Eastern Environment Sols (PINK:EESC)

	Recent 52-week high
	30% Earnings Per Share (EPS) growth rate
	10% revenue growth year over year
	Strong balance sheet
	15% minimum return on equity (ROE)
	8% minimum pre-tax margins
	Under 50 million shares outstanding
	High insider ownership
	Limited institutional ownership
	P/E at least 1/2 of EPS growth rate

On October 6, 2010 the Registrant’s Chief Executive Officer, pursuant to authority from the Board of Directors, concluded that the following financial statements should not be relied upon:

• The financial statements included by the Registrant in its Annual Reports on Form 10-K or 10-KSB for the years ended December 31, 2009, 2008, 2007 and 2006.
  
• The financial statements included by the Registrant in its Quarterly Reports on Form 10-Q or Form 10-QSB filed during 2010, 2009, 2008, 2007 and for the quarter ended September 30, 2006.
  
• The financial statements of its subsidiary, Harbin Yifeng Eco-Environment Co., Ltd. included in the Current Report on Form 8-K filed on September 12, 2006.

"The determination was based on her conclusion that the policies applied by the Registrant in amortizing the construction cost of the landfill operated by the Registrant’s subsidiary were not in conformity with generally accepted accounting principles.  The Chief Executive Officer has discussed this determination with the Registrant’s independent accountant."  

Some Insight from GeoInvesting Contributor Dan France:

Hopefully they will file restated financials in the next month. They might have understated amortization if they only amortized the cost of capacity utilized as opposed to what was placed in service. Depreciation and amortization for the first six months of 2010 was around $130,000 or $260,000 annualized and close to the same amount in 2009. Just a wild guess, but we might be looking at a $200,000 hit to 2009 if they amortized only ½ of the capacity (880,000 of 160,000 tons) placed in service. YTD 2010 might be another $50,000 (1.3 million of 1.6 million utilized) but not material relative to 2010 net income. This is embarrassing for the company, but not a killer.

In an other development, we recently informed the company that its SAIC filings did not match SEC files for 2007 and 2008.   We are speculating that the non-reliance findings may have something to do with our conversations with management and/or its recent efforts to up-list its stock.

We believe that much of the SAIC inconsistencies, which are significant, deal with with U.S. GAAP vs. China reporting differences as it relates to:

• Accounts receivable
  
• Expense recognition

"EESC landfill was shut down for maintenance from about mid 2007 to late 2009. Over that time EESC built up an account receivables with its local government.  Under PRC accounting rules these AR may have not been permitted to be realized. In the SEC filings, it appears that some of the AR were realized, applying U.S. GAAP rules."

(Please note that we had obtained EESC documents after our  August 24, 2010 research note. We had maintained the GeoBargain code due to a belief that the company would work with us to reconcile filings). 

We are currently long a small position in EESC as we wait for developments to unfold.