ECOLOCLEAN INDUSTRIES, INC.
2242 SOUTH HIGHWAY 83
CRYSTAL CITY, TX 78839
830-374-9100/FAX 830-374-0202
- --------------------------------------------------------------------------------
June 28, 2006
Gus Rodriquez
Division of Corporation Finance
United States Securities and Exchange Commission
Re: Ecoloclean Industries, Inc.
File Number 0-33481
Form 10-KSB for the Fiscal Year ended December 31, 2004
Form 10-QSB for the Fiscal Quarters ended March 31, 2005, June 30, 2005 and
September 30, 2005
Dear Mr. Rodriquez,
This letter is offered in response to your letter dated March 15, 2006.
Form 10-KSB for the Fiscal Year ended December 31, 2004:
Note 7 - Common Stock Transactions, Page F-16:
Question No. 1 We note that you have recorded issuances of stock to
- -------------- both employees and service providers and recorded
such amounts at substantial discounts. The amount of
the discounts appears substantial and in excess of
any normal discount under generally accepted
accounting principles. You state that you have
provided such discounts due to restrictions and
market volatility. You also mention stock being
"valued by contract". In order for to better
understand these substantial discounts please provide
us with the following:
- Modify your table to include all issuances
of stock, or other equity instruments in
2003 and from June 2005 up to and including
the date of your response;
- Indicate the value assigned to each
issuance;
- Indicated the quoted daily closing price on
the date of issuance;
Mr. Gus Rodriquez
United States Securities and Exchange Commission
June 28, 2006
Page 2
Form 10-KSB for the Fiscal Year ended December 31, 2004:
Note 7 - Common Stock Transactions, Page F-16:
Question No. 1 (Continued)
- --------------------------
- Indicate for each issuance whether the
shares were issued, for cash, to employees,
or for goods and services, or acquisitions;
- Include any shares issued to acquire other
entities including Aquatronics;
- For each individual issuance, describe, in
detail, the restrictions on sale;
We would like you to address the discounts recorded
on each issuance as follows:
- Provide us with a thorough, comprehensive
analysis in support of the discount
provided, for each issuance, based on the
restrictions. Please note that it is not
adequate to cite any average marketability
discount used by others or to use a broad
range from an academic study. Rather you
should specifically address how the
restrictions on the shares you issued should
be discounted. Again please decribe the
restrictions and their terms in detail.
- Provide direct referenced guidance from
generally accepted accounting literature in
support of specifically taking a discount of
shares issued for goods and services due to
restrictions;
- Provide us with a thorough, comprehensive
analysis in support of the discount
provided, for each issuance, based on
volatility. Please note that it is not
adequate to cite any average volatility
discount used by others or to use a broad
range from an academic study.
- Provide direct reference guidance from
generally accepted accounting literature in
support to specifically taking a discount of
shares issued for goods and services due to
volatility;
- Explain how you have complied with EITF
96-18 regarding shares issued for goods and
services. Please address each issuance and
how you complied with such guidance;
Mr. Gus Rodriquez
United States Securities and Exchange Commission
June 28, 2006
Page 3
Form 10-KSB for the Fiscal Year ended December 31, 2004:
Note 7 - Common Stock Transactions, Page F-16:
Question No. 1 (Continued)
- --------------------------
- Explain how you have accounted for shares
issued to employees and support your
accounting. See APB 25 and SFAS 123 and
123(R).
Response: Subsequent to the receipt of the March 15, 2006
letter, we prepared a restated 10K-SB for the Year
Ended December 31, 2004. The restated filing included
revaluations of restricted stock issuances to
employees and service providers in accordance with
fair value accounting. We continued the revaluations
for 2005 which entailed restating the 10Q-SB for the
Quarters ended March 31, 2005, June 30, 2005 and
September 30, 2005, reported on the 10K-SB for the
Year Ended December 31, 2005.
Form 10-QSB for the Quarter ended September 30, 2005
Financial Statements:
Question No. 2 Please disclose if goodwill in the amount of $387,035
- -------------- was tested for impairment and disclose management
conclusions with respect to any impairment. Please
provide us with a copy of your quantitative
impairment analysis performed in accordance with SFAS
142. Please clearly identify the projected annual
cash flows and the related assumptions, as well as
the critical estimates inherent in your analysis.
Please identify and support each assumption you made
in preparing your analysis. Please also ensure that
the cash flow analysis is consistent with your
disclosures in the Liquidity section as required by
SAB Topic 5:CC and the going concern note to your
financial statements. Please refer to SFAS 142.
Response: Goodwill was tested for impairment. The quantitative
impairment analysis, projected cash flow and the
related assumptions are included below:
Mr. Gus Rodriquez
United States Securities and Exchange Commission
June 28, 2006
Page 4
Form 10-QSB for the Quarter ended September 30, 2005
Financial Statements:
Question No. 2
Response: (Continued)
AQUATRONICS INDUSTRIES, INC.
CASH FLOW PROJECTION BASED ON CRITICAL ESTIMATES
12 MONTH PERIOD ENDED DECEMBER 31,
---------------------------------------------
2006 2007 2008 2009
--------- --------- --------- ---------
SALES & SERVICE 750,000 900,000 1,300,000 1,500,000
COST OF SALES (62% CONSTANT) 465,000 558,000 806,000 930,000
--------- --------- --------- ---------
GROSS PROFIT 285,000 342,000 494,000 570,000
SELLING, GENERAL &
ADMINSTRATIVE (23% CONSTANT) 172,500 207,000 299,000 345,000
NET CASH FLOW/OPERATING INCOME 112,500 135,000 195,000 225,500
(A) DISCOUNTED PRESENT VALUE
USING A 35% DISCOUNT FACTOR 83,333 74,094 79,268 67,740
DISCOUNTED AVG. ANNUAL RETURN
ON $387,035 = 19.7% 76,108 76,108 76,108 76,108
(A) DISCOUNT FACTOR CONSISTS OF THE TIME VALUE OF MONEY (3.75%) AND THE
RISK FACTOR (31.25%)
Mr. Gus Rodriquez
United States Securities and Exchange Commission
June 28, 2006
Page 5
Form 10-QSB for the Quarter ended September 30, 2005
Financial Statements:
Question No. 2
Response: (Continued)
Assumptions by Management in Casting a Four-Year Cash Flow
1. Management has considered the economic climate as well as the
regulatory demands for water remediation and purification in today's
society and feels confident that stricter government regulations in
this field will foster a more positive marketplace, as well as create
public (private and non-private sector) demands in an upper spiral.
2. Management has looked at other companies in similar situations and
feels that competing products and/or technology is not an adverse
factor. Management feels that competition in this infant industry will
bring consumer awareness to a new degree and greatly enlarge the
playing field.
3. Management firmly believe that water, one of life's greatest resources,
is the key component in the ecosystem, and that in the near future
those companies, which have the environment as their mission, will have
substantial economic benefits awaiting their results.
4. Management has prepared a cash flow statement covering the calendar
years ending December 31, 2006, thru December 31, 2009. This projection
or estimate results in an average discounted annual return in excess of
19.7% on the value of the recorded "Goodwill" as shown after the
acquisition of Aquatronics by Ecoloclean Industries, Inc. Because
Ecoloclean is already in this field in the southeast and southwest
section of the United States, the synergy which this business
combination brings to the table appears to be a very compatible
relationship. Management has carefully reviewed the economics of this
acquisition (rising interest rates, inflation, local and foreign
competition, productivity and various other intangibles), but, in the
end, feel that the know-how of the management team at Aquatronics, with
the proper capital funding and sales force, could produce a very viable
product and successful company.
Mr. Gus Rodriquez
United States Securities and Exchange Commission
June 28, 2006
Page 6
Form 10-QSB for the Quarter ended September 30, 2005
Financial Statements:(Continued)
- --------------------------------
Question No. 3 Your dispositions of Reliant Drilling Systems and
- -------------- Ecoloclean of Texas appear to be significant
dispositions under Item 310 (b) of Regulation S-B.
Tell us why you did not file a Form 8-K reporting
such event. If significant, please provide pro forma
financial information showing the effects of the
dispositions as required by Item 310 of Regulations
S-B. See instructions to Item 310(b) of Regulations
S-B.
Response: After review by management, the Company concluded
that no material effects of the dispositions were
incurred by the continuing operations.
Question No. 4 Your acquisition of Aquatronics Industries appears to
- -------------- be a significant acquisition under Item 310(c) of
Regulation S-B. Please provide audited financial
statements of the acquiree for the periods indicated
by Item 310(c)(3). Please also provide pro forma
financial information showing the effects of the
acquisition as required by Item 310(d) of Regulations
S-B.
Response: On June 23, 2006, we filed an 8K/A which included
audited financial statements of Aquatronics
Industries, Inc. and proforma financial information
showing the effects of the acquisition as required by
Item 310(d) of Regulation S-8.
Sincerely,
/s/ Royis Ward
Royis Ward
President