UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

 

Pursuant to Section 12(b) of (g) of The Securities Exchange Act of 1934

 

(Exact name of registrant as specified in its charter)

 

(State or other jurisdiction or of incorporation or organization)                        (I.R.S. Employer Identification No.)

(Address of principal executive offices)                                                                             (Zip Code)

                                                                                                               

Registrant’s telephone number, including area code:  (989) 509-5924                                                   

Securities to be registered pursuant to Section 12(b) of the Act:

 

                                  Title of each class                                                           Name of each exchange on which

                                 to be so registered                                                                each class is to be registered                                            

                                            None

 

 

                                           None

                                                                                                                               

Securities to be registered pursuant to Section 12(g) of the Act:

 

Common Stock, par value $0.001 per share                                                                                                                                

(Title of class)

 

 

Indicate by check mark whether the registrant is a large accelerated filer, and 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 small reporting company)                   Smaller reporting company [ X ]

 

 

 

 

INFORMATION REQUIRED IN REGISTRATION STATEMENT

 

EXPLANATORY NOTE

 

We are filing this General Form for Registration of Securities on Form 10 to register our common stock, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

 

Once this registration statement is deemed effective, we will be subject to the requirements of Regulation 13A under the Exchange Act, which will require us to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.

 

Unless otherwise noted, references in this registration statement to "ColorStars," the "Company," "we,"  "our" or "us" means ColorStars Group.

 

FORWARD LOOKING STATEMENTS

 

There are statements in this registration statement that are not historical facts.  These  "forward-looking statements" can be identified by use of terminology such as "believe," "hope," "may," "anticipate," "should," "intend," "plan," "will," "expect," "estimate," "project," "positioned," "strategy" and similar expressions.  You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control.  For a discussion of these risks, you should read this entire Registration Statement carefully, especially the risks discussed under Risk Factors." Although management believes that the assumptions underlying the forward looking statements included in this Registration Statement are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements.  The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances.  As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment.  To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements.  In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Registration Statement will in fact transpire.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.  We do not undertake any obligation to update or revise any forward-looking statements.

 

TABLE OF CONTENTS

 

 

Item Number and Caption                                                                                                                               Page

 

1.             Description of Business                                                                                                                       4

 

2.             Financial Information                                                                                                                           11

 

3.             Properties                                                                                                                                               12

 

4.             Security Ownership of Certain Beneficial Owners and Management                                           12

 

5.             Directors, Executive Officers, Promoters and Control Persons                                                      13

 

6.             Executive Compensation                                                                                                                      14

 

7.             Certain Relationships and Related Transactions                                                                              14

 

8.             Legal Proceedings                                                                                                                                  14

 

9.             Market Price of and Dividends on the Registrant’s Common Equity

                And Related Stockholder Matters                                                                                                       14

 

10.          Recent Sales of Unregistered Securities                                                                                              15

 

11.          Description of Registrant’s Securities to be Registered                                                                   15

 

12.          Indemnification of Directors and Officers                                                                                           16

 

13.          Financial Statements                                                                                                                               19

 

14.          Changes in and Disagreements with Accountants on Accounting and

  Financial Disclosure                                                                                                                            19

 

15.          Index to Exhibits                                                                                                                                      19

 

16.          Signatures                                                                                                                                                19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.                   Description of Business.

 

 

We were initially incorporated in the Province of Ontario, Canada on January 21, 2005.  On November 3, 2005, we converted to a Nevada corporation.

On July 24, 2005, we entered into an acquisition agreement with ColorStars, Inc., a Taiwanese corporation (“ColorStars Taiwan”), pursuant to which, on February 14, 2006, the shareholders of ColorStars Taiwan were issued shares of our Company in exchange for their shares of ColorStars Taiwan.  This resulted in ColorStars Taiwan becoming a wholly owned subsidiary of the Company. Specifically, for each share of common stock outstanding of ColorStars Taiwan (1,500,000 shares of ColorStars Taiwan were issued and outstanding at such time), 20 shares of our common stock were issued in exchange for each such share (the aggregate of 30,000,000 shares of our common stock).

On March 20, 2009, ColorStars Taiwan acquired 50.40% of the outstanding common shares of Fin-Core Corporation, a Taiwanese corporation (“Fin-Core”) for a cash consideration of US $468,262.00.  This resulted in Fin-Core becoming a subsidiary of us. The purchase price for the common shares of Fin-Core was determined through private, arm’s length negotiations between the parties and was not based upon any specific criteria of value. Fin-Core is principally engaged in the design and manufacturing of thermal management devices, the design and manufacturing of electrical and lighting devices and trade, and the import and export of electrical and lighting devices.

On July 7, 2010, ColorStars Taiwan sold 30.4% of its common shares of Fin-Core to Meiloon Industrial Co., Ltd., a publicly traded company on the Taiwan Stock Exchange, for a cash offering of US $427,500.00.  As a result of this transaction, ColorStars Taiwan now owns only 20% of the outstanding common shares of Fin-Core.

On August 5, 2009, ColorStars Taiwan acquired a 51% equity interest in Jun Yee Industrial Co., Ltd., a Taiwanese corporation (“Jun Yee”) for a cash consideration of US $536,000.00.  The purchase price for the equity interest in Jun Yee was determined through private, arm’s length negotiations between the parties and was not based upon any specific criteria of value.   Upon acquiring the equity interest, Jun Yee became a subsidiary of ours.  The principal activity of Jun Yee is the manufacturing of LED light.

Overview

We are a vertically integrated lighting company that develops light emitting diodes (“LED”) based lighting products for general consumer applications as well as LED lighting products for professional lighting installations.

Our LED lighting application development activity ranges from LED packaging to optical lens and heat management, from retrofit LED lamps and bulbs to lighting fixtures designed for general and special lighting applications.

Our website can be found at www.colorstars.com.

Products

Our current products include the following:

 

1.     Light Sources:  BOBBY™ Series

 

The BOBBY™ Series LED lamps are retrofit lamps using the patented Fin-Core™ aluminum housing. Included in this series are the BOBBY™-AR111-WHT lamps, the BOBBY™-MR16-WHT lamps, the BOBBY™-E26-WHT lamps, the BOBBY™-E27-WHT lamps, the BOBBY™-GU10-WHT lamps, the BOBBY™-PAR30-WHT lamps and the BOBBY™-PAR38-WHT lamps. The operating life of the LEDs is estimated to be 70% of lumen maintenance after 35,000 hours.

 

·          BOBBY™-AR111X-WHT-W lamps:   This is a 15 watt LED AR111 lamp with an external driver (750mA, 15W) for new fixtures.  It has 6 high-power LEDs with a lumen output of 750 lumens.  It is available with 25°, 40° or 60º beam angles (only available in warm white).

 

·          BOBBY™-AR111-WHT-W lamps:  This is a retrofit 12 watt LED AR111 lamp with a built-in driver. It is for existing AR111 fixtures.  It has 6 high-power LEDs with a lumen output of 600 lumens.  It is available with 25°, 40° or 60 º beam angles (only available in warm white) (an optional 12VDC power supply or 12VAC transformer is required).

 

·          BOBBY™-MR16-WHT lamps: The BOBBY™-MR16-WHT lamps are 5W high-power retrofit MR16 lamps with a GU5.3 base and available in warm white (3000~3300k) and daylight white (5500~6000k). The 15° beam angle lamp has a lumen output of 150~180 lumens and the lamps with 40° and 60° beam angles have a lumen output of between 220~280 lumens.  A dimmable version of the BOBBY™-mr16-WHT is now available. The dimmable model can work with standard TRIAC and LUTRON dimmes.

 

·          BOBBY™-E26-WHT, BOBBY™-E27-WHT  and BOBBY™-GU10-WHT lamps: These 6.3 watt retrofit lamps with an E26, E27 base and a GU10 base have a high lumen output of 260 lumens for warm white (2850~3050k) and 300 lumens for daylight white (5650~6300k). They are available with a 60° beam angle. 

 

·          BOBBY™-PAR30-WHT lamps:  BOBBY™-PAR30-WHT lamps with an E27 or E26 base, are produced in two models. One model is an 8.5 watt lamp with SMD-type LEDs (63 chips) and a beam angle of 130°. The second model is an 11 watt lamp with 6 high-power LEDs and beam angles of either 25°, 40° and 60º. The lamps have a lumen output of 400 lumens (warm white) and 480 lumens (daylight white). They are available in warm white (3000~3300k) and daylight white (5500~6000k).

 

·          BOBBY™-PAR38-WHT-160: The BOBBY™-PAR38-WHT-160 is a 15 watt lamp with an E27 or E26 base, SMD-type LEDs (196 chips) and a beam angle of 160°.  It has a lumen output of 800 lumens (warm white) and 1,000 lumens (daylight white). It is available in warm white (3000~3300k) and daylight white (5500~6000k).

 

·          BOBBY™-PAR38-WHT-25: The BOBBY™-PAR38-WHT-25 is a 16 watt lamp with an E27 or E26 base, 9 high-power LEDs and a beam angle of 25°. It has a lumen output of 540 lumens (warm white) and 620 lumens (daylight white).  It is available in warm white (3000~3300k) and daylight white (5500~6000k).

 

2.     Light Sources:  TRISTAR™ Series

 

The TRISTAR® Series LED lamps are retrofit lamps available in 9 single colors and white (cool white, daylight white and warm white).  The TRISTAR® white lamps have a lumen output of 300~350 lumens.  The V series lamps TRISTAR® white lamps are dimmable lamps with an IR receiver. The TRISTAR®-IR1627 Remote Controller (or a line switch) can be used to dim the lamps using the controller's four light intensity keys (25%, 50%, 75% or 100% brightness).

 

The TRISTAR® Series LED lamps have an estimated operating life of 70% lumen maintenance after 35,000 hours.

 

 

·          TRISTAR® Series Single-Color LED Lamps: The high-power 5-watt single-color LED lamps are available with an E14, E17, E26, E27, GU10 or MR16 base and 9 single colors (red, green, blue, amber, cyan, light blue, grass green, magenta and purple).

 

·          TRISTAR® Series White Lamps: High-power, 5-watt, retrofit white LED lamps are available in warm white (2900k ±100k), daylight white (5500k) and cool white (6500k) and E14, E17, E26, E27, GU10 and MR16 bases. Lumen output ranges from 185~210 lumens.

 

·          TRISTAR® Series  Dimmable White Lamps: The V series TRISTAR® white lamps come with an IR receiver that allows them to have a four-step dimming function.  25%, 50%, 75% or 100% brightness levels can be set using the four light intensity keys of a TRISTAR®-IR1627 Remote Controller.

 

·          TRISTAR®-R3-WHITE: This is a 5-watt high-power retrofit LED MR16 lamp with a GU5.3 base. It is available in warm white (3100k), daylight white (5500k) and cool white (6500k) and a lumen output of 150~180 lumens. The lens model has a beam angle of 38.9° and the non-lens model has a beam angle of 47.5°.

 

·          TRISTAR®-R4-WHITE: This is a newly launched 6-watt high-power retrofit LED MR16 lamp with a GU5.3 base. It is available in warm white (3100k), daylight white (5500k) and cool white (6500k) and a lumen output of 280~300 lumens. The lens model has a beam angle of 38.9° and the non-lens model has a beam angle of 47.5°.

 

3.     Light Sources:  Other

 

·          AQUA™-WHT Series: The AQUA™ -WHT Series are lamps with an IP68 rating for underwater applications. The AQUA™-WHT-60 is a 24V, 60-watt, IP68 rated lamp suitable for pool lighting.  This 90mm (dia.) x 120 mm (H) lamp has a 60 ° beam angle and a lumen output of 4,200~4,800 lumens. The AQUA™-WHT-30 is a 12V, 30-watt, IP68 rated lamp suitable for pool lighting.  This 63.5mm (dia.) x 95 mm (H) lamp has a 60 ° beam angle and a lumen output of 2,100~2,400 lumens.  The AQUA™-WHT-15 is a `12V, 15-watt, IP68 rated lamp suitable for pool lighting.  This 50mm (dia.) x 65mm (H) lamp has a 60 ° beam angle and a lumen output of 1,050~1,200 lumens. Color temperatures available are warm white (3300K ±100K) and daylight white (5500K ±250K). The lamps come with a 5-meter cable and mounting brackets.

 

·          EZSTAR™-Single-Color LED Modules: EZSTAR™-Single-Color LED modules are suitable for cabinet, accent and cove lighting and are available red, green, blue and amber, plus warm white (2900k ±100k) and daylight white (550k), and in lengths of 5 cm, 15 cm and 30 cm.  EZSTAR™--WHT waterproof models with an IP67 protection rating are available.

 

·          LUXMAN™-12 and LUXMAN™-36 Commercial Flood Lights: The 30-watt LUXMAN™-12 commercial flood light has 12 x 2.5-watt LEDs and a lumen output of 1,680 lumens. The 90-watt LUXMAN™-36 has 36 x 2.5-watt LEDs and a lumen output of 5,040 lumens. These products are suitable for gas station, parking lot, entryway or lobby lighting.

 

·          LUXMAN™- Wall Washer Series.  LUXMAN™ Wall Washers with an IP67 rating are now available in  both white and RGB. Models include the 30-watt LUXMAN™-12-WHT (1,680 lumens), the 60-watt LUXMAN™-16-WHT (2,240 lumens), the LUXMAN™-24-WHT (3,360 lumens) and the LUXMAN™-36-WHT (5,040 lumens).  Also available is the 30-watt LUXMAN™-RGB.

 

·          LUXMAN™-HB Series High Bay Lights:   This series of LED high bay lights are for auditorium, factory or warehouse lighting. Models include the LUXMAN™-HB-100 (100 watts; 5,600 lumens), the LUXMAN™-HB-150 (150 watts; 8,400 lumens) and the LUXMAN™-HB-180 (180 watts; 10,080 lumens).

 

 

·          LUXMAN™-SL Series Street Lights: The LUXMAN™-SL Series LED Street Lights are IP67 rated and provide lighting for streets, alleys, courtyards, parks and walkways. Ten models are available: the LUXMAN™-SL-3x4 (30 watts; 1,680 lumens), LUXMAN™-SL-3x5 (37 watts; 2,100 lumens), LUXMAN™-SL-3x6 (45 watts; 2,540 lumens), LUXMAN™-SL-3x7 (52 watts; 2,940 lumens), LUXMAN™-SL-6x3 (45 watts; 2,520 lumens), LUXMAN™-SL-6x4 (60 watts; 3,360 lumens), LUXMAN™-SL-6x6 (90 watts; 5.040 lumens), LUXMAN™-SL-6x8 (120 watts; 6,720 lumens), LUXMAN™-SL-6x10 (150 watts; 8,400 lumens) and LUXMAN™-SL-6x12 (180 watts; 10,080 lumens).

 

·          STARSTREAM™ Single-Color Light Strips: The STARSTREAM™ Single-Color light strip is a 24VDC flexible strip available in warm white (3000k) and daylight white (5000k), red, green, blue and amber. The maximum usable length of the single-color light strips is 30 meters.

 

·          STARSTREAM™-24-E Single-Color Light Strips: The STARSTREAM™-E Single-Color light strip is a 24VDC flexible strip with the SMD-type LEDs along the 6mm edge of the light strip instead of on the 12mm face as with the standard STARSTREAM-24 single-color light strips. Each meter has 35 LEDs with a power consumption of 2.4 watts. They are available in warm white (3000k) and daylight white (5000k), red, green, blue and amber. The maximum usable length of the single-color light strips is 30 meters.

 

·          STARSTRIP™-24 Single-Color Light Strips: The STARSTRIP™-24-WHT light strips are 24V light strips with 16 x SMD single-color LED in each 30 cm length of rigid aluminum alloy. Each 30 cm of length has 5 watts of power consumption and a lumen output of 180 lumens.  They are available in warm white (3300k) and daylight white (5000k). They are available in lengths of 33.6, 63.6, 93.6 and 123.6 cm.  Waterproof models with an IP67 protection rating are also now available.

 

·          T5™ .  The T5™ is a 24V strip light 58 cm in length with 21 LEDs x 0.4W for a total of 8.4 watts. Available in both warm white (3000k) and daylight white (6000k), the T5™  is ideal for office lighting, cabinet lighting or other small area lighting.  Up to four T5™  light strips can be connected together.

 

·          TB60™ Series Light Panels: High brightness T-bar 60x60 LED ceiling light panels are suitable for hotel, conference room, office, factory or other commercial lighting locations. The TB60™-40-WHT is a 40-watt ceiling light panel with 196 x 0.2W SMD LEDs and a lumen output of 1,900 lumens (Typ.) for warm white and 2,300 lumens (Typ.) for cool white. The TB60™-60-WHT is a 60-watt ceiling light panel with 280 x 0.2W SMD LEDs and a lumen output of 2,700 lumens (Typ.) for warm white and 3,300 lumens (Typ.) for cool white. The TB60™-80-WHT is an 80-watt light panel with 168 x 0.4W SMD LEDs and a lumen output of 4,000 lumnes (Typ.) for warm white and 5,000 lumens (Typ.) for cool white. Dimmable ceiling light panel models are available with a VR rotary dial dimmer and a remote control dimmer for 0~100% dimming. The light panels are available in warm white (3000~3500k) and cool white (6000~6500k).

 

                The TB60™ Series of LED ceiling panels are also now available with a diffusion panel.

 

·          ZZ-BRIGHT™-WHT Channel Letter LEDs: ZZ-BRIGHT™ channel-letter LEDs are suitable for tube lights, box signage, 3D letters, decoration lighting and indirect lighting. The ZZ-BRIGHT™-215-WHT has 2 high-brightness SMD-type LEDs on each PCB and the  ZZ-BRIGHT™-415-WHT has 4 high-brightness SMD-type LEDs on each PCB.  Both models have a constant current regulating IC to provide the same level of brightness, protect against power surges and extend the lifetime of the LEDs. The PCBs have a water resistant coating that prevents water from entering the PCB and causing corrosion. They are available in warm white (3200k), daylight white (4000k) and cool white (6500k), as well as red, blue, green and amber.

 

 

4.     Luminaires

 

·          JEDSTAR™ Series: The JEDSTAR™ Series of luminaires are linear lamps with high power 1-watt CREE Xlamps. The JED STAR™-MR10-WHT is 10cm with 3 x 1-watt LEDs and an MR plug. The JEDSTAR™-CB12-WHT is 12cm with 3 x 1-watt LEDs and the JEDSTAR™-CB24-WHT is 24cm with 6 x 1-watt LEDs. The JEDSTAR™-CB12-WHT and JEDSTAR™-CB24-WHT luminaires are mounted with mounting clips. They are suitable for cabinet lighting, aircraft lighting or yacht lighting.

  Manufacturers

                We design and develop our LED lighting products using our own engineers and out-sourcing the manufacturing to vendors of different disciplines. These various vendors are all located in Taiwan.  In order to secure a long-term supply and strategic partnership, we also make substantial investments or acquire equity in these vendors as well.  Since our inception, we have made three investments in manufacturers through our wholly owned subsidiary, ColorStars Taiwan. The three manufacturers we have invested in are Anteya Technology Corporation , a Taiwanese corporation (“Anteya”), Fin-Core, and Jun Yee. We have not entered into a written agreement for the manufacturing of our products with any of these manufacturers.

 

                Since 2004, we have owned 20% of the outstanding common shares of Anteya.  Anteya provides the OEM service to us for the TRISTAR, EZSTAR, R4, LUXMAN, and HB series of product lines. Anteya is an important strategic manufacturer for us as we rely upon Anteya for its expertise of LED packaging, electronic engineering and software design.

 

                As described in further detail in the Recent Acquisitions paragraph under the Description of Business section, we own 20% of the outstanding common shares of Fin-Core. Fin-Core produces the BOBBY series of LED lamps for us. Additionally, Fin-Core develops high quality thermal management technology which is an integral part of LED lighting applications.

 

                As described in further detail in the Recent Acquisitions paragraph under the Description of Business section, we own 51% of the outstanding common shares of Jun Yee.  Jun Yee produces the T5, TB, ZZ-BRITE, JEDSTAR and STARSTRIP series of LED lamps for us. Jun Yee provides a strategic advantage to us as Jun Yee’s manufacturing plants have state of the art surface mount device machines, testing labs, burn-in chambers, and complete assembly lines which allows for Jun-Yee to effectively and efficiently produce LED lighting products. 

 

                We are highly dependent upon the above mentioned manufacturers to produce our LED lighting products.  If production at any one of our manufacturers’ manufacturing plants is disrupted for any number of reasons, manufacturing yields may be adversely affected and we may be unable to meet our customer’s requirements. Consequently, our customers may purchase LED lighting products from our competitors.  This could result in significant loss of revenues and damage to our customer relationships, which could have a material adverse affect on our business, results of operations, and financial condition.

Distributors and Suppliers

We grant a small number of certain distributors the right in defined territories to distribute our products. We have not entered into any written agreements with these distributors.  As such, if our distributors are not adequately performing, we have the option to terminate our relationship at any time with them. Our distributors could also discontinue marketing and distributing our products with little or no notice.  If our distributors were to discontinue marketing and distributing our products for any reason, we believe that, due to an abundance of distributors in the LED lighting product sector, we could find an alternative distributor within a short duration of time; however, until we locate another distributor, our business and results of operations could be adversely impacted.

We are not dependent on, nor expect to become dependent on, any one or a limited number of suppliers for essential raw materials or other items. Our manufacturing operations, which are outsourced to various companies, are located in Taiwan where there is an extensive infrastructure of companies supplying raw materials to the LED lighting industry.

 

Customers

                We sell our products primarily to professional wholesale lighting distribution companies, some of whom are companies with many years of experience distributing traditional lighting products and some of whom are strictly distributors of LED lighting products and have fewer years of experience.  We also distribute our LED lighting to lighting engineers engaged in specific lighting projects.  We do not sell our products directly to end-users.

Product Research and Development

We are engaged in the research and development of a variety of products to extend our lines of consumer and professional lighting products. Among these products are A19 LED light bulbs, LED down light fixtures, and LED spot lights for commercial and residential applications.  During the past two fiscal years, we spent approximately $33,349 in 2008 and $56,167 in 2009 on research and development.

Competition

We sell our products globally primarily to lighting distributors selling LED lamps and lighting fixtures for commercial lighting.  As illustrated in the Next Generation Lighting Industry Alliance (“NGLIA”) report, we expect this market to grow rapidly, especially as incandescent and fluorescent lamps are replaced by LEDs in commercial lighting because of energy savings, greater design flexibility, the elimination of pollutants, greater ruggedness, longer lifetimes and lack of catastrophic failures.

                According to the NGLIA, an industry consortium involved in solid-state-lighting (“SSL”) working in cooperation with the United States Department of Energy (“DOE”), the size of the domestic market for lamps (light bulbs), ballasts, lighting fixtures, and lighting controls is about $12 billion. Globally, this market is about $40 billion.

                According to the NGLIA, the total electrical energy used for lighting equals the output of about 100 large power plants (More than 3X this amount is needed to produce the electricity). The cost of this electricity is about $55 billion (2003).

                The NGLIA also notes that, incandescent lamps, by far are the least efficient of the common lamp types, consume electrical energy equal to the output of more than 40 large power plants (according to the NGLIA website at www.nglia.org/documents/SSL-Benefits.pdf ). According to the DOE, lighting accounts for 8% of all energy consumption in the United States and 22% of electricity nationwide. LEDs have the potential to reach 200 lm/W, compared to the efficacies of incandescent lamps at 15 lm/W and fluorescent tubes at 90 lm/W. If solid-state lighting replaced all existing lights, the DOE estimates customer savings of $115 billion by 2025 and a 10% reduction in greenhouse emission gases (according to the NGLIA website at www.nglia.org/about.html ).

The NGLIA believes that the energy saving prospect for the use of SSL systems is significant. They estimate that when SSL reaches certain efficiencies, the U.S. will save annually the output of about 30 large power plants, or about 6-7% of our country’s total electrical energy usage. This will result in a savings of $17 billion in annual electrical costs (at 2003 rates). They also note that the accompanying environmental benefits are substantial, and include a reduction in carbon dioxide emissions of 155 million tons, and about a million tons in combined nitrous oxides and sulfur dioxide (according to the NGLIA website at www.nglia.org/documents/SSL-Benefits.pdf ).

Competition in the market in which we sell our products is primarily based on price and the frequent introduction of new products to the market using the latest available technology. Our outsourced manufacturing operations in Taiwan, as well as the location of our research and development staff in Taiwan, allows us to take full advantage of a well-developed infrastructure of high-technology companies and well-trained engineers in the SSL industry.

 

Our principal competitors are Nexxus Lighting (NEXS) and Lighting Science Group (LSCG.PK) in U.S.A., Philips (PHG), and Osram in Europe, and Toshiba, and Panasonic in Japan.  We also expect increased competition from major traditional lighting companies such as General Electric (GE), Westinghouse, and Acuity Brands (AYI) who have or are developing LED lighting products.

We believe that we can compete successfully with our competitors because of lower manufacturing costs and the close proximity of our research and development operations to one of the world's most advanced high-tech centers – Taipei – Hsinchu, Taiwan - which offers a supply of highly-trained engineers and the latest in SSL            technology.  

Strategy

Our primary objective is to:

(i) continue to expand our product line by utilizing our strong research and development capabilities to add new lighting options to our current product range that includes low cost and/or low energy lighting for commercial and residential lighting applications. Among these products are a series of LED bulbs for the direct replacement of incandescent bulbs or compact fluorescent lamps (“CFL”).  These LED bulbs range from 5 watts to 12 watts and will directly replace 35~60-watt incandescent bulbs or 10~25 watt CFL lamps.

(ii) continue to expand our distribution channels in both existing and new markets internationally by utilizing both direct and indirect sales organizations.  We believe that our recent acquisition of Fin-Core and Jun Yee will not only strengthen and broaden the Company’s product offerings but will also help with our expansion in the US market.  We believe, based on our market research, that there is a high demand for commercial and advertising LED lighting products in the U.S. markets.  As Fin-Core and Jun Yee manufacture commercial and advertising LED lighting products, we consequently believe that our acquisitions of these companies will help with our expansion into this market.

Favorable factors that will enhance our marketing position and increase revenues are the continuing trends of price reductions of LED chips and the technological improvements in the increased lumen output of LEDs. Both factors will increase the speed in which LED lights are adopted in both commercial and residential lighting.

Intellectual Property

We have been issued patents for “high power LED color bulb with infrared remote function” in Taiwan, UK, Germany, France, and the USA.  This patent covers the technology in the TriStar series of RGB lamp.  At this point in time, we have not been issued any patents for the BOBBY series of lamps.

                The percentage of revenue generated by sales of the TRISTAR and BOBBY series of lamps for fiscal year 2009 is summarized below:

 

Year	% of Revenue for Sales of TRISTAR Lamps	% of Revenue for Sales of BOBBY Lamps
2009	20.85%	26.70%

 

            We have just filed a total of 7 different patents in Taiwan as a result of our recent development of the A19 LED lamps for the replacement of the traditional incandescent light bulbs.  We will then file some or all of these patents with the patent offices in the USA, EU, and other countries within a certain period of time after we gain more confidence that these patents would be awarded to us.

 

 

 

We use the trademarks “ColorStars" and "TriStar" which are registered trademarks in various countries worldwide.  All trademarks, service marks and copyright registrations associated with the business are registered in the name ColorStars Group and expire over various periods of time. We intend to vigorously defend against infringements of our trademarks, service marks and copyrights.

Government Regulations and Standards

                The largest segment of the lighting industry consists of incandescent light bulbs.   Governments, throughout the world, have passed measures to phase out incandescent light bulbs.  In some jurisdictions, this has been done through legislation, while others, through voluntary measures.  The aim is to encourage the use of more energy efficient lighting alternatives such as the CFL and the LED lamps.

 

                CFLs, like all fluorescent lamps contain small amounts of mercury as vapor inside the glass tubing.  This does have an element of environmental concern and although it does not pose any significant health risk to exposed adults or children, there has been some worry within the lighting industry with respect to this matter.  We claim our overall compliance costs to not be material and are similar to our competitors.  Because our products are designed to meet energy efficiency targets greater than are now in effect in our markets, we expect tighter environmental and energy regulations to increase demand for our products.  However, new or altered certification programs could delay our ability to sell our products in certain markets.

 

Regional developments across the world are as follows:

United States

                State Legislation

California will phase out the use of incandescent bulbs by 2018 as part of a bill by California State Assembly member Jared Huffman (D- Santa Rosa ) that was signed by California Governor Arnold Schwarzenegger on October 12, 2007. The bill aims to establish a minimum standard of twenty-five lumens per watt by 2013 and sixty lumens per watt by 2018.

Connecticut legislation was proposed by state Representative Mary M. Mushinsky (D-Wallingford) encouraging the use of energy efficient lighting sources.

New Jersey Assemblyman Larry Chatzidakis introduced a bill on February 8, 2007 that calls for the state to switch to fluorescent lighting in government buildings over the next three years. Mr. Chatzidakis said, "The light bulb was invented a long time ago and a lot of things have changed since then. I obviously respect the memory of Thomas Edison , but what we're looking at here is using less energy.”

Federal Legislation

Many of these state efforts became moot when the federal government enacted the Energy Independence and Security Act of 2007 in December 2007, requiring all general-purpose light bulbs that produce 310–2600 lumens of light be 30% more energy efficient (similar to current halogen lamps ) than current incandescent bulbs beginning in 2012 and continuing through 2014. The efficiency standards will start with 100-watt bulbs in January 2012 and end with 40-watt bulbs in January 2014. 

 

Bulbs outside this range, that is, light bulbs historically less than 40 Watts or more than 150 Watts are exempt from the restrictions. Also exempt are several classes of specialty lights including appliance lamps, "rough service" bulbs, 3-way, colored lamps, and plant lights.

By 2020, a second tier of restrictions would become effective; which requires all general-purpose bulbs to produce at least 45 lumens per watt (similar to current CFLs). Exempt from the Act are reflector "flood", 3-way, candelabra, colored, and other specialty bulbs.

Americas

Argentina

In Argentina , selling and importing incandescent light bulbs will be forbidden starting December 31, 2010.

Canada

In April 2007, Ontario 's Minister of Energy , Dwight Duncan , announced the provincial government's intention to ban the sale of incandescent light bulbs by 2012.

The provincial government of Nova Scotia stated in February 2007 that it would like to move towards banning incandescent light bulbs in the province.

Federal Environment Minister, John Baird , announced in April 2007 a plan to ban the sale of inefficient light bulbs by 2012. According to Mr. Baird, Canada will save $3 to $4 billion Canadian dollars over the lifetime of the new bulbs.

Cuba

Cuba exchanged all incandescent light bulbs for CFLs and banned the sale and import of them in 2005.

Venezuela

                                Venezuela phased out incandescent light bulbs in 2005.

Asia

Philippines

In February 2008, during her closing remarks at the Philippine Energy Summit, President Gloria Macapagal Arroyo called for a ban of incandescent light bulbs by 2010 in favor of more energy-efficient fluorescent globes to help cut greenhouse gas emissions and household costs.  If passed, the country will be the first in Asia to ban incandescent bulbs.

Europe

Switzerland banned the sale of all light bulbs of the Energy Efficiency Class F and G, which affects a few types of incandescent light bulbs. Most normal light bulbs are of Energy Efficiency Class E, and the Swiss regulation has exceptions for various kinds of special-purpose and decorative bulbs.

 

The Irish government was the first European Union (EU) member state to ban the sale of incandescent light bulbs.  It was later announced that all member states of the EU agreed to ban incandescent light bulbs by 2012.

The initial Europe wide ban only applies to 'non-directional' light bulbs, so it does not affect any bulbs with reflective surfaces (eg. spotlights or halogen down lighters). Bulbs will be banned in a phased approach. The first types of bulbs to be banned are non-clear (frosted) bulbs; these will be banned completely by September 2009. Also, in September 2009, clear bulbs over 100W must be made of more efficient types. This limit will be moved down to lower wattages, and the efficiency levels raised by the end of 2012.  Also, the EU has given the target of 2016 to phase out Halogen bulbs , and any bulb available for purchase after the 2016 date must have at least a 'B' energy rating.  The Finnish parliament has been discussing banning sales of incandescent light bulbs beginning in 2011.

                The UK government announced in 2007 that incandescent bulbs would be phased out by 2011.

Russia

On October 8, 2009, Russian Economy Minister Elvira Nabiullina said that the government would ban the production and sal e of all types of incandescent bulbs by 2014.

Oceania

Australia

In February 2007, Australia enacted a law that will ban most sales of incandescent light bulbs by 2010.  The Australian Federal Government announced minimum energy performance standards (“MEPS”) for lighting products. The new minimum standard efficiency level is 15 lumens per watt (lm/W) . In November 2008 the importation of non-compliant lighting (which includes some incandescent globes) into Australia was banned, and in November 2009, the retail sale of non-compliant lighting was banned.  According to the current proposal all regular light bulbs and some other kinds of light bulbs sold from October 2009 has to meet the new minimum energy performance standards. Incandescent light bulbs that meet the new standards, for example, high efficiency halogen bulbs, will continue to be available.

It is estimated that greenhouse gas emissions will be cut by 800,000 tonnes (Australia's current emission total is 564.7 million tonnes), a reduction of approximately 0.14%.

                                There have been some initiatives to encourage people to switch to compact fluorescent lamps. 

New Zealand

In February 2007, then Climate Change Minister David Parker announced a similar proposal to the one in Australia, except that importation for personal use would have been allowed.  However, the proposed ban was scrapped by the new governmen t in December 2008 in a move that appears to have been politically motivated to distinguish the new government as being opposed to a 'nanny State' that tells its citizens what to do rather than a policy favoring incandescent bulbs.

Environmental Regulations

                ENERGY STAR is a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy helping us all save money and protect the environment through energy efficient products and practices.

                The Energy Star is awarded to only certain bulbs that meet strict efficiency, quality, and lifetime criteria.

 

 

 

Energy Star Qualified LED Lighting:

·        Reduces energy costs — uses at least 75% less energy than incandescent lighting, saving on operating expenses.

·        Reduces maintenance costs — lasts 35 to 50 times longer than incandescent lighting and about 2 to 5 times longer than fluorescent lighting. There are no bulb-replacements, no ladders, no ongoing disposal program.

·        Reduces cooling costs — LEDs produce very little heat.

·        Is guaranteed — comes with a minimum three-year warranty — far beyond the industry standard.

·        Offers convenient features — available with dimming on some indoor models and automatic daylight shut-off and motion sensors on some outdoor models.

·        Is durable — won’t break like a bulb.

To qualify for Energy Star certification, LED lighting products must pass a variety of tests to prove that the products will display the following characteristics:

·        Brightness is equal to or greater than existing lighting technologies (incandescent or fluorescent) and light is well distributed over the area lighted by the fixture.

·        Light output remains constant over time, only decreasing towards the end of the rated lifetime (at least 35,000 hours or 12 years based on use of 8 hours per day).

·        Excellent color quality. The shade of white light appears clear and consistent over time.

·        Efficiency is as good as or better than fluorescent lighting.

·        Light comes on instantly when turned on.

·        No flicker when dimmed.

·        No off-state power draw. The fixture does not use power when it is turned off, with the exception of external controls, whose power should not exceed 0.5 watts in the off state.

                We are in the process of applying for the Energy Star certification for most of our products for general lighting applications.

Employees

As of November 1, 2010, we had a total of 11 full-time employees and 1 part-time employee. There are no collective bargaining agreements between us and our employees. We do not have any supplemental benefits or incentive arrangements for employees at the present time. Such benefits and arrangements will be considered and developed over the next 12 months.

Reports to Security Holders

 

We will be a reporting company and will comply with the requirements of the Exchange Act.  We will file quarterly and annual reports and other information with the SEC, and we will send a copy of our annual report together with audited consolidated financial statements to each of our shareholders.

 

The public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.

 

Item 1A.                Risk Factors.

 

An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below before deciding to purchase shares of our common stock.  If any of the events, contingencies, circumstances or conditions described in the risks below actually occurs, our business, financial condition or results of operations could be seriously harmed.  The trading price of our common stock could, in turn, decline, and you could lose all or part of your investment.

 

 

RISK FACTORS CONCERNING OUR BUSINESS AND OPERATIONS:

 

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE BASED ON OUR CURRENT OPERATIONS.

 

We have a limited operating history upon which investors may base an evaluation of our potential future performance. As a result, there can be no assurance that we will be able to develop consistent revenue sources, or that our operations will be profitable. Our prospects must be considered in light of the risks, expense and difficulties frequently encountered by companies in an early stage of development.

 

We must, among other things, determine appropriate risks, rewards and level of investment in each project, respond to economic and market variables outside of our control, respond to competitive developments and continue to attract, retain and motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on our business, results of operations and financial condition.

 

OUR PROFITS HAVE BEEN INCONSISTENT.  THERE IS NO ASSURANCE THAT WE WILL BE PROFITABLE IN THE FUTURE.

 

            During the twelve month period ended December 31, 2009, we incurred a net loss of $913. During the twelve month period ended December 31, 2008, we incurred a net gain of $149,708.  As evidenced by the aforementioned financial results, we may not be able to maintain profitability on a consistent basis.  Furthermore, we cannot be sure that we will achieve profitability in fiscal year 2010 or thereafter. Continuing losses may exhaust our capital resources and force us to discontinue operations.

 

WE COULD CEASE TO OPERATE AS A GOING CONCERN.

 

We have had and could have in the future losses, deficits and deficiencies in liquidity, which could impair our ability to continue as a going concern.

 

Our long-term viability as a going concern is dependent on certain key factors, as follows:

 

 

 

THE CURRENT ECONOMIC DOWNTURN AND UNCERTAINTY AND TURMOIL IN THE EQUITY AND CREDIT MARKETS COULD CONTINUE TO ADVERSELY IMPACT OUR CLIENTS, DIMINISH THE DEMAND FOR OUR PRODUCTS, AND HARM OUR OPERATIONS AND FINANCIAL PERFORMANCE. 

 

The lighting markets in which we sell our LED lighting devices have experienced rapid evolution and growth in recent years, but have been negatively affected by the downturn in the general economy. The current economic downturn has harmed, and could continue to harm, the economic health of our clients and consequently decrease the demand for our products, particularly in the public and private infrastructure, retail and hospitality, consumer and commercial, and architecture and architainment markets. Further, some of our present customers and potential future customers have informed us that they may not purchase our products unless or until they receive funds pursuant to the legislative initiatives promulgated under the American Recovery and Reinvestment Act of 2009. The persistence of the economic downturn also may cause reductions or elimination of utility and government energy efficiency incentive programs used to partially fund the costs of customer projects. In addition, increased competition during the current economic downturn may result in lower sales, reduced likelihood of profitability, and diminished cash flow to us.

 

 

WE MAY NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, AS NEEDED, THE FUTURE GROWTH OF OUR BUSINESS AND OPERATIONS WOULD BE SEVERELY LIMITED.

 

A limiting factor on our growth, including its ability to penetrate new markets, attract new customers, and deliver products and services in the commercial lighting market, is our limited capitalization compared to other companies in the industry.  While we are currently able to fund all basic operating costs it is possible that we may require additional funding in the future to achieve all of our proposed objectives.

 

If we raise additional capital through the issuance of debt, this will result in increased interest expense.  If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of the Company held by existing shareholders will be reduced and our shareholders may experience significant dilution.  In addition, new securities may contain rights, preferences or privileges that are senior to those of our common stock.  If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations (for example, negative operating covenants).  There can be no assurance that acceptable financing necessary to further implement our plan of operation can be obtained on suitable terms, if at all.  Our ability to develop our business, fund expansion, develop or enhance products or respond to competitive pressures, could suffer if we are unable to raise the additional funds on acceptable terms, which would have the effect of limiting our ability to increase our revenues or possibly attain profitable operations in the future.

WE ARE SUBSTANTIALLY DEPENDENT UPON THE SUCCESS AND MARKET ACCEPTANCE OF LED TECHNOLOGY.  THE FAILURE OF THE LED MARKET TO DEVELOP AS WE ANTICIPATE WOULD ADVERSELY AFFECT OUR BUSINESS.

                Our success is largely dependent on increased market acceptance of LED lighting. Potential customers for LED lighting systems may be reluctant to adopt LED lighting as an alternative to more traditional lighting technologies that are available in the market. If acceptance of LED lighting does not continue to grow, then our revenues may be significantly reduced.

IF WE ARE UNABLE TO DEVELOP NEW PRODUCTS, OUR COMPETITORS MAY DEVELOP AND MARKET PRODUCTS WITH BETTER FEATURES THAT MAY REDUCE DEMAND FOR OUR POTENTIAL PRODUCTS.

LED technology market is rapidly evolving. Our failure to respond effectively to changes in technology, customer requirements or industry standards could render our products less competitive or obsolete. We may not be able to introduce any new products or any enhancements to our existing products on a timely basis, or at all. In addition, our introduction of new products could adversely affect the sales of certain of our existing products. If our competitors develop innovative lighting technology that are superior to our products or if we fail to accurately anticipate market trends and respond on a timely basis with our own innovations, we may not achieve sufficient growth in our revenues to attain profitability.

PRODUCT DEFECTS COULD CAUSE US TO INCUR SIGNIFICANT PRODUCT LIABILITY, WARRANTY, AND REPAIR AND SUPPORT COSTS, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Although we rigorously test our products, defects may be discovered in future or existing products. These defects could cause us to incur significant warranty, support and repair costs and divert the attention of our research and development personnel. It could also significantly damage our reputation and relationship with our distributors and customers which would adversely affect our business. In addition, such defects could result in personal injury or financial or other damages to customers who may seek damages with respect to such losses. A product liability claim against us, even if unsuccessful, would likely be time consuming and costly to defend.

 

WE DEPEND ON KEY EMPLOYEES AND PERSONNEL TO OPERATE OUR BUSINESS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE IF WE ARE UNABLE TO RETAIN OR REPLACE THESE PERSONS.

 

Our future success is largely dependent upon our existing management team.  The loss of any of our officers or directors through injury, death or termination of employment could result in the investment of significant time and resources for recruiting and replacement. We do not maintain and key man insurance on the lives of our executive officers for our benefit.  Additionally, the loss of the services of our executive officers could have a serious and adverse effect on our business, financial condition and results of operations.  There is also no assurance that as we grow, the existing team can successfully manage our growth or that we can attract the new talent that will be necessary to run the Company at a high level. Our success will also depend upon our ability to recruit and retain additional qualified senior management personnel. Competition is intense for highly skilled personnel in our industry and, accordingly, no assurance can be given that we will be able to hire or retain sufficient personnel.

 

BECAUSE WE DO NOT HAVE A CHIEF FINANCIAL OFFICER, WE MAY NOT BE ABLE TO COMPLY WITH THE REPORTING REQUIRMENTS OF U.S. SECURITIES LAWS WHICH COULD ADVERSELY IMPACT OUR BUSINESS OPERATIONS.

 

                We do not currently have a chief financial officer.   As we do not have a chief financial officer, we may not be able to establish and maintain adequate internal controls over financial reporting or have the ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002.  Additionally, we may not be able to implement programs and policies in an effective and timely manner that adequately responds to the legal, regulatory compliance, and reporting requirements of a reporting company.  Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities and Exchange Act of 1934.  If we were to fail to comply with such requirements, our ability to exist as a reporting company would be in jeopardy, in which event, our business operations could be adversely impacted.

 

WE FACE COMPETITION FROM SEVERAL SOURCES, WHICH MAY MAKE IT MORE DIFFICULT TO INTRODUCE NEW PRODUCTS INTO THE COMMERCIAL LIGHTING MARKET.

 

The market segments in which we compete are rapidly evolving and intensely competitive, and have many competitors in different industries, including both lighting and energy industries.  These competitors include market-specific retailers and specialty retailers.  Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we have.  They may be able to operate with a lower cost structure, and may be able to adopt more aggressive pricing policies.  Competitors in both the retail lighting and energy industries also may be able to devote more resources to technology development and marketing than we can.

 

WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE, WHICH COULD CAUSE DILUTION TO ALL SHAREHOLDERS.

 

We may seek to raise additional equity capital in the future.  Any issuance of additional shares of our common stock will dilute the percentage ownership interest of all shareholders and may dilute the book value per share of our common stock.

 

WE UTILIZE MANUFACTURERS TO MANUFACTURE CERTAIN OF OUR PRODUCTS AND ANY DISRUPTION IN THESE RELATIONSHIPS MAY CAUSE US TO FAIL TO MEET OUR CUSTOMERS’ DEMANDS AND MAY DAMAGE OUR CUSTOMER RELATIONSHIPS.

 

Although we design and develop our LED lighting products, we currently depend on our manufacturers, Jun Yee, Fin-Core, and Anteya, to manufacture our products at plants located in Taiwan. These manufacturers provide the necessary facilities and labor to manufacture our products. Our reliance on contract manufacturers involves certain risks, including the following:

 

 

 

 

 

 

As our manufacturers manufacture 100% of our LED lighting products, if our manufacturers were to terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, manufacturing yields would be adversely affected and we would experience delays in the manufacture and shipment of our products until alternative manufacturing services could be contracted or internal manufacturing processes could be implemented. To qualify a new manufacturer, familiarize it with our products, quality standards and other requirements, and commence volume production may be a costly and time-consuming process. If we are required or choose to change manufacturers for any reason, our revenue, gross margins and customer relationships could be adversely affected.

 

IF CRITICAL COMPONENTS AND RAW MATERIALS THAT WE UTILIZE IN OUR PRODUCTS BECOME UNAVAILABLE, WE MAY INCUR DELAYS IN SHIPMENT THAT COULD DAMAGE OUR BUSINESS.

The principal raw materials used in the manufacture of our products are LEDs, a variety of standard electrical components, printed circuit boards, wire, plastics for optics, metal for housings and heat sinks. From time to time, LEDs have been in short supply due to demand, binning restrictions and production constraints. Any significant interruption in the supply of these raw materials could have a material adverse effect upon us.

The principal raw materials used in the manufacture of the LEDs used in our products are silicon wafers, gold wire, lead frames, and a variety of packages and substrates, including metal, printed circuit board, flex circuits, ceramic and plastic packages and phosphors. From time to time, particularly during periods of increased industry-wide demand, silicon wafers and other materials have been in short supply. Any significant interruption in the supply of these raw materials could have a material adverse effect upon us.

 

WE ARE SUBJECT TO LEGAL, POLITICAL AND ECONOMIC RISKS ABROAD.

 

Our financial condition and operating results could be significantly affected by risks associated with international activities, including economic and labor conditions, political instability, laws (including U.S. taxes on foreign subsidiaries), changes in the value of the U.S. dollar versus local currencies, differing business cultures and foreign regulations that may conflict with domestic regulations.

We believe that there are many barriers and risks to operating successfully in the international marketplace, including the following:

 

 

 

 

 

 

 

 

RISK FACTORS CONCERNING INVESTMENT IN OUR COMPANY:

 

THERE IS CURRENTLY NO TRADING MARKET FOR SHARES OF OUR COMMON STOCK.

 

Outstanding shares of our common stock cannot be offered, sold, pledged or otherwise transferred unless subsequently registered pursuant to, or exempt from registration under, the Securities Act of 1933, as amended (the “Securities Act”) and any other applicable federal or state securities laws or regulations. These restrictions will limit the ability of our stockholders to liquidate their investment.

 

 

OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.

 

The SEC has adopted regulations that define a “penny stock”, generally, to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock has been less than $5.00 per share. This designation requires any broker or dealer selling our securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of stockholders to sell their shares. In addition, since our common stock is currently quoted on the Pink Sheets, stockholders may find it difficult to obtain accurate quotations of our common stock, may experience a lack of buyers to purchase our shares or a lack of market makers to support the stock price.

 

FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.

 

Sales of our common stock in the public market could lower our market price for our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that management deems acceptable or at all.

 

THERE IS LIMITED LIQUIDITY IN OUR SHARES.

 

Historically, the volume of trading in our common stock has been low. A more active public market for our common stock may not develop or, even if it does in fact develop, may not be sustainable. The market price of our common stock may fluctuate significantly in response to factors, some of which are beyond our control. These factors include:

 

 

 

 

 

 

Recently, the stock market in general has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of shares of our common stock, which could cause a decline in the value of our shares. Price volatility may be worse if the trading volume of our common stock is low.

 

THE CONCENTRATED OWNERSHIP OF OUR CAPITAL STOCK MAY BE AT ODDS WITH YOUR INTERESTS, AND HAVE THE EFFECT OF DELAYING OR PREVENTING A CHANGE IN CONTROL OF OUR COMPANY.

 

Our common stock ownership is highly concentrated.  Our directors, officers, key personnel and their affiliates as a group beneficially own or control the vote of approximately 25.65% of our outstanding capital stock, and have a strong influence over the Company. They will be able to continue to have a strong influence over all matters affecting the Company, including the election of directors, formation and execution of business strategy and approval of mergers, acquisitions and other significant corporate transactions, which may have an adverse effect on the stock price. They may have conflicts of interest and interests that are not aligned with yours in all respects.  As a result of the concentrated ownership of our stock, a relatively small number of shareholders, acting together, will have a strong influence on all matters requiring shareholder approval.  This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our Company. It may affect the market price of our common stock.

 

 

OUR BYLAWS PROVIDE FOR INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS.

 

Our bylaws require that we indemnify and hold harmless our officers and directors, to the fullest extent permitted by law, from certain claims, liabilities and expenses under certain circumstances and subject to certain limitations and the provisions of Nevada law.  Under Nevada law, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, against expenses, attorneys fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with an action, suit or proceeding if the person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation.

 

Item 2.                   Financial Information.

 

 

Our revenues are primarily derived from sales of the LED devices and systems described above. Although our financial results are mainly dependent on sales, general and administrative, compensation and other operating expenses, our financial results have also been dependent on the level of market adoption of LED technology as well as general economic conditions.

Lighting products remained relatively static for 50 years until recently, when lighting became one of the last major markets to be transformed substantially by new technology. Because LED technology remains an emerging and expensive technology that has only recently become more economically viable, market adoption has been slow. Given the current economic downturn, liquidity has been constrained forcing institutions and individuals to substantially reduce capital spending to focus only on critical path expenditures. LED lighting products have been a discretionary rather than mandatory investment, and as a result, sales of our devices and systems have been negatively impacted. We believe that as the global economy grows and provides institutions and individuals with greater liquidity, sales of our devices and systems will increase.

Increased market awareness of the benefits of LED lighting, increasing energy prices and the social movement influencing individuals and institutions towards greater investment in energy-efficient products and services will have, we believe, an increasingly positive impact on our sales in the future. Additionally, we intend to utilize our strategic partnerships to help us reduce the component and production costs of our devices and systems in order to offer them at competitive prices. Further, we believe our ability to provide attractive financing options to our clients with respect to the purchase of our devices and systems will positively affect our sales. Similar to many manufacturing companies, we expect to benefit from economies of scale, meaning that as unit sales increase, our cost of production per unit should decrease, which would positively impact our financial results. Our financial results for recent periods, however, do not support this contention. We believe that this contention is not supported because of our recent acquisitions of Fin-Core and Jun Yee.  Fin-Core and Jun Yee, as manufacturing factories, have lower gross margins. As a result, these lower gross margins cause the overall gross margin from the previous period to decrease.  Also, Jun Yee relocated their manufacturing factory in February of 2010, and during the relocation, the factory was completely shut down for an entire week.  As a consequence, this relocation increased the operating costs of Jun Yee and further decreased the overall consolidated gross margin.

We plan on spending $200,000.00 for capital expenditures in 2010 for the purchase and setup of the equipment used for the electric and photometric measurement for solid-state-lighting devices.  This equipment includes the integrating sphere, chroma-meters, and software.

Net cash (used in) provided by operating activities.  During the fiscal year ended December 31, 2009, net cash used in operating activities was $286,184 compared with $128, 443 provided by operating activities for the fiscal year ended December 31, 2008.  The cash flow used in operating activities in the fiscal year ended December 31, 2009 was primarily the result of an increase in cash used for inventories, prepaid expenses and other current assets, and receipts in advance and other current liabilities.  The cash flow provided by operating activities in the fiscal year ended December 31, 2008 was primarily the result of the cash provided by accounts payable, accrued expenses, and receipts in advance and other current liabilities.

 

Net cash used in investing activities . During the fiscal year ended December 31, 2009, net cash used in investing activities increased to $1,421,054 compared with $579,985 for the fiscal year ended December 31, 2008.  The increase in net cash used in investing activities was a result of $940,612 used for acquisitions during the fiscal year ended December 31, 2009.

Net cash provided by financing activities. During the fiscal year ended December 31, 2009, net cash provided by financing activities decreased to $1,389,601 compared with $1,752,615 for the fiscal year ended December 31, 2008.  This decrease in net cash provided by financing activities was a result of financing proceeds from stockholder, repayment of bank loan, and increase of notes payable.

            We experienced significant changes in our levels of current assets, liabilities as well as account receivables, inventories and account payables in fiscal year 2009 compared to fiscal year 2008.  These significant changes were primarily due to our acquisitions of Fin-Core and Jun Yee in 2009.  As a result of our acquisitions of Fin-Core and Jun Yee, our consolidated operating income in 2009 increased by approximately $2,050,000, and our consolidated operating costs and administrative expenses increased by $2,100,000. 

Net cash (used in) provided by operating activities.  During the six months ended June 30, 2010, net cash used in operating activities was $306,313 compared with $293,952 used in operating activities for the six months ended June 30, 2009.  The cash flow used in operating activities in the six months ended June 30, 2010 was primarily the result of an increase in cash used for inventories, prepaid expenses and other current assets, and receipts in advance and other current liabilities.  The cash flow used in operating activities in the six months ended June 30, 2009 was primarily the result of increase in accounts

Net cash used in investing activities . During the sixth months ended June 30, 2010, net cash used in investing activities decreased to $173, 510 compared with $761, 040 for the sixth months ended June 30, 2009.  The decrease in net cash used in investing activities was a result of the addition of fixed assets.

Net cash provided by financing activities. During the sixth months ended June 30, 2010, net cash used in financing activities was $18,819 compared with $1,003,084 provided by financing activities for the sixth months ended June 30, 2009. 

We currently anticipate that our available cash in hand and cash resources from expected revenues will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next twelve months.

We currently have outstanding short-term loans with Hua Nan Commercial Bank of Taiwan. We entered into three written, short-term loan agreements with this bank on August 25, 2009, June 24, 2010, and January 29, 2010, respectively.  The terms of the loan agreements are described in further detail in the chart below:

 

 

Lender	Borrower	Loan Amount	Term	Interest Rate
Hua Nan Commercial Bank of Taiwan	ColorStars, Inc.	Three Million New Taiwan Dollars (NTD $3,000,000.00)(1)	August 25, 2009 to August 22, 2010	Fixed at 2.68% per annum
Hua Nan Commercial Bank of Taiwan	ColorStars, Inc.	Six Million New Taiwan Dollars (NTD $6,000,000.00) (2)	June 24, 2010 to December 24, 2010	Fixed at 1.57% per annum
Hua Nan Commercial Bank of Taiwan	ColorStars, Inc.	Three Million New Taiwan Dollars (NTD $3,000,000.00) (1)	January 29, 2010 to January 29, 2011	Fixed at 2.604% per annum.

 

(1) NTD $3,000,000 is approximately USD $98, 360.00.

(2) NTD $6,000,000 is approximately USD $196,720.00.

 

We also currently have an outstanding short-term loan with Mr. Min-Jun Dong, an equity owner of Jun Yee. The principal loan amount is for $143, 486.00 at a zero percent interest rate with the term of the loan beginning on April 1, 2010 and continuing through March 30, 2011. We did not enter into a written loan agreement with Mr. Min-Jun Dong, and we will pay back the principal amount on this loan to Mr. Min-Jun Dong before the end of the term or when our cash flow permits.

Our continued existence is dependent upon several factors, including increased sales volumes, collection of existing receivables and the ability to achieve profitability from the sale of our products. In order to increase our cash flow, we are continuing our efforts to stimulate sales.

We are filing this Form 10 as we believe that there are certain perceived benefits to voluntarily registering our securities pursuant to the Securities Exchange Act of 1934 and becoming a reporting company. The benefits are thought to include the following:

·          increased visibility in the financial community;

·          the facilitation of borrowing from financial institutions;

·          increased valuation;

·          greater ease in raising capital;

·          compensation of key employees through stock options for which there may be a market valuation; and

·          enhanced corporate image.

Comparison of Fiscal Year Ended December 31, 2009 to Fiscal Year Ended December 31, 2008

Net Sales.  Net sales increased to $4,695,095 for the year ended December 31, 2009 from $2,170,106 for the year ended December 31, 2008. The increase in sales was due to global sales growth and the consolidated revenues from the newly acquired Jun Yee Industrial Co. Ltd.

Cost of Goods Sold.  Cost of goods sold increased to $3,221,525 for the year ended December 31, 2009 from $1,393,262, for the year ended December 31, 2008. The increase in cost of goods sold was due to an increase of overall sales of goods.

Gross Profit.  Gross profit increased to $1,473,570 for the year ended December 31, 2009 from $776,844 for the year ended December 31, 2008. The increase in gross profit was due to the lower gross margin structures of the newly acquired Jun Yee Industrial Co., Ltd., who provides mostly electronic manufacturing services (“EMS”) to its customers.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses increased to $1,323,228 for the year ended December 31, 2009 from $597,000.00 for the year ended December 31, 2008. The increase in selling, general and administrative expenses are primarily related to the expansion of global marketing activities such as participating in advertisement, trade shows and the establishment of the US sales office in Irvine, California.

 

Depreciation, Amortization, and Depletion.  Depreciation, amortization, and depletion increased to $93,596.00 for  for the year ended December 31, 2009 from $10,332 for the year ended December 31, 2008 reflecting that some properties or equipment were added during this period, especially from the acquisition of Jun Yee Industrial Co., Ltd.

Interest Expense .  Interest expense increased to $17,481.00 for the year ended December 31, 2009 compared with $6,285.00 for the year ended December 31, 2008. The increase in interest expense was due to the increase of a bank loan.

Net Income (loss).  For the year ended December 31, 2009, we incurred a net loss of $913 as compared to a net gain of $149,708 for the year ended December 31, 2008.

ColorStars products are sold to over 35 different countries around the world. Product revenues for the fiscal year ended December 31, 2009 are as follows:

 

Product revenues for the fiscal year ended December 31, 2008 are as follows:

 

Our revenue reported in fiscal year 2009 is the consolidated revenue according to GAAP for the following four operating entities: (1) ColorStars Group in USA, (2) Color Stars Taiwan, (3) Fin-Core, and (4) Jun Yee.  The drivers of revenue growth in 2009 were attributed to the consolidated revenue of the newly acquired Fin-Core and Jun Yee.  As Fin-Core and Jun Yee only sell our products in Asia, we experienced significant revenue growth in Asia as a result.  The “Others” regions presented in the 2009 revenue breakdown were for the sales generated from the Middle East (Israel), Australia and New Zealand.  In 2008, we categorized revenues from the “Others” Regions as being from the Asian region as they were not substantial at that time.

 

The increase of sales in 2009 was mainly due to the consolidated revenue from the newly acquired majority-owned Fin-Core and Jun Yee.  Fin-Core and Jun Yee are LED development and manufacturing factories and sell their products and services to local Taiwanese companies.  This type of operation usually has a lower gross margin compared to the international sales that we engage in.  As 2009 was the first year we prepared a consolidation report to include the operational results of Fin-Core and Jun Yee, this explains why the overall revenue increased, and the net income decreased.

 

 

 

 

 

Comparison of Six Months Ended June 30, 2010 and June 30, 2009

Net Sales.  Net sales increased to $3,295,448 for the six months ended June 30, 2010 from $1,484,963 for the six months ended June 30, 2009. The increase in sales was due to global sales growth and the acquisition of Fin-Core and Jun Yee.

Cost of Goods Sold.  Cost of goods sold increased to $2,439,567 for the six months ended June 30, 2010 from $931,813, for the six months ended June 30, 2009. The increase in cost of goods sold was due to an increase of overall sales of goods.

Gross Profit.  Gross profit increased to $855,881 for the six months ended June 30, 2010 from $553,150 for the six months ended June 30, 2009. The increase in gross profit was due to the lower gross margin structures of the newly acquired Jun Yee, who provides mostly electronic manufacturing services (“EMS”) to its customers.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses increased to $562, 855 for the six months ended June 30, 2010 from $1,004,559 for the six months ended June 30, 2009. The increase in selling, general and administrative expenses are primarily related to the general and administrative expenses incurred from our recently acquired subsidiaries, and the expansion of global marketing activities such as participating in advertisement, trade shows and the establishment of the US sales office in Irvine, California.

Depreciation, Amortization, and Depletion.  Depreciation, amortization, and depletion increased to $93,596.00 for  for the six months ended June 30, 2010 from $21,684 for the six months ended June 30, 2009 reflecting that some properties or equipment were added during this period, especially from the acquisition of Jun Yee.

Interest Expense .  Interest expense increased to $21,778 for the six months ended June 30, 2010 compared with $3,246 for the six months ended June 30, 2009. The increase in interest expense was due to the increase of a bank loans due to the acquisition of Fin-Core and Jun Yee.

Net Income (loss).  For the six months ended June 30, 2010, we incurred a net loss of $160,920 as compared to a net gain of $65,796 for the sixth months ended June 30, 2009.  The decrease in profit or increase in loss is due to the operations of the newly acquired subsidiaries.  February is the month when the Chinese New Year’s holiday occurs and all of our factories are closed for one week, while the employees are paid with an extra month of salary.  Also, the relocation of the Jun Yee factory in February of 2010 has increased the direct labor costs and reduced the productivity for the first quarter of 2010.

Inflation

We do not believe that inflation in the cost of our raw materials has had in the past or will have in the future any significant negative impact on our operations. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.

 

 

Financial instruments that potentially expose concentrations of credit risk primarily consist of cash and cash equivalents, investments and accounts receivable. Management believes there are no significant off-balance-sheet risks such as those associated with foreign exchange contracts, option contracts or other foreign exchange hedging arrangements. With respect to concentration of credit risk, the Company has cash investment policies which, among other things, limit investments to investment-grade securities. Ongoing credit evaluations of the customers are performed and allowances for potential credit losses are maintained.

 

Below is a table which presents our contractual obligations and commitments as of December 31, 2009:

					Less than									After
Contractual Obligation		Total			1 Year			1-3 Years			3-5 Years			5 Years
Short-term debt
Obligations(1)	$	880,719		$	803,568		$	77,151		$			$
Notes Payable(2)		1,495,681			1,495,681
Due to Stockholder(3)		151,861						151,861
Non-current debt(4)		194,307									194,307
Operating Leases(5)
Less than one yr		175,347			175,347
1-3 years		33,960						33,960
3-5 years
After 5 yrs
Total contractual  cash obligations	$	2,931,875		$	2,474,596		$	262,972		$	194,307		$	0

 

 

 

We do not have any market risk sensitive instruments at this moment.

Foreign Currency Exchange Rates

The financial statements of our foreign operations are translated into U.S. dollars for financial reporting purposes. The assets and liabilities of foreign operations whose functional currencies are not in U.S. dollars are translated at the period-end exchange rates, while revenues and expenses are translated at weighted-average exchange rates during the fiscal year. The cumulative translation effects are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Item 3.                   Properties.

We do not own any property, real or otherwise. We currently lease the following properties:

We lease our principal office from Mr. Wei-Rur Chen, our president, at a consideration of $38,266 per year.  The lease term for the agreement is from November 2005 to November 2010.  This office is the main operational office in Taiwan with the address of 10F, 566, Jungjeng Road, Sindian City, Taipei County 231, Taiwan, R.O.C.

 

On June 14, 2009, we signed a two (2) year lease agreement which expires in June 2011.  The leased property is located at 1 Technology Dr., Suite F-213, Irvine, California, 92618, where the property is used as a general office and for the warehousing of inventory. Lease payments are US $36,108 per year. The lease contains no renewal options.

We believe that our current facilities are adequate for our needs through the next twelve months, and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations on commercially reasonable terms, although there can be no assurance in this regard. There are no written agreements. We have no plans to acquire any property in the immediate future.

Item 4.                   Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of November 1, 2010 by:

·          all persons who are beneficial owners of five percent (5%) or more of our common stock;

·          each of our directors;

·          each of our executive officers; and

·          all current directors and executive officers as a group.

Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them.

Applicable percentage ownership in the following table is based on 67,448,890 shares of common stock outstanding as of November 1, 2010.

Title of Class	Name and Address of Owner	Title	Amount of Beneficial Ownership	Percentage of Common Stock Owned
Common Stock	Wei-Rur Chen 7, Mayhua 1 st Road Sindian City, Taipei County Taiwan 231	President ,Chief Executive Officer, Chief Financial Officer, Chairman of the Board, and Director.	10,800,000	16.01%
Common Stock	Hsui-Fu Liu No. 232, Zhongzheng Rd., Shulin City, Taipei County 238, Taiwan	Director	4,000,000	5.93%
Common Stock	Mei-Ying Chiu 9F, No. 568, Jungjeng Road Sindian City, Taipei County Taiwan 231	Secretary and Director	2,500,000	3.71%
Common Stock	Tsui-Ling Lee 7, Mayhua 1 st Road Sindian City, Taipei County Taiwan 231	Shareholder	8,000,000	11.86%
Common Stock	Reuya International LTD (Wei-Rur Chen) 10F, No. 566 Jungjeng Rd. Sindian City, Taipei County Taiwan 231	Shareholder	11,620,000	17.23%
Common Stock	Triad Trading Corporation (Markand Amersey) Cond Los Faroles 50 Metros Arr Desamparados, SA	Shareholder	3,200,000	4.74%
Common Stock	Circletex Corp. (Nitin Amersey) 300 Center Avenue Suite 202 Bay City, MI 48708	Shareholder	4,700,000	6.97%
Common Stock	Gideon Holding Inc. (Chuan-Chen Hu) 6FL.-2, No 108 Longjang Rd., Jhongshan Dist Taipei City 104 Taiwan (R.O.C.)	Shareholder	3,340,000	4.95%

 

 

Item 5.                   Directors and Executive Officers.

 

(a)           Certain Information About Our Sole Officer and Director.

The following persons are our executive officers and directors. Directors are elected to hold offices until the next annual meeting of Shareholders and until their successors are elected or appointed and qualified. Officers are appointed by the board of directors until a successor is elected and qualified or until resignation, removal or death.

NAME		AGE		OFFICES HELD
Wei Rur Chen		49		Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President and Director
Hsiu-Fu Liu		55		Director
Mei-Ying Chiu		57		Secretary and Director

WEI RUR CHEN, age 49, has served as our Chief Executive Officer and President since 2003.  Prior to joining us, Mr. Chen was Executive Vice President of Primo Lite Co., Ltd. from 2002 to 2003, Executive Vice President of Tinya Engineering Co., Ltd. from 2000 to 2002, Vice President of Hi-Doer Power Co., Ltd. from 1997 to 2000, Manager of Sales and Marketing of Westinghouse Elec. from 1991 to 1997 and Manufacturing Engineer of Westinghouse Elec. from 1984 to 1989.  Mr. Chen earned a Master of Science, Industrial Engineering from Clemson University SC, USA in 1990 and resides in Taipei, Taiwan.

HSIU-FU LIU, age 55, has been serving on our board since December 2008.  Mr. Liu currently serves as the chairman of Hsuhta Industrial Group, a company that owns and operates many precision plastic moulding and injection companies in Taiwan and China.  Mr. Liu graduated from Hsinchu Technical high school in 1973.

MEI-YING (EASTER) CHIU, age 57, has served as our Secretary since 2004.  Prior to joining us, Ms. Chiu was Vice President of Sales and Marketing for 5E Chemical Co., Ltd. from 2003 to 2004, Manager of Marketing for Tingya Engineering from 2001 to 2003, Project Manager for Stone & Webster Taiwan from 1999 to 2001 and Project Manger for Gibsin Engineering Co., Ltd. from 1980 to1997.  Ms. Chiu earned a Bachelor of Arts, Business Administration from Mingchuan University, Taiwan in 2001 and a Master’s degree of Executive Management of Business and Administration from Hong Kong Chinese University.

 

The business address for each of our officers and directors is 10F, No. 566 JungJeng Rd., Sindian City, Taipei County 231, Taiwan, R.O.C.

Our bylaws authorize no less than one (1) and no more than seven (7) directors .  We currently have three (3) Directors.

 

(b)       Family Relationships.

                               

                Mrs. Tsui-Ling Lee, an owner of 12.9% of our common stock, is the spouse of our Chairman of the Board and CEO, Mr. Wei-Rur Chen.

 

 

(c)                Involvement in Certain Legal Proceedings.

 

There have been no events under any bankruptcy act, criminal proceedings, judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of our Company during the past five years.

 

(d)                 Significant Employees .

 

                                None.

 

 

Item 6.                   Executive Compensation.

Board of Directors

All of our directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Our executive officers are elected annually by the board of directors to hold office until the first meeting of the board following the next annual meeting of stockholders and until their successors are chosen and qualified. 

Directors’ Compensation

We reimburse our directors for expenses incurred in connection with attending board meetings but we do not pay our directors fees or other cash compensation for services rendered as a director

Our executive officers are currently earning compensation. Set forth below is the aggregate compensation for services rendered in all capacities to us during our fiscal years ended December 31, 2007, 2008 and 2009 by our executive officers. Except as indicated below, none of our executive officers were compensated in excess of $100,000.

                On March 1, 2007, we entered into an employment agreement with our CEO, Mr. Wei-Rur Chen (the “Employment Agreement”). The Employment Agreement has a term of five years from the effective date, March 1, 2007. Under the Employment Agreement , Mr Chen agreed to serve as our Chairman, President, and CEO.  Mr. Chen shall have such authority and responsibility as may reasonably be assigned to him by our board of directors. Pursuant to the Employment Agreement, Mr. Chen may receive a salary no higher than $120,000 per annum, and Mr. Chen shall be entitled to participate in any and all deferred compensation, 401(k) or other retirement plans, medical insurance, dental insurance, group health, disability insurance, pension and other benefit plans that are made generally available by us to our executives who have similar responsibilities and perform similar functions as Mr. Chen.

 

                We have no pension, health, annuity, bonus, insurance, stock options, profit sharing or similar benefit plans. No stock options or stock appreciation rights were granted to any of our directors or executive officers. We have no equity incentive plans.

                                                SUMMARY COMPENSATION TABLE

Name and Principal Position (a)	Year (b)	Salary ($)(c)	Bonus ($) (d)	Stock Awards ($)(e)	Option Awards ($) (f)	Non-Equity Incentive Plan Compensation($) (g)	Nonqualified Deferred Compensation Earnings ($) (h)	All Other Compensation ($) (i)	Total ($)(j)
Wei-Rur Chen, Chief Executive Officer and President	2009 2008 2007	$20,000 $20,000 $20,000	-- -- --	-- -- --	-- -- --	-- -- --	-- -- --	-- -- --	$20,000 $20,000 $20,000
Mei-Ying (Easter) Chiu, Vice President and Director	2009 2008 2007	$40,000 $40,000 $40,000	-- -- --	-- -- --	-- -- --	-- -- --	-- -- --	-- -- --	$40,000 $40,000 $40,000

Options/SAR Grants In the Last Fiscal Year

                None.

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values

                None.

Compensation Committee

                At this time, we do not have a compensation committee. The salaries of our executive officers are determined by our board of directors. Our board of directors determines the compensation of our executive officers based on our financial and operating performance and success.  As we continue to grow, we may form a compensation committee charged with the oversight of our executive compensation plans, policies and programs, and the authority to determine and approve the compensation of our executive officers and make recommendations with respect to the same.

Item 7.                   Certain Relationships and Related Transactions, and Director Independence.

 

                During the first quarter of 2008, ColorStars Taiwan purchased 522,000 shares of common stock of Anteya.  144,000 and 30,000 shares of the 522,000 shares of Anteya were purchased from our stockholder and president, Mr. Wei-Rur Chen and his spouse respectively for a total purchase price of $343,602. The purchase price for the common shares of Anteya was determined through private, arm’s length negotiations between the parties and was not based upon any specific criteria of value.  In July 2009, we purchased 140,000 shares of Anteya from the spouse of Mr. Wei-Rur Chen at a consideration of $122,331. 

We leased an office from Mr. Wei-Rur Chen, our president, at a consideration of $38,266 per year.  The lease term for the agreement is from November 2005 to November 2010.  This office is the main operational office in Taiwan with the address of 10F, 566, Jungjeng Road, Sindian City, Taipei County 231, Taiwan, R.O.C.  

 

                On March 20, 2009, ColorStars Taiwan completed the acquisition of 7,560,000 common shares (which represented 50.4% equity interest) of Fin-Core for a total purchase price of $470,000 from related parties and third parties.  Of the 7, 560, 000 shares of common stock acquired, 225,500 were purchased from Mr. Wei-Rur Chen, our president, and his spouse.

 

            ColorStars Taiwan conducted business with one related party company, Anteya. ColorStars Taiwan owns 20% of the outstanding common stock of Anteya as of December 31, 2009.  The purchase price for the outstanding common stock of Anteya was determined through private, arm’s length negotiations between the parties.  

 

SumSumSolor, Inc., a Taiwanese corporation (“SumSum”), which is substantially owned by our president, Mr. Wei-Rur Chen and his spouse, trades goods with us.  All related parties of SumSum provide us either products or services at market-based, arm’s-length prices.

 

            As we are not subject to the listing requirements of any national securities exchange or association, we are not at this time required to have our board comprised of a majority of “independent directors”.

 

Except as otherwise indicated herein, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.

 

Item 8.                   Legal Proceedings.

 

Presently, there are not any material pending legal proceedings to which we are a party or as to which any of our property is subject, and we do not know nor are we aware of any legal proceedings threatened or contemplated against us.

 

Item 9.                   Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

(a)       Market Information.

 

Our Common Stock is not trading on any stock exchange. The Company is not aware of any market activity in its stock since its inception and through the date of this filing.

 

(b)       Holders.

 

As of November 1, 2010, there were 168 record holders of 67,448,890 shares of our Common Stock.

 

 

(c)              Dividends.  

 

Dividends, if any, will be contingent upon our revenues and earnings, capital requirements and financial conditions.  The payment of dividends, if any, will be within the sole discretion of our Board of Directors.  We presently intend to retain all earnings, if any, for use in our business operations.

 

 (d)                Securities authorized for issuance under equity compensation plans.  

 

We have never and have no current plans to issue securities under any equity compensation plans.

 

 

 

 

 

 

 

 

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