UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





ANNUAL
REPORT


ON
FORM 10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the Fiscal Year Ended September 30, 2009





Commission
File Number 000-32161





CH
LIGHTING INTERNATIONAL CORPORATION


(Exact
name of registrant as specified in its charter)





Delaware
            
            20-3828148(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)





658
Hongyan Road, Economic Development Zone, Shangyu City, Zhejiang
Province,


The
People’s Republic of China 312300


(Address,
including zip code, of principal executive offices)





86
575 8212 7538


(Registrants’
telephone number, including area code)





Securities
Registered Under Section 12(b) of the Exchange Act:  None





Securities
Registered Under Section 12(g) of the Exchange Act:  Common Stock, par
value US$0.001 per share





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o    No
x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act.    Yes o    No
x




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 and (2) has been subject to such filing
requirements for the past 90 days.




Yes x     No
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. 
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer  ̈
            Accelerated filer  ̈
            Non-accelerated filer  ̈
            Smaller Reporting Company x




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





Aggregate
market value of the voting stock held by non-affiliates of the registrant based
upon the closing price as of March 31, 2009 was approximately
US$59,500,000.




The
number of outstanding shares of the registrant’s Common Stock on December 26,
2009 was 120,000,000.







CH
LIGHTING INTERNATIONAL CORPORATION


ANNUAL
REPORT ON FORM 10-K


FOR
THE YEAR ENDED SEPTEMBER 30, 2009





Index





TABLE OF
CONTENTS




PART
      I
                  
                  3ITEM
      1.
                  Business
                  3ITEM
      1A
                  Risk
      Factors
                  27ITEM
      1B.
                  Unresolved
      Staff Comments
                  27ITEM
      2.
                  Properties
                  28ITEM
      3.
                  Legal
      Proceedings
                  28ITEM
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  28PART
      II
                  
                  29ITEM
      5.
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                  29ITEM
      6.
                  Selected
      Financial Data
                  30ITEM
      7.
                  Management‘s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  30ITEM
      7A.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  39ITEM
      8.
                  Financial
      Statements and Supplementary Data
                  39ITEM
      9.
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
                  39ITEM
      9A(T).
                  Controls
      and Procedures
                  40ITEM
      9B.
                  Other
      Information
                  41ITEM
      10.
                  Directors,
      Executive Officers, and Corporate Governance
                  42ITEM
      11.
                  Executive
      Compensation
                  45ITEM
      12.
                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                  47ITEM
      13.
                  Certain
      Relationships and Related Transactions, and Director
      Independence
                  49ITEM
      14.
                  Principal
      Accountant Fees and Services
                  49PART
      IV
                  
                  51ITEM
      15.
                  Exhibits
      and Financial Statement Schedules
                  51SIGNATURES
                  
                  53




- 2
-


(In thousands for dollar
amount except par value)





PART
I




ITEM
      1.
            Business




Forward
Looking Statements




Statements
contained in this Annual Report on Form 10-K of CH Lighting International
Corporation (formerly known as “Sino-Biotics, Inc.”
and hereinafter, the “Company”) that are
not purely historical are forward-looking statements. Words such as
“anticipates”, “expects”, “intends”, “plans”, "believes", "seeks", "estimates"
or similar expressions identify forward-looking statements. These
forward-looking statements include, but are not limited to, statements regarding
the Company’s expectations of our future liquidity needs, our expectations
regarding our future operating results including our planned increase in our
revenue levels and the actions we expect to take in order to maintain our
existing customers and expand our operations and customer base. All
forward-looking statements are made as of the date hereof and are based on
current management expectations and information available to us as of such date.
We assume no obligation to update any forward-looking statement. It is important
to note that actual results could differ materially from historical results or
those contemplated in the forward-looking statements. Forward-looking statements
involve a number of risks and uncertainties, and include risks associated with
our target markets and risks pertaining to competition, other trend information
and our ability to successfully enhance our operations. Factors that could cause
actual results to differ materially include, but are not limited to, those
identified in our filings with the U.S. Securities and Exchange Commission (the
“SEC”). All
references to “CH Lighting International Corporation”, “us”, “we” or the
“Company” in this Annual Report mean CH Lighting International Corporation, a
Delaware corporation, and all entities owned or controlled by CH Lighting
International Corporation, except where it is made clear that the term means
only the parent company. All tabular amounts are stated in US
dollars.




Prior
Operations of the Company




The
Company’s predecessor, Innovative Coatings, a Georgia corporation, ceased
operations in June 2003.  On August 1, 2003, ICC Holdings Corp. was formed
as a wholly-owned subsidiary of Innovative Coatings.  Also on August 1,
2003, Instachem Systems was formed as a wholly-owned subsidiary of ICC Holdings
Corp. and ICC Merger Corp. was formed as a wholly-owned subsidiary of Instachem
Systems.  On August 11, 2003, ICC Holdings Corp. merged with its parent
company, Innovative Coatings, to change its State of incorporation from Georgia
to Oklahoma.  On August 12, 2003, ICC Merger Corp. bought ICC Holdings
Corp. A new corporation with ownership unrelated to the above, Sino-Biotics,
Inc., was formed in Delaware on July 6, 2005.  On July 18, 2005, Instachem
Systems sold ICC Merger Corp. to an individual for US$1.  On July 19, 2005,
Sino-Biotics, Inc. bought Instachem Systems. As a result of the above, the
pre-existing creditors of the original operating entity, Innovative Coatings,
were spun off through the sale of ICC Merger in July 2005.





The
Share Exchange Transaction





On July
16, 2008 (the “Closing
Date”), Sino-Biotics, Inc. entered into a Share Exchange Agreement (the
“Exchange
Agreement”) with CH International Holdings Limited, a British Virgin
Islands investment holding company (“CH International”)
and KEG International Limited, a British Virgin Islands company and the sole
stockholder of CH International (the “Stockholder”). As a
result of the share exchange, Sino-Biotics, Inc. acquired all of the issued and
outstanding securities of CH International from the Stockholder in exchange for
Ninety-Three Million (93,000,000) newly-issued shares of Sino-Biotics, Inc.’s
common stock, par value US$0.001 per share (“Common Stock”),
representing seventy-seven and one half percent (77.5%) of the issued and
outstanding Common Stock as of the Closing Date (the “Exchange”).  As
a result of the Exchange, CH International became a wholly-owned subsidiary of
Sino-Biotics, Inc.




From its
inception through the closing of the Exchange, the Company has had no
operations. Prior to the Exchange, the Company was considered a “blank check”
company with US$1 in assets and a net loss of approximately US$80 for the fiscal
year ending September 30, 2007.  As of March 31, 2008, the Company had
approximately US$22 in liabilities. On July 16, 2008, the Company did not have
any liabilities.




- 3
-




(In thousands for dollar
amount)





CH
International, the wholly-owned and chief operating subsidiary of the Company,
is an international investment holding company founded in British Virgin Islands
on April 30, 2004.  CH International’s wholly-owned operating subsidiaries
are as follows: (a) Zhejiang Shaoxing CH Lamps Manufacturing Company (“CH Lamps”), a company
organized under the People’s Republic of China (the “PRC”) on December 13,
1999; (b) Zhejiang CH Lighting Company Limited (“CH Lighting PRC”), a
company organized under the laws of the PRC on September 27, 2000; (c) CH
Lighting (Hong Kong) Limited, a company organized under the laws of Hong Kong on
November 10, 2000 and a wholly-owned subsidiary of CH Lighting PRC (“CH Hong Kong”); and
(d) Zhejiang CH Lighting Technology Company Limited, a company organized under
the laws of the PRC on March 31, 2003 (“CH
Technology”).




CH
International also owns ninety percent (90%) of Shangyu CH Laboratory Testing
Company Limited, a company organized under the laws of the PRC on January 7,
2008 (“CH Lab”,
and together with CH International, CH Lamps, CH Lighting PRC, CH Hong Kong and
CH Technology, the “Group”).




Our
Common Stock is currently traded on the Over-The-Counter Bulletin Board (“OTCBB”) and on the
Pink Sheets under the symbol “CHHN.OB”.





Current
Operations of the Company (General Development of Business)




CH Lamps
manufactures and sells fluorescent lamp tubes, bulbs, luminaires and other
decorative products. CH Lighting PRC currently manufactures and sells lighting
products and luminaires (light fitting parts). In order to increase our sales
volume in the international market and upon approval by the PRC’s Ministry of
Commerce in November 2005, CH Lighting PRC purchased CH Hong Kong, which is
mainly engaged in the export trade and information technology services.  CH
Technology manufactures and sells sterilized electronic appliances, lighting
equipment and luminaires (light fitting parts).  CH Lab was established on
January 7, 2008 in the PRC and currently provides laboratory testing services of
lighting sources and electronic products.





The
Company is dedicated to developing, manufacturing and selling healthy,
energy-efficient, environmentally-friendly (green) and innovative high-end
products and relevant services in the fluorescent lighting field. CH
International offers ten (10) series and over 1,000 types of products, including
“special light” sources, “general light” sources and luminaires for the home and
for businesses (office buildings), and lighting electronics. CH International is
one of the leading producers in China’s “special light” market, including
product innovation, specification and sales. Currently, the Company has the most
product series collected in the “Government Purchasing List of Energy-Saving
Products” in China (a list of compulsory purchase items by which the Chinese
government enforces the procurement of energy-efficient products by departments
and local authorities).





The
volume of production and sales of linear fluorescent lamps amounted to 1.5
billion and 3.4 billion in China in 2007 and 2008, respectively, however there
are only fifteen (15) enterprises (including CH International) whose annual
volume of production and sales of linear fluorescent lamps exceeded (in the
aggregate) 1.04 billion and 1.9 billion in 2007 and 2008, respectively. In 2007,
CH International accounted for eight percent (12%) of the market share of
China’s linear fluorescent lamp market, ranking third among total linear
fluorescent lamp manufacturers in China, and according to the China Association
of Lighting Industry, the Company’s T5 fluorescent lamp model was and currently
is the best selling product in the Chinese market.




The
Company has three (3) major production facilities: CH Lighting PRC, CH Lamps and
CH Technology, collectively covering 62,000m2, with
floor area of 70,000m2, having
fifteen (15) automatic light source production lines, capable of producing 120
million light sources and 17 million sets of  luminaries
annually.




The
Company also established a Special Light Source Research Center in 2003 and a
Light Source and Fitting Inspection and Development Laboratory in January 2008,
of which the latter has been declared a state-accredited laboratory.
Furthermore, the Company employs an external consulting team composed of over 21
professors and experts in the industry. The Company has 161 patents (including
23 patents pending) and is a participant as well as contributor to various China
Lighting Industry Standards.




- 4
-




(In thousands for dollar
amount)





The
Company has 32 established offices in China and has cooperative agreements with
over 450 distributors in the Chinese market and over 380 foreign customers in
the international market. The Company has established agents in Saudi Arabia and
Belgium that distribute self-owned brands in the Middle East and in the European
markets.  The Company is currently in the process of establishing agents in
the United States.




General
Overview of Lighting Industry and Lighting Markets




General




Along
with economic globalization and accelerated industrial adjustment in developed
countries, international demand for electric lighting products and production
bases has begun to shift to developing countries. Today, China has become the
world’s largest manufacturer of lighting products.




Since
1996, the export volume of lighting products manufactured in China grew by over
twenty percent (20%) each year. In 2006, the total output of electric light
sources amounted to 10.9 billion, ranking first throughout the world in that
year, including 3.71 billion florescent lamps (accounting for 34% of total
electric light sources) and 4.37 billion incandescent lamps (accounting for 33%
of total electric light sources). In 2007, the total output of electric light
sources amounted to 12.2 billion, including 4.8 billion florescent lamps
(accounting for 39% of total electric light sources). In 2008, the total output
of electric light sources amounted to 14.5billion, including 6.1 billion
florescent lamps (accounting for 42% of total electric light
sources).




The rate
of florescent lamp to incandescent lamp sales increased from 1:6.52 in 1995 to
1:1.05 in 2008 Among florescent lamps, compact power-saving florescent lamp
sales totaled 3.37 billion in 2008, evidencing a trend in electric light sources
towards energy conservation.




As
foreign-owned enterprises have multiplied in China, such competition has also
internationalized the Chinese lighting market. We believe this will cause
further reorganization and integration toward market centralization. The Chinese
lighting market has shown increasing demand for lighting products, and rapid
growth in different grades and patterns of power-saving light sources and the
development of lighting products for different uses. Therefore, market
participants have focused on accelerating the development, popularization and
application of “green” and power-saving lighting products in China’s lighting
industry.




Under
China’s Great West Development Strategy, China has focused development in
western and central China, and this forms a gradient effect on power-saving
lighting products of different grades across the country. The implementation of
green lighting engineering and energy-saving demand has accelerated the
development of high-effective energy-saving products, especially power-saving
florescent lamps. And at same time, we believe it is crucial for lighting
enterprises to develop their own brand identity in this constantly evolving and
developing lighting industry.




Currently,
energy deficiency across the world has come into reality.  Also, CO22 (carbon
dioxide) emissions have raised the question of global warming and a
deteriorating living environment. Such issue have been recognized around the
world. Countries have formulated important policies to develop and popularize
green and power-saving lighting lamps. The Chinese government has also placed
energy savings and emission reduction as long-term national policies, followed
by certain targets and specific measures that have been enacted and put into
effect. For the next three (3) years the Chinese government intends promote and
popularize 50 million high-effective power-saving lighting products each year.
With rapid advancements in China’s urbanization, real estate and secondary
education will produce increasing space for growth and demand, and we believe
China’s lighting industry will have a tremendous opportunity to reap great
benefits.




- 5
-




(In thousands for dollar
amount)





Industry
Policies




Power-saving
lighting products have long been a sector in the economy supported and
encouraged by national industrial and energy policies. In November 2004, the
National Development and Reform Commission issued the China Medium and Longer
Term Energy Conservation Plan that placed “lighting equipment” as an important
energy-saving field and “Green Lighting Engineering” as one of top ten (10)
energy-saving programs. During the period of the National Five-Year Plan
(2006-2010), we believe highly-effective power-saving lighting systems and
three-band fluorescent lamps will be widely applied to public facilities,
hotels, office buildings, stadiums, gymnasiums and homes, together with
automatic reconstruction of production lines of power-saving lighting
equipment.





In
December 2005, the State Council issued Interim Provisions for Promotion of
Industrial Structure Adjustment to greatly develop the economy, to construct
resource-conservation and to develop an environmentally-friendly society. During
the same period, the National Development and Reform Commission issued a Guiding
Catalogue of Industrial Structure Adjustment (2005) that encouraged green
lighting product and system development, new-type power-saving lighting product
and relevant production technology development.





In 2006,
the State Council issued the Decision of the State Council on Strengthening
Energy-saving Work and in 2007, Comprehensive Work Schedule of Energy Savings
and Pollution Reduction. The National Development and Reform Commission further
organized certain departments and associations to incorporate power-saving
lighting work into energy savings and pollution reduction and is now
constituting a Plan for the Implementation of Governmental Subsidy for
Popularization of High-Effective and Power-Saving Products. These policies and
others reflect China’s strategic planning with respect to developing a circular
economy (development with environmental and resources protection) and promoting
the development of green power-saving products.





Under the
direction and support of China’s national industrial policy, it is expected that
China will take comprehensive measures to (a) promote healthy development of the
high-effective lighting market, (b) actively explore new mechanisms to promote
and utilize such lighting products, (c) provide extensive publicity and training
on power-saving products and (d) engage in international exchange and
cooperation with respect to the aforementioned topics. In light of these
advancements and policies, we believe hi-tech enterprises such as CH
International with exclusive intellectual property in the lighting industry have
a tremendous opportunity for development in China.





Growth
of Chinese Economy





China’s
national economy has experienced significant growth in recent years, and we are
equally optimistic with the lighting industry. We believe the following fields
will become hot spots pushing forward supply and demand in China’s lighting
market and providing economic growth opportunities for the Company:





Ÿ
            The
      development and construction of public infrastructure, such as airports,
      railways, highways and ports, creates a demand for a construction program
      of high-power lighting and special lighting to support engineering;
      and





Ÿ
            advancements
      in industrialization creates a great demand for special fluorescent lamps
      necessary to facilitate the growth of certain living plants (please see
      our “special lighting” subsection
below);





Ÿ
            demand
      for increases in standard of living conditions creates a demand for new
      construction which will in turn creates a market demand for
      civil/municipal lighting products;





Ÿ
            demand
      for various custom and specialized projects, such as control rooms of
      nuclear power plants, airport control towers, hospitals, schools, banks,
      army facilities and museums, creates a demand for custom lighting
      equipment for special purposes;




- 6
-


(In thousands for dollar
amount)





Ÿ
            the increased attention given to
      the effects of lighting on human vision creates increased demand
      performance-improvement lighting products, especially the implementation
      of such products in educational
  facilities;





Ÿ
            the increasing global energy
      crisis and the shift in the global lighting industry to China enhances
      demand for lighting products and simultaneously promotes the growth of
      Chinese lighting
enterprises.





Advancements
in High-Tech Equipment





In recent
years, some lighting enterprises have imported advanced manufacturing equipment
from foreign countries. Such equipment is highly technical and highly automated,
and the quality of electric light source products manufactured by such equipment
has advanced technology and consistency. The production lines imported into
China have reached or approached international standards and have played an
increasing role in the success of lighting enterprises. Through absorption and
change-over to manufacture on imported equipment, most of them can be made in
China and are capable of replacing imports.





Energy
Savings and Pollution Reduction





Energy
savings and pollution reduction, as a world concern, is now and we believe will
be of great importance in the long term, and we believe that the driving forces
arising therefrom aimed at energy savings and pollution reduction will yield
tremendous commercial opportunities for lighting enterprises. Power-saving
lighting is an important measure and a breakthrough with respect to conserving
energy and reducing pollution, and the popularization of power-saving lighting
resonates throughout the world. For example, the Australian Environment Minister
announced in December 2007 that Australia will gradually phase out incandescent
lamps within three (3) years and in Europe, all member states reached a
consensus that they would replace the old high-energy consuming incandescent
bulbs with energy efficient compact fluorescent lamps gradually to reduce
greenhouse gas emissions. In the United States, the President signed the Energy
Independence and Security Act of 2007, which announced that low-efficiency
incandescent lamps would be gradually phased out and replaced by high-efficiency
lighting schemes of fluorescent lamps and LEDs. We believe that all of these
trends aid in the expansion of the international lighting market and provide a
good opportunity for CH International to increase international sales of its
products.





Integral
Market Share





In 2005,
the market share of lighting products was about US$100 billion throughout the
world, and China’s was approximately US$13.5 billion, accounting for 13.5% of
the global market. The sales value of Chinese-made lighting products was US$21
billion, accounting for 21% of total sales value across the world.





In 2005,
China had about 10,000 enterprises manufacturing lighting products, with sales
values of RMB140 billion (US$16.9 billion) and export of US$8 billion. In 2005,
the breakdown of electric light source products were as follows: electric
incandescent lamps accounting for 43%, fluorescent lamps accounting for 15.8%,
HID lamps accounting for 12%, tungsten-halogen lamps accounting for 1.2% and
other sources accounting for 28%. Since 1996, the annual growth of export volume
of China’s lighting products has exceeded 20% and the export reached US$10
billion. In 2006, China had sales values of RMB160 billion (US$20.4 billion) and
in 2008 China had sales value of RMB 180 billion (US$23.3 billion). It has been
estimated by an international research institute that by the year 2013, total
global demand for lighting products will amount to US$140 billion, in which
light source products will account for 20% and luminaires will account for
80%.





Export
Volume of Chinese Lighting Industry over 1999~2007


(Unit: 100
million)





Year
                                              
                                              1999
                                              
                                              
                                              2000
                                              
                                              
                                              2001
                                              
                                              
                                              2002
                                              
                                              
                                              2003
                                              
                                              
                                              2004
                                              
                                              2005
                                              
                                              
                                              2006
                                              
                                              
                                              2007Sales
      volume
                                              
                                              
                                              26.5
                                              
                                              
                                              
                                              32
                                              
                                              
                                              
                                              38
                                              
                                              
                                              
                                              43.7
                                              
                                              
                                              
                                              54
                                              
                                              
                                              
                                              66.5
                                              
                                              
                                              
                                              79.5
                                              
                                              
                                              
                                              100
                                              
                                              
                                              
                                              128


Source:
China Association of Lighting Industry


- 7
-


(In thousands for dollar
amount)





Industry
Sales





In recent
years, the Chinese lighting industry has experienced continuous, rapid and
stable growth and has formed a production base of global lighting
products.





China’s
lighting industry achieved sales of RMB 45 billion (US$5.4 billion) in 1999, RMB
180 billion (US$24 billion) in 2007 and up to an estimated RMB 200 billion
(US$28.6 billion) in 2008. According to experts’ analysis, Chinese lighting
industry will continue its stable growth in the following 5~10
years.





Industry
Sales Volume (1999 - 2008)


(Unit: 100
million)





Year
                            
                            1999
                            
                            
                            2000
                            
                            2001
                            
                            
                            2002
                            
                            2004
                            
                            
                            2005
                            
                            
                            2006
                            
                            
                            2007
                            
                            
                            2008Sales
      volume
                            
                            
                            
                            450
                            
                            
                            
                            550
                            
                            
                            
                            680
                            
                            
                            
                            800
                            
                            
                            
                            1100
                            
                            
                            
                            1300
                            
                            
                            
                            1500
                            
                            
                            
                            1800
                            
                            
                            
                            2400


Source:
China Association of Lighting Industry





China’s
Electric Light Source Market





According
to the China Association of Lighting Industry, China has become a huge light
product manufacturing country. China’s gross output of electric light sources
reached 82,655 million in 2008, ranking first in the world, including 29.7
billion fluorescent lamps (36% of total output). The production volume of T8
fluorescent lamps in 2008 was up 16% from 2007, for T5 fluorescent lamps was up
25.1% from 2007 in 2008 and for compact fluorescent lamps was up 18.6% from 2007
in 2008. The rate of fluorescent lamps to incandescent lamps increased from
1:1.53 in 2005 to 1:1.18 in 2006 and increased from 1:1.18 in 2006 to 1.07:1 in
2007 and increased from 1:1.07 in 2007 to 1.05:1 in 2008. The structure of
electric light source products has also shifted towards power-saving product
types.





China’s
output of fluorescent lamps was 30.6 billion in 2008, up 17.06% from 2007 (26.14
billion) and the rate of incandescent lamps to fluorescent lamps was 1:1.18. It
is estimated that in the year 2010 the production volume of China’s fluorescent
lamps will reach 5.8 billion and that the rate of incandescent lamps to
fluorescent lamps will be 1:1.3.





China’s
Power-Saving Lighting Market





Since
1996, China began to implement “Green Lighting Engineering”. Experts estimate
that compared with general lighting products, power-saving lighting products
will save power by 60~80%. During the period of National Eleventh Five-Year Plan
(2006~2010), China will aim to increase the popularity of Green Lighting
Engineering. China is the world’s largest manufacturer of power-saving
fluorescent lamps, its production volume in 2005 was 1.7 billion, accounting for
80% of international market, however more than 70% of such products were
exported to foreign countries. Therefore, power-saving fluorescent lamps have
not accounted for a high share in the domestic Chinese lighting market however
this also evidences a very large opportunity for development in the future. It
is estimated that in the next five (5) years, the annual comprehensive growth
rate of China’s lighting industry will be approximately 27%.





In
addition, developed countries have enacted laws prohibiting incandescent lamps.
For example, in Taiwan, within five (5) years, it is believed that incandescent
lamps will be purged out of the market. In the United States, recent legislation
has aimed at replacing incandescent lamps with fluorescent lamp and LEDs and in
Europe by 2020 the European Union plans to reduce energy consumption by twenty
percent (20%) by banning the incandescent lamp. This is a very favorable factor
when considering the development of China’s power-saving fluorescent lamp
industry. About 70% of power-saving fluorescent lamps made in China are
exported, and we believe further expansion into the foreign markets will yield
more extensive market prospects and more opportunities for green lighting
product manufacturing industry participants.


- 8
-





(In thousands for dollar
amount)





Description of Company Business
Segments (Financial Information About Sales of Products)





The
Company is dedicated to developing, manufacturing and selling healthy,
energy-saving, green and innovative high-end products and relevant services in
the fluorescent lighting field. Many of our products lead the Chinese market in
terms of quality, as do our services relating to environmental protection. We
primarily generate revenues through the sale of our products to third parties,
and to a certain extent, our sales are seasonal, with the first quarter being
the low season in light of the Chinese New Year festivities and the fourth
quarter being our peak season.





We are
not required to carry significant amounts of inventory to meet rapid delivery
requirements of our foreign customers as most of our foreign sales are “made to
order” products. However, we are required to carry significantamounts of inventory to
meet rapid delivery requirements of our domestic (China) customers. Unless there
is a quality issue, we do not provide customers with the right to return
merchandise and we do not provide extended payment terms to our
customers.





Our
revenues from the sale of our products were US$14,047 for fiscal year 2005 (100%
of all revenues), US$15,225 for fiscal year 2006 (100% of all revenues),
US$32,379 for fiscal year 2007 (100% of all revenues), US$90,864 for fiscal year
2008 (100% of all revenues) and US$57,459 for fiscal year 2009 (100% of all
revenues).  Set forth below is a description of our best-selling
products and services. A more complete list of our products and services can be
found our website at http://chlighting.com.





Lighting
Source Products





CH
International’s light source products may be divided into “Special Lighting” and
“General Lighting”. A description of both categories, as well as a brief
description of our best selling products in both categories, is set forth
below.





Revenues at September 30,
                    2009 (US$)
                  
                  
                  Percentage of
                    Total RevenueGeneral Lighting Source Products
                  
                  
                  16,119
                  
                  
                  
                  28.05
                  %Special
      Lighting Source Products
                  
                  
                  12,920
                  
                  
                  
                  22.49
                  %





Special
Lighting Source Products





CH
International leads the special light source market and presently has no
significant competition in Chinese market with respect to the innovation, type
and sales of such products. Revenues generated from the sale of special lighting
source products accounted for approximately 22.49% of our product sales during
the fiscal year ended September 30, 2009.





Special Lighting Source
                    Products
                  
                  Revenues at September 30,
                    2009 (US$)
                  
                  
                  Percentage of Special
                    Lighting ProductsAir Cleaning Lamps
                  
                  
                  315
                  
                  
                  
                  2.44
                  %Power-Saving
      Lamps
                  
                  
                  6,046
                  
                  
                  
                  46.8
                  %Plant
      Growth Fluorescent Lamps
                  
                  
                  828
                  
                  
                  
                  6.41
                  %Marketplace
      Lighting Products
                  
                  
                  3,730
                  
                  
                  
                  28.87
                  %Performance-Improvement
      Lighting Products
                  
                  
                  1,579
                  
                  
                  
                  12.22
                  %Sterilizing
      and Disinfecting Lighting Products
                  
                  
                  422
                  
                  
                  
                  3.27
                  %Total:
                  
                  
                  12,920
                  
                  
                  
                  100
                  %


- 9
-





(In thousands for dollar
amount)





Air Cleaning
Lamps





Our
product entitled “Air Cleaning Treasure” (patents pending) is a photocatalyst
fluorescent lamp which uses advanced nano-biological technology, inorganic bond
and multi-band integrating technology which not only provides light, but also
helps purify the air. By using a 320nm~400nm band optically-excited
photocatalyst fluorescent tube, this product effectively removes formaldehyde,
benzene, dimethylbenzene, viruses, bacteria and odors indoors while aiding in
the prevention of viral infections, the reduction of disease transmissions, the
promotion of metabolism and the enhancement of immunity. This product is
suitable for both the home and office buildings.





This
single product has relatively high profits (approximately 2.44% of our Special
Lighting Source Products sales during the fiscal year ended September 30, 2009)
and we believe such product has great market potential and may be deemed to be a
key growth point of our future business development.





Power-Saving
Lamps





Our
power-saving products are highly competitive in the power-saving alternative
market of lighting products and in our management operating model of “contract
energy management” (as discussed below) With respect to governmental purchases
of improved power-saving lighting products, CH International has won over many
important national projects, including “Power-Saving-Oriented Improvement of
Lighting System for Office Area of Government Offices Administration of the
State Council ”, “Power-Saving-Oriented Improvement of Lighting System for
Office Area of Government Offices under Direct Control of Central Government”
and “Power-Saving-Oriented Improvement of Lighting System for Middle and Primary
Schools in Beijing”. Additionally, we have won important national projects
through the bidding process, including the National Olympic Conference Center,
the Beijing Olympic Fire Control Center and Beijing Subway Line 5. We believe
power savings lighting improvement projects are one of the most important
directions of CH International’s business development.





Our
product entitled “Power-Saving Treasure” (patent pending) is a new efficient
power-saving product that combines high-power electronic ballast and a T5 earth
triphosphor strip lamp, featuring high coloration, low electric current and
power saving features. This product is build of materials which are in
compliance with the national requirement for environmental protection to reduce
pollution. This product is used primarily to replace T8 inductive luminaires and
has two (2) main advantages, to use electronic ballast to replace magnetic
ballast and to use the triphosphor strip lamp to replace the halogen powder
strip lamp (95lm/W up from 70lm/W in optical efficiency). For example, a 28W T5
integrated transition stand can save power by thirty percent (30%); if used to
replace a halogen 36W T8 powder fluorescent light source and magnetic ballast,
this item would have an obvious effect on power savings. This product is
therefore most suitable for office buildings, schools, hospitals, factories and
supermarkets.





Revenues
generated from the sale of power saving lamps accounted for approximately 46.8%
of our Special Lighting Source Products sales during the fiscal year ended
September 30, 2009.





Plant Growth Fluorescent
Lamps





After
many tests, CH International has achieved great breakthroughs in light
supplementation for tissue cultures. Plant tissue culture technology is a new
technique of biology developing in recent years, and is an important part of
biotechnology (bioengineering). Tissue cultures, which preserve parent
characteristics, can reproduce many plants out of a parent body in small space
and within a short amount of time. With light supplementation, such cultures may
produce agricultural products around the clock and throughout the year, free of
natural condition restrictions.





For
example, CH International designed a special light for the African chrysanthemum
tissue culture which proved to increase the height of such plant by twenty
percent (20%), increase the plant’s weight by ten percent (10%), considerably
shorten the growth period and reduce the manufacturing cost of such
industrialized agriculture. According to statistical data, tissue culture
laboratories in China cover an area of 1 million square meters. In the next few
years, the Company plans to continue to the development of light sources
necessary for tissue culture of different-types of plants, to increase
production lines and to promote the development of industrialized
agriculture.


- 10
-





(In thousands for dollar
amount)





In
addition to tissue cultures, we sell fluorescent lamps specially designed for
indoor ecological fish tanks and aquariums. Such lamps provide an efficient
optical ecological environment for aquatic animals. For example, the spectral
energy of our product “Growth-Lux” is close to the efficiency curve of
photosynthesis, the ideal light source to plant growth, especially for green
plants. Our product “Sun-Lux 10000K” casts the same light as afternoon sunshine,
producing simulated natural light for breeding seawater fish and growing green
plants, in furtherance of growth and reproduction. Our product “Blue-Lux
Coral/Actinic” provides a nutritive light source for soft ocean creatures,
simulates a blue shortwave of the deep sea, a strong force of light penetration
into 4-6m of deep which are effectively available to surface of organisms. Our
product “Blue-Lux Lake Treasure” uses untrastrong triphosphoric light which can
provide simulated natural light to freshwater fish and green plants and promote
growth and reproduction.





Revenues
generated from the sale of plant growth fluorescent lamps accounted for
approximately 6.41% of our Special Lighting Source Products sales during the
fiscal year ended September 30, 2009 and have occupied a dominant position in
the Chinese market.





Vision-Improvement Lighting
Products





Ordinary
lighting products may easily tire the eyes and induce short sight. High myopia
may also induce a series of complications with the eye. Our vision-improvement
products (which include the T8 straight fluorescent lamp, the T5 straight
fluorescent lamp, the T5 combined stand and the electronic power-saving lamp)
simulate sunlight at ten o’clock in morning, which we believe are effective on
reducing visual fatigue and protecting vision. China is home to one of the
world’s largest number of short-sighted people and according to related
research, “unscientific lighting” is one of the primary causes of
short-sightedness. With over 200 million middle and primary school children in
China, we believe that these products have great market potential.





Marketplace Lighting
Products





The
coloration of fluorescent lamps used in public marketplaces (such as
supermarkets) is typically low, and such poor quality creates a poor appearance
of the product being offered for sale. Our products with a coloration index of
Ra≥90 enhance the original color of an item, which may produce a more ideal
display which could promote more sales. Such marketplace lighting products
accounted for approximately 28.87% of our Special Lighting Source Products sales
during the fiscal year ended September 30, 2009.





Performance-Improvement
Lighting Products





Similar
to marketplace lighting products, the coloration of fluorescent lamps used in
office spaces is typically low, and studies have shown that employees tend to
tire easily, under poor lighting, which inevitably reduces work efficiency. Our
performance-improvement lighting products simulate natural light which reduces
visual fatigue and creates a more comfortable working environment which could
improve work efficiency. Such performance-improvement lighting products
accounted for approximately 12.22% of our Special Lighting Source Products sales
during the fiscal year ended September 30, 2009.





Sterilizing and Disinfecting
Lighting Products





Ultraviolet
light exposure may damage and change the DNA structure of microbes and kill
bacteria immediately or render them unable to reproduce. CH International has
developed two (2) types of products for sterilization of air and water. Some of
these products have been certified as medical devices by the Chinese Ministry of
Health, together with technical patents, and have been sold to and utilized in
hospitals, schools, aquariums, swimming pools and other public places. Such
sterilizing and disinfecting lighting products accounted for approximately 3.27%
of our Special Lighting Source Products sales during the fiscal year ended
September 30, 2009.


- 11
-





(In thousands for dollar
amount)





General
Lighting Products





CH
International has many general light source products which have various
specifications and account for eight percent (8%) of China’s linear fluorescent
lamps. We also rank third among Chinese enterprises manufacturing linear
fluorescent lamps, in which our T5 fluorescent lamp currently leads the Chinese
market in sales volume. Our general lighting products accounted for
approximately 28.05% of our product sales during the fiscal year ended September
30, 2009.





General Lighting Products
                
                Revenues at September 30,
                  2009 (US$)
                
                
                Percentage of General
                  Lighting ProductsGeneral
      Lighting Source Products
                
                
                14,507
                
                
                
                90.00
                %Luminaire
      (Light Fitting) Products
                
                
                1,048
                
                
                
                6.50
                %Electronic
      Products
                
                
                564
                
                
                
                3.50
                %Total
                
                
                16,119
                
                
                
                100
                %








General Lighting Source Products
                  
                  Revenues at September 30,
                    2009 (US$)
                  
                  
                  PercentageLinear
      Fluorescent Lamps
                  
                  
                  7,979
                  
                  
                  
                  55
                  %Compact
      Fluorescent Lamps
                  
                  
                  6,528
                  
                  
                  
                  45
                  %Total
                  
                  
                  14,507
                  
                  
                  
                  100
                  %





Linear Fluorescent
Lamps





Our T5
and T8 series of linear fluorescent lamps use rare earth triphosphor fluorescent
powder advanced water-coating technology and fully-automatic equipment. Such
products are stable and reliable in quality, provide great light efficiency and
long service life, have power saving capabilities and offer selective color
temperatures that adapt to changing environments. Our linear fluorescent lamps
accounted for approximately 50% of our General Lighting Products sales during
the fiscal year ended September 30, 2009.





Compact Fluorescent
Lamps





Our PL
divided and integrated power-saving fluorescent lamps use rare earth triphosphor
fluorescent powder, advanced water-coating technology and fully-automatic
equipment. Such products are stable and reliable in quality, provide great light
efficiency and long service life, have power saving capabilities and offer
selective color temperatures that adapt to changing environments. Our compact
fluorescent lamps accounted for approximately 40% of our General Lighting
Products sales during the fiscal year ended September 30, 2009.





Luminaire (Light Fitting)
Products





CH
International has strong independent design and innovative capacity. Aimed at
future market development, CH International has established strategic
relationships with the French internationally renowned design company Millot
Design (“Millot
Design”), the United States design company In2 Innovation, Inc. (“In2 Innovation”) and
the top Chinese design company Light & View Lighting Design Co. Ltd. (“Light & View”)
with which we design luminaires that have enjoyed an international appeal. We
have also jointly designed with Millot Design a series of products for the
kitchen, bathroom and the workplace. Overall, our luminaire products are matched
to our light source products and may be used in kitchen and bathrooms,
classrooms, the workplace and other locations. CH International develops series
of new-type light source lamps and supporting luminaires to guarantee the
products meet various needs of different countries. Our luminaire products
accounted for approximately 6.5% of our General Lighting Products sales during
the fiscal year ended September 30, 2009.


- 12
-





(In thousands for dollar
amount)





Our
lighting series of products for the home are developed jointly by CH
International and Millot Design and has a European style, including eight (8)
major series, such as hanging and ceiling lamps. Furthermore, through our
collaboration with an enterprise that manufactures cupboards, CH International
designs and manufactures luminaires that meet customer’s different demands for
practical functions of the kitchen. Our luminaires use energy-saving and
environmental-protection materials.





Electronic
Products





Our
electronic products focus on electronic ballasts and on matching our light
source products and our luminaire (light fitting) products. Our electronic
ballasts adopt optimized circuit design and high-quality elements which create
stable performance. Furthermore, the photoelectric parameters of light sources
are completely matched to the electric apparatus, producing higher efficiency.
Depending on the technical advantage in special light sources and exclusive
intellectual property, CH International plans to work with professional design
companies to design electric apparatus of various styles for air purification
and to popularize such products to customers shopping for new
automobiles.





As of
September 30, 2007, sales to Feile International Trading Company accounted for
approximately 12.89% of our revenues. However, as of September 30, 2009, the
Company was not (and currently is not) dependent on a single or few customers,
the loss of which would materially affect our business. Our Electronic Products
accounted for approximately 3.5% of our General Lighting Products sales during
the fiscal year ended September 30, 2009.





Products
Currently Under Development





Lamps for the
Classroom





CH
International is currently organizing scientists, engineers and designers to
work with professional design companies that jointly develop lamps for
classrooms. We plan to cooperate with the Ministry of Education to popularize
this series of products. For example, our blackboard lamp uses extension pipes
to adjust height and employs different reflectors for different light sources to
reduce glare. Classroom lamps apply the scientific principle of optical
reflection to structural design which overcomes glaring interference by reason
of many lamps in one large classroom.





Eyeshield Reading
Lamps





CH
International is currently organizing professional design companies to work with
ophthalmologists, engineers and designers to develop a new-type of eyeshield
reading lamp. This product will be specially aimed at China’s 200 million middle
and primary school students.





Company
Services





CH
International has established close cooperative relations with customers to
provide them with all-round support to enhance mutual growth. CH International
may, aimed at the specific needs of certain special customers, provide
customized products and services, including professional design, lighting system
installation, test and maintenance and other series of professional pre-market
and after-sale services. Also, we believe CH International has an excellent
technical service team that can provide a reliable guarantee of smooth
completion of various light engineering projects. We have not historically and
currently do not generate revenues from our services. Set forth below is a
description of our main services and support features. A more complete list of
our services can be found our website at http://chlighting.com.


- 13
-





(In thousands for dollar
amount)





Personnel
Support





Up to
now, CH International has established 32 offices in China and has trained a
high-quality sales team that provide local customers (distributors and
customers) with professional training, instruction, market support and other
services. We have built a sales service network at three (3) levels of province,
city and county and our sales network are all over China.





CH
International applies a similar system to the international market. Our regional
general agent for the mid-east market is located in Saudi Arabia, which such
agent is in charge of expansion and customer support for that region. Our
regional general agent for the European market is located in Belgium, and such
agent is in charge of expansion and customer support for that region. In
addition, we also set up branch in Hong Kong to set up market expansion and
customer support in Asia-Pacific region.





Distribution
Support





CH
International applies the system of regional sales to the domestic Chinese
market and has established cooperative relationships with over 450 distributors.
CH International establishes composite terminal sales that include exclusive
agency, light experience hall and special counter, and provides financial
support and professional training thereto. This way the Company may enhance its
enterprise image and strengthen its competitiveness.





Marketing
and Promotional Support





CH
International promotes the sale of its products through television, newspapers,
journals, professional websites, search engines and at exhibitions held in China
and in foreign countries. Also, CH International collaborates with the media to
publicize its brand. For example, the Company has invested RMB10 million
(US$1300) to hold strategic cooperation with CCTV-2 and has strategic
cooperation with print media, including: China Business, Lighting Technology
& Design, Lamps and Lighting, China Light & Lighting, Interior
Architecture of China and Guzhen Light. Furthermore, the Company has built
large-size outdoor advertising boards on the Hangha-Hangzhou Expressway and the
Hangzhou-Ningbo Expressway.





Service
Support





CH
International’s marketing center in China sets up service departments that
provide clients with pre-market, in-market and after-sale services which include
ordering products, delivering products and follow-up. In addition, the Company’s
international marketing department employs a professional merchandiser that
provides our customers with services and support throughout the entire
transaction.





Lighting
Engineering Design and Consultation





Aimed at
the various needs of different customers, CH International offers systematic and
scientific lighting design and consultation, together with complete solutions,
including lamp systems, luminaires and electronics selection, allotment and
optimization up to the standard of beautifying, energy saving and environmental
protection. Relying on our professional lighting technology center (the Special
Light Source Research Center), CH International offers state-of-the-art lighting
technology and specialized knowledge, and our lighting design is evident in
office buildings, shopping centers, hotels, schools, hospitals, tunnels and
various special workshops.





Customized
Development of Lighting Products





Aimed at
the particular demand of certain specialized customers (like control rooms of
nuclear power plants, airport control towers, hospitals, schools, banks, army
facilities and museums), CH International develops lighting products for special
use and provides reliable and high-quality professional lighting equipment and
services, including professional design, high-quality products, system
installation, test and maintenance services and other pre-market and after-sale
services. CH International has a high-quality technical service team that offers
reliable guarantees on various lighting engineering.


- 14
-





(In thousands for dollar
amount)





Environmental
Protection Services





Consistent
with the global trend of environmental protection and saving energy, CH
International takes forward-looking measures to set up recovery and disposal
systems of fluorescent lamps to reduce pollution in the environment and to
realize recycled uses of its materials.





Environmental
protection measures comply with non-technical barriers for world trade. In the
next few years, with the implementation of the European EUP, we believe China
will constitute and pass similar relevant laws to normalize the market.
Therefore, we believe the measures we take today will help our growth of our
sales volume in the future.





Environmental
protection measures are consistent with China’s basic national policy of energy
saving and pollution reduction, and we believe that such measures will be
financially supported by the Chinese government in the future and will help
establish a good brand image.





Environmental
protection measures are also consistent with basic principles in international
trade that manufacturer producing pollution will be responsible for disposal of
such pollution. Therefore, we believe the measures we take today will help our
growth of our international sales volume in the future.





The
European Union has passed laws that impose surcharge recovery and disposal
expenses on the products having impact on environment. In the face of
environmental pressures and international practice, we believe China will pass
laws requiring similar payments on products having an impact on the environment.
We believe that forward-looking measures will produce economic benefits to the
Company.





Sources
and Availability of Raw Materials from Suppliers





Purchases
from one of the Company’s major suppliers for the fiscal years ended September
30, 2009 and 2008 contributed to 37% and 11% of the Company’s purchases during
such years, respectively. No purchases from the Company’s suppliers for the
fiscal year ended September 30, 2007 contributed to over ten percent (10%) of
the Company’s purchases for such year.





Enterprise
Marketing Strategy and Methods of Distribution





Domestic
Marketing Strategy





CH
International owns patents for special lighting lamps, and currently holds a
leading position in the Chinese domestic market. CH International’s sale of
products has yielded positive results since 2006 when it entered the China
market. Set forth below are some key features of the Company’s domestic
marketing strategy:




·
            Building/Training
      Sales Team.CH
      International plans to strengthen and build its sales team and establish
      incentives for competitive marketing with internal sales competitions and
      a rotational training program to accelerate training of a modern sales
      team of professional competence. Apart from day-to-day sales training, the
      Company’s domestic marketing center holds Marketing Training Camp, hiring
      renowned teachers from Beijing and other places throughout the country to
      provide training courses to build a cohesive, creative, strong team with
      effective marketing skills.





·
            Expansion
      of Sales Network.CH
      International plans to continue to expand domestic market share and
      increase points of sales. At present, it has set up 32 offices and has
      relationships with more than 200
  distributors.


- 15
-





(In thousands for dollar
amount)





·
            Energy
      Savings and Emission Reduction.The Company plans to participate
      actively in government projects of replacement and procurement for green
      lighting, group procurement of enterprises and institutions and major
      projects bidding. CH International plans to establish contacts with
      provincial and municipal governments to promote its energy-saving
      products. Through the Company’s implementation of a corresponding discount
      policy, CH International plans to increase the intensity of cultivation in
      the market, making the design and concepts of its products fully
      recognized by channel partners, consumer groups and lighting designers. At
      the same time, consistent with national policies of energy-savings and
      emission reduction, the Company intends to fully utilize its advantage of
      advanced lighting technology to enhance development with innovative
      lighting design, to provide complimentary products and to accelerate the
      upgrading of products. CH International plans to continue to maintain
      extensive cooperation with key branded enterprises to ensure the growing
      orders of existing customers and to develop new
      customers.





·
            Strengthen
      Brand Promotion.CH
      International plans to continue to collaborate with various media sources
      to promote its brand. It has established strategic cooperation with CCTV2
      (China Television) and with the print media as well as large-scale outdoor
      advertising on the Shanghai-Hangzhou and Hangzhou- Ningbo Expressways. CH
      International also plans to continue to maintain its professional website
      (http://chlighting.com), search engines and exhibitions
      in China and abroad to develop new customer groups. Furthermore, CH
      International plans to continue to employ the top products planning
      corporation in China (Guangzhou Zhonghe Jiuding Planning Company) as CH
      International's products promotion planning
    consultant.





International
Marketing Strategy




·
            Participating
      in International Lighting Fair.CH International currently
      participates in more than 10 exhibitions abroad annually, such as
      international lighting fairs in Hong Kong, Frankfurt, Nuremberg, New York,
      Las Vegas and Italy and plans to continue to do so. CH International
      continues to improve its influence and to expand sales in the
      international market. The purpose of participation in the exhibitions is
      not only to contact new customers but also to exhibit the strength of CH
      International and its brand
image.





·
            International
      Market District Management.The global market of CH
      International is divided into several regions, including Europe, America,
      Asia and the Middle East. There is a sales team responsible for the
      promotion of our products and negotiation of the business arrangements in
      each regional market. CH International plans to adopt specific strategies
      and practices for each of the regional
  markets.





·
            Brand
      Enterprise (Manufacturer) Cooperation.There are two (2) methods
      employed with respect to the manufacturing of our products. The first is
      “ODM”, whereby the structure, appearance and technical aspects of our
      products are developed and designed by CH International, however after the
      completion of their development such products are sold with the trademark
      of certain clients after the production. These products are usually mass
      produced in accordance with the placement of orders by such clients. The
      other method is “OEM”, whereby our products are made in connection in
      cooperation with certain third party enterprises such as GE Lighting,
      Sylvania, and other large multinational groups. For example, our plant
      growth lamp co-developed by CH International and Huazhong Agricultural
      University and is sold in Europe, America and Australia. We have
      established cooperation with a number of large enterprises like Interpet,
      Arcardia of Britain, Croci SpA of Italy, PENN-PLAX and SUNPARK of United
      States, AVK LIGHTING of Australia and Narva of Germany to develop the
      global market of plant growth
lamps.


- 16
-





(In thousands for dollar
amount)





Product
Sales Strategy (Domestic and International Sales)





Domestic
Sales through Distributors





CH
International entered into the high-tech domestic Chinese lighting market in
2006. Currently, 32 offices have been set up in China, forming a three-level
sales network in counties, cities and provinces, with point-of-sale locations
across the country, which contributes toward an efficient marketing system. Each
office is responsible for providing professional services to its local dealers
and consumers. CH International has implemented a regional distribution system
in the Chinese domestic market, establishing long-term cooperative relationships
with approximately 450 distributors. CH International builds up composite-end
sales channels including franchise stores, lighting centers and counters to
increase its market competitiveness.





Set forth
below is a table setting forth domestic revenues generated from customers in
four (4) geographic regions of China for the fiscal years ended September 30,
2006, 2007, 2008 and 2009, as well as the percentage of total domestic revenues
for each of the aforementioned periods:





%
      of
                      
                      
                      %
      of
                      
                      
                      
                      %
      of
                      
                      
                      %
      of
                      
                      
                      
                      %
      of
                      
                      
                      %
      of
                      
                      
                      
                      %
      of
                      
                      
                      %
      ofChina
                      
                      
                      World
                      
                      
                      
                      China
                      
                      
                      World
                      
                      
                      
                      China
                      
                      
                      World
                      
                      
                      
                      China
                      
                      
                      World9/
      30/ 06
                      
                      
                      Sales at
                      
                      
                      Sales at
                      
                      9/
      30/ 07
                      
                      Sales at
                      
                      
                      Sales at
                      
                      9/
      30/ 08
                      
                      Sales at
                      
                      
                      Sales at
                      
                      9/
      30/ 09
                      
                      Sales at
                      
                      
                      Sales atSales
                      
                      
                      9/30/06</fo
      nt>
                      
                      
                      9/30/06</fo
      nt>
                      
                      Sales
                      
                      9/30/07</fo
      nt>
                      
                      
                      9/30/07</fo
      nt>
                      
                      Sales
                      
                      9/30/08</fo
      nt>
                      
                      
                      9/30/08</fo
      nt>
                      
                      Sales
                      
                      9/30/09</fo
      nt>
                      
                      
                      9/30/09</fo
      nt>SouthChina
                      
                      US$23
                      
                      
                      
                      3
                      
                      
                      
                      0.15
                      
                      US$3,923
                      
                      
                      30
                      
                      
                      
                      12.12
                      
                      US$13,730
                      
                      
                      24.78
                      
                      
                      
                      15.11
                      
                      US$7,450
                      
                      
                      21.50
                      
                      
                      
                      12.97EastChina
                      
                      US$53
                      
                      
                      
                      7
                      
                      
                      
                      0.35
                      
                      US$653
                      
                      
                      4.99
                      
                      
                      
                      2.01
                      
                      US$5,870
                      
                      
                      10.59
                      
                      
                      
                      6.46
                      
                      US$3,200
                      
                      
                      9.24
                      
                      
                      
                      5.57WestChina
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      US$655
                      
                      
                      5.01
                      
                      
                      
                      2.02
                      
                      US$4,500
                      
                      
                      8.12
                      
                      
                      
                      4.95
                      
                      US$600
                      
                      
                      1.73
                      
                      
                      
                      1.04NorthChina
                      
                      US$685
                      
                      
                      
                      90
                      
                      
                      
                      4.5
                      
                      US$7,846
                      
                      
                      60
                      
                      
                      
                      24.23
                      
                      US$31,310
                      
                      
                      56.51
                      
                      
                      
                      34.46
                      
                      US$23,393
                      
                      
                      67.53
                      
                      
                      
                      40.71Total
      Domestic
      Sales:
                      
                      US$761
                      
                      
                      
                      100
                      
                      
                      
                      5
                      
                      US$13,077
                      
                      
                      100
                      
                      
                      
                      40.38
                      
                      US$55,410
                      
                      
                      100
                      
                      
                      
                      60.98
                      
                      US$34,643
                      
                      
                      100
                      
                      
                      
                      60.29





International
Sales through Distributors





CH
International also implements its distribution system in the international
market. In the Middle East, CH International has a regional agent in Saudi
Arabia that is solely responsible for the promotion in the local market of the
Middle East. In the European market, CH International has a regional agent in
Belgium who is in charge of the regional marketing. The Group has also set up a
branch in Hong Kong to take the responsibility of marketing business in
Asia-Pacific region.





Set forth
below is a table setting forth foreign revenues generated from customers in five
(5) geographic regions of the World outside of China for the fiscal years ended
September 30, 2006, 2007, 2008 and 2009, as well as the percentage of total
foreign revenues and percentage of total world revenues for each of the
aforementioned periods:





9/ 30/
                    06Sales
                  
                  % of
                    Foreign
                    Sales
at
                    9/30/06
                  
                  
                  % of
                    World
                    Sales
                    at
                    9/30/06
                  
                  9/ 30/
      07
                    Sales
                  
                  % of
                    Foreign
                    Sales
at
                    9/30/07
                  
                  
                  % of
                    World
                    Sales
                    at
                    9/30/07
                  
                  9/ 30/
      08
                    Sales
                  
                  % of
                    Foreign
                    Sales
at
                    9/30/08
                  
                  
                  % of
                    World
                    Sales
                    at
                    9/30/08
                  
                  9/ 30/ 09
                    Sales
                  
                  % of
                    Foreign
                    Sales
at
                    9/30/09
                  
                  
                  % of
                    World
                    Sales
                    at
                    9/30/09NorthAmerica
                  US$723
                  
                  
                  5
                  
                  
                  
                  4.75
                  
                  US$1,090
                  
                  
                  5.65
                  
                  
                  
                  3.37
                  
                  US$1,212
                  
                  
                  3.42
                  
                  
                  
                  1.33
                  
                  US$591
                  
                  
                  2.59
                  
                  
                  
                  1.04Europe
                  US$6,943
                  
                  
                  48
                  
                  
                  
                  45.6
                  
                  US$7,159
                  
                  
                  37.09
                  
                  
                  
                  22.11
                  
                  US$7,647
                  
                  
                  21.57
                  
                  
                  
                  8.42
                  
                  US$8,832
                  
                  
                  38.71
                  
                  
                  
                  15.37Asia
                  US$4,773
                  
                  
                  33
                  
                  
                  
                  31.35
                  
                  US$2,156
                  
                  
                  11.17
                  
                  
                  
                  6.66
                  
                  US$9,008
                  
                  
                  25.41
                  
                  
                  
                  9.91
                  
                  US$3,932
                  
                  
                  17.23
                  
                  
                  
                  6.84Middle
      East
                  US$868
                  
                  
                  6
                  
                  
                  
                  5.7
                  
                  US$6,048
                  
                  
                  31.33
                  
                  
                  
                  18.68
                  
                  US$13,251
                  
                  
                  37.38
                  
                  
                  
                  14.59
                  
                  US$7,369
                  
                  
                  32.30
                  
                  
                  
                  12.82Other:
                  US$1,157
                  
                  
                  8
                  
                  
                  
                  7.6
                  
                  US$2,849
                  
                  
                  14.76
                  
                  
                  
                  8.8
                  
                  US$4,336
                  
                  
                  12.22
                  
                  
                  
                  4.77
                  
                  US$2,092
                  
                  
                  9.17
                  
                  
                  
                  3.64Total
      Foreign Sales:
                  US$14,464
                  
                  
                  100
                  
                  
                  
                  95
                  
                  US$19,302
                  
                  
                  100
                  
                  
                  
                  59.62
                  
                  US$35,454
                  
                  
                  100
                  
                  
                  
                  39.02
                  
                  US$22,816
                  
                  
                  100
                  
                  
                  
                  39.71


- 17
-


(In thousands for dollar
amount)





Domestic
Replacement Market





In 2007,
China's domestic market size of the T8 halogen powder lamp was 1 billion lamps.
Currently, according to the requirements of energy savings and emissions
reduction, T8 halogen powder lamps are one of the main products to be replaced.
The sum total of growing data and stock amount of T8 halogen powder lamps are
estimated to be not less than 2 billion (each lamp for two years) annually. If
10% of the lamps are to be replaced, the replacement market would be still 200
million per year. Users that are pressing for replacement of such lamps in China
include manufacturing enterprises, large-scale commercial enterprises
(especially supermarket chains and large stores), colleges and universities,
primary and secondary schools and other educational institutions, hospitals,
railway stations, airports, libraries and other public buildings and facilities,
government organs, institutions and office buildings.





Our
T5-integrated conversion stand product (also known as the “Power-Saving
Treasure”) is most suitable to replace the T8 halogen powder lamp and ballast
without changing the original lamps, and can provide significant energy-saving
benefits for users. It can be used in the energy-saving replacement of units,
enterprises, schools, stores, supermarkets and hospitals.





Since CH
International offers energy-saving lighting products such as the “Power-Saving
Treasure”, we believe that we have the competitive edge in the replacement
market and the marketing model of “contract energy management” (as described
below). The participation and engagement of the Company in energy-saving
lighting rebuilding (and replacement) projects is an important growth point for
the development of CH International. CH International has already begun to
provide replacement services for users which gained high evaluation and high
reputation in the field of energy-saving lighting from 2005 to 2007. Typical
users include the following:




·
            Government
      Offices.In October
      2007, CH International was the first domestic enterprise appointed by
      Zhongnanhai (General Office of the State Council) to rebuild energy-saving
      lighting systems at the central and state organs held by the Government
      Offices Administration of the State Council. The first group of users
      include: Zhongnanhai (General Office of the State Council), the Ministry
      of Finance, Ministry of Commerce, Ministry of Information Industry, State
      General Administration of Quality Supervision and Inspection, State
      Administration of Work Safety Supervision, Ministry of Supervision, the
      State Tourism Administration, the State Meteorological Administration, the
      Chinese Academy of Sciences, the Chinese Academy of Social Sciences, the
      Legal Affairs Office of the State Council, the State Bureau for Letters
      and Calls and the China Law
Society.





·
            Green
      Lighting Procurement Projects.Recently, the Ministry of
      Finance and the State Development and Reform Commission jointly held the
      "National Project to Promote Efficient Lighting Products Tender" whereby
      more than 30 well-known enterprises bid for projects and CH International
      won several bids for projects, including the Green Lighting Procurement
      Project of Central Government Departments under the CPC Central
      Committee.





·
            Primary
      and Secondary Schools.In 2006, in the energy-saving
      lighting rebuilding project of Beijing’s primary and secondary schools,
      organized by the Beijing Municipal Development and Reform Commission, with
      participation of global branded enterprises Philips, Matsushita and
      others, CH International’s products achieved the top integrated score
      among the three most successful enterprises (CH International, Philips,
      Matsushita). CH International’s products were used in the implementation
      of energy-saving lighting rebuilding in more than 300 primary and
      secondary schools in the Changping, Huairou, Shunyi and Mentougou
      Districts of Beijing.





·
            Universities
      and Other Enterprises.CH International is and plans to
      continue competing for rebuilding (and hence, replacing) projects of
      energy-saving lighting projects in universities and other enterprises. For
      example, CH International has won projects and has sold products to the
      Visual Arts College of Fudan University, the Ningbo Wanli International
      Aristocratic School, the Chengdu Institute of Technology, Foxconn (Suzhou)
      Co., Ltd. and Suning Appliance Chain Store (Suzhou) Co.,
      Ltd.


- 18
-


(In thousands for dollar
amount)





Domestic
Direct Sales





CH
International is one of the key suppliers to the Chinese government of lighting
products. The government procurement market is an important part of development
of CH International's business, and it has been very successful in such
endeavors. For example, CH International is the only enterprise in the Chinese
lighting industry that was awarded the China Energy-Saving Contribution Award
for two (2) consecutive years. It has the largest number of series of products
on the state list of energy-saving products in government procurement out of all
lighting enterprises, and is the main company participating in the national
efficient lighting products promotion project. At the same time, the quality for
the major products obtained State Inspection-free Qualification in
China.





CH
International has a leading position in product technology, quality, types,
energy saving and environmental protection. CH International has won national
key projects of government procurement of rebuilding energy-saving lighting
systems.  Additionally, it has won the bidding of major national
projects, including:




·
            Beijing
      Olympic Project.Olympic Park National Conference Center: National Conference Centre is the
      main press centre and international broadcast centre of 2008 Beijing
      Olympic Games. In November 2007, when the Olympic Park National Conference
      Center invited lighting brands in China and abroad to tender bids, CH
      International had the highest
score.





·
            Olympic
      Fire Command Center.CH International won the bid for Beijing lighting systems at the Olympic
      Fire Command Center.





·
            Construction
      of Infrastructure Projects.The Company has also won
      projects in public infrastructure such as the lighting system project of
      Beijing Subway Line 5, the lighting systems project of the People's Square
      in Shanghai’s subway system. At the same time, CH International has also
      won projects for offices, hotels, hospitals and other projects to provide
      lighting products and
services.





International
Direct Sales





Through
ten (10) years of hard work, CH International’s products have obtained critical
certifications in a number of countries (such as the EU's CE, TUV and GS, UL in
the United States, South Korea’s KS and Saudi Arabia’s SASO) which has enabled
the Company to create good conditions for ODM and OEM production for many large
companies in the international market. Through ODM and OEM, CH International's
products are sold to major multinational lighting enterprises. CH International
plans to use its influence of its brand for self-owned brand sales in the
international market and to increase sales for end-users.





Research
and Development (R&D)





The
Company spent US$536, US$580 and US$231 for the fiscal years ended September 30,
2009, 2008 and 2007, respectively on Company-sponsored research and development
(“R&D”)
activities as determined in accordance with US GAAP. The Company plans to spend
US$600 and US$650 during fiscal years 2010 and 2011, respectively, on
Company-sponsored research and development activities.





Advanced
Technology Test Equipment





Our
Special Light Research Center is equipped with China's leading laboratory
equipment, such as the German-made EUHER X fluorescence detector and the only
imported DL756 fluorescence spectrometer from the United States. Also, CH
International’s Light Source and Fitting Inspection and Development Laboratory
was ranked a Provincial Technology Centre by the Zhejiang Economic and Trade
Commission, and our Special Lamps Research and Development Center International
was deemed a high-tech research and development center by the Office of Science
and Technology of Zhejiang Province in China. CH International was also
recognized as a high-tech enterprise and as a Zhejiang Patent Model Enterprise
by the Office of Science and Technology Group in Zhejiang Province. Our Light
Source and Fitting Inspection and Development Laboratory, which has lamp product
testing and developmental capability, is recognized nationally. The development
and detection capacity therein provides hardware support for development of
high-tech and reliable products that provide for stable quality of the
products.


- 19
-





(In thousands for dollar
amount)





Personnel





As of
September 30, 2009, CH International employed 33 R&D specialists, 21
external experts and advisers and had technical exchanges with four top external
product research institutions located in Europe, America and Asia.





Cooperative
Institutions





CH
International is striving to be an innovator and leader in the fluorescent
lighting field. Since its inception, the Company has established working
relationships with colleges and universities, scientific research units,
professional design institutions, professors and other experts, including the
Institute for Electric Lamps, Shanghai Fudan University, Shanghai Tongji
University, South East University, Zhejiang University, Shanghai Jiaotong
University, Huazhong Agricultural University, Shanghai Lighting Institute and
the National Center of Supervision & Inspection on Electric Lamps Quality
(Shanghai).





In the
field of lighting design, CH International collaborates with China's top
lighting design company (Light & View) on the development of new lamps at an
engineering design studio located at CH International. At the same time, CH
International also collaborates with Millot Design (of France) and In2
Innovation (of the United States) to design kitchen series, wall lamp series,
showcase series lamps with European and American aesthetic standards for the
internationalization and globalization of our products.





Employees





General
Employment Figures





As of
September 30, 2009, CH International employed 1,482 individuals, 18% of which
have graduated with a college or higher degree and 39% of which graduated from
junior high school or specialized secondary school. Each factory employee has
executed a labor contract. The staff of each department is as
follows:




Department/Level
                  
                  NumberSenior
      – Medium Level Management
                  
                  
                  40Marketing
                  
                  
                  130Manufacturing
                  
                  
                  1,003R&D
                  
                  
                  33Management
                  
                  
                  276Total:
                  
                  
                  1,482





Management





CH
International has a specialized and internalized management team and constantly
creates innovation in its management system. In 2002, CH International passed
its ISO9001:2000 certification. In 2004, CH International initiated an ERP
information management system throughout the whole enterprise. In 2005, CH
International adopted the KPI performance evaluation index system, and in same
year, CH International passed its ISO14001:2004 certification.


- 20
-





(In thousands for dollar
amount)





Sources
of Management and Production Personnel





The
Company locates management personnel with business and other professional skills
through the use of headhunters to meet the need of rapid business development.
The Company is currently in the process of


establishing
an internal staff development platform for the establishment of internal
development channels for staff members.





CH
International has established a long-term cooperative relationship with a school
of light industry in Shashi, Hubei. The school provides students majoring in
electric lamps the opportunity to work with CH International to add new members
for our basic-level management team and technical teams.





CH
International has also established school-enterprise cooperation with Zhejiang
Shangyu Vocational Technology School to train prospective production
personnel.





Professors and
Experts





As of
September 30, 2009, CH International employed 21 professors and experts from
universities, institutions and authoritative industry bodies such as Fudan
University, Shanghai Jiaotong University and Shanghai Institute of
Lighting.





Product
Development Consultancy Team





CH
International works with the Shanghai Lighting Association of Shanghai Fudan
University which provides product development consultation.





Product
Design Consultants





CH
International has retained top design companies such as Millot Design (of
France) In2 Innovation (of the United States) and China's leading design company
Light & View, as design consultants for our new, luxury and fashion lighting
products.





Marketing
Consultant





CH
International has retained the Guangzhou Zhonghe Jiuding Planning Company, the
top products planning company in China, as the Company’s products
marketing/promotional planning consultant. Zhang Dingjian is the chief planner
of that company.





Intellectual
Property Advisor





Hu
Hongjuan is our senior patent agent, lawyer and founder of the Hangzhou Tianqin
Intellectual Property Agency Co., Ltd. Ms. Hu has rich experience in
intellectual property field and has represented clients with respect to many
patent infringement lawsuits and has served as a legal adviser on intellectual
property rights to a number of enterprises.


- 21
-





(In thousands for dollar
amount)





Intellectual
Property





Trademarks





CH
International successfully registered the trademark “” in China in 2000, the trademark “”
in China in 2004 and the trademark “” in China in
2005.





CH
International has applied to register the trademarks “”, “CH LIGHTING” and “” in Hong Kong
in December of 2005 and has applied to register“” in
certain participating countries of the Madrid Agreement Concerning International
Registration of Trademarks in November 2006 (the United States, India,
Switzerland, Saudi Arabia, Australia, the United Kingdom, Singapore, Ireland,
Norway).





Furthermore,
CH International has applied to register the trademark “” and “CHENHUI GUANGBAO” in China in 2007 and has applied to
register the trademark“” and “CH LIGHTING” in the
United States in 2008.





CH
International has obtained the title of “China Famous Trademark” in
2007.





Patents





As of
September 30, 2009, CH International owned 161 patents, 23patent applications of
which are pending.





Strategic
Relationships with Universities, Organizations and Associations





Institute
for Electric Light Sources at Shanghai Fudan University





CH
International has signed an agreement with the Institute for Electric Light
Sources at Shanghai Fudan University, a renewed institution of high education,
pursuant to which the experts and professors of the university will provide
training and guidance in the professional fields of green and energy-saving
lighting.





Fudan
University, initially known as “Fudan Public School”, was founded in 1905. It is
the first institution of higher education established independently by the
Chinese. After 100 years of development, Fudan University has been listed in the
top four (4) famous universities of higher education in China. The Institute for
Electric Light Sources of Fudan University specializes in optical research and
development. The Institute has extensive exchanges and contacts within lighting
academic circles both at home and abroad, and is recognized as the authority in
the field of lighting sources and lighting.





The
Institute has 4 research labs and one centre: Light Source Research Lab, Light
Source Technics and Materials Research Lab, Light Sources Electrical and
Electronics Research Lab, CAD Lighting Design and Measurement Research Lab and
Shanghai Automobile Lighting Engineering Centre. The Institute’s research
orientation includes green lighting, lighting engineering design, automotive
lighting engineering, optoelectronic test technology, intermediate visual
studies and other fields.


- 22
-





(In thousands for dollar
amount)





On
scientific research, the Institute has completed dozens of important projects,
has obtained 18 honors such as State Technological Invention Award, the first
prize of Scientific and Technological Progress of Ministry of Education and
incentives of national and provincial-levels, and has published more than 20
monographs and translation works and hundreds of paper is major magazines in
China and abroad. The teaching materials compiled





Hubei
Province Huazhong Agricultural University





The
Company has an established relationship with Hubei Province Huazhong
Agricultural University to jointly carry out the development and promotion of
the project of the Company’s Zu Pei Bao fluorescent tube under the direction of
professors of Huazhong Agricultural University. This plant growth fluorescent
lamp passed through the provincial identification of new products in
2007.





Shanghai
Lighting Institute





The Group
has cooperated with the Shanghai Lighting Institute in the development of
certain product series including table lamps for educational study (for example,
lamps for computer usage) and classroom lighting products. The Company has
retained Mr. Wen Yufu, the director of the Shanghai Lighting Institute, as a
consultant to assist the Group’s R&D staff in the design and development of
its products.





Active
Participation in Institutions and Organizations





Participation
in Setting (and Improving Upon) Industry Standards





CH
International is a member of the China Lighting Institute, the China Technical
Committee of Lighting Electrical Appliances Standardization and Subcommittee of
Lamps and Lanterns. As a driving force, it has participated in and has
established the setting of certain industry standards of China’s lighting
industry.





CH
International has participated in the formulation of a large number of national
standards, including Plant Growth Fluorescent Lamps, Method of Measuring and
Specifying the UV-radiation of Ultraviolet Lamps Used for Sun-tanning,
Photometry of Indoor Type Luminaires, Photometry of Luminaires for Street
Lighting, Safety Requirements of Emergency Luminaires, Safety Requirements for
Handlamps, Luminaires: Special Requirements - of Luminaires with Built-in
Transformers for Filaments Lamps, Safety requirements of Self-ballasted Lamps
for General Lighting Services-, Safety Requirements of Single-capped Fluorescent
Lamps, and Miscellaneous Lamps, to name a few. Among them, the industry standard
of Plant Growth Fluorescent Lamps was exclusively applied and drafted by CH
International. In 2008, CH International is drafting standards including the
Performance Specifications of Double-capped Fluorescent Lamps, the Disposal and
Recovery Standards of Wasted Lighting Products, the Recycling and Reuse
technical Specifications of Wasted Fluorescent Lamps, and the Light Control
Device Part 4.





China
Association of Lighting Industry





The China
Association of Lighting Industry, a social organization voluntarily organized by
enterprises and institutional units in the lighting appliances industry, is the
only social organization of electrical lighting industry officially registered
by the Ministry of Civil Affairs of the People's Republic of China. The
Association, founded in 1989, is a national non-profit social group, under no
restriction of region, department and ownership, with the State-owned Assets
Supervision and Administration Commission as the administrative department. The
Association is comprised of the following committees: Light Sources Committee,
Lighting Committee, Illuminaires Committee, Lamps and Caps Committee, Electrical
Appliance Accessories Committee, Specific Materials Committee, Neon Light
Committee and Semiconductor Lighting Committee. It also has 2 Work Committees,
the Information Work Committee and Talent Training Committee. In 2007, CH
Lighting PRC became a member of the sixth council of China Association of
Lighting Industry.


- 23
-





(In thousands for dollar
amount)





China
Illuminating Engineering Society





The China
Illuminating Engineering Society (“CIES”), established
in June 1, 1987, is a level one national institute under the administration of
Chinese Association of Science and Technology. In the same year of its
foundation, it joined the International Commission on Illumination (“CIE”) in the name of
China National Commission on Illumination, and it is the only organization
representing China in CIE.





The China
Illuminating Engineering Society is a group of domestic experts and scholars in
the field of lighting that is mainly engaged in scientific research, teaching,
design, production, development and promotion of lighting technology
application. The tenet of CIES is to organize and unite the vast number of
scientific and technological workers and members of the lighting industry, and
to actively carry out academic exchange activities as well as to care and
protect the legitimate rights and interests of the lighting technology workers
and members to contribute to the prosperity and development of China's lighting
industry and to speed up the realization of socialist modernization in China.
Its main tasks are academic exchanges, technical advice and technical training
in the field of lighting, editing and publishing scientific and technical
publications of lighting to popularize scientific and technological knowledge,
promotion on academic exchange activities and strengthening the links between
science and technology workers in the field of lighting in China and abroad, and
providing business services for enterprises through evaluation and feasibility
studies on science and technology projects, and exposition on lighting science
and technology.  CIES has 8526 ordinary members, 652 corporate
members. It established Lighting China (http://www.lightingchina.com.cn)
to proliferate the exchange of information. “Lighting Engineering Journal” and
“Yearbook of China Lighting Engineering” are publications of CIES distributed
all around China.





After its
foundation, through hard work and exploration for 20 years, CIES has improved
its organization, improved rules and regulations, established a standing office
with the capacity, efficiency and unity based on the principles of democracy.
Giving full play to the role of group leadership, it firmly seized the
opportunity to compete for survival and development and actively carry out
activities in accordance with the reform thoughts of autonomy and
self-development. Because CIES has made a significant contribution to China's
lighting technology for years, it has twice been granted the honor of "Advanced
Society" by the Chinese Association for Science and Technology and the
"Membership Work Award " of advanced society by the sixth China Association for
Science and Technology. CH Lighting PRC is one of the organizational members of
CIES.





The
China Chamber of Commerce for Import and Export of Machinery and Electronic
Products





The China
Chamber of Commerce for Import and Export of Machinery and Electronic Products
(“CCCME”), was
established by various types of organizations in July of 1988 and is registered
in the People's Republic of China in accordance with the law. CCCME is a
national trade organization engaging in the import and export of machinery and
electronic products and related trade activities with more than 7,000 members.
CCCME covers the enterprises which are among the largest and most representative
in the industry including aircraft, automobile, shipping, computer,
communications equipment, audio and video equipment, household electrical
appliances, instrumentation, electrical products, machine tools, construction
machinery, agricultural machinery, bicycles, bearings, power tools, components
and other electronic goods. CH Lighting PRC became a member of CCCME in
2005.





The
Electric Light Source and Accessories Technical Subcommittee of National
Lighting Equipment Standardization Technical Committee





The
National Electric Light Source Standardization Centre, established in 1975, is
the agency which is responsible for the development of national standardization
of electric light source and its accessories. In order for China to comply with
international standards, the National Lighting Equipment Standardization
Technical Committee was established in 1997, with its secretariat in Beijing
Light Sources Institute and its business operation of the centre and the
committee directly under the guidance and administration of State Bureau Quality
and Technical Supervision and the State Bureau of Light Industry. As the
centralized technical management unit for the International Electrotechnical
Commission IEC (TC34), the Committee's main task is to develop national
standards and industry standards of the lighting and electrical equipment
industries, to develop and amend the plan of standards
and organize the implementation and management, to study and write the draft of
IEC standards and amendments and to vote on the amendment and to provide
professional lectures on industry standards, and technical
consultancy.


- 24
-





(In thousands for dollar
amount)





The
Centre and the Committee currently have the responsibility of centralized
management of more than 200 IEC standards. Such national and industry standards
involve all aspects of electrical lighting equipment including light, light
materials, lamp, cap, ballast, starter, lighting and lamps. It dedicatedly
provides high-quality services for users in China and abroad.




Zhejiang
Province Lighting Engineering Society





The
Zhejiang Province Lighting Equipment Society is a social organization of
provincial lighting equipment industry approved to establish and register by
No.13 Document of Zhejiang Province Ti Ban (1989), No.13 Document of Zhejiang
Civil Affairs Office (1990) with legal personality, under the authorities of
Zhejiang Economic and Trade Commission. At present it has more than 250
organizational members. In 2004 the Group became the executive member of the
council of the Zhejiang Province Lighting Equipment Society which is responsible
for the concentrated industrial management of corresponding enterprises
originally in the field of 1st light industry, 2nd light industry, electronics,
township, education, textile and economic planning commission, civil affairs,
railways, food, water and electric, and urban construction system,
etc.





This
society is an inter-departmental and trans-regional industry organization of the
province which is free from the restrictions of ownership. Its tenet is to
coordinate industry ties, promote the industrial development, and safeguard the
legitimate rights and interests of members and the industry as a whole, promote
communication within the industry and the relation of enterprise and government,
and to provide advice and recommendations to the government.





The
Zhejiang Province Product Quality Evaluation Association





The
Zhejiang Province Product Quality Evaluation Association is jointly established
by the Zhejiang Province Institute of Technology Quality Evaluation, the
Zhejiang Institute of Metrology and the Institute of Mechanical and Electrical
Design in December 2005. The first group of members was made up of 153
organizations and units such as technical institutions, industry associations,
famous enterprises, scientific research institutes, quality advisory units and
30 individual members. CH International was one of the first enterprise members.
The Association was established primarily for the purpose of evaluating the
quality of products with the rules of science, applicability and effectiveness
and providing a platform for communication and exchange between enterprises. The
tenet of the Association is to fully exploit the role of quality supervision and
to build a bridge across quality supervision departments, technical
institutions, enterprises and consumers. The establishment of the Association
promotes the implementation of supervision and evaluation of products quality in
Zhejiang Province and plays an active role in the promotion of the effectiveness
of their work, enterprise credibility and quality of products.





Honors and Certificates Received By
CH International For Its Products




Year
            Honors and Certificates of CH
      International2004
            2003
      State Outstanding Foreign Investment Enterprise2005
            Certificate
      of Assessment of ISO9001 : 20002005
            Certificate
      of Assessment of ISO14001 : 20002005
            Energy-saving
      Product Certificate2005
            Lamps
      and lanterns obtained China Compulsory Certification (3C certification for
      short)


- 25
-





(In thousands for dollar
amount)





2005
            Products
      sold in European achieved certificates of GS, EMC, CE2005
            Products
      sold in North American achieved certificates of UL, FCC2005
            Products
      sold in Britain obtained certificate of BS2005
            Products
      sold in Korea obtain certificates of KS、EK2005
            Products
      sold in Saudi Arabia obtained certificate of SASO2005
            Products
      sold in Canada have obtained certificate of CSA/CUL2005
            Zhejiang
      High-tech Enterprise, Zhejiang Technology Center, Zhejiang Model
      Enterprise2005
            CH
      International’s products were granted “National Free-Inspection
      Product”2005
      -2006
            CH
      International was granted “State Award for Contribution on Energy Saving”
      in 2 consecutive years (It is the only enterprise in the lighting industry
      to earn this honor in 2 consecutive years)2006
            New
      products were listed as provincial key projects is new products
      development2006
            Technical
      transform project of export energy saving products obtained capital
      support from State Ministry of Commerce.2006
            The
      Trademark of CH International was awarded the title of “Zhejiang Famous
      Trademark”, and CH International’s products were granted “Celebrated
      Products of Zhejiang”2006
            CH
      International was listed in the Government Purchase List of Energy-saving
      Product2006
            Products
      sold in Japan obtained S Certificate.2006
            The
      ultraviolet sterilization light of CH International obtained a China
      Registration Certificate For Medical Device2007
            CH
      International’s trademark was granted the title of China Famous
      Trademark.2007
            High-tech
      product specialization project obtained the capital support of 10,000,000
      yuan from the National Development and Reform
Commission2007
            The
      development of high-tech product obtained capital support from the
      Ministry of Science and Technology.2007
            The
      state recognized laboratory project of CH International was listed in the
      projects supported by National Development and Reform
      Commission.2008
            Winner
      of Zhejiang Science and Technology Achievement Award in the categories of
      “Catalyst energy-efficient lighting fluorescent lamp”, “Plant growth
      fluorescent tube” and  “Based on the high color rendering
      fluorescent lamps EUP
Directive”


- 26
-


(In thousands for dollar
amount)





2008
            Member
      of the China Energy Conservation Association of Energy Service Industry
      Committee (EMCA)2008
            Zhejiang
      CH Lighting Co., Ltd. appointed "Energy Efficiency Label Credit Union
      Member Business Unit"2008
            Zhejiang
      CH Lighting Co., Ltd. named Beijing Health Care Administration and
      Logistics Management Association Member2008
            Third
      Prize, True Color Fluorescent Tube Technology Innovation
      Awards2008
            2007
      Industrial Comprehensive Strength Hundred Honor
    Plaque2008
            Our
      "Visible-light photocatalyst fluorescent lamp" was accredited as a
      "National Key New Product"2009
            Our
      "Chenhui" trademark was accredited as a"Famous Chinese Trademark" by the
      State General Administration for Trade and Industry2009
            Won
      the "Zhejiang Province High-tech Enterprise"
Honor2009
            Shangyu
      2008 Annual Energy-Saving Advanced Enterprise and 2008 Annual Industry Red
      Units, the 2008 Export Twenty Strong
  Enterprise





Competition





We
believe the Company’s technology in the special light source sector is the most
advanced in the world and therefore, the Company currently faces very little
competition in the special light source sector. CH International’s main
competitors in the general lighting sector are top global lighting enterprises,
include OSRAM, PHILIPS and PANASONIC. Based on the limited availability of data,
it is difficult to ascertain the actual number of competitors we have and the
percentage of market share each commands with respect to sales in China and
abroad. The following information has been obtained by the Company and cited
from publicly-released materials or on industrial websites.





Compliance
With Environmental Regulation





Currently,
there are no relevant or applicable regulatory laws in China relating to the
protection of the environment the compliance with which by the Company would
have a material adverse affect on the Company’s business (for example, upon the
capital expenditures, earnings and competitive position of the Company and its
subsidiaries). The Company estimates that it will not incur any costs for
environmental control facilities during the fiscal year 2010.





ITEM 1A
            Risk
    Factors





Not
required for a smaller reporting company.





ITEM 1B.
            Unresolved Staff
      Comments





None.


- 27
-





(In thousands for dollar
amount)





ITEM 2.
            Properties




According
to Chinese law, the government owns all the land in China and companies or
individuals are authorized to use the land only through land use rights granted
by the Chinese government. Our facilities are located at each of our operating
subsidiaries summarized as follow:




Subsidiary
                                      
                                      Facilities
                                      
                                      SizeofLand
                                      
                                      Land Use Right
                                        ExpiresCH
      Lighting PRC and CH Lab (Land use right owned by CH Lighting
      PRC)
                                      
                                      Manufacturing,
      warehouse and office
                                      
                                      37,539
      sq. feet
                                      
                                      January
      2003- May 2031CH
      Technology
                                      
                                      Manufacturing,
      warehouse and office
                                      
                                      18,648  sq.
      feet
                                      
                                      June
      2007- April
2056





The
Company also works with 32 regional “representative” offices in China comprised
of distribution and sale agents, collectively forming a three-level sales
network in counties, cities and provinces, with point-of-sale locations across
the country, which contributes toward an efficient marketing system. Each office
is responsible for providing professional services to its local dealers and
consumers. None of these 32 offices are leased by the Group.





We
believe that all of our properties and equipment have been adequately
maintained, are generally in good condition, and are suitable and adequate for
our business.





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 the date hereof, there is no pending or outstanding material litigation
with the Company or with the Group except as set forth below.




ITEM 4.
            Submission of Matters to a Vote
      of Security Holders





None.


- 28
-





(In thousands for dollar
amount except bid price)





PART
II




ITEM 5.
            Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities





Our
Common Stock is quoted on the OTCBB and on the Pink Sheets under the symbol
“CHHN.OB”. 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.




Closing Bid Prices
                
                High
                
                
                LowFiscal
      Year Ended September 30, 2009:
                
                ($)
                
                
                ($)1st
      Quarter
                
                
                3.400
                
                
                
                1.6002nd
      Quarter
                
                
                4.200
                
                
                
                2.6003rd
      Quarter
                
                
                4.800
                
                
                
                3.1004th
      Quarter
                
                
                4.600
                
                
                
                3.400Fiscal
      Year Ended September 30, 2008:1st
      Quarter (prior to a 1 for 1000 reverse split on December 13,
      2008):
                
                
                0.020
                
                
                
                0.0091st
      Quarter (after a 1 for 1000 reverse split on December 13,
      2008):
                
                
                10.01
                
                
                
                3.0002nd
      Quarter:
                
                
                4.250
                
                
                
                3.0003rd
      Quarter (after a 6 for 1 split):
                
                
                1.010
                
                
                
                0.0254th
      Quarter
                
                
                4.100
                
                
                
                1.010




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.





Holders
of Common Equity





As of
December 18, 2009, we had issued 120,000,000shares of our Common
Stock to 250
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 Report, after
giving effect to the Exchange. The Exchange occurred immediately following the
cancellation of 2,180,616 shares of the Company’s Common Stock held by Venture
Fund I, Inc., the Company’s majority stockholder immediately prior to the
closing of the Exchange.





Dividends





We have
never declared or paid any cash dividends or distributions on our Common Stock.
We have a plan to pay out approximately 50% of our profits in the form of cash
dividends on our Common Stock by CH Lighting International
Corporation.




- 29
-





(In thousands for dollar
amount)





Securities
Authorized for Issuance under Equity Compensation Plans




The
following table discloses information as of September 30, 2009 with respect to
compensation plans (including individual compensation arrangements) under
which our equity securities are authorized for issuance.





(a)
                      
                      
                      (b)
                      
                      
                      (c)Plan Category
                      
                      Number of securities to
                        be issued upon exercise
                        of outstanding options,
                        warrants and rights
                      
                      
                      Weighted-average
                        exercise price of
                        outstanding
                        options, warrants
                        and rights
                      
                      
                      Number of securities
                        remaining available for
                        future issuance under
                        equity compensation
                        plans (excluding
                        securities reflected in
                        column (a)N/A
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      -0-Total
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      -0-





Performance
Graph




Not
required for a smaller reporting company.




Recent Sales of Unregistered
Securities




None.





Options
and Warrants





As of
September 30, 2009, we have no outstanding options or warrants.





Transfer
Agent and Registrar




Our
transfer agent is Corporate Stock Transfer, located at 3200 Cherry Creek Drive
South, Suite 430, Denver, Colorado 80209. Their telephone number is (303)
282-4800.




ITEM 6.
            Selected Financial
      Data




Not
required for a smaller reporting company.





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 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 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.


- 30
-





(In thousands for dollar
amount)





Critical
Accounting Policies and Estimates





This
section should be read together with the Summary of Significant Accounting
Policies included as Note 2 to the consolidated financial statements included in
our Annual Report on Form 10-K for the year ended September 30,
2009.





Policy
Affecting Recognition of Revenue





Among the
most important accounting policies affecting our consolidated financial
statements is our policy of recognizing revenue in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
605-10 (formly Staff Accounting Bulletin (“SAB”) No. 104. ) Under this policy,
all of the following criteria must be met in order for us to recognize
revenue:





1.
Persuasive evidence of an arrangement exists;


2.
Delivery has occurred or services have been rendered;


3. The
seller’s price to the buyer is fixed or determinable;


4.
Collectability is reasonably assured.





The
majority of the Company’s revenue results from sales contracts with customers
and revenue is recorded upon the shipment of goods.  Management
conducts credit background checks for new customers as a means to reduce the
subjectivity of assuring collectability.  Based on these factors, the
Company believes that it can apply the provisions of FASB ASC 605-10 with
minimal subjectivity.





Estimates
Affecting Accounts Receivable and Inventories





The
preparation of our consolidated financial statements requires management to make
estimates and assumptions that affect our reporting of assets and
liabilities.  These estimates are particularly significant where they
affect the reported net realizable value of the Company’s accounts receivable
and inventories.





At
September 30, 2009, the Company provided an allowance against its accounts
receivable amounting to $2,167.  Management’s estimate of this
allowance was based on the aged nature of these accounts
receivable.  In making its judgment, management assessed its
customers’ ability to continue to pay their outstanding invoices on a timely
basis, and whether their financial position might deteriorate significantly in
the future, which would result in their inability to pay their debts to the
Company.





At
September 30, 2009, the Company provided an allowance against its inventories
amounting to $157.  Management determination of this allowance was
based on potential impairments to the current carrying value of the inventories
due to potential obsolescence of aged inventories.  In making its
estimate, management considered the probable demand for our products in the
future and historical trends in the turnover of our inventories.





While the
Company currently believes that there is little likelihood that actual results
will differ materially from these current estimates, if customer demand for our
products decreases significantly in the near future, or if the financial
condition of our customers deteriorates in the near future, the Company could
realize significant write downs for slow-moving inventories or uncollectible
accounts receivable.





Impairment
of Long-Lived Assets





Long-term
assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to the guidelines established in FASB ASC 360
(formerly SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets).  The Company considers assets to be impaired if the carrying
value exceeds the future projected cash flows from the related operations.
 The Company also re-evaluates the periods of amortization to determine
whether subsequent events and circumstances warrant revised estimates of useful
lives.  There were no impairments for the years ended September 30,
2009 and 2008.


- 31
-





(In thousands for dollar
amount)





Recently
Issued Accounting Pronouncements





Effective
January 1, 2009, the Company adopted ASC 805 (formerly SFAS No. 141 R,
Business Combinations).  ASC 805 requires an acquirer to measure
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets
acquired.  The adoption of ASC 805 did not have any effect on the
Company’s condensed consolidated financial statements as of September 30,
2009.





Effective
January 1, 2009, the Company adopted ASC 810-10 (formerly SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements ).  This
Statement establishes accounting and reporting standards that require the
ownership interests in subsidiaries’ non-parent owners be clearly presented in
the equity section of the balance sheet; requires the amount of consolidated net
income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
requires that changes in a parent’s ownership interest while the parent retains
its controlling financial interest in its subsidiary be accounted for
consistently; requires that when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary be initially measured
at fair value and the gain or loss on the deconsolidation of the subsidiary be
measured using the fair value of any noncontrolling equity; requires that
entities provide disclosures that clearly identify the interests of the parent
and the interests of the noncontrolling owners.  The adoption of ASC
810-10 did not have a significant effect on the Company’s condensed consolidated
financial statements as of September 30, 2009.





Effective
January 1, 2009, the Company adopted ASC 815-10 (formerly SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities ), which amends
SFAS No. 133 and expands disclosures to include information about the fair value
of derivatives, related credit risks and a company’s strategies and objectives
for using derivatives.  The adoption of ASC 815-10 did not have a
material effect on the condensed consolidated financial statements as of
September 30, 2009.





Effective
January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task
Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05” ).  ASC
815-40 addresses the determination of whether an instrument (or an embedded
feature) is indexed to an entity’s own stock, which is the first part of the
scope exception in paragraph 11(a) of FASB SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities  (“SFAS
133”).  If an instrument (or an embedded feature) that has the
characteristics of a derivative instrument under paragraphs 6–9 of SFAS 133 is
indexed to an entity’s own stock, it is still necessary to evaluate whether it
is classified in stockholders’ equity (or would be classified in stockholders’
equity if it were a freestanding instrument).  Other applicable
authoritative accounting literature, including Issues EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company Own Stock , and EITF 05-2, The Meaning of “Conventional Debt Instrument”
in Issue No. 00-19 , provides guidance for determining whether an instrument (or
an embedded feature) is classified in stockholders’ equity (or would be
classified in stockholders’ equity if it were a freestanding
instrument).  ASC 815-40 does not address that second part of the
scope exception in paragraph 11(a) of SFAS 133.  The adoption of ASC
815-40 did not have a material effect on the condensed consolidated
financial statements as of September 30, 2009.





On
April 1, 2009, the FASB approved ASC 805 (formerly FSP FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies ) ,  which amends Statement 141R and
eliminates the distinction between contractual and non-contractual
contingencies.  Under ASC 805, an acquirer is required to recognize at
fair value an asset acquired or liability assumed in a business combination that
arises from a contingency if the acquisition-date fair value of that asset or
liability can be determined during the measurement period.  If the
acquisition-date fair value cannot be determined, the acquirer applies the
recognition criteria in SFAS No. 5,  Accounting for
Contingencies  and Interpretation 14, “Reasonable Estimation of the
Amount of a Loss – and interpretation of FASB Statement No. 5,” to
determine whether the contingency should be recognized as of the acquisition
date or after it.  The adoption of ASC 805 did not have a material
effect on the condensed consolidated financial statements as of September 30,
2009.


- 32
-





(In thousands for dollar
amount)





ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  It did not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity
securities.  We are required to adopt ASC 320-10 for our interim and
annual reporting periods ending after June 15, 2009.  ASC 320-10
does not require disclosures for periods presented for comparative purposes at
initial adoption.  ASC 320-10 requires comparative disclosures only
for periods ending after initial adoption.  The adoption of ASC
320-10 did not have a material effect on the condensed consolidated
financial statements as of September 30, 2009.





On
April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1
and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments)  to require disclosures about fair value of financial
instruments in interim period financial statements of publicly traded companies
and in summarized financial information required by APB Opinion
No. 28,  Interim Financial Reporting.  We are required
to adopt ASC 825-10 for our interim and annual reporting periods ending after
June 15, 2009. ASC 825-10 does not require disclosures for periods
presented for comparative purposes at initial adoption. ASC 825-10 requires
comparative disclosures only for periods ending after initial
adoption.  The adoption of ASC 825-10 did not have a material
effect on the condensed consolidated financial statements as of September 30,
2009.





In June
2009, the FASB SFAS No. 167, Amendments to FASB Interpretation No. 46R, requires
an enterprise to perform an analysis and ongoing reassessments to determine
whether the enterprises variable interest or interests give it a controlling
financial interest in a variable interest entity and amends certain guidance for
determining whether an entity is a variable interest entity.  It also
requires enhanced disclosures that will provide users of financial statements
with more transparent information about an enterprises involvement in a variable
interest entity.  SFAS 167 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009 and for all interim reporting periods after that.  The Company is
currently evaluating the impact of the adoption of SFAS 167. This recently
issued but not yet enacted accounting standard has not yet been codified by the
FASB.




- 33
-





(In thousands for dollar
amount except earnings per share)





Results
of Operations




Results
of Operations For the Fiscal Year Ended September 30, 2009 Compared To the
Fiscal Year Ended September 30, 2008





Year endedSeptember30,
                
                
                Year endedSeptember 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Revenues
                
                $
                47,334
                
                
                $
                90,864
                
                
                
                82.38
                %
                
                
                100
                %Revenues
      from government subsidies
                
                
                10,125
                
                
                
                -
                
                
                
                17.62
                %
                
                
                -TOTAL
      REVENUES
                
                
                57,459
                
                
                
                90,864
                
                
                
                100
                %
                
                
                100
                %COST
      OF SALES
                
                
                38,264
                
                
                
                62,340
                
                
                
                66.59
                %
                
                
                68.61
                %GROSS
      PROFIT
                
                
                19,195
                
                
                
                28,524
                
                
                
                33.41
                %
                
                
                31.39
                %Selling,
      marketing and distribution expenses
                
                
                5,616
                
                
                
                3,071
                
                
                
                9.77
                %
                
                
                3.38
                %Non-cash
      marketing expense - discount on notes receivable
                
                
                3,448
                
                
                
                -
                
                
                
                6.00
                %
                
                
                -General
      and administrative expenses
                
                
                6,773
                
                
                
                6,410
                
                
                
                11.79
                %
                
                
                7.05
                %INCOME
      FROM OPERATIONS
                
                
                3,358
                
                
                
                19,043
                
                
                
                5.84
                %
                
                
                20.96
                %Amortization
      of discount on notes receivable
                
                
                1,031
                
                
                
                -
                
                
                
                1.79
                %
                
                
                -Interest
      income
                
                
                882
                
                
                
                815
                
                
                
                1.54
                %
                
                
                0.90
                %Interest
      expense
                
                
                (4,745
                )
                
                
                (3,941
                )
                
                
                8.26
                %
                
                
                4.34
                %Other
      government subsidies
                
                
                685
                
                
                
                595
                
                
                
                1.19
                %
                
                
                0.65
                %Other
      expenses
                
                
                (61
                )
                
                
                (11
                )
                
                
                0.11
                %
                
                
                0.01
                %INCOME
      BEFROE INCOME TAXES
                
                
                1,150
                
                
                
                16,501
                
                
                
                2.00
                %
                
                
                18.16
                %Income
      tax benefit (expense)
                
                
                64
                
                
                
                (2,091
                )
                
                
                0.11
                %
                
                
                2.30
                %NET
      INCOME
                
                $
                1,214
                
                
                $
                14,410
                
                
                
                2.11
                %
                
                
                15.86
                %NET
      INCOME PER SHARE, BASIC AND DILUTED
                
                $
                0.01
                
                
                $
                0.15





Revenues




Year Ended September 30,
                      
                      
                      Increase /
                      
                      
                      Increase /2009
                      
                      
                      2008
                      
                      
                      (Decrease)
                      
                      
                      (Decrease)Domestic
      revenue
                      
                      $
                      24,518
                      
                      
                      $
                      55,410
                      
                      
                      $
                      (30,892
                      )
                      
                      
                      (55.75
                      )%Government
      subsidies
                      
                      
                      10,125
                      
                      
                      
                      -
                      
                      
                      
                      10,125
                      
                      
                      
                      100
                      %Overseas
      revenue
                      
                      
                      22,816
                      
                      
                      
                      35,454
                      
                      
                      
                      (12,638
                      )
                      
                      
                      (35.65
                      )%Total
      Revenues
                      
                      $
                      57,459
                      
                      
                      $
                      90,864
                      
                      
                      $
                      (33,405
                      )
                      
                      
                      (36.76
                      )%





Revenues
decreased by 36.76% for the year ended September 30, 2009 compared to the year
ended September 30, 2008.  The decrease was primarily due to revenues
from overseas and domestic sales decreased $43,530 for the unfavorable impact by
the global economic crisis.





The
central government of the PRC has agreed to grant the Company a subsidy for
selling energy - saving lighting products at a discount price on a condition
that the products are sold to retail customers.  $10,125 was recorded
as revenue derived from a government subsidy for the year ended September 30,
2009.




- 34
-





(In thousands for dollar
amount)





Cost of
Sales




Year Ended September 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Revenues
                    
                    $
                    57,459
                    
                    
                    $
                    90,864
                    
                    
                    $
                    (33,405
                    )
                    
                    
                    (36.76
                    )%Cost
      of sales
                    
                    
                    38,264
                    
                    
                    
                    62,340
                    
                    
                    
                    (24,076
                    )
                    
                    
                    (38.62
                    )%Gross
      Profit
                    
                    $
                    19,195
                    
                    
                    $
                    28,524
                    
                    
                    $
                    (9,329
                    )
                    
                    
                    (32.71
                    )%Gross
      Profit Rate
                    
                    
                    33.41
                    %
                    
                    
                    31.39
                    %
                    
                    
                    2.02
                    %
                    
                    
                    6.44
                    %





Cost of
goods sold decreased by 38.62% for the year ended September 30, 2009
compared to the year ended September 30, 2008.  These decreases are
attributable to our decrease in sales.





Gross
profit decreased by $9,329, or 32.71%, for the year ended September 30, 2009 as
compared with the year ended September 30, 2008.  This decrease is
attributable to lower net sales.  Gross profit as a percentage of net
revenues increased from 31.39% in the prior year to 33.41% in the year of 2009
due to the fact that Zhejiang CH sold energy - saving lighting products in
connection with government purchasing project with higher margin.





Selling,
Marketing and Distribution Expenses




Year Ended September 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Sales
      commission
                    
                    $
                    2,851
                    
                    
                    $
                    -
                    
                    
                    $
                    2,851
                    
                    
                    
                    100
                    %Transportation
      fee
                    
                    
                    805
                    
                    
                    
                    708
                    
                    
                    
                    97
                    
                    
                    
                    13.70
                    %Payroll
                    
                    
                    598
                    
                    
                    
                    608
                    
                    
                    
                    (10
                    )
                    
                    
                    (1.64
                    )%Traveling  fee
                    
                    
                    589
                    
                    
                    
                    554
                    
                    
                    
                    35
                    
                    
                    
                    6.32
                    %Office
      expense
                    
                    
                    349
                    
                    
                    
                    335
                    
                    
                    
                    14
                    
                    
                    
                    4.18
                    %Advertising
      fee
                    
                    
                    240
                    
                    
                    
                    626
                    
                    
                    
                    (386
                    )
                    
                    
                    (61.66
                    )%Others
                    
                    
                    184
                    
                    
                    
                    240
                    
                    
                    
                    (56
                    )
                    
                    
                    (23.33
                    )%Total
                    
                    $
                    5,616
                    
                    
                    $
                    3,071
                    
                    
                    $
                    2,545
                    
                    
                    
                    82.87
                    %





Our
increase in selling, marketing and distribution expenses for the year ended
September 30, 2009 as compared with the year ended September 30, 2008 was
primarily due to the following factors: (1) The Company assigned agents to
perform sales promotion and supporting activities in connection with a
government purchasing project and paid them promotion fees of $2,851 based on
the actual sales quantities in 2009. Since the operation method was started from
2009, there was none sales commission in 2008; and (2) Advertising and
miscellaneous expenses decreased by $442 in 2009 compared to 2008. This decrease
was due to the implementation by management of internal controls to decrease
expenses.





Non-Cash
Marketing Expense





Non-cash
marketing expense was $ 3,448 for the year ended September 30, 2009 compared to
$0 for the year ended September 30, 2008.  This increase is attributable toa $35,615 interest-free notes receivable provided by the Company to related and unrelated
companies for their assistance in developing distribution channels and new
markets for the Company during the year ended September 30, 2009.




- 35
-





(In thousands for dollar
amount)





General and
Administrative Expense




Year Ended September 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Bad
      debt provision
                    
                    $
                    2,201
                    
                    
                    $
                    373
                    
                    
                    $
                    1,828
                    
                    
                    
                    490.08
                    %Payroll
                    
                    
                    1,188
                    
                    
                    
                    1,176
                    
                    
                    
                    12
                    
                    
                    
                    1.02
                    %Stock-based
      employee compensation
                    
                    
                    538
                    
                    
                    
                    962
                    
                    
                    
                    (424
                    )
                    
                    
                    (44.07
                    )%Research
      and development expense
                    
                    
                    535
                    
                    
                    
                    600
                    
                    
                    
                    (65
                    )
                    
                    
                    (10.83
                    )%Office
      expense
                    
                    
                    466
                    
                    
                    
                    955
                    
                    
                    
                    (489
                    )
                    
                    
                    (51.20
                    )%Depreciation
                    
                    
                    375
                    
                    
                    
                    280
                    
                    
                    
                    95
                    
                    
                    
                    33.93
                    %Others
                    
                    
                    1,470
                    
                    
                    
                    2,064
                    
                    
                    
                    (594
                    )
                    
                    
                    (28.78
                    )%Total
                    
                    $
                    6,773
                    
                    
                    $
                    6,410
                    
                    
                    $
                    363
                    
                    
                    
                    5.66
                    %





Our
increase in general and administrative expense of $363 or 5.66% from $6,410
during the year ended September 30, 2008 to $6,773 during the year ended
September 30, 2009 was primarily due to the following factors: (1) Provision for
bad debts of $2,201 was provided based on the age of its accounts receivable
during the fiscal year ended September 30, 2009; and (2) Miscellaneous expenses
decreased by $594 or 28.78%, in 2009 compared to 2008.  This decrease
was due to the implementation by management of internal controls to decrease
expenses.





Amortization
of Discount on Notes Receivable




Amortization
of discount on notes receivable was $1,031for the year ended September 30, 2009
compared to $0 for the year ended September 30, 2008.  This increase
was attributable to the amortization of a $3,448 discount on notes receivable
for the year ended September 30, 2009.





Interest
Expenses




Year Ended September 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Short-term
      Bank Loans
                    
                    $
                    (2,770
                    )
                    
                    $
                    (2,232
                    )
                    
                    $
                    538
                    
                    
                    
                    24.10
                    %Bills
      Financing
                    
                    
                    (781
                    )
                    
                    
                    (973
                    )
                    
                    
                    (192
                    )
                    
                    
                    (19.73
                    )%Financial
      Obligations, Sale-leaseback
                    
                    
                    (722
                    )
                    
                    
                    (301
                    )
                    
                    
                    421
                    
                    
                    
                    139.87
                    %Others
                    
                    
                    (472
                    )
                    
                    
                    (435
                    )
                    
                    
                    37
                    
                    
                    
                    8.51
                    %Total
                    
                    $
                    (4,745
                    )
                    
                    $
                    (3,941
                    )
                    
                    $
                    804
                    
                    
                    
                    20.40
                    %





Our
increase in interest expenses of $804 or 20.40% from $(3,941) during the year
ended September 30, 2008 to $(4,745) during the year ended September 30, 2009
was primarily due to the following factors: (1) There was an increase of
short-tem bank loans of $24,236 at September 30, 2009; and (2) An additional
financial obligation, a sale-leaseback which commenced on June 30, 2008, caused
an additional interest expense of $380 in the year ended September 30,
2009.





Income
Tax Benefit (Expense)





Income
tax benefit (expense) for the year ended September 30, 2009 was $ 64 as compared
to $(2,091) for the year ended September 30, 2008. The increase was due to a
$1,500 pre-tax loss of one subsidiary - Zhejiang CH, which caused an approximate
$177 income tax benefit.


- 36
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(In thousands for dollar
amount)





Liquidity
and Capital Resources




Cash





Our cash
balance at September 30, 2009 was $2,792, representing a decrease of $362, or
11%, compared with our cash balance of $3,154 at September 30,
2008.  The decrease was mainly attributable to the investing
activities in notes receivable, acquisitions and the purchases of property for
$21,350, offset by net proceeds from short-term bank borrowings and notes
payable, which amounted to $13,093 and net cash provided by operating activities
of $8,418.





Cash
Flow





Cash
flows from operations during 2009 amounted to $8,418, representing a decrease of
approximately 72% compared with cash flows from operations of $24,161 in
2008.  This decrease in cash flow was primarily due to the decrease of
our income from operations by 82.37%, to $3,358 in the year of 2009, compared
with operation income of $19,043 in the year of 2008.





Our cash
flows used in investing activities amounted to $21,350 in the year ended
September 30, 2009.  We also used $2,534 for the purchase of
construction in progress, property, plant and equipment in the
PRC.  Compared to 2008, our cash flows used in investing activities
increased by $23,235.  During that period, we provided $18,816 notes
receivable to related and unrelated parties.  We also used $2,534 for
the purchase of plant and equipment.





Our cash
flows from financing activities amounted to $13,093 for the fiscal year ended
September 30, 2009.  During that period, we received net proceeds of
$27,154 from the short-term bank loans.




We
believe that the level of financial resources is a significant factor for our
future development and accordingly, we may determine from time to time to raise
capital through private debt or equity financing to strengthen the Company’s
financial position, to expand our facilities and to provide us with additional
flexibility to take advantage of business opportunities.   No
assurances can be given that we will be successful in raising such additional
capital on terms acceptable to us.





Working
Capital




Our working capital deficit decreased by
$12,708to $(31,161), at
September 30, 2009, as
compared to $(18,453), at
September 30, 2008. This
wasprimarily due to our increase in
restricted cash and short-term notes receivable from related parties
approximately amounted to $21,028 and $10,573, respectively, and a decrease in
accounts payable and due to relatedpartiesof approximately $4,490 and $3,462,
respectively, partially offset by a decrease in due from related parties,
prepayments and other receivable which approximately amounted to $7,058, $2,440
and $3,698, respectively, and an increase in short-term bank loans and notes
payable amounting to approximately $24,236 and $11,522, respectively. The
increase in restricted cash represented our pledge deposit for the issuance of
notes payable. The increase in notes receivable from related parties represent
the increase in relevant principals, which will come to maturity during the
coining year. To remedy our working capital deficiency, we received proceeds
from short-termbank loans which amounted to
approximately $75,085 during the year ended September 30,
2009.




We
currently generate our cash flow through operations.  We believe that
our cash flow generated from operations will be sufficient to sustain operations
for at least the next twelve months.  From time to time, we may
identify new expansion opportunities for which there will be a need for use of
cash.





Capital
Expenditures





We made
capital expenditures of approximately $2,534 and $4,135 for the years ended
September, 2009 and 2008, respectively.  The capital expenditures
principally consisted of building, plant and machinery and other
equipment.




- 37
-





(In thousands for dollar
amount)





Material
Commitment/Tabular Disclosure of Contractual Obligations




Contingencies





As of
September 30, 2009, the Company provided corporate guarantees for bank loans
borrowed by an unrelated company incorporated in the PRC (“Company
A”).  Associated with the corporate guarantee, Company A also provided
a cross guarantee for the bank loans of $23,927 borrowed by the
Company.  If Company A defaults on the repayment of its bank loans
when they fall due, the Company is required to repay the outstanding
balance.  As of September 30, 2009, the guarantee provided for the
bank loans borrowed by Company A was approximately $2,735, which consists of the
following:





September 30,2009Due
      December 24, 2009
                  
                  $
                  541Due
      May 26, 2010
                  
                  
                  1,170Due
      May 26, 2010
                  
                  
                  293Due
      June 10, 2010
                  
                  
                  731Total
                  
                  $
                  2,735





As of
September 30, 2009, the Company provided a corporate guarantee for bank
acceptance notes issued by Henghui, a related party of the
Company.  Under the guarantee contract, the maximum guarantee amount
is $1,463, due January 28, 2010.





Default
by Company A and Henghui is considered remote by the
management.  Based on the information available to the management, the
fair values of the guarantees granted by the Company are considered not material
and therefore no liability for the guarantor's obligation under the guarantee
was recognized as of September 30, 2009.





Financial
Obligations, Sale-leaseback





As of
September 30, 2009, future minimum payments required under non-cancellable
sale-leaseback are:





Year Ended September 30
                  
                  Amount2010
                  
                  $
                  2,7572011
                  
                  
                  744Total
      minimum lease payments
                  
                  
                  3,501Less:
      Amount representing interest
                  
                  
                  (464
                  )Present
      value of net minimum lease payments
                  
                  $
                  3,037





Capital
Commitments





As of
September 30, 2009, the Company had capital expenditure commitments for
construction projects of approximately $8,435.





Operating
Lease Commitments




As of
September 30, 2009, the Company had $4 rental payments under non-cancelable
operating leases.




Off-Balance
Sheet Arrangements





None.


- 38
-





(In thousands for dollar
amount)





ITEM 7A.
            Quantitative and Qualitative
      Disclosures about Market
Risk.





RMB
Appreciation




The
Company believes that inflation has not had a material effect on its operations
to date.  However, continued appreciation of the RMB against the
U.S. dollar, could negatively affect
the Company's export business; and could have a material adverse effect on the
Company.  The Company's response strategy would be to reduce our
reliance on export sales and to increase domestic sales.




Non-Tariff
Technical Trade Barriers Could Have a Materially Adverse Effect on our Exporting
Business




Non-tariff
technical trade barriers imposed by governments around the world could adversely
affect, including, for example, the European Unions’s EuP
Directive.  In response to the Directive, the Company has launched a
project to evaluate the impact of our products on the environment during each
stage of a product’s life, from design, material procurement and manufacture, to
maintenance, recovery and treatment, which conforms to the trend of reducing
resources consumption and pollution laid out in the EuP Directive.




The
Development of High-Tech Products Takes a Long Time and There Are Many
Uncertainties in the Process




The
special light sources products developed by the Company is an innovation in the
industry, so there might be unpredictable or presently unavoidable technical
flaws, or perhaps the new products do not fit into the market
demand.  Either way, the new products might not be able to get into
mass production and sold in the markets.  To avert such risk, the
Company has set up a new products decision committee and has hired senior
experts in China to better oversee and grasp the developmental tendencies of the
industry.  Prior to the development and trial of new products, we plan
on conducting systematic and in-depth research to find market space and identify
technical problems and key targets for breakthrough.




Theft
of our Key Technologies Could Have a Material Adverse Effect on the Company’s
Business and Development




To avert
such risk, the Company uses management measures, such as performance bonuses and
other project awards, to maintain the stability of technical team.  CH
International (and its subsidiaries) also have in place confidentiality
agreements with certain technical employees to prevent leakage of core
technologies.




ITEM 8.
            Financial Statements and
      Supplementary Data




Reference
is made to the “F” pages herein comprising a portion of this Annual Report
immediately following the signature page of this Form 10-K.




ITEM 9.
            Changes in and Disagreements with
      Accountants on Accounting and Financial
  Disclosures




Effective
as of September 24, 2009 (the “Effective Date”), Mazars CPA Limited (“Mazars”)
amicably resigned as the principal independent registered public accounting firm
of the Registrant.





None of
Mazars’ reports included in the Registrant’s financial statements for the past
two (2) fiscal years, as well as the subsequent interim periods through the
Effective Date, contained an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope, or accounting principle.
Mazars’ report did not suggest concern relating to the Registrant's ability to
continue as a going concern.





The amicable resignation of Mazars as
the Registrant’s principal independent registered public accountants was
accepted by the Registrant’s Board of Directors effective as of the Effective
Date.


- 39
-





(In thousands for dollar
amount)





During
the Registrant’s two (2) most recent fiscal years, as well as the subsequent
interim period through the Effective Date, there were no disagreements between
the Registrant and Mazars 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 to the subject matter of the disagreement in connection with
Mazars’ report.





During
the Registrant’s most recent two (2) fiscal years, as well as the subsequent
interim period through the Effective Date, Mazars 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 Mazars to furnish a letter addressed to the U.S.
Securities and Exchange Commission 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 September 29, 2009, the Board of Directors of the Registrant approved the
engagement of Weinberg & Company, P.A. (“Weinberg”) as its
principal independent registered public accounting firm to audit the
Registrant’s financial statements. The Registrant did not consult Weinberg 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 Weinberg.




ITEM
      9A.
            Controlsand
      Procedures




Evaluation
of Disclosure Controls and Procedures




We are
required to maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized and reported within the time periods specified in the
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) as appropriate,
to allow timely decisions regarding required disclosure.




In
connection with the preparation of this Form 10-K for the year ended
September 30, 2009 our management, under the supervision of the CEO and CFO,
conducted an evaluation of disclosure controls and procedures. A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control systems are met. Based on
that evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were effective as of September 30, 2009.




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 September 30, 2009 based on the framework set forth in
Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).




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.




- 40
-





(In thousands for dollar
amount)





Based on
that evaluation, our CEO and CFO concluded that our internal control over
financial reporting as of September 30, 2009 was effective.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.





Changes
in Internal Control over Financial Reporting




Except as
disclosed above, 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.
            Other
      Information




None.




- 41
-





(In thousands for dollar
amount)





PART
III




ITEM 10.
            Directors, Executive Officers,
      and Corporate Governance




Set forth
below are the names of the Company’s directors and officers, their business
experience during the last five (5) years, their ages and all positions and
offices that they hold with the Company as of September 30, 2008 and as of the
date of this Annual Report.




Name
            
            Age
            
            Position(s)Zhao Guosong
            
            42
            
            Chairman
      of the Board, President and Chief Executive OfficerHuang Hsiao-I
            
            45
            
            Chief
      Financial Officer and Corporate SecretaryGan Caiying
            
            39
            
            Director
      (Vice Chairman of the Board)Han Lijun
            
            47
            
            DirectorGe Minhai
            
            34
            
            DirectorHe Wei
            
            42
            
            DirectorYun Hon Man
            
            41
            
            DirectorLu Guangming
            
            37
            
            Director





Family
Relationships





There are
no family relationships by and between or among the members of the Board of
Director or other executives, except that Zhao Gaosong and Gan Caiying are
husband and wife. 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 of Directors.




Biographies




Zhao Guosong.Mr. Zhao has
served as a Director, President and Chief Executive Officer of the Company since
the Closing Date of the Exchange and was appointed to serve as Chairman of the
Board effective as of July 28, 2008. Mr. Zhao founded CH International in April
2004 and has served as CH International’s Chairman since July 2006. Mr. Zhao is
also a member of the China Society of Lighting Industry and a director of the
China Association of Lighting Industry. Mr. Zhao was successively elected as
deputy to the People’s Congress of Shangyu and Shaoying for two (2) terms. Mr.
Zhao was honored as “Star Entrepreneur” by Shangyu Municipal Government in 2005
and 2006. Mr. Zhao has twenty (20) years of experience in corporate strategy,
enterprise management and business analysis. In July 1985, Mr. Zhao graduated
from Zhejiang Shangyu Chunhui High School and began to work with Zhejiang Yankon
Group Co., Ltd., where he served as Technical Director. In 1993, Mr. Zhao began
to work with Hangzhou Hengfeng Lamp Bulb Factory. From 1994 through 1999, he
served as Director of both Shaoxing County Electric Lighting Factory and Shangyu
Chenhui Fluorescent Lamp Factory. In 1999, Mr. Zhao served as General Manager
and Chairman of the Board of CH Lamps. From 2000 to date, Mr. Zhao has served as
Chairman of both CH Lighting PRC and CH Hong Kong. Since January 2007, Mr. Zhao
has also served as Chairman of CH Technology.





Huang Hsiao-I.Mr. Huang has
served as Chief Financial Officer of the Company since the Closing Date of the
Exchange and as Corporate Secretary since August 25, 2008. On April 2008, Mr.
Huang has served as Chief Financial Officer of CH International. In 1988, Mr.
Huang migrated to the United States where he served as a CPA at the firm of
David Chen CPA. In 1991, Mr. Huang worked with MP Motor Production Inc. (a
subsidiary of Chrysler), serving as Cashier, Accountant and Vice Manager. In
1993, Mr. Huang worked with Bojian (a listed company on the Taiwan Exchange) in
Taiwan as Financial Manager and then assumed the office of Business Manager.
In 1996, Mr. Huang worked with Shanghai Jianguo Concrete Co., Ltd. (a listed
company on the Taiwan Exchange) and assumed the office of Vice General Manager
of Administration Division. In 2000, Mr. Huang served as General Manager’s
Special Assistant and Advisor for VMTA through March 2008. Mr. Huang graduated
from Taiwan University with a major in accounting.







- 42
-





(In thousands for
dollar amount)




Gan Caiying.MsGan has served as Vice
Chairman of the Board of the Company effective as of July 28, 2008. Ms. Gan is
also a Founder and the Vice Chairman of CH International. Ms. Gan is currently
the standing Director of Zhejiang Association of Lighting Industry and an Editor
with China Light & Lighting. In 1987, Ms. Gan worked with Zhejiang Yankon
Group Co., Ltd. as a Supervisor. From 1994 through 1999, Ms. Gan served as
Production Director of Shaoxing County Electric Lighting Factory and as
Financial Manager of Shangyu Chenhui Fluorescent Lamp Factory. From 1999 through
2000, Ms. Gan served as Vice General Manager, CFO, Sales Director and General
Manager of CH Lighting PRC. From 2000 through January 2006, Ms. Gan served as
Chief of Production Department, Marketing Director, Financial Director and
General Manager of CH Lighting PRC. Since January 2006, Ms. Gan has served as
Vice Chairman of CH Lighting PRC, CH Technology and CH Lamps. From June 2004
through May 2005, Ms. Gan received training in VMTA (Ningbo) and earned an EMBA
degree. Also, Ms. Gan was awarded the honor of "Excellent Female Entrepreneur"
and "Learning-oriented Knowledge Female".





Han Lijun.Mr. Han has served
as a Director of the Company effective as of July 28, 2008. From 1996 through
June 2006, Mr. Han served as President and Secretary for the Agricultural Bank
of China (Shangyu City Branch). From July 2006 through September 2007, Mr. Han
served as Branch Vice Governor of the Agricultural Bank of China Shaoxing City.
From January 2008 to date, Mr. Han has served as the President of Wolong Holding
Limited, a company organized under the laws of the PRC.





Ge Minhai.Mr. Ge has served
as a Director of the Company effective as of July 28, 2008. Since July 1998, Mr.
Ge has served (and continues to serve) as the Chairman’s Secretary, Office Chief
and Minister of Investment Development of Jinke Holding Co., Ltd., a limited
company organized under the laws of the PRC as well as the First and Second
Session Director of Zhejiang Jinke Chemical Co., a limited company also
organized under the laws of the PRC. From 1994 through 1998, Mr. Ge attended the
Zhejiang Institute of Technology earning a degree in mechanical design and
manufacturing. From September 2002 through July 2004, Mr. Ge attended the
Zhejiang University of Economics and Management. From March 2007 to date, Mr. Ge
has attended (and continues to attend) Qinghua University in Beijing with a
focus on corporate governance.




He Wei.Mr. He has served as a
Director of the Company effective as of July 28, 2008. Since 1999, Mr. He has
served (and continues to serve) as a Director and Deputy General Manager of the
Shangyu City Agricultural Resources Company in the PRC. In 1988, Mr. He
graduated from the School of Zhejiang Jinhua with a degree in supply and
marketing professional accounting. From 1988 through 1989, Mr. He worked in
Shangyu City in the PRC as a clerk for Shangyu Tea Limited, limited company
organized under the laws of the PRC. From 1989 through 1993, Mr. He served as
Manager in Shangyu City for Shangyu Agricultural Materials Limited, a limited
company organized under the laws of the PRC. From 1994-1999, Mr. He served as a
Manager in Shangyu City for the Datong Petrochemical Company. From 1999 to date,
Mr. He has served as a Director and Deputy General Manager of Shangyu
Agricultural Materials Limited.





Yun Hon Man.Mr. Yun has
served as a Director of the Company effective as of July 28, 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 the Hong Kong. Mr. Yun has also served
(and continues to serve) as a Director of Chisen Electric Corporation since
November 24, 2008 (OTCBB: CIEC).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 serves 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 is MBA at
the University of Western Sydney in 2007, his Higher Diploma in Business Studies
at the City Polytechnic School of Hong Kong and his Diploma in Accountancy from
Morrison Hill Technical Institute in 1988.


- 43
-





(In
thousands for dollar amount)





Lu Guangming.Mr. Lu has
served as a Director the Company effective as of July 28, 2008. Mr. Lu has
served as Assistant Chairman and Vice-President of CH International since
October 2007. From April 1997 through July 2001, Mr. Lu served as Production
Manager of CH Lamps. From August 2001 through January 2003, Mr. Lu served as
Deputy Chief Technology Officer of CH Lighting, a company organized under the
laws of the PRC. From January 2003 through March 2004, Mr. Lu served as General
Manager of Shangyu CH Electrical Appliances Co., Ltd., a company organized under
the laws of the PRC. From April 2004 through September 2007, Mr. Lu served as
Deputy Chief Technology Officer, General Manager and Supply Chain Vice President
of CH Lighting PRC. Mr. Lu was educated in VMTA (Ningbo) and earned an EMBA
degree in 2005. Mr. Lu graduated from Southwest Science and Technology
University of Network Education Economics in 2006.




Involvement
In Certain Legal Proceedings




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.





Promoters
and Control Persons





None.




Significant
Employees





The
Company has no significant employees.





Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Exchange Act requires our officers and directors, and persons who
own more than ten percent (10%) of a registered class of our 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 us with copies of all Section 16(a) forms they
file.




Based
solely on a review of the copies of such forms furnished to us, we believe that
during the year ended September 30, 2009 all officers, directors and ten percent
(10%) beneficial owners who were subject to the provisions of Section 16(a)
complied with all of the filing requirements during the year.




Committees
of our Board of Directors




Our Board
of Directors has an Audit Committee, a Compensation Committee and a Nominating
Committeee established in accordance with the Exchange Act and NASDAQ
rules.  The Audit Committee met one time, the Compensation Committee
met zero time and the Nominating Committee met zero time between the date after
the Exchange on July 16, 2008 and September 30, 2008.  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 auditors’ objectivity and independence. During fiscal year
      2009, members of the Audit Committee were directors Lu Guangming
      (Chairman), Yun Hon Man andGe Minhai. Our Audit Committee
      financial expert is Ge
      Minhai, an independent director.  Effective December 29, 2008,
      Lu Guangming resigned as a member of the Audit Committee, the Company’s
      Board appointed Han Lijun to serve as a member and the Board appointed Ge
      Minhai to serve as
Chairman.




- 44
-





(In
thousands for dollar amount)




·
            Compensation
      Committee–Directors Lu Guangming (Chairman)
      Yun Hon Man and Ge Minhai were members of our Compensation Committee
      during fiscal 2009. 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 the executive officers and directors of our
      company, including stock compensation and loans, and all bonus and stock
      compensation to all
employees.




·
            Nominating
      Committee–
      Directors Lu Guangming (Chairman), Yun Hon Man and Ge Minhai were members
      of our Nominating Committee during fiscal 2009. 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.  The Company has not adopted procedures by which
      security holders may recommend nominees to the Company’s Board of
      Directors.




Code
of Ethics




We have
adopted a Code of Ethics in accordance with the rules of the SEC and NASDAQ. Our
Code of Ethics, which are referenced as Exhibit 14.1 herein, applies to all of
our directors, officers and employees. The Code of Ethics, and any amendments
to, or waivers from, the Code of Ethics, is available in print, at no charge, to
any stockholder who requests such information.





ITEM 11.
            Executive
      Compensation




Compensation
Discussion and Analysis





Not
required for smaller reporting companies.





Summary
Compensation Table





The
following table sets forth compensation information for services rendered by
certain of our current and former executive officers in all capacities during
the last two (2) completed fiscal years (ended September 30, 2009 and 2008). The
compensation listed below which will be paid to our new officers will be paid by
CH International. 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.




- 45
-




(In
thousands for dollar amount)




Name And
                          Principal
                          Function
                          (a)
                        
                        Year
                          (b)
                        
                        
                        Salary
                          (US$)
                          (c)
                        
                        
                        Bonus
                          (US$)
                          (d)
                        
                        
                        Stock
                          Awards
                          (US$)
                          (e)
                        
                        
                        Option
                          Awards
                          (US$)
                          (f)
                        
                        
                        Non-
                          Equity
                          Incentive
                          Plan
                          Compensation
                          (US$)
                          (g)
                        
                        
                        Non-
                          qualified
                          Deferred
                          Compensation
                          Earnings
                          (US$)
                          (h)
                        
                        
                        All
                          Other
                          Compensation
                          (US$)
                          (i)
                        
                        
                        Total
                          (US$)
                          (j)Zhao
      Guosong
                          President
      & Chief Executive Officer (1)
                        
                        
                        2008
                          2009
                        
                        
                        
                        79
                          79
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        79
                          79HuangHsiao-I,
                          Chief
      Financial Officer and Corporate Secretary (2)
                        
                        
                        2008
                          2009
                        
                        
                        
                        17
                          26
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        17
                          26Gan
      Caiying
                          Vice
      Chairman of CH International and Vice Chairman of the Board of the
      Company(3)
                        
                        
                        2008
                          2009
                        
                        
                        
                        34
                          35
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        34
                          35Lu
      Guangming
                          Assistant
      Chairman and Vice-President of CH International and Director of the
      Company(4)
                        
                        
                        2008
                          2009
                        
                        
                        
                        25
                          25
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        -0-
                          -0-
                        
                        
                        
                        25
                          25




(1)
            Zhao Guosong has served as the
      Company’s President and Chief Executive Officer since the Closing Date of
      the Exchange (July 16, 2008).  These amounts have been paid by
      CH International, the Company’s wholly-owned subsidiary, for services
      rendered to CH International and CH Lighting
  PRC.


(2)
            Huang Hsiao-I has served as the
      Company’s Chief Financial Officer since the Closing Date of the Exchange
      (July 16, 2008) and Corporate Secretary since August 25,
      2008.  These amounts have been paid by CH International, the
      Company’s wholly-owned subsidiary, for services rendered to the Company
      and CH International.


(3)
            Gan Caiyang is a founder and Vice
      Chairman of CH International and has served as Vice Chairman of the Board
      of the Company since July 16, 2008 as Vice Chairman of CH International
      effective July 28, 2008.  These amounts have been paid by CH
      International, the Company’s wholly-owned subsidiary, for services
      rendered to CH
International.


(4)
            Lu Guangming has served as
      Assistant Chairman and Vice President of CH International since October
      2007 and as a Director of the Company effective July 28,
      2008.  These amounts have been paid by CH International, the
      Company’s wholly-owned subsidiary, for services rendered to CH
      International.





Grants
of Plan-Based Awards




None.




Outstanding
Equity Awards At Fiscal Year End


None.


- 46
-





(In
thousands for dollar amount)





Option
Exercises and Stock Vested




None.




Pension
Benefits




None.




Nonqualified
Deferred Compensation




None.




Potential
Payments Upon Termination or Change in Control




None.




Additional
Narrative Disclosure




None.




Compensation
of Directors




The
Company did not provide any compensation to its Directors during the fiscal year
ending September 30, 2009.  The Company may establish certain
compensation plans (e.g. options, cash for attending meetings, etc.) with
respect to Directors in the future.




Employment
Agreements




There are
currently no employment agreements by and between the Company and its employees
or the Group and its employees.




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 September 30, 2009. Each person
named below has sole voting and investment power with respect to the shares
shown unless otherwise indicated.





Name and Address of
                  Beneficial Owner(1)
                
                Amount of
                  Direct
                  Ownership
                
                
                Amount of
                  Indirect
                  Ownership
                
                
                Total
                  Beneficial
                  Ownership
                
                
                Percentage
                  of Class(2)Zhao
      Guosong, Chairman of the Board, President and Chief Executive
      Officer
                
                
                0
                
                
                
                78,134,880
                (3)
                
                
                78,134,880
                (3)
                
                
                65.11
                %Huang
      Hsiao-I, Chief Financial Officer and Corporate Secretary
                
                
                0
                
                
                
                2,046,000
                (4)
                
                
                2,046,000
                (4)
                
                
                1.71
                %Gan
      Caiying, Director (Vice Chairman)
                
                
                0
                
                
                
                78,134,880
                (5)
                
                
                78,134,880
                (5)
                
                
                65.11
                %Han
      Lijun, Director
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                %Ge
      Minhai, Director
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                %He
      Wei, Director
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                %Yun
      Hon Man, Director
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                %Lu
      Guangming, Director
                
                
                0
                
                
                
                465,000
                (6)
                
                
                465,000
                (6)
                
                
                0.3875
                %ALL
      DIRECTORS AND OFFICERS AS A GROUP (8 PERSONS):
                
                
                0
                
                
                
                80,180,880
                
                
                
                80,180,880
                
                
                
                66.82
                %KEG
      International Limited
                  Room
      42, 4F
                  New
      Henry House
                  10
      Ice House Street
                  Central,
      Hong Kong
                
                
                93,000,000
                
                
                
                0
                
                
                
                93,000,000
                
                
                
                77.50
                %




- 47
-




(In
thousands for dollar amount)




*
less than one percent (1%)





(1)
            Unless otherwise noted, each
      beneficial owner has the same address as the
    Company.


(2)
            Applicable percentage of
      ownership is based on 120,000,000 shares of our Common Stock outstanding
      as of September 30, 2009, together with securities exercisable or
      convertible into shares of Common Stock within sixty (60) days of
      September 30, 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)
            Zhao Guosong may be considered to
      beneficially own 66,960,000 shares by virtue of his 72% ownership in KEG
      International Limited and 11,174,880 shares by virtue of his spouse’s (Gan
      Caiying’s) approximate 12% ownership in KEG International Limited, which
      owns 93,000,000 shares of Common
Stock.


(4)
            Huang Hsiao-I may be considered
      to beneficially own 2,046,000 shares by virtue of his 2.2% ownership in
      KEG International Limited, which owns 93,000,000 shares of Common
      Stock.


(5)
            Gan Caiying may be considered to
      beneficially own 11,174,880 shares by virtue of her approximate 12%
      ownership in KEG International Limited and 66,960,000 shares by virtue of
      her spouse’s (Zhao Guosong’s) 72% ownership in KEG International Limited,
      which owns 93,000,000 shares of Common
  Stock.


(6)
            Lu Guangming may be considered to
      beneficially own 465,000 shares by virtue of his 0.5% ownership in KEG
      International Limited, which owns 93,000,000 shares of Common
      Stock.




- 48
-


(In thousands for dollar
amount)
  ITEM 13.
                Certain Relationships and Related
      Transactions, and Director
Independence
  During the fiscal year
ended September 30, 2008 (and prior to the Company's reverse merger on July 16,
2008), the Company made a $636 unsecured advance to Ms. Gan Cai Ying, a Director
of the Company and the spouse of Mr. Zhao, the Company's President, Chief
Executive Officer and Chairman of the Board which was payable on demand and bore
no interest through July 16, 2008 and thereafter, variable interest at the 1-3
Year Lending Rate offered by the People's Bank of China plus 0.5% per annum. As
of September 30, 2009, this advance was fully paid off.
  During the fiscal year
ended September 30, 2008, the Company made a $154 unsecured advance to Shangyu
Chenhui Childcare Products Company Limited, a company under common control of
Mr. Zhao, which was payable on demand and bore no interest through July 16, 2008
and thereafter, variable interest at the 1-3 Year Lending Rate offered by the
People's Bank of China plus 0.5% per annum. As of September 30, 2009, this
advance was fully paid off.
  During the fiscal year
ended September 30, 2008, the Company made a $26,352 unsecured advance to
Shangyu Henghui Electronic Products Manufacturing Company Limited (Henghui), a
company under common control of Mr. Zhao, which was payable on demand and bore
no interest through July 16, 2008 and thereafter, variable interest at the 1-3
Year Lending Rate offered by the People's Bank of China plus 0.5% per annum. A
balance of $15,804 was transferred to a long-term note receivable and a balance
of $10,458 was transferred to a short-term note receiveable during the year
ended September 30, 2009 as the Company signed fixed term, interest-free notes
with this related party. As of September 30, 2009, there was a balance of
$28,829 on such notes receivable.
  During the fiscal year
ended September 30, 2008, the Company made a $7 unsecured advance to Zhejiang
Chenhui Yingbao Childcare Products Company Limited (Yingbao Childcare), a
company under common control of Mr. Zhao, which was payable on demand and bore
no interest through July 16, 2008 and thereafter, variable interest at the 1-3
Year Lending Rate offered by the People's Bank of China plus 0.5% per annum. A
balance of $5,645 was transferred to a long-term note receiveable during the
year ended September 30, 2009 as the Company signed a fixed term, interest-free
note with this related party. As of September 30, 2009, there was a balance of
$16,318 on such note receivable.
  During the fiscal year
ended September 30, 2009, the Company made interest-free, unsecured advances
with no fixed repayment terms to its employees in the aggregate $255. The
amounts due from the Company's employees primarily represent advances to sales
personnel of the Company for business and travel related expenses. As of
September 30, 2009, $255 of such advances was outstanding.
  During the fiscal years
ended September 30, 2008 and 2009, Mr. Zhao made an unsecured, interest free
advances to the Company of $3,203 and $125, respectively, $125 of which remained
outstanding as of September 30, 2009.
  During the fiscal years
ended September 30, 2008 and 2009, Shaoxing Umbrella Factory, a company under
common control of Mr. Zhao, made unsecured, interest free advances to the
Company of $25 and $39, respectively, $39 of which remained outstanding as of
September 30, 2009.
  During the fiscal years
ended September 30, 2008, Shangyu Hecheng Plastic and Metal Products Company
Limited, a company under common control of Mr. Zhao, made an unsecured, interest
free advance to the Company of $398. As of September 30, 2009, such advance was
fully paid off.
  During the fiscal years
ended September 30, 2008 and 2009, Mr. Zhao and Ms. Gan provided guarantees for
short term bank loans borrowed by the Company and as of the fiscal years ended
September 30, 2008 and 2009, such guarantees amounted to $2,022 and $17,711,
respectively.
  During the fiscal years
ended September 30, 2008 and 2009, Henghui provided guarantees for short term
bank loans borrowed by the Company and as of the fiscal years ended September
30, 2008 and 2009, such guarantees amounted to $2,917 and $512,
respectively.
  During the fiscal years
ended September 30, 2008 and 2009, the Company provided cash as collateral for
bank acceptance notes issued by Henghui and as of September 30, 2008 and 2009,
such cash collateral amounted to $4,376 and $1,463,
respectively.
  During the fiscal year
ended September 30, 2009, Yingbao Childcare provided guarantees for short term
bank loans borrowed by the Company and as of September 30, 2009, such guarantee
amounted to $10,823.
  During the fiscal years
ended September 30, 2008 and 2009, Yingbao Childcare provided a guarantee for
the financial obligations, sale-leaseback borrowed by the Company and as of
September 30, 2008 and 2009, such guarantees amounted to $3,325 and $2,413,
respectively.
  During the fiscal year
ended September 30, 2008, the Company received interest income from Henghui of
$59 for the purpose of loans from the Company.
  During the fiscal years
ended Septmeber 30, 2008 and 2009, the Company paid fees for the rental of doom
from Shaoxing Umbrella Factory, a company under common control of Mr. Zhao. As
of September 30, 2008 and 2009, such fees amounted to $14 and $15,
respectively.
 Director
Independence




The
following directors are independent: Yun Hon Man, Han Lijun, Ge Minhai, and He
Wei.




The
following directors are not independent: Zhao Guosong, Lu Guangming and Gan
Caiying.




Promoters
and Certain Control Persons




None.




ITEM 14.
            Principal Accountant Fees and
      Services





The firm
of Mazars CPA Limited served as our principal independent registered public
accounting firm from August 25, 2008 to September 24, 2009. Effective as of
September 29, 2009, the Board of Directors of the Registrant approved the
engagement of Weinberg & Company, P.A. as its principal independent
registered public accounting firm to audit the Registrant’s financial
statements.  The following is a summary of fees incurred for services
rendered by Mazars CPA Limited and Weinberg.




- 49
-





(In
thousands for dollar amount)





Audit
Fees




During
the fiscal year ended September 30, 2009, the fees for Weinberg were US$180 for
the audit of our consolidated financial statements included in this Annual
Report on Form 10-K.





During
the fiscal year ended September 30, 2008, the fees for our former principal
accountant, Mazars were US$175 for the audit of our  year 2008
consolidated financial statements included in this Annual Report on Form
10-K.





During
the fiscal year ended September 30, 2009, the fees for our former principal
accountant, Mazars, were US$64 for quarterly reviews for the periods ended
December 31, 2008, March 31, 2009 and June 30, 2009.




Audit-Related
Fees




During
the fiscal years ended September 30, 2009 and 2008, neither Mazars nor Weinberg
rendered assurance and related services reasonably related to the performance of
the audit or review of financial statements.




Tax
Fees




During
the fiscal years ended September 30, 2009 and 2008, neither Mazars nor Weinberg
rendered assurance and related services reasonably related to the performance of
the audit or review of financial statements.




All
Other Fees




During
the fiscal years ended September 30, 2009 and 2008, there were no fees billed
for products and services provided by Mazars or Weinberg 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 Audit Committee
during the fiscal year ended September 30, 2009.




- 50
-


PART
IV




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
                    
                    Location2.1
                    
                    Agreement
      and Plan of Reorganization regarding the merger of Innovative Coatings
      Corporation with and into ICC Holdings Corp.
                    
                    Incorporated
      by reference to Instachem Systems, Inc.’s Current Report as filed with the
      SEC on August 29, 20032.2
                    
                    Stock
      Purchase Agreement, by and between David Lennox and Instachem Systems,
      Inc.
                    
                    Incorporated
      by reference to Exhibit 2.2 to the Company’s Annual Report on Form 10-KSB
      as filed with the SEC on January 20, 20062.3
                    
                    Agreement
      and Plan of Merger between Instachem Systems, Inc. and Sino-Biotics,
      Inc.
                    
                    Incorporated
      by reference to Exhibit 2.3 to the Company’s Annual Report on Form 10-KSB
      as filed with the SEC on January 20, 20062.4
                    
                    Share
      Exchange Agreement, dated July 16, 2008, by and among Sino-Biotics, Inc.,
      KEG International Limited and CH International Holdings
      Limited
                    
                    Incorporated
      by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K as
      filed with the SEC on July 16, 20083.1
                    
                    Certificate
      of Incorporation of Sino-Biotics, Inc.
                    
                    Incorporated
      by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB
      as filed with the SEC on January 20, 20063.2
                    
                    Certificate
      of Amendment to Certificate of Incorporation of Sino-Biotics,
      Inc.
                    
                    Incorporated
      by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-KSB
      as filed with the SEC on January 20, 20063.3
                    
                    Restated
      Certificate of Incorporation of Sino-Biotics, Inc.
                    
                    Incorporated
      by reference to Exhibit 3.6 to the Company’s Annual Report on Form 10-KSB
      as filed with the SEC on January 20, 20063.4
                    
                    Certificate
      of Amendment to Certificate of Incorporation of Sino-Biotics, Inc. dated
      December 13, 2008 (increase of authorized shares).
                    
                    Incorporated
      by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K as
      filed with the SEC on July 16, 20083.5
                    
                    Memorandum
      and Articles of Associationof CH
      International Holdings Limited
                    
                    Incorporated
      by reference to Exhibit 3.6 to the Company’s Current Report on Form 8-K as
      filed with the SEC on July 16, 20083.6
                    
                    Amended
      and Restated Bylaws of CH Lighting International Corporation, effective as
      of August 25, 2008
                    
                    Incorporated
      by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as
      filed with the SEC on August 26, 200814.1
                    
                    Code
      of Ethics
                    
                    Incorporated
      by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K
      as filed with the SEC on December 29, 200816.1
                    
                    Auditor
      Letter of Mazars CPA Limited, dated September 25, 2009
                    
                    Provided
      herewith





- 51
-





21
                
                List
      of Subsidiaries of CH Lighting International Corporation
                
                Incorporated
      by reference to Exhibit 21 to the Company’s Current Report on Form 8-K as
      filed with the SEC on July 16, 200831.1
                
                Certifications
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                
                Provided
      herewith31.2
                
                Certifications
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
                
                Provided
      herewith32.1
                
                Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
      the Sarbanes-Oxley Act Of 2002
                
                Provided
      herewith32.2
                
                Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
      the Sarbanes-Oxley Act Of 2002
                
                Provided
      herewith99.1
                
                Audit
      Committee Charter
                
                Incorporated
      by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
      as filed with the SEC on August 26, 200899.2
                
                Compensation
      Committee Charter
                
                Incorporated
      by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
      as filed with the SEC on August 26, 200899.3
                
                Corporate
      Governance and Nominating Committee Charter
                
                Incorporated
      by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K
      as filed with the SEC on August 26,
2008




- 52
-




SIGNATURES
  In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned, thereunto duly authorized.
  CH
      LIGHTING INTERNATIONAL CORPORATIONDate:
      December 29, 2009By:
              /s/ Zhao GuosongZhao
      GuosongPresident,
      Chief Executive Officer and Principal Executive Officer/s/ Huang Hsiao-IHuang
      Hsiao-IChief
      Financial Officer, Corporate Secretary, Principal Financial
      and
                Accounting
      Officer
  In
accordance with the requirements of the Securities Exchange Act of 1934, this
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/ Zhao Guosong
              
              President,
      Chief Executive Officer,Zhao
      Guosong
              
              Principal
      Executive Officer and
              
              December
      29, 2009Chairman
      of the Board/s/ Huang Hsiao-IHuang
      Hsiao-I
              
              Chief
      Financial Officer, Corporate
              
              December
      29, 2009Secretary
      and Principal Financialand
      Accounting Officer/s/ Gan CaiyingGan
      Caiying
              
              Vice
      Chairman of the Board
              
              December
      29, 2009/s/ Han LijunHan
      Lijun
              
              Director
              
              December
      29, 2009/s/ Ge MinhaiGe
      Minhai
              
              Director
              
              December
      29, 2009/s/ He WeiHe
      Wei
              
              Director
              
              December
      29, 2009/s/ Yun Hon ManYun
      Hon Man
              
              Director
              
              December
      29, 2009/s/  Lu GuangmingLu
      Guangming
              
              Director
              
              December
      29, 2009
  -53-






CH
LIGHTING INTERNATIONAL CORPORATION
 
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 FOR
THE YEARS ENDED
 
 SEPTEMBER
30, 2009 AND 2008
  
 CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.)
 AND
SUBSIDIARIES
 
 CONTENTS
 
 PAGE
                  1
                  REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF WEINBERG &
      COMPANY, P.A. FOR THE YEAR ENDED SEPTEMBER 30, 2009PAGE
                  2
                  REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF MAZARS CPA LIMITED FOR
      THE YEAR ENDED SEPTEMBER 30, 2008PAGE
                  3-4
                  CONSOLIDATED
      BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND 2008PAGE
                  5
                  CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED
      SEPTEMBER 30, 2009 AND 2008PAGE
                  6
                  CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED
      SEPTEMBER 30, 2009 AND 2008PAGE
                  7-8
                  CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND
      2008PAGE
                  9-37
                  NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30,
      2009 AND 2008
  
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM
 
 To the
Board of Directors and Stockholders of:
 CH
Lighting International Corporation
 
 We have
audited the accompanying consolidated balance sheets of CH Lighting
International Corporation (formerly Sino–Biotics, Inc.) and Subsidiaries (the
“Company”) as of September 30, 2009, and the related consolidated statements of
income and comprehensive income, changes in stockholders' equity and cash flows
for the year 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
audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated 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 audit included consideration of internal control over
financial reporting as a basis for designing audit 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.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CH Lighting
International Corporation and Subsidiaries as of September 30, 2009, and the
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
 
 /s/
Weinberg & Company, P.A.
 
 Boca
Raton, Florida
 December
18, 2009
  F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM
 
 To the
Audit Committee, Board of Directors and Stockholders
 CH
Lighting International Corporation
 (formerly
Sino-Biotics, Inc.)
 
 We have
audited the accompanying consolidated balance sheet of CH Lighting International
Corporation (“CH Lighting”) and its subsidiaries (the “Company”) as of September
30, 2008, and the related consolidated statements of income and comprehensive
income, changes in stockholders’ equity and cash flows for the year 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 audit 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 September
30, 2008, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
  
 Mazars
CPA Limited
 Certified
Public Accountants
 Hong
Kong
 December 29, 2008, except for Note 17
which is as of December 29, 2009
  F-2
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 CONSOLIDATED BALANCE
SHEETS
 
 September 30,2009
                      
                      
                      2008(In
      thousands except par value and number of shares)ASSETSCurrent
      AssetsCash
      and cash equivalents
                      
                      $
                      2,792
                      
                      
                      $
                      3,154Restricted
      cash
                      
                      
                      37,342
                      
                      
                      
                      16,314Other
      financial assets
                      
                      
                      -
                      
                      
                      
                      2,918Accounts
      receivable, net of allowance for doubtful accounts of $2,167 and $337 at
      September 30, 2009 and 2008, respectively
                      
                      
                      18,346
                      
                      
                      
                      18,871Inventories,
      net of provision of $157 at September 30, 2009
                      
                      
                      12,260
                      
                      
                      
                      15,303Other
      receivables
                      
                      
                      395
                      
                      
                      
                      4,093Due
      from employees
                      
                      
                      255
                      
                      
                      
                      -Prepayments
                      
                      
                      284
                      
                      
                      
                      2,724Deferred
      tax assets
                      
                      
                      454
                      
                      
                      
                      -Due
      from related parties, current portion
                      
                      
                      -
                      
                      
                      
                      7,058Short-term
      notes receivable from unrelated parties
                      
                      
                      2,118
                      
                      
                      
                      -Short-term
      notes receivable from related parties
                      
                      
                      10,573
                      
                      
                      
                      -Total
      Current Assets
                      
                      
                      84,819
                      
                      
                      
                      70,435Long-Term
      AssetsProperty,
      plant and equipment, net
                      
                      
                      13,786
                      
                      
                      
                      13,770Construction
      in progress
                      
                      
                      1,500
                      
                      
                      
                      2,548Prepayment
      for equipment
                      
                      
                      1,897
                      
                      
                      
                      -Due
      from related parties, long-term portion
                      
                      
                      -
                      
                      
                      
                      27,444Long-term
      notes receivable from unrelated parties , net discount of $71 at September
      30, 2009
                      
                      
                      1,041
                      
                      
                      
                      -Long-term
      notes receivable from related parties, net discount of $2,349 at September
      30, 2009
                      
                      
                      34,574
                      
                      
                      
                      -Land
      use right, net
                      
                      
                      839
                      
                      
                      
                      887Total
      Long-Term Assets
                      
                      
                      53,637
                      
                      
                      
                      44,649TOTAL ASSETS
                      
                      
                      138,456
                      
                      
                      
                      115,084LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                      
                      
                      17,645
                      
                      
                      
                      22,135Short-term
      bank borrowings
                      
                      
                      75,085
                      
                      
                      
                      50,849Notes
      payable
                      
                      
                      16,041
                      
                      
                      
                      4,519Accrued
      expenses and other current liabilities
                      
                      
                      2,394
                      
                      
                      
                      1,024Customer
      deposits
                      
                      
                      2,038
                      
                      
                      
                      3,291Due
      to related parties
                      
                      
                      164
                      
                      
                      
                      3,626Income
      tax payable
                      
                      
                      200
                      
                      
                      
                      376Financial
      obligations, sale-lease back, net-current portion
                      
                      
                      2,413
                      
                      
                      
                      3,068Total
      Current Liabilities
                      
                      
                      115,980
                      
                      
                      
                      88,888Long-Term
      LiabilitiesFinancial
      obligations, sale-lease back, net-long-term portion
                      
                      
                      624
                      
                      
                      
                      6,093Government
      subsidies
                      
                      
                      -
                      
                      
                      
                      96Deferred
      tax liabilities
                      
                      
                      1,304
                      
                      
                      
                      688Total
      Long-Term Liabilities
                      
                      
                      1,928
                      
                      
                      
                      6,877TOTAL
      LIABILITIES
                      
                      $
                      117,908
                      
                      
                      $
                      95,765
 
 See
accompanying notes to the consolidated financial statements.
  F-3
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 CONSOLIDATED BALANCE
SHEETS
 
 September 30,2009
                              
                              
                              2008(In
      thousands except par value and number of shares)COMMITMENTS
      AND CONTINGENCIES
                              
                              $
                              -
                              
                              
                              $
                              -EQUITYSTOCKHOLDERS’
      EQUITYPreferred
      stock, $0.001 par value, 5,000,000 shares authorized, 0 share issued and
      outstanding
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, $0.001 par value, 500,000,000 shares authorized,120,000,000
      shares issued and outstanding
                              
                              
                              120
                              
                              
                              
                              120Additional
      paid-in capital
                              
                              
                              1,500
                              
                              
                              
                              962Statutory
      reserves
                              
                              
                              1,168
                              
                              
                              
                              740Accumulated
      other comprehensive income
                              
                              
                              1,601
                              
                              
                              
                              2,124Retained
      earnings
                              
                              
                              16,093
                              
                              
                              
                              15,307Total
      Stockholders’ Equity
                              
                              
                              20,482
                              
                              
                              
                              19,253NON-CONTROLLING
      INTEREST
                              
                              
                              66
                              
                              
                              
                              66TOTAL
      EQUITY
                              
                              
                              20,548
                              
                              
                              
                              19,319TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                              
                              $
                              138,456
                              
                              
                              $
                              115,084
 
 Seeaccompanying notesto theconsolidated financial
statements.
  F-4
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
 
 Year endedSeptember 30,2009
                      
                      
                      2008(In
      thousands except net income per share and number of
shares)REVENUES
                      
                      $
                      47,334
                      
                      
                      $
                      90,864REVENUES
      FROM GOVERNMENT SUBSIDIES
                      
                      
                      10,125
                      
                      
                      
                      -TOTAL
      REVENUES
                      
                      
                      57,459
                      
                      
                      
                      90,864COST
      OF SALES
                      
                      
                      (38,264
                      )
                      
                      
                      (62,340
                      )GROSS
      PROFIT
                      
                      
                      19,195
                      
                      
                      
                      28,524Selling,
      marketing and distribution expenses
                      
                      
                      (5,616
                      )
                      
                      
                      (3,071
                      )Non-cash
      marketing expense - discount on notes receivable
                      
                      
                      (3,448
                      )
                      
                      
                      -General
      and administrative expenses
                      
                      
                      (6,773
                      )
                      
                      
                      (6,410
                      )TOTAL
      OPERATION EXPENSES
                      
                      
                      (15,837
                      )
                      
                      
                      (9,481
                      )INCOME
      FROM OPERATIONS
                      
                      
                      3,358
                      
                      
                      
                      19,043Amortization
      of discount on notes receivable
                      
                      
                      1,031
                      
                      
                      
                      -Interest
      income
                      
                      
                      882
                      
                      
                      
                      815Interest
      expense
                      
                      
                      (4,745
                      )
                      
                      
                      (3,941
                      )Other
      government subsidies
                      
                      
                      685
                      
                      
                      
                      595Other
      expenses
                      
                      
                      (61
                      )
                      
                      
                      (11
                      )INCOME
      BEFROE INCOME TAXES
                      
                      
                      1,150
                      
                      
                      
                      16,501Income
      tax benefit (expense)
                      
                      
                      64
                      
                      
                      
                      (2,091
                      )NET
      INCOME
                      
                      
                      1,214
                      
                      
                      
                      14,410NET
      LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
                      
                      
                      -
                      
                      
                      
                      (2
                      )NET
      INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                      
                      
                      1,214
                      
                      
                      
                      14,408OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation (loss) gain, net of tax
                      
                      
                      (523
                      )
                      
                      
                      1,551COMPREHENSIVE
      INCOME
                      
                      $
                      691
                      
                      
                      $
                      15,959NET
      INCOME PER SHARE ATTRIBUTABLE TO CONTROLLING INTEREST, BASIC AND
      DILUTED
                      
                      $
                      0.01
                      
                      
                      $
                      0.15WeWEIGHTED-AVERAGE SHARES
      OUTSTANDING, BASIC ANDDILUTED
                      
                      
                      120,000,000
                      
                      
                      
                      98,621,918
 
 See accompanying notesto theconsolidated financial
statements.
  F-5
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 FOR THE YEARS ENDED
SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of shares)
 
 Common Stock Issued
                                              
                                              
                                              Additional
                                                Paid-in
                                              
                                              
                                              Statutory
                                              
                                              
                                              Accumulated
                                                Other
                                                Comprehensive
                                              
                                              
                                              Retained
                                              
                                              
                                              Non
                                                ControllingShares
                                              
                                              
                                              Par Value
                                              
                                              
                                              Capital
                                              
                                              
                                              Reserves
                                              
                                              
                                              Income
                                              
                                              
                                              Earnings
                                              
                                              
                                              Interest
                                              
                                              
                                              TotalBalance
      as of October 1,2007
                                              
                                              
                                              93,000,000
                                              
                                              
                                              $
                                              93
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              228
                                              
                                              
                                              $
                                              573
                                              
                                              
                                              $
                                              2,857
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              3,751Recapitalization
      uponreverse
      acquisition
                                              
                                              
                                              27,000,000
                                              
                                              
                                              
                                              27
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (27
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Capital
      contribution by minority equity holder
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              64
                                              
                                              
                                              
                                              64Dividend
      paid
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,419
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,419
                                              )Stock-based
      employeeCompensation-contributed
      capital
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              962
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              962Net
      income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              14,408
                                              
                                              
                                              
                                              2
                                              
                                              
                                              
                                              14,410Transfers
      to statutory reserve
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              512
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (512
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Foreign
      currencytranslation
      adjustment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,551
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,551Balance
      as of September 30, 2008
                                              
                                              
                                              120,000,000
                                              
                                              
                                              $
                                              120
                                              
                                              
                                              $
                                              962
                                              
                                              
                                              $
                                              740
                                              
                                              
                                              $
                                              2,124
                                              
                                              
                                              $
                                              15,307
                                              
                                              
                                              $
                                              66
                                              
                                              
                                              $
                                              19,319Net
      income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,214
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,214Stock-based
      employeeCompensation-
      contributed capital
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              538
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              538Transfers
      to statutory reserve
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              428
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (428
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Foreign
      currencytranslation
      adjustment, net of tax
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (523
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (523
                                              )Balance
      as of September 30, 2009
                                              
                                              
                                              120,000,000
                                              
                                              
                                              $
                                              120
                                              
                                              
                                              $
                                              1,500
                                              
                                              
                                              $
                                              1,168
                                              
                                              
                                              $
                                              1,601
                                              
                                              
                                              $
                                              16,093
                                              
                                              
                                              $
                                              66
                                              
                                              
                                              $
                                              20,548
  See
accompanying notes to the consolidated financial statements
  F-6
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF
CASH FLOWS
 
 Year ended September 30,2009
                                
                                
                                2008(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                
                                $
                                1,214
                                
                                
                                $
                                14,410Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      of property, plant and equipment
                                
                                
                                1,669
                                
                                
                                
                                1,214Amortization
      of land use right
                                
                                
                                48
                                
                                
                                
                                38Amortization
      of financial obligations, sale-lease back
                                
                                
                                722
                                
                                
                                
                                -Provision
      for doubtful accounts
                                
                                
                                2,063
                                
                                
                                
                                -Provision
      for slow-moving inventories
                                
                                
                                157
                                
                                
                                
                                -Notes
      receivable discount
                                
                                
                                3,448
                                
                                
                                
                                -Amortization
      of notes receivable discount
                                
                                
                                (1,031
                                )
                                
                                
                                -Government
      subsidies
                                
                                
                                (96
                                )
                                
                                
                                (595
                                )Foreign
      exchange loss
                                
                                
                                -
                                
                                
                                
                                556Imputed
      interest expenses
                                
                                
                                -
                                
                                
                                
                                175Deferred
      taxation
                                
                                
                                162
                                
                                
                                
                                1,146Stock-based
      employee compensation expenses
                                
                                
                                538
                                
                                
                                
                                962Changes
      in operating assets and liabilities:(Increase)
      Decrease in:Accounts
      receivable
                                
                                
                                (1,538
                                )
                                
                                
                                (9,614
                                )Other
      receivables
                                
                                
                                285
                                
                                
                                
                                3,431Prepayments
                                
                                
                                2,440
                                
                                
                                
                                49Inventories
                                
                                
                                2,886
                                
                                
                                
                                1,837Increase
      (Decrease) in:Accounts
      payable
                                
                                
                                (4,490
                                )
                                
                                
                                14,005Notes
      payable
                                
                                
                                -
                                
                                
                                
                                (2,420
                                )Accrued
      expenses and other accrued liabilities
                                
                                
                                1,370
                                
                                
                                
                                (1,736
                                )Customer
      deposits
                                
                                
                                (1,253
                                )
                                
                                
                                782Income
      tax payable
                                
                                
                                (176
                                )
                                
                                
                                (79
                                )Net
      cash provided by operating activities:
                                
                                
                                8,418
                                
                                
                                
                                24,161CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
                                
                                
                                (637
                                )
                                
                                
                                (4,135
                                )Investment
      in restricted cash
                                
                                
                                -
                                
                                
                                
                                6,020Prepayment
      for equipment
                                
                                
                                (1,897
                                )
                                
                                
                                -Increase
      in principal of long-term notes receivable from unrelated
      parties
                                
                                
                                (1,111
                                )
                                
                                
                                -Increase
      in principal of long-term notes receivable from related
      parties
                                
                                
                                (15,472
                                )
                                
                                
                                -Increase
      in principal of short-term notes receivable from unrelated
      parties
                                
                                
                                (2,118
                                )
                                
                                
                                -Increase
      in principal of short-term notes receivable from related
      parties
                                
                                
                                (115
                                )
                                
                                
                                -Net
      cash (used in) provided by investing activities:
                                
                                $
                                (21,350
                                )
                                
                                $
                                1,885
 
 See
accompanying notes to the consolidated financial
statements.
  F-7
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF
CASH FLOWS
 
 YearendedSeptember30,2009
                    
                    
                    2008(In
      thousand)CASH
      FLOWS FROM FINANCING ACTIVITIESCapital
      contribution to a subsidiary by its non-controlling equity
      holder
                    
                    $
                    -
                    
                    
                    $
                    64Restricted
      cash
                    
                    
                    (21,028
                    )
                    
                    
                    -Dividends
      paid
                    
                    
                    -
                    
                    
                    
                    (1,419
                    )Increase
      in advance to related parties
                    
                    
                    (3,717
                    )
                    
                    
                    (34,533
                    )Proceeds
      from due from related parties
                    
                    
                    2,595
                    
                    
                    
                    -Proceeds
      from notes payable
                    
                    
                    11,522
                    
                    
                    
                    -Proceeds
      from short-term bank borrowings
                    
                    
                    103,782
                    
                    
                    
                    48,493Government
      subsidies received
                    
                    
                    -
                    
                    
                    
                    87Repayment
      of short-term bank borrowings
                    
                    
                    (76,628
                    )
                    
                    
                    (43,394
                    )Net
      proceeds from financial obligations, sale-leaseback
                    
                    
                    -
                    
                    
                    
                    4,444Repayment
      of financial obligations, sale-leaseback
                    
                    
                    (3,433
                    )
                    
                    
                    (2,418
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    13,093
                    
                    
                    
                    (28,676
                    )NET INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                    
                    
                    161
                    
                    
                    
                    (2,630
                    )Cash
      and cash equivalents, at beginning of year
                    
                    
                    3,154
                    
                    
                    
                    5,340Effect
      on exchange rate changes
                    
                    
                    (523
                    )
                    
                    
                    444CASH
      AND CASH EQUIVALENTS, AT END OF YEAR
                    
                    $
                    2,792
                    
                    
                    $
                    3,154SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      received
                    
                    $
                    873
                    
                    
                    $
                    815Taxes
      paid
                    
                    $
                    469
                    
                    
                    $
                    1,120Interest
      paid
                    
                    $
                    2,353
                    
                    
                    $
                    3,766SUPPLEMENTAL NON-CASH
      DISCLOSURES:Other
      financial assets received from related parties
                    
                    $
                    -
                    
                    
                    $
                    2,918Due
      from related parties transferred to long-term notes
    receivable
                    
                    $
                    21,449
                    
                    
                    $
                    -Due
      from related parties transferred to short-term notes
      receivable
                    
                    $
                    10,458
                    
                    
                    $
                    -Construction
      in progress transferred to property, plan an equipment
                    
                    $
                    1,051
                    
                    
                    $
                    -
 
 See
accompanying notes to the consolidated financial
statements.
  F-8
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 1.
                ORGANIZATION
      AND PRINCIPAL ACTIVITIES
 
 CH
Lighting International Corporation (“CH Lighting”), formerly known as
Sino-Biotics, Inc., was incorporated on July 6, 2005 under the laws of the State
of Delaware, and adopted its existing name effective on August 25, 2008. Its
common stock is currently trade on the Over-The-Counter Bulletin Board (“OTCBB”)
of NASDAQ under the symbol “CHHN”.
 
 CH
Lighting is an investment holding company with no operation. The principal
activities of its subsidiaries (together with CH Lighting, collectively referred
to as “the Company”) are manufacture and sale of lighting source products and
lighting electronic products and investment holding.
 
 Details
of CH Lighting’s subsidiaries as of September 30, 2009 and 2008 are as
follows:
 
 Name
                    
                    Place and Date of
                      Establishment /
                      Incorporation
                    
                    Percentage of
                      Ownership
                    
                    Principal ActivitiesCH
      International Holdings Limited (“CH International”)
                    
                    British
      Virgin Islands
                    
                    100%
                    
                    Investment
      holdingZhejiang
      CH Lighting Company Limited (“Zhejiang CH”) *
                    
                    Zhejiang,
                      the
      People’s Republic of China (“PRC”)
                      September
      27, 2000
                    
                    100%
                    
                    Manufacture
      and sales of lighting source productsZhejiang
      CH Lighting Technology Company Limited (“CH
      Technology”) *
                    
                    Zhejiang,
                      the
      PRC
                      March
      31, 2003
                    
                    100%
                    
                    Manufacture
      and sales of lighting electronic productsZhejiang
      Shaoxing CH Lamps Manufacturing Company Limited (“CH Lamps”)
    *
                    
                    Zhejiang,
                      the
      PRC
                      December
      13, 1999
                    
                    100%
                    
                    Manufacture
      of lighting source productsShangyu
      CH Laboratory Testing Company Limited (“CH Lab”) *
                    
                    Zhejiang,
                      the
      PRC
                      January
      7, 2008
                    
                    90%
                    
                    Laboratory
      testing services of lighting source and electronic
  productsCH
      Lighting (Hong Kong) Limited (“CH Hong Kong”)
                    
                    Hong
      Kong
                      November
      10, 2000
                    
                    100%
                    
                    Trading
      of lighting source
products
 
 *
These are direct translation of name in Chinese for identification purpose only
and are not the official name in English.
  F-9
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of shares and par value)
 
 1.
                ORGANIZATION
      AND PRINCIPAL ACTIVITIES
(CONTINUED)
 
 On July
16, 2008, CH Lighting entered into a Share Exchange Agreement (the “Exchange
Agreement”) with CH International and KEG International Limited (“KEG”), a
company incorporated in the British Virgins Islands. Pursuant to the Share
Exchange Agreement, CH Lighting acquired all of the issued and outstanding
common stock of CH International from KEG in exchange for 93,000,000
newly-issued shares of CH Lighting’s common stock, par value of $0.001,
representing 77.5% of CH Lighting’s common stock issued and outstanding upon
completion of the share exchange (the “Share Exchange
Transaction”).
 
 During
the year ended September 30, 2008, CH Lighting (i) implemented a 1 for 1,000
reverse stock split and issued 128 shares for fractional share issuance on
December 13, 2007, (ii) converted a $65 convertible promissory note and all
related accrued interest into 25,999,998 shares of common stock on January 28,
2008, (iii) converted a $10 convertible promissory note and all related accrued
interest into 3,000,000 shares of common stock on January 31, 2008 and (iv)
implemented a 6 for 1 forward stock split on March 31, 2008. There were
29,180,616 shares of CH Lighting’s common stocks issued and outstanding
immediately before the completion of the Share Exchange
Transaction.
 
 Upon
completion of the Share Exchange Transaction (including, but not limited to, the
cancellation of the 2,180,616 shares of CH Lighting’s common stock concurrent
and simultaneous with the consummation of the Share Exchange Agreement), there
were 120,000,000 shares of CH Lighting’s common stock issued and
outstanding.
 
 The
acquisition by CH Lighting of CH International was 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,
CH Lighting (the legal acquirer) is considered the accounting acquiree and CH
International (the legal acquiree) is considered the accounting acquirer. The
consolidated financial statements of the consolidated entity are in substance be
those of CH International, with the assets and liabilities, and revenues and
expenses, of CH Lighting being included effective from the date of completion of
Share Exchange Transaction. CH Lighting is deemed to be a continuation of
business of CH International. The outstanding common stock of CH Lighting prior
to the Share Exchange Transaction is accounted for at net book value and no
goodwill was recognized.
 
  F-10
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 1.
                ORGANIZATION
      AND PRINCIPAL ACTIVITIES
(CONTINUED)
 
 In order
to rationalize the corporate structure and prepare for the Share Exchange
Transaction, CH International and other subsidiaries (collectively referred to
as the “CH International Group”) underwent a reorganization (“Reorganization”)
as follows:
 
 • On
July 16, 2004, CH International acquired 25% equity interest in each of Zhejiang
CH and CH Technology from nominees of Mr. Zhao Guo Song (“Mr. Zhao”), then the sole
shareholder of the CH International, at a consideration of $500 and $75,
respectively.
 
 • On
November 5, 2004, CH International acquired 25% equity interest in CH Lamps from
a nominee of Mr. Zhao at a consideration of $50.
 
 • On
November 11, 2006, CH International acquired the remaining 75% equity interest
in Zhejiang CH from Mr. Zhao and his nominee at a total consideration of
$1,500.
 
 • On
November 22, 2006 and November 29, 2006, CH International acquired the remaining
75% equity interest in CH Technology from Mr. Zhao and his nominee at a
total consideration of $225.
 
 • On
December 11, 2006, CH International acquired the remaining 75% equity interest
in CH Lamps from a nominee of Mr. Zhao at a consideration of
$150.
 
 • On
February 9, 2007, Zhejiang CH acquired the entire equity interest in CH Hong
Kong from Mr. Zhao and his nominee at a total consideration of HKD10
(equivalent to $1).
 
 • On
January 7, 2008, Zhejiang CH established a 90% owned subsidiary, CH Lab, with
registered capital of RMB 4,500 (equivalent to $599). The remaining
10% equity interest is held by Mr. Zhao.
 
 • On May
6, 2008, CH International declared and paid dividends of $1,419 to Mr.
Zhao.
 
 • On June
15, 2008, Mr. Zhao transferred all his 100% equity interest in the CH
International to KEG, in which Mr. Zhao owns 100% of KEG’s issued and
outstanding capital stock. As a result of the transaction, CH
International became a wholly owned subsidiary of KEG.
 
 Since the
ultimate beneficial owner of the companies comprising the CH International Group
was, all the time prior to the completion of the Reorganization, Mr. Zhao, the
ownership transfer transaction was accounted for as a transfer of entities under
common control in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 805 (formerly Statements 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.
 
 On July
1, 2009, the Company adopted FASB ASC 105-10 (formerly SFAS No. 168,
The FASB ASC and Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162). ASC 105-10 establishes the FASB ASC
as the source of authoritative accounting principles recognized by the FASB
to be applied in preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America.
The adoption of this standard had no impact on the Company’s consolidated
financial statements.
  F-11
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
  Basis
of Consolidation
 
 The
consolidated financial statements include the accounts of CH Lighting and its
subsidiaries. Intercompany accounts and transactions have been eliminated upon
consolidation.
 Earings
per Share
 
 Basic
earnings per share are computed by dividing income available to common
stockholders by the weighted-average number of common stocks outstanding during
the period. 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 September 30,
2009 and 2008.
 Revenue
Recognition
 
 Operating
revenue represents the 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.
 
 The
Company estimate sales return based on the amount of defective goods actually
returned after the reporting period.  There was no sales return for
the years ended September 30, 2009 and 2008.
 
 Shipping
and handling costs related to sales to third parties are reported as sales,
marketing and distribution expenses.
 
 Research
and Development
 
 Research
and development activities are expensed and charged to general administrative
expenses as incurred. Research and development costs were $536
and $580 for the years ended September 30, 2009 and 2008,
respectively.
 
 Advertising
and Promotion Costs
 
 Advertising
and promotion costs are expensed as selling, marketing and distribution expenses
as incurred. Advertising costs were $244 and $759 for the years ended
September 30, 2009 and 2008, respectively.
 
 Retirement
Plan Costs
 
 Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to operations as incurred.
Retirement benefits amounting to $175 and $184 were charged to operations
for the years ended September 30, 2009 and 2008.
  F-12
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except PPE useful lives)
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 Income
Taxes
 
 Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statement of income in the period that
includes the enactment date. A valuation allowance is provided for deferred tax
assets if it is more likely than not these items will either expire before the
Company is able to realize their benefits, or that future deductibility is
uncertain. See Note 18.
 
 Comprehensive
Income
 
 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.
 
 Property,
Plant and Equipment (“PPE”)
 
 PPE are
stated at cost less accumulated depreciation, and include expenditure that
substantially increases the useful lives of existing assets.
 
 Depreciation
is provided over their estimated useful lives, using the straight-line
method.  Estimated useful lives are as follows:
 
 Buildings
                  20
      yearsFurniture,
      fixtures and office equipments
                  5
      yearsMotor
      vehicles
                  10
      yearsMachinery
      and equipment
                  10
      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. See Note 6.
 
 Construction
in Progress
 
 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. See Note
7.
  F-13
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except exchange rate)
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 Land
Use Rights
 
 According
to the laws of China, the government owns all the land in China. Companies or
individuals are authorized to possess and use the land only through land use
rights granted by the Chinese government. The land use rights granted to the
Company are being amortized using the straight-line method over the lease
term of thirty years. See Note 8.
 
 Impairment
of Long-Lived Assets
 
 Long-term
assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to the guidelines established in FASB ASC 360
(formerly SFAS No. 144 Accounting for the Impairment
orDisposal of Long-Lived
Assets).  The Company considers assets to be impaired if the
carrying value exceeds the future projected cash flows from the related
operations.  The Company also re-evaluates the periods of amortization to
determine whether subsequent events and circumstances warrant revised estimates
of useful lives. There were no impairments for the years ended September 30,
2009 and 2008.
 
 Inventories
 
 Inventories
are stated at the lower of cost or net realizable value, which is based on
estimated selling prices less any further costs expected to be incurred for
completion and disposal. Cost of raw materials is calculated using the weighted
average method. Finished goods costs are determined using the weighted average
method and comprise direct materials, direct labor and an appropriate proportion
of overhead. At September 30, 2009, the Company has a provision for
slow moving inventories $157. See Note 5.
 
 Cash
and Cash Equivalents
 
 For
financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturity of three months or less to be
cash equivalents. The Company maintains no bank account in the United
States of America. The Company maintains its bank accounts in China
and Hong Kong.
 
 Foreign
Currency Translation
 
 The
accompanying consolidated financial statements are presented in United States
dollars. The functional currency of the Company is the Renminbi (RMB). The
consolidated financial statements are translated into United States dollars from
RMB at year-end exchange rates as to assets and liabilities and average exchange
rates as to revenues and expenses. Capital accounts are translated at their
historical exchange rates when the capital transactions occurred.
  September30,
                        2009
                      
                      
                      September30,
                        2008Year
      ended RMB: $ exchange rate
                      
                      
                      6.8376
                      
                      
                      
                      6.8551Average
      yearly RMB: $ exchange rate
                      
                      
                      6.8464
                      
                      
                      
                      7.1106
  F-14
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 Use
of Estimates
 
 The
preparation of the consolidated and combined financial statements in conformity
with generally accepted accounting principles in the United States of America
requires 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 the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made. Actual results could differ from those
estimates.
 
 Stock-Based
Compensation
 
 The
Company records compensation expense for stock-based employee compensation
arrangement in accordance with the fair value recognition provisions of
FASB ASC 718 (formerly SFAS No. 123R,  Share-Based
Payment).  The Company estimates the fair value of stock-based awards
granted to employees at the grant date with reference to the Direct Comparison
Method under Market Approach which assumes sale of the awarded stock in its
existing state with the benefit of immediate availability and by making
reference to comparable sale transactions as available in the relevant markets.
The Company records stock-based compensation expense as a general and
administrative expense in the period of which the stock-based awards are
expected to be vested. See Note 22.
 
 Fair
Value of Financial Instruments
 
 FASB ASC
820 (formerly SFAS No. 157 Fair Value Measurements) establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The hierarchy prioritizes the inputs into three levels based on the extent to
which inputs used in measuring fair value are observable in the
market
 
 These
tiers include:
 
 •
                Level 1—defined
      as observable inputs such as quoted prices in active
    markets;
  •
                  Level 2—defined
      as inputs other than quoted prices in active markets that are either
      directly or indirectly observable;
and
  •
                  Level 3—defined
      as unobservable inputs in which little or no market data exists, therefore
      requiring an entity to develop its own
  assumptions.
  The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820 as of September 30, 2009 are as follows:
 
 Fair Value Measurements at Reporting Date UsingCarrying value
                              asof
                              September 30,
                              2009
                            
                            
                            Quoted Prices in
                              Active Markets
                              for Identical
                              Assets
                              (Level 1)
                            
                            
                            Significant Other
                              Observable
                              Inputs
                              (Level 2)
                            
                            
                            Significant
                              Unobservable Inputs
                              (Level 3)Cash
      and cash equivalents
                            
                            $
                            2,792
                            
                            
                            $
                            2,792
                            
                            
                            
                            -
                            
                            
                            
                            -Restricted
      cash
                            
                            $
                            37,342
                            
                            
                            $
                            37,342
                            
                            
                            
                            -
                            
                            
                            
                            -
  See Note
4.
  F-15
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 Recently
Issued Accounting Pronouncements
 
 Effective
January 1, 2009, the Company adopted ASC 805 (formerly SFAS No. 141R,
Business Combinations). ASC 805 requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. The
adoption of ASC 805 did not have any effect on the Company’s condensed
consolidated financial statements as of September 30, 2009.
 
 Effective
January 1, 2009, the Company adopted ASC 810-10 (formerly SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements). This Statement
establishes accounting and reporting standards that require the ownership
interests in subsidiaries’ non-parent owners be clearly presented in the equity
section of the balance sheet; requires the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
requires that changes in a parent’s ownership interest while the parent retains
its controlling financial interest in its subsidiary be accounted for
consistently; requires that when a subsidiary is deconsolidated, any
retained noncontrolling equity investment in the former subsidiary be initially
measured at fair value and the gain or loss on the deconsolidation of the
subsidiary be measured using the fair value of any noncontrolling equity;
requires that entities provide disclosures that clearly identify the interests
of the parent and the interests of the noncontrolling owners. The adoption of
ASC 810-10 did not have a significant effect on the Company’s condensed
consolidated financial statements as of September 30, 2009.
 
 Effective
January 1, 2009, the Company adopted ASC 815-10 (formerly SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities ), which amends SFAS No. 133 and
expands disclosures to include information about the fair value of derivatives,
related credit risks and a company’s strategies and objectives for using
derivatives. The adoption of ASC 815-10 did not have a material effect on the
condensed consolidated financial statements as of September 30,
2009.
 
 Effective
January 1, 2009, the Company adopted ASC 815-40 (formerly Emerging Issues Task
Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). ASC 815-40
addresses the determination of whether an instrument (or an embedded feature) is
indexed to an entity’s own stock, which is the first part of the scope exception
in paragraph 11(a) of FASB SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (“SFAS 133”). If an instrument (or an embedded
feature) that has the characteristics of a derivative instrument under
paragraphs 6–9 of SFAS 133 is indexed to an entity’s own stock, it is still
necessary to evaluate whether it is classified in stockholders’ equity (or would
be classified in stockholders’ equity if it were a freestanding instrument).
Other applicable authoritative accounting literature, including Issues EITF
00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company Own Stock, and EITF 05-2, The Meaning of
“Conventional Debt Instrument” in Issue No. 00-19, provides guidance for
determining whether an instrument (or an embedded feature) is classified in
stockholders’ equity (or would be classified in stockholders’ equity if it were
a freestanding instrument). ASC 815-40 does not address that second part of the
scope exception in paragraph 11(a) of SFAS 133. The adoption of ASC
815-40 did not have a material effect on the condensed consolidated
financial statements as of September 30, 2009.
  F-16
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 Recently
Issued Accounting Pronouncements (Continued)
 
 On
April 1, 2009, the FASB approved ASC 805 (formerly FSP FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies ) ,  which amends Statement 141R and
eliminates the distinction between contractual and non-contractual
contingencies. Under ASC 805, an acquirer is required to recognize at fair value
an asset acquired or liability assumed in a business combination that arises
from a contingency if the acquisition-date fair value of that asset or liability
can be determined during the measurement period. If the acquisition-date fair
value cannot be determined, the acquirer applies the recognition criteria in
SFAS No. 5,  Accounting for Contingencies  and
Interpretation 14, “Reasonable Estimation of the Amount of a Loss – and
interpretation of FASB Statement No. 5,” to determine whether the
contingency should be recognized as of the acquisition date or after
it. The adoption of ASC 805 did not have a material effect on the
condensed consolidated financial statements as of September 30,
2009.
 
 ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. It did not amend existing recognition and measurement guidance
related to other-than-temporary impairments of equity securities. We are
required to adopt ASC 320-10 for our interim and annual reporting periods ending
after June 15, 2009. ASC 320-10 does not require disclosures for periods
presented for comparative purposes at initial adoption. ASC 320-10 requires
comparative disclosures only for periods ending after initial adoption. The
adoption of ASC 320-10 did not have a material effect on the condensed
consolidated financial statements as of September 30, 2009.
 
 On
April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1
and APB 28-1,Interim
Disclosures about Fair Value of Financial Instruments ) to require
disclosures about fair value of financial instruments in interim period
financial statements of publicly traded companies and in summarized financial
information required by APB Opinion No. 28,Interim Financial
Reporting . We are required to adopt ASC 825-10 for our interim and
annual reporting periods ending after June 15, 2009. ASC 825-10 does not
require disclosures for periods presented for comparative purposes at initial
adoption. ASC 825-10 requires comparative disclosures only for periods ending
after initial adoption. The adoption of ASC 825-10 did not have a material
effect on the condensed consolidated financial statements as of September 30,
2009.
 
 In June
2009, the FASB SFAS No. 167, Amendments to FASB Interpretation No. 46©, requires
an enterprise to perform an analysis and ongoing reassessments to determine
whether the enterprises variable interest or interests give it a controlling
financial interest in a variable interest entity and amends certain guidance for
determining whether an entity is a variable interest entity. It also requires
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprises involvement in a variable interest
entity.  SFAS 167 is effective as of the beginning of each reporting
entity’s first annual reporting period that begins after November 15, 2009
and for all interim reporting periods after that.  The Company is currently
evaluating the impact of the adoption of SFAS 167. This recently issued but not
yet enacted accounting standard has not yet been codified by the FASB. See Note
1.
  F-17
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of customers and suppliers)
 
 3.
                OPERATING
      RISKS
 
 (a)
                Concentration
      of Major Customers and Suppliers
 
 Year
      ended September 30,2009
                                    
                                    
                                    2008Major
      customers with revenues of more than 10% of the Company’s
      salesSales
      to major customer
                                    
                                    $
                                    5,725
                                    
                                    
                                    $
                                    9,733Percentage
      of sales
                                    
                                    
                                    10
                                    %
                                    
                                    
                                    11
                                    %Number
                                    
                                    
                                    1
                                    
                                    
                                    
                                    1Major
      suppliers with purchases of more than 10% of the Company’s
      purchasesPurchases
      from major suppliers
                                    
                                    $
                                    9,686
                                    
                                    
                                    $
                                    5,272Percentage
      of purchases
                                    
                                    
                                    37
                                    %
                                    
                                    
                                    11
                                    %Number
                                    
                                    
                                    2
                                    
                                    
                                    
                                    1
  Accounts
receivable related to the Company’s major customer comprised 20% and 33% of all
accounts receivable as of September 30, 2009 and 2008,
respectively.
 
 Accounts
payable related to the Company’s major suppliers comprised 25% and 10% of
all accounts payable as of September 30, 2009 and 2008,
respectively.
  (b)
                Country
      Risks
  Four of
the Company’s major subsidiaries have operations conducted in the PRC.
Accordingly, their businesses, financial condition and results of operations
maybe influenced by the political, economic and legal environments in the PRC,
and by the general state of the PRC economy.
  The
operations in the PRC are 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.
  F-18
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 4.
                RESTRICTED
      CASH
 
 Restricted
cash as of September 30, 2009 and 2008 represented time deposits with original
maturity between three and twelve months to secure banking facilities granted by
various financial institutions as follows:
  September 30,2009
                      
                      
                      2008NoteNotes
      payable
                      
                      
                      14
                      
                      
                      $
                      13,057
                      
                      
                      $
                      4,519Bills
      financing
                      
                      15(b)
                      
                      
                      
                      19,890
                      
                      
                      
                      7,367Collateral
      for bank acceptance notes issued bya
      related party
                      
                      
                      9(c)
                      
                      
                      
                      1,463
                      
                      
                      
                      4,428A
      short-term bank loan
                      
                      
                      15(a)
                      
                      
                      
                      2,925
                      
                      
                      
                      -Others
                      
                      
                      
                      
                      
                      
                      7
                      
                      
                      
                      -$
                      37,342
                      
                      
                      $
                      16,314
 
 5.
                INVENTORIES
 
 Inventories
consist of the following:
 
 September 30,2009
                      
                      
                      2008Raw
      materials
                      
                      $
                      3,068
                      
                      
                      $
                      3,397Work-in-progress
      and semi-finished goods
                      
                      
                      2,463
                      
                      
                      
                      2,277Finished
      goods
                      
                      
                      6,886
                      
                      
                      
                      9,62912,417
                      
                      
                      
                      15,303Less:
      Provision for slow-moving inventories
                      
                      
                      (157)
                      
                      
                      
                      -Inventories,
      net
                      
                      $
                      12,260
                      
                      
                      $
                      15,303
  F-19
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 6.
                PROPERTY,
      PLANT AND EQUIPMENT
 
 Property,
plant and equipment consist of the following:
 
 September 30,2009
                                  
                                  
                                  2008NoteAt
      cost:Buildings
                                  
                                  
                                  
                                  
                                  $
                                  6,967
                                  
                                  
                                  $
                                  6,869Plant
      and machinery
                                  
                                  
                                  
                                  
                                  
                                  7,987
                                  
                                  
                                  
                                  7,626Motor
      vehicles
                                  
                                  
                                  
                                  
                                  
                                  1,002
                                  
                                  
                                  
                                  1,000Furniture,
      fixtures and office equipment
                                  
                                  
                                  
                                  
                                  
                                  1,181
                                  
                                  
                                  
                                  1,167Assets
      recorded under financial obligations, sale-leaseback
                                  
                                  17
                                  
                                  
                                  
                                  3,313
                                  
                                  
                                  
                                  2,10320,450
                                  
                                  
                                  
                                  18,765Less:
      Accumulated depreciationBuildings
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,683
                                  )
                                  
                                  
                                  (1,317
                                  )Plant
      and machinery
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,726
                                  )
                                  
                                  
                                  (1,954
                                  )Motor
      vehicles
                                  
                                  
                                  
                                  
                                  
                                  
                                  (453
                                  )
                                  
                                  
                                  (365
                                  )Furniture,
      fixtures and office equipment
                                  
                                  
                                  
                                  
                                  
                                  
                                  (778
                                  )
                                  
                                  
                                  (651
                                  )Assets
      recorded under financial obligations, sale-leaseback
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,024
                                  )
                                  
                                  
                                  (708
                                  )(6,664
                                  )
                                  
                                  
                                  (4,995
                                  )Property,
      plant and equipment, net
                                  
                                  
                                  
                                  
                                  
                                  $
                                  13,786
                                  
                                  
                                  $
                                  13,770
  Depreciation
expense was $1,669 and $1,214 for the years ended September 30, 2009 and 2008,
respectively.
  The
Company has pledged certain buildings and machineries as collaterals against
short-term bank loans. See Note 15(a).
 
 7.
                CONSTRUCTION
      IN PROGRESS
 
 Construction
in progress consists of the following:
  September 30,2009
                        
                        
                        2008NoteConstruction in progress
                        
                        
                        
                        
                        $
                        1,500
                        
                        
                        $
                        1,497Construction
      in progress recorded under financial obligations,
      sale-leaseback
                        
                        17
                        
                        
                        
                        -
                        
                        
                        
                        1,051$
                        1,500
                        
                        
                        $
                        2,548
 
   F-20
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
 
 8.
                LAND
      USE RIGHTS
 
 Land use
rights consist of the following:
  September 30,2009
                      
                      
                      2008Cost
      of land use rights
                      
                      $
                      1,140
                      
                      
                      $
                      1,137Less:
      Accumulated amortization
                      
                      
                      (301
                      )
                      
                      
                      (250
                      )Land
      use rights, net
                      
                      $
                      839
                      
                      
                      $
                      887
 
 Amortization
expense for the years ended September 30, 2009 and 2008 was $48 and $38,
respectively.
  The
Company has pledged the land use rights as collaterals against short-term bank
loans. See Note 15(a).
 
 9.
                RELATED
      PARTY TRANSACTIONS
 
 (a)
                Names
      and Relationship of Related
Parties:
 
 Existing
      Relationships With the CompanyMr.
      Zhao
                    
                    Director
      and controlling stockholder of the CompanyMs.
      Gan Cai Ying (“Ms. Gan”)
                    
                    Director
      of the Company and spouse of Mr. ZhaoShangyu
      Chenhui Childcare Products Company Limited (“CH Childcare”)
    *
                    
                    Under
      common control of Mr. ZhaoShaoxing
      Umbrella Factory (“SX Umbrella”) *
                    
                    Under
      common control of Mr. ZhaoShangyu
      Hecheng Plastic and Metal Products Company Limited
      (“Hecheng”)*
                    
                    Under
      common control of Mr. ZhaoShangyu
      Henghui Electronic Products Manufacturing Company Limited (“Henghui”)
      *
                    
                    Under
      common control of Mr. ZhaoZhejiang
      Chenhui Yingbao Childcare Products Company Limited (“Yingbao Childcare”)
      *
                    
                    Under
      common control of Mr.
Zhao
 
 *
                  These
      are direct translation of names in Chinese for identification purpose only
      and are not official names in
English.
  F-21
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 9.
                  RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 (b)
                  Summary
      of Balances with Related
Parties:
 
 September 30,2009
                          
                          
                          2008Due
      from related parties:Ms.
      Gan
                          
                          $
                          -
                          
                          
                          $
                          636CH
      Childcare
                          
                          
                          -
                          
                          
                          
                          154Henghui
                          
                          
                          -
                          
                          
                          
                          26,352Yingbao
      Childcare
                          
                          
                          -
                          
                          
                          
                          7,360Employees
                          
                          
                          255
                          
                          
                          
                          -$
                          255
                          
                          
                          $
                          34,502
 
 Among the
balance of $34,502 at September 30, 2008, $2,595 was collected subsequent to
September 30, 2008. The remaining balance of $10,458 and $21,449 was transferred
to short-term and long-term notes receivable from related
parties, respectively, during the year ended September 30, 2009 as the
Company signed fixed-term, interest-free note agreements with the related
parties. See Note 11 and 13.
 
 The
amount due from related parties at September 30, 2008 represents unsecured
advances which are interest-free up to July 15, 2008 and repayable on
demand. From July 16, 2008 onwards, the amounts carry variable interest at 1-3
Years Lending Rate offered by the People Bank of China plus 0.5% per annum.
The Company plans to collect the outstanding amounts as of September 30,
2008 gradually within two years. As at September 30, 2008, the estimated amount
to be collected after one year from September 30, 2008 was approximately
$27,444.
 
 Due from
employees are interest-free, unsecured and have no fixed repayment term. The
amounts due from employees primarily represent advances to sales personnel of
the Company for business and travelling related expenses.
 
 September 30,2009
                      
                      
                      2008Due
      to related parties:Mr.
      Zhao
                      
                      $
                      125
                      
                      
                      $
                      3,203SX
      Umbrella
                      
                      
                      39
                      
                      
                      
                      25Hecheng
                      
                      
                      -
                      
                      
                      
                      398$
                      164
                      
                      
                      $
                      3,626
 
 The
amounts due to related parties represent unsecured advances, which are
interest-free and repayable on demand.
  F-22
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 9.
                RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 (c)Summary ofRelatedPartyTransactions:
  September 30,2009
                                        
                                        
                                        2008NoteMr.
      Zhao and Ms. Gan
                                        Mr.
      Zhao and Ms. Gan provided guarantee for the short-term bank loans borrowed
      by the Company
                                        15(a)
                                        
                                        $
                                        17,711
                                        
                                        
                                        $
                                        2,022Henghui
                                        The
      Company provided cash as collateral for the bank acceptance
      notes issued by Henghui
                                        4,
                                          20(c)
                                        
                                        
                                        1,463
                                        
                                        
                                        
                                        4,376Henghui
      provided guarantee for the short-term bank loan borrowed by the
      Company
                                        15(a)
                                        
                                        
                                        512
                                        
                                        
                                        
                                        2,917The
      Company had Long-term and Short-term notes receivable from
      Henghui
                                        11,13
                                        
                                        
                                        28,829
                                        
                                        
                                        
                                        -The
      Company received interest income from Henghui
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        59Yingbao
      Childcare
                                        Yingbao
      Childcare provided guarantee for the financial obligations, sale-leaseback
      borrowed by the Company
                                        17
                                        
                                        
                                        2,413
                                        
                                        
                                        
                                        3,325Yingbao
      Childcare provided guarantee for the short-term bank loans borrowed by the
      Company
                                        15(a)
                                        
                                        
                                        10,823
                                        
                                        
                                        
                                        -The
      Company had Long-term notes receivable from Yingbao
    Childcare
                                        13
                                        
                                        
                                        16,318SX
      Umbrella
                                        The
      Company paid rental fee to SX Umbrella for renting
    doom
                                        
                                        
                                        $
                                        15
                                        
                                        
                                        $
                                        14
  F-23
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 
 10.
                SHORT-TERM
      NOTES RECEIVABLE FROM UNRELATED
PARTIES
 
 The
short-term notes receivable from unrelated parties consist of the
following:
 
 September
      30,2009
                        
                        2008Due
      December 31, 2009
                        a)
                        
                        $
                        731
                        
                        
                        $
                        -Due
      March 31, 2010
                        b)
                        
                        
                        948
                        
                        
                        
                        -Due
      August 3, 2010
                        c)
                        
                        
                        439
                        
                        
                        
                        -Total
                        
                        
                        $
                        2,118
                        
                        
                        $
                        -
 
 The unsecured
notes denoted a) and c) were provided to an unrelated company for its
assistance in providing guarantee for bank loans borrowed by the Company, and
bears a 4.78% and 4.29% interest rate per annum, respectively. The interest
income was $11 for the year ended September 30, 2009.
 
 The interest-free,
unsecured note denoted b) was provided to an unrelated company for its
assistance in providing guarantee for bank loans borrowed by the
Company.
  11.
                SHORT-TERM
      NOTES RECEIVABLE FROM RELATED
PARTIES
 
 The
short-term notes receivable from related parties consist of the
following:
 
 September
      30,2009
                        
                        
                        2008Henghui,
      due December 31, 2009
                        d)
                        
                        $
                        115
                        
                        
                        $
                        -Henghui,
      due March 31, 2010
                        e)
                        
                        
                        10,458
                        
                        
                        
                        -Total
                        
                        
                        $
                        10,573
                        
                        
                        $
                        -
 
 The interest-free
and secured by Mr. Zhao notes denoted d) and e) were provided
to a related company for its assistance in providing guarantee for bank
loans borrowed by the Company. See Note 9.
  F-24
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 12.
                LONG-TERM
      NOTES RECEIVABLE FROM UNRELATED
PARTIES
 
 The
long-term notes receivable from unrelated parties consist of the
following:
 
 September
      30,2009
                              
                              
                              2008Due
      December 31, 2010, net of discount of $2
                              a)
                              
                              $
                              34
                              
                              
                              $
                              -Due
      December 31, 2010, net of discount of $2
                              b)
                              
                              
                              34
                              
                              
                              
                              -Due
      December 31, 2010, net of discount of $10
                              c)
                              
                              
                              151
                              
                              
                              
                              -Due
      December 31, 2010, net of discount of $56
                              d)
                              
                              
                              822
                              
                              
                              
                              -Total
                              
                              
                              $
                              1,041
                              
                              
                              $
                              -
 
 In
October 2008, interest-free notes were provided to an unrelated company a) for
its assistance in developing distribution channels and new markets for the
Company. The Company recorded non-cash marketing expense and discounts on the
notes receivable of $4 based on the present value of the notes receivable using
a 5.4% rate.
 
 In
September 2009, interest-free notes were provided to unrelated companies b), c)
and d) for their assistance in developing distribution channels and new markets
for the Company. The Company recorded non-cash marketing expense and discounts
on the notes receivable of $68 based on the present value of the notes
receivable using a 5.4% rate.
 
 The
amortization of discount, relating to the notes for the year ended
September 30, 2009 was $2.
  13.
                LONG-TERM
      NOTES RECEIVABLE FROM RELATED
PARTIES
 
 The
long-term notes receivable from related parties consist of the
following:
 
 September
      30,2009
                        
                        
                        2008Yingbao
      Childcare, due December 31, 2010, net ofdiscount
      of $1,108
                        e)
                        
                        $
                        16,318
                        
                        
                        $
                        -Henghui,
      due December 31, 2010, net of discount of$1,239
                        f)
                        
                        
                        18,256
                        
                        
                        
                        -Total
                        
                        
                        $
                        34,574
                        
                        
                        $
                        -
 
 In
October 2008, $36,921 interest-free notes were provided to related companies e)
and f) for their assistance in developing distribution channels and new markets
for the Company. Among the total notes receivable of $36,921, $21,449 was
transferred from due from related parties, and the remaining balance of $15,472
was paid by the Company at September 30, 2009. See Note 9. The Company recorded
non-cash marketing expense and discounts on the notes receivable of $3,376 based
on the present value of the notes receivable using a 5.4% rate.
 
 The
amortization of discount, relating to the notes for the year ended September 30,
2009 was $1,029.
  F-25
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 14.
                NOTES
      PAYABLE
 
 The notes
payable consist of the following:
 
 September
      30,2009
                          
                          
                          2008Due
      October 23, 2009,
                            subsequently
      repaid on due date
                          
                          $
                          362
                          
                          
                          $
                          -Due
      November 7, 2009,
                            subsequently
      repaid on due date
                          
                          
                          134
                          
                          
                          
                          -Due
      November 14, 2009,
                            subsequently
      repaid on due date
                          
                          
                          2,925
                          
                          
                          
                          -Due
      November 11, 2009,
                            subsequently
      repaid on due date
                          
                          
                          1,463
                          
                          
                          
                          -Due
      December 3, 2009,
                            subsequently
      repaid on due date
                          
                          
                          160
                          
                          
                          
                          -Due
      December 4, 2009,
                            subsequently
      repaid on due date
                          
                          
                          230
                          
                          
                          
                          -Due
      December 22, 2009,
                          
                          
                          51
                          
                          
                          
                          -Due
      December 24, 2009,
                          
                          
                          523
                          
                          
                          
                          -Due
      December 30, 2009,
                          
                          
                          3,218
                          
                          
                          
                          -Due
      February 4, 2010,
                          
                          
                          694
                          
                          
                          
                          -Due
      March 1, 2010,
                          
                          
                          2,039
                          
                          
                          
                          -Due
      March 3, 2010,
                          
                          
                          1,316
                          
                          
                          
                          -Due
      March 23, 2010,
                          
                          
                          1,463
                          
                          
                          
                          -Due
      March 27, 2010,
                          
                          
                          1,463
                          
                          
                          
                          -Due
      before February 11, 2009,
                            subsequently
      repaid on due date
                          
                          
                          -
                          
                          
                          
                          4,519$
                          16,041
                          
                          
                          $
                          4,519
 
 All the
notes payable are subject to bank charges of 0.05% of the principal amount as
commission on each loan transaction. Bank charges for notes payable were $39
and $25 for the years ended September 30, 2009 and 2008,
respectively.
 
 The notes
payable are secured by $13,057 and $4,519 restricted cash as of
September 30, 2009 and 2008, respectively. See Note 4.
  15.
                SHORT-TERM
      BANK BORROWINGS
 
 The
short-term bank borrowings consist of the following:
 
 September
      30,Note
                      
                      
                      2009
                      
                      
                      2008Short-term
      bank loans
                      
                      
                      15(a)
                      
                      
                      $
                      55,195
                      
                      
                      $
                      38,814Bills
      financing
                      
                      
                      15(b)
                      
                      
                      
                      19,890
                      
                      
                      
                      12,035$
                      75,085
                      
                      
                      $
                      50,849
  F-26
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 15.
                SHORT-TERM
      BANK BORROWINGS (CONTINUED)
  (a)
                  Short-Term
      Bank Loans
  The
short-term bank loans consist of the following:
 
 September
      30,2009
                        
                        
                        2008NoteDue
      October 12, 2009,
                          subsequently
      repaid on due date
                        
                        
                        $
                        1,463
                        
                        
                        $
                        -Due
      November 25, 2009,
                          subsequently
      repaid on due date
                        
                        
                        
                        951
                        
                        
                        
                        -Due
      on November 26, 2009,
                          subsequently
      repaid on due date
                        
                        
                        
                        1,194
                        
                        
                        
                        -Due
      December 30, 2009
                        
                        
                        
                        161
                        
                        
                        
                        -Due
      January 11, 2010
                        
                        
                        
                        1,463
                        
                        
                        
                        -Due
      January 24, 2010
                        
                        
                        
                        2,194
                        
                        
                        
                        -Due
      February 3, 2010, guaranteed by Henghui
                        9(c)
                        
                        
                        512
                        
                        
                        
                        -Due
      February 19, 2010
                        
                        
                        
                        731
                        
                        
                        
                        -Due
      February 25, 2010
                        
                        
                        
                        995
                        
                        
                        
                        -Due
      March 1, 2010
                        
                        
                        
                        2,867
                        
                        
                        
                        -Due
      March 17, 2010
                        
                        
                        
                        1,755
                        
                        
                        
                        -Due
      March 26, 2010
                        
                        
                        
                        2,925
                        
                        
                        
                        -Due
      March 30, 2010
                        
                        
                        
                        2,925
                        
                        
                        
                        -Due
      April 4, 2010
                        
                        
                        
                        1,463
                        
                        
                        
                        -Due
      April 9, 2010
                        
                        
                        
                        731
                        
                        
                        
                        -Due
      April 17, 2010
                        
                        
                        
                        2,925
                        
                        
                        
                        -Due
      April 22, 2010
                        
                        
                        
                        731
                        
                        
                        
                        -Due
      April 30, 2010
                        
                        
                        
                        1,755
                        
                        
                        
                        -Due
      May 18, 2010
                        
                        
                        
                        2,194
                        
                        
                        
                        -Due
      May 28, 2010
                        
                        
                        
                        761
                        
                        
                        
                        -Due
      June 7, 2010
                        
                        
                        
                        731
                        
                        
                        
                        -Due
      June 10, 2010
                        
                        
                        
                        2,194
                        
                        
                        
                        -Due
      June 14, 2010
                        
                        
                        
                        439
                        
                        
                        
                        -Due
      June 25, 2010
                        
                        
                        
                        731
                        
                        
                        
                        -Due
      June 28, 2010
                        
                        
                        
                        3,642
                        
                        
                        
                        -Due
      July 14, 2010
                        
                        
                        
                        1,463
                        
                        
                        
                        -Due
      July 15, 2010, guaranteed by Yingbao
                          Childcare
                        9(c)
                        
                        
                        5,850
                        
                        
                        
                        -Due
      August 3, 2010
                        
                        
                        
                        1,550
                        
                        
                        
                        -Due
      August 4, 2010, guaranteed by Yingbao
                          Childcare
                        9(c)
                        
                        
                        4,973
                        
                        
                        
                        -Due
      August 19, 2010
                        
                        
                        
                        1,463
                        
                        
                        
                        -Due
      August 21, 2010
                        
                        
                        
                        1,463
                        
                        
                        
                        -Due
      before August 21, 2009,
                          subsequently
      repaid on due date
                        
                        
                        
                        -
                        
                        
                        
                        38,814Total
                        
                        
                        $
                        55,195
                        
                        
                        $
                        38,814
  F-27
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 15.
                SHORT-TERM
      BANK BORROWINGS (CONTINUED)
  (a)
                  Short-Term
      Bank Loans (Continued)
  The
short-term bank loans are collateralized by land use rights, property, plant and
equipment and restricted cash of the Company with carrying values as
follows:
  September
      30,2009
                          
                          
                          2008NoteLand
      use right
                          
                          
                          8
                          
                          
                          $
                          839
                          
                          
                          $
                          887Property,
      plant and equipment
                          
                          
                          6
                          
                          
                          
                          4,371
                          
                          
                          
                          5,640Restricted
      cash
                          
                          
                          4
                          
                          
                          
                          2,925
                          
                          
                          
                          -$
                          8,135
                          
                          
                          $
                          6,527
  Various
parties have also provided guarantees against these short-term bank loans as
follows:
 
 September 30,2009
                          
                          
                          2008NotePersonal
      guarantees provided by related parties
                          9(c)
                          
                          $
                          17,711
                          
                          
                          $
                          13,858Corporate
      guarantees provided by unrelated parties
                          20(c)
                          
                          $
                          23,927
                          
                          
                          $
                          30,922
  The
weighted average annual interest rates of the short-term bank loans were 5.62%
and 6.41% as of September 30, 2009 and 2008, respectively.  Interest
expense was $2,704 and $2,015 for the years ended September 30, 2009 and
2008, respectively.
  F-28
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
  15.
                SHORT-TERM
      BANK BORROWINGS (CONTINUED)
  (b)
                Bills
      Financing
  The bills
financing consists of the following:
 
 September
      30,2009
                      
                      
                      2008Due
      October 21, 2009,
                        subsequently
      repaid on due date
                      
                      $
                      2,925
                      
                      
                      $
                      -Due
      October 29, 2009,
                        subsequently
      repaid on due date
                      
                      
                      2,194
                      
                      
                      
                      -Due
      November 21, 2009,
                        subsequently
      repaid on due date
                      
                      
                      1,463
                      
                      
                      
                      -Due
      November 22, 2009,
                        subsequently
      repaid on due date
                      
                      
                      1,463
                      
                      
                      
                      -Due
      November 27, 2009
                        subsequently
      repaid on due date
                      
                      
                      1,609
                      
                      
                      
                      -Due
      December 18, 2009
                      
                      
                      2,194
                      
                      
                      
                      -Due
      December 22, 2009
                      
                      
                      2,194
                      
                      
                      
                      -Due
      February 20, 2010
                      
                      
                      1,462
                      
                      
                      
                      -Due
      March 7, 2010
                      
                      
                      1,462
                      
                      
                      
                      -Due
      March 8, 2010
                      
                      
                      1,462
                      
                      
                      
                      -Due
      March 22, 2010
                      
                      
                      1,462
                      
                      
                      
                      -Due
      before February 25, 2009,
                        subsequently
      repaid on due date
                      
                      
                      -
                      
                      
                      
                      12,035Total
                      
                      $
                      19,890
                      
                      
                      $
                      12,035
 
 The bills
are secured by restricted cash of the Company with carrying values of$19,890 and$7,367, for the years
ended September 30, 2009 and 2008, respectively. See Note 4.
 
 The
weighted average annual interest rates of the bills financing were 2.14% and
5.69% as of September 30, 2009 and 2008, respectively.  Interest
expense was $781 and $973 for the years ended September 2009
and 2008, respectively.
  F-29
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
  16.
                GOVERNMENT
      SUBSIDIES
 
 Since
2008 the central government of the PRC has agreed to grant the Company subsidy
for selling energy - saving lighting products at a discount price on a condition
that the products are sold to retail customers. $10,125 and $0 was recorded as
revenue derived from government grant for the years ended September 30, 2009 and
2008. $6,839 of the government grant revenue recognized in the year ended
September 30, 2009 was associated with the sales for the year ended September
30, 2008. As the Company sold their products to distributors rather than retail
customers for the year ended September 30, 2008, they were not able to make an
appropriate estimate for the amount of government grant receivable then. And
therefore, such amount was recorded as revenue derived from government grant
upon receipt for the year ended September 30, 2009. The remaining $3,286 of the
government grant revenue was associated with the sales made during the year
ended September 30, 2009. Since the Company changed their selling strategy and
sold products directly to retail customers, they were able to make appropriate
estimate for the amount of government grant receivable.  And
therefore, such amount was recorded as revenue derived from government grant for
the year ended September 30, 2009. The government grants receivable of
$3,286 is included in the accounts receivable balance at September 30,
2009.
 
 During
the years ended September 30, 2009 and 2008, $96 and $595 were recognized as
other income for the government subsidies received in the previous years. Such
government subsidies were required by the government to record as other payable
upon receipt and would be recognized as other income upon utilization. However,
the utilization of such government subsidies was not restricted.
 
 For the
years ended September 30, 2009, the Company was granted and received
unconditional government subsidies of $589, which were recorded as other
income.
  F-30
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
  17.
                FINANCIAL
      OBLIGATIONS, SALE-LEASEBACK
 
 In
September 2007, the Company refinanced its machineries under a sale-leaseback
arrangement. Under the sale-leaseback agreement, the facility was sold for RMB
30,000 ($4,376) and concurrently, the Company leased the facility back for the
amount aggregating RMB 30,000 ($4,376) with a weighted average interest rate of
8.16%, payable in periodic installments through September 2010. Among the
selling price of RMB 30,000 ($4,376), RMB 20,000 ($2,917) was received in cash,
and the remaining balance of RMB 10,000 ($1,459) was treated as an interest
bearing security deposit to be applied to the future lease payments. The
transaction has been accounted for as a financing arrangement, wherein the
property remains on the Company’s books and will continue to be
depreciated. A financial obligation in the amount of RMB 20,000 ($2,917),
representing the net proceeds of the sale, has been recorded under “Financial
obligations, sale-leaseback” in the Company’s Balance Sheets, and is being
reduced based on lease payments under the financial obligation. The Company has
an option to purchase the facility with RMB 300 ($44) at the expiration date of
the lease. The financial obligation is guaranteed by Yinbao Childcare, the
related party of the Company. See Note 9(c).
 
 In June
2008, the Company refinanced its machineries under a sale-leaseback arrangement.
Under the sale-leaseback agreement, the facility was sold for RMB 40,000
($5,835) and concurrently, the Company leased the facility back for the amount
aggregating RMB 40,000 ($5,835) with a weighted average interest rate of 8.16%,
payable in periodic installments through June 2011. Among the selling price of
RMB 40,000 ($5,835), RMB 26,666 ($3,889) was received in cash, and the
remaining balance of RMB 13,334 ($1,946) was treated as an interest bearing
security deposit to be applied to the future lease payments. The transaction has
been accounted for as a financing arrangement, wherein the property remains on
the Company’s books and will continue to be depreciated. A financial
obligation in the amount of RMB 26,666 ($3,889), representing the net proceeds
of the sale, has been recorded under “Financial obligations, sale-leaseback” in
the Company’s Balance Sheets, and is being reduced based on lease payments under
the financial obligation. The Company has an option to purchase the facility
with RMB 400 ($58) at the expiration date of the lease.
 
 September 30,2009
                      
                      
                      2008Financial
      obligations, sale-leaseback
                      
                      $
                      6,825
                      
                      
                      $
                      10,211Less:
      Accumulated amortization
                      
                      
                      (3,788
                      )
                      
                      
                      (1,050
                      )Financial
      obligations, sale-leaseback, net
                      
                      $
                      3,037
                      
                      
                      $
                      9,161Less:
      Current portion
                      
                      
                      2,413
                      
                      
                      
                      3,068Long-term
      portion
                      
                      $
                      624
                      
                      
                      $
                      6,093
 
 As of
September 30, 2009, future minimum payments required under non-cancellable
sale-leaseback are:
 
 Year Ended September 30
                      
                      Amount2010
                      
                      $
                      2,7572011
                      
                      
                      744Total
      minimum lease payments
                      
                      
                      3,501Less:
      Amount representing interest
                      
                      
                      (464
                      )Present
      value of net minimum lease payments
                      
                      $
                      3,037
 
 Amortization
of the financial obligations for the years ended September, 2009 and 2008 was
$722 and $301, respectively.
  F-31
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 18.
                INCOME
      TAXES
  (a)
                  Corporation
      Income Tax (“CIT”)
 
 At
September 30, 2009, the Company had US federal net operating loss
carryforward of approximately $1,927 expiring beginning in
2009 in varying amounts through 2028.
 
 FASB ASC
740 (formerly SFAS No. 109 Accounting for Income Taxes) requires that a
valuation allowance be established when it is more likely than not that all or a
portion of deferred tax assets will not be realized. The Company estimates
they will not have net operating income in the United States.  As
such, the Company recorded a 100% valuation allowance against its net
deferred tax asset associated with net operating loss carryforwrd as of
September 30, 2009.
 
 The
People’s Republic of China
 
 On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China (the “new CIT Law”), which was
effective on January 1, 2008.  Under the new CIT Law, the corporate income
tax rate applicable to the Company starting from January 1, 2008 is 25%. The new
CIT Law has an impact on the deferred tax assets and liabilities of the Company.
The Company adjusted deferred tax balances as of September 30, 2009 based on
their best estimates and will continue to assess the impact of such new law in
the future. The effects arising from the enforcement of the new CIT law have
been reflected in the accounts.
 
 The
Company uses FASB ASC 740 (formerly FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (“FIN 48”)). – AN INTERPRETATION OF
FASB STATEMENT NO. 109, ACCOUNTING FOR INCOME TAXES. The Interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
FIN 48, we may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on recognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures.
As of September 30, 2009, the Company did not have a liability for unrecognized
tax benefits.
 
 CH
Technology received official designation by the local tax authority as a
foreign-invested enterprise engaged in manufacturing activities, and
it exempts from enterprise income tax for two years commencing from the
first profitable year in 2007, followed by a 50% reduction for the next three
years.
 
 CH
Lighting PRC received official designation by the local tax authority as a High
and New-Tech Enterprise, and the applicable income tax is 15% from January
1, 2008 to December 31, 2010.
 
 Dividends
payable by a foreign invested enterprise to its foreign investors are subject to
a 10% withholding tax, unless any foreign investor’s jurisdiction of
incorporation has a tax treaty with the PRC that provides for a different
withholding arrangement.
  F-32
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
  18.
                INCOME
      TAXES (CONTINUED)
 
 Income
tax benefit (expense) consist of the following:
  Year
      ended September 30,2009
                        
                        2008Current
      tax benefit (expense) arising in Hong Kong and the
    PRC:
                        
                        $
                        226
                        
                        
                        $
                        (946
                        )Deferred
      taxes arising in Hong Kong and the PRC:
                        
                        
                        (162
                        )
                        
                        
                        (1,145
                        )Income
      tax benefit (expense)
                        
                        $
                        64
                        
                        
                        $
                        (2,091
                        )
 
 Reconciliation
from the expected income tax expenses calculated with reference to the statutory
tax rate in the PRC of 25%is as
follows:
 
 Year
      ended September 30,2009
                        
                        
                        2008Computed
      “expected” income tax expenses
                        
                        $
                        (288)
                        
                        
                        $
                        (4,125)DiDifference in
      tax rates in the countries that the Company operates
                        
                        
                        (33)
                        
                        
                        
                        (1)Effect
      on tax incentives / holiday
                        
                        
                        419
                        
                        
                        
                        3,225Tax-exempted
      / Non-deductible items
                        
                        
                        (16)
                        
                        
                        
                        (309)Withholding
      tax
                        
                        
                        (18)
                        
                        
                        
                        (859)Others
                        
                        
                        -
                        
                        
                        
                        (22)Income
      tax benefit (expense)
                        
                        $
                        64
                        
                        
                        $
                        (2,091)
 
 Components of net deferred tax
liabilities are as follows:
 
 September
      30,2009
                          
                          
                          2008Deferred
      tax assets (liabilities):Current
      portion:Provision
      of doubtful accounts
                          
                          $
                          438
                          
                          
                          $
                          99Provision
      and accruals
                          
                          
                          57
                          
                          
                          
                          18Discount
      of notes receivable
                          
                          
                          356
                          
                          
                          
                          -Sales
      cut off
                          
                          
                          (397)
                          
                          
                          
                          -Subtotal
                          
                          
                          454
                          
                          
                          
                          117Non-current
      portion:Depreciation
                          
                          
                          110
                          
                          
                          
                          54Other
      comprehensive income
                          
                          
                          (534)
                          
                          
                          
                          -Net
      operating loss carry forward
                          
                          
                          168
                          
                          
                          
                          -Less:
      Valuation allowance
                          
                          
                          (168)
                          
                          
                          
                          -Withholding
      tax
                          
                          
                          (880)
                          
                          
                          
                          (859)Subtotal
                          
                          
                          (1,304)
                          
                          
                          
                          (805)Net
      deferred tax liabilities
                          
                          $
                          (850)
                          
                          
                          $
                          (688)
  F-33
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
  18.
                INCOME
      TAXES (CONTINUED)
 
 (b)
                Value
      Added Tax (“VAT”)
 
 Enterprises
or individuals, who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
Chinese Laws. The VAT standard rate is 17% of the gross sale price. A credit is
available whereby VAT paid on the purchases of semi-finished products or raw
materials used in the production of the Company’s finished products can be used
to offset the VAT due on the sales of the finished products.
  On
January 1, 2002, the export policy of VAT "Exemption, Credit and Refund" began
to apply to all exports by manufacture-based enterprises. In accordance with
this policy, exported goods are exempted from output VAT and the input VAT
charged for purchases of the raw materials, components and power consumed for
the production of the exported goods may be refunded. Beginning July 1, 2008,
the refund rates of lighting source products applicable to Zhejiang CH and CH
Technology were ranging from 17% to 13%.
 
 The
refundable VAT of $390 and $126 at September 30, 2009 and 2008,
respectively, are included in other receivables in the accompanying consolidated
balance sheets.
 
 (c)
                Tax
      Holiday
 
 Income
before income tax expenses was $1,150 and $16,501 for the years ended
September 30, 2009 and 2008, which was mainly attributed to subsidiaries with
operations in China. Income tax related to China income for 2009 was $64. The
combined unaudited pro forma effects of the income tax expense exemption and
reduction available to us are as follows:
  September 30,2009
                      
                      
                      2008Effect
      on tax incentives / holiday
                      
                      $
                      419
                      
                      
                      $
                      3,225Basic
      net income per share exclude tax holiday effect
                      
                      $
                      0.01
                      
                      
                      $
                      0.11
  19.
                DISTRIBUTION
      OF INCOME
 
 As
stipulated by the relevant laws and regulations for sino-foreign joint
enterprises in the PRC, the PRC Subsidiaries are required to maintain certain
statutory reserves, which include a general reserve fund, an enterprise
expansion fund and 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 stockholders' equity.
 
 However,
upon completion of the Reorganization as detailed in Note 1, all PRC
Subsidiaries became wholly owned foreign-invested enterprises when all of their
equity interest were acquired by CH International 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 the PRC
Subsidiaries’ registered capital.
 
 For the
years ended September 30, 2009 and 2008, the Company transferred $428
and $512 to the statutory surplus reserve respectively.
 
 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 the PRC Subsidiaries.
  F-34
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
  20.
                COMMITMENTS
      AND CONTINGENCIES
 
 (a)
                  Operating
      Lease Commitments
 
 As of
September 30, 2009, the Company entered into an operating leases agreement
for its office and is required to pay the remainder of the rental fee of
$4 within one year.
 
 (b)
                  Capital
      Commitments
  The
Company entered into unconditional purchase commitment for construction projects
of $8,435 within one year as of September 30, 2009.
  (c)
                  Contingencies
  As of
September 30, 2009, the Company provided corporate guarantees for bank loans
borrowed by an unrelated company incorporated in the PRC (“Company
A”). Associated with the corporate guarantee, Company A also provided a
cross guarantee for the bank loans of $23,927 borrowed by the
Company. See Note 14(a).  If Company A defaults on the repayment
of its bank loans when they fall due, the Company is required to repay the
outstanding balance. As of September 30, 2009, the guarantee provided for the
bank loans borrowed by Company A was approximately $2,735, which consists
of the following:
 
 September
      30, 2009Due
      December 24, 2009
                        
                        $
                        541Due
      May 26, 2010
                        
                        
                        1,170Due
      May 26, 2010
                        
                        
                        293Due
      June 10, 2010
                        
                        
                        731Total
                        
                        $
                        2,735
 
 As of
September 30, 2009, the Company provided a corporate guarantee for
bank acceptance notes issued by Henghui, a related party of the Company.
Under the guarantee contract, the maximum guarantee amount is $1,463,
due January 28, 2010. See Note 9(c).
 
 However,
default by Company A and Henghui is considered remote by the management. Based
on the information available to the management, the fair values of the
guarantees granted by the Company are considered not material and therefore no
liability for the guarantor's obligation under the guarantee was recognized as
of September 30, 2009.
  F-35
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands except number of years)
 21.
                GEOGRAPHICAL
      SALES AND SEGMENTS
 
 Information
for the Company’s sales by geographical area for the years ended September 30,
2009 and 2008 are as following:
 
 Year ended September 30,2009
                      
                      
                      2008China,
      including Hong Kong
                      
                      $
                      34,643
                      
                      
                      $
                      55,410Middle
      East
                      
                      
                      7,369
                      
                      
                      
                      13,251Korea
                      
                      
                      3,932
                      
                      
                      
                      9,008Europe
                      
                      
                      8,832
                      
                      
                      
                      7,647United
      State
                      
                      
                      591
                      
                      
                      
                      1,212Africa
                      
                      
                      219
                      
                      
                      
                      656South
      America
                      
                      
                      33
                      
                      
                      
                      73Others
                      
                      
                      1,840
                      
                      
                      
                      3,607Total
                      
                      $
                      57,459
                      
                      
                      $
                      90,864
 
 The
Company operates one business segment for the years ended Sep 30, 2009 and
2008.
  22.
                STOCK-BASED
      EMPLOYEE COMPENSATION ARRANGEMENT
 
 On June
15, 2008, Mr. Zhao and certain key management personnel of CH Lighting (the
“Employees”) entered into stock-based employee compensation agreements, which
enable those key management personnel to acquire 470 shares (4.7%) of the issued
and outstanding common stocks of KEG (the “Award Stocks”) from Mr. Zhao.
Pursuant to the stock-based employee compensation agreements, 125 shares of
Award Stocks were fully vested immediately and the remaining 345 shares of Award
Stocks will be vested on each anniversary date of the original grant on a pro
rata basis over 5 years until all awards are vested (the “Vesting Period”). If
the Employees are unable to remain in office during the Vesting Period, Mr. Zhao
is entitled to re-purchase the unvested Award Stocks.
 
 The
Company adopted FASB ASC 718 (formerly SFAS No. 123R, Share-based payment) to
recognize an expense for unvested share-based compensation that has been issued
or will be issued after that date. The Company adopted FASB ASC 718 on
a prospective basis.
 
 Compensation
expense attributed to the stock-based employee compensation agreements is based
on the fair value of the Award Stocks on the grant date. Compensation expense is
recognized between the grant date and the vesting date on a straight-line basis
for each individual award stock. Fair value of stock awards is determined using
a Direct Comparison Method under Market Approach which assumes sale of the
awarded stock in its existing state with the benefit of immediate availability
and by making reference to comparable sale transactions as available in the
relevant markets. This valuation method was used because at the time of grant
the fair value was not determinable by the market price because KEG is a private
company. The fair value of the Award Stocks of $8 per award stock was determined
by the management with reference to a valuation report prepared by an
independent firm of qualified professional valuers not connected to the Company
which has appropriate qualifications and recent experience in the valuation of
similar instruments.
 
 For the
year ended September 30, 2009, additional 54 shares of Award Stocks
were fully vested, 75 shares of Award Stocks had lapsed upon
resignation of two employees and 216 shares of Award Stocks were
outstanding and unvested.
 
 The fair
value of the stock-based compensation expense for the years ended September 30,
2009 and 2008 was $538 and $962, respectively.
  F-36
  CH
LIGHTING INTERNATIONAL CORPORATION
 (FORMERLY
SINO-BIOTICS, INC.) AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 (In
thousands)
  23.
                SUBSEQUENT
      EVENTS
 
 In
preparing the consolidated financial statements, the Company has evaluated all
subsequent events and transactions for potential recognition or disclosure
through December 18, 2009, the date the consolidated financial statements were
issued.
  F-37