SECURITIES AND EXCHANGE COMMISSION
X. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period
endedSeptember 30, 2009.or
ended: March 31, 2010
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
. 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:
000-53010CHINA SLP FILTRATION TECHNOLOGY, INC.
(Exact
nameName of
registrantRegistrant as
specifiedSpecified in
its charter)Its Charter)
| Delaware | | 90-0475058 |
Delaware
| 90-0475058
|
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| incorporation or organization) | |
1442 East Lower River Road, Kamas, Utah
| 84036
|
(Address of principal executive offices)
| (Zip Code)
|
Shishan Industrial Park
Nanhai District, Foshan City, Guangdong Province, PRC
(Address of principal executive offices, Zip Code)
(86 22) 757-86683197
(Registrant’s telephone number, including area code)
(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 precedingpast 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 .x No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes .¨ No .¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨ | | | Accelerated Filer ¨ |
Large accelerated filer
| .Non-Accelerated Filer ¨
| Accelerated filer
| .
|
| | | |
Non-accelerated filer
| . (Do(Do not check if a smaller reporting company)
| Smaller reporting company | Xx.
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes X¨.No .x The number of shares outstanding of
each of the
registrant’sissuer’s classes of common
stock, $0.001 par value, was 13,000,000.
PERPETUAL TECHNOLOGIES, INC.
FORM 10-Q
SEPTEMBER 30, 2009
INDEX
equity, as of November17, 2010 is as follows: | Class of Securities | | | Shares Outstanding |
| Common Stock, $0.001 par value | | 15,265,714 |
Quarterly Report on FORM 10-Q
Three Months Ended March 31, 2010
Table of Contents
| Page
PART I | |
PART I.
| Financial Information
FINANCIAL INFORMATION | 3
|
| | | |
| ITEM 1. | Item 1.
FINANCIAL STATEMENTS. | Unaudited Condensed Financial Statements
| 3
4 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | | 16 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | Condensed
|
| ITEM 4. | CONTROLS AND PROCEDURES. | 24 |
| | |
| PART II | |
| OTHER INFORMATION | |
| ITEM 1. | LEGAL PROCEEDINGS. | |
| ITEM 6. | EXHIBITS. | 25 |
EXPLANATORY NOTE
China SLP Filtration Technology, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q (“Form 10-Q/A”) to restate its consolidated financial statements for the three and six months ended March 31, 2010. Subsequent to the issuance of the Company’s consolidated unaudited interim financial statements for the three and six months ended March 31, 2010, included in its Quarterly Report on Form 10-Q for the period ended March 31, 2010, filed with the United States Securities and Exchange Commission (the “SEC”) on May 24, 2010, as amended on May 26, 2010 (collectively, the “Original Form 10-Q”), and in connection with the SEC’s review of the Company’s registration statement on Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010, it was identified that the Company failed to record a liability of $75,000 owed to each of United Best and Primary Capital (totaling $150,000) for advisory services rendered in connection with its private placement of convertible notes which closed on February 12, 2010. Accordingly, the Company is restating its unaudited interim financial statements for the three month and six month periods ended March 31, 2010 and 2009, as set forth in the Original Form 10-Q.
See Item 1 of Part I, “Financial Statements — Note 18 — Restatements of Previously Issued Financial Statements” for a detailed discussion of the effects of the restatement of the Company’s unaudited interim financial statements for the three and six months ended March 31, 2010.
For purposes of this Form 10-Q/A, and in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, each item of the Original Form 10-Q that was affected by the restatement has been amended and restated in its entirety. No material changes have been made in this Form 10-Q/A to update other disclosures presented in the Original Form 10-Q, except as required to reflect the effects of the restatement. This Form 10-Q/A does not reflect events occurring after the filing of the Original Form 10-Q or modify or update those disclosures, including the exhibits to the Original Form 10-Q affected by subsequent events. The following sections of this Form 10-Q/A have been amended to reflect the restatement:
| · | Part I—Item 1—Financial Statements (Condensed Consolidated Balance Sheets – September 30, 2009 (unaudited) and December 31, 2008 | 3
|
| | | |
| | Unaudited Condensed Statements of Operations for the three and nine month periods ended September 30, 2009 and 2008, and from the period of Reactivation on October 26, 2006 through September 30, 2009
| 4
|
| | | |
| | Unaudited CondensedConsolidated Statements of Cash Flows for the nine month periods ended September 30, 2009 and 2008, and from the period of Reactivation on October 26, 2006 through September 30, 2009
Flows), |
| 5
|
| · | | | |
| | Notes to Unaudited Condensed Financial Statements
| 6
|
| | | |
| Part I—Item 2. | Management’s2—Management's Discussion and Analysis of Financial Condition and Results of Operations
(Liquidity and Capital Resources), and |
| 8
|
| · | | | |
| Part I—Item 3. | Quantitative and Qualitative Disclosures About Market Risk
| 8
|
| | | |
| Item 4T.
| 4—Controls and procedures | 9
|
| | | |
PART II.
| Other Information
| 9
|
| | | |
| Item 6.
| Exhibits
| 9
|
| | | |
| | Signatures
| 9
Procedures |
This Form 10-Q/A is dated as of a current date and includes as exhibits 31.1, 31.2 and 32 new certifications by the Company’s Chief Executive Officer and Chief Financial Officer as required by Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Form 10-Q for the fiscal quarter ended March 31, 2010.
2
PART I -
FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS. |
China SLP Filtration Technology, Inc.
Condensed Consolidated Financial Statements
PERPETUAL TECHNOLOGIES,
Three and Six Months Ended March 31, 2010 and 2009
Index to Condensed Consolidated Financial Statements
| Page |
| |
| Unaudited Condensed Consolidated Balance Sheets (Restated) | 5 |
| |
| Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (Restated) | 6 |
| |
| Unaudited Condensed Consolidated Statements of Cash Flows (Restated) | 7 |
| |
| Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity (Restated) | 8 |
| |
| Notes to Unaudited Consolidated Financial Statements (Restated) | 9 |
CONSOLIDATED BALANCE SHEETS
| | | | |
ASSETS | | (Unaudited) | | |
| | September 30, | | December 31, |
| | 2009 | | 2008 |
CURRENT ASSETS: | | | | |
Cash | $ | 2,402 | $ | 14,680 |
Prepaid expenses | | 324 | | 2,309 |
Total Current Assets | | 2,726 | | 16,989 |
| | | | |
PROPERTY & EQUIPMENT, net | | 1,659 | | - |
| | | | |
Total Assets | $ | 4,385 | $ | 16,989 |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | |
| | | | |
CURRENT LIABILITIES: | | | | |
Accrued interest – related party | $ | 2,138 | $ | 1,222 |
Stockholder advances – related party | | 20,000 | | 15,000 |
| | | | |
Total Current Liabilities | | 22,138 | | 16,222 |
| | | | |
Total Liabilities | | 22,138 | | 16,222 |
| | | | |
STOCKHOLDERS' EQUITY (DEFICIT): | | | | |
Preferred stock, $0.001 par value, | | | | |
10,000,000 shares authorized, | | | | |
no shares issued and outstanding | | - | | - |
Common stock, $0.001 par value, | | | | |
200,000,000 shares authorized, 13,000,000 and | | | | |
13,000,000 shares issued and outstanding, respectively | | 13,000 | | 13,000 |
Capital in excess of par value | | 24,290 | | 24,290 |
Deficit accumulated during the | | | | |
development stage | | (55,043) | | (36,523) |
| | | | |
Total Stockholders' Equity (Deficit) | | (17,753) | | 767 |
| | | | |
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 4,385 | $ | 16,989 |
| | | Restated March 31, | | | | |
| | | 2010 | | | September 30, | |
| | | (Unaudited) | | | 2009 | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 6,092,334 | | | $ | 3,297,648 | |
| Accounts receivable - Net | | | 1,914,786 | | | | 1,424,835 | |
| Advance to suppliers | | | 1,341,121 | | | | 685,551 | |
| Inventory | | | 1,022,404 | | | | 1,197,289 | |
| Prepaid expenses and other current assets | | | 189,535 | | | | 45,656 | |
| Total Current Assets | | | 10,560,180 | | | | 6,650,979 | |
| | | | | | | | | |
| Deposits | | | 1,946,280 | | | | - | |
| Property and equipment - Net | | | 10,130,508 | | | | 10,711,865 | |
| Receivable from related party | | | 213,035 | | | | 773,672 | |
| Land use rights - Net | | | 530,364 | | | | 537,350 | |
| Total Assets | | $ | 23,380,367 | | | $ | 18,673,866 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Short term loan | | $ | 3,803,327 | | | $ | 4,578,409 | |
| Accounts payable and accrued liabilities | | | 521,247 | | | | 410,114 | |
| Client's deposits | | | - | | | | 75,176 | |
| Taxes payable | | | 17,154 | | | | 726 | |
| Warrants liabilities | | | 1,052,000 | | | | | |
| Convertible notes payable $4,140,000, net of discount -$2,134,793 | | | 2,005,207 | | | | - | |
| | | | | | | | | |
| Total Current Liabilities | | | 7,398,935 | | | | 5,064,425 | |
| | | | | | | | | |
| Total Liabilities | | | 7,398,935 | | | | 5,064,425 | |
| Stockholder's Equity | | | | | | | | |
| | | | | | | | | |
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding | | | - | | | | - | |
| | | | | | | | | |
| Common stock, $0.001 par value, 40,000,000 shares authorized, 15,235,714 and 14,510,214 shares issued and outstanding at March 31, 2010 and September 30, 2009 | | | 15,236 | | | | 14,510 | |
| Additional paid-in Capital | | | 8,205,582 | | | | 7,548,752 | |
| Retained earnings | | | 6,240,,212 | | | | 4,500,532 | |
| Accumulated other comprehensive income | | | 1,520,402 | | | | 1,545,647 | |
| Total Stockholder's Equity | | | 15,981,432 | | | | 13,609,441 | |
| | | | | | | | | |
| Total Liabilities and Stockholder's Equity | | $ | 23,380,367 | | | $ | 18,673,866 | |
See accompanying notes to financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
| | | Three Months Ended | | | Six Months Ended | |
| | | March 31 | | | March 31 | |
| | | Restated 2010 | | | 2009 | | | Restated 2010 | | | 2009 | |
| Net Sales | | $ | 4,628,671 | | | $ | 2,214,940 | | | $ | 9,847,025 | | | $ | 4,540,833 | |
| Cost of Sales | | | 3,237,311 | | | | 1,373,921 | | | | 6,843,833 | | | | 2,906,402 | |
| Gross Profit | | | 1,391,360 | | | | 841,019 | | | | 3,003,192 | | | | 1,634,431 | |
| Selling, General and Administration expenses | | | 557,461 | | | | 275,526 | | | | 812,138 | | | | 758,442 | |
| Income from Operations | | | 833,899 | | | | 565,493 | | | | 2,191,054 | | | | 875,989 | |
| | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | |
| Interest Income | | | 292 | | | | - | | | | 517 | | | | - | |
| Interest Expense | | | (390,355 | ) | | | (76,286 | ) | | | (452,387 | ) | | | (160,506 | ) |
| Gain on disposal of fixed assets | | | 496 | | | | - | | | | 496 | | | | 16,263 | |
| Total other income (expenses) | | | (389,567 | ) | | | (76,286 | ) | | | (451,374 | ) | | | (144,243 | ) |
| Income before Income Taxes | | | 444,332 | | | | 489,207 | | | | 1,739,680 | | | | 731,746 | |
| Income tax provision | | | - | | | | - | | | | - | | | | - | |
| Net Income | | $ | 444,332 | | | $ | 489,207 | | | $ | 1,739,680 | | | $ | 731,746 | |
| | | | | | | | | | | | | | | | | |
| Other Comprehensive Income | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | | (23,939 | ) | | | 14,446 | | | | (25,245 | ) | | | (90,836 | ) |
| Total Comprehensive Income | | $ | 420,393 | | | $ | 503,653 | | | $ | 1,714,435 | | | $ | 640,910 | |
| | | | | | | | | | | | | | | | | |
| Net Income Per Common Share: | | | | | | | | | | | | | | | | |
| Basic and diluted | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.12 | | | $ | 0.05 | |
| Weighted-Average Common Shares Outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 14,897,143 | | | | 14,510,204 | | | | 14,701,547 | | | | 14,510,204 | |
| Diluted | | | 15,798,367 | | | | 14,510,204 | | | | 15,147,208 | | | | 14,510,204 | |
See accompanying notes to financial statements
Consolidated Statements of Cash Flows
(Unaudited)
| | | Six Months Ended March 31 | |
| | | Restated 2010 | | | 2009 | |
| | | | | | | |
| Cash Flow from Operating Activities: | | | | | | |
| Net income | | $ | 1,739,680 | | | $ | 731,746 | |
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | | | | | |
| Depreciation | | | 569,358 | | | | 352,070 | |
| Amortization | | | 6,217 | | | | 6,204 | |
| Non-cash interest charges | | | 304,950 | | | | - | |
| Gain from disposal of fixed assets | | | (496 | ) | | | (16,263 | ) |
| Change in operating assets and liabilities: | | | - | | | | - | |
| Accounts receivable | | | (491,997 | ) | | | (122,271 | ) |
| Advance to suppliers | | | (656,586 | ) | | | 3,271,122 | |
| Inventory | | | 173,173 | | | | (124,682 | ) |
| Prepaid expenses and other current assets | | | (143,956 | ) | | | (337,288 | ) |
| Accounts payable & accrued liabilities | | | 111,719 | | | | (71,094 | ) |
| Clients' deposits | | | (75,069 | ) | | | (93,257 | ) |
| Taxes payable | | | 16,430 | | | | (9,843 | ) |
| Net cash provided by (used in) operating activities | | | 1,553,423 | | | | 3,586,444 | |
| | | | | | | | | |
| Cash Flow from Investing Activities: | | | | | | | | |
| Addition-property and equipment, land use right | | | (3,333 | ) | | | (6,010,706 | ) |
| Deposits for purchase of equipment | | | (1,946,280 | ) | | | - | |
| Proceeds from disposal of fixed assets | | | 496 | | | | 16,263 | |
| Proceeds from related party receivable | | | 559,535 | | | | 1,066,996 | |
| Net cash (used in) provided by investing activities | | | (1,389,582 | ) | | | (4,927,447 | ) |
| | | | | | | | | |
| Cash Flow from Financing Activities: | | | | | | | | |
| Dividend paid | | | - | | | | (1,070,823 | ) |
| Repayment of loans | | | (768,535 | ) | | | (4,963,547 | ) |
| Proceeds from loans | | | 3,404,798 | | | | 6,229,337 | |
| Net cash provided by (used) in financing activities | | | 2,636,263 | | | | 194,967 | |
| | | | | | | | | |
| Effects of Exchange Rates on Cash | | | (5,418 | ) | | | (19,995 | ) |
| Net increase (decrease) in cash and cash equivalents | | | 2,794,686 | | | | (1,166,031 | ) |
| | | | | | | | | |
| Cash and cash equivalents, beginning of year | | | 3,297,648 | | | | 2,367,570 | |
| | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 6,092,334 | | | $ | 1,201,539 | |
| | | | | | | | | |
| Supplemental information of cash flows | | | | | | | | |
| Cash paid for interest | | $ | 85,329 | | | $ | 58,909 | |
| Cash paid for income taxes | | $ | - | | | $ | - | |
See accompanying notes to financial statements
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Restated)
| | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | | Additional | | | | | | Other | | | Total | |
| | | Common Stock | | | Preferred Stock | | | Paid-in | | | Retained | | | Comprehensive | | | Stockholders' | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings (Deficit) | | | Income | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, September 30, 2008 | | | 14,510,204 | | | $ | 14,510 | | | | - | | | $ | - | | | $ | 7,548,752 | | | $ | 2,054,880 | | | $ | 1,602,725 | | | $ | 11,220,867 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,445,652 | | | | - | | | | 2,445,652 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | | | | | - | | | | (57,078 | ) | | | (57,078 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, September 30, 2009 | | | 14,510,204 | | | $ | 14,510 | | | | - | | | $ | - | | | $ | 7,548,752 | | | $ | 4,500,532 | | | $ | 1,545,647 | | | $ | 13,609,441 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares effectively issued to former shareholders - 2/12/2010 | | | 2,600,000 | | | | 2,600 | | | | | | | | | | | | (2,600 | ) | | | | | | | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cancellation of stock in recapitalization | | | (2,528,000 | ) | | | (2,528 | ) | | | | | | | | | | | 2,528 | | | | | | | | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | - | |
| Shares issued to placement agents in conjunction with convertible note | | | 653,510 | | | | 654 | | | | - | | | | - | | | | 656,902 | | | | | | | | - | | | | 657,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income - Restated | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,739,680 | | | | (25,245 | ) | | | 1,714,435 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, March 31, 2010 - Restated | | | 15,235,714 | | | $ | 15,236 | | | | - | | | $ | - | | | $ | 8,205,582 | | | $ | 6, 240,212 | | | $ | 1,520,402 | | | $ | 15,981,432 | |
The accompanying notes are an integral part of these unaudited
condensedconsolidated financial
statements.statements
3
Notes to Consolidated Financial Statements for the six months ended March 31, 2010
(Unaudited - Expressed in US dollars)
| 1. | Nature of Business and Organization History: |
China SLP Filtration Technology, Inc., formerly known as Perpetual Technologies, Inc. (the “Company” or “we”) was incorporated under the laws of the State of Delaware in March, 2007. Prior to reverse merger we had no operations or substantial assets.
PERPETUAL TECHNOLOGIES, INC.
[A Development Stage
Hong Hui Holdings Limited (“Hong Hui”) was formed in January, 2010 in the territory of the British Virgin Islands as a holding company by the shareholders of Technic International Inc. (“Technic”). On formation, each shareholder transferred his ownership of Technic to Hong Hui. As a result of this transaction, Technic became a wholly-foreign owned enterprise under PRC law. This acquisition was accounted for as a transfer of entities under common control.
Technic was incorporated in September 2005 under the laws of Hong Kong as a holding company that owns 100% equity interest of Nanhai Jinlong Nonwoven Co. Ltd. (“Jin Long”) located in Foshan City, Guangdong Province, the People’s Republic of China (“China”). Jin Long was established in 2000 under the laws of China. In September 2005, Jin Long became a wholly-owned foreign enterprise (“WOFE). In April 2009, Jin Long changed its name to Foshan S.L.P. Special Materials Co., Ltd (“Foshan SLP”).
On February 12, 2010, we entered into a share exchange agreement with the owners of all of the outstanding shares of Hong Hui. Under the terms of the share exchange agreement we issued and delivered to the Hong Hui stockholders a total of 14,510,204 (72,551,020 pre-split) shares of our common stock in exchange for all of the outstanding shares of Hong Hui. As a result of the share exchange or reverse merger, Hong Hui became our wholly-owned subsidiary. The transaction is accounted for as a reverse acquisition, except that no goodwill or other intangible has been recorded. The recapitalization is considered to be a capital transaction in substance, rather than a business combination.
On March 24, 2010 the Company
] effected a 1 for 5 reverse stock split of its outstanding common stock. The effect of the reverse split is retrospectively showed in all periods presented.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
We engage in manufacturing, marketing and sale, research and development of polyester spun-bonded nonwoven fabrics, polyester needle-punch nonwovens, spun-laced nonwovens, polylactic acid nonwovens, and special functions nonwovens ( flame retardant, anti-static, oil & water repellent, etc).
| | | | | | | | | | |
| | | | | | | | | | Cumulative |
| | | | | | | | | | totals from |
| | | | | | | | | | Reactivation |
| | For the Three | | For the Nine | | on Oct. 26, |
| | Months Ended | | Months Ended | | 2006 through |
| | September 30, | | September 30, | | September 30, |
| | 2009 | | 2008 | | 2009 | | 2008 | | 2009 |
| | | | | | | | | | |
REVENUE | $ | - | $ | | $ | 1,000 | $ | - | $ | 1,000 |
| | | | | | | | | | |
EXPENSES: | | | | | | | | | | |
General and administrative | | 2,895 | | 3,070 | | 18,313 | | 10,914 | | 52,324 |
Depreciation expense | | 97 | | - | | 291 | | - | | 291 |
| | (2,992) | | 3,070 | | 18,604 | | 10,914 | | 52,615 |
LOSS BEFORE OTHER INCOME (EXPENSE) | | (2,992) | | (3,070) | | (17,604) | | (10,914) | | (51,615) |
| | | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | | | |
Interest Expense | | - | | (134) | | - | | (600) | | (1,289) |
Interest Expense – related party | | (316) | | (100) | | (916) | | (713) | | (2,139) |
| | | | | | | | | | |
Total Other Income (Expense) | | (316) | | (234) | | (916) | | (1,313) | | (3,428) |
| | | | | | | | | | |
LOSS BEFORE INCOME TAXES | | (3,808) | | (3,304) | | (18,520) | | (12,227) | | (55,043) |
| | | | | | | | | | |
INCOME TAXES | | - | | - | | - | | - | | - |
| | | | | | | | | | |
NET LOSS | $ | (3,808) | $ | (3,304) | $ | (18,520) | $ | (12,227) | $ | (55,043) |
| | | | | | | | | | |
LOSS PER COMMON SHARE: | $ | (.00) | $ | (.00) | $ | (.00) | $ | (.00) | | |
| | | | | | | | | | |
WEIGHTED AVERAGE NUMBER OF SHARES | | 13,000,000 | | 11,000,000 | | 13,000,000 | | 11,000,000 | | |
| 2. | Basis of presentation and principles of consolidation: |
The accompanying
notes are an integral partcondensed consolidated balance sheet as of
these unauditedMarch 31, 2010, the condensed
financial statements.
4
PERPETUAL TECHNOLOGIES, INC.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| | | | | | |
| | | | | | Cumulative |
| | | | | | totals from |
| | | | | | Reactivation |
| | For the nine | | on Oct. 26, |
| | Months Ended | | 2006 through |
| | September 30, | | September 30, |
| | 2009 | | 2008 | | 2009 |
Cash Flows from Operating Activities: | | | | | | |
Net loss | $ | (18,520) | $ | (12,227) | $ | (55,043) |
Adjustments to reconcile net loss to net cash | | | | | | |
provided (used) by operating activities: | | | | | | |
Changes in assets and liabilities: | | | | | | |
Non-cash expenses | | - | | - | | 1,290 |
Depreciation expense | | 291 | | - | | 291 |
Decrease (increase) in prepaid expense | | 1,985 | | - | | (324) |
Increase (decrease) in accounts payable | | - | | 300 | | - |
Increase in accrued interest | | - | | 600 | | |
Increase in accrued interest – related party | | 916 | | 713 | | 2,138 |
| | | | | | |
Net Cash Provided (Used) by Operating Activities | | (15,328) | | (10,614) | | (51,648) |
| | | | | | |
Cash Flows from Investing Activities | | | | | | |
Purchase of property and equipment | | (1,950) | | - | | (1,950) |
| | | | | | |
Net Cash (Used) by Investing Activities | | (1,950) | | - | | (1,950) |
| | | | | | |
Cash Flows from Financing Activities: | | | | | | |
Stockholder advances | | 5,000 | | 10,000 | | 20,000 |
Convertible notes payable | | - | | - | | 10,000 |
Proceeds from common stock issuances | | - | | - | | 26,000 |
| | | | | | |
Net Cash Provided by Financing Activities | | 5,000 | | 10,000 | | 56,000 |
| | | | | | |
Net Increase (Decrease) in Cash | | (12,278) | | (614) | | 2,402 |
| | | | | | |
Cash at Beginning of Period | | 14,680 | | 1,994 | | - |
| | | | | | |
Cash at End of Period | $ | 2,402 | $ | 1,380 | $ | 2,402 |
| | | | | | |
Supplemental Disclosures of Cash Flows Information: | | | | | | |
Cash paid during the period for: | | | | | | |
Interest | $ | - | $ | - | $ | - |
Income taxes | $ | - | $ | - | $ | - |
Supplemental Scheduleconsolidated statements of Non-cash Investing and Financing Activities:
Foroperations for the nine months ended September 30,2009:
None
ForMarch 31, 2010 and 2009, and the ninecondensed consolidated statements of cash flow for the six months ended September 30,2008:
None
The accompanying notesMarch 31, 2010 and 2009 are an integral part of theseunaudited. These unaudited condensed financial statements.
5
PERPETUAL TECHNOLOGIES, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Condensed Financial Statements -The accompanyingconsolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2009 and 2008 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statementsare prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed(“U.S. GAAP”). They do not include all the disclosures required for annual financial statements under generally accepted accounting principles. These unaudited consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended September 30, 2009.
Operating results for the six-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2010 or for any other period.
China SLP Filtration Technology, Inc.
Notes to Consolidated Financial Statements for the six months ended March 31, 2010
(Unaudited - - Expressed in US dollars)
| 3. | Summary of significant accounting policies: |
These unaudited consolidated financial statements follow the same accounting policies and methods of application as the Company's most recent annual financial statements.
| | | March 31, | | | September 30, | |
| As of | | 2010 | | | 2009 | |
| Accounts receivable | | $ | 1,951,619 | | | $ | 1,461,721 | |
| Less: Allowance for doubtful accounts | | | (36,833 | ) | | | (36,886 | ) |
| | | | | | | | | |
| Accounts receivable – Net | | $ | 1,914,786 | | | $ | 1,424,835 | |
As of March 31, 2010 and September 30, 2009, customer accounts receivable balances exceeding 10% of the total balance are as follows:
| | March 31, 2010 | |
| Customers: | | Amount | | | Percentage | |
| Wu jiang jingshan | | $ | 338,704 | | | | 17 | % |
| Dalian Ji er | | | 440,766 | | | | 23 | % |
| Shang hai run dong | | | 239,591 | | | | 12 | % |
| San Ya | | | 210,877 | | | | 11 | % |
| | | September 30,2009 | |
| Customers: | | Amount | | | Percentage | |
| Wu jiang jingshan | | $ | 434,556 | | | | 30 | % |
| Shen zhen Ya ming water | | | 185,625 | | | | 13 | % |
| Xiantao ruixin | | | 181,260 | | | | 13 | % |
As of March 31, 2010 and September 30, 2009, respectively, advances to suppliers consisted of deposits on account with several key raw materials suppliers to secure preferential pricing of raw materials. The deposits also are used to ensure timely delivery of materials purchased.
| | March 31, | | | September 30, | |
| | 2010 | | | 2009 | |
| Raw materials | | $ | 85,239 | | | $ | 40,126 | |
| Work in progress | | | 240,386 | | | | 50,443 | |
| Finished goods | | | 696,779 | | | | 1,106,720 | |
| | | | | | | | | |
| | | $ | 1,022,404 | | | $ | 1,197,289 | |
China SLP Filtration Technology, Inc.
Notes to Consolidated Financial Statements for the six months ended March 31, 2010
(Unaudited - - Expressed in US dollars)
| 7. | Property and equipment: |
| As of | | March 31, 2010 | |
| | | | | | Accumulated | | | Net book | |
| | | Cost | | | depreciation | | | value | |
| Building and plant | | $ | 2,958,252 | | | $ | 592,938 | | | $ | 2,365,314 | |
| Machinery | | | 11,158,514 | | | | 3,585,441 | | | $ | 7,573,073 | |
| Office equipment and other equipment | | | 770,547 | | | | 669,760 | | | $ | 100,787 | |
| Vehicles | | | 139,553 | | | | 48,219 | | | $ | 91,334 | |
| | | $ | 15,026,866 | | | $ | 4,896,358 | | | $ | 10,130,508 | |
| As of | | September 30, 2009 | |
| | | | | | Accumulated | | | Net book | |
| | | Cost | | | Depreciation | | | value | |
| Building and plant | | $ | 2,958,978 | | | $ | 526,654 | | | $ | 2,432,324 | |
| Machinery | | | 11,174,517 | | | | 3,096,112 | | | $ | 8,078,405 | |
| Office equipment and other equipment | | | 771,829 | | | | 668,448 | | | $ | 103,381 | |
| Vehicles | | | 139,753 | | | | 41,998 | | | $ | 97,755 | |
| | | $ | 15,045,077 | | | $ | 4,333,212 | | | $ | 10,711,865 | |
For the three months ended March 31, 2010, depreciation expense of $271,848 was included in cost of sales and $16,285 was included in selling, marketing, and administrative expenses, for a total of $288,133.
For the three months ended March 31, 2009, depreciation expense of $158,525 was included in cost of sales and $16,035 was included in selling, marketing, and administrative expenses, for a total of $174,560.
For the six months ended March 31, 2010, depreciation expense of $536,787 was included in cost of sales and $32,571 was included in selling, marketing, and administrative expenses, for a total of $569,358
For the six months ended March 31, 2009, depreciation expense of $318,986 was included in cost of sales and $33,084 was included in selling, marketing, and administrative expenses, for a total of $352,070.
As of March 31, 2010, we have deposits of $1,946,280 with equipment providers to ensure timely fulfillment of our purchase contracts to build new product assembly lines.
China SLP Filtration Technology, Inc.
Notes to Consolidated Financial Statements for the six months ended March 31, 2010
(Unaudited - - Expressed in US dollars)
| | | March 31 ,2010 | | | September 30 ,2009 | |
| | USD | | | USD | |
| Cost | | $ | 621,817 | | | $ | 622,578 | |
| Less: accumulated amortization | | | (91,453 | ) | | | (85,228 | ) |
| | | $ | 530,364 | | | $ | 537,350 | |
For the three months ended March 31, 2010 and 2009, amortization expense was $3,114 and $3,110, respectively.
For the six months ended March 31, 2010 and 2009, amortization expense was $6,217 and $6,204 respectively.
| 10. | Accounts Payable and Accrued Liabilities: |
The restated accounts payable and accrued liabilities include fees of $75,000 ($150,000 in total) incurred and payable to each of Primary Capital and Unites Best for their advisory services provided in connection with the convertible note financing which closed on February 12, 2010.
The Company has several loans with Agricultural Bank of China, Foshan Branch and these loans are due in September 2010. The interest on the outstanding balance is payable every month at rates ranging from 5.93% to 7.75% per annum.
| 12. | Convertible note payable: |
On February 12, 2010, immediately following the closing of a share exchange agreement we entered into a note purchase agreement with certain accredited investors for the sale of convertible notes theretoin the aggregate principal amount of $4,140,000 and warrants. In addition to the finance cost of approximately $730,000, 654,510 common shares were issued to placement agents. The notes have the following material terms:
Maturity: The notes mature after one year. If principal is not is not paid on maturity then 150% of the principal amount shall be payable.
Interest: 10% per annum payable quarterly increasing to 15% if there is a default. $204,464 is being held in escrow from the closing proceeds and was recorded as prepaid expense.
Conversion: In the event of the closing of any equity or series of related financings resulting in aggregate gross proceeds to the Company of at least $20,000,000 (or such lesser amount as shall be approved in writing by the holder(s) of notes evidencing at least 50% of the principal amount of the notes then outstanding), a “qualified financing,” prior to the maturity date of the notes, the principal amount of the notes converts automatically into the securities sold in such financing at a 65% discount to the offering price of such securities.
Besides the stated interest expense at 10% per annum, interest expenses are recorded to accrete the note to its balance of $4,140,000 due on February 2011. Accretion on interest expenses amounted to $304,950 and $304,950 for the three months and six months ended March 31, 2010.
Allocation of the proceeds:
After allocating $1,052,000 to the initial fair value of warrants derivative liabilities, and agent fee of $730,187, the remaining proceeds received from the convertible note of $3,409,813 were allocated to placement agent common stock and convertible note payable based on their relative fair value. This results in a debt discount of $2,439,743 from the face amount of the convertible note payable, accordingly, the discount is being amortized over the life of the note to accrete the note to its redemption value. The proceeds allocation is as follows:
| February 12, 2010 convertible note finance | | | |
| Gross proceeds | | $ | 4,140,000 | |
| Less cash fee paid to placement agent | | | 730,187 | |
| Net proceeds | | $ | 3,409,813 | |
| | | | | |
| Record warrant as derivative liability | | $ | 1,052,000 | |
| Allocated remaining proceeds to : | | | | |
| Common stock issued to placement agents | | | 657,556 | |
| Convertible Note | | | 1,700,257 | |
| | | $ | 3,409,813 | |
| 13. | Related party transactions: |
| | March 31, | | | September 30, | |
| | | 2010 | | | 2009 | |
| Advance to former shareholders (a) | | $ | 212,329 | | | $ | 259,538 | |
| Advance to current shareholders (b) | | | 706 | | | | 1,413 | |
| Advance to director (c) | | | - | | | | 73,246 | |
| Subtotal | | | 213,035 | | | | 334,197 | |
| Receivable from related companies (d) | | | - | | | | 439,475 | |
| | | $ | 213,035 | | | $ | 773,672 | |
China SLP Filtration Technology, Inc.
Notes to Consolidated Financial Statements for the six months ended March 31, 2010
(Unaudited - - Expressed in US dollars)
| (a) | Advance to former shareholders: |
The advance to former shareholders includes advances to three of the former shareholders. The advance is non-interest bearing and due on demand.
| (b) | Advance to current shareholders: |
The advance to current shareholders includes advances to current shareholders. The advance is non-interest bearing and due on demand.
| (c) | Receivable from related companies |
The receivable from related companies includes Foshan SLP owned its parents company and loans are non-interest bearing and due on demand.
The Company advised shareholders of action taken to approve a change in our corporate name to China SLP Filtration Technology, Inc., which action was approved on April 22, 2010 by the board of directors and on April 22, 2010 by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote thereon were present and voted.
The name change became effective on the filing of a certificate of amendment to our certificate of incorporation with the Secretary of State of Delaware, which occurred on April 22, 2010.
Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income attributable to common shareholders as adjusted for the effect of dilutive common equivalent shares, if any, by the weighted average number of common and dilutive common equivalent shares outstanding during the year. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible note (using the if-converted method) and common shares issuable upon the exercise of outstanding warrants (using the treasury stock method). Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.
The number of shares outstanding is used in calculation of basic and diluted earnings per share as below.
| | | Three Months ended | | | Three Months ended | |
| | | | | | | |
| | | Restated March 31, 2010 | | | March 31, 2009 | |
| Numerator for basic and diluted EPS | | | | | | |
| - Net income from continuing operations | | | 444,332 | | | | 489,207 | |
| Denominator for basic and diluted EPS | | | | | | | | |
| Weighted average shares of common stock outstanding shares – basic | | | 14,897,143 | | | | 14,510,204 | |
| Weighted average shares of common stock outstanding shares – diluted | | | 15,798,367 | | | | 14,510,204 | |
| EPS– basic and diluted | | | 0.03 | | | | 0.03 | |
| | | | | | | | | |
| | | Restated Six Months ended March 31, 2010 | | | Six Months ended March 31, 2009 | |
| Numerator for basic and diluted EPS | | | | | | | | |
| - Net income from continuing operations | | | 1,739,680 | | | | 731,746 | |
| Denominator for basic and diluted EPS | | | | | | | | |
| Weighted average shares of common stock outstanding shares – basic | | | 14,701,547 | | | | 14,510,204 | |
| Weighted average shares of common stock outstanding shares – diluted | | | 15,147,208 | | | | 14,510,204 | |
| EPS– basic and diluted | | | 0.12 | | | | 0.05 | |
China SLP Filtration Technology, Inc.
Notes to Consolidated Financial Statements for the six months ended March 31, 2010
(Unaudited - - Expressed in US dollars)
| 16. | Accounting for Warrants |
The warrants issued in conjunction with the convertible notes have the following material terms:
The warrants are exercisable at any time during a five-year period commencing on the closing of a “financing,” which means the first sale (or series of related sales) by us of stock (or debt or equity securities convertible into stock), in a capital raising transaction, occurring after the maturity date (or the date the notes become due pursuant to a default, if earlier) with aggregate gross proceeds of at least $2,000,000. The warrants cannot be exercised if no financing is consummated within five-year period after the issue date and become void if the notes automatically convert into common stock.
Number of Shares: The warrants represent the right to purchase 8% of the total shares of common stock outstanding (on a fully-diluted basis) immediately after the closing of the financing.
Exercise Price: The warrants are exercisable at the price for which the shares of common stock (or common stock equivalent if derivative securities are sold) are sold in the financing. If the financing includes more than one type of security, the exercise price shall equal the lowest price per share of common stock or common stock equivalent included in the Company’s December 31, 2008 audited financial statements as partfinancing.
The Company analyzed the warrants and the conversion features in the notes to assess whether they meet the definition of a derivative under the guidance set forth by ASC Topic 815 (SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”) and, thereof, the applicability of the Company’s 2008 annual report on Form 10-K.accounting rules in accordance to ASC Topic 815 to treat the warrants as derivative liabilities. Management also evaluated whether the warrants meet the scope exception set forth by ASC Topic 815-40 (“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”), which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC Topic 815. The resultsprovisions in ASC Topic 815-40 apply to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by ASC Topic 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.
Management concluded that the warrants issued in conjunction with the private placement of convertible notes in February 2010 to certain accredited investors should be treated as a derivative liability and the derivative accounting rules under ASC Topic 815-40 were adopted to record the warrants. Fair market value of the warrants were measured using the Black-Scholes pricing model at the issuance date and recorded as warrants liabilities. Change in the fair value of the warrants is recorded in other income or loss in the statement of operations in the future reporting periods. Change in warrant value from February 2010 to March 31, 2010 were not material.
As a result of adopting accounting treatment of ASC Topic 815-40, $1,052,000 was recorded as warrants liabilities based on 1,218,857 shares entitled under the warrants and the valuation inputs as provided in the table as follows.
| February 2010 Financing Warrants - Valuation Inputs | |
| | February 12 and March 31, | |
| Attribute | | 2010 | |
| Stock Price | | $ | 2.45 | |
| Risk Free Interest Rate | | | 2.25 | % |
| Volatility | | | 90.00 | % |
| Exercise Price | | $ | 2.45 | |
| Dividend Yield | | | 0 | % |
| Contractual Life (Years) | | | 1 | |
Notes to Consolidated Financial Statements for the
periodssix months ended
September 30, 2009 and 2008 are not nece ssarily indicative of the operating results for the full year.March 31, 2010
(Unaudited - - Expressed in US dollars)
| 17. | Recent accounting pronouncements |
Recently Enacted Accounting Standards -
In June 2009 the FASB established the Accounting Standards Codification
("Codification"(“Codification” or
"ASC"“ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States
("GAAP"(“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission
("SEC"(“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.
Statement of Financial Accounting Standards
("SFAS"(“SFAS”) SFAS No. 165 (ASC Topic 855),
"Subsequent Events"“Subsequent Events”, SFAS No. 166 (ASC Topic 810),
"Accounting“Accounting for Transfers of Financial
Assets-anAssets – an Amendment of FASB Statement No.
140"140”, SFAS No. 167 (ASC Topic 810),
"Amendments“Amendments to FASB Interpretation No. 46(R)
"”, and SFAS No. 168 (ASC Topic 105),
"The“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles-aPrinciples – a replacement of FASB Statement No.
162"162” were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.
Accounting Standards Update
("ASU"(“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures
-– Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-DeliverableMultiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and
variousVarious other
ASU'sASU’s No. 2009-2 through ASU No.
2009-152010-19 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.
6
PERPETUAL TECHNOLOGIES, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN
The
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
18. Restatements of Previously Issued Financial Statements
Subsequent to the issuance of our consolidated financial statements have been preparedfor the three and six months ended March 31, 2010, included in conformityour Quarterly Report on Form 10-Q for the period ended March 31, 2010, filed with accounting principles generally accepted in the United States Securities and Exchange Commission on May 24, 2010, as amended on May 26, 2010, and in connection with the SEC’s review of America,our registration statement on Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010, it was identified that we failed to record a liability of $75,000 owed to each of United Best and Primary Capital (totaling $150,000) for advisory services rendered in connection with our private placement of convertible notes which contemplate continuationclosed on February 12, 2010. We have revised the previously issued consolidated financial statements to include the liability in our consolidated balance sheet, consolidated statements of operations, and consolidated statements of cash flows for the periods affected. The following tables highlight changes to specific accounts affected:
| | | As reported | | | As restated | |
| | | March 31, 2010 | | | March 31, 2010 | |
| | | | | | | |
| Accounts payable and accrued liabilities | | $ | 371,247 | | | $ | 521,247 | |
| Total Current Liabilities | | $ | 7,248,935 | | | $ | 7,398,935 | |
| Retained earnings | | $ | 6,390,212 | | | $ | 6,240,212 | |
| Total Stockholders’ equity | | $ | 16,131,432 | | | $ | 15,981,432 | |
A restatement of the Companyconsolidated statements of operations and comprehensive income affected the three month and six month periods ended March 31, 2010 in general and administrative expenses as a going concern. However,follows:
| | | Three months ended | | | Six months ended | |
| | | March 31, 2010 | | | March 31, 2010 | |
| | | As reported | | | As restated | | | As reported | | | As restated | |
| | | | | | | | | | | | | |
| Selling, General and Administrative Expenses | | $ | 407,461 | | | $ | 557,461 | | | $ | 662,138 | | | $ | 812,138 | |
| Income from Operations | | $ | 983,899 | | | $ | 833,899 | | | $ | 2,041,054 | | | $ | 2,191,054 | |
| Income before Income Taxes | | $ | 594,332 | | | $ | 444,332 | | | $ | 1,889,680 | | | $ | 1,739,680 | |
| Net Income | | $ | 594,332 | | | $ | 444,332 | | | $ | 1,889,680 | | | $ | 1,739,680 | |
| Comprehensive income | | $ | 570,393 | | | $ | 420,393 | | | $ | 1,864,435 | | | $ | 1,714,435 | |
| Earnings per share – basic and diluted | | $ | 0.03 | | | $ | 0.02 | | | $ | 0.13 | | | $ | 0.12 | |
Statements of Cash Flows for the Company has a working capital deficit of $19,412 as of September 30, 2009, has incurred net losses of $18,520 and $12,227 during the ninesix months ended September 30, 2009March 31, 2010 are restated under net income and 2008, respectively, has negativeaccounts payable and accrued liabilities as follows:
| | | As reported | | | As restated | |
| | | March 31, 2010 | | | March 31, 2010 | |
| | | | | | | |
| Net income | | $ | 1,889,680 | | | $ | 1,739,680 | |
| Accounts payable and accrued liabilities | | $ | (38,281 | ) | | $ | 111,719 | |
The net cash flows fromprovided by the operating activities, the net cash used in investing activities, and has minimal revenue-generating activities. These factors raise substantial doubt about the abilitynet cash provided by financing activities are not affected by the restatements.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Special Note Regarding Forward-Looking Statements
This report contains some forward-looking statements within the meaning of Section 27A of the
Company to continueSecurities Act of 1933, as
a going concern. In this regard, management is proposing to raise any necessary additional funds not providedamended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements involve risks and uncertainties. You can identify these statements by
operations through loans, advances, or through additional sales of common stock. There is no assurancethe fact that
the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statementsthey do not
inc lude any adjustments that might result fromrelate strictly to historical or current facts. In some cases they are identifiable by use of the
outcomewords “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these
uncertainties.
NOTE 3 – RELATED PARTY TRANSACTIONS
Advances from a Stockholder – In September 2007, February and May 2008, and in September 2009 officerswords or stockholders of the Company advanced a total of $20,000 to the Company. The advances are dueother variations on demand and bear interest at 8% per annum. At September 30, 2009 the accrued interest on the advances totaled $2,138.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
In February 2007, the Company issued two convertible promissory notes for $2,500 each. In August 2007, the Company issued an additional two convertible promissory notes for $2,500 each. In December 2008, the Company issued 1,000,000 shares of common stock on conversion of the four convertible promissory notes of $10,000 along with accrued interest of $1,290.
NOTE 5 - INCOME TAXES
The Company has available at September 30, 2009, net operating loss carryforwards of approximately $55,043 whichthese words or comparable terminology. These statements may be applied against future taxable income and which expire in 2029 and 2028. The net deferred tax assets are approximately $8,256 and $5,478 as of September 30, 2009 and December 31, 2008, respectively, with an offsetting valuation allowance of the same amount. The change in the valuation allowance for the nine-month period ended September 30, 2009 is approximately $2,778. The Company used the incremental federal income tax rate of 15% in computing its deferred tax assets.
NOTE 6 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through November 3, 2009 and determined there were no events to disclose.
7
Item 2. Management’sfound under “Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statement Notice
Operations.” In particular, these include statements relating to future actions, future performance, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.
This Form 10-Q contains certain
Any or all of our forward-looking statements withinin this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the meaningrisks outlined under "Risk Factors" in our registration statement of Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010 (the “S-1”). In light of these risks and uncertainties, there can be no assurance that the Private Securities Litigation Reform Act of 1995. For this purpose anyforward-looking statements contained in this Form 10-Qfiling will in fact occur and you should not place undue reliance on these forward-looking statements.
Introduction
This section discusses and analyzes the results of operations and financial condition of China SLP Filtration Technology, Inc. (“we,” “us,” or the “Company”) which is the ultimate parent company of Foshan S.L.P. Special Materials Co., Ltd. (“Foshan”), a China-based operating company located in Foshan, Guangdong Province in the People’s Republic of China. On February 12, 2010, we acquired control of Foshan in a share exchange transaction which closed on that are not statementsdate. In the share exchange or “reverse merger” we acquired control of historical fact may be deemedHong Hui Holdings Limited (“Hong Hui”), a British Virgin Islands company and the owner of all of the stock of Technic International Limited (“Technic”), a Hong Kong holding company which in turn is the owner of all of the equity of Foshan, by issuing to the Hong Hui stockholders an aggregate of 14,510,204 shares of our common stock in exchange for all of the outstanding capital stock of Hong Hui. The transaction is accounted for as a reverse acquisition, except that no goodwill or other intangible has been recorded. The recapitalization is considered to be forward-looking statements. Without limitinga capital transaction in substance, rather than a business combination.
On March 24, 2010 the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate” or “continue” or comparable terminology areCompany effected a 1 for 5 reverse stock split of its outstanding common stock. The effect of the reverse split is retrospectively showed in all periods presented.
Overview
This section discusses and analyses our results of operations and financial condition, including the results and condition of our operating company, Foshan, which have been consolidated with our own results for all periods presented. This discussion is intended to identify forward-looking statements. These statements by their nature involve substantial riskshelp you understand our financial results and uncertainties,the current facts and actualtrends that may cause them to change, so that you may make informed judgments about our likely financial results in the future and, insofar as those results may differ materially depending onaffect our stock price and informed investment decisions.
General
We are a varietyPRC based manufacturer of factors, manynonwoven fabrics. We currently manufacture two types of PET nonwoven fabrics which are not withinused in a wide range of products, including filtration products, road construction materials, home furnishings, automobile interior insulation and industrial packaging.
Our current PET products are sold primarily to PRC-based manufacturers which use our control. These factors includeproducts as raw material components for end-products they sell to their customers. We recently developed a manufacturing process to manufacture polyphenylene-sulfide fiber, or PPS nonwoven fabric, which is the key product line around which our long-term growth strategy is centered.
Based on lab tests which we conducted internally we believe that our PPS nonwoven fabric is superior to other currently available high temperature filtration material because it is lighter, thicker, stronger, has higher air permeability and filtration efficiency and significantly cheaper to produce. Due to the superior characteristics of our PPS product coupled with the demand created by these new regulations, we believe that our PPS material will become a market leader for high temperature filtration applications. We expect to sell our PPS nonwoven products to operators of coal fired power plants, garbage incinerators and other heavy industrial plants.
We intend to continue to manufacture PET nonwovens but are not limitedwe expect that the sales of our PPS nonwoven fabrics will ultimately eclipse the sales of our existing PET nonwoven products and become our main product offering.
Our manufacturing facility, which is located in Foshan City, Guangdong Province, PRC, currently has three production lines for PET nonwovens with annual product capacity of 8,000 tons. We plan to
economic conditions generally andbegin commercial production of our PPS nonwoven fabric in the
industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological adv ances and failure to successfully develop business relationships.
Overview.
The Company was organized as Molokai Enterprises, Inc., on November 27, 1996, under the lawslatter part of the State of Colorado. In April 2007 the Company changed its domicile from Colorado to Delaware by merging with and into Perpetual Technologies, Inc., a Delaware corporation organized for that purpose on March 15, 2007.
The Company was reactivated on October 26, 2006 through a major sale of 10,000,000 shares of the Company’s common stock for $1,000. Prior to the Company’s reactivation it had been dormant.
The Company remained non-operational from reactivation until December 2008, when a change of control occurred. The Company filed Form 8-K describing its business operations, and it filed2010 with the Stateaddition of Utah for authoritythree high tech production lines with annual production capacity of 3,600 tons, which will bring our total overall production capacity to conduct business as a foreign corporation under the assumed name11,600 tons per year.
Three Month Period Ended
September 30,March 31, 2010 compared to Three Month Period Ended March 31, 2009
and 2008 At September 30, 2009, we had $2,402 available cash on hand, prepaid expenses of $324, and had a cumulative loss since entering the development stage of $55,043. We generated $1,000 of revenue
The following table shows, for the nineperiods indicated, information derived from our consolidated statements of income in US dollars and as a percentage of net sales (percentages may not add due to rounding). See the financial statements of the Company and the related notes thereto and other financial information included elsewhere in this report.
| | | Three months ended March 31 | |
| | | 2010 (unaudited) | | | 2009 (unaudited) | |
| | | Amount | | | % | | | Amount | | | % | |
| Sales | | $ | 4,628,671 | | | | 100 | % | | | 2,214,940 | | | | 100 | % |
| Cost of Sales | | | 3,237,311 | | | | 70 | % | | | 1,373,921 | | | | 62 | % |
| Gross Profit | | | 1,391,360 | | | | 30 | % | | | 841,019 | | | | 38 | % |
| SG&A expense | | | 557,461 | | | | 12 | % | | | 275,526 | | | | 12 | % |
| Operating Income | | | 833,899 | | | | 18 | % | | | 565,493 | | | | 26 | % |
| Interest Income | | | 292 | | | | 0 | % | | | - | | | | 0 | % |
| Interest Expenses | | | (390,355 | ) | | | 8 | % | | | (76,286 | ) | | | 3 | % |
| Gain on disposal of fixed assets | | | 496 | | | | 0 | % | | | 0 | | | | 0 | % |
| Net Income before taxes | | | 444,332 | | | | 10 | % | | | 489,207 | | | | 22 | % |
| Net Income | | | 444,332 | | | | 10 | % | | | 489,207 | | | | 22 | % |
Net Sales
Net sales revenue consisted of sales of needle punched non woven fabric and thermal calendared products. Our net sales for three month period ending September 30, 2009 and zero revenueended March 31, 2010 were $4,628,671, an increase of $2,413,731, or 109%, from $2,214,940 for the same period ending September 30 2008, and $1,000of prior year. The increase in net sales was largely attributable to higher sales volume after a new production line used to manufacture needle-punched nonwoven fabric was installed in February 2009. Sales of needle-punched products for the three month period from reactivation on October 26, 2006, through September 30, 2009. Our revenue resulted from a consulting engagement under our Organic Wise dba whereinended March31, 2010 were $1,942,811 compared to $220,718 for the presidentsame period of the Company consulted a client on Organic Food standards. Forprior year. In addition, sales of thermal calendared materials for the nine months ending September 30, 2009, net loss was $18,520three month period ended March 31, 2010 $2,308,801, as increase of $569,189 compared to $12,227$1,739,612 for the same period of the prior year.
Cost of sales principally consists of the cost of raw materials, labor, and manufacturing overhead expenses.
Our cost of goods sold for the three month period ended March 31, 2010 was $3,237,311, an increase of $1,863,390, or 136%, from $1,373,921 for the same period in 2008. Expenses during2009. The primary reason for the nine monthsincrease in cost of sales was an increase in our raw materials costs, which we believe was in line with our increased sales volume. 98.7% of our raw material costs consist of polyester, the cost of which increased with the price of oil.
Our raw material cost as a percentage of net sales increased to 52% of the sales for the three month period ended September 30,March 31, 2010, compared to 41% of sales for the same period of the prior year, reflecting a mix of more expensive raw materials associated with 2010 sales.
Labor cost accounted for 1% of net sales for the three month period ended March 31, 2010 compared to 2% for the same period of year 2009. Beginning in February 2009, consistedwe hired 17 additional employees to work the new production line. Labor costs also increased due to increased demand for labor.
Overhead expenses were 11% of $18,313net sales for the three month period ended March 31, 2010, compared to 19% of net sales for 2009 due to the increase of manufacturing capacity of the Company with the addition of the new production line in general and administrative expense, and $291 in depreciation expense. Expenses duringFebruary 2009.
Gross Profit
Our gross profit for the comparablethree month period ended March 31, 2010 was $1,391,360, an increase of $550,341, or 65%, from $841,019 for the same period in 2008 consistedthe prior year. As a percentage of $0net sales, gross profit was 30% for the three month period ended March 31, 2010, compared to 38% for the same period last year. This was primarily due to increase of purchase price of the raw materials associated with 2010 sales, which price increase was caused by fluctuations in depreciation expensethe price of oil.
Selling, Marketing and $10,914 inAdministrative Expenses
Selling expenses include salaries, advertising expenses, cost of manufacturing, rent, and all expenses directly related to producing and selling product. General expenses include general
operating expenses that are directly related to the general operation of the company but excluding selling and administrative expenses.
InterestAdministrative expense
includes executive salaries and other expenses related to
taled $916 and $1,313 for the
nine months ended September 30, 2009 and 2008, respectively.
Asoverall administration of September 30, 2009, our total assets were $4,385 consisting of cash of $2,402, prepaid expenses of $324, and property and equipment of $1,659. Total liabilities at September 30, 2009, were $22,138 consisting of $0 in accounts payable, $2,138 in accrued interest, and $20,000 in stockholder advances.
Liquidity and Capital Resources
At September 30, 2009, we had $2,402 in cash and have had $1,000 of revenue since reactivation on October 26, 2006. We estimate thatthe company.
Selling, general and administrative expenses for the next twelvethree month period ended March 31, 2010 were $557,461, an increase of $281,935 compared to $275,526 for the same period in 2009. The increase was primarily due to increase of $25,524 in export delivery expenses, $150,000 fees incurred in connection with the Company’s convertible note financing closed in February, and $ 83,286 additional professional expenses related to the Company’s proposed equity financing.
Other expenses solely consist of interest expense.
Interest expense for the three month period ended March 31, 2010 was $390,355 compared to $76,286 for the same period in 2009. Interest expense as a percentage of sales increased to 8% for the three month period ended March 31, 2010 from 3% for the same period of last year. The increase in interest expense was principally due to interest on the convertible notes in the aggregate principal amount of $4,140,000. We accreted non-cash related interest expense in the amount of $304,950. Excluding the accretion of interest, our interest expense for this three-month period was the same as for the same period in 2009.
Income Tax
USA
The Company and its subsidiary and branch divisions are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. Since the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of March 31, 2010 and September 30, 2009.
BVI
Hong Hui is incorporated under the International Business Companies Act of the British Virgin Islands and accordingly, is exempted from payment of British Virgin Island’s income taxes.
PRC
Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Foshan SLP. For 2008 and 2009 Foshan SLP enjoys tax free holidays. From January 2010 onwards, Foshan SLP is taxed at 25% of net income except for the 2010, 2011 and 2012 in which we receive a 50% discount on income tax.
The current year tax provision was $6,328 and $[6,328] for the three and six months will be approximately $24,000. Atended March 31, 2010, respectively. The company has recorded zero deferred tax assets or liabilities as of March 31, 2010 and September 30, 2009, net of tax allowance, because all other significant difference in tax basis and financial statement amounts are permanent differences.
Net Income
Net income for the three months ended March 31, 2010 decreased by $44,875, from net income of $489,207 for the three month period ended March 31, 2009 to net income of $444,332. The decrease was largely due to $150,000 fees incurred for the convertible note financing closed in February 12, 2010 offset by an increase in net sales generated from new needle-punch products.
Six Month Period Ended March 31, 2010 compared to Six Month Period Ended March 31, 2009
The following table shows, for the periods indicated, information derived from our consolidated statements of income in US dollars and as a percentage of net sales (percentages may not add due to rounding). See the financial statements of the Company and the related notes thereto and other financial information included elsewhere in this report.
| | | Six Months ended March 31 | |
| | | 2010 (unaudited) | | | 2009 (unaudited) | |
| | | Amount | | | % | | | Amount | | | % | |
| Sales | | $ | 9,847,025 | | | | 100 | % | | | 4,540,833 | | | | 100 | % |
| Cost of Sales | | | 6,843,833 | | | | 70 | % | | | 2,906,402 | | | | 64 | % |
| Gross Profit | | | 3,003,192 | | | | 30 | % | | | 1,634,431 | | | | 36 | % |
| SG&A expense | | | 812,138 | | | | 8 | % | | | 758,442 | | | | 17 | % |
| Operating Income | | | 2,191,054 | | | | 22 | % | | | 875,989 | | | | 19 | % |
| Interest income | | | 517 | | | | 0 | % | | | - | | | | 0 | % |
| Interest Expenses | | | (452,387 | ) | | | 5 | % | | | (160,506 | ) | | | 4 | % |
| Gain on disposal of fixed assets | | | 496 | | | | 0 | % | | | 16,263 | | | | 0 | % |
| Net Income before taxes | | | 1,739,680 | | | | 18 | % | | | 731,746 | | | | 16 | % |
| Net Income | | | 1,739,680 | | | | 18 | % | | | 731,746 | | | | 16 | % |
Net Sales
Net sales for the six month period ended March 31, 2010 were $9.85 million, an increase of $5.30 million or 116 %, from $4.55 million for the same period of prior year. In February 2009, we also had total liabilitiesinstalled a new production line to manufacture needle punched non woven fabric. Sales of $22,138.needle-punched products for the six month period ended March 31, 2010 were $4,300,022 compared to $220,718 for the same period of the prior year. In addition, sales of thermal calendared materials for the six month period ended March 31, 2010 were $ 5,559,365, as increase of $ 1,228,361 compared to $ 4,331,204 for the same period of the prior year.
Cost of Sales
Cost of sales for the six month period ended March 31, 2010 was $6,843,833, an increase of $3,937,431, or 135%, from $2,906,402 for the same period of the prior year. As a percentage of net sales, cost of goods sold was 70% for the six month period ended March 31, 2001 compared to 64 % for the same period in 2009.
Raw material costs increased to 56% of the sales for the six month period ended March 31, 2010, compared to 40% of sales for the same period in 2009, reflecting a mix of more expensive raw materials associated with 2010 sales. 98.7% of our raw materials consist of polyester the price of which fluctuates with the price of oil.
Labor expenses were 6% of sales for the six month period ended March 31, 2010 compared to 2% for the same period in 2009. Beginning in February 2009, we hired 17 additional employees to work the new production line. Labor costs also increased due to increased demand for labor.
Overhead expenses were 12% of net sales for the six month period ended March 31, 2010, compared to 19% of net sales for the same period last year due to the increase of manufacturing capacity of the Company.
Gross Profit
Gross profit for the six month period ended March 31, 2010 was $3,003,192, an increase of $1,368,761, or 83%, from $1,634,431 for the same period of the prior year. As a percentage of net sales, gross profit was 30% for the six month period ended March 31, 2010, compared to 36% for the same period last year. This decrease was primarily due to the increase in the purchase price of the raw materials associated with 2010 sales. This was primarily due to increase of purchase of price of the raw materials associated with 2010 sales, which price increase was caused by fluctuations in the price of oil.
SG&A Expenses
Selling, general and administrative expenses for the six month period ended March 31, 2010 were $812,138, an increase of $53,696, or 7% compared to $758,442 for the same period of the prior year. This is mainly due to a $150,000 liability incurred in connection with our convertible note financing offset by a $77,327 decrease in office expenses compared to the same period 2009.
Other Expenses
Interest expense for the six month period ended March 31, 2010 was $452,387 compared to $160,506 for the same period of the prior year. Interest expense as a percentage of net sales increased to 5% for the six month period ended March 31, 2010 from 4% for the same period of the prior year. The cause for the increase in interest expense for the six month period was principally due to record $4,140,000 of convertible notes. We accreted non-cash related interest expense, in the amount of $304,950. Excluding accretion on non-cash interest expense, interest expense for this six month period remained the same as last year, and, as a percentage of net sales, decreased to 1% from 4%.
Net Income
Net income for the six months ended March 31, 2010 was $1,739,680, an increase of $1,007,934, or 138%, from net income of $731,746 for the same period in the prior year. The increase was mainly due to the increase in sales generated from new needle-punch products.
Liquidity and Capital Resources
The following table sets forth a summary of our net cash flow information for the periods indicated:
| | | Six Months Ended March 31, | |
| | | 2010 | | | 2009 | |
| | | (Consolidated, unaudited) | | | (Consolidated, unaudited) | |
| Net cash provided by operating activities | | $ | 1,553,423 | | | $ | 3,586,444 | |
| Net cash (used in) investing activities | | $ | (1,389,582 | ) | | $ | (4,927,447 | ) |
| Net cash provided by financing activities | | $ | 2,636,263 | | | $ | 194,967 | |
| Net cash inflow (outflow) | | $ | 2,794,686 | | | $ | (1,166,031 | ) |
We finance our business with cash flows from operations and short-term bank loans and we use shareholders’ equity investment and retained earnings to fund capital expenditures.
Working capital consists mainly of cash, accounts receivable, advances to suppliers and inventory. Cash, inventory and accounts receivable account for the majority of our working capital.
At March 31, 2010, we had several bank loans for the total amount of $3.8 million (RMB26 million) with Agriculture Bank of China, Foshan Branch and these loans are repayable in December 2010. We have the highest credit rating for that bank.
On February 12, 2010, we completed a financing transaction in which we raised gross proceeds of $4,140,000 through a private placement of convertible notes and warrants to certain accredited investors.
Operating Activities
Net cash provide by operating activities for the six months ended March 31, 2010 was approximately $1.55 million, compared to a cash flow of $3.59 million for the same period of the prior year. The decrease was due primarily to increase in Non-cash interest charges, decrease in advance to suppliers.
Investing Activities
Net cash provided by investing activities for six months ended March 31, 2010 was negative cash flow $1.39 million, compared to a negative cash flow of $4.93 million for the same period of the prior year. The increased cash used from investing activities because there were no large capital expenditures during the first six months of the year. Only deposits were made a new product assembly line project. The net cash used in investing activities for the same period of last year was due to the deposits for purchases of equipment and expenses relating to outfitting our facilities.
We are satisfied this cash expenditure with cash reserves and cash generated from 2009 and 2010 operations.
Financing Activities
Net cash provided by financing activities for the six month period ended March 31, 2010 was approximately $2.64 million, compared to $0.19 million for the same period of the prior year. The increase was the result we will need to generate up to $47,000 to pay our debts and meet our ongoing financial needs. Since inception we have primarily financed our operations throughof cash received from the sale of the convertible notes.
The balance of our outstanding short-term bank loans on March 31, 2010 was approximately $3.8 million, compared with $4.6 million on March 31, 2009
On February 12, 2010, immediately following the reverse merger, we entered into a note purchase agreement with certain accredited investors for the sale of convertible notes in the aggregate principal amount of $4,140,000 and warrants (which are exercisable only in certain circumstances), with net proceeds for $3.4 million after finance costs. The notes require quarterly interest payments at a rate of 10% per annum and interest for six month in amount of $204,464 to be held in an escrow account.
The warrants become void if the notes automatically convert into common stock. In order
The warrants are exercisable at any time during a five-year period commencing on the closing of a “financing,” which means the first sale (or series of related sales) by us of stock (or debt or equity securities convertible into stock), in a capital raising transaction, occurring after the maturity date (or the date the notes become due pursuant to a default, if earlier) with aggregate gross proceeds of at least $20,000,000. The warrants cannot be exercised if no financing is consummated within the five-year period after the issue date.
Future Cash Commitments
We have ambitious capital investment plans for our PPS projects in 2010 and which will require significant investment capital. This demand for investment capital will be met by the proceeds from the February private placement, and by outside financing (including the public offering) that we intend to raise as needed to continue our expansion.
Critical Accounting Policies and Estimates
Management's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the necessary capitalselection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements “Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the more critical accounting policies that currently affect our financial condition and results of operations:
Method of Accounting
We maintain our general ledger and journals with the accrual method of accounting for financial reporting company status, wepurposes. Accounting policies adopted by us conform to generally accepted accounting principles in the United States and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States 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 revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
Economic and political risks
Our operations are conducted in the PRC. Accordingly, our business, financial condition and results of operations may sell additional stock, arrange debt financingbe influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
Our operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
Revenue recognition
Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or seek additional advancesservices have been rendered, and the seller’s price to the buyer is fixed or determinable and collectible.
Land use rights
Land use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful lives range from 20 to 50 years.
Property, plant and equipment
Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of plant and equipment are as follows:
| | | 15-35 years | |
| Machinery and equipment | | | 10 years | |
| Office equipment | | | 6-10 years | |
| Motor vehicles | | | 6-8 years | |
| Other assets | | | 6-10 years | |
Accounting for the Impairment of Long-Lived Assets
The long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on our
officers or stockholders.financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
| ITEM 4. | CONTROLS AND PROCEDURES. |
Not required by smaller reporting companies.
8
Item 4T. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our president and our chief financial officer, carried out an evaluation of the effectiveness of our "disclosureProcedures.
We maintain “disclosure controls and
procedures"procedures” (as defined in
Rule 13a-15(e) under the
Securities Exchange
Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the "Evaluation Date"). Based uponAct) that
evaluation, our president and our chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are
effectivedesigned to ensure that information
that is required to be disclosed
by us in
the reports that we file or submit under the Exchange Act
(i)reports is recorded, processed, summarized and reported within the time
periodsperiod specified in the
SEC'sSEC’s rules and forms, and
(ii)that such information is accumulated and communicated to our management, including
to our
presidentprincipal executive officer and
our chiefprincipal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including Mr. Jie Li, our chief executive officer and Mr. Eric Gan, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures and internal controls as of March 31, 2010. Based on that evaluation, Mr. Lie and Mr. Gan concluded that as of March 31, 2010, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures and internal controls was completed, our disclosure controls and procedures and internal controls were not effective in that certain “material weaknesses” existed related to (i) the U.S. GAAP expertise of our internal accounting staff, and (ii) our internal audit function.
A material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.
As more fully disclosed in a Current Report on Form 8-K filed on November 18, 2010, subsequent to the issuance of our consolidated financial statements for the three and six months ended March 31, 2010, included in our Quarterly Report on Form 10-Q for the period ended March 31, 2010, filed with the United States Securities and Exchange Commission on May 24, 2010, as amended on May 26, 2010, and in connection with the SEC’s review of our registration statement on Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010, it was identified that we failed to record a liability of $75,000 owed to each of United Best and Primary Capital (totaling $150,000) for advisory services rendered in connection with our private placement of convertible notes which closed on February 12, 2010.. This liability should have been reflected in (i) our unaudited interimfinancial statements for the three month and nine month periods ended June 30, 2010 and (ii) our unaudited interim financial statements for the three month and six month periods ended March 31, 2010.
Our chief executive officer and chief financial officer and our Audit Committee determined, after discussions with Child, Van Wagoner & Bradshaw, PLLC, our independent registered public accounting firm, that (i) our unaudited interim financial statements for the three month and nine month periods ended June 30, 2010 and 2009, as set forth in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010, and (ii) our unaudited interim financial statements for the three month and six month periods ended March 31, 2010 and 2009, as set forth in the Quarterly Report on Form 10-Q filed on May 24, 2010, as amended on May 26, 2010 should be restated and should not be relied on.
Changes in Internal Control over Financial Reporting. There wereReporting.
Because our current accounting department is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies, our management has determined that they require additional training and assistance in U.S. GAAP matters. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions.
In order to correct the foregoing significant deficiencies, we are taking or have taken the following remediation measures:
| · | In August 2010, we hired Eric Gan as our new chief financial officer; |
| · | We are arranging necessary training for our accounting department staff; |
| · | We plan to engage external professional accounting or consultancy firms to assist us in the preparation of the U.S. GAAP accounts; and |
| · | We have allocated financial and human resources to strengthen the internal control structure and we have been actively working with external consultants to assess our data collection, financial reporting, and control procedures and to strengthen our internal controls over financial reporting. |
We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. However, there is no changesguarantee that these improvements will be adequate or successful or that such improvements will be carried out on a timely basis.
Other than described above, there was no change in
the Company'sour internal
controlscontrol over financial reporting
known to the chief executive officer or the chief financial officer, that occurred during the
fiscal quarter
ended September 30, 2009covered by this report that has materially affected, or is reasonably likely to materially affect,
the Company'sour internal control over financial reporting.
PART II –
The following exhibits are filed as part of
the following documents are included as exhibits to this
report.report or incorporated by reference:
| Exhibit No. | | Description |
SEC
Ref. No.
| Title of Document
| |
31.1 | | Certification of the Principal Executive Officer / Principal Financial Officerfiled pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002. |
| | |
32.1
31.2 | | Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32 | | Certification of Principal Executive Officer /and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002. |
Pursuant to the requirements
In accordance with Section 13 or 15(d) of the
Securities Exchange Act,
of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PERPETUAL TECHNOLOGIES, INC.
(Registrant)
Date:
Dated: November
3, 2009/s/ Seth R. Winterton
Seth R. Winterton, President
(Chief Executive Officer and
Principal Financial Officer)
24, 2010
| CHINA SLP FILTRATION TECHNOLOGY, INC. |
| |
| By: | /s/ Jie Li |
| | Jie Li |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| By: | /s/ Eric Gan |
| | Eric Gan |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
9
EXHIBIT INDEX
| Exhibit No. | | Description |
| | |
| 31.1 | | Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | | Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32 | | Certifications of Principal Executive Officer and Principal Accounting Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |