UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2011
OR
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______ to __________
COMMISSION FILE NUMBER: 001-34731
ECO ENERGY PUMPS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 26-3550371 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
112 North Curry Street, Carson City, Nevada 89703-4934
(Address of principal executive offices)
(775) 284 3713
(Registrant’s Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of March 21, 2011, the registrant had 2,267,320 shares of common stock, $0.001 par value, issued and outstanding.
INDEX
| | Page |
| | Number |
| | |
| PART I – FINANCIAL INFORMATION | |
| | |
Item 1 | Financial Statements | 3 |
| | |
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| | |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 23 |
| | |
Item 4 | Controls and Procedures | 24 |
| | |
| PART II – OTHER INFORMATION | |
| | |
Item 1 | Legal Proceedings | 25 |
| | |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| | |
Item 3 | Defaults Upon Senior Securities | 25 |
| | |
Item 4 | (Removed and Reserved) | 25 |
| | |
Item 5 | Other Information | 25 |
| | |
Item 6 | Exhibits | 25 |
ECO ENERGY PUMPS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2O11 AND 2010
CONSOLIDATED BALANCE SHEETS | 4 |
| |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | 5 |
| |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | 6 |
| |
CONSOLIDATED STATEMENTS OF CASH FLOWS | 7 |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 8 |
ECO ENERGY PUMPS, INC. |
CONSOLIDATED BALANCE SHEETS |
AS OF JANUARY 31, 2011, AND OCTOBER 31 , 2010 |
(Stated in US Dollars) |
| | Note | | | January 31, 2011 | | | October 31, 2010 | |
| | | | | (unaudited) | | | (audited) | |
ASSETS | | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | | | | | $ | 13,938 | | | $ | 9,106 | |
Trade receivables | | | | | | 2,040,461 | | | | 2,735,326 | |
Receivables from directors | | 6 | | | | 82,285 | | | | - | |
Receivable from a related company | | 6 | | | | 171,360 | | | | 212,671 | |
Other receivables | | | | | | 112,496 | | | | 302,217 | |
Prepaid expenses | | | | | | - | | | | 218,407 | |
Deposit | | | | | | 10,912 | | | | 2,998 | |
Deposit for acquisition of a company | | 5 | | | | 1,822,794 | | | | - | |
Advances to suppliers | | | | | | 259,842 | | | | - | |
Inventories | | | | | | 173,154 | | | | 13,782 | |
| | | | | | | | | | | |
Total current assets | | | | | $ | 4,687,242 | | | $ | 3,494,507 | |
Property, plant and equipment, net | | 4 | | | | 1,399,379 | | | | 1,407,458 | |
| | | | | | | | | | | |
TOTAL ASSETS | | | | | $ | 6,086,621 | | | $ | 4,901,965 | |
| | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
Trade payables | | | | | $ | 29,296 | | | $ | 33,335 | |
Advances from customers | | | | | | 87,105 | | | | 32,139 | |
Other payables | | | | | | 2,124 | | | | - | |
Sale commission payable | | | | | | 17,894 | | | | 28,612 | |
Payables to related parties | | 6 | | | | 41,649 | | | | 25,369 | |
Payables to key management | | 6 | | | | - | | | | 34,477 | |
Accrued expenses | | | | | | 1,391 | | | | 15,129 | |
VAT payable | | | | | | 1,603,230 | | | | 1,112,760 | |
Income tax payables | | | | | | 662,583 | | | | 525,358 | |
Other tax payables | | | | | | 143,565 | | | | 77,893 | |
| | | | | | | | | | | |
TOTAL LIABILITIES | | | | | $ | 2,588,837 | | | $ | 1,885,072 | |
| | | | | | | | | | | |
Commitments and contingencies | | | | | $ | - | | | $ | - | |
STOCKHOLDERS’ EQUITY | | | | | | | | | |
Preferred stock at $0.001 par value; 10,000,000 shares authorized Nil share issued and fully paid | | | | | $ | - | | | $ | - | |
Common stock at $0.001 par value; 300,000,000 shares authorized; 36,001,083 shares issued and outstanding at January 31, 2011 and October 31, 2010 | | 7 | | | $ | 36,001 | | | $ | 36,001 | |
Additional paid-in capital | | 7 | | | | 1,347,261 | | | | 1,347,261 | |
Retained earnings | | | | | | 1,945,055 | | | | 1,557,885 | |
Accumulated other comprehensive income | | | | | | 169,467 | | | | 75,746 | |
| | | | | | | | | | | |
| | | | | $ | 3,497,784 | | | $ | 3,016,893 | |
| | | | | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | $ | 6,086,621 | | | $ | 4,901,965 | |
See accompanying notes to consolidated financial statements
ECO ENERGY PUMPS, INC. |
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010 |
(Stated in US Dollars) |
| | | | | For the three months ended | |
| | Note | | | January 31, 2011 | | | January 31, 2010 | |
| | | | | | | | | |
Net revenues | | | | | $ | 2,779,504 | | | $ | - | |
Cost of net revenues | | | | | | (1,469,844 | ) | | | - | |
| | | | | | | | | | | |
Gross profit | | | | | $ | 1,309,660 | | | $ | - | |
| | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | |
Selling | | | | | | (388,925 | ) | | | - | |
General and administrative | | | | | | (402,354 | ) | | | (3,800 | ) |
| | | | | | | | | | | |
Income (loss) from operation | | | | | $ | 518,381 | | | $ | (3,800 | ) |
Interest income | | | | | | 7 | | | | - | |
Interest expenses | | | | | | (1,875 | ) | | | - | |
Other expenses | | | | | | (286 | ) | | | - | |
| | | | | | | | | | | |
Income (loss) before income taxes | | | | | $ | 516,227 | | | $ | (3,800 | ) |
| | | | | | | | | | | |
Income taxes | | 9 | | | | (129,057 | ) | | | - | |
| | | | | | | | | | | |
Net income (loss) | | | | | $ | 387,170 | | | $ | (3,800 | ) |
| | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | 93,721 | | | | - | |
| | | | | | | | | | | |
Comprehensive income (loss) | | | | | $ | 480,891 | | | $ | (3,800 | ) |
| | | | | | | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | |
Basic and diluted | | 10 | | | | 36,001,083 | | | | 9,552,500 | |
| | | | | | | | | | | |
Earning (loss) per share: | | | | | | | | | | | |
Basic and diluted | | 10 | | | $ | 0.01 | | | $ | (0.00 | ) |
See accompanying notes to consolidated financial statements
ECO ENERGY PUMPS, INC. |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
FOR THE QUARTERS ENDED JANUARY 31, 2011 AND FOR THE PERIOD ENDED OCTOBER 31, 2010 |
(Stated in US Dollars) |
| | Common stock | | | Additional paid-in capital | | | Retained earnings | | | Accumulated other comprehensive income | | | Total | |
| | | | | | | | | | | | | | | |
Balance, June 3, 2010 | | $ | 32,400 | | | | 1,373,099 | | | | - | | | | - | | | | 1,405,499 | |
Reverse merger | | | 3,601 | | | | (25,838 | ) | | | - | | | | - | | | | (22,237 | ) |
Net income | | | - | | | | - | | | | 1,557,8851,557,885 | | | | - | | | | 1,557,885 | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | 75,746 | | | | 75,746 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, October 31, 2010 | | $ | 36,001 | | | | 1,347,261 | | | | 1,557,885 | | | | 75,746 | | | | 3,016,893 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance, November 1, 2010 | | $ | 36,001 | | | | 1,347,261 | | | | 1,557,885 | | | | 75,746 | | | | 3,016,893 | |
Net income | | | - | | | | - | | | | 387,170 | | | | - | | | | 387,170 | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | 93,721 | | | | 93,721 | |
| | | | | | | | | | | | | | | | | | | | |
Balance, January 31, 2011 | | $ | 36,001 | | | | 1,347,261 | | | | 1,945,055 | | | | 169,467 | | | | 3,497,784 | |
See accompanying notes to consolidated financial statements
ECO ENERGY PUMPS, INC. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010 |
(Stated in US Dollars) |
| | For the three months ended | |
| | January 31, 2011 | | | January 31, 2010 | |
Cash flows from operating activities | | | | | | |
Net income (loss) | | $ | 387,170 | | | $ | (3,800 | ) |
Depreciation | | | 26,614 | | | | - | |
| | | | | | | | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | |
Trade receivables | | | 724,833 | | | | - | |
Other receivables | | | 241,580 | | | | - | |
Inventories | | | (157,769 | ) | | | - | |
Prepaid expenses | | | 219,348 | | | | - | |
Sales commission payable | | | (11,001 | ) | | | - | |
Trade payables | | | (4,444 | ) | | | - | |
Advances from customers | | | 54,052 | | | | - | |
Accrued expenses | | | (13,816 | ) | | | 300 | |
VAT payables | | | 471,388 | | | | - | |
Income tax payables | | | 129,057 | | | | - | |
Other tax payables | | | 64,056 | | | | - | |
Advances to suppliers | | | (257,527 | ) | | | - | |
Other payables | | | 2,105 | | | | - | |
Deposit | | | (7,804 | ) | | | - | |
| | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 1,867,842 | | | $ | (3,500 | ) |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Receivable from a related company | | $ | 43,754 | | | $ | - | |
Payables to related parties | | | 15,800 | | | | 1,000 | |
Advances from key management | | | (34,626 | ) | | | - | |
Amounts due from directors | | | (81,552 | ) | | | - | |
Deposit paid for investment | | | (1,806,549 | ) | | | - | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | $ | (1,863,173 | ) | | $ | 1,000 | |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
| | | | | | | | |
Net cash provided by financing activities | | $ | - | | | $ | - | |
Net cash and cash equivalents sourced (used) | | $ | 4,669 | | | $ | (2,500 | ) |
| | | | | | | | |
Effect of foreign currency translation on cash and cash equivalents | | | 163 | | | | - | |
| | | | | | | | |
Cash and cash equivalents–beginning of period | | | 9,106 | | | | 2,799 | |
| | | | | | | | |
Cash and cash equivalents–end of period | | $ | 13,938 | | | $ | 299 | |
See accompanying notes to consolidated financial statements
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Eco Energy Pumps, Inc. (“the Company” or “the Group”) was incorporated as a for-profit company in the State of Nevada on October 14, 2008 and established a fiscal year end of October 31.
On October 25, 2010, the Company acquired DLT International Limited., a privately held corporation organized under the laws of the British Virgin Islands (“DLT”), in accordance with a Securities Exchange Agreement (the “Exchange”). DLT was organized under the laws of the British Virgin Islands on March 18, 2010. DLT is a holding company whose principal operating company develops, manufactures and distributes automotive testing equipment in the People's Republic of China. Upon consummation of the Exchange, the Registrant adopted the business plan of DLT.
Pursuant to the terms of the Exchange, the Company acquired DLT in exchange for an aggregate of 2,267,320 newly issued shares (the “Exchange Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) issued to DLT Shareholders in accordance with their pro rata ownership of DLT equity. As a result of the Exchange, DLT became a wholly-owned subsidiary of the Company. In addition, our principal stockholder agreed to retire their 9,300,000 shares of Common Stock. Following the Exchange, and upon giving effect to the Split, the Company had an aggregate of approximately 36,001,083 shares issued and outstanding.
On October 18, 2010, as a condition precedent to the Exchange, a majority of the Company’s Shareholders voted to amend the Company’s Articles of Incorporation to (i) change its name to DLT International, Ltd. (the “Name Change”), (ii) increase the number of its authorized shares of capital stock from 75,000,000 to 310,000,000 shares of which (a) 300,000,000 shares were designated common stock, par value $0.001 per share and (b)10,000,000 were designated “preferred stock, par value $0.001 per share (the “Preferred Stock”), (iii) authorize the creation of a class of 10,000,000 shares of blank check preferred stock, (iv) and to effect a forward-split such that fourteen and 29/100 (14.29) shares of its Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to filing of the Amendment (the “Split”).
Prior to the Exchange, we were a development-stage Company that intended to develop an efficient water pump powered by solar energy. As a result of the Exchange with DLT International Limited (“DLT”), we have adopted the business plan of DLT.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
DLT, through its wholly-owned Chinese subsidiary, Dalei Vehicle Inspecting Technology (Shen Zhen) Co., Ltd (“Dalei”), is a manufacturer and supplier of automotive emissions testing equipment and software control systems and a provider of comprehensive inspection station management services. Such services include the establishment of systems, standards and equipment supply, create inspection service market rules and formulate market rules with the government together in order to constitute a complete set of industry management methods and management measures, which include staff training, equipment access, inspection technology standards, management content and specific requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Group maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Group conform to generally accepted accounting principles in the United States of America (“US GAAP”) and have been consistently applied in the presentation of financial statements.
(b) | Principles of consolidation |
The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiary. All significant inter-company balances and transactions are eliminated in consolidation.
The Company owned its subsidiary soon after its inception and continued to own the equity’s interests through January 31, 2011. The following table depicts the identity of the subsidiaries:
Name of Subsidiary | | Place & Date of Incorporation | | Equity Interest Attributable to the Company (%) | | Common Stock/ Registered Capital ($) | | Registered Capital (RMB) |
| | | | | | | | |
DLT International Limited (“DLT”) | | BVI/March 18, 2010 | | 100 | | $50,000 | | N/A |
| | | | | | | | |
Dalei Vehicle Inspecting Technology (Shen Zhen) Co., Ltd (“Dalei”) | | PRC/June 3, 2010 | | 100 | | $730,855 | | RMB 5,000,000 |
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America 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 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.
(d) | Economic and political risks |
The Group’s operations are conducted in the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
The Group’s 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. The Group’s results may be adversely affected by changes in the 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.
(e) | 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 the plant and equipment are as follows:
Buildings | 40 years | Machinery & equipment | 8 years |
Office equipment | 5 years | | |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.
(f) | Accounting for the impairment of long-lived assets |
The Group periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in ASC No. 360, “Property, Plant and Equipment”. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
During the reporting periods, there was no impairment loss.
(g) | Foreign currency translation |
The accompanying financial statements are presented in United States dollars. The functional currency of the Group is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were as follows:
January 31, 2011 | |
Consolidated balance sheet | RMB 6.5833 to US$1.00 |
| |
Consolidated statements of income and | |
comprehensive income | RMB 6.6425 to US$1.00 |
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation. In addition, the current foreign exchange control policies applicable in PRC also restrict the transfer of assets or dividends outside the PRC.
(h) | Cash and cash equivalents |
The Group considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Group maintains bank accounts in the PRC. The Group does not maintain any bank accounts in the United States of America. The cash located outside the United States is not restricted as to usage.
Accounts receivable is recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is 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. Bad debts are written off as incurred. During the reporting years, there were no bad debts.
Outstanding accounts balances are reviewed individually for collectability. The Company does not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 services have been rendered;
- The seller’s price to the buyer is fixed or determinable; and
- Collection is reasonably assured.
The Group did not have a lease that met the criteria of a capital lease. Leases that do not qualify as a capital lease are classified as an operating lease. Operating lease rental payments included in general and administrative expenses for the three months ended January 31, 2011 and 2010 were $28,343 and nil respectively.
The Group expensed all advertising costs as incurred. Advertising expenses included in the general and administrative expense for the three months ended January 31, 2011 and 2010 were $3,764 and nil respectively.
The Group accounts for income taxes using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future realization is uncertain.
The Group is operating in the PRC, and in accordance with the relevant tax laws and regulations of PRC, the enterprise income tax rate for the period ended January 31, 2011 was 25%.
(n) | Cash and concentration of risk |
Cash includes cash on hand and demand deposits in accounts maintained within the PRC. No bank deposit was maintained at January 31, 2011. The Group has not experienced any losses in such accounts and believes it is not exposed to any risk on its cash in bank accounts.
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Group’s current component of other comprehensive income is the foreign currency translation adjustment.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p) | Recently implemented standards |
ASC Update (“ASU”) No. 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. This update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. This ASU codified the consensus reached in EITF Issue No. 09-E “Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash”. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Updated (“ASU”) No. 2010-02, Consolidation (Topics 810) – Accounting and Reporting for Decreases in Ownership of a Subsidiary - A Scope Clarification. This update provides guidance for non-controlling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This update is to codify the consensus reached in EITF Issue No. 09-J, “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” The amendments to the Codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or services condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final Rule, “Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies”. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-22, Accounting for Various Topics. This update amends various SEC paragraphs in the FASB Accounting Standards Codification based on external comments received and the issuance of Staff Accounting Bulletin (SAB) No. 112 which amends or rescinds portion of certain SAB topics. SAB 112 was issued to bring existing SEC guidance into conformity with ASC 805 “Business Combination” and ASC 810 “Consolidation”. The adoption of this update did not have any material impact on the Company’s financial statements.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p) | Recently implemented standards (Continued) |
ASC Update (“ASU”) No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This update reflects the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity as defined by Topic 805, Business Combinations that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.
3. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially expose the Group to concentrations of credit risk, consists of cash and accounts receivable as of January 31, 2011. The Group performs ongoing evaluations of its cash position and credit evaluations to ensure sound collections and minimize credit losses exposure.
As of January 31, 2011, all the Group’s bank deposits were conducted with banks in the PRC where there is currently no rule or regulation mandated on obligatory insurance of bank accounts.
For the three months ended January 31, 2011, all of the Group’s sales were generated from the PRC. In addition, all accounts receivable as of January 31, 2011 also arose in the PRC.
The maximum amount of loss exposure due to credit risk that the Group would bear if the counter parties of the financial instruments failed to perform represents the carrying amount of each financial asset on the balance sheet.
Normally, the Group does not require collateral from customers or debtors.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
3. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS (Continued)
For the three months ended January 31, 2011, the following customers accounted for 10% or more of the Group’s revenue.
| | For the | |
| | three months ended | |
| | January 31, 2011 | |
| | | |
Customer A | | 302,378 | |
Customer B | | 283,077 | |
Customer C | | 302,378 | |
Customer D | | 283,077 | |
Customer E | | 283,077 | |
At January 31, 2011, the following customers accounted for 10% or more of the Group’s accounts receivable:
| | January 31, 2011 | |
| | | |
Customer A | | 235,444 | |
Customer B | | 212,659 | |
Customer C | | 205,064 | |
4. PROPERTY, PLANT AND EQUIPMENT, NET
Details of property, plant and equipment are as follows:
| | January 31, 2011 | | | October 31, 2010 | |
At cost | | | | | | |
Buildings | | $ | 702,742 | | | $ | 693,491 | |
Machinery & equipment | | | 757,295 | | | | 747,326 | |
Office equipment | | | 1,975 | | | | 1,949 | |
Less: accumulated depreciation | | | (62,633 | ) | | | (35,308 | ) |
| | | | | | | | |
| | $ | 1,399,379 | | | $ | 1,407,458 | |
Depreciation expense included in the general and administrative expenses for the three months ended January 31, 2011 and 2010 were $26,614 and nil respectively.
5. DEPOSIT FOR ACQUISITION OF A COMPANY
Dalei entered into the agreement dated November 5, 2010 for acquisition of a company with the consideration of $1,822,794. The consideration has been fully paid during the three months ended January 31, 2011 but the acquisition process has not yet been completed. Dalei further entered into the supplementary agreement dated March 18, 2011 to extend the completion to the end of June 2011.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
6. RELATED PARTY TRANSACTIONS
In the normal course of its business, the Group carried out the following related party transactions during the period ended January 31, 2011 and 2010.
(b) | Related party receivables and payables |
Amounts receivable from and payable to related parties as of January 31, 2011 and October 31, 2010 are summarized as follows:
| | | January 31, | | | October 31, | |
| Common shareholder | | 2011 | | | 2010 | |
Amount due from a related party: | | | | | | | |
Shenzhen Dalei Transportation Technology Co., Ltd | Mr. Zhang Xiuliang | | $ | 79,438 | | | $ | 212,671 | |
Hefei Dalei Technology Co., Ltd | Mr. Zhang Xiuliang | | | 91,922 | | | | - | |
| | | | | | | | | |
| | | $ | 171,360 | | | $ | 212,671 | |
| | | | | | | | | |
Amounts due to related companies: | | | | | | | | | |
Shenzhen Dalei Software Technology Co., Ltd | Mr. Zhang Xiuliang | | $ | 41,649 | | | $ | 18,647 | |
Hefei Dalei Technology Co., Ltd | Mr. Zhang Xiuliang | | | - | | | | 6,722 | |
| | | | | | | | | |
| | | $ | 41,649 | | | $ | 25,369 | |
Balances with related parties represent advances to or loans from the respective related party. These balances were interest free, unsecured and repayable on demand. It was expected that the balances would be received or repaid within one year.
(c) | Receivables from directors |
| | January 31, | | | October 31, | |
| | 2011 | | | 2010 | |
| | | | | | |
Amounts due from the directors: | | | | | | |
Zhang Xiuliang | | $ | 79,413 | | | $ | - | |
Liu Jun | | | 2,872 | | | | - | |
| | | | | | | | |
| | $ | 82,285 | | | $ | - | |
Amounts due from the directors are unsecured, interest-free, and repayable on demand.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
6. RELATED PARTY TRANSACTIONS (Continued)
(d) | Payable to key management |
| | January 31, | | | October 31, | |
| | 2011 | | | 2010 | |
| | | | | | |
Amounts due to the key management: | | | | | | |
Liu Jun | | $ | - | | | $ | 23,984 | |
Li Zhengying | | | - | | | | 10,493 | |
| | | | | | | | |
| | $ | - | | | $ | 34,477 | |
Amounts due to the key management are unsecured, interest-free, and repayable on demand.
7. CAPITALIZATION
As a result of the Group’s reverse-merger on October 25, 2010, the Group’s capital structure has been changed. The number of common stock was 36,001,083 after reverse-merger. The common stock is $36,001 with paid-in capital $1,347,262.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade receivables, amount due from a director, other receivables, amount due to a shareholder and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest.
9. INCOME TAXES
The Company is registered in the State of Nevada whereas its subsidiary, DLT being incorporated in the British Virgin Islands is not subject to any income tax and conducts all of its business through its PRC subsidiary, Dalei (see note 1).
DLT was incorporated in the British Virgin Islands and is not subject to income taxes under the current laws of the British Virgin Islands.
The subsidiary, Dalei, being registered in the PRC, is subject to PRC’s Enterprise Income Tax (“EIT”). PRC EIT rate was 25% for the period ended January 31, 2011.
Income before income tax expenses of $516,227 for the period ended January 31, 2011, was attributed to operations in China. Income tax expense related to China income for the period ended January 31, 2011, was $129,057.
ECO ENERGY PUMPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
9. INCOME TAXES (Continued)
A reconciliation between the income tax computed at the U.S. statutory rate and the Group’s provision for income tax is as follows:
| | For the three months ended | |
| | January 31, 2011 | | | January 31, 2010 | |
| | | | | | |
U.S. statutory rate | | | 34 | % | | | 34 | % |
Foreign income not recognized in the U.S. | | | (34 | %) | | | - | |
PRC Enterprise Income Tax | | | 25 | % | | | - | |
| | | | | | | | |
Provision for income tax | | | 25 | % | | | 34 | % |
No deferred tax has been provided as there are no material temporary differences arising for the period ended January 31, 2011.
The Company did not have any interest and penalty recognized in the income statements for the period ended January 31, 2011 or balance sheet as of January 31, 2011. The Company did not have uncertainty tax positions or events leading to uncertainty tax position within the next 12 months.
10. EARNING (LOSS) PER SHARE
The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Potentially dilutive common shares consist of convertible preferred stock (using the if-converted method) and exercisable warrants and stock options outstanding (using the treasury method). The following table sets forth the computation of basic and diluted net income per common share:
| | For the three months ended | |
| | January 31, 2011 | | | January 31, 2010 | |
| | | | | | |
Net income (loss) | | $ | 387,170 | | | $ | (3,800 | ) |
| | | | | | | | |
Weighted-average shares of common stock outstanding: | | | | | | | | |
Basic and diluted | | | 36,001,083 | | | | 9,552,500 | |
| | | | | | | | |
Earning (loss) per share: | | | | | | | | |
Basic and diluted | | $ | 0.01 | | | $ | (0.00 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010
(Stated in US Dollars)
11. SUBSEQUENT EVENTS
Dalei has entered into the agreement dated November 5, 2010 and the supplementary agreement dated March 18, 2011 for acquisition of a company. The acquisition is expected to be completed before the end of June 2011.
The Company has evaluated all other subsequent events through March 22, 2011, the date these consolidated financial statements were issued, and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements.
Item 2. Management`s Discussion and Analysis of Financial Condition and Results of Operations
This section of this report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
Overview
Eco Energy Pumps, Inc. ("Eco Energy Pumps", "the Company", “our” or "we") was incorporated in the State of Nevada as a for-profit company on October 14, 2008 and established a fiscal year end of October 31.
On October 25, 2010, the Company acquired DLT International Limited. DLT International Limited (the “DLT”) was incorporated under the laws of the British Virgin Islands on March 18, 2010 and currently operates through one operating company located in People’s Republic of China (the PRC): Dalei Automobile Testing Technology (Shenzhen) Co., Ltd. (“Dalei”). Dalei was incorporated under the laws of the PRC as a limited company on June 3, 2010. Dalei is a vehicle inspecting technology provider in the PRC.
For the first quarter ended January 31, 2011, we generated revenues of $2,779,504 from the sales of vehicle inspecting machines to a number of customers.
Our gross profit margin during the first quarter ended January 31, 2011 was 47.1%. During the first quarter, our cost of sales of testing equipment consists of purchasing machinery and equipment, outsourced instrumentation and control pane, software, freight, and installation.
Selling, general and administrative expenses for the first quarter ended January 31, 2011 was $791,279 or 28.5% of net sales. Selling, general and administrative expenses consist primarily of payroll.
Income from operations for the first quarter ended January 31, 2011 was $518,381, and net income after income taxes for the same period was $387,170.
Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments. While our net income is added to the retained earnings on our balance sheet; the translation adjustments are added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the first quarter ended January 31, 2011, the effect of converting our financial results to Dollars was to add $93,721 to our accumulated other comprehensive income.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital and capital expenditures. We fund our liquidity requirements primarily through cash on hand, and cash flow from operations. We believe our cash on hand, future funds from operations and borrowings from our related parties will be sufficient to fund our cash requirements for at least the next twelve months.
We ended the first quarter with $13,938 of cash and cash equivalents. The following table sets forth a summary of our cash flows for the periods indicated:
The Quarter Ended January 31, 2011 | | 2011 | |
| | | |
Net cash provided by operating activities | | $ | 1,867,842 | |
Net cash used in investing activities | | | (1,863,173 | ) |
Net cash provided by financing activities | | | - | |
Effect of foreign currency translation | | | 163 | |
| | | | |
Net change in cash | | $ | 13,938 | |
Operating Activities – For the quarter ended January 31, 2011, net cash provided by operating activities was $1,867,842. This is primarily attributable to (i) our net income of $387,170; (ii) decrease in net trade receivables of $724,833; (iii) decrease in other receivables of $241,580 and (iv) increase in VAT payable of $471,388.
Investing Activities – Net cash used in investing activities for the first quarter 2011 was $1,863,173. This is primarily attributable to a deposit of $1,806,549 paid for an acquisition of a company which is expected to be completed before the end of June 2011.
Financing Activities – No cash from financing activity is recorded during the first quarter 2011.
Future Capital Requirements – We had cash on hand of $13,938 at January 31, 2011. We did not expect any material capital expenditures for fiscal 2011.
We believe we will be able to fund our cash requirements, for at least the next twelve months, from cash on hand, and operating cash flows. However, our ability to satisfy our cash requirements depends upon our future performance, which in turn is subject to general economic conditions and regional risks, and to financial, business and other factors affecting our operations, including factors beyond our control.
If we are unable to generate sufficient cash flow from operations to meet our obligations and commitments, we will be required to refinance or restructure our indebtedness or raise additional debt or equity capital. Additionally, we may be required to sell material assets or operations, suspend or further reduce dividend payments or delay or forego expansion opportunities. We might not be able to implement successful alternative strategies on satisfactory terms, if at all.
Capital Expenditure
We did not have any capital expenditures except a deposit payment for an acquisition of a company during the first quarter ended January 31, 2011.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared under accounting principle generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.
Accounts Receivable
Accounts receivable is recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is 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. Bad debts are written off as incurred. During the reporting years, there were no bad debts.
Outstanding accounts balances are reviewed individually for collectability. The Company does not charge any interest income on trade receivables. Accounts balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. To date, the Company has not charged off any balances as it has yet to exhaust all means of collection.
Recent Accounting Pronouncements
ASC Update (“ASU”) No. 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. This update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. This ASU codified the consensus reached in EITF Issue No. 09-E “Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash”. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Updated (“ASU”) No. 2010-02, Consolidation (Topics 810) – Accounting and Reporting for Decreases in Ownership of a Subsidiary - A Scope Clarification. This update provides guidance for non-controlling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This update is to codify the consensus reached in EITF Issue No. 09-J, “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” The amendments to the Codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or services condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This update amends various SEC paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final Rule, “Technical Amendments to Rules Forms, Schedules and Codification of Financial Reporting Policies”. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-22, Accounting for Various Topics. This update amends various SEC paragraphs in the FASB Accounting Standards Codification based on external comments received and the issuance of Staff Accounting Bulletin (SAB) No. 112 which amends or rescinds portion of certain SAB topics. SAB 112 was issued to bring existing SEC guidance into conformity with ASC 805 “Business Combination” and ASC 810 “Consolidation”. The adoption of this update did not have any material impact on the Company’s financial statements.
ASC Update (“ASU”) No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This update reflects the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity as defined by Topic 805, Business Combinations that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.
Impact of Accounting Pronouncements
There were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based upon an evaluation of the effectiveness of disclosure controls and procedures, our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. As reported in our Annual Report on Form 10-K for the year ended October 31, 2010, the Company’s principal executive officer and principal financial officer has determined that there are material weaknesses in our disclosure controls and procedures.
The material weaknesses in our disclosure control procedures are as follows:
1. Lack of formal policies and procedures necessary to adequately review significant accounting transactions. The Company utilizes a third party independent contractor for the preparation of its financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.
2. Audit Committee and Financial Expert. The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.
We intend to initiate measures to remediate the identified material weaknesses including, but not necessarily limited to, the following:
| ● | Establishing a formal review process of significant accounting transactions that includes participation of the Chief Executive Officer, the Chief Financial Officer and the Company’s corporate legal counsel. |
| ● | Form an Audit Committee that will establish policies and procedures that will provide the Board of Directors a formal review process that will among other things, assure that management controls and procedures are in place and being maintained consistently. |
Changes in Internal Control over Financial Reporting
As reported in our Annual Report on Form 10-K for the year ended October 31, 2010, management is aware that there a significant deficiency and a material weakness in our internal control over financial reporting and therefore has concluded that the Company’s internal controls over financial reporting were not effective as of October 31, 2010. The significant deficiency relates to a lack of segregation of duties due to the small number of employees involvement with general administrative and financial matters. The material weakness relates to a lack of formal policies and procedures necessary to adequately review significant accounting transactions.
There have not been any changes in the Company's internal control over financial reporting during the quarter ended January 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.”
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated.
No director, officer, or affiliate of the issuer and no owner of record or beneficiary of more than 5% of the securities of the issuer, or any security holder is a party adverse to the registrant or has a material interest adverse to the registrant.
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.
Exhibit No. | | Description |
31.1* | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2* | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* Filed herewith
* | As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this quarterly report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of AmbiCom Holdings, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, including this quarterly report, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: March 22, 2011
ECO ENERGY PUMPS, INC.
By: | /s/ Jun Liu | |
| Name: Jun Liu | |
| Title: Chief Executive Officer, Director (principal executive officer) | |
| | |
| | |
By: | /s/ Zhengying Li | |
| Name: Zhengying Li | |
| Title: Chief Financial Officer , Director (principal accounting officer) | |
| | |
| | |
By: | /s/ Xiuliang Zhang | |
| Name: Xiuliang Zhang | |
| Title:Chairman, President | |
26