Chisen Electric (OTC BB:CIECD)

Chisen Electric Corporation

Consolidated Statements of Operations and

Other Comprehensive Income

For the years ended March 31, 2012 and 2011

 

				Years ended March 31
				2012				2011
		Note		US$’000				US$’000
Operating revenues:
Net sales to third parties					119,563				243,814
Cost of sales					(101,716	)			(214,456	)
Gross income					17,847				29,358
Operating expenses:
Sales, marketing and distribution					(11,629	)			(10,882	)
General and administrative					(9,295	)			(4,138	)
Operating (loss) income					(3,077	)			14,338
Other income, net					860				1,782
Impairment loss on property, plant and equipment		19			(2,857	)			-
Loss on disposal of scrap inventories		20			(13,896	)			(2,328	)
Interest income					1,766				483
Interest expense					(8,812	)			(3,359	)
(Loss) Income before income taxes					(26,016	)			10,916
Income taxes expense		4			(1,047	)			(2,447	)
(Loss) Income before extraordinary item					(27,063	)			8,469
Extraordinary gain (less applicable income taxes of US$0)		18			13,117				2,605
Extraordinary loss (less applicable income taxes of US$0)		18			(1,848	)			-
Net (loss) income including non-controlling interest					(15,794	)			11,074
Less: Net loss (income) attributable to non-controlling interest					52				(8	)
Net (loss) income attributable to CIEC common stockholders					(15,742	)			11,066
Amounts attributable to CIEC common stockholders
(Loss) Income before extraordinary item					(27,011	)			8,461
Extraordinary gain (less applicable income taxes of US$0)		18			13,117				2,605
Extraordinary loss (less applicable income taxes of US$0)		18			(1,848	)			-
Net (loss) income attributable to CIEC common stockholders					(15,742	)			11,066
Other comprehensive income
Foreign currency translation adjustment					1,465				1,437
Comprehensive (loss) income					(14,277	)			12,503

 

 

						Three months ended  December 31								Nine months ended December 31
						2011				2010				2011				2010
		Note				US$’000				US$’000				US$’000				US$’000
Operating revenues:
Net sales to third parties							35,160				67,670				102,900				194,712
Cost of sales							(28,073	)			(59,200	)			(87,315	)			(170,460	)
Gross income							7,087				8,470				15,585				24,252
Operating expenses:
Sales, marketing and distribution							(2,390	)			(2,560	)			(7,031	)			(8,111	)
General and administrative							(2,812	)			(987	)			(6,597	)			(2,628	)
Operating income							1,885				4,923				1,957				13,513
Other income, net							418				276				619				889
Loss on disposal of scrap inventories							(6,092	)			(2,307	)			(6,092	)			(2,307	)
Provision for inventories							(5,431	)			-				(5,431	)			-
Interest income							479				117				1,184				315
Interest expense							(2,009	)			(940	)			(4,846	)			(2,231	)
(Loss) Income before income taxes							(10,750	)			2,069				(12,609	)			10,179
Income taxes benefit (expense)			4				434				(1,260	)			352				(2,421	)
(Loss) Income before extraordinary items							(10,316	)			809				(12,257	)			7,758
Extraordinary gain (less applicable income taxes of US$0)			19(a)				-				1,738				13,117				1,738
Extraordinary loss (less applicable income taxes of US$0)			19(b)				-				-				(1,848	)			-
Net (loss) income including non-controlling interests							(10,316	)			2,547				(988	)			9,496
Less: Net income attributable to non-controlling interests							(53	)			-				(64	)			-
Net (loss) income attributable to CIEC common stockholders							(10,369	)			2,547				(1,052	)			9,496
Amounts attributable to CIEC common stockholders
(Loss) Income before extraordinary item							(10,369	)			809				(12,321	)			7,758
Extraordinary gain							-				1,738				13,117				1,738
Extraordinary loss							-				-				(1,848	)			-
Net (loss) income attributable to CIEC common stockholders							(10,369	)			2,547				(1,052	)			9,496
Other comprehensive income
Foreign currency translation adjustment							256				561				1,297				1,115
Comprehensive (loss) income							(10,113	)			3,108				245				10,611

Weighted average number of common stock outstanding - basic and diluted							500,000,000				500,000,000				500,000,000				500,000,000
							US$				US$				US$				US$
Net (loss) income per share of common stock outstanding before extraordinary items - basic and diluted							(0.021	)			0.002				(0.025	)			0.016
Net (loss) income per share of common stock outstanding after extraordinary items - basic and diluted							(0.021	)			0.005				(0.002	)			0.019

   This decrease was mainly attributable to the decrease of production activities resulting from an unexpected tightening of an environmental protection policy enforced on all lead-acid battery manufacturers implemented by the PRC Central Government during the period ended December 31, 2011. Pursuant to the tightened policy, a 500 meter isolated area must be maintained between production facilities and residential areas. All production facilities must have complied with this policy on or before July 15, 2011. Our production facilities at Plant B at Jing’er Road are not capable of being in full compliance with the tightened environmental policy and the residential area near Plant B shows no signs of slowing its expansion towards Plant B, which is out of the Company’s control. Our management decided to gradually scale down the operations of Plant B and to relocate such production facilities to Plant D, apart from recharging and packing activities, before December 31, 2011. During the three months ended December 31, 2011, we were advised by the government that our recharging and packing activities in Plant B may continue through October 31, 2012. Although our production capacities gradually recovered, our major competitors had temporarily eroded our market share during the reporting period. As such, our revenue decreased significantly.

Earnings per share		3
Weight average number of common stock outstanding
- basic and diluted						50,000,000				50,000,000				50,000,000				50,000,000
					US$				US$				US$				US$
Net income (loss) per share of common stock outstanding before extraordinary items
- basic and diluted						0.02				0.11				(0.04	)			0.14
Net income per share of common stock outstanding after extraordinary items
- basic and diluted						0.02				0.11				0.19				0.14

Revenues decreased by US$55,221,000, or 43.47%, to US$71,821,000 for the six months ended September 30, 2011 compared with US$127,042,000 for the six months ended September 30, 2010. This decrease was mainly attributable to the decrease of production activities resulting from an unexpected tightening of an environmental protection policy enforced on all lead-acid battery manufacturers implemented by the PRC Central Government during the period ended June 30, 2011. Pursuant to the tightened policy, a 500 meter isolated area must be maintained between production facilities and residential areas. All production facilities must comply with this policy on or before July 15, 2011. Our production facilities at Plant B at Jing’er Road are not in compliance with the tightened environmental policy and the residential area nearby Plant B shows no signs of slowing its expansion towards Plant B, which is out of the Company’s control. Our management decided to gradually scale down the operations of Plant B and to relocate such production facilities to Plant D before December 31, 2011. However, we are permitted by the government to continue to conduct our battery charging activities and packing activities until December 31, 2011.

Company finally confirms our findings:

Third quarter 2011 revenues decreased by US$55,221,000, or 43.47%, to US$71,821,000 for the six months ended September 30, 2011 compared with US$127,042,000 for the six months ended September 30, 2010. This decrease was mainly attributable to the decrease of production activities resulting from an unexpected tightening of an environmental protection policy enforced on all lead-acid battery manufacturers implemented by the PRC Central Government during the period ended June 30, 2011. Pursuant to the tightened policy, a 500 meter isolated area must be maintained between production facilities and residential areas. All production facilities must comply with this policy on or before July 15, 2011. Our production facilities at Plant B at Jing’er Road are not in compliance with the tightened environmental policy and the residential area nearby Plant B shows no signs of slowing its expansion towards Plant B, which is out of the Company’s control. Our management decided to gradually scale down the operations of Plant B and to relocate such production facilities to Plant D before December 31, 2011. However, we are permitted by the government to continue to conduct our battery charging activities and packing activities until December 31, 2011.

Massive dilution in the cards

On September 6, 2010, Chisen Electric Jiangsu Company Limited (“CEJC”), a subsidiary of Changxing Chisen Electric Company., Ltd. (“CCEC”), the chief operating subsidiary of Chisen Electric Corporation, a Nevada corporation (the “Registrant”) entered into a Project Investment Agreement and a Supplemental Agreement to the Project Investment Agreement (together, the “Agreement”) with the Jiangsu Xuyi Economic Development Zone Administrative Committee (the “Committee”). Pursuant to the Agreement, CEJC shall invest, in the aggregate, approximately RMB1.2 billion (approximately $177 million) in three stages to establish the Chisen Circular Economy Industry Park for the manufacturing of lead acid and lithium-ion batteries and other related products in the Jiangsu Xuyi Economic Development Zone. In the first stage, CEJC shall invest approximately RMB422 million (approximately $62 million), including approximately RMB150 million (approximately $22 million) in fixed assets. CEJC shall commence construction after obtaining the approval certificate of construction plan and within 20 days from the date of the Agreement. All construction shall be completed on or before December 31, 2011.

• Company has not disclosed the name of its customers:

Sales								Trade Receivables
Major Customers		Fiscal year ended March 31, 2011				Fiscal year ended March 31, 2010				Fiscal year ended March 31, 2011				Fiscal year ended March 31, 2010
										$’000				$’000
COMPANY X			18.83	%			21.08	%		$	29,603			$	26,283
COMPANY Y			18.82	%			19.08	%		$	17,627			$	14,005
COMPANY Z			12.40	%			6.77	%		$	3,757			$	2,747

• Company has not disclosed that its facilities have been temporarily shut down by the government.  On the contrary, the company has claimed that it is in compliance with regulations:

We believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, it is possible that future environmental legislation may be enacted or current environmental legislation may be interpreted to create environmental liability with respect to our other facilities, operations, or products.

 As of the date of this report, we have not experienced any difficulty in raising funds by bank loans, including the renewal of existing short term 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. However, we will need new sources of financing and additional capital in order to implement our current business strategy of expansion of our production facilities in Changxing County (Zhejiang Province) and in Jiangsu Province. Although we currently have the aforementioned short term loans and notes payable at our disposal, many of such short term loans and notes payable expire in the next three months, and there is no assurance that we will obtain any new loans or notes payable, or that such short term loans and notes payable set forth above will be renewed or that the terms of any renewals of such short term loans or notes payable will be on terms that are as favorable as our current instruments.

We generally finance our operations through operating profit and borrowings from banks. During the reporting period, we arranged a number of bank loans to satisfy our financing needs. As of the date of this 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.