UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
(Mark
One)
[
] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended
or
[X]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from April 1, 2009 to December 31,
2009
Commission
file number 000-30299
LIGHTSCAPE
TECHNOLOGIES INC.
(Exact name of registrant as specified in its
charter)
|
Nevada
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98-0217653
|
|
(State or
other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
|
|
|
|
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18/F.,
318 Hennessy Road, W Square,
|
|
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Wanchai,
Hong Kong
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0000000
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|
(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (852)
2546-1808
Securities
registered pursuant to Section 12(b) of the Act:
|
Title of
each class
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Name of
each exchange on which registered
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Nil
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Nil
|
Securities
registered pursuant to Section 12(g) of the Act:
Common
Shares, par value $0.001
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] 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 Act.
Yes [ ] No [X]
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Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit
and post such files). Yes [_] No [_]
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. [X]
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 [ ]
|
(Do not
check if a smaller reporting company)
|
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 [ ] No [X]
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates (affiliates being, for these
purposes only, directors, executive officers and holders of more
than 10% of the registrant’s common stock) of the
registrant
on September 30, 2009 (the last business day of the
registrant’s most recently completed second fiscal quarter)
was $12,569,741.70
based on 41,899,139 non-affiliate shares outstanding at $0.30 per
share, which is closing price for the common stock as reported
by the quotation service operated by the OTC Bulletin Board on
September 30, 2009 (the last business day of the registrant’s
most
recently completed second fiscal quarter).
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date:
55,876,410 shares of common stock issued and outstanding as of
March 31, 2010.
Documents
incorporated by reference: none.
TABLE OF
CONTENTS
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Forward
Looking Statements
This
transition report on Form 10-K contains forward-looking statements
as that term is defined in Section 27A of the United States
Securities Act of 1933 and Section 21E of the United States
Securities Exchange Act of 1934. These statements relate to future
events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as
“may”, “should”, “intends”,
“expects”, “plans”,
“anticipates”, “believes”,
“estimates”, “predicts”,
“potential”, or “continue” or the negative
of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section
entitled “Risk Factors”, which may cause our or our
industry’s actual results, levels of activity or performance
to be materially different from any future results, levels of
activity or performance expressed or implied by these
forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity or performance. Except as required by applicable
law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform
these statements to actual results.
Use of
Certain Defined Terms
In
this transition report on Form 10-K and unless otherwise specified,
all dollar amounts are expressed in United States dollars, all
references to “common shares” refer to the common
shares in our capital stock and the terms “we”,
“us” and “our” refer to Lightscape
Technologies Inc. and our subsidiaries.
PART
I
ITEM
1.
BUSINESS.
Change in
Fiscal Year
In
December 2009, our board of directors approved a change in our
fiscal year end from March 31 to December 31. The fiscal year end
change was effective December 31, 2009 and resulted in a nine month
reporting period from April 1, 2009 to December 31, 2009. As a
result, this Form 10-K is a transition report and includes
financial information for the transition period from April 1, 2009
through December 31, 2009 (the “Transition Period”).
Subsequent to this report, our reports on Form 10-K will cover the
calendar year January 1 to December 31.
Company
Overview
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We
were incorporated under the laws of the State of Nevada under the
name “Legacy Bodysentials Inc.” on September 14, 1995.
On September 25, 1996, we changed our name to “Legacy
Minerals Inc.” and on May 18, 1998, we changed our name to
“Global Commonwealth Inc.” On November 12, 1999, we
changed our name to “Global Innovative Systems Inc.”
and on April 23, 2007, we changed our name to “Lightscape
Technologies Inc.” The name change became effective with the
OTC Bulletin Board at the opening for trading on April 23, 2007
under the new stock symbol “LTSC”.
We
are a holding company for subsidiaries engaged in two main
continuing business activities: (i) digital out-of-home advertising
and (ii) light-emitting diode (“LED”) solutions. During
the nine months ended December 31, 2009, approximately 20% of our
revenue was derived from our digital out-of-home advertising
business and 80% from our LED solutions business.
Digital
Out-of-Home Advertising Business
We
design, install and operate digital out-of-home advertising
screens. We are building and expanding our digital out-of-home
advertising network (i) through digital billboard installations
which we complete and operate independently, and (ii) through
digital display installations which we complete and operate through
partnerships and/or joint ventures with major property owners and
developers in Asia. We generate revenue by selling advertising
space on our digital out-of-home media network to advertisers. We
have established and are continuing to establish advertising sales
channels for our digital out-of-home advertising network by forming
strategic partnerships with advertising agencies and other media
industry partners.
We
signed a joint venture agreement on February 12, 2008 as part of
our efforts to build a digital out-of-home advertising network in
the People’s Republic of China (the “PRC” or
“China”). We entered this joint venture agreement with
Beijing Xintong Media & Cultural Development Co. Ltd.
(“BX”). Pursuant to the terms of the joint venture
agreement, (i) the joint venture company was to be named Beijing
Xintong New Vision Media Advertising Co. Ltd. (the “Intended
JV ”), (ii) our company agreed to contribute to the Intended
JV cash and an LED billboard for the joint venture’s initial
installation within ninety business days of signing the agreement,
and (iii) in exchange for these contributions, our company would
obtain 50.1% ownership of the Intended JV, with the remaining 49.9%
to be held by BX. The operations of the Intended JV were
anticipated to include the sourcing, design installation, servicing
and maintenance of large-sized digital billboards at locations in
China, and the securing of advertising contracts for advertising
and media content to be displayed on the screens. The joint venture
planned to target niche applications which are currently
underserved by existing competition. Target applications included
the installation of LED billboards located primarily on outdoor
façade walls of shopping centers, hotels, offices and other
commercial buildings. The prime locations for the joint
venture’s screens were to be major property developments
owned by BX’s parent the New World Group. Due primarily to
structural complexities related to the formation of a joint venture
company to operate in the PRC, this joint venture agreement has not
closed and our company did not contribute the cash and an LED
billboard to the Intended JV.
Subsequent
to the signing of the joint venture agreement, our company has
explored alternative plans for more rapidly and effectively
building a digital out-of-home advertising network in the PRC in
cooperation with the New World Group. Upon our further discussion
with senior management of New World Group, both parties determined
that it would be more effective to partner directly with New World
Group companies, including but not limited to New World China Land
Limited (“NWCL”), a Hong Kong listed company, and New
World Department Stores China Ltd. (“NWDSC”), also a
Hong Kong listed company and a 72%-owned subsidiary of the New
World Group, to install and operate digital out-of-home advertising
screens at properties owned by NWCL and operated by NWDSC
throughout mainland China. NWDSC is a department store operator in
the PRC with a network of 28 stores in 16 major cities in
China.
On
October 1, 2009, our company signed an outdoor digital billboard
cooperation agreement with Beijing Chongwen –New World
Properties Development Co. Ltd., a New World subsidiary. Under the
10-year agreement, our company agreed to build two large-scale
outdoor LED displays at the Beijing New World Centre mixed-use
complex, with screen areas of 150 square meters and 50 square
meters, respectively. Our company will source, design, install and
service the two LED displays, and secure advertising contracts for
advertising and media content to be displayed on the screens. The
first LED display began operating and generating advertising
revenue on February 10, 2010, while the second LED display is
expected to be completed and become operational by June
2010.
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We plan
to install additional large-sized LED displays in second half of
2010, including but not limited to NWDSC department stores in Wuhan
and Changsha, China.
As
of April 15, 2010, we have set up and operate 5 out-of-home LED
screens in Hong Kong and 30 out-of-home LED screens across various
major cities in China, including 2 screens in Beijing, 1 screen in
Shenzhen, 1 screen in Jinan and 26 screens in Zhejiang province. 7
new screens are expected to be in operation before end of 2010.
Additionally, we have launched and operate approximately 300 indoor
LCD displays within 28 NWDSC department stores across 16 cities in
China. Both the LED and LCD advertising networks became operational
and began generating advertising revenue in February 2010 from
various well-known international brand-name customers.
Our
company believes that our original objectives under the Intended JV
are being achieved through the alternative relationship structure
and agreements formed with the New World Group. As such, the
formation of the Intended JV and the closing of the joint venture
agreement dated February 12, 2008 will not be pursued in the
future.
The
primary end-user markets of our digital out-of-home advertising
network are major advertising agencies in China and Hong Kong, and
individual advertisers, such as major corporations and government
entities, based in China and Hong Kong. Demand for digital
out-of-home advertising is primarily based on clients’ desire
to cost-effectively distribute advertisements to as large a target
market of viewers as possible. Our out-of-home advertising network
meets these demands through the large average size of our
out-of-home advertising screens and the location of the screens in
high-traffic commercial and residential areas.
Our
company has formed strategic partnerships with Ogilvy & Mather
Group, a major advertising agency in Hong Kong, and LIME, a
diversified media conglomerate, to sell advertising space on our
digital out-of-home advertising network. Both of these partnerships
are actively promoting out-of-home advertising on our network. We
are also in the process of negotiating strategic partnership
agreements and contracts with other advertising agencies and
advertisers for the sales of advertising space on the
network.
LED
Solutions Business
During
2006, we entered the LED solutions business by forming a joint
venture company, Lightscape Technologies (Macau) Limited
(“Lightscape Macau”), and subsequently acquiring all of
the outstanding shares of Lightscape Macau. During 2007, we also
incorporated a wholly-owned subsidiary, Lightscape Technologies
(Greater China) Limited in Hong Kong to engage in the LED solutions
business in Hong Kong and China.
We
operate in three principal lines of the LED products and services
industry: (i) LED Systems, (ii) original equipment manufacturing
(“OEM”) and Licensing, and (iii) LED Screen Rental
Service.
Our
operations in the LED products and services industry focus on the
use of semiconductor devices, known as LED’s, as the primary
light source. Compared to conventional incandescent and fluorescent
lamps, LED’s are designed to offer superior efficiency,
reliability and creative design versatility with the additional
benefits of lower energy consumption, prolonged operational life
and the non-use of mercury.
LED
Systems
We
provide creative design, installation and digital control of
high-specification LED systems. Our system designs typically
consist of various LED hardware components sourced from third
parties, including LED video panels, individual LED modules and
lighting fixtures of various sizes, intensities and color
capabilities, LED flood lights, spotlights, string lights, cove
lights, light tubes and light tiles, submersible LED lights,
audio-visual equipment, and related support hardware, cabling and
accessories.
These
LED-based hardware components are integrated by our design team,
installed and then driven by our proprietary digital controller
software system, the Multimedia and Video Show Control System. This
product is a user-friendly, PC-based software system for the
authoring, control and playback of intricate, large-scale video,
lighting and audio effects. This product has the ability to
simultaneously control up to four high-resolution LED video walls,
an unlimited number of multiplex channels, DMX universes, 0-10v
analog channels, and RS-232
- 6
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devices.
The software’s graphical user interface and digital control
capabilities simplifies the process of creating and playing
elaborate video, lighting and multimedia effects through LED
systems which may contain thousands of individual
addresses.
Our
LED systems are designed for both interior and exterior
applications, and our sales and marketing strategy targets clients
demanding high-performance video and color lighting systems. Demand
for our LED systems is primarily based on our end-user
clients’ desire to add programmable video and/or dynamic
lighting effects to their properties in order to attract and retain
customers, and/or to differentiate and accentuate architectural
elements. Demand is also driven by clients’ desire for
reliable, low-maintenance and energy-efficient video and lighting
design solutions.
The
primary end-user markets for our LED systems include hospitality
(casinos, hotels, nightclubs), entertainment (concert halls,
theaters, television studios), retail (shopping centers, digital
signage), high-end residential (condominiums), architectural
(public landmarks, fountains, office buildings), and special
exhibits (conventions, trade show booths). The geographical target
markets for our LED systems include Macau, Hong Kong and
China.
Our
LED systems are typically specified within a design plan developed
by architects or lighting designers engaged by the owner of an
end-user project. Our sales personnel work with the architects and
lighting designers on the design process to incorporate our LED
systems. Our LED systems are then typically purchased by general
contractors or electrical contractors engaged by the owner of an
end-user project, or by the project owner directly. During
installation of the LED system, we provide on-site supervision to
ensure that the LED hardware is properly installed and operational.
We also typically provide client training services in the use of
our digital controller software, and collaborate with clients in
using our software system to create customized video, lighting and
multimedia effects for playback on the installed LED
system.
Our
LED systems are sold primarily by our internal sales team through
established relationships with architects, lighting designers and
real estate development owners. A core component of our sales
team’s approach is a focus on design creativity, including
the professional production of videos for each potential client
with animated renderings of the artistic vision for the
client’s installed systems and the types of creative
multimedia and lighting effects that may be achieved.
OEM and
Licensing
We
offer OEM and licensing of our proprietary digital controller
software product, the Multimedia and Video Show Control System. Our
OEM business primarily targets LED manufacturers and LED system
designers which use our software system to create and control
video, lighting and multimedia effects for their own LED systems,
which are typically sold under their own brand name. We also
license our software system, primarily to owners of end-user
projects which have installed or rented our LED systems. Our OEM
and licensing sales are primarily made by our internal sales team
and our geographical target markets include Macau, Hong Kong and
China.
LED
Rentals
We
provide rentals of LED-based hardware. The main products we rent
include LED video panels and LED video walls. Complementary
products we rent include individual LED fixtures of various sizes,
intensities and color capabilities, LED flood lights and
spotlights. Demand for LED hardware rentals is primarily based on
clients’ desire to cost-effectively meet their short-term
need for dynamic video and lighting effects in order to deliver
advertising, messaging and/or dramatic lighting effects.
The
primary markets for LED rentals include corporate events
(conventions, conferences, trade shows, special exhibits),
advertising companies (indoor and outdoor digital signage),
television and film productions, government (special events), and
live performances (theatre productions, music concerts). Our LED
rental sales are primarily made by our internal sales team and our
geographical target markets currently include Macau and Hong
Kong.
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Reclassification
of Disposed Subsidiary and Subsidiary Held for Sale as Discontinued
Operations
A
subsidiary which has been disposed of or classified as held for
sale during the nine months ended December 31, 2009 is to be
included in discontinued operations if it meets any of the
quantitative thresholds in accordance with ASC 280 “Segment
Reporting” paragraph 18-24, and ASC 205-20
“Presentation of Financial Statements – Discontinued
Operations”. Our disposal of Golden Cypress Limited and our
pending sale of Beijing Aihua New Enterprise Lighting Appliance Co.
Limited (“Beijing Aihua”) during the nine months ended
December 31, 2009 each met certain of the quantitative tests and
other criteria of ASC 280 and ASC 205-20. As a result, the
operating results, assets and liabilities of Golden Cypress and
Beijing Aihua have been reclassified as discontinued operations,
with corresponding reclassification of 2008 comparative
figures.
Other
Business
Through
our prior 76.8% ownership of Beijing Illumination (Hong Kong)
Limited (“Beijing Illumination”) and its wholly-owned
subsidiary Beijing Aihua, we researched, developed, manufactured
and sold lighting source products. Beijing Aihua manufactures and
sells high-intensity discharge (“HID”) lighting
products including metal halide lamps and high-pressure sodium
lamps.
Compared
to conventional incandescent and fluorescent lamps, HID lamps
produce a much larger quantity of light in a relatively small
package. Customer demand for Beijing Aihua’s products is
primarily driven by the ability of HID lamps to generally offer
superior efficiency, luminosity, reliability and versatility with
the additional benefit of low energy consumption in comparison with
conventional incandescent or fluorescent lamps.
Beijing
Aihua’s HID lamps are used within a wide variety of
industrial, governmental, commercial and residential applications.
Metal halide lamps are used primarily for indoor and outdoor
lighting of factories, warehouses, industrial plants, airports,
sports stadiums, supermarkets, shopping centers, underground
parkades and residential buildings. Main applications for
high-pressure sodium lamps include street lighting, subway systems,
courtyard lighting and general outdoor lighting. Xenon lamps are
used within the manufacturing of automobile headlights. Special
application HID lamps consist primarily of multi-color lamps which
are used in specialized applications such as aquariums,
hydroponics, outdoor decorative lighting of buildings, bridges and
other large architectural structures, and indoor decorative
lighting for theatres and other entertainment venues. The primary
applications for ultra high-pressure mercury lamps are as key
components within light-weight digital crystal projectors and rear
projection televisions.
Beijing
Aihua’s internal sales team and sales agents sell its
lighting products through a variety of sales channels including
manufacturers, wholesalers, distributors, contractors, and directly
to end-users. The primary geographical markets for Beijing
Aihua’s products are China, Hong Kong, Macau, Singapore,
India and the United States.
In
September 2009, our board of directors authorized management to
begin the process to sell all the rights and assets of our lighting
source products business, namely Beijing Aihua. Our company’s
decision to discontinue operations in the lighting source products
business was intended to more effectively utilize our financial and
human resources by focusing on our digital out-of-home advertising
and LED solutions businesses which we consider to have more
promising potential for revenue and margin growth. As of September
30, 2009, we classified these assets as assets held for sale and
included the results of the lighting source products business in
discontinued operations. On November 20, 2009, Beijing Illumination
entered into a Sale and Purchase Agreement with Zhejiang Zhong Jun
Investment Management Co. Limited (“Zhejiang Zhong
Jun”). Pursuant to the terms and conditions of the Sale and
Purchase Agreement, Beijing Illumination agreed to sell its 100%
ownership of the registered share capital of Beijing Aihua to
Zhejiang Zhong Jun in consideration for payments totaling
RMB7,800,000 (approximately US$1,141,352). Of this amount, a cash
deposit of RMB1,500,000 (approximately US$219,491) was paid by
Zhejiang Zhong Jun to Beijing Illumination on November 20, 2009.
The remaining RMB6,300,000 (approximately US$921,861) was paid in
full by Zhejiang Zhong Jun to Beijing Illumination in cash in March
2010. The Sale and Purchase Agreement closed on April 12,
2010.
Competition
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Each
of our operating businesses faces intense competitive pressures
within its respective markets. Such competition may come from
domestic and international operators. While our businesses are
managed with the objective of achieving sustainable growth over the
long-term through developing and strengthening competitive
advantages, many factors, including market and technology changes,
may erode competitive advantages or prevent their strengthening.
Accordingly, future operating results will depend to some degree on
whether our operating subsidiaries are successful in protecting or
enhancing their competitive advantages.
Digital
Out-of-Home Advertising Business
Our
digital out-of-home advertising business competes with other
China-based out-of-home audiovisual media network providers,
including Focus Media Holding Ltd., Clear Media Limited and TOM
Group Limited. These companies have large, established out-of-home
advertising networks and sales channels, and substantially greater
resources to devote to building and maintaining out-of-home
advertising networks and securing advertising contracts than we
do.
Our
competitive advantages include: our relationship with the New World
Group, which enhances our ability to locate digital billboards on
high-traffic buildings in prime locations owned by the New World
Group, and enhances our ability to navigate and comply with
applicable government regulations; the relatively large average
size of our digital billboard installations; and our experience in
the sourcing, installation and digital control of large-size LED
video walls gained through the operation of our LED Solutions
business.
LED
Solutions Business
Our
LED systems, OEM software and LED rental service compete with video
and lighting products utilizing traditional lighting technology
provided by many vendors. In the high-performance video and color
lighting markets in which we have primarily competed to date,
competition has largely been fragmented among a number of small
manufacturers of LED systems and designers of LED-based lighting
solutions. However, we are increasingly experiencing competition
from larger, more established companies, including those in the
general lighting industry such as Koninklijke Philips Electronics
NV which have established and expanded business units competing in
the LED systems market. These companies have global marketing
capabilities and substantially greater resources to devote to
research and development and other aspects of the development,
manufacture, marketing, design and installation of LED systems and
rentals of LED hardware than we do. Our competitive advantages
include: our focus on providing artistic, creative and customized
LED solutions which meet clients’ demands for both
architectural enhancements and energy-efficiency; our established
supply chain to OEM manufacturers of low-cost, high-quality LED
hardware; and our proprietary digital controller software system
capable of creating customized video, lighting and multimedia
effects for playback on installed LED systems.
Other
Business
There
are currently about 6 to 8 manufacturers of electric arc tubes of
metal halide lamps and approximately 30 manufacturers of electric
arc tubes of high-pressure sodium lamps in the PRC. We competed in
this business as a low-cost manufacturer.
Raw
Materials and Principal Suppliers
The
primary hardware required for the operation of our digital
out-of-home advertising and LED solutions businesses consists of
LED billboards and video panels, LCD video screens, plasma screens,
individual LED modules and fixtures of various sizes, intensities
and color capabilities, LED flood lights, spotlights, string
lights, cove lights, light tubes and light tiles, submersible LED
lights, audio-visual equipment, and related support hardware,
cabling and accessories. We purchase our hardware primarily from
third party manufacturers who build these components according to
our design and technical specifications. We select component
suppliers based on price and quality. Maintaining a steady supply
of our LED-based hardware is important to our operations and the
growth of our digital out-of-home advertising network and LED
solutions business. We also develop and integrate proprietary
software to drive the authoring, control and playback of content on
our digital billboards and our other LED-based systems.
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Three
OEMs in China were the major suppliers of LED-based hardware for
our LED-based business during the Transition Period. There are many
qualified alternative suppliers for our equipment, and our
obligation to our current suppliers is not exclusive. We have never
experienced any material delay or interruption in the supply of our
LED hardware.
The
primary hardware used in the manufacture of our lighting source
products included lighting ballasts, capacitors, arc tubes and
glass bulbs. We purchased component parts from third party
wholesale distributors. We selected component suppliers based on
price and quality. Our company was not materially dependent upon
any one supplier for component parts used in the manufacture of our
lighting source products, and raw materials and components were in
adequate supply.
Significant
Customers
Approximately
26.5%, 16.3% and 16.0%, respectively, of our total revenue was
derived from the supply and installation of LED displays and
systems to three significant customers during the Transition
Period.
Intellectual
Property
Patents
and Trademarks
Our
material patents granted, patents pending and registered trademarks
are as follows:
|
Name
|
Type
|
ID
No.
|
Owner
|
Jurisdiction
|
|
Multi
Media & Video Show Control System
|
Patent
|
HK1105528
|
Grandplex
Development Limited
|
Hong
Kong
|
|
FX
Glass
|
Patent
|
HK1105525
|
Grandplex
Development Limited
|
Hong
Kong
|
|
Interactive
LED System
|
Patent
|
HK1105529
|
Grandplex
Development Limited
|
Hong
Kong
|
|
Multi
Media & Video Show Control System
|
Patent
Cooperation Treaty
|
Application
Pending
|
Grandplex
Development Limited
|
n/a
|
|
FX
Glass
|
Patent
Cooperation Treaty
|
Application
Pending
|
Grandplex
Development Limited
|
n/a
|
|
LIGHTSCAPE
TECHNOLOGIES
|
Trademark
|
300850888
|
Tech Team
Investment Limited
|
Hong
Kong
|
|
LIGHTSCAPE
TECHNOLOGIES
|
Trademark
|
028764-028768
|
Tech Team
Investment Limited
|
Macau
|
|
LIGHTSCAPE
TECHNOLOGIES
|
Trademark
|
T0708254F
T0708255D
T0708257J
|
Tech Team
Investment Limited
|
Singapore
|
|
LIGHTSCAPE
TECHNOLOGIES
|
Trademark
|
Application
Pending
|
Tech Team
Investment Limited
|
USA, EU,
China
|
Domain
Names
We
own and operate the duly registered internet domain name
www.lightscape-tech.com .
The information contained in our website does not form part of this
transition report on Form 10-K. Our company makes available, on or
through our website, our transition and/or annual reports on Form
10-K, quarterly reports on Form 10-Q,
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current
reports on Form 8-K, and amendments to those reports after they are
electronically filed or furnished to the Securities and Exchange
Commission.
Additionally,
any document filed by us, including this transition report on Form
10-K, may be viewed at the Securities and Exchange
Commission’s public reference room, 100 F Street NE,
Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-732-0330 for further information about its
public reference room. These Securities and Exchange Commission
filings are also available to the public at the Securities and
Exchange Commission’s website at
“www.sec.gov”.
Government
Regulation
Our
digital out-of-home advertising business is subject to compliance
with certain government regulations in the PRC. We operate our
digital out-of-home advertising business in the PRC under a
regulatory regime consisting of the State Council, which is the
highest authority of the executive branch of the PRC central
government, and ministries and agencies under its authority
including the State Administration for Industry and Commerce, or
SAIC.
The
principal regulations governing out-of-home advertising businesses
in the PRC include:
·
The
Advertising Law (1994);
·
The
Advertising Administrative Regulations (1987);
·
The
Implementing Rules for the Advertising Administrative Regulations
(2004); and
·
The
Outdoor Advertising Registration Administrative Regulations
(1995).
Regulation
of Business Licenses for Advertising Operations
Companies
engaged in advertising activities must obtain from the SAIC or its
local branches a business license which specifically includes
operating an advertising business within its business scope.
Companies conducting advertising activities without such a license
may be subject to penalties, including fines, confiscation of
advertising income and orders to cease advertising operations. The
business license of an advertising company is valid for the
duration of its existence, unless the license is suspended or
revoked due to a violation of any relevant law or regulation. Our
company, our subsidiaries and/or our joint venture company have
obtained or are in the process of obtaining such business licenses
from the local branches of the SAIC as required by the existing PRC
regulations. We do not expect to encounter any material
difficulties in obtaining or maintaining our required business
licenses for the operation of our digital out-of-home advertising
business in the PRC.
Regulation
of Out-of-Home Advertising
The
Advertising Law stipulates that the exhibition and display of
out-of-home advertisements must not:
·
utilize
traffic safety facilities and traffic signs;
·
impede the
use of public facilities, traffic safety facilities and traffic
signs;
·
obstruct
commercial and public activities or create an eyesore in urban
areas;
·
be placed
in restrictive areas near government offices, cultural landmarks or
historical or scenic sites; and
·
be placed
in areas prohibited by the local governments from having
out-of-home advertisements.
In
addition, The Outdoor Advertising Registration Administrative
Regulations stipulate that outdoor advertisements in China must be
registered with the local SAIC before dissemination. Advertising
distributors are
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required
to submit a registration application form and other supporting
documents for registration, including the content of the proposed
outdoor advertisement. After review and examination, if an
application complies with the requirements, the local SAIC will
issue an Outdoor Advertising Registration Certificate for such
advertisement. Our company, our subsidiaries and/or our joint
venture company have obtained or are in the process of obtaining
such Outdoor Advertising Registration Certificates for the
advertisements displayed and intended to be displayed on our
digital out-of-home advertising screens. We do not expect to
encounter any material difficulties in obtaining or maintaining our
required certificates for the dissemination of out-of-home
advertisements in the PRC.
The
placement and installation of digital billboards is subject to
municipal zoning laws and governmental approvals. Our company, our
subsidiaries and/or our joint venture company have obtained or are
in the process of obtaining such municipal government approvals for
each of our digital out-of-home advertising billboards currently
installed or planned to be installed in the PRC. We do not expect
to encounter any material difficulties in obtaining or maintaining
our required government approvals for the installation or operation
of our digital out-of-home advertising billboards in the
PRC
Regulation
of Advertising Content
PRC
advertising regulations stipulate certain content requirements for
advertisements in the PRC, which include prohibitions on misleading
content, superlative wording, socially destabilizing content or
content involving obscenities, superstition, violence,
discrimination or infringement of the public interest.
Advertisements for anaesthetic, psychotropic, toxic or radioactive
drugs are prohibited. It is prohibited to disseminate tobacco
advertisements via broadcast media. It is also prohibited to
display tobacco advertisements in any public area. There are also
specific restrictions and requirements regarding advertisements
that relate to matters such as patented products or processes,
pharmaceuticals, medical instruments, agrochemicals, foodstuff,
alcohol and cosmetics. In addition, all advertisements relating to
pharmaceuticals, medical instruments, agrochemicals and veterinary
pharmaceuticals advertised through out-of-home forms of media,
together with any other advertisements which are subject to
censorship by administrative authorities according to relevant laws
and administrative regulations, must be submitted to the relevant
administrative authorities for content approval prior to
dissemination. We do not believe that advertisements containing
content subject to restriction or censorship comprise or will
comprise a material portion of the advertisements expected to be
shown on our digital out-of-home advertising billboard
network.
Advertising
operators and distributors are required by PRC advertising
regulations to ensure that the content of the advertisements they
distribute are in full compliance with applicable law. In providing
advertising services, advertising operators and distributors must
review the prescribed supporting documents provided by advertisers
for advertisements and verify that the content of the
advertisements comply with applicable PRC laws and regulations. In
addition, prior to distributing advertisements for certain
commodities which are subject to government censorship and
approval, advertising distributors are obligated to ensure that
such censorship has been performed and approval has been obtained.
Violation of these regulations may result in penalties, including
fines, confiscation of advertising income, orders to cease
dissemination of the advertisements and orders to publish an
advertisement correcting the misleading information. In
circumstances involving serious violations, the SAIC or its local
branches may revoke violators’ licenses or permits for
advertising business operations. Furthermore, advertisers,
advertising operators or advertising distributors may be subject to
civil liability if they infringe on the legal rights and interests
of third parties in the course of their advertising
business.
We
employ (or access through our joint venture relationships)
qualified inspectors specifically trained to review advertising
content for compliance with relevant PRC laws and
regulations.
Research
and Development
Our
company spent $Nil on research and development activities among all
of our subsidiaries during the Transition Period, as compared to
$6,792 spent during the fiscal year ended March 31,
2009.
Within
our LED solutions business, from time to time our software
engineers may develop and improve upon high-end digital software
controllers which integrate the control of video, lighting,
electrical and mechanical devices within our LED systems. Our
product engineers may also develop customized, innovative LED
lighting
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products
such as LED lighting tubes to enhance lighting distances and
customized LED lighting fixtures for use in our LED lighting
systems.
Compliance
with Environmental Laws
To
our knowledge, neither the production nor the sale of our products
constitute activities or generate materials, in a material manner,
that requires compliance with federal, state or local environmental
laws in any jurisdictions of our operation.
Employees
On
a consolidated basis among all of our subsidiaries, our company had
a total of 36 employees as of December 31, 2009, 34 of which were
full-time employees. Of these employees, none are covered by
collective bargaining agreements.
ITEM
1A.
RISK FACTORS
Much
of the information included in this quarterly report includes or is
based upon estimates, projections or other forward-looking
statements. Such forward-looking statements include projections or
estimates made by us and our management in connection with our
business operations. While these forward-looking statements, and
any assumptions upon which they are based, are made in good faith
and reflect our current judgment regarding the direction of our
business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections,
assumptions or other future performance suggested
herein.
Such
estimates, projections or other forward-looking statements involve
various risks and uncertainties as outlined below. We caution the
reader that important factors in some cases have affected and, in
the future, could materially affect actual results and cause actual
results to differ materially from the results expressed in any such
estimates, projections or other forward-looking statements.
Prospective investors should consider carefully the risk factors
set out below.
Risks
Related to Our Business
Our
limited operating history makes it difficult to evaluate our future
prospects and results of operations.
We
have a limited operating history. Accordingly, you should consider
our future prospects in light of the risks and uncertainties
experienced by early stage companies in evolving markets such as
the growing market for digital out-of-home advertising and LED
systems in the PRC. Some of these risks and uncertainties relate to
our ability to:
·
attract
new customers and increase spending per customer;
·
increase
awareness of our brand and continue to develop customer
loyalty;
·
respond to
competitive market conditions;
·
respond to
changes in our regulatory environment;
·
manage
risks associated with intellectual property rights;
·
maintain
effective control of our costs and expenses;
·
raise
sufficient capital to sustain and expand our business;
and
·
attract,
retain and motivate qualified personnel.
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If
we are unsuccessful in addressing any of these risks and
uncertainties, our business may be materially and adversely
affected.
We may
require additional financing, the availability of which cannot be
assured, and if our company is unable to obtain such financing, our
business may not be able to achieve our corporate goals, and in the
worst case may fail.
Our
business plan calls for expenses, working capital and capital
expenditures necessary to continue the build-up of our digital
out-of-home advertising network and to complete supply and build
contracts for LED systems. However, there is no assurance that
actual cash requirements will not exceed our estimates. We may need
to raise additional funds to:
·
support
our planned rapid growth;
·
develop
new or enhanced services and technologies;
·
increase
our marketing efforts;
·
acquire
complementary businesses or technologies; and/or
·
respond to
competitive pressures or unanticipated requirements.
We
depend to a large extent on outside capital over the near-term to
fund our capital needs. Such outside capital may be obtained from
additional debt or equity financing. We are exploring possible bank
financing opportunities, mainly in the form of accounts payable
financing. There is no assurance that capital will be available to
meet our continuing development costs or, if the capital is
available, that it will be on terms acceptable to us. Disruptions
in financial markets and challenging economic conditions have
affected and may continue to affect our ability to raise capital.
The issuance of additional equity securities by us would result in
a dilution in the equity interests of our current stockholders.
Obtaining commercial loans, assuming those loans would be
available, would increase our liabilities and future cash
commitments. Though the management believes the chance is remote,
if we are unable to obtain financing in the amounts and on terms
deemed acceptable to us, we may be unable to implement our business
and growth strategies, respond to changing business or economic
conditions, withstand adverse operating results, consummate desired
acquisitions or compete effectively.
Our
operations are cash intensive and our business could be adversely
affected if we fail to maintain sufficient levels of working
capital.
We
expend a significant amount of cash in our operations, principally
to fund our procurement of LED-based hardware. We generally fund
most of our working capital requirements out of cash flow generated
from operations. Accordingly, if we fail to generate sufficient
revenues from our sales, or if we experience difficulties
collecting our accounts receivable, we may not have sufficient cash
flow to fund our operating costs and our profitability and results
of operations could be adversely affected.
During
the nine months ended December 31, 2009, we improved our
operational cash flow by synchronizing our payment of costs and
receipt of revenue by collecting project deposits before paying
related project costs. Key to this was negotiating with our major
suppliers to accept payments in line with the timing of our receipt
of revenue. In turn, we typically bill our customers in accordance
with the percentage-of-completion method, although we offer some of
our long-standing customers more favorable credit terms.
Our
operating results may fluctuate from period to period and if we
fail to meet market expectations for a particular period, our share
price may decline.
Our
operating results have fluctuated from period to period and are
likely to continue to fluctuate as a result of a wide range of
factors, including a historical reliance on non-recurring revenue
streams. For example, our provision of LED systems generally
consists of large-scale, one-off supply and build contracts
completed for large property developments. Interim reports may not
be indicative of our performance for the year or our future
performance, and period-to-period comparisons may not be meaningful
due to a number of reasons beyond our
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control.
We cannot assure you that our operating results will meet the
expectations of market analysts or our investors. If we fail to
meet their expectations, there may be a decline in our share
price.
If there
are any interruptions to or a decline in the quality of our LED
hardware supply channels, our sales could be materially and
adversely affected.
LED
video screens, modules and lighting hardware are the principal
component parts used in our sales. We procure all of our LED
hardware from a number of third-party manufacturers. Our
third-party suppliers may not continue to be able to provide an
adequate supply of LED hardware to satisfy our present and future
sales needs. The supply of LED video screens, modules and lighting
hardware is dependent on the output of OEM LED manufacturers. Our
current suppliers may not be able to provide LED video screens,
modules and lighting hardware of sufficient quality to meet our
quality control requirements. Any interruptions to or decline in
the amount or quality of our LED hardware supply could materially
disrupt our sales and adversely affect our business. We are
vulnerable to increases in the price of raw materials (particularly
of LED modules and video screens) and other operating costs. If the
costs of raw materials or other costs of sales and distribution of
our products and services increase, and we are unable to entirely
offset these increases by raising prices of our products and
services, our profit margins and financial condition could be
adversely affected.
We
operate in a highly-competitive industry and our failure to compete
effectively may adversely affect our ability to generate
revenue.
Management
is aware of similar products and services which compete directly
with our digital out-of-home advertising and LED systems, and some
of the companies developing and offering these similar products and
services have greater financial, technical and marketing resources,
larger digital out-of-home advertising and LED system distribution
networks, and greater brand name recognition than we do. These
companies may develop products and services superior to those of
our company. Such competition will potentially affect our chances
of achieving profitability in the future.
This
may place us at a disadvantage in responding to our
competitors’ pricing strategies, technological advances,
marketing campaigns, alliances and other initiatives. Some of our
competitors conduct more extensive promotional activities and offer
lower prices to customers than we do, which could allow them to
gain greater market share or prevent us from increasing our market
share. In the future, we may need to decrease our prices if our
competitors continue to lower their prices. Our competitors may be
able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Further, to the extent our
competitors are able to attract and retain customers based on
product and/or price advantages, our business and ability to grow
could be adversely affected in a material manner. To be successful,
we must establish and strengthen our brand awareness, effectively
differentiate our product and service lines from those of our
competitors and build our strategic partnerships. To achieve this
we may have to substantially increase marketing activities and
expenses in order to compete effectively.
Our
failure to maintain existing relationships or to obtain new
relationships with companies that allow us to access desirable
locations where we plan to operate our digital out-of-home
advertising displays could harm our growth potential and our
ability to increase our revenues.
Our
ability to generate future revenues from digital out-of-home
advertising sales depends largely upon our ability to secure
desirable locations for the installation and operation of our
large-scale out-of-home digital billboards. This, in turn, requires
that we develop and maintain joint venture, strategic and/or other
business relationships with property owners and developers which
own the targeted locations suitable to place our digital
billboards. If we are unable to maintain our existing relationships
or to form new relationships with property owners and developers,
our ability to install and operate digital out-of-home billboards
would be negatively impacted. In turn, advertisers may not find
advertising on our digital out-of-home billboards attractive and
may not wish to purchase advertising time slots on our network,
which would have a material negative impact on our ability to grow
future revenues.
If we are
unable to attract advertisers to advertise on the digital
out-of-home advertising network we are building, we will be unable
to generate advertising fees, which could negatively affect our
ability to grow revenues.
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The
fees we can charge advertisers for time slots on our digital
advertising network depends on the size and quality of our digital
out-of-home network and the demand by advertisers for advertising
time on our network. Advertisers will choose to advertise on our
digital network in part based on the size of our network and the
desirability of the locations where we operate our digital
out-of-home displays. If we fail to maintain or to increase the
number of locations and digital displays in our network,
advertisers may be unwilling to purchase time on our network which
could negatively affect our ability to grow our revenues in the
future.
We may be
subject to government actions based on the content displayed on and
the locations of the digital displays in the digital out-of-home
advertising network we are building in China.
In
China, The Outdoor Advertising Registration Administrative
Regulations stipulate that out-of-home advertisements in China must
be registered with the local State Administration for Industry and
Commerce before dissemination. Advertising distributors are
required to submit a registration application form and other
supporting documents for registration, including the content of the
proposed out-of-home advertisement. Our company, our subsidiaries
and/or our joint venture company have obtained or are in the
process of obtaining such Outdoor Advertising Registration
Certificates for the advertisements displayed and intended to be
displayed on our digital out-of-home advertising displays. However,
we may be subject to government action if advertisements shown on
our out-of-home network are in violation of relevant PRC
advertising laws and regulations or that the advertisements
broadcast on our network have not received required approval from
the relevant local supervisory bodies.
In
addition, the placement and installation of digital billboards in
China is subject to municipal zoning laws and governmental
approvals. Our company, our subsidiaries and/or our joint venture
company have obtained or are in the process of obtaining such
municipal government approvals for each of our digital out-of-home
advertising billboards currently installed or planned to be
installed in the PRC. If our existing or future digital billboards
are installed in violation of municipal zoning laws or without the
required government approvals and are required to be removed, it
would diminish the attractiveness of our digital out-of-home
advertising network for advertisers and adversely affect our
ability to sell advertising space on our network which would in
turn adversely affect our ability to grow future
revenues.
Rapid
technological changes in our industry could render our products
non-competitive or obsolete and consequently affect our ability to
generate revenues.
Currently,
we derive a majority of our revenues from the sale of LED
solutions. We expect to derive a greater proportion of future
revenues from our digital out-of-home advertising business. Each of
these industries in which we are active are characterized by rapid
technological change, new products and services, new sales
channels, evolving industry standards and changing client
preferences. Our success will depend, in part, upon our ability to
make timely and cost-effective enhancements and additions to our
technology and to introduce new products and services that meet
customer demands. We expect new products and services to be
developed and introduced by other companies that compete with our
products and services. The proliferation of new LED products and
services in our markets may reduce demand for our LED products and
services. There can be no assurance that we will be successful in
responding to these or other technological changes, to evolving
industry standards or to new products and services offered by our
current and future competitors. In addition, we may not have access
to sufficient capital for our research and development needs in
order to develop new products and services.
We could
lose our competitive advantages if we are not able to protect our
proprietary technology and intellectual property rights against
infringement, and any related litigation could be time-consuming
and costly.
Our
success and ability to compete depends in part on our proprietary
technology incorporated in our products and solutions, such as our
Multimedia and Video Show Control System used for the authoring,
control and playback of content on our digital advertising
billboards and LED systems. If any of our competitors copy or
otherwise gain access to our proprietary technology or develop
similar technologies independently, we would not be able to compete
as effectively. We consider our patents and trademarks invaluable
to our ability to continue to develop and maintain the goodwill and
recognition associated with our brands. The measures we take to
protect the proprietary technology, and other intellectual property
rights, which presently are based upon a combination of
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patent,
trademark and trade secret laws, may not be adequate to prevent
their unauthorized use. Further, the laws of foreign countries may
provide inadequate protection of such intellectual property rights.
We may need to bring legal claims to enforce or protect such
intellectual property rights. Any litigation, whether successful or
unsuccessful, could result in substantial costs and a diversion of
corporate resources. In addition, notwithstanding any rights we
have secured to our intellectual property, other persons may bring
claims against us claiming that we have infringed on their
intellectual property rights, including claims that our
intellectual property rights are not valid. Any claims against us,
with or without merit, could be time-consuming and costly to defend
or litigate, divert our attention and resources, result in the loss
of goodwill associated with our trademarks or require us to make
changes to our technologies.
We may
not be able to hire and retain qualified personnel to support our
growth and if we are unable to retain or hire such personnel in the
future, our ability to improve our products and implement our
business objectives could be adversely effected.
To
continue our growth, we will need to recruit additional senior
management personnel, including persons with financial and sales
experience. In addition, we must hire, train and retain a number of
other skilled personnel, including persons with experience in LED
system design, creative lighting design, development of intelligent
LED control software, electrical engineering and operations.
Although the recent economic downturn has put our company in a more
favorable recruitment position for these personnel, competition may
increase as economic conditions improve, which could cause our
compensation costs to increase which could have a material adverse
effect on our results of operations. Our future success and ability
to grow our business will depend in part on the continued service
of these individuals and our ability to identify, hire and retain
additional qualified personnel. If we are unable to attract and
retain qualified employees, we may be unable to meet our business
and financial goals.
We
are highly dependent on our senior management to manage our
business and operations. In particular, we rely substantially on
our chief executive officer, Mr. Bondy Tan, to manage our
operations. In addition, we also rely on design, engineering, sales
and marketing personnel with technical and industry knowledge to
market, sell and install our products and services. We do not
maintain key man life insurance on any of our senior management or
key personnel. The loss of any one of them, in particular Mr. Tan,
would have a material adverse effect on our business and
operations. Competition for senior management personnel is intense
and the pool of suitable candidates is limited. We may be unable to
locate a suitable replacement for any senior management personnel
that we lose. In addition, if any member of our senior management
joins a competitor or forms a competing company, they may compete
with us for customers, business partners and other key
professionals and staff members of our company.
Our
company is subject to sales channel risk due to a concentration of
sales to a limited number of customers and any significant
interruption from these customers may have a material adverse
effect on our company.
Approximately
58.8% of our revenue was contributed from three customers for the
nine months ended December 31, 2009. If these three or any of our
customers ceased doing business with our company, we would require
time to find other customers. If we lose these customers or are
unable to generate recurring revenues from these customers, there
would be a negative impact on our overall performance. We have not
entered into long-term supply contracts with any of these major
customers. Therefore, there can be no assurance that we will
maintain or improve the relationships with these customers, or that
we will be able to continue to supply these customers at current
levels or at all. If we cannot maintain long-term relationships
with our major customers, the loss of a significant portion of our
sales to them could have an adverse effect on our business,
financial condition and results of operations.
Our
company is subject to the credit risk of our customers, which could
have a material adverse effect on our financial condition, results
of operations and liquidity.
We
are subject to the credit risk of our customers. Businesses that
are good credit risks at the time of sale may become bad credit
risks over time. In times of economic recession, the number of our
customers who default on payments owed to us tends to increase. If
we fail to adequately assess and monitor our credit risks, we could
experience longer payment cycles, increased collection costs and
higher bad debt expenses. Additionally, to the degree that the
ongoing turmoil in the credit markets makes it more difficult for
some customers to obtain financing,
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those
customers’ ability to pay could be adversely impacted, which
in turn could have a material adverse impact on our business,
operating results, and financial condition.
Our
growth could be impaired if we do not successfully handle certain
risks associated with international business.
There
are risks inherent in doing business in international markets,
including:
·
difficulties
in staffing and managing foreign operations;
·
changes in
regulatory requirements, tariffs and other trade
barriers;
·
potential
adverse tax consequences; and
·
inadequate
protection for intellectual property rights.
One
or more of these factors may make it difficult for us to fully
implement our international business strategies and may have a
material adverse effect on our current or future international
operations.
The
current economic environment has adversely affected business
spending patterns, which may have an adverse effect on our
business.
The
disruptions in the financial markets and challenging economic
conditions have adversely affected the world economy, and in
particular, reduced spending by businesses. Our operating results
in one or more segments may be affected by these uncertain or
changing economic conditions and spending patterns. If our
customers delay or cancel spending on digital out-of-home
advertising or LED solutions, that decision could result in
reductions in sales of our products and services, longer sales
cycles and increased price competition. There can be no assurances
that government responses to the disruptions in the financial and
economic markets will restore spending to previous levels. If
global economic and market conditions remain uncertain or persist,
spread, or deteriorate further, we may experience material impacts
on our business, operating results, and financial
condition.
We derive
a substantial portion of our revenues from sales in the PRC and any
downturn in the Chinese economy could have a material adverse
effect on our business and financial condition.
A
substantial portion of our revenues are generated from sales in the
PRC. We anticipate that revenues from sales of our products and
services in the PRC will continue to represent a substantial
proportion of our total revenues in the near future. Any
significant decline in the condition of the PRC economy could,
among other things, adversely affect consumer buying power and
discourage the purchase of our products and services, which in turn
would have a material adverse effect on our revenues and
profitability.
Any
changes in the political and economic policies of, or any new
regulations implemented by, the Chinese government could affect, or
even restrict, the operation of our business and our ability to
generate revenues.
Our
business is currently focused on the sale of digital out-of-home
advertising and LED products and services in China. Accordingly,
our business, results of operations and financial condition are
affected to a significant degree by any economic, political and
legal developments in China.
Since
the late 1970s, the Chinese government has been reforming its
economic system. Although we believe that economic reform and the
macroeconomic measures adopted by the Chinese government has had
and will continue to have a positive effect on the economic
development in China, there can be no assurance that the economic
reform strategy will not from time to time be modified or revised.
Some modifications or revisions, if any, could have a material
adverse effect on the overall economic growth of China and the
development of specialty lighting products and services in China.
Any such changes would have a material adverse effect on our
business. Furthermore, there is no guarantee that the Chinese
government will not impose other economic or regulatory controls
that would have a material adverse effect on our business. Any
changes in the political, economic and social conditions in China,
adjustments in policies by the Chinese government or changes in
laws and regulations on the sale of digital out-of-home advertising
or LED products and services could affect the manner in which
we
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operate
our business and restrict or prohibit transactions initiated or
conducted by our company. Any such changes or new regulations could
affect our ability to develop and sell our products and therefore
affect our ability to generate revenues.
Our
company is subject to foreign exchange rate risk, particularly
fluctuations in the exchange rate between Chinese Renminbi and
United States dollars.
Our
company may enter sales transactions denominated in Chinese
Renminbi. The PRC State Administration for Foreign Exchange, under
the authority of the People’s Bank of China, controls the
conversion of Renminbi into foreign currencies. The principal
regulation governing foreign currency exchange in China is the
Foreign Currency Administration Rules (1996), as amended. Under the
Rules, once various procedural requirements are met, Renminbi is
convertible for current account transactions, including trade and
services, but not for capital account transactions, including
direct investment, loan or investment in securities outside China,
unless the prior approval of the State Administration of Foreign
Exchange of the PRC is obtained. Although the Chinese government
regulations now allow greater convertibility of Renminbi for
current account transactions, significant restrictions still
remain.
The
value of the Renminbi is subject to changes in China’s
central government policies and to international economic and
political developments affecting supply and demand in the China
Foreign Exchange Trading System market. The Renminbi is moved to a
managed floating exchange rate based on market supply and demand
with reference to a basket of foreign currencies. The recent global
financial crisis may lead to drastic and unanticipated fluctuations
in the exchange rates of Renminbi, which may affect our company
through either foreign exchange gains or losses to be accounted for
in the statement of operations, and which may materially affect our
operating results and financial position.
New or
changing government policies or regulations related to the digital
out-of-home advertising or LED products and services industries in
our markets may have an adverse effect on our operations and may
require our company to modify our business plan.
Our
management oversees trends in our market industries by accessing
available market information, including updated governmental
policies and regulations related to such industries from time to
time, particularly the digital out-of-home advertising industry in
China. Both short and long-term changes in governmental policies or
regulations affecting the digital out-of-home advertising or LED
products and services industries may trigger our company to take
appropriate measures to re-position our company to achieve our
business plan or alter the business plan as a whole. We cannot
assure that our company will be able to adapt to changing policies
and regulations efficiently in order to maintain the currently
anticipated level of business, results of operations or financial
condition.
If
LED-based hardware does not achieve greater market acceptance,
prospects for our growth and profitability may be l