ECO SCIENCE SOLUTIONS, INC. - Quarter Report: 2011 July (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 

PART I - FINANCIAL INFORMATION  

Item 1. Financial Statements  

Our unaudited consolidated financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

Pristine Solutions Inc.

(A Development Stage Company)

Consolidated Financial Statements

July 31, 2011

                                                                                                                                                                                                     Index

Consolidated Balance Sheets................................................................................................................................................... F–1

 

Consolidated Statements of Operations................................................................................................................................. F–2

 

Consolidated Statements of Cash Flows................................................................................................................................ F–3

 

Notes to the Consolidated Financial Statements.................................................................................................................. F–4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pristine Solutions Inc.

(A Development Stage Company)

Consolidated Balance Sheets
(Unaudited)

 

 

 

 

 

Pristine Solutions Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

 

 

 

Pristine Solutions Inc. 

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

 

 

                 

                 

 

  

 

  

 

Pristine Solutions Inc.

(A Development Stage Company)

Notes to the Consolidated Financial Statements

(Unaudited)

 

1.       Nature of Business and Continuance of Operations

Pristine Solutions Inc., (the “Company”) was incorporated in the State of Nevada on December 8, 2009.  The Company’s principal business is the sale and distribution of electric instant water heaters in Jamaica. 

These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary financing and the attainment of profitable operations.  As of July 31, 2011, the Company has incurred losses totaling $70,908 since inception, and has not yet generated a significant amount of revenue from operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.       Summary of Significant Accounting Policies

a)      Basis of Presentation

These consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States and are expressed in US dollars. The Company’s fiscal year end is January 31.

b)      Principal of Consolidation

The consolidated financial statements include the accounts of Pristine Solutions Inc. and its 100% owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

c)      Interim Financial Statements

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information.  They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended January 31, 2011.

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company's financial position at July 31, 2011, and the results of its operations and cash flows for the three and six months ended July 31, 2011. The results of operations for the three months and six months ended July 31, 2011 are not necessarily indicative of the results to be expected for future quarters or the full year.

d)      Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

e)      Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of purchase to be cash equivalents.

f)       Receivables 

The Company uses the allowance method to account for uncollectible accounts receivable.  Accounts receivable are presented net of an allowance for doubtful accounts of $Nil and $Nil at July 31, 2011, and January 31, 2011, respectively.

g)      Inventory 

Inventories, consisting of electric water heaters, are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. As of July 31, 2011 and January 31, 2011, an allowance of $Nil and $Nil was recognized to mark the Company’s inventory to the lower of cost or market.

h)      Property and Equipment

Property and equipment consists of a vehicle which is recorded at cost. The vehicle is being depreciated on a straight-line basis over 6 years.

i)        Financial Instruments

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, loans payable and related party payables. The Company believes that the recorded values of the Company’s financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

The Company’s operations are in the United States and Jamaica, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

j)       Revenue Recognition

Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. No provision for discounts or rebates to customers, estimated returns and allowances or other adjustments were recognized during the periods ended July 31, 2011 and 2010. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures and the customer’s acceptance. No revenues were deferred due to products being configured to customer requirements during the periods ended July 31, 2011 and 2010.

k)      Product Warranty

The Company provides a one year warranty on all products sold. The Company’s policy is to accrue a warranty liability equal to 2% of sales based on the manufacturer’s past experience. Spare parts equal to 1% of each order are provided to the Company free of charge from the manufacturer. During the six months ended July 31, 2011, the Company recognized $25 (2010 - $nil) of warranty expenses in accrued liabilities and cost of goods sold. The Company did not have any warranty claims during the periods ended July 31, 2011 and 2010. The Company will continue to evaluate its warranty policy based on actual products returned and costs incurred.

 

The Company’s warranty accrual is based on the Company’s best estimates of product failure rates and unit costs to repair. However, the Company plans to release new products. As a result, it is at least reasonably possible that products could be released with certain unknown quality and/or design problems. Such an occurrence could result in materially higher than expected warranty and related costs, which could have a materially adverse effect on the Company’s results of operations and financial condition.

l)        Shipping and Handling Activities

Shipping and handling costs of approximately $nil during the six months ended July 31, 2011 (2010 - $nil) are included in selling, general and administrative expenses.

m)    Earnings (Loss) Per Share ("EPS")

Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At July 31, 2011, the Company had no potentially dilutive securities outstanding.

n)      Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Jamaican dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. The United States dollar is the functional and reporting currency.

o)      Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. At July 31, 2011 the deferred tax asset related to the Company’s net operating loss carry forward has been fully reserved and no benefit has been recognized in the Company’s consolidated financial statements.

p)      Subsequent Events

The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that there were no subsequent events to recognize or disclose in these financial statements.

q)      Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

3.       Related Party Transactions

Office services and office space are provided without charge by the sole officer and director of the Company. Such costs are immaterial to the consolidated financial statements and accordingly, have not been reflected therein.

 

As of July 31, 2011, the Company owes the sole director of the Company $2,321 (January 31, 2011 - $2,055) for expenditures paid on behalf of the Company.  The amount owed is unsecured, non-interest bearing, and has no specified repayment terms. The amount is accrued as a related party payable in the accompanying consolidated balance sheets.

4.       Loans payable

As of July 31, 2011, the Company owes an unrelated third party $10,466 (January 31, 2011 - $9,985) for a note payable dated December 21, 2010. The note payable is unsecured, non-interest bearing, and has no specified repayment terms.

As of July 31, 2011, the Company is indebted to an unrelated third party for $15,080.  This loan is unsecured, non-interest bearing, and is due on demand.

5.       Commitments 

On December 30, 2009, the Company entered into a license agreement to sell and distribute electric instant water heaters in Jamaica. According to the terms of the agreement, the Company was required to purchase no less than 50 products within six months of the agreement date. As of July 31, 2011, 52 units of water heaters had been ordered and received by the Company and full payment had been made on the units. The agreement was effective for an initial period of one year and could be extended for a further period by either party if written notice was given 30 days prior to the expiration date. On March 18, 2011, the Company extended the term of the license agreement for an additional six months.  According to the terms of the agreement, the Company is required to purchase no less than 150 units within six months.  The Company is required to make full payment to the supplier before production of the 150 units will begin. The Company has not placed any additional orders and no other pre-payments have been made at this time.  The Company is seeking an extension of the contract and if they are unable to do so they will lose the exclusive marketing rights for Jamaica.  Additional orders will be made once the matter of the extension of the contract has been resolved.  

 

 

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

FORWARD-LOOKING STATEMENTS  

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms, or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited consolidated financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

Unless otherwise specified in this quarterly report, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to shares of our common stock.

As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Pristine Solutions Inc., and our subsidiary Pristine Solutions Limited, a Jamaica corporation, unless otherwise indicated.

Corporate Overview  

We were incorporated on December 8, 2009 under the laws of the State of Nevada. We have a wholly-owned subsidiary, Pristine Solutions Limited, incorporated under the laws of Jamaica. Our principal executive offices are located at Stettin Albert Town, Trelawny, Jamaica. Our telephone number is (876) 572-4681. Our fiscal year end is January 31.

We are a startup, development stage company. We have only recently begun operations and we have relied upon the sale of our securities and proceeds from debt to fund those operations as we have only generated limited revenues from the sale of our products. We intend on developing a network of sales points for the sale and service of tankless water heaters in Jamaica. We aim to be the first tankless water heater company specializing in tankless-only products to enter the Jamaican market and the only company in the Jamaican market offering solar powered tankless water heater products.

On December 30, 2009, we entered into a distribution agreement with the manufacturer of the tankless hot water heaters which we hope to sell in Jamaica: Zhongshan Guangsheng Industry Co., Ltd., of China (“Zhongshan”). Zhongshan currently manufactures the tankless hot water heaters under the brand Gleamous Electric Appliances. Zhongshan is part of an international enterprise that also owns a research and development group, factory, and sales group and is looking to expand into other markets. Our management hopes that we can expand the Gleamous brand into the Jamaican market and the rest of the Caribbean. Pursuant to the terms of this agreement, we acquired 52 units of Zhongshan’s various Gleamous tankless water heaters of which we were required to purchase 50 within the first 6 months of the agreement. As consideration, we were granted the exclusive license to distribute the products within Jamaica. The term of the agreement was 1 year and may be terminated by either party with 30 days written notice.

 

 

As of July 31, 2011, no additional tank-less hot water heaters have been ordered by our company.  The agreement was effective for an initial period of one year and could be extended for a further period by either party if written notice was given 30 days prior to the expiration date. On March 18, 2011 we extended the term of the license agreement for an additional six months. According to the terms of the agreement, our company is required to purchase no less than 150 products within six months. Our company is required to make full payment to the supplier before production of the 150 units will begin. As of the date of this filing, we have not met the terms of this agreement.  The Company has not placed any additional orders and no other pre-payments have been made at this time.  The Company is seeking an extension of the contract and if they are unable to do so they will lose the exclusive marketing rights for Jamaica.  Additional orders will be made once the matter of the extension of the contract has been resolved.  

Employees  

As of July 31, 2011, we have 3 employees as we have hired two full-time commissioned sales staff to market, sell and install our tankless hot water tanks and the third employee is our sole director and officer, who contributes approximately 50% of her time to our company.

We currently engage independent contractors in the areas of accounting and legal services. We plan to engage independent contractors in the areas of marketing, bookkeeping, investment banking and other services including at least 3 part time consultants who will each focus on sales and marketing, business development and investor relations.

Purchase of Significant Equipment  

We anticipate spending approximately $60,000 on the purchase of tankless water heaters under our distribution agreement with Zhongshan during the next 12 months. Pursuant to the terms of the agreement, after confirmation of the order, our company shall pay a 30% deposit prior to production in favor of Zhongshan within the time stipulated in the relevant sales confirmation with 70% balance paid against delivery notice before the delivery of the order.

Personnel Plan  

Other than as stated above, we do not anticipate any significant changes in the number of employees during the next 12 months. However, if we are successful with obtaining any purchase orders from our targeted wholesalers and distributors, then we will hire part time employees to act as after sales and service representatives of our company, and we will also hire additional full-time commission oriented sales representatives to obtain additional purchase orders for our company. The numbers of employees to be hired are uncertain and will depend on the success and size of the initial purchase order.

Plan of Operation  

You should read the following discussion of our financial condition and results of operations together with our unaudited consolidated financial statements and the notes thereto included elsewhere in this filing. Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.

 

Anticipated Cash Requirements  

We estimate that our expenses over the next 12 months will be approximately $470,000 as described in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources.

We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing by way of private placements. We currently do not have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us.

If we are not able to raise the full $470,000 to implement our business plan as anticipated, we will scale our business development in line with available capital. Our primary priority will be to retain our reporting status with the Securities and Exchange Commission, which means that we will first ensure that we have sufficient capital to cover our legal and accounting expenses. Once these costs are accounted for, in accordance with how much financing we are able to secure, we will focus on product acquisition, testing and servicing costs, as well as marketing and advertising of our products. We will likely not expend funds on the remainder of our planned activities unless we have the required capital.

If we are able to raise the required funds to fully implement our business plan, we plan to implement the business plan in the order provided below. If we are not able to raise all required funds, we will prioritize our corporate activities as chronologically laid out below because the activity which needs to be undertaken in the initial months is prerequisite for future operations. We anticipate that the implementation of our business will occur as follows:

July 2011 to April 2012  

• Completion of a shopping cart to be added to our website for online sales.
• Market products to large retailers and distributors.
• Testing of the units have been successful, and purchase additional units from Zhongshan, the manufacturer.
• Review opportunities for establishment of retail locations.
• Attend trade shows.
• Market products to hotels and resorts.
• Purchase additional assets such as additional delivery vehicles that can be used to service and market different regions.
• Raise additional capital for anticipated cash requirements (see table above).

 

Results of Operations

Three and six months ended July 31, 2011 and 2010.

Revenue

We had revenues of $45 in the three months ended July 31, 2011 compared with $Nil revenue for the three months ended July 31, 2010. We had revenues of $1,242 in the six months ended July 31, 2011 compared with $Nil for the six months ended July 31, 2010.  Revenues increased for the 2011 periods as a result of selling demonstration units to hardware companies interested in selling the tankless hot water heaters.

Operating Expenses

We had operating expenses of $8,622 in the three months ended July 31, 2011 compared with $7,112 for the three months ended July 31, 2010. Operating expenses increased for the three-month period due to an increase in marketing efforts.  We had operating expenses of $20,084 in the six months ended July 31, 2011 compared with $25,627 for the six months ended July 31, 2010.  Operating expenses decreased for the six-month period due to a decrease in shipping costs, duties, and taxes.

Liquidity and Capital Resources

Working Capital  

Our net cash used by operating activities for the six months ended July 31, 2011 was $13,329 compared to $30,548 for the six months ended July 31, 2010.

Our net cash used by investing activities for the six months ended July 31, 2011 was $Nil compared to $7,816 for the six months ended July 31, 2010.   The cash used in investing activities for 2010 was for the purchase of property and equipment.

Our net cash provided by financing activities for the six months ended July 31, 2011 was $15,561 compared to $Nil for the six months ended July 31, 2010.   The cash provided from financing activities in 2011 is the result of proceeds from loans payable.

Our management believes that we will need additional funding in order to meet our operating expenses.

 

Future Financings  

We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing by way of private placements. We currently do not have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us.

Off-Balance Sheet Arrangements  

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amount 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 period. Actual results could differ from those estimates. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain.

Use of Estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Our company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. Our company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Receivables

Our company uses the allowance method to account for uncollectible accounts receivable.  Accounts receivable are presented net of an allowance for doubtful accounts of $Nil and $Nil at July 31, 2011, and January 31, 2011, respectively.

Revenue Recognition

Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. No provision for discounts or rebates to customers, estimated returns and allowances or other adjustments were recognized during the periods ended July 31, 2011 and 2010. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of our company’s final test procedures and the customer’s acceptance. No revenues were deferred due to products being configured to customer requirements during the periods ended July 31, 2011 and 2010.

Product Warranty

Our company provides a one year warranty on all products sold. Our company’s policy is to accrue a warranty liability equal to 2% of sales based on the manufacturer’s past experience. Spare parts equal to 1% of each order are provided to our company free of charge from the manufacturer. During the six months ended July 31, 2011, our company recognized $25 (2010 - $nil) of warranty expenses in accrued liabilities and cost of goods sold. Our company did not have any warranty claims during the periods ended July 31, 2011 and 2010. Our company will continue to evaluate its warranty policy based on actual products returned and costs incurred.

 

Our company’s warranty accrual is based on our company’s best estimates of product failure rates and unit costs to repair. However, our company plans to release new products. As a result, it is at least reasonably possible that products could be released with certain unknown quality and/or design problems. Such an occurrence could result in materially higher than expected warranty and related costs, which could have a materially adverse effect on our company’s results of operations and financial condition.

Recent Accounting Pronouncements

Our company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on their financial position or results of operations.

RISK FACTORS  

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this quarterly report before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed. The trading price of our common stock, when and if we trade at a later date, could decline due to any of these risks, and you may lose all or part of your investment.

Risks Related to Our Business  

Our auditors have issued a going concern opinion and because our sole officer and director will not loan any additional money to us.

As at July 31, 2011, we had a working capital deficit of $26,759. Our company has not generated sufficient revenues and has accumulated losses of $70,908 since inception. Our auditors have issued a going concern opinion. We have not generated any significant revenues and do not anticipate any significant revenue until we complete the development of our website, source out purveyors of services for products to sell and source out a significant number of clients to buy our products. Accordingly, these factors raise substantial doubt that we can continue as a going concern for the next twelve months. Accordingly, we must raise cash from sources other than operations. Our only other source for cash at this time is investments by others in our company. We must raise cash to implement our project and begin our operations. Additionally, our sole officer and director is unwilling to loan or advance any additional capital to us, except to prepare and file reports with the Securities and Exchange Commission.

Investors may not be able to adequately evaluate our business due to our short operating history and lack of significant revenues. We may not be successful in developing a market for our products and the value of your investment could decline.

We are a development stage company with small tangible assets in a highly competitive industry. We have little operating history, minimal number of customers and no significant revenues. This makes it difficult to evaluate our future performance and prospects. Our prospects must be considered in light of the risks, expenses, delays and difficulties frequently encountered in establishing a new business in an emerging and evolving industry, including the following factors:

• our business model and strategy are still evolving and are continually being reviewed and revised;
• we may not be able to raise the capital required to develop our initial client base and reputation; and
• we may not be able to successfully develop our planned products and services.

 

There is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably, we may suspend or cease operations. We cannot be sure that we will be successful in meeting these challenges and addressing these risks and uncertainties. If we are unable to do so, our business will not be successful and the value of your investment in us will decline.

We require approximately $470,000 in additional funding to continue our operations over the next 12 months. If we do not secure additional funding, we may not be able to distribute our products, which will affect our ability to generate revenues and achieve profitability.

Our failure to raise additional capital or generate the cash flows necessary to finance our business could force us to limit or cease our operations. Our business plan contemplates that we will expand our distribution throughout Jamaica. Accordingly, we will need to raise approximately $470,000 in additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, and the per-share value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things, distribute and market our products, which would negatively impact our business and our ability to generate revenues and achieve profitability.

The loss of Christine Buchanan-McKenzie, our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director would harm our business and decrease our ability to operate profitably.

We will rely heavily on Christine Buchanan-McKenzie to conduct our operations and the loss of this individual could significantly disrupt our business. Virtually all material decisions concerning the conduct of our business are made or are significantly influenced by Christine Buchanan-McKenzie. Although we had a management agreement with this individual, the agreement expired on January 1, 2011. Christine Buchanan-McKenzie continues to conduct the operations of our company. As such, she may resign from her positions with us at any time. While we believe that we may be able to enter into executive services agreements with Christine Buchanan-McKenzie, we cannot assure you that we will be able to enter into such agreements in the near future, if at all. Should we fail to enter into acceptable agreements with Christine Buchanan-McKenzie, we may not be able to maintain the visibility in the industry that is necessary to maintain and extend our production, financing and distribution agreements which will lead to a loss of revenues and profitability.

We may not succeed in effectively marketing Gleamous tankless water heaters, which could prevent us from acquiring customers and achieving significant revenues.

A significant component of our business strategy is the development of a market for the Gleamous products in Jamaica and the Caribbean. Due to the competitive nature of the retail industry, if we do not market the Gleamous tankless water heaters effectively we may fail to attract customers or achieve significant revenues. Promoting the Gleamous tankless water heaters will depend largely on the efforts of our marketing personnel and targeting the appropriate merchandising outlets. In order to be successful in this, we expect to incur substantial expenses in the next 12 months related to advertising and other marketing efforts. As of our quarter ended July 31, 2011 we did not have sufficient funds to carry out all our anticipated advertising and marketing efforts and there can be no assurance that we will be able to raise the required funds.

Our ability to market our product successfully is also dependent on external factors over which we may have little or no control, including the performance of our suppliers, third-party carriers and networking vendors. We also rely on third parties for information, including product characteristics that we present to consumers, which may, on occasion, be inaccurate. Our failure to provide our customers with a product that meets their expectations, for any reason, could substantially harm our reputation and prevent us from developing Gleamous as a trusted brand. The failure of our brand promotion activities could adversely affect our ability to attract new customers and maintain customer relationships and, as a result, substantially harm our business and results of operations.

 

Competition from appliance companies with greater brand recognition and resources may result in our inability to continue with our operations or prevent us from achieving significant revenues.

The appliance industry is highly competitive and new brands and products are being launched all the time. The competitive nature of the retail industry as a whole means that we have to establish our product at the right price, ensure that the packaging is appealing and ensure that our product is distributed through the appropriate channels. It is very likely that we will be subjected to price pressure on our product and this could result in reduced gross margins, which in turn could substantially harm our business and results of operations. Current and potential competitors include independent or online appliance retailers which offer competitive products, or which may see a market to develop a product similar to ours.

In addition, we may face competition from the supplier of our products that may illegally circumvent the distribution agreement we have with them, and decide to sell directly to consumers, either through physical retail outlets or through an online store.

Many appliance retailers have advantages over us, including longer operating histories, greater brand recognition, existing customer and supplier relationships, and significantly greater financial, marketing and other resources. Some of these retailers may be able to devote substantially more resources to developing new products, or they may have contacts with other companies that devote themselves full time to developing new products. In addition, larger, more established and better capitalized entities may acquire, invest or partner with traditional and online competitors as use of the Internet and other online services increases.

As our business assets and our director and officer are located in Jamaica; investors may be limited in their ability to enforce US civil actions against our assets or our director and officer. You may not be able to receive compensation for damages to the value of your investment caused by wrongful actions by our directors.

Our business assets are located in Jamaica and Christine Buchanan-McKenzie, our sole director and officer is a resident of Jamaica. Consequently, it may be difficult for United States investors to affect service of process upon our assets or our directors or officers. It may also be difficult to realize upon judgments of United States courts predicated upon civil liabilities under U.S. Federal Securities Laws. A judgment of a U.S. court predicated solely upon such civil liabilities may not be enforceable in Jamaica by a Jamaican court if the U.S. court in which the judgment was obtained did not have jurisdiction, as determined by the Jamaican court, in the matter. There is substantial doubt whether an original action could be brought successfully in Jamaica against any of our assets or our directors or officers predicated solely upon such civil liabilities. You may not be able to recover damages as compensation for a decline in your investment.

Our management beneficially owns approximately 57% of the shares of common stock and their interest could conflict with the investors which could cause the investor to lose all or part of the investment.

Christine Buchanan-McKenzie, our sole director, president, chief executive officer and chief financial officer owns, or has control over, approximately 57% of our issued and outstanding common stock. As such, Ms. Buchanan-McKenzie is able to substantially influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control, which may be to the benefit of our management but not in the interest of the shareholders. This beneficial ownership and potential effective control on all matters relating to our business and operations could eliminate the possibility of shareholders changing the management in the event that the shareholders did not agree with the conduct of the officers and directors. Additionally, the shareholders would potentially not be able to obtain the necessary shareholder vote to affect any change in the course of our business. This lack of shareholder control could prevent the shareholders from removing from the board of directors any directors who are not managing our company with sufficient skill to make it profitable, which could prevent us from becoming profitable.

 

Since our sole officer and director does not have significant training or experience in the retail appliance industry, our business could suffer irreparable harm as a result of her decisions and choices and you could lose your entire investment.

Though, as our sole director and officer, Christine Buchanan-McKenzie, is indispensible to our operations, she does not have any significant training or experience in the sales of household appliances and bringing such new products to market. Without such direct training or experience, she may not be fully aware of many of the specific requirements related to working within this environment. Our sole officer and director’s decisions and choices may therefore fail to take into account standard technical or managerial approaches which other companies in the appliance business commonly use. Consequently, our operations, earnings, and ultimately our ability to carry on business could suffer irreparable harm, which could result in the total loss of your investment.

The costs associated with any warranty repair or replacement or any product recall could increase our operating costs and prevent us from becoming profitable.

We plan to implement warranty coverage on our products based on our best estimate of what will be required to settle any product defect claims or issues. However, we may be forced to incur costs above this amount if our estimates are incorrect or if we, our suppliers or government regulators decide to recall a product or input because of a known or suspected performance issue, even if we are only required to participate voluntarily in the recall. Once we begin distributing our tankless water heaters we may also incur liability related to any manufacturing defects that our products contain. If we are obligated to repair or replace any of our products our operating costs could increase if the actual costs differ materially from our estimates, which could prevent us from becoming profitable.

Our success depends in part on our ability to attract and retain key skilled professionals, which we may not be able to do. Our failure to do so could prevent us from achieving our goals or becoming profitable.

We plan to engage independent contractors in the areas of marketing, bookkeeping, investment banking and other services including at least 3 part time consultants who will each focus on sales and marketing, business development and investor relations. However, competition for qualified skilled professionals is intense, and we may be unable to attract and retain such key personnel. Additionally, as of our quarter ended April 30, 2011, we did not have sufficient funds to hire any of these consultants and there can be no assurance that we will be able to secure the required financing. This could prevent us from achieving our goals or becoming profitable.

We may indemnify our directors and officers against liability to us and our stockholders, and such indemnification could increase our operating costs.

Our bylaws allow us to indemnify our directors and officers against claims associated with carrying out the duties of their offices. Our bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers or control persons, we have been advised by the Securities and Exchange Commission that such indemnification is against public policy and is therefore unenforceable.

Since our sole officer and director is aware that she may be indemnified for carrying out the duties of her offices, she may be less motivated to meet the standards required by law to properly carry out such duties, which could increase our operating costs. Further, if our sole officer and director files a claim against us for indemnification, the associated expenses could also increase our operating costs.

We are exposed to currency exchange risk which could cause our reported earnings or losses to fluctuate.

Although we are required to report our financial results in US dollars, a portion of our sales and operating costs may be denominated in Jamaican dollars. In addition, we are exposed to currency exchange risk on any of our assets that we denominate in Jamaican dollars. Since we present our financial statements in US dollars, any change in the value of the Jamaican dollar relative to the US dollar during a given financial reporting period would result in a foreign currency loss or gain on the translation of our Jamaican dollar assets into US dollars. Consequently, our reported earnings or losses could fluctuate materially as a result of foreign exchange translation gains or losses.

 

We have only one supplier of the tankless water heaters we intend to distribute in our target market. If our agreement with our supplier is terminated, we may not be able to secure additional products and our ability to generate revenues may suffer.

On December 30, 2009 we entered into a distribution agreement with Zhongshan to acquire and distribute their Glameous line of tankless water heaters. On March 18, 2011 we extended the term of the license agreement for an additional six months. The agreement with Zhongshan contains termination provisions and additionally Zhongshan could unilaterally terminate their supply of product to us outside of the terms of the agreement. If this was to occur we would be forced to find an alternative supplier of tankless water heaters. If we are not able to secure such supply, we may not have sufficient product to sell to our intended market and consequently our ability to generate revenues may suffer.

Risks Related to the Ownership of Our Stock  

Because there is no public trading market for our common stock, you may not be able to resell your shares.

There is currently no public trading market for our common stock. Therefore, there is no central place, such as stock exchange or electronic trading system, to resell your shares. If you do wish to resell your shares, you will have to locate a buyer and negotiate your own sale. As a result, you may be unable to sell your shares, or you may be forced to sell them at a loss.

We intend to engage a market maker to apply to have our common stock quoted on the OTC Bulletin Board. This process takes at least 60 days and the application must be made on our behalf by a market maker. If our common stock becomes listed and a market for the stock develops, the actual price of our shares will be determined by prevailing market prices at the time of the sale. We do not currently meet the existing requirements to be quoted on the OTC Bulletin Board and there is no assurance that we will ever be able to meet those requirements.

We cannot assure you that there will be a market in the future for our common stock. The trading of securities on the OTC Bulletin Board is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock. You may not be able to sell your shares at their purchase price or at any price at all. Accordingly, you may have difficulty reselling any shares you purchase from the selling security holders.

The continued sale of our equity securities will dilute the ownership percentage of our existing stockholders and may decrease the market price for our common stock.

Given our lack of revenues and the doubtful prospect that we will earn significant revenues in the next several years, we will require additional financing of $470,000 for the next 12 months, which will require us to issue additional equity securities. We expect to continue our efforts to acquire financing to fund our planned development and expansion activities, which will result in dilution to our existing stockholders. In short, our continued need to sell equity will result in reduced percentage ownership interests for all of our investors, which may decrease the market price for our common stock.

We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.

We have never paid dividends and do not intend to pay any dividends for the foreseeable future. To the extent that we may require additional funding currently not provided for in our financing plan, our funding sources may prohibit the declaration of dividends. Because we do not intend to pay dividends, any gain on your investment will need to result from an appreciation in the price of our common stock. There will therefore be fewer ways in which you are able to make a gain on your investment.

 

Because the Securities and Exchange Commission imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment to decline.

Our shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on brokers-dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your shares and may cause the value of your investment to decline.

Financial Industry Regulatory Authority (FINRA) sales practice requirements may limit your ability to buy and sell our common stock, which could depress the price of our shares.

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.

Our security holders may face significant restrictions on the resale of our securities due to state “blue sky” laws.

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state.

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your shares without the significant expense of state registration or qualification.

Item 3. Quantitative Disclosures About Market Risks

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

 

 

 

 

 

Item 4. Controls and Procedures  

Management’s Report on Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.

As of the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting  

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended July 31, 2011 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [Removed and Reserved]

Item 5. Other Information

None.

 

 

Item 6. Exhibits

* Filed herewith.  

 

 

SIGNATURES  

Pursuant to the requirements of 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.