-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UuG+m/cRX9HQjggP4CtvNgf5u/ivzJ8MvmHpgYu8q+x8FGpvj+iGSISv8Pdg/q3s tbsDBf5uJ/6PMOBEr/WMOg== 0001019687-05-002236.txt : 20050815 0001019687-05-002236.hdr.sgml : 20050815 20050815143013 ACCESSION NUMBER: 0001019687-05-002236 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: China Evergreen Environmental CORP CENTRAL INDEX KEY: 0001083459 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 880409151 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26175 FILM NUMBER: 051025559 BUSINESS ADDRESS: STREET 1: 5/F GUOWEI BLDG STREET 2: 73 XIANLIE MIDDLE ROAD CITY: GUANGZHOU, GUANGDONG STATE: F4 ZIP: 00000 BUSINESS PHONE: 86-20-8432-7909 MAIL ADDRESS: STREET 1: 5/F GUOWEI BLDG STREET 2: 73 XIANLIE MIDDLE ROAD CITY: GUANGZHOU, GUANGDONG STATE: F4 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: DISCOVERY INVESTMENTS INC DATE OF NAME CHANGE: 19990407 10QSB 1 chinaevergreen_10q-063005.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 000-26175 China Evergreen Environmental Corp. ----------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 88-0409151 ------ ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 5/F, Guowei Building, 73 Xianlie Middle Road Guangzhou, Guangdong, The People's Republic Of China - -------------------------------------------------------------------------------- (Address of principal executive offices) 86-20-8732-7909 --------------- (Issuer's telephone number) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 [ ] As of August 12, 2005, the Company had 99,999,997 shares of its common stock issued and outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART 1 - FINANCIAL INFORMATION Page(s) Item 1. Financial Statements Unaudited Consolidated Balance Sheets at December 31, 2004 and June 30, 2005..................................F-1 Unaudited Consolidated Statements of Operations for the three month periods ended June 30, 2005 and 2004..........................F-2 Unaudited Consolidated Statements of Cash Flows for the three month periods ended June 30, 2005 and 2004..........................F-3 Notes to Unaudited Consolidated Financial Statements.........................F-4 2 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CHINA EVERGREEN ENVIRONMENTAL CORP Unaudited Consolidated Balance Sheets June 30,2005 Dember 31,2004 (Unaudited) (Audited) ----------- --------- US$ US$ Current assets Cash and cash equivalents 295,254 336,079 Inventories, net 2,422 - Accounts receivable 2,630,583 9,462,999 Prepayment, deposits and other receivables 2,503,491 777,365 Amounts due from related companies 3,463,559 3,158,328 Amounts due from directors - 26,794 Amount due from an associate 1,749,535 1,744,775 Deferred tax assets 209,206 199,981 ------------ ------------ Total current assets 10,854,050 15,706,321 Non-current assets Infrastructure assets, net 5,239,895 3,305,089 Property, plant and equipment, net 322,595 330,865 Convertible note receivable 1,156,690 1,366,997 Deposit paid for acquisition of property, plant and equipment 543,478 543,478 Interest in an associate 432,846 345,363 ------------ ------------ Total non-current assets 7,695,504 5,891,792 ------------ ------------ Total assets 18,549,554 21,598,113 ============ ============ Current liabilities Unsecured loan 181,160 229,468 Convertible debenture (Note 6) 500,000 - Other borrowing - 24,155 Accounts Payable 4,443,211 8,755,148 Accrued liabilities 460,342 526,068 Amounts due to directors 493,212 606,645 Amounts due to related companies 2,937,291 2,864,506 Deposit received for disposal of a subsidiary - 350,514 Income tax payable 927,258 626,249 ------------ ------------ Total current liabilities 9,942,474 13,982,753 Minority interests 315,214 159,642 Stockholders' equity Common stock 83,800 83,800 Additional paid in capital 3,857,296 3,857,296 Retained earnings / (accumulated deficit) 4,350,770 3,514,622 ------------ ------------ Total stockholders' equity 8,291,866 7,455,718 ------------ ------------ Total liabilities and stockholders' equity 18,549,554 21,598,113 ============ ============
F-1 CHINA EVERGREEN ENVIRONMENTAL CORP Unaudited Consolidated Statements of Operations Three months Six months ended June 30, ended June 30, ------------------------- ------------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- US$ US$ US$ US$ Revenue (Note 4) 2,120,882 111,228 4,000,954 191,014 Cost of revenue 1,353,769 24,728 2,657,008 58,978 ---------- ---------- ---------- ---------- Gross profit 767,113 86,500 1,343,946 132,036 General and administrative expenses 359,147 73,994 444,493 175,518 ---------- ---------- ---------- ---------- Income / (loss) from operations 407,966 12,506 899,453 (43,482) Other income 137 23,879 2,861 35,094 Share of results in an associate 51,695 -- 87,483 -- Interest expense 19,412 -- 23,827 4,818 ---------- ---------- ---------- ---------- Income / (loss) before income tax 440,386 36,385 965,970 (13,206) Income tax expense / (credit) 18,478 (1,917) 70,867 (8,416) Minority interests 13,767 7,323 58,955 2,498 ---------- ---------- ---------- ---------- Net income / (loss) 408,141 30,979 836,148 (7,288) ========== ========== ========== ========== Basic net income / (loss) per share (Note 5) 0.00408 0.00036 0.00836 (0.00008)
F-2 CHINA EVERGREEN ENVIRONMENTAL CORP UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW Six months ended June 30, 2005 2004 ---- ---- Cash flows from operating activities: Net income / (loss) 836,148 (7,288) Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities: Depreciation and amortization 47,406 47,695 Provision for inventories -- 12,558 Increase in deferred tax assets (9,225) (1,765) Increase in minority interests 155,571 2,499 Share of results in an associate (87,483) -- Changes in operating assets and liabilities: Increase in inventories (2,422) (5,343) Decrease / (increase) in accounts receivable 6,692,209 (4,772) (Increase) / decrease in prepayment, deposits and other receivables (1,726,126) 566,315 (Decrease) / increase in accounts payable (4,311,936) 534,938 (Decrease) / increase in accrued liabilities (65,725) 2,154,750 Decrease in amounts due to directors (86,640) (745,895) Decrease / (increase) in amounts due from related companies 619,640 (2,952,692) Increase / (decrease) in tax payable 301,009 (118,816) (Decrease) / increase in amounts due to related companies (852,085) 161,741 ----------- ----------- Net cash provided by / (used in) operating activities 1,510,341 (356,075) Cash flows from investing activities: Deposit paid for acquisition of property, plant and equipment -- 2,619,566 Acquisition of infrastructure assets (1,973,942) (1,263,445) Increase in amount due from an associate (4,760) (10,477) ----------- ----------- Net cash (used in) / provided by investing activities (1,978,702) 1,345,644 Cash flows from financing activities: Increase in share capital -- 241,546 Proceeds from convertible debenture issued 500,000 -- Repayment of borrowing (72,464) (1,145,170) ----------- ----------- Net cash provided by / (used in) financing activities 427,536 (903,624) ----------- ----------- Net (decrease) / increase in cash and cash equivalents (40,825) 85,945 Cash and cash equivalents, beginning of period 336,079 54,556 Cash and cash equivalents, end of period 295,254 140,501
F-3 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The condensed consolidated financial statements of China Evergreen Environmental Corp. (the "Company") and subsidiaries (the "Group") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited financial statements and the notes thereto included in the Company's Form 10-KSB Annual Report, and other reports filed with the SEC. The accompanying unaudited quarterly consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Group for the periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other quarterly period of or for the fiscal year taken as a whole. Factors that affect the comparability of financial data from year to year and for comparable quarterly periods include non-recurring expenses associated with the Group's costs incurred to reorganize the Group, raise capital, and stock options and awards. Certain financial information that is not required for interim financial reporting purposes has been omitted. NOTE 2 - DESCRIPTION OF BUSINESS Our company was organized as a Nevada corporation on September 10, 1996 under the name Discovery Investments, Inc., and was previously engaged in the business of seeking, investigating and, if such investigation warranted, acquiring an interest in a business opportunity. On October 15, 2004, we were the subject of a reverse acquisition by Evergreen Asset Group Limited, an International Business Company organized under the laws of the British Virgin Islands ("Evergreen"), pursuant to which we have acquired 100% of the outstanding shares of Evergreen capital stock in exchange for a controlling interest in our common stock. Pursuant to a securities purchase agreement dated September 9, 2004, as amended, we issued 83,500,000 shares of our common stock (representing 83.5% of our outstanding capital stock) in exchange for all of the issued and outstanding shares of Evergreen capital stock transferred to us by the Evergreen shareholders at the closing. Following the close of the reverse acquisition, we changed our corporate name from Discovery Investments, Inc. to China Evergreen Environmental Corp. ("CEEC", "we", "us" or the "Company"). F-4 As a result of the transactions described above, Evergreen became our wholly owned subsidiary. Evergreen, through its three majority owned subsidiaries, Guang Dong Xin Xing Mei Biology Company Limited ("XXM"), Bei Jing Hao Tai Shi Yuan Water Purifying Company Limited ("BJHT) and Hai Yang City Sheng Shi Environment Protection Company Limited ("HY"), provides waste water turn-key engineering, equipment and chemical trading. Evergreen currently holds 90% of XXM. XXM provides turnkey waste water treatment engineering design and contracting. XXM also holds 90% and 35% respectively in the equity interest of the following two water treatment facilities operated through build, operate and transfer (BOT) arrangements with the PRC government: (i) Tian Jin Shi Sheng Water Treatment Company Limited ("TJSH"), which commissioned water treatment in November 2003 and has a daily treatment capacity of approximately 10,000 cubic meter and; (ii) Xin Le Sheng Mei Water Purifying Company Limited ("XL"), which also commissioned water treatment in November 2003 and has a daily treatment capacity of 40,000 cubic meter. XXM is retained as the managers to manage both TJSH and XL. The fees from XL and TJSH did not represent a material portion of our revenue during the second quarter of 2005. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES IMPAIRMENT OF ASSETS: The Group's policy is to periodically review and evaluate whether there has been a permanent impairment in the value of long-lived assets. Factors considered in the evaluation include current operating results, trends and anticipated undiscounted future cash flows. An impairment loss is recognized to the extent that the sum of undiscounted estimated future cash flows that is expected to result from the use of the asset, or other measure of fair value, is less than the carrying value. OTHER INVESTMENT: Other investment includes equity investment in a private company and is carried at fair value. Unless there has been a permanent impairment to the value of the investment, the change in fair value is reported as a separate component of other comprehensive income or loss. Permanent impairment to the value of the investment is recognized in the consolidated statements of operations. REVENUE RECOGNITION: Revenue from fixed price long-term contracts is recognized on the percentage of completion method for individual contracts. Revenues are recognized in the ratio that costs incurred bear to total estimated contract costs. The use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated profitability and final contract settlements may result in revisions to costs and income in the period in which the revisions are determined. Provisions for any estimated losses on uncompleted contracts are made in the period in which such losses are determinable. In instances when the work performed on fixed price agreements is of relatively short duration, we use the completed contract method of accounting whereby revenue is recognized when the work is completed. Revenue arising from waste water treatment is recognized based on waste water treated as recorded by meters read during the quarter. INCOME PER SHARE: Basic income per share is computed by dividing the net income for the year by the weighted average number of common shares outstanding during the year. Diluted income per share is computed by dividing the net income for the year by the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares, composed of incremental common shares issuable upon the exercise of stock options, unvested restricted common stock and contingently issuable shares that are probable of being issued, are included in diluted income per share to the extent such shares are dilutive. In accordance with SFAS 128, "Earnings Per Share", the Company uses income from continuing operations, net of income taxes as the "control number" in determining whether common equivalent shares are dilutive or anti-dilutive in periods where discontinued operations are reported. F-5 NOTE 4 - REVENUE The Company reported total revenue of $2,120,882 for the three month period ended June 30, 2005 as compared to $111,228 for the three month period ended June 30, 2004. During the six month periods ended June 30, 2005 and 2004, the revenue increase to $4,000,954 from 191,014. This increase in the three and six month revenue are mainly due to the completion of one turnkey engineering waste water project in Le Chang City in the first quarter of 2005 and the completion of the remaining 15% construction of the waste water treatment plant of Xian Yang City and one turnkey engineering waste water project in Yong Ji Economic Development Zone coupled with the revenue from Tian Jin BOT waste water treatment plant. NOTE 5 - BASIC NET INCOME PER SHARE The basic net income per share is calculated using the net income and the weighted average number of shares outstanding during the period. Six months ended June 30, 2005 2004 ---- ---- Net income / (loss) $ 836,148 $ (7,288) Weighted average number of common shares outstanding 99,999,997 86,970,079 Basic net income / (loss) per share 0.00836 (0.00008) NOTE 6 - CONVERTIBLE DEBENTURE In April 2005, the Company conducted the private placement sale of 20 units, at USD25,000 per unit, for the gross proceeds of USD500,000. Each unit consisted of (a) one 12% convertible debenture in the original principal amount of USD25,000, convertible into shares of the Company's common stock at the rate of the lesser of (i) USD0.20 per share or (ii) a 10% discount to the price per share of common stock (or conversion price per share of common stock) of the next private placement conducted by the Company prior to any conversion of the debenture, and (b) 125,000 detachable warrants to purchase one share each of the Company's common stock at an exercise price of USD0.20 per share, expiring ten years from their date of issuance. The debentures are due and payable August 1, 2005. The debenture holders have, however, extended the payment period to September 1, 2005. F-6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FORWARD-LOOKING INFORMATION Much of the discussion in this Item is "forward looking" as that term is used in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Actual operations and results may materially differ from present plans and projections due to changes in economic conditions, new business opportunities, changed business conditions, and other developments. Other factors that could cause results to differ materially are described in our filings with the Securities and Exchange Commission. The following are factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to general economic, financial and business conditions, changes in and compliance with governmental laws and regulations, including various state and federal environmental regulations, our ability to obtain additional financing from outside investors and/or bank and mezzanine lenders; and our ability to generate sufficient revenues to cover operating losses and position us to achieve positive cash flow. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-QSB to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of our public disclosure practices. Additionally, the following discussion regarding our financial condition and results of operations should be read in conjunction with the financial statements and related notes contained in Item 1 of Part I of this Form 10-QSB. RESULTS OF OPERATIONS The following table sets forth the items in our consolidated statements of operations for the periods indicated. 3 Three months ended Six months ended June 30, June 30, -------- -------- 2005 2004 2005 2004 ---- ---- ---- ---- Revenue ............................. $ 2,120,882 111,228 4,000,954 191,014 Cost of revenue ..................... (1,353,769) (24,728) (2,657,008) (58,978) Gross profit ........................ 767,113 86,500 1,343,946 132,036 General and administrative expenses.. (359,147) (73,994) (444,493) (175,518) Income / (loss) from operations ..... 407,966 12,506 899,453 (43,482) Other income ........................ 137 23,879 2,861 35,094 Share of results in an associate .... 51,695 -- 87,483 -- Interest expense .................... (19,412) -- (23,827) (4,818) Income / (loss) before income tax ... 440,386 36,385 965,970 (13,206) Income tax (expense) / credit ....... (18,478) 1,917 (70,867) 8,416 Minority interests .................. (13,767) (7,323) (58,955) (2,498) Net income / (loss) ................. 408,141 30,979 836,148 (7,288)
REVENUE. The Company reported total revenue of $2,120,882 for the three month period ended June 30, 2005 as compared to $111,228 for the three month period ended June 30, 2004. During the six month periods ended June 30, 2005 and 2004, the revenue increase to $4,000,954 from 191,014. This increase in the three and six month revenue are mainly due to the completion of one turnkey engineering waste water project in Le Chang City in the first quarter of 2005 and the completion of the remaining 15% construction of the waste water treatment plant of Xian Yang City and one turnkey engineering waste water project in Yong Ji Economic Development Zone coupled with the revenue from Tian Jin BOT waste water treatment plant. COST OF REVENUE. Our total cost of revenue increased from $24,728 to $1,353,769 in the three month periods ended June 30, 2005 and 2004. During the six month periods ended June 30, 2005 and 2004, the cost of revenue increased to $2,657,008 from $58,978. The increase in cost of revenue for the three and six month periods ended June 30, 2005 is mainly due to the cost of revenue for the turnkey engineering waste water projects. GROSS PROFIT. Gross profit as a percentage of revenue for the three month periods ended June 30, 2005 and 2004 were 36.2% or $767,113 and 77.7% or $86,500, respectively. During the six month periods ended June 30, 2005 and 2004, the gross profit increased to $1,343,946 from $132,036. The percentage of gross margin is higher in the three month period ended June 30, 2004 as compared to that in the three month period ended June 30, 2005 because the revenue for the three month period ended June 30, 2004 included revenue from technical transfer which has no cost of revenue. GENERAL AND ADMINISTRATIVE EXPENSES. Our total general and administrative expenses for the three months ended June 30, 2005 and 2004 were $359,147 and $73,994 respectively. During the six month periods ended June 30, 2005 and 2004, the general and administrative expenses increased to $444,493 from $175,518. The principal components of general and administrative expenses are administrative salaries and benefits, depreciation, finance cost, traveling expenses, rental and other general administration costs. 4 NET INCOME / (LOSS). We had a net income, after income tax and minority interests, of $408,141 and $30,979 respectively for the three months ended June 30, 2005 and 2004. During the six month period ended June 30, 2005, net income, after income tax and minority interests, increased to $836,148 from a net loss of $7,288 for the six month period ended June 30, 2004. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are our cash and cash flow we generate from operations and financing activities. Net cash provided by operating activities during the six month period ended June 30, 2005 was $1,510,341 while net cash used in operating activities during the six month period ended June 30, 2004 was $356,075. Net cash provided by operating activities in the six month period ended June 30, 2005 consisted of net income of $836,148, adjustment for non-cash items of $106,269 and $567,924 provided by operating activities. Cash flow from operating activities consisted primarily of a decrease in accounts receivable of $6.7 million due to receipts from customers amounts fall due and decrease in accounts payable of $4.3 million due to payments made to our suppliers. In April 2005, we conducted the private placement sale of 20 units, at $25,000 per unit, for the gross proceeds of $500,000. Each unit consisted of (a) one 12% convertible debenture in the original principal amount of $25,000, convertible into shares of our common stock at the rate of the lesser of (i) $0.20 per share or (ii) a 10% discount to the price per share of common stock (or conversion price per share of common stock) of the next private placement conducted by us prior to any conversion of the debenture, and (b) 125,000 detachable warrants to purchase one share each of our common stock at an exercise price of $0.20 per share, expiring ten years from their date of issuance. The debentures are due and payable August 1, 2005. The debenture holders have, however, extended the payment period to September 1, 2005. Based on the Company's 2005 forecasted business plan, the Company will require to raise long-term capital to fund its BOT projects and proposed acquisition of a waster water facility and a potable water facility in Qiyuan, Henan. We anticipate raising capital from outside investors coupled with bank or mezzanine lenders to fund the Company's expansion plan. As of the date of this report, we have not entered into any negotiations with any third parties to provide such capital. We anticipate that our current financing strategy of private debt and equity offerings will meet our anticipated objectives and business operations for the next 12 months. We continue to evaluate opportunities for corporate development. Subject to our ability to obtain adequate financing at the applicable time, we may enter into definitive agreements on one or more of those opportunities. 5 APPLICATION OF CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies include revenue recognition, impairment of assets and accounting for allowance of accounts receivable. REVENUE RECOGNITION. -- Revenue from fixed price long-term turnkey engineering contracts is recognized on the percentage of completion method for individual contracts. Revenues are recognized in the ratio that costs incurred bear to total estimated contract costs. The use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated losses on uncompleted contracts are made in the period in which such losses are determinable. In instances when the work performed on fixed price turnkey engineering contracts is of relatively short duration, we use the completed contract method of accounting whereby revenue is recognized when the work is completed. Revenue arising from waste water treatment is recognized based on waste water treated as recorded by meters read during the year. IMPAIRMENT OF ASSETS. The Group's policy is to periodically review and evaluate whether there has been a permanent impairment in the value of long-lived assets. Factors considered in the evaluation include current operating results, trends and anticipated undiscounted estimated future cash flows that is expected to result from the use of the asset, or other measure of fair value, is less than the carrying value. ALLOWANCES FOR ACCOUNTS RECEIVABLE. The Group's provisioning policy for bad and doubtful debt is based on the evaluation of collectability and aging analysis of accounts receivable and on management's judgment. The Group does no require collateral or other security to support client's receivables. The Group conducts periodic review of its clients' financial condition and customer payment practice to minimize collection risk on accounts receivable. This review is based on a considerable amount of judgment which is required in assessing the ultimate realization of these receivables, including the current creditworthiness and the past collection history of each customer. During the second quarter of 2005 financial period, the Group had not made any allowance for doubtful debts. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements. ITEM 3 CONTROLS AND PROCEDURES Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. 6 As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal controls, which are included within disclosure controls and procedures, during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls. PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS As of the date of this report, we are not involved in any legal proceedings. ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS In April 2005, we conducted the private placement sale of 20 units, at $25,000 per unit, for the gross proceeds of $500,000. Each unit consisted of (a) one 12% convertible debenture in the original principal amount of $25,000, convertible into shares of our common stock at the rate of the lesser of (i) $0.20 per share or (ii) a 10% discount to the price per share of common stock (or conversion price per share of common stock) of the next private placement conducted by us prior to any conversion of the debenture, and (b) 125,000 detachable warrants to purchase one share each of our common stock at an exercise price of $0.20 per share, expiring ten years from their date of issuance. The debentures are due and payable August 1, 2005. The debenture holders have, however, extended the payment period to September 1, 2005. ITEM 3 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4. OTHER INFORMATION None. ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 7 PART II - OTHER INFORMATION Item 6. Exhibits. (a) Index to Exhibits ----------------- Exhibit 31.1 Section 302 Certification Exhibit 32.1 Section 906 Certification 8 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHINA EVERGREEN ENVIRONMENTAL CORP. Dated: August 12, 2005. By /s/ Chong Liang Pu ------------------------------------------ Chong Liang Pu President and Chief Executive Officer In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. China Evergreen Environmental Corp. (Registrant) Dated: August 12, 2005 By: /s/ Chong Liang Pu ------------------------------ Chong Liang Pu, Chief Executive Officer Dated: August 12, 2005 By: /s/ Ren Cai Ding ------------------------------ Ren Cai Ding, Chief Financial Officer 9 EX-31.1 2 chinaevergreen_10qex31-1.txt EXHIBIT 31.1 CERTIFICATIONS I, Chong Liang Pu, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of China Evergreen Environmental Corp. ("registrant"): 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 12, 2005 /s/ Chong Liang Pu - ------------------------------ Chong Liang Pu Chief Executive Officer CERTIFICATIONS I, Ren Cai Ding, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of China Evergreen Environmental Corp. ("registrant"): 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 12, 2005 /s/ Ren Cai Ding ---------------- Ren Cai Ding Chief Financial Officer EX-32.1 3 chinaevergreen_10qex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report of China Evergreen Environmental Corp. (the "Company") on Form 10-QSB for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Chong Liang Pu and Ren Cai Ding, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 12, 2005 /s/ Chong Liang Pu -------------------------------------- Chong Liang Pu, President and Chief Executive Officer /s/ Ren Cai Ding -------------------------------------- Ren Cai Ding, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----