ITEM 1.
Business
Forward Looking Statements
The following discussion of our financial condition and results of operations of Chisen Electric Corporation (formerly known as World Trophy Outfitters, Inc., and the term “World Trophy” is used when discussing the operations of the Company prior to November 12, 2008 and the “Registrant” when discussing its operations after November 12, 2008) 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.
Exchange Agreement
On November 12, 2008 (the “Closing Date”), World Trophy entered into a Share Exchange Agreement (the “Exchange Agreement”) with Fast More Limited, a Hong Kong investment holding company (“Fast More”), Cheer Gold Development Limited, a company organized under the laws of Samoa (“Cheer Gold”) and Floster Investment Limited, a company organized under the laws of Samoa (“Floster” and together with Cheer Gold, the “Stockholders”). As a result of the share exchange, the World Trophy acquired all of the issued and outstanding securities of Fast More from the Stockholders in exchange for Thirty-Five Million (35,000,000) newly-issued shares of the World Trophy’s common stock, par value $0.001 per share (“Common Stock”), of which Thirty-Two Million Nine Hundred Thousand (32,900,000) shares were issued to Cheer Gold and Two Million One Hundred Thousand (2,100,000) shares were issued to Floster. As of the Closing Date, the Stockholders collectively beneficially own seventy percent (70%) of the voting capital stock of the Company, 65.8% of which is owned by Cheer Gold and 4.2% of which is owned by Floster. As a result of the Exchange, Fast More became a wholly-owned subsidiary of World Trophy.
Effective February 2, 2009, the Registrant amended its Articles of Incorporation to change its name from “Word Trophy Outfitters, Inc.” to “Chisen Electric Corporation”. The following is disclosure regarding the Registrant, Fast More and Fast More’s wholly-owned and chief operating subsidiary, Changxing Chisen Electric Co., Ltd. (hereinafter referred to as “Chisen” or “CCEC”, and together with Fast More and the Registrant, the “Company”), the principal business activities of which consist of the manufacture and sale of sealed lead-acid battery products primarily in the electric bicycle market.
Prior Operations of World Trophy
World Trophy was formed as a Nevada corporation on January 13, 2005, and has been in the business of selling big game hunting packages to high end clients who sought to hunt with the top tier big game outfitters. Its main product sold was hunting trips, which included the hunting license and guide fees. World Trophy purchased and resold several hunting trips, selling them at a profit or for a mark-up. World Trophy also provided incidental advisory services to purchasers of hunting trips by helping these clients select an appropriate hunt, with no additional fees charged for these services.
During the year ended March 31, 2008, World Trophy sold its entire inventory of big game hunts, but has been unsuccessful in developing a profitable business. World Trophy ceased its operations and became a development stage company effective April 1, 2008. Prior to the Exchange, World Trophy focused its efforts on seeking a business opportunity and had been in the process of locating and negotiating with business entities for the merger of a target company into World Trophy.
The Registrant’s Common Stock is currently traded on the Over-The-Counter Bulletin Board (“OTCBB”) under the symbol “CIEC”. Immediately prior to the Exchange, World Trophy was considered a “blank check” development stage company with US$51,039 in assets and a net loss of US$(27,977) for the three (3) months ended September 30, 2008. On the Closing Date, the Registrant did not have any liabilities.
Current Operations of the Company
Fast More
Fast More is an investment holding company incorporated in Hong Kong on December 17, 2007 with limited liability. CCEC was founded in Huzhou, Zhejiang Province, The People’s Republic of China (also referred to herein as the “PRC”) in 2002 with registered capital of RMB1,000,000 (approximately US$124,452). On December 4, 2008, it resolved to increase the registered capital from RMB 1,000,000 to RMB 50,000,000 (approximately US$7,353,000). On February 16, 2008, Fast More acquired the 51%, 9% and 40% equity interests in Chisen from Mr. Xu Kecheng, Mr. Xu Keyong and BEME International Co., Ltd., respectively, for RMB6,502,500 (approximately US$926,000), RMB1,147,500 (approximately US$164,000) and RMB 5,100,000 (approximately US$726,000), respectively. Upon the completion of these acquisition transactions, CCEC became the wholly-owned and chief operating subsidiary of Fast More.
Since the ultimate beneficial owner of Fast More was, at all times, the substantial stockholder of CCEC (Mr. Xu Kecheng), the ownership transfer transaction was accounted for as a transfer of entities under common control in accordance with Statement of Financial Standards No. 141, “Business Combinations”.
Fast More has authorized capital of HK$10,000 (approximately US$1,282) divided into Ten Thousand (10,000) common shares authorized at HK$1.00 each, Ten Thousand (10,000) of which are currently issued and outstanding and held by the Registrant as a result of the Exchange. World Trophy acquired 9,400 of these shares from Cheer Gold and 600 of these shares from Floster. Xu Hua serves as the Sole Director of Fast More and is a Chinese citizen. Fast More’s registered office is located at Room 1401, 14/F, World Commerce Centre Harbour City, 7-11 Canton Road TST, Hong Kong.
Summary of the Company’s Current Business
The Company is a leading lead-acid motive battery producer in China's personal transportation device market. Our motive battery products are sold under our own brand name and are predominantly used in electric bicycles and distributed and sold in China. Electric bicycles are becoming increasingly popular. Among all types of battery for electric bicycles, the lead-acid motive battery is the preferred choice for electric bicycle manufacturers in China because of its cost efficiency.
Today, the Company manufactures over 7,740,000 batteries each year, has more than 2,000 employees and is one of China's largest manufacturers of lead-acid batteries for electric-powered bicycles (LABEBs). For each of the Company’s fiscal years ended March 31, 2008 and 2009, sales revenues were RMB486,038,000 (approximately US$65,387,000) and RMB749,033,000 (approximately US$109,020,000), respectively, and our net income during the same periods amounted to approximately RMB49,810,000 (approximately US$6,701,000) and RMB61,011,000 (approximately US$8,880,000), respectively.
The Company is located at Changxing Economic Development Zone at the bank of the Taihu Lake 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. The Company’s corporate offices are located at Jingyi Road, Changxing Economic Development Zone, Changxing, Zhejiang Province, The People’s Republic of China.
The Company’s Products
Description of our Lead-Acid Motive Batteries
The key components of a lead-acid motive battery include electrode plates and fiberglass dividing plates. The electrode plates are coated with oxidized lead and alloy lead. Pairs of positively charged electrode plates and negatively charged electrode plates each separated by a fiberglass dividing plate are bound together by metal strip and installed into the plastic casing of a lead-acid motive battery. The battery is then filled with sulfuric acid and charged with electricity. The number and the size of electrode plates required to be installed in a lead-acid motive battery will depend on the required level of its storage capacity and the power output.
We produce and offer eleven (11) models of lead-acid motive battery products for sale and are mainly engaged in the production of the following models of lead-acid motive battery products for electric bicycles:
Product
Dimentions (LxWxH)
Weight
(kg)
Power
Output
(w)
Estimated
Hours
Required
Per
Charging
(1)
Estimated
Minutes
of Use
Per
Charging
(min)(2)
Estimated
Travel
Distance Per
Charging (km)
6-DZM-10Ah
151×99×98
4.2
10h
135-145
45-50
6-DZM-12Ah
151×99×102
4.3
10h
120-130
45-50
6-DZM-16Ah
151×99×118
5.6
10h
120-130
50-60
6-DZM-17Ah
181×76×166
6.3
10h
120-130
50-60
6-DZM-20Ah
181×76×170
7.0
10h
120-130
60-70
8-DZM-18Ah
250×100×128
9.0
10h
120-130
60-70
8-DZM-20Ah
250×100×128
9.05
10h
120-130
60-70
6-DZM-24Ah
175×165×125
9.5
10h
120-130
70-80
6-DZM-25Ah
250×78×118
8.85
10h
120-130
70-80
(1) Estimated hours required per charging refers to the estimated number of hours required for charging the battery from nil to full storage capacity.
(2) Estimated hours of use per charging refer to the estimated maximum number of hours for which the battery is able to be used on each occasion when it is charged to its full storage capacity.
All the lead-acid motive battery products produced by us are re-chargeable and can be recharged approximately 500 times. They are standardized and can be used in electric bicycles, electric motorcycles and electric cars produced by different manufacturers.
Pictures of Our Products
6-DZM-10AH
6-DZM-12AH
6-DZM-16AH
6-DZM-17AH
6-DZM-20AH
8-DZM-18AH/8-DZM-20AH
6-DZM-24AH
6-DZM-25AH
Distribution Methods
We sell our lead-acid motive battery products principally to manufacturers of electric bicycles. However, with the growing retail market for replacement of battery products, i.e. our secondary market, we have also strengthened our efforts in the sales of battery products to sales representatives and exclusive distributors which are strategically located in 27 provinces, autonomous regions and directly-administered municipalities in China. Chisen currently has exclusive sales agreements with distributors at the provincial and county level, and employs sales representatives in each province across China to help distributors to further distribute products from counties to towns. We have established and maintained long-term relationships with distributors who we believe have local business experience and established regional sales networks. Our largest distributors are located in Zhumadian, Henan Province, Tangshan, Hebei Province, Haimen, Jiangsu Province and Yancheng, Jiangsu Province.
Market Share
Zhejiang is the main province of producing LABEBs, the output of which accounted for approximately half of the total domestic output of LABEBs in China. According to the China Battery Industry Association, in 2008, total output of the top ten (10) enterprises operating in Zhejiang accounted for approximately 50 million LABEBs of the approximate 100 million sold across China in the personal transportation market. According to market research results of Adfaith Consulting Co., Ltd., for the year ended March 31, 2009, our sales of lead-acid battery products in China represented approximately 6% of the total market size (in terms of sales revenue) of the lead-acid motive battery products for electric bicycles in China.
The table below shows the three (3) top manufacturers of LABEBs in China, and their revenues during fiscal year ended March 31, 2009:
Revenues generated by the Company in China accounted for 100% of the Company’s revenues in the fiscal years ended March 31, 2007, 2008 and 2009.
In the calendar year ended December 31, 2008, Chisen’s battery production reached 7 million. In the calendar year ending December 31, 2009, we believe that Chisen’s battery production will reach approximately 16 million.
Competitive Business Conditions and Market Trends
We believe that in the next several years, due to the intensifying global environmental concerns, there will be increased development of the electric bicycle. At present, due to the fact that the use of electric vehicles is very much in line with the energy-saving and environmental protection policy initiated by the Chinese government, the development of electric vehicles won its support. Electric vehicle, as an environment-friendly and convenient personal transportation vehicle, bears the advantages of convenience, non-pollution, safety and less energy According to market research results of Adfaith Consulting Co., Ltd., during the five years from 2004 to 2008, the market sales of electric vehicles in China tripled, with the number of electric vehicles totally amounting to 67,700,000 in 2008. In accordance with the measured data of the electric vehicle market demand in China, it is estimated that the market demand of electric vehicle will exceed 138,000,000 in 2013.
With respect to new product trends in the market, Europe, the United States and Japan use primarily a lithium battery whereas India and most of the countries of Southeast Asia use primarily a lead-acid battery. In 2008, according to the industry magazine Business E-Bicycle, approximately 90% of the electric bikes in China used lead-acid motive battery products. However, with technological advancements, it is a general market trend to develop motive battery products that are more environmentally friendly with increased power output and less weight. There can be no assurance that manufacturers of electric bikes will continue to use lead-acid motive battery products as the principal source of motive power for electric bikes. In the event that the market prefers to use other forms of battery product and if we are not able to develop new motive battery products to meet the future demand, our business could be adversely affected.
In 2008, the top electric bicycle brand in terms of production was Xinri, followed by Yadea, Taimei, Supaiqi, Lvyuan, Aucma, Bidewen and Hongdu. Each of these companies is a relatively small enterprise. We believe that continued industrial integration and brand concentration will continue to increase and that these famous brands will rapidly increase their market share. We also believe that brands will become more diversified by an increasing influence of famous brands on the market. Chisen has established long-term strategic relationships with important electric bicycle manufacturers, including Xinri, Yadea, Taimei, Supaiqi. Xinri’s electric bicycle was honored to serve at the Beijing 2008 Olympic Games and at the Paralympic Games, and Chisen was chosen as the only manufacturer to supply environmentally friendly batteries to Xinri for its electric bicycle. Based on this, in the next several years, we will strive to create an international first-class brand and become the leader in providing “green” energy in the electric bicycle marketplace. Simultaneously, through constant research and development of new chemical energy technologies, we believe Chisen will provide energy-savings and highly-effective energy solutions to our customers for the purpose of improving the quality of human life and a sustainable ecological environment.
Competition
Our chief competitors are Tianneng Power International Ltd. (“Tianneng”) and Zhejiang Chaowei Power Co., Ltd (“Chaowei”). These companies were the first into the battery industry. For example, Tianneng ranks first in terms of sales volume, and its capital stock is listed on The Stock Exchange of Hong Kong Limited. Taige Power Supply Co., Ltd. and Xinnuoli Power Supply Co., Ltd., as the OEM customers of Tianneng, were separated from Tianneng and officially set up their own brands in 2008, which has since impacted somewhat the capablilities of Tianneng and the overall industry competition structure.
Chaowei has a lot of after-sales service stores. However, Tianneng and Chaowei also do not have close cooperation with one of the top electric bicycle manufacturers in China. Although Chisen entered into its battery industry later than some of its competitors, Chisen has achieved success in establishing long-term strategic cooperation with a top electric bicycle manufacturer. The Company has established long-term strategic cooperation with many famous electric bicycle manufacturers in China, such as Xinri, Yadea, Taimei, Xinkelin and Lvyuan.
Research and Development (R&D)
R&D Summary
The Company has spent approximately US$117,000 during the fiscal year ended March 31, 2009, approximately US$34,000 for the fiscal year ended March 31, 2008 and approximately US$36,000 for the fiscal year ended March 31, 2007 on Company-sponsored research and development (“R&D”) activities as determined in accordance with US GAAP.
The Company plans to spend US$220,000 during fiscal year ending March 31, 2010, US$350,000 during fiscal year ending March 31, 2011 and US$550,000 during fiscal year ending March 31, 2012 on Company-sponsored research and development activities.
In the fiscal year ended March 31, 2009, the Company has almost triple spent on Company-sponsored research and development activities in order to further enhance the competitiveness of the Company’s products. Our product competitiveness has been further enhanced by the improvement of production technique and the release of new lead-acid battery products.
On the development of new products lines, the Company collaborated the research with the leading universities and national labs across various academic fields including, but not limited to, ultra lead -acid motive batteries, li-ion power batteries and storage batteries for solar and wind energy. The ultra lead-acid motive battery, which was released in March time frame of 2009, is over 8% greater than other products of same type on performance indicators. Since its launch in the current market segment, the ultra lead-acid motive batteries have received good customer feedback and achieved good results. In February 2009, the Company successfully developed lead-acid batteries for electric road vehicles, which have been put into mass production. The Company also starts receiving sales orders from different areas in China. With the come out of the plan for the revitalization of China’s new energy and the vigorous promotion of the Chinese government to new energy motors, such products are expected to occupy great market share. The Lithium iron phosphate battery, which has been researched for the past two years, has finished the alpha tests with stable technical parameters, and will be launched to the market after functional and performance tests.
Cooperative Partnership
In April 2008, CCEC set up the Zhejiang Changxing Chisen Physical-Chemical Power Supply Research and Development Center at the College of Chemistry and Chemical Engineering at Xiamen University in order to research and develop new products. Xiamen University is a first class comprehensive University in China with 9 graduate schools, 120 research institutions and cooperative inter-university ties to over 100 institutions worldwide. A copy of Chisen’s Agreement with the Research and Development Center is referenced hereto as Exhibit 10.1.
Chisen has established long-term strategic relationships with important electric bicycle manufacturers, including Xinri, Yadea, Taimei, Supaiqi. The Company also established strategic cooperation partnership with suppliers and vendors by means of supply chain integration to realize the control on procurement cost and quality. Moreover, a supplier’s assessment system has been set up to ensure the quality stability of direct materials.
Development Strategy of the Company
With a leading position in the LABEB battery product market in China, our product research and development capability and our cooperative partnership, we believe we are well positioned to capture additional business opportunities in China's personal transportation device market. In light of those prevailing economic trends of developing alternative transportation devices, aiming to reduce the reliance on oil and gas and producing less emissions, we intend to explore the motive battery market for electric-powered motorcycles and electric cars. Leveraging our experience and expertise in producing lead-acid motive battery products for electric bicycles, our product mix has been expanded to include lead-acid back-up batteries, Lithium iron motive batteries, LiFe back-up battery products and complementary electrical equipment, such as chargers, controllers and motors, for different types of personal transportation devices. It is our goal to become the largest battery developer producer with a first-class sales and service network in China.
Sources and Availability of Raw Materials from Suppliers
The Company purchases the raw materials used in the manufacturing of its products from numerous sources. The Company believes that all necessary raw materials for its products are readily available and will continue to be so in the foreseeable future. The Company has never had, nor does it anticipate experiencing, any shortages of such materials.
The raw material for our battery products consist primarily of electrolytic lead. Our success significantly depends on our ability to secure sufficient and constant supply of electrolytic lead for our production at acceptable price levels. Electrolytic lead represents our largest cost item in our lead-acid motive battery production. During each of the two fiscal years ended March 31, 2009 and March 31, 2008, the average selling price of electrolytic lead by our suppliers was approximately RMB15,000 (approximately US$2,200) and RMB22,000 (approximately US$3,000) per ton, respectively. For each of the two financial years ended March 31, 2009 and March 31, 2008, costs of lead-related material accounted for approximately 82.50% and 83.95% of our total cost of sales, respectively. We do not have long-term contracts with any of our electrolytic lead suppliers, nor have we entered into any arrangement to mitigate the effect of price fluctuations of electrolytic lead. Hence, any significant increase in the cost of electrolytic lead in the future could adversely affect our results if we cannot transfer the price increment to our customers.
We believe the Company generally maintains sufficient quantities of inventories of its products to meet customer demand.
The Company has entered into written contracts with several suppliers and vendors. The Company has major suppliers who accounted for the following percentage of total purchases and total accounts payable in the fiscal years ended March 31, 2009 and 2008:
Key Customers
Accounts receivable related to the Company’s major customers for the years ended March 31, 2009 and 2008 comprised 91% and 90% of all account receivables as of March 31, 2009 and 2008, respectively. Accounts payable related to the Company’s major suppliers for the years ended March 31, 2009 and 2008 comprised 24% and 30% of all accounts payable as of March 31, 2009 and 2008, respectively. The Company’s major customers for the fiscal years ended March 31, 2009 and 2008 accounted for the following percentages of total revenue and account receivable:
Employees
As of the date of this Report, the Company has 2,076 full-time employees.
Intellectual Property
Chisen successfully registered the trademark “” in China in December 2002 and in the United States, Britain, Germany, France Benelux, Egypt, Hungary, Italy, Russia, Vietnam, Greece and Australia in August 2007.
Chisen successfully registered the trademark “” in China in November 2005.
Chisen successfully registered the trademark “” in China in April 2006.
Chisen successfully registered the trademark “” in China in April 2006.
Chisen successfully registered the trademark “CHISEN” in China in January 2008.
Chisen successfully registered the trademark “CXCS” in China in April and June 2008 and in Cambodia, Thailand, Malaysia, Indonesia and the Philippines in July 2008.
Chisen successfully registered the trademark “” in China in May 2008.
Chisen successfully registered “” in China on May 4, 2008.
Chisen has obtained the title of “China Famous Trademark” on April 21, 2008.
Chisen currently holds 26 patents in total, including 8 of which are currently pending.
The Company currently has one domain name, http://www.chisenpower.com. This domain name is in good standing.
Honors and Certificates Company’s Qualification and Honors
·
National Inspection-Free Product Certification (2007-2010)
·
China Foundation of Consumer Protection High Quality Product Certification
·
China Famous Trademark
·
Huzhou Municipal Government High Quality Enterprise Certificate
·
Zhejiang Famous Product Certification (December 2007)
·
Zhejiang Clean Production Enterprise Certificate
·
Zhejiang Patent Demonstration Enterprise
·
Zhejiang Advanced Information Management Enterprise
·
Zhejiang Top 100 Most Innovative Enterprise
·
Zhejiang Famous Trademark Enterprise Certificate (February 2009)
Compliance with Environmental Regulations and Other Laws
We are subject to the national and local environmental laws and regulations in China on environmental matters, such as the discharge of waste water, exhaust fumes and solid waste. The main pollutants generated by us are lead dust or particles and waste water which contain lead and sulfuric acid. During the operation of our production, we did not release any toxic element other than those that are permitted under the relevant laws and regulations.
Lead is the key raw material used in our production of lead-acid motive battery products. An excessive intake of lead dust or particles, whether through inhaling or skin contact, could have harmful effect on health. Lead poisoning may also result from occupations that involve close and frequent contact with or exposure to lead dust or particles.
Lead dust and particles are generated during our production process. Our workers are exposed to electrode plates during different stages of our production process.
Pursuant to the applicable environmental laws and regulations in China, we are obliged to install environmental protection equipment to ensure effective removal of lead dust and particles generated during our production process. We have installed such equipment at each of our production plants.
Our production process generates waste water containing lead and sulfuric acid. Such waste water will be neutralised and treated to remove lead contents in accordance with the applicable environmental standards in China. We have installed such waste water treatment facilities at all our production plants. Waste water generated at our production process, after the required treatment, will either be collected and reused for our production requirements or discharged to the municipal waste water collection systems for further treatment and discharge to the environment.
We are also required by the laws and regulations governing health and safety at work in China to provide our employees exposed to lead dust or particles with protective clothing and accessories, such as gloves, goggles and masks. We also arrange all our employees engaging in the lead-related production process to receive medical checks at least once a year. The medical checks include measurement of blood lead level.
Business Qualification and Licenses
General Business License
According to certain corporate laws of the PRC, in order to be a lawfully established company in China, the relevant corporate registration authority shall issue a business license, the date of which shall be the date of the establishment of the company. The company business license shall state the name, domicile, registered capital, actually paid capital, business scope and the name of the legal representative of such company. If any of the items as stated in the business license is changed, the company shall modify the company’s registration, and the company registration authority shall issue a new business license.
CCEC obtained its business license on February 25, 2002, which such license was issued by the Huzhou Administration for Industry and Commerce. According to the Industrial Product Production License Control Regulation of the PRC, enterprises which manufacture lead-acid batteries are permitted to engage in said production if the company obtains a production license.
On January 13, 2005 the Administration of Quality Supervision, Inspection and Quarantine of the PRC issued a Production License to CCEC (the license number XK06-044-00223). On August 17, 2007, due to the fact that the Company added new product lines, an updated Production License with the same license number was reissued to CCEC.
Environmental Reports, Certifications and Licenses
According to certain environmental laws and regulations in China, the Department of Environmental Protection Administration under the State Council shall, in accordance with the national standards for environment quality and China’s economic and technological conditions, establish the national standards for the discharge of pollutants. The People's Governments of Provinces, Autonomous Regions and Municipalities directly under the Central Government may establish their local standards for the discharge of pollutants for items not specified in the national standards. With regard to items already specified in the national standards, they may set local standards, which are more stringent than the national standards, and report the local ones to the Department of Environmental Protection Administration under the State Council for the record. Units that discharge pollutants in areas where the local standards for the discharge of pollutants have been established shall observe such local standards.
On September 5th, 2008, the Changxing Environmental Protection Bureau issued the Notice of Examination Opinion approving Chisen’s Environment Effect Report on its Relocation and Extension of Chisen’s 1500 unit-per-year Lead-acid Battery Production Project.
On October 11th, 2007, the Beijing TIRT Quality Certification Center for the Environment issued the ISO14001 Certificate (number 04807E20059R0M) to the Company and signed-off on the environmental management system applied in Chisen’s production and management activities.
On July 31, 2007, the Beijing TIRT Quality Certification Center for the Environment issued the ISO9001 Certificate to the Company (number 04807Q10708R0M) agreeing that the quality management system applied in Chisen’s production and management activities.
On September 20, 2008, the Changxing Environmental Protection Bureau issued the Pollutant Discharge License to Chisen (license number HuChang080042).
ITEM 1A
ITEM 1A
Risk Factors
Not required for a "smaller reporting company".
ITEM 1B.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
ITEM 2.
Properties
All land in China is owned by the State. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of fifty (50) years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.
The Company maintains leases with Changxing Xiangyi Industrial Park Investment Co. for the purpose of the production of its battery products at Xiangyi Industrial Park, Jing’er Road, Changxing Economic Development Zone, Zhejiang, The People’s Republic of China. Those leases are described in the table below:
In addition to the leases set forth above, Chisen’s office space at Jingyi Road is a fixed asset of the Company. In 2004, CCEC purchased from the Chinese government land rights to use such land for 50 years for RMB4,470,000 (approximately US$650,598) and the building and other facilities thereon were contributed by the Company. The land area and the covered area are 53,974.42 square meters and 33,145.79 square meters, respectively.
ITEM 3.
ITEM 3.
Legal Proceedings
In the normal course of business, we are named as defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of March 31, 2009 and as of the date hereof, there was no pending or outstanding material litigation with the Company.
ITEM 4.
ITEM 4.
Submission of Matters to a Vote of Security Holders
On January 21, 2009, a principal stockholder holding in excess of fifty percent (50%) of the voting capital stock of the Company voted in favor of changing the name “World Trophy Outfitters, Inc.” to “Chisen Electric Corporation” as set forth in that certain Definitive Information Statement on Schedule 14C (as amended) as filed with the SEC on December 29, 2008. The Company did not solicit proxies in light of the fact that a majority stockholder intended to vote and did vote in favor of the proposal. On February 2, 2009, the Registrant filed a Certificate of Amendment to its Articles of Incorporation to effect such name change, effective immediately.
PART II
ITEM 5.
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Equity
Our Common Stock formerly traded on the OTCBB under the symbol “WTRY” from October 15, 2007 to February 2, 2009 and has traded (and continues to trade) under the symbol “CIEC” since February 2, 2009. There has been an extremely limited public market for our Common Stock. As of the date hereof, 50,000,000 shares of Common Stock were issued and outstanding.
When the trading price of our Common Stock is below US$5.00 per share, the Common Stock is considered to be a “penny stock” that is subject to rules promulgated by the SEC (Rule 15-1 through 15g-9) under the Exchange Act. These rules impose significant requirements on brokers under these circumstances, including: (a) delivering to customers the SEC’s standardized risk disclosure document; (b) providing customers with current bid and ask prices; (c) disclosing to customers the brokers-dealer’s and sales representatives compensation; and (d) providing to customers monthly account statements.
The following table sets forth on a per share basis for the periods shown, the high and low closing bid prices of our Common Stock. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
The high and low bid quotations for the Common Stock as of March 31, 2009 were $3.30 and $0.10, respectively. The market quotations represent prices between dealers, do not include retail markup, markdown, or commissions and may not represent actual transactions.
Dividends
Dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements and financial conditions. The payment of dividends, if any, will be within the discretion of the Board. We presently intend to retain all earnings, if any, for use in our business operations and accordingly, the Board does not anticipate declaring any cash dividends for the foreseeable future. We have not paid any cash dividends on our Common Stock.
Holders of Common Equity
As of the date of this Annual Report, we have issued Fifty Million (50,000,000) shares of our Common Stock to 99 holders of record.
The Company believes that it has more stockholders since many of its shares are held in "street" name. See also the “Security Ownership of Certain Beneficial Owners and Management” above for a table setting forth (a) each person known by us to be the beneficial owner of five percent (5%) or more of our Common Stock and (b) all directors and officers individually and all directors and officers as a group as of the date of this Annual Report, after giving effect to the Exchange. The Exchange occurred simultaneously with the cancellation of 18,658,200 shares of Common Stock held by Mr. Mathew Evans, World Trophy’s sole officer and director and World Trophy’s majority stockholder immediately prior to the Exchange.
Securities Authorized for Issuance under Equity Compensation Plans
As of the date of this Annual Report, we have no compensation plans (including individual compensation arrangements) under which the Registrant’s equity securities are authorized for issuance.
Performance Graph
Not required for a “smaller reporting company”.
Options and Warrants
As of March 31, 2009 and as of the date of this Annual Report, the Registrant had no outstanding options or warrants.
Transfer Agent and Registrar
Interwest Transfer Company, Inc., 1981 East Murray Holladay Road, Suite 100, P.O. Box 17136, Salt Lake City, Utah 84117, telephone (801) 272-9294, facsimile (801) 277-3147, currently acts as the Registrant’s transfer agent and registrar.
ITEM 6.
ITEM 6.
Selected Financial Data
Not required for a “smaller reporting company”.
ITEM 7.
ITEM 7.
Management‘s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This Annual Report includes 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 Annual 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 place on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Annual Report.
Summary of Significant Accounting Policies
Accounting Principles
The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”).
Basis of Consolidation
The consolidated financial statements include the financial information of Registrant and its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.
Revenue Recognition
Operating revenue represents sale of goods at invoiced value to customers, net of returns, discounts and value-added tax (“VAT”), and is recognized when goods are delivered to customers, the significant risks and rewards of ownership of goods have been transferred to customers, the sales price to the customers is fixed or determinable and the collectability of consideration is reasonably assured.
Costs related to shipping and handling are included in selling, marketing and distribution expenses.
Income Taxes
The Company provides for income taxes using the liability method. Under the liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current period.
A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax rate changes are reflected in the computation of the income tax provision during the period such changes are enacted.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", requires the presentation of comprehensive income, in addition to the existing statements of operations. Comprehensive income is defined as the change in equity during the year from transactions and other events, excluding the changes resulting from investments by owners and distributions to owners, and is not included in the computation of income tax expense or benefit. Accumulated comprehensive income consists of changes in unrealized gains and losses on foreign currency translation.
Available-For-Sale Financial Assets
The Company’s available-for-sale financial assets consist of investment in unlisted equity securities and are recorded at cost.
The Company periodically assesses whether its investment in non-marketable equity securities are impaired and if any impairment is other than temporary. Factors considered in assessing whether an impairment is other than temporary include the credit quality of the investment, the duration of the impairment, the Company’s ability and intent to hold the investment until recovery and overall economic conditions. A decline in value of these securities below cost that is deemed to be other than temporary results in an impairment charge to earnings that reduces the carrying amount of the securities to fair value establishing a new cost basis.
Property, Plant and Equipment (“PPE”) and Long-Term Land Lease Prepayments
PPE are stated at cost less accumulated depreciation, and include expenditure that substantially increases the useful lives of existing assets.
The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance, overhaul and minor renewals and betterments, are normally charged to operating expenses in the period in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets, the expenditure is capitalized.
Depreciation is provided, on a straight-line basis, to write off the cost less accumulated impairment losses of each PPE item at rates based on their estimated useful lives from the date on which they become fully operational and after taking into account their estimated residual values as follows:
Buildings
Furniture, fixtures and office equipment
Motor vehicles
Plant and machinery
years
years
years
years
When assets are sold or retired, their costs and accumulated depreciation are eliminated from the consolidated financial statements and any gain or loss resulting from their disposal is recognized in the period of disposition as an element of other income.
Construction-in-progress consists of factories and office buildings under construction and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Long-term land lease prepayments are amortized on a straight-line basis over the term of lease.
Impairment of Long-Lived Assets
Long-lived assets are reviewed at least annually for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and recorded as a reduction of original costs. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Inventories
Inventories are stated at the lower of cost and market. Cost, which comprises all costs of purchase and, where applicable, costs of conversion and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average costing method. The Company estimates the market price of its inventories with reference to the net realizable value based upon current market conditions and historical experience. Estimated losses on inventories represent reserves for obsolescence, excess quantities, irregulars and slow moving inventory, and which are charged to cost of goods sold.
Accounts Receivables and Allowance for Doubtful Accounts
The allowance for the risk of non-collection of trade accounts receivable takes into account credit-risk concentration. Collective debt risk is assessed based on average historical losses and specific circumstances such as serious adverse economic conditions. The Company’s estimate is based on a variety of factors, including historical collection experience, existing economic conditions and a review of the current status of the receivable. Accounts receivable are presented net of an allowance for doubtful accounts of US$6,000 and US$6,000 as of March 31, 2009 and 2008, respectively.
Cash and Cash Equivalents
Cash represents cash on hand and deposits with financial institutions which are repayable on demand. Cash equivalents represent short-term, highly liquid investments purchased with an original maturity of three months or less, which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
Foreign Currency Translation
Items included in the financial statements of the Company’s subsidiary are measured using Renminbi (“RMB”), the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in United States Dollars (“US$”), which is the Company’s presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.
On consolidation, the results and financial position of all the group entities that have a functional currency different from the presentation currency are translated as follows:
(a)
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b)
income and expenses for each statement of operations are translated at average exchange rates; and
(c)
all resulting exchange differences are recognized as a separate component of equity.
Fair Value of Financial Instruments
The estimated fair values for financial instruments under SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision.
The Company’s financial instruments include restricted bank balances, other financial assets, accounts and other receivables/payables, prepayments and short-term bank borrowings. The management has estimated that the carrying amount approximates their fair value due to their short-term nature. The fair value of the Company’s unearned portion of government grants are estimated based on the current rates offered to the Company for debt of similar terms and maturities. The fair value of these non-current financial instruments was not materially different from their carrying value as of March 31, 2009 and 2008.
Warranty
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:
Government Subsidies
Government subsidies are recognized as income over the periods necessary to match them with the related costs. Subsidies related to expense items are recognized in the same period as those expenses are charged in the consolidated statements of operations and other comprehensive income and are reported separately as other income.
Operating Leases
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rental payables under operating leases are recognized as expenses on the straight-line basis over the lease term.
Use of Estimates
The preparation of the consolidated financial statements in conformity with USGAAP requires the management to make 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 reported periods. The management evaluates these estimates and judgments on an ongoing basis and bases their estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that they believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies.
Actual amounts could differ from those estimates. Estimates are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation and amortization, inventory allowance, taxes and contingencies.
Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common stocks outstanding during the year. Diluted 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 the years ended March 31, 2009 and 2008.
Upon the completion of the Share Exchange Transaction, the number of shares of the Registrant’s common stock issued and outstanding (taken into account the 3 for 1 forward split as detailed in Note 1 to the financial statements attached herewith) was increased to 50,000,000 shares and was applied retrospectively for the calculation of earnings per share.
Results of Operations
Results of Operations for the Fiscal Year Ended March 31, 2009 Compared To the Fiscal Year Ended March 31, 2008
The following table sets forth a summary of certain key components of our results of operations for years indicated, in dollars and as a percentage of revenues.
Revenues
Revenues for the years ended March 31, 2009 and 2008 were US$109,020,000 and US$65,387,000, respectively. The increase in revenues of 67% was mainly attributable to the continuing strong sales of our battery products as a result of rapid growth in the electric bicycle market in the PRC, as well as a shift in product mix to high power battery products with higher unit selling price. Sales volume increased by 67% mainly due to increase in demand from existing customers such as Jiangsu Xinri Electric Bicycle Co., Ltd., the sales of which have increased by 124% for the fiscal year ended March 31, 2009. In addition, the Company also received sales orders from a new major customer in Tianjin and other new distributors, which contribute an addition of sales revenue for the fiscal year ended March 31, 2009.
Cost of Sales
Cost of sales for the years ended March 31, 2009 and 2008 were US$88,823,000 and US$51,964,000, respectively, and the cost rates were 81.47% and 79.47%, respectively.
The cost rate increased 2% during these periods. Although the cost of major material decreased, the selling price also decreased by a large extent and compensated the positive effect of decrease in raw material costs, resulting in a decrease in the gross income for the year ended March 31, 2009, and that resulted in a decrease in the gross income rate for the year ended March 31, 2009.
Depreciation and Amortization
Depreciation expense was US$451,000 and US$258,000 for the years ended March 31, 2009 and 2008, respectively. The increase in depreciation expense was mainly attributable to the new plants and machines acquired during the year ended March 31, 2009 to cope with the Company’s business expansion.
.
Net Income from Operations before Interest and Tax Expenses
Net Income from Operations before Interest and Tax Expense was US$11,611,000 and US$7,566,000 for the years ended March 31, 2009 and 2008, respectively. These increases in these amounts by US$4,045,000 was mainly attributable to the increase in sales volume and a shift in product mix to high-power-battery products with higher unit selling prices, resulting in an increase in the gross income for the year ended March 31, 2009.
General and Administrative Expenses
General and administrative expense was US$4,007,000 and US$1,650,000 for the years ended March 31, 2009 and 2008, respectively, and mainly consisted of staff salaries and benefits, depreciation expenses, traveling, legal and professional fee, other taxes, entertainment and motor car expenses. The increase in general and administrative expenses was mainly due to increases in employee salaries and compensations, research and development expenses, legal and professional fees, leases and other taxes by US$889,000, US$107,000, US$272,000, US$182,000 and US$429,000, respectively. These increases were mainly driven by the expansion of business operations and the legal and advisory services rendered in associated with Exchange.
Interest Expense, Net
Interest expense was US$870,000 and US$753,000 for the years ended March 31, 2009 and 2008, respectively. Interest expense increased by US$117,000 due to the increase in average short-term bank borrowing balances for the year ended March 31, 2009 compared to the year ended March 31, 2008.
Other Income, Net
Other income was US$758,000 and US$671,000 for the years ended March 31, 2009 and 2008, respectively. The increase of US$87,000 was mainly attributable to the increase in government subsidies and income generated from sales of scrap materials.
Net Income
Net Income was US$8,880,000 and US$6,701,000 for the years ended March 31, 2009 and 2008, respectively. The increase in net income by US$2,179,000 was mainly attributable to the continuing strong sales of our battery products as a result of rapid growth in the electric bicycle market in PRC.
Liquidity and Capital Resources
We generally finance our operations through operating profit and borrowings from banks.
During the reporting periods, we arranged a number of bank loans to satisfy our financing needs. As of the date of this Annual Report, we have not experienced any difficulty in raising funds by bank loans, and we have not experienced any liquidity problems in settling our payables in the normal course of business and repaying our bank loans when they fall due.
The following table sets forth the summary of our cash flows, in dollar, for the periods indicated:
Operating Activities
Net cash provided by operating activities was approximately US$11,289,000 for the year ended March 31, 2009, as compared to net cash used in operating activities of US$10,513,000 for the year ended March 31, 2008. The increase was mainly attributable to increase the use of bank bills for settlement of accounts payable.
Investing Activities
Net cash used in investing activities was approximately US$8,933,000 for the year ended March 31, 2009, as compared to approximately US$7,987,000 for the year ended March 31, 2008. The increase was mainly due to purchase of plant and equipment and investment in restricted bank balances.
Financing Activities
Net cash used in financing activities was approximately US$661,000 for the year ended March 31, 2009, as compared to net cash provided by financing activities of approximately US$18,696,000 for the year ended March 31, 2008. The decrease was mainly due to decrease in discounted bills financing activities.
Working Capital
Our working capital increased by approximately US$8,230,000 to approximately US$12,506,000, as compared to working capital of approximately US$4,276,000 as of March 31, 2008. The increase is primarily due to increase in our cash and cash equivalents, restricted bank balances, accounts receivable and inventories, approximately totally amounting to US$33,693,000, offset by the increase in our accounts and notes payable by approximately totally amounting to US$28,449,000.
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions of foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
ITEM 7A.
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk.
Not required for a “smaller reporting company”.
ITEM 8.
ITEM 8.
 Financial Statements and Supplementary Data
Reference is made to the “F” pages herein comprising a portion of this Annual Report on Form 10-K.
ITEM 9.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Effective as of January 14, 2009, the Board of Directors of the Registrant dismissed Pritchett, Siler & Hardy, P.C. (“PS&H”) as the independent registered public accounting firm of the Registrant.
PS&H’s report on the Registrant’s financial statements for the past two (2) fiscal years, as well as the subsequent interim period through January 14, 2009, did not contain an adverse opinion or a disclaimer of opinion, and was not qualified as to uncertainty, audit scope, or accounting principles; however, the report included an explanatory paragraph wherein PS&H expressed substantial doubt about the Registrant’s ability to continue as a going concern.
The dismissal of PS&H was approved by the Registrant’s Board of Directors effective as of January 14, 2009.
During the Registrant’s most recent two (2) fiscal years, as well as the subsequent interim period through January 14, 2009, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.
During the Registrant’s most recent two (2) fiscal years, as well as the subsequent interim period through January 14, 2009, PS&H did not advise the Registrant of any of the matters identified in Item 304(a)(v)(A) - (D) of Regulation S-K.
The Registrant has requested PS&H to furnish a letter addressed to the SEC stating whether it agrees with the statements made by the Registrant and, if not, stating the respects in which it does not agree. A copy of the letter is attached hereto as Exhibit 16.1.
Effective as of January 14, 2009, the Board of Directors of the Registrant approved the engagement of Mazars CPA Limited (“Mazars”) as its independent registered public accounting firm to audit the Registrant’s financial statements. The Registrant did not consult Mazars on any matters described in Item 304(a)(2) of Regulation S-K during the Registrant’s two (2) most recent fiscal years or any subsequent interim period prior to engaging Mazars.
ITEM 9A(T).
ITEM 9A(T).
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our management, including our principal executive officer and our principal financial officer, concluded that our disclosure controls and procedures were effective as of the fiscal quarter covered by this report, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act (i) is recorded, processed, summarized and reported within the time period specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow appropriate decisions on a timely basis regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control structure and procedures over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2009 based on the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting as of March 31, 2009 was effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B.
Other Information
Effective April 30, 2009, the Registrant’s common stock began trading under a new ticker symbol, “CIEC” on the Over-The-Counter Bulletin Board. The Registrant changed its ticker symbol from “WTRY” to “CIEC” as a result of the Registrant’s name change from “World Trophy Outfitters, Inc.” to “Chisen Electric Corporation”, which such name change became effective as of February 2, 2009.
On June 3, 2009, the Board of Directors of the Registrant appointed Mr. Zhu Zhongli as the Company’s Vice President of Sales. Mr. Zhu is assuming one of the roles previously occupied by Mr. Xu Kecheng, the Company’s current Chief Executive Officer, the Chairman of the Board and Acting Vice President of Sales, effective immediately. As Vice President of Sales for the Company, Mr. Zhu is in charge of overall sales and marketing management. Mr. Zhu previously served as the Assistant General Manager of the Company since August 2006. Prior to joining the Company, Mr. Zhu served as the General Manager of Changxing Lida Wear-Resisting Material Co., Ltd., a manufacturing company in China, since March 1999. Mr. Zhu has extensive experience in the local Chinese market and has achieved outstanding success in sales of storage batteries in China.
PART III
ITEM 10.
ITEM 10.
Directors, Executive Officers, and Corporate Governance
Set forth below are the names of the Registrant’s current directors, officers and significant employees, their business experience during the last five (5) years, their ages and all positions and offices that they currently hold with the Registrant.
Name
Age
Position(s)
Xu Kecheng
Chairman of the Board, Chief Executive Officer & President
He Zhiwei
Chief Financial Officer and Director
Fei Wenmei
Corporate Secretary
Zhu Zhongli
Vice-President of Sales
Lou Shourong
Vice-President
Liu Chuanjie
Treasurer and Director
Dong Quanfeng
Independent Director
Jiang Yanfu
Independent Director
Gong Xiaoyan
Independent Director
Yun Hon Man
Independent Director
Gui Changqing
Significant Employee
Wang Huanxiang
Significant Employee
Lin Zugeng
Significant Employee
Huang Wen
Significant Employee
Family Relationships
There are no family relationships by and between or among the members of the Board or other executives. None of our directors and officers are directors or executive officers of any company that files reports with the SEC except as set forth in the Biographies section below.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our Bylaws. Our officers are appointed by the Board and hold office until removed by the Board.
Biographies of Officers and Directors
Xu Kecheng. Mr. Xu has served as President, Chief Executive Officer and a Director of the Registrant since the closing date of the Exchange. Mr. Xu founded Chisen in 2003 and has served as CCEC’s President and Chairman of the Board since its inception. Besides successfully establishing and running CCEC, Mr. Xu also acquired Ai Ge Organism Products Co., Ltd., a biological & pharmaceutical company in China in November 2006 where he serves as Chairman of the Board and Executive Director. In 2002, he was involved in the formulation of coated tempered glass panel standards used for home gas kitchen ranges, which was put on the list of the National Building Materials Industry Standard. Mr. Xu graduated from Hangzhou University in 1997 with the major in economic management. In addition to serving as senior economist to the Company, Mr. Xu is a member of China Battery Industry Association, a member of Huzhou CPPCC, a member of the Standing Committee of Changxing People’s Congress and he has been honored with the title of “Integrity Entrepreneur” by the Changxing Government. Mr. Xu also finished a course of study at the class of advanced training at the Party School of the CPC Central Committee.
He Zhiwei. Mr. He has served as the Director and Chief Financial Officer of the Registrant since the closing date of the Exchange. From 1999 to 2001, Mr. He served as Strategic Commodity Manager of Worldwide Operations at Dell, Inc. From February 2001 to November 2006, Mr. He was responsible for capacity and service management of Capital One’s Technology Operations and Data Center Operations. In 2005, Mr. He became the Finance Manager at Capital One Global Financial Services, where he analyzed, reported and managed the financials and the annual operating budget of $130 million. In his tenure at Capital One Financial Corporation, Mr. He maintained a rigorous cost management discipline. From November 2006 to December 2007, Mr. He led the efforts at Circuit City Stores Inc. and BDA Inc. to develop private label branding strategies, consumer electronics products and video gaming accessories, where he minimized the dependency on non value-added brands. From December 2007 to November 2008, Mr. He played a leadership role at Amazon.com Inc. to maximize Amazon's segment share and profitability by developing and implementing the Private Label and Direct Import infrastructure and programs that had reinforced Amazon’s position as the global leader in online shopping for all products. Mr. He also helped rapidly expand and grow Amazon’s international retail business in Europe, Japan and China.
Fei Wenmei. Ms. Fei has served as Corporate Secretary of the Registrant since the closing date of the Exchange. In March 2005, Ms. Fei joined CCEC as Chief Administrative Manager in charge of corporate brand building, intellectual property and project application. Ms. Fei currently serves CCEC as an assistant economist and clean production management controller. From March 1991 to February 2005, Ms. Fei served as Chief Administrative Manager of the Huaneng Changxing Power Plant Industry & Trading Company and prior to that she served as Chief of Staff at the Changxing Land Administration Bureau from March 1987 to February 1991. Ms. Fei has been engaged in administrative management for many years and has vast experience in corporate administrative management. Ms. Fei graduated from Zhejiang Radio and Television University with a degree in Chinese Language.
Zhu Zhongli. Mr. Zhu has served as Vice-President of Sales of the Registrant since June 3, 2009. Mr. Zhu replaces Xu Kecheng, who had temporarily replaced Wang Yajun effective March 3, 2009. Mr. Zhu is in charge of overall sales and marketing management. Mr. Zhu previously served as the Assistant General Manager of the Company since August 2006. Prior to joining the Company, Mr. Zhu served as the General Manager of Changxing Lida Wear-Resisting Material Co., Ltd., a manufacturing company in China, since March 1999. Mr. Zhu has extensive experience in the local Chinese market and has achieved outstanding success in sales of storage batteries in China.
Lou Sourong. Mr. Lou has served as a Vice President of the Registrant since the closing date of the Exchange. From October 2007 to present, Mr. Lou has served as a Deputy General Manager of CCEC, a manufacturing company in China. From April 2006 to September 2007, Mr. Lou served as Executive Deputy General Manager for Changxing Nuo Wan Te Ke Co., Ltd., a manufacturing company in China. Prior to that, Mr. Lou served as the factory director and marketing manager in Changxing Chisen Glass Co., Ltd., a manufacturing company in China from June 1996 to March 2006. Mr. Lou has extensive experience in materials supply, procurement and production plan management.
Liu Chuanjie. Mr. Liu has served as Treasurer of the Registrant since the closing date of the Exchange and has served as a Director of the Registrant since November 24, 2008. Mr. Liu also serves as Controller, Director of Finance and as a Director of Chisen since May 2004. Mr. Liu has expertise in accounting systems and national accounting policies, fund raising and investing. Prior to joining Chisen, Mr. Liu served as the head of the financial department of Changxing Chisen Xinguangyuan Co., Ltd., a manufacturing company in China, from October 2000 to April 2004. Mr. Liu is a graduate of the Institute of Jiaxing.
Dong Quanfeng. Professor Dong has served as a Director of the Registrant since November 24, 2008. Professor Dong has served as a Chemistry professor and doctorial tutor at the Department of Chemistry of Xiamen University since March 2006. Professor Dong concurrently acts as a visiting research fellow at the National Hi-Tech Green Material Development Center, is a Member of the Editorial Board of the industry magazine “Battery”, is a Member of the Chinese Institute of Electrics Chemical and Physical Power Committee, a Member of ISE, a Member of the American ECS and is the Vice Director of the Changxing Chisen Physical Chemistry Battery Research Center. Professor Dong is engaged in the research of new chemical electric power sources and related energy storage material and has finished several national and provincial-municipal scientific research projects. In 1997, Professor Dong won the provincial second prize of the Development of Science and Technology. In 1999, Professor Dong won the technology innovation prize of Hubei province. In 2004, Professor Dong won third prize of the Development of Science and Technology of Xiamen. In 2006, he won the title of “Technology Innovation Advanced Individual” by the National Information Industry. Professor Dong has issued over 80 papers on internationally significant academic journals and has applied for several patents. Prior to his employment as a full time professor at Xiamen University, Professor Dong served as an associate professor at Xiamen University since January 2003. Mr. Dong graduated from Wuhan University with a degree in Chemistry and performed postdoctoral research at Israel Technical Institute.
Jiang Yanfu. Professor Jiang has served as a Director of the Registrant since November 24, 2008. Professor Jiang has served as a professor and doctorial tutor of business administration at Tsinghua University since December 1993. Professor Jiang has served as Dean of the Entrepreneurial Research Center since April 2000 and has served as academic director-general and co-founded of Trinity Innovation since December 2003, a consulting company in China.. Professor Jiang has expertise in entrepreneurial management, corporate governance and institutional economics. He has undertaken many important research programs such as the “Theoretical Study on Chinese Technology Innovation”. He served as a director of and as an advisor to many companies. Professor Jiang’s main research fields include risk investment and entrepreneurial management, corporate governance and cyber economy. The major courses he has instructed include Entrepreneurial Management, Technology and Institution Innovation, and Analysis of Institutional Economics.
Gong Xiaoyan. Ms. Gong has served as a Director of the Registrant since November 24, 2008. Ms. Gong currently serves as Chairman of Tianjin Bicycle Industrial Association, a non-governmental organization in China since June 2006. Prior to that, Ms. Gong served as Secretary-general of Tianjin Bicycle Industrial Association, a non-govermental organization in China since September 1998. She has won the titles “China Top-Hundred Female Entrepreneur”, “Most Influential Enterprises Leader of China” and “Tianjin Female Entrepreneur” issued by Tianjin Municipal Government.
Yun Hon Man. Mr. Yun has served as a director of the Registrant since November 24, 2008. Mr. Yun has served and continues to serve as a Corporate Consultant with Smart Pine Investment Limited since September 2007, a consulting firm organized under the laws of Hong Kong. Mr. Yun also serves as a Director of CH Lighting International Corporation (OTCBB: CHHN) since July 28, 2008 and as Chief Operations Officer of China INSOnline Corp. (NASDAQ: CHIO) since January 2008. Prior to that, Mr. Yun served as Corporate Controller of Hi-Tech Wealth Inc. (n/k/a China Mobile Media Technology, Inc.)(OTCBB: CHMO) from January 2007 through August 2007. From January 2003 through December 2006, Mr Yun served as Corporate Controller of General Components, Inc. (n/k/a China Mobile Media Technology, Inc.)(OTCBB: CHMO). Mr. Yun is a chartered accountant having memberships with the institute of chartered accountants in England and Wales. He is also a Fellow Member of the Chartered Association of Certified Accountants. He is a member of the Hong Kong Institute of Certified Public Accountants, the Association of International Accountants, the Society of Registered Financial Planners, the Institute of Financial Accountants and the Institute of Crisis and Risk Management. Mr. Yun received his MBA at the University of Western Sydney in 2007.
Legal Proceedings Involving Officers and Directors
None of the members of the Board of Directors or other executives has been involved in any bankruptcy proceedings, criminal proceedings, any proceeding involving any possibility of enjoining or suspending members of our Board of Directors or other executives from engaging in any business, securities or banking activities, and have not been found to have violated, nor been accused of having violated, any federal or state securities or commodities laws.
Significant Employees
Gui Changqing. Mr. Gui has served and continues to serve as Chief Scientist at the Zhejiang Changxing Chisen Physical-Chemical Power Supply Research and Development Center since June 2007 and as counselor of the 712 Institute since January 2005. Prior to that, Mr. Gui served as expert team member of the 712 Institute from January 2001 to December 2004. Early in his career Mr. Gui was engaged in the R&D of the powered lead-acid battery for the national military in China serving as General Engineer and Researcher. The product won a scientific and technical award from the State Commission of Science and Technology. Mr. Gui has published more than 100 papers of international significance and has trained 24 postgraduates. Mr. Gui is extremely well respected by his peers in the storage battery industry. In 1992, he won the special government allowance from the State Council, has served as Director of the Association of Chinese Chemical Physics Power Industry and as a Director of the Wuhan Power Supply Society. Mr. Gui earned his doctorate degree in electrochemistry from Shanghai Fudan University.
Wang Huanxiang. Mr. Wang has served as Technical Controller of CCEC since May 2008. Prior to that, Mr. Wang was a career researcher of the storage battery and served as Deputy General Manager of Zhejiang Chaowei Power Co., Ltd. from May 2004 to March 2008. Prior to that, Mr. Wang served as Chief of Technical Department of Zhejiang Wolong Technology Corp. from March 2001 to May 2004. He has several patents and has issued several papers, including “Research of SnSO4 Applied to Electric Bicycles” and “Drying and Changing Technical Research for Long Cycle Life Lead Acid Electrical Bicycle Battery” in various academic journals, including the International Battery. Mr. Wang is a graduate of Zhengzhou University with a degree in electrochemistry.
Lin Zugeng. Professor Lin currently works as a scientist at the Zhejiang Changxing Chisen Physical-Chemical Power Supply Research and Development Center. Professor Lin has been working with the Department of Chemistry at Xiamen University since 1956. Professor Lin is an expert in physical chemistry and electrochemistry and is one of the founders of the electrochemical curricula at Xiamen University. From July 1982 to September 1984, Professor Lin worked as a visiting scholar at the Chemical Energy Center of London’s Metropolitan University. From July 1990 to April 1999, Professor Lin served as the President of Xiamen University. Concurrently, he served as a member of an evaluation group of the Academic Degrees Committee of the State Council for the subject of chemistry, a director of the Chinese Chemical Society, Chief Commissary of the Electrochemistry Committee of Chinese Chemical Society, Deputy Chief Commissary of the Professional Committee of Chemical and Physical Power at the Chinese Institute of Electronics and Deputy Editor-in-Chief of the Chemical Journal of Chinese Universities. Professor Lin has many significant achievements in electrochemical experimental technology, electrode material of chemical power, electrode processes of chemical power and spectral electrochemistry, and has undertaken many national key projects, including the 863 Plan and the National Natural Science Foundation. Professor Lin has published more than 100 papers in domestic and foreign academic journals, has been awarded 3 times the national scientific prize and 3 times the provincial scientific prize. In 1988, Professor Lin was acknowledged as an expert with outstanding achievement. Now Prof. Lin works as scientist of Chisen Technical Development Center.
Huang Wen. Mr. Huang currently works as the Chief Technical Officer of CCEC and has served in such capacity since September 2006. From October 2005 to August 2006, Mr. Huang served as Technical Engineer of Zhejiang Chaowei Power Co., Ltd. Prior to that, Mr. Huang served as Chief Technical Officer of CCEC from June 2003 to September 2005. Mr. Huang has been engaged in battery-related technical management for many years, has participated in the research and development of the colloidal battery and has profound knowledge of electrochemical reaction mechanisms and manufacturing processes of the lead-acid battery. Mr. Huang is a graduate with a degree in chemistry from the Henan Institute of Education.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Exchange Act requires a company's officers and directors, and persons who own more than ten percent (10%) of a registered class of the Registrant’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than ten percent (10%) stockholders are required by SEC regulation to furnish the Registrant with copies of all Section 16(a) forms they file.
To the Registrant’s knowledge, based solely on a review of the copies of such reports furnished to the Registrant, all reports under Section 16(a) required to be filed by its officers and directors and greater than ten percent (10%) beneficial owners were timely filed as of the date of this filing.
Committees of our Board of Directors
As of January 15, 2009, our Board of Directors has an Audit Committee, a Compensation Committee and a Corporate Governance and Nominating Committee established in accordance with the Exchange Act and NASDAQ rules. Prior to January 15, 2009, we did not have an Audit Committee, a Compensation Committee or a Corporate Governance and Nominating Committee. Since January 15, 2009, the Audit Committee met two (2) times, the Compensation Committee met one (1) time and the Corporate Governance and Nominating Committee met one (1) time. A brief description of each committee is set forth below.
·
Audit Committee - The purpose of the Audit Committee is to provide assistance to our Board of Directors in fulfilling their oversight responsibilities relating to our consolidated financial statements and financial reporting process and internal controls in consultation with our independent registered public accountants and internal auditors. The Audit Committee is also responsible for ensuring that the independent registered public accountants submit a formal written statement to us regarding relationships and services which may affect the auditor’s objectivity and independence. The Board appointed Yun Hon Man, Gong Xiaoyan, Dong Quanfeng and Jiang Yanfu to serve as members of the Audit Committee, with Yun Hon Man serving as Chairman, commencing on January 15, 2009. Our Audit Committee financial expert is Yun Hon Man, an independent director.
·
Compensation Committee - The purpose of the Compensation Committee is to review and make recommendations to our Board of Directors regarding all forms of compensation to be provided to our executive officers and directors, including stock compensation and loans, and all bonus and stock compensation to all employees. The Board appointed Jiang Yanfu, Dong Quanfeng, Yun Hon Man and Gong Xiaoyan to serve as members of the Compensation Committee, with Jiang Yanfu serving as Chairman, commencing on January 15, 2009.
·
Corporate Governance and Nominating Committee - The purpose of the Nominating Committee is to review the composition and evaluate the performance of the Board, recommend persons for election to the Board and evaluate director compensation. The Nominating Committee is also responsible for reviewing the composition of committees of the Board and recommending persons to be members of such committees, and maintaining compliance of committee membership with applicable regulatory requirements. We have not adopted procedures by which security holders may recommend nominees to our Board of Directors. The Board appointed Gong Xiaoyan, Dong Quanfeng, Yun Hon Man and Jiang Yanfu to serve as members of the Corporate Governance and Nominating Committee, with Gong Xiaoyan serving as Chairman, commencing on January 15, 2009.
·
Strategy and Steering Committee - The Board appointed Xu Kecheng, He Zhiwei and Wang Chunyan to serve as members of the Strategy and Steering Committee, with Xu Kecheng serving as Chairman.
Committee Charters
On January 15, 2009, the Board approved Charters for each of the Audit Committee, Compensation Committee and the Corporate Governance and Nominating Committee. Copies of the Audit Committee Charter, the Compensation Committee Charter and the Corporate Governance and Nominating Committee Charter are referenced hereto as Exhibits 99.1, 99.2 and 99.3, respectively.
ITEM 11.
ITEM 11.
Executive Compensation
Compensation Discussion and Analysis
Not required for a “smaller reporting company”.
Summary Compensation Table
The following table sets forth compensation information for services rendered by our named executive officers and certain of our former principal executive officers in all capacities during the last 2 completed fiscal years (ended March 31, 2009 and March 31, 2008). The compensation listed below was paid to our current officers by SkyAce. The following information includes the U.S. dollar value of base salaries, bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.
Summary Compensation Table
(1)
Xu Kecheng has served as the Registrant’s Chief Executive Officer and President effective as of the closing date of the Exchange. Mr. Xu also served (and continues to serve) as President of CCEC during the fiscal years ended March 31, 2009 and 2008. Mr. Xu’s compensation for 2008 reflects his services as President of CCEC and his compensation during the year ended March 31, 2009 reflects his services as CEO and President of the Registrant and President of CCEC, combined.
(2)
He Zhiwei has served as the Registrant’s Chief Financial Officer effective as of the closing date of the Exhange.
(3)
Lou Shourong has served as the Registrant’s Vice-President effective as of the closing date of the Exchange. Mr. Lou also served (and continues to serve) as a Deputy General Manager of CCEC during the fiscal years ended March 31, 2009 and 2008. Mr. Lou’s compensation for 2008 reflects his services as Deputy General Manger of CCEC and his compensation for the year ended March 31, 2009 reflects his services as Vice-President of the Registrant and Deputy General Manager of CCEC, combined.
(4)
Liu Chuanjie has served as the Registrant’s Treasurer effective as of the closing date of the Exchange. Mr. Liu also serviced (and continues to serve) as Controller and Director of Finance of CCEC during the fiscal years ended March 31, 2009 and 2008. Mr. Liu’s compensation for 2008 reflects his services as Controller and Director of Finance of CCEC and his compensation for the year ended March 31, 2009 reflects his services as Treasurer of the Registrant and Controller and Director of CCEC, combined.
(5)
Mr. Peay was the Sole Officer and Director of World Trophy from World Trophy’s inception through June 13, 2008.
(6)
Mr. Evans was the Sole Officer and Director of World Trophy from World Trophy’s inception through June 13, 2008.
As of March 31, 2009, the Registrant did not have any “Grants of Plan-Based Awards”, “Outstanding Equity Awards”, “Option Exercises and Stock Vested”, “Pension Benefits”, “Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans” or “Potential Payments Upon Termination or Change in Control” to report.
Furthermore, the Company does not have any bonuses, stock awards, option awards, non-executive incentive plan compensation or non-qualified deferred compensation earnings to report.
Executive Compensation - Narrative Disclosure
Mr. Evans, our sole officer immediately prior to the Exchange, did not receive any compensation for his services rendered to the Registrant, had not received such compensation in the past, and is not accruing any compensation pursuant to any agreement with the Registrant, however Mr. Evans was entitled to reimbursement for expenses incurred on the Registrant’s behalf. Immediately prior to the Exchange, Mr. Evans owned 28,500,000 shares of Common Stock (post November 4, 2008 3-for-1 dividend distribution of the Common Stock and prior to his cancellation of 18,658,200 shares of Common Stock on the Closing Date) constituting 84.67% of the issued and outstanding Common Stock immediately prior to the Exchange.
The Company did not provide any compensation to Mr. Evans for his services as sole director during the fiscal year ended March 31, 2008. The Company may establish certain compensation plans (e.g. options, cash for attending meetings, etc.) with respect to Directors in the future.
Director Compensation
We did not provide any compensation to our Directors during the fiscal year ended March 31, 2009. We may establish certain compensation plans (e.g. options, cash for attending meetings, etc.) with respect to Directors in the future.
Additional Narrative Disclosure
Employment Agreements
There are currently no employment agreements by and between the Registrant and its employees. CCEC has a labor contract with each employee as required by law in the PRC. The labor contract mainly includes working content, contract period, working time, payment and other terms. A form of such labor contract is referenced hereto as Exhibit 10.2.
Benefit Plans
The Registrant has no stock option, retirement, pension or profit-sharing programs for the benefit of its directors, officers or other employees; however our Board may recommend the adoption of one or more such programs in the future.
In accordance with Chinese law, CCEC offers a welfare program pursuant to which it pays pension, accident, medical, birth, job and house allowance payments for all contract employees of CCEC.
ITEM 12.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth each person known by us to be the beneficial owner of five (5%) percent or more of our Common Stock, all directors individually and all directors and officers as a group as of June 28, 2009. Each person named below has sole voting and investment power with respect to the shares shown unless otherwise indicated.
(1)
Unless otherwise noted, each beneficial owner has the same address as the Registrant.
(2)
Applicable percentage of ownership is based on 50,000,000 shares of our Common Stock outstanding as of June 28, 2009 (post 3-for-1 dividend distribution of the Common Stock on November 4, 2008), together with securities exercisable or convertible into shares of Common Stock within sixty (60) days of June 28, 2009 for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and Insider trading regulations - percentage computation is for form purposes only.
(3)
Xu Kecheng may be considered to beneficially own 32,900,000 shares by virtue of his 100% ownership in Wisejoin Group Limited, which owns and controls 100% of Cheer Gold, which directly beneficially owns 32,900,000 shares of Common Stock.
ITEM 13.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
World Trophy’s Related Party Transactions
At March 31, 2007, the accounts payable - related party consisted of a $1,000 balance due to a former president and majority stockholder of the Registrant for the purchase of inventory. The payable was non-interest bearing and was paid during the fiscal year ended March 31, 2008.
In October 2006, a former president and majority stockholder of the Registrant loaned to the Registrant $2,000 in the form of a promissory note payable on demand. The note was unsecured and bore interest at 8% per annum. Accrued interest expense on the note at March 31, 2007 was $79. Interest expense incurred on the note was $3 and $79 for the years ended March 31, 2008 and 2007. The note and all accrued interest were repaid during the year ended March 31, 2008.
Exchange Agreement (Change of Control)
On November 14, 2008, World Trophy acquired all of the issued and outstanding capital stock of Fast More from the Stockholders in exchange for the issuance of an aggregate Thirty-Five Million (35,000,000) newly-issued shares of common stock of the Registrant to Cheer Gold and Floster (32,900,000 and 2,100,000 shares, respectively) pursuant to the terms of the Exchange Agreement. As a result of the Exchange, the Stockholders collectively beneficially own seventy percent (70%) of the voting capital stock of the Registrant (65.8% and 4.2% owned by Cheer Gold and Floster, respectively).
Chisen’s Related Party Transactions
Each of the following related party transactions represent unsecured advances which are interest-free and repayable on demand.
Prior to March 31, 2008, Chisen loaned to Zhejiang Changxing Ruilang Electronic Company Limited, a company which is controlled by a close family member of Mr. Xu Kecheng (“Ruilang Electronic”), approximately US$897,000 to help Ruiland Electronic settle liquidity shortages in order to develop a business relationship with Ruiland Electronic. This amount was repaid in full in April 2008. In turn, as of March 31, 2009, Ruilang Electronic has provided guarantees of approximately US$2,483,000 against certain short-term bank loans to Chisen by China Construction Bank Corporation (Changxing Branch) which is collateralized by land use rights owned by Ruilang Electronic.
Prior to March 31, 2008, Chisen loaned to Zhejiang Chisen Glass Company Limited, a company which is controlled by a close family member of Mr. Xu Kecheng (“Chisen Glass”), approximately US$178,000 to help Chisen Glass settle liquidity shortages in order to build a business relationship with Chisen Glass. In turn, as of March 31, 2009, Chisen Glass has provided guarantees of approximately US$4,821,000 against certain short-term bank loans made to Chisen by China Construction Bank Corporation (Changxing Branch) and Changxing Rural Cooperative Bank. Additionally, in April 2008, Chisen purchased a motor vehicle from Chisen Glass valued at approximately US$160,000. In May 2008, Chisen again loaned to Chisen Glass US$260,000 in order to help settle liquidity shortages. As of March 31, 2009, the amount currently outstanding was approximately US$278,000.
As of March 31, 2009, Chisen owed approximately US$195,000 to Ms. Zhou Fang Qin, the spouse of Mr. Xu Kecheng, in connection with an arrangement whereby two of Chisen’s major bank accounts are held under her name. For those customers of Chisen who choose to make settlements with Chisen through the remittance of funds, such funds are transferred to these bank accounts. Ms. Zhou will then transfer such funds to the Company’s own bank accounts. The purpose of such arrangement is to shorten the processing time of the remittance of funds for the sole benefit of the Company and no bank service fees are charged to either party under such arrangement.
As of March 31, 2008, Chisen borrowed approximately US$5,127,000 from Mr. Xu Kecheng for the purpose of settling Chisen’s liquidity shortages. The full amount was repaid in August 2008, October 2008, November 2008, December 2008 and January 2009 (in succession) and therefore as of March 31, 2009, the balance was US$0.
As of March 31, 2008, Chisen borrowed approximately US$912,000 from Changxing Chisen Xinguangyuan Co., Ltd., a company which is controlled by a close family member of Mr. Xu Kecheng (“Xinguangyuan”), for the purpose of settling Chisen’s liquidity shortages. The full amount was repaid as of April 2008.
As of March 31, 2008, Chisen had borrowed approximately US$163,000 from Changxing Nuo Wan Te Ke Co., Ltd., a company which is controlled by a close family member of Mr. Xu Kecheng, for the purpose of purchasing certain raw materials (glass products). The full amount was repaid in June 2008.
As of March 31, 2008 and 2009, Chisen borrowed US$586,000(equivalent to RMB 4,118,000) from Zhejiang Ai Ge Organism Products Company Limited, a company which is controlled by Mr. Xu Kecheng (“Ai Ge Organism”) to help Chisen settle liquidity shortages. As of March 31, 2009, the balance was US$602,000. No settlement was made by Chisen during the year ended March 31, 2009. The difference in amount between March 31, 2008 and March 31, 2009 is mainly attributable to the effect of the fluctuations in exchange.
As of March 31, 2009, Chisen Glass, Mr. Xu Kecheng and Ms. Zhou Fang Qin provided guarantees, in the aggregate, amounting to US$3,652,000 to secure certain notes payable of Chisen.
As of March 31, 2009, Xinguangyuan and Mr. Xu Kecheng provided guarantees, in the aggregate, of approximately US$8,765,000 and US$4,382,000, respectively, to secure certain short-term bank loans and notes payable of the Chisen.
Policies and Procedures for Related-Party Transactions
The Company did not have any policies or procedures for related party transactions for the fiscal year ended March 31, 2009.
Promoters and Certain Control Persons
None.
Director Independence
The following directors are independent: Dong Quanfeng, Jiang Yanfu, Gong Xiaoyan and Yun Hon Man. The following directors are not independent: Xu Kecheng, He Zhiwei and Liu Chuanjie.
ITEM 14.
ITEM 14.
Principal Accountant Fees and Services
Effective as of January 14, 2009, the Board of Directors of the Registrant dismissed Pritchett, Siler & Hardy, P.C. (“PS&H”) as the independent registered public accounting firm of the Registrant. The following is a summary of fees incurred for services rendered.
The firm of Mazars CPA Limited (“Mazars”) acts as our independent registered public accounting firm effective as of January 14, 2009. The following is a summary of fees incurred for services rendered.
Audit Fees
During the year ended March 31, 2009, the fees for our current principal accountant, Mazars, were $120,000 for the audit of our consolidated financial statements included in this Annual Report and reviews of Form 10-Q.
During the year ended March 31, 2009, the fees for our former principal accountant, PS&H, were $1,944 and $1,915 for quarterly reviews for the periods ended June 30, 2008 and September 30, 2008, respectively.
Audit-Related Fees
During the year ended March 31, 2009, our current principal accountant, Mazars, did not render assurance and related services reasonably related to the performance of the audit or review of financial statements.
Tax Fees
During the year ended March 31, 2009, our current principal accountant, Mazars, did not render assurance and related services reasonably related to the performance of the audit or review of financial statements.
All Other Fees
During the year ended March 31, 2009, there were no fees billed for products and services provided by the current principal accountant, Mazars, other than those set forth above.
Audit Committee Pre-Approval
The policy of the Audit Committee is to pre-approve all audit and non-audit services provided by the independent accountants. These services may include audit services, audit-related services, tax fees, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The Audit Committee has delegated pre-approval authority to certain committee members when expedition of services is necessary. The independent accountants and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent accountants in accordance with this pre-approval delegation, and the fees for the services performed to date. All of the services described above in this Item 14 were approved in advance by the Board of Directors during the fiscal year ended March 31, 2009, which, at the time of such approval, performed all of the functions of an Audit Committee in light of the subsequent formal creation of the Company’s existing Audit Committee and adoption of the Audit Committee’s Charter in January 2009.
PART IV
ITEM 15.
ITEM 15.
Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedules
The financial statements are set forth under Item 8 of this Annual Report. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
(b) Exhibits
EXHIBIT NO.
DESCRIPTION
LOCATION
2.1
Share Exchange Agreement, dated November 12, 2008, by and among World Trophy Outfitters, Inc., Fast More Limited, Cheer Gold Development Ltd. and Floster Investment Limited
Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
3.1
Articles of Incorporation of World Trophy Outfitters, Inc.
Incorporated by reference to Exhibit 3(i).1 to the Registrant’s Registration Statement on Form SB-2 as filed with the SEC on September 23,
3.2
Certificate of Amendment to Articles of Incorporation of Chisen Electric Corporation (name change)
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009
3.3
Amended and Restated Bylaws of Chisen Electric Corporation
Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009
3.4
Certificate of Incorporation of Fast More Limited, dated December 17,
Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
3.5
Memorandum and Articles of Association of Fast More Limited, dated as of December 17,
Incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
3.6
Certificate of Incorporation of Changxing Chisen Electric Co., Ltd.
Incorporated by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
3.7
Articles of Associations of Changxing Chisen Electric Co., Ltd.
Incorporated by reference to Exhibit 3.6 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.1
Agreement on Establishment of Changxing Chisen Physical Chemistry Power Research and Development Center, dated April 30, 2008
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.2
Form of Labor Contract
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12,
10.3
Lease Agreement, dated March 30, 2008, by and between Changxing Chisen Electric Co., Ltd. and Changxing Xiangyi Industrial Park Investment Co., Ltd.
Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.4
Contract For Loan on Guarantee, by and among Zhejiang Changxing Agricultural Cooperative Bank, Changxing Chisen Electric Co., Ltd. and Zhejiang Chisen Galss Co., Ltd.
Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.5
Renminbi Loan Contract, dated January 11, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Corporation (Changxing Branch)
Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.6
Renminbi Loan Contract, dated April 11, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Corporation (Changxing Branch)
Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.7
Renminbi Loan Contract, dated March 31, 2008, by and between Changxing Chisen Electric Co., Ltd. and Bank of China (Hong Kong) Limited Shanghan Branch
Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.8
Loan Contract (Short Term), dated August 15, 2008, by and between Changxing Chisen Electric Co., Ltd. and Bank of China Changxing Branch
Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.9
Acceptance Agreement, dated August 25, 2008, by and between Changxing Chisen Electric Co., Ltd. and Industrial Bank Co., Ltd. Hangzhou Branch
Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.10
Acceptance Agreement of Commercial Bill, dated September 18, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Bank Co., Ltd. Changxing Branch
Incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.11
Acceptance Agreement of Commercial Bill, dated July 29, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Changxing Branch Co., Ltd.
Incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.12
Acceptance Agreement of Commercial Bill, dated September 9, 2008, by and between Changxing Chisen Electric Co., Ltd. and China Construction Bank Changxing Branch Co., Ltd.
Incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.13
Components Purchase Contract, effective as of January 1, 2008, by and between Changxing Chisen Electric Co., Ltd. and Jiansu Xinri Electric Bicycle Co., Ltd.
Incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.14
Supply Contract, dated April 22, 2008, by and between Changxing Chisen Electric Co., Ltd. and Jiangsu Yadea Science & Technology Development Co., Ltd.
Incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12,
10.15
Sales Contract of Battery, dated November 10, 2007, by and between Changxing Chisen Electric Co., Ltd. and Hu Qinzhong, Yancheng Office
Incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
10.16
Sales Contract of Battery, dated February 17, 2008, by and between Changxing Chisen Electric Co., Ltd. and Song Chunwei
Incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
14.1
Code of Ethics
Incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009
Resignation of Mathew Evans, dated November 12, 2008
Incorporated by reference to Exhibit 17 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
List of Subsidiaries of World Trophy Outfitters, Inc.
Incorporated by reference to Exhibit 21 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
31.1
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Provided herewith
31.2
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Provided herewith
32.1
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002
Provided herewith
32.2
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002
Provided herewith
99.1
Audited Consolidated Financial Statements of Fast More Limited and its Subsidiary for the Fiscal Years Ended March 31, 2008 and 2007
Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
99.2
Unaudited Condensed and Consolidated Financial Statements of Fast More Limited and its Subsidiary for the Three (3) Months Ended June 30, 2008 and
Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
99.3
Unaudited Pro Forma Financial Statements of Fast More Limited for the three (3) month period ended June 30, 2008 and the two years ended March 31, 2008.
Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on November 12, 2008
99.4
Audit Committee Charter, dated January 15, 2009
Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4,
99.5
Compensation Committee Charter, dated January 15, 2009
Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4, 2009
99.6
Corporate Governance and Nominating Committee Charter, dated January 15,
Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on February 4,
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on our behalf by the undersigned, thereunto duly authorized.
In accordance with the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the dates indicated.
Signatures
Title
Date
/s/ Xu Kecheng
Chairman of the Board, Chief Executive Officer,
Name: Xu Kecheng
President, Principal Executive Officer
June 27, 2009
/s/ He Zhiwei
Chief Financial Officer, Principal Accounting and
Name: He Zhiwei
Financial Officer and Director
June 27, 2009
/s/ Liu Chuanjie
Name: Liu Chuanjie
Treasurer and Director
June 27, 2009
/s/ Dong Quanfeng
Name: Dong Quanfeng
Director
June 27, 2009
/s/ Jiang Yanfu
Name: Jiang Yanfu
Director
June 27, 2009
/s/ Gong Xiaoyan
Name: Gong Xiaoyan
Director
June 27, 2009
/s/ Yun Hon Man
Name: Yun Hon Man
Director
June 27, 2009
Audited Consolidated Financial Statements of
Chisen Electric Corporation
For the years ended March 31, 2009 and
Chisen Electric Corporation
Index to Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
Report of Independent Registered Public Accounting Firm
To the Audit Committee, Board of Directors and stockholders of:
Chisen Electric Corporation
We have audited the accompanying consolidated balance sheets of Chisen Electric Corporation ( “Chisen Electric”) and its subsidiaries (together with Chisen Electric, collectively referred to as the “Company”) as of March 31, 2009 and 2008, and the related consolidated statements of operations and other comprehensive income, changes in stockholders' equity and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
Mazars CPA Limited
Certified Public Accountants
Hong Kong
Date: June 26, 2009
Chisen Electric Corporation
Consolidated Statements of Operations and Other Comprehensive Income
For the years ended March 31, 2009 and 2008
The financial statements should be read in conjunction with the accompanying notes.
Chisen Electric Corporation
Consolidated Balance Sheets
As of March 31, 2009 and 2008
The financial statements should be read in conjunction with the accompanying notes.
Chisen Electric Corporation
Consolidated Balance Sheets
As of March 31, 2009 and 2008
The financial statements should be read in conjunction with the accompanying notes.
Chisen Electric Corporation
Consolidated Statements of Changes in Shareholders' Equity
For the years ended March 31, 2009 and 2008
The financial statements should be read in conjunction with the accompanying notes.
Chisen Electric Corporation
Consolidated Statements of Cash Flows
For the years ended March 31, 2009 and 2008
The financial statements should be read in conjunction with the accompanying notes.
Chisen Electric Corporation
Consolidated Statements of Cash Flows
For the years ended March 31, 2009 and 2008
The financial statements should be read in conjunction with the accompanying notes.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
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 Bulletin Board under the symbol “CIEC.OB”.
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.
Details of Chisen Electric’s subsidiaries as of March 31, 2009 are as follows:
*
This is a direct translation of the name in Chinese for identification purpose only and is not the official name in English.
On November 12, 2008, Chisen Electric entered into a Share Exchange Agreement (“Exchange”) with Fast More, Cheer Gold Development Limited (“Cheer Gold”) and Floster Investment Limited (Floster Investment Limited and together with Cheer Gold, the “Stockholders”) whereby Chisen Electric acquired all of the issued and outstanding common stock of Fast More from the Stockholders in exchange for the issuance by Chisen Electric to the Stockholders of an aggregate 35,000,000 newly-issued shares of Chisen Electric’s common stock, par value of US$0.001 each, representing 70% of Chisen Electric’s common stock issued and outstanding upon completion of the share exchange (the “Share Exchange Transaction”).
Prior to the closing of the Share Exchange Transaction, Chisen Electric implemented a 3 for 1 forward stock split, resulting to the increase of Chisen Electric’s common stock issued and outstanding from 11,219,400 shares to 33,658,200 shares, immediately before the completion of the Share Exchange Transaction.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
Upon the completion of the Share Exchange Transaction (including, but not limited to, the cancellation of the 18,658,200 shares of Chisen Electric’s common stock concurrent and simultaneous with the consummation of the Share Exchange Transaction) on November 12, 2008, there were 50,000,000 shares of Chisen Electric’s common stock issued and outstanding.
The acquisition by Chisen Electric of Fast More is deemed to be a reverse acquisition in accordance with generally accepted accounting principles. In accordance with the Accounting and Financial Reporting Interpretations and Guidance prepared by the staff of the U.S. Securities and Exchange Commission, Chisen Electric (the legal acquirer) is considered the accounting acquiree and Fast More (the legal acquiree) is considered the accounting acquirer. The consolidated financial statements of the consolidated entity will in substance be those of Fast More, with the assets and liabilities, and revenues and expenses, of Chisen Electric being included effective from the date of completion of Share Exchange Transaction. Chisen Electric is deemed to be a continuation of business of Fast More. The outstanding common stock of Chisen Electric prior to the Share Exchange Transaction will be accounting for at their net book value and no goodwill will be recognized.
In order to rationalize the corporate structure and prepare for the Share Exchange Transaction, Fast More and Changxing Chisen (collectively referred to as “the Fast More Group”) underwent a reorganization (“Reorganization”). On February 16, 2008, Fast More acquired the 51%, 9% and 40% equity interest in Changxing Chisen from Mr. Xu Kecheng, Mr. Xu Keyong and BEME International Co., Limited at a consideration of RMB6,502,500 (equivalent to USD926,000), RMB1,147,500 (equivalent to USD164,000) and RMB5,100,000 (equivalent to USD726,000) respectively. Upon the completion of the transactions, Changxing Chisen became a wholly-owned subsidiary of Fast More.
Since the ultimate beneficial owner of the companies now comprising the Fast More Group was, all the time prior to the completion of the Reorganization, Mr. Xu Ke Cheng, the ownership transfer transaction was accounted for as a transfer of entities under common control in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”. Hence, the consolidation has been accounted for at historical cost and prepared on the basis as if the Reorganization had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting principles
The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”).
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.
Revenue recognition
Operating revenue represents sale of goods at invoiced value to customers, net of returns, discounts and value-added tax (“VAT”), and is recognized when goods are delivered to customers, the significant risks and rewards of ownership of goods have been transferred to customers, the sales price to the customers is fixed or determinable and the collectability of consideration is reasonably assured.
Costs related to shipping and handling are included in selling, marketing and distribution expenses.
Segmental information
During the years ended March 31, 2009 and 2008, all revenue of the Company represented income from sales of sealed lead-acid batteries and therefore no financial information by business segment is presented. Furthermore, as all income is derived from the PRC, no geographical segment is presented.
Research and development
All costs of research and development activities are generally expensed as incurred. Research and development costs were US$117,000 and US$34,000 for the years ended March 31, 2009 and 2008, respectively.
Advertising and promotion costs
Advertising and promotion costs are expensed as sales, marketing and distribution costs as incurred. Advertising costs were US$389,000 and US$319,000 for the years ended March 31, 2009 and 2008, respectively.
Retirement plan costs
Contributions to defined contribution retirement schemes are charged to 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$130,000 and US$93,000, for the years ended March 31, 2009 and 2008, respectively.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
The Company provides for income taxes using the liability method. Under the liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current period.
A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax rate changes are reflected in the computation of the income tax provision during the period such changes are enacted.
Comprehensive income
SFAS No. 130, "Reporting Comprehensive Income", requires the presentation of comprehensive income, in addition to the existing statements of operations. Comprehensive income is defined as the change in equity during the year from transactions and other events, excluding the changes resulting from investments by owners and distributions to owners, and is not included in the computation of income tax expense or benefit. Accumulated comprehensive income consists of changes in unrealized gains and losses on foreign currency translation.
Available-for-sale financial assets
The Company’s available-for-sale financial assets consist of investment in unlisted equity securities and are recorded at cost.
The Company periodically assesses whether its investment in non-marketable equity securities are impaired and if any impairment is other than temporary. Factors considered in assessing whether an impairment is other than temporary include the credit quality of the investment, the duration of the impairment, the Company’s ability and intent to hold the investment until recovery and overall economic conditions. A decline in value of these securities below cost that is deemed to be other than temporary results in an impairment charge to earnings that reduces the carrying amount of the securities to fair value establishing a new cost basis.
Property, plant and equipment (“PPE”) and long-term land lease prepayments
PPE are stated at cost less accumulated depreciation, and include expenditure that substantially increases the useful lives of existing assets.
The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance, overhaul and minor renewals and betterments, are normally charged to operating expenses in the period in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets, the expenditure is capitalized.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment (“PPE”) and long-term land lease prepayments (Continued)
Depreciation is provided, on a straight-line basis, to write off the cost less accumulated impairment losses of each PPE item at rates based on their estimated useful lives from the date on which they become fully operational and after taking into account their estimated residual values as follows:
Buildings
years
Furniture, fixtures and office equipment
years
Motor vehicles
years
Plant and machinery
years
When assets are sold or retired, their costs and accumulated depreciation are eliminated from the consolidated financial statements and any gain or loss resulting from their disposal is recognized in the period of disposition as an element of other income.
Construction-in-progress consists of factories and office buildings under construction and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
Long-term land lease prepayments are amortized on a straight-line basis over the term of lease.
Impairment of long-lived assets
Long-lived assets are reviewed at least annually for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets and recorded as a reduction of original costs. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Inventories
Inventories are stated at the lower of cost and market. Cost, which comprises all costs of purchase and, where applicable, costs of conversion and other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average costing method. The Company estimates the market price of its inventories with reference to the net realizable value based upon current market conditions and historical experience. Estimated losses on inventories represent reserves for obsolescence, excess quantities, irregulars and slow moving inventory, and which are charged to cost of goods sold.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts receivables and allowance for doubtful accounts
The allowance for the risk of non-collection of trade accounts receivable takes into account credit-risk concentration. Collective debt risk is assessed based on average historical losses and specific circumstances such as serious adverse economic conditions. The Company’s estimate is based on a variety of factors, including historical collection experience, existing economic conditions and a review of the current status of the receivable. Accounts receivable are presented net of an allowance for doubtful accounts of US$6,000 and US$6,000 as of March 31, 2009 and 2008, respectively.
Cash and cash equivalents
Cash represents cash on hand and deposits with financial institutions which are repayable on demand. Cash equivalents represent short-term, highly liquid investments purchased with an original maturity of three months or less, which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
Foreign currency translation
Items included in the financial statements of the Company’s subsidiary are measured using Renminbi (“RMB”), the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in United States Dollars (“US$”), which is the Company’s presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.
On consolidation, the results and financial position of all the group entities that have a functional currency different from the presentation currency are translated as follows:
(a)
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b)
income and expenses for each statement of operations are translated at average exchange rates;
(c)
all resulting exchange differences are recognized as a separate component of equity.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments
The estimated fair values for financial instruments under SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision.
The Company’s financial instruments include restricted bank balances, other financial assets, accounts and other receivables/payables, prepayments and short-term bank borrowings. The management has estimated that the carrying amount approximates their fair value due to their short-term nature. The fair value of the Company’s unearned portion of government grants are estimated based on the current rates offered to the Company for debt of similar terms and maturities. The fair value of these non-current financial instruments was not materially different from their carrying value as of March 31, 2009 and 2008.
Warranty
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:
Government subsidies
Government subsidies are recognized as income over the periods necessary to match them with the related costs. Subsidies related to expense items are recognized in the same period as those expenses are charged in the consolidated statements of operations and other comprehensive income and are reported separately as other income.
Operating leases
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rental payables under operating leases are recognized as expenses on the straight-line basis over the lease term.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of estimates
The preparation of the consolidated financial statements in conformity with USGAAP requires the management to make 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 reported periods. The management evaluates these estimates and judgments on an ongoing basis and bases their estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that they believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies.
Actual amounts could differ from those estimates. Estimates are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation and amortization, inventory allowance, taxes and contingencies.
Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Earnings per share
Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common stocks outstanding during the year. Diluted 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 the years ended March 31, 2009 and 2008.
Upon the completion of the Share Exchange Transaction, the number of Chisen Electric’s common stock issued and outstanding, taken into account of the 3 for 1 forward split as detailed in note 1 was increased to 50,000,000 shares and was applied retrospectively for the calculation of earnings per share.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Adoption of recently issued accounting standards
On September 12, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSB”) No. 133-1 and FASB Interpretation (“FIN”) 45-4, Disclosures about credit derivatives and Certain Guarantees - An amendment of Statements of Financial Accounting Standards (“SFAS”) 133 and FIN 45; and Clarification of the Effective Date of SFAS 161. FSP 13-1 and FIN 45-4 expand the disclosure requirement of credit derivatives and guarantees and are effective for reporting periods (annual and interim) ending after November 15, 2008. The adoption of these statements is not expected to have a material effect on the Company’s financial statements.
On October 10, 2008, the FASB issued a FASB staff position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP 157-3), clarifies the application of SFAS 157 in a market that is not active. Besides, the FASB also issued a FASB Staff Position No. FAS 157-2, Effective Date of FAS 13 Statement No.157, amending SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis at least annually, until fiscal years beginning after November 15, 2008, and interim period within these fiscal years. The adoption of these new pronouncements is not expected to have a material impact on the Company’s financial statements.
In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46(R)-8”). FSP FAS 140-4 and FIN 46(R)-8 amends FAS 140 and FIN 46(R) to require additional disclosures regarding transfers of financial assets and interest in variable interest entities. FSP FAS 140-4 and FIN 46(R)-8 is effective for financial statements issued after December 15, 2008. The adoption of the provisions of FSP FAS 140-4 and FIN 46(R)-8 is not expected to change the Company’s current accounting practices and disclosures.
In April 2009, the FASB issued three FSPs that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. FSP FAS 115-2 and FAS 124-2 establishes a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1 expands the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to interim periods. All of these FSPs are effective for the period beginning April 1, 2009. Management is assessing the potential impact that the adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 may have on the Company’s financial statements. FSP FAS 107-1 and APB 28-1 will result in increased disclosures in the interim periods.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
3.
OPERATING RISKS
(a)
Concentration of major customers and suppliers
Accounts receivable related to the Company’s major customers comprised 85% and 75% of all account receivables as of March 31, 2009 and 2008, respectively.
Accounts payable related to the Company’s major suppliers comprised 24% and 15% of all account payables as of March 31, 2009 and 2008, respectively.
Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties failed to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The major concentrations of credit risk arise from the Company’s accounts receivable. Even though the Company has major concentrations, it does not consider itself exposed to significant risk with regards to the related receivables.
(b)
Country risks
The Company’s major subsidiary has operation conducted in the PRC. Accordingly, its business, financial condition and result of operation maybe influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC economy.
The operation in the PRC is subject to special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange and remittance restrictions. The Company’s results maybe adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, inter alia. The management does not believe these risks to be significant. There can be no assurance, however, those changes in political and other conditions will not result in any adverse impact.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
3.
OPERATING RISKS (CONTINUED)
(c)
Cash and time deposits
The Company mainly maintains its cash balances with various banks located in the PRC. In common with local practice, such amounts are not insured or otherwise protected should the financial institutions be unable to meet their liabilities. There has been no history of credit losses. There are neither material commitment fees nor compensating balance requirements for any outstanding loans of the Company.
4.
INCOME TAXES
Chisen Electric had a net operating loss carry-forward for income tax reporting purposes that might be offset against future taxable income. These net operating loss carry-forwards are severely limited when Chisen Electric experiences a change in control. Therefore, following the Exchange as mentioned in Note 1 in November 2008, the amount available to offset future taxable income is limited. 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 year.
Changxing Chisen is subject to state and local enterprise income taxes in the PRC at a standard rate of 30% and 3%, respectively, up to December 31, 2007.
In March 2007, the National People’s Congress enacted the New Enterprise Income Tax (“EIT”) Law, which became effective on January 1, 2008. In December 2007, the State Council promulgated the “Implementation Regulations to the EIT Law and the Notice to Enterprise Income Tax Transition Incentive Policy”, which also became effective on January 1, 2008.
Under those laws and regulations, a unified income tax rate of 25% will apply to all domestic and foreign invested enterprises, unless they qualify for special tax benefits under certain limited exceptions. The applicable income tax for Changxing Chisen will be 25% for year 2008 onwards. Since the deferred tax assets and deferred tax liabilities shall be measured at the tax rates that are expected to apply to the periods when the asset is realized or the liability is settled, the change in the applicable tax rate will affect the determination of the carrying values of deferred tax assets and deferred tax liabilities of Changxing Chisen. The Company recognizes the deferred tax balances based on their best estimation on the effects of the New EIT Law and will continue to evaluate the impact on its operating results and financial positions of future periods as more detailed rules and other related regulations are announced.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
4.
INCOME TAXES (CONTINUED)
Changxing Chisen received official designation by the local tax authority as a foreign invested enterprise engaged in manufacturing activities and is confirmed by the local tax authority that it is exempted from enterprise income tax for two years commencing from the first profitable year in 2006, followed by a 50% reduction for the next three years.
Dividends payable by a foreign invested enterprise to its foreign investors in Hong Kong are subject to a 5% withholding tax.
(a)
Income tax expenses are comprised of the following:
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”) issued by the FASB 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 FIN 48, 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 taxing 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.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
4.
INCOME TAXES (CONTINUED)
(a)
(Continued)
Subject to the provision of FIN 48, the Company has analyzed its filing positions in all of the domestic and foreign jurisdictions where it is required to file income tax returns. As of March 31, 2009 and 2008, the Company has identified the following jurisdictions as “major” tax jurisdictions, as defined, in which it is required to file income tax returns: 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 March 31, 2009 and 2008, the Company had no unrecognized tax benefits or accruals for the potential payment or 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 the years ended March 31, 2009 and 2008, no interest or penalties were recorded.
(b)
Reconciliation from the expected income tax expenses calculated with reference to the statutory tax rate in the PRC of 25% (2008: 31%) is as follows:
(c)
Components of net deferred tax liabilities were as follows:
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
5.
RESTRICTED BANK BALANCES
Restricted bank balances as of March 31, 2009 and 2008 represented time deposits with original maturity between three and twelve months. As of March 31, 2009, all restricted bank balances were pledged for the issue of notes payable as disclosed in Note 9 below. As of March 31, 2008, all restricted bank balances were pledged to secure bills financing as set out in Note 10 below.
6.
OTHER FINANCIAL ASSETS
Other financial assets represented notes receivable from customers for the settlement of accounts receivable balances. As of March 31, 2009 and 2008, all notes receivable were guaranteed by established banks in the PRC and had maturities of 6 months or less from the date of issue. The fair value of the notes receivable approximated their carrying value.
7.
INVENTORIES
Inventories consisted of the following:
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
8.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is summarized as follows:
Depreciation expenses was US$451,000 and US$258,000 for the years ended March 31, 2009 and 2008, respectively.
The Company has pledged certain buildings and machineries as collaterals against general banking facilities granted to Changxing Chisen. Details of which are disclosed in Note 10.
9.
NOTES PAYABLE
All notes payable issued by the Company were interest-free, guaranteed by banks, repayable within six months from date of issue and collateralized by restricted bank balances as set out in Note 5 and certain land lease prepayments and buildings as set out in Note 10(i) below.
In addition, various parties have issued guarantee against these notes payable as follows:
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
10.
SHORT-TERM BANK BORROWINGS
Short-term bank borrowings comprise of the followings:
(i)
Short-term bank loans
Short-term bank loans represent amounts due to various banks which are due within 12 months, and these loans can normally be renewed with the banks upon expiry/maturity.
The loans are collateralized by land lease prepayments and buildings 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 6.55% and 7.76% as of March 31, 2009 and 2008, respectively.
(ii)
Bills financing
Bills financing represent amounts due to various banks which are repayable within six months from the date of issue. At March 31, 2009, the Company did not have any outstanding bills financing balances.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
11.
GOVERNMENT SUBSIDIES
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$47,000 was credited to the statement of operations for the year ended March 31, 2009.
12.
DISTRIBUTION OF INCOME
As stipulated by the relevant laws and regulations for Sino-foreign joint enterprises in the PRC, Changxing Chisen is required to maintain certain statutory reserves, which include a general reserve fund, an enterprise expansion fund and a staff welfare and incentive bonus fund. The statutory reserves are to be appropriated from statutory net income as stipulated by statute or by the board of directors of respective subsidiaries and recorded as a component of shareholders' equity.
However, upon completion of the Reorganization as detailed in Note 1, Changxing Chisen became wholly owned foreign-invested enterprises when all of their equity interest have been acquired by the Company and are required by relevant laws and regulation to transfer at least 10% of their after-tax profit determined in accordance with the PRC accounting rules and regulations to a statutory surplus reserve until such reserve balance reaches 50% of Changxing Chisen’s registered capital.
For the year ended March 31, 2008, the Company transferred US$71,000 to the statutory reserve. The reserve balance had already reached 50% of Changxing Chisen’s registered capital as at March 31, 2008. On December 31, 2008, Changxing Chisen’s registered capital was increased to US$ 7,273,000 as a result of the capital injection by Fast More. Accordingly, the Company transferred US$1,032,000 out of the after-tax profit to the statutory reserve for the year ended March 31, 2009.
The statutory surplus reserve can only be utilized to offset prior years' losses or for capitalization as paid-in capital. No distribution of the remaining reserves shall be made other than upon liquidation of Changxing Chisen.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
13.
RELATED PARTY TRANSACTIONS
(a)
Names and relationship of related parties:
Name of related party
Existing relationships with the Company
Mr. Xu Kecheng
Director and controlling stockholder of Chisen Electric
Zhejiang Chisen Glass Company Limited (“Chisen Glass”)*
A company controlled by a close family member of Mr. Xu Kecheng
Mr. Xu Keyong
A close family member of Mr. Xu Kecheng
Ms. Zhou Fang Qin
Spouse of Mr. Xu Kecheng
Changxing Chisen Xinguangyuan Company Limited (“Xinguangyuan”)*
A company controlled by a close family member of Mr. Xu Kecheng
Zhejiang Ai Ge Organism Products Company Limited (“Ai Ge Organism”)*
A company controlled by Mr. Xu Kecheng
Zhejiang Changxing Nuo Wan Te Ke Glass Company Limited (“Nuo Wan Te Ke”)*
A company controlled by a close family member of Mr. Xu Kecheng
Zhejiang Changxing Ruilang Electronic Company Limited (“Ruilang Electronic”)*
A company controlled by a close family member of Mr. Xu Kecheng
*
These are direct translations of the name in Chinese for identification purpose only and are not official names in English.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
13.
RELATED PARTY TRANSACTIONS (CONTINUED)
(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:
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
13.
RELATED PARTY TRANSACTIONS (CONTINUED)
(d)
Other arrangements:
．
As of March 31, 2009, US$4,821,000 of the Company’s short-term bank loans was collateralized by a guarantee provided by Chisen Glass.
．
As of March 31, 2009, US$2,483,000 of the Company’s short-term bank loans was collateralized by land use rights owned by Ruilang Electronic.
．
As of March 31, 2009, Chisen Glass, Mr. Xu Kecheng and Ms. Zhou Fang Qin provided guarantees, in the aggregate, amounting to US$3,652,000 to secure the notes payable of the Company.
．
As of March 31, 2009, Xinguangyuan and Mr. Xu Kecheng provided guarantees, in aggregate, amounting to US$8,765,000 and US$4,382,000 to secure the short-term bank loans and notes payable of the Company, respectively.
14.
COMMITMENTS AND CONTINGENCIES
(a)
Operating lease commitments
The Company leases certain office premises under non-cancelable operating leases. Rental expenses under operating leases for the year ended March 31, 2009 was US$206,000 (2008: US$18,000).
The following table summarizes the approximate future minimum rental payments under non-cancelable operating leases in effect as of March 31, 2009 and 2008:
(b)
Capital commitments
As of March 31, 2009 and 2008, the Company had capital expenditure commitments for construction projects and purchase of machineries of approximately US$423,000 and US$26,000, respectively.
Chisen Electric Corporation
Notes to and Forming Part of Consolidated Financial Statements
For the years ended March 31, 2009 and 2008
15.
APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements were approved by the Audit Committee of the board of directors of Chisen Electric on June 25, 2009.