Unassociated Document

10-Q/A 1 v193450_10qa.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Amendment No. 1

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No.: 000-53017

CHINA ELECTRIC MOTOR, INC.

(Exact name of Registrant as specified in its charter)

Delaware		26-1357787
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

Sunna Motor Industry Park, Jian’an, Fuyong Hi-Tech Park, Baoan District, Shenzhen, Guangdong,

People’s Republic of China

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

86-755-8149 9969

(COMPANY’S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The registrant had 20,746,743 shares of common stock, par value $0.0001 per share, outstanding as of August 5, 2010.

EXPLANATORY NOTE

This Amendment No. 1 (this “Amendment”) on Form 10-Q/A, which amends the items identified below with respect to the Form 10-Q, filed by China Electric Motor, Inc. (“we” or the “Company”) with the Securities and Exchange Commission (the “SEC”) on August 10, 2010 (the “Original Filing”), is being filed to reflect revisions to the Financial Statements.

The Company has corrected an error in its consolidated statements of operations. The reported weighted average common shares outstanding and the reported basic and diluted earnings per share for the three and six months ended June 30, 2009 did not incorporate the effect a 1-for-1.53846153846154 reverse stock split that occurred in October 2009.

This Form 10-Q/A only corrects information in Item 1 of Part I (Financial Statements). Other information presented in the Original Filing are not being amended and are not included in this Amendment.

As a result of this Amendment, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed as exhibits to our Original Filing have been revised, re-executed and re-filed as of the date of this Amendment. Except for the foregoing amended information, this Amendment continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events unless otherwise indicated in this report. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that have occurred or facts that have become known to us after the date of the Original Filing, and such forward-looking statements should be read in their historical context. This Amendment should be read in conjunction with the Company’s filings made with the SEC subsequent to the Original Filing, including any amendments to those filings.

CHINA ELECTRIC MOTOR, INC.

FORM 10-Q/A

For the Quarterly Period Ended June 30, 2010

INDEX

				Page
Part I	Financial Information

	Item 1.	Financial Statements

		(a)	Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009	2

		(b)	Consolidated Statements of Operations for the Three and Six months Ended June 30, 2010 and 2009 (Unaudited)	3

		(c)	Consolidated Statements of Cash Flows for the Six months Ended June 30, 2010 and 2009 (Unaudited)	4

		(d)	Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Six months Ended June 30, 2010 (Unaudited)	5

		(e)	Notes to Financial Statements (Unaudited)	6

Part II	Other Information

	Item 6.	Exhibits		13

Signatures

Part I. Financial Information

Item 1. Financial Statements

China Electric Motor, Inc. and Subsidiaries

Consolidated Balance Sheets

(In US Dollars)

	June 30,		December 31,
	2010		2009
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	37,866,706	$	10,633,518
Accounts receivable, net		9,868,346		8,526,451
Inventories, net		6,073,021		7,194,656
Total current assets		53,808,073		26,354,625
Property and equipment, net		10,872,848		7,936,284
Total Assets	$	64,680,921	$	34,290,909

Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable	$	2,509,723	$	2,217,702
Accrued liabilities and other payable		264,269		463,185
Various taxes payable		35,418		28,962
Wages payable		462,834		465,119
Corporate tax payable		1,188,062		878,305
Due to related party		-		1,581,376
Due to affiliated companies		-		334,977
Total current liabilities		4,460,306		5,969,626
Total Liabilities		4,460,306		5,969,626

Commitments and Contingencies

Shareholders' Equity
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued
Common stock, $0.0001 par value, 100,000,000 shares authorized,
20,744,743 and 14,083,030 shares issued and outstanding at
June 30, 2010 and December 31, 2009, respectively.		2,074		1,408
Additional paid-in capital		28,625,293		3,899,125
Accumulated other comprehensive income		981,836		889,668
Statutory surplus reserve fund		1,177,075		1,177,075
Retained earnings (unrestricted)		29,434,337		22,354,007
Total Shareholders' Equity		60,220,615		28,321,283
Total Shareholders' Liabilities & Equity	$	64,680,921	$	34,290,909

The accompanying notes are an integral part of these consolidated financial statements.

China Electric Motor, Inc. and Subsidiaries

Consolidated Statements of Operations

(In US Dollars)

(Unaudited)

	For Three Months Ended						For Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009

Revenue	$	25,295,640		$	22,319,384		$	46,806,959		$	41,212,530
Cost of Goods Sold		(17,923,881	)		(16,323,353	)		(33,223,401	)		(29,862,858	)
Gross Profit		7,371,759			5,996,031			13,583,558			11,349,672
Selling Expenses		1,011,789			1,157,084			1,948,905			2,040,954

General and administrative
Merger cost		-			938,152			-			938,152
Research and development		459,444			419,415			847,735			787,995
Depreciation		6,877			5,383			11,515			10,804
Loss on disposal of assets		-			-			65,252			-
Others general and administrative		610,593			559,736			1,517,572			874,999
Total general and administrative		1,076,914			1,922,686			2,442,074			2,611,950
Total operating expenses		2,088,703			3,079,770			4,390,979			4,652,904
Income from operations		5,283,056			2,916,261			9,192,579			6,696,768

Other income (expenses)
Interest income		21,642			6,844			35,239			12,880
Imputed interest		-			(17,016	)		-			(34,032	)
Total other income (expenses)	$	21,642		$	(10,172	)		35,239		$	(21,152	)

Income (loss) before income taxes		5,304,698			2,906,089			9,227,818			6,675,616
Income taxes		(1,186,868	)		(774,715	)		(2,147,488	)		(1,532,024	)
Net income	$	4,117,830		$	2,131,374		$	7,080,330		$	5,143,592

Basic earnings per share	$	0.20		$	0.18		$	0.37		$	0.44
Weighed-average shares outstanding, Basic		20,744,743			12,125,842			19,378,648			11,600,470
Diluted earnings per share	$	0.20		$	0.17		$	0.36		$	0.44
Weighed-average shares outstanding, Diluted		20,832,957			12,510,623			19,420,586			11,794,426

The accompanying notes are an integral part of these consolidated financial statements.

China Electric Motor, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In US Dollars)

(Unaudited)

	For Six Months Ended
	June 30,
	2010			2009

Cash Flows From Operating Activities
Net Income (loss)	$	7,080,330		$	5,143,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on dispose of assets		65,252			-
Imputed interest expense		-			34,032
Depreciation		451,554			305,405
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net		(1,341,895	)		(2,722,613	)
Inventories, net		1,121,635			(259,071	)
Accrued merger cost		-			625,000
Prepaid expenses and other receivables		-			15,103
Increase (decrease) in:
Accounts payable		(95,836	)		(178,882	)
Accrued liabilities and other payable		(198,916	)		-
Various taxes payable		6,456			97,030
Wages payable		(2,285	)		77,893
Corporate tax payable		309,757			304,759
Net cash provided by operating activities		7,396,052			3,442,308

Cash Flows From Investing Activities
Purchases of property and equipment		(3,239,728	)		(1,533,415	)
Proceeds from disposal of fixed assets		174,312			-
Payment to related parties		(634,559	)		(57,543	)
Net cash used in investing activities		(3,699,975	)		(1,590,958	)

Cash Flows From Financing Activities
Net proceeds from short-term loan		-			500,000
Net proceeds from issuance of shares		23,444,943			945,127
Net cash provided by financing activities		23,444,943			1,387,584
Effect of exchange rate changes on cash		92,168			4,992
Net increase (decrease) in cash and cash equivalents		27,233,188			3,301,469

Cash and cash equivalents, beginning of period		10,633,518			2,655,808

Cash and cash equivalents, end of period	$	37,866,706		$	5,957,277

Supplemental disclosure information:
Interest paid	$	-		$	-
Income taxes paid	$	1,841,528		$	1,226,684

The accompanying notes are an integral part of these consolidated financial statements.

China Electric Motor, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

For the Six Months Ended June 30, 2010

(In US Dollars)

(Unaudited)

								Accumulated
					Additional			Other		Statutory		Retained		Total
	Common Shares				Paid-in			Comprehensive		Reserve		Earnings		Stockholders'		Comprehensive
	Shares		Amount		Capital			Income (Loss)		Fund		(Unrestricted)		Equity		Income
Balance at December 31, 2009		14,083,030	$	1,408	$	3,899,125		$	889,668	$	1,177,075	$	22,354,007	$	28,321,283
Sale of common shares		5,750,000		575		23,444,465			-		-		-		23,445,040
Exercise of warrants		626,870		63		(63	)		-		-		-		-
Conversion of debts to director		284,843		28		1,281,766									1,281,794
Foreign currency translation adjustment		-		-		-			92,168		-		-		92,168		92,168
Net income		-		-		-			-		-		7,080,330		7,080,330		7,080,330
Comprehensive income		-		-		-			-		-		-		-	$	7,172,498
Balance at June 30, 2010 (Unaudited)		20,744,743	$	2,074	$	28,625,293		$	981,836	$	1,177,075		29,434,337	$	60,220,615

The accompanying notes are an integral part of these consolidated financial statements.

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION

The consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation SX. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2009 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the United States Securities and Exchange Commission (the “SEC”) on March 31, 2010.

China Electric Motor, Inc. (“China Electric”, formerly SRKP 21, Inc.) was incorporated in the State of Delaware on October 11, 2007 and, through its wholly-owned subsidiary in the People’s Republic of China (“PRC”), is engaged in the production, marketing, sales and research and development of specialized micro-motor products for the domestic and international market. Our products, which are incorporated into household appliances, vehicles and other consumer devices, are sold under our “Sunna” brand name.

China Electric, its wholly-owned subsidiary, Attainment Holdings Limited (“Attainment”); Attainment Holdings’ wholly-owned subsidiary, Luck Loyal International Investment Limited (“Luck Loyal); and Luck Loyal’s wholly-owned subsidiary, Shenzhen YuePengCheng Motor Co., Ltd. (“YuePengCheng”) shall be collectively referred throughout as the “Company.”

In connection with our public offering on February 3, 2010, Jianrong Li, a former director of the Company and the current President of Attainment and Luck Loyal and President and director of YuePengCheng, converted approximately $1.3 million of debt owed to Ms. Li into shares of the Company’s common stock. The shares were issued at a conversion price equal to the per share price of the shares of common stock sold in the Company’s public offering, which was $4.50 per share. The Company issued a total of 284,843 shares of common stock to Ms. Li pursuant to the conversion. As a result of the conversion of the debt into equity, the debt is no longer outstanding.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting year. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred $192,894 and $283,510 on advertising expenses for the six months ended June 30, 2010 and 2009, respectively.

Foreign Currency Translation

The exchange rates used for foreign currency translation were as follows (USD$1 = RMB):

Period Covered	Balance Sheet Date Rates		Average Rates
Six Months Ended June 30, 2010		6.80874		6.81710
Six Months Ended June 30, 2009		6.82476		6.82268

The exchange rates used for foreign currency translation were as follows (USD$1 = HKD):

Period Covered	Balance Sheet Date Rates		Average Rates
Six Months Ended June 30, 2010		7.80000		7.80000
Six Months Ended June 30, 2009		7.74979		7.75250

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

NOTE 3 – INVENTORY

Inventory includes raw materials, work-in-process (“WIP”), and finished goods. Finished goods contain direct material, direct labor and manufacturing overhead and do not contain general and administrative costs.

Inventory consists of the following:

	June 30,		December 31,
	2010		2009
Raw materials	$	2,074,030	$	2,348,911
Finished goods		2,070,549		2,472,236
Work-in-process		1,928,442		2,373,509
Inventory, net	$	6,073,021	$	7,194,656

NOTE 4 – PROPERTY AND EQUIPMENT

Property and Equipment consist of the following:

	June 30,			December 31,
	2010			2009
Building	$	4,480,916		$	3,707,135
Machinery and equipment		8,631,576			6,477,478
Electronic, office and other equipment		249,399			149,693
Accumulated depreciation		(2,489,043	)		(2,398,022	)
Property and equipment, net	$	10,872,848		$	7,936,284

The depreciation expense for the three and six months ended June 30, 2010 and 2009 is as follows:

	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Cost of goods sold	$	241,383	$	151,196	$	440,039	$	294,601
Operating expenses		6,877		5,383		11,515		10,804
Total	$	248,260	$	156,579	$	451,554	$	305,405

NOTE 5 – DUE TO DIRECTOR

Due to director consists of the following:

	June 30,		December 31,
	2010		2009
Due to director - Li, Jianrong: Luck Loyal loans		-		1,581,376
Total	$	-	$	1,581,376

In November 2007, Luck Loyal acquired 25% ownership interest in YuePengCheng from Taiwan Qiling Shashi Enterprises (“Qiling”), a company owned by a relative of Ms. Jianrong Li; and in September 2008 acquired the remaining 75% ownership interest in YuePengCheng from Shenzhen YuePengDa Development Enterprises (“YuePengDa”), a company owned by the son of Ms. Jianrong Li. Pursuant to the agreements, Luck Loyal paid Qiling and YuePengDa RMB 2.5 million and RMB 7.5 million, respectively. These amounts were contributed by a director of Luck Loyal, Ms. Jianrong Li, in 2007 and 2008.

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

During the three months ended March 31, 2010, we incorrectly transferred approximately $1.3 million to an account controlled by Ms. Jianrong Li (the “Transfer”), the wife of the Company’s Chairman of the Board, the mother of its Chief Executive Officer, and the director of several of our subsidiaries. These funds were transferred to Ms. Li to facilitate a deposit payment related to a contemplated acquisition by the Company. The acquisition was abandoned and in April 2010 the full balance of these funds was returned to the Company. In addition to the Transfer, there were several unrelated transfers to and from Ms. Li. Prior to the Transfer, the outstanding balance to Ms. Li was a “due to” Ms. Li. After the Transfer, the balance became a “due from” Ms. Li. Management subsequently evaluated these transactions and determined that the transfers violated Section 402 of the Sarbanes-Oxley Act of 2002. No further transfers, loans, advances or similar arrangements will be made by the Company or any of its subsidiaries to Ms. Li or any of our officers or directors or any of their family members.

Due to affiliated company

Due to affiliated company consists of the following:

	June 30,		December 31,
	2010		2009
Due to affiliated company, Excel Profit		-		334,977
Total	$	-	$	334,977

In connection with the initial closing of the Private Placement on May 6, 2009, a shareholder (Excel Profit) of the Company issued a promissory note in the principal amount of $335,000 bearing no interest to an unrelated party (the “Note”). The Company assumed the obligations of the Note as of the date of the Note’s issuance since the note proceeds were received by Luck Loyal but not transferred to the shareholder. The principal was originally due and payable on or before the earlier of (a) nine months from the date of issuance of the Note or (b) upon the receipt by the Company after the date of the Note of at least $1 million in additional proceeds in the Private Placement, however, the noteholder agreed to extend the Company’s repayment of the Note until the closing of the public offering of the Company’s commons stock. The Company repaid the note in full in February 2010.

NOTE 6 – STATUTORY RESERVES

As stipulated by the relevant laws and regulations for enterprises operating in PRC, the Company is required to make annual appropriations to a statutory surplus reserve fund. Specifically, the Company is required to allocate 10% of its profits after taxes, as determined in accordance with the PRC accounting standards applicable to the Company, to a statutory surplus reserve until such reserve reaches 50% of the registered capital of the Company. The Company reserved $1,177,075 for six months ended June 30, 2010 and for the year ended December 31, 2009.

NOTE 7 – INCOME TAX

Income Tax

Luck Loyal is a holding company registered in Hong Kong and has no operating profit for tax liabilities.

The Company is registered and entitled as a “Hi-Tech Corporation” in the PRC. The Company has tax advantages granted by the local government for corporate income taxes and sales taxes.

The effective tax rate for the Company for the years ended December 31, 2010 is 22%, compared to the rate of 20% for the same period of 2009. The Company paid $1,841,528 for PRC Enterprises Income Tax for the six months ended June 30, 2010, compared to $1,226,684 during the same period of 2009.

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

Accounting for Uncertainty in Income Taxes

The Company adopted the provisions of Accounting for Uncertainty in Income Taxes on January 1, 2007. The provisions clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with the standard “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of Accounting for Uncertainty in Income Taxes also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

The Company may from time to time be assessed interest or penalties by major tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.

Various Taxes

The Company is subject to pay various taxes such as Value added tax (VAT), City development tax, and Education tax to the local government tax authorities. The Value added tax (VAT) collected on sales is netted against taxes paid for purchases of cost of goods sold to determine the amounts payable and refundable. The city development tax and education tax are expensed as general and administrative expense.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Company leased its factory premises and staff quarters for approximately $300,000 per year. This lease was terminated effective September 30, 2009, after the Company purchased this factory building. The lease agreement was terminated without penalties.

The Company signed a new lease agreement for the remaining buildings from the lessor for approximately $176,000 per year.

In April, 2010, the Company signed a new lease agreement for a new building from the lessor for approximately $122,482 per year.

Rent expense totaled $129,403 and $153,397 for six months ended June 30, 2010 and 2009, respectively.

NOTE 9 – SEGMENT INFORMATION AND GEOGRAPHIC INFORMATION

The Company has not segregated business units for managing different products and services that the Company has been carrying and selling on the market. The assets and resources of the Company have been utilized, on a corporate basis, for overall operations of the Company. The Company has not segregated its operating assets by segments as it is impracticable to do so since the same assets are used to produce products as one segment.

The geographic information for revenue is as follows:

	Three months ended June 30,								Six months ended June 30,
	2010				2009				2010				2009
China Mainland	$	16,489,148	65.2	%	$	14,256,100	63.9	%	$	30,664,936	65.5	%	$	24,485,919	59.4	%
Korea		4,359,197	17.2	%		4,373,874	19.6	%		8,349,641	17.8	%		9,092,984	22.1	%
Hong Kong		4,447,295	17.6	%		3,689,410	16.5	%		7,792,382	16.7	%		7,633,627	18.5	%
Total	$	25,295,640			$	22,319,384			$	46,806,959			$	41,212,530

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

The geographic information for accounts receivables which are classified based on the customers is as follows:

	June 30,		December 31,
	2010		2009
China Mainland	$	6,879,574	$	6,037,505
Korea		1,373,504		1,408,311
Hong Kong		1,615,268		1,080,635
Total	$	9,868,346	$	8,526,451

NOTE 10 –COMMON STOCK

On January 28, 2010, the Company completed a public offering consisting of 5,000,000 shares of common stock. Roth Capital Partners, LLC (“Roth”) and WestPark Capital, Inc. (“WestPark,” and together with Roth, the “Underwriters”) acted as co-underwriters in the public offering. The Company’s shares of common stock were sold to the public at a price of $4.50 per share, for gross proceeds of approximately $22.5 million. Compensation for the Underwriters’ services included discounts and commissions of $1,462,500, a $281,250 non-accountable expense allowance, roadshow expenses of approximately of $10,000, and legal counsel fees (excluding blue sky fees) of $40,000. The Underwriters also received warrants to purchase an aggregate of 500,000 shares of common stock at an exercise price of $5.625 per share. The warrants, which have a term of five years, are not exercisable until at least one-year from the date of issuance. The warrants also carry registration rights.

On January 28, 2010, the Underwriters exercised their over-allotment option in full for the offer and sale of 750,000 additional shares of common stock at $4.50, for gross proceeds of approximately $3.4 million. Discounts and commissions to the Underwriters totaled $219,375.

On January 28, 2010, the Company converted $1,281,794 of outstanding debt it owed to Ms. Jianrong Li into 284,843 shares of the Company’s common stock upon the closing of the Company’s public offering, based on a conversion price of $4.50 per share.

On February 11, 2010, 11 investors holding warrants to purchase an aggregate of 626,894 shares of the Company’s common stock elected to exercise such options. Because each of the investors exercised the warrants pursuant to a cashless exercise, the Company issued an aggregate of 626,870 shares of its common stock to the investors.

The Company has 10 million shares of preferred stock authorized with none issued.

NOTE 11– WARRANTS

Warrants remaining from Share Exchange

Prior to the closing of a share exchange transaction on May 6, 2009 (the “Share Exchange”) and initial closing of a private placement transaction on May 6, 2009 (the “Private Placement”), the shareholders of the Company held an aggregate of 4,612,662 warrants to purchase shares of the Company’s common stock, and an aggregate of 3,985,768 warrants were cancelled in conjunction with the closing of the Share Exchange. Immediately after the closing of the Share Exchange and initial closing of the Private Placement, the original shareholders of the company held an aggregate of 626,894 warrants with an exercise price of $0.000154.

On February 11, 2010, the 11 original shareholders holding warrants to purchase an aggregate of 626,894 shares of the Company’s common stock elected to exercise such warrants. Because each of the shareholders exercised the warrants pursuant to a cashless exercise, the Company issued an aggregate of 626,870 of its common stocks to the shareholders.

In connection with the public offering that closed on February 3, 2010, the Company granted the Underwriters warrants to purchase an aggregate of 500,000 shares of common stock at an exercise price of $5.625 per share. The warrants, which have a term of five years, are not exercisable until at least one-year from the date of issuance. The warrants also carry registration rights.

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

The summary of the status of the Company’s outstanding warrants and changes as of March 31, 2010 are as follows:

	Number of			Weighted average
	Warrants			Exercise Price
December 31, 2009		626,894		$	0.000154
Granted		500,000		$	5.625
Exercised		(626,870	)	$	0.000154
Forfeited		(24	)	$	0.000154
June 30, 2010		500,000		$	5.625

NOTE 12– REGISTRATION PAYMENT ARRANGEMENT

Pursuant to the Registration Rights Agreement (“Agreement”) dated May 6, 2009, by and among the Company, Attainment and certain of the original stockholders of the Company prior to the Share Exchange who are affiliates of WestPark Capital, Inc. (the “Original Stockholders”), the Company agreed to file a registration statement covering the resale of the shares held by the Original Stockholders (the “Subsequent Registration Statement”) no later than the tenth (10th) day after the end of the six month period immediately following the filing date of the registration statement covering the shares of common stock sold in the Private Placement (the “Required Filing Date”). The Company agreed to use its reasonable best efforts to cause the Subsequent Registration Statement to become effective within one hundred fifty (150) days after the Required Filing Date or the actual filing date, whichever is earlier, or one hundred eighty (180) days after the Required Filing Date or the actual filing date, whichever is earlier, if the Registration Statement is subject to a full review by the SEC (the “Required Effectiveness Date”).

Subsequent Registration Statement by the Required Filing Date or if the Subsequent Registration Statement does not become effective on or before the Required Effectiveness Date due to the failure of the Company to fulfill its obligations under the Agreement, the Company is required to issue, as liquidated damages, to each of the Original Stockholders, shares of common stock (the “Penalty Shares”) equal to a total of 0.0333% of each Original Stockholder’s respective shares for each calendar day that the Subsequent Registration Statement has not been filed or declared effective by the SEC (and until the Subsequent Registration Statement is filed with or declared effective by the SEC), as applicable. No Penalty Shares shall be due to the Original Stockholders if the Company is using its best efforts to cause the Subsequent Registration Statement to be filed and declared effective in a timely manner.

The registration statement covering the shares of common stock sold in the Private Placement was originally filed with the SEC on October 14, 2009. Therefore, the Required Filing Date was on or about April 24, 2010. The Subsequent Registration Statement was originally filed on March 4, 2010 and was declared effective by the SEC on March 19, 2010. Therefore, the Company does not owe any Penalty Shares.

China Electric Motor, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Amounts and disclosures at and for the three and six months ended June 30, 2010 and 2009 are unaudited)

NOTE 13– RECONCILIATION OF EARNINGS PER SHARE (EPS)

	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Numerator
Net income available to common stockholders	$	4,117,830	$	2,131,374	$	7,080,330	$	5,143,592

Denominator
Weighted-average shares outstanding for earnings per share, basic		20,744,743		12,125,842		19,378,648		11,600,470
Effect of dilutive securities:
Warrants		88,214		384,781		41,938		193,956
Convertible preferred stock		-		-		-		-
Weighted-average shares outstanding for earnings per share, diluted		20,832,957		12,510,623		19,420,586		11,794,426
Net income per share:
Basic	$	0.20	$	0.18	$	0.37	$	0.44
Diluted	$	0.20	$	0.17	$	0.36	$	0.44

Note 14 – CORRECTION OF AN ERROR

The 2009 earnings per share is being corrected to reflect a clerical error in the reported weighted average number of common shares outstanding, which was used in determining the 2009 earnings per share as reported in the income statement. The 2009 weighted average shares outstanding as reported did not incorporate the effect a 1-for-1.53846153846154 reverse stock split that occurred in October 2009.

	Originally
	Filed		Adjustment			Corrected

Three months ended June 30, 2009

Weighted average shares outstanding
Basic		18,655,137		(6,529,295	)		12,125,842
Diluted		19,248,641		(6,738,018	)		12,510,623

Earnings per share - Basic	$	0.11	$	0.07		$	0.18
Earnings per share - Diluted	$	0.11	$	0.06		$	0.17

Six months ended June 30, 2009

Weighted average shares outstanding
Basic		17,846,874		(6,246,404	)		11,600,470
Diluted		18,145,266		(6,350,840	)		11,794,426

Earnings per share - Basic	$	0.29	$	0.15		$	0.44
Earnings per share - Diluted	$	0.28	$	0.16		$	0.44

NOTE 15–SUBSEQUENT EVENTS

The Company’s Board of Directors approved the China Electric Motor, Inc. 2010 Omnibus Incentive Plan (the “Plan”) covering three million shares (3,000,000) of the Company’s common stock on June 28, 2010. The Company’s stockholders approved the Plan at the Company’s annual meeting of stockholders on August 2, 2010. The Company has agreed to make the following grants pursuant to the Plan within five business days of the approval of the Plan by the stockholders: (1) 50,000 shares of restricted stock to each of Xinming Xiao, the Company’s Chief Operating Officer, and Shenping Wang, the Company’s Chief Technology Officer, which will vest for each upon the third anniversary of such officer’s respective date of appointment; 20,000 shares to each of James M. Lee and Tony Shen, two of the Company’s independent directors, with such shares to vest in 8 equal quarterly installments; and 150,000 shares to Heung Sang Fong, the Company’s Chief Financial Officer and Corporate Secretary and one of its directors, which shares shall be immediately vested upon the date of grant. The Company has also agreed to grant an additional 300,000 shares of its common stock to Mr. Fong pursuant to the Plan on January 31, 2012, with 250,000 of such shares to vest immediately upon the date of grant and 50,000 of such shares to vest on May 31, 2012.

Part II Other Information

Item 6. Exhibits

(a) Exhibits

Exhibit Number		Description of Document

31.1		Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

CHINA ELECTRIC MOTOR, INC.

SIGNATURES

Pursuant to the requirements 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.

	China Electric Motor, Inc.

Dated: August 12, 2010		/s/ Yue Wang
	By:	Yue Wang
	Its:	Chief Executive Officer

		/s/ Heung Sang Fong
	By:	Heung Sang Fong
	Its:	Chief Financial Officer