1 ORGANIZATION AND NATURE OF BUSINESS
In these notes, the terms CHWG,
we, us, our and the Company mean China Water Group, Inc. (formerly China
Evergreen Environmental Corporation) and subsidiary companies.
We were organized 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.
On October 15, 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 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 Chinas water treatment and supply
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 then 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.
The principal activities of the
Company were the research and development of waste water, garbage treatment and aqueous purifying techniques, investment and construction
of waste water treatment plant and sales of environment protection related products. The Company is now engaged in the production,
sales and marketing of the bottled water.
On January 8, 2008, the Chinese
government approved the sale of Evergreens 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 7,308,600. After completing the transfer formalities,
Evergreen held 32% of total equity of Xinxingmei, instead of the previous 90% interest.
On January 23, 2008, the Chinese
government approved China Water Group Incs. 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 share, with reference to contemporaneous prices of the Companys 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).
26, 2011, the Company issued 29.75 million shares of its common stock to Fortune Luck Global International Limited to settle the
$5.95 million remaining purchase price incurred for the acquisition.
In 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.
On February 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).
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).