State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of February 13, 2012, the registrant had 500,000,000 shares of common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

Note:

In October 2011, the board of directors approved a 10-for-1 forward stock split of the common stock of the Company without changing its par value, which has become effective since November 22, 2011. The difference in value of common stock issued without changing the par value as a result of the forward stock split of US$450,000 has been debited to retained earnings.

Chisen Electric Corporation (“Chisen Electric”), formerly known as World Trophy Oufitters, Inc., was formed as a Nevada corporation on January 13, 2005. Its common stocks are currently trading on the Over-The-Counter Quote Board under the symbol “CIEC”.

Chisen Electric is an investment holding company with no operations. The principal activities of its subsidiaries (together with Chisen Electric, collectively referred as “the Company”) are the manufacture and sales of sealed lead-acid battery products and investment holding.

As of May 27, 2011, Chisen Electric has fully disposed of its interest in Chisen Technology Holdings Corporation (“Chisen Technology”) for a cash consideration of US$10. Chisen Technology has no operation since the date of incorporation. The fair value of Chisen Technology at the date of disposal was net liabilities of US$496. The disposal of Chisen Technology has no significant impact on the value of the Company’s assets, operating cash flows as well as earnings per share.

Details of Chisen Electric’s subsidiaries as of December 31, 2011 are as follows:

Basis of presentations

The accompanying unaudited condensed consolidated financial statements as of December 31, 2011 have been prepared based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods and include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows as of December 31, 2011 and for all periods presented. Information as of March 31, 2011 was derived from the audited consolidated financial statements of the Company for the year ended March 31, 2011.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Chisen Electric's Form 10-K filed on June 14, 2011 for the year ended March 31, 2011. The results of operations for both the three months and nine months ended December 31, 2011 are not necessarily indicative of the operating results to be expected for the full year ending March 31, 2012.

The condensed consolidated financial statements and accompanying notes are presented in United States dollars and prepared in conformity with USGAAP which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of consolidation

The consolidated financial statements include the financial information of Chisen Electric and its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Recent accounting pronouncement

In December 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (ASU) 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements on its financial position. This includes the effect or potential effect of rights of offset associated with an entity’s recognized assets and recognized liabilities and require improved information about financial instruments and derivative instruments that are either (1) offset in accordance with Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 915-10-45. The amendments are effective for annual reporting periods beginning on or after January 1, 2013 and retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. The Company believes that the adoption of ASU 2011-11 will not have any impact on the Company's consolidated results of operation and financial condition.

Basic (loss) earnings per share is computed by dividing (loss) income available to common stockholders by the weighted-average number of common stocks outstanding during the period. Diluted (loss) earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common stocks that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for both the three months and nine months ended December 31, 2011 and 2010. As a result of a forward stock split, the calculation of basic and diluted (loss) earnings per common stock for all periods presented are adjusted retrospectively.

Chisen Electric had a net operating loss carry-forward for income tax reporting purposes that might be offset against future taxable income. No tax benefit has been reported in the financial statements, because Chisen Electric believes that it is more likely than not that the carry-forwards will finally expire and therefore cannot be used. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.

Chisen Electric’s subsidiaries are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdictions in which each entity domiciles and operates.

Hong Kong Profits Tax has not been provided as Fast More had no assessable profit for the period.

Zhejiang Chisen and Chisen Jiangsu are subject to state and local enterprise income taxes in the PRC at a standard rate of 25%. Since January 1, 2011, Zhejiang Chisen has been designated by the local tax authority as “New and High Technology Enterprises”. As a result, the effective tax rate applicable to Zhejiang Chisen was 15% commencing on January 1, 2011.

Dividends payable by a foreign invested enterprise in the PRC to its foreign investors in Hong Kong are subject to a 10% withholding tax. No deferred tax expenses on undistributed profits were charged to the statement of operations for both the three months and nine months ended December 31, 2011 and 2010.

As of December 31, 2011, the Company has estimated unused tax losses of approximately US$8,700,000 (2010: US$Nil) available for offset against future profits. Deferred tax benefits of US$689,000 (2010: US$Nil) and US$1,302,000 (2010: US$Nil) were credited to the statement of operations for the three months and nine months ended December 31, 2011.

The FASB ASC Topic 740 “Income Taxes” clarifies the accounting and disclosure for uncertainty in tax positions, as defined, and prescribes the measurement process and a minimum recognition threshold for a tax position, taken or expected to be taken in a tax return, that is required to be met before being recognized in the financial statements. Under ASC 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the tax authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.

Subject to the provision of ASC 740, the Company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns. As of December 31, 2011 and March 31, 2011, the Company has identified the following jurisdictions as “major” tax jurisdictions, as defined, in which it is required to file income tax returns namely the United States, Hong Kong and the PRC. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements.

As of December 31, 2011 and March 31, 2011, the Company had no unrecognized tax benefits or accruals for the potential payment of interest and penalties. The Company’s policy is to record interest and penalties in this connection as a component of the provision for income tax expense. For both the three months and nine months ended December 31, 2011 and 2010, no interest or penalties were recorded.

Restricted bank balances represented time deposits with original maturity within nine months to secure banking facilities granted by various financial institutions as follows:

Other financial assets represented notes receivable from customers for the settlement of trade receivable balances. As of December 31, 2011 and March 31, 2011, all notes receivable were guaranteed by established banks in the PRC and had maturities of 6 months or less from the date of issue. The fair value of the notes receivable approximated their carrying value.

Available-for-sale financial assets as of December 31, 2011 and March 31, 2011 represented investment in unlisted equity securities and are recorded at cost. The management has estimated that the recoverable amount of the assets exceed their carrying value.

Depreciation expenses were approximately US$1,173,000 and US$267,000 for the three months ended December 31, 2011 and 2010, respectively, and US$1,412,000 and US$807,000 for the nine months ended December 31, 2011 and 2010, respectively.

During the period ended December 31, 2011, the Company was advised by the local authority in Changxing that the original production technique, external battery formation, can no longer be used after October 31, 2012. Some of the Company’s machinery and equipment cannot be used under the tightened policy. Management revised the estimated remaining useful life of those machinery and equipment to 10 months. This change of accounting estimate increased cost of sales and net losses by US$452,000 and increased the losses per share by US$0.001 for the three and nine months ended December 31, 2011.

Lease prepayment as of December 31, 2011 and March 31, 2011 represented the land use rights located in the PRC, which are amortized over the leasehold periods.

Amortization expense for the three months period ended December 31, 2011 and 2010 were US$25,000 and US$4,000, respectively, and US$71,000 and US$12,000 for the nine months ended December 31, 2011 and 2010, respectively.

Notes payable were issued by the Company to creditors with the banker’s acceptance payable at the maturity date for the purchase of raw materials for production exclusively. The Company has to repay the notes within nine months from date of issuance and service fees would be charged by banks for the issuance of the notes. The notes payable were collateralized by restricted bank balances and a long-term land lease prepayment with carrying amount of US$760,000 as of December 31, 2011 (as of March 31, 2011: US$Nil).

In addition, various parties have issued guarantee against these notes payable as follows:

As of December 31, 2011 and March 31, 2011, the Company had unutilized banking facilities of approximately US$29,438,000 and US$4,809,000, respectively to meet the liquidity needs.

Short-term bank borrowings comprise of the followings:

Short-term bank loans represent amounts due to various banks which are due within 12 months, and these loans can normally be renewed with the banks upon expiry/maturity.

The loans are collateralized by assets of the Company with carrying values as follows:

Various parties have also issued guarantee against these short-term bank loans as follows:

The weighted average annual interest rates of the short-term bank loans were 6.39% and 5.05% as of December 31, 2011 and March 31, 2011, respectively.

Bill financing represents amounts due to various banks which are repayable within nine months from the date of issue. As of December 31, 2011 and March 31, 2011, the bills are collateralized by certain restricted bank balances of the Company with carrying value of US$38,797,000 and US$14,122,000, respectively and guaranteed by certain related parties, and related parties and third parties jointly to the extent of US$28,106,000 and US$14,171,000, respectively.

The weighted average annual interest rates of the bills financing were 8.15% and 3.31% as of December 31, 2011 and March 31, 2011, respectively.

During the year ended March 31, 2008, the Company received a government grant of approximately US$231,000 for the purpose of subsidising its acquisition of property, plant and equipment, of which approximately US$13,000 and US$12,000 were credited to the statement of operations for the three months ended December 31, 2011 and 2010, respectively, and US$38,000 and US$36,000 were credited to the statement of operations for the nine months ended December 31, 2011 and 2010, respectively.

(b)   Summary of balances with related parties: 

All amounts due from / to related parties represent unsecured advances which are interest-free and repayable on demand.

(c)   Summary of related party transactions:

(d)    Other arrangements:

The following table summarizes the approximate future minimum rental payments under non-cancelable operating leases in effect as of December 31, 2011 and March 31, 2011:

As of December 31, 2011 and March 31, 2011, the Company had outstanding capital expenditure commitments relating to various construction projects and purchase of land and machineries for an aggregate amount of approximately US$128,619,000 and US$150,448,000, respectively.

Estimated warranty costs are recognized at the time when the Company sells its products and are included in sale, marketing and distribution expenses. The Company uses historical failure rates and costs to repair product defects during the warranty period to estimate warranty costs while are reviewed periodically in light of actual experience. The reconciliation of the changes in the warranty obligation is as follows:

Contributions to defined contribution retirement schemes are charged to cost of sales, sales, marketing and distribution costs and general and administrative expenses in the consolidated statements of operations and other comprehensive income as and when the related employee services are provided. Retirement plan costs were US$764,000 and US$235,000 for the three months ended December 31, 2011 and 2010, respectively, and US$1,038,000 and US$650,000 for the nine months ended December 31, 2011 and 2010, respectively.

During the nine months ended December 31, 2011 and 2010, all revenue of the Company represented income from sales of sealed lead-acid battery and related components and therefore no financial information by business segment is presented. Furthermore, as all income is derived from the PRC, no geographical segment is presented.

During the nine months ended December 31, 2011, Zhejiang Chisen had completed the relocation of production plant in Jingyi Road. Pursuant to the Compensation Agreement on Relocation and Acquisition entered into with Zhejiang Chisen and Administrative Committee of Changxing Economic Development Zone (“ACC”), ACC shall pay Zhejiang Chisen a compensation in the amount of RMB98,514,000 (US$15,354,000) for the loss on long-term land lease prepayment and buildings located in Jingyi Road. In May 2011, the Company wrote off the long-term land lease prepayment and buildings in Jingyi Road with net book value of approximately RMB14,354,000 (US$2,237,000) and therefore net compensation income of RMB84,160,000 (US$13,117,000) was recognized during the period. As of December 31, 2011, the compensation of US$7,978,000 has not been received and was recorded as current assets in the consolidated balance sheet.

As a result, the Company recorded an extraordinary gain of US$13,117,000 in the consolidated statements of operations and other comprehensive income for the nine months ended December 31, 2011.

During the nine months ended December 31, 2011, and without advance notice to the Company, the PRC Central Government tightened its environment protection policy which applies to all lead-acid battery manufacturers. Pursuant to the newly tightened policy, a 500 meters quarantined isolated area must be maintained between production facilities, including assembly facilities, and residential areas.

The Company’s Jing’er Road plant was mainly utilized for assembly activities and it cannot comply with the tightened policy. Management had gradually scaled down the operation of Jing’er Road plant and the Company had completed the relocation of certain production facilities to the plant in Xuyi County, Jiangsu Province during the nine months ended December 31, 2011. After evaluating the plant and machinery at Jing’er Road plant, some of them cannot fit into the plant in Jiangsu Xuyi. The Company decided to impair the value of plant and machinery as well as leasehold improvement of Jing’er Road plant down to its recoverable amount. The impairment loss was recorded as follows:

The management considered that this government behavior is very unusual and rare to happen, and thus the relevant impairment loss of plant and machinery was classified as an extraordinary item.

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

Forward Looking Statements

As used in this report, unless otherwise indicated, the terms “we”, “our”, “us”, the “Company”, the “Registrant” and “Chisen” refer to Chisen Electric Corporation, a Nevada corporation. We conduct our business through our subsidiaries, which include our wholly-owned subsidiary, Fast More Limited, a Hong Kong investment holding company (“Fast More”), its 100% owned and chief operating subsidiary, Zhejiang Chisen Electric Co., Ltd., (f/k/a Changxing Chisen Electric Co., Ltd. and hereinafter referred to as “CCEC”) a wholly foreign owned entity (“WFOE”) organized under the laws of the PRC and CCEC’s subsidiary, Chisen Electric Jiangsu Co., Ltd. (“CEJC”).  “China” or “PRC” refers to the People’s Republic of China. “RMB” or “Renminbi” refers to the legal currency of China and “$”, “US$” or “U.S. Dollars” refers to the legal currency of the United States.

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

Company Overview

We are one of the leading producers of sealed lead-acid motive batteries, also known as valve regulated lead-acid motive batteries (“VRLA batteries”) in China's personal transportation device market. Our motive battery products, sold under our own brand name “Chisen”, are predominantly used in electric bicycles and are distributed and sold in China.  Among all types of batteries for electric bicycles, the lead-acid motive battery is the preferred choice of electric bicycle manufacturers in China, accounting for 95% of the market share because of its cost efficiency. In general, we manufacture over 19,800,000 sealed lead-acid motive batteries each year, have more than 2,500 employees and are one of China's largest manufacturers of sealed lead-acid motive batteries for electric-powered bicycles (LABEBs).  For the nine months ended December 31, 2011 and 2010, sales revenues were US$102,900,000 and US$194,712,000, respectively, and our net (loss) income attributable to CIEC common stockholders during the same periods amounted to US$(1,052,000) and US$9,496,000, respectively. 

Corporate Information

Our offices are located in the Changxing Economic Development Zone at the bank of the Taihu Lake in the County of Changxing in Zhejiang Province, in close proximity to major national transportation systems, including National Highways 104 and 318, the Shanghai – Jiangsu – Zhejiang – Anhui – Hangzhou – Nanjing Expressway, the Changxing – Huzhou – Shanghai Channel, the Xuancheng – Hangzhou Railway and the Xinyi – Changxing Railway. Our registered office is located at No. 1188, Taihu Avenue, Economic Development Zone, Changxing County, Zhejiang Province, PRC, where the office building is under construction. Our executive office has therefore been temporarily moved to No. 559, Jing’er Road, Economic Development Zone, Changxing County, Zhejiang Province, PRC. Our telephone number is (86) 572-6267666 and our corporate website in English is located at www.chisenelectric.com.

We are a reporting company under Section 13 of the Securities Exchange Act of 1934, as amended. Our shares of common stock are not currently listed on any national securities exchange however our common stock is quoted under the symbol “CIEC” on the OTCQB. 

On May 27, 2011, Chisen fully disposed of its interest in Chisen Technology Holdings Corporation, a Nevada corporation (“Chisen Technology”) for cash consideration of US$10. Chisen Technology had no operations since its date of incorporation through May 27, 2011.  The disposal of Chisen Technology has had no significant impact on the value of the Company’s assets, operating cash flows or earnings per share.