PINX:CLTT Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012



 

United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

 
For the quarterly period ended March 31, 2012
 
Commission File No: 000-53263

CHINA LITHIUM TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

 
NEVADA
41-1559888
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer ID No)

51-20 Bowne Street, Flushing, NY 11355
(Address of principal executive office) (Zip Code)

Registrant's telephone number: 718-690-2662

_______________________________________
Former name, former address and former fiscal year,
(if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x    No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)   Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
   
(Do not check if a smaller
reporting company)
 

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

The number of shares of common stock, $0.001 par value per share, outstanding as of May 13, 2012 was 16,659,811.
 
 
 
 

 
 
 
 
TABLE OF CONTENTS
Page
     
 
PART I - FINANCIAL INFORMATION
 
     
Item 1:
Financial Statements
1
     
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations
29
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
  36
     
Item 4:
Controls and Procedures
36
     
PART II - OTHER INFORMATION
     
Item 1:
Legal Proceedings
37
     
Item 1A:
Risk Factors
37
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
37
     
Item 3:
Defaults Upon Senior Securities
37
     
Item 4:
Mine Safety Disclosures
37
     
Item 5:
Other Information
37
     
Item 6:
Exhibits
37

 
 

 
 

 

 
PART I - FINANCIAL INFORMATION
 
 CHINA LITHIUM TECHNOLOGIES, INC
 
     FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
 


                   
PAGE
CONSOLIDATED FINANCIAL STATEMENTS:
     
                     
 
CONSOLIDATED BALANCE SHEETS
     
2 & 3
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
4
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
5
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
6 & 7
                     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
8 - 28

 
 

 
 
1

 
 CHINA LITHIUM TECHNOLOGIES, INC.
 
CONSOLIDATED BALANCE SHEETS
 

ASSETS
 
March 31,
2012
   
June 30,
2011
 
   
(Unaudited)
       
Current Assets:
           
Cash and Cash Equivalents
  $ 2,473,294     $ 2,649,523  
Accounts Receivable
    6,110,036       5,612,622  
Other Accounts Receivable
    57,451       54,413  
Advance to Suppliers
    33,142       29,180  
Inventories
    1,953,861       972,867  
Prepaid Expenses
    814,115       417,133  
                 
Total Current Assets
    11,441,899       9,735,739  
                 
Property, Plant and Equipment, net
    710,956       777,732  
Patent and Other Intangibles, net
    60,794       68,396  
                 
Total Non-current Assets, Net
    771,749       846,128  
                 
Total Assets
  $ 12,213,648     $ 10,581,867  
 
 
" Continued on next page"
 


 
2

 
 CHINA LITHIUM TECHNOLOGIES, INC.
 
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY
 
March 31,
2012
   
June 30,
2011
 
   
(Unaudited)
       
Current Liabilities:
           
Accounts Payable
    660,426       870,204  
Advance from Customers
    3,228       3,159  
Payroll Payable
    115,469       79,878  
Taxes Payable
    215,148       438,532  
Other Accounts Payable
    14,236       2,044  
Accrued Expenses
    11,400       71,089  
Loans from Shareholders
    375,298       283,638  
Short-term Loans
    80,000       80,000  
Warranty Accrual
    291,347       198,611  
                 
Total Current Liabilities     1,766,553       2,027,155  
                 
Total Liabilities     1,766,553       2,027,155  
                 
Stockholders' Equity:
               
Preferred Stock, par value $0.001, 20,000,000 shares authorized; 0 share issued and outstanding as of March 31, 2012 and June 30, 2011
    -       -  
Common Stock, par value $0.001, 780,000,000 shares authorized;1,050,000 unvested restricted stock award, as of March 31, 2012  and June 30, 2011, respectively
    16,659       21,659  
Additional Paid in Capital
    1,800,563       1,532,021  
Reserved Funds
    1,043,916       1,043,916  
Retained Earnings
    6,637,828       5,369,454  
Accumulated Other Comprehensive Income
    948,128       587,661  
                 
Total Stockholders' Equity     10,447,095       8,554,712  
                 
Total Liabilities and Stockholders' Equity    $  12,213,648       $ 10,581,867   

 
"The accompanying notes are an integral part of these financial statements"
 

 
3

 
 CHINA LITHIUM TECHNOLOGIES, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
(UNAUDITED)
 
 
     
For the Three Months Ended
March 31,
     
For the Nine Months Ended
March 31,
 
     
2012
     
2011
     
2012
     
2011
 
             
(Restated)
             
(Restated)
 
                                 
Revenues
  $ 3,397,162     $ 3,361,885     $ 10,888,246     $ 11,334,652  
Cost of Goods Sold
    2,121,209       2,070,107       6,557,893       7,237,284  
                                 
Gross Profit
    1,275,953       1,291,778       4,330,353       4,097,368  
                                 
Operating Expenses:
                               
Manufacturing Expenses
    108,324       64,525       323,059       181,359  
R & D Expenses
    133,335       28,326       373,147       68,321  
Sales Expenses
    170,960       278,342       465,115       663,079  
General and Administrative Expenses
    428,038       610,516       1,376,321       1,659,122  
                                 
Total Operating Expenses
    840,657       981,709       2,537,642       2,571,880  
                                 
Income from Operations
    435,296       310,069       1,792,711       1,525,488  
                                 
Other Income (Expenses):
                               
Interest Income (Expense), net
    6,001       7,722       15,367       19,352  
Other Income (Expense)
    -       5,942       62       6,531  
                                 
Total Other Income (Expenses)
    6,001       13,663       15,429       25,884  
                                 
Income before Income Taxes
    441,297       323,732       1,808,140       1,551,371  
                                 
Provision for Income Taxes
    134,911       153,538       539,765       702,613  
                                 
Net Income
    306,386       170,194       1,268,375       848,758  
                                 
Other Comprehensive Income:
                               
Unrealized Gain (Loss) on Foreign Currency Translation
    162,739       25,640       360,467       227,609  
                                 
Comprehensive Income
  $ 469,125     $ 195,834     $ 1,628,841     $ 1,076,367  
                                 
Earnings Per Common Share:
                               
Basic
  $ 0.02     $ 0.01     $ 0.08     $ 0.04  
Diluted
  $ 0.02     $ 0.01     $ 0.08     $ 0.04  
                                 
Weighted Average Common Share:
                               
Basic
    15,609,811       21,227,329       15,887,589       21,227,329  
Diluted
    15,678,752       21,227,329       16,833,953       21,227,329  

 
"The accompanying notes are an integral part of these financial statements"
 

 
4

 
 CHINA LITHIUM TECHNOLOGIES, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


                                 
Accumulated
                         
   
Preferred Stock
   
Common Stock
   
Additional
   
Other
                     
Total
 
                           
Paid in
   
Comprehensive
   
Retained
   
Reserved
   
Comprehensive
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Income
   
Earnings
   
Funds A
   
Income
   
Equity
 
Balance - June 30, 2009 (Restated)
    -     $ -       19,151,875     $ 19,151     $ 139,293     $ 71,387     $ 2,690,492     $ -    
 
    $ 2,920,323  
                                                                               
  Reverse acquisition equity adjustments
                    1,007,936       1,008       113,478                                     114,486  
  Net income
                                                    2,428,966               2,428,966       2,428,966  
  Retained earning to reserved funds
                                                    (467,186 )     467,186               -  
  Foreign currency translation gain
                                            27,207                       27,207       27,207  
  Comprehensive Income
                                                                    2,456,173          
Balance - June 30, 2010 (Restated)
    -     $ -       20,159,811     $ 20,159     $ 252,771     $ 98,594     $ 4,652,271     $ 467,186             $ 5,490,982  
                                                                                 
  Common stock compensation on September 2, 2010                                     717,000                                       717,000  
  Restricted common stock issued to employees
                    1,500,000       1,500       1,648,500                                       1,650,000  
  Deferred stock-based compensation expense
                                    (1,086,250 )                                     (1,086,250 )
  Net income
                                                    1,293,912               1,293,912       1,293,912  
  Retained earning  to reserved funds
                                                    (576,730 )     576,730               -  
  Foreign currency translation gain
                                            489,067                       489,067       489,067  
  Comprehensive Income
                                                                    1,782,980          
Balance - June 30, 2011
    -     $ -       21,659,811     $ 21,659     $ 1,532,021     $ 587,661     $ 5,369,454     $ 1,043,916             $ 8,554,712  
                                                                                 
  Stock cancellation
                    (5,000,000 )     (5,000 )     5,000                                       -  
  Amortization of stock-based compensation
                                    263,542                                       263,542  
  Net income
                                                    1,268,375               1,268,375       1,268,375  
  Foreign currency translation gain
                                            360,467                       360,467       360,467  
  Comprehensive Income
                                                                    1,628,841          
Balance - March 31, 2012 (Unaudited)
    -     $ -       16,659,811     $ 16,659     $ 1,800,563     $ 948,128     $ 6,637,828     $ 1,043,916             $ 10,447,095  
                                                                                 
 Footnote A (Reserved Funds):
 
Restrictive retained earnings for the benefit of employees
                                         
 
 
"The accompanying notes are an integral part of these financial statements"


 
5

 
 CHINA LITHIUM TECHNOLOGIES, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)


   
For the Nine Months Ended March 31,
 
Cash Flows From Operating Activities:
 
2012
   
2011
 
             
Net Income
  $ 1,268,375     $ 848,758  
Adjustments to Reconcile Net Income to Net Cash
               
     (Used) Provided by Operating Activities:
               
     Depreciation and Amortization Expenses
    128,425       70,180  
     Stock-based Compensation Expenses
    263,542       1,135,846  
(Increase) or Decrease in Current Assets:
               
     Accounts Receivable
    (497,414 )     (542,466 )
     Inventories
    (980,994 )     (711,553 )
     Prepaid Expenses
    (396,982 )     6,575  
     Advance to Suppliers
    (3,961 )     (17,714 )
     Other Accounts Receivable
    (3,038 )     (6,868 )
Increase or (Decrease) in Current Liabilities:
               
     Accounts Payable
    (209,778 )     (520,907 )
     Advance from Customers
    69       111  
     Taxes Payable
    (223,383 )     (166,973 )
     Payroll Payable
    35,591       6,774  
     Warranty Accrual
    92,736       84,088  
     Other Accounts Payable
    12,192       5,150  
     Accrued Expenses
    (59,689 )     1,499  
                 
Net Cash (Used) Provided by Operating Activities
    (574,311 )     192,500  
                 
Cash Flows From Investing Activities:
               
                 
Purchases of Property, Plant and Equipment
    (36,518 )     (413,293 )
Purchases of Intangible Assets
    -       (2,119 )
                 
Net Cash (Used) Provided by Investing Activities
    (36,518 )     (415,413 )
                 
"Continued on next page"
 
                 


 
6

 
 CHINA LITHIUM TECHNOLOGIES, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)

   
For the Nine Months Ended March 31,
 
Cash Flows From Financing Activities:
 
2012
   
2011
 
             
Proceeds from (Payments to) Shareholders
    91,660       109,915  
                 
Net Cash (Used) Provided by Financing Activities
    91,660       109,915  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    342,939       216,541  
                 
Increase in Cash and Cash Equivalents
    (176,230 )     103,543  
                 
Cash and Cash Equivalents - Beginning Balance
    2,649,523       2,761,427  
                 
Cash and Cash Equivalents - Ending Balance
  $ 2,473,294     $ 2,864,970  
                 
Supplemental Disclosures of Cash Flow Information:
               
                 
Cash Paid During the Nine Months for:
               
Interest Paid
  $ -     $ -  
Income Taxes Paid
  $ 802,471     $ 768,153  
                 
Non-Cash Investing and Financing Activities:
               
                 
Common Stock Issued for Services
  $ -     $ 717,000  
Issued 1,500,000 Restricted Common Stock to Employees
  $ -     $ 1,650,000  
 
 
"The accompanying notes are an integral part of these financial statements"



 
7

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 


1.   ORGANIZATION AND BASIS OF PRESENTATION

The Company was incorporated as Sweet Little Deal, Inc. in 1986 under the laws of the State of Minnesota. On October 10, 1991, the Company changed its name to Physicians Insurance Services, Ltd. On July 23, 2008, the Company held a shareholder meeting approving a migratory merger to Nevada and changed its name to PI Services, Inc., which became effective January 12, 2009. On May 6, 2010, PI Services, Inc. changed its name to China Lithium Technologies, Inc. (the “Company”) to reflect the reverse merger of Sky Achieve Holdings, Inc. (“Sky Achieve") into the Company, which became effective on June 2, 2010.

On March 19, 2010 the Company acquired all of the outstanding capital stock of Sky Achieve, a British Virgin Islands limited liability corporation registered in November, 2009 (the “Share Exchange”). Pursuant to ASC 805-10-55-12 et seq., Sky Achieve is deemed to be the acquirer in the Share Exchange, as the prior owner of Sky Achieve obtained the largest portion of the voting rights in the combined entity, and the assets and earnings of Sky Achieve substantially exceeded those of PI Services. The effect of the Share Exchange is such that a reorganization of the entities has occurred for accounting purposes and is deemed to be a reverse merge recapitalization of Sky Achieve. The financial statements presented in this report are those of Sky Achieve and its subsidiaries, including their VIEs, as if the Share Exchange had been in effect retroactively for all periods presented.

Sky Achieve was organized on November 5, 2009 under the laws of British Virgin Islands. It had no business activity from its inception until January 5, 2010. On January 5, 2010, Sky Achieve obtained control over the business of Beijing Guoqiang Science and Technology Development Co., Ltd (“Beijing Guoqiang”) by entering into five agreements with and the equity owners of Beijing Guoqiang. The agreements are designed to transfer to Sky Achieve all of the responsibilities for management of the operations of Beijing Guoqiang, as well as all of the benefits and all of the risks that arise from the operations of Beijing Guoqiang. The relationship is purely contractual, however, so the rights and responsibilities of Sky Achieve with respect to Beijing Guoqiang are ultimately dependent on the willingness of the courts of the PRC to enforce the agreements. For accounting purposes, Beijing Guoqiang is deemed to be a variable interest entity with respect to Sky Achieve, and its balance sheet accounts and financial results are consolidated with the accounts and results of Sky Achieve for financial reporting purposes.

The Company issued 19,151,875 shares of its common stock to the shareholders of Sky Achieve. Those shares represented 95 % of the outstanding shares of the Company. Mr. Kun Liu, the Chairman of Beijing Guoqiang purchased additional 1% of the outstanding shares of the Company simultaneously with the share exchange. As a result of these transactions, persons associated with Beijing Guoqiang owned securities that represented 96% of the equity in the Company as of the completion of the Share Exchange.

Beijing Guoqiang designs, manufacturers and markets Polymer Lithium-ion Battery Modules, Lithium-ion Battery Chargers, Lithium-ion Battery Management Systems as well as other Lithium-ion Battery Management Devices essential to proper power utilization ("PLI Battery Products"). During December of 2009, the Company set up two manufacturing facilities in Hangzhou and Guangzhou to produce power and battery charger.
 

 
8

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
 
1.   ORGANIZATION AND BASIS OF PRESENTATION (continued)

Reverse stock split
On June 2, 2010, the Company implemented a 1-for 2.2 reverse split of its common stock. All enumerations herein of numbers of common shares or per share amounts have been adjusted as needed to give retroactive effect to the reverse stock split.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation
The accompanying audited consolidated financial statements include China Lithium Technologies, Inc. and its wholly owned subsidiary, Sky Achieve Holdings, Inc., as well as its variable interest entity, Beijing Guoqiang Global Science and Technology Development Co, Ltd. All significant inter-company transactions and balances have been eliminated in the consolidation.

Variable interest entity
The accounts of Beijing Guoqiang have been consolidated with the accounts of the Company because Beijing Guoqiang is a variable interest entity with respect to Sky Achieve, which is a wholly-owned subsidiary of the Company. Sky Achieve is party to five agreements dated January 5, 2010 with the owners of the registered equity of Beijing Guoqiang and with Beijing Guoqiang. In summary, the five agreements contain the following terms:

Consulting Services Agreement and Operating Agreement. These two agreements      provide that Sky Achieve will be fully responsible for the management of Beijing Guoqiang, both financial and operational. Sky Achieve has assumed responsibility for the debts incurred by Beijing Guoqiang and for any shortfall in its registered capital. In exchange for these services and undertakings, Beijing Guoqiang pays a fee to Sky Achieve equal to the net profits of Beijing Guoqiang. In addition, Beijing Guoqiang pledges all of its assets, including accounts receivable, to Sky Achieve. Meanwhile, Beijing Guoqiang’s shareholders pledged the equity interests of Beijing Guoqiang to Sky Achieve to secure the payment of the Fee.
   
Proxy Agreement. In this agreement, the shareholders of Beijing Guoqiang granted an irrevocable proxy to the person designated by Sky Achieve to exercise the voting rights and other rights of shareholder.
   
Option Agreement. In this agreement, the shareholders of Beijing Guoqiang granted to Sky Achieve the right to purchase all of their equity interest in the registered capital of Beijing Guoqiang or the assets of Beijing Guoqiang. The option may be exercised whenever the transfer is permitted under the laws of the PRC. The purchase price shall be equal to the original paid-in price of the Purchased Equity Interest by the Transferor, unless the applicable PRC laws and regulations require appraisal of the equity interests or stipulate other restrictions on the purchase price of equity interests.
 
The agreement also contains covenants designed to prevent any material change occurring in the legal or financial condition of Beijing Guoqiang without the consent of Sky Achieve.


 
9

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Equity Pledge Agreement. In this agreement, Beijing Guoqiang shareholders agree to pledge all the equity interest in Beijing Guoqiang to Sky Achieve as security for the performance of the obligation under the Consulting Services Agreement and the payment of Consulting Services Fees under each agreement.

Sky Achieve may terminate the agreements at will. Beijing Guoqiang may only terminate the agreements if (a) there is an unremedied breach by Sky Achieve, (b) the operations of Sky Achieve are terminated, (c) Beijing Guoqiang loses its business license, or (d) circumstances arise that materially and adversely affect the performance or objectives of the Agreement. The Consulting Services Agreement, under which all revenues are assigned from Beijing Guoqiang to Sky Achieve, and the Equity Pledge Agreement have no expiration date. The other three agreements terminate on January 5, 2020 unless extended by the parties.

In sum, the agreements transfer to Sky Achieve all of the benefits and all of the risk arising from the operations of Beijing Guoqiang, as well as complete managerial authority over the operations of Beijing Guoqiang. Sky Achieve is the guarantor of all of the obligations of Beijing Guoqiang. By reason of the relationship describe in these agreements, Beijing Guoqiang is a variable interest entity with respect to Sky Achieve because the following characteristics in ASC 810-10-15-14 are present:

The holders of the equity investment in Beijing Guoqiang lack the direct or indirect ability to make decisions about the entity’s activities that have a significant effect on the success of Beijing Guoqiang, having assigned their voting rights and all managerial authority to Sky Achieve. (ASC 810-10-15-14(b)(1)).
   
The holders of the equity investment in Beijing Guoqiang lack the obligation to absorb the expected losses of Beijing Guoqiang, having assigned to Sky Achieve all revenue and responsibility for all payables. (ASC 810-10-15-14(b)(2)).
   
The holders of the equity investment in Beijing Guoqiang lack the right to receive the expected residual returns of Beijing Guoqiang, having granted to Sky Achieve all revenue as well as an option to purchase the equity interests at a fixed price. (ASC 810-10-15-14(b)(3)).

Because the relationship between Beijing Guoqiang and Sky Achieve is entirely contractual, the Company’s interest in Beijing Guoqiang depends on the enforceability of those agreements under the laws of the PRC. We are not aware of any judicial decision as to the enforceability of similar agreements under PRC law. However, as the owners of the registered equity of Beijing Guoqiang are our Chairman and one close associate, we do not believe that there is a significant risk that Beijing Guoqiang will seek to terminate the relationship or otherwise breach the agreements. Accordingly, we believe that consolidation of the financial statements of Beijing Guoqiang with those of the Company is appropriate.

The following table summarizes the effects of consolidating Beijing Guoqiang with China Lithium Technologies and its subsidiary:
 

 
10

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
   
China Lithium
Technologies and
Subsidiaries
   
Beijing
Guoqiang
   
Consolidation
 
Balance Sheet – March 31, 2012
                 
Current Assets
 
$
101,759
   
$
11,439,065
   
$
11,441,899
 
Property, Plant and Equipment
   
-
     
710,956
     
710,956
 
Total Assets
   
374,689
     
12,210,814
     
12,213,648
 
                         
Current Liabilities
   
582,014
     
1,283,858
     
1,766,553
 
Total Liabilities
   
582,014
     
1,283,858
     
1,766,553
 
Stockholders’ Equity
   
(207,325
)
   
10,926,956
     
10,447,095
 
                         
Statement of Operations – Nine Months Ended March 31, 2012
                       
Revenue
   
-
     
10,888,246
     
10,888,246
 
Gross Profit
   
-
     
4,330,353
     
4,330,353
 
Operating Income (Loss)
   
(351,091
)
   
2,143,408
     
1,792,711
 
Net Income (Loss)
   
(351,316
)
   
1,619,298
     
1,268,375
 
                         
Statement of Cash Flow – Nine Months Ended March 31, 2012
                       
Net Cash (Used) Provided by Operating Activities
   
(140,598
)
   
(442,687
)
   
(574,311
)
Net Cash (Used) Provided by Investing Activities
   
-
     
(36,518
)
   
(36,518
)
Net Cash (Used) Provided by Financing Activities
 
$
100,635
     
-
   
$
91,660
 
 
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported total assets, liabilities, stockholders’ equity or net income.

Cash and cash equivalent
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
 
 
 

 
11

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Trade accounts receivable
Trade accounts receivable are stated at net realizable value, net of allowances for doubtful accounts and sales returns. The allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables.

The Company determines the allowance based on historical write-off experience, customer specific facts and current crisis on economic conditions. Bad debt expense is included in the general and administrative expenses.

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventories
Inventories are initially stated at the level of the original cost. The cost of inventories is determined using first-in first-out cost method, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In case of finished goods and work in progress, cost includes an appropriate share of production overhead based on normal operating capacity.

The Company regularly reviews the cost of inventories against their estimated fair market value and records a lower of cost or market write-down for inventories that have cost in excess of estimated market value.

Advances to suppliers
The Company makes advances to certain vendors for inventory purchases. The advances to suppliers were $33,142 and $29,180 as of March 31, 2012 and June 30, 2011 respectively.

Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation and amortization are provided using the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets as follows:

Buildings and improvements
20-42 years
Machinery and equipment
5-15 years
Motor vehicles
5-7 years
 
Leasehold improvements are amortized using the straight-line method over the term of the leases or the estimated useful lives, whichever is shorter.
 

 
12

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)



2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of long-lived assets
The Company accounts for long-lived assets in accordance with ASC 360 “Accounting for the Impairment of Disposal of Long-Lived Assets”, which became effective January 1, 2002. Under ASC 360, the Company reviews long-term assets for impairment whenever events or circumstances indicate that the carrying amount of those assets may not be recoverable. The Company has not incurred any losses in connection with the adoption of this statement.

Revenue recognition
The Company recognizes revenue on product sales when each of the following conditions has been satisfied:

Persuasive evidence of a sales arrangement exists in the form of a written contract or an order and acknowledge.
   
The sales price has been fixed and made determinable by sales contract and/or invoice.
   
The product has been delivered to the customer’s warehouse – unless other terms for delivery have been specified in the contract – at which time the customer takes ownership and the risk of loss passes to the customers.
   
Payment has been received or the Company determines that collection of the related receivable is probable. Probability of collection is determined based on recurrent visits by the Company’s sales staff and accounting staff to the customer’s premises to assess the health of the customer’s business.
   
The 15 day right of return that we afford to customers has expired.
 
Net sales of products represent the invoiced value of goods, net of Value Added Taxes (“VAT”), sales returns, trade discounts and allowances. The Company is subject to VAT which is levied on the majority of the products of the Company at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales. Our standard contract allows customers, within 15 days after delivery, to return for cash or exchange products with which they are not satisfied. Shipping charges on the return are allocated between the customer and the Company based on relative fault. We do not recognize revenue until the 15 day right of return has expired. After the 15 days has expired, the Company provides customers with no additional post-delivery rights, except as set forth in its product warrant. We record a provision for warranty claims, which is based on historical warranty claims data and represents the Company’s best estimate of warranty claims it will experience.

Cost of goods sold
Cost of goods sold consists primarily of material, and related expenses, which are directly attributable to the production of products. The Company presents cost of goods sold and manufacturing expenses separately in the income statement.
 

 
13

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of estimates
In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets and valuation allowances for receivables.  Actual results could differ from those estimates.

Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and accounts and other receivables. As of March 31, 2012 and June 30, 2011, substantially all of the Company’s cash and cash equivalents were held by major banks located in the PRC of which the Company’s management believes high credit quality banks. With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition and customer payment practices to minimize collection risk on account receivable.

Foreign currency translation
The functional currency of Beijing Guoqiang is Chinese Renminbi (“RMB”). For financial reporting purposes, RMB has been translated into United States Dollars ("USD") as the reporting currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates, and income and expenses items are translated using the average rate for the period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income." Gains and losses resulting from foreign currency translation are included in accumulated other comprehensive income.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Translation of amounts from RMB into US dollar has been made at the following exchange rates for the respective years:

March 31, 2012
 
Balance sheet
RMB 6.3251 to US $1.00
Statement of income and other comprehensive income
RMB 6.3211 to US $1.00
   
June 30, 2011
 
Balance sheet
RMB 6.4634 to US $1.00
Statement of operations and comprehensive income
RMB 6.6254 to US $1.00

 
14

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes
The Company accounts for income tax under the provisions of FASB ASC 740 "Accounting for Income Taxes", which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, whenever necessary, against net deferred tax assets when it is more likely than not that some portion or the entire deferred tax asset will not be realized. There are no deferred tax amounts as of March 31, 2012 and June 30, 2011.

Fair value of financial instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, advances to suppliers, other receivables, accounts payable, accrued expenses, taxes payable, payroll and other loans payable. Management has estimated that the carrying amounts approximate their fair value due to the short-term nature.

Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Intangible assets
Intangible assets mainly consist of patents. Patents have being amortized using the straight-line method over the 10 years. Other intangible assets have being amortized using the straight-line method over the 5 years.  The Company also evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows.

Comprehensive income
Comprehensive income is defined to include changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation gain, net of tax.

Statement of cash flows
In accordance with Accounting Standards Codification, ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

 
15

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reserved funds
In accordance with the PRC’s Company Laws, entities organized in the PRC must make appropriations from their after-tax profits as reported in their PRC statutory accounts to non-distributable reserves, namely statutory surplus reserve and statutory common welfare fund. The Company’s VIE, Beijing Guoqiang, is required to allocate at least 10% of its after-tax profits to the statutory surplus reserve until the reserve reaches 50% of the entity’s registered capital. Appropriation to the statutory common welfare fund is 5% to 10% of its after-tax profits as reported in the PRC statutory accounts. Effective from January 1, 2006, under the revised PRC Company Laws, appropriation to the statutory surplus reserve and common welfare reserve is no longer mandatory. However the Company from time to time allocates funds to such reserves for its future development.

Stock-based compensation
The Company adopted the provisions of ASC 718, “stock compensation,” which establishes the accounting for employee stock-based awards. Under the ASC 718, stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (i.e. the vesting period of the grant).  The fair value of shares granted is deemed to be the closing traded price of our common stock on the date of grant. 

Generally shares issued to employees will be vested over a requisite service period. These shares will be amortized over the vesting period in accordance with ASC 718. The average vesting period for the shares issued to date has been 4.54 years, based on the terms of the employment agreements under which the stock was awarded. The stock-based compensation expenses were $263,542 and $1,135,846 for the nine months ended March 31, 2012 and 2011, respectively.

Research and development costs
Research and development costs are expensed as incurred. The salaries of engineers and technical staff in our research and development division are included in research and development expense. The expenses were $373,147 and $68,321 for the nine months ended March 31, 2012 and 2011, respectively.

Basic and diluted earnings per share
Earnings per share are calculated in accordance with the ASC 260, “Earnings per share.” Basic net earnings per share are based upon the weighted average number of common shares outstanding, but excluding shares issued as compensation that have not yet vested. Diluted net earnings per share are based on the assumption that all unvested shares have vested. Dilution is computed by applying the treasury stock method. Under this method, awards of non-vested shares to be issued to employees under a share-based compensation arrangement are considered options for purposes of computing diluted EPS, which are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
 

 
16

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently issued accounting standards
In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the impact of adopting this statement on the Company’s financial statements.

3.    INVENTORIES

The components of inventories at March 31, 2012 and June 30, 2011 are as follows:

   
March 31,
2012
   
June 30,
2011
 
Raw Materials
  $ 726,001     $ 515,457  
Work in Process
    730,529       206,585  
Finished Goods
    495,456       248,991  
Low Value Items
    1,875       1,835  
Total
  $ 1,953,861     $ 972,867  

As of March 31, 2012 and June 30, 2011, the Company has not recorded any reserve for inventory obsolescence.
 

 
17

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 

4.    PREPAID EXPENSES

A summary of prepaid expenses at March 31, 2012 and June 30, 2011 are as follows:

   
March 31,
2012
   
June 30,
2011
 
Rent
  $ 102,665     $ 107,699  
Subcontractor
    711,450       309,434  
Total Prepaid Expenses
  $ 814,115     $ 417,133  

The Company prepaid the whole year rent for its warehouse and employees’ dormitory at the beginning of year, and amortized in the following twelve-month period.  The Company subcontracted a vendor to provide service in the next three year.

5.    PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment at March 31, 2012 and June 30, 2011 are as follows:

   
March 31,
2012
   
June 30,
2011
 
Building and Improvement
  $ 139,788     $ 136,796  
Machinery and Equipment
    845,685       791,836  
Motor Vehicle
    55,967       54,770  
Less: Accumulated Depreciation
    (330,484 )     (205,670 )
Total Property and Equipment, net
  $ 710,956     $ 777,732  

Depreciation expenses for the nine months ended March 31, 2012 and 2011 were $119,395 and $62,195, respectively.

6.    PATENT AND OTHER INTANGIBLES

The net book value of intangible assets as of March 31, 2012 and June 30, 2011 was comprised of the following:

   
March 31,
2012
   
June 30,
2011
 
Intangible Assets
  $ 117,432     $ 114,919  
Less: Accumulated Amortization
    (56,638 )     (46,523 )
Total Intangible Assets, net
  $ 60,794     $ 68,396  

Amortization expenses for the nine months ended March 31, 2012 and 2011 were $9,029 and $7,984, respectively.

 
18

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 

6.    PATENT AND OTHER INTANGIBLES (continued)

Based upon current assumptions, the Company expects that, during the next five years, its intangible assets will be amortized according to the following schedule:

Balance at June 30,
 
Amount
 
2012
  $ 3,035  
2013
    12,138  
2014
    12,138  
2015
    11,880  
2016
    11,363  
Thereafter
    10,240  
Total
  $ 60,794  

7.    ACCOUNTS RECEIVABLE

Accounts receivable are uncollateralized, non-interest bearing customer obligations typically due under terms requiring payment from the invoice date. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the oldest unpaid invoices. As of March 31, 2012 and June 30, 2011, accounts receivable and allowance for doubtful account as follow:

   
March 31,
 2012
   
June 30,
2011
 
Accounts Receivable
  $ 6,227,866     $ 5,639,078  
Less: Allowance for Doubtful Accounts
    (117,829 )     (26,456 )
Total Accounts Receivable, net
  $ 6,110,036     $ 5,612,622  

8.   ACCOUNTS PAYABLE

The Company has accounts payable related to the purchase of inventory. The amount of $660,426 and $870,204 as of March 31, 2012 and June 30, 2011 respectively, represent the accounts payable by the Company to the suppliers.

9.   ACCRUED EXPENSES AND OTHER PAYABLE

Accrued expenses consist of audit fee and the payroll taxes for the current year. As of March 31, 2012 and June 30, 2011, the balance was $11,400 and $71,089, respectively. Other accounts payable consists of miscellaneous items. As of March 31, 2012 and June 30, 2011, the balances were $14,236 and $2,044, respectively.
 
 

 
19

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
10.  WARRANTY ACCRUAL

The Company provides its customers a 2 years warranty on all products sold. In anticipation of warranty repairs, the Company accrues 1% of the sales amount as a “Warranty Accrual.” The Company believes that the accrual is adequate based on its historical warranty experience. If the goods sold have no quality problems within 2 years, the Company reverses the warranty accrual. As of March 31, 2012 and June 30, 2011, the warranty accrual was $291,347 and $198,611 respectively.

For nine months ended March 31, 2012, the company paid $20,782 directly for warranty claims. Also, the company accrued $108,605 as the warranty accrual with respect to sales during the period.

For the nine months ended March 31, 2011, the company paid $10,586 directly for warranty claims. Also, the company accrued $86,165 as the warranty accrual with respect to sales during the period.

11.  LOANS FROM SHAREHOLDERS

The Company borrowed funds from Kun Liu, its Chief Executive Offices, to pay expenses incurred in the United States office.  The first loan of $45,459 was made on April 20, 2010, followed by additional $329,839 loans that brought the balance to $375,298, which was the amount due from the Company to Kun Liu as of March 31, 2012.  No portion of the loans has been repaid. The loans are interest-free and due on demand. The Company expects to continue to borrow funds from Kun Liu to pay its U.S. expenses until it obtains Dollars from a financing transaction or secures approval for a conversion of Renminbi to Dollars.

12.  SHORT-TERM LOANS

In February and April 2011, the Company borrowed two separate loans with $40,000 each from a private party, to pay expenses incurred in the United States office. These loans are interest-free and due on demand. The Company expects to repay whole amount of these two loans within one year.

13.  STOCKHOLDERS’ EQUITY

On July 14, 2011, one of the Company’s directors and principal shareholders, Mr. Qiang Fu, resigned from his position as a member of the Company’s Board of Directors. In connection with his resignation, Mr. Qiang Fu surrendered to the Company his five million (5,000,000) shares of the Company’s common stock, representing approximately 23% of the outstanding shares.  The Company retired all these five million (5,000,000) shares immediately after Mr. Fu’s resignation.

As of March 31, 2012, 780,000,000 shares have been authorized and 16,659,811 shares are outstanding. The Company implemented a 1-for-2.2 reverse split on June 2, 2010. Retroactive effect is being given to the reverse split in these financial statements.  Income statements have retroactively used the new outstanding shares to calculate the EPS. Stated capital in the stockholders’ equity section has been reduced accordingly.
 

 
20

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
 
14.  STOCK-BASED COMPENSATION
 
 
On September 2, 2010, a principal shareholder of the Company transferred 358,500 shares of common stock to the Company’s employees in recognition of prior years’ services. The Company has recorded the transfer as a contribution to the Company’s capital and a stock-based compensation expense, valued by the closing stock price of $2.00 at the date of transfer, since these shares were fully-vested and non-forfeitable. The contribution to capital and compensation cost recorded in related to this transfer during the year ended June 30, 2011 was $717,000.

On October 6, 2010, the Company adopted the 2010 Stock Award Plan (the “2010 Plan”). The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of the participants of the Plan (the "Participants") to those of the Company's stockholders, and by providing the Participants with an incentive for outstanding performance. The Company has reserved 3,000,000 shares of common share for the options and awards under the 2010 Plan. 

Subject to the terms and provisions of the 2010 Plan, the Board of Directors, at any time and from time to time, may grant shares of stock to eligible persons in such amounts and upon such terms and conditions as the Board of Directors shall determine. 

The Board of Directors shall have the authority to determine all matters relating to the stock to be granted under the 2010 Plan, including selection of the individuals to be granted awards, the number of share, the date of termination of the stock awards, vesting schedules and all other terms and conditions thereof. 

The Company issued 1,500,000 shares provided in the Plan in the form of grants of restricted common stock on October 18, 2010, valued by using our closing stock price of $1.10 on that date. As of March 31, 2012, 30% (450,000 shares) had been vested and no share had been cancelled. A summary of the status of the Company’s unearned stock compensation is presented below:

Unearned Stock Compensation as of June 30, 2011
  $ 1,086,250  
Unearned Stock Compensation Granted
    -  
Compensation Expense Recognized in Earnings
    (263,542 )
Unearned Stock Compensation as of March 31, 2012
  $ 822,708  

The following table shows amortization of unearned stock compensation relating to the 2010 Plan:
 
As of June 30,
 
Amortization
 
2012
  $ 80,208  
2013
    330,000  
2014
    247,500  
2015
    165,000  
Total Amortization
  $ 822,708  


 
21

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
 
15.  INCOME TAXES

The Company has cumulative undistributed earnings of foreign subsidiaries of $9,705,822 as of March 31, 2012. These undistributed earnings are included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

The Company’s VIE, Beijing Guoqiang, is registered and operates in Beijing, PRC. In accordance with the relevant tax laws and regulations of PRC, Beijing Guoqiang is subject to income tax at an effective rate of 25% from January 1, 2008 on income reported in the statutory financial statements after appropriated tax adjustments. Because there is no income tax in the British Virgin Islands, Sky Achieve is not subject to taxation in its domicile.

The Company had no uncertain tax positions as of March 31, 2012 and June 30, 2010. The following table sets forth the components of the Company’s income before income tax expense and components of income tax expense for the nine months ended March 31, 2012 and 2011:

   
March 31,
2012
   
March 31,
2011
 
China Pre-tax Income (Loss)
  $ 2,159,457     $ 2,807,933  
BVI Pre-tax Income (Loss)
    (25 )     -  
Domestic Pre-tax Income (Loss)
    (351,292 )     (1,256,562 )
Total Pre-tax Income (Loss)
  $ 1,808,140     $ 1,551,371  

   
March 31,
2012
   
March 31,
2011
 
China Income Tax Expense
  $ 539,765     $ 702,613  
Domestic Income Tax Expense
    -       -  
Total Current Income Tax Expense
  $ 539,765     $ 702,613  

A reconciliation of tax at United States federal statutory rate to provision for income tax recorded in the financial statements is as follows:
 

 
22

 


CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 


15.  INCOME TAXES (continued)

   
March 31,
2012
   
March 31,
2011
 
U.S. Statutory Income Tax Rate
    34.0 %     34.0 %
Foreign Income not Recognized in the U.S.
    (34.0 %)     (34.0 %)
China Statutory Income Tax Rate
    25.0 %     25.0 %
Other Items (a)
    4.85 %     20.29 %
Effective Consolidated Current Income Tax Rate
    29.85 %     45.29 %
 
(a). The 4.85% and 20.29% represents $351,292 (including $263,542 stock-based compensation expense) and $1,256,562 (including $1,135,846 stock-based compensation expense) of corporate expenses incurred by the Company’s US office that are not subject to PRC income tax for the nine months ended March 31, 2012 and 2011.

The Company was incorporated in the United States. It incurred net operating losses for U.S. income tax purposes for the nine months ended March 31, 2012. Net operating loss carry forwards for United States income tax purposes amounted to $480,180 as of March 31, 2012, which may be available to reduce future periods’ US taxable income. These carry forwards will expire, if not utilized, beginning in 2030 through 2031. Management believes that the realization of the benefits arising from this loss appear to be uncertain due to Company's limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at March 31, 2012 for the temporary difference related to the loss carry-forwards. Management reviews this valuation allowance periodically and makes adjustments as warranted.

There was also a deferred tax asset of $74,898 as of March 31, 2012 resulting from the temporary difference with respect to the grant of unvested common stock to employees in October 2010.

As of March 31, 2012 and June 30, 2011, the deferred tax assets/ (liabilities) and the related valuation allowance were as follows:

   
March 31,
2012
   
June 30,
2011
 
U.S. Holding Company Net Operating Loss Carry-forward
  $ 238,159     $ 359,094  
China Other Deferred Tax Assets
    -       -  
Less: Valuation Allowance
    (238,159 )     (359,094 )
Net
    -       -  
 
6.  EARNINGS PER SHARE

Earnings per share is determined by dividing net income for the periods by the weighted average number of both basic and diluted shares of common stock and common stock equivalents outstanding pursuant to ASC 260, “Earnings Per Share.”  The following are the calculations for earnings per share for the three months ended March 31, 2012 and 2011:


 
23

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
16.  EARNINGS PER SHARE (continued)

   
For the Three Months Ended
 
   
March 31,
2012
   
March 31,
2011
 
         
(Restated)
 
Basic Earnings per Share
           
Net Income
  $ 306,386     $ 170,194  
Weighted Average Number of Common Share Outstanding - Basic
    15,609,811       21,227,329  
Earnings per Share – Basic
  $ 0.02     $ 0.01  


   
For the Three Months Ended
 
   
March 31,
2012
   
March 31,
2011
 
         
(Restated)
 
Diluted Earnings per Share
           
Net Income
  $ 306,386     $ 170,194  
Weighted Average Number of Common Share Outstanding - Basic
    15,609,811       21,227,329  
Effect of Diluted Securities - Unvested Shares
    68,941       -  
Weighted Average Number of Common Share Outstanding - Diluted
    15,678,752       21,227,329  
Earnings per Share –Diluted
  $ 0.02     $ 0.01  


   
For the Nine Months Ended
 
   
March 31,
 2012
   
March 31,
2011
 
         
(Restated)
 
Basic Earnings per Share
           
Net Income
  $ 1,268,375     $ 848,758  
Weighted Average Number of Common Share Outstanding - Basic
    15,887,589       21,227,329  
Earnings per Share – Basic
  $ 0.08     $ 0.04  


 
24

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)
 
 
16.  EARNINGS PER SHARE (continued)

   
For the Nine Months Ended
 
   
March 31,
2012
   
March 31,
2011
 
         
(Restated)
 
Diluted Earnings per Share
           
Net Income
  $ 1,268,375     $ 848,758  
Weighted Average Number of Common Share Outstanding - Basic
    15,887,589       21,227,329  
Effect of Diluted Securities - Unvested Shares
    946,364       -  
Weighted Average Number of Common Share Outstanding - Diluted
    16,833,953       21,227,329  
Earnings per Share –Diluted
  $ 0.08     $ 0.04  

17.  CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy.

The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

The future profitability of the Company is dependent upon the Company's abilities to secure service contracts and maintain the operating expense at a competitive level.

Concentration of credit risk
Financial instruments that potentially subject to significant concentrations of credit risk consist of cash and cash equivalents. As of March 31, 2012 and June 30, 2011, substantially all of the Company’s cash and cash equivalents were held by major banks which located in the PRC. The Company’s management believes that there are remote chances the Company will loss money on those banks. With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition and customer payment practices to minimize collection risk on account receivables.
 

 
25

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)


17.  CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (continued)

The major customers which represented more than 5% of total Accounts Receivable as follows:

   
March 31, 2012
   
June 30, 2011
 
Customer Name
 
Amount
   
%
   
Amount
   
%
 
Hebei Xinyuzhou Electronic Bicycle Co., Ltd
  $ 306,847       5.00 %     *       *  
Beijing Fuerxuan Technology Co., Ltd
    *       *       521,675       9.25 %
Beijing Lianneng Power Technology Co., Ltd
    *       *       376,519       6.68 %
Beijing Meiyina Vehicle Manufacturing Co., Ltd
    *       *       300,120       5.32 %
Shandong Expressway Co. Ltd (Fujian Branch)
    *       *       286,288       5.08 %
 
* Less than 5% of total accounts receivable as of March 31, 2012 and June 30, 2011.

The major vendors which represented more than 5% of total Accounts Payable as follows:

   
March 31, 2012
   
June 30, 2011
 
Vendor Name
 
Amount
   
%
   
Amount
   
%
 
Heilongjiang Zhongqiang Power Tech Ltd
  $ 484,102       73.30 %   $ 649,625       74.65 %
Guangzhou Fanyubaiyun Electronic Co., Ltd
    50,467       7.64 %     103,538       11.90 %
Guangzhou Zengchen Dingxin Electronic Co., Ltd
    32,501       5.00 %     50,371       5.79 %

The major clients which represented 5% and more of the total sales for the three and nine months ended March 31, 2012 and 2011 are as follows:

   
For the Three Months Ended
 
Customer Name
 
March 31, 2012
   
March 31, 2011
 
 
Amount
   
%
   
Amount
   
%
 
Hebei Xinyuzhou Electronic Bicycle Co. Ltd
  $ 153,311       4.51 %   $ 189,786       5.55 %
Youke Energy (Zhangzhou) Power Co. Ltd
    145,787       4.29 %     *       *  
Henan Shengjia Electronic Bicycle Co. Ltd
    142,261       4.19 %     *       *  
Jiangsu Linhai Mechanical Systems Co. Ltd
    137,926       4.06 %     *       *  
Shandong Expressway Co. Ltd (Fujian Branch)
    *       *       198,599       5.81 %
Beijing Anhualianhe Power Tech Co., Ltd
    *       *       197,249       5.77 %
Beijing Lianneng Power Technology Co., Ltd
    *       *       184,161       5.38 %
 
* Less than 5% of total sales for the three months ended March 31, 2012 and 2011.



 
26

 



CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)



17.  CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (continued)

   
For the Nine Months Ended
 
Customer Name
 
March 31, 2012
   
March 31, 2011
 
 
Amount
   
%
   
Amount
   
%
 
Hebei Xinyuzhou Electronic Bicycle Co. Ltd
  $ 504,819       4.64 %     *       *  
Beijing Lidehuafu Electronic Tech Co. Ltd
    474,720       4.36 %     *       *  
Beijing Zhongxinlian Digital Co., Ltd
    458,670       4.21 %     *       *  
Tianjin Aofeiya Bicycle Manufacturing Co., Ltd
    449,967       4.13 %     *       *  
Hebei Aoguan Power Technology Co., Ltd
    446,471       4.10 %     *       *  
Shandong Expressway Co. Ltd (Fujian Branch)
    *       *       914,987       8.04 %
 
* Less than 5% of total sales for the nine months ended March 31, 2012 and 2011.

The major vendors which represented more than 5% of the total purchases for the three and nine months ended March 31, 2012 and 2011:

   
For the Three Months Ended
 
Vendor Name
 
March 31, 2012
   
March 31, 2011
 
 
Amount
   
%
   
Amount
   
%
 
Heilongjiang Zhongqiang Power Tech Ltd
  $ 1,499,923       76.39 %   $ 1,555,367       66.62 %
Guangzhou Fanyubaiyun Electronic Co., Ltd
    147,941       7.53 %     248,270       10.63 %
Beijing Anhualianhe Power Tech Co., Ltd
    *       *       150,249       6.44 %
* Less than 5% of total sales for the three months ended March 31, 2012 and 2011.

   
For the Nine Months Ended
 
Vendor Name
 
March 31, 2012
   
March 31, 2011
 
 
Amount
   
%
   
Amount
   
%
 
Heilongjiang Zhongqiang Power Tech Ltd
  $ 4,736,919       65.05 %   $ 4,310,784       55.49 %
Guangzhou Fanyubaiyun Electronic Co., Ltd
    681,693       9.36 %     558,168       7.19 %
Beijing Anhualianhe Power Tech Co., Ltd
    520,919       7.15 %     1,784,885       22.98 %

18. RELATED PARTY TRANSACTIONS

A significant portion of the Company’s raw materials were purchased from Heilongjiang Zhongqiang Power Tech Co., Ltd (Heilongjiang ZQPT), which is a subsidiary of Advanced Battery Technologies, Inc (ABAT). Mr. Qiang Fu, who was one of the Company’s directors until July 14, 2011, is an immediate family member of the CEO of ABAT, who has exclusive control over the business of Heilongjiang ZQPT. For the nine months ended March 31, 2012, purchases from Heilongjiang ZQPT totaled $4,736,919, or 65.05% of the total purchases for the nine months then ended. For the nine months ended March 31, 2011, purchased from Heilongjiang ZQPT totaled $4,310,784, or 55.49% of the total purchases for the nine months then ended. As of March 31, 2012, the total amount due to Heilongjiang ZQPT was $484,102, or 73.30% of the total accounts payable. As of June 30, 2011, the total amount due to Heilongjiang ZQPT was $649,625, or 74.65% of the total accounts payable.
 

 
27

 

CHINA LITHIUM TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012
 
(UNAUDITED)

19.  RESTATEMENT

We have restated the Consolidated Statements of Changes in Stockholders’ Equity for the year ended June 30, 2010. The reason for the restatement is that the Consolidated Statements of Changes in Stockholders’ Equity as originally issued failed to properly account for the reverse merger of Sky Achieve Holdings into the Company in March 2010. Pursuant to ASC 805-40-45-1, the Consolidated Statements of Changes in Stockholders’ Equity of the Company after the reverse merger should reflect the historic capital structure of Sky Achieve Holdings (the accounting acquirer) adjusted to reflect the legal capital of the Company prior to the reverse merger. As a result of the restatement, the shares issued to the prior owners of Sky Achieve Holdings in the reverse merger and the capital associated with the shares issued in the reverse merger are shown as outstanding in the balance at June 30, 2009 and thereafter, and the shares of the public company outstanding at the time of the reverse merger and the capital associated with those shares are shown as issued at the time of the reverse merger. The effect of the restatement on the Consolidated Statements of Changes in Stockholders’ Equity is shown below:

     
As Originally
 Reported
   
As Restated
 
6/30/2009 Balance
Common Stock - Shares
    1,007,936       19,151,875  
 
Common Stock - Amount
  $ 1,008     $ 19,151  
 
Additional Paid-in Capital
  $ 157,436     $ 139,293  
 
Common Stock - Shares
    19,151,875       1,007,936  
 
Common Stock - Amount
  $ 19,151     $ 1,008  
Issuance of Common Stock/Reverse Acquisition Adjustments*
Additional Paid-in Capital
  $ 72,352     $ 113,478  
6/30/2010 Balance
Additional Paid-in Capital
  $ 229,788     $ 252,771  
 
Total Stockholders’ Equity
  $ 5,467,999     $ 5,490,982  
 
* The effects of the reverse merger on shareholders’ equity were identified as “issuance of common stock” in our original filing and are identified as “reverse acquisition equity adjustment” in the amended filing.

The restatement resulted in a recalculation of weighted average shares outstanding for each of the past two fiscal years. The effect of correcting errors on earnings per share is shown below:

   
As Originally
Reported
   
As Restated
 
Basic and Diluted Weighted Average Common Shares – Three Months Ended March 31, 2011
    20,159,811       21,227,329  
Basic and Diluted Weighted Average Common Shares – Nine Months Ended March 31, 2011
    20,159,811       21,227,329  
Basic and Diluted EPS – Three Months Ended March 31, 2011
  $ 0.01     $ 0.01  
Basic and Diluted EPS – Nine Months Ended March 31, 2011
  $ 0.05     $ 0.04  

 
 
 

 
28

 


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
 
Forward Looking Statements
 
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, the realization of which may cause the prediction implicit in the forward-looking statements to be unrealized.  Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements.
 
Overview

We are holding company incorporated in the State of Nevada. Through our operating entity in China, we design, manufacture and market polymer lithium-ion battery modules, lithium-ion battery chargers, lithium-ion battery management systems as well as other lithium-ion battery management devices essential to proper power utilization.

Our PLI battery products produce a relatively high average of 3.8 volts per cell, which makes them attractive in terms of both weight and volume. Additionally, they can be manufactured in very thin configurations and with large footprints. PLI cells can be configured in almost any prismatic shape, and can be made thinner than 0.0195 inches (0.5 mm) to fill virtually any shape efficiently. This combination of power and versatility makes rechargeable PLI batteries particularly attractive for use in consumer products such as portable computers, personal digital assistants (PDA's) and cellular telephones. However, one of the bottleneck problems in the existing lithium-ion battery industry is the battery capacity loss. Through years of efforts in research and development, we developed an efficient battery management system in a way to balance the process of charging and discharging of multiple lithium-ion battery cells and adjust the charging frequency to the change of temperature of the ambient environment. We also incorporated the battery management system in our design of lithium-ion battery module and battery pack.

 RESULTS OF OPERATION


 Total Revenues
 
The following table shows the revenues attributable to each of our product lines:
 

   
3 months
ended
March 31, 2012
   
3 months
ended
March 31, 2011
   
Change
   
Percentage
 
Battery Safety System
   
1,316,216
     
1,465,262
     
(149,046)
     
-10.17%
 
Battery Module
   
1,230,471
     
856,827
     
373,644
     
43.61%
 
Battery Pack
   
-
     
-
     
-
     
-
 
Electric Vehicle Battery
   
23,798
     
225,494
     
(201,696)
     
-89.45%
 
Power
   
672,039
     
727,511
     
(55,472)
     
-7.62%
 
Chargers
   
154,638
     
86,791
     
67,847
     
78.17%
 
Total Revenue
   
3,397,162
     
3,361,885
     
35,277
     
1.05%
 
 

   
9 months
ended
March 31, 2012
   
9 months
ended
March 31, 2011
   
Change
   
Percentage
 
Battery Safety System
   
4,157,852
     
5,746,841
     
(1,588,989)
     
-27.65%
 
Battery Module
   
3,519,161
     
2,638,274
     
880,887