UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

x[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, ~~2010~~2011

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

Commission File No.: 000-26175

CHINA WATER GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)


Nevada		88-0409151
(State or Other Jurisdiction of Incorporation		(I.R.S. Employer Identification No.)
or Organization)

SUITE 7A01, BAICHENG BUILDING

584 YINGBIN ROAD

DASHI, PANYU DISTRICT

GUANGZHOU, GUANGDONG, CHINA

(Address of Principal Executive Offices)

(86-20) 3479 9768

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ [ ] No x [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ [ ] No x [X]

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 ¨ [ ] No x [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x [X]

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

Large accelerated filer ¨[ ] Accelerated filer ¨[ ] Non-accelerated Filer ¨[ ] Smaller reporting company x[X]

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

Yes [ ] No [X]

Aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, March 31, 2011, was $3,599,888. The registrant has no non-voting common stock.

As of December 31, ~~2010~~2011, there were ~~139~~169,~~383~~133,450 shares of our common stock issued and outstanding.

INDEX TO FORM 10-K ANNUAL REPORT

		Page
PART I		43
Item 1.	Business	43
Item 1A.	Risk Factors	1610
Item 1B.	Unresolved Staff Comments	2213
Item 2.	Properties	2213
Item 3.	Legal Proceedings	2314
Item 4.	~~Submission~~Item of4. ~~Matters~~Mine toSafety ~~a Vote of Security Holders~~Disclosures.	2314
PART II		2314
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2314
Item 6.	Selected Financial Data	2415
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2515
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	2716
Item 8.	Financial Statements and Supplementary Data	2816
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	2816
Item 9A(T)	Controls and Procedures	2817
Item 9B	Other Information	3520
PART III		3521
Item 10.	Directors, Executive Officers and Corporate Governance	3521
Item 11.	Executive Compensation	3721
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	3923
Item 13.	Certain Relationships and Related Transactions, and Director Independence	4124
Item 14.	Principal Accountant Fees and Services	4224
PART IV		4325
Item 15.	Exhibits and Financial Statement Schedules	4325
	Signatures	4527
	Financial Statements	F-1

EXPLANATORY NOTE

We, China Water Group, Inc., are filing this Annual Report on Form 10-K for the year ended December 31, 2010 during calendar 2012, as a step towards becoming current in our filing obligations under the Securities Exchange Act of 1934. We will endeavor to file additional periodic reports to become current in our filings as expeditiously as the limited size of our staff allows.

~~Unless~~EXPLANATORY ~~otherwise indicated, all references to our company include our wholly and majority owned subsidiaries.~~NOTE

We, China Water Group, Inc., are filing this Annual Report on Form 10-K for the year ended December 31, 2011 during calendar 2012, as a step towards becoming current in our filing obligations under the Securities Exchange Act of 1934. We will endeavor to file additional periodic reports to become current in our filings as expeditiously as the limited size of our staff allows. Unless otherwise indicated, all references to our company include our wholly and majority owned subsidiaries.

All of our sales and nearly all our expenses are denominated in renminbi (“RMB”), the national currency of the People’s Republic of China (the “PRC”). For SEC reporting purposes, the balance sheet items are translated into US dollars using the exchange rate at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All exchange differences are recorded within equity.

Statements contained in this Annual Report on Form 10-K, which are not historical facts, are forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors, which include, but are not limited to:


	·	Competition within our industry;
	·	Seasonality of our sales;
	·	Success of our acquired businesses;
	·	Our relationships with our major customers;
	·	The popularity of our products;
	·	Relationships with suppliers and cost of supplies;
	·	Financial and economic conditions in Asia, Japan, Europe and the U.S.;
	·	Anticipated effective tax rates in future years;
	·	Regulatory requirements affecting our business;
	·	Currency exchange rate fluctuations;
	·	Our future financing needs; and
	·	Our ability to attract additional investment capital on attractive terms.

Forward-looking statements also include the assumptions underlying or relating to any of the foregoing or other such statements. When used in this report, the words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar expressions are generally intended to identify forward-looking statements.

3Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the factors described in the Section of this report entitled “Risk Factors” and other documents we file from time to time with the Securities and Exchange Commission (‘SEC’), including the Quarterly Reports on Form 10-Q to be filed by us in the fiscal year 2011.

~~Readers~~PART are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the factors described in the Section of this report entitled “Risk Factors” and other documents we file from time to time with the Securities and Exchange Commission (‘SEC’), including the Quarterly Reports on Form 10-Q to be filed by us in the fiscal year 2010.I

~~Part~~Item I1. Description of Business.

~~Item~~We 1are a bottled water company based in the PRC. ~~Description~~ We have also operated various waste water treatment facilities in last five years. Through our majority-owned subsidiaries, we were engaged in the design, construction, implementation and management of ~~Business~~industrial and municipal waste water treatment facilities throughout the PRC. We have disposed of those operations on December 30, 2008. Now we are focusing on providing high quality bottled water in China by using 9000-Year Old Glacier Spring Water. Our bottled water has been marketed in many big cities in China such as Shanghai, Beijing, Guangzhou, Chengdu and others.

We are a bottled water company based in the PRC. We had ever operated various waste water treatment facilities in last five years. Through our majority-owned subsidiaries, we were engaged in the design, construction, implementation and management of industrial and municipal waste water treatment facilities throughout the PRC. We have disposed of those operations on December 30,2008. Now we are focusing on providing high quality bottled water in China by using 9000-Year Old Glacier Spring Water. Our bottled water has been marketed in many big cities in China such as Shanghai, Beijing, Guangzhou, Chengdu and others.3

We also previously provided turn-key waste water treatment engineering design and contracting. from 2000 through 2008, we completed the following turn-key projects: Yongji Development Zone Wastewater Treatment Plant (Phase 1), Guangdong Nanhai City Jinsha Town Wastewater Treatment Plant, Guangdong Sanshui Baini Wastewater Treatment Plant and Guangzhou Yantang Wastewater Treatment Plant, Tianjin City Meichang Town Wastewater Treatment Plant,Yongji Development Zone Wastewater Treatment Plant (Phase 2), China Environment Industrial Park Wastewater Treatment Plant, Huangzhuang Industrial Park Wastewater Treatment Plant and Tian Jin WuQing No.1 Waste Water Treatment Factory. We have left this business and no longer provide turn-key waste water services.

4We previously held a 28.8% and 11.2% of the equity interest in 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 (“TianJin”), which commissioned water treatment in November 2003 and has a daily treatment capacity of approximately 10,000 tons; and (ii) Xin Le Sheng Mei Water Purifying Company Limited (“XinLe”), which also commissioned water treatment in November 2003 and has a daily treatment capacity of 40,000 tons. We have been retained as the manager to manage both TianJing and XinLe. The fees from XinLe and TianJing did not represent a significant portion of our revenue during 2008.

We ~~ever~~ ~~held~~also ~~28.8%~~developed ~~and~~a ~~11.2%~~BOT ~~before~~water 31treatment ~~December,2008,~~facility ~~respectively,~~project in Hai Yang City under our subsidiary Hai Yang City Sheng Shi Environment Protection Company Limited (“HaiYang”) with capacity of ~~the~~20,000 ~~equity~~tons ~~interest~~per day. We began construction of this project in April 2004 and completed the ~~following~~project ~~two~~and commenced water treatment ~~facilities operated~~in ~~through~~June ~~build,~~2005. ~~operate~~We ~~and~~also ~~transfer~~developed (“another BOT”) ~~arrangements~~water ~~with~~treatment ~~the~~facility ~~PRC~~project ~~government:~~in ~~(i) Tian~~Beijing ~~Jin~~under our subsidiary Bei Jing Hao Tai Shi ~~Sheng~~ Yuan Water ~~Treatment~~Purifying Company Limited (“~~TianJin~~Beijing HaoTai”) with planned capacity of 20,000 ~~which~~tons ~~commissioned~~per ~~water~~day. ~~treatment~~We began construction of this project in ~~November~~July ~~2003~~2004 ~~and~~completed ~~has~~approximately 90% till December, 2006. We retained a ~~daily~~90% ~~treatment capacity~~interest in this facility until we disposed of ~~approximately~~it ~~10,000~~in ~~tons;~~December 2006 for a total consideration of US$1,442,567, and ~~(ii)~~realized a gain of $44,872. ~~Xin~~In LeJuly ~~Sheng~~2005, ~~Mei~~we started construction of a BOT water treatment facility project for the Handan Fengfeng Mining Area in the Hebei Province under our subsidiary Han Dan Cheng Sheng Water ~~Purifying~~Affairs Company Limited (“~~XinLe~~HanDan”) with capacity of 33,000 ~~which also~~tons ~~commissioned~~per ~~water~~day. ~~treatment~~The project was completed in ~~November~~December ~~2003~~2007. ~~and~~The ~~has~~fees afrom ~~daily~~these ~~treatment~~projects ~~capacity~~are ofexpected ~~40,000~~to ~~tons~~increase our net sales in the future. We ~~have~~are ~~been~~in ~~retained as~~ the ~~manager~~process toof ~~manage~~discontinuing ~~both~~our ~~TianJing~~waste ~~and~~water ~~XinLe.~~engineering ~~The~~operations ~~fees~~to ~~from~~concentrate ~~XinLe~~on our bottled water operations and ~~TianJing~~the ~~did~~presentation ~~not~~of ~~represent~~our afinancial ~~significant~~statements ~~portion~~reflects ofthat these assets relate to our ~~revenue~~ ~~during~~“discontinued ~~2008~~division”.

~~We also~~Our ~~developed~~predecessor ~~a BOT water treatment facility project~~ in ~~Hai~~interest, ~~Yang~~Discovery ~~City under our subsidiary Hai Yang City Sheng Shi Environment Protection Company Limited (“HaiYang”) with capacity of 20~~Investments,~~000~~ ~~tons per day~~Inc. We began construction of this project in April 2004 and completed the project and commenced water treatment in June 2005. We also developed another BOT water treatment facility project in Beijing under our subsidiary Bei Jing Hao Tai Shi Yuan Water Purifying Company Limited (“~~Beijing HaoTai~~Discovery”) ~~with~~ ~~planned~~was ~~capacity~~incorporated ofon 20September 10,~~000~~ ~~tons per day. We began construction of this project in July 2004 completed approximately 90% till December~~1996, ~~2006.~~under Wethe ~~retained~~laws ~~a 90% interest in this facility until we disposed~~ of itthe inState ~~December 2006 for a total consideration~~ of ~~US$1,442,567,~~Nevada ~~and~~to ~~realized~~engage ~~a gain of $44,872. In July 2005, we started construction of a BOT water treatment facility project for the Handan Fengfeng Mining Area~~ in ~~the~~any ~~Hebei~~lawful ~~Province~~corporate ~~under our subsidiary Han Dan Cheng Sheng Water Affairs Company Limited (“HanDan”) with capacity of 33,000 tons per day~~activity. ~~The~~Discovery ~~project~~had ~~was~~been ~~completed~~ in ~~December 2007. The fees from these projects are expected to increase our net sales in~~ the ~~future.~~development Westage ~~are in the process of discontinuing our waste water engineering operations to concentrate on our bottled water operations~~ and ~~the~~was ~~presentation~~not ofactive ~~our~~until ~~financial~~October 26, ~~statements reflects that these assets relate to our “discontinued division”~~1999.

~~Our predecessor~~On inDecember 10, ~~interest~~1999, Discovery ~~Investments,~~entered ~~Inc.~~into a Plan and Agreement of Reorganization (the “~~Discovery~~Plan”) ~~was~~with ~~incorporated~~LLO-Gas, onInc. ~~September~~and John Castellucci. On October 1026, ~~1996~~1999, LLO-Gas had acquired certain ARCO facilities and a so-called card lock facility and commenced operations. LLO-Gas was incorporated in July 1998 under the laws of the State of ~~Nevada~~Delaware. toOn ~~engage~~December 20, in1999, ~~any~~there ~~lawful~~was ~~corporate~~a ~~activity~~closing under the Plan and LLO-Gas, Inc. became a wholly-owned subsidiary of Discovery and there was a change of control of Discovery. Between December 20, 1999 and August 10, 2000, differences of opinion as to matters of fact and as to matters of law had ~~been~~arisen inby and between certain of the ~~development~~shareholders ~~stage~~of Discovery, who were shareholders prior to the closing, and ~~was not~~between ~~active~~Discovery, ~~until~~John ~~October 26~~Castellucci and LLO-Gas, ~~1999~~Inc.

On ~~December~~ June 107, ~~1999~~2000, ~~Discovery entered into a Plan and Agreement of Reorganization (the “Plan”) with~~ LLO-Gas, Inc. ~~and~~ ~~John~~filed ~~Castellucci. On October 26, 1999, LLO-Gas had acquired certain ARCO facilities and~~ a ~~so-called~~Voluntary ~~card~~Petition ~~lock facility and commenced operations. LLO-Gas was incorporated in July 1998~~ under ~~the~~Chapter ~~laws~~11 of the ~~State~~Bankruptcy ofCode ~~Delaware.~~in ~~On December 20, 1999, there was a closing under~~ the ~~Plan~~United ~~and~~States ~~LLO-Gas~~Bankruptcy Court, ~~Inc.~~Central ~~became~~District ~~a wholly-owned subsidiary~~ of ~~Discovery~~California, ~~and~~San ~~there~~Fernando ~~was~~Valley aDivision, ~~change of~~case ~~control~~number ofSV ~~Discovery~~00-15398-AG. ~~Between~~On December 201, ~~1999 and August 10,~~ 2000, ~~differences~~the ofUnited ~~opinion~~States asBankruptcy toCourt ~~matters~~converted ~~of fact and as to matters of law had arisen by and between certain of~~ the ~~shareholders~~pending ofmatter ~~Discovery,~~into ~~who~~a ~~were~~Chapter ~~shareholders~~7 ~~prior~~liquidation. toSaid ~~the closing,~~Chapter ~~and~~7 ~~between~~effected ~~Discovery, John Castellucci and~~ LLO-Gas, Inc. and not Discovery.

5On August 10, 2000, Discovery entered into a Mutual Rescission Agreement and Mutual Release with John Castellucci which provided, inter alia, that Discovery consented and agreed to rescind said Plan with John Castellucci consenting and agreeing to the rescission. The parties mutually agreed to forego all rights and benefits provided to each other thereunder.

On ~~June~~ August 79, ~~2000~~2001, ~~LLO-Gas,~~Discovery ~~Inc.~~ filed a ~~Voluntary~~voluntary ~~Petition~~petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court, ~~Central~~ District of ~~California~~Nevada, ~~San~~Case ~~Fernando~~Number ~~Valley Division, case number SV 00~~BK-~~15398~~S-AG01-18156-RCJ. On ~~December~~September 124, ~~2000~~2001, the ~~United~~ ~~States~~ Bankruptcy Court ~~converted~~confirmed the ~~pending~~Disclosure ~~matter~~Statement ~~into~~and aPlan ~~Chapter~~of 7Reorganization ~~liquidation.~~submitted ~~Said~~by ~~Chapter~~Discovery 7and ~~effected~~Discovery ~~LLO-Gas,~~was ~~Inc. and~~thereafter ~~not~~released ~~Discovery~~from Bankruptcy.

On August 10, 2000, Discovery entered into a Mutual Rescission Agreement and Mutual Release with John Castellucci which provided, inter alia, that Discovery consented and agreed to rescind said Plan with John Castellucci consenting and agreeing to the rescission. The parties mutually agreed to forego all rights and benefits provided to each other thereunder.4

On ~~August~~ April 929, ~~2001~~2002, Discovery ~~filed~~entered into a ~~voluntary~~Plan ~~petition~~and ~~under~~Agreement ~~Chapter~~of 11Reorganization ofwith ~~the~~Bycom ~~Bankruptcy~~Media ~~Code~~Inc., inan ~~the~~Ontario, ~~United~~Canada ~~States~~corporation ~~Bankruptcy Court~~(“Bycom”). Pursuant to this agreement, ~~District~~Discovery acquired all the outstanding shares of ~~Nevada~~Bycom for 4,800,000 ~~Case~~shares ~~Number~~of ~~BK-S-01-18156-RCJ~~Common Stock. On ~~September~~October 245, ~~2001~~2002, ~~the~~Bycom ~~Bankruptcy~~became ~~Court~~a ~~confirmed~~wholly-owned ~~the~~subsidiary ~~Disclosure Statement and Plan~~ of ~~Reorganization submitted by~~ Discovery and ~~Discovery~~there was ~~thereafter~~a ~~released~~change ~~from~~of ~~Bankruptcy~~control.

~~On April 29,~~Bycom ~~2002,~~was ~~Discovery~~engaged ~~entered~~in ~~into~~multimedia aapplications ~~Plan~~for ~~and~~internet-based ~~Agreement~~business. ofUtilizing ~~Reorganization~~business ~~with~~search ~~Bycom~~tools ~~Media~~and ~~Inc.~~databases, ~~an Ontario, Canada corporation (“~~Bycom~~”).~~ ~~Pursuant~~intended to ~~this~~be ~~agreement,~~able ~~Discovery~~to ~~acquired~~locate ~~all~~and ~~the~~access ~~outstanding~~global ~~shares~~business ofinformation ~~Bycom~~ for 4a fee,~~800,000~~ ~~shares of~~or ~~Common~~was ~~Stock.~~to Onact ~~October 5,~~as ~~2002,~~an ~~Bycom~~“out-source ~~became~~provider” aof ~~wholly-owned~~information. ~~subsidiary~~Bycom ofcurrently ~~Discovery~~is ~~and~~an ~~there~~inactive, ~~was~~wholly aowned ~~change~~subsidiary of ~~control~~the Company.

~~Bycom was~~On ~~engaged~~September 4, in2002, ~~multimedia~~Discovery ~~applications~~completed ~~for~~a ~~internet-based~~transaction ~~business.~~set ~~Utilizing~~out ~~business~~in ~~search~~a ~~tools~~Plan and ~~databases~~Agreement of Reorganization dated June 13, ~~Bycom~~2002, ~~intended~~ pursuant to bewhich ~~able~~Discovery toacquired ~~locate~~all ~~and~~of ~~access~~the ~~global~~outstanding ~~business~~shares ~~information~~of ~~for~~Cavio Corporation, a ~~fee~~Washington corporation, or(“Cavio”) ~~was~~in exchange for 14 million share of Discovery common stock. Due to ~~act~~poor asmarket anconditions ~~“out-source~~and ~~provider”~~Discovery’s inability to seek adequate financing from third parties to properly finance the operations of ~~information.~~ ~~Bycom~~Cavio, ~~currently~~on isDecember 2, an2002 ~~inactive~~Discovery’s board of directors approved, ~~wholly~~subject ~~owned~~to ~~subsidiary~~receiving the approval of a majority of the ~~Company~~shareholders, to unwind the acquisition of Cavio in cancellation of the shares of common stock issued.

6On December 2, 2002, Discovery unanimously approved the disposition of its interest in Cavio and thereafter received the consent of a majority of the outstanding shares of the company’s common stock. Discovery determined the effective date for the divestiture to be June 30, 2003.

On For the two years prior to a reverse acquisition in September 4, ~~2002~~2004, ~~Discovery~~we ~~completed~~had not generated significant revenues and were considered a ~~transaction~~development ~~set~~stage ~~out~~company as defined in Statement of Financial Accounting Standards No. 7. We were seeking business opportunities or potential business acquisitions. Pursuant to a ~~Plan~~securities purchase agreement and ~~Agreement~~plan of ~~Reorganization~~reorganization dated ~~June~~September 139, ~~2002~~ 2004, ~~pursuant~~as toamended, ~~which~~between ~~Discovery~~our company, Evergreen Asset Group Limited, an International Business Company organized under the laws of the British Virgin Islands (“Evergreen” or “EGAG”), and the stockholders of Evergreen, we acquired ~~all~~100% of the issued and outstanding shares of ~~Cavio~~Evergreen’s ~~Corporation,~~capital astock. ~~Washington~~We ~~corporation~~issued 83,500,000 ~~(“Cavio”)~~ shares of our common stock in exchange for ~~14 million~~all ~~share~~the 300 issued and outstanding shares of ~~Discovery~~Evergreen ~~common~~capital stock which had an estimated value of $4.24 ~~Due~~million toat ~~poor~~the ~~market~~time ~~conditions~~of ~~and~~such ~~Discovery’s~~issuance, ~~inability to~~valued ~~seek~~based ~~adequate~~on ~~financing~~the ~~from~~fair ~~third~~market ~~parties~~value toof ~~properly~~the ~~finance~~net assets of Evergreen. Since the ~~operations~~stockholders of ~~Cavio,~~Evergreen onacquired ~~December 2,~~approximately ~~2002~~83.5% ~~Discovery’s~~ of our outstanding shares and the Evergreen management team and board of directors ~~approved,~~became ~~subject~~the tomanagement ~~receiving~~team ~~the~~and ~~approval~~board of adirectors ~~majority~~ of ~~the~~our ~~shareholders~~company, according to ~~unwind~~FASB ~~the~~Statement No. 141 - “ Business Combinations ”, this acquisition ~~of Cavio~~has inbeen ~~cancellation~~treated ofas ~~the~~a ~~shares~~recapitalization offor ~~common~~accounting ~~stock~~purposes, ~~issued~~in a manner similar to reverse acquisition accounting. In accounting for this transaction:

On December 2, 2002, Discovery unanimously approved the disposition of its interest in Cavio and thereafter received the consent of a majority of the outstanding shares of the company’s common stock. Discovery determined the effective date for the divestiture to be June 30, 2003.

Evergreen is deemed to be the purchaser and surviving company for accounting purposes. Accordingly, its net assets are included in the balance sheet at their historical book values and the results of operations of Evergreen have been presented for the comparative prior period;

Control of the net assets and business of our company was acquired effective October 15, 2004. This transaction has been accounted for as a purchase of the assets and liabilities of our company by Evergreen. The historical cost of the net liabilities assumed was $0.00.

~~For the~~As ~~two years prior to~~ a ~~reverse~~result ~~acquisition in September 2004, we had not generated significant revenues and were considered a development stage company as defined in Statement~~ of Financial Accounting Standards No. 7. We were seeking business opportunities or potential business acquisitions. Pursuant to a securities purchase agreement and plan of reorganization dated September 9, 2004, as amended, between our company, Evergreen Asset Group Limited, an International Business Company organized under the ~~laws of~~transaction ~~the~~described ~~British~~above ~~Virgin Islands (“Evergreen” or “EGAG”), and the stockholders of Evergreen,~~ we ~~acquired 100%~~changed ~~of the issued and outstanding shares of Evergreen’s capital stock. We issued 83,500,000 shares of~~ our ~~common~~name ~~stock in~~from ~~exchange~~Discovery ~~for all the 300 issued and outstanding shares of Evergreen capital stock which had an estimated value of $4.24 million at the time of such issuance~~Investments, ~~valued based on the fair market value of the net assets of Evergreen~~Inc. ~~Since~~to ~~the~~China ~~stockholders of~~ Evergreen ~~acquired~~Environmental ~~approximately 83~~Corporation.5% of our outstanding shares and the Evergreen management team and board of directors became the management team and board of directors of our company, according to FASB Statement No. 141 - “ Business Combinations ”, this acquisition has been treated as a recapitalization for accounting purposes, in a manner similar to reverse acquisition accounting. In accounting for this transaction:

·Due ~~Evergreen~~to isthe ~~deemed~~reverse acquisition mentioned above, EGAG, pursuant to bea ~~the~~group ~~purchaser~~reorganization ~~and~~which ~~surviving~~was ~~company~~completed ~~for~~in ~~accounting~~July ~~purposes.~~2004, ~~Accordingly~~acquired 90% equity interests in each of XinXingmei, ~~its~~XianYang, ~~net~~HaiYang ~~assets~~and ~~are~~BeijingHaoTai ~~included~~for incash ~~the~~consideration ~~balance~~of ~~sheet~~RMB12,601,000 at(approximately ~~their~~$1,521,860), ~~historical~~RMB18,000,000 ~~book~~(approximately ~~values~~$2,173,913), RMB2,700,000 (approximately $326,087) and ~~the~~RMB1,800,000 ~~results~~(approximately of$217,391), ~~operations~~respectively, all of ~~Evergreen~~which ~~have~~are ~~been~~domestic ~~presented~~incorporated ~~for~~companies established in the ~~comparative~~PRC ~~prior~~with ~~period;~~limited liability.

·In ~~Control~~March of2003, ~~the~~GDXS ~~net~~entered ~~assets~~into ~~and~~a ~~business~~BOT ofagreement ~~our~~with ~~company~~Xian ~~was~~Yang ~~acquired~~City ~~effective~~Environment ~~October~~Protection ~~15, 2004~~Bureau. ~~This~~The ~~transaction~~BOT ~~has~~agreement ~~been~~was ~~accounted~~later ~~for~~transferred asto aXian ~~purchase~~Yang ofBai ~~the~~Sheng ~~assets~~Water ~~and~~Purifying ~~liabilities~~Company ofLimited ~~our~~(“XianYang”), ~~company~~after byXianYang ~~Evergreen~~was incorporated. The ~~historical~~construction ~~cost~~ of the ~~net~~wastewater ~~liabilities~~plant ~~assumed~~of ~~was $0.00.~~

~~As a~~XianYang ~~result~~started in the beginning of 2004. Due to the ~~transaction~~group ~~described~~reorganization ~~above~~in weJuly ~~changed~~2004, ~~our~~90% ~~name~~of ~~from~~GDXS’s ~~Discovery~~interest ~~Investments~~in XianYang was transferred to EGAG. In October 2004, ~~Inc~~EGAG entered into a tri-party framework agreement with True Global Limited (“TGL”), an independent party and Guang Dong Xin Sheng Environmental Protection Company Limited (“GDXS”) for the disposal of its 90% interest in XianYang to TGL at a total consideration of $13,246,377. A gain on disposal of $5,220,299 was recorded in 2004 for the disposal of our entire 90% attributable interest in XianYang to ~~China~~TGL.The ~~Evergreen~~gain ~~Environmental Corporation~~represents the difference between the disposal proceeds and our attributable share of net assets of XianYang at the date of disposal.

~~Due to~~In ~~the~~April ~~reverse~~2005, ~~acquisition~~we ~~mentioned~~conducted ~~above~~a private placement of 20 investment units, ~~EGAG~~at $25,000 ~~pursuant~~per tounit, afor ~~group~~gross ~~reorganization~~proceeds ~~which~~of ~~was~~$500,000. ~~completed~~Each inunit ~~July~~consisted ~~2004,~~of ~~acquired 90~~(a) one 12% ~~equity~~convertible ~~interests~~debenture in ~~each~~the original principal amount of ~~XinXingmei~~$25, ~~XianYang~~000, ~~HaiYang~~convertible ~~and~~into ~~BeijingHaoTai~~shares ~~for~~of ~~cash~~our ~~consideration~~common stock at the rate of ~~RMB12,601,000~~the lesser of (~~approximately~~ i) $~~1,521,860~~0.20 per share or (ii), a ~~RMB18,000,000~~10% discount to the price per share of common stock (~~approximately~~or ~~$2,173,913~~conversion price per share of common stock) of the next private placement conducted by us prior to any conversion of the debenture, ~~RMB2~~and (b) 125,~~700,~~000 ~~(approximately~~detachable warrants to purchase one share each of our common stock at an exercise price of $~~326~~0.20 per share,~~087)~~ expiring ten years from their date of issuance. The debentures were due and ~~RMB1~~payable August 1,~~800,000~~ ~~(approximately~~2005. ~~$217~~The debenture holders,~~391)~~ however, ~~respectively~~ extended the payment period to September 30, ~~all~~2005. ofWe ~~which~~granted ~~are~~the ~~domestic~~investors ~~incorporated~~limited ~~companies~~registration ~~established~~rights infor the ~~PRC~~common ~~with~~shares ~~limited~~underlying ~~liability~~their debentures and warrants. Westminster Securities Corporation acted as placement agent for this offering on our behalf. All the debenture holders have converted the debentures into 3,703,701 shares of our common stock on October 1, 2005.

~~In March~~On ~~2003~~September 14, ~~GDXS~~2005, ~~entered~~we ~~into~~closed athe ~~BOT~~private ~~agreement~~placement ~~with~~sale ~~Xian~~to ~~Yang~~accredited ~~City~~investors ~~Environment~~of ~~Protection~~units ~~Bureau.~~consisting ~~The~~of ~~BOT~~shares ~~agreement~~of ~~was~~our ~~later~~common ~~transferred~~ stock and warrants to ~~Xian~~purchase ~~Yang~~shares ~~Bai~~of ~~Sheng~~our ~~Water~~common ~~Purifying~~stock ~~Company~~for ~~Limited~~aggregate ~~(“XianYang”),~~gross ~~after~~proceeds ~~XianYang~~of ~~was~~$4.83 ~~incorporated~~million. ~~The~~Pursuant ~~construction of~~to the ~~wastewater~~subscription ~~plant~~agreements ofentered ~~XianYang~~into ~~started~~with in the ~~beginning~~investors, ofwe ~~2004.~~issued ~~Due~~ to the ~~group~~investors ~~reorganization~~161 inunits ~~July~~at ~~2004,~~a ~~90%~~price of ~~GDXS’s interest~~$30,000 inper ~~XianYang~~unit. ~~was~~Each ~~transferred~~unit toconsisted ~~EGAG.~~of ~~In October 2004~~200,000 ~~EGAG~~shares ~~entered~~of ~~into~~our acommon ~~tri-party~~stock, ~~framework~~priced ~~agreement~~at ~~with~~$0.15 ~~True~~per ~~Global Limited (“TGL”)~~share, ~~an independent party~~ and ~~Guang~~warrants ~~Dong~~to ~~Xin~~purchase ~~Sheng~~200,000 ~~Environmental~~shares ~~Protection Company Limited (“GDXS”) for the disposal~~ of ~~its~~our ~~90%~~common ~~interest~~stock inover ~~XianYang~~a tofive-year ~~TGL~~period at aan ~~total~~exercise ~~consideration~~price of $~~13,246,377~~0.20 Aper ~~gain~~share. onPursuant ~~disposal~~to ofthe ~~$5,220,299 was~~terms ~~recorded~~of ~~in 2004 for~~ the ~~disposal~~subscription ofagreements, ~~our~~we ~~entire~~granted ~~90%~~the ~~attributable~~investors ~~interest~~limited inregistration ~~XianYang~~rights tofor ~~TGL.The~~all ~~gain~~common ~~represents~~shares ~~the~~comprising ~~difference between~~ the ~~disposal~~units, ~~proceeds~~including ~~and~~the ~~our~~common ~~attributable~~shares ~~share~~issuable ofon ~~net~~exercise ~~assets~~ of ~~XianYang at~~ the ~~date of disposal~~warrants.

~~In April~~On ~~2005,~~November ~~we conducted a private placement of 20 investment units~~7, ~~at $25~~2006,~~000~~ ~~per~~China ~~unit,~~Evergreen ~~for~~Environmental ~~gross~~Corporation ~~proceeds~~changed ofits ~~$500,000.~~name ~~Each unit~~to ~~consisted~~China ofWater ~~(a) one 12% convertible debenture in the original principal amount of $25~~Group,~~000,~~ ~~convertible into shares of our common stock at the rate of the lesser of (i) $0~~Inc.20 ~~per share or (ii) a 10% discount~~ to ~~the~~reflect ~~price~~its ~~per~~focus ~~share~~on ~~of common~~China’s ~~stock~~water ~~(or~~treatment ~~conversion~~and ~~price~~supply ~~per~~needs ~~share~~and ofon ~~common stock~~build-operate-transfer(BOT) ~~of the next private placement conducted by us prior to any conversion of the debenture~~, ~~and~~ Transfer-operate-transfer(bTOT) ~~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 were due~~ and ~~payable~~turnkey ~~August 1,~~wastewater ~~2005. The~~treatment ~~debenture~~facilities ~~holders,~~in ~~however~~China, ~~extended~~at the ~~payment~~same ~~period to September 30~~time, ~~2005.~~bottled Wewater ~~granted~~is ~~the investors limited registration rights for the common shares underlying their debentures and warrants~~considered. Westminster Securities Corporation acted as placement agent for this offering on our behalf. All the debenture holders have converted the debentures into 3,703,701 shares of our common stock on October 1, 2005.

8On December 29, 2007, we entered into an Equity Transfer Agreement, pursuant to which we transferred a 58% out of our 90% interest in our subsidiary Guangdong Xinxingmei Water Affairs Co, Ltd. (“GXWA”) to Wenning Pu, a 10% minority sharehoulder of GXWA for RBM7,308,600 (approximately $1,000,000). After the transaction, our ownership of GXWA was reduced from 90% to 32% and Wenning Pu’s ownership of GXWA was increased from 10% to 68%. The proceeds of the sale will be used for our working capital.

On ~~September~~ 14December 31, ~~2005~~2007, weChina ~~closed~~Water ~~the~~Group ~~private~~Inc. ~~placement~~signed ~~sale~~a tocontract ~~accredited~~with ~~investors~~Fortune ofLuck ~~units~~Global ~~consisting~~International ofLimited ~~shares~~to ofacquire ~~our~~90 ~~common~~percent ~~stock and~~of ~~warrants~~the toequity ~~purchase~~interest ~~shares~~ of ~~our~~Aba ~~common~~Xinchen ~~stock~~Dagu ~~for~~Glacier ~~aggregate~~Spring ~~gross proceeds of $4~~Co.83, ~~million.~~Limited ~~Pursuant~~through toits ~~the~~subsidiary ~~subscription agreements~~Guangzhou ~~entered~~Xinchen ~~into~~Water ~~with~~Company. ~~the~~The ~~investors,~~consideration wefor ~~issued to~~ the ~~investors~~acquisition ~~161~~is ~~units at a price of~~ $~~30,000 per unit~~13.45 ~~Each~~million ~~unit consisted of 200~~dollars,~~000~~ ~~shares~~ of ~~our~~which ~~common~~$7.5 ~~stock,~~million ~~priced~~will atbe ~~$0.15~~paid ~~per~~in ~~share~~cash, and ~~warrants~~the remaining to$5.95 ~~purchase~~million will ~~200,000~~be ~~shares~~paid ofin our common stock ~~over~~. As aof ~~five-year~~November ~~period~~20, 2009, atwe anhave ~~exercise~~paid ~~price~~a total of $~~0.20~~ ~~per share~~7.5 ~~Pursuant~~million cash, tobut ~~the~~hadn’t ~~terms~~issued ofany ~~the~~shares ~~subscription~~towards ~~agreements, we granted~~ the ~~investors~~purchase ~~limited~~price. ~~registration~~Acquiring ~~rights~~this ~~for~~asset ~~all~~has ~~common~~allowed ~~shares~~us ~~comprising~~to enter the ~~units,~~bottled ~~including~~water ~~the~~business ~~common~~with ~~shares~~our ~~issuable~~own ~~on exercise~~high ofquality ~~the~~water ~~warrants~~source.

On ~~November~~ 7December 30, ~~2006~~2008, ~~China~~we ~~Evergreen~~entered ~~Environmental~~into ~~Corporation~~an ~~changed~~Equity ~~its~~Transfer ~~name~~Agreement, pursuant to which China Water Group, Inc. transferred 100% interest in Evergreen Asset Group Limited to Whole ~~reflect~~Treasure ~~its~~Investment ~~focus~~Ltd. ~~on China’s~~, ~~water~~a ~~treatment~~BVI ~~and~~company. ~~supply~~The ~~needs~~proceeds ~~and~~of onthe ~~build-operate-transfer(BOT),~~sale ~~Transfer-operate-transfer(TOT),~~will ~~and~~be ~~turnkey wastewater~~used ~~treatment~~for our ~~facilities~~working incapital ~~China~~, atmainly ~~the~~to ~~same~~develop ~~time,~~the bottled water ismarket ~~considered~~and trademark building.

On ~~December~~ ~~29,~~February ~~2007~~26, ~~we entered into an Equity Transfer Agreement~~2009, ~~pursuant~~Guangzhou toXinchen ~~which~~Water weCompany ~~transferred~~established a ~~58%~~subsidiary, ~~out~~Chengdu ofJiuqiannian ~~our~~Water ~~90%~~Company, ~~interest~~ in ~~our~~the ~~subsidiary~~PRC ~~Guangdong~~as ~~Xinxingmei~~a ~~Water~~wholly-owned ~~Affairs~~limited ~~Co,~~liability ~~Ltd.~~company ~~(“GXWA”)~~with toregistered ~~Wenning~~capital ~~Pu, a 10% minority sharehoulder~~ of ~~GXWA~~RMB ~~for RBM7~~500,~~308,600~~000 (approximately $173,~~000,000~~250). After the transaction, our ownership of GXWA was reduced from 90% to 32% and Wenning Pu’s ownership of GXWA was increased from 10% to 68%. The proceeds of the sale will be used for our working capital.

On December 31, 2007, China Water Group Inc. signed a contract with Fortune Luck Global International Limited to acquire 90 percent of the equity interest of Aba Xinchen Dagu Glacier Spring Co., Limited through its subsidiary Guangzhou Xinchen Water Company. The consideration for the acquisition is $13.45 million dollars, of which $7.5 million will be paid in cash, and the remaining $5.95 million will be paid in our common stock. As of November 20, 2009, we have paid a total of $ 7.5 million cash, but hadn’t issued any shares towards the purchase price. Acquiring this asset has allowed us to enter the bottled water business with our own high quality water source.6

9On August 24, 2009, Guangzhou Xinchen Water Company established a subsidiary, Beijing Jiuqiannian Trading Company Ltd., in the PRC as a wholly-owned limited liability company with registered capital of RMB 300,000 (approximately $43,971).

~~On December~~Our ~~30,~~Corporate ~~2008,~~headquarters weis ~~entered~~located ~~into an Equity Transfer Agreement, pursuant to which China Water Group Inc transferred 100% interest~~ in ~~Evergreen Asset Group Limited to Whole Treasure Investment Ltd.~~ Guangzhou, ~~a BVI company. The proceeds of the sale will be used for our working capital~~ Guangdong, ~~mainly to develop the bottled water market and trademark building~~China.

~~On February~~Our 26, 2009, Guangzhou Xinchen Water Company established a subsidiary, Chengdu Jiuqiannian Water Company, in the PRC as a wholly-owned limited liability company with registered capital of RMB 500,000 (approximately $73,250).Business

On August 24, 2009, Guangzhou Xinchen Water Company established a subsidiary, Beijing Jiuqiannian Trading Company Ltd., in the PRC as a wholly-owned limited liability company with registered capital of RMB 300,000 (approximately $43,971).General

~~Our Corporate~~We ~~headquarters~~are isa ~~located~~PRC based bottled water production, sales and marketing company, and had previously been a waste water engineering company before 31 December,2008 ,which through our majority-owned subsidiaries, engaged in ~~Guangzhou~~the design, ~~Guangdong~~construction, ~~China~~implementation and management of industrial and municipal waste water treatment facilities throughout the PRC. Starting in 2007 we repositioned our business focus to bottled water production, sales and distribution in the PRC.

~~Our~~BOTTLED ~~Business~~WATER OPERATIONS

~~General~~In 2007 we entered into an agreement with Fortune Luck Global International Limited to secure a high quality source of natural drinking water from the Dagu Glacier. During the calendar years 2007 and 2008 we conducted a limited test market of bottled water in Guangzhou. Management was satisfied with the results and intended to expand this business to make it the main business of the Company in the future. At the beginning of 2008, we started developing the bottled water business. The Company established development and branding strategies for the bottled water business, managed to set up four regional sales centers in the cities of Shanghai, Beijing, Chengdu and Guangzhou, as part of the strategy to promote our products in China’s major cities. The May 12, 2008 earthquake in Sichuan, however, had a severe impact on our marketing efforts, as the earthquake damaged the roads between Aba, where our production is located, and Chengdu. The roads did not reopen until November 2010,,more than two years after the disaster of the earthquake in Sichuang. The public infrastructures are now reestablished and we are increasing our promotional effort so we anticipate that bottled water sales will increase in the future.

~~We are~~The aGlobal ~~PRC~~Industry ~~based~~for ~~bottled~~Bottled water production, sales and marketing company, and had ever been a waste water engineering company before 31 December,2008 ,which through our majority-owned subsidiaries, engaged in the design, construction, implementation and management of industrial and municipal waste water treatment facilities throughout the PRCWater. ~~Starting in 2007 we repositioned our business focus to bottled water production, sales and distribution in the PRC.~~

According to Datamonitor , the global bottled water market reached a value of $61.0 billion in 2006 and was forecasted to have a value of $86.4 billion in 2011, an increase of 41.6%. In 2006, global volume of bottled water was 115.4 billion liters and was expected to be 174.2 billion liters in 2011, an increase of 51.0%. On a consumption per capita basis, United Arab Emirates holds the leading position with 260 liters of bottled water consumption per capita in 2007, followed by Mexico and Italy. The global average consumption per capita is 29 liters, but China consumes only approximately 14 liters of bottled water per capita. If China's consumption per capita grew to the global average of 29 liters, it would represent a 110% increase (or an additional 20 billion liters) in consumption of bottled water. If China's consumption per capita grew to the average consumption per capita of the top 10 countries, it would represent over a 1,000% increase (or an additional 184 billion liters) in consumption of bottled water.

~~BOTTLED WATER~~The ~~OPERATIONS~~Chinese Bottled Water Industry.

In ~~2007~~ weChina, ~~entered~~water ~~into~~resources anper ~~agreement~~capita ~~with~~are ~~Fortune~~only ~~Luck~~28% ~~Global~~of ~~International~~the ~~Limited~~world toaverage. ~~secure~~Compounding athe ~~high~~lack ~~quality source~~ of ~~natural drinking~~ water ~~from~~resources, the ~~Dagu~~ ~~Glacier. During~~State ~~the~~Environment ~~calendar~~Protection ~~years~~Administration ~~2007~~of ~~and~~China ~~2008~~estimated wein ~~conducted~~2007 athat ~~limited~~tap ~~test~~water ~~market~~in one-half of ~~bottled water in~~China's ~~Guangzhou. Management~~major cities was ~~satisfied~~polluted ~~with~~by ~~the~~industrial ~~results~~chemicals and ~~intends~~agriculture tofertilizers. ~~expand~~A ~~this~~large ~~business~~amount toof ~~make~~wastewater itis ~~the~~directly ~~main~~discharged ~~business of~~into ~~the~~water ~~Company~~bodies, inand ~~the~~industrial ~~future.~~wastewater Attreatment ~~the~~has ~~beginning~~not ofbeen ~~2008~~completely established, weresulting ~~started~~in ~~developing~~serious ~~the bottled~~ water ~~business~~pollution problems. ~~The~~Safe ~~Company established~~drinking ~~development~~water ~~and~~is ~~branding~~a ~~strategies~~priority ~~for~~in ~~the bottled water business~~China, ~~managed~~and togiven ~~set up four regional sales centers in~~ the ~~cities~~lack of ~~Shanghai~~wastewater ,treatment ~~Beijing~~plants, ~~Chengdu~~the ~~and~~drinking ~~Guangzhou,~~water asissues ~~part~~are ofnot ~~the~~likely ~~strategy~~ to ~~promote~~be ~~our~~solved ~~products~~ in the near future. China’'s ~~major cities.~~bottled ~~The~~water ~~May~~industry ~~12th,2008 earthquake~~started into ~~Sichuan,~~grow ~~however,~~as ~~had~~drinking awater ~~severe~~quality ~~impact~~in onChina ~~our~~began ~~marketing~~to ~~efforts,~~deteriorate. asAccording ~~the earthquake~~to ~~damaged~~Passport ~~the~~by ~~roads~~Euromonitor ~~between~~International ~~Aba~~2011, ~~where~~bottled ~~our~~water ~~production~~witnessed is8% ~~located,~~volume ~~and~~growth ~~Chengdu.~~in ~~The~~2010, ~~roads~~to ~~did~~19.6 ~~not~~billion ~~reopen until November 2008~~litres, ~~nearly~~and ~~two~~have ~~years~~a ~~after~~value ~~the~~of ~~disaster~~59 ofbillion ~~the~~RMB, ~~earthquake~~an inincrease ~~Sichuang~~of 9.3%. ~~The~~From ~~public~~2010 ~~infrastructures~~to ~~are~~2015, ~~now~~a ~~reestablished~~total ~~and we~~volume ~~are~~CAGR ~~increasing~~of ~~our~~6% ~~promotional~~is ~~effort~~predicted sofor wethe ~~anticipate~~forecast ~~that~~period. ~~bottled~~In ~~water~~2015, ~~sales~~the ~~will~~volume ~~increase~~is inexpected ~~the~~to ~~future.~~be ~~But~~26 inbillion ~~2010~~liters, ~~our revenue~~and ~~dropped~~have ~~due~~a tovalue ~~our~~of ~~marketing~~67 ~~policy~~billion ~~adjustment~~RMB.

~~The Global Industry for Bottled Water.~~7

~~According to~~Industry Datamonitor , the global bottled water market reached a value of $61.0 billion in 2006 and was forecasted to have a value of $86.4 billion in 2011, an increase of 41.6%. In 2006, global volume of bottled water was 115.4 billion liters and was expected to be 174.2 billion liters in 2011, an increase of 51.0%. On a consumption per capita basis, United Arab Emirates holds the leading position with 260 liters of bottled water consumption per capita in 2007, followed by Mexico and Italy. The global average consumption per capita is 29 liters, but China consumes only approximately 14 liters of bottled water per capita. If China's consumption per capita grew to the global average of 29 liters, it would represent a 110% increase (or an additional 20 billion liters) in consumption of bottled water. If China's consumption per capita grew to the average consumption per capita of the top 10 countries, it would represent over a 1,000% increase (or an additional 184 billion liters) in consumption of bottled water.Background

~~The Chinese~~ Bottled Water ~~Industry~~Markets . Management believes that the bottled water industry in PRC is in the stage of rapid and continuous growth and development. It plays a major role in solving water pollution problems and providing the public with safe and convenient drinking water. Rising concerns amongst consumers regarding health and with increasing promotional activities; the market shows huge potential for players.

~~In China,~~Our ~~water~~Production resources per capita are only 28% of the world average. Compounding the lack of water resources, the State Environment Protection Administration of China estimated in 2007 that tap water in one-half of China's major cities was polluted by industrial chemicals and agriculture fertilizers. A large amount of wastewater is directly discharged into water bodies, and industrial wastewater treatment has not been completely established, resulting in serious water pollution problems. Safe drinking water is a priority in China, and given the lack of wastewater treatment plants, the drinking water issues are not likely to be solved in the near future. China's bottled water industry started to grow as drinking water quality in China began to deteriorate. According to Passport by Euromonitor International 2011, bottled water witnesses 8% volume growth in 2010, to 19.6 billion litres, and have a value of 59 billion RMB, an increase of 9.3%. From 2010 to 2015, a total volume CAGR of 6% is predicted for the forecast period. In 2015, the volume is expected to be 26 billion liters, and have a value of 67 billion RMB.Process

11Raw water flows into water processing workshop through a stainless steel pipe. After sand filtration, carbon filtration, membrane filtration and ozone sterilizing, the water is placed into containers. Then the water is poured into PET bottles automatically by an aseptic operation. Then these filled PET products are packed and transported to the market.

~~Industry Background~~Competition

~~Bottled Water~~We ~~Markets .~~believe ~~The~~our main competitor in top level bottled water ~~industry~~business inis ~~PRC~~Evian, isa inFrench bottled water company, which entered China more than 15 years ago and occupied the ~~stage~~largest share of ~~rapid~~the ~~and~~Chinese ~~continuous~~market ~~growth~~for ~~and~~branded ~~development~~bottled water. ~~It plays~~Several aother ~~major~~local ~~role~~brands inof ~~solving~~high level bottled water ~~pollution~~companies such ~~problems~~as ~~and~~5100, ~~providing~~Kunlun ~~the~~Mountains, ~~public~~Parmir, ~~with~~recently ~~safe~~entered the market and ~~convenient~~have ~~drinking~~relatively ~~water~~small market shares. We ~~Rising concerns~~are ~~amongst~~seeking ~~consumers~~companies ~~regarding~~that ~~health~~have ~~and~~access ~~with~~to ~~increasing~~a ~~promotional~~high ~~activities;~~quality water source within China to be acquired that will give us a further competitive advantage in the ~~market~~top ~~shows~~level ~~huge~~bottled ~~potential~~water ~~for~~business ~~players~~.

Our ~~Production~~ ~~Process~~Competitive Strengths

~~Raw water~~Key ~~flows~~elements ~~into~~of ~~water~~our ~~processing~~competitive ~~workshop~~strengths through a stainless steel pipe. After sand filtration, carbon filtration, membrane filtration and ozone sterilizing, the water is placed into containers. Then the water will be poured into PET bottles automatically by an aseptic operation. Then these filled PET products are packed and transported to the market.include:

~~Competition~~Capital Resources The bottled water business requires capital to build a marketing network and brand image in the targeted market. We believe we are capable of obtaining sufficient capital resources to fund our operation of the expanded bottled water business. We believe that additional capital are available to us on a time to time basis as we disposed of our remaining waste water treatment facilities..

~~We believe~~High ~~our~~Quality ~~main~~Water ~~competitor~~Source inIn ~~top~~2007, ~~level~~the ~~bottled~~Company ~~water~~entered ~~business~~into ~~is Evian,~~ a ~~French~~50-year ~~bottled~~exclusive ~~water~~contract ~~company,~~to ~~which~~use ~~entered~~the ~~China more~~Dagu ~~than~~Glacier 15spring ~~years~~water ~~ago~~with ~~and occupied~~ the Aba ~~biggest~~Municipal ~~share~~Government of ~~the~~Sichuan ~~Chinese market for branded bottled water~~province. ~~Several~~According ~~other~~to ~~local~~the ~~brands of~~contract, ~~high~~during ~~level~~the ~~bottled~~first ~~water~~10 ~~companies such as 5100~~years, ~~Kunlun~~we ~~Mountains,~~have ~~Parmir, recently entered~~ the ~~market~~right ~~and~~to ~~have~~exclude ~~relatively small~~any ~~market~~competitor ~~shares. We~~from ~~are~~the ~~seeking companies that in a high quality~~ water source. ~~within~~Glacier ~~China~~water tois berecognized ~~mergered~~worldwide orfor ~~acquisited will give us a competitive advantage in~~ the ~~top~~high ~~level~~quality ~~bottled~~ water, ~~business~~rare and precious.

Market network We place great emphasis on high quality bottled water marketing and brand building also concentrate more on technical research and development, and we have been building our bottled water market network in China’s principal cities such as Shanghai, Guangzhou,Hangzhou and Chengdu, and have developed more than 300 distribution channels to sell our 9000-Year Old Glacier Spring Water. Our ~~Competitive~~ ~~Strengths~~water is sold mainly in luxury hotels, restaurants, chain stores and supermarkets, chambers of commerce and beauty parlors.

~~Key elements~~Customers, ofSales ~~our~~and ~~competitive strengths include:~~Marketing

12In our bottled water business, the customers include the retail stores and wholesale distributors. We target at such ultimate consumers as middle class and wealthy families, large companies and government offices as these consumers are less sensitive to price and willing to pay a premium for high quality water that is perceived to be safer.

~~Capital Resources The~~One ~~bottled~~major ~~water~~customer ~~business~~accounted ~~requires~~for ~~capital~~approximately to12% ~~build~~of athe ~~marketing~~sales ~~network~~for ~~and~~the ~~brand~~year ~~image~~ended inDecember ~~the~~31, ~~targeted market~~2011. ~~We believe~~ weTwo ~~are~~major ~~capable~~customers ofaccounted ~~obtaining~~for ~~sufficient~~approximately ~~capital~~13% ~~resources to fund our operation~~ of the ~~expanded~~sales ~~bottled~~for ~~water~~the ~~business. We believe~~year ~~that~~ended ~~additional~~December ~~capital~~31, ~~are~~2010. ~~available~~The toloss usof oneither aof ~~time~~these tocustomers ~~time~~could ~~basis~~have asa wematerial ~~disposed~~adverse ofeffect on our ~~remaining waste water treatment facilities~~operations..

~~High~~ Quality Water Source In 2007,the company have entered into a 50-year exclusive contract to use the Dagu Glacier spring water with the Aba Municipal Government of Sichuan province. According to the contract, during the first 10 years, we have the right to exclude any competitor for the water source. Glacier water is recongnized worldwide for the high qulity water, rare and precious.Control

~~Market network~~ We ~~place~~have ~~great~~established ~~emphasis~~at onthe ~~high~~factory a department ~~quality bottled water marketing~~ and ~~brand~~laboratory ~~building~~facilities ~~also~~to ~~concentrate~~ensure the ~~more~~high ~~on technical~~quality ~~research~~of ~~and development, and we have been building~~ our ~~bottled~~products. ~~water~~Specific ~~market~~procedures ~~network~~include intesting at ~~China’s~~each ~~principal~~stage ~~cities~~ such as ~~Shanghai,~~water ~~Guangzhou£Hangzhou and Chengdu~~source, ~~and~~water ~~have developed more than 300 distribution channels to sell our 9000-Year Old Glacier Spring Water~~treatment, ~~mainly luxury hotels, restaurants, chain stores and supermarkets, chambers of commerce, beauty parlors and other outlets.~~

~~Customers, Sales and Marketing~~8

~~In our bottled water business~~bottling, ~~the customers include the retail stores~~packaging, ~~wholesale distributors.We target at such ultimate consumers as middle class~~ and ~~wealthy~~finished ~~families,~~products ~~large~~to ~~companies~~ensure ~~and~~our ~~government~~products ~~offices as these consumers~~ are ~~less~~meeting ~~sensitive~~all tohealthy ~~price and willing to pay a premium for high quality~~ water ~~that~~standards isand ~~perceived~~the toexpectations beof ~~safer~~our customers.

~~Two major~~Cooperative ~~customers~~Partners ~~accounted~~and ~~for~~Suppliers ~~approximately 16% of the sales~~ for ~~the~~bottled ~~year ended December 31, 2010. Specifically, Guangzhou ShengRen~~ Water ~~Co. Ltd, and Reception Department of Sichuan Heishui County accounted for approximately 7.5% and 8.5% of our sales, respectively. .~~

~~Quality Control~~ The following table sets forth our major suppliers of equipment and materials in bottled water:

~~We have~~Component, ~~established~~Raw atMaterials ~~the~~And ~~factory a department~~Equipment ~~and laboratory~~Our ~~facilities~~Major toSuppliers ~~ensure the~~Bottle ~~high~~blowing ~~quality~~machine ofFogang ~~our~~Guozhu ~~products~~Blowing Equipment Co. ~~Specific~~, ~~procedures~~Ltd ~~include~~Racking ~~testing at~~machine ~~each~~Jiangsu ~~stage~~XinMeixin ~~such~~Water asPurifying ~~water~~Equipment ~~source~~Co.,Ltd ~~water~~Air ~~treatment~~compressor Nanjing Hengda Compressor Co.,Ltd ~~bottling~~Packing machinery Jiangsu XinMeichen Packing Machinery Co.,Ltd ~~packaging~~Water treating equipment Zhejiang Deqing Water Treating Co.,Ltd ~~and~~Bottle ~~finished products~~base, totop ~~ensure~~Yibing ~~our~~PuLaisi ~~products~~Packing ~~are~~Material ~~meeting~~Co.,Ltd ~~all~~Chengdu ~~healthy~~Pixian ~~water~~Rongxin ~~standards~~Plastic ~~and~~Products ~~the~~Co.,Ltd ~~expectations~~Carton ofChengdu ~~our~~Rongshun ~~customers~~Packing Co.,Ltd Bottle bag, label Guangzhou Huihua Package Printing Co., Ltd Chengdu Rongfa Non-woven Bag Packaging Factory

13 Bottled Water

~~Cooperative Partners~~We ~~and~~have ~~Suppliers~~entered into a 50-year exclusive contract to use the glacier spring water at the Aba area with the Aba Municipal Government of Sichuan province. According to the contract, during the first 10 years, we have the right to exclude any competitor for the water source. Currently, we have established a bottling facility in the area, primarily for 350 ML and 500 ML bottled ~~Water~~water. A 3L facility was completed the end of 2012. Our current production capacity is 120 tons per day. We intend to increase the capacity to 200 tons per day in the future. In addition to Aba, we are in the process of exploring new water sources

~~The following~~Intellectual ~~table sets forth our major suppliers of equipment and materials in bottled water:~~Property

~~Component,~~We ~~Raw~~are ~~Materials~~the ~~and~~only ~~Equipment~~bottled ~~Our~~water ~~Major~~company ~~Suppliers~~in ~~Bottle~~China that ~~blowing~~has ~~machine~~registered ~~Fogang~~with ~~Guozhu~~the ~~Blowing~~State ~~Equipment~~Industrial ~~Co.,~~and ~~Ltd~~Commercial ~~Racking~~Bureau ~~machine~~our ~~Jiangsu~~“9000-year”, ~~XinMeixin~~“ ~~Water~~Dagu ~~Purifying Equipment Co.~~Glacier”,~~Ltd~~ ~~Air~~“Dagu” ~~compressor~~trade ~~Nanjing Hengda Compressor Co~~marks.~~,Ltd~~ ~~Packing~~And ~~machinery~~also ~~Jiangsu~~we ~~XinMeichen~~have ~~Packing~~registered ~~Machinery~~the ~~Co.,Ltd~~package ~~Water~~patent ~~treating~~with ~~equipment~~the ~~Zhejiang~~State ~~Deqing~~Intellectual ~~Water~~Property ~~Treating~~Office ~~Co.,Ltd~~of ~~Bottle~~the ~~base,~~PRC: ~~top~~(PRC ~~Yibing~~Patent ~~PuLaisi~~No. ~~Packing~~ZL ~~Material~~2006 Co2 0061617.~~,Ltd~~5 ~~Chengdu~~) ~~Pixian~~applied ~~Rongxin~~on ~~Plastic~~July ~~Products~~13, ~~Co.~~2006,~~Ltd~~ ~~Carton~~declared ~~Chengdu~~effective ~~Rongshun~~on ~~Packing~~August ~~Co.~~22,~~Ltd~~ ~~Bottle~~2007 ~~bag,~~with ~~label~~a ~~Guangzhou~~duration ~~Huihua~~of ~~Package~~10 ~~Printing~~years ~~Co.,~~from ~~Ltd~~the ~~Chengdu~~date ~~Rongfa~~of ~~Non-woven Bag Packaging Factory~~application.

14Employees

~~Bottled Water~~As of December 31, 2011, we had 72 employees, of whom 43 were in bottled water operations , of whom 22 were engaged in sales, marketing and services, the other 7,employees in accounting and administration. We also had no employees in our waste water treatment at the end of 2011. None of our employees is represented by a collective bargaining agreement, and we believe that we have satisfactory relations with our employees.

We have entered into a 50-year exclusive contract to use the glacier spring water at the Aba area with the Aba Municipal Government of Sichuan province. According to the contract, during the first 10 years, we have the right to exclude any competitor for the water source. Currently, we have established a bottling facility in the area, primarily for 350 ML and 500 ML bottled water. A 3L facility is under construction with expected completion the end of 2011. Our current production capacity is 120 tons per day. We intend to increase the capacity to 200 tons per day in the future. In addition to Aba, we are in the process of exploring new water sources.Regulation

~~Intellectual Property~~The PRC’s numerous ongoing water reforms are moving toward a user-pay, market-driven sector. Legislation serves as the basis to regulate and enforce these reforms. The Water Resource Law, amended and put into effect on October 1, 2002, significantly changes water resource management systems, water resource protection, water conservation, and legal responsibilities.

We are the only bottled water company in China that has registered with the State Industrial and Commercial Bureau our “9000-year”, “ Dagu Glacier”, “Dagu” trade marks. And also we have registered the package patent with the State Intellectual Property Office of the PRC: (PRC Patent No. ZL 2006 2 0061617.5 )applied on July 13, 2006, declared effective on August 22, 2007 with a duration of 10 years from the date of application.9

~~Employees~~The following is a summary of related laws and regulations regarding water, water supply and waste water discharge in the PRC:

~~As of~~Three ~~December~~laws ~~31,~~apply ~~2010,~~to ~~we had 84 employees, of whom 60 were in bottled water operations of whom24 were engaged in sales, marketing and services,~~ the ~~others in accounting and administration. We also had no employees in our waste~~ water ~~treatment at the end of 2010. None of our employees is represented by a collective bargaining agreement, and we believe that we have satisfactory relations with our employees.~~sector:

1. The Water Resources Law emphasizes the uniform management of river basins and the macro-management of water distribution and consumption. In addition, the law identifies a water quality management system. 2. The 1984 Water Pollution Prevention and Control Law (WPL) applies to discharges to rivers, lakes, canals, reservoirs, and groundwater. The WPL contains sections pertaining to water quality and discharge standards, pollution prevention, surface water, and groundwater. Amendments in 1996 introduced further controls on river basins, including requirements for cities and towns to establish central sewage treatment plants and to set treatment fees, mass-loading controls, provisions for strengthening the supervision and management of water pollution, and non-point-source pollution controls. 3. The Implementation Regulation of Water Pollution Prevention and Control Law was enacted on March 20, 2000. This law regulates the supervision and management of surface and ground water pollution, prevention, and control measures.

~~The PRC’s~~Bottled ~~numerous~~water ~~ongoing~~sales For ~~water~~a ~~reforms~~company ~~are~~to ~~moving~~sell ~~toward~~bottled awater ~~user-pay~~products, ~~market-driven~~the ~~sector.~~company ~~Legislation~~must ~~serves~~obtain asa ~~the~~State ~~basis to~~issued ~~regulate~~certificate ~~and~~for ~~enforce~~water ~~these~~source, ~~reforms.~~and ~~The~~meets ~~Water~~the ~~Resource~~State ~~Law,~~Quality ~~amended~~Assurance (“QA”) standard and ~~put~~State ~~into~~requirements ~~effect~~of onthe ~~October 1,~~Food ~~2002,~~Safety ~~significantly changes~~Law ~~water~~and ~~resource~~Drinking ~~management~~Natural ~~systems,~~Mineral ~~water~~Water ~~resource~~Standard. We ~~protection,~~have ~~water~~obtained ~~conservation,~~the necessary certificates and ~~legal~~believe ~~responsibilities~~that we meet all standards.

~~The following~~Item is1A. aRisk ~~summary of ralated laws and regulations regarding water, water supply and waste water discharge in the PRC:~~Factors.

~~Three laws~~You ~~apply~~should carefully consider the risks described below, which constitute the material risks facing us. If any of the following risks actually occur, our business could be harmed. You should also refer to the ~~water~~other ~~sector:~~information about us contained in this Form 10-K, including our financial statements and related notes.

15Risks Related to Our Business

1.We ~~The~~are ~~Water~~dependent ~~Resources~~on ~~Law~~economic ~~emphasizes~~conditions in the PRC’s as ~~uniform~~all ~~management~~ of ~~river~~our ~~basins~~business ~~and~~is conducted in the ~~macro-management~~PRC. All of ~~water~~our ~~distribution~~business operations are conducted in the PRC and ~~consumption~~all of our customers are also located in the PRC. InWe ~~addition~~operate our new bottled water business internally in the PRC. Accordingly, any significant slowdown in the ~~law~~PRC ~~identifies~~economy amay reduce demand for premium bottled water ~~quality~~and ~~management~~limit ~~system~~the growth of our operations.

2.Failure ~~The~~to ~~1984~~retain ~~Water~~services ~~Pollution~~of ~~Prevention~~key ~~and~~personnel ~~Control~~will ~~Law~~affect ~~(WPL)~~our ~~applies~~operations ~~to discharges to rivers, lakes, canals, reservoirs,~~ and ~~groundwater~~results. ~~The~~Our ~~WPL~~success ~~contains sections pertaining~~ to ~~water~~date ~~quality~~has ~~and~~been ~~discharge~~largely ~~standards,~~due ~~pollution~~to ~~prevention,~~the ~~surface~~contributions ~~water,~~of ~~and~~our ~~groundwater~~executive officers. ~~Amendments~~The incontinued ~~1996~~success ~~introduced~~of ~~further~~our ~~controls~~business onis ~~river~~very ~~basins,~~much ~~including~~dependent ~~requirements~~on ~~for~~the ~~cities~~goodwill ~~and~~that ~~towns~~they tohave ~~establish~~developed ~~central~~in ~~sewage~~the ~~treatment~~industry ~~plants~~over ~~and to set treatment fees, mass-loading controls, provisions for strengthening~~ the ~~supervision~~past ~~and~~several ~~management of water pollution, and non-point-source pollution controls~~years.

3Our continued success is dependent, to a large extent, on our ability to retain the services of our executive officers. The ~~Implementation~~loss ~~Regulation~~of any of ~~Water~~our ~~Pollution~~executive ~~Prevention~~officers’ ~~and~~services ~~Control~~due ~~Law~~to ~~was~~resignation, ~~enacted~~retirement, onillness ~~March~~or ~~20,~~otherwise ~~2000.~~without ~~This~~suitable ~~law~~replacement ~~regulates~~or the ~~supervision~~inability to attract and ~~management~~retain ofqualified ~~surface~~personnel would affect our operations and ~~ground~~may ~~water~~reduce ~~pollution,~~our ~~prevention,~~profitability and ~~control~~the ~~measures~~return on your investment.

~~Bottled water~~We ~~sales For~~are asubject ~~company~~ to ~~sell~~foreign ~~bottled~~exchange ~~water~~risks. ~~products~~Our dominant transactional currency is the Chinese RMB, including the ~~company~~cost ~~must~~of ~~obtain~~materials awhich ~~State~~are ~~issued~~imported ~~certificate~~by ~~for~~our ~~water source,~~suppliers. ~~and~~With ~~meets~~costs ~~the~~mainly ~~State~~denominated ~~Quality~~in ~~Assurance~~RMB, ~~(“QA”)~~our ~~standard~~transactional ~~and~~foreign ~~State~~exchange ~~requirements~~exposure offor the ~~Food~~past ~~Safety~~few ~~Law~~years ~~and~~has ~~Drinking Natural~~been ~~Mineral~~insignificant. ~~Water~~However, ~~Standard. We~~as ~~have~~our ~~obtained~~suppliers take into account the ~~necessary~~fluctuations ~~certificates~~in ~~and~~foreign ~~believe~~exchange ~~that~~rates when they price the imported materials which we ~~meet~~procure ~~all~~from ~~standards~~them, such fluctuations in foreign exchange rates may result in changes in the purchase price of imported materials. Any future significant fluctuations in foreign exchange rates may

~~Item 1A. Risk Factors.~~10

~~You should~~have ~~carefully~~a ~~consider~~material ~~the~~impact ~~risks~~on ~~described~~our ~~below,~~financial ~~which~~performance ~~constitute~~in the ~~material~~event ~~risks~~that ~~facing~~we ~~us. If~~are ~~any~~unable ofto transfer the ~~following risks~~increased ~~actually~~costs ~~occur, our business could be harmed. You should also refer~~ to ~~the other information about us contained in this Form 10-K, including~~ our ~~financial statements and related notes~~customers.

~~Risks Related~~Since our subsidiaries, operations and significant assets are located in the PRC, shareholders may find it difficult to enforce a U.S. judgment against the assets of our company, our directors and executive officers. Our ~~Business~~subsidiaries’ operations and significant assets are located in the PRC. In addition, all of our executive officers and our directors are non-residents of the U.S., and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.

~~We are~~Our ~~dependent~~operations oncould ~~economic~~be ~~conditions~~adversely inaffected ~~the PRC’s as~~by ~~all~~changes ofin ~~our~~the ~~business~~political isand ~~conducted~~economic conditions in the PRC. ~~All~~ ofThe ~~our~~PRC ~~business~~is ~~operations~~our ~~are~~main ~~conducted~~market inand ~~the~~accounted ~~PRC~~for ~~and~~ all of our ~~customers~~revenue ~~are~~in ~~also~~2011. Therefore, ~~located~~we face risks related to conducting business in the PRC. WeChanges ~~operate~~in ~~our~~the ~~new bottled~~social, ~~water~~economic ~~business~~and ~~internally~~political inconditions of the PRC~~. Accordingly,~~ ~~any~~may ~~significant~~adversely ~~slowdown~~affect our business. Unfavorable changes in ~~the~~government ~~PRC~~policies, ~~economy~~political ~~may~~unrest ~~reduce~~and ~~demand for~~economic ~~premium~~developments ~~bottled~~may ~~water~~also ~~and~~have ~~limit~~a ~~the~~negative ~~growth~~impact ofon our operations.

16Since the adoption of the “open door policy” in 1978 and the “socialist market economy” in 1993, the PRC government has been reforming and is expected to continue to reform its economic and political systems. Any changes in the political and economic policies of the PRC government may lead to changes in the laws and regulations or the interpretation of the same, as well as changes in the foreign exchange regulations, taxation and import and export restrictions, which may, in turn, adversely affect our financial performance. While the current policy of the PRC government seems to be one of imposing economic reform policies to encourage foreign investments and greater economic decentralization, there is no assurance that such a policy will continue to prevail in the future.

~~Failure~~ Introduction of new laws or changes to ~~retain~~existing ~~services~~laws ofby ~~key~~the ~~personnel~~PRC ~~will~~government may adversely affect our ~~operations~~business. The PRC legal system is a codified legal system made up of written laws, regulations, circulars, administrative directives and ~~results~~internal guidelines. ~~Our~~Unlike ~~success~~common tolaw ~~date~~jurisdictions ~~has~~like ~~been~~the ~~largely~~U.S., ~~due~~decided to cases (which may be taken as reference) do not form part of the ~~contributions~~legal structure of ~~our~~the ~~executive~~PRC ~~officers~~and thus have no binding effect. ~~The~~Furthermore, ~~continued~~in ~~success~~line with its transformation from a centrally-planned economy to a more free market-oriented economy, the PRC government is still in the process of ~~our~~developing ~~business~~a comprehensive set of laws and regulations. As the legal system in the PRC is ~~very~~still ~~much~~evolving, ~~dependent~~laws onand regulations or the ~~goodwill~~interpretation ~~that they~~of ~~have~~the ~~developed~~same inmay be subject to further changes. For example, the ~~industry~~PRC ~~over~~government may impose restrictions on the ~~past~~amount ~~several~~of ~~years~~tariff that may be payable by municipal governments to waste water treatment service providers like us. Also, more stringent environmental regulations may also affect our ability to comply with, or our costs to comply with, such regulations. Such changes, if implemented, may adversely affect our business operations and may reduce our profitability.

We may be subject to foreign exchange controls in the PRC . Our ~~continued~~ ~~success~~PRC issubsidiaries ~~dependent,~~are subject to aPRC ~~large~~rules ~~extent,~~and regulations on ~~our~~currency ~~ability~~conversion. toIn ~~retain~~the PRC, the ~~services~~State Administration for Foreign Exchange (“SAFE”) regulates the conversion of ~~our~~the ~~executive~~RMB ~~officers~~into foreign currencies. ~~The~~Currently, ~~loss~~foreign ~~of any~~investment enterprises (“FIEs”) are required to apply to SAFE for “Foreign Exchange Registration Certificate for FlEs”. All of our ~~executive~~subsidiaries ~~officers’~~are ~~services~~FIEs. ~~due~~With such registration certifications (which need to ~~resignation~~be renewed annually), ~~retirement~~FlEs are allowed to open foreign currency accounts including the “recurrent account” and the “capital account”. Currently, ~~illness~~conversion orwithin ~~otherwise~~the scope of the “recurrent account” can be effected without ~~suitable~~requiring the ~~replacement or~~approval of SAFE. However, conversion of currency in the ~~inability~~“capital toaccount” ~~attract~~(e.g. ~~and~~for ~~retain~~capital ~~qualified~~items ~~personnel~~such ~~would~~as ~~affect~~direct ~~our~~investments, loans, securities, etc.) still requires the approval of SAFE. Our operations and business may ~~reduce~~be ~~our~~adversely ~~profitability~~affected ~~and~~if conversion of currency in the ~~return~~ on“capital ~~your~~account” ~~investment~~is not approved by the SAFE.

We ~~are~~ have entered the ~~subject~~bottled towater ~~foreign~~business ~~exchange~~and ~~risks.~~will ~~Our~~be ~~dominant~~subject ~~transactional~~to ~~currency~~all isof the ~~Chinese~~risks ~~RMB,~~of ~~including~~one and only business enterprise. Based on the ~~cost~~results of ~~materials which~~a ~~are~~limited ~~imported~~test bymarketing ~~our~~effort ~~suppliers.~~during ~~With~~calendar ~~costs~~2007 ~~mainly~~and ~~denominated~~2008 inwe ~~RMB,~~have devoted our ~~transactional~~efforts ~~foreign~~to ~~exchange~~producing ~~exposure~~and ~~for~~marketing ~~the past~~branded ~~few~~bottled ~~years~~water ~~has~~in ~~been~~the ~~insignificant~~PRC. Now ~~However,~~this asis our ~~suppliers~~one ~~take~~and ~~into~~only ~~account~~business ~~the~~and ~~fluctuations~~there inare ~~foreign~~many ~~exchange~~risks ~~rates when~~attendant ~~they~~to ~~price~~entering ~~the~~this ~~imported~~business ~~materials~~such ~~which~~as wecost ~~procure from them~~uncertainties, ~~such~~delays ~~fluctuations~~ in ~~foreign~~production ~~exchange~~and ~~rates~~acceptance ~~may~~of ~~result~~our inproduct. If ~~changes in~~we ~~the~~mismanage ~~purchase~~our ~~price~~production of ~~imported~~branded ~~materials.~~bottled ~~Any~~water ~~future~~or ~~significant~~if ~~fluctuations~~we inare ~~foreign~~unable ~~exchange~~to ~~rates~~obtain ~~may~~market ~~have~~acceptance aof ~~material impact on~~ our ~~financial~~product ~~performance~~at inproposed ~~the~~price ~~event~~levels ~~that~~ we are ~~unable~~likely to ~~transfer~~fail ~~the~~in ~~increased~~this ~~costs~~business toand this will negatively impact the value of our ~~customers~~stock.

~~Since our~~We ~~subsidiaries, operations and significant assets are located in the PRC, shareholders~~ may ~~find~~require itadditional ~~difficult to enforce a U~~financing.~~S. judgment against the assets of our company, our directors and executive officers. Our subsidiaries’ operations and significant assets are located in the PRC.~~ In ~~addition,~~order ~~all~~to offurther ~~our~~develop ~~executive officers and~~ our ~~directors~~business ~~are non-residents~~ of ~~the~~marketing ~~U.S.,~~premium ~~and~~branded ~~substantially~~bottled ~~all~~water ~~the~~we ~~assets~~will ofrequire ~~these~~capital ~~persons~~resources ~~are~~not ~~located~~currently ~~outside~~available ~~the U.S. As a result, it could be difficult for investors~~ to ~~effect service of process in the U~~us.~~S.,~~ To orraise ~~to enforce a judgment obtained in the U.S. against us or any of these persons.~~

1711

~~Our operations could be adversely affected by changes in~~ the ~~political~~necessary ~~and~~funds ~~economic~~we ~~conditions~~must inobtain ~~the~~debt ~~PRC.~~financing, ~~The~~sell ~~PRC~~an isexisting ~~our main~~asset ~~market~~or ~~and~~issue ~~accounted~~additional ~~for~~shares ~~all~~to ofinvestors. We ~~our~~do ~~revenue~~not inhave ~~2006.~~any ~~Therefore,~~agreements weor ~~face~~commitments ~~risks related~~ to ~~conducting~~do ~~business~~any inof the ~~PRC~~foregoing. ~~Changes~~ Nor incan ~~the~~we ~~social,~~predict ~~economic~~when ~~and~~or ~~political~~if ~~conditions~~funding ofwill ~~the~~be ~~PRC~~available ~~may~~to ~~adversely~~us ~~affect~~or ~~our~~if ~~business.~~it ~~Unfavorable~~will ~~changes~~be ~~in government~~available ~~policies,~~on ~~political~~terms ~~unrest~~that ~~and~~are ~~economic~~beneficial ~~developments~~to ~~may also have a negative impact on~~ our ~~operations~~current shareholders.

~~Since the~~Our ~~adoption~~bottled ofwater ~~the~~business ~~“open~~may ~~door~~face ~~policy”~~increased incompetition. We ~~1978~~believe ~~and~~that ~~the~~there ~~“socialist market economy” in 1993, the PRC government has been reforming and~~ is ~~expected~~a topressing ~~continue~~need tofor ~~reform~~a ~~its~~premium, ~~economic~~pure, ~~and~~drinkable ~~political~~bottled ~~systems.~~water ~~Any changes~~ in the ~~political and economic policies of the~~ PRC. Other ~~government~~companies ~~may~~with ~~lead~~greater toresources ~~changes in the laws~~ and ~~regulations~~other oradvantages ~~the~~over ~~interpretation of the same~~us, ~~as well~~such as ~~changes~~established indistribution ~~the foreign exchange regulations~~networks, ~~taxation and import and export restrictions, which~~ may, inalso ~~turn,~~perceive ~~adversely affect~~the ~~our~~need ~~financial~~for ~~performance.~~premium ~~While~~bottled ~~the~~water ~~current~~in ~~policy of~~ the PRC, ~~government~~enter ~~seems~~our tomarket beand ~~one~~compete ofwith ~~imposing~~us ~~economic~~successfully ~~reform policies to encourage foreign investments~~ and ~~greater~~cause ~~economic~~our ~~decentralization,~~results ~~there is no assurance that such a policy will continue~~ to ~~prevail in the future~~suffer.

~~Introduction of~~The ~~new~~success ~~laws~~of orour ~~changes~~bottled water tobusiness ~~existing~~is ~~laws~~dependent byon ~~the PRC government may adversely affect~~ our ~~business.~~preserving ~~The PRC legal system is~~ a ~~codified~~reputation ~~legal~~for ~~system made up of written laws, regulations, circulars, administrative directives and internal guidelines~~purity. ~~Unlike~~ Our ~~common~~premium ~~law~~bottled ~~jurisdictions~~water ~~like~~will ~~the~~only ~~U.S., decided cases (which may~~ be ~~taken~~purchased asby ~~reference)~~consumers doif ~~not~~they ~~form~~can ~~part~~trust ofthat ~~the~~it ~~legal structure of the PRC and thus have no binding effect. Furthermore, in line with its transformation from a centrally-planned economy to a more free market-oriented economy, the PRC government~~ is ~~still~~pure ~~in the process of developing a comprehensive set of laws~~ and ~~regulations~~beneficial. ~~As the legal system in the PRC is still evolving~~ Accordingly, ~~laws~~if ~~and~~we ~~regulations~~experience orany ~~the~~quality ~~interpretation~~control ~~of the same may be subject to further changes. For example~~problems, ~~the~~our ~~PRC~~reputation ~~government~~might ~~may impose restrictions on the amount of tariff that may~~ be ~~payable~~tarnished byand ~~municipal governments to waste water treatment service providers like us. Also, more stringent environmental regulations may also affect~~ our ~~ability to~~proposed ~~comply~~new ~~with, or our costs to comply with, such regulations. Such changes, if implemented, may adversely affect our~~ business ~~operations~~ ~~and~~could ~~may reduce our profitability~~fail.

~~We may~~Chong beLiang ~~subject~~Pu, toour ~~foreign~~Chairman ~~exchange~~of ~~controls in~~ the ~~PRC .~~Board, ~~Our~~is ~~PRC~~our ~~subsidiaries~~controlling ~~are subject to PRC rules and regulations on currency conversion~~stockholder. Chong InLiang ~~the PRC~~Pu, ~~the~~our ~~State~~Chairman ~~Administration for Foreign Exchange (“SAFE”) regulates the conversion~~ of the ~~RMB~~Board ~~into~~owns ~~foreign currencies. Currently~~49,635,000 ~~foreign~~shares ~~investment~~or ~~enterprises (“FIEs”) are required to apply to SAFE for “Foreign Exchange Registration Certificate for FlEs”~~35.6% ~~All~~ of ~~our subsidiaries are FIEs. With such registration certifications (which need to be renewed annually), FlEs are allowed to open foreign currency accounts including~~ the ~~“recurrent account”~~issued and ~~the~~outstanding ~~“capital~~shares ~~account”. Currently, conversion within the scope~~ of ~~the~~our ~~“recurrent~~company. Due ~~account” can~~to behis ~~effected~~ownership ~~without requiring the approval~~ of ~~SAFE. However~~shares, ~~conversion of currency in the “capital account” (e~~Mr.g. ~~for~~Pu ~~capital~~will ~~items~~be ~~such~~able asto ~~direct~~control ~~investments, loans, securities, etc.) still requires~~ the ~~approval~~affairs of ~~SAFE. Our operations and business may be adversely affected if conversion of currency in~~ the ~~“capital~~Company ~~account”~~for ~~is not approved by~~ the ~~SAFE~~foreseeable future.

18Risks Related to Our Securities

~~We have entered the bottled~~A ~~water~~purchaser ~~business~~of ~~and~~our ~~will~~stock beis ~~subject~~purchasing topenny ~~all~~stock ofwhich ~~the~~limits ~~risks~~his ofor aher ~~new~~ability ~~business~~to ~~enterprise. Based~~sell on the ~~results of~~stock. aOur ~~limited~~shares ~~test~~of ~~marketing~~common ~~effort~~stock ~~during~~are ~~calendar~~considered ~~2007~~penny ~~and~~stock ~~2008~~under wethe ~~intend~~Exchange toAct. ~~devote~~The ~~our~~shares ~~future~~will ~~efforts~~remain topenny ~~producing~~stock ~~and~~for ~~marketing branded~~the ~~bottled~~foreseeable ~~water~~future. inThe ~~the~~classification ~~PRC. This~~of ispenny astock ~~new~~makes ~~line~~it ofmore ~~business~~difficult for usa ~~and~~broker-dealer ~~there~~to ~~are~~sell ~~many~~the ~~risks~~stock ~~attendant~~into ~~to entering~~ a ~~new~~secondary ~~line~~market, ofthus ~~business~~limiting ~~such~~investment asliquidity. ~~cost~~Any ~~uncertainties,~~broker-dealer ~~delays~~engaged inby ~~production~~the ~~and~~purchaser ~~acceptance~~for ofthe ~~our~~purpose ~~product. If~~of ~~we mismanage~~selling ~~our~~his ~~production~~or ofher ~~branded~~shares ~~bottled~~in ~~water~~our orCompany ifwill webe ~~are~~subject ~~unable~~ to ~~obtain~~rules ~~market~~15g-1 ~~acceptance~~through 15g-10 of ~~our~~the ~~product~~Exchange atAct. ~~proposed~~Rather ~~price levels~~than wecreating ~~are~~a ~~likely~~need to ~~fail~~comply inwith ~~this~~those ~~business~~rules, ~~and~~some ~~this~~broker-dealers will ~~negatively~~refuse ~~impact~~to ~~the~~attempt ~~value~~to ofsell ~~our~~penny ~~stock~~stocks such as ours.

We ~~may~~ ~~require~~do ~~additional~~not ~~financing. In~~intend ~~order~~ to ~~further~~pay ~~develop~~dividends ~~our~~and ~~business~~there ~~of marketing premium branded bottled water we~~ will ~~require~~be ~~capital~~less ~~resources~~ways ~~not~~in ~~currently~~which ~~available~~you tocan ~~us. To~~make ~~raise~~a ~~the~~gain ~~necessary~~on ~~funds~~any weinvestment ~~must~~in ~~obtain debt~~our ~~financing,~~Company. ~~sell~~We anhave ~~existing~~never ~~asset~~paid orany ~~issue~~cash ~~additional~~dividends ~~shares~~and tocurrently ~~investors. We~~ do not ~~have~~intend ~~any agreements or commitments~~ to dopay any ofdividends for the ~~foregoing~~foreseeable future. ~~Nor~~ ~~can~~To wethe ~~predict~~extent ~~when~~that orwe ifrequire additional funding ~~will~~currently benot ~~available~~provided tofor usin orour iffinancing itplan, ~~will~~our befunding ~~available on~~sources ~~terms~~may ~~that~~likely ~~are~~prohibit ~~beneficial~~the topayment ~~our~~of ~~current~~a ~~shareholders~~dividend.

Our ~~bottled~~ ~~water~~board ~~business~~of directors is authorized to issue shares of preferred stock, which may ~~face~~have ~~increased~~rights ~~competition. We~~and ~~believe~~preferences ~~that~~detrimental ~~there~~to isthe arights ~~pressing~~of ~~need~~the ~~for~~holders aof ~~premium~~our common shares. We are authorized to issue up to 50, ~~pure~~000,000 ~~drinkable~~shares ~~bottled~~of ~~water~~preferred instock, ~~the~~$.001 ~~PRC~~par value. ~~Other~~ To ~~companies~~date ~~with~~we ~~greater~~have ~~resources~~not issued any shares of preferred stock and ~~other~~have ~~advantages~~no ~~over~~plans ~~us,~~to ~~such as~~do ~~established~~so. Our ~~distribution~~preferred ~~networks,~~stock may ~~also~~bear ~~perceive~~such ~~the~~rights ~~need~~and ~~for~~preferences, ~~premium~~including ~~bottled~~dividend ~~water~~and inliquidation preferences, as the ~~PRC,~~board ~~enter~~of ~~our~~directors ~~market~~may fix and ~~compete with~~determine usfrom ~~successfully~~time ~~and~~to ~~cause~~time. Any ~~our~~such ~~results~~preferences may operate to ~~suffer~~the detriment of the rights of the holders of our common shares.

~~The success~~Our Articles of ~~our~~Incorporation ~~bottled water~~provide ~~business~~for isindemnification ~~dependent~~of onofficers and directors at our ~~preserving~~expense and limit their liability which may result in a ~~reputation~~major cost to us and hurt the interests of our shareholders because corporate resources may be expended for ~~purity~~the benefit of officers and/or directors. Our ~~premium bottled~~Articles ~~water~~of ~~will~~Incorporation ~~only~~and beapplicable ~~purchased~~Nevada bylaw ~~consumers~~provide iffor ~~they~~the ~~can~~indemnification ~~trust~~of ~~that~~our itdirectors, isofficers, ~~pure~~employees, and ~~beneficial. Accordingly~~agents, ~~if we~~under ~~experience~~certain circumstances, against attorney's fees and other expenses incurred by them in any ~~quality~~litigation ~~control~~to ~~problems,~~which they become a party arising from their association with or activities on our ~~reputation~~behalf. We ~~might~~will bealso ~~tarnished~~bear ~~and~~the expenses of such litigation or any of our ~~proposed~~directors, ~~new~~officers, ~~business~~employees, or agents, upon such person's promise to repay us, therefore, if it is ultimately determined that any such person should not have been entitled to indemnification this indemnification policy could ~~fail~~result in substantial expenditures by us, which we will be unable to recoup.

19We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against these types of liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in

Chong Liang Pu, our Chairman of the Board, is our controlling stockholder. Chong Liang Pu, our Chairman of the Board owns 49,635,000 shares or 35.6% of the issued and outstanding shares of our company. Due to his ownership of shares, Mr. Pu will be able to control the affairs of the Company for the foreseeable future.12

~~Risks Related~~connection with the securities registered in our SB-2, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to ~~Our~~a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is are likely to materially reduce the market and price for our shares, if such a market ever develops.

~~A purchaser~~Under ofcurrent regulations, Rule 144 is not available to our stockholders for resale of their shares. Rule 144 was amended in 2008 to provide, among other things, that holders of shares of companies that had ever been a shell company, as we once were, may not utilize Rule 144 for the resale of their stock unless the company is ~~purchasing~~current ~~penny~~in ~~stock~~its ~~which~~filings ~~limits~~under ~~his~~the orSecurities ~~her~~Exchange Act of 1934, as amended (the “34 Act”). While we are working towards becoming current under the 34 Act, we are not current. No assurance can be given that we will become current. Accordingly, investors in our stock may have less ability to sell ~~the~~their stock until we are current under the 34 Act which may impair our efforts to raise capital.

~~Our~~ITEM ~~shares of common stock are considered penny stock under the Exchange Act~~1B. ~~The~~UNRESOLVED ~~shares~~STAFF ~~will remain penny stock for the foreseeable future~~COMMENTS. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, thus limiting investment liquidity. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in our Company will be subject to rules 15g-1 through 15g-10 of the Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stocks such as ours.

~~We do not intend to pay dividends and there will be less ways in which you can make a gain on any investment in our Company.~~None

WeItem ~~have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future~~2. ToDescription ~~the extent that we require additional funding currently not provided for in our financing plan, our funding sources may likely prohibit the payment~~ of ~~a dividend.~~Property

Our ~~board~~ ofprincipal ~~directors~~executive isoffice ~~authorized~~consists toof ~~issue~~approximately ~~shares~~400 square meters of ~~preferred~~office ~~stock,~~space that we lease and which ~~may~~are ~~have~~located ~~rights~~at ~~and~~Suite ~~preferences~~7A01, ~~detrimental~~Baicheng Building, 584 Yingbin Road, Dashi, Panyu District, Guangzhou, Guangdong, China. We lease this space pursuant to ~~the rights~~a four year lease at a rate of approximately $19,000 per year commencing April 1, 2006. Before the ~~holders~~expiration date of ~~our~~March ~~common~~31,2010, ~~shares~~we have continued the lease contract till to December 31,2012.

WeCommencing May ~~are~~1 ~~authorized to~~, ~~issue~~2010, upwe toleased ~~50,000,000~~about ~~shares~~300 square meters of ~~preferred~~office ~~stock,~~space ~~$.001~~for ~~par~~the ~~value. To~~bottled ~~date~~water wemarketing ~~have~~development ~~not~~team at ~~issued~~Suite ~~any~~4D, ~~shares~~Yijing ofBuilding, ~~preferred stock~~NO.119,Guanghzou ~~and~~Dadao ~~have~~Rd, noYuexiu ~~plans~~District, toGuanghzou doCity, soP. ~~Our~~R.China. ~~preferred~~We ~~stock~~lease ~~may~~this ~~bear~~space ~~such~~pursuant ~~rights~~to ~~and~~a ~~preferences,~~five ~~including~~year ~~dividend~~lease ~~and liquidation~~at ~~preferences,~~a asrate ~~the board~~ of ~~directors~~approximately ~~may~~$43,000 ~~fix~~per ~~and~~year ~~determine~~with ~~from~~yearly ~~time~~increases toof ~~time. Any~~approximately ~~such~~5% ~~preferences~~per ~~may operate~~annum toduring the ~~detriment~~term of the ~~rights~~lease. The ofoffice ~~the~~is ~~holders~~located ofat Zhujiang ~~our~~New ~~common~~Town, ~~shares.~~CBD of Guangzhou

20Our bottled water facilities, other than the office described above, are located at the following locations:

Our Articles of Incorporation provide for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.


Bottled water Facilities		Location

Aba Xinchen Dagu Glacier Spring Water Co.,Ltd		Zegai Village, Luhua Town, Heishui County, Aba Zang and Qiang Autonomous Region, Sichuan Province, PRC.

Beijing 9000 Year Commercial and Trading Co.,Ltd		Rm1109, Building 2, Henji Center, No.18 JianGuoMennei Dajie Street, East District, Beijing, P.R.C.

Chengdu 9000 Year Water Co., Ltd		Suite E, Floor 16, Building 2, Ruijin Plaza, No.2,GaoShenqiao, Chengdu City, P.R.C.

~~Our Articles~~Each of ~~Incorporation~~the ~~and~~above ~~applicable~~Bottled ~~Nevada~~water ~~law~~facilities ~~provide~~consists ~~for the indemnification~~ of ~~our~~bottled ~~directors,~~water ~~officers,~~treatment ~~employees~~plants, office ~~and agents,~~buildings ~~under certain circumstances, against attorney's fees~~ and ~~other~~staff ~~expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf~~facilities. We will also bear the expenses of such litigation or any of our directors, officers, employees, or agents, upon such person's promise to repay us, therefore, if it is ultimately determined that any such person should not have been entitled to indemnification this indemnification policy could result in substantial expenditures by us, which we will be unable to recoup.

We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against these types of liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities registered in our SB-2, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is are likely to materially reduce the market and price for our shares, if such a market ever develops.13

~~Under current~~Item ~~regulations,~~3. ~~Rule~~Legal ~~144 is not available to our stockholders for resale of their shares~~Proceedings.

~~Rule 144~~Neither ~~was~~our ~~amended in 2008 to provide, among other things, that holders of shares of companies that had ever been a shell~~ company~~, as~~ wenor ~~once~~any ~~were, may not utilize Rule 144 for the resale~~ of ~~their~~our ~~stock~~properties ~~unless the company is current in its filings under the Securities Exchange Act of 1934, as amended (the “34 Act”). While we~~ are ~~working~~currently ~~towards~~subject ~~becoming current under the 34 Act, we are not current. No assurance can be given that we will become current. Accordingly, investors in our stock may have less ability~~ to ~~sell~~any ~~their~~pending ~~stock~~legal ~~until we are current under the 34 Act which may impair our efforts to raise capital~~proceedings.

21Item 4. Mine Safety Disclosures.

~~ITEM~~Not 1Bapplicable. ~~UNRESOLVED STAFF COMMENTS.~~

PART ~~None~~II

~~Our principal~~Market executive office consists of approximately 400 square meters of office space that we lease and which are located at Suite 7A01, Baicheng Building, 584 Yingbin Road, Dashi, Panyu District, Guangzhou, Guangdong, China. We lease this space pursuant to a four year lease at a rate of approximately $19,000 per year commencing April 1, 2006. Before the expiration date of March 31,2010, we have continued the lease contract till to December 31,2012.Information

~~Commencing May 1~~Our ,common ~~2009,~~stock wewas ~~leased~~traded ~~about~~on ~~300~~the ~~square~~OTC ~~meters~~Bulletin ofBoard ~~office~~(“OTCBB”) ~~space~~under ~~for~~ the ~~bottled~~symbol ~~water~~“CEEC” ~~marketing~~until ~~development~~November ~~team at Suite 4D~~13, ~~Yijing~~2006 ~~Building,~~when NOour symbol was changed to “CHWG”.~~119,Guanghzou~~ On ~~Dadao~~April Rd4, ~~Yuexiu District~~2007, ~~Guanghzou~~our ~~City~~symbol was changed to CHWGE and on May 7, ~~P.R.China.~~2007 Weour ~~lease~~shares ~~this~~were ~~space~~removed ~~pursuant~~from tothe ~~a five~~OTCBB ~~year~~and ~~lease~~listed aton athe ~~rate~~“Pink ofSheets” ~~approximately~~maintained ~~$43,000~~by ~~per~~the ~~year~~National ~~with~~Quotation ~~yearly~~Bureau ~~increases~~under ofthe ~~approximately~~Symbol 5%“CHWG”. ~~per~~The ~~annum~~following ~~during~~table sets forth, for the ~~term~~ periods indicated, the high and low sale prices of our common stock as reported on the ~~lease~~OTCBB. ~~The~~ ~~office~~We isconsider ~~located~~our ~~at Zhujiang~~common ~~New~~stock ~~Town,~~to ~~CBD~~be thinly traded and that any reported bid or sale prices may not be a true market-based valuation of ~~Guangzhou~~the common stock.

Our bottled water facilities, other than the office described above, are located at the following locations:


Quarter Ended	High		Low
March 31, 2009	$	0.017	$	0.013
June 30, 2009	$	0.03	$	0.03
September 28,2009	$	0.063	$	0.05
December 31,2009	$	0.08	$	0.06
March 29, 2010	$	0.065	$	0.06
June 28, 2010	$	0.05	$	0.034
September 27,2010	$	0.037	$	0.031
December 27,2010	$	0.028	$	0.015
March 31,2011	$	0.04	$	0.01
June 30, 2011	$	0.04	$	0.00
September 30,2011	$	0.03	$	0.01
December 31,2011	$	0.01	$	0.00

Bottled water Facilities		Location
Aba Xinchen Dagu Glacier Spring Water Co.,Ltd		Zegai Village, Luhua Town, Heishui County, Aba Zang and Qiang Autonomous Region, Sichuan Province, PRC.
Beijing 9000 Year Commercial and Trading Co.,Ltd		Rm1109, Building 2, Henji Center, No.18 JianGuoMennei Dajie Street, East District, Beijing, P.R.C.
Chengdu 9000 Year Water Co., Ltd		Suite E, Floor 16, Building 2, Ruijin Plaza, No.2,GaoShenqiao, Chengdu City, P.R.C.

Holders

22As of December 31, 2011, there were 72 record holders of our common stock. The number of holders does not include the shareholders for whom shares are held in a "nominee" or "street" name.

~~Each of~~Dividend ~~the above Bottled water facilities consists of bottled water treatment plants, office buildings and staff facilities.~~Policy

~~Item 3~~We have not declared or paid any dividends on our common stock to date. We ~~Legal~~anticipate ~~Proceedings~~that any future earnings will be retained as working capital and used for business purposes. Accordingly, it is unlikely that we will declare or pay any such dividends in the foreseeable future.

~~Neither our~~Securities ~~company~~Authorized ~~nor~~for ~~any~~Issuance ofunder ~~our~~Equity ~~properties~~Compensation ~~are currently subject to any pending legal proceedings.~~Plans

~~Item 4. Submission of Matters to a Vote of Security Holders.~~None

NoRecent ~~matters were~~Sales ~~submitted to a vote~~ of ~~shareholders~~Unregistered ~~during the fourth quarter of the year ending December 31, 2010.~~Securities

~~PART III~~We did not sell any unregistered securities during the year ended December 31, 2011

~~Part II~~14

ITEM 6. SELECTED FINANCIAL DATA.

~~Item 5. Market~~Not ~~for Common Equity and Related Shareholder Matters.~~applicable

~~Market~~ITEM ~~Information~~7. MANAGEMENTS DISCUSSION and ANALYSIS of FINANCIAL CONDITIONS and REULTS OF OPERATION.

~~Our common~~Year ~~stock~~ended ~~was~~December ~~traded on the OTC Bulletin Board (“OTCBB”) under the symbol “CEEC” until November 13~~31, ~~2006~~ ~~when~~2011 ~~our symbol was changed to “CHWG”~~vs. On ~~April~~Year 4,ended ~~2007,~~December ~~our symbol was changed to CHWGE and on May 7~~31, ~~2007 our shares were removed from the OTCBB and listed on the “Pink Sheets” maintained by the National Quotation Bureau under the Symbol “CHWG”~~2010. The following table sets forth, for the periods indicated, the high and low sale prices of our common stock as reported on the OTCBB. We consider our common stock to be thinly traded and that any reported bid or sale prices may not be a true market-based valuation of the common stock.

Quarter Ended	High		Low
March. 31, 2008	$	0.10	$	0.05
June 31, 2008	$	0.039	$	0.033
September 30, 2008	$	0.03	$	0.029
December 31, 2008	$	0.008	$	0.008
March 31, 2009	$	0.017	$	0.013
June 30, 2009	$	0.03	$	0.03
September 28,2009	$	0.063	$	0.05
December 31,2009	$	0.08	$	0.06
March 29, 2010	$	0.065	$	0.06
June 28, 2010	$	0.05	$	0.034
September 27,2010	$	0.037	$	0.031
December 27,2010	$	0.028	$	0.015

Total Revenues. Revenues from our bottled water operations increased of approximately 7% from $325,421 in 2010 to $348,078 in 2011. The sales to related parties are $26,850 and $66,625 in 2011 and 2010 respectively. In the year 2009, we were fully engaged in new product sales of bottled water. In order to sell new products, the Company developed extensive sales channels to promote and sell products as we launched our distribution. After the year 2010, the Company reassessed its sales policy and found what it believes proved more suitable channels of distribution for its bottled water and sought higher quality customers who accept our preferred price levels and pay promptly. As a result, the Company has obtained more new areas and customers to increase its sales volume. The increased sales volume mainly resulted in the increased revenues.

23Cost of Revenues. Cost of revenues from our bottled water operations increased from $217,342 in 2010 to $259,393 in 2011. Cost of revenues to related parties is $17,989 and $ 55,953 in 2011 and 2010 respectively. This was primarily due to increased levels of sales .Gross profit from bottled water operations was $88,685 in 2011 as compared to $108,079 in 2010, reflecting the repositioning and expansion of our bottled water operations. Decreased gross margins were mainly due to increased unit costs, increased materials and transportation costs and costs to promotional distribution of products.

~~Holders~~Operating (General and Administrative) Expenses. Our General and administrative expenses increased during 2011 to $640,871 as compared to $632,748 in 2010 which reflected the start up costs of our repositioned bottled water operations. The principal components of operating expenses were selling and distribution expenses, administrative salaries and benefits, depreciation and amortization, travel expense, rental expense and other general administration cost. An increase in operating expenses was primarily due to increased salaries to management and increased costs for marketing and distribution efforts.

As Net income. We had a net loss of ~~December~~ 31$1, ~~2010~~126,698 for ~~there~~the ~~were~~year ~~72 record~~ended ~~holders~~2011, and net loss of ~~our~~$8,063,880 ~~common~~for ~~stock~~the year ended 2010. The ~~number~~decreased ofnet ~~holders~~loss ~~does not~~is ~~include~~due ~~the~~to ~~shareholders~~increased ~~for~~sales ~~whom~~volumes ~~shares~~and ~~are~~an ~~held~~impairment inloss aof ~~"nominee"~~$472,984 orand ~~"street"~~$7,499,608 ~~name~~on goodwill in 2011 and 2010.

~~Dividend Policy~~Liquidity.

~~We have~~General. As ~~not~~of ~~declared~~December or31, ~~paid~~2011, ~~any~~we ~~dividends~~had oncash ~~our~~and ~~common~~cash ~~stock~~equivalents toof ~~date~~$157,955. We ~~anticipate~~The ~~that~~following ~~any~~table ~~future~~provides ~~earnings~~detailed ~~will~~information ~~be retained~~about asour ~~working~~net ~~capital~~cash ~~and~~flow ~~used~~ for ~~business~~all ~~purposes. Accordingly,~~financial itstatements isperiods ~~unlikely~~presented ~~that we will declare or pay any such dividends~~ in ~~the~~this ~~foreseeable future~~report.

Securities Authorized for Issuance under Equity Compensation Plans


	The Year Ended December 31,
	2011		2010
Net cash provided by (used in) operating activities		(383,991)		(373,433)
Net cash provided by/(used in) investing activities		1,056,058		(140,538)
Net cash provided by/(used in) financing activities		(540,947)		506,499
Net cash inflow(outflow)		134,082		(6,624)

~~None~~Investing activities.Net cash provided by investing activities was $1,056,058 for the year ended December 31, 2011, which is an increase of $1,196,596 from $(140,538) net cash used in investing activities for the same period in 2010. The net inflow from the investing activities was mainly due to disposal of a subsidiary.

~~Recent Sales~~Financing ofactivities.Net ~~Unregistered~~cash ~~Securities~~used in financing activities was $540,947 for the year ended December 31, 2011, including $2,324,400 proceeds from long-term bank loan and $2,898,163 repayment to related companies.

~~We did not sell any unregistered securities during the year ended December 31, 2010~~15

~~ITEM~~Our 6future liquidity will be dependent on our ability to obtain financing or our obtaining loans. ~~SELECTED FINANCIAL~~ None ~~DATA~~of these events are entirely within our control. If we do not receive additional cash resources, the scope of our production, marketing and distribution effort for our bottled water will be reduced.

~~Not~~Critical ~~applicable~~Accounting Policies

24The following is a discussion of those accounting policies that we deem to be “critical”— that is, they are important to the portrayal of our financial condition and results, and they reflect management’s reliance on estimates regarding matters that are inherently uncertain.

~~ITEM~~Revenue 7recognition. ~~MANAGEMENTS DISCUSSION~~ We ~~and~~recognize ~~ANALYSIS~~revenue using various revenue recognition policies based on the nature of ~~FINANCIAL~~the ~~CONDITIONS~~sale and ~~REULTS~~the OFterms ~~OPERATION~~of the contract.

~~Year~~Revenues ~~ended December~~from 31sale of bottled water are recognized when goods are delivered. The contractual terms of the purchase agreements dictate the recognition of revenues by us. We recognize revenue in accordance with Staff Accounting Bulletin No.104. Accordingly, ~~2010~~four vsbasic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2 )delivery has occurred; (3)the selling price is fixed and determinable; and (4 ) collectability is reasonably assured. ~~Year~~Determination ~~ended~~of ~~December~~criteria 31(3) and (4)are based on management’s judgments regarding the fixed nature of the selling prices of the products or services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, ~~2009~~estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. We defer any revenue for which the product has not been delivered or is subject to refund until such time that we and our customer jointly determine that the product has been delivered or no refund will be required.

~~Total revenues Revenues~~Impairment ~~from our bottled water operations decreased~~ of ~~approximately~~assets. ~~74%~~Our ~~from~~policy ~~$1,260,729~~is ~~in 2009~~ to ~~$325,421~~ inperiodically ~~2010.~~review ~~The~~and ~~sales~~evaluate towhether ~~related~~there ~~parties~~has ~~are~~been ~~$66,625~~a ~~and~~permanent $impairment 0 in ~~2010 and 2009 respectively. In~~ the ~~year~~value ~~2009, we were fully engaged in new product sales~~ of ~~bottled~~long-lived ~~water~~assets. InFactors ~~order~~considered toin ~~sell new products,~~ the ~~company~~evaluation ~~developed~~include ~~extensive~~current ~~sales channels~~operating toresults, ~~promote~~trends and ~~sell~~whether ~~products as we launched our distribution. Management believes this was an appropriate way to introduce our products in relevant markets. After~~ the ~~year~~anticipated ~~2009~~undiscounted ~~the~~estimated ~~Company~~future ~~reassessed~~cash ~~its~~flows ~~sales policy and found what it believes will prove more suitable channels of distribution for its bottled water. We~~ are ~~seeking~~less ~~higher~~than ~~quality~~the ~~customers who~~carrying ~~accept our preferred price levels and pay promptly~~value. ~~However, this repositioning of our marketing and distribution effort resulted in a decrease in sales in 2010.~~

~~Cost~~Allowances ~~of Revenues~~for accounts receivables. ~~Cost~~ Our provisioning policy for bad and doubtful debt is based on the evaluation of ~~revenues~~collectability ~~from~~and ~~our~~aging ~~bottled~~analysis ~~water~~of ~~operations~~accounts ~~decreased~~receivables ~~from~~and ~~$435,505~~on inmanagement’s ~~2009~~judgment. We do not require collateral or other security to ~~$217,342~~support inclients’ ~~2010~~receivables. ~~Cost~~ ofWe ~~revenues~~conduct toperiodic ~~related~~review ~~parties~~of ~~are~~our ~~$55,953~~clients’ financial condition and $customer 0payment inpractice ~~2010~~to ~~and~~minimize ~~2009~~collection ~~respectively~~risk on accounts receivables. This ~~was~~review ~~primarily~~is ~~due~~based toon ~~decreased~~considerable ~~levels~~ amount of ~~sales~~judgment which is required in assessing the ultimate realization of these receivables, including the current creditworthiness and ~~promotional~~the ~~distribution~~past collection history of ~~products~~each customer. As of December 31, 2011we had made $746,439 allowance for doubtful debts.

~~Gross~~Credit ~~profit from~~Policy. ~~bottled~~As ~~water~~of ~~operations was $108~~December 31,~~079~~ in2011 and 2010, asour ~~compared~~accounts toreceivables net were $~~825~~40,~~224~~099 inand ~~2009~~$31,413 ~~reflecting~~respectively. ~~our~~The ~~having~~increase ~~repositioned~~in ~~and~~accounts ~~expanded our~~receivables ~~bottled~~in ~~water~~2011 ~~operations.~~was ~~Decreased gross margins were mainly~~ due to ~~increased~~increase ~~unit~~in ~~costs,~~sales ~~increased~~of ~~materials~~the ~~and~~bottled ~~transportation costs~~water ~~and costs to promotional distribution of products~~..

~~Operating (General~~ITEM ~~and Administrative) Expenses~~7A. ~~Our~~ QUANTITATIVE ~~General~~ and ~~administrative~~QUALITATIVE ~~expenses~~DISCLOSURES ~~decreased during~~about ~~2010 to~~MARKET ~~$632,748 as compared to $1,245,073 in 2009 which reflected the start up costs of our bottled water operations~~RISK. The principal components of operating expenses were selling and distribution expenses, administrative salaries and benefits, depreciation and amortization, travel expense, rental expense and other general administration cost. A decrease in operating expenses was primarily due to enhanced internal financial control and optimization of daily management and optimization of distribution channels as well as the lower level of sales.

~~Net income. We~~Not ~~had a net loss of $8,063,880 for the year ended 2010, and net loss of $863,355 for the year ended 2009~~applicable. ~~The increased net loss is due to decreased sales and the repositioning of our brand through different distribution channels and an impairment loss of $7,449,608 on goodwill.~~

~~Liquidity~~ITEM 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA.

~~General. As of~~Our ~~December~~financial ~~31,~~statements ~~2010,~~for wethe ~~had~~years ~~cash~~ended ~~and~~December ~~cash~~31, ~~equivalents~~2010 ofand ~~$23~~2011,~~873.~~ ~~The~~and ~~following~~the ~~table~~reports ~~provides~~thereon ~~detailed~~of ~~information~~Patrizio ~~about~~& ~~our net~~Zhao, ~~cash~~LLC, ~~flow~~respectively ~~for~~are ~~all~~included ~~financial statements periods presented~~ in this annual report.

25ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING and FINANCIAL DISCLOSURE.

	The Year Ended December 31,
	2010			2009
Net cash provided by (used in) operating activities		(373,433	)		(1,947,710	)
Net cash provided by/(used in) investing activities		(140,538	)		2,420,585
Net cash provided by/(used in) financing activities		506,499			(451,135	)
Net cash inflow(outflow)		(6,624	)		21,918

None.

Financing activities. Net cash provided by financing activities was $506,499 for the year ended December 31, 2010, which is an increase of $957,634 from $(451,135) net cash used in financing activities for the same period in 2009. The net inflow from the financing activities was mainly due to the proceeds from shareholders and related companies.16

ITEM 9A(T). CONTROLS and PROCEDURES.

~~Our future~~(a) ~~liquidity~~Evaluation ~~will be dependent on our ability to obtain financing or our obtaining loans. None~~ of ~~these~~Disclosure ~~events are~~Controls ~~entirely within our control. If we do not receive additional cash resources, the scope of our production, marketing~~ and ~~distribution effort for our bottled water will be reduced.~~Procedures

~~Critical Accounting~~As ~~Policies~~of the end of the period covered by this report, China Water Group’s management, with the participation of Wenge Fang, our principal executive officer, and Ding Rencai, our principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based upon that evaluation, Messrs. Fang and Rencai concluded that these disclosure controls and procedures were effective as of the end of the period covered in this report and that they provided reasonable assurance that the goals of the disclosure controls were met.

~~The following~~(b) ~~is a discussion of those accounting policies that we deem to be “critical”— that is, they are important to the portrayal of our financial condition and results, and they reflect management~~Management’s ~~reliance~~Report on ~~estimates~~Internal ~~regarding~~Control ~~matters that~~Over ~~are~~Financial ~~inherently uncertain.~~Reporting

~~Revenue recognition~~The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. We ~~recognize~~In ~~revenue~~order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using ~~various~~the ~~revenue~~criteria ~~recognition~~in Internal ~~policies~~Control ~~based~~- onIntegrated Framework, issued by the ~~nature~~Committee of Sponsoring Organizations of the ~~sale~~Treadway ~~and~~Commission (COSO). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the ~~terms~~ reliability of financial reporting and the ~~contract~~preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate

26(c) Changes in Internal Control over Financial Reporting

~~Revenues from~~There ~~sale~~was no ofchange ~~bottled water are recognized when goods are delivered. The contractual terms of the purchase agreements dictate the recognition of revenues by us. We recognize revenue~~ in ~~accordance~~internal ~~with~~control ~~Staff~~over ~~Accounting~~financial ~~Bulletin No.104. Accordingly, four basic criteria must be met before revenue can be recognized: (1)~~reporting ~~persuasive~~(as ~~evidence~~defined ofin anRule ~~arrangement exists;~~ 13a-15(2 f)~~delivery has~~ ~~occurred;~~under ~~(3)~~the ~~selling~~Securities ~~price~~Exchange isAct ~~fixed and determinable; and (4 ) collectability is reasonably assured. Determination~~ of ~~criteria (3~~1934) ~~and~~ ~~(4)are~~that ~~based~~occurred onduring ~~management’s judgments regarding~~ the ~~fixed~~fourth ~~nature~~quarter of ~~the~~our ~~selling~~year ~~prices~~ended ofDecember ~~the products or services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers~~31, ~~estimated returns~~2011 ~~and~~that ~~allowances, and other adjustments are provided for in the same period the related sales are recorded. We defer any revenue for which the product~~ has ~~not~~materially ~~been~~affected ~~delivered~~ or is ~~subject~~reasonably likely to ~~refund~~materially ~~until~~affect ~~such time that we and~~ our ~~customer~~internal ~~jointly determine~~control ~~that~~over ~~the~~financial ~~product has been delivered or no refund will be required~~reporting.

~~Impairment of~~This ~~assets.~~annual ~~Our~~report ~~policy~~does isnot toinclude ~~periodically~~an ~~review~~attestation ~~and~~report ~~evaluate~~of ~~whether~~our ~~there~~registered ~~has~~public ~~been~~accounting afirm ~~permanent~~regarding ~~impairment~~internal incontrol ~~the~~over ~~value~~financial ~~of long-lived~~reporting ~~assets.~~pursuant ~~Factors~~to ~~considered~~temporary inrules of the ~~evaluation~~Securities ~~include current operating results, trends~~ and ~~whether~~Exchange ~~the~~Commission ~~anticipated undiscounted~~that ~~estimated~~permit ~~future~~us ~~cash~~to ~~flows~~provide ~~are~~only ~~less~~management’s ~~than~~report ~~the~~in ~~carrying~~this ~~value~~annual report.

~~Allowances for~~Disclosure ~~accounts~~controls ~~receivables.~~and ~~Our~~procedures ~~provisioning~~are ~~policy~~controls ~~for~~and ~~bad~~other ~~and~~procedures ~~doubtful~~that ~~debt~~are isdesigned ~~based~~to onensure ~~the~~that ~~evaluation~~information ofrequired ~~collectability~~to ~~and aging~~be ~~analysis~~disclosed ofby ~~accounts~~us ~~receivables~~in ~~and~~the onreports ~~management’s~~that ~~judgment.~~we Wefile door ~~not~~submit ~~require~~under ~~collateral~~the orExchange ~~other~~Act ~~security~~of to1934 ~~support clients’~~is ~~receivables.~~recorded, Weprocessed, ~~conduct~~summarized ~~periodic~~and ~~review~~reported, ofwithin ~~our~~the ~~clients’~~time ~~financial~~periods ~~condition~~specified in the Securities and ~~customer~~Exchange ~~payment~~Commission’s ~~practice to~~rules ~~minimize~~and ~~collection~~forms. ~~risk~~Disclosure oncontrols ~~accounts~~and ~~receivables.~~procedures ~~This~~include, ~~review~~without islimitation, ~~based~~controls onand ~~considerable~~procedures ~~amount~~designed ofto ~~judgment~~ensure ~~which~~that isinformation required in ~~assessing~~to ~~the~~be ~~ultimate~~disclosed ~~realization~~by ofus ~~these~~in ~~receivables,~~the ~~including~~reports ~~the~~that ~~current~~we ~~creditworthiness~~file ~~and~~under the ~~past~~Exchange ~~collection~~Act ~~history of~~is ~~each~~accumulated ~~customer. As~~and ofcommunicated ~~December~~to ~~31,~~our ~~2010~~management, weincluding ~~had~~our ~~made~~principal ~~$721~~executive and financial officers,~~788~~ ~~allowance~~as ~~for~~appropriate ~~doubtful~~to ~~debts~~allow timely decisions regarding required disclosure.

~~Credit Policy.~~Gain Ason ofdisposal ~~December 31, 2010 and 2009, our accounts receivables net were $31,413 and $179,373 respectively. The decrease in accounts receivables in 2010 was due to decrease in sales~~ of ~~the bottled water and we selected good credit clients for sales collections in 2010.~~XY

~~ITEM 7A. QUANTITATIVE~~As previously disclosed in our 2004 10-KSB, including amendments thereto, and ~~QUALITATIVE~~comparative ~~DISCLOSURES~~figures ~~about~~in ~~MARKET~~our ~~RISK~~2005 10-KSB, we recorded a gain on disposal of $2,029,720 in 2004 for the disposal of our 90% attributable interest in Xian Yang Bai Sheng Water Purifying Company Limited (“XY”) to True Global Limited (“TGL”), an independent party, at a consideration of $4,130,435 (RMB34.2 million). The

~~Not applicable.~~17

27disposal was made pursuant to a tri-party framework agreement between Evergreen Asset Group Limited (“EGAG”), TGL and Guang Dong Xin Sheng Environmental Protection Company Limited (“GDXS”) in which EGAG transferred 90% of its equity interest in XY to TGL while GDXS continued to own 10% of its equity interest in XY. The transaction was consummated on October 26, 2004 and the gain represents the difference between the disposal proceeds and our attributable share of net assets of XY at the date of disposal. In the same year, we also recognized an amount of $9,115,942 for the construction revenue of XY using the percentage-of-completion method, estimated costs and claim recognition for construction contracts. The amount accounted for 97% of our total revenue in 2004.

~~ITEM~~In 8the previously filed 2004 10-KSB, as amended to date, and comparative figures in our previously filed 2005 10-KSB, the accounting treatment for the construction revenue of XY does not comply with SOP 81-1 or EITF 00-21. ~~FINANCIAL~~ ~~STATEMENTS~~As a result, we will file an amendment to the 2004 10-KSB and ~~SUPPLEMENTARY~~2005 ~~DATA~~10-KSB with adjusted disclosure to record the transaction as part of the gain on the disposal of the XY subsidiary rather than as revenue from construction of wastewater treatment plant. As such our adjusted total revenue for the fiscal year ended December 31, 2004 was $250,571 and the adjusted gain on disposal of interest in a subsidiary - XY was $5,220,299. Due to the same reason, account receivable from TGL amounted to $9,416,039 as of December 31, 2004 will be reclassified to prepayment, deposits and other receivables in our upcoming amendment to the 2004 10-KSB, comparative figures in this amendment to the 2005 10-KSB and comparative figures in the upcoming or recently filed amendments to the June 30, 2005 10-QSB and September 30, 2005 10-QSB.

~~Our~~Group ~~financial statements for the years ended December 31, 2009 and 2010, and the reports thereon of Patrizio & Zhao, LLC, respectively are included in this annual report.~~reorganization

~~ITEM~~In ~~9. CHANGES~~Note 2(ii) and 2(iii) to the consolidated financial statements contained in the previously filed 2004 10-KSB and ~~DISAGREEMENTS~~2005 10-KSB and Note 2 to the consolidated financial statements contained in the previously filed March 31, 2005 10-QSB, June 30, 2005 10-QSB, September 30, 2005 10-QSB and March 31, 2006 10-QSB, we disclosed group reorganization transactions. Pursuant to rules promulgated by the SEC, the merger or acquisition of a private operating company into a non-operating public shell corporation with ~~ACCOUNTANTS~~nominal onnet ~~ACCOUNTING~~assets is considered a capital transaction, rather than a business combination. As such, no disclosures are required under FAS 141 because the transactions described were not business combinations. For accounting purposes, the transaction has been treated as a reverse acquisition and ~~FINANCIAL~~a ~~DISCLOSURE~~recapitalization, and pro-forma information is not presented. Accordingly, the upcoming amendments to the 2004 10-KSB, this amendment to the 2005 10-KSB, and the recent or upcoming amendments to the March 31, 2005 10-QSB, June 30, 2005 10-QSB, September 30, 2005 10-QSB and March 31, 2006 10-QSB will not include references to the group reorganization transactions throughout the financial statements. We will also restate the common stock immediately after the recapitalization to $100,000 in the upcoming amended March 31, 2005 10-QSB and have done so in the recent amended June 30, 2005 10-QSB.

~~None.~~Reclassification of April warrants

~~ITEM~~In ~~9A(T)~~our previously filed 2005 10-KSB, June 30, 2005 10-QSB and March 31, 2006 10-QSB, we recorded as equity the warrants issued as part of the units sold in our April 2005 convertible debt issuance. Under EITF No. 00-19, the fair value of these warrants should be reported as a liability. Pursuant to the Warrant Agreement, because there is currently no effective registration statement covering the shares of common stock underlying these warrants, these warrants are currently subject to a cashless exercise whereby the warrant holders may surrender their warrants to the company in exchange for shares of common stock. The number of shares of common stock into which a warrant would be exchangeable in such a cashless exercise depends on both the exercise price of the warrants and the market price of the common stock, each at or near the time of exercise. Because both of these factors are variable, it is possible that the company could have insufficient authorized shares to satisfy a cashless exercise. In this scenario, if the company were unable to obtain shareholder approval to increase the number of authorized shares, the company could be obligated to settle such a cashless exercise with cash rather than by issuing shares of common stock. Further, EITF No. 00-19 requires that we record the potential settlement obligation at each reporting date using the current estimated fair value of the warrants, with any changes being recorded through our statement of operations. We will continue to report the potential settlement obligation as a liability until such time as the warrants are exercised or expire or we are otherwise able to modify the warrant agreement to remove the provisions which require this treatment. In addition to ~~CONTROLS~~this restatement of our 2005 10-KSB, we will restate our June 30, 2005 10-QSB and ~~PROCEDURES~~our March 31, 2006 10-QSB to reclassify the April 2005 warrants as a liability.

~~a) Evaluation of Disclosure Controls and Procedures~~18

AsApril ~~of the end of the period covered by this report, China Water Group’s management, with the participation of Wenge Fang, our principal executive officer,~~ and ~~Ding~~September ~~Rencai,~~2005 ~~our~~Private ~~principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a~~Placements—non-~~15(e)~~cash ~~under~~financing the Securities Exchange Act of 1934). In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based upon that evaluation, Messrs.Fang and Rencai concluded that these disclosure controls and procedures were effective as of the end of the period covered in this report and that they provided reasonable assurance that the goals of the disclosure controls were met.charges

~~(b) Management’s~~In ~~Report~~our onJune ~~Internal~~30, ~~Control~~2005 ~~Over~~10-QSB, ~~Financial~~we ~~Reporting~~did not record any non-cash financing charges and in our September 30, 2005 10-QSB, as amended to date, we did not properly record the non-cash financing charges. Non-cash financing charges represent the amount by which the fair value of derivative liabilities issued exceeds the amount of proceeds received, as an expense at the date of issuance of the April convertible debenture and the September private placement. We will restate our June 30, 2005 10-QSB and our September 30, 2005 10-QSB to record the non-cash financing charges, which represent the amount by which the fair value of derivative liabilities issued exceeds the amount of proceeds received, as an expense at the date of issuance of the April convertible debenture and the September private placement. As a result of the recording of non-cash financing charges, certain expenses which were previously recorded under general and administrative expenses in our September 30, 2005 10-QSB will be reclassified under non-cash financing charges.

~~The~~April ~~Company’s management~~2005 isPrivate ~~responsible~~Placements—unrealized ~~for~~gains ~~establishing~~or ~~and~~losses maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in ~~Internal~~ ~~Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s system of internal control over~~ financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorateinstruments

28In our June 30, 2005 10-QSB and our September 30, 2005 10-QSB, as amended to date, we did not record properly the unrealized gains or losses in financial instruments, which represent the change in fair market value of the financial instruments at each reporting date for the April warrants and the bifurcated conversion feature for the convertible debenture. The unrealized gains or losses in financial instruments should have been reported in those filings. We will restate the June 30, 2005 10-QSB and September 30, 2005 10-QSB, as amended to date, to record the unrealized gains or losses in financial instruments which represent the change in fair market value of the financial instruments at each reporting date for the April warrants and the bifurcated conversion feature for the convertible debenture.

~~(c)~~Interest ~~Changes~~ in ~~Internal Control over Financial Reporting~~associate

~~There~~In ~~was no change~~our inJune ~~internal~~30, ~~control~~2005 ~~over~~10-QSB ~~financial~~and ~~reporting (as~~our ~~defined~~September in30, ~~Rule~~2005 ~~13a~~10-~~15(f)~~QSB, ~~under~~as amended to date, the ~~Securities~~comparative ~~Exchange~~figures ~~Act~~for our interest in associate as of ~~1934) that~~December ~~occurred~~31, ~~during~~2004 were recorded based on an effective percentage of equity attributable to the ~~fourth~~group ~~quarter~~of 31.5% instead of a direct interest of 35%. We will restate the comparative figures for our ~~year~~interest ~~ended~~in associate as of December 31, ~~2010~~2004 ~~that~~in ~~has~~the ~~materially~~June ~~affected~~30, or2005 is10-QSB ~~reasonably~~and ~~likely to~~September ~~materially~~30, ~~affect~~2005 10-QSB to include our ~~internal~~interest ~~control~~in ~~over~~associate ~~financial~~based ~~reporting~~on a direct interest of 35%.

~~This~~Prior annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.Restatements

~~Disclosure controls~~On ~~and~~January ~~procedures~~13, ~~are~~2006, ~~controls~~we ~~and~~amended ~~other~~our ~~procedures~~2004 ~~that~~10-KSB. ~~are~~Prior ~~designed~~ to ~~ensure~~the ~~that~~January ~~information~~13, ~~required~~2006 toamendment, ~~be disclosed by us~~ in ~~the~~our ~~reports~~2004 ~~that~~10-KSB we ~~file~~recorded orour ~~submit~~interest ~~under~~in ~~the~~associate ~~Exchange~~based ~~Act~~on ofan ~~1934~~effective ispercentage ~~recorded,~~of ~~processed,~~equity ~~summarized~~attributable ~~and~~to ~~reported, within~~ the ~~time~~group ~~periods~~of ~~specified~~31.5% ininstead ~~the~~of ~~Securities~~a ~~and~~direct ~~Exchange~~interest ~~Commission’s~~of ~~rules and forms~~35%. In ~~Disclosure~~the ~~controls~~January ~~and procedures include~~13, ~~without~~2006 ~~limitation,~~restatement ~~controls~~of ~~and~~our ~~procedures~~2004 ~~designed~~10-KSB, towe ~~ensure~~reported ~~that~~our ~~information~~interest ~~required to be disclosed by us~~ in ~~the reports~~associate ~~that~~based weon ~~file~~a ~~under~~direct ~~the~~interest ~~Exchange~~of ~~Act~~35%. isIn ~~accumulated~~addition, ~~and~~we ~~communicated~~have torestated ~~our~~the ~~management,~~common ~~including~~stock ~~our~~immediately ~~principal~~after ~~executive and~~the ~~financial~~recapitalization ~~officers, as appropriate~~ to ~~allow timely decisions regarding required disclosure~~$100,000.

~~Gain on~~On ~~disposal~~January 13, 2006, we amended our September 30, 2005 10-QSB. Prior to the January 13, 2006 amendment, the September 30, 2005 10-QSB classified as equity the proceeds of XYour April Debenture and September 2005 private placement allocated to the warrants issued in these transactions. For reasons both the April warrants and September warrants should have been classified as a liability. The restated financial statements in the January 13, 2006 amendment of the September 30, 2005 10-QSB reflect this reclassification. In addition, prior to the January 13, 2006 amendment, the September 30, 2005 10-QSB did not originally report the unrealized gains or losses in financial instruments, which represent the change in fair market value of the financial instruments at each reporting date. The unrealized gains or losses in financial instruments should have been reported in the original filing. Accordingly, the January 13, 2006 restatement of the September 30, 2006 10-QSB reported the unrealized gains or losses in financial instruments, which represent the change in fair market value of the financial instruments at each reporting date. The restatement to the unrealized gains or losses in financial instruments, however, required to be further restated (refer discussion above). In addition, we have restated the common stock immediately after the recapitalization to $100,000.

As previously disclosed in our 2004 10-KSB, including amendments thereto, and comparative figures in our 2005 10-KSB, we recorded a gain on disposal of $2,029,720 in 2004 for the disposal of our 90% attributable interest in Xian Yang Bai Sheng Water Purifying Company Limited (“XY”) to True Global Limited (“TGL”), an independent party, at a consideration of $4,130,435 (RMB34.2 million). The disposal was made pursuant to a tri-party framework agreement between Evergreen Asset Group Limited (“EGAG”), TGL and Guang Dong Xin Sheng Environmental Protection Company Limited (“GDXS”) in which EGAG transferred 90% of its equity interest in XY to TGL while GDXS continued to own 10% of its equity interest in XY. The transaction was consummated on October 26, 2004 and the gain represents the difference between the disposal proceeds and our attributable share of net assets of XY at the date of disposal. In the same year, we also recognized an amount of $9,115,942 for the construction revenue of XY using the percentage-of-completion method, estimated costs and claim recognition for construction contracts. The amount accounted for 97% of our total revenue in 2004.19

29Steps Undertaken with respect to Material Weaknesses Prior to 2008

In ~~the~~ ~~previously~~connection ~~filed~~with ~~2004 10-KSB, as amended to date, and comparative figures in our previously filed 2005 10-KSB,~~ the ~~accounting treatment~~above ~~for the construction revenue of XY does not comply with SOP 81-1 or EITF 00-21. As a result~~matters, we ~~will~~have ~~file~~identified anmaterial ~~amendment to~~weaknesses ~~the~~in 2004 10-KSB and 2005 10-KSB with adjusted disclosure to record the transaction as part of the gain on the disposal of the XY subsidiary rather than as revenue from construction of wastewater treatment plant. As such our ~~adjusted~~internal ~~total~~control ~~revenue~~over ~~for~~financial ~~the fiscal year ended December 31~~reporting, ~~2004~~which ~~was~~weaknesses ~~$250,571~~we ~~and~~have ~~the~~reported ~~adjusted gain on disposal of interest in a subsidiary - XY was $5,220,299. Due~~ to ~~the same reason, account receivable from TGL amounted to $9,416,039 as of December 31, 2004 will be reclassified to prepayment, deposits and other receivables in~~ our ~~upcoming~~auditors. ~~amendment~~These tomaterial ~~the~~weaknesses ~~2004 10-KSB, comparative figures in this amendment to the 2005 10-KSB and comparative figures in the upcoming or recently filed amendments to the June 30, 2005 10-QSB and September 30, 2005 10-QSB.~~comprise:

~~Group reorganization~~(a) insufficient knowledge and experience among our internal accounting personnel regarding the application of US GAAP and SEC requirements; (b) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (c) insufficient emphasis by management on compliance with US GAAP requirements.

~~In Note~~We ~~2(ii)~~have ~~and~~communicated ~~2(iii)~~with toour ~~the consolidated financial statements contained in the previously filed 2004 10-KSB and 2005 10-KSB and Note 2 to the consolidated financial statements contained in the previously filed March 31~~auditors, ~~2005~~Patrizio ~~10-QSB,~~& ~~June 30~~Zhao,LLC. ~~2005~~and ~~10-QSB, September~~concluded ~~30,~~that these ~~2005~~deficiencies ~~10-QSB~~constituted ~~and~~material ~~March 31~~weaknesses, ~~2006~~as ~~10-QSB,~~defined weby ~~disclosed~~Auditing ~~group~~Standard ~~reorganization transactions~~No. ~~Pursuant to rules promulgated by the SEC~~2, ~~the~~“An ~~merger~~Audit ~~or acquisition~~ of aInternal ~~private~~Control ~~operating~~Over ~~company~~Financial ~~into~~Reporting aPerformed ~~non-operating~~in ~~public~~Conjunction ~~shell corporation~~ with ~~nominal net~~an ~~assets~~Audit isof ~~considered~~Financial ~~a capital transaction~~Statements,” ~~rather~~established ~~than~~by ~~a business combination. As such, no disclosures are required under FAS 141 because~~ the ~~transactions~~Public ~~described~~Company ~~were~~Accounting ~~not~~Oversight ~~business combinations. For accounting purposes~~Board, the transaction has been treated as a reverse acquisition and a recapitalization, and pro-forma information is not presented. Accordingly, the upcoming amendments to the 2004 10-KSB, this amendment to the 2005 10-KSB, and the recent or upcoming amendments to the March 31, 2005 10-QSB, June 30, 2005 10-QSB, September 30, 2005 10-QSB and March 31, 2006 10-QSB will not include references to the group reorganization transactions throughout the financial statementsPCAOB. ~~We will also restate the common stock immediately after the recapitalization to $100,000 in the upcoming amended March 31, 2005 10-QSB and have done so in the recent amended June 30, 2005 10-QSB.~~

30In order to address these material weaknesses our senior management is in the process of conducting a thorough review of our US GAAP financial reporting processes and will prepare and implement a US GAAP action plan. This plan will be designed to generally improve our US GAAP reporting processes and to strengthen our control processes and procedures in order to prevent a recurrence of the circumstances that resulted in the need to restate our quarterly financial statements. Our senior management intends to complete its review and implement a US GAAP action plan as soon as practicable. The US GAAP action plan will incorporate, among other matters, the following initiatives

~~Reclassification~~ 1. arrange for our senior management and certain accounting and finance-related personnel to attend training sessions on US GAAP and financial reporting responsibilities and SEC disclosure requirements; 2. modify the mandate of ~~April~~our ~~warrants~~internal audit function to place greater emphasis on the adequacy of, and compliance with, procedures relating to internal controls over US GAAP financial reporting and engage an experience accountant familiar with USGAAP which is not affiliated with ,Patrizio & Zhao,LLC, to assist our accounting department and internal audit function in the preparation of our US GAAP consolidated financial statements; 3. recruit an accounting staff member with US GAAP expertise and who is not affiliated with Patrizio & Zhao, LLC; and 4. engage an internationally recognized accounting firm, which is not affiliated with ,Patrizio & Zhao, LLC, to provide us with technical advice on US GAAP matters and SEC disclosure requirements on an ongoing basis.

~~In our~~We ~~previously~~have ~~filed~~fully ~~2005~~implemented ~~10-KSB~~items 1, ~~June 30~~2, ~~2005 10-QSB~~ and ~~March 31~~3, ~~2006~~while ~~10-QSB,~~item we4 ~~recorded~~remains ~~as equity the warrants issued as part of the units sold~~ in ~~our April 2005 convertible debt issuance. Under EITF No. 00-19,~~ the ~~fair~~planning ~~value of these warrants should be reported as a liability~~stage. Pursuant to the Warrant Agreement, because there is currently no effective registration statement covering the shares of common stock underlying these warrants, these warrants are currently subject to a cashless exercise whereby the warrant holders may surrender their warrants to the company in exchange for shares of common stock. The number of shares of common stock into which a warrant would be exchangeable in such a cashless exercise depends on both the exercise price of the warrants and the market price of the common stock, each at or near the time of exercise. Because both of these factors are variable, it is possible that the company could have insufficient authorized shares to satisfy a cashless exercise. In this scenario, if the company were unable to obtain shareholder approval to increase the number of authorized shares, the company could be obligated to settle such a cashless exercise with cash rather than by issuing shares of common stock. Further, EITF No. 00-19 requires that we record the potential settlement obligation at each reporting date using the current estimated fair value of the warrants, with any changes being recorded through our statement of operations. We will continue to report the potential settlement obligation as a liability until such time as the warrants are exercised or expire or we are otherwise able to modify the warrant agreement to remove the provisions which require this treatment. In addition to this restatement of our 2005 10-KSB, we will restate our June 30, 2005 10-QSB and our March 31, 2006 10-QSB to reclassify the April 2005 warrants as a liability.

31Our board of directors discussed the matters disclosed in this filing with the registrant’s independent accountant. On September 25, 2006, we filed a current report on Form 8-K relating to these matters, including a response from our independent account relating to the statements contained therein.

~~April and~~Other ~~September~~than ~~2005~~those ~~Private~~disclosed ~~Placements—non-cash~~above, ~~financing~~there ~~charges~~were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the fiscal year ended December 31, 2011

~~In our~~ITEM ~~June 30, 2005 10-QSB, we did not record any non-cash financing charges and in our September 30, 2005 10-QSB, as amended to date, we did not properly record the non-cash financing charges~~9B. ~~Non-cash~~OTHER financing charges represent the amount by which the fair value of derivative liabilities issued exceeds the amount of proceeds received, as an expense at the date of issuance of the April convertible debenture and the September private placementINFORMATION. We will restate our June 30, 2005 10-QSB and our September 30, 2005 10-QSB to record the non-cash financing charges, which represent the amount by which the fair value of derivative liabilities issued exceeds the amount of proceeds received, as an expense at the date of issuance of the April convertible debenture and the September private placement. As a result of the recording of non-cash financing charges, certain expenses which were previously recorded under general and administrative expenses in our September 30, 2005 10-QSB will be reclassified under non-cash financing charges.

~~April~~We ~~2005 Private~~do ~~Placements—unrealized~~not ~~gains~~have orany ~~losses~~information inthat ~~financial~~was ~~instruments~~required to be reported on Form 8-K during the fourth quarter.

In our June 30, 2005 10-QSB and our September 30, 2005 10-QSB, as amended to date, we did not record properly the unrealized gains or losses in financial instruments, which represent the change in fair market value of the financial instruments at each reporting date for the April warrants and the bifurcated conversion feature for the convertible debenture. The unrealized gains or losses in financial instruments should have been reported in those filings. We will restate the June 30, 2005 10-QSB and September 30, 2005 10-QSB, as amended to date, to record the unrealized gains or losses in financial instruments which represent the change in fair market value of the financial instruments at each reporting date for the April warrants and the bifurcated conversion feature for the convertible debenture.20

~~Interest in~~PART ~~associate~~III

~~In our~~ITEM ~~June 30, 2005~~ 10-QSB and our September 30, 2005 10-QSB, as amended to date, the comparative figures for our interest in associate as of December 31, 2004 were recorded based on an effective percentage of equity attributable to the group of 31.5% ~~instead of a direct interest of 35%. We will restate the comparative figures for our interest in associate as of December 31~~DIRECTORS, ~~2004~~EXECUTIVE inOFFICERS ~~the June 30, 2005 10-QSB~~ and ~~September~~CORPORATE ~~30, 2005 10-QSB to include our interest in associate based on a direct interest of 35%~~GOVERNANCE.

32Our directors and officers as of April 30, 2011 and November 20 2011 are:

Prior Restatements


Name	Age	Position
Chong Liang Pu	50	Chairman of the Board
Wenge Fang	41	Chief Executive Officer and a Director
Ding Rencai	51	Chief Financial Officer and a Director

~~On January~~Mr. Pu ~~13,~~served ~~2006,~~as ~~we amended~~ our ~~2004~~chief ~~10-KSB.~~executive ~~Prior~~officer, topresident ~~the~~and ~~January~~a ~~13,~~director ~~2006~~since ~~amendment,~~October ~~in our~~ 2004 ~~10-KSB~~until weDecember ~~recorded~~2008. He ~~our~~has ~~interest in~~resigned ~~associate~~as ~~based on~~ an ~~effective~~officer, ~~percentage~~but ofcontinues ~~equity~~as ~~attributable~~Chairman toof the ~~group~~Board. ~~of 31~~Mr.5% Pu ~~instead~~founded ofEvergreen aand ~~direct~~has ~~interest~~acted ofas ~~35%. In~~its ~~the~~chairman ~~January~~and ~~13,~~president ~~2006~~since ~~restatement~~April of2004. ~~our~~From ~~2004~~May ~~10-KSB,~~1999 weuntil ~~reported~~April ~~our~~2004, ~~interest~~Mr. Pu inwas ~~associate~~the ~~based~~chief onexecutive aofficer ~~direct~~and ~~interest~~general manager of ~~35%. In~~Guang ~~addition,~~Dong weXin ~~have~~Xing ~~restated~~Mei ~~the~~Biology ~~common~~Company ~~stock~~Limited, ~~immediately~~a ~~after~~majority-owned ~~the~~subsidiary ~~recapitalization~~of ~~to $100,000~~Evergreen.

~~On January~~Wenge 13Fang, ~~2006,~~age ~~we amended our September 30, 2005 10-QSB~~41. Prior to ~~the~~joining ~~January 13, 2006 amendment,~~ the ~~September~~Company ~~30, 2005 10-QSB classified~~ as ~~equity~~director, ~~the~~CEO ~~proceeds~~& ofPresident in ~~our~~December ~~April~~2008 ~~Debenture~~Mr. ~~and~~Fang ~~September~~had ~~2005~~been ~~private~~a ~~placement~~consultant ~~allocated~~ to the ~~warrants~~Company ~~issued in~~since ~~these~~August ~~transactions~~2007. ~~For~~Before ~~reasons~~this ~~both~~Mr. ~~the~~Fang ~~April~~founded ~~warrants~~Shenzhen ~~and~~Golden ~~September~~Lexicon ~~warrants~~Investment ~~should~~Consulting ~~have~~Co., ~~been~~Ltd ~~classified as~~ (a ~~liability. The~~business ~~restated~~consulting ~~financial~~firm) ~~statements~~and inhad ~~the~~acted ~~January~~as ~~13,~~its ~~2006~~executive ~~amendment~~director ofand ~~the~~general ~~September~~manager ~~30,~~since ~~2005~~April ~~10-QSB reflect this reclassification~~2002. In ~~addition,~~July ~~prior to the January 13~~1997, ~~2006~~Mr. ~~amendment,~~Fang ~~the~~joined ~~September~~MingHua ~~30,~~Group ~~2005~~a ~~10-QSB~~company ~~did~~engaged ~~not~~in ~~originally report~~ the ~~unrealized~~real ~~gains or~~estate ~~losses~~hotel inand ~~financial~~hi-tech ~~instruments,~~business ~~which~~as ~~represent~~secretary ~~the change in fair market value~~ of the ~~financial~~board ~~instruments~~of ~~at each reporting date~~directors. ~~The~~In ~~unrealized~~1998, ~~gains~~he orwas ~~losses~~appointed inas ~~financial~~vice ~~instruments~~general ~~should~~manager ~~have~~of ~~been reported in~~ the ~~original filing~~group. ~~Accordingly,~~In ~~the January~~August ~~13,~~2001 ~~2006~~he ~~restatement~~became of the ~~September~~director ~~30,~~and ~~2006~~vice ~~10-QSB~~general ~~reported~~manager ~~the unrealized gains or losses in financial instruments, which represent the change in fair market value~~ of ~~the~~MingHua ~~financial~~International ~~instruments~~Holding atGroup ~~each reporting date~~(mgha.ob) ~~The~~until ~~restatement~~his toresignation ~~the unrealized gains or losses~~ in ~~financial~~October ~~instruments, however, required to be further restated (refer discussion above)~~2002. Mr InFang ~~addition,~~owned weMBA ~~have restated~~degree ~~the~~from ~~common~~Business ~~stock~~School ~~immediately~~of ~~after~~FuDan ~~the~~University ~~recapitalization~~in ~~to $100~~ShangHai,~~000~~ P.R.China.

~~Steps~~Ding ~~Undertaken with~~Rencai, ~~respect~~age 51, has been the Chief Financial Officer of the Company since July 1, 2008. From December 2005 to ~~Material~~July ~~Weaknesses~~2008, ~~Prior~~Mr. Ding was a senior advisor to the Company and chief financial officer and financial manager of Guangdong Xinxinmei Environmental Protection Company, a majority-owned subsidiary of the Company.He was also the acting CFO of the company from April 30, 2007 until his appointment as Chief Financial Officer in July 2008. He previously served as our Chief Financial Officer from October 16,2004 to December 29,2005. From January 2000 until December 2003, Mr. Ding was a financial manager of Guangzhou Yitao Group Co., Ltd., a real estate development company in the PRC. In 1999, Mr. Ding was the chief financial officer and head of the auditing department of Shenzhen Wei Ang Appliance Development Co., Ltd., a household appliance manufacturer in the PRC.

~~In connection~~Audit ~~with~~Committee ~~the~~Financial ~~above matters, we have identified material weaknesses in our internal control over financial reporting, which weaknesses we have reported to our auditors. These material weaknesses comprise:~~Expert

~~(a)~~We ~~insufficient~~do ~~knowledge~~not ~~and~~have ~~experience~~an ~~among~~audit ~~our~~committee ~~internal~~nor ~~accounting~~do ~~personnel~~we ~~regarding~~have ~~the~~a ~~application~~financial expert associated with an audit committee. Our entire board of USdirectors ~~GAAP~~performs ~~and~~the ~~SEC~~functions ~~requirements;~~of our audit committee.

~~(b)~~Code ~~insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application~~ of ~~US GAAP and SEC disclosure requirements; and~~Ethics

33We have adopted a code of ethics that applies to the principal executive officer and principal financial and accounting officers. A copy of our code of ethics was filed as an exhibit to our annual report on Form 10-KSB for the year ended December 31, 2005. We will provide to any person without charge, upon request, a copy of our code of ethics. Requests may be directed to our principal executive offices at Suite 7A01, Baicheng Building, 584 Yingbin Road, Dashi, Panyu District, Guangzhou, Guangdong, China.

Section 16(ca) ~~insufficient~~Beneficial ~~emphasis~~Ownership byReporting ~~management on compliance with US GAAP requirements.~~Compliance

~~We have~~Section 16(a) ~~communicated~~of ~~with~~the ~~our~~Securities ~~auditors~~Exchange Act of 1934, ~~Patrizio~~as &amended, ~~Zhao~~requires our officers,~~LLC.~~ directors and ~~concluded~~persons ~~that these~~who ~~deficiencies~~beneficially ~~constituted~~own ~~material weaknesses,~~more asthan ~~defined~~10% byof ~~Auditing~~a ~~Standard~~registered ~~No.~~class 2,of ~~“An~~our ~~Audit~~equity ofsecurities ~~Internal~~to ~~Control~~file ~~Over~~reports ~~Financial~~of ~~Reporting~~securities ~~Performed~~ownership and changes in ~~Conjunction~~ such ownership with anthe ~~Audit~~Securities ofand ~~Financial~~Exchange ~~Statements,~~Commission (the “SEC”). ~~established~~Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the ~~Public~~SEC ~~Company~~to ~~Accounting~~furnish ~~Oversight~~us ~~Board,~~with orcopies ~~PCAOB~~of all Section 16(a) forms they file.

In order to address these material weaknesses our senior management is in the process of conducting a thorough review of our US GAAP financial reporting processes and will prepare and implement a US GAAP action plan. This plan will be designed to generally improve our US GAAP reporting processes and to strengthen our control processes and procedures in order to prevent a recurrence of the circumstances that resulted in the need to restate our quarterly financial statements. Our senior management intends to complete its review and implement a US GAAP action plan as soon as practicable. The US GAAP action plan will incorporate, among other matters, the following initiatives21

1.All ~~arrange~~of ~~for~~ our ~~senior~~officers, ~~management~~directors ~~and~~or ~~certain~~10% ~~accounting~~shareholders ~~and~~have ~~finance-related~~filed ~~personnel~~the reports required to ~~attend~~be ~~training~~filed ~~sessions~~under onSection 16(a), USexcept ~~GAAP~~for Mr. Peh Chung Lim and ~~financial~~Mr. Jia ~~reporting~~He ~~responsibilities~~Li. These ~~and~~persons ~~SEC~~have ~~disclosure~~since ~~requirements;~~resigned their positions with the Company.

2Item 11. ~~modify~~Executive the mandate of our internal audit function to place greater emphasis on the adequacy of, and compliance with, procedures relating to internal controls over US GAAP financial reporting and engage an experience accountant familiar with USGAAP which is not affiliated with ,Patrizio & Zhao,LLC, to assist our accounting department and internal audit function in the preparation of our US GAAP consolidated financial statements;Compensation.

3Compensation of Executive Officers. The ~~recruit~~following antable sets ~~accounting~~forth certain ~~staff~~information ~~member~~relating ~~with~~to USthe compensation ~~GAAP~~paid ~~expertise~~by ~~and~~the ~~who~~company isto ~~not~~its highest ~~affiliated~~paid executive ~~with~~officers ~~Patrizio~~for services &rendered ~~Zhao,~~during ~~LLC;~~the fiscal years ended December 31, 2011 and 2010.

4.SUMMARY ~~engage~~COMPENSATION an internationally recognized accounting firm, which is not affiliated with ,Patrizio & Zhao, LLC, to provide us with technical advice on US GAAP matters and SEC disclosure requirements on an ongoing basis.TABLE

34Summary Compensation Table

~~We have~~The ~~fully~~following ~~implemented~~table ~~items~~sets 1,forth 2,certain ~~and~~information 3,regarding ~~while~~our ~~item~~executive ~~4 remains in the planning stage.~~compensation:

Our board of directors discussed the matters disclosed in this filing with the registrant’s independent accountant. On September 25, 2006, we filed a current report on Form 8-K relating to these matters, including a response from our independent account relating to the statements contained therein.


Name and principal position	Year		Salary ($)		Bonus ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Change in pension value and nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
Chong Liang Pu. Chairman		2010		16,400		-0-		-0-		-0-		-0-		-0-		-0-		16,400
		2011		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-
Wenge Fang, CEO		2010		44,100		-0-		-0-		-0-		-0-		-0-		-0-		44,100
		2011		45,300		-0-		-0-		-0-		-0-		-0-		-0-		45,300
Ding Rencai, CFO		2010		40,000		-0-		-0-		-0-		-0-		-0-		-0-		40,000
		2011		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-

~~Other than~~Compensation ~~those~~of ~~disclosed~~Directors. ~~above,~~Members ~~there~~of ~~were~~our noboard ~~changes~~of indirectors ~~our~~do ~~internal~~not ~~controls~~receive ~~over~~cash ~~financial~~compensation ~~reporting~~for ~~that~~their ~~materially~~services ~~affected~~as directors, or although some Directors are ~~reasonably~~reimbursed ~~likely~~for toreasonable ~~materially~~expenses ~~affect,~~incurred ~~our~~in ~~internal~~attending ~~control~~board ~~over~~or ~~financial~~committee ~~reporting~~meetings. ~~during~~In the ~~fiscal~~future, ~~year~~we ~~ended~~may ~~December 31, 2010~~have to consider compensating any outside directors that become members of our board of directors.

~~ITEM~~Employment ~~9B. OTHER INFORMATION.~~Agreements

We ~~do not~~ have ~~any~~ ~~information~~an ~~that~~annual ~~was~~employment ~~required~~agreements towith beMr. ~~reported~~Fang which onprovides ~~Form~~for ~~8-K~~cash ~~during~~compensation in the ~~fourth~~amount ~~quarter~~of $45,300 . Mr. Pu and Mr. Ding weren’t paid for their services as Chairman and CFO in 2011. All officers and directors are reimbursed for reasonable out of pocket expenses. Our employment agreements are renewable on a yearly basis.

~~PART~~Termination ~~1II~~of Employment

~~ITEM~~There ~~10. DIRECTORS~~are no compensatory plans or arrangements, ~~EXECUTIVE~~including ~~OFFICERS~~payments ~~and~~to ~~CORPORATE~~be ~~GOVERNANCE~~received from the Company, with respect to any person named in the Summary Compensation Table set forth above that would in any way result in payments to any such person because of his or her resignation, retirement or other termination of such person’s employment with us.

~~Our~~Employee ~~directors and~~Benefit ~~officers as of April 30, 2010 and November 20 2010 are:~~Plans

Name	Age	Position
Chong Liang Pu	49	Chairman of the Board
Wenge Fang	40	Chief Executive Officer and a Director
Ding Rencai	50	Chief Financial Officer and a Director

None

Mr. Pu served as our chief executive officer, president and a director since October 2004 until December 2008. He has resigned as an officer, but continues as Chairman of the Board. Mr. Pu founded Evergreen and has acted as its chairman and president since April 2004. From May 1999 until April 2004, Mr. Pu was the chief executive officer and general manager of Guang Dong Xin Xing Mei Biology Company Limited, a majority-owned subsidiary of Evergreen.22

35Indemnification of Directors and Executive Officers and Limitation of Liability

~~Wenge Fang,~~Pursuant ~~age 40. Prior~~ to ~~joining~~Nevada ~~the~~Law ~~Company~~our asCertificate ~~director,~~of ~~CEO~~Incorporation &provides ~~President in~~that ~~December~~no ~~2008~~director ~~Mr.~~will ~~Fang~~have ~~had~~any ~~been~~personal ~~a consultant~~liability to ~~the~~us ~~Company~~or ~~since~~to ~~August~~any ~~2007.~~of ~~Before~~our ~~this~~shareholders ~~Mr.~~for ~~Fang~~monetary ~~founded~~damages ~~Shenzhen~~for ~~Golden~~breach ~~Lexicon~~of ~~Investment~~fiduciary ~~Consulting~~duty ~~Co., Ltd~~as (a ~~business consulting firm)and had acted as its executive~~ director; ~~and~~provided, ~~general manager since April 2002. In July 1997~~however, ~~Mr.~~that ~~Fang~~this ~~joined~~exclusion ~~MingHua~~may ~~Group~~not aeliminate ~~company~~or ~~engaged~~limit in the ~~real~~liability of ~~estate~~a ~~hotel~~director ~~and~~(i) ~~hi-tech~~for ~~business~~any asbreach ~~secretary~~ of the ~~board~~ director's duty of ~~directors.~~loyalty Into ~~1998,~~us heor ~~was~~our ~~appointed~~shareholders, as(ii) ~~vice~~for ~~general~~acts ~~manager~~or ofomissions ~~the~~not ~~group.~~in Ingood ~~August~~faith ~~2001~~or hewhich ~~became~~involve ~~the~~intentional ~~director~~misconduct ~~and~~or ~~vice general~~a ~~manager~~knowing violation of ~~MingHua~~law, ~~International~~or ~~Holding Group~~(~~mgha.ob~~iii) ~~until~~for ~~his~~any ~~resignation~~transaction ~~in October 2002. Mr Fang owned MBA degree~~ from ~~Business~~which ~~School~~the ofdirector ~~FuDan~~derived ~~University~~an inimproper ~~ShangHai,~~personal Pbenefit.~~R.China.~~

~~Ding Rencai,~~ITEM ~~age~~12. ~~50,~~SECURITY ~~has~~OWNERSHIP ~~been the the Chief Financial Officer~~ of ~~the~~CERTAIN ~~Company~~BENEFICIAL ~~since~~OWNERS ~~July 1, 2008. From December 2005 to July 2008, Mr. Ding was a senior advisor to the Company~~ and ~~chief~~MANAGEMENT ~~financial officer~~ and ~~financial~~RELATED ~~manager~~STOCKHOLDER ~~of Guangdong Xinxinmei Environmental Protection Company, a majority-owned subsidiary of the Company~~MATTERS.He was also the acting CFO of the company from April 30, 2007 until his appointment as Chief Financial Officer in July 2008. He previously served as our Chief Financial Officer from October 16,2004 to December 29,2005. From January 2000 until December 2003, Mr. Ding was a financial manager of Guangzhou Yitao Group Co., Ltd., a real estate development company in the PRC. In 1999, Mr. Ding was the chief financial officer and head of the auditing department of Shenzhen Wei Ang Appliance Development Co., Ltd., a household appliance manufacturer in the PRC.

~~Audit~~Security ~~Committee Financial~~Ownership ~~Expert~~of Certain Beneficial Owners

~~We do~~The ~~not~~following ~~have~~table ansets ~~audit~~forth, ~~committee~~as ~~nor~~of doDecember we31, ~~have~~2011, the stock ownership of (i) each of our named executive officers and directors, (ii ) all executive officers and directors as a ~~financial~~group, ~~expert~~and ~~associated~~(iii) ~~with~~each anperson ~~audit~~known ~~committee.~~by ~~Our~~us ~~entire~~to ~~board~~be a beneficial owner of ~~directors performs~~5% ~~the~~or ~~functions~~more of our ~~audit~~common ~~committee~~stock. No person listed below has any option, warrant or other right to acquire additional securities from us, except as may be otherwise noted. We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them except as stated therein.

Code of Ethics


Name (1)	Number of Shares of Common Stock Beneficially Owned (2)		Percentage Owned
Chong Liang Pu		49,635,000		35.61	%
Shi Rong Jiang*		5,101,000		3.75	%
Jia He Li*		-0-		0	%
Lin Hong Ye*		-0-		0	%
Peh Chung Lim*		-0-		0	%
Wenge Fang		-0-		0	%
Ding Rencai		-0-		0	%
Gao Yongping*		10,145,250		7.47	%
Vision Opportunity Fund (3)		13,600,000		9.53	%
All directors and executive officers as a group (3 persons		49,635,000		35.61	%

~~We have~~* ~~adopted~~Not acurrently ~~code~~an ~~of ethics that applies to the principal executive~~ officer ~~and~~or ~~principal financial and accounting officers~~director. A copy of our code of ethics was filed as an exhibit to our annual report on Form 10-KSB for the year ended December 31, 2005. We will provide to any person without charge, upon request, a copy of our code of ethics. Requests may be directed to our principal executive offices at Suite 7A01, Baicheng Building, 584 Yingbin Road, Dashi, Panyu District, Guangzhou, Guangdong, China.


	(1)	The addresses of Chong Liang Pu, Shi Rong Jiang, Jia He Li, Lin Hong Ye, Peh Chung Lim and Gao Yongping are Suite 7A01, Baicheng Building, 584 Yingbin Road, Dashi, Panyu District, Guangzhou, Guangdong, China.
	(2)	Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
	(3)	Vision Opportunity Master Fund Ltd. is the beneficial owner of the shares held of record by Vision Opportunity Master Fund Ltd. The common shares beneficially owned by Vision Opportunity Fund Ltd. include (i) 6,800,000 common shares, and (ii) 6,800,000 common shares issuable upon exercise of outstanding warrants. The address for Vision Opportunity Fund Ltd. is 253 East 77th St., PH-F, New York, NY 10021.

~~Section 16~~Beneficial ownership is determined in accordance with the Rule 13d-3(a) ~~Beneficial~~ ~~Ownership~~of ~~Reporting~~the ~~Compliance~~Securities Exchange Act of 1934, as amended, and generally includes voting or investment power with respect to securities.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission (the “SEC”). Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.23

~~All of~~Except ~~our~~as ~~officers,~~subject ~~directors~~to orcommunity ~~10%~~property ~~shareholders~~laws, ~~have~~where ~~filed~~applicable, the ~~reports~~person ~~required~~named toabove behas ~~filed~~sole ~~under~~voting ~~Section 16(a),~~and ~~except~~investment ~~for Mr. Peh~~power ~~Chung~~with ~~Lim~~respect ~~and~~to ~~Mr. Jia~~all Heshares ~~Li. These~~of ~~persons~~our ~~have~~common ~~since~~stock ~~resigned~~shown ~~their~~as ~~positions~~beneficially ~~with~~owned ~~the~~by ~~Company~~him.

This table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based upon ~~Item~~169,133,450 ~~11. Executive~~shares ~~Compensation~~of common stock outstanding as of December 31, 2011.

~~Compensation of~~Changes ~~Executive~~in Officers. The following table sets forth certain information relating to the compensation paid by the company to its highest paid executive officers for services rendered during the fiscal years ended December 31, 2010 and 2009.Control

~~SUMARRY COMPENSATION~~We ~~TABLE~~know of no contractual arrangements which may at a subsequent date result in a change of control in the Company.

37Certain Relationships and Transactions with Related Persons

~~The~~We have the following ~~table~~ ~~sets~~related ~~forth~~party ~~certain~~transactions ~~information~~for ~~regarding~~the ~~our~~years ~~executive~~ended ~~compensation:~~December 31, 2011.

Name and principal position	Year		Salary ($)		Bonus ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Change in pension value and nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
Chong Liang Pu. Chairman		2009		16,400		-0-		-0-		-0-		-0-		-0-		-0-		16,400
		2010		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-
Wenge Fang, CEO		2009		44,100		-0-		-0-		-0-		-0-		-0-		-0-		44,100
		2010		45,300		-0-		-0-		-0-		-0-		-0-		-0-		45,300
Ding Rencai, CFO		2009		40,000		-0-		-0-		-0-		-0-		-0-		-0-		40,000
		2010		-0-		-0-		-0-		-0-		-0-		-0-		-0-		-0-

“BJZC” - Bei Jing Zhao Cheng Chuang Zhan Investment Company Limited

~~Compensation of~~“GDXS” ~~Directors.~~- ~~Members~~Guang ofDong ~~our~~Xin ~~board~~Sheng ofEnvironmental ~~directors~~Protection doCompany not receive cash compensation for their services as directors, although some Directors are reimbursed for reasonable expenses incurred in attending board or committee meetings. In the future, we may have to consider compensating any outside directors that become members of our board of directors.Limited

~~Employment Agreements~~“Xinxingmei” - Guang Dong Xin Xingmei Biology Company Limited

We ~~have~~ ~~annual~~hold ~~employment~~the ~~agreements~~exclusive ~~with~~rights ~~our~~to ~~Messrs Fang~~use ~~which~~MHA ~~provide~~biological ~~for~~treatment ~~the~~processes ~~cash~~technologies ~~compensation~~and inGM ~~the amount of $45,300~~ Bio-carriers. ~~Mr.~~ PuBoth ~~and~~are ~~Mr.~~the ~~Ding~~subject ~~wasn’t~~of ~~paid~~patents ~~for~~owned ~~their~~by ~~services~~our as Chairman, ~~and CFO without an agreement~~Mr. ~~All~~ Pu, ~~officers~~ and ~~directors are~~we ~~reimbursed~~have ~~for~~acquired ~~reasonable~~the ~~out~~exclusive ofrights ~~pocket~~pursuant ~~expenses.These~~to ~~agreements are renewable on~~ a ~~yearly~~license ~~basis~~agreement bywith usMr. Pu.

~~Termination~~ As at December 31, 2011 we lent $101,138 to GDXS and owed BJZC $288,555 on and interest free basis. These loans are payable on demand. Mr. Pu, Chairman of ~~Employment~~the Board holds and equity interest in both BJZC and GDXS.

~~There are~~As noat ~~compensatory~~December ~~plans or arrangements~~31, ~~including payments to be received from the Company~~2011, ~~with~~our ~~respect~~subsidiaries toAba ~~any~~and ~~person~~Xinchen ~~named in~~owed ~~the~~Xinxingmei ~~Summary Compensation Table set forth above that would in any way result in payments to any such person because of his or her resignation~~$1,847,770 ~~retirement~~on oran ~~other~~interest ~~termination~~free ofdemand ~~such person’s employment with us~~basis.

38As at December 31, 2011, we owed Chonglaing Pu, the Chairman of the Board $328,258and lent $1,574 to Tingli Pu, a shareholder,, on an interest free on demand basis.

~~Employee Benefit~~Director ~~Plans~~Independence

~~None~~Our current directors are Messrs. Pu, Fang, and Ding. We are not currently subject to corporate governance standards defining the independence of our directors. We have not yet adopted an independence standard or policy, although we intend to do so in the future. Accordingly, the Company’s Board currently determines the independence of each Director and nominee for election as a Director. The Board has determined that none of the Company’s directors currently qualifies as an independent director.

~~Indemnification of~~ITEM ~~Directors~~14. ~~and~~PRINCIPAL ~~Executive~~ACCOUNTANT ~~Officers~~FEES ~~and~~AND ~~Limitation of Liability~~SERVICES.

~~Pursuant to~~Audit Nevada Law our Certificate of Incorporation provides that no director will have any personal liability to us or to any of our shareholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this exclusion may not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to us or our shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which the director derived an improper personal benefit.Fees

~~ITEM 12. SECURITY~~The ~~OWNERSHIP~~aggregate fees billed by the Company’s auditors for professional services rendered in connection with the audit of ~~CERTAIN~~the ~~BENEFICIAL~~Company’s ~~OWNERS~~annual financial statements and ~~MANAGEMENT~~reviews of the financial statements included in the Company’s Form 10-Q or services that are normally provided by the accountant in connection with statutory and ~~RELATED~~regulatory ~~STOCKHOLDER~~filings ~~MATTERS~~or engagements for fiscal years 2011 and 2010 were $65,000 and $60,000, respectively.

~~Security Ownership of Certain Beneficial Owners~~24

~~The~~Audit ~~following table~~Related sets forth, as of December 31, 2010, the stock ownership of (i) each of our named executive officers and directors, (ii )all executive officers and directors as a group, and (iii) each person known by us to be a beneficial owner of 5% or more of our common stock. No person listed below has any option, warrant or other right to acquire additional securities from us, except as may be otherwise noted. We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them except as stated therein.Fees

39None

Name (1)	Number of Shares of Common Stock Beneficially Owned (2)		Percentage Owned
Chong Liang Pu		49,635,000		35.61	%
Shi Rong Jiang*		5,101,000		3.75	%
Jia He Li*		-0-		0	%
Lin Hong Ye*		-0-		0	%
Peh Chung Lim*		-0-		0	%
Wenge Fang		-0-		0	%
Ding Rencai		-0-		0	%
Gao Yongping		10,145,250		7.47	%
Vision Opportunity Fund (3)		13,600,000		9.53	%
All directors and executive officers as a group (3 persons		49,635,000		35.61	%

Tax Fees

* Not currently an officer or director.None

~~(1)~~All ~~The~~Other addresses of Chong Liang Pu, Shi Rong Jiang, Jia He Li, Lin Hong Ye, Peh Chung Lim and Gao Yongping are Suite 7A01, Baicheng Building, 584 Yingbin Road, Dashi, Panyu District, Guangzhou, Guangdong, China.Fees

(2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.None

~~(3)~~Pre-Approval ~~Vision~~Policies Opportunity Master Fund Ltd. is the beneficial owner of the shares held of record by Vision Opportunity Master Fund Ltd. The common shares beneficially owned by Vision Opportunity Fund Ltd. include (i) 6,800,000 common shares, and ~~(ii) 6,800,000 common shares issuable upon exercise of outstanding warrants. The address for Vision Opportunity Fund Ltd. is 253 East 77th St., PH-F, New York, NY 10021.~~Procedures

~~Beneficial ownership~~The isboard ~~determined~~of indirectors ~~accordance~~has ~~with~~not ~~the~~adopted ~~Rule~~any ~~13d~~pre-~~3(a)~~approval ofpolicies ~~the Securities Exchange Act of 1934, as amended,~~ and ~~generally includes~~approves ~~voting~~all orengagements ~~investment power~~ with ~~respect to securities. Except as subject to community property laws, where applicable,~~ the ~~person~~Company’s ~~named~~auditors ~~above~~prior ~~has sole voting and investment power with respect~~ to ~~all~~performance ~~shares~~ of ~~our~~services ~~common stock shown as beneficially owned~~ by ~~him~~them.

40PART IV

~~This table~~ITEM ~~is based upon information derived from our stock records~~15. ~~Unless~~EXHIBITS ~~otherwise indicated in the footnotes to this table~~ and ~~subject~~ toFINANCIAL ~~community~~STATEMENT property laws where applicable, we believe that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based upon 139,383,450 shares of common stock outstanding as of December 31, 2010.SCHEDULES

~~Changes~~ The following exhibits are filed with this report, except those indicated as having previously been filed with the Securities and Exchange Commission and are incorporated by reference to another report, registration statement or form. As to any shareholder of record requesting a copy of this report, we will furnish any exhibit indicated in ~~Control~~the list below as filed with this report upon payment to us of our expenses in furnishing the information.

WeExhibit ~~know of no contractual arrangements which may at a subsequent date result in a change of control in the Company.~~Number

~~ITEM~~Exhibit ~~13. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS, and DIRECTOR INDEPENDENCE.~~Description

~~Certain Relationships and Transactions with Related Persons~~2.1

WeSecurities ~~have~~Purchase ~~the following~~Agreement ~~related~~and ~~party~~Plan ~~transactions~~of ~~for~~Reorganization ~~the years ended December 31, 2010~~(1)

~~“BJZC” - Bei Jing Zhao Cheng Chuang Zhan Investment Company Limited~~2.2

~~“GDXS” -~~Amendment ~~Guang~~No. 1 ~~Dong~~to ~~Xin~~Securities ~~Sheng~~Purchase ~~Environmental~~Agreement ~~Protection~~and ~~Company~~Plan ~~Limited~~of Reorganization (1)

~~“Xinxingmei” - Guang Dong Xin Xingmei Biology Company Limited~~3.3

WeCertificate ~~hold~~of ~~the exclusive~~Amended ~~rights to use MHA biological treatment processes technologies~~ and GMRestated ~~Bio-carriers.~~Articles ~~Both are the subject~~ of ~~patents owned~~Incorporation ~~by our Chairman, Mr. Pu, and we have acquired the exclusive rights pursuant to a license agreement with Mr. Pu.~~(3)

~~As at December 31, 2010 we owed GDXS $2,837,192 and BJZC $278,106 on and interest free basis~~3. ~~These loans are payable on demand. Mr. Pu, Chairman of the Board holds and equity interest in both BJZC and GDXS.~~4

AsBylaws ~~at December 31, 2010, our subsidiaries Aba and Xinchen owed Xinxingmei $2,034,407 on an interest free demand basis.~~(4)

~~As at December 31, 2010, we owed Chonglaing Pu, the Chairman of the Board $284,244 and lent $1,517 to Tingli Pu, a shareholder ,on an interest free on demand basis~~3.5

41Amendments to Bylaws (3)

~~Director Independence~~10.1

~~Our~~BOT ~~current directors~~Investment ~~are Messrs. Pu, Fang~~ and ~~Ding. We~~Operation ~~are~~Contract ~~not~~for ~~currently~~Sewage ~~subject~~Treatment toPlant ~~corporate~~between ~~governance~~Guangdong ~~standards~~Xinsheng ~~defining~~Environmental ~~the~~Protection ~~independence of our directors~~Co. ~~We have not yet adopted an independence standard or policy~~, ~~although we intend to do so in the future~~Ltd. ~~Accordingly,~~ ~~the~~and ~~Company’s~~City ~~Board~~Administration ~~currently determines the independence~~ of ~~each~~Feng ~~Director~~Feng ~~and~~Mining ~~nominee~~Area ~~for election as a Director. The Board has determined that none~~ of ~~the~~Handon ~~Company’s~~City, ~~directors~~Hebei ~~currently~~Province ~~qualifies as an independent director.~~(5)

~~ITEM 14~~10. ~~PRINCIPAL ACCOUNTANT FEES AND SERVICES.~~2

~~Audit Fees~~Investment Management Contract dated August 14, 2002 between Guangdong Xinxingmei Environmental Protection Science and Technology Investment Co., Ltd. and The People’s Government of Wuqing District, Tianjin City (5)

The aggregate fees billed by the Company’s auditors for professional services rendered in connection with the audit of the Company’s annual financial statements and reviews of the financial statements included in the Company’s Form 10~~-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years 2010 and 2009 were $60,000 and $55,000, respectively~~.3

~~Audit Related~~BOT ~~Fees~~Investment Contract dated July 4, 2003 between Guandong Xinsheng Environmental Co., Ltd. and People’s Government of Shunyi District, Beijing (5)

~~None~~10.4

~~Tax~~Contract ~~Fees~~for BOT Project Investment and Operation between Guandong Xinsheng Environmental Co., Ltd. and Shandong Haiyang Planning and Construction Administration (5)

~~None~~10.5

~~All~~Agreement ~~Other Fees~~with Shenzhen Jukeyuan Industry Development Co., Ltd. dated July 28, 2005 (5)

~~None~~10.6

~~Pre-Approval Policies~~Agreement ~~and~~with ~~Procedures~~Tianjin Wuqing Huangzhuang Industrial Zone dated July 20, 2005 (5)

~~The board of directors has not adopted any pre-approval policies and approves all engagements with the Company’s auditors prior to performance of services by them.~~25

4210.7

~~PART~~Agreement 1Vwith Tianjin Wuqing Fuyuan Economic Development Co., Ltd. dated May 28, 2005 (5)

~~ITEM 15~~10. ~~EXHIBITS and FINANCIAL STATEMENT SCHEDULES~~8

~~The~~Agreement ~~following exhibits are filed~~ with ~~this~~Beijing ~~report,~~Jinqiao ~~except~~Luyuan ~~those~~Environmental ~~indicated~~Protection asInvestment ~~having previously been filed with the Securities~~ and ~~Exchange~~Development ~~Commission and are incorporated by reference to another report~~Co., ~~registration statement or form~~Ltd. As todated ~~any shareholder of record requesting a copy of this report~~August 4, we2005 ~~will furnish any exhibit indicated in the list below as filed with this report upon payment to us of our expenses in furnishing the information.~~(5)

~~Exhibit Number Exhibit Description~~10.9

~~2.1 Securities~~Agreement ~~Purchase~~with ~~Agreement~~Yongji Economic Development Zone Land Planning and ~~Plan~~Construction ofBureau ~~Reorganization~~dated August 6, 2005 (15)

210.~~2 Amendment No. 1 to Securities Purchase Agreement and Plan of Reorganization (1)~~10

~~3.3 Certificate~~License ofAgreement ~~Amended~~with ~~and~~Chong ~~Restated~~Liang ~~Articles~~Pu ~~of Incorporation~~ (36)

310.~~4 Bylaws (4)~~11

~~3.5 Amendments~~Equity toAssignment ~~Bylaws~~Agreement with Fortune Luck Global International Limited, dated December 31, 2007 (310)

10.1 BOT Investment and Operation Contract for Sewage Treatment Plant between Guangdong Xinsheng Environmental Protection Co., Ltd. and City Administration of Feng Feng Mining Area of Handon City, Hebei Province (5)12

~~10.2 Investment~~Equity ~~Management~~Transfer ~~Contract~~Agreement ~~dated August 14, 2002~~ between ~~Guangdong~~the ~~Xinxingmei~~Evergreen ~~Environmental Protection~~Asset ~~Science~~Group ~~and Technology Investment Co~~Ltd., ~~Ltd.~~a ~~and~~subsidiary ~~The People’s Government~~ of ~~Wuqing~~the ~~District~~Registrant, ~~Tianjin~~and ~~City~~Wenning Pu (57)

10.~~3 BOT Investment Contract dated July 4, 2003 between Guandong Xinsheng Environmental Co., Ltd. and People’s Government of Shunyi District, Beijing (5)~~13

~~10.4 Contract~~Employment ~~for~~Agreement ~~BOT~~with ~~Project~~Ding ~~Investment and Operation between Guandong Xinsheng Environmental Co., Ltd. and Shandong Haiyang Planning and Construction Administration~~ Rencai (58)

10.~~5 Agreement with Shenzhen Jukeyuan Industry Development Co., Ltd. dated July 28, 2005 (5)~~14

~~10.6~~ Employment Agreement with ~~Tianjin~~Wenge ~~Wuqing~~Fang ~~Huangzhuang Industrial Zone dated July 20, 2005~~ (59)

4316

~~10.7 Agreement~~Letter ~~with~~re ~~Tianjin~~Change ~~Wuqing~~in ~~Fuyuan~~Certified ~~Economic~~Registered ~~Development~~Public ~~Co.,~~Account ~~Ltd. dated May 28, 2005~~ (52)

1021.~~8 Agreement with Beijing Jinqiao Luyuan Environmental Protection Investment and Development Co., Ltd. dated August 4, 2005 (5)~~1

~~10.9 Agreement~~List ~~with~~of ~~Yongji~~Subsidiaries ~~Economic Development Zone Land Planning and Construction Bureau dated August 6, 2005~~ (511)

1031.~~10 License Agreement with Chong Liang Pu (6)~~1

~~10.11 Equity~~Certification ~~Assignment~~of ~~Agreement~~Chief ~~with~~Executive ~~Fortune~~Officer ~~Luck~~pursuant ~~Global~~to ~~International~~Section 302 ~~Limited,~~of ~~dated~~the ~~December~~Sarbanes-Oxley ~~31,~~Act ~~2007~~of ~~(10)~~2002

1031.~~12 Equity Transfer Agreement between the Evergreen Asset Group Ltd., a subsidiary of the Registrant, and Wenning Pu (7)~~2

~~10.13~~Certification of Chief Financial Officer pursuant to Section ~~Employment~~302 ~~Agreement~~of ~~with~~the ~~Ding~~Sarbanes-Oxley ~~Rencai (8)~~Act of 2002

1032.~~14 Employment Agreement with Wenge Fang (9)~~1

~~16 Letter~~Certification reof ~~Change~~Chief inExecutive ~~Certified~~Officer ~~Registered~~and ~~Public~~Chief ~~Account~~Financial ~~(2)~~Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~21.1 List of Subsidiaries~~ (111)

~~31.1 Certification~~Previously filed as part of ~~Chief~~the ~~Executive~~Company’s ~~Officer~~current ~~pursuant~~report toon ~~Section 302~~Form of8-K filed with the ~~Sarbanes-Oxley Act~~Securities ofand ~~2002~~Exchange Commission on October 21, 2004.

~~31.~~(2 ~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~)

~~32.1 Certification~~Previously offiled ~~Chief~~as ~~Executive~~part ~~Officer~~of ~~and~~the ~~Chief~~Company’s ~~Financial~~current ~~Officer~~report ~~pursuant~~on toForm 188-K/A ~~U.S.C.~~filed ~~§1350, as~~with ~~adopted~~the ~~pursuant~~Securities toand ~~Section 906~~Exchange ofCommission ~~the~~on ~~Sarbanes-Oxley~~December 30, ~~Act of 2002~~2004.

(13) ~~Previously filed as part of the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2004.~~

44Previously filed as part of the Company’s annual report on Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2005.

(24) ~~Previously filed as part of the Company’s current report on Form 8-K/A filed with the Securities and Exchange Commission on December 30, 2004.~~

~~(3)~~ Previously filed as part of the Company’s ~~annual report on~~ Form 10-~~KSB~~SB filed with the Securities and Exchange Commission on ~~April~~May 1524, ~~2005~~1999.

(45) ~~Previously filed as part of the Company’s Form 10-SB filed with the Securities and Exchange Commission on May 24, 1999.~~

~~(5)~~ Previously filed as part of Amendment Number 1 to Registration Statement on Form SB-2, filed January 12, 2006, 1933 Act Number : 333-129064.

(6) ~~Previously filed as Exhibit 10.5 to the Company’s annual report on Form 10-KSB/A filed with the Securities and Exchange Commission on July 15, 2005.~~

~~(7)~~ Previously filed as ~~exhibit~~Exhibit 10.15 to ~~Current~~the ~~Report~~Company’s annual report on Form 810-K,KSB/A ~~dated~~filed ~~December~~with 29the Securities and Exchange Commission on July 15, ~~2007~~2005.

(87) ~~Previously filed as exhibit 10.1 to Current Report on Form 8-K, dated July 1, 2008.~~

~~(9)~~ Previously filed as exhibit 10.1 to Current Report on Form 8-K, dated December 1129, ~~2008~~2007

(108) ~~Previously filed as exhibit 10.11 to amendment number 1 to form 10-K for the year ended December 31, 2008.~~

~~(11) Filed~~Previously filed as exhibit 2110.1 to ~~10K-SB~~ ~~for~~Current ~~the~~Report ~~year~~on ~~ended~~Form ~~December~~8-K, 31dated July 1, ~~2006~~2008.

~~SIGNATURES~~(9)

~~Pursuant~~Previously ~~to the~~filed ~~requirements~~as ofexhibit ~~Section~~10.1 ~~13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report~~ to be ~~signed~~Current Report on ~~its~~Form ~~behalf by the undersigned~~8-K, ~~June~~dated 15December 11, ~~2012~~2008

~~CHINA WATER GROUP, INC By /s/ Chongliang Pu Chongliang Pu Chairman of the board~~ (~~Principal Executive Officer~~10) ~~By /s/ Wenge Fang Wenge Fang CEO and President (Principal Executive Officer)~~

45Previously filed as exhibit 10.11 to amendment number 1 to form 10-K for the year ended December 31, 2008.

~~By /s/ Ding Rencai Ding Rencai CFO~~ (~~Principal Accounting and Financial Officer~~11)

~~Pursuant~~Filed ~~to the~~as ~~requirements~~exhibit of21.1 ~~the~~to ~~Securities~~10K-SB ~~Exchange~~for ~~Act of 1934, this report has been signed below by~~ the ~~following~~year ~~persons~~ended onDecember ~~behalf of~~31, ~~the registrant and in the capacities and on the dates indicated~~2006.

Signature	Title	Date
/s/ Chong Liang Pu	Chairman of the Board	June 15 , 2012
Chong Liang Pu
/s/ Wenge Fang	Director, CEO and President	June 15, 2012
Wenge Fang
/s/ Ding Rencai	Director and CFO	June 15, 2012
Ding Rencai

46SIGNATURES

~~CHINA WATER~~Pursuant ~~GROUP~~to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ~~INC.~~the registrant has duly caused this report to be signed on its behalf by the undersigned, December 14, 2012

~~CONSOLIDATED FINANCIAL~~CHINA ~~STATEMENTS~~WATER GROUP, INC By /s/ Chongliang Pu Chongliang Pu Chairman of the board (Principal Executive Officer) By /s/ Wenge Fang Wenge Fang CEO and President (Principal Executive Officer) By /s/ Ding Rencai Ding Rencai CFO (Principal Accounting and Financial Officer

~~DECEMBER 31~~Pursuant to the requirements of the Securities Exchange Act of 1934, ~~2010~~this ~~AND~~report ~~2009~~has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

CHINA WATER GROUP, INC. Consolidated Financial Statements December 31, 2010 and 2009


Signature	Title	Date

/s/ Chong Liang Pu	Chairman of the Board	Dec. 14, 2012
Chong Liang Pu

/s/ Wenge Fang	Director, CEO and President	Dec. 14, 2012
Wenge Fang

/s/ Ding Rencai	Director and CFO	Dec. 14, 2012
Ding Rencai

~~Table of Contents~~27

	Page
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Comprehensive Loss	4
Consolidated Statements of Changes in Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7

CHINA WATER GROUP, INC.

Patrizio & Zhao, LLC
Certified Public Accountants and Consultants	322 Route 46 West
Member of	Parsippany, NJ 07054 Tel: (973) 882-8810 Fax: (973) 882-0788
Alliance of worldwide accounting firms	www.pzcpa.com

CONSOLIDATED FINANCIAL STATEMENTS

~~REPORT OF~~DECEMBER ~~INDEPENDENT~~31, ~~REGISTERED~~2011 ~~PUBLIC~~AND ~~ACCOUNTING FIRM~~2010

~~To the Board of Directors and Stockholders~~28

~~China~~CHINA ~~Water Group~~WATER GROUP, ~~Inc~~INC.

We have audited the accompanying consolidated balance sheets of China Water Group, Inc. (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.


Consolidated Financial Statements December 31, 2011 and 2010 Table of Contents
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations		F-3
Consolidated Statements of Comprehensive Loss		F-4
Consolidated Statements of Changes in Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.29

~~In our~~Patrizio ~~opinion,~~& ~~the consolidated financial statements referred to above present fairly~~Zhao, in all material respects, the consolidated financial position of China Water Group, Inc. as of December 31, 2010 and 2009, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.LLC

~~Parsippany, New~~Certified ~~Jersey~~Public Accountants and Consultants

~~June~~322 ~~15,~~Route ~~2012~~46 West

~~/s/ Patrizio & Zhao~~Parsippany, ~~LLC~~NJ 07054

1Member of Affilica International

~~CHINA WATER~~Tel: (973) ~~GROUP, INC.~~882-8810

~~Consolidated~~Fax: ~~Balance~~(973) ~~Sheets~~882-0788

	December 31, 2010			December 31, 2009
Assets
Current assets:
Cash and cash equivalents	$	23,873		$	30,497
Accounts receivable, net of allowance for doubtful accounts of $721,788 and $ 688,520 as of December 31, 2010 and 2009, respectively.		31,413			179,373
Inventory		245,873			282,999
Receivable for disposal of Evergreen		1,213,600			1,173,600
Other current assets		142,364			170,728
Total current assets		1,657,123			1,837,197
Property, plant and equipment, net		1,046,381			1,017,202
Intangible assets, net		212,675			209,886
Goodwill		6,128,051			13,178,494
Total assets	$	9,044,230		$	16,242,779
Liabilities
Current liabilities:
Warrant liability	$	36,859		$	143,875
Accounts payable		163,851			188,105
Accrued expenses		1,380,226			1,469,726
Due to shareholders		282,727			2,817
Due to related companies		3,115,298			2,780,956
Due to affiliated companies		2,034,407			1,967,353
Other current liabilities		410,751			357,041
Total current liabilities		7,424,119			6,909,873
Other payables for acquisition of a subsidiary		5,950,000			5,950,000
Total liabilities		13,374,119			12,859,873
Equity
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized,
no shares issued and outstanding		-			-
Common stock, $0.001 par value, 200,000,000 shares authorized;
139,383,450 shares issued and outstanding at December 31, 2010
and December 31, 2009		139,383			139,383
Additional paid-in capital		6,131,532			6,131,532
Accumulated deficit		(12,049,057	)		(4,045,147	)
Accumulated other comprehensive income		1,831,989			1,468,759
Total stockholders' equity		(3,946,153	)		3,694,527
Noncontrolling interest		(383,736	)		(311,621	)
Total equity		(4,329,889	)		3,382,906
Total liabilities and equity	$	9,044,230		$	16,242,779

Alliance of worldwide accounting firms

~~The accompanying notes are an integral part of these consolidated financial statements~~www.pzcpa.com

2REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~CHINA WATER~~To ~~GROUP,~~the ~~INC.~~Board of Directors and Stockholders

~~Consolidated~~China ~~Statements of~~Water ~~Operations~~Group, Inc.

	For the Years Ended December 31,
	2010			2009
Sales
Third parties	$	258,796		$	1,260,729
Related parties		66,625			-
Total sales		325,421			1,260,729
Cost of sales
Third parties		161,389			435,505
Related parties		55,953			-
Total cost of sales		217,342			435,505
Gross profit		108,079			825,224
Operating expenses
Selling and distribution expenses		133,310			164,755
General and administrative expenses		632,748			1,245,073
Total operating expenses		766,058			1,409,828
Loss from operations		(657,979	)		(584,604	)
Other income (expense)
Interest income (expense)		(368	)		(174	)
Gain (loss) on financial instruments		107,016			(107,265	)
Other income (expense)		(12,521	)		(51,014	)
Impairment loss on goodwill		(7,499,608	)		-
Total other income (expense)		(7,405,481	)		(158,453	)
Loss before income taxes		(8,063,460	)		(743,057	)
Provision for income taxes		420			120,298
Net loss		(8,063,880	)		(863,355	)
Less: net loss attributable to noncontrolling interest		(59,970	)		(71,012	)
Net loss attributable to China Water Group, Inc.	$	(8,003,910	)	$	(792,343	)
Basic loss per share	$	(0.06	)	$	(0.00	)
Diluted loss per share	$	(0.06	)	$	(0.00	)
Weighted average number of common shares outstanding
Basic		139,383,450			139,383,450
Diluted		139,383,450			139,383,450

We have audited the accompanying consolidated balance sheets of China Water Group, Inc. (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The ~~accompanying~~ ~~notes~~Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an ~~integral~~opinion ~~part~~on the effectiveness of ~~these~~the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

3In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Water Group, Inc. as of December 31, 2011 and 2010, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

~~CHINA WATER GROUP~~Parsippany, ~~INC.~~New Jersey

~~Consolidated~~December ~~Statements of~~14, ~~Comprehensive Loss~~2012

	For the Years Ended December 31,
	2010			2009
Net loss	$	(8,063,880	)	$	(863,355	)
Other comprehensive income
Foreign currency translation adjustment		351,085			62,888
Total other comprehensive income		351,085			62,888
Total comprehensive loss		(7,712,795	)		(800,467	)
Less: comprehensive loss
attributable to the noncontrolling interest		(72,115	)		(72,374	)
Comprehensive loss attributable to China Water Group, Inc.	$	(7,640,680	)	$	(728,093	)

F-1

~~The~~CHINA ~~accompanying~~WATER ~~notes are~~GROUP, ~~an integral part of these consolidated financial statements~~INC.

4Consolidated Balance Sheets

CHINA WATER GROUP, INC.


	December 31,	December 31,
	2011	2010
Assets
Current assets:
Cash and cash equivalents	$ 157,955	$ 23,873
Accounts receivable, net of allowance for doubtful accounts of $746,439	40,099	31,413
and $721,788 as of December 31, 2011 and 2010, respectively
Inventory	243,404	245,873
Receivable for disposal of Evergreen	-	1,213,600
Due from related company	101,138	-
Other current assets	30,515	142,364
Total current assets	573,111	1,657,123

Property, plant and equipment, net	988,380	1,046,381
Intangible assets, net	216,185	212,675
Goodwill	6,167,114	6,128,051
Total assets	$ 7,944,790	$ 9,044,230

Liabilities
Current liabilities:
Warrant liability	$ -	$ 36,859
Accounts payable and accrued expenses	155,954	163,851
Due to shareholders	326,683	282,727
Due to related companies	288,555	3,115,298
Due to affiliated companies	2,110,848	2,034,407
Other current liabilities	1,825,385	1,790,977
Total current liabilities	4,707,425	7,424,119

Long-term liabilities
Long-term bank loan	2,361,000	-
Other payables for acquisition of a subsidiary	-	5,950,000
Total long-term liabilities	2,361,000	5,950,000
Total liabilities	7,068,425	13,374,119

Equity (deficit)
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, 50,000,000 shares authorized,
no shares issued and outstanding	-	-
Common stock, $0.001 par value, 200,000,000 shares authorized;
169,133,450 and 139,383,450 shares issued and outstanding at
December 31, 2011 and 2010, respectively	169,133	139,383
Additional paid-in capital	12,051,782	6,131,532
Accumulated deficit	(13,126,728)	(12,049,057)
Accumulated other comprehensive income	2,230,131	1,831,989
Total stockholders' equity (deficit)	1,324,318	(3,946,153)

Noncontrolling interest	(447,953)	(383,736)
Total equity (deficit)	876,365	(4,329,889)
Total liabilities and equity	$ 7,944,790	$ 9,044,230

~~Consolidated~~The ~~Statements~~ accompanying notes are an integral part of ~~Changes~~these inconsolidated ~~Stockholders’~~financial ~~Equity~~statements. F-2

										Accumulated
					Additional					Other
	Common Stock				Paid in		Accumulated			Comprehensive		Total			Noncontrolling			Total
	Number		Par Value		Capital		Deficit			Income		CHWG			Interest			Equity
Balance as of January 1, 2009		139,383,450	$	139,383	$	6,131,532	$	(3,252,804	)	$	1,404,509	$	4,422,620		$	(239,247	)	$	4,183,373
Comprehensive income (loss):
Net loss		-		-		-		(792,343	)		-		(792,343	)		(71,012	)		(863,355	)
Other comprehensive income:
Foreign currency translation adjustment		-		-		-		-			64,250		64,250			(1,362	)		62,888
Comprehensive loss		-		-		-		-			-		(728,093	)		(72,374	)		(800,467	)
Balance as of December 31, 2009		139,383,450	$	139,383	$	6,131,532	$	(4,045,147	)	$	1,468,759	$	3,694,527		$	(311,621	)	$	3,382,906
Comprehensive income (loss):
Net Loss		-		-		-		(8,003,910	)		-		(8,003,910	)		(59,970	)		(8,063,880	)
Other comprehensive income:
Foreign currency translation adjustment		-		-		-		-			363,230		363,230			(12,145	)		351,085
Comprehensive loss		-		-		-		-			-		(7,640,680	)		(72,115	)		(7,712,795	)
Balance as of December 31, 2010		139,383,450	$	139,383	$	6,131,532	$	(12,049,057	)	$	1,831,989	$	(3,946,153	)	$	(383,736	)	$	(4,329,889	)

CHINA WATER GROUP, INC.

~~The~~Consolidated ~~accompanying notes~~Statements ~~are an integral part~~ of ~~these consolidated financial statements.~~ Operations


	For the Years Ended December 31,
	2011	2010
Sales:
Third parties	$ 321,228	$ 258,796
Related parties	26,850	66,625
Total sales	348,078	325,421

Cost of sales:
Third parties	241,404	161,389
Related parties	17,989	55,953
Total cost of sales	259,393	217,342

Gross profit	88,685	108,079

Operating expenses:
Selling and distribution expenses	145,015	133,310
General and administrative expenses	640,871	632,748
Total operating expenses	785,886	766,058

Loss from operations	(697,201)	(657,979)

Other income (expense):
Interest expense, net	(5,980)	(368)
Gain on financial instruments	36,859	107,016
Other income (expense)	14,665	(12,521)
Impairment loss on goodwill	(472,984)	(7,499,608)
Total other expense	(427,440)	(7,405,481)

Loss before income taxes	(1,124,641)	(8,063,460)

Provision for income taxes	2,057	420

Net loss	(1,126,698)	(8,063,880)

Less: net loss attributable to noncontrolling interest	(49,027)	(59,970)

Net loss attributable to China Water Group, Inc.	$(1,077,671)	$(8,003,910)

Basic loss per share	$ (0.01)	$ (0.06)
Diluted loss per share	$ (0.01)	$ (0.06)

Weighted average number of common shares outstanding
Basic	167,095,779	139,383,450
Diluted	167,095,779	139,383,450

~~CHINA WATER~~The ~~GROUP,~~accompanying ~~INC~~notes are an integral part of these consolidated financial statements. F-3

~~Consolidated~~CHINA ~~Statements of~~WATER ~~Cash~~GROUP, ~~Flows~~INC.

	For the Year Ended December 31,
	2010			2009
Cash flows from operating activities
Net loss	$	(8,063,880	)	$	(863,355	)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization		150,148			162,012
Provision for bad debt		29,727			668,065
Impairment loss on goodwill		7,449,608			-
(Gain) loss on fair value of financial instruments		(107,016	)		107,265
Changes in operating assets and liabilities :
Accounts receivable		120,528			(829,055	)
Inventory		45,612			112,262
Receivable for disposal of Evergreen		-			(1,172,720	)
Other current assets		33,334			(129,119	)
Accounts payable		(29,905	)		41
Accrued expenses		(92,101	)		95,596
Due to directors		-			(249,937	)
Other current liabilities		40,512			151,235
Total adjustments		190,839			(1,084,355	)
Net cash used in operating activities		(373,433	)		(1,947,710	)
Cash flows from investing activities:
Acquisition of property, plant and equipment		(140,316	)		(288,517	)
Acquisition of intangible assets		(222	)		(76,344	)
Disposal of subsidiary – Evergreen, net of cash		-			2,785,446
Net cash provided by (used in) investing activities		(140,538	)		2,420,585
Cash flows from financing activities:
Due to shareholders		272,879			-
Due to related companies		233,620			(405,357	)
Due to affiliated companies		-			(45,778	)
Net cash provided by (used in) financing activities		506,499			(451,135	)
Effect of foreign currency translation on cash and cash equivalents		848			178
Net increase (decrease) in cash and cash equivalents		(6,624	)		21,918
Cash and cash equivalents - beginning		30,497			8,579
Cash and cash equivalents - ending	$	23,873		$	30,497

Consolidated Statements of Comprehensive Loss

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


	For the Years Ended
	December 31,
	2011	2010

Net loss	$ (1,126,698)	$ (8,063,880)

Other comprehensive income
Foreign currency translation adjustment	382,952	351,085

Total other comprehensive income	382,952	351,085

Total comprehensive loss	(743,746)	(7,712,795)

Less: comprehensive loss
attributable to the noncontrolling interest	(64,217)	(72,115)

Comprehensive loss attributable to China Water Group, Inc.	$ (679,529)	$ (7,640,680)

6The accompanying notes are an integral part of these consolidated financial statements. F-4

CHINA WATER GROUP, INC.

~~Notes to~~ Consolidated ~~Financial~~ Statements of Changes in Equity

Note 1 – Organization and nature of business


					Accumulated
			Additional		Other
	Common Stock		Paid in	Accumulated	Comprehensive	Total	Noncontrolling	Total
	Number	Par Value	Capital	Deficit	Income	CHWG	Interest	Equity (deficit)

Balance as of January 1, 2010	139,383,450	$ 139,383	$ 6,131,532	$ (4,045,147)	$ 1,468,759	$ 3,694,527	$ (311,621)	$ 3,382,906

Comprehensive income (loss):
Net loss	-	-	-	(8,003,910)	-	(8,003,910)	(59,970)	(8,063,880)
Other comprehensive income:
Foreign currency translation adjustment	-	-	-	-	363,230	363,230	(12,145)	351,085
Comprehensive loss	-	-	-	-	-	(7,640,680)	(72,115)	(7,712,795)


Balance as of December 31, 2010	139,383,450	$ 139,383	$ 6,131,532	$ (12,049,057)	$ 1,831,989	$ (3,946,153)	$ (383,736)	$ (4,329,889)

Common stock issued for acquisition of a	29,750,000	29,750	5,920,250	-	-	5,950,000	-	5,950,000
subsidiary
Comprehensive income (loss):
Net loss	-	-	-	(1,077,671)	-	(1,077,671)	(49,027)	(1,126,698)
Other comprehensive income:
Foreign currency translation adjustment	-	-	-	-	398,142	398,142	(15,190)	382,952
Comprehensive loss	-	-	-	-	-	(679,529)	(64,217)	(743,746)

Balance as of December 31, 2011	169,133,450	$ 169,133	$ 12,051,782	$ (13,126,728)	$ 2,230,131	$ 1,324,318	$ (447,953)	$ 876,365

~~In these~~The accompanying notes, ~~the~~are ~~terms~~an ~~“CHWG,”~~integral ~~“we,”~~part ~~“us,”~~of ~~“our”~~these ~~and~~consolidated ~~“the~~financial ~~Company” mean China Water Group, Inc~~statements. ~~(formerly China Evergreen Environmental Corporation) and subsidiary companies.~~ F-5

~~We were~~CHINA ~~organized~~WATER ~~as a Nevada corporation on September 10~~GROUP, ~~1996 under the name “Discovery Investments, Inc~~INC.~~” and were previously engaged in the business of seeking, investing and, acquiring an interest in various business opportunities.~~

~~On October~~Consolidated ~~15,~~Statements ~~2004, we were subject to the reverse acquisition by Evergreen Asset Group Limited, an International Business Company organized under the laws~~ of ~~the~~Cash British Virgin Islands (“Evergreen”), pursuant to which we 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 (the “Reverse Acquisition”). Following the close of the Reverse Acquisition, we changed our corporate name from “Discovery Investments, Inc.” to “China Evergreen Environmental Corporation.” On November 7, 2006, we changed our name to “China Water Group, Inc.” to reflect our focus on China’s water treatment and supply needs.Flows

As a result of the Reverse Acquisition, Evergreen became our wholly owned subsidiary. Evergreen has three majority owned subsidiaries: Guang Dong Xin Xing Mei Biology Company Limited (“Xinxingmei”), and Hai Yang City Sheng Shi Environment Protection Company Limited (“Haiyang”). Through Xinxingmei and Haiyang, we provide wastewater turn-key engineering, equipment and chemical trading. Evergreen currently holds 90% of Xinxingmei. Xinxingmei provides turn-key wastewater treatment engineering design and contracting. Xinxingmei 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 (“Tian Jin”), which commissioned water treatment in November 2003 and has a daily treatment capacity of approximately 10,000 cubic meters and (ii) Xin Le Sheng Mei Water Purifying Company Limited (“Xin Le”), which also commissioned water treatment in November 2003 and has a daily treatment capacity of 40,000 cubic meters. Xinxingmei was retained to manage both Tian Jin and Xin Le.


	For the Years Ended December 31,
	2011	2010
Cash flows from operating activities:
Net loss	$ (1,126,698)	$ (8,063,880)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization	184,274	150,148
Provision for bad debt	46,173	29,727
Impairment loss on goodwill	472,984	7,499,608
Gain on fair value of financial instruments	(36,859)	(107,016)
Changes in operating assets and liabilities :
Accounts receivable	(4,958)	120,528
Inventory	11,526	45,612
Other current assets	66,775	33,334
Accounts payable and accrued expenses	(13,835)	(29,905)
Income tax payable	-	(66,432)
Other current liabilities	16,627	14,843
Total adjustments	742,707	7,690,447

Net cash used in operating activities	(383,991)	(373,433)

Cash flows from investing activities:
Due from related company	(99,570)	-
Acquisition of property, plant and equipment	(83,773)	(140,316)
Acquisition of intangible assets	(279)	(222)
Disposal of subsidiary – Evergreen, net of cash	1,239,680	-

Net cash provided by (used in) investing activities	1,056,058	(140,538)

Cash flows from financing activities:
Due to shareholders	32,816	272,879
Due to related companies	(2,898,163)	233,620
Proceeds from long-term bank loan	2,324,400	-

Net cash provided by (used in) financing activities	(540,947)	506,499

Effect of foreign currency translation on cash and cash equivalents	2,962	848

Net increase (decrease) in cash and cash equivalents	134,082	(6,624)

Cash and cash equivalents - beginning	23,873	30,497

Cash and cash equivalents - ending	$ 157,955	$ 23,873

Supplemental schedule of non-cash activities:
Issuance of common stock pursuant to conversion of other payables for acquisition of a subsidiary	$ 5,950,000	$ -

The ~~principal~~ ~~activities~~accompanying ofnotes ~~the Company were~~ are ~~the~~an ~~research~~integral ~~and~~part ~~development~~ of ~~waste~~these ~~water,~~consolidated ~~garbage~~financial ~~treatment and aqueous purifying techniques, investment and construction of waste water treatment plant and sales of environment protection related products~~statements. ~~The Company is now engaged in the production, sales and marketing of the bottled water.~~F-6

~~On January~~CHINA 8,WATER ~~2008~~GROUP, the Chinese government approved the sale of Evergreen’s 58% of the total equity interest in Guang Dong Xin Xing Mei Biology Company Limited (“Xinxingmei”) to Wenming Pu at a total consideration of RMB 7,308,600INC. ~~After completing the transfer formalities, Evergreen held 32% of total equity of Xinxingmei, instead of the previous 90% interest.~~

~~On January~~Notes 23, 2008, the Chinese government approved China Water Group Inc’s. acquisition of 90% equity interest in Guangzhou Xinchen Water Company Limited from Fortune Luck Global International Limited. Guangzhou Xinchen Water Company Limited owns 100% equity interest of Aba Xinchen Dagu Glacier Spring Co., Limited. The acquisition was completed for a consideration of $13.45 million, of which $7.5 million was paid in cash, and the remaining $5.95 million will be paid in the future. The primary reason for the acquisition was to ~~enter~~Consolidated ~~into~~Financial the bottled water industry. The Company recorded a liability of $5.95 million, which represented the fair value of stock calculated based on US$ 0.2 per share, with reference to contemporaneous prices of the Company’s common stock on the Pink Quote, with total of 29.75 million shares. This liability does not represent a contingent liability as defined under paragraph 25 of SFAS 141. Approximately $13 million of the purchase price of $13.45 million was assigned to goodwill as the net asset of Aba Xinchen Dagu Glacier Spring Co., Limited. was minimum at the acquisition date. The consolidated statement of operations for the twelve months ended December 31, 2008 included the twelve-month results of operations of Aba Xinchen Dagu Glacier Spring Co., Limited.Statements

7NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

~~CHINA WATER~~In ~~GROUP~~these notes, ~~INC~~the terms “CHWG,” “we,” “us,” “our” and “the Company” mean China Water Group, Inc. (formerly China Evergreen Environmental Corporation) and subsidiary companies.

~~Notes to~~We ~~Consolidated~~were ~~Financial~~organized ~~Statements~~as a Nevada corporation on September 10, 1996 under the name “Discovery Investments, Inc.” and were previously engaged in the business of seeking, investing and, acquiring an interest in various business opportunities.

~~Note 1~~On –October 15, ~~Organization~~2004, we were subject to the 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 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 ~~nature~~outstanding shares of ~~business~~Evergreen capital stock transferred to us by the Evergreen shareholders at the closing (~~continued~~the “Reverse Acquisition”). Following the close of the Reverse Acquisition, we changed our corporate name from “Discovery Investments, Inc.” to “China Evergreen Environmental Corporation.” On November 7, 2006, we changed our name to “China Water Group, Inc.” to reflect our focus on China’s water treatment and supply needs.

~~In January,~~As ~~2009,~~a result of the ~~Group~~Reverse ~~sold~~Acquisition, ~~100%~~Evergreen ofbecame ~~the~~our ~~equity~~wholly ~~interest~~owned insubsidiary. Evergreen tohas ~~Whole~~three ~~Treasure~~majority ~~Investment~~owned ~~Ltd.~~subsidiaries: atGuang aDong ~~total~~Xin ~~consideration of~~Xing ~~RMB~~Mei 19Biology Company Limited (“Xinxingmei”),~~000,000~~ and Hai Yang City Sheng Shi Environment Protection Company Limited (~~approximately~~“Haiyang”). $2Through Xinxingmei and Haiyang,~~784~~ we provide wastewater turn-key engineering,~~450)~~ equipment and chemical trading. ~~After~~Evergreen ~~completing~~then holds 90% of Xinxingmei. Xinxingmei provides turn-key wastewater treatment engineering design and contracting. Xinxingmei also holds 90% and 35% respectively in the ~~transfer~~equity ~~formalities~~interest of the following two water treatment facilities operated through build, operate and transfer (“BOT”) arrangements with the ~~Group~~PRC nogovernment: ~~longer~~(i) Tian ~~possesses~~Jin ~~any~~Shi ~~share~~ Sheng Water Treatment Company Limited (“Tian Jin”), which commissioned water treatment in ~~Evergreen.~~November As2003 and has a daily treatment capacity of ~~December~~approximately 3110,000 ~~2010~~cubic meters and (ii) Xin Le Sheng Mei Water Purifying Company Limited (“Xin Le”), ~~the~~which ~~receivable~~also ~~for~~commissioned ~~disposal~~water oftreatment ~~Evergreen~~in isNovember $12003 and has a daily treatment capacity of 40,~~213,600~~000 cubic meters. Xinxingmei was retained to manage both Tian Jin and Xin Le.

~~On February~~The ~~26,~~principal ~~2009,~~activities ~~Guangzhou~~of ~~Xinchen~~the ~~Water~~ Company ~~established~~were athe ~~subsidiary,~~research ~~Chengdu~~and ~~Jiuqiannian~~development ~~Water~~of ~~Company~~waste water, ingarbage ~~the~~treatment ~~PRC~~and ~~as a~~aqueous ~~wholly-owned~~purifying ~~limited~~techniques, ~~liability~~investment ~~company~~and ~~with~~construction ~~registered~~of ~~capital~~waste water treatment plant and sales of ~~RMB~~environment ~~500,000~~protection ~~(approximately~~related ~~$73~~products. The Company is now engaged in the production,~~250)~~ sales and marketing of the bottled water.

On ~~August~~ 24January 8, ~~2009~~2008, ~~Guangzhou~~the ~~Xinchen~~Chinese ~~Water~~government ~~Company~~approved ~~established~~the asale ~~subsidiary,~~of ~~Beijing~~Evergreen’s ~~Jiuqiannian~~58% ~~Water~~of ~~Company~~the ~~Ltd.,~~total equity interest in ~~the~~Guang ~~PRC as~~Dong aXin ~~wholly-owned~~Xing ~~limited~~Mei ~~liability~~Biology ~~company~~Company ~~with~~Limited ~~registered~~(“Xinxingmei”) ~~capital~~to Wenming Pu at a total consideration of RMB ~~300~~7,~~000~~308,600. ~~(approximately~~After ~~$43~~completing the transfer formalities,~~971)~~ Evergreen held 32% of total equity of Xinxingmei, instead of the previous 90% interest.

~~Note~~ On January 23, 2008, the Chinese government approved China Water Group Inc’s. acquisition of 90% equity interest in Guangzhou Xinchen Water Company Limited from Fortune Luck Global International Limited. Guangzhou Xinchen Water Company Limited owns 100% equity interest of Aba Xinchen Dagu Glacier Spring Co., Limited. The acquisition was completed for a consideration of $13.45 million, of which $7.5 million was paid in cash, and the remaining $5.95 million will be paid in the future. The primary reason for the acquisition was to enter into the bottled water industry. The Company recorded a liability of $5.95 million, which represented the fair value of stock calculated based on US$ 0.2 –per ~~Summary~~share, with reference to contemporaneous prices of ~~significant~~the ~~accounting~~Company’s ~~policies~~common stock on the Pink Quote, with total of 29.75 million shares. Approximately $13 million of the purchase price of $13.45 million was assigned to goodwill since the net asset of Aba Xinchen Dagu Glacier Spring Co., Limited. was minimum at the acquisition date (see Note 8).

~~Basis~~ On January 26, 2011, the Company issued 29.75 million shares of ~~Presentation~~its ~~and~~common ~~Consolidation~~stock to Fortune Luck Global International Limited to settle the $5.95 million remaining purchase price incurred for the acquisition.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements include the financial statements of CHWG and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation.F-7

~~In preparing~~CHINA ~~the~~WATER ~~accompanying consolidated financial statements~~GROUP, ~~the Company evaluated the period from December 31, 2010 through the date when the financial statements were issued for material subsequent events requiring recognition or disclosure~~INC. ~~(see Note 19)~~

~~Use of~~Notes ~~Estimates~~to Consolidated Financial Statements

~~The preparation~~NOTE of1 ~~consolidated~~– ~~financial~~ORGANIZATION ~~statements~~AND inNATURE ~~conformity~~OF ~~with~~BUSINESS US GAAP requires the Company 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 these consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates under different assumptions or conditions.(CONTINUED)

~~Risk and~~In ~~Uncertainties~~January, 2009, the Company sold 100% of the equity interest in Evergreen to Whole Treasure Investment Ltd. at a total consideration of RMB 19,000,000 (approximately $2,784,450). After completing the transfer formalities, the Company no longer holds any share in Evergreen. On October 28, 2011, the Company collected the remaining receivables on disposal of Evergreen.

~~The Company's~~On ~~operations~~February ~~are carried out in the PRC. Accordingly~~26, ~~the Company's business~~2009, ~~financial~~Guangzhou ~~condition~~Xinchen ~~and~~Water ~~results~~Company ofestablished ~~operations may~~a besubsidiary, ~~influenced~~Chengdu byJiuqiannian ~~the~~Water ~~PRC’s political~~Company, ~~economic~~in ~~and legal environments as well as by~~ the ~~general state of the~~ PRC~~’s economy.~~ ~~The~~as ~~Company's~~a ~~business~~wholly-owned ~~may~~limited beliability ~~influenced~~company ~~by changes in governmental policies~~ with ~~respect~~registered tocapital ~~laws~~of ~~and~~RMB ~~regulations~~500,000 ~~anti-inflationary measures,~~(approximately ~~currency conversion and remittance abroad~~$73, ~~and rates and methods of taxation, among other things~~250).

~~Revenue Recognition~~On August 24, 2009, Guangzhou Xinchen Water Company established a subsidiary, Beijing Jiuqiannian Trading Company Ltd., in the PRC as a wholly-owned limited liability company with registered capital of RMB 300,000 (approximately $43,971).

~~We recognize~~NOTE revenue using various revenue recognition policies based on the nature of the sale and the terms of the contract. Revenues from sale of bottled water are recognized when goods are delivered. The contractual terms of the purchase agreements dictate the recognition of revenues by us. We recognize revenue in accordance with Staff Accounting Bulletin No. 104,codified in ASC Topic 480 Accordingly, four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) ~~delivery~~– ~~has~~SUMMARY ~~occurred;~~OF ~~(3)~~SIGNIFICANT ~~the~~ACCOUNTING selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products or services delivered and the collectability of those amounts. 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. We defer any revenue for which the product has not been delivered or is subject to refund until such time that we and our customer jointly determine that the product has been delivered or no refund will be required.POLICIES

8Basis of Presentation and Consolidation

~~CHINA WATER~~The ~~GROUP,~~accompanying ~~INC~~consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements include the financial statements of CHWG and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation.

~~Notes to~~In ~~Consolidated~~preparing ~~Financial~~the ~~Statements~~accompanying audited consolidated financial statements, the Company evaluated the period from December 31, 2011 through the date the financial statements were issued for material subsequent events requiring recognition or disclosure. No such event was noted.

~~Note 2~~Use ~~– Summary~~ of ~~significant accounting policies (continued)~~Estimates

~~Cash~~ The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and ~~Cash~~assumptions ~~Equivalents~~that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates under different assumptions or conditions.

~~In accordance~~Risk ~~with~~and ASC 230-10 (formerly SFAS No. 95, “Statement of Cash Flows”), the Company considers all highly liquid investments with an original maturity of three months or less to be “cash equivalents”. Because of the short maturity of these investments, the carrying amounts approximate their fair value.Uncertainties

~~Accounts Receivable~~The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the PRC’s political, economic and legal environments as well as by the general state of the PRC’s economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

~~Accounts receivable~~Revenue are stated at historical cost, net of allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of accounts receivables and other receivables. A considerable amount of judgment is required in assessing the amount of the allowance; the Company considers the historical level of credit losses and applies percentages to aged receivable categories. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.Recognition

~~Bad debts~~We ~~are~~recognize ~~written~~revenue ~~off~~using various revenue recognition policies based on the nature of the sale and the terms of the contract. Revenues from sale of bottled water are recognized when ~~identified~~goods are delivered. The ~~Company~~contractual ~~extends~~terms ~~unsecured~~of ~~credit~~the purchase agreements dictate the recognition of revenues by us. We recognize revenue in accordance with Staff Accounting Bulletin No. 104, codified in ASC Topic 480. Accordingly, four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products or services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, ~~ranging~~estimated ~~from~~returns ~~three~~and toallowances, ~~six~~and ~~months~~other adjustments are provided for in the ~~normal~~ ~~course~~same ofperiod ~~business~~the related sales are recorded. ~~The~~We ~~Company~~defer ~~does~~any revenue for which the product has not ~~accrue~~been ~~interest~~delivered onor ~~accounts~~is ~~receivables~~subject to refund until such time that we and our customer jointly determine that the product has been delivered or no refund will be required.

Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by the management and no significant additional bad debts have been written off directly to the profit and loss.F-8

~~The balance~~CHINA ofWATER ~~allowance for doubtful accounts amounted to $721~~GROUP,~~788~~ ~~and $ $668,520 as of December 31, 2010 and 2009, respectively~~INC.

~~Inventory~~Notes to Consolidated Financial Statements

~~Inventories are~~NOTE ~~stated~~2 at– ~~the~~SUMMARY ~~lower~~OF ofSIGNIFICANT ~~cost,~~ACCOUNTING ~~determined~~POLICIES on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The management will write down the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.(CONTINUED)

~~Cost of~~Cash ~~Sales~~and Cash Equivalents

~~Cost of~~In ~~sales~~accordance ~~comprises~~with ASC 230-10 (formerly SFAS No. 95, “Statement of ~~labor~~Cash ~~and~~Flows”), ~~other~~the ~~cost~~Company considers all highly liquid investments with an original maturity of ~~personnel~~three ~~directly~~months ~~engaged~~or inless ~~providing~~to ~~the~~be ~~product~~“cash equivalents”. asBecause ~~well~~of asthe ~~amortization expense~~short ~~and~~maturity ~~raw~~of ~~materials~~these investments, the carrying amounts approximate their fair value.

~~Property, Plant~~Accounts ~~and Equipment~~Receivable

~~Property, plant~~Accounts ~~and~~receivable ~~equipment~~ are stated at historical cost, ~~less~~net ~~accumulated~~of ~~depreciation~~allowance ~~and~~for ~~amortization~~doubtful ~~and~~accounts. ~~impairment~~The ~~loss.~~Company ~~Maintenance,~~establishes ~~repairs~~ an allowance for doubtful accounts based on management’s assessment of the collectability of accounts receivables and ~~betterments,~~other ~~including~~receivables. ~~replacement~~A considerable amount of ~~minor~~judgment ~~items,~~is ~~are~~required ~~charged~~in toassessing ~~expense~~the amount of the allowance; ~~major~~the ~~additions~~Company toconsiders ~~physical~~the ~~properties~~historical ~~are~~level ~~capitalized~~of credit losses and applies percentages to aged receivable categories. ~~Depreciation~~ The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations, and ~~amortization~~monitors ~~are~~current ~~provided~~economic ~~using~~trends that might impact the ~~straight-line~~level ~~method~~of ~~over~~credit losses in the ~~following~~future. ~~estimated~~If ~~useful~~the ~~lives:~~financial condition of the customers were to deteriorate, resulting in their inability to make payments, a larger allowance may be required.

		Estimated Useful Life
Office equipment		5 years
Furniture and fixtures		5 years
Tools and equipment		5 years
Motor vehicles		10 years

Bad debts are written off when identified. The Company extends unsecured credit to customers ranging from three to six months in the normal course of business. The Company does not accrue interest on accounts receivables.

9Historically, losses from uncollectible accounts have not significantly deviated from the general allowance estimated by the management and no significant additional bad debts have been written off directly to the profit and loss.

~~CHINA WATER~~The ~~GROUP~~balance of allowance for doubtful accounts amounted to $746,439 ~~INC~~and $721,788 as of December 31, 2011 and 2010, respectively.

~~Notes to Consolidated Financial Statements~~Inventory

~~Note 2~~Inventories –are ~~Summary~~stated at the lower of ~~significant~~cost, ~~accounting~~determined ~~policies~~on ~~(continued)~~a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. The management will write down the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required.

~~Long-Lived Assets~~Cost of Sales

~~In accordance~~Cost ~~with SFAS No. 144, “Accounting for the Impairment or Disposal~~ of ~~Long-Lived~~sales ~~Assets,”~~comprises ~~codified~~labor inand ~~ASC~~other ~~Topic 360-10-35,~~cost ~~the Company reviews the recoverability~~ of ~~its~~personnel ~~long-lived~~directly ~~assets~~engaged ~~on a periodic basis~~ in ~~order~~providing ~~to identify business conditions, which may indicate a possible impairment. The assessment for potential impairment is based primarily on~~ the Company’s ability to recover the carrying value of its long-lived assets from expected future discounted cash flows. If the total of the expected future discounted cash flows is less than the total carrying value of the assetsproduct, aas ~~loss~~well isas ~~recognized~~raw ~~for~~materials ~~the difference between the fair value (computed based upon the expected future discounted cash flows)~~ and ~~the~~amortization ~~carrying value of the assets~~expense.

~~Intangible Assets~~Property, Plant and Equipment

~~Intangible assets~~Property, plant and equipment are stated at cost less accumulated depreciation and amortization and impairment loss. ~~Intangible~~Maintenance, ~~assets~~repairs ~~with~~and ~~finite~~betterments, ~~life~~including replacement of minor items, are ~~amortized~~charged ~~over~~to ~~their~~expense; ~~estimated~~major ~~useful~~additions ~~life~~to physical properties are capitalized. Depreciation and amortization are provided using the straight-line method. ~~Estimated~~over ~~useful~~the ~~life~~following ofestimated ~~intangible~~useful ~~assets is as follows~~lives:

Estimated Useful Life Land use right 50 years


	Estimated Useful Life
Office equipment	5 years
Furniture and fixtures	5 years
Tools and equipment	5 years
Motor vehicles	5 - 10 years
Building	10 - 20 years

~~Goodwill~~F-9

~~The Company~~CHINA ~~accounts~~WATER ~~for business acquisitions in accordance with ASC 805-10 (formerly SFAS No. 141 “Business Combinations”)~~GROUP, ~~which~~ ~~may result in the recognition of goodwill~~INC. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method. Goodwill is not subject to amortization but will be subject to periodic evaluation for impairment. Goodwill is stated in the consolidated balance sheet at cost less accumulated impairment loss, if any.

~~Fair Value~~Notes ~~Measurement~~to ~~And~~Consolidated Financial ~~Instruments~~Statements

~~The Company~~NOTE ~~adopted~~2 ~~Statement~~– ofSUMMARY ~~Financial~~OF ~~Accounting~~SIGNIFICANT ~~Standards~~ACCOUNTING ~~(“SFAS”)~~POLICIES ~~No. 157, “Fair Value Measurements”~~ (~~“SFAS 157”~~CONTINUED) on January 1, 2009. SFAS 157 has been codified as ASC 820-10, “Fair Value Measurements.” ASC 820-10, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

~~Level 1:~~Long-Lived ~~Observable inputs such as quoted prices in active markets;~~Assets

~~Level 2:~~In ~~Inputs~~accordance with SFAS No. 144, ~~other~~“Accounting ~~than~~for the ~~quoted~~Impairment ~~prices~~or Disposal of Long-Lived Assets,” codified in ~~active~~ASC ~~markets~~Topic 360-10-35, ~~that~~the ~~are~~Company ~~observable~~reviews ~~either~~the ~~directly~~recoverability orof ~~indirectly;~~its long-lived assets on a periodic basis in order to identify business conditions, which may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future discounted cash flows. If the total of the expected future discounted cash flows is less than the total carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected future discounted cash flows) and the carrying value of the assets.

~~Level 3:~~Intangible ~~Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.~~Assets

~~The Company’s~~Intangible ~~financial instruments primarily consist of cash and cash equivalents, accounts receivable, other current~~ assets~~; accounts~~ ~~payable,~~are ~~accrued~~stated ~~expenses,~~at ~~short-term bank loans and other current liabilities~~cost. AsIntangible ofassets ~~the~~with ~~balance~~finite ~~sheet~~life ~~dates,~~are ~~the~~amortized ~~estimated fair~~over ~~values of the financial instruments were not materially different from~~ their ~~carrying~~estimated ~~values~~useful aslife ~~presented~~using ~~due~~straight-line tomethod. ~~the~~Estimated ~~short maturities~~useful oflife ~~these instruments and that the interest rates on the borrowings approximate those that would have been available for loans~~ of ~~similar~~intangible ~~remaining~~assets ~~maturity~~is ~~and~~as ~~risk profile at respective year ends.~~follows:

~~Income Taxes~~Estimated Useful Life Land use right 50 years

The Company utilizes the asset and liability method of accounting for income taxes whereby deferred taxes are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.Goodwill

The Company accounts for business acquisitions in accordance with ASC 805-10 (formerly SFAS No. 141 “Business Combinations”), which may result in the recognition of goodwill. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method. Goodwill is not subject to amortization but will be subject to periodic evaluation for impairment. Goodwill is stated in the consolidated balance sheet at cost less accumulated impairment loss, if any.

~~CHINA WATER~~Fair ~~GROUP,~~Value ~~INC.~~Measurement And Financial Instruments

~~Notes to~~The ~~Consolidated~~Company adopted Statement of Financial ~~Statements~~Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) on January 1, 2009. SFAS 157 has been codified as ASC 820-10, “Fair Value Measurements.” ASC 820-10, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

~~Note 2~~Level –1: ~~Summary~~Observable ofinputs ~~significant~~such ~~accounting~~as ~~policies~~quoted ~~(continued)~~prices in active markets;

~~Earnings (Loss)~~Level ~~Per~~2: ~~Share~~Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

~~Basic earnings~~Level ~~(loss)~~3: ~~per~~Unobservable ~~share~~inputs isin ~~computed~~which bythere ~~dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share~~ is ~~computed~~little ~~similarly~~or tono ~~basic~~market ~~earnings~~data, ~~(loss)~~which ~~per~~require ~~share except that~~ the ~~denominator~~reporting isentity ~~increased~~ to ~~include~~develop ~~the~~its ~~number~~own ~~of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued~~assumptions.

~~Comprehensive Income~~The Company’s financial instruments primarily consist of cash and cash equivalents, accounts receivable, other current assets; accounts payable, accrued expenses, short-term bank loans and other current liabilities. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented due to the short maturities of these instruments and that the interest rates on the borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective year ends.

~~The Company has adopted SFAS No. 130, “Reporting Comprehensive~~ Income”, codified in FASB ASC Topic 220, which establishes rules for the reporting and display of comprehensive income, its components and accumulated balances. SFAS No. 130 (ASC 220) defines comprehensive income to include all changes in equity, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on available-for-sale marketable securities, except those resulting from investments by owners and distributions to owners.Taxes

~~Foreign Currency~~The ~~Translation~~Company utilizes the asset and ~~Transactions~~liability method of accounting for income taxes whereby deferred taxes are determined based on the temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company has evaluated the determination of its functional currency based on the guidance in ASC Topic, “Foreign Currency Matters,” which provides that an entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. On its own, the Company raises financing in the U.S. dollar, pays its own operating expenses primarily in the U.S. dollar, paid dividends to its shareholders of common stock and expects to receive any dividends that may be declared by its subsidiaries in U.S. dollars.F-10

~~Therefore, it~~CHINA ~~has~~WATER ~~been determined that the Company’s functional currency is the U.S. dollar based on the expense and financing indicators~~GROUP, in ~~accordance with the guidance in ASC 830-10-85-5~~INC.

~~The Company~~Notes ~~uses~~to ~~United~~Consolidated ~~States~~Financial dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in RenMinBi (“RMB”), the primary currency of the economic environment in which their operations are conducted. Assets and liabilities of the subsidiaries in RMB are translated into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.Statements

~~The exchange~~NOTE ~~rates~~2 ~~used~~– toSUMMARY ~~translate~~OF ~~amounts~~SIGNIFICANT inACCOUNTING ~~RMB~~POLICIES ~~into US Dollars for the purposes of preparing the consolidated financial statements were as follows:~~(CONTINUED)

	December 31, 2010	December 31, 2009
Balance sheet items, except for stockholders’ equity items	RMB 1: US$0.15170	RMB 1: US$0.14670
Amounts included in the statements of operations,comprehensive loss, and statements of cash flows	RMB 1: US$0.14794	RMB 1: US$0.14661
Stockholders’ equity items	Historical rate	Historical rate

Earnings (Loss) Per Share

11Basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

~~CHINA WATER~~Comprehensive ~~GROUP, INC.~~Income

~~Notes~~ The Company has adopted ASC 220 “Reporting Comprehensive Income” which establishes rules for the reporting and display of comprehensive income, its components and accumulated balances. ASC 220 defines comprehensive income to ~~Consolidated~~include ~~Financial~~all ~~Statements~~changes in equity, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on available-for-sale marketable securities, except those resulting from investments by owners and distributions to owners.

~~Note 2~~Foreign –Currency ~~Summary~~Translation ofand ~~significant accounting policies (continued)~~Transactions

~~Recent Accounting~~The ~~Pronouncements~~Company has evaluated the determination of its functional currency based on the guidance in ASC Topic, “Foreign Currency Matters,” which provides that an entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. On its own, the Company raises financing in the U.S. dollar, pays its own operating expenses primarily in the U.S. dollar, paid dividends to its shareholders of common stock and expects to receive any dividends that may be declared by its subsidiaries in U.S. dollars.

~~In December 2011~~Therefore, ~~the~~it ~~Financial~~has ~~Accounting~~been ~~Standards~~determined ~~Board~~that ~~(“FASB”)~~the ~~issued~~Company’s ~~Accounting~~functional ~~Standards~~currency ~~Update~~is ~~(“ASU”) No.~~the ~~2011-12, Comprehensive Income (Topic 220) (“ASU 2011-12”)~~U.S. ~~ASU~~dollar ~~2011-12~~based ~~allows~~on ~~deferral of~~ the ~~effective~~expense ~~date~~and ~~for amendments~~financing toindicators, ~~the presentation of reclassifications of items out of accumulated other comprehensive income~~ in ~~ASU~~accordance ~~No.~~with ~~2011-05. This update is effective at~~ the ~~same~~guidance ~~time as the amendments~~ in ~~ASU~~ASC ~~No. 2011~~830-0510-85-5. ~~The adoption of this ASU will not have a material impact on the Company’s financial statements.~~

~~In December~~The ~~2011,~~Company ~~FASB~~uses ~~issued~~United ~~ASU~~States Nodollars (“U.S. ~~2011-11,~~Dollar” ~~Balance~~or ~~Sheet~~“US$” ~~(Topic~~or ~~210) (~~“~~ASU 2011-11~~$”). ~~ASU~~for ~~2011-11~~financial ~~provides~~reporting ~~enhanced~~purposes. ~~disclosures that~~The ~~will~~subsidiaries ~~enable~~within ~~users~~the ofCompany ~~its~~maintain ~~financial~~their ~~statements~~books toand ~~evaluate~~records ~~the~~in ~~effect~~RenMinBi or(“RMB”), ~~potential~~the ~~effect~~primary currency of ~~netting~~the ~~arrangements~~economic onenvironment anin ~~entity’s financial~~which ~~position.~~their ~~The~~operations ~~objective~~are ofconducted. ~~this~~Assets ~~update~~and isliabilities ~~to facilitate comparison~~ of ~~entities~~the ~~that~~subsidiaries ~~prepare~~in ~~their~~RMB ~~financial~~are ~~statements on~~translated ~~the~~into ~~basis of~~ U.S. ~~generally~~Dollars ~~accepted~~using ~~accounting~~the ~~principles~~applicable ~~(“GAAP”)~~exchange ~~with~~rates ~~those~~prevailing ~~preparing~~at ~~their~~the ~~financial~~balance ~~statements~~ sheet date. Items on the ~~basis~~statements of ~~International~~income ~~Financial~~and ~~Reporting~~comprehensive ~~Standards~~income ~~(“IFRS”).~~and ~~ASU~~cash ~~2011-11~~flows isare ~~effective~~translated ~~for~~at ~~annual~~average ~~reporting periods~~exchange ~~beginning~~rates onduring orthe ~~after~~reporting ~~January~~period. 1,Equity ~~2013,~~accounts ~~and~~are ~~interim~~translated ~~periods~~at ~~within~~historical ~~those annual periods~~rates. ~~The~~Adjustments ~~adoption~~resulting offrom ~~this~~the ~~ASU~~translation ~~will not~~of ~~have a material impact on~~ the Company’s financial statements are recorded as accumulated other comprehensive income.

~~In June~~The ~~2011,~~exchange ~~the~~rates ~~FASB~~used ~~issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”). ASU 2011-05 eliminates the option~~ to ~~report~~translate ~~other~~amounts ~~comprehensive income and its components~~ in ~~the~~RMB ~~statement~~into ofUS ~~changes~~Dollars in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. This guidance will be effective for the ~~Company~~purposes ~~beginning January 1, 2012. The Company anticipates that the adoption~~ of ~~this~~preparing ~~standard will not change~~ the ~~presentation of its~~ consolidated financial statements. were as follows:

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not materially affect its consolidated financial statements.


	December 31, 2011	December 31, 2010
Balance sheet items, except for stockholders’ equity items	RMB 1: US$0.15740	RMB 1: US$0.15170

Amounts included in the statements of operations, comprehensive loss, and statements of cash flows	RMB 1: US$0.15496	RMB 1: US$0.14794

Stockholders’ equity items	Historical rate	Historical rate

~~Reclassification~~F-11

~~Certain amounts~~CHINA asWATER ~~of December 31~~GROUP, ~~2009 were reclassified for presentation purposes~~INC.

~~Note 3~~Notes –to ~~Inventory~~Consolidated Financial Statements

~~Inventory as~~NOTE of2 ~~December~~– ~~31,~~SUMMARY ~~2010~~OF ~~and~~SIGNIFICANT ~~December~~ACCOUNTING ~~31,~~POLICIES ~~2009 consisted of the following:~~(CONTINUED)

	December 31, 2010		December 31, 2009
Raw materials	$	110,193	$	139,077
Finished goods		135,680		143,922
Total	$	245,873	$	282,999

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12, Comprehensive Income (Topic 220) (“ASU 2011-12”). ASU 2011-12 allows deferral of the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05. This update is effective at the same time as the amendments in ASU No. 2011-05. The adoption of this ASU will not have a material impact on the Company’s financial statements.

~~CHINA WATER~~In ~~GROUP~~December 2011, ~~INC~~FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) (“ASU 2011-11). ASU 2011-11 provides enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The objective of this update is to facilitate comparison of entities that prepare their financial statements on the basis of U.S. generally accepted accounting principles (“GAAP”) with those preparing their financial statements on the basis of International Financial Reporting Standards (“IFRS”). ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU will not have a material impact on the Company’s financial statements.

~~Notes~~ In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”). ASU 2011-05 eliminates the option to ~~Consolidated~~report ~~Financial~~other ~~Statements~~comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not change the presentation of its consolidated financial statements.

~~Note 4~~In –May ~~Other~~2011, ~~Current~~the ~~Assets~~FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not materially affect its consolidated financial statements.

Other current assets consisted mainly of prepayments to vendors for goods and services. The balance of other current assets as of December 31, 2010 and December 31, 2009 was $142,364 and $170,728, respectively.Reclassification

~~Note 5~~Certain –amounts ~~Property,~~as ~~Plant~~of ~~And~~December ~~Equipment~~31, ~~Net~~2010 were reclassified for presentation purposes.

~~Property, plant~~NOTE ~~and~~3 ~~equipment,~~– ~~net as of December 31, 2010 and December 31, 2009 consists of the following:~~INVENTORY

	December 31, 2010		December 31, 2009
Office equipment	$	5,654	$	31,448
Furniture and fixtures		32,521		5,468
Motor vehicles		257,821		249,323
Building and structure		263,780		179,674
Bottled water production equipment		750,578		729,945
Subtotal		1,310,354		1,195,858
Less: Accumulated depreciation		352,410		196,345
		957,944		999,513
Construction in progress		88,437		17,689
Total	$	1,046,381	$	1,017,202

Inventory as of December 31, 2011 and 2010 consisted of the following:

Depreciation expenses for the year ended December 31, 2010 and 2009 amounted to $145,670 and $159,101 respectively.


	December 31,	December 31,
	2011	2010

Raw materials	$ 101,620	$ 110,193
Finished goods	141,784	135,680

Total	$ 243,404	$ 245,873

~~Note 6 – Intangible Assets~~F-12

~~Intangible assets~~CHINA atWATER ~~December 31~~GROUP, ~~2010 and 2009 consist of the following:~~INC.

	December 31, 2010		December 31, 2009
Rights to use land	$	229,815	$	222.021
Less: accumulated amortization		17,140		12,135
Total	$	212,675	$	209,886

Notes to Consolidated Financial Statements

~~Amortization expense~~NOTE ~~for~~4 ~~the~~– ~~years~~DUE ~~ended~~FROM ~~December~~RELATED ~~31, 2010 and 2009 amounted to$4,478, and $2,911 respectively.~~COMPANY

~~Note 7~~As -of ~~Goodwill~~December 31, 2011 and 2010, the Company had outstanding loan to a related company of $101,138 and $0, respectively. The loan is made to Guang Dong Xin Sheng Environmental Protection Company Limited (“GDXS”), in which Mr. Pu, the Chairman of the Board, has equity interests. All amounts are payable on demand, do not bear interest, and are made in good faith.

~~On January~~NOTE ~~23, 2008,~~5 ~~the~~– ~~Company~~OTHER ~~completed~~CURRENT its acquisition of 90% equity interest in Guangzhou Xinchen Water Company Limited from Fortune Luck Global International Limited for a consideration of $13.45 million. Goodwill, which is equal to the excess of cost over the fair value of acquired assets, has been recorded in conjunction with the acquisition. Goodwill is accounted for in accordance with ASC 350 (formerly SFAS 142). Under ASC 350, goodwill is not amortized and is subject to impairment test, at least annually, when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) adverse action or assessment by a regulator. The test of goodwill impairment consists of two steps. First, the identification of potential impairment is performed by comparing the fair value of the reporting unit to its carrying amounts, including goodwill. The company estimates the fair value of reporting unit using a discounted cash flow (“DCF”) model. Second, if there is impairment identified in the first step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 450-10 (formerly SFAS No 141(R)), “Business Combinations”. As of December 31, 2010, the Company’s evaluation of goodwill resulted in an impairment loss of $7,449,608.ASSETS

Balance as of December 31, 2009	$	13,178,494
Foreign currency exchange adjustment		449,165
Impairment loss on goodwill		(7,499,608	)
Adjusted balance as of December 31, 2010	$	6,128,051

Other current assets consisted mainly of prepayments to vendors for goods and services. The balance of other current assets as of December 31, 2011 and 2010 was $30,515 and $142,364, respectively.

13NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

~~CHINA WATER~~Property, ~~GROUP~~plant and equipment, ~~INC.~~net as of December 31, 2011 and 2010 consists of the following:

Notes to Consolidated Financial Statements


	December 31,	December 31,
	2011	2010

~~Note 8~~Office ~~- Warrant Liability~~equipment

~~The fair values of the warrant liability as of December 31~~$ 41, ~~2010 and 2009 were as following:~~382

	December 31, 2010		December 31, 2009
Warrants issued in April 2005, at fair value	$	4,659	$	68,153
Warrants issued in September 2005, at fair value		-		43,522
Shares issued in September 2005, accounted for as liability		32,200		32,200
Total	$	36,859	$	143,875

$ 32,521

~~The Company~~Furniture conducted a private placement in April 2005 (“April Private Placement”) of 20 investment units, at $25,000 per unit, for gross proceeds of $500,000. Each unit consisted of (a) a 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 (“April Warrants”). As a result of the September 2005 private placement, pursuant to Section 5(d) of the warrant agreement, the exercise price has been adjusted to $0.15 per share on September 14, 2005. The debentures were due and payable August 1, 2005. The debenture holders, however, extended the payment period to September 30, 2005. The debentures were converted into 3,703,701 shares of common stock on October 1, 2005.fixtures

The Company used the Black-Scholes model in calculating the fair market value of the April Warrants and allocated $148,531, $74,266 and $185,664 of the $408,461 net proceeds to the Convertible Debenture, the Bifurcated Conversion Feature of the Debenture and the April Warrants, respectively. The differences between the fair value of each of the Convertible Debenture, the Bifurcated Conversion Feature of the Debenture and the April Warrants and the respective allocated amounts are recorded as non-cash financing charges and expensed at the date of issuance. The principal assumptions used in the computation of the April Warrants are: expected term of 10 years; a risk-free rate of return of 4~~.24%; dividend yield of zero percent; and a volatility of 70%.~~,304

~~The Company granted to the holders of the April Warrants certain piggy-back and demand registration rights. Pursuant to the agreements surrounding the April Private Placement~~5, in the event that the Company determined to undertake a registration of securities, the Company would include, at the request of the holder of “Registrable Securities”, the Registrable Securities in the registration statement. If the Company did not file a registration statement by the 120th day from the closing of such financing, and the Company shall have received a written request signed by the holders holding the majority of the Registrable Securities, then the Company was obligated to file, at its expense, a registration statement covering the Registrable Securities. Once such registration statement has been filed and declared effective, the Company is obligated to keep such registration statement effective until the earlier of (i) the date that all of the Registrable Securities have been sold pursuant to such registration statement, (ii) all Registrable Securities have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (iii) all Registrable Securities may be sold at any time, without volume or manner of sale limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act. As of December 31, 2010, the Company has not received any written request signed by the holders holding the majority of the Registrable Securities.654

14Motor vehicles

~~CHINA WATER GROUP~~352, ~~INC.~~317

~~Notes to Consolidated Financial Statements~~257,821

~~Note 8 - Warrant Liability (continued)~~Building

~~Under ASC 815-40-05~~ 261, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, the fair value of the April Warrants should be reported as a liability. Pursuant to the related warrant agreement, because there is currently no effective registration statement covering the shares of common stock underlying these warrants, these warrants are currently subject to a cashless exercise whereby the warrant holders may surrender their warrants to the company in exchange for shares of common stock. The number of shares of common stock into which a warrant would be exchangeable in such a cashless exercise depends on both the exercise price of the warrants and the market price of the common stock, each at or near the time of exercise. Because both of these factors are variable, it is possible that we could have insufficient authorized shares to satisfy a cashless exercise. In this scenario, if we were unable to obtain shareholder approval to increase the number of authorized shares, we could be obligated to settle such a cashless exercise with cash rather than by issuing shares of common stock. Further, ASC 815-40-05 requires that we record the potential settlement obligation at each reporting date using the current estimated fair value of the warrants, with any changes being recorded through our statement of operations. We will continue to report the potential settlement obligation as a liability until such time as the warrants are exercised or expire or we are otherwise able to modify the warrant agreement to remove the provisions which require this treatment.885

The conversion feature of the convertible debenture issued in April did not qualify for the scope of exception from the provisions of SFAS 133 because the convertible debentures are convertible into a variable number of shares. As such 263, the conversion feature was bifurcated from the convertible debenture and accounted for as a derivative at fair value with changes in fair value recorded in earnings. Upon the conversion of the convertible debentures in October 2005, the convertible debentures were recorded in equity as additional capital.780

~~On September~~Bottled ~~14,~~water ~~2005,~~production the Company closed the private placement sale to accredited investors of units consisting of shares of our common stock and warrants to purchase shares of our common stock for aggregate gross proceeds of $4.83 million (“September Private Placement”). Pursuant to the subscription agreements entered into with the investors, we issued to the investors 161 units at a price of $30,000 per unit. Each unit consisted of 200,000 shares of our common stock, priced at $0.15 per share, and warrants to purchase 200,000 shares of our common stock over a five year period at an exercise price of $0.20 per share. Pursuant to the terms of the subscription agreements, we granted the investors limited registration rights for all common shares comprising the units, including the common shares issuable on exercise of the warrants. The Company also issued to Westminster Securities Corporation, as partial compensation for their placement agent services 7,728,000 placement agent warrants to purchase one share each of our common shares, a portion of which has been assigned by Westminster Securities Corporation to certain of its officers and employees (the warrants issued in the September Private Placement together with the placement agent warrants are hereinafter referred to as “September Warrants”).equipment

~~The Company used the Black-Scholes model in calculating the fair market value of the September Warrants and allocated $4~~ 868,140,535 of the $4,172,735 net proceeds to the September Warrants. The difference between the fair value of the September Warrants and the allocated amount is recorded as non-cash financing charges and expensed of at the date of issuance. The principal assumptions used in the computation of the September Warrants are: expected term of 5 years; a risk-free rate of return of 4.24%; dividend yield of zero percent; and a volatility of 70%.412

~~Under the subscription agreement for the September Private Placement~~ 750, we agreed to prepare and file with the SEC (and did so file), at our own expense, a registration statement covering the registrable securities related to that placement. We agreed that in the event that the registration statement is not declared effective by the SEC within the earlier of 120 days from the final closing, or three (3) business days of clearance by the Commission to request effectiveness, we would pay to the investors in the September Private Placement liquidated damages in the amount of 2.0% of the purchase price of the registrable securities for each month until the registration statement is declared effective. These liquidated damages began accruing on January 12, 2006. We agreed that if we do not remit payment of these liquidated damages, we will pay the investors in the September Private Placement interest at the rate of 12% per year until the liquidated damages are paid in full. The subscription agreement provides that if a registration statement is not effective at any time after one year following the issuance date of the September Warrants, these liquidated damages obligations will stop accruing. As of September 14, 2006 the liquidated damages obligations stopped accruing. As of December 31, 2010, we have made an accrual of $1,324,735 for registration right liability.578

15Subtotal

~~CHINA WATER GROUP~~1, ~~INC.~~528,300

~~Notes to Consolidated Financial Statements~~1,310,354

~~Note 8~~ Less: -Accumulated ~~Warrant Liability (continued)~~depreciation

~~The fair value of the warrants liability as of December 31~~ 548, ~~2010 was $36,859, which was calculated by Binominal Option Pricing model.~~062

~~Under ASC 815-40-05~~ 352, contracts that include any provision that could require net-cash settlements cannot be accounted for as equity. Accordingly, the proceeds of the September Private Placement allocated for par value of the common stock and the September Warrants have been recorded as a liability on the balance sheet. Upon the effectiveness of the registration statement, the amount will be recorded as equity.410

~~Note 9 – Accrued Expenses~~ 980,238

~~Accrued expenses as of December 31~~957, ~~2010 and December 31, 2009 consist of the following:~~944

	December 31, 2010		December 31, 2009
City maintenance construction tax and value added tax	$	14,271	$	39,466
Contribution for employee welfare plan		41,220		39,650
Registration right liability		1,324,735		1,324,735
Income taxes payable		-		65,875
Total	$	1,380,226	$	1,469,726

Construction in progress

~~Note 10 – Other Current Liabilities~~ 8,142

~~Other current liabilities as of December 31~~ 88, ~~2010 and December 31, 2009 consist of the following:~~437

	December 31, 2010		December 31, 2009
Other payables	$	284,128	$	262,016
Customer deposits		126,623		95,025
Total	$	410,751	$	357,041

Total

~~Note 11 – Due to Related Companies~~$ 988,380

~~As of December 31, 2010 and December 31, 2009, the balance due to related companies was~~ $3 1,~~115~~046,298 and $2,780,956, respectively. This balance represents financing obtained from Guang Dong Xin Sheng Environmental Protection Company Limited (“GDXS”) and Beijing Zhao Cheng Chuang Zhan Investment Company Limited (“BJZC”) in which Mr. Pu, the Chairman of the Board, has equity interests. All amounts are non-interest-bearing, unsecured and repayable on demand.381

~~Note 12~~Depreciation –expenses ~~Due~~for the year ended December 31, 2011 and 2010 amounted to ~~Affiliated~~$179,584 ~~Companies~~and $145,670, respectively.

~~As of~~NOTE ~~December~~7 ~~31,~~– ~~2010~~INTANGIBLE and December 31, 2009, the balance due to affiliated companies was $2,034,407, and $1,967,353, respectively. This balance represents financing obtained from Guang Dong Xin Xing Mei Biology Company Limited (“Xinxingmei”). All amounts are non-interest-bearing, unsecured and repayable on demand.ASSETS

~~Note 13~~Intangible –assets ~~Income~~at ~~Taxes~~December 31, 2011 and 2010 consist of the following:

The Company was incorporated in the State of Nevada and therefore, is not subject to any income tax according to the rules and regulations of the State of Nevada. The Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC and are subject to statutory income tax rate of 25%. For the years ended December 31, 2010 and 2009, the income tax provision for the Company was $420 and $120,298, respectively.


	December 31, 2011	December 31, 2010

Rights to use land	$ 238,734	$ 229,815
Less: accumulated amortization	22,549	17,140

Total	$ 216,185	$ 212,675

16Amortization expense for the years ended December 31, 2011 and 2010 amounted to $4,690, and $4,478, respectively.

~~Note~~ F-13 ~~– Income Taxes (continued)~~

	For the Years Ended December 31,
	2010		2009
Current	$	420	$	120,298
Deferred		-		-
Total provision for income taxes	$	420	$	120,298

CHINA WATER GROUP, INC.

~~A reconciliation~~Notes ~~of the provision for income taxes with amounts determined by applying the statutory income tax rate~~ to ~~income~~Consolidated ~~before income~~Financial ~~taxes is as follows:~~Statements

	For the Years Ended December 31,
	2010			2009
Computed tax @ statutory rate of 25% $(8,063,460)25% and $(743,057)25% for December 31, 2010 and 2009, respectively)	$	(2,015,865	)	$	(185,764	)
Non deductible expense	$	7,431		$	165,696
Current year losses from PRC subsidiaries	$	142,809		$	91,631
Current year losses from U.S. parent holding company not subject to PRC income taxes	$	1,866,045		$	48,735
Total provision for income taxes	$	420		$	120,298

NOTE 8 - GOODWILL

~~Note 14~~On –January ~~Loss~~23, 2008, ~~Per~~the ~~Share~~Company completed its acquisition of 90% equity interest in Guangzhou Xinchen Water Company Limited from Fortune Luck Global International Limited for a consideration of $13.45 million. Goodwill, which is equal to the excess of cost over the fair value of acquired assets, has been recorded in conjunction with the acquisition. Goodwill is accounted for in accordance with ASC 350 (formerly SFAS 142). Under ASC 350, goodwill is not amortized and is subject to impairment test, at least annually, when events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The test of goodwill impairment consists of two steps. First, the identification of potential impairment is performed by comparing the fair value of the reporting unit to its carrying amount, including goodwill. The Company estimates the fair value of the reporting unit using a discounted cash flow (“DCF”) model. Second, if there is impairment identified in the first step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 450-10 (formerly SFAS No 141(R)), “Business Combinations”. As of December 31, 2011, the Company’s evaluation of goodwill resulted in an impairment loss of $472,984. The following table provides a reconciliation of the beginning and ending carrying amounts of goodwill for the years ended December 31, 2011 and 2010:

The Company presents earnings per share on a basic and diluted basis. Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing income available to common shareholders by the weighted average number of shares outstanding plus the dilutive effect of potential securities. All shares and per share data have been adjusted retroactively to reflect the recapitalization of the Company pursuant to the Securities Exchange Agreement with China Water Group, Inc.


	2011	2010
Goodwill at January 1	$ 6,128,051	$ 13,178,494
Goodwill, net of accumulated impairment losses	6,128,051	13,178,494
Impairment losses during the year	472,984	7,499,608
Goodwill, net of impairment losses at December 31	5,655,067	5,678,886
Foreign currency exchange adjustment	512,047	449,165
Adjusted goodwill at December 31	$ 6,167,114	$ 6,128,051

	For the Years Ended December 31,
	2010			2009
Net loss attributable to CHWG	$	(8,003,910	)	$	(792,343	)
Weighted average common shares
(denominator for basic income per share)		139,383,450			139,383,450
Effect of dilutive securities:		-			-
Weighted average common shares
(denominator for diluted income per share)		139,383,450			139,383,450
Basic loss per share	$	(0.06	)	$	(0.00	)
Diluted loss per share	$	(0.06	)	$	(0.00	)

NOTE 9 - WARRANT LIABILITY

17The fair values of the warrant liability as of December 31, 2011 and 2010 were as following:

As the April Warrants and the September Warrants are anti-dilutive, they are being excluded from the calculation of diluted loss per share.


	December 31, 2011	December 31, 2010

Warrants issued in April 2005,
at fair value	$ -	$ 4,659
Shares issued in September 2005,
accounted for as liability	-	32,200

Total	$ -	$ 36,859

~~Note~~ The Company conducted a private placement in April 2005 (“April Private Placement”) of 20 investment units, at $25,000 per unit, for gross proceeds of $500,000. Each unit consisted of (a) a 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 (“April Warrants”). As a result of the September 2005 private placement, pursuant to Section 5(d) of the warrant agreement, the exercise price has been adjusted to $0.15 –per ~~Employee~~share ~~Welfare~~on ~~Plan~~September 14, 2005. The debentures were due and payable August 1, 2005. The debenture holders, however, extended the payment period to September 30, 2005. The debentures were converted into 3,703,701 shares of common stock on October 1, 2005.

The Company has established an employee welfare plan in accordance with Chinese law and regulations. The Company makes monthly contributions of 12% of all employees' salaries to the employee welfare plan.F-14

~~Note 16~~CHINA –WATER ~~Risk~~GROUP, ~~of Concentrations in Sales and Purchases~~INC.

~~Two major~~Notes customers accounted for approximately 16% for the Company’s sales for the year ended December 31, 2010. Two major customers accounted for approximately 42% of the Company’s sales for the year ended December 31, 2009. Total sales to ~~these customers~~Consolidated ~~were~~Financial ~~$41,725 and $526,741, for the years ended December 31, 2010 and 2009, respectively.~~Statements

~~For the~~NOTE ~~year~~9 ~~ended~~- ~~December~~WARRANT ~~31,~~LIABILITY 2010, two major vendors accounted for approximately 67% of the Company’s cost for purchases. For the year ended December 31, 2009, three major vendors accounted for approximately 69% of the Company’s cost for purchases. Total purchases from these vendors were $52,860and $147,137 for the years ended December 31, 2010 and 2009, respectively.(CONTINUED)

~~Financial instruments~~The ~~which~~Company ~~potentially~~used ~~subject~~the Binomial Option Pricing Model in calculating the ~~Company~~fair market value of the April Warrants and allocated $148,531, $74,266 and $185,664 of the $408,461 net proceeds to ~~credit~~the ~~risk~~Convertible ~~consist~~Debenture, ~~principally~~the Bifurcated Conversion Feature of ~~cash~~the onDebenture ~~deposit~~and ~~with~~the ~~financial~~April ~~institutions~~Warrants, respectively. ~~Management~~ ~~believes~~The ~~that~~differences between the ~~financial~~fair ~~institutions~~value ~~that~~of ~~hold~~each of the ~~Company’s~~Convertible ~~cash~~Debenture, the Bifurcated Conversion Feature of the Debenture and ~~cash~~the ~~equivalents~~April Warrants and the respective allocated amounts are ~~financially~~recorded ~~sound~~ as non-cash financing charges and ~~minimal~~expensed ~~credit~~at the date of issuance. The principal assumptions used in the computation of the April Warrants are: expected term of 10 years; a risk-free ~~exists~~rate ~~with~~of ~~respect~~return toof ~~these~~4.24%; ~~investments~~dividend yield of zero percent; and a volatility of 70%.

~~Note 17~~The Company granted to the holders of the April Warrants certain piggy-back ~~Supplemental~~and ~~Disclosure~~demand registration rights. Pursuant to the agreements surrounding the April Private Placement, in the event that the Company determined to undertake a registration of ~~Cash~~securities, ~~Flow~~the ~~Information~~Company would include, at the request of the holder of “Registrable Securities”, the Registrable Securities in the registration statement. If the Company did not file a registration statement by the 120th day from the closing of such financing, and the Company shall have received a written request signed by the holders holding the majority of the Registrable Securities, then the Company was obligated to file, at its expense, a registration statement covering the Registrable Securities. Once such registration statement has been filed and declared effective, the Company is obligated to keep such registration statement effective until the earlier of (i) the date that all of the Registrable Securities have been sold pursuant to such registration statement, (ii) all Registrable Securities have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (iii) all Registrable Securities may be sold at any time, without volume or manner of sale limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act. As of December 31, 2011, the Company has not received any written request signed by the holders holding the majority of the Registrable Securities.

~~The following~~Under ASC 815-40-05, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, the fair value of the April Warrants should be reported as a liability. Pursuant to the related warrant agreement, because there is currently no effective registration statement covering the ~~supplemental~~shares ~~information~~of ~~relating~~common stock underlying these warrants, these warrants are currently subject to a cashless exercise whereby the ~~consolidated~~warrant ~~statements~~holders may surrender their warrants to the company in exchange for shares of common stock. The number of shares of common stock into which a warrant would be exchangeable in such a cashless exercise depends on both the exercise price of the warrants and the market price of the common stock, each at or near the time of exercise. Because both of these factors are variable, it is possible that we could have insufficient authorized shares to satisfy a cashless exercise. In this scenario, if we were unable to obtain shareholder approval to increase the number of authorized shares, we could be obligated to settle such a cashless exercise with cash ~~flows:~~rather than by issuing shares of common stock. Further, ASC 815-40-05 requires that we record the potential settlement obligation at each reporting date using the current estimated fair value of the warrants, with any changes being recorded through our statement of operations. We will continue to report the potential settlement obligation as a liability until such time as the warrants are exercised or expire or we are otherwise able to modify the warrant agreement to remove the provisions which require this treatment.

	For the Years Ended December 31,
	2010		2009
Cash paid for interest	$	-	$	174
Cash paid for income taxes	$	420	$	120,298

The conversion feature of the convertible debenture issued in April did not qualify for the scope of exception from the provisions of SFAS 133 because the convertible debentures are convertible into a variable number of shares. As such, the conversion feature was bifurcated from the convertible debenture and accounted for as a derivative at fair value with changes in fair value recorded in earnings. Upon the conversion of the convertible debentures in October 2005, the convertible debentures were recorded in equity as additional capital.

~~Note 18 – Related Party Sales~~F-15

~~Sales to~~CHINA aWATER ~~related party~~GROUP, ~~Guang Dong Xin Sheng Environmental Protection Company Limited, accounted for approximately 20% and 0% of the Company’s revenue, for the twelve months ended December 31, 2010 and 2009, respectively~~INC. ~~Total sales to a related party were $66,625 and $ 0 for the twelve months ended December 31, 2010 and 2009, respectively.~~

~~Note 19~~Notes –to ~~Subsequent~~Consolidated ~~Event~~Financial Statements

~~On January~~NOTE ~~26,~~9 ~~2011,~~- ~~the~~WARRANT ~~Company~~LIABILITY issued 29,750,000 shares of its common stock, valued at $0.20 per share, to Fortune Luck Global International Limited. The issuance of the stock settled the remaining $5.95 million purchase price the Company incurred for the acquisition of 90% equity interest in Guangzhou Xinchen Water Company Limited. The Company incurred no penalty related to the delay in the time of the delivery of the stock.(CONTINUED)

18Under the subscription agreement for the September Private Placement, we agreed to prepare and file with the SEC (and did so file), at our own expense, a registration statement covering the registrable securities related to that placement. We agreed that in the event that the registration statement is not declared effective by the SEC within the earlier of 120 days from the final closing or three (3) business days of clearance by the Commission to request effectiveness, we would pay to the investors in the September Private Placement liquidated damages in the amount of 2.0% of the purchase price of the registrable securities for each month until the registration statement is declared effective. These liquidated damages began accruing on January 12, 2006. We agreed that if we do not remit payment of these liquidated damages, we will pay the investors in the September Private Placement interest at the rate of 12% per year until the liquidated damages are paid in full. The subscription agreement provides that if a registration statement is not effective at any time after one year following the issuance date of the September Warrants, these liquidated damages obligations will stop accruing. As of September 14, 2006 the liquidated damages obligations stopped accruing. As of December 31, 2011, we have made an accrual of $1,324,735 for registration right liability.

~~On the~~The ~~September~~fair ~~30,~~value ~~2011 , Guangzhou Xinchen Water Co., a subsidiary~~ of the ~~Company~~warrants ~~and~~liability ~~China Construction Bank Co., Ltd. Guangzou Liwan Sub-branch, concluded RMB 15 million ($2.37 million USD) loan agreement (the “Loan Agreement”). The Loan Agreement specifies the loan term~~ as ~~three~~of ~~years~~December ~~commencing from October 9~~31, 2011, awas ~~variable~~$0 ~~loan~~which ~~interest~~was ~~rate~~calculated ~~of equal~~by toBinomial ~~the~~Option ~~benchmark~~Pricing ~~interest rate of People’s Bank of China as in effect from time to time (currently 6~~Model.~~65%) plus 15% resulting in a current rate of 7.65%, The loan proceeds will be used for the Registrant’s working capital needs to expand its bottled water operations.~~

19Under ASC 815-40, contracts that include any provision that could require net-cash settlements cannot be accounted for as equity. Accordingly, the proceeds of the September Private Placement allocated for par value of the common stock and the September Warrants have been recorded as a liability on the balance sheet. Upon the effectiveness of the registration statement, the amount will be recorded as equity.

NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:


	December 31, 2011	December 31, 2010

Accounts payable	$ 150,437	$ 163,851
Accrued expenses	5,517	-
Total	$ 155,954	$ 163,851

The carrying value of accounts payable and accrued expenses approximates their fair value due to the short-term nature of these obligations.

NOTE 11 – DUE TO SHAREHOLDERS

As of December 31, 2011 and 2010, the balance due to shareholders was $326,683 and $282,727, respectively. This balance represents financing obtained from Mr. Chongliang Pu, the Chairman of the Board. All amounts are non-interest-bearing, unsecured and repayable on demand.

NOTE 12 – DUE TO RELATED COMPANIES

As of December 31, 2011 and 2010, the balance due to related companies was $288,555 and $3,115,298, respectively. The balance as of December 31, 2011 represents financing obtained from Beijing Zhao Cheng Chuang Zhan Investment Company Limited (“BJZC”) while the balance as of December 31, 2010 represents financing obtained from Guang Dong Xin Sheng Environmental Protection Company Limited (“GDXS”) and Beijing Zhao Cheng Chuang Zhan Investment Company Limited (“BJZC”). Mr. Pu, the Chairman of the Board, has equity interests in both companies. All amounts are non-interest-bearing, unsecured and repayable on demand.

NOTE 13 – DUE TO AFFILIATED COMPANIES

As of December 31, 2011 and 2010, the balance due to affiliated companies was $2,110,848, and $2,034,407, respectively. This balance represents financing obtained from Guang Dong Xin Xing Mei Biology Company Limited (“Xinxingmei”) and Evergreen Asset Group Limited (“Evergreen”). All amounts are non-interest-bearing, unsecured and repayable on demand.

F-16

CHINA WATER GROUP, INC.

Notes to Consolidated Financial Statements

NOTE 14 – OTHER CURRENT LIABILITIES

Other current liabilities as of December 31, 2011 and 2010 consist of the following:


	December 31, 2011	December 31, 2010
City maintenance construction tax and value added tax	$ 26,116	$ 14,271
Contribution for employee welfare plan	43,444	41,220
Customer deposits	159,809	126,623
Registration right liability	1,324,735	1,324,735
Other payables	271,281	284,128

Total	$1,825,385	$1,790,977

NOTE 15 – LONG-TERM BANK LOAN

Long-term bank loan consists of the following:


	December 31,	December 31,
	2011	2010
On October 11, 2011, the Company signed a loan agreement with China
Construction Bank. The loan is to be repaid in full on October 10, 2014.
The interest rate is a variable rate equal to 15% per annum above the
floating base interest for loans of the same term promulgated by the
People’s Bank of China. The average annual interest rate for the year
ended December 31, 2011 was approximately 7.65%. The loan was
designated to finance the operation of the Company.	$ 2,361,000	$ -

Total long-term bank loan	$ 2,361,000	$ -

NOTE 16 – INCOME TAXES

The Company was incorporated in the State of Nevada and therefore, is not subject to any income tax according to the rules and regulations of the State of Nevada. The Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC and are subject to statutory income tax rate of 25%. For the years ended December 31, 2011 and 2010, the income tax provision for the Company was $2,057 and $420, respectively.


	For the Years Ended December 31,
	2011		2010
Current		$ 2,057		$ 420
Deferred		-		-
Total provision for income taxes		$ 2,057		$ 420

A reconciliation of the provision for income taxes with amounts determined by applying the statutory income tax rate to income before income taxes is as follows:


	For the Years Ended December 31,
	2011	2010
Computed tax @ statutory rate of 25%
$(1,124,641)25% and $(8,063,460)25% for
December 31, 2011 and 2010, respectively	$ (281,160)	$ (2,015,865)

Non deductible expense	13,799	7,431
Current year losses from PRC subsidiaries	123,148	142,809
Current year losses from U.S. parent holding
company not subject to PRC income taxes	146,270	1,866,045

Total provision for income taxes	$ 2,057	$ 420

F-17

CHINA WATER GROUP, INC.

Notes to Consolidated Financial Statements

NOTE 17 – LOSS PER SHARE

The Company presents loss per share on a basic and diluted basis. Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding including the dilutive effect of equity securities. The weighted average number of shares calculated for diluted loss per share excludes the potential common stock that would be exercised under the warrants granted to investors because of their anti-dilutive effect.


	For the Years Ended December 31,
	2011	2010

Net loss attributable to CHWG

(1,077,671)

(8,003,910)

Weighted average common shares

167,095,779

139,383,450

(denominator for basic loss per share)

Effect of dilutive securities:

Weighted average common shares

167,095,779

139,383,450

(denominator for diluted loss per share)

Basic loss per share

(0.01)

(0.06)

Diluted loss per share

(0.01)

(0.06)

As the April Warrants are anti-dilutive, they are being excluded from the calculation of diluted loss per share.

NOTE 18 – EMPLOYEE WELFARE PLAN

NOTE 19 – RISK OF CONCENTRATIONS IN SALES AND PURCHASES

One major customer accounted for approximately 12% for the Company’s sales for the year ended December 31, 2011. Two major customers accounted for approximately 13% of the Company’s sales for the year ended December 31, 2010. Total sales to these customers were $40,628 and $41,725, for the years ended December 31, 2011 and 2010, respectively.

For the year ended December 31, 2011 and 2010, two major vendors accounted for approximately 26% and 67% of the Company’s cost for purchases, respectively. Total purchases from these vendors were $68,052 and $52,860 for the years ended December 31, 2011 and 2010, respectively.

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and minimal credit risk exists with respect to these investments.

NOTE 20 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The following is the supplemental information relating to the consolidated statements of cash flows:


	For the Years Ended December 31,
	2011	2010
Cash paid for interest	$ 5,980	$ -

Cash paid for income taxes	$ 2,057	$ 420

NOTE 21 – RELATED PARTY SALES

For the twelve months ended December 31, 2011 and 2010, sales to related parties Chongliang Pu and Guang Dong Xin Sheng Environmental Protection Company Limited accounted for approximately 8% and 20% of the Company’s revenue, respectively. Total sales to related parties were $26,850 and $66,625 for the twelve months ended December 31, 2011 and 2010, respectively.

F-18

Filing Compare · China Water Group, Inc.