U.S.
SECURITIES AND EXCHANGE COMMISSION





WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark One)


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





For the
quarterly period ended March 31, 2009





 ̈
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from  —————  to ——————





Commission
File Number 000-26175





China
Water Group, Inc.





(Exact
name of small business issuer as specified in its charter)





Nevada
            
            88-0409151(State
      or other jurisdiction of
            
            (IRS
      Employerincorporation
      or organization)
            
            Identification
      No.)


Suite
7A01, Baicheng Building


584
Yingbin Road


Dashi,
Panyu District


Guangzhou,
Guangdong, China


(Address
of principal executive offices)


86-20-3479
9708


(Issuer’s
telephone number)





NA


(Former
name, former address and former fiscal year, if changed since last
report)




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES  ̈ NO
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 definition of “accelerated filer” and “large accelerated
filer” in Rule 12b-2 of the Exchange Act (Check one):




Large
Accelerated Filer  ̈   Accelerated
Filer  ̈     Non-Accelerated
Filer  ̈       Smaller
Reporting Company x




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




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 139,383,450 shares of common stock, par value
$.0001 per share, as of June 8, 2009.




Transitional
Small Business Disclosure Format (Check one). YES  ̈ NO
x





PART
I. - FINANCIAL INFORMATION


ITEM 1. FINANCIAL
STATEMENTS.


CHINA
WATER GROUP, INC.
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 MARCH
31, 2009 AND 2008
 
 (UNAUDITED)
  
  CHINA
WATER GROUP, INC.
 Consolidated
Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Table
of Contents
 
 PageConsolidated
      Financial StatementsReport
      of Independent Registered Public Accounting Firm
                  1Consolidated
      Balance Sheets
                  2Consolidated
      Statements of Operations and Comprehensive Income
                  3Consolidated Statements of Cash Flows
                  4Notes
      to Consolidated Financial Statements
                  5
  
  
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 China
Water Group, Inc.
  We have
reviewed the accompanying consolidated balance sheet of China Water Group, Inc.
and subsidiaries (the “Company”) as of March 31, 2009, and the related
consolidated statements of operations and comprehensive income, and cash flows
for the three months ended March 31, 2009 and 2008. These consolidated financial
statements are the responsibility of the Company's management.
 
 We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
 
 Based on
our review, we are not aware of any material modifications that should be made
to the accompanying consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We have
previously audited, in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
China Water Group, Inc. as of December 31, 2008, and the related consolidated
statements of income, retained earnings and comprehensive income, and cash flows
for the year then ended (not presented herein); and in our report dated July 6,
2009, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2008, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
  
  Parsippany,
New Jersey
 August
10, 2009
  1
  CHINA
WATER GROUP, INC.
 
 Consolidated
Balance Sheets
 
 March 31,
                          
                          
                          December 31,2009
                          
                          
                          2008(Unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
                          
                          $
                          40,679
                          
                          
                          $
                          28,167Accounts
      receivable
                          
                          
                          23,336
                          
                          
                          
                          92,411Prepayments,
      deposits and other receivables
                          
                          
                          52,673
                          
                          
                          
                          75,154Inventory
                          
                          
                          370,804
                          
                          
                          
                          393,178Due
      from related companies
                          
                          
                          -
                          
                          
                          
                          310,002Due
      from affiliated companies
                          
                          
                          -
                          
                          
                          
                          3,000,198Loans
      to unrelated party
                          
                          
                          645,230
                          
                          
                          
                          -Deferred
      tax assets
                          
                          
                          -
                          
                          
                          
                          14,877Total
      current assets
                          
                          
                          1,132,722
                          
                          
                          
                          3,913,987Property,
      plant and equipment, net
                          
                          
                          866,335
                          
                          
                          
                          4,410,088Other
      assetsConstruction
      in progress
                          
                          
                          8,258
                          
                          
                          
                          57,579Intangible
      assets
                          
                          
                          135,095
                          
                          
                          
                          135,649Goodwill
                          
                          
                          7,165,254
                          
                          
                          
                          7,156,263Interest
      in affiliated company
                          
                          
                          -
                          
                          
                          
                          1,363,005Total
      other assets
                          
                          
                          7,308,607
                          
                          
                          
                          8,712,496Total
      assets
                          
                          $
                          9,307,664
                          
                          
                          $
                          17,036,571Liabilities
      and stockholders’ equityCurrent
      liabilitiesWarrant
      liability
                          
                          $
                          36,610
                          
                          
                          $
                          36,610Accounts
      payable
                          
                          
                          193,510
                          
                          
                          
                          660,054Accrued
      expenses
                          
                          
                          1,825,635
                          
                          
                          
                          1,983,131Due
      to directors
                          
                          
                          168,403
                          
                          
                          
                          746,172Due
      to related companies
                          
                          
                          3,189,932
                          
                          
                          
                          4,056,800Income
      tax payable
                          
                          
                          172
                          
                          
                          
                          1,366,961Total
      current liabilities
                          
                          
                          5,414,262
                          
                          
                          
                          8,849,728Total
      liabilities
                          
                          
                          5,414,262
                          
                          
                          
                          8,849,728Minority
      interest
                          
                          
                          -
                          
                          
                          
                          159,470Stockholders'
      equityPreferred
      stock, $0.001 par value, 50,000,000 authorized shares,no
      shares issued and outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock, $0.001 par value, 200,000,000 shares authorized;139,383,450
      shares issued and outstanding
                          
                          
                          139,383
                          
                          
                          
                          139,383Additional
      paid-in capital
                          
                          
                          2,584,188
                          
                          
                          
                          6,361,263Retained
      earnings
                          
                          
                          1,072,584
                          
                          
                          
                          240,724Accumulated
      other comprehensive income
                          
                          
                          97,247
                          
                          
                          
                          1,286,003Total
      stockholders' equity
                          
                          
                          3,893,402
                          
                          
                          
                          8,027,373Total
      liabilities and stockholders' equity
                          
                          $
                          9,307,664
                          
                          
                          $
                          17,036,571
  The
accompanying notes are an integral part of these consolidated financial
statements.
  2
  CHINA
WATER GROUP, INC.
 
 Consolidated
Statements of Operations and Comprehensive Income
 (Unaudited)
 
 Three
      Months Ended March 31,2009
                    
                    
                    2008RevenueRevenue
      from BOT wastewater treatment services
                    
                    $
                    -
                    
                    
                    $
                    172,471Revenue
      from sales of bottled water
                    
                    
                    26,064
                    
                    
                    
                    47,723Total
      revenue
                    
                    
                    26,064
                    
                    
                    
                    220,194Cost
      of revenueCost
      of revenue for BOT wastewater treatment services
                    
                    
                    -
                    
                    
                    
                    45,581Cost
      of revenue from sale of bottled water
                    
                    
                    2,654
                    
                    
                    
                    8,966Depreciation
      and amortization
                    
                    
                    10,413
                    
                    
                    
                    68,032Sales
      tax
                    
                    
                    303
                    
                    
                    
                    19Total
      cost of revenue
                    
                    
                    13,370
                    
                    
                    
                    122,598Gross
      profit
                    
                    
                    12,694
                    
                    
                    
                    97,596Operating
      expensesSelling
      and distribution expenses
                    
                    
                    (7,297
                    )
                    
                    
                    (205,235
                    )General
      and administrative expenses
                    
                    
                    (129,685
                    )
                    
                    
                    (128,862
                    )Total
      operating expenses
                    
                    
                    (136,982
                    )
                    
                    
                    (334,097
                    )Loss
      from operations
                    
                    
                    (124,288
                    )
                    
                    
                    (236,501
                    )Other
      income (expense)Other
      expense
                    
                    
                    (10,188
                    )
                    
                    
                    (613
                    )Interest
      expense
                    
                    
                    -
                    
                    
                    
                    (138
                    )Penalty
      for late effectiveness of registration statement
                    
                    
                    -
                    
                    
                    
                    (22,688
                    )Gain
      on financial instruments
                    
                    
                    -
                    
                    
                    
                    518,542Gain
      on disposal of a subsidiary - Evergreen
                    
                    
                    2,775,104
                    
                    
                    
                    -Share
      of results in affiliates – Xinxingmei and Han Dan
                    
                    
                    -
                    
                    
                    
                    46,341Total
      other income
                    
                    
                    2,764,916
                    
                    
                    
                    541,444Income
      before income tax and minority interest
                    
                    
                    2,640,628
                    
                    
                    
                    304,943Income
      tax expense
                    
                    
                    (170
                    )
                    
                    
                    (6,687
                    )Income
      before minority interest
                    
                    
                    2,640,458
                    
                    
                    
                    298,256Minority
      interest
                    
                    
                    -
                    
                    
                    
                    (4,638
                    )Net
      income
                    
                    
                    2,640,458
                    
                    
                    
                    293,618Other
      comprehensive incomeForeign
      currency translation adjustment
                    
                    
                    (1,188,751
                    )
                    
                    
                    307,189Comprehensive
      income
                    
                    $
                    1,451,707
                    
                    
                    $
                    600,807Basic
      earnings per share
                    
                    $
                    0.02
                    
                    
                    $
                    0.00Diluted
      earnings per share
                    
                    $
                    0.02
                    
                    
                    $
                    0.00Weighted
      average number of common shares outstandingBasic
      and Diluted
                    
                    
                    139,383,450
                    
                    
                    
                    139,217,550
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  3
  CHINA
WATER GROUP, INC.
 
 Consolidated
Statements of Cash Flows
 (Unaudited)
 
 Three
      Months Ended March 31,2009
                    
                    
                    2008Cash flows from operating
      activitiesNet  income
                    
                    $
                    2,640,458
                    
                    
                    $
                    293,618Adjustments
      to reconcile net income to net cash provided by (used in)operating
      activities :Depreciation
      and amortization
                    
                    
                    10,413
                    
                    
                    
                    68,032Gain
      on financial instruments
                    
                    
                    -
                    
                    
                    
                    (518,542
                    )Minority
      interest
                    
                    
                    -
                    
                    
                    
                    (181,857
                    )Deferred
      expenditure
                    
                    
                    -
                    
                    
                    
                    (1,608,623
                    )Share
      of results in affiliates - Xinxingmei and Han Dan
                    
                    
                    -
                    
                    
                    
                    (46,341
                    )Changes
      in operating assets and liabilities :Accounts
      receivable
                    
                    
                    (24,750
                    )
                    
                    
                    (58,107
                    )Prepayment,
      deposits and other receivables
                    
                    
                    (48,549
                    )
                    
                    
                    6,261,003Inventory
                    
                    
                    22,865
                    
                    
                    
                    -Accounts
      payable
                    
                    
                    6,241
                    
                    
                    
                    179,655Accruals
      and other liabilities
                    
                    
                    40,182
                    
                    
                    
                    88,890Income
      tax payable
                    
                    
                    -
                    
                    
                    
                    6,688Total
      adjustments
                    
                    
                    6,402
                    
                    
                    
                    4,190,798Net
      cash provided by operating activities
                    
                    
                    2,646,860
                    
                    
                    
                    4,484,416Cash
      flows from  investing activitiesDue
      from related companies
                    
                    
                    (502,911
                    )
                    
                    
                    3,308,693Due
      from  affiliated companies
                    
                    
                    -
                    
                    
                    
                    (4,596,251
                    )Loans
      to unrelated party
                    
                    
                    (2,384,925
                    )
                    
                    
                    -Acquisition
      of interest in a subsidiary - Aba and Xinchen
                    
                    
                    -
                    
                    
                    
                    (6,570,870
                    )Disposal
      of interest in a subsidiary – Xinxingmei and Han Dan
                    
                    
                    -
                    
                    
                    
                    496,399Disposal
      of interest in a subsidiary - Evergreen
                    
                    
                    82,108
                    
                    
                    
                    -Acquisition
      of property, plant and equipment
                    
                    
                    (349
                    )
                    
                    
                    (842,830
                    )Acquisition
      of intangible assets
                    
                    
                    -
                    
                    
                    
                    (131,647
                    )Net
      cash used in investing activities
                    
                    
                    (2,806,077
                    )
                    
                    
                    (8,336,506
                    )Cash
      flows from financing activitiesDue
      to related companies
                    
                    
                    255,138
                    
                    
                    
                    3,522,658Due
      to directors
                    
                    
                    (83,455
                    )
                    
                    
                    21,932Net
      cash provided by financing activities
                    
                    
                    171,683
                    
                    
                    
                    3,544,590Effect
      of foreign currency translation on cash and cash
    equivalents
                    
                    
                    46
                    
                    
                    
                    7,479Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    12,512
                    
                    
                    
                    (300,021
                    )Cash
      and cash equivalents, beginning of period
                    
                    
                    28,167
                    
                    
                    
                    341,575Cash
      and cash equivalents, end of period
                    
                    $
                    40,679
                    
                    
                    $
                    41,554
  The
accompanying notes are an integral part of these consolidated financial
statements.
  4
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note 1 –
Basis of Presentation
  In these
notes, the terms “CHWG,” “we,” “us,” and “our” mean China Water Group, Inc.
(formerly China Evergreen Environmental Corporation) and subsidiary
companies.
 
 The
condensed consolidated financial statements of CHWG included herein have been
prepared by CHWG, and are unaudited, pursuant to the rules and regulations of
the Securities and Exchange Commission (the “SEC”). Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with US generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in CHWG's Form
10-K for the year ended December 31, 2008.
 
 The
accompanying unaudited quarterly consolidated financial statements reflect all
adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the financial position, results of
operations and cash flows of CHWG for the periods presented. The results of
operations for these periods are not necessarily comparable to, or indicative
of, results of any other quarterly period or for the fiscal year taken as a
whole. Factors that affect the comparability of financial data from year to year
and for comparable quarterly periods include non-recurring expenses associated
with CHWG's costs incurred to reorganize CHWG, raise capital, and issue stock
options and awards. Certain financial information that is not required for
interim financial reporting purposes has been omitted.
 
 Note
2 – Organization and Description of Business
 
 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 the subject of a reverse acquisition by Evergreen
Asset Group Limited, an International Business Company organized under the laws
of the British Virgin Islands (“Evergreen”), pursuant to which we 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.
 
 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.
  5
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note 2
–Organization and Description of Business(continued)
 
 The
principal activities of the Group are 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.
 
 On
January 8, 2008, 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 7,308,600. After
completing the transfer formalities, Evergreen possesses 32% of total equity of
Xinxingmei, instead of the previous 90% interest.
 
 On
January 23, 2008, the Chinese government approved China Water Group Inc.’s
acquisition of 90 percent equity interest in Aba Xinchen Dagu Glacier Spring
Co., Limited from Fortune Luck Global International Limited through its
subsidiary Guangzhou Xinchen Water Company (“Xinchen”). 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 was paid in common shares.
 
 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 $500,000.
 
 Note
3 – Summary of Significant Accounting Policies
 
 Revenue
recognition
 
 We
recognize revenue using various revenue recognition policies based on the nature
of the sale and the terms of the contract.
 
 Revenues
from turn-key engineering projects are recognized on the
percentage-of-completion method for individual contracts. We follow the guidance
of the American Institute of Certified Public Accountants (“AICPA”) Statement of
Position (“SOP”) 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, for our accounting policy relating to the use
of the percentage-of-completion method, estimated costs and claim recognition
for construction contracts. Revenues are recognized in the ratio that costs
incurred bear to total estimated contract costs to the extent we believe related
collection is probable. 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 a relatively
short duration, we use the completed contract method of accounting whereby
revenue is recognized when the work is completed. From 5% to 10% of the total
contract value will be treated as retention monies withheld to ensure
performance of the contract during the warranty period of up to 12 months, as
stipulated in both long-term and short-term fixed-price contracts.
 
 Revenues
arising from wastewater treatment are recognized based on wastewater treated as
recorded daily by meters read at rates, in RMB/ton, as prescribed under the BOT
agreements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 13,
Revenue Recognition. We meet the following four criteria for revenue recognition
outlined in SAB Topic 13:
  1.
              There
      is sufficient evidence to support that sales arrangements
      exist;
 2.
              The
      price to the buyer is fixed through signed
  contracts;
 3.
              Meter
      readings illustrate that delivery of treated wastewater has occurred;
      and
 4.
              Collectibility
      is reasonably assured through one or more of the following: due diligence
      prior to contract signing; historical payment practices; or required
      upfront payments.
  6
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
3 – Summary of Significant Accounting Policies (continued)
 
 Revenues
from the sale of environment protection-related products and provision of
technical services are recognized when goods are delivered or when services are
performed. The contractual terms of the purchase agreements or consultancy
agreements dictates the recognition of revenues. We recognize revenue in
accordance with SAB No. 104. 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) collectibility is reasonably assured. Determination
of criteria (3) and (4) is based on management’s judgments regarding
the fixed nature of the selling prices of the products or services delivered and
the collectibility 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.
 
 Interim
Financial Statements
 
 These
interim financial statements should be read in conjunction with the audited
financial statements for the years ended December 31, 2008 and 2007, as not all
disclosures required by generally accepted accounting principles for annual
financial statements are presented. The interim financial statements follow the
same accounting policies and methods of computations as the audited financial
statements for the years ended December 31, 2008 and 2007.
 
 Foreign
Currency
 
 The
Company uses the United States dollars (“US Dollar” or “US$” or “$”) for
financial reporting purposes. The Company maintains the books and records in its
functional currency, Chinese Renminbi (“RMB”), being the primary currency of the
economic environment in which its operations are conducted. In general, the
Company translates its assets and liabilities into U.S. dollars using the
applicable exchange rates prevailing at the balance sheet date, and the
statement of income is translated at average exchange rates during the reporting
period. Adjustments resulting from the translation of the Company’s financial
statements are recorded as accumulated other comprehensive income.
 
 The
exchange rates used to translate amounts in RMB into U.S. Dollars for the
purposes of preparing the condensed consolidated financial statements were as
follows:
 
 March 31, 2009
                                        
                                        December 31, 2008Balance
      sheet items, except for stockholders’equity
      items
                                        RMB
      1: US$0.14650
                                        
                                        RMB
      1: US$0.14670March 31, 2009
                                        
                                        March 31, 2008Amounts
      included in the statements ofincome,
      and statements of cash flows for thethree
      months ended
                                        RMB
      1: US$0.14651
                                        
                                        RMB
      1: US$0.13977Stockholders’
      equity items
                                        Historical
      rate
                                        
                                        Historical
      rate
 
 Impairment
of assets
 
 Our
policy is to periodically review and evaluate whether there has been a permanent
impairment in the value of long-lived assets. Factors we consider in this
evaluation include current operating results, trends and anticipated
undiscounted future cash flows that we expect to result from the use of the
asset, or other measure of fair value, and whether such factors reflect that the
value of the asset has been impaired.
  7
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
3 – Summary of Significant Accounting Policies (continued)
 
 Allowance
for doubtful accounts
 
 Our
policy for bad debt is based on the evaluation of collectibility, and analysis
of accounts receivable aging and on management's judgment. We do not require
collateral or other security to support client receivables. We conduct periodic
reviews of our clients' financial condition and customer payment practices to
minimize collection risk on accounts receivable. This review is based on a
considerable amount of judgment which is required in assessing the ultimate
realization of these receivables, including the current credit worthiness and
the past collection history of each customer. During the first quarter of 2009,
we made no allowances for doubtful accounts.
 
 Financial
instruments
 
 The
carrying amounts of all financial instruments approximate their fair value. The
carrying amounts of cash, accounts receivable, related party receivables,
unsecured loans, accounts payable and related party payables approximate their
fair value due to the short-term nature of these items. The carrying amounts of
borrowings approximate their fair value based on our expected borrowing rate for
debt with similar remaining maturities and comparable risk.
 
 Earnings
per share
 
 Basic
earnings per share are computed by dividing the net income for the year by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share are computed by dividing the net income for the year by the
weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares (which includes incremental common
shares issuable upon the exercise of stock options, unvested restricted common
stock and shares that may be issued on a contingent basis) are included in
diluted income per share to the extent such shares are dilutive. In accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings
Per Share, we use income from continuing operations, net of income taxes, as the
“control number” in determining whether common equivalent shares are dilutive or
anti-dilutive in periods where discontinued operations are
reported.
 
 Recently
issued accounting pronouncements
 
 In April
2009, the FASB issued SFAS No. 164, “Not-for-Profit Entities: Mergers and
Acquisitions—including an amendment of FASB Statement No. 142” (“SFAS 164”).
SFAS 164 establishes principles and requirements for how a not-for-profit
entity: (a)determines whether a combination is a merger or an acquisition;
(b)applies the carryover method in accounting for a merger; (c)applies the
acquisition method in accounting for an acquisition, including determining which
of the combining entities is the acquirer; (d)determines what information to
disclose to enable users of financial statements to evaluate the nature and
financial effects of a merger or an acquisition. This Statement is effective for
(a)mergers for which the merger date is on or after the beginning of an initial
reporting period beginning on or after December 15, 2009; (b)acquisitions for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2009.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before the financial statements are
issued or are available to be issued. In accordance with this Statement, an
entity should apply the requirements to interim or annual financial periods
ending after June 15, 2009.
  8
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
3 – Summary of Significant Accounting Policies (continued)
 
 In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 address
(1) practices that have developed since the issuance of FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, that are not consistent with the original intent and key
requirements of that Statement and (2) concerns of financial statement users
that many of the financial assets (and related obligations) that have been
derecognized should continue to be reported in the financial statements of
transferors. This Statement must be applied as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”). SFAS 167 address (1) the effects on certain provisions of
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, as a result of the elimination of the qualifying
special-purpose entity concept in FASB Statement No. 166, Accounting for
Transfers of Financial Assets, and (2) constituent concerns about the
application of certain key provisions of Interpretation 46(R), including those
in which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise’s involvement in a
variable interest entity. This Statement shall be effective as of the beginning
of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter.
 
 Reclassification
 
 Certain
amounts of December 31, 2008 and March 31, 2008 were reclassified for
presentation purposes.
 
 Note
4 – Earnings Per Share
 
 (i)
              The
      basic earnings per share are calculated using the net income and the
      weighted average number of shares outstanding during the
    year.
 
 Three Months Ended March
31,2009
                      
                      
                      2008Net
      income
                      
                      $
                      2,640,458
                      
                      
                      $
                      293,618Weighted
      average number ofcommon
      shares outstanding
                      
                      
                      139,383,450
                      
                      
                      
                      139,217,550Basic
      earnings per share
                      
                      $
                      0.02
                      
                      
                      $
                      0.00
 
 (ii)
              The
      diluted earnings per share are calculated using the net income and the
      weighted average number of shares outstanding during the year together
      with incremental common shares issuable upon the exercise of all warrants
      issued.
 
 Three Months Ended March
31,2009
                      
                      
                      2008Net
      income
                      
                      $
                      2,640,458
                      
                      
                      $
                      293,618Weighted
      average number ofcommon
      shares outstanding
                      
                      
                      139,383,450
                      
                      
                      
                      139,217,550Basic
      earnings per share
                      
                      $
                      0.02
                      
                      
                      $
                      0.00
  9
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
4 – Earnings Per Share (continued)
 
 As the
April Warrants and the September Warrants are anti-dilutive, they are being
excluded from the calculation of diluted earnings per share.
 
 Note
5 – Inventory
 
 Inventory
at March 31, 2009 and December 31, 2008 consisted of the following:
 
 March
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    1,798
                    
                    
                    $
                    1,796Packaging
      supplies
                    
                    
                    199,969
                    
                    
                    
                    198,958Finished
      goods
                    
                    
                    169,037
                    
                    
                    
                    192,424Total
                    
                    $
                    370,804
                    
                    
                    $
                    393,178
 
 Note
6 – Property, Plant And Equipment, Net
 
 Property,
plant and equipment, net at March 31, 2009 and December 31, 2008 consisted of
the following:
 
 March
      31,
                          
                          
                          December
      31,2009
                          
                          
                          2008Office
      equipment
                          
                          $
                          11,783
                          
                          
                          $
                          13,547Furniture
      and fixtures
                          
                          
                          5,445
                          
                          
                          
                          5,438Motor
      vehicles
                          
                          
                          59,436
                          
                          
                          
                          59,362Building
      and structure
                          
                          
                          178,914
                          
                          
                          
                          178,689Bottled
      water production equipment
                          
                          
                          657,413
                          
                          
                          
                          656,588Waste
      water treatment plants
                          
                          
                          -
                          
                          
                          
                          4,250,972Total
                          
                          
                          912,991
                          
                          
                          
                          5,164,596Less
      : Accumulated depreciation andamortization
                          
                          
                          (46,656
                          )
                          
                          
                          (754,508
                          )Property,
      plant and equipment, net
                          
                          $
                          866,335
                          
                          
                          $
                          4,410,088
  Depreciation
and amortization expenses for the three months ended March 31, 2009 and 2008
amounted to $10,413 and $68,032, respectively.
  10
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
7 - Warrant Liability
 
 The fair
values of the warrant liability as of March 31, 2009 and December 31, 2008 were
as following:
 
 March
      31,
                            
                            
                            December
      31,2009
                            
                            
                            2008Warrants
      issued in April 2005, atfair
      value
                            
                            $
                            4,410
                            
                            
                            $
                            4,410Warrants
      issued in September 2005, atfair
      value
                            
                            
                            -
                            
                            
                            
                            -Shares
      issued in September 2005,accounted
      for as liability
                            
                            
                            32,200
                            
                            
                            
                            32,200Total
                            
                            $
                            36,610
                            
                            
                            $
                            36,610
 
 The Group
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.
 
 The Group
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%.
 
 The Group
granted to the holders of the April Warrants certain piggy-back and demand
registration rights. Pursuant to the agreements surrounding the April Private
Placement, in the event that the Group determined to undertake a registration of
securities, the Group would include, at the request of the holder of
“Registrable Securities”, the Registrable Securities in the registration
statement. If the Group did not file a registration statement by the 120th day
from the closing of such financing, and the Group shall have received a written
request signed by the holders holding the majority of the Registrable
Securities, then the Group 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 Group 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 Group 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 March 31, 2009, the Group has not received any written
request signed by the holders holding the majority of the Registrable
Securities.
  11
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
7 - Warrant Liability (continued)
 
 Under
EITF No. 00-19, 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, 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.
 
 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.
 
 On
September 14, 2005, the Group 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
Group 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”).
 
 The Group
used the Black-Scholes model in calculating the fair market value of the
September Warrants and allocated $4,140,535 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%.
  12
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
7 - Warrant Liability (continued)
 
 Under 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, 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 March 31, 2009, we have made an accrual of
$1,324,735 for registration right liability.
 
 Under
paragraphs 12–32 of EITF 00-19, 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
8 - Interest in Affiliated Company
 
 Interest
in affiliated company as of March 31, 2009 and December 31, 2008 was as
following:
 
 March
      31,
                            
                            
                            December
      31,2009
                            
                            
                            2008Han
      Dan Cheng Sheng Water Affairs
                            
                            $
                            -
                            
                            
                            $
                            1,363,005Company
      Limited (“Han Dan”)Total
                            
                            $
                            -
                            
                            
                            $
                            1,363,005
  Note
9 - Income Taxes
 
 The
income tax expense consisted of the following:
 
 Three
      Months Ended March 31,2009
                    
                    
                    2008Current
      tax :PRC
                    
                    $
                    170
                    
                    
                    $
                    6,687Deferred
      tax :PRC
                    
                    
                    -
                    
                    
                    
                    -Total
      income tax expense
                    
                    $
                    170
                    
                    
                    $
                    6,687
  13
  CHINA
WATER GROUP, INC.
 
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 Note
9 - Income Taxes (continued)
 
 The
provision for income tax represents the provision for PRC enterprise income tax
calculated at the standard income tax rate of 25% on the assessable profits of
the PRC’s subsidiaries and the standard withholding income tax rate of 10% on
the total revenue generated by Evergreen, a company incorporated in the British
Virgin Islands, in the PRC.
 
 Note
10 - Employee Welfare Plan
 
 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.
 
 Note
11 - Concentration
 
 Two major
customers accounted for approximately 27% of the net revenue for the three
months ended March 31, 2009.  The source of revenue from these
customers is the sales of bottled water. One major customer, Hai Yang City
Zoning and Construction Management Bureau, accounted for approximately 78% of
the net revenue for the three months ended March 31, 2008.  The source
of revenue from this customer is the BOT-waste water treatment
service.
 
 Note
12 - SUPPLEMENTAL CASH FLOW DISCLOSURES
 
 The
following is the supplemental information relating to the consolidated
statements of cash flows:
 
 March
      31,
                      
                      
                      March
      31,2009
                      
                      
                      2008Cash
      paid for interest
                      
                      $
                      -
                      
                      
                      $
                      138Cash
      paid for income taxes
                      
                      $
                      170
                      
                      
                      $
                      6,687
 
 Note
13 - Subsequent Events
 
 None.
  14




ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS





FORWARD-LOOKING
INFORMATION





Much of
the discussion in this Item is “forward looking” as that term is used in Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Actual operations and
results may materially differ from present plans and projections due to changes
in economic conditions, new business opportunities, changes in business
conditions, and other developments. Other factors that could cause results to
differ materially are described in our filings with the SEC.





The
following are factors that could cause actual results or events to differ
materially from those anticipated, and include, but are not limited to general
economic, financial and business conditions, changes in and compliance with
governmental laws and regulations, including various state and federal
environmental regulations, our ability to obtain additional financing from
outside investors and/or bank and mezzanine lenders; and our ability to generate
sufficient revenues to cover operating losses and position us to achieve
positive cash flow.





Readers
are cautioned not to place undue reliance on the forward-looking statements
contained herein, which speak only as of the date hereof. We believe the
information contained in this Form 10-Q to be accurate as of the date hereof.
Changes may occur after that date. We will not update that information except as
required by law in the normal course of our public disclosure
practices.





Additionally,
the following discussion regarding our financial condition and results of
operations should be read in conjunction with the financial statements and
related notes contained in Item 1 of Part I of this Form 10-Q.





RESULTS
OF OPERATIONS





Quarter
Ended March 31, 2009 vs. Quarter Ended March 31, 2008





Total revenue. We reported
total revenue of $26,064 for the three months ended March 31, 2009 as compared
to $220,194 for the three months ended March 31, 2008.  These results
reflect the discontinuation of our BOT business and reduced revenues from sales
of bottled water of $26,064 in the three months ended March 31, 2009 as compared
to $47,723 in the three months ended March 31, 2008.  We have
determined to leave the field of providing turn-key and BOT engineering projects
and to concentrate our future efforts on the sale of bottled
water.  Revenues from these efforts should be significant in future
periods. At the end of 2008 we determined to develop new distribution channels
for our bottled water.  This will result in what
management  believes will prove a short term decline in bottled water
sales.  The results for the quarter reflect these new directions as
there were no revenues from turn-key engineering projects or from BOT wastewater
treatment services.





Cost of revenue. Our total
cost of revenue decreased from $122,598 for the three months ended March 31,
2008 to $13,370 for the three months ended March 31, 2009. This was primarily
due to our elimination of  BOT wastewater treatment services which
resulted in reduced cost of revenue for these services ($45,581 in Q1 2008 vs.
$0 in Q1 2009) and reduced depreciation and amortization $68,032 in Q1 2008 vs.
$10,413 in Q1 2009) as we seek to dispose of these operations.





Gross profit. Gross profit, as
a percentage of total revenue for the three months ended March 31, 2009 and
2008, was approximately 48.7% or $12,694 as compared to 44.3% or
$97,596.   Increased gross profits and margins reflect the
Company’s transition away from turn-key engineering projects and BOT waste water
treatment services and into sales of branded bottled water.  These
results also reflect reduced levels of operations as we seek to reposition our
bottled water sales model.




Operating
expenses. Our total operating expenses for the three months ended March
31, 2009 and 2008 were $136,982 and $334,097, respectively.The
principal components of operating expenses were selling and distribution
expenses, administrative salaries and benefits, depreciation and amortization,
traveling expenses, rental expenses and other general administration costs. A
decrease in operating  expenses for the three months ended March 31,
2009 of $197,115 as compared to the three months ended March 31, 2008 was
primarily due to the decreased levels of operations in BOT waste water treatment
services and the decrease of selling and distribution expense as sales effort
was reduced during this period of repositioning of our branded bottled
water.





Penalty for late effectiveness of
registration statementThis amount represents the liquidated damages
payment obligation we accrued in connection with the September Private Placement
by missing the deadline we agreed to for effectiveness of the registration
statement we filed in connection with that financing. Under 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, 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 for a
period of time and then other related damages began to accrue. As of March 31,
2006, we had made an accrual of $828,027 for such liquidated
damages.





Under
paragraphs 12–32 of EITF 00-19, 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.  In 2007 we began accruing smaller amounts
for other penalties which amounted to $22,688 for the first quarter of
2008.  We did not accrue any amounts in the first quarter of
2009.





Gain on disposal of a
subsidiary.   We realized a gain of $2,775,104 on disposal
of a subsidiary during the quarter.  This is a non-recurring
gain.





Unrealized gain on financial
instruments. Unrealized gains or losses on financial instruments
represent the change in the fair market value of the financial instruments at
each reporting date. The unrealized gain on financial instruments for the three
months ended March 31, 2008 was $518,542. There was no unrealized gain on
financial instruments for the three months ended March 31, 2009.





Share of results in
associates. CWG holds a 35% interest in the net profits in Xin Le and a
34.32% interest in Han Dan. Our share of results in Xinxingmei and Han Dan for
the three months ended March 31, 2008 was $46,34. We have disposed of these
interests and no longer recognize any results therefrom.





Net  income. We had
a net income, after income tax and minority interests, of $2,260,458 for the
three months ended March 31, 2009, and a net income, after income tax and
minority interests, of $293,618 for the three months ended March 31,
2008.  The increased net income as compared to the prior period
reflects the sale of our BOT waste water treatment services and our having
exited the turn-key engineering project aspect of our business as well as the
start up expenses related to the introduction of our branded bottled
water.





LIQUIDITY
AND CAPITAL RESOURCES





Our
principal sources of liquidity are our cash and cash flow generated from
operations. Net cash provided by operating activities during the three months
ended March 31, 2009 was  $2,646,860.  At the end of the
period, our cash and cash equivalents were $40,679.   We plan to
secure bank loans to support our future projects.  Our Chairman, the
majority shareholder, has also promised to provide additional funds when needed.
However, thispromise is not a legally
binding commitment.  Furthermore, we do not have any commitments for
bank loans. If bank loans are not obtained and our majority shareholder does not
provide funding, we could be required to severely curtail our
operations.





APPLICATION
OF CRITICAL ACCOUNTING POLICIES





Our
financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies include revenue
recognition, impairment of assets and accounting for allowance of accounts
receivable.





Revenue
recognition. We recognize revenue using various revenue recognition policies
based on the nature of the sale and the terms of the contract.





Revenues
from turn-key engineering projects are recognized on the
percentage-of-completion method for individual contracts. We follow the guidance
of the American Institute of Certified Public Accountants (“AICPA”) Statement of
Position (“SOP”) 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, for our accounting policy relating to the use
of the percentage-of-completion method, estimated costs and claim recognition
for construction contracts. Revenues are recognized in the ratio that costs
incurred bear to total estimated contract costs to the extent we believe related
collection is probable. 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 a relatively
short duration, we use the completed contract method of accounting whereby
revenue is recognized when the work is completed. From 5% to 10% of the total
contract value will be treated as retention monies withheld to ensure
performance of the contract during the warranty period of up to 12 months, as
stipulated in both long term and short term fixed price
contracts.





Revenues
arising from wastewater treatment are recognized based on wastewater treated as
recorded daily by meters read at rates, in RMB/ton, as prescribed under the BOT
agreements in accordance with SAB Topic 13, Revenue Recognition. We meet the
following four criteria for revenue recognition outlined in SAB Topic
13:





1. There
is sufficient evidence to support that sales arrangements exist;





2. The
price to the buyer is fixed through signed contracts;





3. Meter
readings illustrate that delivery of treated wastewater has occurred;
and





4.
Collectibility is reasonably assured through one or more of the following: due
diligence prior to contract signing; historical payment practices; or required
upfront payments.





Revenues
from the sale of environment protection-related products and provision of
technical services are recognized when goods are delivered or when services are
performed. The contractual terms of the purchase agreements or consultancy
agreements dictate the recognition of revenues by us. We recognize revenue in
accordance with SAB No. 104. 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)
collectibility 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 collectibility 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.





Impairment
of assets. Our policy is to periodically review and evaluate whether there has
been a permanent impairment in the value of long-lived assets. Factors
considered in this evaluation include current operating results, trends and
anticipated undiscounted estimated future cash flows that are expected to result
from the use of the asset, or other measure of fair value, and whether such
factors reflect that the value of the asset has been impaired.





Allowances
for accounts receivable. Our provisioning policy for bad and doubtful debt is
based on the evaluation of collectibility and aging analysis of accounts
receivable and on management's judgment. We do no require collateral or other
security to support client receivables. We conduct periodic reviews of our
clients' financial condition and customer payment practices to minimize
collection risks on accounts receivable. This review is based on a
considerable amount of judgment which is required in assessing the ultimate
realization of these receivables, including the current creditworthiness and the
past collection history of each customer. During the third quarter of 2006, we
made no allowances for doubtful debts.





Financial
instruments. The carrying amounts of all financial instruments approximate fair
value. The carrying amounts of cash, accounts receivable, related party
receivables, unsecured loans, accounts payable and related party payables
approximate fair value due to the short-term nature of these items. The carrying
amounts of borrowings approximate the fair value based on our expected borrowing
rate for debt with similar remaining maturities and comparable
risk.





Earnings
per share. Basic earnings per share are computed by dividing the net income for
the year by the weighted average number of common shares outstanding during the
year. Diluted earnings  per share are computed by dividing the net
income for the year by the weighted average number of common and common
equivalent shares outstanding during the year. Common equivalent shares (which
includes incremental common shares issuable upon the exercise of stock options,
unvested restricted common stock and shares that may be issued on a contingent
basis) are included in diluted earnings per share to the extent such shares are
dilutive. In accordance with SFAS 128, Earnings Per Share, we use income from
continuing operations, net of income taxes, as the “control number” in
determining whether common equivalent shares are dilutive or anti-dilutive in
periods where discontinued operations are reported.





Recently
issued accounting pronouncements





In
December 2007, the FASB issued SFAS No. 141, “Business Combinations” (“SFAS
141”). SFAS 141 defines the acquirer as the entity that obtains control of one
or more businesses in the business combination and establishes the acquisition
date as the date that the acquirer achieves control, and requires an acquirer to
recognize the assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree at the acquisition date, measured at their fair values
as of that date, with limited exceptions specified in the Statement. SFAS 141
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS
160 clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 requires consolidated net income to
be reported at amounts that include the amounts attributable to both the parent
and the noncontrolling interest, and also requires that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated. The requirements
of SFAS 160 are effective for our fiscal year beginning January 1,
2009.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133”
(“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.





ITEM
3. CONTROLS AND PROCEDURES





Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that such
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate, to allow timely
decisions regarding required disclosure. Our Chief Executive Officer and Chief
Financial Officer have reviewed the effectiveness of our disclosure controls and
procedures and have concluded that the disclosure controls and procedures are
not effective as of the end of the period covered by this report as discussed
below. There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the last
day they were evaluated.





Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as this term is defined under the
rules of the SEC) as of August 10, 2006. Based on this evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer and Executive Chairman
concluded that, as of August 10, 2006, our disclosure controls and procedures
were not effective in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed by the Company in the reports
that it files or submits under the US Securities Exchange Act of 1934 as a
result of material weaknesses in our internal control over financial reporting
described below.





In the
process of filing our registration statement, we identified certain accounting
errors in our reported US GAAP annual results for fiscal 2004 and 2005 and
certain quarterly results in 2005 and 2006. As a result, we have restated the
amounts and disclosures in those annual financial statements.





The
financial statements which should no longer be relied upon include:





(i)      the
audited consolidated financial statements contained in our report on Form 10-KSB
for the fiscal year ended December 31, 2004 (the “2004 10-KSB”), filed with the
SEC on April 15, 2005, Amendment No. 1 to the 2004 10-KSB filed on July 15,
2005, and Amendment No. 2 to the 2004 10-KSB filed on January 13, 2006
;





(ii)      the
audited consolidated financial statements contained in our report on Form 10-KSB
for the fiscal year ended December 31, 2005 (the “2005 10-KSB”), filed with the
SEC on April 17, 2006;





(iii)     the
unaudited consolidated financial statements contained in our quarterly report on
Form 10-QSB for the quarterly period ended March 31, 2005 (the “March 31, 2005
10-QSB”), filed with the SEC on May 24, 2005;





(iv)     the
unaudited consolidated financial statements contained in our quarterly report on
Form 10-QSB for the quarterly period ended June 30, 2005 (the “June 30, 2005
10-QSB”), filed with the SEC on August 15, 2005;





(v)      the
unaudited consolidated financial statements contained in our quarterly report on
Form 10-QSB for the quarterly period ended September 30, 2005 (the “ September
30, 2005 10-QSB”), filed with the SEC on November 15, 2005 and Amendment No. 1
to the September 30, 2005 10-QSB filed on January 13, 2006; and





(vi)     the
unaudited consolidated financial statements contained in our quarterly report on
Form 10-QSB for the quarterly period ended March 31, 2006 (the “March 31, 2006
10-QSB”), filed with the SEC on May 15, 2006.





Gain
on disposal of the XY





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.





In the
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. As a result, we will
file an amendment to the 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 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.








Group
reorganization





In Note
2(ii) and 2(iii) to 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, 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 nominal net 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 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 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.





Reclassification
of April warrants





In 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
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.





April
and September 2005 Private Placements—non-cash financing charges





In our
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. 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.





April
2005 Private Placements—unrealized gains or losses in financial
instruments





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.





Interest
in associate





In our
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, 2004 in the June 30,
2005 10-QSB and September 30, 2005 10-QSB to include our interest in associate
based on a direct interest of 35%.





Prior
Restatements





On
January 13, 2006, we amended our 2004 10-KSB. Prior to the January 13, 2006
amendment, in our 2004 10-KSB we recorded our interest in associate based on an
effective percentage of equity attributable to the group of 31.5% instead of a
direct interest of 35%. In the January 13, 2006 restatement of our 2004 10-KSB,
we reported our interest in associate based on a direct interest of 35%. In
addition, we have restated the common stock immediately after the
recapitalization to $100,000.








On
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 our 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, 2005 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.





Material
Weaknesses





In
connection with the 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:





(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.





We have
communicated with our auditor, Patrizio & Zhao, LLC. and concluded that
these deficiencies constituted material weaknesses, as defined by Auditing
Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed
in Conjunction with an Audit of Financial Statements,” established by the Public
Company Accounting Oversight Board, or PCAOB.





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 initiatives:





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; we are in the process of searching for a CFO
who is competent with US GAAP and familiar with SEC disclosure
requirements;





2.     modify
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 internationally recognized accounting
firm, which is not affiliated with our auditors, Patrizio & Zhao, LLC, to
assist our accounting department and internal audit function in the preparation
of our US GAAP consolidated financial statements; we are in the process of
establishing an internal audit department.





3.     recruit
an accounting staff member with US GAAP expertise and who is not affiliated with
our auditors, Patrizio & Zhao,LLC; and





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





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.





Other
than those disclosed above, there 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
quarter ended March 31, 2009.





PART
II. OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





As of the
date of this report, we are not involved in any legal proceedings





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





ITEM 5. OTHER
INFORMATION





None.





ITEM
6. EXHIBITS





Exhibit
No.





Description


31.1                      Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.





31.2                      Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.





32.1                      Certification
of Chief Executive Officer  pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





32.2                      Certification
of Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.








SIGNATURES





In
accordance with the requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





CHINA
      WATER GROUP, INC.(Registrant)Dated:
      September 14, 2009
              
              By:
      /s/ Wenge FangWenge
      Fang,Chief
      Executive OfficerDated:
      September 14, 2009
              
              By:  /s/
      Ding RencaiDing
      Rencai,Chief
      Financial Officer