LIGHTSCAPE TECHNOLOGIES INC. - Quarter Report: 2010 March (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010 or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-30299

LIGHTSCAPE TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

18/F., 318 Hennessy Road, W Square, Wanchai, Hong Kong
(Address of principal executive offices)

(852) 2546-1808
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes    No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[   ] Yes    [   ] No

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 55,876,410 shares of common stock issued and outstanding as of May 1, 2010.

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Item 1. Financial Statements.

LIGHTSCAPE TECHNOLOGIES INC. AND SUBISIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
UNAUDITED

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

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(i) Includes depreciation of plant and equipment and amortization of intangible assets of $50,248 and 43,007 for the three months ended March 31, 2010 and $13,577 and $nil for the three months ended March 31, 2009, respectively.

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

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

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(a) Includes $nil of cash that is included on the balance sheet with Current assets from discontinued operations as of March 31, 2010 and $nil as of March 31, 2009.

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

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Lightscape Technologies Inc. (“Lightscape” or the “Company”) was incorporated under the laws of the State of Nevada. On April 20, 2007, the Company changed its name from Global Innovative System Inc. to Lightscape Technologies Inc. The Company is a holding company, and together with its subsidiaries (the “Group”) is principally engaged in two business activities: (i) digital out-of-home (“OOH”) advertising and (ii) light-emitting diode (“LED”) solutions.

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

Principle of Consolidation and Basis of Presentation

The accompanying consolidated financial statements of the Group are stated in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States of America and include the financial statements of the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances are eliminated on consolidation.

The accompanying unaudited consolidated financial statements as of March 31, 2010 and for the three months ended March 31, 2010 and 2009 have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Regulation S-X applicable to smaller reporting companies. In the opinion of management, these unaudited consolidated financial statements include all adjustments considered necessary to make the financial statements not misleading. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results for the full fiscal year ending December 31, 2010. The unaudited consolidated interim financial statements should be read in conjunction with the Group’s audited consolidated financial statements and notes thereto for the transition period ended December 31, 2009 as reported in Form 10-K.

Certain of the March 31, 2009 and December 31, 2009 comparative figures have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported financial position, results of operations or cash flows. (See Note 12.)

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Accounts Receivables and Allowance for Doubtful Accounts

The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts receivable. As a consequence, the Company believes that its accounts receivable credit risk exposure beyond such allowances is limited. The Company recognizes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectibility and are maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one- time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. As of March 31, 2010 and December 31, 2009, the allowance for doubtful accounts was approximately $876,848 and $876,848, respectively.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined on the first-in, first-out basis. Write-down of potentially obsolete or slow-moving inventory is recorded based on management’s analysis of inventory levels and the Company’s assessment of estimated obsolescence based upon assumptions about future demand and market conditions. Further write-down of the value may be required in the future if there is rapid technological and structural change in the industry. This may reduce the results of operations of the Company. All of the inventory at March 31, 2010 and December 31, 2009 consists of finished goods.

Goodwill

The Company accounts for acquisitions of business in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”, which results in the recognition of goodwill when the purchase price exceeds the fair value of net assets acquired. Goodwill is not subject to amortization but will be subject to at least an annual evaluation for impairment. Goodwill is stated in the consolidated balance sheet at cost less accumulated impairment loss.

Intangible Assets

The Company acquired certain intangible assets through the acquisition of subsidiaries. These intangible assets are comprised of trademarks, customer lists and relationships, unfulfilled purchase orders, completed technology for the production of Aihua Ultra-High Pressure Mercury (“AHP”) lamps and High Intensity Discharge (“HID”) lamps, a customer base and a distributor base. The acquired trademarks were determined to have indefinite useful lives which are not subject to amortization, unless and until the useful lives are determined to no longer be indefinite. Virtually all of these intangible assets were disposed of as part of the sale of Beijing Aihua New Enterprise Lighting Appliance Co. Limited (“Beijing Aihua”). (See Note 12).

The estimation of the useful lives of the trademarks, completed technologies for the production of AHP and HID, distributor base, customer lists and relationships are affected by factors such as a change in demand, unanticipated competition change in technology, legislative action that results in an uncertain or an adverse change in the regulatory environment or changes in distribution channels and business climate.

Software and licenses are recognized as intangible assets at cost less accumulated amortization. These assets are generally amortized over three to five years.

Impairment of Long-Lived Assets Other than Goodwill

The Company reviews long-lived assets for potential impairment based on a review of projected undiscounted cash flows associated with these assets. Long-lived assets are included in impairment evaluations when events and circumstances exist that indicate the carrying amount of these assets may not be recoverable. Measurement of impairment losses for long-lived assets that the Company expects to hold and use is based on the estimated fair value of the assets. Therefore, future changes in the Company’s strategy and other changes in its operations could impact the projected future operating results that are inherent in estimates of fair value, resulting in impairments in the future. Additionally, other changes in the estimates and assumptions, including the discount rate and expected long-term growth rate, which drive the valuation techniques employed to estimate the fair value of long-lived assets could change and, therefore, impact the assessments of impairment in the future.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

Plant and Equipment and Construction in Progress

Plant and equipment is recorded at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives of equipment are as follows:

Construction in progress is stated at cost which comprises all direct costs incurred in relation to the construction.

The cost of construction in progress will not be depreciated until the construction is completed and the assets are transferred to a specific category of plant and equipment and put into service.

Expenditures for repairs, maintenance and minor renewals and betterments are expensed as incurred.

Revenue Recognition

The Company recognizes revenue when it has persuasive evidence of an arrangement, the product has been delivered and installed or the services have been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. In addition to the aforementioned general policy, the following are specific revenue recognition policies for each major category of revenue.

Advertising – digital Out-of-Home advertising revenue from advertising services, net of agency rebates and commissions, is recognized ratably over the period in which the advertisement is displayed. Prepayments for the advertising services are deferred and recognized as revenue when the advertising services are rendered.

LED solutions - The Company sells its products directly to end users and through distributors. Revenue is recognized when the product is delivered to the customer and all other revenue recognition criteria are met. Revenues for LED solutions activities provided on a “supply and build basis” and for consultancy services for which the revenue generation process lasts for several months are recognized on the percentage-of-completion method, measured either by the ratio of costs incurred up to a given date to estimated total costs for each contract, or by an assessment from a quantity surveyor as appointed by our customers.

Contract costs include all direct material, direct labor, subcontracting costs and other costs and those indirect costs related to contract performance, such as indirect salaries and wages, equipment repairs and depreciation, insurance and payroll taxes. Administrative and general expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount attributable to contract claims is included in revenues when realization is probable and the amount can be reliably estimated. The Company generally provides a one-year warranty for workmanship under its contracts. Warranty claims historically have been inconsequential.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed on these contracts. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued ASC 740 “Income Taxes” (“ASC 740”). ASC 740 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

ASC 740 prescribes a two-step process for valuation of a tax position. Step one is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. Step two is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

Foreign Currency Translation

The functional currency of the Company is Hong Kong dollars (“HKD”). Transactions in other currencies are recorded in HKD at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are measured in HKD at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the consolidated statements of operations as a component of current period earnings.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

Foreign Currency Translation (continued)

For financial reporting purposes, the financial statements of the Company which are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates, revenue and expenses are translated at the average exchange rate for the period and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting from the translation are included in foreign currency translation adjustment in accumulated other comprehensive income, a component of stockholders’ equity.

Segment Information

The Company’s segment reporting is prepared in accordance with ASC 280 “Segment Reporting” (“ASC 280”). The management approach required by ASC 280 requires that the internal reporting structure used by management for making operating decisions and assessing performance be used as the source for presenting the Group’s reportable segments.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, trade receivables, short-term debt and trade payables approximate their fair values due to the short-term maturity of these instruments. The fair value of long-term debts and capital lease obligations approximate their carrying values based on interest rates currently available to the Company.

Comprehensive Income

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Stock-based Payment

The Company adopted ASC 718 “Compensation - Stock Compensation” (“ASC 718”) using the modified prospective method. Under ASC 718, equity instruments issued to employees for their services are measured at the grant-date fair value and recognized in the statement of operations over the service period.

The Company accounts for stock options and stock issued to non-employees for goods or services in accordance with the fair value method of ASC 718, which recognizes the value of such services at the fair value of the equity instrument or of the goods or services, whichever is more readily determinable.

Basic and Diluted Earnings (Loss) per Share

The Company reports basic earnings per share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic earnings per share is computed using the weighted average number of shares outstanding during the periods presented. The weighted average number of shares of the Company represents the common stock outstanding during the period. Diluted earnings per share is based on the assumption that if there is no anti-dilutive effect on the basic earnings per share, all dilutive convertible instruments, options, warrants and other common stock equivalents were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, common stock equivalents are assumed to be exercised at the beginning of the year (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

Fair Value Disclosure

Effective April 1, 2008, the Company adopted ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

Recent Accounting Pronouncements

In April 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-17, “Revenue Recognition – Milestone Method”, which amended guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The consideration earned by achieving the milestone should:

A milestone should be considered substantive in its entirety. An individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated separately to determine whether the milestone is substantive. Accordingly, an arrangement may contain both substantive and non-substantive milestones. The amendments in this ASU are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. The management does not expect adoption of this new guidance will have any impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued updated accounting guidance related to fair value measurements and disclosures which amends and clarifies existing disclosure requirements. This updated accounting guidance requires new disclosures related to amounts transferred into and out of Levels 1 and 2 fair value measurements as well as separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements. This guidance also clarifies existing fair value disclosure requirements related to the level of disaggregation and the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements, which is effective for fiscal years beginning after

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

December 15, 2010. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

In February 2010, the FASB issued an additional accounting pronouncement that amended certain requirements for subsequent events (FASB ASC Topic 855), which requires an SEC filer or a conduit bond obligor to evaluate subsequent events through the date the financial statements are available to be issued and removes the previous requirement to disclose the date through which subsequent events have been evaluated. The amended amendments were effective on issuance of the final pronouncement. The adoption of this pronouncement had no effect on the Company’s consolidated financial statements.

In September, 2009, the FASB issued Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements”, and ASU 2009-14, “Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force”, to amend the existing revenue recognition guidance. ASU 2009-13 amends ASC 605, Revenue Recognition, 25, “Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables”), as follows: modifies criteria used to separate elements in a multiple-element arrangement, introduces the concept of “best estimate of selling price” for determining the selling price of a deliverable, establishes a hierarchy of evidence for determining the selling price of a deliverable, requires use of the relative selling price method and prohibits use of the residual method to allocate arrangement consideration among units of accounting, and expands the disclosure requirements for all multiple-element arrangements within the scope of ASC 605-25.

ASU 2009-14 amends the scope of ASC 985, Software, 605, “Revenue Recognition” (formerly AICPA Statement of Position 97-2, Software Revenue Recognition), to exclude certain tangible products and related deliverables that contain embedded software from the scope of this guidance. Instead, the excluded products and related deliverables must be evaluated for separation, measurement, and allocation under the guidance of ASC 605-25, as amended by ASU 2009-13. The amended guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. An entity may elect retrospective application for all revenue arrangements for all periods presented using the guidance in ASC 250, “Accounting Changes and Error Corrections”. Entities must adopt the amendments resulting from both of these ASUs in the same period using the same transition method, where applicable. Management is reviewing ASU 2009-13 and ASU 2009-14 for applicability to the Company’s revenue recognition policies. The Company will adopt this standard for its fiscal year beginning January 1, 2011.

NOTE 3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts are summarized as follows:

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 4. BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Billings in excess of costs and estimated earnings on uncompleted contracts are summarized as follows:

NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

NOTE 6. INTANGIBLE ASSETS

Intangible assets consist of the following:

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 6. INTANGIBLE ASSETS (continued)

Amortization of $43,007 and $960 for the three months ended March 31, 2010 and $nil and $61,805 for the three months ended March 31, 2009 were accounted for under cost of revenues and general and administrative expenses, respectively.

Estimated amortization for the next 5 years is as follows:

NOTE 7. OUT-OF-HOME ADVERTISING EQUIPMENT, NET

OOH advertising equipment consists of the following:

NOTE 8. CONSTRUCTION IN PROGRESS - OUT-OF-HOME ADVERTISING EQUIPMENT

OOH construction in progress consists of the following:

NOTE 9. OBLIGATIONS UNDER CAPITAL LEASES

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 9. OBLIGATIONS UNDER CAPITAL LEASES (continued)

The following is a summary of future minimum lease payments under capital leases as of March 31, 2010:

The Company entered into capital lease arrangements for leasing a motor vehicle used in its operations. The lease is for a term of five years. For the three months ended March 31, 2010, the capital lease arrangement was on an interest bearing basis. The lease is on a fixed repayment basis and requires no contingent rental payments. The interest expense incurred on this capital lease was $472 and $472 for the three months ended March 31, 2010 and for the nine month transition period ended December 31, 2009, respectively.

NOTE 10. BILLS PAYABLE

In late March 2010, the Company, through its wholly-owned subsidiary Lightscape Technologies (Greater China) Limited (“LTGC”), secured an Account Payable Financing (“AP Financing”) loan facility, which also applies to Letter of Credit and Trust Receipt, with a maximum limit of $642,674 (or HKD5,000,000) from DBS Bank (Hong Kong) Limited (“DBS Bank”) under the Special Loan Guarantee Scheme of the HKSAR Government. The AP Financing loan is operated on a revolving basis, with the AP Financing loan granted at 100% of invoiced value against original invoice, for a maximum maturity of 90 days, less supplier’s credit period, if any. Interest charged against the related bill payable will be at a standard bills rate quoted by DBS from time to time. The AP Financing loan is secured by a Special Loan Guarantee issued by the HKSAR Government for an amount equal to 80% of the loan, a Guarantee and Indemnity for an unlimited amount duly executed by a director of the Company and a director of LTGC, and a Guarantee and Indemnity for an unlimited amount duly executed by Tech Team Investment Limited, the immediate holding company of LTGC.

As of March 31, 2010, bills payable is comprised of the following (See Note 19):

NOTE 11. INCOME TAX

The Company accounts for income taxes pursuant to Accounting Standards Codification 740, Income Taxes (ASC 740). Under this accounting standard, deferred tax assets and liabilities are determined with reference to temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences, and a valuation allowance is to be maintained with respect to deferred tax assets.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 11. INCOME TAX (continued)

The Company establishes a valuation allowance based upon the potential likelihood of realization of the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal and local tax laws of its overseas subsidiaries.

Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.

ASC 740 “Income Taxes” defines a criterion that an individual income tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and provides guidance on measurement, derecognition, classification, accounting for interest and penalties, accounting in interim periods, disclosure and transition.

The Company recognizes that virtually all tax positions in the jurisdictions in which it operates are not free of some degree of uncertainty due to tax law and policy changes by the state. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current state officials.

Based on all known facts and circumstances and current tax law, the Company believes that the total amount of unrecognized tax benefits as of March 31, 2010 is not material to its results of operations, financial condition or cash flows. The Company also believes that the total amount of unrecognized tax benefits as of March 31, 2010, if recognized, would not have a material effect on its effective tax rate. The Company further believes that there are no tax positions for which it is reasonably possible, based on current tax law and policy to which we are subject, that the unrecognized tax benefits will significantly increase or decrease over the next 12 months producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial position or cash flows.

Despite the net profit arising during the three months ended March 31, 2010, no income tax is provided for because the net operating losses carried forward from preceding years are more than enough to offset taxable income for the period, while a tax credit was recorded for the three months ended March 31, 2009 upon issuance of a tax assessment confirming no income tax for the previous year in Lightscape Technologies (Macau) Limited, our Macau subsidiary.

NOTE 12. DISCONTINUED OPERATIONS

The Company accounts for its discontinued operations under the provisions of ASC 205-20 “Presentation of Financial Statements – Discontinued Operations” (“ASC 205-20”). Accordingly, the results of operations and the related charges for discontinued operations in respect of Beijing Aihua New Enterprise Lighting Appliance Co. Ltd. as included previously in other segment, and discontinued component in respect of Golden Cypress Limited as previously included in LED solutions segment, have been classified as “Net profit from discontinued operations, net of income taxes” on the accompanying Consolidated Statements of Operations and Comprehensive Loss. Assets and liabilities of the discontinued operations have been reclassified and reflected on the accompanying Consolidated Balance Sheets as “Current assets of discontinued operations” and “Current liabilities of discontinued operations”.

For comparative purposes, all prior periods presented have been reclassified to reflect the reclassifications on a consistent basis.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

12. DISCONTINUED OPERATIONS (continued)

(a) Golden Cypress Limited

In order to more effectively utilize the financial and other resources, and to focus our business on the digital out-of-home advertising business, on August 31, 2009, the Company disposed of 100% of the outstanding capital stock of Golden Cypress Limited (“Golden Cypress”) to a third party investor (“the Purchaser”), at a consideration of $1,120,000. Golden Cypress is a company incorporated in the British Virgin Islands, which operates an LED solutions business in Asia, the segment in which we reported its operations before the sale (See Note 16).

The purchase price is due to be paid in cash by the Purchaser within 12 months on or before August 31, 2010.

(b) Lighting Source Products Business

In September 2009, the Company’s board of directors authorized management to begin the process to sell all the rights and assets of the lighting source products business, namely the operational subsidiary Beijing Aihua. Beijing Aihua researches, develops, manufactures and sells high-intensity discharge lighting products including metal halide lamps and high-pressure sodium lamps. The Company’s decision to discontinue operations in the lighting source products business was intended to more effectively utilize the Company’s financial and human resources by focusing on the digital out-of-home advertising and LED solutions businesses which management considers to have more promising potential for revenue and margin growth. Pursuant to a sales and purchase agreement (the “S&P Agreement”) dated November 20, 2009, with an effective date of November 30, 2009, between Beijing Illumination (Hong Kong) Limited (“Beijing Illumination”) and Zhejiang Zhong Jun Investment Management Co. Ltd. (“Zhejiang Zhong Jun”), the Company, through its subsidiary Beijing Illumination, agreed to sell to Zhejiang Zhong Jun its 100% equity interest in Beijing Aihua at a consideration of $1,140,751 (or RMB7,800,000). Of the total consideration of $1,140,751, $219,375 (or RMB1,500,000) was received in cash on November 20, 2009. The remaining RMB 6,300,000 (approximately US$921,861) was paid by Zhejiang Zhong Jun to Beijing Illumination in full in cash in March 2010. The Sale and Purchase Agreement closed on April 12, 2010.

We previously reported Beijing Aihua’s operations as part of the Other segment (See Note 16).

(c) Results of Discontinued Operations

Revenues and net profit (loss) from discontinued operations of the Golden Cypress and energy savings business, as included in “others”, and lighting source product business of Beijing Aihua are as follows:

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

12. DISCONTINUED OPERATIONS (continued)

(d) Relevant current assets and current liabilities in respect of discontinued operations are as follows:

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 13. CONCENTRATION OF CREDIT RISK

As of March 31, 2010 and December 31, 2009, the Company has a credit risk exposure of uninsured cash in banks of $72,319 and $5,018 (including cash of discontinued operations of $nil and $473, respectively), respectively. The Company does not require collateral or other securities to support financial instruments that are subject to credit risk.

Subsequent to the measures taken by the Hong Kong Monetary Authority on October 14, 2008 to use the Exchange Fund to guarantee the repayment of all customer deposits held in Authorised Financial Institutions in Hong Kong, following the principles of the existing Deposit Protection Scheme, assurance is made to depositors that their money is fully protected. Hence, as of March 31, 2010 cash of $524,513 (including cash of discontinued operations of $nil) out of a total of $596,832 (including cash of discontinued operations of $nil) of the Company’s cash held with banks in Hong Kong is now subject to no credit risk.

The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

For the three months ended March 31, 2010, 2 customers accounted for approximately 56.1% and 22.0%, respectively, of the Company’s total revenues. As of March 31, 2010, there are four customers whose account receivables to the Company accounted for 45.8%, 24.0%, 10.5% and 10.2%, respectively, of total accounts receivable, of which the first customer of 45.8% and the fourth customer of 10.2% are subsidiaries of the same group of companies.

The Company relies on supplies from numerous vendors. For the three months ended March 31, 2010, three vendors accounted for approximately 58.1%, 21.7% and 11.7%, respectively, of total supply purchases.

The Company’s business, assets and operations are currently focused on the digital out-of-home advertising business and the sales of LED solutions and specialty lighting source products in Hong Kong, China, and Macau, and accordingly, are affected to a significant degree by any economic, political and legal developments in those regions.

NOTE 14. COMMITMENTS

Leases

The Company has operating lease agreements principally for its office facilities and factory buildings. Such leases have remaining terms of approximately 0.75 to 1.50 years. The following is a summary of future minimum lease payments under operating leases as of March 31, 2010. Rental expense was $62,703 and $75,465 for the three months ended March 31, 2010 and 2009, respectively.

Twelve months ending March 31,

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 14. COMMITMENTS (continued)

Capital Expenditures

On October 1, 2009, the Company signed an outdoor digital billboard cooperation agreement with Beijing Chongwen –New World Properties Development Co. Ltd., a New World subsidiary. Under the 10-year agreement, the Company agreed to build two large-scale outdoor LED displays at the Beijing New World Centre mixed-use complex, with screen areas of 150 square meters and 50 square meters, respectively. The Company will source, design, install and service the two LED displays, and secure advertising contracts for advertising and media content to be displayed on the screens. The first LED display began operating and generating advertising revenue on February 10, 2010, while the second LED display is expected to be completed and become operational by June 2010. The Company plans to install additional large-sized LED displays in the second half of 2010, including but not limited to New World Department Store China Ltd. department stores in Wuhan and Changsha, China. The Company estimates the total capital expenditure involved for these LED screens to be approximately $1,092,545, either in cash or through utilization of LED inventory of the Company.

NOTE 15. RELATED PARTY BALANCES AND TRANSACTIONS

Related Party Transactions

The Company acquired Lightscape Macau in 2006 by payment of $1,550 (Macau Pataca (“MOP”) MOP12,400) and issuance of 1,200,000 shares of the Company upon the condition that Lightscape Macau would make a net profit of not less than $2,564,103 (HK$20,000,000) for the period from October 1, 2006 to September 30, 2007 (“the guarantee period”). Lightscape Macau had a loss during the guaranteed period and management is taking action to cancel the 1,200,000 shares issued.

Related Party Balances

The amounts due to a director represents cash advances from him and are unsecured, non-interest bearing and have no fixed repayment terms. The balances related to such advances are as follows:

NOTE 16. SEGMENT INFORMATION

The Company is engaged in continuing operations within two main business segments: (i) digital out-of-home advertising and (ii) LED solutions. These represent the Company’s reportable segments.

The accounting policies of the operating segments are the same as those described in the Summary of Principal Accounting Policies (See Note 2). The Company evaluates performance based on profit or loss from operations, excluding corporate, general and administrative expenses.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 16. SEGMENT INFORMATION (continued)

(i) including goodwill of $776,378 as of March 31, 2010 and $776,378 as of December 31, 2009 included in the LED solutions segment.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 16. SEGMENT INFORMATION (continued)

Geographical Information:

The location of the Company’s long-lived assets is as follows:

Two customers accounted for 61.1% and 24.0% of operating revenue of the LED solutions segment for the three months ended March 31, 2010, respectively, and two customers accounted for 79.8% and 19.4% of operating revenue of the LED solutions segment for the three months ended March 31, 2009.

NOTE 17. SECURED LOANS

On July 13, 2009, the Company obtained a secured loan of $257,069 from a third party financial institution. The loan has a maturity of four months and was to be repaid on November 12, 2009, which was subsequently extended to May 12, 2010, at an interest rate of 3% per month. It is secured by a joint and several guarantee from two directors of subsidiaries of the Company. Upon agreement of both parties, principal will be repaid in four equal monthly installments.

The following is a summary of future repayments related to the secured loan:

NOTE 18. SHORT-TERM BANK BORROWINGS

Short-term bank borrowings relate to an installment loan of $771,208 (or HKD6,000,000) from DBS Bank (Hong Kong) Limited (“DBS Bank”) under the Special Loan Guarantee Scheme of The Government of the Hong Kong Special Administrative Region (“HKSAR Government”). The loan is repayable over 12 equal monthly installments, at an interest rate of 2% per annum over the prime lending rate, which is currently 5%, from May 12, 2009 to April 12, 2010.

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LIGHTSCAPE TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010

NOTE 18. SHORT-TERM BANK BORROWINGS (continued)

The installment loan is secured by a Special Loan Guarantee issued by the HKSAR Government for an amount equal to 70% of the loan, a Guarantee and Indemnity for an unlimited amount duly executed by a director of the Company and a director of a subsidiary, and a Guarantee and Indemnity for an unlimited amount duly executed by a subsidiary. The installment loan has been fully repaid to DBS Bank on April 8, 2010 when the final installment of $66,416 was made.

NOTE 19. POST BALANCE SHEET EVENT

Subsequent to March 31, 2010, the Company increased its drawdown of the Account Payable Financing (“AP Financing”) loan facility, with a maximum limit of $642,674 (or HKD5,000,000) from DBS Bank (Hong Kong) Limited (“DBS Bank”). As of May 21, 2010, the amount utilized with AP Financing loan established is as follows:

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

Forward-Looking Statements

          This quarterly report contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

          Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Use of Certain Defined Terms

          In this quarterly report and unless otherwise specified, all dollar amounts are expressed in United States dollars, all references to “common shares” refer to the common shares in our capital stock and the terms “we”, “us” and “our” refer to Lightscape Technologies Inc. and our subsidiaries.

Company Overview

          We were incorporated under the laws of the State of Nevada under the name “Legacy Bodysentials Inc.” on September 14, 1995. On September 25, 1996, we changed our name to “Legacy Minerals Inc.” and on May 18, 1998, we changed our name to “Global Commonwealth Inc.” On November 12, 1999, we changed our name to “Global Innovative Systems Inc.” and on April 23, 2007, we changed our name to “Lightscape Technologies Inc.” The name change became effective with the OTC Bulletin Board at the opening for trading on April 23, 2007 under the new stock symbol “LTSC”.

          We are a holding company for subsidiaries engaged in two main business activities: (i) digital out-of-home advertising and (ii) light-emitting diode (“LED”) solutions. During the three months ended March 31, 2010, approximately 8% of our revenue was derived from our digital out-of-home advertising business and 92% from our LED solutions business.

Digital Out-of-Home Advertising Business

          We design, install and operate digital out-of-home advertising billboards. We are building and expanding our digital out-of-home advertising network (i) through digital billboard installations which we complete and operate independently, and (ii) through digital display installations which we complete and operate through partnerships and/or joint ventures with major property owners and developers in Asia. We generate revenue by selling advertising space on our digital out-of-home media network to advertisers. We have established and are continuing to establish advertising sales channels for our digital out-of-home advertising network by forming strategic partnerships with advertising agencies and other media industry partners.

          We have partnered directly with New World Group companies New World China Land Limited (“NWCL”) and New World Department Stores China Ltd. (“NWDSC”) to install and operate digital out-of-home advertising screens at properties owned by NWCL and operated by NWDSC throughout mainland China. NWDSC is a department store operator in the PRC with a network of 28 stores in 16 major cities in China.

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          On October 1, 2009, our company signed an outdoor digital billboard cooperation agreement with Beijing Chongwen –New World Properties Development Co. Ltd., a New World subsidiary. Under the 10-year agreement, our company agreed to build two large-scale outdoor LED displays at the Beijing New World Centre mixed-use complex, with screen areas of 150 square meters and 50 square meters, respectively. Our company will source, design, install and service the two LED displays, and secure advertising contracts for advertising and media content to be displayed on the screens. The first LED display began operating and generating advertising revenue on February 10, 2010, while the second LED display is expected to be completed and become operational by June 2010. We plan to install additional large-sized LED displays in second half of 2010, including but not limited to NWDSC department stores in Wuhan and Changsha, China.

          As of May 1, 2010, we have set up and operate 5 out-of-home LED screens in Hong Kong and 30 out-of-home LED screens across various major cities in China, including 2 screens in Beijing, 1 screen in Shenzhen, 1 screen in Jinan and 26 screens in Zhejiang province. 7 new screens are expected to be in operation before the end of 2010. Additionally, we have launched and operate approximately 300 indoor LCD displays within 28 NWDSC department stores across 16 cities in China. Both the LED and LCD advertising networks became operational and began generating advertising revenue in February 2010 from various well-known international brand-name customers.

          Our company has formed strategic partnerships with Ogilvy & Mather Group, a major advertising agency in Hong Kong, and LIME, a diversified media conglomerate, to sell advertising space on our digital out-of-home advertising network. Both of these partnerships are actively promoting out-of-home advertising on our network. We are also in the process of negotiating strategic partnership agreements and contracts with other advertising agencies and advertisers for the sales of advertising space on the network.

LED Solutions Business

          We operate in three principal lines of the LED products and services industry: (i) LED Systems, (ii) original equipment manufacturing (“OEM”) and Licensing, and (iii) LED Screen Rental Service. We provide design, installation and digital control of LED video and lighting systems; OEM and licensing of our proprietary digital controller software system; and rentals of LED screens and related hardware.

Application of Critical Accounting Policies

          Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate, on an on-going basis, our estimates for reasonableness as changes occur in our business environment. We base our estimates on experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          Critical accounting policies are defined as those that are reflective of significant judgments, estimates and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe the following are our critical accounting policies:

Revenue Recognition

          Our company recognizes revenue when it has persuasive evidence of an arrangement, the product has been delivered and installed or the services have been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. In addition to the aforementioned general policy, the following are specific revenue recognition policies for each major category of revenue.

Advertising – Digital out-of-home advertising revenue from advertising services, net of agency rebates and commissions, is recognized ratably over the period in which the advertisement is displayed. Prepayments for the advertising services are deferred and recognized as revenue when the advertising services are rendered.

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LED solutions – Our company sells its products directly to end users and through distributors. Revenue is recognized when the product is delivered to the customer and all other revenue recognition criteria are met. Revenues for LED solutions activities provided on a “supply and build basis” and for consultancy services for which the revenue generation process lasts for several months are recognized on the percentage-of-completion (“PC”) method.

ASC 605 addresses revenue recognition for long-term construction-type contracts. Since most of our company’s LED solution revenue relates to construction contracts, which by their nature are long-term, the underlying accounting principle known as matching — expenses follow revenues — would be violated if the revenue from the contract were recognized upon contract execution or sale of the services.

There are two acceptable methods of revenue recognition under the preceding pronouncements for construction contractors. These are not alternative methods, however, from which contractors are free to choose regardless of the circumstances. One is the PC method and the other is the completed contract (“CC”) method. Under the PC method, the construction contractor recognizes revenue over the life of the construction contract based on the degree of completion. For example, 50% completion means recognition of one-half of revenues, costs, and income. Under the CC method, all revenues, costs, and income are recognized only at completion of the construction project, ordinarily at the end of the construction contract. The PC method is preferred and should be used whenever the conditions for its use are satisfied.

ASC 605 requires that the PC method be used in lieu of the CC method when all of the following are present: (1) reasonably reliable estimates can be made of the extent of progress toward completion, contract revenue and contract costs; (2) the construction contract specifies the parties’ rights as to the goods or services consideration to be paid and received, and the resulting terms of payment or settlement; (3) the contract purchaser has the ability and expectation to perform all contractual duties; and (4) the contract contractor has the same ability and expectation to perform all contractual obligations.

ASC 605 states, “Contract costs generally include direct costs, such as material, labor, and subcontracting costs and indirect costs identifiable with or allocable to the contracts.”

Our company always seeks to use the fairest approximation of the PC method. LED solutions projects for which our clients can provide their quantity surveyor’s certificate (“QC certificate”) allow us to use the certificate as a basis that is applied consistently for estimation and accrual of revenue and related costs. In the absence of a QC certificate, our company will calculate a project’s PC based on the ratio of incurred costs to estimated final costs.

Contract costs include all direct material, labor, subcontracting costs and other costs and those indirect costs related to contract performance, such as indirect salaries and wages, equipment repairs and depreciation, insurance and payroll taxes. Administrative and general expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount attributable to contract claims is included in revenues when realization is probable and the amount can be reliably estimated. We generally provide a one-year warranty for workmanship under our contracts. Warranty claims historically have been inconsequential.

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed on these contracts. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized on these contracts.

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Foreign Currency Translation

          The functional currency of our company is Hong Kong dollars (“HKD”). Transactions in other currencies are recorded in HKD at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are measured in HKD at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the consolidated statements of operations as a component of current period earnings. For financial reporting purposes, the financial statements of our company which are prepared using the functional currency have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rate for the period and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting from the translation are included in foreign exchange adjustment in other comprehensive income, a component of stockholders’ equity.

Impairment of Long-Lived Assets Other than Goodwill

          Our company reviews long-lived assets other than goodwill for potential impairment based on a review of projected undiscounted cash flows associated with these assets. Long-lived assets are included in impairment evaluations when events and circumstances exist that indicate the carrying amount of these assets may not be recoverable. Measurement of impairment losses for long-lived assets that our company expects to hold and use is based on the estimated fair value of the assets. Therefore, future changes in our company’s strategy and other changes in our operations could impact the projected future operating results that are inherent in estimates of fair value, resulting in impairments in the future. Additionally, other changes in the estimates and assumptions, including the discount rate and expected long-term growth rate, which drive the valuation techniques employed to estimate the fair value of long-lived assets could change and, therefore, impact the assessments of impairment in the future.

Impairment of Goodwill

          Our company performs an annual review for impairment of goodwill, or more frequently if impairment indicators arise. Goodwill is considered to be impaired if it is determined that the carrying value of the goodwill exceeds its fair value.

          Impairment test of goodwill is a two-step process. The first step involves comparing the fair values of the applicable reporting units with the respective aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the second step of the goodwill impairment test will be performed to determine the amount of the impairment loss. The second step involves comparing the implied fair value of the related reporting unit’s goodwill with the carrying value of that goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. It is determined that our reporting units are one level below our identified operating segments because discrete financial information is available.

          Fair value is determined under an income approach, applying a discounted cash flow model. The discounted cash flow model determines fair value based on the present value of projected cash flows over a specific projection period. All values are discounted to reflect the risk factor and related uncertainty inherent in an investment in the reporting unit and achieving the projected cash flows. A weighted average cost of capital of a market participant is used as the discount rate. The residual value is determined by applying a constant terminal growth rate to the estimated net cash flows at the end of the projection period. Alternatively, the present value of the residual value may be determined by applying a market multiple at the end of the projection period.

Accounts Receivables and Allowance for Doubtful Accounts

          Our company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. We believe that credit risk is limited because our company routinely assesses the financial strength of our customers and, based upon factors surrounding the credit risk of our customers, we establish an allowance for estimated uncollectible accounts receivable. As a consequence, we believe that our accounts receivable credit risk exposure beyond such allowances is limited. We recognize an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectibility and are maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience.

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An additional reserve for individual accounts is recorded when our company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted.

Material Trends and Uncertainties

          Periodic changes occur in our company’s industry and business that make it reasonably likely that aspects of our future operating results will be materially different from our historical operating results. Sometimes these matters have not occurred, but their existence is sufficient to raise doubt regarding the likelihood that historical operating results are an accurate gauge of future performance. We attempt to identify and describe these trends, events, and uncertainties to assist investors in assessing the likely future performance of our company. Investors should understand that these matters typically are new, sometimes unforeseen, and often are fluid in nature. Moreover, the matters described below are not the only issues that may result in variances between past and future performance nor are they necessarily the only material trends, events, and uncertainties that will affect our company. As a result, investors are encouraged to use this and other information to judge for themselves the likelihood that past performance will be indicative of future performance.

          We are building a digital out-of-home advertising network in the PRC, Hong Kong and other areas of Asia. We are also engaged in the LED solutions business, which includes the design, supply and building of LED systems, OEM and licensing of our proprietary intelligent lighting control software, and rental of LED hardware. Our current business strategy is focused on (i) building and expanding our digital out-of-home advertising network through installations we complete and operate independently, through existing partnerships, and by establishing new partnerships with major property owners and developers in Asia, (ii) establishing advertising sales channels for our digital out-of-home advertising network by forming strategic partnerships with advertising agencies and other media industry partners and (iii) growing sales from our LED solutions business, primarily our LED systems segment, through design, supply and build contracts with high-end real estate developments in China, Hong Kong and Macau. The future performance of these specific business segments may materially affect the future performance of our company.

          In September 2009, our board of directors authorized management to begin the process to sell all the rights and assets of our lighting source products business, namely Beijing Aihua. Our company’s decision to discontinue operations in the lighting source products business was intended to more effectively utilize our financial and human resources by focusing on our digital out-of-home advertising and LED solutions businesses which we consider to have more promising potential for revenue and margin growth. As of September 30, 2009, we classified these assets as assets held for sale and included the results of the lighting source products business in discontinued operations. On November 20, 2009, Beijing Illumination entered into a Sale and Purchase Agreement with Zhejiang Zhong Jun Investment Management Co. Limited (“Zhejiang Zhong Jun”). Pursuant to the terms and conditions of the Sale and Purchase Agreement, Beijing Illumination agreed to sell its 100% ownership of the registered share capital of Beijing Aihua to Zhejiang Zhong Jun in consideration for payments totaling RMB7,800,000 (approximately US$1,140,751). Of this amount, a cash deposit of RMB1,500,000 (approximately US$219,375) was paid by Zhejiang Zhong Jun to Beijing Illumination on November 20, 2009. The remaining RMB6,300,000 (approximately US$921,861) was paid in full by Zhejiang Zhong Jun to Beijing Illumination in cash in March 2010. The Sale and Purchase Agreement closed on April 12, 2010.

          Challenging economic conditions may adversely affect our business. Firstly, we may require outside capital over the near-term to fund our capital needs. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to implement our business and growth strategies or withstand adverse operating results. Secondly, challenging economic conditions have reduced spending by businesses. Our operating results in one or more segments may be adversely affected by these slowing economic conditions and spending patterns. If global economic and market conditions remain uncertain or persist, spread, or deteriorate further, we may experience material impacts on our business, operating results, and financial condition. Lastly, in times of economic slowdown, the number of our customers who default on payments owed to us may increase. We could experience longer payment cycles, increased collection costs and higher bad debt expenses.

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Summary of Key Results

          Total net revenue from continuing operations for the three months ended March 31, 2010 was $3,604,668, which represents a 387% increase from the total net revenue from continuing operations of $739,756 for the three months ended March 31, 2009.

          Net profit from continuing operations for the three months ended March 31, 2010 was $254,755 compared to a net loss of $1,264,159 for the three months ended March 31, 2009.

          Net loss from discontinued operations for the three months ended March 31, 2010 was $4,583 compared to a net loss of $1,004,523 for the three months ended March 31, 2009

          Basic and fully diluted earnings per share for the three months ended March 31, 2010 was $0.00 compared to a basic and fully diluted loss per share of $0.04 for the three months ended March 31, 2009.

Results of Operations – Three months ended March 31, 2010

Net Profit

          Our net profit from continuing operations attributable to Lightscape Technologies Inc. common shareholders for the three months ended March 31, 2010 was $254,755, or $0.00 per basic and fully diluted share, compared to a net loss of $1,264,159, or $0.02 per basic and fully diluted share, for the three months ended March 31, 2009. The increase in net profit from continuing operations is primarily attributable to a $297,479 increase in revenue from our digital out-of-home advertising business, a $2,570,024 increase in revenue from our LED solutions business and a $1,162,068 decrease in operating expenses.

          Our net loss from discontinued operations attributable to Lightscape Technologies Inc. common shareholders for the three months ended March 31, 2010 was $4,583, or $0.00 per basic and fully diluted share, compared to a net loss of $1,004,523, or $0.02 per basic and fully diluted share, for the three months ended March 31, 2009. The decrease in net loss from discontinued operations is primarily attributable to the scaling down of our operations within the lighting source products business and the sale of our lighting source products subsidiary Beijing Aihua.

Revenues and Cost of Revenues

          Total net revenue from continuing operations for the three months ended March 31, 2010 was $3,604,668, which represents a 387% increase from the total net revenue from continuing operations of $739,756 for the three months ended March 31, 2009. The increase in net revenues is attributable to increased sales across both our digital out-of-home advertising business and our LED solutions business.

          Specifically, revenue related to our digital out-of-home advertising business was $297,479 for the three months ended March 31, 2010 as compared to $nil during the three months ended March 31, 2009. The increase in revenue was due to our entry into the digital out-of-home advertising business during calendar year 2009 and the generation of new revenue streams from this business segment beginning during the three months ended June 30, 2009. The gross profit margin on our digital out-of-home advertising business was 50% for the three months ended March 31, 2010. Our digital out-of-home advertising business is expected to contribute increased revenues in the foreseeable future as we build out our digital out-of-home advertising network, primarily through our relationships with New World China Land Limited and New World Department Stores China Ltd. Our company has also formed strategic partnerships with Ogilvy & Mather Group, a major advertising agency in Hong Kong, and LIME, a diversified media conglomerate, to sell advertising space on our digital out-of-home network. Both of these partnerships are actively promoting out-of-home advertising on our network. We are also in the process of negotiating strategic partnership agreements and contracts with other advertising agencies and advertisers for the sales of advertising space on our digital advertising network.

          Revenue related to our LED solutions business increased to $3,307,189 for the three months ended March 31, 2010 from $737,165 during the three months ended March 31, 2009, or an increase of 349%. The increase in revenues was due primarily to the completion of LED solutions contracts with larger average contract sums during the three months ended March 31, 2010 as compared to a similar number of contracts but with relatively smaller contract sums completed during the three months ended March 31, 2009.

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The gross profit margin on our LED solutions business was 25% for the three months ended March 31, 2010. Our LED solutions business is expected to contribute increased revenues in the foreseeable future as several key projects are expected to be completed in the near future.

          Total cost of revenues for the three months ended March 31, 2010 was $2,620,485, which represents an increase of 1,235% as compared to total cost of revenues of $196,342 for the three months ended March 31, 2009. The increase in the total cost of revenues during the three months ended March 31, 2010 was due primarily to the corresponding 387% increase in overall sales revenues. Our overall gross profit margin was 27% for the three months ended March 31, 2010.

Operating Expenses

          Operating expenses for the three months ended March 31, 2010 were $716,236, which represents a 62% decrease in operating expenses from $1,878,304 for the three months ended March 31, 2009. Selling, marketing, general and administrative expenses constitute the main components of our operating expenses.

          Selling and marketing expenses for the three months ended March 31, 2010 decreased approximately 31% to $85,230 from $123,234 for the three months ended March 31, 2009. The decrease is attributable to one-time advertising campaign expenses and sales network set up costs related to the launch of our digital out-of-home advertising network during the three months ended March 31, 2009 with no comparable one-time expenses during the three months ended March 31, 2010. Our company anticipates that selling and marketing expenses will remain steady or increase slightly in the future in step with overall revenue increases. As we further expand our core digital out-of-home advertising and LED solutions businesses, any increases in selling and marketing expenses are expected to be limited as a result of a company-wide cost-cutting initiative implemented throughout 2009 and into 2010.

          General and administrative expenses decreased by 33% during the three months ended March 31, 2010 to $584,870 from $870,910 for the three months ended March 31, 2009. The decrease is primarily attributable to a company-wide cost-cutting initiative implemented throughout 2009 and into 2010. Our company anticipates that general and administrative costs will remain steady or marginally increase in the foreseeable future as our company’s operations continue to expand, however, such increases are expected to continue to be limited as a result of the cost-cutting initiative.

          Bad debts expenses for the three months ended March 31, 2010 decreased to $nil from $798,458 for the three months ended March 31, 2009. The bad debts expense during the three months ended March 31, 2009 resulted from a write off of a trade receivable within our LED solutions business which management deemed irrecoverable and a one-time occurrence.

Liquidity and Capital Resources

          Our principal cash requirements are for operating expenses, including staff costs and funding costs of inventory.

Working Capital

          As of March 31, 2010, our company had an overall net working capital surplus of $1,491,791 compared to a surplus of $1,286,027 as of December 31, 2009, representing an increase in working capital of $205,764. The cash and cash equivalents of our company increased to $596,832 as at March 31, 2010 as compared to $209,508 as of December 31, 2009.

Cash Flow Related to Operating Activities

          Continuing operating activities used cash of $12,381 for the three months ended March 31, 2010 as compared to continuing operating activities generating cash of $1,290,537 for the three months ended March 31, 2009.

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The decrease in cash generated by continuing operating activities was mainly due to the $118,827 increase in the operating asset “Costs and estimated earnings in excess of billings on uncompleted contracts”, which represents more project revenue being recognized during the period than the amount of sales invoices billed to our clients. The increasing total signifies the timing difference between revenue recognition and billing to our clients, which will be reduced significantly towards completion of individual projects, and subsequent timely issuance of relevant invoices. A $977,558 decrease in the operating liability “Billings in excess of costs and estimated earnings on uncompleted contracts” also contributed significantly to the decrease in cash generated by continuing operating activities. This operating liability represents amounts billed on our LED solutions contracts in excess of revenues recognized. The decreasing total signifies that we paid more project costs and collected fewer deposits during the three months ended March 31, 2010. A $785,412 decrease in accrued expenses also detracted from our operational cash flow from continuing activities as we sped up payment of certain invoices. Our operational cash flows were enhanced by the $250,172 net profit during the three months ended March 31, 2010, and by a $1,973,467 increase in trade payables as we took advantage of extended credit term limits from certain suppliers. Discontinued operating activities generated $nil during the three months ended March 31, 2010 as compared to discontinued operating activities using cash of $1,044,696 during the three months ended March 31, 2009.

Cash Flow Related to Investing Activities

          Net cash generated by investing activities of continuing operations amounted to $736,118 during the three months ended March 31, 2010 as compared to investing activities of continuing operations using cash of $1,669,071 during the three months ended March 31, 2009. The increase in cash generated by investing activities of continuing operations is attributable primarily to the $916,550 our company received during the three months ended March 31, 2010 related to the disposal of our subsidiary Beijing Aihua within the lighting source products business. Investing activities of discontinued operations generated $nil during the three months ended March 31, 2010 as compared to investing activities of discontinued operations generating cash of $409,085 during the three months ended March 31, 2009.

          Our company incurred capital expenditures of $180,470 during the three months ended March 31, 2010 and $1,669,071 for the three months ended March 31, 2009. The decrease in capital expenditures for the three months ended March 31, 2010 as compared to March 31, 2009 was mainly attributable to the $894,098 decrease in purchases of digital out-of-home advertising equipment and a $487,073 decrease in purchase of plant and equipment. We plan to install additional large-sized LED displays during the second half of 2010, including but not limited to New World Department Store China Ltd. department stores in Wuhan and Changsha, China. We estimate total capital expenditures for these LED screens to be approximately $1,092,545, in the form of cash and/or utilization of our company’s LED screen inventory.

Cash Flow Related to Financing Activities

          Financing activities of continuing operations used cash of $336,413 for the three months ended March 31, 2010 as compared to financing activities of continuing operations using cash of $35,352 for the three months ended March 31, 2009. The increase in net cash flow used in financing activities of continuing operations was mainly due to the $261,164 repayment of bank loans during the three months ended March 31, 2010 compared to no such repayments during the three months ended March 31, 2009. Financing activities of discontinued operations generated $nil during the three months ended March 31, 2010 as compared to financing activities of discontinued operations generating cash of $37,678 for the three months ended March 31, 2009.

          During the nine months ended December 31, 2009, our company, through our wholly-owned subsidiary Lightscape Technologies (Greater China) Limited (“LTGC”), obtained an installment loan of $771,208 (HKD6,000,000) from DBS Bank (Hong Kong) Limited (“DBS Bank”) under the Special Loan Guarantee Scheme of The Government of the Hong Kong Special Administrative Region (“HKSAR Government”). The loan was repayable over 12 equal monthly installments, at an interest rate of 2% per annum over the prime lending rate, from May 12, 2009 to April 12, 2010. The installment loan was secured by a Special Loan Guarantee issued by the HKSAR Government for an amount equal to 70% of the loan, a Guarantee and Indemnity for an unlimited amount duly executed by a director of our company and a director of LTGC, and a Guarantee and Indemnity for an unlimited amount duly executed by Tech Team Investment Limited, the immediate holding company of LTGC. On April 8, 2010 the twelfth and final loan installment was repaid to DBS Bank.

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          In late March 2010, our company, through LTGC, secured an Account Payable Financing (“AP Financing”) loan facility, which also applies to Letter of Credit and Trust Receipt, with a maximum limit of $642,674 (or HKD5,000,000) from DBS Bank under the Special Loan Guarantee Scheme of the HKSAR Government. The AP Financing loan is operated on a revolving basis, with the AP Financing loan granted at 100% of invoiced value against original invoice, for a maximum maturity of 90 days, less supplier’s credit period, if any. Interest charged against the related bill payable will be at a standard bills rate quoted by DBS from time to time. The AP Financing loan is secured by a Special Loan Guarantee issued by the HKSAR Government for an amount equal to 80% of the loan, a Guarantee and Indemnity for an unlimited amount duly executed by a director of the Company and a director of LTGC, and a Guarantee and Indemnity for an unlimited amount duly executed by Tech Team Investment Limited, the immediate holding company of LTGC.

          Management believes that additional cash may need to be raised in the next twelve months to finance our existing operations and expansion of our digital out-of-home advertising and LED solutions businesses since we have not yet achieved sustainable positive cash flows. However, management also expects to generate positive cash flow in the coming twelve months from the completion of projects which may substantially, if not fully, meet the cash needs of our company during the next twelve months. Management may consider outside capital over the near-term, including the next twelve months, if required to fund our capital needs. Such outside capital may be obtained from additional debt or equity financing, and there is no assurance that capital will be available to meet our continuing development costs or, if the capital is available, that it will be on terms acceptable to us.

Off-Balance Sheet Arrangements

          Our company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Our company does not engage in trading activities involving non-exchange traded contracts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

          As a smaller reporting company, we are not required to provide this information.

Item 4. Controls and Procedures.

          As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, being March 31, 2010, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer. Based upon that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures are effective as at the end of the period covered by this report.

          Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer to allow timely decisions regarding required disclosure.

          Our management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

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Changes in Internal Control over Financial Reporting

          There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

          We know of no material, active, or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation where such claim or action involves damages for more than 10% of our current assets as of March 31, 2010. There are no proceedings in which any of our company’s directors, officers, or affiliates, or any registered or beneficial shareholders, is an adverse party or has a material interest adverse to our company’s interest.

Item 1A. Risk Factors.

          In addition to the other information set forth in this report, including the important information in “Forward-Looking Statements,” you should carefully consider the “Risk Factors” discussed in our company’s Transition Report on Form 10-K for the fiscal nine months ended December 31, 2009. If any of those factors were to occur, they could materially adversely affect our company’s financial condition or future results, and could cause our actual results to differ materially from those expressed in our forward-looking statements in this report. Our company is aware of no material changes to the Risk Factors discussed in our company’s Transition Report on Form 10-K for the fiscal nine months ended December 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

          None.

Item 3. Defaults Upon Senior Securities.

          None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

          None.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K

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*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LIGHTSCAPE TECHNOLOGIES INC.

By: /s/ Bondy Tan
Bondy Tan
President, Secretary and Treasurer
and Chief Executive Officer and Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
Date: May 21, 2010