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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
Date of Report (Date of earliest event reported): OCTOBER 15, 2004
CHINA EVERGREEN ENVIRONMENTAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0409151
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation) Number)
000-26175
(Commission File Number)
5/F, GUOWEI BUILDING, 73 XIANLIE MIDDLE ROAD
GUANGZHOU, GUANGDONG, THE PEOPLE'S REPUBLIC OF CHINA
(Address of principal executive offices)
86-20-8732-7909
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligations of the registrant under any of the
following provisions.
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14d-2(b)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b)
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c)
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
(a) As previously reported on a Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 21, 2004
and as more fully described in Item 2.01 below, the Registrant entered
into a Securities Purchase Agreement and Plan of Reorganization dated
September 9, 2004, as amended by that certain Amendment No.1 to
Securities Purchase Agreement and Plan of Reorganization dated October
8, 2004, pursuant to which it acquired all of the issued and
outstanding shares of Evergreen Asset Group Limited, an International
Business Company organized to do business under the laws of the British
Virgin Islands, in exchange for a controlling interest in the
Registrant.
This Form 8-K/A is being filed to amend the Current Report on
Form 8-K filed on October 21, 2004 to include financial statements and
pro forma financial information referred to in Item 9.01 below.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
(a) On October 15, 2004, Evergreen Asset Group Limited, an
International Business Company organized to do business under the laws
of the British Virgin Islands ("Evergreen"), completed the closing of a
reverse acquisition of the Registrant pursuant to which the Registrant
acquired all of the outstanding shares of Evergreen capital stock in
exchange for a controlling interest in the Registrant (the
"Reorganization"). Pursuant to the Securities Purchase Agreement and
Plan of Reorganization dated September 9, 2004, as amended by that
certain Amendment No.1 to Securities Purchase Agreement and Plan of
Reorganization dated October 8, 2004, by and among the Registrant,
Evergreen and the shareholders of Evergreen (the "Purchase Agreement"),
the Registrant issued an aggregate of 83,500,000 shares of its common
stock (representing 83.5% of the Registrant's capital stock
outstanding) in exchange for all of the issued and outstanding shares
of Evergreen capital stock transferred to the Registrant by each
Evergreen shareholder at the closing. As a result, Evergreen became a
wholly-owned subsidiary of the Registrant.
Evergreen was established in May 2004 as an investment holding
company for waste water treatment businesses in the People's Republic
of China ("PRC"). Evergreen, through its four majority-owned
subsidiaries, Guangdong Xinxinmei Environmental Protection Co.,
Limited, Beijing Haotai Shiyuan Water Purification Co. Limited,
Shangdong Haiyang Shenshi Environmental Protection Co. Limited and
Xianyang Beicheng Water Purification Co. Limited, provides waste water
turn-key engineering, equipment and chemical trading. In addition,
Evergreen has invested in, manages and operates five water treatment
facilities through a "BOT arrangement" (Build, Operate and Transfer)
with the PRC government.
ITEM 3.02 UNREGISTERED SALES OF SECURITIES
(a) In connection with the Reorganization described above, on
October 15, 2004, the Registrant issued 83,500,000 shares of its common
stock to the shareholders of Evergreen in exchange for all of the
issued and outstanding shares of Evergreen capital stock held by such
shareholders. These issuances were made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D.
1
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT
(a) In connection with the Reorganization described above,
Chong Liang Pu transferred all of his shares of Evergreen capital stock
in exchange for 67,635,000 shares of common stock of the Registrant,
which represented approximately 67.64% of the issued and outstanding
shares of capital stock of the Registrant immediately following the
Reorganization.
(b) Not applicable.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.
(a) Not applicable.
(b) - (c) In connection with the Reorganization described
above, Donald Bell resigned as chief executive officer, president and
sole director of the Registrant and the following individuals were
appointed to serve as executive officers of the Registrant, effective
as of October 15, 2004:
NAME OF OFFICER POSITION
--------------- --------
Chong Liang Pu Chief Executive Officer and President
Ren Cai Ding Chief Financial Officer
Jia He Li Chief Operating Officer
CHONG LIANG PU. Prior to joining the Registrant as its Chief Executive
Officer and President, 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
Guangdong Xinxinmei Environmental Protection Company, a majority-owned
subsidiary of Evergreen.
REN CAI DING. Since December 2003 until joining the Registrant as its
chief financial officer on October 15, 2004, Mr. Ding was the chief
financial officer and financial manager of Guangdong Xinxinmei
Environmental Protection Company, a majority-owned subsidiary of
Evergreen. 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.
JIA HE LI. Immediately prior to joining the Registrant, Mr. Li was the
assistant to the general manager of Evergreen and the deputy general
manager of Guangdong Xinxinmei Environmental Protection Company, a
majority-owned subsidiary of Evergreen. From March of 2003 until April
of 2004, Mr. Li was the deputy general manager of Baijitan Hot Spring
Co., Ltd., a hotel resort and spa operator in the PRC. From 1999 until
March of 2003, Mr. Li was a freelance project promoter, developer and
designer for various development projects in the PRC.
The Registrant has not yet entered into employment agreements with any
of its executive officers.
2
(d) In connection with the Reorganization described above,
Chong Liang Pu, Lin Hong Ye and Shi Rong Jiang were named directors of
the Registrant. The new members of the board of directors of the
Registrant have not yet been named to any board committees.
ITEM 8.01 OTHER EVENTS.
On December 20, 2004, the Registrant changed its name and trading
symbol to "China Evergreen Environmental Corporation" and "CEEC," respectively.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a)-(b) Financial Statements and Pro Forma Financial Information.
---------------------------------------------------------
Audited Financial Statements of Evergreen as of and for the
two years ended December 31, 2003.
Unaudited Financial Statements of Evergreen as of and for the
nine months ended September 30, 2004.
Unaudited Pro Forma Combined Balance Sheet and Statements of
Income of the Registrant and Evergreen as of September 30, 2004 and for the
twelve months ended December 31, 2003 and the nine months ended September 30,
2004.
(c) Exhibits.
---------
2.1 Securities Purchase Agreement and Plan of
Reorganization dated September 9, 2004 by and among
the Registrant, Evergreen, and the shareholders of
Evergreen, previously filed as an exhibit to Current
Report on Form 8-K filed on October 21, 2004.
2.2 Amendment No. 1 to Securities Purchase Agreement and
Plan of Reorganization dated October 8, 2004, by and
among the Registrant, Evergreen and the shareholders
of Evergreen, previously filed as an exhibit to
Current Report on Form 8-K filed on October 21, 2004.
99.1 Press Release dated October 20, 2004, previously
filed as an exhibit to Current Report on Form 8-K
filed on October 21, 2004.
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
CHINA EVERGREEN ENVIRONMENTAL CORPORATION
By: /s/ Chong Liang Pu
---------------------------------------
Chong Liang Pu, Chief Executive Officer
Dated: December 30, 2004
4
EVERGREEN ASSET GROUP LIMITED
COMBINED FINANCIAL STATEMENTS
CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm......................F-1
Combined Balance Sheets as of December 31, 2003 and 2002.....................F-2
Combined Statements of Operations for the years ended December 31,
2003 and 2002..............................................................F-3
Combined Statements of Stockholders' Equity for the years ended
December 31, 2003 and 2003.................................................F-4
Combined Statements of Cash Flows for the years ended December 31,
2003 and 2002..............................................................F-5
Notes to Combined Financial Statements.......................................F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Evergreen Asset Group Limited
We have audited the accompanying combined balance sheets of Evergreen Asset
Group Limited (the "Company") and its commonly controlled entities as of
December 31, 2003 and 2002, and the related combined statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2003 and
2002. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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.
As mentioned in Note 1 to the financial statements, pursuant to a group
reorganization (the "Reorganization") which was completed in July, 2004, the
Company became the holding company of its commonly controlled entities by the
acquisition of 90% equity interests in each of them. Each of the Company and its
commonly controlled entities has a common controlling stockholder and
accordingly the Reorganization is treated as if it is a single business
combination and the financial information relating to the Company and its
commonly controlled entities for each of the two years ended December 31, 2003
was prepared on a combined basis.
In our opinion, on the basis of presentation set out in Note 1, the combined
financial statements referred to above present fairly, in all material respects,
the combined financial position of Evergreen Asset Group Limited as of December
31, 2003 and 2002, and the combined results of its operations and its cash flows
for the years ended December 31, 2003 and 2002, in conformity with accounting
principles generally accepted in the United States of America.
PKF
Certified Public Accountants
Hong Kong
September 28, 2004
F-1
EVERGREEN ASSET GROUP LIMITED
COMBINED BALANCE SHEETS
DECEMBER 31,
-----------------------------
2003 2002
USD USD
ASSETS
Current assets
Cash and cash equivalents 54,556 475,313
Inventories (Note 7) 12,559 12,798
Accounts receivable (Note 8) 84,359 60,367
Prepayment, deposits and other receivables (Note 9) 1,183,354 127,361
Amounts due from related companies (Note 10) 703,103 519,443
Amounts due from directors (Note 11) -- 1,061,086
Amount due from an associate (Note 12) 3,588,453 --
Other investment (Note 13) 28,454 --
Deferred tax assets (Note 23) 197,395 182,672
------------ ------------
Total current assets 5,852,233 2,439,040
Deferred assets (Note 4) 983,895 --
Property, plant and equipment, net (Note 5) 361,332 127,541
Construction-in-progress 6,869 227,915
Deposits paid for acquisition of property, plant and equipment (Note 27) 2,619,566 --
Interests in an associate (Note 6) 253,623 --
------------ ------------
Total assets 10,077,518 2,794,496
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Unsecured loans (Note 14) 1,386,715 --
Long-term borrowing (Note 17) 24,155 --
Accounts payable 1,811,010 3,872
Accrued liabilities (Note 15) 1,026,060 426,034
Amounts due to directors (Note 11) 740,460 37,745
Amounts due to related companies (Note 16) 910,723 1,232,229
Income tax payable 118,816 --
------------ ------------
Total current liabilities 6,017,939 1,699,880
Long-term borrowing (Note 17) -- 24,155
------------ ------------
Total liabilities 6,017,939 1,724,035
------------ ------------
Minority interests (Note 18) 449,515 128,744
------------ ------------
Stockholders' equity
Capital (RMB31,401,000 and RMB11,890,000 translated at
historical rate); at December 31, 2003 and 2002 (Note 19) 3,792,391 1,292,391
Accumulated deficit (182,327) (350,674)
------------ ------------
Total stockholders' equity 3,610,064 941,717
------------ ------------
Total liabilities and stockholders' equity 10,077,518 2,794,496
============ ============
see Notes to combined financial statements
F-2
EVERGREEN ASSET GROUP LIMITED
COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------
2003 2002
USD USD
Revenue (Note 25) 2,889,094 271,902
Cost of revenue (1,828,801) (158,853)
----------- -----------
Gross profit 1,060,293 113,049
Depreciation and amortization (17,941) (23,949)
General and administrative expenses (337,472) (290,125)
----------- -----------
Income/(loss) from operations 704,880 (201,025)
Other income (Note 20) 9,240 60,570
Interest expense (Note 21) (28,590) (25,177)
Impairment loss on other investment (Note 22) (370,097) --
----------- -----------
Income/(loss) before income tax 315,433 (165,632)
Income tax (expense)/benefit (Note 23) (104,093) 48,453
Minority interests (Note 18) (42,993) 11,759
----------- -----------
Net income/(loss) 168,347 (105,420)
=========== ===========
see Notes to combined financial statements
F-3
EVERGREEN ASSET GROUP LIMITED
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL
ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
USD USD USD
----------- ----------- -------------
At January 1, 2002 1,292,391 (245,254) 1,047,137
Net loss -- (105,420) (105,420)
----------- ----------- -------------
At December 31, 2002 1,292,391 (350,674) 941,717
=========== =========== =============
At January 1, 2003 1,292,391 (350,674) 941,717
Initial capital injection of XY
and HY 2,500,000 -- 2,500,000
Net income -- 168,347 168,347
----------- ----------- -------------
At December 31, 2003 3,792,391 (182,327) 3,610,064
=========== =========== =============
see Notes to combined financial statements
F-4
EVERGREEN ASSET GROUP LIMITED
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------
2003 2002
USD USD
Cash flows from operating activities:
Net income/(loss) 168,347 (105,420)
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:
Depreciation and amortization 17,941 23,949
Impairment loss on other investment 370,097 --
Increase in deferred tax assets (14,723) (48,453)
Increase in minority interests 320,771 12,396
Changes in operating assets and liabilities:
Decrease/(increase) in inventories 239 (3,140)
Increase in accounts receivable (23,992) (46,599)
Increase in prepayment, deposits and other receivables (1,055,993) (34,523)
Increase in amounts due from related companies (838,692) (710,253)
Decrease/(increase) in amounts due from directors 1,104,381 (67,679)
Increase/(decrease) in accounts payable 1,807,138 (48,060)
Increase in accrued liabilities 49,301 209,598
Increase/(decrease) in amounts due to directors 7,246 (238)
Increase in income tax payable 118,816 --
----------- -----------
Net cash provided by/(used in) operating activities 2,030,877 (818,422)
----------- -----------
Cash flows from investing activities:
Deposit paid for acquisition of property, plant and
Equipment (2,619,566) --
Acquisition of property, plant and equipment (23,817) (14,545)
Acquisition of deferred assets (433,170) --
Construction-in-progress (6,869) (3,288)
Increase in amount due from an associate (3,069,129) --
----------- -----------
Net cash used in investing activities (6,152,551) (17,833)
----------- -----------
Cash flows from financing activities:
Unsecured loans 1,386,715 --
Initial capital injection of HY and XY 2,500,000 --
(Decrease)/increase in amount due to a related company (185,798) 1,286,445
----------- -----------
Net cash provided by financing activities 3,700,917 1,286,445
----------- -----------
Net (decrease)/increase in cash and cash equivalents (420,757) 450,190
Cash and cash equivalents, beginning of year 475,313 25,123
----------- -----------
Cash and cash equivalents, end of year 54,556 475,313
=========== ===========
see Notes to combined financial statements
F-5
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
1. GROUP REORGANIZATION AND BASIS OF PRESENTATION
The Company was incorporated in the British Virgin Islands on April 20,
2004 under the International Business Companies Act, British Virgin
Islands. Pursuant to a group reorganization (the "Reorganization")
which was completed in July 2004, the Company became the holding
company of the commonly controlled entities by the acquisition of 90%
equity interests in each of XXM, XY, HY and BJHTSY for cash
consideration of RMB12,601,000, RMB18,000,000, RMB2,700,000 and
RMB1,800,000 respectively, all of which are domestic incorporated
companies established in the People's Republic of China (the "PRC")
with limited liability, the particulars of which are set out below:
DATE OF ATTRIBUTABLE EQUITY REGISTERED
NAME OF COMPANY ESTABLISHMENT INTEREST % CAPITAL
-------------------
DIRECT INDIRECT
Guang Dong Xin Xing Mei Biology May 18, 1999 90 -- RMB11,890,000
Company Limited ("XXM")
Tian Jin Shi Sheng Water Treatment November 19, -- 81 RMB2,000,000
Company Limited ("TJ") 2002
Xian Yang Bai Sheng Water May 19, 2003 90 -- RMB20,000,000
Purifying Company Limited
("XY")
Hai Yang City Sheng Shi July 30, 2003 90 -- RMB3,000,000
Environment Protection Company
Limited ("HY")
Bei Jing Hao Tai Shi Yuan Water May 26, 2004 90 -- RMB2,000,000
Purifying Company Limited
("BJHTSY")
Each of the Company, XXM, XY, HY and BJHTSY has a common controlling
stockholder. Accordingly, the Reorganization is treated as if it is a
single business combination and the financial information relating to
the Company and its commonly controlled entities (the "Group") for each
of the two years ended December 31, 2003 (the "Relevant period") was
prepared on a combined basis.
The combined statements of operations and combined statements of cash
flows of the companies now comprising the Group have been prepared as
if the current group structure had been in existence throughout the
Relevant Period, or since their respective dates of
incorporation/establishment where this is a shorter period.
The combined balance sheets of the Group as at December 31, 2003 and
2002 have been prepared to present the assets and liabilities of the
companies now comprising the Group as at the respective dates as if the
current group structure had been in existence as at those dates.
F-6
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
2. DESCRIPTION OF BUSINESS
The principal activities of the Group are the research and development
of sewage, garbage treatment and aqueous purifying techniques,
investment and construction of sewage treatment plant and sales of
environment protection related products.
On October 16, 2001 and August 14, 2002, XXM and the PRC government
entered into two Build-Operate-Transfer ("BOT") agreements whereby XXM
will build a sewage treatment plant in Xin Le and Tian Jin cities
respectively for the PRC government and in return the PRC government
granted the right to XXM to operate the plants for 22 years and 20
years respectively. All the revenues derived from the sewage treatment
plants during the operation period will be collected by XXM and used to
recover the construction costs and investment return. Upon expiry of
the operation period, the ownership of the sewage treatment plants will
be handed back to the PRC government.
On June 28, 2002 and August 14, 2002 respectively, XXM and the PRC
government entered into supplemental agreements whereby both BOT
projects were assigned to Xin Le Sheng Mei Water Purifying Company
Limited ("XL") and TJ for handling.
On March 29, 2003 and June 30, 2003, Guang Dong Xin Sheng Environmental
Protection Company Limited ("XS") and the PRC government entered into
two BOT agreements whereby XS will build a sewage treatment plant in
Xian Yang and Hai Yang cities respectively for the PRC government and
in return the PRC government granted the right to XS to operate the
plants for 25 years and 22 years respectively. All the revenues derived
from the sewage treatment plants during the operation period will be
collected by the XS and used to recover the construction costs and
investment return. Upon expiry of the operation period, the ownership
of the sewage treatment plants will be handed back to the PRC
government.
On March 29, 2003 and June 30, 2003 respectively, XS and the PRC
government entered into supplemental agreements whereby both BOT
projects were assigned to XY and HY for handling.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements are presented in US Dollars and
include the accounts of the Company and its commonly controlled
entities. All significant inter-company balances and transactions are
eliminated in combination.
F-7
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting years. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments and have maturities of
three months or less at the date of purchase.
INVENTORIES
Inventories are valued at the lower of cost or market with cost
determined on a first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization and impairment loss. Maintenance, repairs
and betterments, including replacement of minor items, are charged to
expense; major additions to physical properties are capitalized.
Depreciation and amortization are provided using the straight-line
method over the following estimated useful lives:
Office equipment 5 years
Furniture and fixtures 5 years
Tools and equipment 5 years
Motor vehicles 10 years
Sewage treatment plant 20 years
DEFERRED ASSETS
Deferred assets represents the cost of construction of the sewage
treatment plants under the BOT agreements with the PRC government. The
cost includes development and construction expenditure incurred and
other direct costs attributable to the development. No depreciation and
amortization is provided in respect of deferred assets until such time
as the relevant assets are completed and put into operational use. On
completion, depreciation and amortization are provided using the
straight-line method over the operation periods.
F-8
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
IMPAIRMENT OF ASSETS
The Group's policy is to periodically review and evaluate whether there
has been a permanent impairment in the value of long-lived assets.
Factors considered in the evaluation include current operating results,
trends and anticipated undiscounted future cash flows. An impairment
loss is recognized to the extent that the sum of undiscounted estimated
future cash flows that is expected to result from the use of the asset,
or other measure of fair value, is less than the carrying value. Refer
to notes 13 and 22.
ASSOCIATE
An associate is one, not being a subsidiary or a joint venture, in
which the Company is in a position to exercise significant influence,
including participation in financial and operating policy decisions.
Interests in an associate is stated in the combined balance sheet at
the Group's share of the net assets under the equity method of
accounting, as reduced by any identified impairment loss. The results
of the associate are included in the combined income statement to the
extent of post-acquisition results attributable to the Group.
OTHER INVESTMENT
Other investment includes equity investment in a private company and is
carried at fair value. Unless there has been a permanent impairment to
the value of the investment, the change in fair value is reported as a
separate component of other comprehensive income or loss. Permanent
impairment to the value of the investment is recognized in the combined
statements of operations.
CONCENTRATION OF CREDIT RISK
Concentration of credit risk is limited to accounts receivable and is
subject to the financial conditions of a major customer which is stated
in note 25 to the combined financial statements. The Group does not
require collateral or other security to support client's receivables.
The Group conducts periodic reviews of its clients' financial condition
and customer payment practices to minimize collection risk on accounts
receivable.
F-9
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments approximate fair
value. The carrying amounts of cash, accounts receivable, related
parties receivable, unsecured loans, accounts payable and related
parties payable approximate fair value due to the short-term nature of
these items. The carrying amounts of borrowings approximate the fair
value based on the Group's expected borrowing rate for debt with
similar remaining maturities and comparable risk.
REVENUE RECOGNITION
Revenue from fixed price long-term contracts is recognized on the
percentage of completion method for individual contracts. Revenues are
recognized in the ratio that costs incurred bear to total estimated
contract costs. The use of the percentage of completion method of
revenue recognition requires estimates of percentage of project
completion. Changes in job performance, estimated profitability and
final contract settlements may result in revisions to costs and income
in the period in which the revisions are determined. Provisions for any
estimated losses on uncompleted contracts are made in the period in
which such losses are determinable. In instances when the work
performed on fixed price agreements is of relatively short duration, we
use the completed contract method of accounting whereby revenue is
recognized when the work is completed.
All the revenue of 2003 was derived from a construction contract of a
sewage treatment plant sub-contracted by a related party as mentioned
in note 25.
COST OF REVENUES
Cost of revenues comprises labor and other cost of personnel directly
engaged in providing the services, subcontracting and attributable
overhead costs. Cost of revenues does not include any allocation of
depreciation or amortization expense.
INCOME TAXES
The Group 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.
F-10
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The Group uses China Renminbi ("RMB") as the functional currency, which
is not freely convertible into foreign currencies. Transactions
denominated in currencies other than RMB are translated into RMB at the
applicable rates of exchange prevailing at the dates of the
transactions, quoted by the People's Bank of China ("the PBOC").
Monetary assets and liabilities denominated in other currencies are
translated into RMB at rates of exchange quoted by the PBOC prevailing
at the balance sheet date. Exchange gains or losses arising from
changes in exchange rates subsequent to the transactions dates for
monetary assets and liabilities denominated in other currencies are
included in the determination of net income for the respective period.
For financial reporting purposes, RMB has been translated into United
States dollars ("USD") as the reporting currency. Assets and
liabilities are translated at the exchange rate in effect at period
end. Income statement accounts are translated at the average rate of
exchange prevailing during the period. Translation adjustments arising
from the use of different exchange rates from period to period are
included as a component of stockholders' equity as "Accumulated other
comprehensive income - foreign currency translation adjustments". Gains
and losses resulting from foreign currency transactions are included in
other comprehensive income/(loss). Foreign currency translation
adjustment was not material.
During 2003 and 2002, there have been no significant change in exchange
rates. Accordingly, there are no changes in other comprehensive
income/(loss).
NEW ACCOUNTING PRONOUNCEMENTS
SFAS 150
In May 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity." SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. SFAS No. 150 requires the
classification as a liability of any financial instruments with a
mandatory redemption feature, an obligation to repurchase equity
shares, or a conditional obligation based on the issuance of a variable
number of its equity shares. The Company does not have any financial
instruments as defined by SFAS No. 150. The adoption of SFAS No. 150
did not have an effect on the Company's combined financial statements.
F-11
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FIN NO. 46
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46). FIN 46 states
that companies that have exposure to the economic risks and potential
rewards from another entity's assets and activities have a controlling
financial interest in a variable interest entity and should consolidate
the entity, despite the absence of clear control through a voting
equity interest. The consolidation requirements apply to all variable
interest entities created after January 31, 2003. For variable interest
entities that existed prior to February 1, 2003, the consolidation
requirements are effective for annual or interim periods beginning
after December 15, 2003. Disclosure of significant variable interest
entities is required in all financial statements issued after January
31, 2003, regardless of when the variable interest was created. The
adoption of FIN 46 did not have an effect on the Company's combined
financial statements.
4. DEFERRED ASSETS
Deferred assets represents the construction costs of USD983,895 of a
sewage treatment plant in Tianjin city under the BOT agreement. The
testing of the sewage treatment plant was completed in December 2003
and the operation was commenced in January 2004. No amortization was
provided in 2003 or 2002.
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
DECEMBER 31,
---------------------
2003 2002
USD USD
Purchase cost:
Office equipment 6,356 --
Furniture and fixtures 11,063 9,212
Tools and equipment 20,539 20,539
Motor vehicles 133,318 121,739
Sewage treatment plant 231,946 --
--------- ---------
Total 403,222 151,490
Less: Accumulated depreciation and amortization (41,890) (23,949)
--------- ---------
Property, plant and equipment, net 361,332 127,541
========= =========
F-12
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
5. PROPERTY, PLANT AND EQUIPMENT, NET (CONT'D)
Depreciation and amortization expenses for 2003 and 2002 amounted to
USD17,941 and USD23,949 respectively.
There was no impairment loss for 2003 and 2002.
6. INTERESTS IN AN ASSOCIATE DECEMBER 31,
--------------------
2003 2002
USD USD
Share of net assets 253,623 --
========= =========
(a) Details of the associate as of December 31, 2003 are as
follows:
PERCENTAGE
OF EQUITY
NAME OF ASSOCIATE HOLDING
Xin Le Sheng Mei Water Purifying
Company Limited 35%
On December 5, 2003, XXM entered into an agreement with an
existing stockholder of XL, who is also a director of XXM, in
relation to the acquisition of his interests of 90% in XL. On
December 17, 2003, XXM entered into a sale and purchase
agreement with an independent third party, a wholly-owned
subsidiary of China Silver Dragon Group Limited ("CSD"), a
listed company in Hong Kong, in relation to the disposal of
55% equity interests in XL. The remaining interest of 35% in
XL is held for long-term investment purposes and accounted for
as interests in an associate.
F-13
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
6. INTERESTS IN AN ASSOCIATE (CONT'D)
(b) Information extracted from the audited financial statements of
the associate for the years ended December 31, 2003 and 2002
is as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2003 2002
USD USD
(i) Statements of operations
Turnover -- --
============ ==========
Net loss (74,785) (5,806)
============ ==========
DECEMBER 31,
--------------------------
2003 2002
USD USD
(ii) Balance sheet
Deferred assets 4,592,842 --
Property, plant and equipment, net 25,586 820
Construction-in-progress -- 61,436
Cash and cash equivalents 21,104 962,581
Inventories 30,117 --
Prepayment, deposits and other receivables 551,488 328,466
Other investment 36,232 --
Accounts payable (324,119) (18,116)
Amount due to XXM (3,519,575) --
Other current liabilities (769,292) (616,019)
------------ ----------
Net assets 644,383 719,168
============ ==========
F-14
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
7. INVENTORIES
DECEMBER 31,
----------------------
2003 2002
USD USD
Finished goods 12,559 12,798
========= =========
No allowance for inventories was charged to expenses during 2003 and
2002.
8. ACCOUNTS RECEIVABLE
DECEMBER 31,
----------------------
2003 2002
USD USD
Accounts receivable 84,359 60,367
========= =========
No doubtful debts was charged to expenses during 2003 and 2002.
9. PREPAYMENT, DEPOSITS AND OTHER RECEIVABLES
DECEMBER 31,
----------------------
2003 2002
USD USD
Prepayment 37,403 11,413
Deposits 670,048 5,254
Other receivables 475,903 110,694
----------- ---------
1,183,354 127,361
=========== =========
10. AMOUNTS DUE FROM RELATED COMPANIES
At December 31, 2003, it mainly represents amount due from XS in which
Mr. Pu Chongliang ("Mr. Pu"), a director who is also a stockholder of
the Company, is also a director and has equity interests.
At December 31, 2002, it mainly represents amount due from XL in which
Mr. Pu has equity interests. All amounts are interest-free, unsecured
and repayable on demand.
F-15
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
11. AMOUNTS DUE FROM/TO DIRECTORS
The amounts are interest-free, unsecured and repayable on demand.
12. AMOUNT DUE FROM AN ASSOCIATE
The amount is interest-free, unsecured and repayable on demand.
13. OTHER INVESTMENT
DECEMBER 31,
----------------------
2003 2002
USD USD
Unlisted equity, at cost 398,551 --
========== ========
Unlisted equity, at fair value 28,454 --
========== ========
The amount represents the investment of the 55% equity interest in XL
and is stated at the fair value of USD28,454 which is equivalent to the
consideration paid by the third party. The permanent impairment loss of
USD370,097 is recognized in the combined statements of operations (Note
22).
14. UNSECURED LOAN
The amounts included a loan of USD241,546 borrowed from a financial
institution which is interest bearing at 6.6375% per annum, unsecured
and with maturity date on August 5, 2004 and a loan of USD1,145,169
borrowed from an independent third party which is interest-free,
unsecured and repayable on demand.
F-16
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
15. ACCRUED LIABILITIES
At December 31, 2003 and 2002, accrued liabilities comprised of the
following:
DECEMBER 31,
-----------------------
2003 2002
USD USD
Acquisition of property, plant and equipment 550,725 --
Payroll 529 61
PRC tax 161,927 7,742
Staff welfare 28,195 22,564
Other payable 205,693 395,260
Other accruals 78,991 407
----------- ---------
Total 1,026,060 426,034
=========== =========
16. AMOUNTS DUE TO RELATED COMPANIES
At December 31, 2003, it mainly represents amount due to Bei Jing Zhao
Cheng Chuang Zhan Investment Company Limited ("BJZC") in which Mr. Pu
has equity interests.
At December 31, 2002, it mainly represents amount due to XS in which
Mr. Pu is also a director and has equity interests.
All amounts are interest-free, unsecured and repayable on demand.
17. LONG-TERM BORROWING
The amount represents a loan borrowed from the government for research
and development of the application of the sewage treatment system. The
amount is interest-free, unsecured and with maturity date in November
2004.
F-17
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
18. MINORITY INTERESTS
DECEMBER 31,
--------------------------
2003 2002
USD USD
At January 1 128,744 116,348
Minority interests in the combined
statements of operations 42,993 (11,759)
Initial capital injection of TJ -- 24,155
Initial capital injection of XY and HY 277,778 --
----------- -----------
At December 31 449,515 128,744
=========== ===========
19. CAPITAL
DECEMBER 31,
--------------------------
2003 2002
USD USD
Capital translated at historical rate
- XXM (RMB10,701,000) 1,292,391 1,292,391
- XY (RMB18,000,000) 2,173,913 --
- HY (RMB2,700,000) 326,087 --
----------- -----------
3,792,391 1,292,391
=========== ===========
20. OTHER INCOME
YEAR ENDED DECEMBER 31,
--------------------------
2003 2002
USD USD
Bank interest income 8,578 184
Government grant -- 60,386
Other income 662 --
----------- -----------
9,240 60,570
=========== ===========
F-18
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
21. INTEREST EXPENSE
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
USD USD
Interest on bank and other loans wholly
repayable within one year 28,590 25,177
========== ==========
22. IMPAIRMENT LOSS ON OTHER INVESTMENT
The amount represents the permanent impairment loss on the investment
of 55% equity interest in XL (Note 13).
23. INCOME TAXES
The income tax (expense)/benefit consisted of the following:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
USD USD
Current tax:
PRC (118,816) --
Deferred tax:
PRC 14,723 48,453
---------- ---------
Total income tax (expense)/benefit (104,093) 48,453
========== =========
F-19
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
23. INCOME TAXES (CONT'D)
Income tax (expense)/benefit can be reconciled with the amount computed
by applying the statutory income tax rate to income/(loss) before
income tax as follow:
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
USD USD
Income/(loss) before income tax 315,433 (165,632)
========== ==========
Expected income tax (expense)/benefit
at PRC statutory income tax rate of 33% (104,093) 54,659
Tax effect of current year's tax
losses not recognized -- 6,206
---------- ----------
Income tax (expense)/benefit (104,093) 48,453
========== ==========
The major components of deferred tax assets recognized in the combined
balance sheets as of December 31, 2003 and 2002 were as follows:
DECEMBER 31,
------------------------
2003 2002
USD USD
Expenses that are reported in financial
statements prior to becoming deductible
for tax purposes 1,083,570 329,640
Revenue recognized for financial
reporting purposes before being
recognized for tax purposes (886,175) (146,968)
----------- ---------
197,395 182,672
=========== =========
There were no significant amounts of unrecognized deferred taxation.
At December 31, 2003 and 2002, the Group had no unutilized tax losses.
F-20
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
24. PENSION PLANS
As stipulated by the PRC government regulations, the Group is required
to contribute to PRC insurance companies organized by the PRC
government which are responsible for the payments of pension benefits
to retired staff. The monthly contribution was equal to 12% of the
salaries of the existing staff. The Group has no obligation for the
payment of pension benefits beyond the annual contributions described
above.
25. CONCENTRATION
The Group's major customer is BJZC, a related company in which a
director of the Company has equity interests, which accounted for 100%
of the Group's total revenue of 2003 in relation to the construction of
a sewage treatment plant.
26. COMMITMENTS
Capital commitment
At December 31, 2003, capital expenditure contracted for but not
recognized in these financial statements was as follows:
DECEMBER 31,
----------------------
2003 2002
USD USD
Capital expenditures 26,207,729 --
============ =======
The amount represents the unpaid amount of the total contract sum for
constructing the sewage treatment plants in Xian Yang and Hai Yang
cities under the BOT agreements and is expected to be paid as follows:
USD
Within 2 years 15,338,164
After 2 years 10,869,565
------------
26,207,729
============
At December 31, 2002, the Group had no capital commitment.
F-21
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
27. RELATED PARTY TRANSACTIONS
Apart from the transactions as disclosed in notes 6, 10, 11, 12, 16 and
25 to the financial statements, during the year, the Group had the
following transactions with its related parties:
YEAR ENDED DECEMBER 31,
------------------------
2003 2002
Related party Nature of transactions USD USD
------------- ----------------------
BJZC Construction revenue 2,889,094 --
Deposit paid for acquisition of
property, plant and equipment 2,619,566 --
=========== ==========
Note:
Mr. Pu has equity interests in BJZC. The directors of the Group are of
the opinion that the above transactions were entered into in the normal
course of business and on normal commercial terms.
28. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31,
------------------------
2003 2002
USD USD
(i) Interest paid 28,590 25,177
(ii) Non-cash investing activities
Deferred assets (notes 4 and 15) 550,725 --
=========== ==========
29. SUBSEQUENT EVENTS
(a) On December 17, 2003, XXM entered into two sale and purchase
agreements with an independent third party, a wholly-owned
subsidiary of CSD, a listed company in Hong Kong, in relation
to the disposal of 55% equity interest in TJ and XL and the
stockholder's loans at a consideration of USD350,512 and
USD1,927,817 respectively. The total consideration of
USD2,278,329 will be settled by cash of USD911,332 within one
year and by issuing a convertible note of USD1,366,997.
F-22
EVERGREEN ASSET GROUP LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
29. SUBSEQUENT EVENTS (CONT'D)
The convertible note bears interest at 6% per annum with
maturity date of three years from the date of issuance and are
repayable after three years from the date of issuance or
convertible into shares of CSD at the conversion price of
approximately USD0.103 subject to adjustments as stipulated in
the convertible note at any time after six months from the
date of issuance.
At December 31, 2003, TJ and XL were still in the process of
applying to the relevant PRC authorities to be transformed
from domestic incorporated companies into sino-foreign joint
venture companies and CSD has not appointed any representative
as directors of TJ and XL.
On July 20, 2004, the application to the relevant PRC
authorities for the transformation of XL from a domestic
incorporated company into a sino-foreign joint venture company
was completed and approved.
(b) On July 18, 2004, the Company entered into four separate
agreements with the owners of XXM, XY, HY and BJHTSY (the
"Stockholders") whereby the Company agreed to acquire 90%
equity interests of XXM, XY, HY and BJHTSY from the
Stockholders at a total cash consideration of USD1,521,860,
USD2,173,913, USD326,087 and USD217,391 respectively
(equivalent to RMB12,601,000, RMB18,000,000, RMB2,700,000 and
RMB1,800,000 respectively). Upon completion of the
acquisition, XXM, XY, HY and BJHTSY became sino-foreign joint
venture companies.
F-23
EVERGREEN ASSET GROUP LIMITED
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Page
----
Unaudited Consolidated Balance Sheet as of September 30, 2004...............F-25
Unaudited Consolidated Statement of Income for the nine months ended
September 30, 2004........................................................F-26
Unaudited Consolidated Statement of Cash Flow for the nine months ended
September 30, 2004........................................................F-27
Unaudited Consolidated Statement of Income for the nine months ended
September 30, 2003........................................................F-28
Unaudited Consolidated Statement of Cash Flow for the nine months ended
September 30, 2003........................................................F-29
Notes to Unaudited Consolidated Financial Statements........................F-30
F-24
EVERGREEN ASSETS GROUP LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
USD
ASSETS
Current assets
Cash and cash equivalents 69,440
Accounts receivable 4,831
Inventories 450,415
Prepayment, deposits and other receivables 9,453,311
Total current assets 9,977,996
Non-current assets
Interests in an associate 157,383
Property,plant and equipment, net 1,114,174
Construction-in-process 1,350,419
Deferred assets 3,874,046
Total non-current assets 6,496,022
Total assets 16,474,018
Liabilities and Stockholders' equity
Current liabilities
Unsecured loans 241,546
Accounts payable 1,503,216
Income tax payable 759,196
Accrued liabilities 31,147
Other payables 8,024,247
Total current liabilities 10,559,353
Non-current liabilities
Long-term borrowing 24,155
Total non-current liabilities 24,155
Minority interests 618,193
Stockholders equity
Capital 4,087,065
Retained earnings 1,185,252
Total stockholders' equity 5,272,318
Total liabilities and stockholders' equity 16,474,018
F-25
EVERGREEN ASSET GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
USD
Revenue 5,289,205
Cost of revenue 3,577,042
Gross profit 1,712,164
Other income 6,848
General and administrative expenses 101,745
Interest expense 14,862
Income from operation 1,602,404
Income from investment 157,383
Unusual losses 36
Income before tax 1,759,751
Income tax expense 571,137
Minority interests 126,264
Net income 1,062,350
F-26
EVERGREEN ASSET GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
USD
Cash flows from operating activities:
Net income (loss) 1,062,350
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 305,230
Increase in minority interests 168,677
Changes in operating assets and liabilities:
Increase in inventories (437,856)
Decrease in accounts receivable 79,528
Increase in prepayment, deposits and other receivables (1,076,757)
Decrease in accounts payable (307,794)
Increase in accrued liabilities 31,147
Increase in other payables 5,347,005
Increase in income tax payable 640,380
Net cash provided by operating activities 5,811,910
Cash flows from investing activities:
Acquisition of property, plant and equipment (752,843)
Acquisition of deferred assets (3,834,033)
Construction-in-progress (359,655)
Net cash used in investing activities (4,946,531)
Cash flows from financing activities:
Unsecured loan (1,145,169)
Capital injection 294,674
Net cash provided by financing activities (850,495)
Net decrease in cash and cash equivalents 14,884
Cash and cash equivalents, beginning of year 54,556
Cash and cash equivalents, end of year 69,440
F-27
EVERGREEN ASSET GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
USD
Revenue 1,444,547
Cost of revenue 1,429,502
Gross profit 15,045
Other income 233
General and administrative expenses 146,227
Interest expense 7,756
Income from operation (138,705)
Unusual gains 2
Income before tax (138,702)
Income tax expense 242
Minority interests (13,894)
Net income (125,050)
F-28
EVERGREEN ASSET GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
USD
Cash flows from operating activities:
Net income (loss) (125,050)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,002
Increase in minority interests 301,013
Changes in operating assets and liabilities:
Increase in inventories (33,467)
Decrease in accounts receivable 55,536
Increase in prepayment, deposits and other receivables (4,077,215)
Decrease in accounts payable (10,968)
Increase in accrued liabilities 24,748
Increase in other payables 1,591,435
Decrease in income tax payable (3,485)
Net cash provided by operating activities (2,272,450)
Cash flows from investing activities:
Acquisition of property, plant and equipment (42,633)
Acquisition of deferred assets (653,758)
Construction-in-progress (35,153)
Net cash used in investing activities (731,544)
Cash flows from financing activities:
Unsecured loan 241,546
Capital injection 2,500,000
Net cash provided by financing activities 2,741,545
Net decrease in cash and cash equivalents (262,449)
Cash and cash equivalents, beginning of year 475,313
Cash and cash equivalents, end of year 212,864
F-29
EVERGREEN ASSET GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements have been prepared by the Company in
accordance with generally accepted accounting principles. These financial
statements should be read in conjunction with the audited financial statements
and footnotes for the years ended December 31, 2003 and 2002. The results of the
nine months ended September 30, 2004 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2004.
On October 15, 2004, the Company completed the closing of a reverse acquisition
of the Discovery Investments Inc, a development stage company organized under
the laws of the State of Nevada, the United States of America.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements are presented in US dollars and include the
accounts of the Company its commonly controlled entities. All significant
inter-company balances and transactions are eliminated in combination.
USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities ant
the reported amounts of revenues and expenses during the reporting months.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The Company uses China Renminbi ("RMB") as the functional currency, which is not
freely convertible into foreign currencies. For financial reporting purposes,
RMB has been translated into US dollars("USD") as the reporting currency. Assets
and liabilities are translated at the exchange rate in effect at period end.
Income statement accounts are translated at the average rate of exchange
prevailing during the period. During the nine months, 2004, there have been no
significant change in exchange rates. Accordingly, there are no changes in other
comprehensive income/(loss).
F-30
DISCOVERY AND EVERGREEN
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
CONTENTS
Page
----
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2004.............F-32
Unaudited Pro Forma Combined Statement of Income for the nine months ended
September 30, 2004............................................................F-33
Unaudited Pro Forma Combined Statement of Income for year ended
December 31, 2003.............................................................F-34
Notes to Unaudited Pro Forma Combined Financial Statements......................F-35
F-31
DISCOVERY AND EVERGREEN
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2004
USD
Evergreen Discovery Adjustment Total
--------- --------- ---------- -----
ASSETS
Current assets
Cash and cash equivalents 69,440 -- -- 69,440
Accounts receivable 4,831 -- -- 4,831
Inventories 450,415 -- -- 450,415
Prepayment, deposits and other
receivables 9,453,311 -- -- 9,453,311
Total current assets 9,977,996 -- -- 9,977,996
Non-current assets
Interests in an associate 157,383 -- -- 157,383
Property, plant and equipment, net 1,114,174 -- -- 1,114,174
Construction-in-process 1,350,419 -- -- 1,350,419
Deferred assets 3,874,046 -- -- 3,874,046
Total non-current assets 6,496,022 -- -- 6,496,022
Total assets 16,474,018 -- -- 16,474,018
Liabilities and Stockholders' equity
Current liabilities
Unsecured loans 241,546 -- -- 241,546
Accounts payable 1,503,216 -- -- 1,503,216
Income tax payable 759,196 -- -- 759,196
Officers' advances -- 49,050 -- 49,050
Accrued liabilities 31,147 -- -- 31,147
Other payables 8,024,247 -- -- 8,024,247
Total current liabilities 10,559,353 49,050 -- 10,608,403
Non-current liabilities
Long-term borrowing 24,155 -- -- 24,155
Total non-current liabilities 24,155 -- -- 24,155
Minority interests 618,193 -- -- 618,193
Stockholders equity
Capital 4,087,066 228,040 -- 4,315,106
Retained earnings 1,185,252 (277,090) -- 908,162
Total stockholders' equity 5,272,318 (49,050) -- 5,223,268
Total liabilities and stockholders' equity 16,474,018 -- -- 16,474,018
F-32
DISCOVERY AND EVERGREEN
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
USD
Evergreen Discovery Adjustment Total
--------- --------- ---------- -----
Revenue 5,289,205 -- -- 5,289,205
Cost of revenue 3,577,042 -- -- 3,577,042
Gross profit 1,712,164 -- -- 1,712,164
Other income 6,848 -- -- 6,848
General and administrative expenses 101,745 144,913 -- 246,658
Interest expense 14,862 -- -- 14,862
Income from operation 1,457,491 (144,913) -- 1,312,578
Income from investment 157,383 -- -- 157,383
Unusual losses 36 -- -- 36
Income before tax 1,614,838 (144,913) -- 1,469,925
Income tax expense 571,137 -- -- 571,137
Minority interests 126,264 -- -- 126,264
Net income 917,437 (144,913) -- 772,524
F-33
DISCOVERY AND EVERGREEN
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
USD
Evergreen Discovery Adjustment Total
--------- --------- ---------- -----
Revenue 2,889,094 -- -- 2,889,094
Cost of revenue (1,828,801) -- -- (1,828,801)
Gross profit 1,060,293 -- -- 1,060,293
Other income 9,240 -- -- 9,240
General and administrative
expenses (355,413) 80,000 -- (275,413)
Interest expense (28,590) -- -- (28,590)
Income from operation 685,530 (80,000) -- 605,530
Unusual losses (370,097) (1,851,739) -- (2,221,836)
Income before tax 315,433 -- -- (1,616,306)
Income tax expense (104,093) -- -- (104,093)
Minority interests (42,993) -- -- (42,993)
Net income 168,347 (1,931,739) -- (1,763,392)
F-34
EVERGREEN AND DISCOVERY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1- BASIS OF PRESENTATION
On October 15, 2004, Evergreen Asset Group Limited ("Evergreen") completed the
closing of a reverse acquisition of the Discovery Investment Inc ("Discovery")
pursuant to which Discovery acquired all of the outstanding shares of Evergreen
capital stock in exchange for a controlling in interest in the Discovery. This
business combination is treated as a reverse acquisition in which for accounting
purposes Evergreen is treated as the acquirer and Discovery is treated as the
acquiree.
The pro forma combined statements of income for the twelve months ended December
31, 2003 and the nine months ended September 30, 2004 have been prepared to give
effect to Evergreen's reverse acquisition of Discovery as if it occurred on
January 1, 2003. The statements of income of both Evergreen and Discovery for
the year 2003 are audited. The financial statements of Evergreen at September
30, 2004 are unaudited. All pro forma financial statements use the assumptions
as described in the notes and historical financial information available at
September 30, 2004 and December 31, 2003.
NOTE 2- FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Evergreen uses China Renminbi ("RMB") as the functional currency, which is not
freely convertible into foreign currencies. For financial reporting purposes,
RMB has been translated into US dollars ("USD") as the reporting currency.
Assets and liabilities are translated at the exchange rate in effect at period
end. Income statement accounts are translated at the average rate of exchange
prevailing during the period. During the nine months ended September 30, 2004,
there have been no significant change in exchange rates. Accordingly, there are
no changes in other comprehensive income/(loss).
NOTE 3- USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting months.
Actual results could differ from those estimates.
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