Lizhan's production and sales were negatively impacted by several one-time disruptions. All of the disruptions have been resolved and the Company has resumed normal operations. First, the Tongxiang Environmental Thermoelectricity Co., Ltd. in Tongxiang City completely shut down its steam production from January 20th to February 12th, 2011 to complete maintenance of its equipment. This mandatory maintenance, which occurs every three or four years at the local government's discretion, was the primary reason for the approximate 25% reduction of the Company's total production. Steam production has returned to normal since Tongxiang Environmental Thermoelectricity Co., Ltd completed its repairs in February 13th, 2011.
The Company decided to reduce the amount of outsourced production during the second quarter of 2011 due to rising costs of outsourced manufacturing. In the second quarter of 2010, Lizhan outsourced approximately 30% of its production in order to fill excess demand for its products. Due to rising labor and commodity costs, outsourcing no longer generated acceptable returns. However, the Company experienced some short-term production and sales disruptions while it transitioned the manufacturing back in-house. Since completing the conversion in March 2011, the Company has resumed normal production.