UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  
  Form
10-K


x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934:
  For
      the fiscal year ended June 30,
2008
  OR
   ̈
              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:000-51818
  
 ENVIRONMENT
ECOLOGY HOLDING CO.
 OF
CHINA
 (Exact
name of registrant as specified in its charter)
  
 Florida
              
              20-4200300(State or other jurisdiction
      of
                incorporation or organization)
              
              (I.R.S. Employer
                Identification No.)
  391 Hua Yu Lane, Dong Xin Street
 Xi’an,
Shaanxi Province, P.R. China
 (Address
of principal executive offices) (Zip Code)
  Registrant’s
telephone number, including area code: (8629) 8826-5109
  
 Copies
of communications to:
  JPF
Securities Law, LLC.
 17111
Kenton Drive
 Suite
100B
 Cornelius,
NC 28031
 Telephone
No.: (704) 897-8334
 Facsimile
No.: (888) 608-5705
  
 Securities
registered pursuant to Section 12(b) of the Act:
 None
  Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, $.001 par value
  Convertible
Preferred Stock, $.001 par value
 (Title
of each class)
  
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes   ̈    No  x
  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  x
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x     No   ̈
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x
  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.
  Large Accelerated Filer   ̈
              Accelerated Filer   ̈Non-Accelerated Filer   ̈
              Smaller
      Reporting Company  x
  Indicate by check
mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2 of the act).    Yes   ̈    No  x
 
 State
issuer's net revenues for its most recent fiscal year: $17,607,747
  As of September 30,
2008, there were 33,162,114 common shares outstanding and the aggregate market
value of the common shares (based upon the close price of $.10 reported by
brokers) held by non-affiliates was approximately $2,135,796.
 
 Number of
shares of common stock outstanding as of October 8, 2008:
33,162,114
  Number of
shares of preferred stock outstanding as of October 8,
2008:     100,000
 
 Documents
incorporated by reference: None.
  2
 
 TABLE OF CONTENTS
  Item
      No.
              
              
              
              Page No.A WARNING ABOUT FORWARD-LOOKING
      STATEMENTS
              
              4PART IITEM 1.
              
              BUSINESS
              
              5ITEM 1A.
              
              RISK
    FACTORS
              
              9ITEM 1B.
              
              UNRESOLVED STAFF
      COMMENTS
              
              11ITEM 2.
              
              PROPERTIES
              
              11ITEM 3.
              
              LEGAL
      PROCEEDINGS
              
              11ITEM 4.
              
              SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS
              
              11PART IIITEM 5.
              
              MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
              
              12ITEM 6.
              
              SELECTED FINANCIAL
      DATA
              
              13ITEM 7.
              
              MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
              
              14ITEM 7A.
              
              QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK
              
              17ITEM 8.
              
              FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATAITEM 9.
              
              CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
              
              33ITEM 9A(T).
              
              CONTROLS AND
      PROCEDURES
              
              33ITEM 9B.
              
              OTHER
      INFORMATION
              
              33PART
IIIITEM 10.
              
              DIRECTORS, EXECUTIVE OFFICERS AND
      CORPORATE
      GOVERNANCE
              
              34ITEM 11.
              
              EXECUTIVE
      COMPENSATION
              
              35ITEM 12.
              
              SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS
              
              35ITEM 13.
              
              CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS AND DIRECTOR INDEPENDENCE
              
              36ITEM 14.
              
              PRINCIPAL ACCOUNTANT FEES AND
      SERVICES
              
              36PART IVITEM 15.
              
              EXHIBITS AND FINANCIAL STATEMENT
      SCHEDULES
              
              37SIGNATURES
              
              38
 
 3
 Table of Contents
  A
Warning About Forward-Looking Statements
 
 As used
herein the terms "we", "us", "our", the “Registrant”, “EVEH” and the "Company"
means, Environment Ecology Holding Co. of China, a Florida corporation. These
terms also refer to our subsidiary corporations, Shaanxi Lv Bao Environmental
Eco Industry Management Ltd. ("Lv Bao"), and Shaanxi Li Bao Sheng Tai Ke Ji Gu
Fen You Xian Gong Si (“Li Bao”), both of which organized and existing under the
laws of the Peoples’ Republic of China acquired in February 2007.
  This
report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, and is subject to the safe
harbor created by those sections. These statements include descriptions of our
future financial condition, results of operations, objectives, strategies,
plans, goals, targets or future performance and business for future periods, and
generally may be identified by use of phrases such as “believe,” “expect,”
“will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,”
“initiatives,” “models,” “hope,” “goal,” “foresee” or other words of similar
import. These forward-looking statements involve known and unknown risks,
uncertainties and other factors, including those described in the “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” sections and other parts of this report that could cause events,
including our actual results, to differ materially from those anticipated in
these forward-looking statements. These factors, among others, could cause our
financial performance to differ materially from our goals, targets, objectives,
intentions and expectations. These forward-looking statements include, among
other things, statements regarding our plans and expectations for new
landscaping construction projects, the projects of walnut plants, cost control,
increasing margins and growing our landscaping construction businesses and
walnut plantation projects.
  If one or
more of the factors affecting our forward-looking statements proves incorrect,
then our actual results, performance or achievements could differ materially
from those expressed in, or implied by, forward-looking statements contained in
this report. Consequently, you should not place undue reliance on our
forward-looking information and statements.
  We
qualify all of our forward-looking statements by these cautionary statements.
Except to the extent required by the federal securities laws, we do not intend
to update or revise the forward-looking statements contained in this
report.
  4
 Table of Contents
  PART I
  ITEM 1.
              BUSINESS
 
 History
  We were
incorporated on September 14, 1989 under the name First New York Investment,
Inc. On November 25, 1996, we filed an amendment to the Articles of
Incorporation with the Secretary of State of Florida to change the corporate
name to Computer Access International, Inc. On or about March 4, 2005, we formed
a wholly-owned subsidiary, Dispatch Auto Parts II, Inc. ("Dispatch II") and
invested $6,000 to pay for Dispatch II's organizational expenses and funding of
the initial operations of Dispatch II. After the incorporation, we changed our
corporate name to Dispatch Auto Parts, Inc. and began the wholesale business for
automotive parts and accessories. Dispatch II was disposed on February 14, 2007
pursuant to the agreement between us, Dispatch II and Daniel Slocum, our former
president. On May 8, 2007, we filed an amendment to the Articles of
Incorporation with the Secretary of State of Florida to change the corporate
name to Environment Ecology Holding Company of China for more accurate
description of our current operations and to be consistent with our marketing
efforts in the landscaping construction and design industry.
 
 On
November 8, 2006, the Company entered a stock exchange transaction with Shaanxi
Lv Bao Environmental Eco Industry Management Ltd. (“Lv Bao”), and the
transaction was effectively completed on February 6, 2007.  Lv Bao was
registered as a limited liability company in the People’s Republic of China (the
“PRC”) on August 11, 2006 with its principal place of business in Xian City,
Shaanxi Province, the PRC.  Its registered capital was Renminbi Yuan
(“RMB”) 5,000,000 (equivalent to $628,773).  Its principal activity
was investment holding in Shaanxi Li Bao Sheng Tai Ke Ji Gu Fen You Xian Gong Si
(“Li Bao”).
 
 The stock
exchange transaction involved two simultaneous transactions:
 
 1)
              The majority
      shareholders of the Company deposited the 844,500 shares of the
      Company’s common stock into the account of an escrow agent in exchange for
      $530,000 in cash paid by the owners of Lv Bao.  The 844,500
      shares were retired back to the treasury upon closing,
  and;
 
 2)
              The
      Company issued, to the Lv Bao owners, 26,000,000 new investment shares of
      common Stock and 100,000 new shares of preferred stock of the Company in
      exchange for all of the registered capital of Lv
  Bao.
 
 Upon
completion of the plan of exchange, Lv Bao became a wholly-owned subsidiary of
the Company.  Accordingly, there has been a change of control of the
Company, and the Lv Bao’s owners now control 91% of the voting power of the
Company.
 
 On August
30, 2006, the owners of Lv Bao entered into an exchange agreement with the
owners of Li Bao.  This exchange transaction involved that Li Bao’s
equity owners transferred the aggregate equity interest of 93.57% of the
registered capital of Li Bao (equivalent to RMB 65,500,000) to Lv
Bao.  The transaction was an exchange of shares and no cash or other
assets were exchanged in the transaction.  Upon the completion of the
equity transfer, Li Bao became an operating subsidiary of Lv Bao with 93.57%
controlling interest.
 
 These
transactions have been accounted for as a reverse acquisition and
recapitalization of the Company, through a wholly-owned subsidiary, Lv Bao,
whereby Li Bao was deemed to be the ultimate accounting acquirer (legal
acquiree) and the Company to be the ultimate accounting acquiree (legal
acquirer).
 
 The
Company, through its subsidiaries, mainly engages in the provision of
landscaping construction service in the PRC.
 
 In
September 2007, Li Bao acquired the technical know-how on the Walnut Plantation
Technology from an independent party, the Research Center in the
PRC.  Starting from January 1, 2008, the Company has commenced in the
operation in Walnut Plantation.
 
 The
Company, Lv Bao and Li Bao are hereinafter referred to as the
“Company.”
 
 Products
and Services
 
 Landscaping Construction
Business
 
 The
Company is experienced in urban landscaping industry. The landscaping projects
include landscape construction and maintenance for public parks, communities,
schools, memorials, convention centers, squares, hotels, highway's side view,
and so on, some of which were granted as landmarks in the local cities. The
detailed services cover:
 
 •
              gardeners•
              landscape
      contractors•
              landscape
      architects•
              irrigation
      experts•
              pest
      management professionals/applicators•
              arborists•
              sod
      growers•
              golf
      course maintenance staff and suppliers•
              groundskeepers•
              botanical
      gardens
 
 Before
the commencement of the landscape construction, the Company will provide the
clients with floor plans, effect layout, and construction blueprint, and get the
approval for their design from the clients. The Company has its own designers
experienced in landscaping. The effects from humanism, history and local climate
will be integrated in the design. The Company also has self-owned equipment for
landscape construction and maintenance projects, including five large tractors,
two lawn mowers, three automatic sprinkling irrigators, one compactor, two
watering trucks, two separating-sowing machines, drilling machines and various
trucks for different functions. Attributing to the Company's competence and
reputation, the Company has a 20% market share in Xi An City and an 8% market
share in Northwest China, per a comprehensive evaluation from the Shaanxi
Construction Bureau in 2006.
 
 5
 Table of Contents
  Walnut
Plantation
  In
September 2007, the Company acquired the technical know-how on the Walnut
Plantation Technology (the "Technology") from an independent party, the Research
Center in the PRC.  The Technology will benefit the Company by
increasing the survival rate of walnut transplantation to 94.4%, compared to the
current average survival rate of 30%. Starting from January 1, 2008, the Company
has commenced a new business segment as walnut plantation.
 
 The
demand for walnut plantation is strong in Northwest China due to the risk of
desertization threatening this area. Walnut tree not only prevents desertization
efficiently, but also generates revenue from the sale of walnut. The current
walnut tree in Northwest China, number of which is approximately 140 million as
reported by Shaanxi Provincial Forestry Office, has the shortcoming as long
growing period and low output. The Technology will help to correct this
shortcoming by transplanting improved walnut saplings on the existing walnut
tree. Due to the high survival rate of transplantation guaranteed by the
Technology, it is expected that the application of the Technology will cover
approximately 92% of the total existing walnut tree in Northwest
China.
 
 For the
period from January 1, 2008 (commencement) to June 30, 2008, the revenue
generated from walnut plantation was approximately $1,300,000, which was
expected to increase to approximately $29,000,000 for the fiscal year ended June
30, 2009, based on the projected 200,000 acres of walnut tree
transplantation.
  Our
Business Model
 
 Landscaping Construction
Business
 
 During
the fiscal year ended June 30, 2008, the Company had revenues of approximately
$16,200,000 from landscaping construction contracts, 83% of which from the
completed contracts including approximately $3,100,000 from Shaanxi Chi-Yu River
Resorts, $2,260,000 from Xi An High-Tech Industrial Development Zone, $1,900,000
from Shaanxi Truck Manufacture Co. Ltd., and $1,700,000 from Da Tang Bin Chang
Power Plant. In addition, the Company had revenues of approximately $2,670,000
from processing and uncompleted contracts, or 17% of total landscaping projects
revenue, of which approximately $1,540,000 from the landscaping construction
project along Hua Yue Road in Hua Yin City. The characteristic of the Company's
landscaping construction business determines its customers base have to keep
changing. In most case, the lifecycle of a project covers two years, including
construction in the first year and maintenance in the second year. The Company
applies the percentage-of-completion method to recognize revenues for the
projects. Therefore, approximately 90% of the contract amount will be recognized
in the first year according to the percentage of completion, and approximately
10% of the contract amount will be recognized in the second year of the project
reflecting the maintenance services. If the Company fails to bring the new
customers after the completion of the current projects, the Company will be
unable to maintain profitability. The Company may need to rely on financing from
related parties and outside sources through debt or equity transactions. The
Company's related parties are under no legal obligation to provide the Company
with capital infusions. Failure to obtain such financing could have a material
adverse effect on operations and financial condition. In addition, the Company's
growth potential will be adversely affected and the Company will have to
significantly modify its plans. For example, if the Company is unable to raise
sufficient capital to develop its business plan, the Company may need to limit
the Company's future marketing efforts to areas that the Company believes would
be the most profitable.
 
 Walnut
Plantation
 
 The
Company has initiated a walnut forest preservation project, recovering the
walnut forest from long growing period and low output. Based on the traditional
garden afforestation project construction, the Company is actively making good
use of the walnut planting and transplanting technologies of which successful
experiments have been realized. It is also carrying out new forestry promotion
with walnut transplanting and other technologies. The transplanting technology
makes the transplanting surviving rate 94.4%, far beyond the current 30%. It
also makes the dream of "first year fruits, second year earnings" come
true.
 
 According
to the initial projection, the Technology will be applied to 200,000 acres of
walnut tree transplantation, each acre of which will have 364 walnut saplings,
generating revenues from sales of walnut saplings of approximately $29,000,000
for the fiscal year ended June 30, 2009. The unit cost of the walnut sapling is
$2.20, including the cost of sapling of $.20, approximately 50% of the sale
price, and the labor cost of $2.00, approximately 30% of the services fee paid
by the farmers. After the application of the
Technology, it
is expected that the annual output of walnut from each walnut tree will be70kg, thesellingprice of which isapproximately$6.00per
kilogram. Therefore, we
believe it should be the win-win situation for both farmers and the
Company.
  The
Walnut Plantation project has been favored by Agricultural Ministry of China and
National Forestry Bureau and received positive reaction from the local farmers.
The orders from the farmers have largely exceeded the annual production capacity
of the Company, and it is predicted that the supply can not cover the demand in
the following five years. The Technology has been awarded a Certificate of
Scientific Achievement by the Shaanxi Agricultural Bureau. It is also applying
for the National Scientific Award. The Company believes the National Award would
enhance the brand recognition and strengthen the Company’s position in the
industry.
  Marketing
Opportunities
  China's
economy retains a growth rate of 8-10% in recent years. The total market of
China's afforestation industry by 2020 will be USD 150 billion, increasing by
USD 10 billion every year after 2005. The perspective market for the Company is
great. The development trend of China's garden planting and afforestation can be
concluded as follows.
 
 1)Three projects
initiated by the State, including Green Channel Project, urbanization promotion
and West China Development, and the being-conducted urban afforestation plan of
Beijing Olympics give a boost to the hot sale of the afforestation plant. The
demand always surpasses the supply, and the prices go upward.
 
 2)With the
progresses the society, people pay more attention to residential environment, so
that the demand for afforestation plant is increasingly large. Afforestation
plant industry has become a rising sun industry with great
potential.
 
 3)The
urban forest construction, with faster urbanization process, makes greater
demand for garden plant as well. By 2010, the forest cover rate of 30% must be
achieved in 70% of Chinese cities, and the public greenland area must be 10m2
per person, as urban forest construction and plan of China says. Meanwhile, real
estate developers increase their prices with more green landscape and parks.
According to Urban Residential Community Plan and design Criteria which is a
national standard, at least 12 thousand hm2 of residential community land needs
afforesting and beautifying every year. Large market potential is
available.
 
 6
 Table of Contents
  Rapid Urbanization in
China
 
 The open
door policy has triggered China's economic progress and urbanization in the past
two decades. According to the "Report on economic and social development between
the 16th and 17th National Congress of the Communist Party of China VII: Urban
socio-economic development in harmony," (the “Report”) issued by National Bureau
of Statistics on September 26, there were a total of 661 cities in China in
2006. There is a gross urban population of 577 million people, accounting for
43.9% of the country's total population. The urbanization ratio in eastern,
central and western China was 54.6%, 40.4%, and 35.7%.
  With the
accelerated pace of industrialization, China's level of urbanization also rose.
In 2006, the gross urban population was 577.1 million people, accounting for
43.9% of country's total population. The level of urbanization was 4.8
percentage points higher than in 2002. In regional terms, the urbanization ratio
of the eastern, central and western China was 54.6%, 40.4% and 35.7% in 2006.
From a regional perspective, Shanghai had the highest urbanization level, with a
ratio of 88.7%, followed by Beijing and Tianjin at 84.3% and 75.7%.
 
 In 2006,
China had a total of 661 cities, including 287 cities at prefecture level or
above – eight more than there were in 2002. The GDP of the cities at prefecture
level or above (counties under city administration excluded) increased from RMB
6.4 trillion in 2002 to RMB 13.2 trillion in 2006 - increasing 1.1 times. The
proportion to the country's total GDP also rose from 53.4% in 2002 to 63.2% in
2006. A total of 30 cities reported a GDP over RMB 100 billion – 18 more than in
2002. Of these 30, 12 cities reported a GDP greater than RMB 200 billion. Local
revenue of cities at prefecture level or above (counties under city
administration excluded), in 2006, reached RMB 1.1 trillion, an increase of 1.1
times over 2002; and accounts for 59.3% of the country's total local
revenue.
 
 Modernization
has swept across China beyond the coastal boomtowns deep into the countryside.
As a result, the demand for urban landscape has increased dramatically in
China.
  City Clusters Leading
Development
 
 A system
of urban development in China has been gradually taking shape. Apart from the
city clusters in the Yangtze River Delta, the Pearl River Delta, and the Bohai
Sea region, China has witnessed the establishment of eight new city clusters,
one of which is Central Shaaxi province, the location of the
Company.
 
 The GDP
in Shaaxi province for 2005 was RMB 367.475 billion, up 12.6% from the previous
year. The per capita GDP stood at RMB 9,844, up 12.2%. The primary industry
yielded a value added of RMB 41.86 billion, 7.9% more than that of the previous
year; the secondary industry, RMB 184.897 billion, a growth of 15.9%; the
tertiary industry, RMB 140.718 billion, a growth of 10%. The GDP ratio of the
three sectors was 11.4: 50.3: 38.3. Provincial revenue was RMB 52.86 billion, an
increase of 27.2% over the previous year. Provincial expenditure was RMB 64.11
billion, a growth of 24.2%. CPI was up 1.2% from the previous year. Fixed asset
investment was valued at RMB 198.052 billion, up 28.3% from the previous year.
(source: www.china.gov.cn ) As
the city clusters in central Shaaxi province continue to grow, the need for a
healthy, growing vegetation and landscaped infrastructure will necessitate an
increased urban landscaping industry.
  Advocacy for the “Garden
City”
 
 Current
development forces in China are characterized by steady population growth, an
ongoing urbanization of the former agriculturally-based population, aggressive
economic growth and rapid motorization.  Economic forces continue to
become increasingly decisive in the process of urbanization, giving impetus
particularly to the growth of the large cities. At the same time, there is no
comprehensive regional planning, nor national land development approach. The
consequence is a threat of a scattered low-density urbanization in the
countryside and fast, uncontrolled and uncoordinated growth of the large city
regions. The problem has caught the Chinese government's attention at the
highest levels. In order to build a suitable environment for inhabitants, garden
city construction is included in local government's agenda. It is also used as
one of the measurements to evaluate the local government's
performance.
 
 According
to the Ministry of Construction, in late 2006, the area of green space and parks
in cities at prefecture level or above (counties under administration of cities
excluded) totaled 250,000 hectares. Per capita green space exceeded 6.8 square
meters. Newly constructed urban green spaces spanned 920,000 hectares; and
increased by 321,000 hectares. The coverage rate of green space reached 35.1%,
up 4.7 percentage points. By the end of 2006, 45 cities were granted the title
of "national garden city" by the Ministry of Construction.
 
 Of the
559 cities monitored by the State Environmental Protection Administration, 24
met grade one air quality standards (4.3%); 325 met grade two standards (58.1%);
160 met grade three standard (28.6%); and 50 were below grade three standards
(9.0%). At of the end of 2006, China identified 60 national environmental model
cities, and five national environmental protection model districts. Thirteen
cities were awarded "Human Habitat Environment Prizes" issued by the State
Environmental Protection Administration.
 
 7
 Table of Contents
  Increase in Urban Landscape
Investment
 
 Total
investment in urban landscape was approximately $14.8 billion from the Chinese
government between 2001 to 2005, increasing by approximately 113% compared to
the previous five-year period. (source: Xinhua) The Chinese government also
encourages enterprises investing more in urban landscape construction by
allowing them to name the invested landscape. In addition, a capital raising
system for urban landscape has been formed, and is secured by government
funds.
 
 Motivation Related to the
2008 Olympic Games
 
 After
China won the Olympic bid for the summer 2008 games, it promised to make Beijing
an "ecological city" with "green hills, clear water, grass-covered ground, and
blue sky". Since then the city has spent 100 billion yuan (12.5 billion US
dollars) planting trees and curbing polluting industries, according to the State
Environmental Protection Administration of China. Heavy polluters like the
Capital Iron and Steel Group were moved out of the capital and 200 small and
medium-sized firms had been shut down. The city has also phased out over 30,000
old taxies and 3,900 old diesel-powered buses that do not meet environmental
standards. (source: People Daily Online). Consequentially, the influence of the
2008 Olympic Games will be spread throughout China since the Olympic Games has
been widely regarded as an opportunity to showcase China to the world. According
to a recent industry survey jointly conducted by the Pacific Asia Travel
Association (PATA) and Visa International Asia Pacific, the Beijing 2008 Olympic
Games will be a spur to Asia's tourism industry as many people looking to attend
the event also plan to spend time exploring other parts of China and Asia. It
was reported that almost 9 out of 10 people planning to visit Beijing for the
Olympics will visit other Chinese cities if time permits.
 
 Background of Walnut
Plantation
 
 Reacting
to the government's call of replacing the farmland with forest, the farmers in
Shaanxi bought a lot of walnut seedlings to plant. Accordingly, they were
entitled to obtain financial subsidy from the government for a period of 8
years. However, the output period of their walnut tree will not start until
10-15 years afterwards. When the 8-year-subsidy ends, the farmers would have to
cut the walnut trees without any fruits due to living pressure. The beautiful
walnut forest is being trapped into crisis
 
 As
reported by Shaanxi Provincial Forestry Office, the number of walnut trees in
China is about 140 million with a growth rate of 15%. It is predicted after five
years or in 2012, with the current magnitude and growth rate, the number of
walnut trees in China would exceed 400 million.
 
 After the
application of the Technology, it is expected that the annual output of walnut
from each walnut tree will be70kg, thesellingprice of which isapproximately$6.00per
kilogram. Therefore, we
believe the demand for walnut tree transplantation will be great and it should
be the win-win situation for both farmers and the Company.
  Marketing
Strategy
 
 The
Company expects to enhance its market shares in the northwest China by following
new marketing strategies. Currently, the development in northwest China
concentrates on Central Shaanxi Province, which is considered one of eight new
city clusters in China, in addition to the existing city clusters in the Yangtze
River Delta, the Pearl River Delta, and the Bohai Sea region.
  The GDP
in Shaaxi province for 2005 was RMB 367.475 billion, up 12.6% from the previous
year. The per capita GDP stood at RMB 9,844, up 12.2%. The primary industry
yielded a value added of RMB 41.86 billion, 7.9% more than that of the previous
year; the secondary industry, RMB 184.897 billion, a growth of 15.9%; the
tertiary industry, RMB 140.718 billion, a growth of 10%. The GDP ratio of the
three sectors was 11.4 : 50.3 : 38.3. Provincial revenue was RMB 52.86 billion,
an increase of 27.2% over the previous year. Provincial expenditure was RMB
64.11 billion, a growth of 24.2%. CPI was up 1.2% from the previous year. Fixed
asset investment was valued at RMB 198.052 billion, up 28.3% from the previous
year. (source: www.china.gov.cn ) As
the city clusters in central Shaaxi province to grow, the need for a healthy,
growing green infrastructure will necessitate an urban landscape Industry. The
urban landscape Industry creates this huge economic impact while providing a
tremendous environmental benefit, mitigating the effects of intensive urban
living.
  Improving
technologies.  In
September 2007, the Company acquired the technical know-how on the Walnut
Plantation Technology (the "Technology") from an independent party, the Research
Center in the PRC. The Technology has been favored by Agricultural Ministry
of China and National Forestry Bureau and received positive reaction from the
local farmers. The Technology has been awarded a Certificate of Scientific
Achievement by the Shaanxi Agricultural Bureau. It is also applying for the
National Scientific Award. The Company believes the National Award would enhance
the brand recognition and strengthen the Company’s position in the
industry.
  Seeking
for support from local government.
  Seeking
strategic partners.
 
 Competition
 
 The
Company is subject to intensive competition in urban landscaping industry. No
entity, including the Company, currently dominates the urban landscaping
industry and the Company does not believe that one organization has the
capability to serve the entire market. Many competitors possess greater
financial, managerial and technical resources and high reputations, all of which
put the Company at a competitive disadvantage. The competitors may be in a
position to devote greater resources in the sales, marketing, and projects
management and therefore considerably impact the Company's ability to
successfully in marketing.
 
 Government
Regulation
  Our
landscape design, construction and maintenance projects are subject to many
federal, state and local requirements relating to the protection of the
environment and we use environmentally sensitive materials in our maintenance
processes. For example, we employ chemical materials to treat some of our
products. We believe that we operate our business in material compliance with
all environmental laws and regulations, do not anticipate any material
expenditure in order to meet environmental requirements and do not believe that
future compliance with such laws and regulations will have a material adverse
effect on our financial condition or results of operations. However, we could
incur operating costs or capital expenditures in complying with more stringent
environmental requirements in the future or with current requirements if they
are applied to our facilities in a way we do not anticipate.
  Our
operations are also governed by many other laws and regulations covering our
labor relationships, the zoning of our facilities, our general business
practices and other matters. We believe that we are in material compliance with
these laws and regulations and do not believe that future compliance with such
laws and regulations will have a material adverse effect on our financial
condition or results of operations.
  Employees
  Currently,
the Company has 68 employees, 7 of which are senior management and 29 of which
are specialized in floriculture, gardening, landscaping construction and
maintenance. Approximately 64.7% of total employees have bachelor degrees or
above.
  8
 Table of Contents
 
 ITEM 1A.
              RISK
      FACTORS
  This
Annual Report on Form 10-K contains forward-looking statements, which are based
on current expectations and assumptions that are subject to risks and
uncertainties. You should carefully consider the risks described below, as well
as the other information contained in this report, including our consolidated
financial statements and the notes thereto and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” Any of the risks
described below could materially and adversely affect our business, prospects,
financial condition and results of operations.
 
 Changes
in governmental policies could reduce demand for the Company’s
services
 
 Most of
the Company’s business is driven by governmental policies and support from the
local government. Any changes in governmental policies regarding funding or
enforcement would have an adverse impact on the Company’s revenues. Also,
reduced spending by governments may increase competition within the Company's
industry which may directly affect future revenue and profits.
 
 As
a government contractor, the Company is subject to a number of procurement laws
and regulations, as well as government agency audits. Any violation of these
laws could result in economic harm to the Company’s operations
 
 The
Company must comply with certain laws relating to the procurement and
administration of government contracts.  These laws impact how the Company
does business with government clients and can increase the cost of doing
business. Government agencies as well as numerous local agencies routinely audit
government contractors and their performance under specific contracts to
determine if a contractor’s cost structure is compliant with applicable laws and
regulations.
 
 The
Company depends on government work for a significant portion of its revenues.
The Company’s inability to win or renew government contracts during procurement
cycles could significantly reduce Company profits
 
 The
Company significantly depends on government work for its revenues. An inability
to win or renew government contracts would adversely affect operations and
significantly reduce profits. Government contracts are typically awarded through
a highly regulated procurement process. However, the state-owned companies take
the priority in most government projects. In addition, some government contracts
are awarded to multiple competitors, causing increased competition and downward
pricing pressure. This may lead to increased pressure to control costs. If the
Company cannot reduce or control costs on these contracts, losses may
occur.
  The
use of percentage of completion method of accounting could result in a reduction
or reversal of previously recorded revenues and profits
 
 A portion
of the Company’s revenues and profits are measured and recognized using the
percentage of completion method of accounting which is discussed further in Note
2 of the Audited Consolidated Financial Statements. The use of this method
results in the recognition of revenues and profits ratably over the life of a
contract. The effect of revisions to revenues and estimated costs is recorded
when the amounts are known or can be reasonably estimated. Such revisions could
occur in any period and their effects could be material. Although the Company
has historically been able to make reasonably accurate estimates of work
progress, the uncertainties inherent in the estimating process make it possible
for actual costs to vary from estimates in a material amount, including
reductions or reversals of previously recorded revenues and
profits.
  Our
assets are located in China, and the Company’s revenues are derived from its
operations in China
 
 In terms
of industry regulations and policies, the economy of China has been
transitioning from a planned economy to a market oriented economy. Although in
recent years the Chinese government has implemented measures emphasizing the
utilization of market forces for economic reforms, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of productive assets
in China are still owned by the Chinese government. For example, all lands are
state owned and are leased to business entities or individuals through the
governmental granting of State-owned Land Use Rights. The granting process is
typically based on government policies at the time of granting and it could be
lengthy and complex. This process may adversely affect our company’s future
manufacturing expansions. The Chinese government also exercises significant
control over China’s economic growth through the allocation of resources,
controlling payment of foreign currency and providing preferential treatment to
particular industries or companies. Uncertainties may arise with the changing of
governmental policies and measures. At present, our company’s development of
research and development technologies and products is subject to approvals from
the relevant government authorities in China. Such governmental approval
processes are typically lengthy and complex, and never certain to be
obtained.
 
 Political
and economic risks
 
 China is
a developing country with a young market economic system overshadowed by the
state. Its political and economic systems are very different from the more
developed countries and are still in the stage of change. China also faces many
social, economic and political challenges that may produce major shocks and
instabilities and even crises, in both its domestic arena and in its
relationship with other countries, including but not limited to the United
States. Such shocks, instabilities and crises may in turn significantly and
adversely affect our performance.
  9
 Table of Contents
  Risks
related to interpretation of Chinese laws and regulations which involve
significant uncertainties
 
 China’s
legal system is based on written statutes and their interpretation by the
Supreme People’s Court. Prior court decisions may be cited for reference but
have limited value as precedents. Since 1979, the Chinese government has been
developing a comprehensive system of commercial laws, and considerable progress
has been made in introducing laws and regulations dealing with economic matters
such as foreign investment, corporate organization and governance, commerce,
taxation and trade. 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. In
addition, as the Chinese legal system develops, we cannot assure that changes in
such laws and regulations, and their interpretation or their enforcement will
not have a material adverse effect on our business operations.
  Currency
conversion and exchange rate volatility could adversely affect our financial
condition
 
 The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Under the current unified floating exchange rate system, the
People’s Bank of China publishes an exchange rate, which we refer to as the PBOC
exchange rate, based on the previous day’s dealings in the inter-bank foreign
exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an
authorized range above or below the PBOC exchange rate according to market
conditions.
 
 Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State
Council which came into effect on April 1, 1996, and the Regulations on the
Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which
came into effect on July 1, 1996, regarding foreign exchange control, conversion
of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs for
use on current account items, including the distribution of dividends and
profits to foreign investors, is permissible. FIEs are permitted to convert
their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in the PRC.
 
 Conversion
of Renminbi into foreign currencies for capital account items, including direct
investment, loans, and security investment, is still subject to certain
restrictions. On January 14, 1997, the State Council amended the Foreign
Exchange Control Regulations and added, among other things, an important
provision, which provides that the PRC government shall not impose restrictions
on recurring international payments and transfers under current account
items.
 
 Enterprises
in PRC (including FIEs) which require foreign exchange for transactions relating
to current account items, may, without approval of the State Administration of
Foreign Exchange, or SAFE, effect payment from their foreign exchange account or
convert and pay at the designated foreign exchange banks by providing valid
receipts and proofs.
 
 Convertibility
of foreign exchange in respect of capital account items, such as direct
investment and capital contribution, is still subject to certain restrictions,
and prior approval from the SAFE or its relevant branches must be
sought.
 
 We are a
FIE to which the Foreign Exchange Control Regulations are applicable. There can
be no assurance that we will be able to obtain sufficient foreign exchange to
pay dividends or satisfy other foreign exchange requirements in the
future.
 
 Since
1994, the exchange rate for Renminbi against the United States dollar has
remained relatively stable, most of the time in the region of approximately
RMB8.28 to US$1.00. However, in 2005, the Chinese government announced that it
would begin pegging the exchange rate of the Chinese Renminbi against a number
of currencies, rather than just the U.S. dollar. As our operations are primarily
in China, any significant revaluation of the Chinese Renminbi may materially and
adversely affect our cash flows, revenues and financial condition. For example,
to the extent that we need to convert United States dollars into Chinese
Renminbi for our operations, appreciation of this currency against the United
States dollar could have a material adverse effect on our business, financial
condition and results of operations. Conversely, if we decide to convert Chinese
Renminbi into United States dollars for other business purposes and the United
States dollar appreciates against this currency, the United States dollar
equivalent of the Chinese Renminbi we convert would be reduced.
 
 Our failure to repay debentures may result in a change of control
  Our
ability to repay our debentures issued to Trafalgar is dependent upon our
successful execution of our business strategy.  For example, we
executed a securities purchase agreement with Trafalgar on June 30, 2008
pursuant to which we issued senior secured convertible redeemable debentures in
the aggregate principal amount of $2,500,000.  These June Debentures
are generally due twenty-four (24) months after the date of
issuance.  If we do not successfully execute our business strategy, we
may be unable to generate sufficient funds to repay the June Debentures upon
maturity.  If we are unable to repay these June Debentures,
Trafalgar will be entitled to receive certain shares of our Common Stock along
with substantially all of our company’s assets.  This amount would not
only be devastating to our ability to continue operations but it would also give
Trafalgar the ability to assume control of the Company.  If Trafalgar
assumes control of the Company, they may choose to liquidate the operations and
divest the Company of all of its operating assets in order to satisfy the
outstanding principal balance and related interest.
 
 The
selling stockholder intends to sell shares of common stock in the market, which
sales may cause our stock price to decline
  The
selling stockholder intends to sell in the public market up to 7,287,097 shares
of our Common Stock being registered in this offering. That means that up to
7,287,097 shares may be sold pursuant to this Registration Statement. Such sales
may cause our stock price to decline. Our officers and Directors and those
stockholders who are significant stockholders as defined by the SEC will
continue to be subject to the provisions of various insider trading and
Rule 144 regulations.  In addition, you as a stockholder could be
significantly diluted and the value of your stock position could be greatly
reduced. It is also possible that Trafalgar could short sell our stock using the
debenture or some of their restricted position to cover their
sales.  If this occurs there could be strong negative pressure on our
stock and as such the price may significantly decrease.
  10
 Table of Contents
  ITEM 1B.
              UNRESOLVED
      STAFF COMMENTS
  Not
Applicable.
  ITEM 2.
              PROPERTIES
 
 Our
corporate headquarters are located at 391 Hua Yu Lane, Dong Xin Street, Xi’an,
Shaanxi Province, P.R. China. Our lease for this space has a term of 3
years.  The space is 4,300 square feet and is located at 4th/Fl, Block
A, 12 Xiang Zi Miao Street, Bei Lin Qu, Xi An, P. R. China. Pursuant to the
terms of the lease, the annual rental payment is $25,000 paid semi-annually.
This space is adequate for our present and planned future operations. No other
businesses operate from this office space.
 
 ITEM 3.
              LEGAL
      PROCEEDINGS
 
 We are
not a party to any pending litigation and none is contemplated or
threatened.
  ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  No
matters were submitted to a vote of our shareholders during the fourth quarter
of Fiscal 2008.
 
 11
 Table of Contents
  PART
II
  ITEM 5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
  Our
common stock is quoted on the Over-The-Counter Bulletin Board (“OTCBB”) under
the symbol EVEH.  The following table sets forth the range of closing
bid prices of our common stock as quoted on the OTCBB during the periods
indicated.  The prices reported represent prices between dealers, do
not include markups, markdowns or commissions and do not necessarily represent
actual transactions.
 
 High
              
              
              LowFiscal
      Year Ending
                June
      30, 2008
              Fourth
      Quarter
              
              $
              0.34
              
              
              $
              0.08Third
      Quarter
              
              $
              1.30
              
              
              $
              0.08Second
      Quarter
              
              $
              1.50
              
              
              $
              0.26First
      Quarter
              
              $
              0.51
              
              
              $
              0.51Fiscal
      Year Ending
                June
      30, 2007
              Fourth
      Quarter
              
              $
              1.00
              
              
              $
              0.51Third
      Quarter
              
              $
              0.91
              
              
              $
              0.25Second
      Quarter
              
              $
              0.51
              
              
              $
              0.15First
      Quarter
              
              $
              0.20
              
              
              $
              0.20
  Holders
  We have
approximately 3,355 record holders of our common stock as of September 30, 2008.
  Dividend
Policy
  The
Company does not anticipate paying any cash dividends on its common stock in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business.  Thereafter, declaration of dividends will
be determined by the Board of Directors in light of conditions then existing,
including without limitation the Company’s financial condition, capital
requirements and business condition.
  Equity
Compensation and Stock Option Plan Information
  On July
13, 2007, the Company approved the 2007 Benefit Plan (“2007 Plan”). Pursuant to
the 2007 plan, the Company would grant a maximum of 5,000,000 share options to
employees and non-employee eligible individuals, either as non-statutory stock
option or incentive stock option.
 
 On August
13, 2007, the Company authorized to grant a total of 2,000,000 options to 3
consultants for service rendered under the 2007 Plan. All of the options were
exercisable at 75% of the market price at the time of exercise for a period of 1
year from grant date. All options will vest immediately upon the exercise hereof
and contain a cashless exercise provision.
 
 A
schedule of the options as of June 30, 2008 is as follows:
  No.
      of options
              
              
              Weighted
      average exercise priceOptions
      outstanding as of July 1, 2007
              
              
              -
              
              
              $
              -Granted
      in August 2007
              
              
              2,000,000
              
              
              
              0.3825Exercised
      in August 2007
              
              
              (2,000,000
              )
              
              
              0.3825Options
      outstanding as of June 30, 2008
              
              
              -
              
              
              $
              -Options
      exercisable as of June 30, 2008
              
              
              -
              
              
              $
              -
 
 Subsequently,
on August 30, 2007, the aggregate amount of 2,000,000 options were exercised by
3 consultants and the Company issued 2,000,000 shares of common stock at a
cashless exercise price of $0.3825, which represented 75% of the closing price
of the Company’s common stock on the prior trading day. The aggregate intrinsic
value of options exercised during the year ended June 30, 2008 was
$765,000.
  Penny
Stock Characterization
  The
shares of our common stock are “penny stocks” within the definition of that term
as contained in the Exchange Act, which are generally equity securities with a
price of less than $5.00. Our shares of common stock will then be subject to
rules that impose sales practice and disclosure requirements on certain
broker-dealers who engage in certain transactions involving a penny stock. These
will impose restrictions on the marketability of our common stock.
  Under the
penny stock regulations, a broker-dealer selling penny stock to anyone other
than an established customer or “accredited investor” must make a special
suitability determination for the purchaser and must receive the purchaser’s
written consent to the transaction prior to the sale, unless the broker-dealer
is otherwise exempt. Generally, an individual with a net worth in excess of
$5,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse is considered an accredited investor. In addition, unless
the broker-dealer or the transaction is otherwise exempt, the penny stock
regulations require the broker-dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. A broker-dealer is also
required to disclose commissions payable to the broker-dealer and the Registered
Representative and current bid and offer quotations for the securities. In
addition a broker-dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer’s
account, the account’s value and information regarding the limited market in
penny stocks. As a result of these regulations, the ability of broker-dealers to
sell our stock may affect the selling stockholders or other or other holders
seeking to sell their shares in the secondary market. In addition, the penny
stock rules generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction.
  These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. These additional sales practice and disclosure requirements could
impede the sale of our securities. In addition, the liquidity for our securities
may be adversely affected, with concomitant adverse affects on the price of our
securities.
  Registration
Rights Agreements
  On June
30, 2008, a Registration Rights Agreement was executed by us conferring upon
Trafalgar Capital Specialized Investment Fund, Luxembourg demand registration
rights for (i) 2,500,000 shares of our common stock, and (ii) the right to
purchase up to $6,000,000 of our common stock over a two year period, exclusive
of the first 2,500,000 shares. Upon written demand, we shall register the shares
as soon as practicable and in no event later than 90 days from the notice. In
addition, we must maintain the registration statement until all of the
securities are sold or otherwise become freely tradable.
  12
 Table of Contents
 ITEM 6.
              SELECTED FINANCIAL DATA
  The
following selected financial data have been derived from the Company’s and its
predecessor’s financial statements which have been audited by Zhong Yi (Hong
Kong) C.P.A. Company Limited, an independent registered public accounting firm,
as of and for the fiscal years ended June 30, 2008 and 2007 and the related
statements of operations, stockholders’ equity and cash flows for the fiscal
years ended June 30, 2008 and 2007. The summary financial data as of June 30,
2008 and 2007 are derived from our audited financial statements, which are
included elsewhere in this report. The audited condensed financial statements
have been prepared on the same basis as our audited financial statements and
include all adjustments, consisting of normal and recurring adjustments, that we
consider necessary for a fair presentation of our financial position and
operating results for the audited periods.
  The
following data should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in this Prospectus
and the Financial Statements and notes thereto included in this
Prospectus.
  ENVIRONMENT
ECOLOGY HOLDING CO. OF CHINA
 SUMMARY
OF STATEMENTS OF OPERATIONS
 
 Audited
Financial Summary Information for the Fiscal Years Ended June 30, 2008 and
2007
  Statements
      of Operations (Audited)
              
              For
      the fiscal year ended
                June
      30, 2008
              
              
              For
      the fiscal year ended
                June
      30, 2007Revenues
              
              $
              17,607,747
              
              
              $
              3,979,748Cost
      of revenue
              
              $
              12,427,672
              
              
              $
              2,559,754Gross
      profit
              
              $
              5,180,075
              
              
              $
              1,419,994Operating
      expenses
              
              $
              1,915,480
              
              
              $
              632,440Income
      from operations
              
              $
              3,264,595
              
              
              $
              787,554Other
      income
              
              $
              159,975
              
              
              $
              155Income
      tax expense
              
              $
              1,189,005
              
              
              $
              430,450Net
      income
              
              $
              2,030,167
              
              
              $
              313,686Other
      comprehensive income
              
              $
              461,957
              
              
              $
              128,797Comprehensive
      income
              
              $
              2,492,124
              
              
              $
              442,483Net
      income per common share
              
              $
              0.07
              
              
              $
              0.01
  Balance
      Sheet (Audited)
              
              As
      of
                June 30, 2008
              
              
              As
      of
                June 30, 2007Available
      cash
              
              $
              6,420,881
              
              
              $
              2,775,361Total
      current assets
              
              $
              9,564,690
              
              
              $
              3,019,298Non-current
      assets
              
              $
              605,307
              
              
              $
              470,960Total
      Assets
              
              $
              10,169,997
              
              
              $
              3,490,258Current
      liabilities
              
              $
              1,630,315
              
              
              $
              674,724Non-current
      liabilities
              
              $
              1,186,737
              
              
              $
              -Total
      liabilities
              
              $
              2,817,052
              
              
              $
              674,724Minority
      interest
              
              $
              360,081
              
              
              $
              141,044Stockholders’
      equity
              
              $
              6,992,864
              
              
              $
              2,674,490Total
      liabilities and stockholders’ equity
              
              $
              10,169,997
              
              
              $
              3,490,258
  13
 Table of Contents
  ITEM 7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  You
should read the following discussion and analysis of our financial condition and
results of operations for fiscal years ended June 30, 2008 and 2007, together
with our consolidated financial statements and related notes appearing elsewhere
in this report. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including those set forth under “Risk Factors” and
elsewhere in this report.
 
 BUSINESS
MODEL
 
 Landscaping Construction
Business
 
 The
Company is experienced in urban landscaping industry. The landscaping projects
include landscape construction and maintenance for public parks, communities,
schools, memorials, convention centers, squares, hotels, highway's side view,
and so on, some of which were granted as landmarks in the local cities. The
detailed services cover:
 
 •
              gardeners•
              landscape
      contractors•
              landscape
      architects•
              irrigation
      experts•
              pest
      management professionals/applicators•
              arborists•
              sod
      growers•
              golf
      course maintenance staff and suppliers•
              groundskeepers•
              botanical
      gardens
 
 Before
the commencement of the landscape construction, the Company will provide the
clients with floor plans, effect layout, and construction blueprint, and get the
approval for their design from the clients. The Company has its own designers
experienced in landscaping. The effects from humanism, history and local climate
will be integrated in the design. The Company also has self-owned equipment for
landscape construction and maintenance projects, including five large tractors,
two lawn mowers, three automatic sprinkling irrigators, one compactor, two
watering trucks, two separating-sowing machines, drilling machines and various
trucks for different functions. Attributing to the Company's competence and
reputation, the Company has a 20% market share in Xi An City and an 8% market
share in Northwest China, per a comprehensive evaluation from the Shaanxi
Construction Bureau in 2006.
 
 During
the fiscal year ended June 30, 2008, the Company had revenues of approximately
$16,200,000 from landscaping construction contracts, 83% of which from the
completed contracts including approximately $3,100,000 from Shaanxi Chi-Yu River
Resorts, $2,260,000 from Xi An High-Tech Industrial Development Zone, $1,900,000
from Shaanxi Truck Manufacture Co. Ltd., and $1,700,000 from Da Tang Bin Chang
Power Plant. In addition, the Company had revenues of approximately $2,670,000
from processing and uncompleted contracts, or 17% of total landscaping projects
revenue, of which approximately $1,540,000 from the landscaping construction
project along Hua Yue Road in Hua Yin City. The characteristic of the Company's
landscaping construction business determines its customers base have to keep
changing. In most case, the lifecycle of a project covers two years, including
construction in the first year and maintenance in the second year. The Company
applies the percentage-of-completion method to recognize revenues for the
projects. Therefore, approximately 90% of the contract amount will be recognized
in the first year according to the percentage of completion, and approximately
10% of the contract amount will be recognized in the second year of the project
reflecting the maintenance services. If the Company fails to bring the new
customers after the completion of the current projects, the Company will be
unable to maintain profitability. The Company may need to rely on financing from
related parties and outside sources through debt or equity transactions. The
Company's related parties are under no legal obligation to provide the Company
with capital infusions. Failure to obtain such financing could have a material
adverse effect on operations and financial condition. In addition, the Company's
growth potential will be adversely affected and the Company will have to
significantly modify its plans. For example, if the Company is unable to raise
sufficient capital to develop its business plan, the Company may need to limit
the Company's future marketing efforts to areas that the Company believes would
be the most profitable.
 
 Walnut
Plantation
 
 In
September 2007, the Company acquired the technical know-how on the Walnut
Plantation Technology (the "Technology") from an independent party, the Research
Center in the PRC.  The Technology will benefit the Company by
increasing the survival rate of walnut transplantation to 94.4%, compared to the
current average survival rate of 30%. Starting from January 1, 2008, the Company
has commenced a new business segment as walnut plantation.
 
 The
demand for walnut plantation is strong in Northwest China due to the risk of
desertization threatening this area. Walnut tree not only prevents desertization
efficiently, but also generates revenue from the sale of walnut. The current
walnut tree in Northwest China, number of which is approximately 140 million as
reported by Shaanxi Provincial Forestry Office, has the shortcoming as long
growing period and low output. The Technology will help to correct this
shortcoming by transplanting improved walnut saplings on the existing walnut
tree. Due to the high survival rate of transplantation guaranteed by the
Technology, it is expected that the application of the Technology will cover
approximately 92% of the total existing walnut tree in Northwest
China.
 
 The
Walnut Plantation project has been favored by Agricultural Ministry of China and
National Forestry Bureau and received positive reaction from the local farmers.
The orders from the farmers have largely exceeded the annual production capacity
of the Company, and it is predicted that the supply can not cover the demand in
the following five years. The Technology has been awarded a Certificate of
Scientific Achievement by the Shaanxi Agricultural Bureau. It is also applying
for the National Scientific Award. The Company believes the National Award would
enhance the brand recognition and strengthen the Company’s position in the
industry.
 
 For the
period from January 1, 2008 (commencement) to June 30, 2008, the revenue
generated from walnut plantation was approximately $1,300,000, which was
expected to increase to approximately $29,000,000 for the fiscal year ended June
30, 2009, based on the projected 200,000 acres of walnut tree
transplantation.
 
 14
 Table of Contents
  RESULTS OF OPERATIONS –
FISCAL YEARS ENDED JUNE 30, 2008 AND 2007
  Revenues
  Net
revenues for the fiscal year ended June 30, 2008 were $17,607,747, of which
$16,277,568 from landscaping projects and $1,330,179 from sales of products. The
sales of products consisted of the sales of walnut tree, representing 32% of
total product sales, and the sales of other plants, representing 68% of total
product sales. Comparatively, the Company had net revenues of $3,979,748 from
landscaping projects during the fiscal year ended June 30, 2007 and no revenues
from sales of products due to the commencement of new business in January of
2008.
 
 The
increase in revenues from landscaping projects by $12,297,820, or approximately
300%, in fiscal year ended June 30, 2008 primarily attributable to our effort on
marketing. The amount of the contracts signed during the fiscal year ended June
30, 2008 totaled up to $24,000,000, 59% of which was completed as of June 30,
2008. The revenues were recognized based on the percentage of completion. The
Company recognized approximately $2,670,000 revenues from the processing
projects during the fiscal year ended June 30, 2008.
 
 Compared to 77% of total revenues from the five
major customers in the fiscal year ended June 30, 2007, the risk from
concentration was lowered slightly in this fiscal year due to the percentage
decreased to approximately 51% of total revenues from the four customers. The
table below shows the summary of each customer.
 
 Name
      of Customers
              Percentage
      of Revenues
              Projects
              Contract
      Amount
              Contract
      PeriodShaanxi
      Chi-Yu River Resorts
              18%
              Landscaping
      Construction
              $3,237,332
              December
      1, 2007 - April 30, 2009Xi
      An High-Tech Industrial Development Zone
              12%
              Landscaping
      Construction
              $2,782,630
              April
      7, 2007 - December 30, 2008Shaanxi
      Truck Manufacture Co. Ltd.
              11%
              Landscaping
      Construction
              $1,973,510
              December
      1, 2007 - April 1, 2009Da
      Tang Bin Chang Power Plant
              10%
              Landscaping
      Construction
              $1,813,858
              February
      26, 2008 - June 24, 2009
 
 All the
projects were protected by the enforceable contracts. The Company usually
provides the clients with full services including design, construction and
maintenance. The Company has its own designers experienced in landscaping. The
effects from humanism, history and local climate will be integrated in the
design. The documents provided by the Company include the floor plan, effect
layout, construction blueprint. The profit margin due to the project design
ranges from 1% to 5%, which was included in the contract price without separate
charge. The construction will be conducted by the Company after the construction
blueprint is approved by the clients. The profit margin due to the project
construction is approximately 30%.
 
 The
lifecycle of a project is determined by the project's magnitude, which would be
clearly described in the contracts case by case. In most cases, the construction
periods could cover two years, including construction in the first year and
maintenance in the second year. The Company applies the percentage-of-completion
method to recognize revenues for the projects. Therefore, approximately 95% of
the contract amount will be recognized in the first year according to the
percentage of completion, and approximately 5% of the contract amount will be
recognized in the second year of the project reflecting the maintenance
services.
 
 As shown
in the table, most of the projects will not be completed within the next twelve
months, providing the Company with sufficient cash flows from operation based on
the contracts on hand. The Company believes the more projects completed, the
more new customers obtained in the future due to the growth of the Company's
experiences and reputation. However, if the Company fails to bring the new
customers after the completion of the current projects, the Company will be
unable to maintain profitability. The Company may need to rely on financing from
related parties and outside sources through debt or equity transactions. The
Company's related parties are under no legal obligation to provide the Company
with capital infusions. Failure to obtain such financing could have a material
adverse effect on operations and financial condition. In addition, the Company's
growth potential will be adversely affected and the Company will have to
significantly modify its plans. For example, if the Company is unable to raise
sufficient capital to develop its business plan, the Company may need to limit
the Company's future marketing efforts to areas that the Company believes would
be the most profitable.
  Cost of
Revenue
  The cost
of revenue primarily includes purchase of raw materials, sub-contracting charges
and direct overhead. Cost of plants and direct labor would be examples of cost
of revenue. In addition, cost of revenue will be affected by the amendment of
initially approved proposals due to either the clients' request or overages
encountered during the construction process. Such overages will include
additional underground construction, the complexity of the environment, and the
survival rate of the plants.
 
 Compared
to the cost of revenues of $2,559,754, all of which from landscaping
construction projects, during the fiscal year ended June 30, 2007, we had
$12,427,672 in cost of revenues for the fiscal year ended June 30, 2008, of
which the cost of landscaping projects was $11,141,400, or 68.4% of the
corresponding revenues, and the cost of sales of products was $1,286,272, or
96.7% of the corresponding revenues. The cost of revenue as a percentage of
landscaping projects revenue was slightly increased during the fiscal year ended
June 30, 2008, compared to 64.3% in the fiscal year ended June 30, 2007,
primarily attributable to more government projects taken during the fiscal year
ended June 30, 2008, which have smaller profit margin than those of
non-government projects. The Company does not expect such increasing trend to
continue in the future because the Company expects to lower the cost of revenue
by diversifying the raw materials to different suppliers, controlling the
charges of sub-contracting, and devoting more time to consulting
services.
 
 Income/Loss
 
 The
Company had net incomes of $2,030,167 and $313,686 for the fiscal years ended
June 30, 2008 and 2007, respectively. The increase in net incomes by $1,716,481
during the fiscal year ended June 30, 2008 was due primarily to the increase in
revenues from landscaping construction projects, which was approximately 400% of
the revenues generated in the fiscal year ended June 30, 2007.
  Operating
Expenses
 
 Selling,
general and administrative expenses for the fiscal years ended June 30, 2008 and
2007 were $1,915,480 and $632,440, respectively. The increase by $1,283,040
during the fiscal year ended June 30, 2008 was due primarily to the research and
development expenses of $498,604 in connection with the walnut transplantation
technique, and the non-cash stock-based compensation resulted from a total of
2,000,000 options granted to 3 consultants for services rendered under the 2007
Benefit Plan, which were valued at an aggregate of $765,000 at their intrinsic
value of options at the time of exercise. Accordingly, The Company recognized
$765,000 and $0 for the fiscal years ended June 30, 2008 and 2007, respectively.
The non-cash stock-based compensation also included $236,250 and $273,750 for
the fiscal years ended June 30, 2008 and 2007, respectively, as a result of the
issuance of 1,000,000 shares of common stock for services. The shares were
valued based on the market price on the date of the stock grant, resulting in
total expenses of $1,001,250 for services rendered, which was booked pro rata
within the relative service periods.
 The
operating expenses in the fiscal year ended June 30, 2008 was offset by $109,353
from the recovery of doubtful account. The Company recorded allowance for
doubtful accounts after the evaluation for the uncollectibility of specifically
identified amounts, which was $101,247 during the fiscal year ended June 30,
2007.
 
 Impact of
Inflation
 
 The
Company believes that inflation has had a negligible effect on operations during
these periods. The Company believes that the Company can offset inflationary
increases in the cost of revenue by increasing revenue and improving operating
efficiencies.
  Liquidity and Capital
Resources
  Cash
flows provided by operating activities were $1,374,272 and $1,468,311 for the
fiscal years ended June 30, 2008 and 2007, respectively. Cash flows provided by
operations during the fiscal year ended June 30, 2008 were due primarily to the
net income of $2,030,167 and the increase in other payables and accrued
liabilities by $469,867, partially offset by the increases in billed and
unbilled accounts receivable by $1,234,994 and $1,383,380, respectively, and the
decrease in accounts payable by $413,891.
 Billed
accounts receivable as of June 30, 2008 was $1,533,342. The majority of the
Company’s sales are on open credit terms and in accordance with terms specified
in the contracts governing the relevant transactions.  The Company
evaluates the need of an allowance for doubtful accounts based on specifically
identified amounts that management believes to be uncollectible.  If
actual collections experience changes, revisions to the allowance may be
required. During the fiscal year ended June 30, 2008, the Company recognized
$109,353 as the recovery of allowance for doubtful accounts after the actual
collection occurred.
 
 15
 Table of Contents
  The
Company applies the percentage-of-completion method under SOP81-1 to recognize
revenues for landscape design and construction projects. There were twelve major
contracts with total contract value of approximately $17,000,000 completed
during the fiscal year ended June 30, 2008 on which $1,568,800 of invoices were
unbilled, which will be billed as soon as the clients agree with the progress of
the projects.
 
 For these
contracts, contract costs of completed contracts have been fully incurred and
the extent of progress toward completion was almost finished. Therefore, the
total contract amount had been fully recognized in accordance with the
percentage-of-completion method.  Unbilled accounts receivable as of
June 30, 2008 comprised principally amounts of revenue recognized on contracts
for which invoices have not been issued.
 
 During
the fiscal year ended June 30, 2007, cash flows from operations were due
primarily to the net income of $313,686, the collection of billed accounts
receivable by $279,151, and the increase in accounts payable by $383,213,
partially offset by the increase in unbilled accounts receivable by $96,232 and
decrease in receipt in advance by $111,996 during the year.
 
 Cash
flows used in investing activities for the fiscal year ended June 30, 2008 were
$176,198 due to the purchase of technical know-how of $165,557 and the purchase
of property, plant and equipment of $10,641. Comparatively, cash flows used in
investment were 140,512 for the fiscal year ended June 30, 2007 due primarily to
the purchase of property and equipment.
 
 Cash
flows provided by financing activities were $2,075,043 for the fiscal year ended
June 30, 2008 due primarily to the proceeds from issuance of convertible
debenture (net of expenses) of $2,011,737 and advance from a shareholder of
$63,306. Cash flows from financing activities for the fiscal year ended June 30,
2007 were solely due to the advances from stockholders, which was
$161,445.
  The
Company projects that the Company will need additional capital to fund
operations over the next 12 months. The Company anticipates the Company will
need approximately $2,000,000 for the two years thereafter.
  Overall,
the Company has funded its cash needs during the fiscal year ended June 30, 2008
from the receipt of revenues. If the Company is unable to maintain
profitability, the Company may need to rely on financing from related parties
and outside sources through debt or equity transactions. The Company's related
parties are under no legal obligation to provide the Company with capital
infusions. Failure to obtain such financing could have a material adverse effect
on operations and financial condition.
  The
Company had cash of $6,420,881 on hand and a working capital of $7,934,375 as of
June 30, 2008. Currently, the Company has enough cash to fund its operations for
about six months. This is based on the projected revenues and working capital.
However, if the projected revenues fall short of needed capital the Company may
not be able to sustain its capital needs. The Company will then need to obtain
additional capital through equity or debt financing to sustain operations for an
additional year. The Company's current level of operations would require capital
of approximately $2,000,000 per year thereafter. Modifications to the Company's
business plans may require additional capital to operate. For example, if the
Company is unable to raise additional capital in the future, the Company may
need to curtail is number of projects offers or limit its marketing efforts to
the most profitable geographical areas. This may result in lower revenues and
market share for the Company. In addition, there can be no assurance that
additional capital will be available to the Company when needed or available on
terms favorable.
  On a
long-term basis, liquidity is dependent on continuation and expansion of
operations, receipt of revenues, and additional infusions of capital and debt
financing. The Company's current capital and revenues are insufficient to fund
such expansion. If the Company chooses to launch such an expansion campaign, the
Company will require substantially more capital. The funds raised from this
offering will also be used to market the Company's products and services as well
as expand operations and contribute to working capital. However, there can be no
assurance that the Company will be able to obtain additional equity or debt
financing in the future, if at all. If the Company is unable to raise additional
capital, the Company's growth potential will be adversely affected and the
Company will have to significantly modify its plans. For example, if the Company
is unable to raise sufficient capital to develop its business plan, the Company
may need to limit the Company's future marketing efforts to areas that the
Company believes would be the most profitable.
 
 Demand
for the products and services will be dependent on, among other things, market
acceptance of the Company's products, landscaping market in general, and general
economic conditions, which are cyclical in nature. Inasmuch as a major portion
of the Company's activities is the receipt of revenues from the landscape design
and engineering projects, the Company's business operations may be adversely
affected by the Company's competitors and prolonged recession
periods.
  The
Company's success will be dependent upon implementing its plan of operations and
the risks associated with its business plans. The Company was engaged in
landscape construction and design industry. The Company plans to strengthen its
position in landscaping markets. The Company also plans to expand its operations
through aggressively marketing its projects.
  16
 Table of Contents
  ITEM 7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 The
Company is subject to certain market risks, including risk due to
concentration, credit risk, exchange rate risk, and equity risk. The adverse
effects of potential changes in these market risks are discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity nor do they consider additional
actions management may take to mitigate our exposure to such changes. Actual
results may differ. See the Notes to the Company's Consolidated Financial
Statements for a description of the Company's accounting policies and other
information related to these financial instruments.
 
 (a)         Risk
due to concentration
 
 During
the fiscal year ended June 30, 2008, approximately 51% of total revenues were
from the four major customers. The table below shows the summary of each
customer.
 
 Name
      of Customers
              Percentage
      of Revenues
              Projects
              Contract
      Amount
              Contract
      PeriodShaanxi
      Chi-Yu River Resorts
              18%
              Landscaping
      Construction
              $3,237,332
              December
      1, 2007 - April 30, 2009Xi
      An High-Tech Industrial Development Zone
              12%
              Landscaping
      Construction
              $2,782,630
              April
      7, 2007 - December 30, 2008Shaanxi
      Truck Manufacture Co. Ltd.
              11%
              Landscaping
      Construction
              $1,973,510
              December
      1, 2007 - April 1, 2009Da
      Tang Bin Chang Power Plant
              10%
              Landscaping
      Construction
              $1,813,858
              February
      26, 2008 - June 24, 2009
 
 As shown
in the table, most of the projects will not be completed within the next twelve
months, providing the Company with sufficient cash flows from operation based on
the contracts on hand. The Company believes the more projects completed, the
more new customers obtained in the future due to the growth of the Company's
experiences and reputation. However, if the Company fails to bring the new
customers after the completion of the current projects, the Company will be
unable to maintain profitability. The Company may need to rely on financing from
related parties and outside sources through debt or equity transactions. The
Company's related parties are under no legal obligation to provide the Company
with capital infusions. Failure to obtain such financing could have a material
adverse effect on operations and financial condition. In addition, the Company's
growth potential will be adversely affected and the Company will have to
significantly modify its plans. For example, if the Company is unable to raise
sufficient capital to develop its business plan, the Company may need to limit
the Company's future marketing efforts to areas that the Company believes would
be the most profitable.
 
 (b)         Credit
risk
 
 Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of accounts receivable. The Company performs
ongoing credit evaluations of its Vendors' financial condition, but does not
require collateral to support such receivables.
 
 (c)         Exchange
rate risk
 
 The
reporting currency of the Company is US$, to date the majority of the revenues
and costs are denominated in RMB and a significant portion of the assets and
liabilities are denominated in RMB. As a result, the Company is exposed to
foreign exchange risk as its revenues and results of operations may be affected
by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates
against US$, the value of RMB revenues and assets as expressed in US$ financial
statements will decline. The Company does not hold any derivative or other
financial instruments that expose to substantial market risk.
 
 (d)         Equity
risk
 
 The
market price of our common stock could be volatile and fluctuate significantly
in response to various factors, including:
 
 -Differences
      in actual and estimated earnings and cash
flows;
 
 -Operating
      results differing from analysts’
estimates;
 
 -Changes
      in analysts’ earnings estimates;
 
 -Quarter-to-quarter
      variations in operating results;
 
 -Changes
      in market conditions in the landscaping construction
    industry;
 
 -Changes
      in market conditions in the walnut plantation
  industry;
 
 -Changes
      in general economic conditions; and
 
 -Fluctuations
      in securities markets in general.
  ITEM 8.
                FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
  The
following consolidated financial statements, and related notes thereto, of Environment Ecology Holding Co. of
China, and the Report of Independent Registered Public Accounting Firm,
are filed as a part of this Annual Report on Form 10-K.
  17
 Table of Contents
 
 ENVIRONMENT
ECOLOGY HOLDING COMPANY OF CHINA
 (FORMERLY
DISPATCH AUTO PARTS, INC.)
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport
      of Independent Registered Public Accounting Firm
              
              F-19Consolidated
      Balance Sheets
              
              F-20Consolidated
      Statements of Operations And Comprehensive Income
              
              F-21Consolidated
      Statements of Cash Flows
              
              F-22Consolidated
      Statements of Stockholders’ Equity
              
              F-23Notes
      to Consolidated Financial Statements
              
              F-24
 
 18
 Table of Contents
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 The Board
of Directors and Stockholders of
 Environment
Ecology Holding Company of China
 (Formerly
Dispatch Auto Parts, Inc.)
 
 
 We have
audited the accompanying consolidated balance sheets of Environment Ecology
Holding Company of China (formerly Dispatch Auto Parts, Inc.) and its
subsidiaries (“the Company”) as of June 30, 2008 and 2007 and the related
consolidated statements of operations and comprehensive income, cash flows and
stockholders’ equity for the years ended June 30, 2008 and 2007. The financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits include 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 audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
2008 and 2007 and the results of operations and cash flows for the years ended
June 30, 2008 and 2007 and in conformity with accounting principles generally
accepted in the United States of America.
 
 /s/ Zhong Yi (Hong Kong)
C.P.A. Company Limited
 
 Zhong Yi
(Hong Kong) C.P.A. Company Limited
 Certified
Public Accountants
 
 Hong
Kong, China
 October
8, 2008
  19
 Table of Contents
  ENVIRONMENT
ECOLOGY HOLDING COMPANY OF CHINA
 (FORMERLY
DISPATCH AUTO PARTS, INC.)
 CONSOLIDATED
BALANCE SHEETS
 AS
OF JUNE 30, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”), except for number of
shares)
 
 As
      of June 30,2008
              
              
              2007ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              6,420,881
              
              
              $
              2,775,361Billed
      accounts receivable, net
              
              
              1,533,342
              
              
              
              103,953Unbilled
      accounts receivable
              
              
              1,568,800
              
              
              
              98,804Amount
      due from stockholders
              
              
              -
              
              
              
              39,080Other
      receivables and prepayments
              
              
              41,667
              
              
              
              2,100Total
      current assets
              
              
              9,564,690
              
              
              
              3,019,298Property,
      plant and equipment, net
              
              
              442,322
              
              
              
              470,960Intangible
      asset, net
              
              
              162,985
              
              
              
              -TOTAL
      ASSETS
              
              $
              10,169,997
              
              
              $
              3,490,258LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              -
              
              
              $
              393,455Deferred
      tax liabilities
              
              
              810,684
              
              
              
              -Income
      tax payable
              
              
              132,827
              
              
              
              201,545Amount
      due to a stockholder
              
              
              34,836
              
              
              
              -Other
      payables and accrued liabilities
              
              
              651,968
              
              
              
              79,724Total
      current liabilities
              
              
              1,630,315
              
              
              
              674,724Long-term
      liability:Convertible
      debenture
              
              
              1,186,737
              
              
              
              -Total
      liabilities
              
              
              2,817,052
              
              
              
              674,724MINORITY
      INTEREST
              
              
              360,081
              
              
              
              141,044Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, $0.001 par value; 100,000 shares authorized; 100,000 shares issued
      and outstanding
              
              
              100
              
              
              
              100Common
      stock, $0.001 par value; 100,000,000 shares authorized; 33,162,114 and
      28,662,114 shares issued and outstanding as of June 30, 2008 and
      2007
              
              
              33,162
              
              
              
              28,662Additional
      paid-in capital
              
              
              2,736,549
              
              
              
              1,151,049Deferred
      compensation
              
              
              -
              
              
              
              (236,250
              )Accumulated
      other comprehensive income
              
              
              630,329
              
              
              
              168,372Statutory
      reserve
              
              
              278,606
              
              
              
              155,661Retained
      earnings
              
              
              3,314,118
              
              
              
              1,406,896Total
      stockholders’ equity
              
              
              6,992,864
              
              
              
              2,674,490TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              10,169,997
              
              
              $
              3,490,258
 
 See
accompanying notes to consolidated financial statements.
  20
 Table of Contents
  ENVIRONMENT
ECOLOGY HOLDING COMPANY OF CHINA
 (FORMERLY
DISPATCH AUTO PARTS, INC.)
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”), except for number of
shares)
 
 Years
      ended June 30,2008
              
              
              2007Revenues,
      netProjects
              
              $
              16,277,568
              
              
              $
              3,979,748Products
              
              
              1,330,179
              
              
              
              -Total
      revenues, net
              
              
              17,607,747
              
              
              
              3,979,748Cost
      of revenueProjects
              
              
              11,141,400
              
              
              
              2,559,754Products
              
              
              1,286,272
              
              
              
              -Total
      cost of revenue
              
              
              12,427,672
              
              
              
              2,559,754Gross
      profit
              
              
              5,180,075
              
              
              
              1,419,994Operating
      expenses:Stock-based
      compensation to service providers
              
              
              1,001,250
              
              
              
              273,750General
      and administrative
              
              
              524,979
              
              
              
              257,443(Recovery
      of) allowance for doubtful accounts
              
              
              (109,353
              )
              
              
              101,247Research
      and development
              
              
              498,604
              
              
              
              -Total
      operating expenses
              
              
              1,915,480
              
              
              
              632,440Income
      from operations
              
              
              3,264,595
              
              
              
              787,554Other
      income:Recovery
      of uncollectible accounts receivable
              
              
              158,436
              
              
              
              -Interest
      income
              
              
              1,539
              
              
              
              155Income
      from operations
              
              
              3,424,570
              
              
              
              787,709Income
      tax expense
              
              
              (1,189,005
              )
              
              
              (430,450
              )Income
      before minority interest
              
              
              2,235,565
              
              
              
              357,259Minority
      interest
              
              
              (205,398
              )
              
              
              (43,573
              )NET
      INCOME
              
              $
              2,030,167
              
              
              $
              313,686Other
      comprehensive income:-
      Foreign currency translation gain
              
              
              461,957
              
              
              
              128,797COMPREHENSIVE
      INCOME
              
              $
              2,492,124
              
              
              $
              442,483Net
      income per share:Basic
              
              $
              0.07
              
              
              $
              0.01Diluted
              
              $
              0.07
              
              
              $
              0.01Weighted
      average number of shares outstanding:Basic
              
              
              30,335,725
              
              
              
              26,896,548Diluted
              
              
              30,474,614
              
              
              
              26,896,548
  See
accompanying notes to consolidated financial statements.
  21
 Table of Contents
  ENVIRONMENT
ECOLOGY HOLDING COMPANY OF CHINA
 (FORMERLY
DISPATCH AUTO PARTS, INC.)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
  Years
      ended June 30,2008
              
              
              
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              2,030,167
              
              
              
              
              
              $
              313,686Adjustments
      to reconcile net income to net cash provided by operating
      activities:Minority
      interest
              
              
              205,398
              
              
              
              
              
              
              43,573Depreciation
      and amortization
              
              
              97,752
              
              
              
              
              
              
              99,521(Reversal
      of) allowance for doubtful accounts
              
              
              (109,353
              )
              
              
              
              
              
              101,247Rent
      expense, non-cash
              
              
              -
              
              
              
              
              
              
              24,526Stock-based
      compensation to service providers
              
              
              1,001,250
              
              
              
              
              
              
              273,750Deferred
      income tax expenses
              
              
              768,578
              
              
              
              
              
              
              -Changes
      in operating assets and liabilities:Billed
      accounts receivable
              
              
              (1,234,994
              )
              
              
              
              
              
              279,151Unbilled
      accounts receivable
              
              
              (1,383,380
              )
              
              
              
              
              
              (96,232
              )Other
      receivables and prepayments
              
              
              (39,567
              )
              
              
              
              
              
              (2,100
              )Accounts
      payable
              
              
              (413,891
              )
              
              
              
              
              
              383,213Receipt
      in advance
              
              
              68,533
              
              
              
              
              
              
              (111,996
              )Income
      tax payable
              
              
              (86,088
              )
              
              
              
              
              
              123,168Other
      payables and accrued liabilities
              
              
              469,867
              
              
              
              
              
              
              36,804Net
      cash provided by operating activities
              
              
              1,374,272
              
              
              
              
              
              
              1,468,311Cash
      flows from investing activities:Purchase
      of technical know-how
              
              
              (165,557
              )
              
              
              
              
              
              -Purchase
      of property, plant and equipment
              
              
              (10,641
              )
              
              
              
              
              
              (140,512
              )Net
      cash used in investing activities
              
              
              (176,198
              )
              
              
              
              
              
              (140,512
              )Cash
      flows from financing activities:Proceeds
      from issuance of convertible debenture (net of expenses)
              
              
              2,011,737
              
              
              
              
              
              
              -Advances
      from stockholders
              
              
              63,306
              
              
              
              
              
              
              161,445Net
      cash provided by financing activities
              
              
              2,075,043
              
              
              
              
              
              
              161,445Effect
      of exchange rate changes on cash and cash equivalents
              
              
              372,403
              
              
              
              
              
              
              99,196NET
      INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              3,645,520
              
              
              
              
              
              
              1,588,440CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              
              2,775,361
              
              
              
              
              
              
              1,186,921CASH
      AND CASH EQUIVALENTS, END OF YEAR
              
              $
              6,420,881
              
              
              
              
              
              
              2,775,361SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for interest expenses
              
              $
              -
              
              
              
              
              
              $
              -Cash
      paid for income taxes
              
              $
              898,484
              
              
              
              
              
              $
              307,282SUPPLEMENTAL
      DISCLOSURE OF NON-CASH TRANSACTIONS:Shares
      issued for financing cost
              
              $
              825,000
              
              
              
              
              
              $
              -
  See
accompanying notes to consolidated financial statements.
  22
 Table of Contents
  ENVIRONMENT
ECOLOGY HOLDING COMPANY OF CHINA
 (FORMERLY
DISPATCH AUTO PARTS, INC.)
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”), except for number of
shares)
 
 
 Series
      “A” Preferred Stock
              
              Common
      stock
              
              Additional
                paid-in
      capital
              
              Deferred
                compensation
              
              Accumulated
                other
                comprehensive
                income
              
              Statutory
                reserve
              
              Retained
                earnings
              
              Total
      stockholders’
                equityNo.
      of shares
              
              Amount
              
              No.
      of shares
              
              AmountBalance
      as of July 1, 2006
              
              100,000
              
              $
              100
              
              26,000,000
              
              $
              26,000
              
              $
              619,185
              
              $
              -
              
              $
              39,575
              
              $
              100,167
              
              $
              1,148,704
              
              $
              1,933,731Retirement
      of common stock to treasury
              
              -
              
              
              -
              
              (845,000)
              
              
              (845)
              
              
              845
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Shares
      issued to complete reverse acquisition
              
              -
              
              
              -
              
              2,507,114
              
              
              2,507
              
              
              (2,507)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Shares
      issued for services, non-cash
              
              -
              
              
              -
              
              1,000,000
              
              
              1,000
              
              
              509,000
              
              
              (236,250)
              
              
              -
              
              
              -
              
              
              -
              
              
              273,750Rent
      expense for office maintained by shareholder, non-cash
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              24,526
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              24,526Net
      income for the year
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              313,686
              
              
              313,686Appropriation
      to statutory reserves
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              55,494
              
              
              (55,494)
              
              
              -Foreign
      currency translation adjustment
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              128,797
              
              
              -
              
              
              -
              
              
              128,797Balance
      as of June 30, 2007
              
              100,000
              
              $
              100
              
              28,662,114
              
              $
              28,662
              
              $
              1,151,049
              
              $
              (236,250)
              
              $
              168,372
              
              $
              155,661
              
              $
              1,406,896
              
              $
              2,674,490Recognition
      of stock-based compensation expenses
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              236,250
              
              
              -
              
              
              -
              
              
              -
              
              
              236,250Cashless
      exercise of common stock options
              
              -
              
              
              -
              
              2,000,000
              
              
              2,000
              
              
              763,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              765,000Shares
      issued for services, non-cash
              
              -
              
              
              -
              
              2,500,000
              
              
              2,500
              
              
              822,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              825,000Net
      income for the year
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,030,167
              
              
              2,030,167Appropriation
      to statutory reserves
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              122,945
              
              
              (122,945)
              
              
              -Foreign
      currency translation adjustment
              
              -
              
              
              -
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              461,957
              
              
              -
              
              
              -
              
              
              461,957Balance
      as of June 30, 2008
              
              100,000
              
              $
              100
              
              33,162,114
              
              $
              33,162
              
              $
              2,736,549
              
              $
              -
              
              $
              630,329
              
              $
              278,606
              
              $
              3,314,118
              
              $
              6,992,864
  See
accompanying notes to consolidated financial statements.
  23
 Table of Contents
  ENVIRONMENT
ECOLOGY HOLDING COMPANY OF CHINA
 (FORMERLY
DISPATCH AUTO PARTS, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED JUNE 30, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 
 1.         ORGANIZATION
AND BUSINESS BACKGROUND
 
 Environment
Ecology Holding Company of China (the “Company”) was incorporated under the laws
of the State of Florida on September 14, 1989 as “First New York Investments,
Inc.” On November 25, 1996, the Company changed its name to “Computer
Access International, Inc.” On March 31, 2005, the Company changed its name to
“Dispatch Auto Parts, Inc.” On November 2, 2007, the Company further changed its
name to “Environment Ecology Holding Company of China.”
 
 The
Company, through its subsidiaries, mainly engages in the provision of landscape
engineering service in the PRC.
 
 On
November 8, 2006, the Company entered a stock exchange transaction with
Shaanxi Lv Bao Environmental Eco Industry Management Ltd. (“Lv Bao”) and the
transaction was effectively completed on February 6, 2007. Lv Bao was registered
as a limited liability company in the People’s Republic of China (the “PRC”) on
August 11, 2006 with its principal place of business in Xian City, Shaanxi
Province, the PRC. Its registered capital is Renminbi Yuan (“RMB”) 5,000,000
(equivalent to $628,773). Its principal activity was investment holding in
Shaanxi Li Bao Sheng Tai Ke Ji Gu Fen You Xian Gong Si (“Li Bao”). Upon
completion of the plan of exchange, Lv Bao became a wholly-owned subsidiary of
the Company.
 
 On August
30, 2006, the owners of Lv Bao entered into an exchange agreement with the
owners of Li Bao. This exchange transaction involved that Li Bao’ s equity
owners transferred the aggregate equity interest of 93.57% of the registered
capital of Li Bao ( equivalent to RMB65,500,000) to Lv Bao . The transaction was
an exchange of shares and no cash or other assets were exchanged in the
transaction was taken place. Following the completion of the equity transfer, Li
Bao became an operating subsidiary of Lv Bao with 93.57% controlling
interest.
 
 The above
two consecutive transactions have been accounted for as a reverse acquisition
and recapitalization of the Company, through a wholly-owned subsidiary, Lv Bao,
whereby Li Bao is deemed to be the ultimate accounting acquirer (legal acquiree)
and the Company to be the ultimate accounting acquiree (legal acquirer). The
accompanying consolidated financial statements are in substance those of Li Bao,
with the assets and liabilities, and revenues and expenses, of the Company being
included effective from the date of stock exchange transaction. The Company is
deemed to be a continuation of the business of Li Bao, through its immediate
holding company, Lv Bao.
 
 In
September 2007, Li Bao acquired the technical know-how on the Walnut Plantation
Technology from an independent party, the Research Center in the PRC. Starting
from January 1, 2008, the Company has commenced in the operation in Walnut
plantation.
 
 EVEH, Lv
Bao and Li Bao are hereinafter referred to as (the “Company”).
  2.         SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 l
              Basis
      of presentation
 
 These
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America.
 
 l
              Use
      of estimates
 
 In
preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amount of assets and liabilities in the
balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
 
 l
              Basis
      of consolidation
 
 The
consolidated financial statements include the financial statements of EVEH and
its subsidiaries.
 
 All
significant inter-company balances and transactions within the Company have been
eliminated upon consolidation.
 
 l
              Revenue
      recognition
 
 The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. The Company assesses collectibility based upon our clients’ financial
condition and prior payment history, as well as our performance under the
contract. The Company recognizes these revenues in the period that the service
is provided.
 
 (a)         Contract
revenue
 
 The
Company applies the percentage-of-completion method under SOP 81-1 “Accounting for Performance of
Construction-Type and Production-Type Contracts”, to recognize revenues
for landscape design and engineering projects that require significant
modification or customization subject to the customers. The Company records a
provision in those instances in which the Company believe a contract will
probably generate a net loss and the Company can reasonably estimate this loss.
If the Company cannot reasonably estimate the loss, the Company limits the
amount of revenue that the Company recognizes to the costs the Company has
incurred, until the Company can estimate the total loss. Advance payments from
customers and amounts billed to clients in excess of revenue recognized are
recorded as receipt in advance.
 
 (b)
              Sale of
  products
 
 The
Company derives revenues from the sales and production of walnut products. The
Company recognizes its revenues net of value added taxes (“VAT”). The Company is
subject to VAT at the rate of 6% on the invoiced value of sales. Output VAT is
borne by customers in addition to the invoiced value of sales while input VAT is
not allowed for deduction from the invoiced value of purchases.
  24
 Table of Contents
  (c)
              Interest
      income
 
 Interest
income is recognized on a time apportionment basis, taking into account the
principal amounts outstanding and the interest rates applicable.
 
 l
              Cost
      of revenue
 
 Cost of
revenue primarily includes purchase of raw materials for landscape design and
engineering projects, manufacturing cost of walnut products, sub-contracting
charges and direct overhead.
 
 l
              Cash
      and cash equivalents
 
 Cash and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
 
 l
              Billed
      and unbilled accounts receivable and allowance for doubtful
      accounts
 
 The
Company generally bills its customers under its long term contracts pursuant to
billing schedules contained in the contracts or, upon completion of agreed
milestones or deliveries, with each milestone or delivery typically having a
value specified in the contract. An allowance, for doubtful accounts is
established and determined based on managements’ assessment of known
requirements, aging of receivables, payment history, the customer’s current
credit worthiness and the economic environment. As of June 30, 2008 and 2007, an
allowance for doubtful accounts was $0 and $103,953.
 
 Unbilled
accounts receivable comprise principally amounts of revenue recognized on
contracts for which invoices have not been issued. It is expected that all
unbilled accounts receivable balances will be billed in the next twelve
months.
 
 l
              Property,
      plant and equipment
 
 Property,
plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses, if any. Depreciation is calculated on the
straight-line basis over the following expected useful lives from the date on
which they become fully operational and after taking into account their
estimated residual values:
 
 Depreciable
      life
              
              Residual
      valueLeasehold
      improvement
              10
      years
              
              
              5
              %Plant
      and machinery
              10
      years
              
              
              5
              %Motor
      vehicles
              10
      years
              
              
              5
              %Office
      equipment
              5
      years
              
              
              5
              %
 
 Expenditure
for repairs and maintenance is expensed as incurred. When assets have retired or
sold, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in the results of
operations.
 
 l
              Intangible
      asset
 
 Intangible
asset refers to the purchased technical know-how in the Walnut plantation
technology acquired from the Research Center in the PRC, an independent third
party at its historical cost. Purchased technical know-how includes secret
formulas, manufacturing processes, technical and procedural manuals.
Amortization is calculated on the straight-line basis over the expected useful
life of 10 years.
 
 l
              Valuation
      of long-lived assets
 
 Long-lived
assets primarily include property, plant and equipment and intangible asset. In
accordance with Statement of Financial Accounting Standard ("SFAS") SFAS No.
144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”, the Company periodically
reviews long-lived assets for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully
recoverable or that the useful lives are no longer appropriate. Each impairment
test is based on a comparison of the undiscounted cash flows to the recorded
value of the asset. If impairment is indicated, the asset is written down to its
estimated fair value based on a discounted cash flow analysis. Determining the
fair value of long-lived assets includes significant judgment by management, and
different judgments could yield different results. There has been no impairment
as of June 30, 2008 or 2007.
 
 l
              Advertising
      expenses
 
 The
Company expenses advertising costs as incurred in accordance with the American
Institute of Certified Public Accountants (“AICPA”) Statement of Position 93-7,
“Reporting for Advertising
Costs”. No advertising expenses during the years ended June 30, 2008 and
2007, respectively.
 
 l
              Research
      and development
 
 Research
and development costs are expensed as incurred in the development of new
processes including significant improvements and refinements of existing
products. Such costs mainly relate to labor and material cost. The Company
incurred $498,604 and $0 of such costs for the years ended June 30, 2008 and
2007.
 
 l
              Comprehensive
      income
 
 SFAS No.
130, “Reporting Comprehensive
Income”, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during the year from non-owner sources.
Accumulated comprehensive income, as presented in the accompanying consolidated
statement of stockholders’ equity consists of changes in unrealized gains and
losses on foreign currency translation. This comprehensive income is not
included in the computation of income tax expense or benefit.
 
 l
              Income
      taxes
 
 The
Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”,
which requires the asset and liability approach for financial accounting and
reporting for income taxes. Under this approach, deferred income taxes are
provided for the estimated future tax effects attributable to temporary
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for the expected future tax
benefits from loss carry-forwards and provisions, if any. Deferred tax
assets and liabilities are measured using the enacted tax rates expected in the
years of recovery or reversal and the effect from a change in tax rates is
recognized in the consolidated statement of operations and comprehensive income
in the period of enactment. A valuation allowance is provided to reduce the
amount of deferred tax assets if it is considered more likely than not that some
portion of, or all of the deferred tax assets will not be realized.
 
 The
Company also adopts Financial Accounting Standards Board ("FASB") Interpretation
No. (FIN) 48, "Accounting for
Uncertainty in Income Taxes" and FSP FIN 48-1, which amended certain
provisions of FIN 48. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with SFAS No. 109,
“Accounting for Income
Taxes.” FIN48 provides that a tax
benefit from an uncertain tax position may be recognized when it is more likely
than not that the position will be sustained upon examination, including
resolutions of any related appeals or litigation processes, based on the
technical merits. Income tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
ofFIN48 and in subsequent periods. This
interpretation also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
 
 In
connection with the adoption of FIN 48, the Company analyzed the filing
positions in all of the federal, state and foreign jurisdictions where the
Company and its subsidiaries are required to file income tax returns, as well as
all open tax years in these jurisdictions. The Company adopted the policy of
recognizing interest and penalties, if any, related to unrecognized tax
positions as income tax expense. The Company did not have any unrecognized tax
positions or benefits and there was no effect on the financial condition or
results of operations for the years ended June 30, 2008.
 
 The
Company conducts major businesses in the PRC and is subject to tax in this
jurisdiction. As a result of its business activities, the Company files tax
returns that are subject to examination by the local and foreign tax
authority.
  25
 Table of Contents
  l
              Net
      income per share
 
 The
Company calculates net income per share in accordance with SFAS No. 128,“Earnings per Share”. Basic
income per share is computed by dividing the net income by the weighted-average
number of common shares outstanding during the year. Diluted income per share is
computed similar to basic income per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common stock equivalents had been issued and if the
additional common shares were dilutive.
 
 l
              Foreign
      currencies translation
 
 Transactions
denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional currency using
the applicable exchange rates at the balance sheet dates. The resulting exchange
differences are recorded in the consolidated statement of
operations.
 
 The
reporting currency of the Company is the United States dollars ("US$"). The
Company's subsidiaries in the PRC maintain their books and records in its local
currency, Renminbi Yuan ("RMB"), which is functional currency as being the
primary currency of the economic environment in which these entities
operate.
 
 In
general, for consolidation purposes, assets and liabilities of its
subsidiaries whose functional currency is not US$ are translated into US$, in
accordance with SFAS No. 52, “Foreign Currency
Translation”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The
gains and losses resulting from translation of financial statements of foreign
subsidiaries are recorded as a separate component of accumulated other
comprehensive income within the statement of stockholders’ equity.
 
 Translation
of amounts from RMB into US$ has been made at the following exchange rates for
the respective year:
  2008
              
              2007Year-end
      RMB:US$ exchange rate
              
              6.872
              
              7.621Average
      yearly RMB:US$ exchange rate
              
              7.248
              
              7.851
 
 l
              Retirement
      plan costs
 
 Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expenses in the consolidated statements of income and
comprehensive income as and when the related employee service is
provided.
 
 l
              Stock-based
      compensation
 
 The
Company adopts SFAS No. 123(R),“Share-Based Payment” using
the fair value method. Under SFAS No. 123(R), the stock-based
compensation is measured using the Black-Scholes Option-Pricing model on the
date of grant. The fair value of stock-based compensation that is expected to
vest is recognized using the straight-line method over the requisite service
period.
 
 The
Company also applies Emerging Issues Task Force No. 96-18 “Accounting for Equity Instruments
that are Issued to other than Employees for Acquiring, or in conjunction with
selling, goods or services” (“EIFT 96-18”), with respect to options and
warrants issued to non-employees.
 
 l
              Related
      parties
 
 Parties,
which can be a corporation or individual, are considered to be related if the
Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and
operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
 
 l
              Segment
      reporting
 
 SFAS No.
131 “Disclosures about
Segments of an Enterprise and Related Information” establishes standards
for reporting information about operating segments on a basis consistent with
the Company’s internal organization structure as well as information about
geographical areas, business segments and major customers in financial
statements. Commencing from January 1, 2008, the Company operates two reportable
segments: Landscape Business and Plantation Business.
 
 l
              Fair
      value of financial instruments
 
 The
Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments”. The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. The estimates presented herein are not necessarily
indicative of amounts that the Company could realize in a current market
exchange.
 
 The
Company’s financial instruments primarily include cash and cash equivalents,
billed and unbilled accounts receivable, amount due from (to) stockholders,
other receivables and prepayments, accounts payable, income tax payable and
other payables and accrued liabilities.
 
 As of the
balance sheet date, the estimated fair values of financial instruments were not
materially different from their carrying values as presented due to short
maturities of these instruments.
 
 l
              Recently
      issued accounting standards
 
 The
Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of any such pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations.
 
 In
September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value
Measurements"("SFAS No. 157"). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles ("GAAP"), and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that
require or permit fair value measurement where the FASB has previously
determined that under those pronouncements fair value is the appropriate
measurement. This statement does not require any new fair value measurements but
may require companies to change current practice. This statement is effective
for those fiscal years beginning after November 15, 2007 and to the interim
periods within those fiscal years. The Company believes that SFAS No. 157 should
not have a material impact on the consolidated financial position or results of
operations
 
 In
September 2006, the FASB issued SFAS No. 158, ‘‘Employers’Accounting for Defined Benefit
Pension and Other Postretirement Plans–an amendment of FASB Statements No.
87, 88, 106, and 132(R)’’ ("SFAS No. 158"). This statement improves
financial reporting by requiring an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multi-employer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets for a not-for-profit organization. This statement also
improves financial reporting by requiring an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position,
with limited exceptions. The Company does not believe that this new
pronouncement will have a material impact on its consolidated financial
statements.
 
 26
 Table of Contents
  In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities"("SFAS No. 159"). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the
provisions of which are required to be applied prospectively. The Company
believes that SFAS 159 should not have a material impact on the consolidated
financial position or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations"("SFAS No. 141R"). SFAS
No. 141R will change the accounting for business combinations. Under SFAS No.
141R, an acquiring entity will be required to recognize all the assets acquired
and liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS No. 141R will change the accounting treatment and
disclosure for certain specific items in a business combination. SFAS No. 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Accordingly, any business combinations the Company
engages in will be recorded and disclosed following existing GAAP until January
1, 2009. The Company believes that SFAS 141R should not have a material impact
on the consolidated financial position or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial
Statements--An Amendment ofARBNo. 51, or SFAS No.
160"("SFAS
No. 160"). SFAS No. 160 establishes new accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
December 15, 2008. The Company believes that SFAS No. 160 should not have a
material impact on the consolidated financial position or results of
operations.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities"("SFAS No. 161"). SFAS No. 161 requires companies
with derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and how derivative instruments and
related hedged items affect a company's financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
The adoption of this statement is not expected to have a material effect on the
Company's future financial position or results of operations.
 
 In May,
2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 162,
"The Hierarchy of Generally
Accepted Accounting Principles," ("SFAS No. 162"). SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).
SFAS No. 162 will be effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles." The
FASB has stated that it does not expect SFAS No. 162 will result in a change in
current practice. The application of SFAS No. 162 will have no effect on the
Company's financial position, results of operations or cash flows.
 
 Also in
May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts--an interpretation of FASB Statement No. 60" ("SFAS
No. 163"). SFAS No. 163 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. SFAS No. 163 is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009. The Company is currently evaluating the impact of SFAS No.
163 on its financial statements but does not expect it to have an effect on the
Company's financial position, results of operations or cash flows.
 
 In May
2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt
Instruments that may be Settled in Cash upon Conversion (Including Partial Cash
Settlement)"
("FSP APB 14-1"). FSP APB 14-1 applies to convertibledebt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. FSP APB 14-1 specifies that issuers of such
instruments should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years after December 15, 2008,
and must be applied on a retrospective basis. Early adoption is not
permitted. The Company is assessing the potential impact of this FSP on
theconvertibledebt
issuances.
 
 In June
2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities" ("FSP EITF
03-6-1"). FSP EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting, and therefore need to be included in the earnings allocation in
computing earnings per share under the two-class method as described in SFAS No.
128, Earnings per Share. Under the guidance of FSP EITF 03-6-1, unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings-per-share pursuant to the
two-class method. FSP EITF 03-6-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and all prior-period earnings
per share data presented shall be adjusted retrospectively. Early application is
not permitted. The Company is assessing the potential impact of this FSP on the
earnings per share calculation.
 
 In June
2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity's Own Stock" ("EITF
07-5"). EITF 07-5 provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. EITF 07-5 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. Early
application is not permitted. The Company is assessing the potential impact of
this EITF 07-5 on the financial condition and results of
operations.
 
 27
 Table of Contents
 
 3.         BILLED
AND UNBILLED ACCOUNTS RECEIVABLE
 
 The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on
specifically identified amounts that management believes to be uncollectible. If
actual collections experience changes, revisions to the allowance may be
required.
 
 As
      of June 30,2008
              
              
              2007Billed
      accounts receivable
              
              $
              1,533,342
              
              
              $
              207,906Unbilled
      accounts receivable
              
              
              1,568,800
              
              
              
              98,804Less:
      allowance for doubtful accounts
              
              
              -
              
              
              
              (103,953
              )Billed
      and unbilled accounts receivable, net
              
              $
              3,102,142
              
              
              $
              202,757
 
 During
the year ended June 31, 2008, the Company has made a recovery from the allowance
for doubtful accounts of $109,353, relating to approximately $207,906
(equivalent to RMB1,585,237) which was aged over 1 year, included in the balance
as of June 30, 2007 and subsequently collected from a customer in July
2007.
 
 All
unbilled accounts receivable balances are expected to be billed in the next
quarter.
  4.         PROPERTY,
PLANT AND EQUIPMENT, NET
 
 Property,
plant and equipment, net, consisted of the following:
 
 As
      of June 30,2008
              
              
              2007Leasehold
      improvement
              
              $
              175,577
              
              
              $
              157,348Plant
      and machinery
              
              
              461,596
              
              
              
              442,713Motor
      vehicles
              
              
              198,988
              
              
              
              188,670Office
      equipment
              
              
              42,493
              
              
              
              40,467Foreign
      translation adjustment
              
              
              95,046
              
              
              
              38,232973,700
              
              
              
              867,430Less:
      accumulated depreciation
              
              
              (483,185
              )
              
              
              (379,780
              )Less:
      foreign translation adjustment
              
              
              (48,193
              )
              
              
              (16,690
              )Property,
      plant and equipment, net
              
              $
              442,322
              
              
              $
              470,960
 
 Depreciation
expense for the years ended June 30, 2008 and 2007 were $86,715 and $99,521,
respectively.
  5.         INTANGIBLE
ASSET, NET
 
 Intangible
asset, net, consisted of the following:
 
 As
      of June 30,2008
              
              
              2007Technical
      know-how
              
              $
              165,557
              
              
              $
              -Foreign
      translation adjustment
              
              
              9,070
              
              
              
              -174,627
              
              
              
              -Less:
      accumulated amortization
              
              
              (11,037
              )
              
              
              -Less:
      foreign translation adjustment
              
              
              (605
              )
              
              
              -Intangible
      asset, net
              
              $
              162,985
              
              
              $
              -
 
 In
September 2007, the Company purchased the Walnut plantation technology know-how
from an independent party, the Research Center in the PRC. This technical
know-how is stated at the historical cost of $165,557 (approximately
RMB1,200,000) with an estimated useful life of 10 years.
 
 Amortization
expense for the years ended June 30, 2008 and 2007 were $11,037 and $0,
respectively.
 
 For the
year ended June 30, 2008, the Company tested for impairment in accordance with
the SFAS No. 142 and no impairment charge was required.
  6.         AMOUNT
DUE TO A STOCKHOLDER
 
 The
amount due to a stockholder, Mr. Liu, Sheng Li represented unsecured advances
which was interest-free and repayable in next twelve months. The imputed
interest on the amount due to a stockholder was not significant.
  7.         OTHER
PAYABLES AND ACCRUED LIABILITIES
 
 Other
payables and accrued liabilities consisted of the following:
 
 As
      of June 30,2008
              
              
              2007Government
      levy payable
              
              $
              64,257
              
              
              $
              29,257Receipt
      in advance
              
              
              72,288
              
              
              
              -Accrued
      payments to vendors and contract related accruals
              
              
              437,011
              
              
              
              13,863Welfare
      payable
              
              
              23,173
              
              
              
              3,604Accrued
      expenses
              
              
              55,239
              
              
              
              33,000$
              651,968
              
              
              $
              79,724
 
 The
accrued payments to vendors and contract related accruals are primarily the
accruals for the uncompleted contracts as of June 30, 2008. These accruals are
expected to be paid in the next quarter.
  28
 Table of Contents
  8.         CONVERTIBLE
DEBENTURE
 
 On June
30, 2008, the Company entered into a Securities Purchase Agreement (the
“Agreement”) with Trafalgar Capital Specialized Investment Fund (the “Holder”)
to issue an aggregate principal amount of $6,000,000 of secured convertible
redeemable debenture. Under the terms of the Agreement, the Company shall
receive two installments of which, (i) $2,500,000 is funded at the date of the
Agreement (the “First Closing”) and (ii) $3,500,000 is funded at the discretion
of the Holder following the request of the Company (the “Second
Closing”).
 
 On June
30, 2008, the Company received $1,970,070, net of expenses and deductions of
[prepaid interests], from the Holder (the “Debenture”) under the First Closing.
The Debenture bears interest at a rate of 10% per annum, payable monthly in
cash. In the event of default, as defined in the First Closing, interest shall
be increased to a rate of 18% per annum and payable in either cash or shares, at
the option of the Holder. The Company also issued 2,500,000 shares of common
stock at a market price of $0.33 to the Holder as financing costs in relation to
the issuance of the Debenture.
 
 The
Company is required to repay the Debenture in 24 equal installments plus 10%
redemption premium of the principal, payable monthly beginning on the one month
anniversary following the date of the First Closing.
 
 The
Debenture is secured by all of the tangible and intangible assets and property
of the Company and its subsidiaries. In addition, the Company issued 50,000,000
shares of common stock held in escrow as collateral in the event of
default.
 
 The
Holder of the Debenture also maintains the option to convert all or any part of
the principal amount of the Debenture, plus accrued interest, into shares of
common stock of the Company at a price per share equal to: the lesser of (a) an
amount equal to 125% of the Volume Weighted Average Price (“VWAP”) as quoted by
Bloomberg L.P. on June 30, 2008 or (b) an amount equal to 85% of the lowest
daily closing VWAP as quoted by Bloomberg L.P. during the five trading days
immediately preceding the Conversion Date. The Holder shall not convert more
than $25,000 principal amount of the Debenture in any week. During any week in
which the Company’s common stock trades at a price per share in excess of $0.30,
the Holder shall be permitted to convert up to $100,000 principal amount of the
Debenture.
 
 Pursuant
to the Registration Rights Agreement executed in connection with the First
Closing, the Company is required to register the resale of common stock no later
than 120 days following the date of the First Closing. Upon the failure to file
or obtain the effectiveness of the registration, the Company shall pay to the
Holder an amount equal to 2% of the Debenture outstanding for each month during
the period which the registration statements were not available for use as
liquidated damages, payable in either cash or shares at the Holder’s option. The
Form S-1 registration statement (File No. 333-152644) was filed with the
Securities and Exchange Commission on July 30, 2008. A SEC review comment letter
was received on August 25, 2008.
 
 The
Company has determined that the conversion feature embedded in the Debenture is
not required to be bifurcated and accounted for as a derivative pursuant to SFAS
No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and EITF
No. 00-19 “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock”, whereby the terms of conversion do not (i) require
or permit net settlement, (ii) provide for a means for the conversion feature to
be settled outside the contract, or (iii) provide for delivery of an asset which
would put the Holder of the Debetnure in a position substantially similar to a
net settlement provision.
 
 The
Company has determined that the Debenture is recorded as a debt instrument in
its entirety. The conversion feature is not ascribed a separate value in the
financial statements. Interest expense is recognized using the interest method.
Debt issuance costs are capitalized as deferred financing costs and are being
amortized over the life of the Debenture using the effective interest
method.
 
 As
      of June 30,2008
              
              
              2007Notional
      amount of the Debenture
              
              $
              2,500,000
              
              
              $
              -Less:
      debt issuance cost, unamortized
              
              
              (488,263
              )
              
              
              -Less:
      shared-based financing cost, unamortized
              
              
              (825,000
              )
              
              
              -$
              1,186,737
              
              
              $
              -
  9.         INCOME
TAXES
 
 The
Company is registered in the United States of America and its local operation
has incurred net operating losses for income tax purposes. The Company generated
substantially its net income from its foreign operation through its subsidiaries
in the PRC and has recorded income tax expense for the years ended June 30, 2008
and 2007.
 
 The
components of income before income taxes, current and deferred taxes between the
local and foreign operations are as follows:
 
 Years
      ended June 30,2008
              
              
              2007Local
              
              $
              (1,081,654
              )
              
              $
              (315,054
              )Foreign
              
              
              4,506,224
              
              
              
              1,102,763Income
      before income taxes
              
              $
              3,424,570
              
              
              $
              787,709Current
      tax:Local
              
              $
              -
              
              
              $
              -Foreign
              
              
              420,427
              
              
              
              430,450Deferred
      tax:Local
              
              
              -
              
              
              
              -Foreign
              
              
              768,578
              
              
              
              -Income
      tax expense
              
              $
              1,189,005
              
              
              $
              430,450
 
 United
States of America
 
 The
Company is registered in the State of Florida and is subject to the tax laws of
the United States of America.
 
 As of
June 30, 2008, the Company’s U.S. operation incurred $1,396,708 of the
cumulative net operating losses available for federal tax purposes, which are
available to offset future taxable income. The net operating loss carryforwards
begin to expire in 2029. The Company has provided for a full valuation allowance
for any future tax benefits from the net operating loss carryforwards as the
management believes it is more likely than not that these assets will not be
realized in the future.
 
 29
 Table of Contents
  The
PRC
 
 All the
Company’s PRC subsidiaries are subject to the Corporate Income Tax governed by
the Income Tax Law of the People’s Republic of China. Under the PRC Income Tax
Laws, both companies are generally subject to corporate income tax (“CIT”) at a
statutory rate of 33% (30% national income tax plus 3% local income
tax).
 
 On March
16, 2007, the National People’s Congress approved the Corporate Income Tax Law
of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among
other things, imposes a unified income tax rate of 25% for both domestic and
foreign invested enterprises with effect from January 1, 2008. Starting from
January 1, 2008, Li Bao is entitled to the income tax rate reduction from 33% to
25%. Under the New CIT Law, Lv Bao, as a foreign investment enterprise continues
to enjoy the unexpired tax holidays from a full exemption of income tax for the
first two profit making years with a 50% exemption of income tax for the next
three years.
 
 The
reconciliation of income tax rate to the effective income tax rate based on
income before income taxes and minority interest of PRC operations for the years
ended June 30, 2008 and 2007 are as follows:
  Years
      ended June 30,2008
              
              
              2007Income
      before income taxes from the PRC operation
              
              $
              4,506,224
              
              
              $
              1,102,763Statutory
      income tax rate
              
              
              25
              %
              
              
              33
              %Income
      tax expense at statutory tax rate
              
              
              1,126,556
              
              
              
              363,912Tax
      effect of expenses not deductible for tax purposes:-
      Effect of tax rate differential
              
              
              180,248
              
              
              
              --
      Provisions and accrued liabilities
              
              
              (886,377
              )
              
              
              64,777-
      Net operating loss carryforwards
              
              
              -
              
              
              
              1,761Income
      tax expense
              
              $
              420,427
              
              
              $
              430,450
 
 The
following table sets forth the significant components of the aggregate net
deferred tax liabilities and assets of the Company as of June 30, 2008 and
2007:
  As
      of June 30,2008
              
              
              2007Deferred
      tax liabilities:Unbilled
      accounts receivable
              
              
              789,360
              
              
              
              -Others
              
              
              21,324
              
              
              
              -810,684
              
              
              
              -Deferred
      tax assets:Net
      operating loss carryforwards
              
              $
              474,880
              
              
              $
              112,030Less:
      valuation allowance
              
              
              (474,880
              )
              
              
              (112,030
              )Net
      deferred tax liabilities
              
              $
              810,684
              
              
              $
              -
 
 As of
June 30, 2008 and 2007, a valuation allowance of $474,880 and $112,030 was
provided to the deferred tax assets due to the uncertainty surrounding their
realization.
  10.         NET
INCOME PER SHARE
 
 Basic net
income per share is computed using the weighted average number of the ordinary
shares outstanding during the year. Diluted net income per share is computed
using the weighted average number of ordinary shares and ordinary share
equivalents outstanding during the year. The following table sets forth the
computation of basic and diluted net income per share for the years ended June
30, 2008 and 2007:
 
 Years
      ended June 30,2008
              
              
              2007Basis
      and diluted net income per share calculationNumerator:Net
      income in computing basic net income per share
              
              $
              2,030,167
              
              
              $
              313,686Denominator:Weighted
      average ordinary shares outstanding – Basic
              
              
              30,335,725
              
              
              
              26,896,548Dilutive
      effect of convertible redeemable debenture
              
              
              138,889
              
              
              
              -Weighted
      average ordinary shares outstanding – Diluted
              
              
              30,474,614
              
              
              
              26,896,548Basic
      income per share
              
              $
              0.07
              
              
              $
              0.01Diluted
      income per share
              
              $
              0.07
              
              
              $
              0.01
  30
 Table of Contents
  11.         CAPITAL
TRANSACTIONS
 
 1)
              On
      November 8, 2006, the Company completed a stock exchange transaction with
      the equity owners of Lv Bao. 26,000,000 shares of common stock were issued
      in exchange for 100% interest in Lv Bao, representing 91% of the company’s
      outstanding common stock.
 
 2)
              On
      January 26, 2007, the Company issued 1,000,000 shares of common stock for
      business advisory services to Greentree Financial Group, Inc, in a term of
      2 years effective from July 1, 2006 ending June 30, 2008. See Note
      12(a).
 
 3)
              On
      August 30, 2007, the Company issued 2,000,000 shares of common stock under
      a option cashless exercise provision at an exercise price of $0.3825 per
      share with an intrinsic value of $765,000 in exchange for services
      rendered. See Note 12(b).
 
 4)
              On
      June 30, 2008, the Company issued 2,500,000 shares of common stock at the
      market price of $0.33 per share in exchange for financing costs relating
      to the issuance of the convertible
debenture.
 
 5)
              Also,
      on June 30, 2008, the Company issued 50,000,000 shares of common stock to
      the escrow agent under the Escrow Agreement and Securities Agreement in
      connection with the convertible debenture in Note 8. These stocks are held
      in escrow by a designated agent as collateral in the event of
      default.
 
 6)
              As
      of June 30, 2008, the number of outstanding shares of the Company’s common
      stock was 83,162,114, which includes 50,000,000 stocks held in
      escrow.
  12.         STOCK
BASED COMPENSATION
 
 (a)         Common
stock issued for future service to be rendered
 
 On
January 26, 2007, the Company issued 1,000,000 shares of common stock for
business advisory services to Greentree Financial Group, Inc, in a term of 2
years effective from July 1, 2006 ending June 30, 2008. The fair value of this
stock issuance was determined using the fair value of the Company’s common stock
on the grant date, at a market quoted price of $0.51 per share. The Company
calculated the cost of $510,000 at its fair value and amortized over the
requisite service period of 2 years. The Company recognized $236,250 and
$273,750 to the statements of operations for the years ended June 30, 2008 and
2007. During the requisite service period, Greentree Financial Group, Inc
continued to perform its obligations and render the service to the Company under
the service agreement.
 
 As of
June 30, 2008, there is no unrecognized cost related to this stock based
compensation.
 
 (b)         2007
Benefit Plan
 
 On July
13, 2007, the Company approved the 2007 Benefit Plan (“2007 Plan”). Pursuant to
the 2007 plan, the Company would grant a maximum of 5,000,000 share options to
employees and non-employee eligible individuals, either as non-statutory stock
option or incentive stock option.
 
 On August
13, 2007, the Company authorized to grant a total of 2,000,000 options to 3
consultants for service rendered under the 2007 Plan. All of the options were
exercisable at 75% of the market price at the time of exercise for a period of 1
year from grant date. All options will vest immediately upon the exercise hereof
and contain a cashless exercise provision.
 
 A
schedule of the options as of June 30, 2008 is as follows:
  No.
      of options
              
              
              Weighted
      average exercise priceOptions
      outstanding as of July 1, 2007
              
              
              -
              
              
              $
              -Granted
      in August 2007
              
              
              2,000,000
              
              
              
              0.3825Exercised
      in August 2007
              
              
              (2,000,000
              )
              
              
              0.3825Options
      outstanding as of June 30, 2008
              
              
              -
              
              
              $
              -Options
      exercisable as of June 30, 2008
              
              
              -
              
              
              $
              -
 
 Subsequently,
on August 30, 2007, the aggregate amount of 2,000,000 options were exercised by
3 consultants and the Company issued 2,000,000 shares of common stock at a
cashless exercise price of $0.3825, which represented 75% of the closing price
of the Company’s common stock on the prior trading day. The aggregate intrinsic
value of options exercised during the year ended June 30, 2008 was
$765,000.
 
 The
Company applied EIFT 96-18 with respect to options issued to non-employees
and recognized $765,000 of stock-based compensation to operations for the year
ended June 30, 2008
  13.         SEGMENT
REPORTING
 
 The
Company’s business units have been aggregated into two reportable segments:
Landscape Business and Plantation Business. The Company, through its
subsidiaries, operates these segments in the PRC. As of June 30, 2008 and 2007,
all the identifiable assets of the Company are located in the PRC during the
years presented.
 
 The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 2). The Company had no
inter-segment sales for the years ended June 30, 2008 and 2007. The Company’s
reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires
different technology and marketing strategies.
 
 (a)         Business
segment reporting
 
 Summarized
financial information concerning the Company’s reportable segments is shown in
the following table for the years ended June 30, 2008 and 2007:
 
 Year
      ended June 30, 2008Landscape
      Business
              
              
              Plantation
      Business
              
              
              Corporate
              
              
              TotalRevenue,
      net
              
              $
              16,277,568
              
              
              $
              1,330,179
              
              
              $
              -
              
              
              $
              17,607,747Cost
      of revenue
              
              
              (11,141,400
              )
              
              
              (1,286,272
              )
              
              
              -
              
              
              
              (12,427,672
              )Gross
      profit
              
              
              5,136,168
              
              
              
              43,907
              
              
              
              -
              
              
              
              5,180,075Depreciation
      and amortization
              
              
              (83,540
              )
              
              
              (14,212
              )
              
              
              -
              
              
              
              (97,752
              )Net
      income (loss)
              
              
              2,950,270
              
              
              
              161,551
              
              
              
              (1,081,654
              )
              
              
              2,030,167Expenditure
      for long-lived assets
              
              $
              -
              
              
              $
              176,198
              
              
              $
              -
              
              
              $
              176,198
 
 Year
      ended June 30, 2007Landscape
      Business
              
              
              Plantation
      Business
              
              
              Corporate
              
              
              TotalRevenue,
      net
              
              $
              3,979,748
              
              
              $
              -
              
              
              $
              -
              
              
              $
              3,979,748Cost
      of revenue
              
              
              (2,559,754
              )
              
              
              -
              
              
              
              -
              
              
              
              (2,559,754
              )Gross
      profit
              
              
              1,419,994
              
              
              
              -
              
              
              
              -
              
              
              
              1,419,994Depreciation
      and amortization
              
              
              99,521
              
              
              
              -
              
              
              
              -
              
              
              
              99,521Net
      income (loss)
              
              
              628,740
              
              
              
              -
              
              
              
              (315,054
              )
              
              
              313,686E Expenditure
      for long-lived assets
              
              $
              140,512
              
              
              $
              -
              
              
              $
              -
              
              
              $
              140,512
  31
 Table of Contents
  14.         CHINA
CONTRIBUTION PLAN
 
 Under the
PRC Law, full-time employees of its subsidiaries in the PRC, Lv Bao and Li Bao
are entitled to staff welfare benefits including medical care, welfare
subsidies, unemployment insurance and pension benefits through a China
government-mandated multi-employer defined contribution plan. Lv Bao and Li Bao
are required to accrue for these benefits based on certain percentages of the
employees’ salaries. The total contributions made for such employee benefits
were $10,394 and $3,339 for the years ended June 30, 2008 and 2007,
respectively.
  15.         STATUTORY
RESERVE
 
 Under the
PRC Law the Company’s subsidiaries, Lv Bao and Li Bao are required to make
appropriation to the statutory reserve based on after-tax net earnings and
determined in accordance with generally accepted accounting principles of the
People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory
reserve should be at least 10% of the after-tax net income until the reserve is
equal to 50% of the registered capital. The statutory reserve is established for
the purpose of providing employee facilities and other collective benefits to
the employees and is non-distributable other than in liquidation.
 
 For the
years ended June 30, 2008 and 2007, the Company’s subsidiary, Li Bao contributed
$122,946 and $55,494 to statutory reserve, respectively.
  16.         CONCENTRATIONS
OF RISK
 
 The
Company is exposed to the followings concentrations of risk:
 
 (a)         Major
customers
 
 For the
years ended June 30, 2008 and 2007, customers who account for 10% or more of
revenues are presented as follows:
 
 Year
      ended June 30, 2008
              
              
              
              June
      30, 2008Customers
              
              
              Revenues
              
              
              Percentage
                of
      revenues
              
              
              
              Billed
      accounts receivableCustomer
      F
              
              
              $
              3,107,373
              
              
              
              18
              %
              
              
              $
              -Customer
      G
              
              
              
              2,143,900
              
              
              
              12
              %
              
              
              
              2,723Customer
      H
              
              
              
              1,894,285
              
              
              
              11
              %
              
              
              
              -Customer
      I
              
              
              
              1,742,019
              
              
              
              10
              %
              
              
              
              308,200Total:
              
              $
              8,887,577
              
              
              
              51
              %
              Total:
              
              $
              310,923
 
 Year
      ended June 30, 2007
              
              
              
              June
      30, 2007Customers
              
              
              Revenues
              
              
              Percentage
                of
      revenues
              
              
              
              Billed
      accounts receivableCustomer
      A
              
              
              $
              761,073
              
              
              
              19
              %
              
              
              $
              -Customer
      B
              
              
              
              710,068
              
              
              
              18
              %
              
              
              
              -Customer
      C
              
              
              
              708,517
              
              
              
              18
              %
              
              
              
              -Customer
      D
              
              
              
              492,804
              
              
              
              12
              %
              
              
              
              -Customer
      E
              
              
              
              415,148
              
              
              
              10
              %
              
              
              
              -Total:
              
              $
              3,087,610
              
              
              
              77
              %
              Total:
              
              $
              -
 
 For the
years ended June 30, 2008 and 2007, 100% of the Company’s revenues were derived
from customers located in the PRC.
 
 (b)         Major
vendors
 
 For the
years ended June 30, 2008 and 2007, vendors who account for 10% or more of
purchases are presented as follows:
 
 Year
      ended June 30, 2008
              
              
              June
      30, 2008Vendors
              
              Purchases
              
              
              Percentage
                of
      purchases
              
              
              Accounts
                payable,
      tradeVendor
      A
              
              
              $
              3,921,094
              
              
              
              32
              %
              
              
              $
              -Vendor
      B
              
              
              
              3,553,293
              
              
              
              29
              %
              
              
              
              -Total:
              
              $
              7,474,387
              
              
              
              61
              %
              Total:
              
              $
              -
 
 Year
      ended June 30, 2007
              
              
              June
      30, 2007Vendors
              
              Purchases
              
              
              Percentage
                of
      purchases
              
              
              Accounts
                payable,
      tradeVendor
      A
              
              
              $
              1,254,571
              
              
              
              49
              %
              
              
              $
              78,691Vendor
      B
              
              
              
              964,123
              
              
              
              38
              %
              
              
              
              314,764Total:
              
              $
              2,218,694
              
              
              
              87
              %
              Total:
              
              $
              393,455
 
 For the
years ended June 30, 2008 and 2007, 100% of the Company’s purchases were derived
from vendors located in the PRC.
 
 (c)         Credit
risk
 
 Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of accounts receivable. The Company performs
ongoing credit evaluations of its Vendors' financial condition, but does not
require collateral to support such receivables.
 
 (d)         Interest
rate risk
 
 As the
Company has no significant interest-bearing assets, the Company’s income and
operating cash flows are substantially independent of changes in market interest
rates.
 
 The
Company’s interest-rate risk arises from long-term borrowings. Borrowings issued
at variable rates expose the Company to cash flow interest-rate risk. Borrowings
issued at fixed rates expose the Company to fair value interest-rate risk. The
Company’s policy is to maintain approximately all of its borrowings in fixed
rate instruments. At the year-end, all of borrowings were at fixed
rates.
 
 (e)         Exchange
rate risk
 
 The
reporting currency of the Company is US$, to date the majority of the revenues
and costs are denominated in RMB and a significant portion of the assets and
liabilities are denominated in RMB. As a result, the Company is exposed to
foreign exchange risk as its revenues and results of operations may be affected
by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates
against US$, the value of RMB revenues and assets as expressed in US$ financial
statements will decline. The Company does not hold any derivative or other
financial instruments that expose to substantial market risk.
  17.         COMMITMENTS
AND CONTINGENCIES
 
 The
Company rented office premises under a non-cancelable operating lease agreement
from a company controlled by a stockholder, Mr Lui, Sheng Li at the current
market value in the normal course of business for a term of 3 years, with fixed
monthly rentals, due August 2010. Costs incurred under the operating lease are
recorded as rental expense and totaled approximately $26,217 and $0 for the
years ended June 30, 2008 and 2007.
 
 As of
June 30, 2008, future minimum annual operating lease payments are as
follows:
  Year
      ending June 30:2009
              
              $
              26,4892010
              
              
              26,4892011
              
              
              4,415Total
              
              $
              57,393
  18.         SUBSEQUENT
EVENTS
 
 On July
30, 2008, the Company filed the Form S-1 registration statement (File No.
333-152644) with the Securities and Exchange Commission. A SEC review comment
letter was received on August 25, 2008 and as of September 25, 2008, the
registration statement has not become effective.
 
 On August
1, 2008, the Company has acquired a non-operating company, Edward (Hong Kong)
Company Limited for a cash consideration of $57,692 (equivalent to HK$450,000),
which is registered as a limited liability company under the Government of the
Hong Kong Special Administration Region.
 
 32
 Table of Contents
  ITEM 9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  None.
  ITEM 9A(T).
              CONTROLS
      AND PROCEDURES
  We
maintain a set of disclosure controls and procedures and internal controls
designed to provide reasonable assurance that information required to be
disclosed in our filings pursuant to Rule 13a-15(b) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms in a manner that allows timely decisions
regarding required disclosures. Our Chief Executive Officer and our Chief
Financial Officer (collectively, the “Certifying Officers”) are responsible for
establishing and maintaining adequate internal control over financial reporting
for us. Based on their evaluation as of the end of the period covered by this
Annual Report on Form 10-K, our Certifying Officers concluded that the
current disclosure controls and procedures are effective.
  To
evaluate the effectiveness of our internal controls over financial reporting, we
have adopted the framework prescribed by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  We believe that this
framework will assist in the provision of reasonable assurance of the
effectiveness and efficiency of operations, the reliability of financial
reporting, and compliance with applicable laws and regulations.  In
adopting the COSO framework, we maintain a control environment, perform risk
assessments, carry out control activities, emphasize quality information and
effective communication, and perform monitoring.  In the maintenance
of a control environment, we are committed to integrity and ethical values as
well as to competence.  We strive to assign authority and
responsibility in a manner that supports our internal controls, and we also
maintain human resources policies and procedures designed to support our
internal controls.  Our risk assessments are designed to ensure the
achievement of company-wide and process-level objectives as well as to identify
and analyze risks while managing change.  We believe that all of these
components together form a foundation for sound internal control through
directed leadership, shared values and a culture that emphasizes accountability
for control.
 
 As of the
end of the period covered by this report, the Certifying Officers evaluated the
effectiveness of our disclosure controls and procedures. Based on the
evaluation, the Certifying Officers concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required
disclosure.
  The
Certifying Officers have also concluded, based on our evaluation of our controls
and procedures that as of June 30, 2008, our internal controls over financial
reporting are effective and provide a reasonable assurance of achieving their
objective.
  Due to
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements under all potential conditions. Therefore,
effective internal control over financial reporting provides only reasonable,
and not absolute, assurance that a restatement of our financial statements would
be prevented or detected.
 
 This
annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this
annual report.
 
 Changes
in Internal Control Over Financial Reporting
  There
were no changes in the our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
   ITEM 9B.
              OTHER
      INFORMATION
  None.
 
 33
 Table of Contents
  PART
III
  ITEM 10.
              DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
  Directors
are elected at the Company’s annual meeting of Stockholders and serve for one
year until the next annual Stockholders’ meeting or until their successors are
elected and qualified. Officers are elected by the Board of Directors and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board. The Company reimburses all Directors for their
expenses in connection with their activities as directors of the Company.
Directors of the Company who are also employees of the Company will not receive
additional compensation for their services as directors.
  The
following table sets forth certain information regarding our executive officers
and directors as of the date of this report:
  NAME
              
              AGE
              
              POSITIONLiu,
      Sheng Li
              
              40
              
              President
      and ChairmanMa,
      Shun Cheng
              
              45
              
              Chief
      Financial Officer and DirectorLu,
      Wei Sheng
              
              34
              
              DirectorDing,
      Hong Mei
              
              36
              
              DirectorTian,
      Wei
              
              35
              
              Director
 
 The
following is a biographical summary of the experience of each of the executive
officers:
  Liu,
Sheng Li – President and Chairman
  Mr. Liu
is appointed as Chairman of the Board of Directors of the
Company.  Mr. Liu was born in 1968.  He has more than 10
years experience in business management.  Mr. Li is one of the
founders of Shaanxi Li Bao Ecological Technology Holding Co. (“Li Bao
Ecological”), a company related to Lv Bao.  Prior to the foundation of
Li Bao Ecological in 2002, Mr. Liu served as manager of the Xi An Railroad
Bureau.  In 1998, Mr. Liu founded Shaanxi Heng Da Real Estate Co. Ltd.
(“Heng Da”) where he was engaged in various aspects of the real estate business
and served as Chairman and General Manager.  In 2002, Mr. Liu was in
charge of the reorganization of the Zhongshanmen Printing Factor in Xi An, where
he facilitates an acquisition of assets of approximately
$1,250,000.
  Ma,
Shun Cheng – Chief Financial Officer and Director
 
 Mr.
Mais appointed as
President of the Company. He is also a nominee for Director of the Board. Mr. Ma
was born in 1963. He has more than 20 years experience in business management.
Mr. Ma is one of the founders of Li Bao Ecological. Prior to the foundation of
Li Bao Ecological in 2002, Mr. Ma founded Shaanxi Hong Bao Virescene Engineering
Ltd. ("Hong Bao") in 1998, and served as Vice President of Hong Bao, where he
was engaged in various engineering projects.
  Lu,
Wei Sheng – Director
 
 Mr. Lu is
nominated as a Director of the Board. Mr. Lu is 33 years old. He graduated from
Xi An Highway Construction College with a degree in logistics. Mr. Lu has over
10 years working experience in the auto parts industry. He started his own
business in 1998 where he was engaged in retail sales of auto parts, and auto
maintenance and shipping. In 2002, Mr. Lu founded Shaan Xi Yong Feng Hang Auto
Sales Co. Ltd. where he focused on marketing and refined his marketing skills.
As a result of Mr. Lu's leadership, Shaan Xi Yong Hang Auto Sales Co. Ltd. is
currently a profitable and viable enterprise.
  Ding,
Hong Mei – Director
 
 Ms. Ding
is nominated as a Director of the Board. Ms. Ding is 35 years old. She graduated
from Shaan Xi Financial & Economic College with a degree in business
administration. >From the year 2000 to the present, Ms. Ding has been
employed with the Shaan Xi Heng Li Da Group ("Heng Li Da Group"). She began her
career with the Heng Li Da Group as a manager of Heng Li Da Business Services
Ltd., one of the subsidiaries of the Heng Li Da Group engaged in office rental
services. Ms. Ding is skilled in communication and customer service. While Ms.
Ding served in her capacity as manager, the vacancy rate of the rental office
was approximately 2%. Ms. Ding is currently in charge of public relations for
the company. As a result of Ms. Ding's outstanding performance at Heng Li Da
Business Services Ltd., she was appointed as the assistant to the Chairman of
Heng Li Da Group and participated in the incorporation of Shan Xi Lv Bao
Environmental Eco Industry Management Ltd. ("Lv Bao"). Lv Bao entered a Plan of
Exchange with Registrant on November 8, 2006, which was reported on Form 8-k on
November 8, 2006. Ms. Ding currently serves as the Chairman of Lv
Bao.
 
 Tian,
Wei – Director
 
 Mr.
Tianis appointed
as Chief Financial Officer of the Company. He is also a nominee for Director of
the Board. Mr. Tian was born in 1973. He has experience in the accounting and
banking industries. From 1991 to 2002, Mr. Tian worked in the Chinese State
Commercial Bank, Xi An Branch. He began his employment at Li Bao Ecological in
2002. In addition, Mr. Tian works as a coordinator and assistant to the General
Manager of Li Bao Ecological..
  Compensation
of Directors
  We do not
pay our Directors any fees in connection with their role as members of our
Board. Directors are not paid for meetings attended at our corporate
headquarters or for telephonic meetings Our Directors are reimbursed for travel
and out-of-pocket expenses in connection with attendance at Board meetings. Each
board member serves for a one year term until elections are held at each annual
meeting.
 
 Directors
are elected at the Company’s annual meeting of Stockholders and serve for one
year until the next annual Stockholders’ meeting or until their successors are
elected and qualified. Officers are elected by the Board of Directors and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board. The Company reimburses all Directors for their
expenses in connection with their activities as directors of the Company.
Directors of the Company who are also employees of the Company will not receive
additional compensation for their services as directors.
  Family
Relationships
  None.
  Involvement
In Certain Legal Proceedings
  To the
best of our knowledge, during the past five years, none of the following
occurred with respect to a present or former director or executive officer of
the Company: (1) any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time; (2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) being found by a court of competent jurisdiction (in a civil action),
the Commission or the commodities futures trading commission to have violated a
Federal or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
 
 Compliance
With Section 16 (a) of the Exchange Act
  Under
Section 16(a) of the Exchange Act, all executive officers, directors, and each
person who is the beneficial owner of more than 10% of the common stock of a
company that files reports pursuant to Section 12 of the Exchange Act, are
required to report the ownership of such common stock, options, and stock
appreciation rights (other than certain cash-only rights) and any changes in
that ownership with the Commission.  Specific due dates for these
reports have been established, and the Company is required to report, in this
Registration Statement on Form S-1, any failure to comply therewith during the
fiscal year ended June 30, 2008.  The Company believes that all of
these filing requirements were satisfied by its executive officers, directors
and by the beneficial owners of more than 10% of the Company’s common
stock.  In making this statement, the Company has relied solely on
copies of any reporting forms received by it, and upon any written
representations received from reporting persons that no Form 5 (Annual Statement
of Changes in Beneficial Ownership) was required to be filed under applicable
rules of the Commission.
  Code
of Ethics
  The
Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer or controller or persons performing similar
functions. Such Code of Ethics is filed as Exhibit 14.1 hereto.
 
 34
 Table of Contents
  ITEM 11.
              EXECUTIVE
      COMPENSATION
 
 No
compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive officer of Environment Ecology Holding Co. of China during the years
2007, 2006, and 2005. The following table and the accompanying notes provide
summary information for each of the last three fiscal years concerning cash and
non-cash compensation paid or accrued.
 
 SUMMARY
COMPENSATION TABLE
 Annual
      CompensationAwards
              PayoutsName
      and Principal Position
              Year
              Salary
                ($)
              Bonus
                ($)
              Other
      Annual Compensation
                ($)
              Restricted
      Stock Award(s)
                ($)
              Securities
      Underlying Options
                SARs(#)
              LTIP
      payouts
                ($)
              All
      Other Compensation
                ($)Liu,
      Sheng Li
                President
      & Chairman
              2007
                2006
                2005
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -Ma,
      Shun Cheng
                Chief
      Financial Officer & Director
              2007
                2006
                2005
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -Lu,
      Wei Sheng
                Director
              2007
                2006
                2005
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -Ding,
      Hong Mei
                Director
              2007
                2006
                2005
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -Tian,
      Wei
                Director
              2007
                2006
                2005
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
              -
                -
                -
 
 Long-Term
Incentive Plan Awards
  We do not
have any long-term incentive plans that provide compensation intended to serve
as incentive for performance to occur over a period longer than one fiscal year,
whether such performance is measured by reference to our financial performance,
our stock price, or any other measure.
  Compensation
of Directors
  The
directors did not receive any other compensation for serving as members of the
board of directors. The Board has not implemented a plan to award options. There
are no contractual arrangements with any member of the board of
directors.
  We do not
intend to pay any additional compensation to our directors. As of the date
hereof, we have not entered into employment contracts with any of our officers
and we do not intend to enter into any employment contracts until such time as
it profitable to do so.
 
 ITEM 12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
  The
classes of equity securities of the Company issued and outstanding are Common
Stock, $.001 par value, and Preferred Stock, $.001 par value.  The
following table sets forth certain information regarding beneficial ownership of
the common stock as of September 30, 2008, by (i) each person who is known
by the Company to own beneficially more than 5% of any classes of outstanding
Stock, (ii) each director of the Company, (iii) each officer and
(iv) all directors and executive officers of the Company as a
group.  The percentage of shares beneficially owned is based on there
having been 33,162,114 shares of Common Stock outstanding and 100,000 shares of
Preferred Stock as of September 30, 2008.  The 33,162,114 shares of
Common Stock outstanding excludes the 50,000,000 shares of common stock being
held as collateral by DZ Bank International S.A. for benefit of Trafalgar
Capital Specialized Investment Fund pursuant to a Securities Purchase Agreement,
dated as of June 30, 2008, by and among the Company and Trafalgar Capital
Specialized Investment Fund, Luxembourg (in reference with Exhibit
10.1).
 
 It should
be noted that Trafalgar, although they currently hold only 7.54% of our company,
have the potential of acquiring a much larger position.  Also, in the
event that we default on our obligation to repay the monies borrowed from
Trafalgar we could lose all assets owned by the company.  Pursuant to
the terms of the Security Agreement (in reference with Exhibit 10.4), our
obligation to repay the Trafalgar loan is secured by all of the Company’s
assets.  Specifically, and for the purpose of securing prompt and
complete payment and performance by the Company in repayment of their debt to
Trafalgar, the Company unconditionally and irrevocably granted to Trafalgar a
continuing security interest in and to, and lien upon, all of the Company’s and
its current or future acquired subsidiaries’ assets, including specifically the
following Pledged Property of the Company and its current or future acquired
subsidiaries:
  (a)           all
goods of the Company, including, without limitation, machinery, equipment,
furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and
motor vehicles of every kind and description, now or hereafter owned by the
Company or in which the Company may have or may hereafter acquire any interest,
and all replacements, additions, accessions, substitutions and proceeds thereof,
arising from the sale or disposition thereof, and where applicable, the proceeds
of insurance and of any tort claims involving any of the foregoing;
  (b)           all
inventory of the Company, including, but not limited to, all goods, wares,
merchandise, parts, supplies, finished products, other tangible personal
property, including such inventory as is temporarily out of Company’s custody or
possession and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing;
  (c)           all
contract rights and general intangibles of the Company, including, without
limitation, goodwill, trademarks, trade styles, trade names, leasehold
interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
  (d)           all
documents, warehouse receipts, instruments and chattel paper of the Company
whether now owned or hereafter created;
  (e)           all
accounts and other receivables, instruments or other forms of obligations and
rights to payment of the Company, (herein collectively referred to as “Accounts”), together
with the proceeds thereof, all goods represented by such Accounts and all such
goods that may be returned by the Company’s customers, and all proceeds of any
insurance thereon, and all guarantees, securities and liens which the Company
may hold for the payment of any such Accounts including, without limitation, all
rights of stoppage in transit, replevin and reclamation and as an unpaid vendor
and/or lienor,;
  (f)           to
the extent assignable, all of the Company’s rights under all present and future
authorizations, permits, licenses and franchises issued or granted in connection
with the operations of any of its facilities;
  (g)           all
products and proceeds (including, without limitation, insurance proceeds) from
the above-described; and
  (h)           all
equity interests, securities or other instruments in other companies, including,
without limitation, any subsidiaries, investments or other entities (whether or
not controlled).
 
 Furthermore,
in the event that the Company defaults on the Securities Purchase Agreement the
shares currently being held as collateral will transfer to Trafalgar and become
immediately available for sale.  As such, all of the shares being
registered in this registration statement would be available for sale onto the
open market and other shareholders could be significantly
diluted.  Trafalgar’s position in the company would be substantially
increased and they could even obtain majority control over the
Company.  Conversely, if the Company repays the debt owed to Trafalgar
and does not default on their agreements, the shares currently held in
collateral and being registered under this registration statement would not be
transferred to Trafalgar.  Instead, the shares would be returned to
the treasury and immediately retired.
  The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. We believe
that each individual or entity named has sole investment and voting power with
respect to the securities indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise
noted.
  35
 Table of Contents
  Title
      of Class
              Name
      and Address of Beneficial Owner
              
              Amount
      & Nature of Beneficial Owner
              
              
              Percent of
                ClassCommon
      Stock, $.001 Par Value
              Liu,
      Sheng Li
                No.
      13, Rows 3, No. 1 Railway Village
                Xincheng
      Dist., Shaanxi, P.R. China
              
              
              8,580,000
              
              
              
              25.87
              %Common
      Stock, $.001 Par Value
              Ma,
      Shun Cheng
                Xin
      Cheng Yard, Xian
                P.R.
      China
              
              
              720,722
              
              
              
              2.17
              %Common
      Stock, $.001 Par Value
              Lu,
      Wei Sheng
              
              
              -
              
              
              
              -
              %Common
      Stock, $.001 Par Value
              Ding,
      Hong Mei
              
              
              -
              
              
              
              -
              %Tian,
      Wei
                No.
      12, Xiangzi Miao Street
                Beilin
      Dist., P.R. China
              
              
              3,431
              
              
              
              0.01
              %Common
      Stock, $.001 Par Value
              DZ
      Bank International S.A.
                FBO
      Trafalgar Capital Specialized Investment Fund
                18851
      NE 29th
      Ave
                Ste
      306
                Aventura,
      FL  33180
              
              
              2,500,000
              
              
              
              7.54
              %Common
      Stock, $.001 Par Value
              All
      directors and executive officers as a group (five persons)
              
              
              9,304,153
              
              
              
              28.06
              %Preferred
      Stock, $.001 Par Value
              Liu,
      Sheng Li
                No.
      13 Rows 3, No. 1 Railway Village
                Xincheng
      Dist., Shaanxi, P.R. China
              
              
              100,000
              
              
              
              100.00
              %Preferred
      Stock, $.001 Par Value
              All
      directors and executive officers as a group (five persons)
              
              
              100,000
              
              
              
              100.00
              %
 
 RELATED STOCKHOLDER
MATTERS
 
 During
the fiscal year ended June 30, 2008, the Company recorded the amount of $34,836
due to a stockholder, Mr. Liu, Sheng Li, represented unsecured advances which
was interest-free and repayable in next twelve months. The imputedinterest on the amount due to a stockholder was not
significant.
  ITEM 13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
  On June 30, 2008, the Company entered a
Securities Purchase Agreement (in reference with Exhibit 10.1) with Trafalgar
Capital Specialized Investment Fund, Luxembourg (Trafalgar) pursuant to which
the Company issued 50,000,000 shares of the Company’s Common Stock to DZ Bank
International S.A. for benefit of Trafalgar as collateral to secure the
Company’s obligations under the Securities Purchase Agreement and the respective
Senior Secured Convertible Redeemable Debenture (in reference with Exhibit
10.2), Registration Rights Agreement (in reference with Exhibit 10.3), and
Security Agreement (in reference with Exhibit 10.4) between the Company and
Trafalgar as well as the respective Irrevocable Transfer Agent
Instructions.   The Company’s obligation to repay their debt
under the above mentioned agreements is secured by all of assets owned by the
company.  In the event of default, Trafalgar can foreclose on the
50,000,000 shares held in escrow thereby taking majority control of our
company.
 
 On August
30, 2007, the Company exercised the aggregate amount of 2,000,000 options to
issue 2,000,000 shares with a fair value of $765,000 under the 2007 Benefit Plan
in exchange for services rendered, which were valued at an aggregate of $765,000
at the date of grant using the Black-Scholes option pricing model and booked pro
rata within the relative service periods. Accordingly, The Company recognized
$765,000 for the fiscal year ended June 30, 2008.
 
 DIRECTOR
INDEPENDENCE
 
 A
director is independent if, in the opinion of the Board, he or she has no
relationship which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director and otherwise satisfies the
independence requirements of Schedule 14A of the Exchange Act. The Board
has reviewed the independence of its current non-employee directors and found
that there are no independent directors.
  ITEM 14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
 
  The
following table represents the aggregate fees billed for professional audit
services rendered to the independent auditor, Zhong Yi (Hong Kong) C.P.A.
Company Ltd. ("Zhong Yi") for the Company's audit of the annual financial
statements for the fiscal years ended June 30, 2008 and 2007. Audit fees and
other fees of auditors are listed as follows:
 
 Year
      ended June 30, 2008
              
              
              Year
      ended June 30, 2007Zhong
      Yi
              
              
              Zhong
      YiAudit
      Fees (1)
              
              $
              55,000
              *
              
              $
              55,000
              *Audit-Related
      Fees (2)
              
              
              --
              
              
              
              --Tax
      Fees (3)
              
              
              --
              
              
              
              --All
      Other Fees (4)
              
              
              --
              
              
              
              --Total
      Accounting Fees and Services
              
              $
              55,000
              
              
              $
              55,000
  *Estimate
  (1)
              Audit Fees. These are
      fees for professional services for our audit of the annual financial
      statements, and for the review of the financial statements included in our
      filings on Form 10-Q, and for services that are normally provided in
      connection with statutory and regulatory filings or
      engagements.
  (2)
              Audit-Related Fees.
      These are fees for the assurance and related services reasonably related
      to the performance of the audit or the review of our financial
      statements.
  (3)
              Tax Fees. These are
      fees for professional services with respect to tax compliance, tax advice,
      and tax planning.
  (4)
              All Other Fees. These
      are fees for permissible work that does not fall within any of the other
      fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
      Fees.
 
 Pre-approved Policy for
Audit and Non-Audit Services
 
 The
Company does not have a standing audit committee and the full board of directors
performs all functions of an audit committee, including the pre-approval of all
audit and non-audit services prior to the Company engaging an accountant. All of
the services rendered for the Company by Zhong Yi (Hong Kong) C.P.A. Company
Ltd. were pre-approved by the board of directors of the Company.
  36
 Table of Contents
  PART
IV
  ITEM 15.
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
  (a)
              The
      following documents are filed as part of this Annual Report on Form
      10-K.
  1.
              Financial Statements—The
      following financial statements are included in Part II, Item 8 of
      this Annual Report on Form 10-K:
  Report of
Independent Registered Public Accounting Firm
  Consolidated
Balance Sheets as of June 30, 2008 and 2007;
  Consolidated
Statements of Operations for the years ended June 30, 2008 and
2007;
  Consolidated
Statements of Changes in Stockholders’ Equity for the years ended June 30, 2008
and 2007;
  Consolidated
Statements of Cash Flows for the years ended June 30, 2008 and
2007;
  Notes to
Consolidated Financial Statements; and
  2.
              Financial Statement
      Schedules—All schedules have been omitted, as they are either not
      required or not applicable or because the information required to be
      presented is included in the Consolidated Financial Statements and related
      notes.
  3.
              Exhibits
  The
      Exhibits listed in the Exhibit Index, which appears immediately following
      the signature page and is incorporated herein by reference, are filed or
      incorporated by reference as part of this Annual Report on Form 10-K. Each
      management contract or compensatory plan or agreement listed on the
      Exhibit Index is identified by an
asterisk.
 
 37
 Table of Contents
 
 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.
  
 
 Environment
      Ecology Holding Co. of China
                (Registrant)Date: October
      8, 2008
              By:
              /s/ Liu,
      Sheng LiLiu,
      Sheng Li
                President
      and Chief Executive Officer
 
 Pursuant
to the requirements of the Securities Act of 1934, this Annual Report has been
signed below by the following persons in their respective capacities with the
Registrant and on the dates indicated.
  SIGNATURE
              TITLE
              DATE/s/ Liu, Sheng
      Li
              President,
      Chief Executive Officer, Director
              October
      8, 2008Liu,
      Sheng Li/s/ Ma, Shun
      Cheng
              Chief
      Financial Officer, Director
              October
      8, 2008Ma,
      Shun Cheng/s/ Lu, Wei
      Sheng
              Director
              October
      8, 2008Lu,
      Wei Sheng/s/ Ding, Hong
      Mei
              Director
              October
      8, 2008Ding,
      Hong Mei/s/ Tian,
      Wei
              Director
              October
      8, 2008Tian,
      Wei
 
 38
 Table of Contents
  EXHIBIT
INDEX
  10.1Securities Purchase
Agreement with Trafalgar Capital Specialized Investment Fund, Luxembourg
(Incorporated by reference in the Current Report on Form 8-K filed on July 3,
2008)
 
 10.2 Senior Secured Convertible
Redeemable Debenture with Trafalgar Capital Specialized Investment Fund,
Luxembourg (Incorporated by reference in the Current Report on Form 8-K filed on
July 3, 2008)
 
 10.3Registration Right Agreement
dated as of June 30, 2008, by and among Environment Ecology Holding Co. of China
and Trafalgar Capital Specialized Investment Fund, Luxembourg(Incorporated
by reference in the Current Report on Form 8-K filed on July 3,
2008)
 
 10.4
Security Agreement (Incorporated
by reference in the Current Report on Form 8-K filed on July 3,
2008)
 
 10.5
Escrow
Agreement(Incorporated by
reference in the amendment No. 1 to Registration Statement on Form S-1/A filed
on September 9, 2008)
 
 14.1Code of Ethics
(Incorporated by reference in the Annual Report on Form 10-KSB for fiscal year
ended June 30, 2007 filed on October 15, 2007)
 
 31.1 Certification of principal executive officer Pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *
  31.2Certification of principal financial officer Pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 *
 
 32.1Certification of principal executive officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 *
 
 32.2Certification of principal financial officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 *
 
 *
                Filed
      herewith