UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K/A


(Amendment No. 1)





(Mark One)





( X )
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009(   )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the transition period from _________ to __________








Commission File Number 0-31193





EASTERN ENVIRONMENT SOLUTIONS, CORP.


(Exact Name of Registrant as Specified in Its Charter)





NEVADA
16-1583162(State or other jurisdiction of
(I.R.S. Employerincorporation or organization)
Identification No.)





HARBIN DONGDAZHI STREET 165,


HARBIN 150001


PEOPLE’S REPUBLIC OF CHINA


(Address of principal executive offices)





(011)-86-451-53948666


(Issuer's telephone number)





Securities Registered Pursuant to Section 12(b) of the Exchange Act: NONE





Securities Registered Pursuant to Section 12(g) of the Exchange Act:





COMMON STOCK, $.0001 PAR VALUE


(Title of Class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act.    Yes __ No √





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes __ No √





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  √   No __





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes  ___    No _____





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





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





Large accelerated filerAccelerated filerNon-accelerated filerSmaller 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 √





As of June 30, 2009 (the last business day of the most recently completed second fiscal quarter) the aggregate market value of the common stock held by non-affiliates was approximately $2,905,093, based upon the closing sale price of $.50 per share.





As of March 15, 2010, there were 14,970,186 shares of common stock outstanding.





Documents incorporated by reference: NONE




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EXPLANATORY NOTE





This Form 10-K/A (“Amendment No.1”) is being filed by Eastern Environmental Solutions Corp. (the “Company”) to amend the Company’s Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission (“SEC”) on March 18, 2010 (“Initial 10-K”).  This Amendment No.1 is filed to (i) amend the Company’s consolidated financial statements, (ii) amend the disclosures in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations and (iii) amend disclosures in “Management’s Annual Report on Internal Controls over Financial Reporting” section under Item 9A.  These changes were made as a result of a review by the Company of its policies regarding recognition of revenue and expenses associated with waste disposal operations at the landfill it operates in Harbin, China.  The Company’s revised  accounting policies and the changes to its historical financial statements that have resulted from implementation of the revised policies are set forth in Note 2 to the Consolidated Financial Statements.





Additionally, the text of the Initial 10-K had been modified to: (a) clarify in Item 1, “Business” the terms of the B-O-T Agreement between the Company and HMUAB, (b) modify the definitions in Item 1, “Business” of the “Phases” of construction of the Harbin landfill project, and (c) add disclosure in Item 7, “Management’s Discussion” regarding the Company’s receivable from HMUAB.  Finally, Item 4, which was omitted from the Initial 10-K, has been re-inserted as a reserved item, and all subsequent Items have been renumbered: and (d) update the disclosure in item 13: Certain Relationships and Related Transactions.





No changes, other than those that followed logically from the changes described above, have been made to the Initial 10-K.  None of the other information included in the Initial 10-K has been updated.  For current information regarding Eastern Environment Solutions, Corp., you should refer to the more recent filings made on EDGAR by the Company.









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PART I





FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED





In addition to historical information, this Annual Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Eastern Environment Solutions, Corp.  Whether those beliefs become reality will depend on many factors that are not under Management’s control.  Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.





ITEM 1. BUSINESS





Our Corporate Structure





Our corporate structure is set forth below:





Overview of Yifeng’s Business





Yifeng is an environmental engineering company which has been operating since 2003.  Yifeng provides two principal services: (i) non-hazardous municipal solid waste processing and disposal services and (ii) environmental engineering consulting services (provided through its wholly-owned subsidiary, Zhiye).





Non-Hazardous Solid Waste Processing





Yifeng is one of the leading regional, private environmental engineering companies in the PRC. Yifeng currently provides its services through its only landfill site (the “Landfill”) situated in the town of Jin Jia town, approximately 30 km from Harbin, which is the capital of Heilongjiang Province. The Harbin Municipal Urban Administrative Bureau (“HMUAB”) has authorized the Landfill to accept “municipal solid waste” (“MSW”), which is a type of waste generated by residential households and businesses such as restaurants and retail establishments. The Landfill occupies 55 hectares with an anticipated total capacity of more than 7.8 million tons of MSW.The Landfill can be used to dispose of 1,500 tons of MSW per day, approximately 42% of the total MSW produced by the population of Harbin.





Solid waste management in the PRC is generally administered and financed by the municipal governments.  The Environmental Protection Bureau and the Public Sanitation Bureau are responsible for the collection, treatment and disposal of waste and the Municipal Urban Construction Bureau is responsible for managing the construction of landfill sites and the disposal of waste. In order to construct a new landfill, the Municipal Urban Construction Department conducts a site feasibility study and submits the study to the Municipal Environmental Protection Bureau for approval. The municipal governments in the PRC are starting to involve the private sector in solid waste management through companies such as Yifeng.


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Yifeng currently operates the Landfill under a Build-Operate-Transfer (“BOT”) contract. It is one of the first companies to work with a municipal government under this type of contract. BOT is a form of project financing, wherein a private entity receives a franchise from the public sector to finance, design, construct, and operate a facility for a specified period, after which ownership is transferred back to the public sector. During the time that the project proponent operates the facility, it is allowed to charge facility users appropriate tolls, fees, rentals, and charges stated in its contract to enable the project proponent to recover its investment plus the operating and maintenance expenses in the project.





The PRC Ministry of Construction has promulgated a Municipal Public Sector BOT Administrative Measure (the “Measure”). Under the Measure, public sector services such as water, gas and heat supply, public transportation, and waste processing can be conducted by the BOT model through open bid. HMUAB and Yifeng entered into a 17-year BOT Contract on September 1, 2003 as a result of Yifeng winning in a public bid to build and operate the Landfill in Harbin. The BOT Contract provides for the construction and operation of the Harbin Xiangyang MSW Landfill (the “Landfill”).  The agreement has a term of 18 years and three months, including a 15 month construction period and a 17 year operation period.  HMUAB agreed to provide 55 hectares of land for the project, free of charge, and to provide the infrastructure necessary for the construction of the Landfill.  Yifeng agreed to fund the construction of the Landfill to a disposal capacity of 1,200 tons per day, which is expected to entail a commitment of 120 million RMB (@$17.5 million).  Yifeng’s obligation is secured by a bank letter of credit equal to 30% of its financial commitment.  During the term of the agreement, Yifeng will manage the Landfill, and HMUAB will pay Yifeng a monthly fee equal to 42 RMB (@$6.15) per ton of waste accepted by the Landfill.  Yifeng has the right to seek price adjustments based on documented expenses.  There is no formal mechanism, however, for resolution of cost variations; so our success in achieving any price adjustment will depend on informal negotiations.  HMUAB guarantees a minimum of 800 tons of waste per day will be delivered to the Landfill.  Upon termination of the agreement, Yifeng will have no further obligations, but all of the assets related to the Landfill operation will become property of HMUAB free of liens.





The purpose of the project is to landfill the MSW in a way that it has little or no impact on surrounding land and residents. Prior to the project, only approximately 5.7% of the total MSW was disposed of in a safe manner in Harbin. It is anticipated that this project can result in the safe disposal of an additional 34.3% of MSW.





The development of the Landfill is being carried out in phases, although the Landfill was ready to accept waste upon completion of Phase 1.  There are four phases of the project, three involving development of the below-ground landfill and a fourth involving construction of the above ground landfill.  The four phases will together require a total investment of approximately RMB 160,000,000 (approximately $21,505,000), of which Yifeng is required to provide approximately RMB 120,000,000 (approximately $16,129,000). Yifeng has already contributed RMB 70,000,000 (approximately $9,409,000) and HMUAB has contributed RMB 40,000,000 (approximately $5,376,000). Phase I of the project was completed and put into operation in November 2004.  It included waste landfill areas, a waste water adjusting pool and a processing station, laboratory and other affiliated construction such as office buildings, roads, etc. YIfeng has been accepting waste into the Landfill and thus generating revenues since November 2004, therefore, except during the period of suspended operations described below.  Yifeng plans to continue to construct waste landfill areas in Phase II and Phase III which are expected to be completed in 2011 and 2013, respectively.





In June 2007 the HMUAB was mandated by the PRC National Environment Protection Bureau to carry out certain modifications to the development of the Landfill for the protection of local residents.  The modifications involve the relocation of some of the neighboring residents, as well as the relocation of our waste water disposal plant.  While the modifications were ongoing, we suspended our operations at the Landfill, although HMUAB had a continuing obligation to pay us the base fee provided for in the BOT contract.  In November 2009 the suspension was lifted, and we have returned to full operations at the Landfill.  In February 2010 HMUAB increased our capacity authorization from 1200 tons per day to 1500 tons per day.


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Environmental Engineering Consulting Services





Yifeng, through its wholly-owned subsidiary, Zhiye, offers environmental engineering consulting services.  The services offered by Zhiye include:





§
environmental project investment and operation,





§
production site environmental protection design and construction,





§
non-hazardous waste disposal solutions,





§
air, water, soil, noise-related environmental product development, and





§
ecological and environmental project consulting services.





Zhiye’s consulting business generated approximately 27% of Yifeng’s total revenues for the fiscal year ended December 31, 2006.  None of that business carried over into 2007, however, and we have realized no revenue from Zhiye since 2006.  Our plan is to seek new consulting business opportunities in 2010.





Technology and Processes





Yifeng believes that its technologies and landfill site design represent an improvement over traditional landfill methods. The vast majority of MSW generated in the PRC is ultimately sent to simple dump sites on the suburban outskirts of cities. These dump sites without any sanitation measures pose significant environmental hazards, particularly associated with leachate to underground water. Until 2004, very few landfill sites in the PRC were equipped with leachate collection and treatment systems, which are required in developed countries.





The design of the Landfill incorporates features to protect groundwater and surface water, prevent soil erosion, protect against fire and provide easy access to control landfill gases and leachate. It is designed to be compatible with the surroundings both during its active life and after it is closed.





The Landfill is designed to meet international standards and comply with all relevant local PRC regulations, including the Sanitary Landfill Technical Standards of Municipal Solid Waste issued by the PRC’s National Ministry of Construction. Yifeng has installed a synthetic 2mm high-density polyethylene membrane system at the bottom of the Landfill to prevent leachate from polluting underground water. It has also installed a gas treatment and collection pipe system at the bottom of the Landfill.





The Harbin Environment Sanitation Bureau is responsible for collecting and transporting MSW to the Landfill. At the entrance of the Landfill, inspectors inspect the waste for its compatibility with the Landfill. Once the waste passes inspection, it will be weighed using a computer-based weighbridge and then unloaded into the Landfill.





With the use of a bulldozer, the waste is pushed up to a height of 50-60 cm. In order to protect the Heavy Duty Polypropylene (“HDPE”) Liner from tearing, the initial layer of waste will only be compacted when it reaches 3-meters thick. It will then be compacted into a 50-60 cm layer, with a waste density of more than 0.8 ton/m3. When the waste accumulates to a height of 2.5 meters, it will be covered with clay to prevent mosquitoes and flies from proliferating, and to prevent odor and light-weight waste from accidentally flying out of the Landfill. The Landfill is also sprayed periodically and sanitized to protect the surrounding environment and control mosquitoes.


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Yifeng owns the following equipment, which is utilized in the operation of the Landfill:




No.
Description
Quantity
Total Approximate

Purchase Price (US$)1
Bulldozer
2
$ 135,0002
Compaction machine
2
390,0003
Red rock truck transportation vehicle
2
61,0004
Hitachi excavator
1
165,0005
Spray vehicle
1
21,0006
Car loader
1
33,0007
Card Ma Si transport vehicle
2
53,000Total

$ 858,000








In summary, the following are the principal technologies used by Yifeng at the Landfill:






Mechanical ventilated aerobic and anaerobic landfill techniques






Leachate collection






Synthetic HDPE horizontal anti-sinking technique






Landfill gas and methane collection






Municipal solid waste compacting technique





Future Planned Services





Traditional methods of municipal waste disposal (open-air dumps) can cause underground water and air pollution and other environmental problems. Landfill gases, principally methane, contribute to the production of greenhouse gases (“GHG”). In order to control GHG emissions, it is necessary to collect and utilize the landfill gases.





Yifeng is presently developing methods to utilize these landfill gases, having already installed collection tubes in the Landfill.  The Landfill presently does not produce enough methane for collection.  However, in 2010 or thereafter Yifeng plans to start collecting the landfill gases and either sell them to a power company or establish a plant for power generation.  By that time, the Landfill will have accumulated roughly 1-1.5 million tons of resident MSW. Yifeng plans to raise additional capital to finance the project, the availability of which cannot be assured.





Yifeng is planning to promote a “Zero-Waste-to-Landfill” plan as part of its environmental engineering services.  The goal of the plan will be to efficiently recycle MSW, thus reducing waste disposal and prolonging the longevity of the Landfill site. Recycling MSW could provide Yifeng with additional revenue.





Market Analysis





Waste generation is directly related to socio-economic development, industrialization and the climate. Generally, as an economy prospers and the urban population grows, more solid waste is produced. During the last two decades, the PRC’s economy has been growing at an annual rate of almost 10%. Waste generation has similarly grown at a pace of 8-10% annually. Currently, every Chinese person produces an average of approximately 440 kg of solid waste per year. With a total population of 1.25 billion people, the PRC generates approximately 600 million tons of waste per year. The main types of waste generated in Chinese cities are:


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Type of Waste
Organic
Paper
Plastic
Metal
Glass
OthersPercentages
45-55%
10-20%
5-15%
2-4%
2-4%
2-36%





(Source: World Bank 1996)





According to data from the World Bank, urban residents generate two to three times more solid waste than rural residents. With the rapid urbanization of the PRC, Yifeng’s strategy is to concentrate on larger cities and growth centers, where the need for waste management is greatest.





Landfills are the most common method of solid waste disposal in the PRC. By the end of 1995, there were over 1,000 landfill sites in large and mid-sized cities in the PRC, of which 90% were open-air dumps. By 2002, 70% of such sites remained open-air dumps. These simple open dump sites, without any proper sanitation, pose a serious environmental hazard. They generally do not have any leachate collection system, GHG emission control system, compaction or waste screening processes. There is, accordingly, a huge demand for the technology, methodology and management expertise that Yifeng offers. In 1989, the PRC Ministry of Construction developed a comprehensive technical MSW landfill standard. This standard provides for the design and management of MSW landfills and requires that such landfills be designed to protect the environment. Our Landfill conforms to this standard.





Customers





HMUAB is Yifeng's sole customer. Under the 17-year term BOT Contract, it provides Yifeng approximately 42% of the total MSW Harbin produces for a fixed disposal fee of RMB42 (approximately $6.15) per ton.





Yifeng is responsible for collecting and processing the MSW in Harbin. HMUAB could determine that it does not meet the strict requirements for professional technology or management and revoke the BOT Contract and grant other companies the right to collect and process the MSW in Harbin. The termination of the BOT Contract or Yifeng's rights to operate would have a material adverse impact on its revenues and operations.





Insurance





Yifeng purchased automobile insurance with third party liability coverage for its vehicles. It does not have other insurance such as property insurance, business liability or disruption insurance coverage for its operations in the PRC. Further, it does not have key man insurance for its officers and executive managers. Therefore, the loss of one or more of its officers and executive managers will adversely affect its business and operations. While a lawsuit against a company such as Yifeng in the PRC would be rare, it cannot make any assurance that it will not have exposure for liability in the event of a lawsuit.





Competition





Only those companies which have been granted a special operating license issued by the national and local governments are permitted to engage in the waste business in the PRC. The national and local governments have strict requirements for professional technology and management.





Yifeng is the first privately owned enterprise engaged in MSW disposal under a BOT contract in Harbin. It disposes of approximately one third of the total MSW Harbin produces. The other MSW disposal factories are decades old. They are state owned enterprises using open-air dumps to dispose of MSW, which can cause underground water and air pollution and other environmental problems. The Landfill was completed in 2004, adopting a new sanitary waste disposal method which was in compliance with relevant environmental rules and regulations.


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Yifeng believes it has the following competitive advantages over the possible new private enterprises entering into the same industry:





1.
Sustainable and Predictable Revenue: Because the waste disposal price was fixed under the 17-year term BOT Contract and it is now in operation and its revenue is sustainable and predictable. Yifeng may use the cash from operations for facility and technology improvements, such as the waste to energy exchange project as described under “Future Planned Services” above.2.
Processing Capacity. Yifeng has completed Phase I of the Landfill project. It is continuing Phase II and Phase III of the project where affiliated facilities will be constructed. Yifeng believes its new facilities will allow it to continue the expansion of its waste disposal capacity.





3.
Leading Position in Market. Yifeng is the largest MSW disposal enterprise in Harbin with the current disposal capacity of 42% of the total MSW Harbin produces. It is also the first privately-owned MSW non-hazardous disposal company in China.4.
Experienced Management. Its management is familiar with PRC environmental laws and regulations. They have hands-on experience in applying and maintaining governmental licenses and permits in the waste disposal industry in the PRC.





Government Regulations





Yifeng constructed the Landfill. Its construction is subject to the Construction Standards of Municipal Solid Waste Landfill Projects (the “Construction Standards”) promulgated by the PRC Ministry of Construction. It completed the landfill project construction in November 2004. The construction was inspected by a third party construction monitoring entity and met the Construction Standards. The landfill disposal it conducts is subject to a variety of rules and regulations promulgated by the PRC National Ministry of Construction and other environmental bureaus, including Technical Standards of Municipal Solid Waste, Waste Water Comprehensive Output Standards, Underground Water Quality Standard and Control Standards on Municipal Solid Waste Landfill. It is also subject to business license and approval regulations that are required for all corporations in the PRC.





Employees





The Company currently has 52 employees:  45 associated with Yifeng and 7 with its subsidiary, Zhiye.  All of the Company’s employees are engaged full-time.  The Company believes that its relations with its employees are good.





ITEM 1A   RISK FACTORS





Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information contained in this Report, including the financial statements and the related notes, before deciding whether to purchase any shares of our common stock. If any of the following risks occurs, our business, financial condition or operating results could materially suffer. In that event, the trading price of our common stock could decline and you may lose all or part of your investment. 
 We rely on one relationship for all of our current revenues.
 
 All of our revenues since 2007 have arisen from our relationship with the Government of Harbin, specifically from one landfill operation.  We intend that in the future we will expand our operations to develop other revenue-producing relationships, but we have no immediate prospects for such plan.  If our relationship with the City of Harbin becomes disrupted for any reason before we develop other sources of revenue, we will have no source of revenue, and our business would fail.




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Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.





Our future success depends on our ability to attract and retain highly skilled engineers, technical and marketing personnel. Qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand.  Therefore we may not be able to successfully attract or retain the personnel we need to succeed.





We may have difficulty establishing adequate management and financial controls in China and in complying with U.S. corporate governance and accounting requirements.





The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with.  We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company.  If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.





Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.





The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because all of our current revenues and most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.





We have limited business insurance coverage.





The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of our resources.





Environmental compliance and remediation could result in substantially increased capital requirements and operating costs.





Our operating subsidiary, Yifeng, is subject to numerous Chinese provincial and local laws and regulations relating to the protection of the environment. These laws continue to evolve and are becoming increasingly stringent. The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. Our consolidated business and operating results could be materially and adversely affected if Yifeng were required to increase expenditures to comply with any new environmental regulations affecting its operations.


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We may be required to raise additional financing by issuing new securities with terms or rights superior to those of our shares of common stock, which could adversely affect the market price of our shares of common stock.





We will require additional financing to fund future operations and to expand into new markets. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our current shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us.





We do not intend to pay any cash dividends on our common stock in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the fair market value and trading price of our common stock.





We have never paid a cash dividend on our common stock.  We do not intend to pay cash dividends on our common stock in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the fair market value and trading price of our common stock.





All of our assets are located in China and changes in the political and economic policies of the PRC government could have a significant impact upon what business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.





Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.





Our bank deposits are not insured.





There is no insurance program in the PRC that protects bank deposits, in the way that bank deposits in the U.S. are given limited protection by the FDIC.  If the bank in which we maintain our cash assets were to fail, it is likely that we would lose most or all of our deposits.





Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.





Our principal operating subsidiary, Yifeng, is considered a foreign invested enterprise under PRC laws, and as a result is required to comply with PRC laws and regulations. Unlike the common law system prevalent in the United States, decided legal cases have little value as precedent in China. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation.


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The scope of our business license in China is limited, and we may not expand or continue our business without government approval and renewal, respectively.





Our principal operating subsidiary, Yifeng, is a wholly foreign-owned enterprise organized under PRC law, commonly known as a WFOE. A WFOE can only conduct business within its approved business scope, which ultimately appears on its business license. In order for us to expand our business beyond the scope of our license, we will be required to enter into a negotiation with the authorities for the approval to expand the scope of our business. We cannot assure you that Yifeng will be able to obtain the necessary government approval for any change or expansion of our business scope.





We rely principally on dividends and other distributions on equity paid by our operating subsidiary to fund our cash and financing requirements, but such dividends and other distributions are subject to restrictions under PRC law. Limitations on the ability of our operating subsidiary to pay dividends or other distributions to us could have a material adverse effect on our ability to grow, make investments or acquisitions, pay dividends to you, and otherwise fund and conduct our business.





We are a holding company and conduct substantially all of our business through our operating subsidiary, Yifeng, which is a limited liability company established in China. We rely on dividends paid by Yifeng for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities organized in China is subject to Yifeng to us only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Yifeng is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. In addition, Yifeng is required to allocate a portion of its after-tax profit to its enterprise expansion fund and the staff welfare and bonus fund at the discretion of its board of directors. Moreover, if Yifeng incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitations on the ability of Yifeng to pay dividends or other distributions to us could have a material adverse effect on our ability to grow, make investments or acquisitions, pay dividends to you, and otherwise fund or conduct our business.





ITEM 1B.            UNRESOLVED STAFF COMMENTS





Not Applicable.





ITEM 2.               DESCRIPTION OF PROPERTY





All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government allocates to landholders a temporary “land use right.” Yifeng has been allocated the land use rights for the Landfill. Set forth below is the detailed information regarding the land:




Allocation Authority
Location
Area (Square Meters)
Construction on the Land
Audited Value
Term of Use RightHarbin Municipal Urban Administrative Bureau
Northern Part to Jin Jia Town, Xiangyang County, City of Harbin
550,000
Office and Staff Buildings (6,000 Sq. M.)
RMB 14,270,928 (approximately US$1,918,000)
17 years from September 1, 2003




11





HMUAB allocated the land use rights to the Landfill to Yifeng for no consideration as part of the BOT Contract. The land use rights are limited: it must be used as a landfill and Yifeng cannot encumber it. Pursuant to the BOT Contract, Yifeng has the right to use the offices and staff buildings Yifeng built on the Landfill for 17 years from September 1, 2003, the same term as Yifeng is entitled to the use rights to the Landfill itself.





Yifeng’s subsidiary, Zhiye, leases its office space (200 square meters) for an annual rent of RMB 260,000 (approximately US $35,000) from Harbin Yifeng Group Joint Stock Co., Ltd., a company of which Mr. Yun Wang owns 22.78%.  Yun Wang is the spouse of Feng Yan, our Chief Executive Officer.  The lease is on a year to year basis.   The rental charge is believed to be equal to the market rate for similar property in Harbin.





ITEM 3.              LEGAL PROCEEDINGS





None.





ITEM 4.               RESERVED





PART II




ITEM 5.               MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.


(a) Market Information





Our common stock is listed for quotation on the OTC Bulletin Board system under the symbol “EESC.”  The following table sets forth for the respective periods indicated the prices of the common stock, as reported by the OTC Bulletin Board.  Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.





BidQuarter Ending

High


LowMarch 31, 2008

$
1.95


$
.65June 30, 2008

$
1.15


$
.41September 30, 2008

$
1.00


$
.68December 31, 2008

$
.72


$
.20March 31, 2009

$
.91


$
.16June 30, 2009

$
.55


$
.25September 30, 2009

$
.60


$
.15December 31, 2009

$
.70


$
.15





(b) Shareholders





On March 5, 2010 there were approximately 259 holders of record of our common stock.





(c)  Dividends





Since the Company’s incorporation, no dividends have been paid on our Common Stock. We intend to retain any earnings for use in our business activities, so it is not expected that any dividends on our common stock will be declared and paid in the foreseeable future.


12


(d)  Securities Authorized for Issuance Under Equity Compensation Plans





The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of December 31, 2009.





Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plansEquity compensation plans approved by security holders.
0
N.A.
0Equity compensation plans not approved by security holders.
0
N.A.
50,000Total
0
N.A.
50,000





(1) In April 2008 the Board of Directors adopted the 2008 Equity Incentive Plan.  The Plan authorizes the Board to issue up to 3,000,000 shares of common stock to employees of the Company and its subsidiaries or to consultants providing services to the Company other than services in connection with capital raising transactions or promoting or maintaining the market for our common stock.  To date, the Board has granted 2,950,000 shares pursuant to the Plan.





(e)  Sale of Unregistered Securities





Eastern Environment did not effect any unregistered sales of equity securities during the 4th quarter of 2009.





(f) Repurchase of Equity Securities





Eastern Environment did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the 4th quarter of 2009.





ITEM 6.                SELECTED FINANCIAL DATA





Not applicable.





ITEM 7.                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS





Restatement of Financial Statements





The Company has restated its consolidated financial statements for the years ended December 31, 2009 and 2008 to implement a revision to the Company’s policies regarding recognition of revenue and expenses associated with its landfill operations.    Previously the Company capitalized the costs of development of the landfill as portions of the project were placed into service, and amortized such capitalized costs over the anticipated life of the landfill operations.  The Company has now determined that because each phase of landfill construction builds upon the prior phases, a more appropriate recognition policy would amortize the entire anticipated cost of the landfill in proportion to the ratio of total tonnage dumped in the landfill to the anticipated total tonnage to be dumped in the landfill.   The effect of adopting this new policy on the consolidated financial statements of the Company for the years ended December 31, 2009 and 2008 and the interim quarters in those years is quantified in Note 2 to the Consolidated Financial Statements.  The discussion in this Item has been modified to reflect the results of the restatement.


13





Results of Operations





The growth of our business was delayed in June 2007, when the Harbin Municipal Urban Administrative Bureau (“HMUAB”), which is our only customer, was mandated by the PRC National Environment Protection Bureau to carry out certain modifications to the development of its landfill for the protection of local residents.  The modifications involve the relocation of some of the neighboring residents, as well as the relocation of our wastewater disposal plant.  The cost of the modifications was born entirely by the HMUAB.  Nevertheless, while the modifications are ongoing, we suspended our operations at the Landfill, which was our only source of revenue.  The suspension was lifted in November 2009, and we have now returned to full operations.  Our consolidated financial statements for 2009, except for the last two months of the year, reflect the results of suspended operations.





Moreover, in February 2010 the HMUAB increased the limits on our operations from 1,200 tons of waste per day to 1,500 tons per day.





In accordance with the terms of our contract, the HMUAB was required to pay us, during the period of suspended operations, a sum equivalent to the fee for processing 800 tons of waste per day, which is approximately 66% of the Landfill’s capacity.  As a result, our revenue from waste processing during 2009 was $1,881,302.  This represented a 6% improvement over 2008, during which operations were also suspended, due primarily to operating revenue achieved in the last two months of the year, as well as the decreased value in 2009 of the U.S. Dollar compared to the Chinese Renminbi.   Revenue in both years fell short of the $2,347,395 that we achieved in 2006, the last full year of Landfill operations.  Having now returned to operations, we will endeavor to expand our waste processing operations by (a) pursuing strategic acquisitions, (b) developing additional landfills, and (c) implementing recycling technologies that will provide additional revenue sources, such as the sale of methane to the electric power industry.  Given the overwhelming growth of China’s cities, we expect there to be plentiful market opportunities.





Because most of our revenues in 2009 were achieved without any production on our part, we incurred only $182,960 in cost of revenues.  These costs were attributable to the period at the end of 2009 when that we operated the landfill.  In 2008, when we had no production, we incurred no cost of revenues, although we recorded the minimum fees due from HMUAB as revenue.





Through both 2008 and 2009 we retained our core employees on salary.  Management determined that eliminating the Company’s employee base during the landfill suspension would make it very difficult to revive that operation when the suspension ended.  The expenses incurred in connection with retaining our employees were $79,185 in 2009 and $82,808 in 2008.  These expenses were classified as selling, general and administrative expenses.





Our selling, general and administrative expenses increased by 7% from 2008 ($618,616) to 2009 ($661,721), primarily as a result of the increased amortization of stock compensation plans due to additional issuance of employee compensation stocks in April 2008.  In both years, a large portion of our selling, general and administrative expense was attributable to the expensing of stock compensation that we gave to employees and consultants in 2008 as incentives for services provided:  $382,750 in 2009 and $322,917 in 2008.  At December 31, 2009 there remained $1,498,319 in deferred stock compensation expense on our books, which will be amortized as expenses over the expected terms of service of the employees and consultants who received the shares.





The Company’s revenue less expenses produced a pre-tax income of $882,773 during 2009, compared to a pre-tax income of $882,499 during 2008.  However, as a result of Chinese tax laws that reward foreign investment in China, Yifeng was entitled to exemption from income taxes during 2007 and 2008, followed by a 50% abatement of taxes from 2009 to 2011.  Our net income for 2008, therefore, was identical to our pre-tax income, representing $0.08 (diluted $0.06) per share.  In 2009, after accruing $184,894 for income taxes, our net income fell to $697,878, representing $0.06 (diluted $0.05) per share.





Our business operates entirely in Chinese Renminbi, but we report our results in our SEC filings in U.S. Dollars.  The conversion of our accounts from RMB to Dollars results in translation adjustments.  While our net income is added to the retained earnings on our balance sheet; the translation adjustments are added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business.  During 2009, the effect of converting our financial results to Dollars was to reduce our accumulated other comprehensive income by $53,783.  During 2008, when the exchange rate was more volatile, the effect of converting our financial results to Dollars was to add $737,204 to our accumulated other comprehensive income.


14





Liquidity and Capital Resources





To date, we have financed our operation and met capital expenditure requirements primarily through bank loans and operating income.  On November 18, 2004, the Company received a long-term loan from Industrial and Commercial Bank of China, Harbin Branch in the amount of $4,832,960, secured by the Company’s building. The loan was for a 5-year term, maturing November 15, 2009 with interest adjustable based on official rates. The loan agreement does not include any financial covenants with which the Company must comply.  In November 2009 the Bank extended the loan to December 25, 2011 and fixed the interest rate at 6.534% per annum.  In addition to paying the quarterly interest, the Company is also required to make $241,648 pre-determined principal repayments every quarter. When our operations at the Landfill were suspended, the Bank agreed to reduce our debt service requirements, with the result that in 2009, we made principal payments of only $217,484.  That abatement ended when we recommenced operations at the Landfill.





Our working capital at December 31, 2009 totaled $3,962,341, an increase of $2,188,999 from our working capital at December 31, 2008.  Although our net income of $697,878 in 2009 added to our working capital, the primary reason for the increase was the reclassification of $1,087,416 of principal due to Industrial and Commercial Bank of China from current liabilities to long-term liabilities.





The largest component of the increase in our working capital consisted of $1,734,283 in additional accounts receivable, bringing the total receivable at December 31, 2009 to $4,253,203.  The increase results from the fact that we are dependent on one source of revenue – HMUAB.  Although under the BOT agreement, payments were due thirty days after each month, during the suspension of Landfill operations between June 2007 and October 2009, HMUAB made few payments.  During 2009, HMUAB made no payments during the first ten months.  However, when the Landfill re-opened in November 2009, HMUAB paid us approximately $144,000 and has subsequently paid both current accounts and portions of the past due account.  In February 2010 HMUAB sent us a written acknowledgement of the $4,253,203 that it owed us at December 31, 2009, with a schedule of payments that will satisfy the receivable during 2010:  4 million RMB in the first quarter of 2010, 5 million RMB in the second quarter, 8 million RMB in the third quarter, and the balance of 12.037 million RMB in the fourth quarter.  To date HMUAB has met that schedule of payments.  Accordingly, we do not consider the receivable to be at risk, and have made no provision for doubtful accounts.





Despite our $697,878 in net income, our operations used $271,798 in cash during 2009.  As a result, we reduced our cash assets by $684,435 to $428,052 during 2009.  Three factors primarily led to the reduction in our cash position during 2009:






We made a one-year loan in the amount of $439,431 to Harbin Jiayi Import and Export Co., Ltd.






Our accounts receivable increased by $1,734,283.





Our lending relationship with Harbin Jiayi Import and Export Co., Ltd. was initiated in the 4th quarter of 2008.  Harbin Jiayi is a Chinese limited liability company owned by two individuals, neither of whom has any relationship with Yifeng or its affiliates.  We made the arrangement in order to put our cash reserves to a productive use while our operations were suspended.  We chose Harbin Jiayi Import and Export because it has a good reputation in the local business community.  We made a smaller amount, short-term loan at a nominal interest rate at the beginning to initiate the relationship, then followed in the 1st quarter of 2009 with a larger loan carrying a market rate of interest.  A balance of $439,431 was outstanding at December 31, 2009, which was paid in full on March 11, 2010.





15




Our operating subsidiary, Yifeng, has sufficient liquidity to fund its near-term operations and to fund the working capital demands of a modest expansion of its operations.  In order to complete Phase II and Phase III of the Landfill project within the next six years, it will be necessary that we obtain additional debt or equity financing.  In addition, if we are to achieve critical mass in our industry by developing new landfills, we will require substantial infusions of capital.  We do not know at this time whether we will be able to secure such financing, or on what terms it might be available.





Based upon the financial resources available to Yifeng, management believes that it has sufficient capital and liquidity to sustain operations for at least the next twelve months.





Critical Accounting Policies and Estimates




The discussion and analysis of our financial condition presented in this section is based on the consolidated financial statements. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). During the preparation of the financial statements we are required to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to, bad debts, inventories, fixed assets, income taxes and other contingencies. We based our estimates on historical experience and various other assumptions that we believe are reasonable under the set of current conditions. Actual results may differ from these estimates under a different set of assumptions or set of conditions.




In response to the Securities and Exchange Commission’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure about Critical Accounting Policy,” we identified the most critical accounting principles upon which our financial status depends. We determined that those critical accounting principles are related to the use of estimates, allowance for accounts receivable, advances to suppliers, inventory valuation, revenue recognition, income tax, stock-based compensation, landfill costs and other long-lived assets. We present these accounting policies in the relevant sections in this management’s discussion and analysis. The consolidated financial statements of the Company are expressed in U.S. dollars.  All significant intercompany balances and transactions have been eliminated in consolidation. The Company has reclassified certain prior year amounts to conform to the current year presentation.




Accounts Receivables





The determination, described in Note 3 (“Accounts Receivable”) to the Consolidated Financial Statements that we would not reserve against the account receivable owed to us by HMUAB, which was past due as of December 31, 2009.  The determination was based on assurances from HMUAB that the account would be settled in full during 2010, as well as payments by HMUAB in the first two months of 2010.





Landfill Development and equipment





The determination that we would not reserve against the advances to suppliers that are included in Landfill Development Costs on our Balance Sheets as of December 31, 2009.  The determination was based on our confidence that, operations at the Landfill having resumed, it is probable that the advances will be utilized for purchase of construction materials during 2010.





Landfill development costs are stated at cost, net of accumulated amortization.  Amortization is computed on a units of measure basis.  In preparing the Consolidated Financial Statements, we determined that we would amortize construction costs, based on actual tonnage, in proportion to the full anticipated capacity of the landfill.  The determination was based on our assessment that it is probable that we will continue to utilize the Harbin landfill for the full term of the BOT agreement and that, in that period, the landfill is filled to capacity.  The Company determined that the units of measure method of accounting for landfill development costs more accurately reflect the cost of building the landfill with the revenue recognized with each ton of waste disposed of in the landfill over the life of the landfill.  The Company has determined this method of accounting more accurately reflects the characteristics of their agreement with HMUAB.


16





Income taxes





The Company accounts for income tax under the provisions of Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) No.740 "Income Taxes", which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns.  Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities.  We have determined that the valuation allowances that have been established against the net deferred tax assets are reasonable when it is more likely than not that some portion or all of the deferred tax asset will not be realized.  The Company was granted the status of a Wholly Foreign Owned Enterprise (“WFOE”) in the fourth quarter of 2006 upon the reverse merger with USIP with a choice of starting the tax holiday immediately or the next calendar year.   The Company elected for the tax holiday to commence in January 2007. Therefore our two-year tax exemption period was from January 1, 2007 to December 31, 2008 and a three-year income tax reduction period will be from January 1, 2009 to December 31, 2011.  The estimated tax savings as a result of our tax abatement in 2009 amounted to $174,270.  The estimated tax savings as a result of our tax holiday in 2008 amounted to $329,781.





Stock-based compensation




The Company records stock based compensation expense pursuant to the United States ASC Codification 718, which establishes the accounting for employee stock-based awards.  Under the provisions, stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant).  Deferred stock compensation represents shares issued to employees that will be vested over a certain service period.   The Company believes that the 2007 and 2008 Employee Stock Option Plan have provided the Company with the ability to retain a skilled and experienced work force and management team by providing an incentive to our employees.





Revenue recognition




The Company recognizes revenue in accordance with ASC 360, which states that revenue should not be recognized until it is realized or realizable and earned.  In general, the Company records revenue when pervasive evidence exists of an arrangement, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.  For revenue associated with waste disposal at the landfill, the Company has determined the appropriate revenue recognition policy to be the greater of the minimum rate or the actual tonnage disposed during the period, whichever is greater.  As part of the Franchise Agreement with the Harbin landfill, the Company has the right to charge minimum fees per day during the periods of suspension by the Harbin County Government.  The Company will disclose these fees separately as they result in a different cost of revenue model.   The Company has determined this method of accounting more accurately reflects the characteristics of their agreement with HMUAB.


Impact of Accounting Pronouncements
 
 In June 2009, FASB established Accounting Standards Codification (“Codification”) as the single source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity with GAAP. The Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Adoption of the Codification did not have a material impact on the Company’s results of operations or financial position.


17





In June 2009, FASB updated the accounting standards related to the consolidation of variable interest entities (“VIEs”). The standard amends current consolidation guidance and requires additional disclosures about an enterprise’s involvement in VIEs. The standard 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 the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company does not expect the adoption to have a material impact on the Company’s results of operations or financial position.





In May 2009, FASB issued FAS No. 165, "Subsequent Events," which was subsequently codified within ASC 855, “Subsequent Events”. The standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. An entity should apply the requirements of ASC 855 to interim or annual financial periods ending after June 15, 2009. Adoption of this standard does not have a material impact on the Company’s results of operations or financial position.





In April 2009, the FASB updated the accounting standards to provide guidance on estimating the fair value of a financial asset or liability when the trade volume and level of activity for the asset or liability have significantly decreased relative to historical levels. The standard requires entities to disclose the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, debt and equity securities as defined by GAAP shall be disclosed by major category. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and is to be applied prospectively. The adoption did not have a material effect on the Company's results of operations and financial condition.





In April 2009, the FASB updated the accounting standards for the recognition and presentation of other-than-temporary impairments. The standard amends existing guidance on other-than-temporary impairments for debt securities and requires that the credit portion of other-than-temporary impairments be recorded in earnings and the noncredit portion of losses be recorded in other comprehensive income. The standard requires separate presentation of both the credit and noncredit portions of other-than-temporary impairments on the financial statements and additional disclosures. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. At the date of adoption, the portion of previously recognized other-than-temporary impairments that represent the noncredit related loss component shall be recognized as a cumulative effect of adoption with an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income (loss). The adaption of this standard did not have a material effect on the preparation of the Company’s consolidated financial statements.





In August 2009, the FASB updated the accounting standards to provide additional guidance on estimating the fair value of a liability in a hypothetical transaction where the liability is transferred to a market participant. The standard is effective for the first reporting period, including interim periods, beginning after issuance. The Company does not expect the adoption to have a material effect on the Company's consolidated results of operations and financial condition.





In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force”.  This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting.  This update establishes a selling price hierarchy for determining the selling price of a deliverable.  The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available.  The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted.  The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.


18





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.


ITEM 7A.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not Applicable.





ITEM 8.                FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.








INDEX TO FINANCIAL STATEMENTS





Page(s)Report of Independent Registered Public Accounting Firm - Friedman LLP
20Report of Independent Registered Public Accounting Firm - Bagell Josephs, Levin & Company, LLC
21Consolidated Balance Sheets as of December 31, 2009 and 2008
22Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2009 and 2008
23Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008
24Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008
25Notes to Consolidated Financial Statements
26

















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Stockholders of


Eastern Environment Solutions, Corp.





We have audited the accompanying consolidated balance sheet of Eastern Environment Solutions, Corp. as of December 31, 2009, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2009. Eastern Environment Solutions, Corp.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.





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





We also have audited the adjustments to the 2008 consolidated financial statements for the changes to the accounting for landfill development costs and the reclassification of certain property and equipment as described in Note 2.  In our opinion, such adjustments are appropriate and have been properly applied.  We were not engaged to audit, review or apply any procedures to the 2008 consolidated financial statements of the Company other than with respect to these adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2008 consolidated financial statements taken as a whole.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eastern Environment Solutions, Corp. as of December 31, 2009, and the results of its operations and its cash flows for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.











/s/ Friedman LLP





Marlton, New Jersey





March 18, 2010, except for Notes 2, 4, 7, 8, 9, 10 and 11 as to which the date is January 19, 2011




20


BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.


Certified Public Accountants


406 Lippincott Drive


Suite J


Marlton, New Jersey 08053


(856) 346-2828 Fax (856) 396-0022








REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Stockholders of


Eastern Environment Solutions, Corp.





We have audited, before the effects of the adjustments for the correction of the error described in Note 2, the accompanying consolidated balance sheet of Eastern Environment Solutions, Corp. as of December 31, 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the year ended December 31, 2008 (the 2008 consolidated financial statements before the effect of the adjustments discussed in Note 2 are not presented herein). Eastern Environment Solutions, Corp.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.




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




In our opinion, the 2008 consolidated financial statements, before the effects of the error described in Note 2, present fairly, in all material respects, the financial position of Eastern Environment Solutions, Corp. as of December 31, 2008, and the results of its operations and its cash flows for the year ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.




We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the error described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Friedman LLP.




/s/Bagell, Josephs, Levine & Company, L.L.C.


Marlton, New Jersey


February 25, 2009





21


EASTERN ENVIRONMENT SOLUTIONS, CORP.CONSOLIDATED BALANCE SHEETSDecember 31,


December 31,2009


2008(Restated)


(Restated)ASSETSCurrent assets:Cash and cash equivalents

$
428,052


$
1,112,487Accounts receivable


4,253,203



2,518,920Inventories


42,650



81,203Other receivables


440,208



183,996Loans to related parties


42,828



243,662Total Current Assets


5,206,941



4,140,268Property and equipment, net of accumulated depreciation of$44,360 and $28,057, respectively


124,175



140,590Landfill development costs, net of amortization of$2,423,871 and $2,282,321, respectively


8,232,899



8,291,222Total Assets

$
13,564,015


$
12,572,080LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Bank loan payable - current portion

$
966,592


$
2,271,492Accounts payable


810



887Deferred tax liability


10,631



-Taxes payable


174,375



108Accrued expenses and other payables


92,192



94,439Total Current Liabilities


1,244,600



2,366,926Long-term liabilities:Bank loan payable - net of current portion


1,087,416



-Total Liabilities


2,332,016



2,366,926Commitments and Contingencies


-



-Stockholders' EquityCommon stock, $0.0001 par value, 100,000,000 shares authorized; 14,970,186 shares issued and outstanding as of December 31, 2009and December 31, 2008


1,497



1,497Additional paid-in capital


3,836,165



3,453,415Accumulated other comprehensive income


1,717,131



1,770,914Statutory reserves


567,721



497,933Retained earnings - Unappropriated


5,109,485



4,481,395Total Stockholders' Equity


11,231,999



10,205,154Total Liabilities and Stockholders' Equity

$
13,564,015


$
12,572,080








22


EASTERN ENVIRONMENT SOLUTIONS, CORP.CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFor The Years EndedDecember 31,2009


2008(Restated)


(Restated)Revenues-

Landfill disposal fees

$
538,748


$
--

Landfill minimum fees


1,342,554



1,770,0541,881,302



1,770,054Cost of RevenuesLandfill disposal fees


182,960



-Landfill minimum fees


-



-182,960



-Gross Profit




1,698,342



1,770,054Selling, general and administrative expenses


661,721



618,616Income from operations


1,036,621



1,151,438Other Income (expense)Interest income


8,973



12,563Interest expense


(162,766
)


(281,502
)Other expense


(55
)


-Total other income, net


(153,848
)


(268,939
)Income from operations before income taxes

$
882,773


$
882,499Provision for income taxes


184,895



-Net income




697,878



882,499Other comprehensive income (loss) -Foreign currency translation income (loss)


(53,783
)


737,204Comprehensive Income


$
644,095


$
1,619,703Basic & Diluted Income Per ShareBasic


$
0.06


$
0.08Diluted


$
0.05


$
0.06Weighted Average Number of Common Shares OutstandingBasic



11,429,083



10,559,855Diluted



14,970,186



13,994,913




The accompanying notes are an integral part of these consolidated financial statements
  23
 EASTERN ENVIRONMENT SOLUTIONS, CORP.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008Accumulated

OtherCommon Stock





Additional


Comprehensive


Statutory


RetainedShares


Par Value


Paid in Capital


Income


Reserves


Earnings


TotalRestated


Restated


Restated


Restated


RestatedBalance December 31, 2007 (as previously reported)


12,020,186


$
1,202


$
3,130,793


$
1,157,547


$
186,156


$
5,294,257


$
9,769,955Cumulative effect adjustments














(123,838
)


223,527



(1,607,111
)


(1,507,422
)Stock issued for employee-based compensation


2,950,000



295



1,327,205















1,327,500Unearned stock compensations










(1,004,583
)














(1,004,583
)Statutory reserve adjustment


















88,250



(88,250
)


-Comprehensive incomeNet income for the year






















882,499



882,499Other comprehensive income, net of taxForeign currency translation adjustments














737,205











737,205Balance December 31, 2008


14,970,186


$
1,497


$
3,453,415


$
1,770,914


$
497,933


$
4,481,395


$
10,205,154Unearned stock compensations










382,750















382,750Statutory reserve adjustment69,788



(69,788
)Comprehensive incomeNet income for the year






















697,878



697,878Other comprehensive income, net of taxForeign currency translation adjustments














(53,783
)










(53,783
)Balance December 31, 2009


14,970,186


$
1,497


$
3,836,165


$
1,717,131


$
567,721


$
5,109,485



11,231,999


The accompanying notes are an integral part of these consolidated financial statements
  24


EASTERN ENVIRONMENT SOLUTIONS, CORP.CONSOLIDATED STATEMENTS OF CASH FLOWSFor The Years EndedDecember 31,2009


2008(Restated)


(Restated)Cash Flows From Operating Activities:Net income

$
697,878



882,499Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization


160,736



16,038Amortization of stock compensation


382,750



322,917Changes in operating assets and liabilities:Accounts receivable


(1,734,283
)


(1,671,389
)Inventories


38,553



(73,877
)Other receivables


-



16,235Accounts payable


(77
)


(20,506
)Deferred tax liability


10,625



-Taxes payable


174,266



(34
)Deferred tax assets


-



23,044Accrued expenses and other payables


(2,246
)


-Net Cash used in operating activities


(271,798
)


(505,073
)Cash Flows From Investing Activities:Purchase of property and equipment


(1,298
)


(494
)Additions to construction in process


(42,288
)


(665,246
)Payment of capitalized interests for construction loan


(48,035
)


-Collections (payments) on loan to related parties


200,835



(210,693
)Payments on loans to unrelated party


(256,213
)


(182,987
)Net cash used in investing activities


(146,999
)


(1,059,420
)Cash Flows From Financing ActivitiesRepayment of Bank loan payable


(217,483
)


(96,659
)Net cash used in financing activities


(217,483
)


(96,659
)Effect of exchange rate changes on cash and cash equivalents


(48,155
)


668,384Decrease in cash and cash equivalents


(684,435
)


(992,768
)Cash and Cash Equivalents - Beginning of year


1,112,487



2,105,255Cash and Cash Equivalents - End of year

$
428,052


$
1,112,487SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the years:Interest expense

$
210,801


$
213,066Income taxes

$
-


$
-Non-Cash Investing and Financing Activities:Common stock issued for incentive employee compensation

$
-


$
1,327,500Transfer construction in progressto machinery and equipment

$
24,674


$
-


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


25




EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION





Eastern Environment Solutions, Corp. (“the Company” or “EESC”) was incorporated under the laws of the State of Nevada and formerly known as USIP.COM, Inc. (“USIP”).





On September 6, 2006, USIP entered into a share purchase agreement with each of Messrs. Yun Wang, Shibin Jiang and Bin Feng (“Purchasers”). Pursuant to the share purchase agreement, the Company agreed to sell to Purchasers 50.1% of the Company’s total 49,643,222 shares of issued and outstanding common stock.





On the same day, the Company also signed a Share Exchange Agreement with American Eco-Environment Corporation (“AEEC”), a privately held Delaware holding Corporation, whereby, the Company agreed to acquire all of the outstanding capital stocks of AEEC by issuing a $5,000,000 face value fixed convertible notes to the shareholders of AEEC, namely, Yun Wang, Shibin Jiang and Bin Feng. The notes converted on December 27, 2006 upon the occurrence of the Reverse Split into 9,049,399 post-split shares of common stock of the Company. The Notes also carried a total of 1,494,144,955 votes and had a right to vote along with the common stock on all matters.





As a result of these transactions, there was a change in control of USIP as the shareholders of AEEC became the majority shareholders of USIP.





For accounting purposes, the transaction has been accounted for as a reverse acquisition under the purchase method of accounting. Accordingly, AEEC was treated as the continuing entity for accounting purposes. Following the merger, the officers and directors of USIP.COM resigned and were replaced with the officers and directors of AEEC.





On October 20, 2006, the Board of Directors of the Company approved to change the name of the Company to Eastern Environment Solutions Corporation and to effect a 165.1099:1 reverse stock split of the outstanding shares of Common Stock (the “Reverse Split” and, together with the Name Change, the “Corporate Actions”). The Definitive Information Statement was filed with the SEC on November 15, 2006. The Corporate Actions became effective on December 27, 2006.





The Company operates its business through its wholly-owned subsidiary Harbin Yifeng Eco-Environment Co., Ltd. (“Harbin Yifeng”), a corporation organized and existing under the laws of the People’s Republic of China (“PRC”). Harbin Yifeng is an environmental engineering company in the PRC that specializes in providing non-hazardous municipal solid waste processing and disposal services in the northeast regions of China.





The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).




26


EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 2. RESTATEMENT





The Company has restated the consolidated financial statements for the years ended December 31, 2009 and December 31, 2008 for the following reasons:





The Company has determined that revenue should be recognized using three different revenue models.





For revenue associated with waste disposed at the landfill, the Company has determined the appropriate revenue recognition policy to be the greater of the minimum rate or the actual tonnage disposed of during the year, whichever is greater.  The Company will also disclose separately the actual tonnage disposed each year in order to match the cost of revenues with the actual disposal activities.





As part of the Franchise Agreement, the Company has the right to charge minimum fees per day. During the periods of suspension by the Harbin County Government, the Company only collected the minimum fees.  The Company has determined the minimum fee revenue should be disclosed separately as these fees will result in a different cost of revenue model. The minimum fees were negotiated to reimburse the administrative costs of the business or to approximate a break-even.





Beginning in 2010, the Company will record revenue associated with separating the waste and reselling bottles based on the actual rate, plus the costs of labor, the Company will receive the amount delivered to the bottling customers.  The amount of waste separated will reduce the actual tons utilized in the landfill each year.





The Company has evaluated the cost of revenue separately from the revenue model.   The landfill will be constructed over a period of years as one (1) whole unit.  However, the construction will be completed in different stages in order for compliance with certain structural requirements.  In order to start the next phase of construction, the prior phase must be completed.  Each earlier phase acts to support the later phases.  The Company has estimated the total costs to fully construct the landfill, however, the revenue generation is for the entire landfill period and the Company believes the cost structure should mirror the same period.





The Company has evaluated the total cost of completing the full construction of the landfill and viewed the landfill as one (1) unit for accounting purposes, even though it will be constructed in four (4) separate phases.  The Company anticipates the total landfill capacity of approximately 7.8 million tons.  The build outs will be as follows:





Phase 1 totals approximately 1.60 mil tons (below ground and 20.51% of total tonnage)


Phase 2 totals approximately 0.67 mil tons (below ground and 8.59% of total tonnage)


Phase 3 totals approximately 1.00 mil tons (below ground and 12.82% of total tonnage)


Phase 4 totals approximately 4.53 mil tons (above ground and 58.08% of total tonnage)





The total construction will cost approximately $17.235 million.  These costs are for the completion of the three underground phases with minimal costs expected for the 4th phase above


ground.  Therefore, the Company has concluded that each underground phase is used to support the above ground landfill.  Each phase will build upon the prior phase, meaning the next phase cannot commence until the prior phase is constructed and filled with waste.





The landfill costs will be amortized over the period the revenues are earned or more specifically over the total tonnage dumped in the landfill (i.e. over the full four (4) phases).  However, this amount will not equal the tonnage received from the Municipality, which is used to determine the revenue billed each period to the Municipality.  Instead, this amount of tonnage each period will be reduced as a result of separating the bottles for resale. 
 All costs, including the added labor costs, for separating the waste in order to resell the bottles will be reported as such for each period.


27





Balance sheet reclassification:





Currently, the Company has disclosed separately amounts pertaining to landfill costs, construction in progress and advances to suppliers.  As a result of further analysis, the Company has determined all of these assets relate to the landfill and therefore should not be stated separately.  The Company has reclassified these amounts into one caption for all filings.





Additionally, the Company reclassified certain cost of revenues as administrative expenses during the Landfill suspension period and expensed $571,674, of previously capitalized interest during the same period.





As part of this reclassification, the Company will also comply with its impairment testing in accordance with impairment of long-lived assets as required by professional standards.





The impact of this restatement on the 2009 and 2008 consolidated financial statements as previously reported is summarized below:





December 31, 2009As Previously


AsReported


RestatedTotal Assets

$
15,309,927


$
13,564,015Landfill Development Costs


-



8,232,899Fixed Assets


6,319,005



124,175Retained Earnings


7,019,463



5,109,485
  For the year endedDecember 31, 2009As Previously


AsReported


RestatedRevenues

$
1,881,302


$
1,881,302Cost of revenues


347,142



182,960Gross profit


1,534,160



1,698,342SG&A


582,536



661,721Operating Income


951,624



1,036,621Interest expense


-



162,766Income before taxes


960,541



882,773Net Income

$
786,271


$
697,878Comprehensiveincome

$
731,436


$
644,095Income per shareBasic

$
0.08


$
0.06Diluted

$
0.06


$
0.05
   December 31, 2008As Previously


AsReported


RestatedTotal Assets

$
14,241,282



12,572,080Landfill Development Costs


-



8,291,222Fixed Assets


6,276,030



140,590Retained Earnings


6,233,192



4,481,395For the year endedDecember 31, 2008As Previously


AsReported


RestatedRevenues

$
1,770,054


$
1,770,054Cost of revenues


307,874



-Gross profit


1,462,180



1,770,054GSG&A


535,808



618,616Operating Income


926,372



1,151,438Interest expense


-



281,502Income before taxes


938,935



882,499Net Income

$
938,935


$
882,499Comprehensiveincome

$
1,781,484


$
1,619,703Income per shareBasic

$
0.09


$
0.08Diluted

$
0.08


$
0.06
  28
  The restated 2009 and 2008 and previously reported quarterly financial statements are summarized below:  Quarter Ended 2009


Quarter Ended 2008As Previously


As


As Previously


AsReported


Restated


Reported


RestatedMarch 31,Revenue

$
442,345


$
442,345


$
426,907


$
426,907Gross profit


339,127



442,345



368,038



426,907Net income


170,741



161,766



237,384



222,845Comprehensive income

$
142,704


$
136,443


$
728,859


$
653,256Net income per shareBasic

$
0.01


$
0.01


$
0.02


$
0.02Diluted

$
0.01


$
0.01


$
0.02


$
0.02Quarter Ended 2009


Quarter Ended 2008As Previously


As


As Previously


AsReported


Restated


Reported


RestatedJune 30,Revenue

$
447,670


$
447,670


$
439,462


$
439,462Gross profit


365,270



447,670



374,109



439,462Net income


180,512



178,457



279,651



264,103Comprehensive income

$
181,307


$
178,531


$
567,823


$
516,763Net income per shareBasic

$
0.01


$
0.02


$
0.02


$
0.03Diluted

$
0.01


$
0.01


$
0.02


$
0.02Quarter Ended 2009


Quarter Ended 2008As Previously


As


As Previously


AsReported


Restated


Reported


RestatedSeptember 30,Revenue

$
452,533


$
452,533


$
452,080


$
452,080Gross profit


386,922



452,533



363,688



452,080Net income


206,030



204,884



212,563



197,486Comprehensive income

$
210,436


$
208,217


$
346,739


$
314,902Net income per shareBasic

$
0.01


$
0.02


$
0.01


$
0.02Diluted

$
0.01


$
0.01


$
0.01


$
0.01Quarter Ended 2009


Quarter Ended 2008As Previously


As


As Previously


AsReported


Restated


Reported


RestatedDecember 31,Revenue

$
538,754


$
538,754


$
451,605


$
451,605Gross profit

$
442,841


$
355,794


$
356,345


$
451,605Net income

$
228,988


$
152,771


$
209,337


$
198,065Comprehensive income

$
196,989


$
120,904


$
138,063


$
134,782Net income per shareBasic

$
0.05


$
0.01


$
0.04


$
0.01Diluted

$
0.03


$
0.01


$
0.03


$
0.01Year Ended 2009


Year Ended 2008As Previously


As


As Previously


AsReported


Restated


Reported


RestatedDecember 31,Revenue

$
1,881,302


$
1,881,302


$
1,770,054


$
1,770,054Gross profit


1,534,160



1,698,342



1,462,180



1,770,054Net income


786,271



697,878



938,935



882,499Comprehensive income

$
731,436


$
644,095


$
1,781,484


$
1,619,703Net income per shareBasic

$
0.08


$
0.06


$
0.09


$
0.08Diluted

$
0.06


$
0.05


$
0.08


$
0.06




29





NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Use of estimates





In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the recoverability of long-lived assets.  Actual results could differ from those estimates.





Principles of consolidation





The consolidated financial statements for the years ended December 31, 2009 and 2008 include the accounts of the Company and its wholly owned subsidiary, Harbin Yifeng and Harbin Yifeng’s wholly owned subsidiary, Harbin Yifeng Zhiye Management Co., Ltd. (“Yifeng Zhiye”).   All significant inter-company balances and transactions are eliminated in consolidation.





Cash and cash equivalents





For purposes of the statement of cash flow, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.





Accounts Receivables





Accounts receivables are stated at net realizable value. Any allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerate amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis. The Company’s receivables are primarily due from municipal government of Harbin City and are considered fully collectible. Therefore, no allowance for doubtful accounts was deemed necessary for the years ended December 31, 2009 and 2008.





Inventories





Inventories mainly consist of the raw materials and supplies to be used in the regular day-to-day operations. Inventories are valued at the lower of cost or market with cost determined on a first-in first-out basis.




30





EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Landfill Development and equipment





Landfill development costs are stated at cost, net of accumulated amortization.  Equipment is stated at cost, net of accumulated depreciation.  Maintenance and repairs are charged to expense as incurred.  Amortization is computed on a units of measure basis while depreciation is computed using the straight-line method over the estimated useful lives of 5-10 years.





Advance to suppliers





Advance to suppliers represent the payments made and recorded in advance for the purchase of the materials and equipment related to the Company’s construction in progress. We expect to utilize the advances during the next two years.  In accordance with US GAAP, we have reclassified the advances as landfill development costs (see Note 2).  Based on management’s experience, no reserve or allowance is required at December 31, 2009 and 2008.





Revenue recognition





The Company recognizes revenue in accordance with ASC 360, which states that revenue, should not be recognized until it is realized or realizable and earned.  In general, the Company records revenue when pervasive evidence exists of an arrangement, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.





For revenue associated with waste disposal at the landfill, the Company has determined the appropriate revenue recognition policy to be the greater of the minimum rate or the actual tonnage disposed during the period, whichever is greater.  The Company will also disclose separately the actual tonnage disposed each period in order to match the cost of revenue with the actual disposal activities.





As part of the Franchise Agreement with the Harbin landfill, the Company has the right to charge minimum fees per day and during the periods of suspension by the Harbin County Government.  The Company only collected the minimum fees.  The minimum fee revenue is disclosed separately as these fees result in a different cost of revenue model.  The minimum fees were negotiated to reimburse the administrative  costs of the business or to approximate a break-even.





The Company’s revenue is derived primarily from its solid waste disposal operations.  For the solid waste disposal operations, the Company recognizes revenue upon the arrival of the solid waste at the landfill.





Income taxes





The Company accounts for income tax under the provisions of Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) No.740 "Income Taxes", which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns.  Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities.  Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.





Harbin Yifeng was granted the status of wholly foreign-owned entities (“WFOE”) in the fourth quarter of 2006 upon the reverse merger with USIP with a choice of starting the tax holiday immediately or the next calendar year. Harbin Yifeng elected for this tax holiday to commence in January 2007. Its two-year tax exemption period was from January 1, 2007 to December 31, 2008 and the three-year income tax reduction period will be from January 1, 2009 to December 31, 2011. 
 The Company has deferred tax assets that relate to its net operating loss in the U. S., which is not covered by the tax holiday.


31




EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Concentrations of credit risk





Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable and other receivables.  The Company does not require collateral or other security to support these receivables.  The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.





Fair value of financial instruments





The Company adopted the provisions of Accounting Standards Codification (‘ASC”) 820, Fair Value Measurement and Disclosures.  ASC 820 clarifies the definition  of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:





Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.





Level 2 Inputs are unadjusted quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable , and inputs derived from or corroborated by observable market data.





Level 3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information/








The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, taxes payable and notes payable approximate fair value due to the short-term nature of these items.  The carrying amount of bank loan approximates the fair value based on the Company's expected borrowing rate for debt with similar remaining maturities and comparable risk in market.





Foreign currency translation





The Company’s principal country of operations is the PRC.  The financial position and results of operations of the Company are determined using local currency (“RMB”) as the functional currency.  The results of operations and the statement of cash flows denominated in local currency are translated at the average rate of exchange during the reporting period.  Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date.  The equity denominated in functional currency is translated at the historical rate of exchange at the time of capital contribution.  Because cash flows are translated based on average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders equity as “Accumulated Comprehensive Income”.


32


EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Stock-based compensation





The Company records stock based compensation expense pursuant to the United States ASC718,  which establishes the accounting for employee stock-based awards.  Under the above provisions, stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). Deferred stock compensation represents shares issued to employees that will be vested over a certain service period. Deferred stock compensation is included in additional paid-in capital as an offset to equity. For the years ended December 31, 2009 and 2008, $382,750 and $322,917 stock based compensation expenses were recorded in selling, general and administrative expenses.





Basic and Diluted Earnings per Share





Earnings per share are calculated in accordance with the ASC 260, “Earnings per share.” Basic net earnings per share are based upon the weighted average number of common shares outstanding, but excluding shares issued as compensation that have not yet vested. Diluted net earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised, and that all unvested shares have vested. Dilution is computed by applying the treasury stock method. Under this method, Stock-based compensation is assumed to be vested at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.





The following table sets forth the computation of basic and diluted earnings per share for the periods presented:





Year ended December 31,2009


2008Net Income

$
697,878


$
882,499Shares (denominator)Weighted average common shares outstanding-basic


11,429,683



10,559,855Plus: effect of diluted securities unvested compensationShares


3,540,503



2,999,942Weighted average common shares outstanding-diluted


14,970,186



13,994,913Earnings per share – basic

$
0.06


$
0.08Earnings per share – diluted

$
0.05


$
0.06





33





EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





New accounting pronouncements





In June 2009, FASB established Accounting Standards Codification (“Codification”) as the single source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity with GAAP. The Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Adoption of the Codification did not have a material impact on the Company’s results of operations or financial position.





In June 2009, FASB updated the accounting standards related to the consolidation of variable interest entities (“VIEs”). The standard amends current consolidation guidance and requires additional disclosures about an enterprise’s involvement in VIEs. The standard 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 the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company does not expect the adoption to have a material impact on the Company’s results of operations or financial position.





In May 2009, FASB issued FAS No. 165, "Subsequent Events," which was subsequently codified within ASC 855, “Subsequent Events”. The standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. An entity should apply the requirements of ASC 855 to interim or annual financial periods ending after June 15, 2009. Adoption of this standard does not have a material impact on the Company’s results of operations or financial position.





In April 2009, the FASB updated the accounting standards to provide guidance on estimating the fair value of a financial asset or liability when the trade volume and level of activity for the asset or liability have significantly decreased relative to historical levels. The standard requires entities to disclose the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, debt and equity securities as defined by GAAP shall be disclosed by major category. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and is to be applied prospectively. The adoption did not have a material effect on the Company's results of operations and financial condition.





34


EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





In April 2009, the FASB updated the accounting standards for the recognition and presentation of other-than-temporary impairments. The standard amends existing guidance on other-than-temporary impairments for debt securities and requires that the credit portion of other-than-temporary impairments be recorded in earnings and the noncredit portion of losses be recorded in other comprehensive income. The standard requires separate presentation of both the credit and noncredit portions of other-than-temporary impairments on the financial statements and additional disclosures. This standard is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. At the date of adoption, the portion of previously recognized other-than-temporary impairments that represent the noncredit related loss component shall be recognized as a cumulative effect of adoption with an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income (loss). The adaption of this standard did not have a material effect on the preparation of the Company’s consolidated financial statements.





In August 2009, the FASB updated the accounting standards to provide additional guidance on estimating the fair value of a liability in a hypothetical transaction where the liability is transferred to a market participant. The standard is effective for the first reporting period, including interim periods, beginning after issuance. The Company does not expect the adoption to have a material effect on the Company's consolidated results of operations and financial condition.





In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force”.  This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting.  This update establishes a selling price hierarchy for determining the selling price of a deliverable.  The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available.  The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted.  The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.




35





EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 4. PROPERTY AND EQUIPMENT, AND LANDFILL DEVELOPMENT COSTS





Landfill development costs and equipment at December 31, 2009 and December 31, 2008 consist of the following:




December 31, 2009


December 31, 2008Property and Equipment

$
168,537


$
168,647Less: accumulated depreciation


44,360



28,057Total property and equipment, net

$
124,175


$
140,590Landfill development costsMachinery and equipment

$
1,097,761


$
1,092,007Landfill


2,129,168



2,128,203Construction in progress


3,645,860



3,528,349Advances to suppliers


3,783,981



3,824,984Subtotal

$
10,656,770



10,573,543Less: accumulated depreciation


(2,423,871
)


(2,282,321
)Total Landfill development costs, net

$
8,232,899


$
8,291,222


“Landfills” represents the capitalized expenses attributable to the construction of the portion of the Harbin landfill that is currently functional.  Landfill costs are amortized using a units of measure method over the contract term, commencing when the landfill is first put into use.  The Company has no obligations relating to capping, closure or other post-closure obligations; accordingly no reserve for post-closure activities has been established.




During the ten months ended October 31, 2009 and throughout 2008, the landfill was not utilized due to suspension of operations.  (See: Note 15)





Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Company’s new operating site and equipment.  Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.  Commencing at that time, the capitalized expenses will be amortized over the life of the Build-Operate-Transfer (“BOT”) agreement.  Interest expense in the amount of $48,035 was capitalized for the two months of November and December 2009.  Interest was not capitalized during the suspension period.





36


EASTERN ENVIRONMENT SOLUTIONS, CORP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 4. PROPERTY AND EQUIPMENT, AND LANDFILL DEVELOPMENT COSTS (CONTINUED)





The Company has evaluated the cost of revenue separately from the revenue model.   The landfill will be constructed over a period of years as one (1) whole unit.  However, the construction will be completed in different stages in order for compliance with certain structural requirements.  In order to start the next phase of construction, the prior phase must be completed.  Each earlier phase acts to support the later phases.  The Company has estimated the total costs to fully construct the landfill, however, the revenue generation is for the entire landfill period and the Company believes the cost structure should mirror the same period.





The Company has evaluated the total cost of completing the full construction of the landfill and viewed the landfill as one (1) unit for accounting purposes, even though it will be constructed in four (4) separate phases.  The Company anticipates the total landfill capacity of approximately 7.8 million tons.  The build outs will be as follows:





Phase 1 totals approximately 1.60 mil tons (below ground and 20.51% of total tonnage)


Phase 2 totals approximately 0.67 mil tons (below ground and 8.59% of total tonnage)


Phase 3 totals approximately 1.00 mil tons (below ground and 12.82% of total tonnage)


Phase 4 totals approximately 4.53 mil tons (above ground and 58.08% of total tonnage)





The total construction will cost approximately $17.235 million.  These costs are for the completion of the three underground phases with minimal costs expected for the 4th phase above


ground.  Therefore, the Company has concluded that each underground phase is used to support the above ground landfill.  Each phase will build upon the prior phase, meaning the next phase cannot commence until the prior phase is constructed and filled with waste.





The landfill costs will be amortized over the period the revenues are earned or more specifically over the total tonnage dumped in the landfill (i.e. over the full four (4) phases).  However, this amount will not equal the tonnage received from the Municipality, which is used to determine the revenue billed each period to the Municipality.  Instead, this amount of tonnage each period will be reduced as a result of separating the bottles for resale.








NOTE 5.   INVENTORIES





Inventory as of December 31, 2009 and December 31, 2008 consists of the following:





December 31, 2009

December 31, 2008Low value consumables

$
5,813


$
11,068Raw Materials


36,837



70,135Total

$
42,650


$
81,203





No allowance for inventories was provided for the years ended December 31, 2009 and 2008.





37




EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6. OTHER RECEIVABLES





As of December 31, 2009 and 2008, the balance of other receivables consists the following:


December 31, 2009

December 31, 2008Harbin Jiayi Import and Export Co., Ltd

$
439,431


$
183,217Others


777



779Total

$
440,208


$
183,996
 
 The balance with Harbin Jiayi Import and Export Co., Ltd. (“Jiayi”) represents a third-party loan from the Company. The original loan was paid off by the end of June 2009. As of December 31, 2009, the balance with Jiayi represented a second loan from the Company. The loan was unsecured and bore 5.31% annual interest.  The loan was satisfied on March 11, 2010, the stated maturity date.
 
 NOTE 7. RELATED PARTY TRANSACTIONS
 
 As of December 31, 2009 and 2008, the balance of loans to related parties consists the following:
 
 December 31, 2009

December 31, 2008Shibin Jiang

$
4,744


$
9,144Yan Feng


38,084



-Harbin Binjiang freight Co.,Ltd


-



234,518$
42,828


$
243,662
 
 Mr. Shibin Jiang and Ms. Yan Feng are both shareholders of the Company. The loans to shareholders are unsecured and interest free.  Harbin Binjiang freight Co., Ltd is an affiliated company partially owned by Ms. Yan Feng. The loan was unsecured and bears 6.12% annual interest rate and was collected in March 2009.  These loans were repaid in full on August 13, 2010
 
  NOTE 8. MAJOR CUSTOMER
  On September 1, 2003, the Company signed an exclusive 17-year agreement with Harbin Municipal Urban Administrative Bureau (“HMUAB”) to dispose of approximately one-third of the city’s solid waste disposal. The contract will expire on August 30, 2020. The revenue from HMUAB accounted for 100% of the gross revenue for the years ended December 31, 2009 and 2008.  Since the Company’s operations were suspended from 2008 through the last quarter of 2009, HNUAB agrees to extend the time to allow the Company to complete the landfill site if it takes longer than 17 years.  The Company is in the process of finalizing this agreement in writing with HMUAB.
  In January 2010, the Company signed a PET bottle processing agreement and a consignment sales agreement with Harbin Dongxin Group (“Dongxin”). In accordance with the agreements, Dongxin shall be responsible for processing, packaging and selling the PET bottles sorted from the landfill or purchased by the Company. The Company shall pay a processing fee to Dongxin in return. Dongxin sells the processed PET bottles at an agreed price.  The Company fixes a minimum resale price, which Harbin Dongxin Group must collect and remit to us upon sale of the recycled PET.  Harbin Dongxin Group is entitled to retain any revenue it obtains from the resale in excess of the fixed minimum price.
  In March 2010, the Company signed a plastic bottle cap processing and consignment sales agreements with Harbin Bin County Welfare Plastic Products Co., Ltd (“HBC”). In accordance with the agreements, HBC will be responsible for processing the plastic bottle caps sorted from the landfill. The Company will pay a processing fee to HBC in return. The processed plastic granules will be sold by HBC at an agreed price.  The Company fixes a minimum resale price, which HBC must collect and remit to us upon sale of the granules.  HBC is entitled to retain any revenue it obtains from the resale in excess of the fixed minimum price.
  38
  EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 NOTE 9. BANK LOAN PAYABLE
 
 On November 18, 2004, the Company received a long-term loan from Industrial and Commercial Bank of China, Harbin Branch in the amount of $4,832,960, secured by the Company’s building. The loan had a 5-year term, maturing November 15, 2009. Pursuant to the loan agreement, the interest rate for the first year was set at 7.605%. Starting from the second year and thereafter, the rates become adjustable based on the change of the official rates at the time. In addition to paying the quarterly interest, the Company is also required to make $241,648 pre-determined principal repayments every quarter.
 
 Upon the suspension of the Company’s landfill operation as discussed in Note 12, the Company renegotiated with the Bank for a temporarily reduced quarterly principal repayment in the amount of RMB 200,000 ($29,278) each quarter, starting in the third quarter of 2007.
 
 The Company recommenced the landfill operation in October 2009 and obtained an extension for the above loan on November 13, 2009. The extended loan now matures on December 25, 2011, with an interest rate of 6.534% per annum.  In accordance with the loan extension agreement, the Company will be required to make the regular quarterly repayments as previously agreed. For the year ended December 31, 2009, the Company repaid $217,484 to the lender.
 
 As of December 31, 2009 and December 31, 2008, the loan payable consists of the following:
 
 December 31, 2009


December 31, 2008Loan payable

$
2,054,008


$
2,271,492Less: current portion


966,592



2,271,492Loan payable - non-current portion

$
1,087,416


$
--Maturities of the long-term payable:Twelve months ending:December 31, 2010

$
966,592December 31, 2011


866,936December 31, 2012


220,480$
2,054,008
  39
 
 EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 NOTE 10.  INCOME TAXES
 
 United States Tax
 
 EESC is subject to United States of America tax law. No provision for income taxes in the United States or elsewhere has been made as EESC had no taxable income subject to U.S. taxes for the years ended December 31, 2009 and 2008.
 
 PRC Tax
 
 Two of the Company’s operating subsidiaries, Harbin Yifeng and Yifeng Zhiye are both registered and operate in Harbin, China. They are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are normally subject to tax at a statutory rate of 25% and were, until January 2008, subject to tax at a statutory rate of 33% (30% state income tax plus 3% local income tax) on its taxable income.
 
 Upon the acquisition of Harbin Yifeng by AEEC, Harbin Yifeng has applied to be treated as a Wholly Foreign Owned Enterprise (“WFOE”). In accordance with the relevant income tax laws, the profits of WFOEs are fully exempted from income tax for two years, from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% income tax reduction for the immediate next three calendar years (“tax holiday”).
 
 Harbin Yifeng was granted the status of WFOE in the fourth quarter of 2006 upon the reserve merger with USIP with a choice of starting the tax holiday immediately or the next calendar year. Harbin Yifeng elected for this tax holiday to commence in January 2007. Its two-year tax exemption period was from January 1, 2007 to December 31, 2008 and the three-year income tax reduction period will be from January 1, 2009 to December 31, 2011.
 
 The estimated tax savings as a result of our tax abatement in 2009 amounted to $174,270. The net effect on earnings per share had the full income tax been applied would decrease basic earnings per share for 2009 from $0.06 to $0.04.   The estimated tax savings as a result of our tax holiday in 2008 amounted to $329,781. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share for 2008 from $0.08 to $0.06.
 
 On the other hand, Yifeng Zhiye, Harbin Yifeng’s wholly-owned subsidiary, is exempted from both income tax and value-added tax for three years starting August 2004 because Zhiye hires retired veterans and the government grants tax incentives for such employers.
 
 On March 16, 2007, National People's Congress passed a new corporate income tax law (the “New CIT Law”), which became effective on January 1, 2008. This new corporate income tax unifies the corporate income tax rate, cost deductions and tax incentive policies for both domestic and foreign-invested enterprises in China.  Under the new CIT law, the corporate income tax rate applicable to all Companies will be 25%, replacing the current applicable tax rate of 33%. However, companies previously being approved for any income tax holiday will not be subject to the new enacted tax rate until the holiday runs out. Accordingly, the applicable corporate income tax rate of our Chinese subsidiaries will incrementally decrease to 12.5% (50% of new applicable rate of 25%) for the three-year income tax reduction period.
 
 40
 
 The Company was incorporated in the United States.  It incurred net operating loss for U.S. income tax purposes for the years ended December 31, 2009 and 2008. The net operating loss carry forwards, including amortization of share-based compensation, for United States income tax purposes amounted to $852,267 and $469,515 as of December 31, 2009 and 2008, respectively, which may be available to reduce future periods' taxable income. These carry forwards will expire, if not utilized, beginning in 2028 through 2029. Management believes that the realization of the benefits arising from this loss appear to be uncertain due to Company's limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at December 31, 2009 and 2008 for the temporary difference related to the loss carry-forwards. Management reviews this valuation allowance periodically and makes adjustments as warranted.  A t December 31, 2009 and 2008, the deferred tax assets/(liabilities) and the related valuation allowance were as follows:
 
 December 31, 2009


December 31, 2008(Restated)USA

$
289,771


$
159,635China


(10,631
)


-Less: Valuation Allowance


(289,771
)


(159,635
)Net

$
(10,631
)

$
-
 
 For the years ended December 31, 2009 and 2008, the corporate income expenses were as follows:
 
 For the years ended December 31,2009


2008(Restated)Current

$
174,270


$
-Deferred


10,625



-Total

$
184,895


$
-
  The following table reconciles the U.S. statutory rates to the Company's effective tax rate for the years ended December 31, 2009 and 2008
  For the years ended December 31,2009


2008(Restated)U.S. statutory rates


34.0
%


34.0
%Foreign income not recognized in USA


-34.0
%


-34.0
%China statutory income tax rate


25.0
%


25.0
%China income tax exemption


-12.5
%


-25.0
%Expenses incurred in USA that are not subject to the PRC income tax


6.3
%


0.0
%Non-deductible expenses


2.1
%


0.0
%Effective tax rate


20.9
%


0.0
%
  41
  EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 11 STATUTORY RESERVES
 
 EESC is required to allocate a portion of its after tax profits to the statutory reserve.  Appropriations to the statutory reserve are required to be at least 10% of an enterprise’s after tax retained earnings.  When the surplus reserve account balance is equal to or greater than 50% of EESC’s registered capital, no further allocation to the surplus reserve account is required.
  The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing stockholders in proportion to their shareholdings or by increasing the par value of shares currently held by them, provided that the remaining statutory surplus reserve balance after such issue is not less than 25% of the registered capital.
  If the accumulated balance of the Company’s statutory reserve is not enough to make up for the losses of the Company’s previous year, the current years’ profit shall first be used for making up the losses before the statutory reserve is drawn.  As of December 31, 2009 and 2008 the Company had accumulated after tax profits of $5,677,206 and $4,979,328 and therefore is required to make accumulative contributions of $567,721 and $497,933, respectively, to the statutory surplus reserve account.
  December 31, 2009


December 31, 2008Accumulated after tax profits

$
5,677,206


$
4,979,328Percentage applied


10
%


10
%Accumulated Statutory Surplus Reserve

$
567,721


$
497,933
 
  NOTE 12 DIVIDEND POLICY
  Pursuant to the new PRC enterprise income tax law effective on January 1, 2008, dividends payable by a foreign investment entity to its foreign investors are subject to a withholding tax of up to 20%.  At present, the Chinese tax authority has not issued any guidance on the application of the EIT Law and its implementing rules on non-Chinese enterprises or group enterprise controlled entities whose structures are like ours.  In practice, the tax authorities typically impose the withholding tax rate of 10%, as prescribed in the implementation regulations; however, there can be no guarantee that this practice will continue as more guidance is provided by relevant government authorities.  As a result, we are unable to predict whether payments from EESC will be subject to withholding tax because it is unclear whether EESC will be deemed to be a resident enterprise for Chinese tax purposes.  If so, EESC will be subject to an enterprise income tax rate of 12.5% on all of its income, including interest on a worldwide basis in 2009 through 2011.  Thereafter, the enterprise income tax rate will revert to 25%.  However, if EESC is deemed to be a non-resident enterprise, then it will be subject to a withholding tax at the rate of 10% on any dividends paid by its Chinese subsidiaries to EESC.
  The payment of dividends by entities organized in China is subject to limitations, procedures and formalities.  The Company’s ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from its operating affiliates and subsidiaries and other holdings and investments.  In addition, the Company’s operating subsidiary in the PRC, from time to time, may be subject to restrictions on their ability to make distributions, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.
   42
  EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 NOTE 13.   STOCKHOLDERS' EQUITY
 
 In the second quarter of 2008, the Company issued a total of 2,950,000 shares of its common stock as full compensation to consultants and 8 employees. An amount of $1,327,500 represents the aggregate fair value of the shares.
 
 No additional stock was issued in 2009.
 
 As of December 31, 2009 and 2008, the Company has 14,970,186 shares of common stock issued and outstanding.
 
  NOTE 14.   STOCK-BASED COMPENSATION
 
 In May 2007, the Board of Directors of the Company adopted and approved the 2007 Employee Incentive Stock Option Plan (the “2007 Plan”), which authorized the issuance of up to 2,000,000 shares of common stock under the 2007 Plan. Subject to the terms and provisions of the 2007 Plan, the Board of Directors, at any time and from time to time, may grant shares of stock to eligible persons in such amounts and upon such terms and conditions as the Board of Directors shall determine.
 
 The Company granted a total of 2,000,000 shares of its common stock to twenty two employees in 2007 under the 2007 Plan with a weighted average grant price of $0.49 and average vesting period of 3 years.
 
 In April 2008, the Board of Directors of the Company adopted and approved the 2008 Employee Incentive Stock Option Plan (the “2008 Plan”), which authorized the issuance of up to 3,000,000 shares of common stock under the 2008 Plan. Subject to the terms and provisions of the 2008 Plan, the Board of Directors, at any time and from time to time, may grant shares of stock to eligible persons in such amounts and upon such terms and conditions as the Board of Directors shall determine.
 
 The Company granted a total of 2,950,000 shares of its common stock to consultants and seven employees in 2008 under the Plan with a weighted average grant price of $0.45 and average vesting period of 10 years.
 
 43
 
 EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
  NOTE 14.   STOCK-BASED COMPENSATION (Continued)
 
 A summary of the status of the Company’s nonvested shares as of December 31, 2009 and 2008, and changes during the years ended December 31, 2009 and 2008, is presented below:
  Nonvested Shares

Shares

Weighted-Average

Grant Date Fair ValueNonvested at January 1, 2008


2,000,000


$
988,000Granted


2,950,000



1,327,500Vested


-



-Forfeited


-



-Nonvested at December 31, 2008


4,950,000


$
2,315,500Granted


-



-Vested


-



-Forfeited


-



-Nonvested at December 31, 2009


4,950,000


$
2,315,500
 
 A summary of the status of the Company’s deferred stock compensation under the Plan as of December 31, 2009 and 2008, and changes for the years ended December 31, 2009 and 2008, is presented below:
 
 Deferred stock compensation as of January 1, 2008

$
876,486Deferred stock compensation granted in 2008


1,327,500Compensation expenses debited to statement of operationswith a credit to additional paid-in capital


(322,917
)Deferred stock compensation as of December 31, 2008

$
1,881,069Compensation expenses debited to statement of operationswith a credit to additional paid-in capital


(382,750
)Deferred stock compensation as of December 31, 2009

$
1,498,319
 
  44
 
 EASTERN ENVIRONMENT SOLUTIONS, CORP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 NOTE 15. SIGNIFICANT EVENTS
 
 On June 13, 2007, the company filed a Form 8-K with SEC, announced that in accordance with the PRC National Environment Protection Bureau’s request in relation to landfills and adjustments to their peripheral inhabitants’ well-being, the Harbin municipal government city administrative bureau is carrying out certain adjustments to the original landfill plans of our subsidiary, Harbin Yifeng Eco-environment Co. Ltd. (“Harbin Yifeng”).  Such adjustments will result in the relocation of some peripheral inhabitants of the landfill and its waste water disposal plant. The costs of such adjustments will be borne by the Harbin municipal government city administrative bureau.  These measures will disrupt Harbin Yifeng’s normal operations.  After careful consideration, our Board of Directors has decided to temporarily suspend Harbin Yifeng’s operations effective June 13, 2007, for an estimated period of 12 months (the “Suspension Period”) while these measures are being carried out. However, Harbin Yifeng will still be collecting the minimum fixed fees for the Suspension Period as per the “Special Permission Operation Rights Contract”, which Harbin Yifeng had signed with the Harbin municipal government city administrative bureau on September 1, 2003. The bureau will compensate and pay Harbin Yifeng a sum equivalent to the fee for disposing 800 tons of waste per day during the Suspension Period.
 
 On November 16, 2009, the Company issued a press release, announced that it has reopened its MSW landfill in Harbin. As notified by the Harbin Municipal Urban Administrative Bureau (HMUAB), the Company recommenced its operations at the landfill on October 30, 2009. Since then, the landfill has been in full production and returned to the level of operations it carried on prior to the landfill suspension in June 2007.
  45




ITEM 9.               CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


Not applicable.


ITEM 9A.            CONTROLS AND PROCEDURES





(a)           Evaluation of disclosure controls and procedures.





The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”).  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the controls and procedures were not effective.  The weaknesses in the Company’s controls and procedures consisted of a lack of expertise in identifying and addressing complex accounting issued under U.S. Generally Accepted Accounting Principles among the personnel in the Company’s accounting department, which has resulted in certain errors in accounting identified in Note 2 to the Consolidated Financial Statements.





The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were not effective due to the material weaknesses mentioned below.





(b)           Changes in internal controls.





The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.




(c)            Management’s Report on Internal Control over Financial Reporting.





Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  We have assessed the effectiveness of those internal controls as of December 31, 2009 using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.





Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.




46





A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified two material weaknesses in our internal control over financial reporting.  These material weaknesses consisted of:





a.Inadequate staffing and supervision within the accounting operations of our company.  The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.  The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.





b.Lack of expertise in U.S accounting principles among the personnel in our Chinese headquarters.  Our books are maintained and our financial statements are prepared by the personnel employed at our executive offices in the City of Harbin.  Few of our employees have experience or familiarity with U.S accounting principles.  The lack of personnel in our Harbin office who are trained in U.S. accounting principles is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP.





Management is currently reviewing its staffing and their training in order to remedy the weaknesses identified in this assessment, so we have to weigh the cost of improvement against the benefit of strengthened controls.  However, because of the above conditions, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of December 31, 2009





This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.





ITEM 9B.            OTHER INFORMATION




None.




47


PART III




ITEM 10.             DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




The officers and directors of the Company are:





Position/Title
Age
Director/Officer SinceFeng Yan
Chairman, Chief Executive Officer
47
2009Shibin Jiang
Director, Chief Operating Officer
53
2006Jianhua Sun
Director, Chief Financial Officer
34
2006





The following sets forth biographical information regarding the Company’s directors.





Feng Yan.Ms. Yan has been employed as President of Harbin Yifeng Group Co., Ltd. since 1999.  Harbin Yifeng Group Co. is engaged in a wide variety of businesses, including the distribution of construction materials, chemical products, hardware, groceries, auto parts and agricultural products.  Since 2002 Ms. Feng has also served as a Director of Harbin Binjiang Freightage Market Co., Ltd., a property manager.  And since 2003 she has also served as a Director of Harbin Tianli Real Estate Development Co., Ltd., which is engaged in real estate development and the distribution of construction materials, chemical products and books.  Since 1997 Ms. Feng has also served as Director of the Harbin Tianli Taxi Co., Ltd., which operates a taxi service in Harbin.  In 1999 Ms. Feng earned a Bachelor’s Degree with a concentration in Accounting from the Harbin Committee School of the CCP.  Currently she is pursuing a Masters in Business Administration at the Guanghua School of Management at Peking University.





Shibin Jiang.  Mr. Jiang graduated from Harbin Electrical Manufacture College of the First Mechanical Industry in 1982. From 1983 to 1987, he was employed as a Senior Engineer at Harbin’s First Metal Vessels Factory. Thereafter, he was employed as Chief Engineering Manager in Harbin Harping Construction Company’s technology department from 1988 to 1995. From 1995 to the present, he has been employed as Vice President of Bin Jiang Commodity Transportation Market Ltd.   Since 2003 Mr. Jiang has also been employed as the General Manager, Chief Engineer and Director of Harbin Yifeng Eco-environment Co., Ltd.





Jianhua Sun.  Mr. Sun graduated from the Daqing Heilongjiang Petroleum College with a degree in accounting in 1999. From 1999 to 2004, Mr. Sun was employed as a Director of the cost section at ACheng Relay Limited Corp., a company listed on the China Stock Exchange. From 2004 to 2005, he worked as an accountant in the financial subsidiary of Harbin Orient Group.  Mr. Sun has been employed as Harbin Yifeng Eco-environment Co., Ltd.’s Chief Financial Officer since 2006.





All of our directors hold offices until the next annual meeting of the shareholders of the Company, and until their successors have been qualified after being elected or appointed.  Officers serve at the discretion of the board of directors.





Audit Committee; Compensation Committee; Nominating Committee.





Due to the small size of our Board of Directors, we have not constituted an audit committee, a compensation committee or a nominating committee.  Decisions regarding nominations to the Board will be made by all currently-serving members of the Board.  For the same reason, we do not have an audit committee financial expert among the members of our Board of Directors.




48


Code of Ethics





The Board of Directors has not adopted a code of ethics applicable to the Company’s executive officers.  The Board believes that the small number of individuals involved in the Company’s management makes such a code unnecessary.





Section 16(a) Beneficial Ownership Reporting Compliance





None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2009, except that Feng Yan failed to file a Form 3 on a timely basis.





ITEM 11.             EXECUTIVE COMPENSATION





The following table sets forth all compensation awarded to, earned by, or paid by Eastern Environment and its subsidiaries to (a) Feng Yan, its Chief Executive Officer, for services rendered in all capacities to the Company during the period from September 11, 2009 to December 30, 2009, and to (b) Yun Wang, its previous Chief Executive Officer, for services rendered in all capacities to the Company during the period from January 1, 2009 through September 11, 2009 and the years ended December 31, 2008 and 2007.  There were no other executive officers whose total salary and bonus for the fiscal year ended December 31, 2009 exceeded $100,000.





Year
Salary
Bonus
Stock

Awards
Option

Awards
Other

CompensationFeng Yan
2009
$2,235
--
--
--
--Yun Wang
2009
$4,400
--
--
--
--2008
$5,052
--
--
--
--2007
$5,052
--
--
--
--





Employment Agreements





Feng Yan has an employment agreement dated September 11, 2009 with Harbin Yifeng Eco-Environment Co., Ltd., the subsidiary of Eastern Environment Solutions, Corp.  The agreement provides that she will serve as President for a term ending on September 10, 2011.  Harbin Yifeng Eco-Environment will pay her a salary of at least 3800 Renminbi (approximately $556) per month.  Ms. Feng will continue to perform services for the four employers identified in her biographical material above while serving as President of Eastern Environment Solutions, Corp.





The Company has employment agreements with its other two executive officers, Shibin Jiang and Jianhua Sun, which outline salary and benefit arrangements.  The two agreements have similar terms, which include base salaries of cash, the provision of labor-related insurance, termination for cause or on 30 days’ notice, and the provision of labor-related benefits in conformance with PRC labor laws.  These agreements have one-year terms.





Compensation of Directors





Employees who are also members of the Board of Directors are not additionally compensated for their services as a director.  We currently have no directors who are not also employees.





Equity Grants





The following tables set forth certain information regarding the stock options acquired by the Company’s Chief Executive Officer during the year ended December 31, 2009 and those options held by him on December 31, 2009.


49





Option Grants in the Last Fiscal Year





Number of

securities

underlying

option
Percent

of total

options

granted to

employees

in fiscal
Exercise

Price
Expiration
Potential realizable

value at assumed

annual rates of

appreciation

for option termgranted
year
($/share)
Date
5%
10%Feng Yan
--
--
--
--
--
--





The following tables set forth certain information regarding the stock grants received by the executive officers named in the table above during the year ended December 31, 2009 and held by them unvested at December 31, 2009.





Unvested Stock Awards in the Last Fiscal Year





Number of

Shares That

Have Not

Vested
Market Value

of Shares That

Have Not

VestedYun Wang
--
--








ITEM 12.             SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of the date of this prospectus by the following:






each shareholder known by us to own beneficially more than 5% of our common stock;






Feng Yan, our Chief Executive Officer






each of our directors; and






all directors and executive officers as a group.





There are 14,970,186 shares of our common stock outstanding on the date of this report.  Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares,  subject to community property laws where applicable.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.





In computing the number of shares beneficially owned by a person and the percent ownership of that person, we include shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days. We do not, however, include these “issuable” shares in the outstanding shares when we compute the percent ownership of any other person.


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Name  and Address of

Beneficial Owner(1)
Amount and Nature of

Beneficial Ownership
Percentage of ClassFeng Yan
6,278,000
41.9%Shibin Jiang
1,196,000
8.0%Jianhua Sun
30,000
0.2%All officers and directors (3 persons)
7,504,000
50.1%Bin Feng
1,656,000
11.1%





(1)
Unless otherwise noted, the shareholder’s address is c/o Harbin Yifeng Eco-environment Co., Ltd., Harbin Dongdazhi Street 165, Harbin, Heilongjiang, P.R. China.







ITEM 13              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





Certain Relationships and Related Transactions





During 2007 Yifeng made loans to two members of its Board of Directors:  Shibin Jiang and Yun Wang.  During 2008 Yun Wang repaid his loan, but Yifeng made an additional loan to Shibin Jiang.  The amount owed by Shibin Jiang at December 31, 2009 was $4,744.  The loan is unsecured and interest free.   The loan was fully repaid on August 13, 2010





During 2009 Yifeng made a loan to its Chief Executive Officer, Feng Yan.  The amount owed by Feng Yan at December 31, 2009 was $38,084.  The loan is unsecured and interest free.  The loan was fully repaid on August 13, 2010.





During 2008 Yifeng made a loan in the amount of $234,518 to Harbin Binjiang Freight Co., Ltd., which is owned by Yun Wang, who is the spouse of our Chief Executive Officer and who was our Chairman at the time of the loan.  The loan was unsecured and bore interest at a 6.12% annual interest rate.  The loan was repaid in full during 2009.





Director Independence





None of the members of the Company’s Board of Directors is an independent director, pursuant to the definition of “independent director” under the Rules of The NASDAQ Stock Market.





ITEM 14.             PRINCIPAL ACCOUNTANT FEES AND SERVICES





In January 2010 the audit practice of Bagell, Josephs, Levine & Company, LLP, the Company’s independent registered public accounting firm, was combined with Friedman LLP.





Audit Fees





Friedman LLP billed $33,000 to the Company for professional services rendered for the audit of the fiscal 2009 financial statements and review of the financial statements included in fiscal 2009 10-QSB filings Friedman LLP billed $50,000 to the Company for professional services rendered for the audit of fiscal 2008 financial statements.





Audit-Related Fees





Friedman LLP billed $2,000 to the Company during 2009 for assurance and related services that are reasonably related to the performance of the 2009 audit or review of the quarterly financial statements.  Friedman LLP billed $2,000 to the Company during 2008 for assurance and related services that are reasonably related to the performance of the 2008 audit or review of the quarterly financial statements.


51


Tax Fees





Friedman LLP billed $0 to the Company during 2009 for professional services rendered for tax compliance, tax advice and tax planning.  Friedman LLP billed $0 to the Company during 2008 for professional services rendered for tax compliance, tax advice and tax planning.





All Other Fees





Friedman LLP billed $0 to the Company in 2009 and billed $0 in 2008 for services not described above.





All of the services described above were approved by the Board of Directors.  It is the policy of the Company that all services other than audit, review or attest services must be pre-approved by the Board of Directors.  No such services have been performed by Friedman LLP.





Subcontracted Services





The hours expended on Friedman LLP’s engagement to audit the Company’s financial statements for 2009 that were attributed to work performed by persons other than full-time permanent employees of Friedman LLP was not greater than 50% of the total hours expended.


52


ITEM 15.             EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a) Exhibit List3-a
Articles of Incorporation – filed as an exhibit to the Information Statement on Schedule 14C filed on September 23, 2005 and incorporated herein by reference.3-b
By-laws – filed as an exhibit to the Information Statement on Schedule 14C filed on September 23, 2005 and incorporated herein by reference.10-a
Franchise Contract made in 2003 between Harbin Municipal Urban Administrative Bureau and Harbin Yifeng Group Co., Ltd.10-b
Employment Agreement dated September 11, 2009 between Harbin Yifeng Eco-Environment Co., Ltd. and Feng Yan - filed as an exhibit to the Current Report on Form 8-K filed on September 17, 2009 and incorporated herein by reference.21
Subsidiaries –
American Eco-Environment Corporation, a Delaware corporationHarbin Yifeng Eco-environment Co., Ltd., a PRC corporationHarbin Yifeng Zhiye Management Co., Ltd., a PRC corporation31.1
Rule 13a-14(a) Certification - CEO31.2
Rule 13a-14(a) Certification - CFO32
Rule 13a-14(b) Certifications





53





SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.








EASTERN ENVIRONMENT SOLUTIONS, CORP.Date: March 18, 2010
/s/ Feng YanFeng Yan, Chief Executive Officer





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.





/s/ Feng Yan
March 18, 2010Feng YanDirector, Chief Executive Officer/s/ Jianhua Sun
March 18, 2010Jianhua SunDirector, Chief Financial Officer/s/ Shibin Jiang
March 18, 2010Shibin Jiang, Director







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