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, 2008
 
 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 $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 December 26, 2008 was approximately
$67,230,000.
  The
number of outstanding shares of the registrant’s Common Stock on December 26,
2008 was 120,000,000.
 
  
  CH
LIGHTING INTERNATIONAL CORPORATION
 ANNUAL
REPORT ON FORM 10-K
 FOR
THE YEAR ENDED SEPTEMBER 30, 2008
 
 Index
 
 TABLE OF
CONTENTS
  PART
      I
                  
                  1ITEM
      1.
                  Business
                  1ITEM
      1A
                  Risk
      Factors
                  29ITEM
      1B.
                  Unresolved
      Staff Comments
                  39ITEM
      2.
                  Properties
                  39ITEM
      3.
                  Legal
      Proceedings
                  40ITEM
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  40PART
      II
                  
                  41ITEM
      5.
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                  41ITEM
      6.
                  Selected
      Financial Data
                  44ITEM
      7.
                  Management‘s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  44ITEM
      7A.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  50ITEM
      8.
                  Financial
      Statements and Supplementary Data
                  51ITEM
      9.
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
                  51ITEM
      9A(T).
                  Controls
      and Procedures
                  52ITEM
      9B.
                  Other
      Information
                  52ITEM
      10.
                  Directors,
      Executive Officers, and Corporate Governance
                  54ITEM
      11.
                  Executive
      Compensation
                  58ITEM
      12.
                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                  60ITEM
      13.
                  Certain
      Relationships and Related Transactions, and Director
      Independence
                  62ITEM
      14.
                  Principal
      Accountant Fees and Services
                  64PART
      IV
                  
                  65ITEM
      15.
                  Exhibits
      and Financial Statement Schedules
                  65SIGNATURES
                  
                  67
  - i
-
  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 “Item 1A-Risk Factors” and in other of 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 $500.  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 $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.
  - 1
-
  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$500 in assets and a net
loss of approximately US$80,227 for the fiscal year ending September 30, 2007.
 As of March 31, 2008, the Company had approximately US$21,900 in
liabilities. On July 16, 2008, the Company did not have any
liabilities.
 
 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)
  Introduction
 
 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.
 
 Summary
of Current Business of the Company
  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).
  - 2
-
  The volume of production and sales of
linear fluorescent lamps amounted to 1.2 billion and 1.5 billion in China in
2006 and 2007, respectively, however there are only fifteen (15) enterprises
(including CH International) whose annual volume of production and sales of
linear fluorescent lamps exceeded 1 billion and 1.04 billion in 2006 and 2007,
respectively. In 2006, CH International accounted for eight percent (8%) 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.
  CH International has three (3) major
production facilities: CH Lighting PRC, CH Lamps and CH Technology, collectively
covering 62,000 m2, 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 luminaires annually.
  CH International has 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, CH International
employs an external consulting team composed of over 21 professors and experts
in the industry. CH International has 132 patents (including 25 patents pending)
and is a participant as well as contributor to various China Lighting Industry
Standards.
  CH International has 32 established
offices in China and has cooperative agreements with over 200 distributors in
the Chinese market and over 300 foreign customers in the international market.
CH International has established agents in Saudi Arabia and Belgium that
distribute self-owned brands in the Middle East and in the European markets, and
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).
  - 3
-
  The rate of florescent lamp to
incandescent lamp sales increased from 1:6.25 in 1995 to 1:1.18 in 2006. Among
florescent lamps, compact power-saving florescent lamp sales totaled 2.46
billion in 2006, 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 industry 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, CO2 (carbon
dioxide) emissions have raised the question of global warming and a
deteriorating living environment. Such phenomena have been recognized by 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.
  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.
  - 4
-
  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 now is 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 free a tremendous opportunity for development
in China.
 
 Growth
of Chinese Economy
 
 Accompanying China’s growing national
economy in recent years, 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;
 
 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;
      and
 
 Ÿ
              the
      increasing global energy crisis and the shift in the global lighting
      industry to China enhances China’s demand for lighting products and
      simultaneously promotes the growth of Chinese lighting
      enterprises.
  - 5
-
  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$11.4 billion, accounting for 11.4% of the global market. The
sales value of Chinese-made lighting products was US$18 billion, accounting for
18% 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 volume 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 volume reached US$10 billion. In 2006,
China had sales values of RMB160 billion (USD 20.4 billion) and in 2008 China
had sale values of RMB 180 billion (USD 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 1999~2006
  (Unit:
US$100 million)
 
 Year
                      
                      1999
                      
                      2000
                      
                      2001
                      
                      2002
                      
                      2003
                      
                      2004
                      
                      2005
                      
                      2006Sales
      volume
                      
                      
                      26.5
                      
                      32
                      
                      
                      38
                      
                      43.7
                      
                      
                      54
                      
                      66.5
                      
                      
                      79.5
                      
                      100Source:
      China Association of Lighting
Industry
  - 6
-
  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 volume of RMB45 billion (US$5.4 billion) in 1999, RMB180 billion (US$24
billion) in 2007 and up to an estimated RMB200 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 - 2007)
  (Unit:
RMB100 million)
  Year
                      
                      1999
                      
                      2000
                      
                      2001
                      
                      2002
                      
                      2004
                      
                      2005
                      
                      2006
                      
                      2007Sales
      volume
                      
                      
                      450
                      
                      550
                      
                      
                      680
                      
                      800
                      
                      
                      1100
                      
                      1300
                      
                      
                      1500
                      
                      1800Source:
      China Association of Lighting
Industry
  China’s
Electric Light Source Market
  According to China Association of
Lighting Industry, China has become a huge light product manufacturing country.
China’s gross output of electric light sources reached 13,227 million in 2006,
accounting for the first in the world, including 3.71 billion fluorescent lamps
(28% of total output). The production volume of T8 fluorescent lamps in 2006 was
up 25.6% from 2005, for T5 fluorescent lamps was up 54.5% from 2005 in 2006 and
for compact fluorescent lamps was up 39.1% from 2005 in 2006. 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. The structure of
electric light source products has also shifted towards power-saving product
types.
  China’s output of fluorescent lamps was
3.71 billion in 2006, up 29% from 2005 (2.87 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%.
  - 7
-
  In addition, developed countries have
enacted laws prohibiting incandescent lamps. For example in Australia, the
Environment Minister announced in December 2007 that Australia would gradually
phase out the incandescent lamp within three (3) years. 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 further expansion
into the foreign markets will yield more extensive market prospects and more
opportunities for green lighting product manufacturing industry
participants.
  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. May 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$14,047,000 for fiscal year 2005 (100% of all revenues),
US$15,225,000 for fiscal year 2006 (100% of all revenues), US$32,379,000 for
fiscal year 2007 (100% of all revenues) and US$90,864,000 for fiscal year 2008
(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”, which represented approximately
48%, 45%, 49.6% and 59.19% of our product sales during the fiscal years ended
September 30, 2005, 2006, 2007 and 2008, respectively, and “General Lighting”
uses, which represents 52%, 55%, 50.4% and 40.81% of our Lighting Source
products sales for the fiscal years ended September 30, 2005, 2006, 2007 and
2008, respectively. A description of both categories, as well as a brief
description of our best selling products in both categories, is set forth
below.
 
 Revenues
                      
                      
                      %Special
      Lighting SourceProducts
                      
                      
                      26,169,000
                      
                      
                      
                      59.19
                      %General
      Lighting Source Products
                      
                      
                      18,040,000
                      
                      
                      
                      40.81
                      %
  - 8
-
  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 28.80% of our product sales during the fiscal year ended September
30, 2008.
 
 Special Lighting Source
                                              Products
                                            
                                            Revenues at September 30,
                                              2008 (US$)
                                            
                                            
                                            Percentage of Special
                                              Lighting ProductsAir Cleaning Lamps
                                            
                                            
                                            218,000
                                            
                                            
                                            
                                            0.83
                                            %Power-Saving Lamps
                                            
                                            
                                            2,359,000
                                            
                                            
                                            
                                            9.01
                                            %Plant Growth Fluorescent
    Lamps
                                            
                                            
                                            3,516,000
                                            
                                            
                                            
                                            13.44
                                            %Vision-Improvement Lighting
      Products
                                            
                                            
                                            4,700,000
                                            
                                            
                                            
                                            17.96
                                            %Marketplace Lighting
    Products
                                            
                                            
                                            12,053,000
                                            
                                            
                                            
                                            46.06
                                            %Performance-Improvement Lighting
      Products
                                            
                                            
                                            2,014,000
                                            
                                            
                                            
                                            7.7
                                            %Sterilizing and Disinfecting Lighting
      Products
                                            
                                            
                                            1,309,000
                                            
                                            
                                            
                                            5
                                            %Total:
                                            
                                            
                                            26,169,000
                                            
                                            
                                            
                                            100
                                            %
 
 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 0.83% of our Special Lighting Source Products sales
during the fiscal year ended September 30, 2008) 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.
  - 9
-
  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 9.01% of our Special Lighting
Source Products sales during the fiscal year ended September 30,
2008.
  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.
  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.
  - 10
-
  Revenues generated from the sale of
plant growth fluorescent lamps accounted for approximately 13.44% of our Special
Lighting Source Products sales during the fiscal year ended September 30, 2008
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, these products have great market
potential.
  Vision-improvement light products
accounted for approximately 17.96% of our Special Lighting Source Products sales
during the fiscal year ended September 30, 2008.
  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 46.06% of our
Special Lighting Source Products sales during the fiscal year ended September
30, 2008.
  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 7.7 % of our Special Lighting Source Products sales during the
fiscal year ended September 30, 2008.
  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 5% of our Special
Lighting Source Products sales during the fiscal year ended September 30,
2008.
  - 11
-
  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 71.20% of our product sales during the
fiscal year ended September 30, 2008.
 
 Revenues at September 30,
                            2008 (US$)
                          
                          
                          PercentageLinear
      Fluorescent Lamps
                          
                          
                          12,628,000
                          
                          
                          
                          70
                          %Compact
      Fluorescent Lamps
                          
                          
                          5,412,000
                          
                          
                          
                          30
                          %General
      Lighting Source Products
                          
                          
                          18,040,000
                          
                          
                          
                          100
                          %
  General Lighting Products
                            
                            Revenues at September 30,
                              2008 (US$)
                            
                            
                            Percentage of General
                              Lighting ProductsGeneral
      Lighting Source Products
                            
                            
                            18,040,000
                            
                            
                            
                            27.89
                            %Luminaire
      (Light Fitting) Products
                            
                            
                            45,431,000
                            
                            
                            
                            70.22
                            %Electronic
      Products
                            
                            
                            1,224,000
                            
                            
                            
                            1.89
                            %Total:
                            
                            
                            64,695,000
                            
                            
                            
                            100
                            %
 
 Revenues
                          
                          
                          %General
      Lighting Products
                          
                          
                          64,695,000
                          
                          
                          
                          71.20
                          %Special
      Lighting Source Products
                          
                          
                          26,169,000
                          
                          
                          
                          28.80
                          %Total
      sales
                          
                          
                          90,864,000
                          
                          
                          
                          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. CH International’s sales volume of T8 fluorescent
lamps in 2006 was up 49.4% from 2005 and our T5 fluorescent lamp was up 21.4%
during the same period. Our linear fluorescent lamps accounted for approximately
19.52% of our General Lighting Products sales during the fiscal year ended
September 30, 2008.
 
 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 8.37% of our General Lighting Products sales during
the fiscal year ended September 30, 2008.
  - 12
-
  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 70.22% of our General Lighting Products sales during
the fiscal year ended September 30, 2008.
 
 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, 2008, 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 1.89% of our General Lighting Products sales during the fiscal
year ended September 30, 2008.
  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.
  - 13
-





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.




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 200 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$1.3 million) 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.




- 14
-




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 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.




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 amenable for disposal. Therefore, we believe the
measures we take today will help our growth of our international sales volume in
the future.




- 15
-




The European Union has passed laws that
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
impact on environment. So this forward-looking measure will produce economic
benefit directly from this program.




Sources
and Availability of Raw Materials from Suppliers





Purchases from one of the Company’s
major suppliers for the fiscal year ended September 30, 2008 contributed to 11%
of the Company’s purchases during such periods. 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 improve points of sales. At present, it
      has set up 32 offices and has relationships with more than 200
      distributors.




·
              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 shall 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 old customer 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.




- 16
-




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 sale 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.




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 200 distributors. CH International builds up composite-end sales
channels including franchise stores, lighting centers and counters to increase
its market competitiveness.




- 17
-




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 and 2008, as well
as the percentage of total domestic revenues for each of the aforementioned
periods:








September
                      30,
      2006
                      Sales
                    
                    
                    %
      of
                      China
                      Sales at
                      9/30/06
                    
                    
                    %
      of
                      World
                      Sales at
                      9/30/06
                    
                    
                    September
                      30,
      2007
                      Sales
                    
                    
                    %
      of
                      China
                      Sales at
                      9/30/07
                    
                    
                    %
      of
                      World
                      Sales at
                      9/30/07
                    
                    
                    September
                      30,
                      2008 Sales
                    
                    
                    %
      of
                      China
                      Sales at
                      9/30/08
                    
                    
                    %
      of
                      World
                      Sales at
                      9/30/08SouthChina
                    
                    $
                    22,838
                    
                    
                    
                    3
                    %
                    
                    
                    0.15
                    %
                    
                    $
                    3,923,000
                    
                    
                    
                    30.00
                    %
                    
                    
                    12.12
                    %
                    
                    $
                    13,730,000
                    
                    
                    
                    24.78
                    %
                    
                    
                    15.11
                    %East
      China
                    
                    $
                    53,288
                    
                    
                    
                    7
                    %
                    
                    
                    0.35
                    %
                    
                    $
                    653,000
                    
                    
                    
                    4.99
                    %
                    
                    
                    2.01
                    %
                    
                    $
                    5,870,000
                    
                    
                    
                    10.59
                    %
                    
                    
                    6.46
                    %West
      China
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    655,000
                    
                    
                    
                    5.01
                    %
                    
                    
                    2.02
                    %
                    
                    $
                    4,500,000
                    
                    
                    
                    8.12
                    %
                    
                    
                    4.95
                    %North
      China
                    
                    $
                    685,125
                    
                    
                    
                    90
                    %
                    
                    
                    4.5
                    %
                    
                    $
                    7,846,000
                    
                    
                    
                    60.00
                    %
                    
                    
                    24.23
                    %
                    
                    $
                    31,310,000
                    
                    
                    
                    56.51
                    %
                    
                    
                    34.46
                    %Total
      Domestic Sales:
                    
                    $
                    761,250
                    
                    
                    
                    100
                    %
                    
                    
                    5
                    %
                    
                    $
                    13,077,000
                    
                    
                    
                    100
                    %
                    
                    
                    40.38
                    %
                    
                    $
                    55,410,000
                    
                    
                    
                    100
                    %
                    
                    
                    60.98
                    %





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 and 2008, as well as the percentage of total foreign revenues and
percentage of total world revenues for each of the aforementioned
periods:





9/
      30/ 06
                    Sales
                  
                  
                  %
      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
                    9/30/08North
      America
                  
                  $
                  723,188
                  
                  
                  
                  5
                  %
                  
                  
                  4.75
                  %
                  
                  $
                  1,090,000
                  
                  
                  
                  5.65
                  %
                  
                  
                  3.37
                  %
                  
                  $
                  1,212,000
                  
                  
                  
                  3.42
                  %
                  
                  
                  1.33
                  %Europe
                  
                  $
                  6,942,600
                  
                  
                  
                  48
                  %
                  
                  
                  45.6
                  %
                  
                  $
                  7,159,000
                  
                  
                  
                  37.09
                  %
                  
                  
                  22.11
                  %
                  
                  $
                  7,647,000
                  
                  
                  
                  21.57
                  %
                  
                  
                  8.42
                  %Asia
                  
                  $
                  4,773,038
                  
                  
                  
                  33
                  %
                  
                  
                  31.35
                  %
                  
                  $
                  2,156,000
                  
                  
                  
                  11.17
                  %
                  
                  
                  6.66
                  %
                  
                  $
                  9,008,000
                  
                  
                  
                  25.41
                  %
                  
                  
                  9.91
                  %Middle
      East
                  
                  $
                  867,825
                  
                  
                  
                  6
                  %
                  
                  
                  5.7
                  %
                  
                  $
                  6,048,000
                  
                  
                  
                  31.33
                  %
                  
                  
                  18.68
                  %
                  
                  $
                  13,251,000
                  
                  
                  
                  37.38
                  %
                  
                  
                  14.59
                  %Other:
                  
                  $
                  1,157,100
                  
                  
                  
                  8
                  %
                  
                  
                  7.6
                  %
                  
                  $
                  2,849,000
                  
                  
                  
                  14.76
                  %
                  
                  
                  8.80
                  %
                  
                  $
                  4,336,000
                  
                  
                  
                  12.22
                  %
                  
                  
                  4.77
                  %Total
      Foreign Sales:
                  
                  $
                  14,463,750
                  
                  
                  
                  100
                  %
                  
                  
                  95
                  %
                  
                  $
                  19,302,000
                  
                  
                  
                  100
                  %
                  
                  
                  59.62
                  %
                  
                  $
                  35,454,000
                  
                  
                  
                  100
                  %
                  
                  
                  39.02
                  %




- 18
-




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.




- 19
-




·
              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.




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 won the first
      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.




- 20
-




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$580,000 during the
fiscal year ended September 30, 2008, US$231,000 for the year ended September
30, 2007, US$5,000 for the fiscal year ended September 30, 2006 and US$124,000
for the fiscal year ended September 30, 2005 on Company-sponsored research and
development (“R&D”) activities
as determined in accordance with US GAAP. The Company plans to spend
US$2,300,000 during fiscal year 2009 and US$4,000,000 during fiscal year 2010 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.




Personnel




As of September 30, 2008, CH
International employed a staff of 39 R&D specialists, 21 external experts
and advisers and had technical exchanges with 4 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.




- 21
-




Employees




General
Employment Figures




As of September 30, 2008, CH
International employed 2,221 individuals, sixteen percent (16%) of which have
graduated with a college or higher and thirty-five percent (35%) 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
                    
                    
                    54Marketing
                    
                    
                    128Manufacturing
                    
                    
                    1,619R&D
                    
                    
                    39Management
                    
                    
                    381Total:
                    
                    
                    2,221




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.




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, 2008, 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.




- 22
-




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.




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, 2008, CH
International owns 132 patents, 25 of which patent applications are
pending.




- 23
-




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.




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 by the Institute have achieved the Outstanding Teaching
Materials Award of the Shanghai Common Institutes of Higher Learning. At present
there are 4 professors (2 are doctoral tutors), 9 associate professors and
senior engineers mainly for cultivation of talents of design, production and
application in the field of lighting equipment in the civilian, industrial and
special lighting industry. The Institute has also established the training
centre for China Electric Lighting Industry Association. It holds 2 programs for
doctor degree and master degree of physical electronics and plasma
physics.




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.




- 24
-




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.




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.




- 25
-




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.




- 26
-




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




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
Enterprise




- 27
-




2005
                      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)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
      Enterprise





2005
              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.


- 28
-





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.




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 materially
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 remainder of 2008 or fiscal year
2009.





ITEM
      1A
            Risk
      Factors




The
financial condition, business, operations, and prospects of the Company involve
a high degree of risk. You should carefully consider the risks and uncertainties
described below, which constitute the material risks relating to the Company,
and the other information in this report. If any of the following risks are
realized, the Company’s business, operating results and financial condition
could be harmed and the value of the Company’s stock could suffer. This means
that investors and stockholders of the Company could lose all or a part of their
investment.




RISKS
RELATING TO THE PEOPLE’S REPUBLIC OF CHINA




Four (4)
of the Company’s major subsidiaries have operations conducted in the PRC.
Accordingly, their businesses, financial condition and results of operations may
be influenced by the political, economic and legal environments in the PRC and
by the general state of the PRC economy.




- 29
-




Certain
Political and Economic Considerations Relating to China Could Adversely Affect
Our Company.




The PRC
is transitioning from a planned economy to a market economy. While the PRC
government has pursued economic reforms since its adoption of the open-door
policy in 1978, a large portion of the PRC economy is still operating under
five-year plans and annual state plans. Through these plans and other economic
measures, such as control on foreign exchange, taxation and restrictions on
foreign participation in the domestic market of various industries, the PRC
government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are unprecedented
or experimental, and are expected to be refined and improved.




Other
political, economic and social factors can also lead to further readjustment of
such reforms. This refining and readjustment process may not necessarily have a
positive effect on our operations or future business development. Our operating
results may be adversely affected by changes in the PRC’s economic and social
conditions as well as by changes in the policies of the PRC government, such as
changes in laws and regulations (or the official interpretation thereof),
measures which may be introduced to control inflation, changes in the interest
rate or method of taxation, and the imposition of additional restrictions on
currency conversion.




The
Chinese Government Exerts Substantial Influence Over The Manner In Which We Must
Conduct Our Business Activities Which Could Adversely Affect Our
Company.




China
only recently has permitted provincial and local economic autonomy and private
economic activities. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and State ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to
taxation, import and export tariffs, environmental regulations, land use rights,
property and other matters. We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of these jurisdictions may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.





Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in China.




The
Chinese Legal System Has Inherent Uncertainties That Could Limit The Legal
Protections Available To You.




Many of
our contractual arrangements are governed by the laws of the PRC. China’s legal
system is based upon written statutes. Prior court decisions may be cited for
reference but are not binding on subsequent cases and have limited value as
precedents. Since 1979, the Chinese legislative bodies have promulgated laws and
regulations dealing with economic matters such as foreign investment, corporate
organization and governance, commerce, taxation and trade. However, because
these laws and regulations are relatively new, and because of the limited volume
of published decisions and their non-binding nature, the interpretation and
enforcement of these laws and regulations involve uncertainties, and therefore
you may not have legal protections for certain matters in China.




- 30
-




Most
Of Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation
Is Subject To The Approval Of The Relevant Chinese Government
Agencies.




Most of
our assets are located inside China. Under the laws governing foreign invested
enterprises in China, dividend distribution and liquidation are allowed but
subject to special procedures under the relevant laws and rules. Any dividend
payments will be subject to the decision of our Board of Directors and subject
to foreign exchange rules governing such repatriation. Any liquidation is
subject to both the relevant government agency’s approval and supervision as
well the foreign exchange control. This may generate additional risk for our
investors in case of dividend payments and liquidation.




Future
Inflation In China May Inhibit Our Activity To Conduct Business In
China.




In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. During the past ten (10) years, the rate of inflation in
China has been as high as 20.7% and as low as 2.2%. These factors have led to
the adoption by Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. While inflation has been more moderate since 1995, high
inflation may in the future cause the Chinese government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China and thereby harm our business operations.




Currency
Conversion And Exchange Rate Volatility Could Adversely Affect Our Financial
Condition.




The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People’s Bank of China (PBOC) publishes an exchange rate, which we refer to as
the PBOC exchange rate, based on the previous day’s dealings in the inter-bank
foreign exchange market. Financial institutions authorized to deal in foreign
currency may enter into foreign exchange transactions at exchange rates within
an authorized range above or below the PBOC exchange rate according to market
conditions.




Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises (“FIEs”), for use on
current account items, including the distribution of dividends and profits to
foreign investors, is permissible. FIEs are permitted to convert their after-tax
dividends and profits to foreign exchange and remit such foreign exchange to
their foreign exchange bank accounts in the PRC. Conversion of Renminbi into
foreign currencies for capital account items, including direct investment,
loans, and security investment, is still under certain restrictions. On January
14, 1997, the State Council amended the Foreign Exchange Control Regulations and
added, among other things, an important provision, which provides that the PRC
government shall not impose restrictions on recurring international payments and
transfers under current account items.




Enterprises
in the PRC (including FIEs) which require foreign exchange for transactions
relating to current account items, may, without approval of the State
Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by
providing valid receipts and proofs.




Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.




- 31
-




Since
1994, the exchange rate for Renminbi against the United States dollars has
remained relatively stable, most of the time in the region of approximately
RMB8.28 to US$1.00. However, in 2005, the Chinese government announced that
would begin pegging the exchange rate of the Chinese Renminbi against a number
of currencies, rather than just the U.S. Dollar. As our operations are primarily
in China, any significant revaluation of the Chinese Renminbi may materially and
adversely affect our cash flows, revenues and financial condition. For example,
to the extent that we need to convert United States dollars into Chinese
Renminbi for our operations, appreciation of this currency against the United
States dollar could have a material adverse effect on our business, financial
condition and results of operations. Conversely, if we decide to convert Chinese
Renminbi into United States dollars for other business purposes and the United
States dollar appreciates against this currency, the United States dollar
equivalent of the Chinese Renminbi we convert would be reduced.




The
Value Of Our Securities Will Be Affected By The Foreign Exchange Rate Between
U.S. Dollars And Renminbi.




The value
of our Common Stock will be affected by the foreign exchange rate between U.S.
dollars and Renminbi, and between those currencies and other currencies in which
our sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and should the Renminbi
appreciate against the U.S. dollar at that time, our financial position, the
business of the Company, and the price of our Common Stock may be harmed.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of declaring dividends on our Common Stock or for other business
purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar
equivalent of our earnings from our China operations would be
reduced.




You
May Experience Difficulties In Effecting Service Of Legal Process, Enforcing
Foreign Judgments Or Bringing Original Actions In China Based On United States
Or Other Foreign Laws Against Us.




We
conduct our operations in China and substantially all of our assets are located
in China. In addition, our Directors and executive officers reside within China,
and substantially all of the assets of these persons are located within China.
As a result, it may not be possible to effect service of process within the
United States or elsewhere outside China upon such directors or executive
officers, including with respect to matters arising under U.S. federal
securities laws or applicable state securities laws. Moreover, our Chinese
counsel has advised us that China does not have treaties with the U.S. and many
other countries that provide for the reciprocal recognition and enforcement of
judgment of courts. As a result, recognition and enforcement in China of
judgments of a court of the U.S. or any other jurisdiction in relation to any
matter may be difficult or impossible.





Our Significant
Amount Of Deposits In Certain Banks In China May Be At Risk If These Banks Go
Bankrupt During Our Deposit Period.




We had
approximately US$19,468,000 in banks in China at September 30, 2008, which
almost constitute all of our total cash. The terms of these deposits are, in
general, up to twelve (12) months. Historically, deposits in Chinese banks are
secure due to the state policy on protecting depositors’ interests. However,
China promulgated a new Bankruptcy Law in August 2006, which became
effective on June 1, 2007, which contains a separate article expressly
stating that the State Council may promulgate implementation measures for the
bankruptcy of Chinese banks based on the Bankruptcy Law. Under the new
Bankruptcy Law, a Chinese bank may go bankrupt. In addition, since China’s
concession to WTO, foreign banks have been gradually permitted to operate in
China and have been severe competitors against Chinese banks in many aspects,
especially since the opening of Renminbi business to foreign banks in late 2006.
Therefore, the risk of bankruptcy of those banks in which we have deposits has
increased. In the event of bankruptcy of one of the banks which holds our
deposits, we are unlikely to recover our deposits back in full since we are
unlikely to be classified as a secured creditor based on PRC laws.




- 32
-




RISKS
RELATING TO OUR BUSINESS




We
Cannot Predict Whether We Will Meet Internal or External Expectations Of Future
Performance.




We
believe that our future success depends on our ability to significantly increase
revenue from the sale of our lighting products and the provision of our related
services. Accordingly, our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies with a limited
operating history. These risks include our ability to:




·
            offer
      new and innovative lighting products and
  services;




·
            respond
      effectively to competitive pressures and address the effects of strategic
      relationships or corporate
combinations;




·
            maintain
      our current, and develop new, strategic
  relationships;




·
            increase
      awareness of our lighting products and services and continue to build
      customer loyalty; and




·
            attract
      and retain qualified management, consultants and
  employees.




We
Cannot Assure You That Our Organic Growth Strategy Will Be
Successful.




One of
our growth strategies is to grow organically through increasing our services by
increasing our market share and entering new markets globally. However, many
obstacles to increasing our market share and entering such new markets exist,
including, but not limited to, costs associated with increasing market share and
entering into such markets and attendant marketing efforts. We cannot,
therefore, assure you that we will be able to successfully overcome such
obstacles and establish our services in any additional markets. Our inability to
implement this organic growth strategy successfully may have a negative impact
on our ability to grow and on our future financial condition, results of
operations or cash flows.





Our
Business And Growth Could Suffer If We Are Unable To Hire And Retain Key
Personnel That Are In High Demand.




We depend
upon the continued contributions of our senior management and other key
personnel, including R&D specialists, external experts and advisers. The
loss of the services of any of our executive officers or other key personnel
could have a material adverse effect on our business, operations, revenues or
prospects. We do not maintain key man insurance on the lives of these
individuals at present. As we plan to expand, we will have to attract managerial
staff. We may not be able to identify and retain qualified personnel due to our
lack of understanding of different cultures and lack of local contacts. This may
impede any potential expansion. Our future success will also depend on our
ability to attract and retain highly skilled and qualified technical,
engineering, managerial, finance, marketing, security and customer service
personnel in China. Qualified individuals are in high demand, and we may not be
able to successfully attract, assimilate or retain the personnel we need to
succeed.




- 33
-




We
May Not Be Able To Manage Our Expanding Operations Effectively, Which Could Harm
Our Business.




We
anticipate expanding our business as we address growth in our customer base and
market opportunities. In addition, the geographic dispersion of our operations
as a result of overall internal growth requires significant management resources
that our locally-based competitors do not need to devote to their operations. In
order to manage the expected growth of our operations and personnel, we will be
required to improve and implement operational and financial systems, procedures
and controls, and expand, train and manage our growing employee base. Further,
our management will be required to maintain and expand our strategic
relationships necessary to our business. We cannot assure you that our current
and planned personnel, systems, procedures and controls will be adequate to
support our future operations. If we are not successful in establishing,
maintaining and managing our personnel, systems, procedures and controls, our
business will be materially and adversely affected.




If
We Need Additional Capital To Fund Our Growing Operations, We May Not Be Able To
Obtain Sufficient Capital And May Be Forced To Limit The Scope Of Our
Operations.




We may
experience increased capital needs and we may not have enough capital to fund
our future operations without additional capital investments. Our capital needs
will depend on numerous factors, including (i) our profitability; (ii) the
success of our competitors; (iii) the amount of our capital expenditures; and
(iv) new investments. We cannot assure you that we will be able to obtain
capital in the future to meet our needs.




If we
cannot obtain additional funding, we may be required to:




·
            reduce
      our investments;




·
            limit
      our expansion efforts; and




·
            decrease
      or eliminate capital expenditures.




Such
reductions could materially adversely affect our business and our ability to
compete. Even if we do find a source of additional capital, we may not be able
to negotiate terms and conditions for receiving the additional capital that are
acceptable to us. Any future capital investments could dilute or otherwise
materially and adversely affect the holdings or rights of our existing
stockholders. We cannot give you any assurance that any additional financing
will be available to us, or if available, will be on terms favorable to
us.




If
We Are Unable To Keep Up With The Rapid Technological Changes In the Industry,
Our Business May Suffer.




The
lighting industry is experiencing rapid technological changes. For example,
there have been rapid developments with respect to products aimed at thee
protection of the eyes of children, the usage of LEDs and energy conservation.
Our future success will depend on our ability to anticipate, adapt and support
new technologies and industry standards. If we fail to anticipate and adapt to
these and other technological changes, our market share and our profitability
could suffer.




- 34
-




If
We Fail To Successfully Develop And Introduce New Products And Services, Our
Competitive Position And Ability To Generate Revenues Could be
Harmed.




We
continue to develop new products and services. The planned timing or
introduction of new products and services is subject to risks and uncertainties.
Actual timing may differ materially from original plans. Unexpected technical,
operational, distribution or other problems could delay or prevent the
introduction of one or more of our new products or services. Moreover, we cannot
be sure that any of our new products and services will achieve widespread market
acceptance or generate incremental revenue. If our efforts to develop, market
and sell new products and services to the market are not successful, our
financial position, results of operations and cash flows could be materially
adversely affected, the price of our Common Stock could decline and you could
lose part or all of your investment.




We
May Not Be Able To Adequately Protect Our Intellectual Property, Which Could
Cause Us To Be Less Competitive.




We rely
on a combination of trademark, patent and trade secret laws and restrictions on
disclosure to protect our intellectual property rights. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products and technology. Monitoring unauthorized
use of our products is difficult and costly, and we cannot be certain that the
steps we have taken will prevent misappropriations of our products and
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. From time to time, we may
have to resort to litigation to enforce our intellectual property rights, which
could result in substantial costs and diversion of our resources.




We
May Be Exposed To Infringement Claims By Third Parties, Which, If Successful,
Could Cause Us To Pay Significant Damage Awards.




Third
parties may initiate litigation against us alleging infringement of their
proprietary rights. In the event of a successful claim of infringement and our
failure or inability to develop non-infringing products and technology or
license the infringed or similar product or technology on a timely basis, our
business could be harmed. In addition, even if we are able to license the
infringed or similar product or technology, license fees could be substantial
and may adversely affect our results of operations.




RISKS
RELATING TO OUR COMMON STOCK




Our
Common Stock Price Is Volatile And Could Decline In The Future.




The stock market in general and the
market price for other companies based in the PRC have experienced extreme stock
price fluctuations. In some cases, these fluctuations have been unrelated to the
operating performance of the affected companies. Many companies in China have
experienced dramatic volatility in the market prices of their common stock. We
believe that a number of factors, both within and outside of our control, could
cause the price of our Common Stock to fluctuate, perhaps substantially. Factors
such as the following could have a significant adverse impact on the market
price of our Common Stock:




·
            announcements
      of technological innovations by us or our
  competitors;




- 35
-




·
            our
      ability to obtain additional financing and, if available, the terms and
      conditions of the financing;




·
            our
      financial position and results of
operations;





·
            litigation;




·
            period-to-period
      fluctuations in our operating
results;




·
            changes
      in estimates of our performance by any securities
  analysts;




·
            new
      regulatory requirements and changes in the existing regulatory
      environment;




·
            the
      issuance of new equity securities in a future
  offering;




·
            changes
      in interest rates;




·
            changes
      in environmental standards;




·
            market
      conditions of securities traded on the
OTCBB;




·
            investor
      perceptions of us and the lighting industry generally;
  and




·
            general
      economic and other national
conditions.




The
Trading Market In Sino’s Common Stock Is Limited And May Cause Volatility In The
Market Price.




Our
Common Stock is currently traded on a limited basis on the OTCBB and on The Pink
Sheets under the symbol “CHHN.OB”. The OTCBB is an inter-dealer,
over-the-counter market that provides significantly less liquidity than the
NASD’s automated quotation system, or the NASDAQ Stock Market. Quotes for stocks
included on the OTCBB are not listed in the financial sections of newspapers as
are those for the NASDAQ Stock Market. Therefore, prices for securities traded
solely on the OTCBB may be difficult to obtain.




The
quotation of our Common Stock on the OTCBB does not assure that a meaningful,
consistent and liquid trading market currently exists, and in recent years such
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies like us. Thus,
the market price for our Common Stock is subject to volatility and holders of
Common Stock may be unable to resell their shares at or near their original
purchase price or at any price. In the absence of an active trading
market:




·
            investors
      may have difficulty buying and selling or obtaining market
      quotations;




·
            market
      visibility for our Common Stock may be limited;
  and




·
            a
      lack of visibility for our Common Stock may have a depressive effect on
      the market for our Common Stock.




- 36
-




We
May Have Difficulty Raising Necessary Capital To Fund Operations As A Result Of
Market Price Volatility For Our Shares Of Common Stock.




In recent
years, the securities markets in the United States have experienced a high level
of price and volume volatility, and the market price of securities of many
companies have experienced wide fluctuations that have not necessarily been
related to the operations, performances, underlying asset values or prospects of
such companies. For these reasons, our shares of Common Stock can also be
expected to be subject to volatility resulting from purely market forces over
which we will have no control. If our business development plans are successful,
we may require additional financing to continue to develop and exploit existing
and new technologies and to expand into new markets. The exploitation of our
technologies may, therefore, be dependent upon our ability to obtain financing
through debt and equity or other means.




Our
Common Stock Is Considered A “Penny Stock” And As A Result, Related
Broker-Dealer Requirements Affect Its Trading And Liquidity.




Our
Common Stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Exchange Act. These include but are not limited to the
following: (i) the common stock trades at a price less than $5.00 per
share; (ii) the common stock is not traded on a “recognized” national
exchange; (iii) the common stock is not quoted on the NASDAQ Stock Market,
or (iv) the common stock is issued by a company with average revenues of
less than $6.0 million for the past three (3) years. The principal result
or effect of being designated a “penny stock” is that securities broker-dealers
cannot recommend our Common Stock to investors, thus hampering its
liquidity.




Section 15(g)
and Rule 15g-2 require broker-dealers dealing in penny stocks to provide
potential investors with documentation disclosing the risks of penny stocks and
to obtain a manually signed and dated written receipt of the documents before
effecting any transaction in a penny stock for the investor’s account. Potential
investors in our Common Stock are urged to obtain and read such disclosure
carefully before purchasing any of our shares.




Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account
of any investor for transactions in such stocks before selling any penny stock
to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions;
(iii) provide the investor with a written statement setting forth the basis
on which the broker-dealer made the determination in (ii) above; and
(iv) receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor’s financial situation,
investment experience and investment objectives.




Compliance
with these requirements may make it more difficult for holders of our Common
Stock to resell their shares to third parties or to otherwise dispose of them in
the market or otherwise.




Shares
Eligible For Future Sale May Adversely Affect The Market Price Of Our Common
Stock.




From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of Common Stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act of
1933, as amended, subject to certain limitations. Any substantial sale of our
Common Stock pursuant to Rule 144 may have an adverse effect on the market
price of our Common Stock.




- 37
-




One
Stockholder, Which is 100% Controlled By The Chairman of the Board of the
Company, Exercises Significant Control Over Matters Requiring Stockholder
Approval.




After
giving effect to the issuance of all the shares of Common Stock pursuant to the
Exchange, the Stockholder had voting power equal to seventy-seven and one half
percent (77.5%) of our voting securities as of September 30, 2008 and as of the
date of this Annual Report. Moreover, the Stockholder is wholly-controlled by
Zhao Guosong, the Company’s Chairman of the Board. As a result, the Stockholder
and our Chairman of the Board, through such stock ownership, exercise control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership in the Stockholder may also have the effect of delaying or
preventing a change in control of us that may be otherwise viewed as beneficial
by stockholders other than the Stockholder.





We
May Incur Significant Costs To Ensure Compliance With U.S. Corporate Governance
And Accounting Requirements.




We may
incur significant costs associated with our public company reporting
requirements, costs associated with newly applicable corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and
other rules implemented by the SEC. We expect all of these applicable rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. We also expect that these
applicable rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required
to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our board of
directors or as executive officers. We cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.




We
May Be Required To Raise Additional Financing By Issuing New Securities With
Terms Or Rights Superior To Those Of Our Shares Of Common Stock, Which Could
Adversely Affect The Market Price Of Our Shares Of Common Stock.




We may
require additional financing to fund future operations, including expansion in
current and new markets, development and acquisition, capital costs and the
costs of any necessary implementation of technological innovations or
alternative technologies. We may not be able to obtain financing on favorable
terms, if at all. If we raise additional funds by issuing equity securities, the
percentage ownership of our current stockholders will be reduced, and the
holders of the new equity securities may have rights superior to those of the
holders of shares of Common Stock, which could adversely affect the market price
and the voting power of shares of our Common Stock. If we raise additional funds
by issuing debt securities, the holders of these debt securities would similarly
have some rights senior to those of the holders of shares of Common Stock, and
the terms of these debt securities could impose restrictions on operations and
create a significant interest expense for us.




- 38
-




StandardsFor Compliance With Section 404 Of The
Sarbanes-Oxley Act Of 2002 Are Uncertain, And If We Fail To Comply In A Timely
Manner, Our Business Could Be Harmed And Our Stock Price Could
Decline.




Rules
adopted by the SEC, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting, and
attestation of our assessment by our independent registered public accountants.
The standards that must be met for management to assess the internal control
over financial reporting as effective are new and complex, and require
significant documentation, testing and possible remediation to meet the detailed
standards and will impose significant additional expenses on us. We may
encounter problems or delays in completing activities necessary to make an
assessment of our internal control over financial reporting. In addition, the
attestation process by our independent registered public accountants is new and
we may encounter problems or delays in completing the implementation of any
requested improvements and receiving an attestation of our assessment by our
independent registered public accountants. If we cannot assess our internal
control over financial reporting as effective, or our independent registered
public accountants are unable to provide an unqualified attestation report on
such assessment, investor confidence and share value may be negatively
impacted.




ITEM
      1B.
            Unresolved
      Staff Comments




None.





ITEM
      2.
            Properties




All land
in China is owned by the State. Individuals and companies are permitted to
acquire rights to use land or land use rights for specific purposes. In the case
of land used for industrial purposes, the land use rights are granted for a
period of fifty (50) years. This period may be renewed at the expiration of the
initial and any subsequent terms. Granted land use rights are transferable and
may be used as security for borrowings and other obligations.




The
Company has four (4) leases at two (2) sites (at which there are three (3) major
production facilities) collectively cover 62,000 m2, with
floor area of 70,000m2. Those
leases are described in the table below:




Lessee
              
              Address
              
              Square
                Meters
              
              Lessor
              
              Commencement
                Date
              
              Termination
                Date
              
              Rental
                Amount per
                YearCH
      Lighting PRC
              
              No.
      658, Hongyan Road, Shangyu Economic Development Zone, Zhejiang, the
      PRC
              
              32,539
      Square Meters
              
              PRC
              
              January
      2003
              
              May
      2031
              
              US$
              24,532CH
      Lamps
              
              Jingkou
      Village, Taoyan Town, Shaoxing County, Zhejiang, the PRC
              
              20,000
      Square Meters
              
              Shaoxin
      Umbrella Co.,
              
              January
      2005
              
              December
      2014
              
              US$
              14,588CH
      Technology (Land use right owned by CH Lighting PRC)
              
              No.
      658, Hongyan Road, Shangyu Economic Development Zone, Zhejiang, the
      PRC
              
              18,648
      Square Meters
              
              PRC
              
              June
      2007
              
              April
      2056
              
              US$
              12,450CH
      Lab (Land use right owned by CH Lighting PRC)
              
              No.
      658, Hongyan Road, Shangyu Economic Development Zone, Zhejiang, the
      PRC
              
              32,539
      Square Meters (shared with CH Lighting PRC)
              
              PRC
              
              January
      2003
              
              May
      2031
              
              US$
              24,532




- 39
-




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.




On January 12, 2008, a dispute arouse
from performance of two (2) sales contracts entered into by and between CH
Technology and Shenzhen Saiyue Industrial Co., Ltd. (“Saiyue”) whereby
Saiyue was required to refund an advance payment of RMB141,049.80 (approximately
US$20,150) to CH Technology and to bear the legal costs in connection therewith.
Such case is now pending before the Shenzhen Futian District Court.





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




On August
4, 2008, a principal stockholder holding in excess of fifty percent (50%) of the
voting capital stock of the Company voted in favor of changing the name
“Sino-Biotics, Inc.” to “CH Lighting International Corporation” as set forth in
that certain Definitive Information Statement on Schedule 14C (as amended) as
filed with the SEC on August 4, 2008. The Company did not solicit proxies in
light of the fact that a majority stockholder intended to vote and did vote in
favor of the proposal.  On August 25, 2008, the Company filed a
Certificate of Amendment to its Certificate of Incorporation to effect such name
change, effective immediately.




- 40
-




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, 20081st
      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
                      
                      
                      
                      1.010Fiscal
      Year Ended September 30, 20071st
      Quarter:
                      
                      
                      0.027
                      
                      
                      
                      0.0202nd
      Quarter:
                      
                      
                      0.020
                      
                      
                      
                      0.0203rd
      Quarter:
                      
                      
                      0.020
                      
                      
                      
                      0.0204th
      Quarter:
                      
                      
                      0.020
                      
                      
                      
                      0.018




When the
trading price of our Common Stock is below $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 29, 2008, we have issued
120,000,000shares
of our Common Stock to 252 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.




- 41
-




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.




Securities
Authorized for Issuance under Equity Compensation Plans




The
following table discloses information as of September 30, 2008 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
                                                  ofoutstanding
      options,
                                                  warrants
      and rights
                                                
                                                Weighted-average
                                                  exercise
      price of
                                                  outstanding
                                                  options,
      warrants
                                                  and
      rights
                                                
                                                Number
      of securities
                                                  remaining
      available for
                                                  futureissuance
      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




On
July 13, 2005, the Company’s predecessor, Instachem Systems, Inc. (“Instachem”), issued
300,000 shares of Series A Preferred Stock to Venture Fund for US$60,000, which
such shares were convertible into 15,000,000 shares of Instachem’s common stock.
The proceeds were used to pay off prior liabilities of Instachem.




On
July 14, 2005, Instachem issued 400,000 shares of its common stock to
Michael Dion, 750,000 shares of its common stock to Jane Lamas, and 1,000,000
shares of its common stock to Mark Porter, in each case as compensation under a
settlement agreement for prior consulting services. The total amount of
liabilities under the settlement agreement valued at US$17,200.




On
July 20, 2005, Instachem re-domiciled to Delaware by completing a merger
with Sino-Biotics, Inc., pursuant to which one share of Common Stock was
exchanged for each share of issued and outstanding common stock of Instachem,
and one share of Series A Preferred Stock of Sino-Biotics, Inc. was exchanged
for each share of issued and outstanding share of preferred stock of
Instachem.




- 42
-




On
July 28, 2005, Venture Fund converted its 300,000 shares of Series A
Preferred Stock to 15,000,000 shares of Common Stock.




On
January 2, 2007, Sino-Biotics, Inc. issued 50,000 shares of Common Stock,
valued at US$1,000, to Don Siegler for services provided to the Company in
assisting with Sino-Biotics, Inc.’s 2003 and 2004 audits.




On
January 2, 2007, Sino-Biotics, Inc. issued 100,000 shares of Common Stock,
valued at US$2,000, to David Lennox for his services as President, Treasurer,
Secretary, Chief Executive Officer, Chief Operations Officer and sole Director
of Sino-Biotics, Inc.




On
January 2, 2007, the Company converted Steven T. Mills’ Series A
Convertible Preferred Shares of Innovative Coatings Corporation, a predecessor
of Sino-Biotics, Inc., issued on February 4, 2000, to 260,000 shares of
Common Stock.




On
September 12, 2007, Sino-Biotics, Inc. issued a US$65,000 convertible
promissory note to Venture Fund, its majority stockholder, to settle US$20,000
of accounts payable from 2006 and US$45,000 for general and administrative
expenses incurred by Sino-Biotics, Inc. in 2007. The convertible promissory note
was convertible into 4,333,333 shares of Common Stock, without regard for future
stock splits or reorganizations of Common Stock.




On
December 13, 2007, Sino-Biotics, Inc. effected a 1 for 1000 reverse stock split.
 The par value of the Common Stock was not affected by such reverse stock
split.  Sino-Biotics, Inc. issued 128 shares for fractional share
issuances. The effect of the reverse stock split changed the total issued and
outstanding shares of Common Stock to 30,103.




On
January 28, 2008, Venture Fund converted its convertible promissory note
into 4,333,333 shares of Common Stock.




On
January 31, 2008, Rosetta Granite, Inc. and Horizon Atlantic, Inc.
converted a US$10,000 convertible promissory note (initially issued by
Sino-Biotics, Inc. Michael Dion and subsequently assigned by Michael Dion to
Rosetta Granite, Inc. and Horizon Atlantic, Inc.) into 500,000 shares of Common
Stock. In connection with the conversion, Rosetta Granite, Inc. received 250,000
shares of Common Stock and Horizon Atlantic, Inc. received 250,000 shares of
Common Stock.




On March
18, 2008, the Board of Directors of Sino-Biotics, Inc. declared a forward stock
split (dividend), effective March 31, 2008.  The forward stock split
(dividend) was on a 6-for-1 basis on both the authorized issued and outstanding
Common Stock.  Each holder of the record of Common Stock as of March 19,
2008 (the “Record
Date”), was entitled to receive five (5) additional shares of Common
Stock for each share of Common Stock held on the Record Date. No shares were
issued for fractional shares.




On July
16, 2008, pursuant to the terms of the Exchange Agreement, Sino-Biotics, Inc.
acquired all of the issued and outstanding capital stock of CH International in
exchange for Ninety-Three Million (93,000,000) newly-issued shares of Common
Stock.




On the
Closing Date, pursuant to the terms of the Exchange Agreement (July 16, 2008),
Venture Fund cancelled 2,180,616 shares of Common Stock. As of September 30,
2008 and as of the date of this Annual Report, there were 120,000,000 shares of
Common Stock issued and outstanding.




- 43
-


All the
stock issuances set forth above were made in reliance on the exemption under
Section 4(2) of the Securities Act.
 
 Options
and Warrants
 
 As of September 30, 2008 and as of the
date of this Annual Report, 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.
  Introduction
 
 In light
of the strong impact of the global economic downturn, management has made both
pessimistic and optimistic estimates of the Company’s business for
2009.
  The
international export market recession was in the Company's strategic plan,
however, the speed of recession, the range of deep, but beyond the Company's
strategy is expected.
  In the
optimistic case, the Chinese domestic market, not by the impact of global
economic downturn, and the Chinese government continues to adhere to the
reduction of energy-saving policy, then, the company's performance based on 2008
will grow 15%.
  - 44
-
  Results
of Operations
  Results
of Operations For the Fiscal Year Ended September 30, 2008 Compared To Fiscal
Year Ended September 30, 2007
  Net
Profit.  For the year ended September 30, 2008 and 2007, the
Company realized a net profit of US$14,408,000 and US$1,969,000
respectively.
  Revenues.  Revenues
for the years ended September 30, 2008 and 2007 were US$90,864,000 and
US$32,379,000, respectively.  The growth rate was 180.62% due to our
recent expansion into the Chinese domestic market.  Export growth
increased to US$35,454,000 (an increase of 83.68%) and domestic growth increased
to US$55,410,000 (an increase of 323.72%).  Management believes that
revenues will increase in 2009.
  2008
                
                
                2007
                
                
                Growth rateRevenues
                
                
                90,864,000
                
                
                
                32,379,000
                
                
                
                180.62
                %Domestic
      revenue
                
                
                55,410,000
                
                
                
                13,077,000
                
                
                
                323.72
                %Oversea
      revenue
                
                
                35,454,000
                
                
                
                19,302,000
                
                
                
                83.68
                %
 
 Cost of
Sales  Cost of sales for the periods ended September 30, 2008
and 2007 were US$62,340,000and US$23,001,000, respectively and cost rates were
68.6% and 71%, respectively.  Please see table below
  September 30, 2008
                  
                  
                  September 30, 2007Operating Revenues
                  
                  
                  90,864,000(100
                  )%
                  
                  
                  32,379,000(100
                  )%Cost
      of sales
                  
                  
                  62,340,000(68.61
                  )%
                  
                  
                  23,001,000(71.04
                  )%Gross
      Income rate
                  
                  
                  31.39
                  %
                  
                  
                  28.96
                  %
 
 The Cost
Rate decreased by 2.43% during these periods due to the Company’s continuous
improvement of production efficiency.
  Selling
Expenses.  Selling expenses for the periods ended September 30,
2008 and 2007 were US$3,071,000 and US$2,550,000, respectively, which included
advertising expenses (advertising in magazines and newspapers), and sales
commissions.  The ratios for the Selling expenses to Revenues were
3.38% and 7.87%, respectively.  Please see table below:
  Rate to Revenues
                    
                    September 30, 2008
                    
                    
                    September 30, 2007Revenues
                    
                    $
                    90,864,000(100
                    )%
                    
                    $
                    32,379,000(100
                    )%Selling
      Expenses
                    
                    
                    3.38
                    %
                    
                    
                    7.87
                    %General
      and Administrative Expenses
                    
                    
                    7.05
                    %
                    
                    
                    9.67
                    %Interest
      Expenses
                    
                    
                    4.34
                    %
                    
                    
                    7.78
                    %
  The
Company expects to continue its promotional activities in future consistent with
its sales strategy.
  General and
Administrative Expenses.  General and administrative expenses
for the periods ended September 30, 2008 and 2007 were US$6,410,000 and
US$3,133,000, respectively, which included salary expenses of approximately
US$1,017,000 and US$1,117,000, respectively and office expenses of approximately
US$806,500and US$569,380, respectively.  Please see table
below:
  - 45
-
  September
                      30, 2008
                  
                  
                  September 30,
                      2007General
      and Administrative Expenses
                  
                  
                  100
                  %
                  
                  
                  100
                  %Salary
      Expenses
                  
                  
                  15.87
                  %
                  
                  
                  35.65
                  %Office
      Expenses
                  
                  
                  12.58
                  %
                  
                  
                  18.17
                  %
 
 The
Company records compensation expense for stock-based employee compensation
arrangements in accordance with the fair value recognition provisions of
Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R),
“Share-Based Payment.”
  The
Company estimates the fair value of stock-based awards granted to employees as
of the date of the grant, with reference to the Direct Comparison Method under
Market Approach which assumes the 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.
  On June
15, 2008, Zhao Guosong and certain key management personnel of CH Lighting
entered into share purchase and re-purchase agreements (the “Stock-Based
Employee Compensation Agreements”), which enable those key management personnel
to acquire 470 shares (4.7%) of the issued and outstanding shares of common
stock of KEG International Limited at face value from Zhao Guosong (the “Award
Stocks”).  Except for 125 Award Stocks, which had fully vested on June
15, 2008, pursuant to the Stock-based Employee Compensation Agreements, the
remaining 345 Award Stocks shall vest on each anniversary date of the original
grant on a pro rata basis over 5 years until all Award Stocks are vested (the
“Vesting Period”). If the Employees are unable to remain in office during the
Vesting Period, Zhao Guosong is entitled to re-purchase the unvested Award
Stocks at their original face value.
  As of
September 30, 2008, 125 Award Stocks were fully vested, 25 Award Stocks had
lapsed upon resignation of a key management personnel and 320 Award Stocks were
outstanding and unvested. Therefore, stock-based employee compensation expense
of US$962,000 has been recognized as a general and administrative expense with a
corresponding credit to additional paid-in capital.
  After
management’s careful analysis, General and Administrative Expenses are
controlled to a reasonable extent.
  Interest
Expense.  Interest expense for the periods ended September 30,
2008 and 2007 was US$3,941,000and US$2,518,000, respectively, and the average
loan interest rates were 6.30% and 6.85%, respectively.
  September 30, 2008
                  
                  
                  September 30, 2007Short-term
      bank borrowings
                  
                  
                  6.41
                  %
                  
                  
                  7.15
                  %Bills
      financing
                  
                  
                  5.69
                  %
                  
                  
                  6.01
                  %Long-term
      interest bearing loan
                  
                  
                  6.81
                  %
                  
                  
                  7.39
                  %
 
 Net
Income.  Net income for the periods ended September 30, 2008
and 2007 was US$14,408,000 and US$1,969,000, respectively, and the net income
rates were 15.86% and 6.08%, respectively.
  - 46
-
  Liquidity
and Capital Resources
  As of
September 30, 2008, cash and cash equivalents totaled
US$3,154,000.  Net cash provided by operating activities and investing
activities amounted to US$24,161,000 and US$1,885,000,
respectively.  While net cash used in financing activities amounted to
US$(28,676,000).  Please see table below:
  September 30,
                        2008
                    
                    
                    September 30, 2007Cash and Cash Equivalents
                    
                    US$3,154,000
                    
                    
                    US$5,340,000Net Cash provided
      by (used in) Operating Activities
                    
                    US$24,161,000
                    
                    
                    US$(4,990,000
                    )Net
      Cash provided by (used in) Investing activities
                    
                    US$1,885,000
                    
                    
                    US$(10,245,000
                    )Net
      Cash provided by (used in) Financing Activities
                    
                    US$(28,676,000
                    )
                    
                    US$19,435,000
  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.
  Operating
Activities
  China's
domestic market is different from the export market in that the Company produces
“made to order” products as opposed to the domestic market where the Company
prepares a sufficient stock of goods to meet the needs of clients at any
time.  Furthermore, the export market is requires advance payment of
20% to 80% of the balance due prior to delivery.  On the other hand,
the Company offers clients in the domestic market credit lines with usual
payment terms equal to 60 days.
  September 30,
                      2008
                  
                  
                  September 30, 2007Net
      cash changes in operating assets and liabilities
                  
                  US$24,161,000
                  
                  
                  US$(4,990,000
                  )Accounts
      receivables, net
                  
                  US$(9,614,000
                  )
                  
                  US$(5,553,000
                  )Inventories,
      net
                  
                  US$1,827,000
                  
                  
                  US$(8,125,000
                  )Prepayment
                  
                  US$(49,000
                  )
                  
                  US$(1,309,000
                  )
  Investing
Activities
  September 30, 2008
                
                
                September 30, 2007Net cash provided by
      (used in) investing activities
                
                US$1,885,000
                
                
                US$(10,245,000
                )Purchase
      of property, plant and equipment
                
                US$(4,135,000
                )
                
                US$(2,996,000
                )Investment
      in restricted bank balances, net
                
                US$6,020,000
                
                
                US$(7,208,000
                )
 - 47
-
  Financing
Activities
  The
Company receives the funds it needs for development mainly through short-term
bank borrowings, long-term interest bearing loans from banks and bills financing
from related parties through mutual guarantees.
  Net cash
(used in) generated through financing activities were US$(28,676,000) and
US$19,435,000 for the fiscal years ended September 30, 2008 and 2007,
respectively.
  September 30, 2008
                
                
                September 30, 2007Net cash provided
      by (used in) financing activities
                
                US$(28,676,000
                )
                
                US$19,435,000Proceeds
      from short-term bank loan, net
                
                US$48,493,000
                
                
                US$41,014,000Proceeds
      from (repayment of) bills financing, net
                
                US$(2,626,000
                )
                
                US$5,024,000
  Working
Capital
  Accounts
Receivable, Trade and Allowance for Doubtful Accounts
  CH
Lighting’s business operations are conducted in the PRC.  During the
normal course of business, CH Lighting extends unsecured credit to its
customers.  The Company had accounts receivable balances of
US$18,871,000 at September 30, 2008 and US$8,395,000 at September 30, 2007, an
increase of 124.8%.
  Management
reviews accounts receivable on a regular basis to determine if the allowance for
doubtful accounts is adequate.  An estimate for doubtful accounts is
recorded when collection of the full amount is no longer
probable.  Management has determined an allowance for doubtful
accounts was US$337,000 and US$182,000 at September 30, 2008 and 2007,
respectively.
  Other
Receivable
  The
Company had balances of US$4,093,000 at September 30, 2008 and US$5,256,000 at
September 30, 2007, a decrease of 22.1%.
  Prepayment
  The
Company had prepayment balances of US$2,724,000 at September 30, 2008 and
US$2,532,000 at September 30, 2007, an increase of 7.58%.
  Inventories
  Inventories
are stated at the lower of cost or market using the weighted average
method.  Management reviews its inventory on a regular basis for
possible obsolete goods or to determine if any reserves are necessary for
potential obsolescence.
  The
Company had balances for inventories of US$15,303,000 at September 30, 2008 and
US$15,634,000 at September 30, 2007, a decrease of 2.12%.  As of,
September 30, 2008, the Company had determined that no reserves are
necessary.
  September 30, 2008
                
                
                September 30, 2007Raw
      materials
                
                
                3,397,000
                
                
                
                6,944,000Work-in-process
      goods
                
                
                2,277,000
                
                
                
                1,844,000Finished
      goods
                
                
                9,629,000
                
                
                
                6,846,000Total:
                
                
                15,303,000
                
                
                
                15,634,000
  - 48
-
  Cash
and Cash Equivalents
  The
Company had cash and cash equivalents of US$3,154,000 at September 30, 2008 and
US$5,340,000 at September 30, 2007, a decrease of 40.9%.
  Capital
Expenditures
  The
Company had property, plant and equipment (net) equal to US$16,318,000 at
September 30, 2008 and US$12,262,000 at September 30, 2007.  Our
increase in assets is due to an increase of production capacity.
  September 30, 2008
                    
                    
                    September 30, 2007Buildings
                    
                    US$6,869,000
                    
                    
                    US$5,953,000Plant
      and machinery
                    
                    US$9,729,000
                    
                    
                    US$6,833,000Motor
      vehicles
                    
                    US$1,000,000
                    
                    
                    US$813,000Furniture,
      fixtures and office equipment
                    
                    US$1,167,000
                    
                    
                    US$900,000Construction
      in progress
                    
                    US$2,548,000
                    
                    
                    US$1,176,000Accumulated
      depreciation
                    
                    US$(4,995,000
                    )
                    
                    US$(3,413,000
                    )Net
                    
                    US$16,318,000
                    
                    
                    US$12,262,000
 
 The
Company had balances for long-term land lease pre-payments (net) of US$887,000,
US$843,000 at September 30, 2008, 2007, respectively.
  Off-Balance
Sheet Arrangements
  Financial
guarantees
  September 30, 2008
                    
                    September 30, 2007Financial
      guarantees
                    
                    
                    5,106,000
                    
                    US$6,066,000
 
 The
Company does not have any variable interest in any unconsolidated entity that
provides financing, liquidity, market risk or credit support to the Company or
engages in leasing, hedging or research and development services with the
Company.
  The
long-term interest-bearing loans are repayable as follows:
  Long-Term Debt Obligations
                
                September 30,
                    2008
                
                
                September 30,
                    2007Current
      portion of long-term loans, secured (Within one (1) year)
                
                
                3,068,000
                
                
                
                2,203,000Long-term
      loans, secured (2–5 years)
                
                
                6,093,000
                
                
                
                3,035,000Total
                
                
                9,161,000
                
                
                
                5,238,000
  As of
September 30, 2008 and 2007, the Company had capital expenditure commitments for
construction projects and purchase of machineries of approximately US$3,343,000
and US$817,000 respectively.
  - 49
-
  Purchase Obligations
                
                September 30,
                    2008
                
                
                September 30,
                    2007Purchase
      of machineries (Within one (1)
      year)
                
                
                3,343,000
                
                
                
                817,000Total
                
                
                3,343,000
                
                
                
                817,000
 
 The
following table summarizes rental payments under non-cancelable operating
leases:
  Operating Lease Obligations
                
                September 30,
                    2008
                
                
                September 30, 2007Within
      one (1) year
                
                
                21,000
                
                
                
                36,0002–3
      years
                
                
                30,000
                
                
                
                26,0004–5
      years
                
                
                30,000
                
                
                
                26,000Over
      five (5) years
                
                
                3,000
                
                
                
                41,000Total
                
                
                84,000
                
                
                
                129,000
 
 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, the Company's export business, could have a material
adverse effect on the Company.  The Company's response strategy would
be to reduce our reliance on exports 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.
  - 50
-
  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
on Form 10-K.
  ITEM
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
  Effective August 25, 2008, Malone &
Bailey, P.C. (“M&B”) resigned as
the Registrant’s independent registered public accounting firm.
  M&B’s report on the Registrant’s
financial statements for the past two (2) fiscal years, as well as the
subsequent interim period through August 25, 2008, did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified as to uncertainty,
audit scope, or accounting principles; however, the report included an
explanatory paragraph wherein M&B expressed substantial doubt about the
Registrant’s ability to continue as a going concern.
  The resignation of the independent
registered public accountants was approved by the Registrant’s Board of
Directors effective August 25, 2008.
  During the Registrant’s most recent two
(2) fiscal years, as well as the subsequent interim period through August 25,
2008, there were no disagreements on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
  During the Registrant’s most recent two
(2) fiscal years, as well as the subsequent interim period through August 25,
2008, M&B 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 M&B to
furnish a letter addressed to the SEC stating whether it agrees with the
statements made by the Registrant and, if not, stating the respects in which it
does not agree. A copy of the letter is attached hereto as Exhibit
16.1.
  On August
25, 2008, the Board of Directors of the Registrant approved the engagement of
Mazars CPA Limited (“Mazars”) as its
independent registered public accounting firm to audit the Registrant’s
financial statements, effective immediately.  The Registrant did not
consult Mazars on any matters described in Item 304(a)(2) of Regulation S-K
during the Registrant’s two (2) most recent fiscal years or any subsequent
interim period prior to engaging Mazars.
  - 51
-
 
 ITEM
    9A(T).
              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
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 fiscal year ended
September 30, 2008, 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, 2008.
  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 June 30, 2008 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.
  Based on
that evaluation, our CEO and CFO concluded that our internal control over
financial reporting as of September 30, 2008 were
effective.
  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
  Effective
July 28, 2008, the Board of Directors of the Company accepted the resignation of
Mr. David Lennox as a Director of the Company. Also effective July 28, 2008, the
Board appointed Gan Caiying, Yun Hon Man, Han Lijun, Ge Minhai, He Wei and Lu
Guangming to serve as directors of Sino, with Zhao Guosong serving as Chairman
of the Board and Gan Caiying serving as Vice Chairman of the
Board.
  - 52
-
 
 On August 4, 2008, a principal
stockholder holding in excess of fifty percent (50%) of the voting capital stock
of the Company voted in favor of changing the name “Sino-Biotics, Inc.” to “CH
Lighting International Corporation” as set forth in that certain Definitive
Information Statement on Schedule 14C (as amended) as filed with the SEC on
August 4, 2008. On August 25, 2008, the Company filed a Certificate of Amendment
to its Certificate of Incorporation to effect such name change, effective
immediately.
 
 Effective August 25, 2008, the Board of
Directors of the Company appointed Huang Hsiao-I, the Company’s Chief Financial
Officer, to serve as Corporate Secretary of the Company.
 
 On August 25, 2008, the Board of
Directors of the Company unanimously resolved to amend and restate the Company’s
Bylaws, and the Company did amend and restate its Bylaws, dated as of August 25,
2008, in light of the fact that certain provisions therein were obsolete or
required amendments to render the Company’s securities eligible for listing
through the Direct Registration System. A copy of the amended and restated
Bylaws of the Company is referenced herein as Exhibit 3.5.
 
 On August 25, 2008, the Board of
Directors of the Company adopted a new Code of Ethics that applies to the
Company’s officers, directors and employees. A copy of the Code of Ethics is
attached hereto as Exhibit 14.1.
 
 On August 25, 2008, the Board of
Directors of the Company unanimously resolved to create an Audit Committee,
appointing Lu Guangming, Yun Hon Man and Ge Minhai to serve as members of such
Audit Committee with Lu Guangming serving as Chairman, a Compensation Committee,
appointing Lu Guangming, Yun Hon Man and Ge Minhai to serve as members of such
Compensation Committee with Lu Guangming serving as Chairman and a Corporate
Governance and Nominating Committee, appointing Lu Guangming, Yun Hon Man and Ge
Minhai to serve as members of such Corporate Governance and Nominating Committee
with Lu Guangming serving as Chairman. The Board of Directors also approved the
Charters for each of the Audit Committee, the Compensation and the Corporate
Governance and Nominating Committees of the Board. A copy of the Audit Committee
Charter, the Compensation Committee Charter and the Corporate Governance and
Nominating Committee Charter are referenced herein as Exhibits 99.1 99.2 and
99.3, respectively..
 
 Effective on or about August 25, 2008,
the Registrant changed its address to 658 Hongyan Road, Economic Development
Zone, Shangyu City, Zhejiang Province, The People’s Republic of China 312300,
telephone 86 575 8212 7538.
  - 53
-
 
 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
              
              41
              
              Chairman
      of the Board, President and Chief Executive OfficerHuang Hsiao-I
              
              44
              
              Chief
      Financial Officer and Corporate SecretaryGan Caiying
              
              38
              
              Director
      (Vice Chairman of the Board)Han Lijun
              
              46
              
              DirectorGe Minhai
              
              33
              
              DirectorHe Wei
              
              41
              
              DirectorYun Hon Man
              
              40
              
              DirectorLu Guangming
              
              36
              
              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.
  - 54
-
 
 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.
  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.
  - 55
-
 
 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 PRC. 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.
  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.
  - 56
-
 
 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, 2008 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 (1) time, the Compensation
Committee met zero (0) times and the Nominating Committee met zero (0) times
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 2008, 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.
  ·
              Compensation
      Committee –Directors Lu
      Guangming (Chairman) Yun Hon Man and Ge Minhai were members of our
      Compensation Committee during fiscal 2008. 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 2008. 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.
 - 57
-
  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
attached as Exhibit 14.1 hereto, 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, 2008 and December
31, 2007). 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.
 
 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)David
      Lennox,
                                  Former
      Officer (1)
                                
                                
                                2008
                                  2007
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  2,000
                                
                                
                                -0-
                                  2,000Curtis
      Hunsinger,
                                  Former
      Officer
                                
                                
                                2008
                                  2007
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-Robert
      Mottern,
                                  Former
      Officer(2)
                                
                                
                                2008
                                  2007
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-Zhao
      Guosong
                                  President
      & Chief Executive Officer (3)
                                
                                
                                2008
                                  2007
                                
                                78,725
                                  31,667
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                78,725
                                  31,667HuangHsiao-I,
                                  Chief
      Financial Officer and Corporate Secretary (4)
                                
                                
                                2008
                                  2007
                                
                                16,736
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                16,736
                                  -0-Gan
      Caiying
                                  Vice
      Chairman of CH International and Vice Chairman of the Board of the
      Company(5)
                                
                                
                                2008
                                  2007
                                
                                33,752
                                  22,652
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                33,752
                                  22,652Lu
      Guangming
                                  Assistant
      Chairman and Vice-President of CH International and Director of the
      Company(6)
                                
                                
                                2008
                                  2007
                                
                                24,945
                                  18,475
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                -0-
                                  -0-
                                
                                -0-
                                  -0-
                                
                                
                                24,945
                                  18,475
  - 58
-


(1)
            Mr.
      Lennox was the Sole Officer and Director of Sino-Biotics, Inc. from
      December 11, 2006 through the Closing Date of the Exchange (July 16,
      2008).(2)
            Mr.
      Mottern became President and Sole Director of Sino-Biotics, Inc. on
      December 30, 2003.  No salary was paid to Mr. Mottern during his term
      as an officer and director, but he was paid a one-time fee of $60,000 upon
      his resignation as payment for services rendered.(3)
            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.(6)
            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.(5)
            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, 200 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.(6)
            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.





- 59
-




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,
2008.  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, 2008. Each person
named below has sole voting and investment power with respect to the shares
shown unless otherwise indicated.


- 60
-





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
                    %


*
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, 2008, together with securities exercisable
      or convertible into shares of Common Stock within sixty (60) days of
      September 30, 2008 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.


- 61
-





ITEM
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence




Exchange
Agreement (Change of Control)




On the
Closing Date of the Exchange Agreement with the Stockholder of CH International,
the Company acquired all of the issued and outstanding capital stock of CH
International from the Stockholder in exchange for Ninety-Three Million
(93,000,000) newly-issued shares of Common Stock. As a result of the Exchange,
the Stockholder controls seventy-seven and one half percent (77.5%) of the
voting stock of the Company.




The
Company also filed with the SEC an Information Statement complying with Rule
14F-1 under the Exchange Act that describes a change in a majority of the
Company’s Board which occurred in connection with the change of control of the
Company. Upon the execution of the Exchange Agreement, Zhao Guosong was
appointed to the Board of Directors of the Company and effective July 28, 2008,
David Lennox’s resignation as a director became effective and the remaining six
(6) directors of the Company were appointed to the Board.





Transactions
with Officers and Directors




1.      
  Summary of balances with related parties:




As of September 30,2008
                  
                  
                  2007Note
                  
                  US$’000
                  
                  
                  US$’000Due
      from related parties:Gan
      Caiying
                  
                  
                  
                  636
                  
                  
                  
                  1,846Shangyu
      Chenhui Childcare Products Company Limited
                  
                  
                  
                  154
                  
                  
                  
                  277Shangyu
      Hecheng Plastic and Metal Products Company Limited
                  
                  
                  
                  -
                  
                  
                  
                  140Shangyu
      Henghui Electronic Products  Manufacturing Company
      Limited
                  
                  
                  
                  26,352
                  
                  
                  
                  917Zhejiang
      Chenhui Yingbao Childcare Products Company Limited
                  
                  
                  
                  7,360
                  
                  
                  
                  70334,502
                  
                  
                  
                  3,883




The
amounts due from related parties represent 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. Interest shall be paid
annually. The Company plans to collect the outstanding amounts as of September
30, 2008 gradually within two years. The estimated amount to be collected after
one year is approximately US$27,444,000.





As of September 30,2008
                  
                  
                  2007US$’000
                  
                  
                  US$’000Due
      to related parties:Zhao
      Guosong
                  
                  
                  3,203
                  
                  
                  
                  4,503Shaoxing
      Umbrella Factory
                  
                  
                  25
                  
                  
                  
                  8Shangyu
      Hecheng Plastic and Metal Products Company Limited
                  
                  
                  398
                  
                  
                  
                  9Zhejiang
      Chenhui Yingbao Childcare Products Company Limited
                  
                  
                  -
                  
                  
                  
                  3,0203,626
                  
                  
                  
                  7,540




- 62
-




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




2.
            Summary
      of related party transactions:




As of September 30,2008
            
            
            2007US$’000
            
            
            US$’000Zhao
      Guosong and Gan Caiying
            
            Guarantee
      of short-term bank loans borrowed by the Company
            
            
            2,022
            
            
            
            2,660Shangyu
      Henghui Electronic Products
            
            Pledged
      of the Company’s bank balances for banking facilities
    granted
            
            
            4,376
            
            
            
            2,660Guarantee
      of short-term bank loans borrowed the Company
            
            
            2,917
            
            
            
            -Zhejiang
      Chenhui Yingbao Childcare Products Company Limited
            
            Guarantee
      of long-term interest-bearing loans borrowed by the
Company
            
            
            3,325
            
            
            
            3,991Shangyu
      Henghui Electronic Products
            
            Interest
      income received
            
            
            59
            
            
            
            300Interest
      expenses paid
            
            
            -
            
            
            
            21Shaoxing
      Umbrella Factory
            
            Rental
      expenses paid
            
            
            14
            
            
            
            13




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.




- 63
-




ITEM
      14.
            Principal
      Accountant Fees and Services




The firm
of M&B acted as our principal accountant and resigned as the position with
effective August 25, 2008. The following is a summary of fees incurred for
services rendered.




The firm
of Mazars acts as our principal accountant with effective August 25, 2008. The
following is a summary of fees incurred for services rendered.




Audit
Fees




During
the fiscal year ended September 30, 2008, the fees for our current principal
accountant, Mazars, were $175,000 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, M&B, were $0 for quarterly reviews for the period ended December
31, 2007.




Audit-Related
Fees




During
the fiscal year ended September 30, 2008, our current principal accountant,
Mazars, did not render assurance and related services reasonably related to the
performance of the audit or review of financial statements.




Tax
Fees




During
the fiscal year ended September 30, 2008, our current principal accountant,
Mazars, did not render assurance and related services reasonably related to the
performance of the audit or review of financial statements.




All
Other Fees




During
the fiscal year ended September 30, 2008, there were no fees billed for products
and services provided by the current principal accountant, Mazars, other than
those set forth above.




Audit
Committee Pre-Approval




The
policy of the Audit Committee is to pre-approve all audit and non-audit services
provided by the independent accountants. These services may include audit
services, audit-related services, tax fees, and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services. The Audit Committee has delegated
pre-approval authority to certain committee members when expedition of services
is necessary. The independent accountants and management are required to
periodically report to the full Audit Committee regarding the extent of services
provided by the independent accountants in accordance with this pre-approval
delegation, and the fees for the services performed to date. All of the services
described above in this Item 14 were approved in advance by the Audit Committee
during the fiscal year ended September 30, 2008.


- 64
-


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,
2008


- 65
-





14.1
              
              Code
      of Ethics
              
              Provided
      herewith16.1
              
              Auditor
      Letter, dated August 25, 2008
              
              Provided
      herewith21
              
              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


- 66
-


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, 2008By:
                /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, 2008Chairman
      of the Board/s/
      Huang Hsiao-IHuang
      Hsiao-I
                                                              
                                                              Chief
      Financial Officer, Corporate
                                                              
                                                              December
      29, 2008Secretary
      and Principal Financialand
      Accounting Officer/s/
      Gan CaiyingGan
      Caiying
                                                              
                                                              Vice
      Chairman of the Board
                                                              
                                                              December
      29, 2008/s/
      Han LijunHan
      Lijun
                                                              
                                                              Director
                                                              
                                                              December
      29, 2008/s/
      Ge MinhaiGe
      Minhai
                                                              
                                                              Director
                                                              
                                                              December
      29, 2008/s/
      He WeiHe
      Wei
                                                              
                                                              Director
                                                              
                                                              December
      29, 2008/s/
      Yun Hon ManYun
      Hon Man
                                                              
                                                              Director
                                                              
                                                              December
      29, 2008/s/  Lu
      GuangmingLu
      Guangming
                                                              
                                                              Director
                                                              
                                                              December
      29, 2008


- 67
-




CH
LIGHTING INTERNATIONAL CORPORATION


(FORMERLY
KNOWN AS SINO-BIOTICS, INC.)





TABLEOFCONTENTS





PageREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                          F-2CONSOLIDATED
      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS
      ENDED SEPTEMBER 30, 2008 AND 2007
                          F-3CONSOLIDATED
      BALANCE SHEETS AS OF SEPTEMBER 30, 2008 AND 2007
                          F-4
      – F-5CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLERS’ EQUITY FOR THE YEARS ENDED SEPTEMBER
      30, 2008 AND 2007
                          F-6CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND
      2007
                          F-7
      – F-8NOTES
      TO AND FORMING PART OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
      ENDED SEPTEMBER 30, 2008 AND 2007
                          F-9
      –
F-33


F-1





Report
of Independent Registered Public Accounting 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 sheets of CH Lighting
International Corporation (“CH Lighting”) and its subsidiaries (the “Company”)
as of September 30, 2008 and 2007, and the related consolidated statements of
operations and other comprehensive income, changes in stockholders' equity and
cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing auditing procedures
that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. Our audits also included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of September
30, 2008 and 2007, and the results of its operations and its cash flows for each
of the years then ended in conformity with accounting principles generally
accepted in the United States of America.





Mazars
CPA Limited


Certified
Public Accountants


Hong
Kong


December
29, 2008




F-2




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Consolidated
Statements of Operations and Other Comprehensive Income
 Years ended September 30,
2008 and 2007




Year ended September 30,2008
                                                                                    
                                                                                    
                                                                                    2007Note
                                                                                    
                                                                                    
                                                                                    US$’000
                                                                                    
                                                                                    
                                                                                    US$’000Operating
      revenues:Net sales to third
      parties
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    90,864
                                                                                    
                                                                                    
                                                                                    
                                                                                    32,379Cost
      of sales
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (62,340
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (23,001
                                                                                    )Gross
      income
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    28,524
                                                                                    
                                                                                    
                                                                                    
                                                                                    9,378Operating
      expenses:Selling, marketing and
      distribution expenses
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (3,071
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (2,550
                                                                                    )General and administrative
      expenses
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (6,410
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (3,133
                                                                                    )Operating
      income
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    19,043
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,695Other
      income
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    584
                                                                                    
                                                                                    
                                                                                    
                                                                                    401Interest
      income
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    815
                                                                                    
                                                                                    
                                                                                    
                                                                                    586Interest
      expense
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (3,941
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (2,518
                                                                                    )Income
      before income taxes and minority interests
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    16,501
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,164Income
      taxes expenses
                                                                                    
                                                                                    
                                                                                    5
                                                                                    
                                                                                    
                                                                                    
                                                                                    (2,091
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (195
                                                                                    )Minority
      interests
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (2
                                                                                    )
                                                                                    
                                                                                    
                                                                                    -Net
      income
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    14,408
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,969Other
      comprehensive incomeForeign
      currency translation adjustment
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,551
                                                                                    
                                                                                    
                                                                                    
                                                                                    420Comprehensive
      income
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    15,959
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,389Shares
                                                                                    
                                                                                    
                                                                                    SharesEarnings
      per share:
                                                                                    
                                                                                    
                                                                                    3Weighted
      average number of common stocks outstanding, basic and
    diluted
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    98,621,918
                                                                                    
                                                                                    
                                                                                    
                                                                                    93,000,000US$
                                                                                    
                                                                                    
                                                                                    US$Net
      income per share of common stock, basic and diluted
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.15
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.02





The
accompanying notes are an integral part of these consolidated financial
statements.




F-3




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Consolidated
Balance Sheets
 As of September 30, 2008
and 2007




As
      of September 30,2008
                                                  
                                                  
                                                  2007Note
                                                  
                                                  
                                                  US$’000
                                                  
                                                  
                                                  US$’000ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  3,154
                                                  
                                                  
                                                  
                                                  5,340Restricted
      bank balances
                                                  
                                                  
                                                  6
                                                  
                                                  
                                                  
                                                  16,314
                                                  
                                                  
                                                  
                                                  20,366Other
      financial assets
                                                  
                                                  
                                                  7
                                                  
                                                  
                                                  
                                                  2,918
                                                  
                                                  
                                                  
                                                  -Accounts
      receivable, net
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  18,871
                                                  
                                                  
                                                  
                                                  8,395Other
      receivables
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  4,093
                                                  
                                                  
                                                  
                                                  5,256Prepayments
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2,724
                                                  
                                                  
                                                  
                                                  2,532Due
      from related parties, current portion
                                                  
                                                  
                                                  14(b)
                                                  
                                                  
                                                  
                                                  7,058
                                                  
                                                  
                                                  
                                                  3,883Inventories,
      net
                                                  
                                                  
                                                  8
                                                  
                                                  
                                                  
                                                  15,303
                                                  
                                                  
                                                  
                                                  15,634Total
      current assets
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  70,435
                                                  
                                                  
                                                  
                                                  61,406Long-term
      land lease prepayments, net
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  887
                                                  
                                                  
                                                  
                                                  843Property,
      plant and equipment, net
                                                  
                                                  
                                                  9
                                                  
                                                  
                                                  
                                                  16,318
                                                  
                                                  
                                                  
                                                  12,262Deferred
      tax assets
                                                  
                                                  
                                                  5(c)
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  457Due
      from related parties, long-term portion
                                                  
                                                  
                                                  14(b)
                                                  
                                                  
                                                  
                                                  27,444
                                                  
                                                  
                                                  
                                                  -Total
      assets
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  115,084
                                                  
                                                  
                                                  
                                                  74,968LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  22,135
                                                  
                                                  
                                                  
                                                  7,414Notes
      payable
                                                  
                                                  
                                                  10
                                                  
                                                  
                                                  
                                                  4,519
                                                  
                                                  
                                                  
                                                  6,327Accrued
      expenses and other accrued liabilities
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  1,024
                                                  
                                                  
                                                  
                                                  1,946Customer
      deposits
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  3,291
                                                  
                                                  
                                                  
                                                  2,243Due
      to related parties
                                                  
                                                  
                                                  14(b)
                                                  
                                                  
                                                  
                                                  3,626
                                                  
                                                  
                                                  
                                                  7,540Income
      taxes payable
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  376
                                                  
                                                  
                                                  
                                                  469Short-term
      bank borrowings
                                                  
                                                  
                                                  11(a)
                                                  
                                                  
                                                  
                                                  50,849
                                                  
                                                  
                                                  
                                                  39,485Current
      portion of long-term interest-bearing loans,secured
                                                  
                                                  
                                                  11(b)
                                                  
                                                  
                                                  
                                                  3,068
                                                  
                                                  
                                                  
                                                  2,203Total
      current liabilities
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  88,888
                                                  
                                                  
                                                  
                                                  67,627Long-term
      interest-bearing loans, secured
                                                  
                                                  
                                                  11(b)
                                                  
                                                  
                                                  
                                                  6,093
                                                  
                                                  
                                                  
                                                  3,035Government
      subsidies
                                                  
                                                  
                                                  12
                                                  
                                                  
                                                  
                                                  96
                                                  
                                                  
                                                  
                                                  555Deferred
      tax liabilities
                                                  
                                                  
                                                  5(c)
                                                  
                                                  
                                                  
                                                  688
                                                  
                                                  
                                                  
                                                  -95,765
                                                  
                                                  
                                                  
                                                  71,217





The
accompanying notes are an integral part of these consolidated financial
statements.




F-4




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Consolidated
Balance Sheets
 As of September 30, 2008
and 2007




As
      of September 30,2008
                                            
                                            
                                            2007Note
                                            
                                            
                                            US$’000
                                            
                                            
                                            US$’000Minority
      interests
                                            
                                            
                                            
                                            
                                            
                                            66
                                            
                                            
                                            
                                            -Commitments
      and contingencies
                                            
                                            
                                            15
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Stockholders’
      equity:Preferred
      stock, US$0.01 par value:
                                              5,000,000
      shares authorized, no share issued
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Common
      stock, US$0.001 par value:
                                              500,000,000
      shares authorized as of September 30, 2008 and 2007
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -120,000,000
      shares and 93,000,000 shares issued and outstanding as of September 30,
      2008 and 2007 respectively
                                            
                                            
                                            
                                            
                                            
                                            
                                            120
                                            
                                            
                                            
                                            93Additional
      paid-in capital
                                            
                                            
                                            
                                            
                                            
                                            
                                            962
                                            
                                            
                                            
                                            -Statutory
      reserves
                                            
                                            
                                            13
                                            
                                            
                                            
                                            740
                                            
                                            
                                            
                                            228Accumulated
      other comprehensive income
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,124
                                            
                                            
                                            
                                            573Retained
      earnings
                                            
                                            
                                            
                                            
                                            
                                            
                                            15,307
                                            
                                            
                                            
                                            2,857Total
      stockholders’ equity
                                            
                                            
                                            
                                            
                                            
                                            
                                            19,253
                                            
                                            
                                            
                                            3,751Total
      liabilities and stockholders’ equity
                                            
                                            
                                            
                                            
                                            
                                            
                                            115,084
                                            
                                            
                                            
                                            74,968





The
accompanying notes are an integral part of these consolidated financial
statements.




F-5


CH
Lighting International Corporation
 (formerly
Sino-Biotics, Inc.)
  Consolidated
Statements of Changes in Stockholders' Equity
 Years ended September 30,
2008 and 2007
 
 Preferred stock issued
                  
                  
                  Common stock issuedNumber
                    of shares
                  
                  
                  Amount
                  
                  
                  Number
                    of shares
                  
                  
                  Amount
                  
                  
                  Additional
                    paid-in
                    capital
                  
                  
                  Statutory
                    reserves
                  
                  
                  Accumulated
                    other
                    compre-
                    hensive
                    income
                  
                  
                  Retained
                    earnings
                  
                  
                  TotalUS$’000
                  
                  
                  
                  
                  
                  US$’000
                  
                  
                  US$’000
                  
                  
                  US$’000
                  
                  
                  US$’000
                  
                  
                  US$’000
                  
                  
                  US$’000Balance
      as of October 1, 2006
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  93,000,000
                  
                  
                  
                  93
                  
                  
                  
                  -
                  
                  
                  
                  10
                  
                  
                  
                  153
                  
                  
                  
                  1,106
                  
                  
                  
                  1,362Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,969
                  
                  
                  
                  1,969Transfers
      to statutory reserves
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  218
                  
                  
                  
                  -
                  
                  
                  
                  (218
                  )
                  
                  
                  -Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  420
                  
                  
                  
                  -
                  
                  
                  
                  420Balance
      as of September 30, 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  93,000,000
                  
                  
                  
                  93
                  
                  
                  
                  -
                  
                  
                  
                  228
                  
                  
                  
                  573
                  
                  
                  
                  2,857
                  
                  
                  
                  3,751Balance
      as of October 1, 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  93,000,000
                  
                  
                  
                  93
                  
                  
                  
                  -
                  
                  
                  
                  228
                  
                  
                  
                  573
                  
                  
                  
                  2,857
                  
                  
                  
                  3,751Recapitalization
      upon reverse acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  27,000,000
                  
                  
                  
                  27
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (27
                  )
                  
                  
                  -Dividend
      paid
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,419
                  )
                  
                  
                  (1,419
                  )Recognition
      of stock-based employee compensation arrangement
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  962
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  962Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,408
                  
                  
                  
                  14,408Transfers
      to statutory reserves
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  512
                  
                  
                  
                  -
                  
                  
                  
                  (512
                  )
                  
                  
                  -Foreign
      currency translation adjustment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,551
                  
                  
                  
                  -
                  
                  
                  
                  1,551Balance
      as of September 30, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  120,000,000
                  
                  
                  
                  120
                  
                  
                  
                  962
                  
                  
                  
                  740
                  
                  
                  
                  2,124
                  
                  
                  
                  15,307
                  
                  
                  
                  19,253
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
  F-6




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Consolidated
Statements of Cash Flows
 Years
ended September 30, 2008 and 2007





Year ended September 30,2008
                        
                        
                        2007US$’000
                        
                        
                        US$’000Cash flows from
      operating activitiesNet
      income
                        
                        
                        14,408
                        
                        
                        
                        1,969Adjustments
      to reconcile net income to net cash provided by(used
      in) operating activities:Depreciation of property, plant
      and equipment
                        
                        
                        1,214
                        
                        
                        
                        978Amortization of long-term land
      lease prepayments
                        
                        
                        38
                        
                        
                        
                        34Recognition of government
      subsidies
                        
                        
                        (595
                        )
                        
                        
                        -Exchange
      differences
                        
                        
                        556
                        
                        
                        
                        184Imputed interest
      expenses
                        
                        
                        175
                        
                        
                        
                        120Deferred
    taxation
                        
                        
                        1,146
                        
                        
                        
                        (188
                        )Minority interests in net
      income of consolidated subsidiaries
                        
                        
                        2
                        
                        
                        
                        -Stock-based employee
      compensation expenses
                        
                        
                        962
                        
                        
                        
                        -Changes
      in operating assets and liabilities:Accounts receivable,
      net
                        
                        
                        (9,614
                        )
                        
                        
                        (5,553
                        )Other
    receivables
                        
                        
                        3,431
                        
                        
                        
                        190Prepayments
                        
                        
                        49
                        
                        
                        
                        (1,309
                        )Inventories,
net
                        
                        
                        1,837
                        
                        
                        
                        (8,125
                        )Accounts
payable
                        
                        
                        14,005
                        
                        
                        
                        2,869Notes payable
                        
                        
                        (2,420
                        )
                        
                        
                        2,918Accrued expenses and other
      accrued liabilities
                        
                        
                        (1,736
                        )
                        
                        
                        (501
                        )Customer
    deposits
                        
                        
                        782
                        
                        
                        
                        1,037Taxes payable
                        
                        
                        (79
                        )
                        
                        
                        387Net
      cash provided by (used in) operating activities
                        
                        
                        24,161
                        
                        
                        
                        (4,990
                        )Cash
      flows from investing activitiesPurchase
      of property, plant and equipment
                        
                        
                        (4,135
                        )
                        
                        
                        (2,996
                        )Additions
      of long-term land lease prepayments
                        
                        
                        -
                        
                        
                        
                        (41
                        )Investment
      in restricted bank balances, net
                        
                        
                        6,020
                        
                        
                        
                        (7,208
                        )Net
      cash provided by (used in) investing activities
                        
                        
                        1,885
                        
                        
                        
                        (10,245
                        )Cash
      flows from financing activitiesAdvance
      to related parties, net
                        
                        
                        (34,533
                        )
                        
                        
                        (96
                        )Capital
      contribution to a subsidiary by its minority equity holder
                        
                        
                        64
                        
                        
                        
                        -Dividends
      paid
                        
                        
                        (1,419
                        )
                        
                        
                        -Government
      subsidies received
                        
                        
                        87
                        
                        
                        
                        971Proceeds
      from short-term bank loans
                        
                        
                        48,493
                        
                        
                        
                        41,014Repayment
      of short-term bank loans
                        
                        
                        (40,768
                        )
                        
                        
                        (28,865
                        )(Repayment
      of) Proceeds from bills financing, net
                        
                        
                        (2,626
                        )
                        
                        
                        5,024Proceeds
      from long-term interest-bearing loans
                        
                        
                        4,444
                        
                        
                        
                        2,540Repayment
      of long-term interest-bearing loans
                        
                        
                        (2,418
                        )
                        
                        
                        (1,153
                        )Net
      cash (used in) provided by financing activities
                        
                        
                        (28,676
                        )
                        
                        
                        19,435Net
      (decrease) increase in cash and cash equivalents
                        
                        
                        (2,630
                        )
                        
                        
                        4,200Cash
      and cash equivalents, at beginning of year
                        
                        
                        5,340
                        
                        
                        
                        1,024Effect
      on exchange rate changes
                        
                        
                        444
                        
                        
                        
                        116Cash
      and cash equivalents, at end of year
                        
                        
                        3,154
                        
                        
                        
                        5,340


The
accompanying notes are an integral part of these consolidated financial
statements.





F-7


CH
Lighting International
Corporation


(formerly
Sino-Biotics, Inc.)




Consolidated
Statements of Cash Flows


Years
ended September 30, 2008 and 2007





Year ended September 30,2008
                        
                        
                        2007Note
                        
                        US$’000
                        
                        
                        US$’000Supplemental
      disclosure of cash flow informationInterest
      received
                        
                        
                        
                        
                        815
                        
                        
                        
                        586Interest
      paid
                        
                        
                        
                        
                        3,766
                        
                        
                        
                        2,398Tax
      paid
                        
                        
                        
                        
                        1,120
                        
                        
                        
                        -Non-cash
      investing activitiesPurchase
      of property, plant and equipment recordedas
      payable to contractors
                        
                        
                        
                        
                        -
                        
                        
                        
                        329Non-cash
      financing activitiesOther
      financial assets received from related parties
                        
                        7
                        
                        
                        2,918
                        
                        
                        
                        -Settlement
      of bills financing with other financial assets
                        
                        
                        
                        
                        -
                        
                        
                        
                        2,696


The
accompanying notes are an integral part of these consolidated financial
statements.





F-8




CH
Lighting International Corporation
 (formerly
Sino-Biotics, Inc.)
 
 Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007




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. It’s
common stocks are 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, 2008 are as
follows:





Name
                              
                              Place
      and
                                date
      of
                                establishment
      /
                                incorporation
                              
                              Percentage
      of
                                effective
      equity
                                interest
      / voting
                                right
      attributable
                                to
      the Company
                              
                              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.)





Notes
to and Forming Part of Consolidated Financial Statements


Years
ended September 30, 2008 and 2007








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 US$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) implement a 1 for 1,000
reverse stock split and issued 128 shares for fractional share issuance on
December 13, 2007, (ii) converted a US$ 65,000 convertible promissory note and
all related accrued interest into 25,999,998 shares of common stock on January
28, 2008, (iii) converted a US$ 10,000 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 is deemed to be a reverse
acquisition in accordance with generally accepted accounting principles. In
accordance with the Accounting and Financial Reporting Interpretations and
Guidance prepared by the staff of the U.S. Securities and Exchange Commission,
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 will 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 will be accounting for at their net book value
and no goodwill will be recognized.







F-10




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)





Notes
to and Forming Part of Consolidated Financial Statements


Years
ended September 30, 2008 and 2007





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 US$500,000 and US$75,000,
  respectively.




·
            on
      November 5, 2004, CH International acquired 25% equity interest in CH
      Lamps from a nominee of Mr. Zhao at a consideration of
      US$50,000.




·
            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 US$1,500,000.




·
            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
US$225,000.




·
            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
      US$150,000.




·
            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
      HK$10,000 (equivalent to US$1,282).




·
            On
      January 7, 2008, Zhejiang CH established a 90% owned subsidiary, CH Lab,
      with registered capital of RMB4,500,000 (equivalent to US$598,500). The
      remaining 10% equity interest is held by Mr.
  Zhao.




·
            On
      May 6, 2008, CH International declared and paid dividends of US$1,419,000
      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 Statement of Financial Accounting Standards
(“SFAS”) No. 141, “Business Combinations”. Hence, the consolidation has been
accounted for at historical cost and prepared on the basis as if the
Reorganization had become effective as of the beginning of the first period
presented in the accompanying consolidated financial statements.




Accounting
      Principles


The
      consolidated financial statements and accompanying notes are prepared in
      accordance with generally accepted accounting principles in the United
      States of America (“USGAAP”).







F-11


CH
Lighting International Corporation
 (formerly
Sino-Biotics, Inc.)
 
 Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007







2.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES




Basis
of consolidation


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




Revenue
recognition


Operating
revenue represents sale of goods at invoiced value to customers, net of returns,
discounts and value-added tax (“VAT”), and is recognized when goods are
delivered to customers, the significant risks and rewards of ownership of goods
have been transferred to customers, the sales price to the customers is fixed or
determinable and the collectability of consideration is reasonably
assured.





For
products for which a right of return exists during defined period, revenue
recognition is determined based on historical pattern of actual return, or in
cases where such information is lacking, revenue recognition is postponed until
the return period has lapsed. Return policies are based on customary return
arrangements in local market.





Expenses
incurred for shipping and handling costs of internal movements of goods are
recorded as cost of sales. Shipping and handling costs related to sales to third
parties are reported as sales, marketing and distribution expenses.




Research
and development


All
      costs of research and development activities are generally expensed as
      incurred. Research and development costs were US$580,000 and US$231,000
      for the year ended September 30, 2008 and 2007
    respectively.





Advertising
and promotion costs


Advertising
and promotion costs are expensed as sales, marketing and distribution costs as
incurred. Advertising costs were US$759,000 and US$810,000 for the year ended
September 30, 2008 and 2007 respectively.





Retirement
plan costs


Contributions
to defined contribution retirement schemes are charged to general and
administrative expenses in the consolidated statements of operations and
comprehensive income as and when the related employee services are provided.
Retirement plan costs were US$184,000 and US$170,000 for the year ended
September 30, 2008 and 2007 respectively.







F-12




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)





Notes
to and Forming Part of Consolidated Financial Statements


Years
ended September 30, 2008 and 2007








2.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Income
      taxes


The
Company provides for income taxes using the liability method. Under the
liability method, current income tax expense or benefit is the amount of income
taxes expected to be payable or refundable for the current period.





A
deferred income tax asset or liability is computed for the expected future
impact of differences between the financial reporting and tax bases of assets
and liabilities and for the expected future tax benefit to be derived from tax
credits. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.





Tax rate
changes are reflected in the computation of the income tax provision during the
period such changes are enacted.





Comprehensive
      income


SFAS
      No. 130, "Reporting
      Comprehensive Income", requires the presentation of comprehensive
      income, in addition to the existing statements of operations.
      Comprehensive income is defined as the change in equity during the year
      from transactions and other events, excluding the changes resulting from
      investments by owners and distributions to owners, and is not included in
      the computation of income tax expense or benefit. Accumulated
      comprehensive income consists of changes in unrealized gains and losses on
      foreign currency translation.





Property,
plant and equipment (“PPE”) and long-term land lease prepayments


PPE are
stated at cost less accumulated depreciation, and include expenditure that
substantially increases the useful lives of existing assets.





The
      cost of an asset comprises its purchase price and any directly
      attributable costs of bringing the asset to its present working condition
      and location for its intended use. Expenditures incurred after the assets
      have been put into operation, such as repairs and maintenance, overhaul
      and minor renewals and betterments, are normally charged to operating
      expenses in the period in which they are incurred. In situations where it
      can be clearly demonstrated that the expenditure has resulted in an
      increase in the future economic benefits expected to be obtained from the
      use of the assets, the expenditure is
  capitalized.




Depreciation
      is provided, on a straight-line basis, to write off the cost of each PPE
      item at rates based on their estimated useful lives from the date on which
      they become fully operational and after taking into account their
      estimated residual values as
follows:




Buildings
                Furniture,
      fixtures and office equipments
                Motor
      vehicles
                Machinery
      and equipment
              10
      – 20 years
                5
      years
                10
      years
                10
      years









F-13




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007







2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Property,
plant and equipment (“PPE”) and long-term land lease prepayments
(Continued)


When
assets are sold or retired, their costs and accumulated depreciation are
eliminated from the consolidated financial statements and any gain or loss
resulting from their disposal is recognized in the period of disposition as an
element of other income.





Construction-in-progress
consists of factories and office buildings under construction and machinery
pending installation and includes the costs of construction, machinery and
equipment, and any interest charges arising from borrowings used to finance
these assets during the period of construction or installation. No provision for
depreciation is made on construction-in-progress until such time as the relevant
assets are completed and ready for their intended use.





Long-term
land lease prepayments are amortized on a straight-line basis over the term of
lease.




Impairment
of long-lived assets




Long-lived
assets are reviewed at least annually for impairment whenever events or changes
in circumstances indicate that the carrying amount of assets may not be
recoverable. It is reasonably possible that these assets could become impaired
as a result of technology or other industry changes. Determination of
recoverability of assets to be held and used is by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired, impairment is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets and recorded as a reduction of original costs. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell.




Inventories


Inventories
are stated at the lower of cost and market. Cost, which comprises all costs of
purchase and, where applicable, costs of conversion and other costs that have
been incurred in bringing the inventories to their present location and
condition, is calculated using the weighted average costing method. The Company
estimates the market price of its inventories with reference to the net
realizable value based upon current market conditions and historical experience.
Estimated losses on inventories represent reserves for obsolescence, excess
quantities, irregulars and slow moving inventory, and which are charged to cost
of goods sold.




Accounts
receivables and allowance for doubtful accounts





The
allowance for the risk of non-collection of trade accounts receivable takes into
account credit-risk concentration. Collective debt risk is assessed based on
average historical losses and specific circumstances such as serious adverse
economic conditions. The Company’s estimate is based on a variety of factors,
including historical collection experience, existing economic conditions and a
review of the current status of the receivable. Accounts receivable are
presented net of an allowance for doubtful accounts of US$337,000 and US$182,000
as of September 30, 2008 and 2007 respectively.









F-14




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007







2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Cash,
cash equivalents


Cash
represents cash on hand and deposits with financial institutions which are
repayable on demand. Cash equivalents represent short-term, highly liquid
investments purchased with an original maturity of three months or less, which
are readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.





Foreign
currency translation


Items
included in the financial statements of each of the group entities, including
the Company and its subsidiaries, are measured using the currency of the primary
economic environment in which the entity operates (“functional currency”) of
Hong Kong Dollars (“HK$”) or Renminbi (“RMB”). The consolidated financial
statements are presented in United States Dollars (“US$”), which is the
Company’s presentation currency.





Foreign
currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income
statement.





On
consolidation, the results and financial position of all the group entities that
have a functional currency different from the presentation currency are
translated as follows:





(a)
            assets
      and liabilities for each balance sheet presented are translated at the
      closing rate at the date of that balance
sheet;




(b)
            income
      and expenses for each statement of operations are translated at average
      exchange rates;




(c)
            all
      resulting exchange differences are recognised as a separate component of
      equity.




Fair
value of financial instruments


The
estimated fair values for financial instruments under SFAS No. 107, “Disclosures
about Fair Value of Financial Instruments”, are determined at discrete points in
time based on relevant market information. These estimates involve uncertainties
and cannot be determined with precision.




The
Company’s financial instruments include restricted bank balances, other
financial assets, accounts and other receivables/payables, prepayments and
receipt in advances, and short-term bank borrowings. The management has
estimated that the carrying amount approximates their fair value due to their
short-term nature. The fair value of the Company’s long-term secured borrowings
and unearned portion of government grants are estimated based on the current
rates offered to the Company for debt of similar terms and maturities. The fair
value of these non-current financial instruments was not materially different
from their carrying value as of September 30, 2008 and 2007.




F-15


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Operating
leases


Leases
where substantially all the rewards and risks of ownership of assets remain with
the leasing company are accounted for as operating leases. Rental receivables
and payables under operating leases are recognized as income and expenses
respectively on the straight-line basis over the lease term.




Use
of estimates


The
preparation of the consolidated financial statements in conformity with USGAAP
requires the management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reported periods. The management evaluates
these estimates and judgments on an ongoing basis and bases their estimates on
experience, current and expected future conditions, third-party evaluations and
various other assumptions that we believe are reasonable under the
circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities as well as
identifying and assessing the accounting treatment with respect to commitments
and contingencies.




Actual
amounts could differ from those estimates. Estimates are used for, but not
limited to, the accounting for certain items such as allowance for doubtful
accounts, depreciation and amortization, inventory allowance, taxes and
contingencies.





Related
parties


Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence.





Guarantees


Guarantee
issued by the Company is initially recognized on the balance sheet as a
liability at the fair value, or market value, of the obligations the Company
assumed under that guarantee in accordance with FIN 45, “Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others”. FIN 45 contains disclosure provisions surrounding
existing guarantees. As of September 30, 2008 and 2007, the fair values of the
guarantees the Company are not material to the Company's financial position.
Details of the guarantees are disclosed in Note 15(c).





Stock-based
compensation


The
Company records compensation expense for stock-based employee compensation
arrangement in accordance with the fair value recognition provisions of
Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R),
“Share-Based Payment.” The Company estimates the fair value of stock-based
awards granted to employees at the grants date with reference to the Direct
Comparison Method under Market Approach which assuming 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. Details of the stock-based employee compensation
arrangement are disclosed in Note 17.




---

F-16


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Recently
issued accounting standards


The
management has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value
Measurements”(“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles (“GAAP”), and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that
require or permit fair value measurement where the FASB has previously
determined that under those pronouncements fair value is the appropriate
measurement. This statement does not require any new fair value measurements but
may require companies to change current practice. This statement is effective
for those fiscal years beginning after November 15, 2007 and to the interim
periods within those fiscal years. The management believes that SFAS No. 157
should not have a material impact on the consolidated financial position or
results of operations.





In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements
No. 87, 88, 106, and 132(R)” (‘‘SFAS No. 158’’). This statement improves
financial reporting by requiring an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multi-employer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets for a not-for-profit organization. This statement also
improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with limited exceptions. The management does not believe that this new
pronouncement will have a material impact on its consolidated financial
statements.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”(“SFAS No. 159”). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial
instruments and certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are required to be
reported in earnings at each reporting date. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007, the provisions of which are
required to be applied prospectively. The management believes that SFAS 159
should not have a material impact on the consolidated financial position or
results of operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations”
(“SFAS No. 141R”). SFAS No. 141R will change
the accounting for business combinations. Under SFAS No. 141R, an acquiring
entity will be required to recognize all the assets acquired and liabilities
assumed in a transaction at the acquisition-date fair value with limited
exceptions. SFAS No. 141R will change the accounting treatment and disclosure
for certain specific items in a business combination. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Accordingly, any business combinations the Company engages in
will be recorded and disclosed following existing GAAP until January 1, 2009.
The management expects SFAS No. 141R will have an impact on accounting for
business combinations once adopted but the effect is dependent upon acquisitions
at that time. The management is still assessing the impact of this
pronouncement.







F-17


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)





Recently
issued accounting standards (continued)


In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51” (“SFAS
160”). SFAS No. 160 establishes new accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The management believes that SFAS 160 should not have a
material impact on the consolidated financial position or results of
operations.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”(“SFAS 161”). SFAS 161 amends SFAS
No. 133, “Accounting for
Derivative Instruments and Hedging Activities”and requires entities to
enhance their disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. SFAS No. 161 is effective for
fiscal years beginning on or after November 15, 2008. The adoption of SFAS No.
161 is not expected to have a material impact on the Company’s financial
position or results of operations.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP (the GAAP hierarchy). SFAS No. 162 will be
adopted for fiscal 2009 and will not have a material effect on the consolidated
financial statements.





3.
            EARNINGS
      PER SHARE





Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common stocks outstanding during
the 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,
2008 and 2007.




---

F-18


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





4.
            OPERATING
      RISKS





(a)
              Concentration
      of major customers and suppliers
  Year
      ended September 30,2008
                
                
                2007Major
      customers with revenues of more than 10%of
      the Company’s salesSales to major
      customers
                
                US$9,733,200
                
                
                US$4,241,000Percentage of
    sales
                
                
                11
                %
                
                
                13
                %Number
                
                
                1
                
                
                
                1Major
      suppliers with purchases of more than 10%of
      the Company’s purchasesPurchases from major
      suppliers
                
                US$5,271,900
                
                
                
                -Percentage of
      purchases
                
                
                11
                %
                
                
                -Number
                
                
                1
                
                
                
                -





Accounts
receivable related to the Company’s major customers comprised 33% and 28% of all
accounts receivable as of September 30, 2008 and 2007 respectively.





Accounts
payable related to the Company’s major supplier comprised 10% of all accounts
payable as of September 30, 2008.





Credit
risk represents the accounting loss that would be recognized at the reporting
date if counter parties failed to perform as contracted. Concentrations of
credit risk (whether on or off balance sheet) that arise from financial economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The major
concentrations of credit risk arise from the Company’s accounts receivable. Even
though the Company has major concentrations, it does not consider itself exposed
to significant risk with regards to the related receivables.




(b)
            Country
      risks




4 of CH
Lighting’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-19


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007


---




4.
            OPERATING
      RISKS (CONTINUED)





(c)
              Cash
      and time deposits





The
Company mainly maintains its bank balances with various banks located in the
PRC. In common with local practice, such amounts are not insured or otherwise
protected should the financial institutions be unable to meet their liabilities.
There has been no history of credit losses. There are neither material
commitment fees nor compensating balance requirements for any outstanding loans
of the Company.





5.
            INCOME
      TAXES





British
Virgin Islands


CH
International is incorporated under International Business Act of the British
Virgin Islands and, accordingly, exempted from payment of the British Virgin
Islands income tax.





Hong
Kong


Hong Kong
Profits Tax has been provided at the rate of 16.5% (2007: 17.5%) on CH Hong
Kong’s estimated assessable profits arising in or derived from Hong
Kong.





The
People’s Republic of China


Zhejiang
CH, CH Technology, CH Lamps and CH Lab (“PRC Subsidiaries”) are subjected to
state and local enterprise income taxes in the PRC at a standard rate of 30% and
3%, respectively, up to December 31, 2007.





In March
2007, the National People’s Congress of China enacted a new Enterprise Income Tax Law,
which became effective on January 1, 2008 (the “New EIT Law”). In December 2007,
the State Council of China promulgated the “Implementation Regulations to the
EIT Lawand the Notice
to Enterprise Income Tax Transition Incentive Policy”, which also became
effective on January 1, 2008.





Under
those laws and regulations, a unified income tax rate of 25% shall apply to all
domestic and foreign invested enterprises, unless they qualify for special tax
benefits under certain limited exceptions. The applicable income tax for the PRC
Subsidiaries is 25% from January 1, 2008 onwards. Since the deferred tax assets
and deferred tax liabilities shall be measured at the tax rates that are
expected to apply to the periods when the asset is realized or the liability is
settled, the change in the applicable tax rate affects the determination of the
carrying values of deferred tax assets and deferred tax liabilities of the PRC
Subsidiaries. The Company recognizes the deferred tax balances based on their
best estimation on the effects of the New EIT Law and will continue to evaluate
the impact on its operating results and financial positions of future periods as
more detailed rules and other related regulations are announced.





CH
Technology received official designation by the local tax authority as a
foreign-invested enterprise engaged in manufacturing activities and is confirmed
by the local tax authority that it is exempted from enterprise income tax for
two years commencing from the first profitable year in 2007, followed by a 50%
reduction for the next three years.




---

F-20


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007


---




5.
            INCOME
      TAXES (CONTINUED)





The
People’s Republic of China (Continued)


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.





(a)
            Income
      tax expenses (benefits) are comprised of the
  following:




Year ended September
      30,2008
            
            
            2007US$’000
            
            
            US$’000Current
      taxes arising in Hong Kong and the PRC:For the year
            
            
            946
            
            
            
            383Deferred
      taxes arising in Hong Kong and the PRC:For the year
            
            
            1,145
            
            
            
            (188
            )2,091
            
            
            
            195




In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which
clarifies the accounting and disclosure for uncertainty in tax positions, as
defined, and prescribes the measurement process and a minimum recognition
threshold for a tax position, taken or expected to be taken in a tax return,
that is required to be met before being recognized in the financial statements.
Under FIN 48, the Company must recognize the tax benefit from an uncertain
position only if it is more-likely-than-not the tax position will be sustained
on examination by the taxing authority, based on the technical merits of the
position. The tax benefits recognized in the financial statements attributable
to such position are measured based on the largest benefit that has a greater
than 50% likelihood of being realized upon the ultimate resolution of the
position.




Subject
to the provision of FIN 48, the Company has analyzed its filing positions in all
of the domestic and foreign jurisdictions where it is required to file income
tax returns. As of September 30, 2008 and 2007, the Company has identified the
above jurisdictions as “major” tax jurisdictions, as defined, in which it is
required to file income tax returns: Hong Kong and the PRC. Based on the
evaluations noted above, the Company has concluded that there are no significant
uncertain tax positions requiring recognition in its consolidated financial
statements.




As of
September 30, 2008 and 2007, the Company had no unrecognized tax benefits or
accruals for the potential payment or interest and penalties. The Company’s
policy is to record interest and penalties in this connection as a component of
the provision for income tax expense. For the year ended September 30, 2008 and
2007, no interest or penalties were recorded.







F-21


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007


---




5.
            INCOME
      TAXES (CONTINUED)





The
People’s Republic of China (Continued)





(b)
            Reconciliation
      from the expected income tax expenses calculated with reference to the
      statutory tax rate in the PRC of 25% (2007: 33%) is as
      follows:




Year
      ended September 30,2008
            
            
            2007US$’000
            
            
            US$’000Expected
      income tax expenses
            
            
            4,125
            
            
            
            714Difference
      in tax rates in the countries that the Company operates
            
            
            1
            
            
            
            (9
            )Effect
      on tax incentives / holiday
            
            
            (3,225
            )
            
            
            (629
            )Tax-exempted
      / Non-deductible items
            
            
            309
            
            
            
            10Withholding
      tax
            
            
            859
            
            
            
            -Others
            
            
            22
            
            
            
            109Income
      tax expenses
            
            
            2,091
            
            
            
            195




(c)
            Components
      of net deferred tax (liabilities) assets were as
  follows:




As
      of September 30,2008
            
            
            2007US$’000
            
            
            US$’000Depreciation
            
            
            54
            
            
            
            42Bad
      debt and prepaid expenses written off
            
            
            99
            
            
            
            175Provision
      and accruals
            
            
            18
            
            
            
            240Withholding
      tax
            
            
            (859
            )
            
            
            -(688
            )
            
            
            457







F-22


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007


---




6.
            RESTRICTED
      BANK BALANCES





Restricted
bank balances as of September 30, 2008 and 2007 represented time deposits with
original maturity between three and twelve months to secure banking facilities
granted by various financial institutions as follows.




As
      of September 30,2008
            
            
            2007Note
            
            
            US$’000
            
            
            US$’000Notes
      payable
            
            
            10
            
            
            
            4,519
            
            
            
            6,327Bills
      financing
            
            11(a)(ii)
            
            
            
            7,367
            
            
            
            10,043Banking
      facilities granted to a related party
            
            
            14(c)
            
            
            
            4,428
            
            
            
            2,660Banking
      facilities granted to a third party
            
            
            15(c)
            
            
            
            -
            
            
            
            1,33616,314
            
            
            
            20,366




7.
            OTHER
      FINANCIAL ASSETS





Other
financial assets represented notes received from related parties for the
settlement of advances made to them. As of September 30, 2008, all notes
receivable were guaranteed by established banks in the PRC and had maturities of
6 months or less from the date of issue. The Company had discounted the notes to
banks in exchange for cash with recourse in the ordinary course of business. The
Company continues to recognize the full carrying amount of the notes and has
recognized the cash received as secured short-term bank borrowings in Note
11(a)(ii). The fair value of the other financial assets approximated their
carrying value.




8.
            INVENTORIES,
      NET




Inventories consisted of the
followings:




As
      of September 30,2008
            
            
            2007US$’000
            
            
            US$’000Raw
      materials
            
            
            3,397
            
            
            
            6,944Work-in-progress
      and semi-finished goods
            
            
            2,277
            
            
            
            1,844Finished
      goods
            
            
            9,629
            
            
            
            6,84615,303
            
            
            
            15,634


F-23




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





9.
            PROPERTY,
      PLANT AND EQUIPMENT, NET





Property, plant and equipment is
summarized as follows:




As
      of September 30,2008
            
            
            2007US$’000
            
            
            US$’000Buildings
            
            
            6,869
            
            
            
            5,953Plant
      and machinery
            
            
            9,729
            
            
            
            6,833Motor
      vehicles
            
            
            1,000
            
            
            
            813Furniture,
      fixtures and office equipment
            
            
            1,167
            
            
            
            900Construction-in-progress
            
            
            2,548
            
            
            
            1,17621,313
            
            
            
            15,675Accumulated
      depreciation
            
            
            (4,995
            )
            
            
            (3,413
            )16,318
            
            
            
            12,262




Depreciation
expenses were US$1,214,000 and US$978,000 for the year ended September 30, 2008
and 2007 respectively.





The
Company has pledged certain buildings and machineries as collaterals against
general banking facilities granted to the PRC Subsidiaries. Details of which are
disclosed in Note 11.





10.
            NOTES
      PAYABLE





All notes
payable were interest-free notes guaranteed by banks, repayable within six
months from date of issue and fully collateralized by restricted bank balances
as set out in Note 6.




11.
            BANK
      BORROWINGS AND OTHER LOANS




Bank
borrowings and other loans comprise of the followings:




As
      of September 30,Note
            
            
            2008
            
            
            2007US$’000
            
            
            US$’000Short-term
      bank borrowings
            
            
            11(a)
            
            
            
            50,849
            
            
            
            39,485Long-term
      interest-bearing loans
            
            
            11(b)
            
            
            
            9,161
            
            
            
            5,23860,010
            
            
            
            44,723







F-24


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





11.
            BANK
      BORROWINGS AND OTHER LOANS
(CONTINUED)




(a)
            Short-term
      bank borrowings




Short-term
bank borrowings comprise of the followings:




As
      of September 30,Note
            
            
            2008
            
            
            2007US$’000
            
            
            US$’000Short-term
      bank loans
            
            
            11(a)(i)
            
            
            
            38,814
            
            
            
            27,447Bills
      financing
            
            
            11(a)(ii)
            
            
            
            12,035
            
            
            
            12,03850,849
            
            
            
            39,485




(i)
            Short-term
      bank loans




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




The loans
are collateralized by, land use rights and buildings of the Company with
carrying values as follows:




As
      of September 30,2008
            
            
            2007US$’000
            
            
            US$’000Land
      use rights
            
            
            887
            
            
            
            843Buildings
            
            
            5,640
            
            
            
            2,9006,527
            
            
            
            3,743




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





As
      of September 30,2008
                  
                  
                  2007US$’000
                  
                  
                  US$’000Personal
      guarantees issued by related parties
                  
                  
                  13,858
                  
                  
                  
                  2,660Corporate
      guarantees issued by unrelated parties
                  
                  
                  30,922
                  
                  
                  
                  21,434




The
weighted average annual interest rates of the short-term bank loans were 6.41%
and 7.15% as of September 30, 2008 and 2007 respectively.







F-25




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007




11.
            BANK
      BORROWINGS AND OTHER LOANS
(CONTINUED)




(ii)
            Bills
      financing




Bills
financing represent amounts due to various banks which are repayable within six
months from the date of issue. The bills are secured by restricted bank balances
and other financial assets of the Company with carrying values as
follows:




As of September 30,2008
                          
                          
                          2007Note
                          
                          
                          US$’000
                          
                          
                          US$’000Restricted
      bank balances
                          
                          
                          6
                          
                          
                          
                          7,367
                          
                          
                          
                          10,043Other
      financial assets
                          
                          
                          7
                          
                          
                          
                          2,918
                          
                          
                          
                          -10,285
                          
                          
                          
                          10,043




The
weighted average annual interest rates of the bills financing were 5.69% and
6.01% as of September 30, 2008 and 2007 respectively.




(b)
            Long-term
      interest-bearing loans





Long-term
interest-bearing loans are secured by machineries with net book values of
US$3,929,000 and US$3,121,000 as of September 30, 2008 and 2007, respectively,
and guaranteed by a third party and certain related parties.





The
long-term interest-bearing loans are repayable as follows:





As of September 30,2008
                  
                  
                  2007US$’000
                  
                  
                  US$’000Not
      exceeding 1 year
                  
                  
                  3,068
                  
                  
                  
                  2,203More
      than 1 year but not exceeding 5 years
                  
                  
                  6,093
                  
                  
                  
                  3,0359,161
                  
                  
                  
                  5,238Portion
      classified as current liabilities
                  
                  
                  (3,068
                  )
                  
                  
                  (2,203
                  )Long-term
      portion
                  
                  
                  6,093
                  
                  
                  
                  3,035




The
weighted average annual interest rates of the long-term interest-bearings loans
were 6.81% and 7.39% as of September 30, 2008 and 2007
respectively.





F-26


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





12.
            GOVERNMENT
      SUBSIDIES





During
the year ended September 30, 2008 and 2007, the Company was granted and received
government subsidies of approximately US$87,000 and US$971,000 respectively. The
approved subsidies were dedicated for the use of acquiring plant and machineries
for the production of power saving lighting products. During the year ended
September 30, 2008 and 2007, government subsidies equivalent to US$595,000 and
US$416,000 were utilized for the additions of property, plant and equipment
respectively.




13.
            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 a staff welfare and incentive bonus fund. The statutory
reserves are to be appropriated from statutory net income as stipulated by
statute or by the board of directors of respective subsidiaries and recorded as
a component of 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
year ended September 30, 2008 and 2007, the Company transferred US$512,000 and
US$218,000 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-27


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





14.
            RELATED
      PARTY TRANSACTIONS




(a)
              Names
      and relationship of related
parties:







Existing relationships with CH
      LightingMr.
      Zhao
                  
                  Director
      and controlling stockholder of CH LightingMs.
      Gan Cai Ying (“Ms. Gan”)
                  
                  Director
      of CH Lighting 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-28


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007




14.
            RELATED
      PARTY TRANSACTIONS (CONTINUED)




(b)
              Summary
      of balances with related parties:
  As of September 30,2008
              
              
              2007US$’000
              
              
              US$’000Due
      from related parties:Ms.
      Gan
              
              
              636
              
              
              
              1,846CH
      Childcare
              
              
              154
              
              
              
              277Hecheng
              
              
              -
              
              
              
              140Henghui
              
              
              26,352
              
              
              
              917Yingbao
      Childcare
              
              
              7,360
              
              
              
              70334,502
              
              
              
              3,883


The
amounts due from related parties represent 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. Interest shall be paid
annually. The Company plans to collect the outstanding amounts as of September
30, 2008 gradually within two years. The estimated amount to be collected after
one year is approximately US$27,444,000.




As
      of September 30,2008
                  
                  
                  2007US$’000
                  
                  
                  US$’000Due
      to related parties:Mr.
      Zhao
                  
                  
                  3,203
                  
                  
                  
                  4,503SX
      Umbrella
                  
                  
                  25
                  
                  
                  
                  8Hecheng
                  
                  
                  398
                  
                  
                  
                  9Yingbao
      Childcare
                  
                  
                  -
                  
                  
                  
                  3,0203,626
                  
                  
                  
                  7,540




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





F-29




CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007




14.
            RELATED
      PARTY TRANSACTIONS (CONTINUED)




(c)
            Summary
      of related party transactions:




As of September 30,2008
              
              
              2007US$’000
              
              
              US$’000Mr.
      Zhao andMs.
      Gan
              Guarantee
      of short-term bank loans borrowed by the Company
              
              
              2,022
              
              
              
              2,660Henghui
              Pledged
      of the Company’s bank balances for banking facilities
    granted
              
              
              4,376
              
              
              
              2,660Guarantee
      of short-term bank loans borrowed the Company
              
              
              2,917
              
              
              
              -Yingbao
      Childcare
              Guarantee
      of long-term interest-bearing loans borrowed by the
Company
              
              
              3,325
              
              
              
              3,991Henghui
              Interest
      income received
              
              
              59
              
              
              
              300Interest
      expenses paid
              
              
              -
              
              
              
              21SX
      Umbrella
              Rental
      expenses paid
              
              
              14
              
              
              
              13







F-30


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





15.
            COMMITMENTS
      AND CONTINGENCIES





(a)
            Operating
      lease commitments





The
Company leases certain staff quarters and office premises under non-cancelable
operating leases. Rental expenses under operating leases for the year ended
September 30, 2008 and 2007 were US$50,000 and US$35,000
respectively.





The
following table summarizes the approximate future minimum rental payments under
non-cancelable operating leases in effect as of September 30, 2008 and
2007:





As of September 30,2008
                  
                  
                  2007US$’000
                  
                  
                  US$’000Within
      one year
                  
                  
                  21
                  
                  
                  
                  36One
      to two years
                  
                  
                  15
                  
                  
                  
                  13Two
      to three years
                  
                  
                  15
                  
                  
                  
                  13Three
      to four years
                  
                  
                  15
                  
                  
                  
                  13Four
      to five years
                  
                  
                  15
                  
                  
                  
                  13Over
      five years
                  
                  
                  3
                  
                  
                  
                  41Total
                  
                  
                  84
                  
                  
                  
                  129





(b)
            Capital
      commitments





As of
September 30, 2008 and 2007, the Company had capital expenditure commitments for
construction projects and purchase of machinery of approximately US$3,343,000
and US$817,000 respectively.





(c)
            Contingencies





As of
September 30, 2008 and 2007, the Company had provided corporate guarantees of
approximately US$5,106,000 and US$6,066,000, respectively, for revolving bank
loans and notes drawn by unrelated company incorporated in the PRC (“Company
A”):





The
guarantee for Company A arose from the mutual negotiation between Zhejiang CH
and Company A. Associated with the corporate guarantee, Company A also provided
a cross guarantee for the bank facilities of Zhejiang CH. The guarantee was for
bank loans and notes drawn by Company A and will be terminated upon mutual
agreements between Zhejiang CH and Company A. If Company A defaults on the
repayment of its bank loans or notes when they fall due, Zhejiang CH is required
to repay the outstanding balance. There is no recourse or collateralization
provision in the guarantee. As of September 30, 2008, the guarantee provided for
the bank loans and notes drawn by Company A was approximately RMB35,000,000 or
US$5,106,000 (2007: RMB45,600,000 or US$6,066,000), which is also the maximum
potential amount of future payments under the guarantee as of September 30, 2008
and 2007.





F-31


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





15.
            COMMITMENTS
      AND CONTINGENCIES (CONTINUED)





(c)
            Contingencies
      (Continued)





However,
default by Company A 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 recognized as of September
30, 2008 and 2007.





16.
            SEGMENT
      INFORMATION





During
the years ended September 30, 2008 and 2007, revenue of the Company represented
net sales of lighting source and lighting electronics products. No financial
information by business segment is presented.





The table
below summarizes the customer base by geographic region:





Year ended September 30,2008
                    
                    
                    2007US$’000
                    
                    
                    US$’000China,
      including Hong Kong
                    
                    
                    55,410
                    
                    
                    
                    13,077Middle
      East
                    
                    
                    13,251
                    
                    
                    
                    6,048Korea
                    
                    
                    9,008
                    
                    
                    
                    2,156Europe
                    
                    
                    7,647
                    
                    
                    
                    7,159United
      State
                    
                    
                    1,212
                    
                    
                    
                    1,090Africa
                    
                    
                    656
                    
                    
                    
                    354South
      America
                    
                    
                    73
                    
                    
                    
                    21Others
                    
                    
                    3,607
                    
                    
                    
                    2,474Total
                    
                    
                    90,864
                    
                    
                    
                    32,379





Revenue
is attributed to countries based on location of customer.





All
long-lived assets are located at China, including Hong Kong.





F-32


CH
Lighting International Corporation


(formerly
Sino-Biotics, Inc.)




Notes
to and Forming Part of Consolidated Financial Statements
 Years
ended September 30, 2008 and 2007





17.
            STOCK-BASED
      EMPLOYEE COMPENSATION ARRANGEMENT





On
      June 15, 2008, Mr. Zhao and certain key management personnel of CH
      Lighting (the “Employees”) entered into share purchase and re-purchase
      agreements (the “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”) at its
      face value from Mr. Zhao. Pursuant to the Stock-based Employee
      Compensation Agreements, 125 Award Stocks have been fully vested
      immediately and the remaining 345 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 at their original face
      value.





Compensation
      expense attributed to the Stock-Based Employee Compensation Agreements is
      based on the fair value of the Award Stocks on the granted 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. The
      fair value of the Award Stocks of US$7,700 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, with the following inputs to the
      valuation model:





Market Comparable Indicator
                    
                    Multiple index
                    
                    
                    Marketability
                      discount factorRevenue
                    
                    
                    3
                    
                    
                    
                    40
                    %Income
      before interest, tax, depreciation and amortization
                    
                    
                    13
                    
                    
                    
                    40
                    %Income
      before interest and tax
                    
                    
                    16
                    
                    
                    
                    40
                    %Net
      income
                    
                    
                    11
                    
                    
                    
                    40
                    %Net
      book value
                    
                    
                    2
                    
                    
                    
                    40
                    %





As
      of September 30, 2008, 125 Award Stocks were fully vested, 25 Award Stocks
      had lapsed upon resignation of a key management personnel and 320 Award
      Stocks were outstanding and unvested. Therefore, stock-based employee
      compensation expense of US$962,000 has been recognized as a general and
      administrative expense with a corresponding credit to additional paid-in
      capital.





The
      Stock-Based Employee Compensation Agreements were implemented to help the
      Company in attracting, retaining and rewarding superior personnel for the
      positions of substantial responsibility and to provide the key management
      personnel with an additional incentive to contribute to the success of the
      Company.





18.
            APPROVAL
      OF FINANCIAL STATEMENTS





The
consolidated financial statements were approved by the board of directors on
December 29, 2008.





F-33