chinaexpertmar05

10QSB 1 chinaexpertmar05final.htm chinaexpertmar05

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

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

For the quarterly period ended March 31, 2005

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

For the transition period from ____ to ____.

CHINA EXPERT TECHNOLOGY, INC.

(Name of small business in its charter)

Nevada

(State of Incorporation)

000-30644

(Commission File No.)

98-0348086

(IRS Employer Identification No.)

Room 2703-04, Great Eagle Centre

23 Harbour Road

Wanchai, Hong Kong

(Address of principal executive offices)

852-2802-1555

(Registrant’s telephone number)

Issuer's telephone number: (801) 209-0545

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes .X. No

Applicable only to issuers involved in bankruptcy proceedings during the past five years.

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes X No

Applicable only to corporate issuers

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. At March 31, 2005, 24,414,679 shares were outstanding.

Transitional Small Business Disclosure Format (Check one): Yes.... No..X

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS

(a)

The unaudited financial statements of registrant for the three months ended March 31, 2005, follow. The financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented.

CHINA EXPERT TECHNOLOGY, INC.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

MARCH 31, 2005 AND 2004

CONTENTS

	PAGE
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Cash Flows	6
Notes to Unaudited Consolidated Financial Statements	7

CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

	*March 31, 2005*	*December 31, 2004*
	*(Unaudited)*	*(Audited)*
	*USD*	*USD*
ASSETS

Current assets
Cash and cash equivalents	3,344,895	3,265,318
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 8)	9,144,348	-
Accounts receivable	278,807	4,438,331
Loan to a director	-	3,031,479
Amount due from a director	360	360
Prepayments, deposits and other receivables (Note 7)	6,608,601	3,871,440

Total current assets	19,377,011	14,606,928

Property and equipment, net	16,568	21,131
Intangible assets, net (Note 6)	192,802	289,203
Prepaid expenses (Note 3)	1,937,500	2,062,500
Deferred tax assets	121,758	271,758

Total assets	21,645,639	17,251,520


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	784,976	975,118
Receipts in advance (Note 9)	1,921,622	-
Accrued expenses	213,041	248,556
PRC business tax	1,070,821	957,804
Amount due to a former officer	409,613	115,356
Amount due to a director	160,459	160,459
Amounts due to shareholders	730	730
Income tax payable	1,523,651	2,148,319

Total current liabilities	6,084,913	4,606,342

Stockholders’ equity

Common stock: USD 0.001 par value, 200,000,000
shares authorized; 24,414,679 shares issued and
outstanding at March 31, 2005 (December 31, 2004 :
24,414,679 shares)	3,879,727	3,879,727
Paid-in capital (Note 10)	3,598,854	3,598,854
Retained earnings	8,082,145	5,166,597

Total stockholders’ equity	15,560,726	12,645,178


Total liabilities and stockholders’ equity	21,645,639	17,251,520

See the accompanying notes to the unaudited consolidated financial statements

CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended *March 31,*
	*2005*		*2004*
	*(Unaudited)*		*(Unaudited)*
	*USD*		*USD*

Revenue	8,682,558		1,419,977

Cost of revenue	(4,628,678	)	(799,870	)

Gross profit	4,053,880		620,107

Other income	3,937		27,705

General and administrative expenses	(288,178	)	(236,810	)

Intangible assets amortization	(96,401	)	(96,401	)

Depreciation and amortization	(4,563	)	(14,273	)

Other expenses	-		(22,065	)

Income before income tax	3,668,675		278,263

Income tax expenses (Note 5)	(753,127	)	(56,608	)

Net income	2,915,548		221,655

Net income per share (Note 4(i))	0.119		0.010

See the accompanying notes to the unaudited consolidated financial statements

CHINA EXPERT TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended March 31,
	*2005*		*2004*
	*(Unaudited)*		*(Unaudited)*
	*USD*		*USD*
Cash flows from operating activities:

Net income	2,915,548		221,655

Adjustments to reconcile net income to net cash used in
operating activities :
Intangible assets amortization	96,401		96,401
Amortization of prepaid expenses	125,000		90,000
Depreciation and amortization	4,563		14,273
Decrease/(increase) in deferred tax assets	150,000		(31,645	)
Other expenses	-		22,065

Changes in operating assets and liabilities :
Decrease in accounts receivable	4,159,524		-
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts	(9,144,348	)	(987,441	)
(Increase)/decrease in prepayments, deposits and other receivables	(2,737,161	)	585,319
Decrease in accounts payable	(190,142	)	(9,686	)
Decrease in deposits received	-		(6,659	)
Increase in receipt in advance	1,921,622		-
Decrease in accrued expenses	(35,515	)	(36,157	)
Increase/(decrease) in PRC business tax	113,017		(4,116	)
Decrease in billings in excess of costs and estimated
earnings on uncompleted contracts	-		(164,820	)
Increase in amount due to a former officer	294,257		-
Increase in income tax payable	(624,668	)	88,253

Net cash used in operating activities	(2,951,902	)	(122,558	)

Cash flows from financing activities :

Repayment from directors and officers	3,031,479		94,787

Net cash provided by financing activities	3,031,479		94,787


Net increase/(decrease) in cash and cash equivalents	79,577		(27,771	)

Cash and cash equivalents, beginning of period	3,265,318		47,223

Cash and cash equivalents, end of period	3,344,895		19,452

Supplemental information:

Income tax paid	1,227,795		-

See the accompanying notes to the unaudited consolidated financial statements

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The accompanying consolidated financial statements of China Expert Technology, Inc (the “Company”) and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America for interim consolidated financial information. Accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the operating results for the three months ended March 31, 2005 have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.

DESCRIPTION OF BUSINESS

The Company continues to be engaged in the provision of system integration services, consultancy services and agency services. All the Company’s revenues for the quarter periods presented in the consolidated financial statements and two years prior to this first quarter are derived from two governmental organizations in Fujian Province of the People’s Republic of China (the “PRC”) with contract sums amounting to approximately USD26 million and approximately USD29 million respectively.

The first project has been substantially completed in the first quarter of 2005 whilst the second one was still in progress. In addition, the Company has obtained a contract in the PRC with contract sum amounting to approximately USD15 million. This contract has not yet commenced during the first quarter.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions are eliminated in consolidation.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates required to be made by management include the recoverability of long-lived assets and recognition of revenue under long-term contracts. Actual results could differ from those estimates.

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Prepaid expenses

Prepaid expenses represent the aggregate fair value of the Company’s common stock issued in return for the consultancy works provided by certain consultants to the Company. The fair value is determined by reference to the average price of the Company’s common stock as quoted on the Over the Counter Bulletin Board (“OTCBB”) at the date of issuance. The prepaid expenses are amortized on a straight-line basis over the terms of the consulting agreements of five years.

Revenue recognition

Revenue from fixed price long-term contracts is recognized on the percentage of completion method for individual contracts. Revenues are recognized in the ratio that costs incurred bear to total estimated contract costs. The use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated profitability and final contract settlements may result in revisions to costs and income in the year in which the revisions are determined. Provisions for any estimated losses on uncompleted contracts are made in the year in which such losses are determinable. In instances when the work performed on fixed price agreements is of relatively short duration, the completed contract method of accounting, whereby revenue is recognized when the work is completed, is used.

Cost of Revenue

Cost of revenue comprises labor and other cost of personnel directly engaged in providing the services, subcontracting and attributable overhead costs. Cost of revenue does not include any allocation of depreciation or amortization expense.

Recently issued accounting pronouncements

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” This Standard addresses the accounting for transactions in which a company receives employee services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. This Standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and requires that such transactions be accounted for using a fair-value-based method. The Standard is effective for small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The Company is currently assessing the impact of this Standard on its results of operations and financial position.

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NET INCOME PER SHARE

(i)

The basic net income per share is calculated using the net income and the weighted average number of shares outstanding during the quarter periods.

	*Three months ended* *March 31,*
	*2005*	*2004*

Net income (USD)	2,915,548	221,655

Weighted average number
of shares outstanding	24,414,679	22,601,820

Basic net income per
share (USD)	0.119	0.010

(ii)

The diluted net income per share is not presented, as there are no dilutive securities in either period.

INCOME TAX EXPENSES

Income tax expenses represent the sum of current and deferred taxes.

Current tax is calculated at 15% on the estimated assessable profits of a subsidiary operating in the PRC for the quarter periods presented.

Valuation allowance of USD 171,516 has been provided on deferred tax assets at March 31, 2005 (2004 : Nil) primarily due to the uncertainty in generating future income by a subsidiary of the Company, China Expert Network Company Limited (“CEN”). The Company determined that the valuation allowance was required based upon the recent losses of CEN.

INTANGIBLE ASSETS

The intangible assets are information databases and represent costs for acquiring the expert information data assembled by and lists and details of projects developed by parties independent of the Group.

The information database is stated at cost less accumulated amortization at the balance sheet date.

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

At March 31, 2005 and December 31, 2004, the balances comprised of the following:

	*March 31,*	*December 31,*
	*2005*	*2004*
	*USD*	*USD*
	*(Unaudited)*	*(Audited)*

Prepaid contract costs	6,576,461	3,827,136
Rental and other deposits	32,140	44,304

	6,608,601	3,871,440

COST AND ESTIMATED EARNINGS IN EXCESS OF

BILLINGS ON UNCOMPLETED CONTRACTS

	*March 31,*		*December 31,*
	*2005*		*2004*
	*USD*		*USD*
	*(Unaudited)*		*(Audited)*

Costs and estimated earnings to date	42,312,441		33,168,093
Less : Billings	(33,168,093	)	(33,168,093	)

	9,144,348		-

RECEIPTS IN ADVANCE

They represent the receipts from two governmental organizations in Fujian Province before billings are made for the two projects.

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10.

PAID-IN CAPITAL

On February 18, 2004, the Company entered into consulting agreements (the “Agreements”) with several consultants for the provision of corporate finance and reporting, information technology process improvement and technology support services to the Company. The terms of these Agreements commenced on February 18, 2004 and will expire on February 17, 2009. In consideration of the consulting services provided, the Company agreed to issue in aggregate 1,800,000 shares of the Company’s common stock to the consultants.

The paid-in capital represents the excess of the aggregate fair value of the Company’s common stock issued under the Agreements over the par value of the stock issued. The fair value is determined by reference to the average price of the Company’s common stock quoted on the OTCBB at the date of issuance.

11.

STOCK INCENTIVE PLAN

(i)

At the annual meeting of the stockholders held on January 21, 2003, the Company’s 2002 Stock Incentive Plan (the “Plan”) was approved. Under the Plan, the Compensation Committee of the Board of Directors, at its discretion, may grant common stock or options to purchase common stock of the Company to key employees, consultants, and non-employee directors of the Company.

The purpose of the Plan is to improve the Company’s ability to attract, retain and compensate highly competent key employees, non-employee directors and consultants and to motivate selected key employees, non-employee directors and consultants of the Company to achieve long-term corporate objectives, by awarding certain options to purchase the Company’s common stock, and to receive grants of common stock subject to certain restrictions.

The Compensation Committee of the Board of Directors shall have the authority to determine all matters relating to the options to be granted under the Plan including selection of the individuals to be granted awards or stock options, the number of stocks, the date, the termination of the stock options or awards, the stock option term, vesting schedules and all other terms and conditions thereof.

(ii)

No options or awards have been granted, exercised or lapsed during the three months ended March 31, 2005.

CHINA EXPERT TECHNOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12.

PENSION PLANS

The Company participates in a defined contribution pension scheme under the Mandatory Provident Fund Schemes Ordinance (“MPF Scheme”) for all of its eligible employees in Hong Kong.

The MPF Scheme is available to all employees aged 18 to 64 with at least 60 days of service in the employment of the subsidiary operating in Hong Kong. Contributions are made by the subsidiary at 5% of the participants’ relevant income with a ceiling of HK$20,000. The participants are entitled to 100% of the subsidiary’s contributions together with accrued returns irrespective of their length of service with the subsidiary, but the benefits are required by law to be preserved until the retirement age of 65.

As stipulated by the PRC government regulations, the subsidiary operating in the PRC is required to contribute to the PRC insurance companies organized by the PRC government which are responsible for the payments of pension benefits to retired staff. The monthly contribution of the subsidiary was equal to 9% of the salaries of the relevant staff. The subsidiary has no obligation for the payment of pension benefits beyond the annual contributions described above.

The assets of the schemes are controlled by trustees and held separately from those of both subsidiaries. Total pension cost was USD 3,796 and USD 4,733 during the three months ended March 31, 2005 and 2004 respectively.

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

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, including statements in the following discussion, which are not statements of historical fact are what is known as “forward looking statements”, which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as "plans," "intends," "will," "hopes," "seeks," "anticipates," "expects," and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10QSB and in the Company's other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.

Overview

For the fiscal year ended December 31, 2004 and for the three month period ended March 31, 2005, the Company was profitable and had a positive cash flow. Through June 30, 2004, the Company had a deficit accumulated in the development stage. It reached profitability during 2004 by operating an e-government project for Jinjiang City government in the Fujian Province, China, which was completed in January, 2005.

In addition, the Company has obtained two e-government projects for two city governments in Fujian province, amounting to approximately $18,249,000 and $14,551,000 respectively. One of the contracts is currently at the development stage and the other has just commenced in March 2005. The Company believes that these two projects will generate sufficient revenue and cash flows to enable the Company to continue as a going concern.

Since the Company does not receive any down payment for these projects, the cash in hands will be applied towards the operation of these projects until the Company achieves the 1^st milestone in 6 to 9 months after commencement of each contract and receives its first payment within 30 to 60 days thereafter. As the Company plans to seek to capture a substantial portion of the e-government market in China as soon as possible, the Company may experience increased capital needs and may not have enough capital to fund other future operations without additional capital investments. Our capital needs will depend on numerous factors, including (1) our profitability; (2) the reduction of the service price of our competitor; and (3) the amount of our capital expenditures. The Company reasonably foresees that it will obtain two e-government contracts for approximately $30 millions in total in 2005 and will therefore need to raise about $10 million for the working capital for these new e-government projects. The Company will raise funds either in the form of an advance or an equity investment by outside investors, or some combination of each.

The Company’s need for capital to commence new e-government projects may have an impact on its short-term liquidity during 2005.

During the three month period ended March 31, 2005, and as of March 31, 2005, management is focused on the immediate task of improving the Company's ability to capture the e-government market in China and continue to provide income stability.

The Company anticipates, based on internal forecasts and assumptions, that it will obtain two new contracts in 2005, with estimated contract prices totaling approximately $30 million. Based on that assumption, management is projecting approximately 15% growth on its revenues and profits for the fiscal year ended December 31, 2005.

Results of Operations

The Company's financial statements are stated in U.S. Dollars and are prepared in accordance with generally accepted accounting principles in the United States of America.

The following table sets forth, for the periods indicated, certain operating information expressed in dollar amounts and as a percentage of revenue:

	Three months ended March 31, 2005				Three months ended March 31, 2004
	Dollar Amount		% Revenue		Dollar amount		% Revenue

Revenues		8,682,558		100%		1,419,977		100%
Cost of Revenues		4,628,678		53.31%		799,870		56.33%

Gross Profit		4,053,880		46.69%		620,107		43.67%
Other Income		3,937		nil		27,705		1.95%
Selling, general and administrative expenses		288,178		3.31%		263,810		18.58%

Income before income tax		3,668,675		42.25%		278,263		19.60%

Income tax expenses		753,127		8.67%		56,608		3.99%

Net Income		2,915,548		33.58%		221,655		15.61%
Net Income Per Share		0.119				0.010

REVENUES. Revenues were $8,682,558 in the three months ended March 31, 2005, as compared to $1,419,977 in the three months ended March 31, 2004. The increase in revenues in the three-month period is attributable to increased contract revenue from the Company’s e-government projects. All of the Company’s total revenue is derived from the JinJiang e-government project.

COST OF REVENUES. Cost of revenues were $4,628,678 in the three months ended March 31, 2005, compared to $799,870 in the three months ended March 31, 2004 as a result of increased costs associated with higher revenues. As a percentage of revenues, cost of revenues were 53% in the three months ended March 31, 2005 compared to 56% in the three months ended March

31, 2004. Gross profit was $4,053,880 in the three months ended March 31, 2005, compared to $620,107 in the three months ended March 31, 2004. As a percentage of revenues, gross profit increased to 47% in the three months ended March 31, 2005 from 44% in the three months ended March 31, 2004.

OTHER INCOME. Other income was $3,937 in the three months ended March 31, 2005 compared to $27,705 in the three months ended March 31, 2004.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $288,278 in the three months ended March 31, 2005, compared to $236,810 in the three months ended March 31, 2004, as a result of increased costs associated with higher revenues. As a percentage of revenues, general and administrative expenses decreased substantially from approximately 17% in the three months ended March 31, 2004 to only approximately 3% in the three months ended March 31, 2005. This decrease in general and administrative expenses as a percentage of revenues was primarily attributable to the fact that the Company has achieved better costs control over staffing expenses.

INCOME BEFORE INCOME TAX AND INCOME TAX EXPENSES. Income before income tax was $3,668,675 in the three months ended March 31, 2005, compared to $278,263 in the three months ended March 31, 2004. This increase was attributable to the increase in the level of work under the JinJiang contract. As a percentage of revenue, income before income tax and income tax expense increased from approximately 20% for the three months ended March 31, 2004, to approximately 42% for the three months ended March 31, 2005. This increase in income before income tax and income tax expenses as a percentage of revenue is primarily attributable the fact that the Company was able to increase revenues substantially with only a nominal increase in general and administrative expenses.

Income tax expenses were $753,127 in the three months ended March 31, 2005 compared to $56,608 in the three months ended March 31, 2004. This increase is attributable to an increase in the PRC enterprise income tax as a result of a substantial increase in the revenue.

NET INCOME. Net income was $2,915,548 in the three months ended March 31, 2005, compared to $221,655 in the three-months ended March 31, 2004. As a percentage of revenue, net income was approximately 34% in the three months ended March 31, 2005 compared to approximately 16% in the three months ended March 31, 2004. This increase in net income as a percentage of revenue is primarily attributable the fact that the Company was able to increase revenues substantially with only a nominal increase in general and administrative expenses.

Liquidity and Capital Resources

As of March 31, 2005, the Company had $3,344,895 of cash and cash equivalents on hand as compared to $3,365,318 as of December 31, 2004, representing an increase of $79,577 during the three-month period. As of March 31, 2004, the Company had $19,452 of cash and cash equivalents on hand.

The Company anticipates, based on internal forecasts relating to our projects, that existing cash and funds generated from the existing projects will be sufficient to meet working capital and capital expenditure requirements for all our existing projects for the remainder of 2005. However, in the event that the Company signs up new contracts during 2005, it is likely that it will be required to seek additional financing (See “Overview”). There can be no assurance that we

will be able to obtain additional financing on terms acceptable to it, or at all.

The Company believes its operations have not been and, in the foreseeable future, will not be materially adversely affected by inflation or changing prices.

Effect of Fluctuation in Foreign Exchange Rates

Our operating subsidiary is located in China. The subsidiary buys all materials in China and receives payments from customers in China using Chinese Renminbi as the functional currency. Based on Chinese government regulation, all foreign currencies under the category of current accounts are allowed to be freely exchanged with hard currencies. During the past years of operation, there were no significant changes in exchange rates; however, unforeseen developments may cause a significant change in exchange rates.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared under accounting principles generally accepted in the United States of America. We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. Associated with this, we believe the following are our most critical accounting policies in that they are the most important to the portrayal of our financial condition and results and require our management’s most difficult, subjective or complex judgments. Actual results could materially differ from those estimates. We have disclosed all significant accounting policies in the notes to the financial statements included in this Form 10-QSB. The financial statements and the related notes thereto should be read in conjunction with the following discussion of our critical accounting policies. Our critical accounting policies are:

Revenue recognition

We recognize revenue from fixed price long-term contracts on a percentage of completion method for individual contracts. Revenues are recognized in a ratio of what costs incurred bear to the total estimated contract costs. The use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated profitability and final contract settlements may result in revisions to costs and income in the year in which the revisions are determined. Provisions for any estimated losses on uncompleted contracts are made in the period in which such losses are determinable. In circumstances where the work performed on fixed price agreements is of relatively short duration, the completed contract method of accounting is used in which revenue is recognized when the work is completed.

Intangible Assets

We account for our intangible assets in accordance with SFAS No.142, “Goodwill and Other Intangible Assets.” Intangible assets with an indefinite life are not amortized. Intangible assets with a definite life are amortized on a straight-line basis over their estimated useful lives. Indefinite lived assets will be tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An

impairment loss would be recognized when the carrying amount of the intangible asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss to be recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.

Allowance for Doubtful Accounts

We regularly monitor and assess our risk of not collecting amounts owed to us by our customers. This evaluation is based upon a variety of factors including: an analysis of amounts current and past due along with relevant history and facts particular to the customer. Based upon the results of this analysis, we record an allowance for uncollectible accounts for this risk. This analysis requires us to make significant estimates, and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts.

Impairment on Tangible and Intangible Assets

We review our long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles would be based on the fair value of the asset.

Recent Accounting Pronouncements

ITEM 3.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB REPORT REFLECT MANAGEMENT’S BEST JUDGMENT BASED UPON FACTORS CURRENTLY KNOWN AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY MATERIALLY.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

The following exhibits are filed herewith:

31.1

Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2

Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1

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

32.2

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

SIGNATURES

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

CHINA EXPERT TECHNOLOGY, INC.

By: /s/ Zhu Xiaoxin
Chief Executive Officer, President and Director

Date: May 17, 2005

By /s /Chiang Min Liang
Chief Financial Officer

Date: May 17, 2005

By /s / Kung Sze Chau
Director

Date: May 17, 2005