTS
EXPRESSED IN US DOLLAR)
(UNAUDITED)
September 30,
2011
|
December 31,
2010
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
240,500
|
$
|
657,572
|
||||
Restricted
cash
|
21,950
|
-
|
||||||
Accounts
receivable from unrelated parties, net of allowance for doubtful accounts
of $581,998 and $43,134 as of September 30, 2011 and December 31, 2010,
respectively
|
1,530,236
|
2,730,995
|
||||||
Non
trade receivable from an unrelated party
|
470,367
|
104,108
|
||||||
Non
trade receivable from a related party
|
603,423
|
|||||||
Refundable
deposit
|
239,178
|
-
|
||||||
Prepayments
to suppliers – unrelated parties
|
151,450
|
121,105
|
||||||
Prepayments
to suppliers – a related party
|
590,970
|
545,885
|
||||||
Inventories
|
2,517,317
|
1,010,633
|
||||||
Other
tax receivable
|
9,628
|
-
|
||||||
Prepaid
expenses and other receivables
|
78,553
|
140,748
|
||||||
Total
current assets
|
5,850,149
|
5,914,469
|
||||||
Property,
plant and equipment - net
|
1,001,721
|
1,001,713
|
||||||
Intangible
assets - net
|
268,616
|
262,923
|
||||||
Total
Assets
|
$
|
7,120,486
|
$
|
7,179,105
|
||||
LIABILITIES
AND EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Short-term
loans
|
$
|
2,351,834
|
$
|
1,207,967
|
||||
Accounts
payable to unrelated parties
|
3,309,531
|
3,017,014
|
||||||
Accounts
payable to related parties
|
57,661
|
-
|
||||||
Advances
from customers
|
112,558
|
4,784
|
||||||
Income
and other taxes payable
|
277,048
|
665,475
|
||||||
Accrued
expenses and other current liabilities
|
58,691
|
134,920
|
||||||
Total
current liabilities
|
6,167,323
|
5,030,160
|
||||||
Equity
|
||||||||
Common
stock ($0.001 par value, Authorized 50,000,000 shares; 40,202,200 shares
issued and outstanding September 30, 2011; 39,200,000 shares issued and
outstanding December 31, 2010)
|
40,202
|
39,200
|
||||||
Additional
paid-in-capital
|
342,788
|
343,790
|
||||||
Statutory
reserves
|
172,216
|
172,216
|
||||||
Retained
earnings
|
254,803
|
1,507,743
|
||||||
Accumulated
other comprehensive income
|
143,154
|
85,996
|
||||||
Total
Equity
|
953,163
|
2,148,945
|
||||||
Total
Liabilities and Equity
|
$
|
7,120,486
|
$
|
7,179,105
|
See
accompanying notes to these condensed consolidated financial
statements
F-1
CHINA
GREEN LIGHTING LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(AMOUNTS
EXPRESSED IN US DOLLAR)
(UNAUDITED)
Three Months Ended September 30, |
Nine
Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net
sales
|
$ | 2,948,935 | $ | 3,218,034 | $ | 6,165,270 | $ | 10,098,841 | ||||||||
Cost
of sales
|
(2,660,637 | ) | (2,442,782 | ) | (5,406,098 | ) | (8,697,989 | ) | ||||||||
Gross
Profit
|
288,298 | 775,252 | 759,172 | 1,400,852 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling
and marketing
|
(15,336 | ) | (29,097 | ) | (56,725 | ) | (106,877 | ) | ||||||||
General
and administrative
|
(666,193 | ) | (139,985 | ) | (1,939,261 | ) | (462,643 | ) | ||||||||
Total
operating expenses
|
(681,529 | ) | (169,082 | ) | (1,995,986 | ) | (569,520 | ) | ||||||||
(Loss)
income from operations
|
(393,231 | ) | 606,170 | (1,236,814 | ) | 831,332 | ||||||||||
Other
income (expenses):
|
||||||||||||||||
Other
income
|
69,281 | 20,959 | 82,465 | 100,741 | ||||||||||||
Interest
income
|
22,652 | 346 | 26,160 | 1,205 | ||||||||||||
Interest
expenses
|
(40,335 | ) | (17,644 | ) | (94,186 | ) | (49,633 | ) | ||||||||
Total
other income, net
|
51,598 | 3,661 | 14,439 | 52,313 | ||||||||||||
(Loss)
income before provision for income taxes
|
(341,633 | ) | 609,831 | (1,222,375 | ) | 883,645 | ||||||||||
Income
taxes
|
(22,683 | ) | (91,475 | ) | (30,565 | ) | (132,547 | ) | ||||||||
Net
(loss) income
|
$ | (364,316 | ) | $ | 518,356 | $ | (1,252,940 | ) | $ | 751,098 | ||||||
Other
comprehensive income:
|
||||||||||||||||
Foreign
currency translation adjustment
|
8,159 | 17,625 | 57,158 | 20,445 | ||||||||||||
Comprehensive
(loss) income
|
$ | (356,157 | ) | $ | 535,981 | $ | (1,195,782 | ) | $ | 771,543 | ||||||
Net
(loss) income per share:
|
||||||||||||||||
Basic
and diluted
|
$ | (0.009 | ) | $ | 0.013 | $ | (0.032 | ) | $ | 0.019 | ||||||
Weighted
average number of ordinary shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
40,202,200 | 39,200,000 | 39,717,619 | 39,200,000 |
See
accompanying notes to these condensed consolidated financial
statements
F-2
CHINA
GREEN LIGHTING LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(AMOUNTS
EXPRESSED IN US DOLLAR)
(UNAUDITED)
Common stock
|
Additional
paid-in-
|
Statutory
|
Retained
|
Accumulated
other
comprehensive
|
Total
stockholders'
|
|||||||||||||||||||||||
Shares
|
Amount
|
capital
|
reserves
|
earnings
|
income
|
equity
|
||||||||||||||||||||||
BALANCE,
January 1, 2011
|
39,200,000
|
$
|
39,200
|
$
|
343,790
|
$
|
172,216
|
$
|
1,507,743
|
$
|
85,996
|
$
|
2,148,945
|
|||||||||||||||
Reverse
merger transaction:
|
||||||||||||||||||||||||||||
Elimination
of accumulated deficit
|
-
|
-
|
(63,111
|
)
|
-
|
-
|
-
|
(63,111
|
)
|
|||||||||||||||||||
Previously
issued TRMH stock
|
302,200
|
302
|
62,809
|
-
|
-
|
-
|
63,111
|
|||||||||||||||||||||
Shares
issued in merger
|
700,000
|
700
|
(700
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
(1,252,940
|
)
|
-
|
(1,252,940
|
)
|
|||||||||||||||||||
Foreign
currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
57,158
|
57,158
|
|||||||||||||||||||||
BALANCE,
September 30, 2011
|
40,202,200
|
$
|
40,202
|
$
|
342,788
|
$
|
172,216
|
$
|
254,803
|
$
|
143,154
|
$
|
953,163
|
See notes
accompanying to these condensed consolidated financial statements
F-3
CHINA
GREEN LIGHTING LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS
EXPRESSED IN US DOLLAR)
(UNAUDITED)
Nine months ended September 30,
|
||||||||
2011 | 2010 | |||||||
Cash
flows from operating activities:
|
||||||||
Net
(loss) income
|
$
|
(1,252,940
|
)
|
$
|
751,098
|
|||
Adjustments
to reconcile net (loss) income to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
101,519
|
81,971
|
||||||
Allowance
for doubtful debts
|
649,219
|
-
|
||||||
Merger
costs
|
685,162
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable from unrelated parties
|
754,236
|
(1,726,676
|
)
|
|||||
Accounts
receivable from related parties
|
-
|
555,953
|
||||||
Prepayments
to suppliers – unrelated parties
|
(25,228
|
)
|
(306,914
|
)
|
||||
Prepayments
to suppliers – a related party
|
(23,699
|
)
|
-
|
|||||
Inventories
|
(1,440,985
|
)
|
351,665
|
|||||
Prepaid
expenses and other receivables
|
(55,510
|
)
|
(406,902
|
)
|
||||
Accounts
payable to unrelated parties
|
177,544
|
319,442
|
||||||
Accounts
payable to a related party
|
57,661
|
|
||||||
Advances
from customers
|
105,617
|
(125,573
|
)
|
|||||
Income
and other taxes payable
|
(415,819
|
)
|
308,168
|
|||||
Accrued
expenses and other current liabilities
|
(83,859
|
)
|
185,830
|
|||||
Net
cash used in operating activities
|
(767,082
|
)
|
(11,938
|
)
|
||||
Cash
flows from investing activities:
|
||||||||
Placement
of refundable deposit
|
(923,479
|
)
|
-
|
|||||
Purchase
of property, plant and equipment
|
(59,485
|
)
|
(177,919
|
)
|
||||
Repayment of
non trade receivable
|
259,461
|
|
||||||
Net
cash used in investing activities
|
(723,503
|
)
|
(177,919
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from short-term loans
|
2,308,698
|
-
|
||||||
Repayment
of short-term loans
|
(1,231,305
|
)
|
-
|
|||||
Increase
in restricted cash
|
(21,548
|
)
|
-
|
|||||
Net
cash provided by financing activities
|
1,055,845
|
-
|
||||||
Effect
of exchange rate changes on cash and cash equivalents
|
17,668
|
4,417
|
||||||
Net
decrease in cash and cash equivalents
|
(417,072
|
)
|
(185,440)
|
|||||
Cash
and cash equivalents, beginning of period
|
657,572
|
378,273
|
||||||
Cash
and cash equivalents, end of period
|
$
|
240,500
|
$
|
192,833
|
||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
$
|
94,186
|
$
|
49,633
|
||||
Cash
paid for income taxes
|
$
|
21,476
|
$
|
15,093
|
||||
Non-cash
transaction – waiver of entitlement to refundable deposit in exchange for
payment of certain merger costs (note 18)
|
$
|
685,162
|
$
|
-
|
See
accompanying notes to these condensed consolidated financial
statements
F-4
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Company
Background
China
Green Lighting Limited (the “Company”) (formerly named Transit Management
Holding Corp. (“TRMH”)) is incorporated in the State of Colorado. TRMH was a
public shell company with no operations. On May 13 2011, (the “Closing Date”),
the Company closed a voluntary share exchange transaction (the “Share Exchange”)
with China Green Lighting Limited (“CGL”), a company organized under the laws of
the British Virgin Islands. The Share Exchange Agreement dated May 13, 2011 (the
“Exchange Agreement”) was signed by TRMH, a majority shareholder of TRMH, CGL
and the shareholders of CGL. Pursuant to the Exchange Agreement, (i) TRMH
acquired 100% of the issued and outstanding capital stock of CGL, in exchange of
39,200 shares of Series “A” Convertible Preferred Stock; and (ii) the former
principal stockholders of TRMH surrendered 21,923,000 shares of the Company’s
common stock then outstanding in exchange for 700 shares of Series “A”
Convertible Preferred Stock, so that immediately prior to the Share Exchange,
TRMH had 302,200 shares of common stock issued and outstanding. Each share of
Series “A” Convertible Preferred Stock was convertible into 1,000 shares of
common stock, $0.001 par value. The Share Exchange resulted in a change in
control of TRMH.
On July
8, 2011, the Company’s corporate name was changed to “China Green Lighting
Limited”.
The Share
Exchange has been accounted for as a reverse acquisition. These transactions are
considered to be capital transactions in substance, rather than business
combinations. Accordingly, the Share Exchange has been accounted for as a
recapitalization and, for accounting purposes, CGL is deemed to be the
accounting acquirer (legal acquiree) and TRMH to be the accounting acquiree
(legal acquirer). The financial statements before the Share Exchange are those
of CGL with results of TRMH being consolidated from the date of the Share
Exchange. The equity section and earnings per share of the Company have been
retroactively restated to reflect the reverse acquisition and no goodwill has
been recorded. Costs of $685,162 incurred for the reverse
acquisition paid by an existing stockholder on the Company’s behalf
were expensed.
TRMH’s
historical accumulated deficit for the period prior to May 13, 2011, in the
amount of $63,111, was eliminated against additional paid in capital, and the
accompanying consolidated financial statements present the previously issued
shares of TRMH’s common stock as having been issued pursuant to the Share
Exchange Agreement on May 13, 2011. The shares of common stock of the Company
issued to the CGL shareholders in the reverse merger are presented as having
been outstanding since the original issuance of the shares.
CGL was
incorporated on February 25, 2011 under the laws of the British Virginia Islands
as a limited liability company. CGL is a holding company. CGL together with
subsidiaries as discussed below is engaged in manufacturing fluorescent lamps
for sales in America and Asia markets.
First
Green Lighting Limited (“FGL”), wholly-owned by CGL, was incorporated on March
9, 2011 under the laws of Hong Kong as a limited liability
company. FGL has set up two wholly-owned subsidiaries in China
- Jiangshan Greenworld Photoelectricity Consulting Co., Ltd. (“JGP”) on May
4, 2011 and Shanghai Greenworld Photoelectricity Consulting Co., Ltd. (“SGP”) on
September 29, 2011. JGP is intended to engage in provision of fluorescent lamps
technology consulting services and SGP is intended to engage in trading of
fluorescent lamps. As of September 30, 2011, they had not commenced
operations.
Zhejiang
Joinan Lighting Co., Ltd. (“ZJL” or “VIE”) was incorporated on December 6, 2006
under the laws of the People’s Republic of China (PRC) as a limited liability
company. ZJL has been engaged in the business of manufacturing and
sales of fluorescent lamps since it started its operation in September,
2007.
As
discussed below, JGP entered into various agreements with ZJL and/or its
shareholders to allow JGP’s effective control over ZJL.
Exclusive Purchase Option
Agreement: JGP has the option to purchase all of ZJL’s assets and
ownership at any time at nominal value.
F-5
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Company
Background (Continued)
Consigned Management
Agreement and Exclusive Technology Service Agreement, JGP is appointed as
ZJL’s exclusive service provider to provide business support and related
consulting services. JGP is to be paid a consulting and service fee equal to
100% of the net profits of ZJL.
Loan Agreement and Equity
Pledge Agreement, ZJL’s shareholders agreed to pledge their legal
interest to JGP as a security for the obligations of ZJL under the exclusive
technology service agreement and loan agreement.
Through
the above contractual agreements (“Contractual Agreements”), the Company
maintains substantial control over the ZJL’s daily operations and financial
affairs, election of their senior executives and all matters requiring
shareholder approval. As the primary beneficiary of ZJL, the Company is entitled
to consolidate the financial results of ZJL in its own consolidated financial
statements under Financial Accounting Standards Board Accounting Standard
Codification (ASC) Topic 810 and related subtopics related to the consolidation
of variable interest entities (collectively, “ASC Topic 810”).
F-6
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies
Principles
of Consolidation and Basis of Presentation
These
interim condensed consolidated financial statements are unaudited. In the
opinion of management, all adjustments and disclosures necessary for a fair
presentation of these interim condensed consolidated financial statements, which
are of a normal and recurring nature, have been included. The results reported
in the condensed consolidated financial statements for any interim periods are
not necessarily indicative of the results that may be reported for the entire
year. The unaudited interim condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to those rules and regulations, though the Company believes
that the disclosures made are adequate to make the information not misleading.
These unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and accompanying
footnotes of the Company for the year ended December 31, 2010, as well as the
Company’s Form 8-K filed with the SEC.
These
unaudited condensed consolidated financial statements include the financial
statements of the Company and its subsidiaries and variable interest entity. All
material inter-company transactions and balances have been eliminated in the
consolidation.
The
Company has evaluated the relationship with ZJL and based on the result of the
evaluation, believes that this entity is a variable interest entity and that it
is the primary beneficiary of this entity. Consequently, the Company has
included the results of operations of this variable interest entity in the
condensed consolidated financial statements. The Company’s relationships with
ZJL are governed by a series of contractual arrangements. Under PRC laws, ZJL is
an independent legal person.
The
accounts of ZJL are consolidated in the accompanying financial statements
pursuant to the Financial Accounting Standards Board Accounting Standard
Codification (ASC) Topic 810 and related subtopics related to the consolidation
of variable interest entities. The Company does not have any non-controlling
interests in net income and accordingly, did not subtract any net income in
calculating the net income attributable to the Company. Because of the
contractual arrangements, the Company had a pecuniary interest in the VIE that
requires consolidation of the Company’s and the VIE’s financial
statements.
Going
Concern
The
condensed consolidated financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The carrying amounts of assets and liabilities presented in
the condensed consolidated financial statements do not purport to represent the
realizable or settlement values.
As of
September 30, 2011, the Company had cash of $240,500. Its current liabilities
exceeded current assets by $317,174, resulting in a current ratio of 0.95 and
quick ratio of 0.04. The Company incurred a net loss of $1,252,940 during the
nine months ended September 30, 2011.This trend is expected to
continue. These factors create substantial doubt about the Company’s
ability to continue as a going concern.
Management
is in the course of sourcing additional financing and considering ways to
restructure or adjust the Company’s operations and product mix so as to increase
profit margins in the future. However, there is no guarantee that
these actions will be successful.
The
condensed consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Use of
Estimates
The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the unaudited interim condensed consolidated financial statements and
accompanying notes. Management believes that the estimates used in preparing its
unaudited interim condensed consolidated financial statements are reasonable and
prudent. Actual results could differ from these estimates. Significant estimates
include the useful lives of property and equipment and intangible assets,
assumptions used in assessing impairment for long-term assets and the allowance
for doubtful receivables.
Cash and
Cash Equivalents
Cash and
cash equivalents consist of all cash balances and all highly liquid investments
with an original maturity of three months or less .Because of the short maturity
of these investments, the carrying amounts approximate their fair value.
Restricted cash is excluded from cash and cash equivalents. As of September 30,
2011and December 31, 2010, almost all of the Company's cash and cash equivalents
were denominated in US dollars and Chinese Renminbi ("RMB") and were placed with
banks in the PRC. The convertibility of RMB into other currencies and the
remittance of these funds out of the PRC are subject to exchange control
restrictions imposed by the PRC government.
F-7
CHINA GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
onert
Accounts
Receivable and Other Receivable
The
Company has a policy of reserving for uncollectible accounts based on its best
estimate of the amount of probable credit losses in its existing receivables.
The Company periodically reviews its receivables to determine whether an
allowance is necessary based on an analysis of past due accounts and other
factors that may indicate that the realization of an account may be in doubt. In
evaluating the collectability of individual receivable balances, the Company
considers many factors, including the age of the balance, the customer’s payment
history, its current credit-worthiness and current economic trends. Account
balances deemed to be uncollectible are charged to the allowance after all means
of collection have been exhausted and the potential for recovery is considered
remote.
At
September 30, 2011 and December 31, 2010, the Company has established, based on
a review of its outstanding accounts receivable balances, an allowance for
doubtful accounts in the amount of $581,998 and $43,134, respectively, on its
total accounts receivable.
Other
receivables are primarily related to advances made to various vendors and other
parties in the normal course of business and an allowance was established when
those parties are deemed to be unlikely to repay the amounts. At September 30,
2011 and December 31, 2010, the Company has established, based on a review of
its outstanding other receivables balances, an allowance for doubtful accounts
in the amount of $124,141 and $Nil, respectively. At such time as management
exhausts all collection efforts, the other receivables balance will be netted
against the allowance account. The activities in the allowance for doubtful
accounts for accounts receivable and other receivables for the nine months and
three months ended September 30, 2011 were as follows:
Allowance
for doubtful accounts for accounts receivable
|
Allowance
for doubtful accounts for other receivable
|
Total
|
||||||||||
Balance
–December 31, 2010
|
$ | 43,134 | $ | - | $ | 43,134 | ||||||
Addition
in allowance
|
527,355 | 121,864 | 649,219 | |||||||||
Foreign
currency translation adjustments
|
11,509 | 2,277 | 13,786 | |||||||||
Balance
– September 30, 2011
|
$ | 581,998 | $ | 124,141 | $ | 706,139 |
Allowance
for doubtful accounts for accounts receivable
|
Allowance
for doubtful accounts for other receivable
|
Total
|
||||||||||
Balance
– June 30, 2011
|
$ | 269,142 | $ | - | $ | 269,142 | ||||||
Addition
in allowance
|
307,076 | 123,409 | 430,485 | |||||||||
Foreign
currency translation adjustments
|
5,780 | 732 | 6,512 | |||||||||
Balance
– September 30, 2011
|
$ | 581,998 | $ | 124,141 | $ | 706,139 |
Inventories
Inventories
are stated at the lower of cost or the market value. Cost is
determined on a weighted average basis. Inventory consists of raw materials,
finished goods, and work-in-progress, which includes the cost of direct
materials, labor, and manufacturing overhead cost allocation. Market value is
determined by reference to selling prices in the ordinary course of business
less the estimated costs necessary to make the sale. Management will write down
the inventories to market value if it is below cost. Management also regularly
evaluates the composition of its inventories to identify slow-moving and
obsolete inventories to determine if a valuation allowance is
required.
F-8
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
Derivative
financial instruments
The
Company enters into forward foreign currency contracts with banks to manage a
portion of foreign currency risk related to U.S. Dollar denominated asset
balances against the functional currency, Renminbi (the lawful currency of
China), of its PRC VIE. The forward foreign currency contracts did not qualify
for hedge accounting and were carried initially at fair value as assets or
liabilities, and are then revalued at each reporting date with unrealized gains
and losses recognized based on changes in fair value in the caption “Foreign
Currency Exchange Gain (Loss)” in the condensed consolidated statement of income
and comprehensive income. The fair value of these forward foreign exchange
contracts had been determined using standard calculations/models that use as
their basis readily observable market parameters including spot and forward
rates and a net present value stream of cash flows model.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses, if any. Gains or losses on disposals are
reflected as gain or loss in the year of disposal. The cost of improvements that
extend the life of property, plant and equipment are capitalized. These
capitalized costs may include structural improvements, equipment and fixtures.
All ordinary repair and maintenance costs are expensed as incurred.
Depreciation
for financial reporting purposes is provided using the straight-line method over
the estimated useful lives of the assets with 5% estimated residual
value.
Estimated
useful lives of the Company’s assets are as follows:
Asset
|
Useful Life
|
||
Buildings
|
10-20 years
|
||
Production
equipment
|
3-10
years
|
||
Transportation
equipment
|
5
years
|
||
Office
and testing equipment
|
3-5
years
|
F-9
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
Intangible
Assets
Intangible
assets include the land use rights. Land use rights are being
amortized using the straight-line method over their lease terms of 50
years.
Valuation
of Long-Lived Assets
The
Company reviews the carrying value of its long-lived assets, including plant and
equipment and finite life intangibles whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. To the
extent the estimated undiscounted future cash inflows attributable to the asset,
less estimated undiscounted future cash outflows, are less than the carrying
amount, the Company recognizes an impairment loss in an amount equal to the
difference between the carrying value of such assets and fair value. No
impairment indicator was noted in the prior years or current period. The Company
reports assets for which there is a committed disposition plan, whether through
sale or abandonment, at the lower of carrying value or fair value less costs to
sell. No such assets were identified in prior years or the current
period.
Revenue
Recognition
The
Company mainly manufactures to sales orders, and its products are sold in
markets in and outside China. Sales orders received in China may also be further
resold by Chinese foreign trade companies to markets outside China. The Company
may also provide production processing service whereas the only difference with
other production service is that the raw materials are provided by customers.
Under those circumstances, the Company evaluates and determines whether sales
have been made to those Chinese foreign trade intermediaries or those production
processing service customers, and whether the customers are acting as principal
or agent according to ASC605-45 “Principal Agent consideration”.
The
Company recognizes revenue when the consideration to be received is fixed or
determinable, products are delivered based on the terms of sales contracts, and
collectability is ensured, in compliance with ASC 605-10, “Revenue
Recognition”.
Sales to
markets outside China are usually on FOB terms shipped from a nearby seaport in
Eastern China. The Company recognizes revenue from these
international sales as goods are shipped and clear review by the customs
department of the Chinese government. Sales in China are delivered at customer
designated locations in China. The Company recognizes revenue from
these local sales when the title to products passes to
customers. Title to the products passes to customers when the
products are delivered and accepted by the customers.
The
Company is not obligated for any repurchase or return of the goods unless there
is a quality issue with the products, which has not been shown historically as
an issue.
The
Company presents all sales revenue net of a value-added tax (“VAT”). The
Company’s products sold in China are generally subject to a Chinese VAT of 17%
of the sales price. The VAT payable may be offset by VAT paid by the Company on
purchased raw materials and other materials included in producing the finished
products.
Shipping
and Handling Costs
Shipping
and handling costs were charged to expenses when incurred. Shipping
and handling costs are included in selling expenses in the unaudited condensed
consolidated statements of income and comprehensive income and amounted to
$44,491 and $83,602 for the nine months ended September 30, 2011 and 2010, and
$15,320 and $20,061 for the three months ended September 30, 2011 and 2010,
respectively.
F-10
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
Advertising
and Promotion Costs
Advertising
and promotion costs were charged to expenses when
incurred. Advertising and promotion costs are included in selling
expenses in the unaudited condensed consolidated statements of income and
comprehensive income and amounted to $9,271 and $301 for the nine months ended
September 30, 2011 and 2010, and $Nil and $Nil for the three months ended
September 30, 2011 and 2010, respectively.
Research
and Development Expenses (R&D)
Research
and development expenses include salaries for R&D staff, consultant fees,
supplies and materials, as well as other overhead such as depreciation,
facilities, utilities, and other R&D related expenses. The Company expenses
costs for the development of new products and substantial enhancements to
existing products as incurred.
Research
and development costs recorded in general and administrative expenses were
$162,370 and $153,468 for the nine months ended September 30, 2011 and 2010, and
$35,707 and $37,700 for the three months ended September 30, 2011 and 2010,
respectively. No research and development expenses were capitalized during the
nine months ended September 30, 2011 and 2010. The Company does not pass along
research and development expenses directly or indirectly to
customers.
Foreign
Currency Translation
The
Company uses the United States dollar (“US Dollar” or “US$” or “$”) for
financial reporting purposes. The PRC subsidiaries and VIEs within the Company
maintain their books and records in their functional currency, Chinese Renminbi
(“RMB”), being the lawful currency in the PRC. Assets and liabilities
of the PRC subsidiaries and VIEs are translated from RMB into US Dollars using
the applicable exchange rates prevailing at the balance sheet
date. Items on the statements of income and cash flows are
translated at average exchange rates during the reporting
period. Equity accounts are translated at historical
rates. Adjustments resulting from the translation of the Company’s
financial statements are recorded as accumulated other comprehensive
income.
The
exchange rates used to translate amounts in RMB into US Dollars for the purposes
of preparing the consolidated financial statements are based on the rates as
published on the website of http://www.federalreserve.gov and are as
follows:
September 30,
2011
|
December 31,
2010
|
||
Balance
sheet items, except for equity accounts
|
US$1=RMB6.3780
|
US$1=RMB6.6227
|
Three months ended September 30,
|
|||
2011
|
2010
|
||
Items
in the statements of income and cash flows
|
US$1=RMB6.4158
|
US$1=RMB6.7680
|
Nine months ended September 30,
|
|||
2011
|
2010
|
||
Items
in the statements of income and cash flows
|
US$1=RMB6.4972
|
US$1=RMB6.8061
|
No
representation is made that the RMB amounts could have been, or could be,
converted into US Dollars at the above rates. The value of RMB against US
dollars and other currencies may fluctuate and is affected by, among other
things, changes in China’s political and economic conditions. Any significant
revaluation of RMB may materially affect the Company’s financial condition in
terms of US Dollar reporting.
F-11
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC Topic 740. ASC
Topic 740 requires an asset and liability approach for financial accounting and
reporting for income taxes and allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits in future
years. Under the asset and liability approach, deferred taxes are provided for
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before the Company
is able to realize their benefits, or that future deductibility is
uncertain.
The
Company’s income tax returns are subject to examination by the Internal Revenue
Service (“IRS”) and other tax authorities in the locations where it operates.
The Company assesses potentially unfavorable outcomes of such examinations based
on the criteria of ASC740-10-25-5 through 740-10-25-7 and 740-10-25-3 which
became effective for fiscal years beginning after December 15, 2006. The
interpretation prescribes a recognition threshold and a measurement attribute
for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those benefits to be recognized, a
tax position must be more-likely-than-not to be sustained upon examination by
tax authorities. The amount recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement.
Earnings
per Share
The
Company reports earnings per share in accordance with provisions of FASB ASC
Topic 260, “Earnings Per Share”. FASB ASC Topic 260 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilutive
effects of convertible securities (using the as-if converted method), and
options and warrants and their equivalents (using treasury stock
method).
All per
share data including earnings per share has been retroactively restated to
reflect the reverse acquisition consummated on May 13, 2011, whereby
the 39,200,000 shares of common stock issued by TRMH (nominal acquirer) to the
Company’s shareholder (nominal acquiree) are deemed to be the number of shares
outstanding for the periods prior to the reverse acquisition. For periods after
the reverse acquisition, the number of shares considered to be outstanding is
the actual number of shares outstanding during those periods.
There
were no dilutive instruments outstanding during the periods ended September 30,
2011 and 2010.
The
following table is a reconciliation of the net (loss) income and the weighted
average shares used in the computation of basic and diluted (loss) earnings per
share for the periods presented.
Three Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net
(loss) income attributable to China Green Lighting Limited stockholders
for the period – basic and diluted
|
$
|
(364,316
|
)
|
$
|
518,356
|
$
|
(1,252,940
|
)
|
$
|
751,098
|
||||||
Weighted
average common stock outstanding
|
40,202,200
|
39,200,000
|
39,717,619
|
39,200,000
|
||||||||||||
Net
(loss) income – basic and diluted
|
$
|
(0.009
|
)
|
$
|
0.013
|
$
|
(0.032
|
)
|
$
|
0.019
|
F-12
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
Comprehensive
Income
FASB ASC
Topic 220, Comprehensive Income, establishes standards for reporting and
displaying comprehensive income and its components in the condensed consolidated
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Accumulated other comprehensive income
arose from foreign currency translation adjustments.
Fair
Value Measurements
The
Company’s financial instruments primarily consist of cash and cash equivalents,
restricted cash, accounts receivable, derivative instruments, accounts payable
and short-term debts.
As
of the balance sheet dates, the estimated fair values of the financial
instruments were not materially different from their carrying values as
presented due to the short maturities of these instruments and that the interest
rates on the borrowing approximate those that would have been available for
loans of similar remaining maturity and risk profile at the respective reporting
periods.
ASC Topic
820, Fair Value Measurement and Discloses, defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principle or most advantages market for the asset or
liability in an orderly transaction between markets participants on the
measurement dates. The topic also establishes a fair value hierarchy which
requires classification based on observable and unobservable inputs when
measuring fair value. There are three levels of inputs that may be used to
measure fair value:
Level 1—
Quoted prices is active markets for identical assets or
liabilities.
Level 2 –
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3—
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
Determining
which category an assets or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter. Assets and liabilities measured at fair value on a recurring basis are
summarized as follows:
Financial instruments
Fair value measurement using inputs
|
Carrying
amount at
|
|||||||||||||||
Level 1
|
Level 2
|
Level 3
|
September 30, 2011
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Derivative
instruments (note 12)
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
Total
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
The
carrying values of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable and short-term bank loans approximate fair values
due to their short maturities. There were no assets or liabilities measured at
fair value on a non-recurring basis as of September 30, 2011 and December 31,
2010.
Segments
The
Company identifies segments by reference to its internal organization structure
and the factors that management uses to make operating decisions and assess
performance.
The
Company has only one business segment, which is manufacturing of fluorescent
lamps for sale in America and Asia markets.
F-13
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Summary
of Significant Accounting Policies (Continued)
Recently
Issued Accounting Pronouncements
In
January 2011, the FASB issued ASU No. 2011-01- Receivables (Topic 310): Deferral
of the Effective Date of Disclosures about Troubled Debt Restructurings in
Update No. 2010-20. The amendments in this update temporarily delay the
effective date of the disclosures about troubled debt restructurings in ASU No.
2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses, for public entities.
The delay is intended to allow the FASB time to complete its deliberations on
what constitutes a troubled debt restructuring. The effective date of the new
disclosures about troubled debt restructurings for public entities and the
guidance for determining what constitutes a troubled debt restructuring will
then be coordinated. This deferral will have no material impact on the Company’s
consolidated financial statements.
In
January 2011, the FASB issued ASU No. 2011-02- Receivables (Topic 310): A
Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring. The amendments in this update provide additional guidance to
assist creditors in determining whether a restructuring of a receivable meets
the criteria to be considered a troubled debt restructuring. For
public companies, the new guidance is effective for interim and annual periods
beginning on or after June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal year of
adoption within those annual periods. Early application is permitted. The
adoption of the provisions in ASU 2011-02 will have no material impact on the
Company’s consolidated financial statements.
In May
2011, the FASB issued ASU No. 2011-04 - Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S.GAAP and IFRSs. The amendments in this update intend to converge
requirements for how to measure fair value and for disclosing information about
fair value measurements in US GAAP with International Financial Reporting
Standards. For public entities, this ASU is effective for interim and annual
periods beginning after December 15, 2011. The adoption of the provisions in ASU
2011-04 will have no material impact on the Company’s consolidated financial
statements.
In June
2011, the FASB issued ASU No. 2011-05 -Comprehensive Income (Topic 220):
Presentation of Comprehensive Income. The amendments in this update require (i)
that all non-owner changes in stockholders’ equity he presented either in a
single continuous statement of comprehensive income or in two separate but
consecutive statements (the current option to present components of other
comprehensive income (“OCI”) as part of the statement of changes in
stockholders’ equity is eliminated); and (ii) presentation of reclassification
adjustments from OCI to net income on the face of the financial statements. For
public entities, the amendments in this ASU are effective for years, and interim
periods within those years, beginning after December 15, 2011. The amendments in
this update should be applied retrospectively. Early adoption is permitted. The
adoption of the provisions in ASU 2011-05 will have no material impact on the
Company’s consolidated financial statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial
statements upon adoption.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period
presentation. These reclassifications have no impact on previously reported
financial position, results of operations or cash flows.
F-14
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Restricted
Cash
Restricted
cash as of September 30, 2011 represented the Company's bank deposits for
securing the Company's derivative instruments (see note 12).
4. Accounts
Receivable, Net
Based on
the Company’s assessment, management believes the net balance on each balance
sheet date herein was collectable. The gross accounts receivable and allowance
for doubtful debts as of September 30, 2011 and December 31, 2010 are as
follows:
September 30,
2011
|
December 31,
2010
|
|||||||
Accounts
receivable, gross
|
$
|
2,112,234
|
$
|
2,774,129
|
||||
Less:
allowance for doubtful debts
|
581,998
|
43,134
|
||||||
Accounts
receivable, net
|
$
|
1,530,236
|
$
|
2,730,995
|
5. Non-trade
Receivable From an Unrelated Party
In
December 2010, ZJL lent a total amount of RMB3,996,292 (equivalent to
US$603,423), representing RMB3,000,000 loan and RMB996,292 advancement,
respectively, to a related party of a 32% equity owner of ZJL (note 6). The
RMB3,000,000 loan was for a period from December 8, 2010 to December 1, 2011 and
bearing floating interest at the prime rate of China Construction Bank Zhejiang
Province Branch. The RMB996,292 advancement was interest free, unsecured
and repayable on demand. In January 2011, the related party had repaid
RMB996,292.
Since the
32% equity owner of ZJL transferred all her interests in ZJL during 2011, the
outstanding balances, amounting to RMB3,996,292 (equivalent to US$603,423) as of
December 31, 2010, and RMB3,000,000 (equivalent to US$470,367) as of September
30, 2011, was classified as non-trade receivable from a related party and
non-trade receivable from an unrelated party, respectively.
ZJL at
the same time obtained a short-term bank loan of RMB3,000,000 (equivalent to
US$470,367) from a commercial bank which was secured by a real estate property
of that related party (see note 11).
Non-trade
receivable from an unrelated party of US$104,108 at December 31, 2010 was
interest free and unsecured. The amount was fully repaid in
2011.
6. Non-trade
Receivable From a Related Party
September 30,
2011
|
December 31,
2010
|
|||||||
A
related party of a former 32% equity owner of ZJL (note 5)
|
$
|
-
|
$
|
603,423
|
F-15
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. Refundable
Deposit
In the
second quarter of 2011, the Company’s variable interest entity, ZJL, paid a
refundable deposit of RMB6,000,000 (equivalent to US$923,479) to a third party
who helped identify potential targets for a business combination. A potential
target had been identified and through the assistance of that third party, ZJL
had been in the process of negotiating an agreement with the potential target,
at the same time. However, during the third quarter of 2011, management became
aware of certain factors and decided to slow down the due diligence process. The
Company waived its entitlement to RMB4,474,521 (equivalent to US$685,162) of the
refundable deposit during the quarter ended September 30, 2011(see note
18).
As of
September 30, 2011, the Company expects that the remaining balance of the
refundable deposit of RMB1,525,479 (equivalent to US$239,178) will be refunded
within the next 12 months.
8. Inventories
Inventories
consisted of the following:
|
September 30,
2011
|
December 31,
2010
|
||||||
Raw
materials
|
$
|
897,493
|
$
|
408,215
|
||||
Work-in-progress
|
573,245
|
86,113
|
||||||
Finished
goods
|
1,032,067
|
516,305
|
||||||
Low
value consumables
|
14,512
|
-
|
||||||
Total
|
$
|
2,517,317
|
$
|
1,010,633
|
The
Company reviews its inventory periodically for possible obsolete goods and to
determine if any reserves are necessary for potential obsolescence. As of
September 30, 2011 and December 31, 2010, the Company determined that no
reserves were necessary.
9. Property,
Plant and Equipment, Net
Property,
plant and equipment consist of the following:
September
30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Buildings
|
$
|
631,481
|
$
|
602,406
|
||||
Production
equipment
|
512,172
|
453,246
|
||||||
Transportation
equipment
|
147,230
|
141,790
|
||||||
Office
and testing equipment
|
100,907
|
84,565
|
||||||
Total
property plant and equipment
|
1,391,790
|
1,282,007
|
||||||
Less:
accumulated depreciation
|
(390,069
|
)
|
(280,294
|
)
|
||||
Property,
plant and equipment, net
|
$
|
1,001,721
|
$
|
1,001,713
|
Depreciation
expenses for the nine months ended September 30, 2011 and 2010 amounted to
US$97,205 and US$77,852, and US$32,693 and US$29,947 for the three months ended
September 30, 2011 and 2010, respectively.
F-16
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. Intangible
Assets, net
The
Company has recorded as intangible assets the lump sum payments paid to acquire
long-term interests to utilize the land underlying the building and production
facility. This type of arrangement is common for the use of land in
the PRC. The land use rights are expensed on the straight-line basis
over the term of the land use rights of 50 years.
The
amounts expensed on prepaid land use rights were US$4,314 and US$4,119 for the
nine months ended September 30, 2011 and 2010, and US$1,456 and US$1,381 for the
three months ended September 30, 2011 and 2010, respectively. The
estimated expense of the prepaid land use rights over each of the next five
years and thereafter is US$5,860 per annum.
11. Short-term
Loans
Short-term
bank loans consisted of the following:
September
30,
|
December
31,
|
|||||||
2011
|
2010
|
|||||||
Bank
loan of RMB3,000,000 granted by China Construction Bank, Jiangshan Branch
with an interest rate of 6.67% p.a., secured by a real estate property
belonging to a related party of a former equity owner of ZJL (note 5) and
maturing on December 1, 2011
|
$
|
470,367
|
$
|
452,987
|
||||
Bank
loan of RMB5,000,000 granted by China Construction Bank, Jiangshan Branch
with an interest rate of 7.26% p.a., guaranteed by a related party
“Zhejiang Lisheng Electronic Technology Company Limited” and maturing on
May 8, 2012
|
783,945
|
-
|
||||||
Bank
loan of RMB7,000,000 granted by China Construction Bank, Jiangshan Branch
with an interest rate of 6.42% p.a., guaranteed by Mr. Zhu Jiangtu, the
Chairman of the board of directors of the Company, secured by ZJL’s land
use rights and buildings and an undertaking from ZJL to maintain a
liability to asset ratio of not more than 65% (note). The loan
is maturing on April 1, 2012
|
1,097,522
|
-
|
||||||
Bank
loan of RMB5,000,000 granted by China Construction Bank, Jiangshan Branch
with an interest rate of 5.84% p.a., and matured on May 24,
2011
|
-
|
754,980
|
||||||
$
|
2,351,834
|
$
|
1,207,967
|
Note:
|
As
of September 30, 2011, ZJL’s liability to asset ratio was higher than 65%
and the Company has informed the bank about this situation. The
bank has agreed to loosen the ratio
requirements.
|
The carrying values of
land use rights and buildings being pledged to the bank as of September 30, 2011
were US$268,616 and US$536,202, respectively.
F-17
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12. Derivative
Instruments
The
Company does not use derivative financial instruments for speculative or trading
purpose, nor does it hold or issue leveraged derivative financial instruments.
However, the Company’s operations are exposed to market risk primarily due to
changes in currency rates. In order to manage such risks so as to reduce
volatility on earnings and cash flows, the Company enters into several foreign
currency forward contracts with a commercial bank to hedge for future trade
receipts in U.S. dollars against RMB.
As of
September 30, 2011, the total outstanding foreign currency forward contracts
amounted to about US$522,000. The Company’s foreign currency forward contracts
are classified as Level 2 in the fair value hierarchy under ASC topic 820 since
the quote prices of these foreign currency forward contracts can be obtained
directly from commercial banks.
Summary
information about the forward contracts as of September 30, 2011 is as
follows:
Foreign
Currency Forward Contracts
|
||
Notional
Amount
|
US$1
million
|
|
Outstanding
Amount
|
US$522,000
|
|
Rate
|
RMB
6.3779
|
|
Effective
date
|
August
23, 2011
|
|
Maturity
Dates
|
September
26 , 2011 to October 25, 2011
|
The fair
value of the above contract was minimal as of September 30, 2011.
The
Company did not have any foreign currency forward contracts in
2010.
During
the nine months and three months ended September 2011, the Company recorded
realized gain on its foreign currency forward contracts of $1,608 and $1,628,
respectively. No derivative unrealized gain (loss) was recognized in these
periods.
13. Income
and Other Taxes Payable
September
30,
|
December
31,
|
|||||||
2011
|
2010
|
|||||||
Value
added tax
|
$
|
-
|
$
|
400,927
|
||||
Income
tax
|
276,632
|
257,494
|
||||||
Others
|
416
|
7,054
|
||||||
$
|
277,048
|
$
|
665,475
|
F-18
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14. Income
Taxes
The
Company is subject to income taxes on an entity basis on income arising in or
derived from the tax jurisdictions in which each entity is
domiciled.
No
provision for other overseas taxes is made as neither the Company, CGL nor FGL
has any taxable income in the U.S., British Virgin Islands or Hong Kong,
respectively.
According
to China’s New Unified Enterprise Income Tax Law (“New EIT Law”), both domestic
and foreign invested enterprises in China are subject to a unified enterprise
income tax rate of 25%.
JGP, SGP
and ZJL, being enterprises established in the PRC, are generally subject to PRC
enterprise income tax (“EIT”). On July 30, 2010, ZJL was recognized
as a high-tech company for a period of 3 years and is then subject to an EIT
rate of 15% up to fiscal 2012.
The
Company’s income tax expenses consisted of the following:
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Current:
|
||||||||||||||||
PRC
|
$
|
22,683
|
$
|
91,475
|
$
|
30,565
|
$
|
132,547
|
F-19
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14. Income
Taxes (Continued)
Income
tax reconciliations for the three and nine months ended September 30, 2011 and
2010 are as follows:
For the Three Months
|
|
|
For the Nine
Months
|
|
||||||||||||
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
||||||||||
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|||||
Pre-tax
(loss) income
|
$
|
(341,633)
|
$
|
609,831
|
$
|
(1,222,375)
|
$
|
883,645
|
||||||||
United
States federal corporate income tax rate
|
34%
|
34%
|
34%
|
34%
|
||||||||||||
Income
tax computed at United States statutory corporate income tax
rate
|
(116,155)
|
207,342
|
(415,608)
|
300,439
|
||||||||||||
Reconciling
items:
|
||||||||||||||||
Rate
differential for earnings
|
36,048
|
(54,884)
|
56,149
|
(79,528)
|
||||||||||||
Impact
of tax holiday of ZJL
|
27,926
|
(60,983)
|
44,545
|
(88,364)
|
||||||||||||
Valuation
allowance
|
64,573
|
-
|
97,383
|
-
|
||||||||||||
Non-deductible
merger costs
|
-
|
-
|
232,955
|
-
|
||||||||||||
Other
non-deductible expenses
|
10,291
|
-
|
15,141
|
-
|
||||||||||||
$
|
22,683
|
$
|
91,475
|
$
|
30,565
|
$
|
132,547
|
As of
September 30, 2011 and December 31, 2010, the Company has no material
unrecognized tax benefits which would favorably affect the effective income tax
rate in future periods and does not believe that there will be any significant
increase or decrease of unrecognized tax benefits within the next twelve months.
No interest or penalties relating to income tax matters have been imposed on the
Company during the three and nine months ended September 30, 2011 and 2010 and
no provision for interest and penalties is deemed necessary as of September 30,
2011 and December 31, 2010.
According
to the PRC Tax Administration and Collection Law, the statute of limitations is
three years if the underpayment of taxes is due to computational errors made by
the taxpayer or its withholding agent. The statute of limitations extends to
five years under special circumstances, which are not clearly defined. In the
case of a related party transaction, the statute of limitations is ten years.
There is no statute of limitations in the case of tax evasion.
Deferred income tax assets
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of those amounts
shown on the consolidated balance sheets as of September 30, 2011 and
December 31, 2010 were as follows:
September
30,
|
December
31,
|
|||||||
2011
|
2010
|
|||||||
Deferred
income tax assets:
|
||||||||
Allowance
for doubtful accounts
|
$
|
105,921
|
$
|
6,470
|
||||
Total
deferred income tax assets
|
105,921
|
6,470
|
||||||
Valuation
allowance
|
(105,921)
|
(6,470)
|
||||||
Total
deferred income tax assets net of valuation allowance
|
$
|
-
|
$
|
-
|
F-20
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
15. Capital
a) Common
stock
The
Company is authorized to issue 50,000,000 shares of common stock, US$0.001 par
value. The Company had 22,225,200 shares of common stock outstanding prior to
the Share Exchange with CGL, and as described in note 1, issued 39,200 shares of
Series A Preferred Stock to the shareholders of CGL in connection with the Share
Exchange. Each share of the Series A Preferred Stock issued was
converted to 1,000 shares of common stock. Also in connection
with the Share Exchange, the existing shareholders of the Company prior to the
Share Exchange surrendered 21,923,000 shares of common stock in exchange for 700
shares of Series A Preferred Stock. For accounting purposes, the
39,200,000 shares issued to the shareholders of CGL (after conversion of Series
A Preferred Stock) are assumed to be outstanding on January 1, 2010 and the
1,002,200 shares held by the existing shareholders of the Company, after
surrender of 21,923,000 shares and prior to the Share Exchange on May 13, 2011
are assumed to have been issued on that date in exchange for the net assets of
the Company.
As of
September 30, 2011, a total of 40,202,200 shares of common stock were issued and
outstanding.
b) Preferred
Stock
The
Articles of Incorporation of the Company provides for 1,000,000 shares of
US$0.10 par value preferred stock. The Board of Directors can designate such
classes and preferences of the preferred stock as determined by the Board of
Directors from time to time. On May 12, 2011, Articles of Amendment
were filed including a Certificate of Designation creating a class of preferred
stock. The shares of such series shall be designated as the “Series A
Convertible Preferred Stock” (the “Preferred Stock”) and the number of shares
initially constituting such series shall be up to Thirty Nine-Thousand Nine
Hundred (39,900) shares. The holders of Series A Convertible Preferred Stock
shall not be entitled to any liquidation preference, shall automatically convert
to shares of common stock at a rate of 1,000 shares of common stock for each
share of Series A Convertible Preferred stock upon the effectiveness of a
proposed 1 for 3 reverse stock split, shall not be entitled to any dividends,
shall have the same voting rights as common stock, and shall not be entitled to
any pre-emptive rights. As of September 30, 2011, no Series A
Convertible Preferred Stock was outstanding.
F-21
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
16. Commitments
and Contingencies
Capital
commitments
Capital commitments not provided for in
the condensed consolidated financial statements include the followings:
September 30,
2011
|
December 31,
2010
|
|||||||
Capital
contribution to subsidiaries – JGP and SGP
|
$
|
190,000
|
$
|
-
|
Operating
Leases
As of
September 30, 2011, the Company had commitments under certain operating leases
requiring annual minimum rentals as follows:
Remainder
of fiscal year ending December 31, 2011
|
$
|
1,693
|
||
2012
|
2,898
|
|||
Total
|
$
|
4,591
|
The
leased properties are principally located in the PRC and are used for employee
dormitory purposes. The terms of these operating leases vary from one to two
years. Pursuant to the contracts, when they expire, the Company has the right to
extend them with new negotiated prices. Rental expenses were US$4,987 and
US$4,760 for the nine months ended September 30, 2011 and 2010, respectively.
Rental expenses were US$1,683 and US$1,596 for the three months ended September
30, 2011 and 2010, respectively.
F-22
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
17. Certain
Risks and Concentration
Cash
includes cash on hand and demand deposits in accounts maintained with banks
located in the PRC. Total cash in these banks at September 30, 2011 and December
31, 2010 amounted to US$227,967 and US$657,159, respectively, of which no
deposits are covered by insurance. The Company has not experienced any losses in
such accounts and believes it is not exposed to any risks on its cash in bank
accounts.
The
Company’s substantial 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 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
Company’s operations are dependent on its VIE in which it has no equity
ownership interest and must rely on the Contractual Agreements to control and
operate the businesses of the VIE. The Contractual Agreements may not be as
effective in providing control over these entities as direct ownership. The
Company may not succeed in enforcing its rights under the Contractual Agreements
by relying on legal remedies under Chinese law, which may not be adequate. In
addition, if the Company is unable to renew these agreements on favorable terms
when these agreements expire, or to enter into similar agreements with other
parties, its business may not be able to operate or expand, and its operating
expenses may significantly increase.
Four
customers represented approximately 40%, 18%, 17% and 14% of the Company’s
revenue for the nine months ended September 30, 2011, and two customers
represented approximately 47% and 36% of the Company’s revenue for the nine
months ended September 30, 2010. There was no other customer who accounted for
more than 10% of the Company’s net revenues for the nine months ended September
30, 2011 or 2010.
Three
customers represented approximately 48%, 29% and 10% of the Company’s revenue
for the three months ended September 30, 2011, and five customers represented
approximately 31%, 21% ,15% , 11% and 10% of the Company’s revenue for the three
months ended September 30, 2010. There was no other customer who accounted for
more than 10% of the Company’s net revenues for the three months ended September
30, 2011 or 2010.
Individual
customer amounts receivable that consisted of 10% or more of total accounts
receivable as of September 30, 2011 and December 31, 2010 were as
follows:
Percentage of accounts receivable as
of
|
||||||||
|
September 30,
2011
|
December 31,
2010
|
||||||
Customer
A
|
43
|
%
|
*
|
|||||
Customer
B
|
*
|
%
|
38
|
%
|
||||
Customer
C
|
27
|
%
|
20
|
%
|
||||
Customer
D
|
19
|
%
|
*
|
%
|
||||
Customer
E
|
*
|
%
|
13
|
%
|
*
|
Less
than 10%
|
18. Related
Party Transactions
Purchases
from Zhejiang Lisheng Electronic Technology Company Limited accounted for 18%
and 26% of the total purchases that the Company made in the nine months ended
September 30, 2011 and 2010, respectively. Purchases from this supplier
accounted for 21% and 36% of the total purchases that the Company made in
the three months ended September 30, 2011 and 2010, respectively. The
controlling stockholder of Zhejiang Lisheng Electronic Technology Company
Limited is Mr. Zhu Jiangtu, the Chairman of the board of directors of the
Company. Prepayments to this supplier were US$590,970 and US$545,885
as of September 30, 2011 and December 31, 2010, respectively.
As of
September 30, 2011 and December 31, 2010, the Company had a non trade receivable
from a related party (note 6) and accounts payable to related parties of
US$57,661 and US$Nil, respectively.
As of
September 30, 2011 and December 31, 2010, certain of the Company’s bank loans
were guaranteed by Zhejiang Lisheng Electronic Technology Company Limited and
Mr. Zhu Jiangtu (note 11).
As of
September 30, 2011, the Company entered into a debt assignment agreement with
its variable interest entity, ZJL, one of the Company’s majority shareholders
and a third party. According to the agreement, the third party will take up the
payment responsibility of reimbursing the Company’s reverse merger cost of
US$685,162 paid by the shareholder in May 2011 on behalf of the Company. In
return, ZJL agreed to waive the right to receive US$685,162 out of the
refundable deposit of US$923,479 (note 7) paid by ZJL to the third party in the
second quarter of 2011.
F-23
CHINA
GREEN LIGHTING LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
19. Social
Security Plan
According
to the prevailing laws and regulations of the PRC, the Company’s subsidiaries
and VIE in the PRC are required to cover its employees with medical, retirement
and unemployment insurance programs. Management believes that due to the
transient nature of its employees, they do not need to provide all employees
with such social insurances, and have not paid the social insurances for all
employees.
In the
event that any current or former employee files a complaint with the PRC
government, the Company's subsidiaries and VIE may be subject to making up the
social insurances as well as administrative fines. As the Company believes that
these fines would not be material and no provision has been made in this
regard.
20. Statutory
Reserves
The law
and regulations of the People’s Republic of China provide that before a Chinese
enterprise distributes profits to its shareholders, it must first satisfy all
tax liabilities, provide for losses in previous years, and make appropriation,
in proportions determined at the discretion of the board of directors, to the
statutory reserves. The statutory reserves include the surplus reserve fund and
the collective welfare fund.
The
Company’s subsidiaries and VIE in China are required to transfer 10% of their
net income, as determined in accordance with the PRC accounting rules and
regulations, to a statutory surplus reserve fund until such reserve balance
reaches 50% of the their respective registered capital.
The
transfer to this reserve must be made before distribution of any dividend to
shareholders. This reserve fund is non-distributable other than during
liquidation and can be used to fund previous years’ losses, if any, and may be
utilized for business expansion or converted into capital as capital injection
by the existing shareholders in proportion to their equity holding, provided
that the remaining reserve balance after such issue is not less than 25% of the
registered capital.
21. Segment
Information
The
Company has only one business segment, which is manufacturing of fluorescent
lamps for sale in America and Asia markets.
The
Company's sales by geographic destination are analyzed as follows:-
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
PRC
|
$
|
1,471,889
|
$
|
1,680,718
|
$
|
3,533,942
|
$
|
4,863,740
|
||||||||
Outside
PRC:-
|
||||||||||||||||
America
|
1,428,821
|
1,044,755
|
2,480,009
|
4,745,293
|
||||||||||||
Europe
|
-
|
-
|
34,072
|
-
|
||||||||||||
Other
Asian countries
|
48,225
|
492,561
|
117,247
|
489,808
|
||||||||||||
Total
sales
|
$
|
2,948,935
|
$
|
3,218,034
|
$
|
6,165,270
|
$
|
10,098,841
|
F-24
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Special
Note Regarding Forward Looking Statements
This
Quarterly Report on Form 10-Q, including the following “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements that are based on the beliefs of our management, and
involve risks and uncertainties, as well as assumptions, that, if they ever
materialize or prove incorrect, could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. The words
“believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,”
“aim,” “will” or similar expressions are intended to identify forward-looking
statements. All statements, other than statements of historical fact, are
statements that could be deemed forward-looking statements, including statements
regarding new and existing products, technologies and opportunities; statements
regarding market and industry segment growth and demand and acceptance of new
and existing products; any projections of sales, earnings, revenue, margins or
other financial items; any statements of the plans, strategies and objectives of
management for future operations; any statements regarding future economic
conditions or performance; uncertainties related to conducting business in
China; and any statements of belief or intention. As such, they are subject to
risks and uncertainties that could cause our results to differ materially from
those expressed or implied by such forward looking statements. Such risks and
uncertainties include any of the factors and risks mentioned in the “Risk
Factors” sections of the Quarterly Report. All forward-looking statements
included in this report are based on information available to us on the date of
this report. We assume no obligation and do not intend to update these
forward-looking statements, except as required by law.
Overview
The
Company is a Colorado holding company whose subsidiaries and variable interest
entity are engaged in the manufacture and sale of lighting devices, inverters
and their components. The Company’s variable interest entity (“VIE”),
Zhejiang Joinan Lighting Co. Ltd. (“ZJL”) specializes in lighting electrical
appliances in Jiangshan City, Zhejiang Province, PRC. In
the nine months ended September 30, 2011 and 2010, ZJL has sold its
products to customers primarily in China and America.
Our
management’s discussion and analysis of our financial condition and results of
operations are only based on ZJL’s current business and
operations. Key factors affecting our results of operations include
revenues, cost of revenues, operating expenses and income and
taxation.
Going
Concern
Our
condensed consolidated financial statements have been prepared assuming that we
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. The carrying amounts of assets and liabilities presented in
the consolidated financial statements do not purport to represent the realizable
or settlement values.
As of
September 30, 2011, we had cash of $240,500. Our current liabilities exceeded
current assets by $317,174, resulting in a current ratio of 0.95 and quick ratio
of 0.04. We incurred a net loss of $1,252,940 during the nine months ended
September 30, 2011. We currently do not have sufficient revenues to support our
business activities and we expect operating losses to continue. We
will require additional funding to fund our operations.
All of
our bank loans of US$2.35 million will become due by May 2012. If we
can achieve the necessary financing to increase our working capital, we believe
the Company will be well-positioned to further increase sales of our products
and to generate more revenues in the future. There can be no
assurances that we will be successful in obtaining this financing or in
increasing our sales revenue if we do obtain the financing.
Our
ability to make operations profitable or obtain additional funding will
determine our ability to continue as a going concern.
25
Three
Months Ended September 30, 2011 Compared to Three Months Ended September 30,
2010
The
following table sets forth key components of our unaudited results of operations
for the periods indicated.
All
amounts, other than percentages, are in U.S. dollars (US$)
Three months ended
|
Percentage
|
|||||||||||||||
|
September 30,
|
September 30,
|
Increase
|
Increase
|
||||||||||||
|
2011
|
2010
|
(Decrease)
|
(Decrease)
|
||||||||||||
Net sales
|
$
|
2,948,935
|
$
|
3,218,034
|
$
|
(269,099
|
)
|
(8.36
|
)%
|
|||||||
Cost
of sales
|
2,660,637
|
2,442,782
|
217,855
|
8.92
|
%
|
|||||||||||
Gross
profit
|
288,298
|
775,252
|
(486,954
|
)
|
(62.81
|
)%
|
||||||||||
General,
selling & administrative expenses
|
681,529
|
169,082
|
512,447
|
303.08
|
%
|
|||||||||||
(Loss)
income from operations
|
(393,231
|
)
|
606,170
|
(999,401
|
)
|
(164.87
|
)%
|
|||||||||
Other
income
|
69,281
|
20,959
|
48,322
|
230.55
|
%
|
|||||||||||
Interest
expenses, net
|
(17,683
|
)
|
(17,298
|
)
|
(385
|
)
|
2.23
|
%
|
||||||||
(Loss)
income before income taxes
|
(341,633
|
)
|
609,831
|
(951,464
|
)
|
(156.02
|
)%
|
|||||||||
Income
taxes
|
22,683
|
91,475
|
(68,792
|
)
|
(75.20
|
)%
|
||||||||||
Net
(loss) income
|
$
|
(364,316
|
)
|
$
|
518,356
|
$
|
(882,672
|
)
|
(170.28
|
)%
|
Sales
Our sales
for the three months ended September 30, 2011 totaled US$2,948,935, a decrease
of 8.36% from US$3,218,034 for the three months ended September 30, 2010. This
decrease in sales was mainly due to a reduction in volume, although we increased
our per unit selling price in 2011 by approximately 20% as compared to the same
period of 2010, in order to cope with the increased cost of purchase. The
higher selling prices deterred many customers from placing orders with
us.
Cost
of Sales
Cost of
sales for the three months ended September 30, 2011 were US$2,660,637, an
increase of 8.92% from US$2,442,782 for the three months ended September 30,
2010. The increase in cost of sales was mainly due to higher costs incurred,
particularly the cost of the major raw material “phosphor”.
Gross
Profit
Gross
profit for the three months ended September 30, 2011 was US$288,298, a decrease
of 62.81% from US$775,252 for the three months ended September 30, 2010. This
decrease in gross profit was primarily due to relatively less sales revenue
generated in this quarter compared with the same quarter last
year. The gross profit percentage decreased from about 24.09% for the
three months ended September 30, 2010 to about 9.78% for the three months ended
September 30, 2011. Gross profit margin dropped primarily because we did not
continue to increase the unit selling price to the same extent as the increase
in the cost of materials in the current quarter in an attempt to boost sales
volume. It is expected that lower profit margins will continue without a
reduction in the cost of materials. The purchase cost of one key component,
lighting tube, increased by more than 40% as a result of a sudden sharp increase
in phosphor (a key material used in lighting tube) price by more than ten times
in the third quarter of 2011 as compared to the same period of 2010. We
increased our per unit selling price by about 20% and thus gross margin
dropped.
Selling,
General and Administrative Expenses
Our
selling, general and administrative expenses for the three months ended
September 30, 2011 was US$681,529, an increase of 303.08% from US$169,082 for
the three months ended September 30, 2010. This increase was primarily due to an
additional allowance of US$430,485 made on long outstanding trade
receivables.
26
Net
(Loss) Income
Net loss
for the three months ended September 30, 2011 was US$364,316, compared to net
income of US$518,356 for the three months ended September 30, 2010. The decrease
in net income was primarily due to a reduction in gross profit of US$486,954 and
an additional allowance for trade receivable that amounted to US$430,485.
Management expects the lower profit margins and resulting losses to
continue.
Nine
Months Ended September 30, 2011 Compared to Nine Months Ended September 30,
2010
Nine months ended
|
Percentage
|
|||||||||||||||
|
September 30,
|
September 30,
|
Increase
|
Increase
|
||||||||||||
|
2011
|
2010
|
(Decrease)
|
(Decrease)
|
||||||||||||
Net sales
|
$
|
6,165,270
|
$
|
10,098,841
|
$
|
(3,933,571
|
)
|
(38.95
|
)%
|
|||||||
Cost
of sales
|
5,406,098
|
8,697,989
|
(3,291,891
|
)
|
(37.85
|
)%
|
||||||||||
Gross
profit
|
759,172
|
1,400,852
|
(641,680
|
)
|
(45.81
|
)%
|
||||||||||
General,
selling & administrative expenses
|
1,995,986
|
569,520
|
1,426,466
|
250.47
|
%
|
|||||||||||
(Loss)
income from operations
|
(1,236,814
|
)
|
831,332
|
(2,068,146
|
)
|
(248.77
|
)%
|
|||||||||
Other
income
|
82,
465
|
100,741
|
(18,276
|
)
|
(18.14
|
)%
|
||||||||||
Interest
expenses, net
|
(68,026
|
)
|
(48,428
|
)
|
(19,598
|
)
|
40.47
|
%
|
||||||||
(Loss)
income before income taxes
|
(1,222,375
|
)
|
883,645
|
(2,106,020
|
)
|
(238.33
|
)%
|
|||||||||
Income
taxes
|
30,565
|
132,547
|
(101,982
|
)
|
(76.94
|
)%
|
||||||||||
Net
(loss) income
|
$
|
(1,252,940
|
)
|
$
|
751,098
|
$
|
(2,004,038
|
)
|
(266.81
|
)%
|
Sales
Our sales
for the nine months ended September 30, 2011 totaled US$6,165,270, a decrease of
38.95% from US$10,098,841 for the nine months ended September 30, 2010. This
decrease in sales was mainly due to a reduction in volume, although we increased
our per unit selling price in 2011 as compared to the same period of 2010, in
order to cope with the increased cost of purchase. The high selling price
deterred many customers from placing orders with us.
Cost
of Sales
Cost of
sales for the nine months ended September 30, 2011 totaled US$5,406,098, a
decrease of 37.85% from US$8,697,989 for the nine months ended September 30,
2010. This decrease was primarily due to a substantial decrease in sales
volume.
Gross
Profit
Gross
profit for the nine months ended September 30, 2011 totaled US$759,172, a
decrease of 45.81% from US$1,400,852 for the nine months ended September 30,
2010. This decrease in gross profit was primarily due to relatively less sales
revenue generated in this period compared with the same period last year.
The gross profit percentage decreased from about 13.87% for the nine months
ended September 30, 2010 to about 12.31% for the nine months ended September 30,
2011. Gross profit margin increased to 15.1% in the first half of 2011 from 9.6%
in the same period of 2010 as we determined to make fewer sales to those
customers with lower margins. However, in the third quarter of 2011, due to a
sudden increase in purchase cost, we were unable to pass all cost increase to
our customers. Gross profit margin in the third quarter of 2011 dropped to
9.78%. Overall gross profit margin for the nine months ended September 30, 2011
slightly dropped by 1.56% as compared to same period of 2010.
Selling,
General and Administrative Expenses
The
Company’s selling, general and administrative expenses for the nine months ended
September 30, 2011 totaled US$1,995,986, an increase of 250.47% from US$569,520
for the nine months ended September 30, 2010. This increase was primarily due to
the reverse merger costs of US$685,162 and an allowance for doubtful debts of
US$649,219 on long outstanding receivables.
27
Net
(Loss) Income
Net loss
for the nine months ended September 30, 2011 was US$1,252,940, compared to net
income of US$751,098 for the nine months ended September 30, 2010. The decrease
in net income was primarily due to a reduction in gross profit of $641,680,
reverse merger costs of US$685,162 and an allowance for doubtful debts of
US$649,219. Management expects the lower profit margins and resulting losses to
continue.
Liquidity
and Capital Resources
Overview
As of
September 30, 2011, cash and cash equivalents were $240,500 as compared to
$192,833 as of September 30, 2010. The components of this increase of $47,667
are reflected below.
Cash
flows
All
amounts in U.S. dollars
Nine months ended September 30,
|
||||||||
|
2011
|
2010
|
||||||
Net
cash used in operating activities
|
$
|
(767,082
|
)
|
$
|
(11,938
|
)
|
||
Net
cash used in investing activities
|
(723,503
|
)
|
(177,919
|
)
|
||||
Net
cash provided by financing activities
|
1,055,845
|
-
|
||||||
Effect
of exchange rate changes on cash and cash equivalents
|
17,668
|
4,417
|
||||||
Net
decrease in cash and cash equivalents
|
(417,072
|
)
|
(185,440
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
657,572
|
378,273
|
||||||
Cash
and cash equivalents, end of period
|
$
|
240,500
|
$
|
192,833
|
Net
cash used in operating activities
Net
cash used in operating activities for the nine months ended September
30, 2011 was US$767,082 compared to net cash used in operating activities of
US$11,938 for the nine months ended September 30, 2010. This was primarily
attributable to cash outflows from an increase in inventories of US$1,440,985
offset by cash inflows from a decrease in accounts receivable from unrelated
parties of US$754,236.
Net
cash used in investing activities
Net cash
used in investing activities for the nine months ended September 30, 2011 was
US$723,503 compared to net cash used in investing activities of US$177,919 for
the nine months ended September 30, 2010. This was primarily comprised of the
placement of a refundable deposit of US$923,479 offset by repayment of non-trade
receivables of US$259,461.
Net
cash provided by financing activities
Net cash
provided by financing activities for the nine months ended September 30, 2011
was US$1,055,845. There were no cash flows from financing activities
for the nine months ended September 30, 2010. During the nine months
ended September 30, 2011, the Company repaid bank loans of US$1,231,305 and
obtained new bank loans of US$2,308,698
Currently,
we have insufficient cash resources to accomplish our objectives and also do not
anticipate generating sufficient positive operating cash inflow in the rest of
2011 to fund our planned operations. We are actively looking for new
funding to fund our operations and we
may need to sell additional equity securities, which could result in dilution to
current stockholders, or seek additional loans. The incurrence of indebtedness
would result in increased debt service obligations and could require us to agree
to operating and financial covenants that would restrict our operations.
Financing may not be available in amounts or on terms acceptable to us, if at
all. As such,
to the extent that we are unable to obtain the funding necessary to fund our
future cash requirements on a timely basis and under acceptable terms and
conditions, we will not have sufficient cash resources to maintain operations,
and may have to curtail operations and consider a formal or informal
restructuring or reorganization.
In
addition, our liquidity could be further impacted by external factors such as
any significant increase in the market price of raw materials like phosphor, and
changes in regulations governing our business. Each or a combination of such
factors may result in lower sales, increased expenses and costs and result in
lower profitability and negative cash flows, thus reducing our
liquidity.
28
Critical
Accounting Policies
See
“Note. 2 Summary of Significant Accounting Polices” in “Item 1 Financial
Statements” herein for a discussion of the critical accounting policies and
estimates adopted in this Quarterly Report on Form 10-Q.
Off-balance
Sheet Arrangements
We did
not have any significant off-balance sheet arrangements as of September 30,
2011.
Tabular
Disclosures of Contractual Obligations
As of
September 30, 2011, the Company had commitments under certain operating leases
requiring annual minimum rentals as follows:
Remainder
of fiscal year ending December 31, 2011
|
$
|
1,693
|
||
2012
|
2,898
|
|||
Total
|
$
|
4,591
|
As of
September 30, 2011, the Company had capital commitments as follows:
Capital
contribution to subsidiaries – JGP and SGP
|
$ | 190,000 |
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Not
applicable as the Company is a smaller reporting company.
Item
4. Controls and Procedures
(a) Evaluation
of disclosure controls and procedures
As
required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act, we
have carried out an evaluation, with the participation and under the supervision
of our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as of
September 30, 2011. Disclosure controls and procedures refer to controls and
other procedures designed to ensure that information required to be disclosed in
the controls and other procedures designed to ensure that information required
to be disclosed in the reports we file or submit under the Securities Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply
its judgment in evaluating and implementing possible controls and
procedures.
Management
conducted its evaluation of disclosure controls and procedures under the
supervision of our Chief Executive Officer and Chief Financial Officer. Based
upon this evaluation, the Company’s Chief Executive Officer (Principal Executive
Officer) and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer) concluded that our disclosure controls and
procedures were ineffective as of September 30, 2011 as a result of continuing
material weaknesses in our internal control over financial
reporting.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely
basis.
29
During
the assessment of the effectiveness of internal control over financial reporting
as of September 30, 2011, the specific material weaknesses identified by our
management were described as follows:
●
|
We
did not have sufficient and skilled accounting personnel with an
appropriate level of technical accounting knowledge and experience in the
application of accounting principles generally accepted in the United
States of America commensurate with our financial reporting requirements,
which resulted in a number of internal control deficiencies that were
identified as being significant. We determined that the number and
nature of these significant deficiencies, when aggregated, constituted a
material weakness.
|
●
|
We
lack qualified resources to perform the internal audit functions
properly. In addition, the scope and effectiveness of our
internal audit functions are yet to be
developed.
|
●
|
We
currently do not have an audit committee or
an independent audit committee financial expert. While not being legally
obligated to have an audit committee or independent audit committee
financial expert, it is the management’s view that to have an audit
committee, comprised of independent board members, and an independent
audit committee financial expert is an important entity-level control over
financial statements.
|
Remediation
Initiative
Due to
limited resources available in the region, we were unable to hire qualified
personnel to establish sufficient internal audit functions and an audit
committee before the end of the third quarter of 2011. Our management team is
working on improving our internal control procedures and will try to recruit
more qualified professionals in the near future.
(b) Changes
in internal control over financial reporting.
There
were no changes in our internal control over financial reporting during the
three months ended September 30, 2011 that materially affected or were
reasonably likely to materially affect our internal control over financial
reporting.
30
Item
1. Legal Proceedings.
Item
1A. Risk Factors.
There
have not been any material changes to the Company’s risk factors from Amendment
No. 4 to our Current Report on Form 8-K/A filed on August 8, 2011.
None.
Item 3. Defaults
Upon Senior Securities.
None.
Item
4. [Removed and Reserved].
Item
5. Other Information.
We have
entered into three short-term bank loan agreements with China Construction Bank,
Jiangshan Branch - (i) a RMB3,000,000 loan ($470,367 outstanding as of September
30, 2011) with an interest rate of 6.67% per year, secured by a real estate
property owned by a related party of a former equity owner of ZJL, and with a
maturity date of December 1, 2011; (ii) a RMB5,000,000 loan ($783,945
outstanding as of September 30, 2011) with an interest rate of 7.26% per year,
guaranteed by Zhejiang Lisheng Electronic Technology Co. Ltd., a company
controlled by our Chairman, Mr. Zhu Jiangtu, and with a maturity date of May 8,
2012; and (iii) a RMB7,000,000 loan ($1,097,522 outstanding as of September 30,
2011) with an interest rate of 6.42% per year, guaranteed by our Chairman, Mr.
Zhu Jiangtu, secured by ZJL’s land use rights and certain property, and with a
maturity date of April 1, 2012.
On
September 30, 2011, we entered into a debt assignment
agreement (“Agreement”) with our PRC operating entity,
ZJL, one of our shareholders, and a third party. Pursuant to the
Agreement, the third party has agreed to pay our shareholder US$685,162,
which represents all of the costs incurred by such shareholder on behalf
of the Company in connection with the Share Exchange and reverse
merger transaction in May, 2011. In return, ZJL agreed to waive the right to
receive US$685,162 out of the refundable deposit of US$923,479 paid by ZJL to
the third party in the second quarter of 2011.
31
Item
6. Exhibits.
The
following exhibits are included as part of this report by
reference:
Number
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated May 13, 2012 (incorporated by reference to the
registrant’s Current Report on Form 8-K filed May 16,
2011)
|
|
3.1(a)
|
Articles
of Incorporation (incorporated by reference to the registrant’s
Registration Statement on Form SB-2 filed February 1,
2008)
|
|
3.1(b)
|
Articles
of Amendment (incorporated by reference to the registrant’s Current Report
on Form 8-K filed May 16, 2011)
|
|
3.1(c)
|
Articles
of Amendment - Series A Convertible Preferred Stock (incorporated by
reference to the registrant’s Current Report on Form 8-K filed July 8,
2011)
|
|
3.2
|
Bylaws
(incorporated by reference to the registrant’s Registration Statement on
Form SB-2 filed February 1, 2008)
|
|
10.1 | Debt Assignment Agreement dated September 30, 2011* | |
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002*
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002*
|
|
32.1
|
Certification
by the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
|
|
32.2
|
Certification
by the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
|
|
101
|
Interactive
data files pursuant to Rule 405 of Regulation
S-T.**
|
*
|
Filed
Herewith.
|
**
|
Pursuant
to Rule 406T of Regulation S-T, these interactive data files are deemed
not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the
Securities Exchange Act of 1934 and otherwise are not subject to
liability.
|
32
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.
CHINA
GREEN LIGHTING LIMITED
|
|||
(Registrant)
|
|||
Date:
November 14, 2011
|
By:
|
/s/
Pan Ziqiang
|
|
Pan
Ziqiang, Chief Executive Officer
|
|||
(Principal
Executive Officer)
|
|||
By:
|
/s/
Hao Dongyang
|
||
Hao
Dongyang, Chief Financial Officer
|
|||
(Principal
Financial and Accounting Officer)
|
33