UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|
For the quarterly period ended
March 31, 2011
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the transition period from ____________ to ____________
Commission File Number 2-95836-NY
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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13-3250816
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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c/o Dalian Dongtai Industrial Waste treatment Co.
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No. 1 Huaihe West Road, E-T-D-
Zone, Dalian, China
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116600
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(Address of principal executive offices)
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(Zip Code)
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86-411-82595129 (China)
(Issuer's telephone number, including area code)
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
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Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
As of May 12, 2011, 15,336,535 shares of the registrant’s Common Stock, $.001 par value, were outstanding.
TABLE OF CONTENTS
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Page
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PART I
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements.
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3
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Consolidated Balance Sheets As of March 31, 2011(Unaudited) and December 31, 2010(Audited)
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4
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Consolidated Statements of Operations and Comprehensive Income For the Three Months Ended March 31, 2011 and 2010 (Unaudited)
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5
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Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2011 and 2010 (Unaudited)
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6
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Notes to Consolidated Financial Statements March 31, 2011 and 2010 (Unaudited)
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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24
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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31
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Item 4.
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Controls and Procedures.
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31
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PART II
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OTHER INFORMATION
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Item 6.
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Exhibits
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32
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Signatures
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33
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Exhibits/Certifications
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34
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PART I - FINANCIAL INFORMATION
|
Item 1.
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Financial Statements
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The accompanying unaudited consolidated balance sheets, statements of operations and comprehensive income, and statements of cash flows and the related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments, consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods.
The accompanying financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.
The results of operations for the three-month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
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March 31, 2011
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December 31, 2010
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(Unaudited)
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(Audited)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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5,865,833
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$
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8,163,880
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Notes receivable
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220,256
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|
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86,364
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Accounts receivable, net
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6,328,174
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5,731,847
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Other receivables
|
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731,547
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359,383
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Inventories
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4,660,680
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4,652,148
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Advances to suppliers
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1,552,771
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1,624,433
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Deferred expense
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185,607
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210,752
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Related party receivable
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344,689
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291,552
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Deferred tax assets
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121,705
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61,145
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Total current assets
|
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20,011,262
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21,181,504
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Long-term equity investment
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152,711
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151,515
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Property, plant and equipment, net
|
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32,157,991
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32,384,139
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Construction in progress
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21,333,856
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18,642,061
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Land usage right, net of accumulated amortization
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2,025,724
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2,022,384
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BOT franchise right
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4,275,919
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4,242,424
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Deposits
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77,762
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|
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77,152
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Restricted cash
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1,607,845
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1,788,510
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Other assets
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1,248,308
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1,233,580
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Deferred tax assets
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584,581
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504,017
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TOTAL ASSETS
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$
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83,475,959
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$
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82,227,286
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LIABILITIES
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Current liabilities
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Short-term loans
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$
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3,054,228
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$
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3,030,303
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Accounts payable
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3,022,277
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|
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2,458,260
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Tax payable
|
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863,005
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513,243
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Advance from customers
|
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609,005
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610,508
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Deferred sales
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798,500
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394,862
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Accrued expenses
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52,757
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804,205
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Construction projects payable
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2,491,470
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3,070,169
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Other payable
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378,459
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|
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836,141
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Long-term loan-current portion
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2,340,302
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|
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2,321,970
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Related party payable
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473,405
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393,939
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Total current liabilities
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14,083,408
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14,433,600
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Long-term loans
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17,758,425
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17,964,962
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Asset retirement obligation
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585,144
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571,109
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Government subsidy
|
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7,734,310
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|
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7,673,724
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|
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TOTAL LIABILITIES
|
|
|
40,161,287
|
|
|
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40,643,395
|
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|
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Commitments and contingencies
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EQUITY
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Stockholders' equity of the Company
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Preferred stock: par value $.001; 5,000,000
|
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shares authorized; none issued and outstanding
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-
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-
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Common stock: par value $.001; 95,000,000 shares authorized;
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15,336,535 shares issued and outstanding as of
|
|
|
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|
|
|
|
|
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March 31, 2011 and December 31, 2010.
|
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|
15,337
|
|
|
|
15,337
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|
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Additional paid-in capital
|
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|
7,606,512
|
|
|
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7,602,625
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Deferred stock-based compensation
|
|
|
(595,833
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)
|
|
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(653,494
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)
|
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Accumulated other comprehensive income
|
|
|
3,610,967
|
|
|
|
3,349,296
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Retained earnings
|
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|
23,220,713
|
|
|
|
21,994,368
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Total stockholders' equity of the Company
|
|
|
33,857,696
|
|
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32,308,132
|
|
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Noncontrolling interest
|
|
|
9,456,976
|
|
|
|
9,275,759
|
|
|
TOTAL EQUITY
|
|
|
43,314,672
|
|
|
|
41,583,891
|
|
|
|
|
|
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|
|
|
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|
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TOTAL LIABILITIES AND EQUITY
|
|
$
|
83,475,959
|
|
|
$
|
82,227,286
|
|
See notes to Consolidated Financial Statements.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Revenues
|
|
|
|
|
|
|
|
Service fees
|
|
$
|
3,777,184
|
|
|
$
|
2,944,558
|
|
|
Sales of recycled commodities
|
|
|
2,288,444
|
|
|
|
1,150,283
|
|
|
Total revenues
|
|
|
6,065,628
|
|
|
|
4,094,841
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
Cost of service fees
|
|
|
1,689,096
|
|
|
|
1,028,493
|
|
|
Cost of recycled commodities
|
|
|
1,292,309
|
|
|
|
388,458
|
|
|
Total cost of revenues
|
|
|
2,981,405
|
|
|
|
1,416,951
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,084,223
|
|
|
|
2,677,890
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
180,441
|
|
|
|
151,624
|
|
|
Research and development expenses
|
|
|
94,608
|
|
|
|
71,486
|
|
|
General and administrative expenses
|
|
|
1,090,184
|
|
|
|
896,608
|
|
|
Total operating expenses
|
|
|
1,365,233
|
|
|
|
1,119,718
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,718,990
|
|
|
|
1,558,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(240,325
|
)
|
|
|
(225,803
|
)
|
|
Bank interest income
|
|
|
7,922
|
|
|
|
-
|
|
|
Other income
|
|
|
120,788
|
|
|
|
7,167
|
|
|
Other expense
|
|
|
(3,955
|
)
|
|
|
(2,520
|
)
|
|
Settlement expense
|
|
|
-
|
|
|
|
(439,821
|
)
|
|
Total other expense
|
|
|
(115,570
|
)
|
|
|
(660,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income tax provision
|
|
|
1,603,420
|
|
|
|
897,195
|
|
|
Income tax provision
|
|
|
(269,596
|
)
|
|
|
(133,001
|
)
|
|
Net income
|
|
|
1,333,824
|
|
|
|
764,194
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the noncontrolling interest
|
|
|
(107,479
|
)
|
|
|
(155,339
|
)
|
|
Net income attributable to the Company
|
|
$
|
1,226,345
|
|
|
$
|
608,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
261,671
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to the Company
|
|
|
1,488,016
|
|
|
|
610,387
|
|
|
Comprehensive income attributable to the noncontrolling interest
|
|
|
181,217
|
|
|
|
155,339
|
|
|
Comprehensive income
|
|
$
|
1,669,233
|
|
|
$
|
765,726
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,336,535
|
|
|
|
15,327,507
|
|
|
Diluted
|
|
|
15,336,535
|
|
|
|
16,401,437
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings per share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
See notes to Consolidated Financial Statements.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For the Three Months ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
$
|
1,226,345
|
|
|
$
|
608,855
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Nontrolling interest
|
|
|
107,479
|
|
|
|
155,339
|
|
|
Depreciation
|
|
|
561,365
|
|
|
|
526,771
|
|
|
Amortization
|
|
|
12,568
|
|
|
|
15,837
|
|
|
Amortization of deferred stock-based compensation
|
|
|
57,661
|
|
|
|
57,661
|
|
|
Bad debt allowance
|
|
|
42,548
|
|
|
|
35,547
|
|
|
Stock and warrant issued for settlement
|
|
|
-
|
|
|
|
439,821
|
|
|
Option issued for service
|
|
|
3,887
|
|
|
|
-
|
|
|
Accretion expenses
|
|
|
14,035
|
|
|
|
9,155
|
|
|
Government subsidy recognized as income
|
|
|
-
|
|
|
|
(7,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
(133,892
|
)
|
|
|
79,307
|
|
|
Accounts receivable
|
|
|
(640,266
|
)
|
|
|
(1,091,651
|
)
|
|
Construction reimbursement receivable
|
|
|
-
|
|
|
|
703,933
|
|
|
Other receivables
|
|
|
(372,164
|
)
|
|
|
30,073
|
|
|
Inventories
|
|
|
(8,532
|
)
|
|
|
(307,645
|
)
|
|
Advance to suppliers
|
|
|
(90,482
|
)
|
|
|
146,118
|
|
|
Deferred expense
|
|
|
25,145
|
|
|
|
(5,142
|
)
|
|
Other asset
|
|
|
(14,728
|
)
|
|
|
(128,064
|
)
|
|
Deferred tax assets
|
|
|
(141,124
|
)
|
|
|
(8,562
|
)
|
|
Accounts payable
|
|
|
564,017
|
|
|
|
255,163
|
|
|
Tax payable
|
|
|
349,762
|
|
|
|
197,810
|
|
|
Advance from customers
|
|
|
(1,503
|
)
|
|
|
17,256
|
|
|
Accrued expense
|
|
|
(751,448
|
)
|
|
|
(390,470
|
)
|
|
Deferred income
|
|
|
403,638
|
|
|
|
(234,131
|
)
|
|
Other payable
|
|
|
(457,682
|
)
|
|
|
-
|
|
|
Net cash provided by operating activities
|
|
|
756,629
|
|
|
|
1,105,814
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(60,205
|
)
|
|
|
(101,464
|
)
|
|
Construction in progress
|
|
|
(2,391,175
|
)
|
|
|
(726,790
|
)
|
|
Purchase of intangible assets
|
|
|
-
|
|
|
|
(6,871
|
)
|
|
Due from related party
|
|
|
(53,137
|
)
|
|
|
-
|
|
|
Net cash used in investing activities
|
|
|
(2,504,517
|
)
|
|
|
(835,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Repayment of construction project payable
|
|
|
(578,699
|
)
|
|
|
(812,769
|
)
|
|
Repayment of long-term loans
|
|
|
(346,747
|
)
|
|
|
(561,174
|
)
|
|
Proceeds from related party loan
|
|
|
79,466
|
|
|
|
-
|
|
|
Decrease in Restricted cash
|
|
|
180,665
|
|
|
|
-
|
|
|
Net cash used in financing activities
|
|
|
(665,315
|
)
|
|
|
(1,373,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
|
115,156
|
|
|
|
(4,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,298,047
|
)
|
|
|
(1,107,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
8,163,880
|
|
|
|
11,419,129
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
5,865,833
|
|
|
$
|
10,311,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
400,220
|
|
|
$
|
347,272
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
87,884
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Stock and warrant issued for settlement
|
|
$
|
-
|
|
|
$
|
439,821
|
|
|
Transfer of construction in progress to property, plant and equipment
|
|
$
|
21,584
|
|
|
$
|
-
|
|
See Notes to Consolidated Financial Statements.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements are those of China Industrial Waste Management, Inc., a Nevada corporation (the “Company”) incorporated on November 12, 2003, its wholly owned subsidiary, Favour Group Ltd., (“Favour”) a British Virgin Islands corporation, along with its indirect wholly and majority owned subsidiaries:
• Full Treasure Investments Ltd. (“Full Treasure”)
• Dalian Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian Dongtai”)
• Dalian Dongtai Water Recycling Co., Ltd. (“Dongtai Water”)
• Dalian Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai Organic”)
• Dalian Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”)
• Dalian Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian Lipp”)
• Yingkou Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”)
• Hunan Hanyang Environmental Protection Science & Technology Co., Ltd. (“Hunan Hanyang”)
• Sino-Norway Energy Efficiency Dalian Center Co., Ltd. (“Sino-Norway EEC”)
Dalian Dongtai was incorporated on January 9, 1991 in Dalian, Liaoning Province, the People’s Republic of China (“PRC”), and is engaged in the collection, treatment, disposal, and recycling of industrial solid wastes, and sales of recycled products, principally in Dalian and surrounding areas in Liaoning Province. The Company provides waste disposal solutions to more than 800 customers, including the Dalian municipal government, from facilities located in Dalian Development Area. In addition, the Company provides the following services to its clients:
• Environmental protection services
• Technology consultation
• Pollution treatment services
• Waste management design processing services
• Waste disposal solutions
• Waste transportation services
• Onsite waste management services
• Environmental pollution remediation services
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dongtai Water, which was incorporated in August 2006, operates a sewage treatment facility in Dalian under a build-operate-transfer (“BOT”) contract with the Dalian municipal government, pursuant to which we can process wastewater generated from a portion of Dalian until June 2028. Phase 1 of the sewage plant commenced operations in June 2008 and is operating at the designed treatment capacity of 30,000 tons per day. Phase 2 of the sewage plant is expected to start construction in 2013 and is expected to increase treatment capacity to 100,000 tons per day.
Dongtai Organic was incorporated in March 2007, operates a sludge treatment plant authorized to treat and dispose of sludge generated from sewage treatment plants located in Dalian. The plant is the first BOT sludge treatment plant in China, with a designed treatment capacity of 600 tons per day. The plant commenced operations in January 2010 and utilizes anaerobic fermentation technology to treat sludge. In addition, Dongtai Organic generates revenues from the sale of methane, a by-product of the sludge treatment process.
Zhuorui was incorporated in April 2006 and is engaged in plasma arc melting, separation and purification of waste catalysts that generated during oil refinery process, treatment of industrial wastes and comprehensive utilization of waste catalysts or similar material.
Dalian Lipp was formed in October 2007 as a joint venture with Lipp Gmbh of Germany. Dalian Lipp designs, manufactures and installs environmental protection equipment, including Lipp tanks for sludge treatment, and renewable energy equipment and provides related technical services. Dalian Lipp utilizes the Lipp GmbH tank building technique which is dedicated to generating energy through organic waste anaerobic fermentation, industrial effluent treatment and municipal sewage plant.
Yingkou Dongtai was incorporated in May 2009 to operate in the Coastal Industrial Base (the “Base”) of Yingkou City, Liaoning Province. Yingkou Dongtai plans to engage in the recycling and disposal of industrial waste, and development and production of recycling products. Yingkou Dongtai intends to build and complete waste treatment facilities gradually as the Base develops as a commercial zone.
On October 10, 2009, Dalian Dongtai acquired a 65% equity interest in Hunan Hanyang. Hunan Hanyang was established in Hunan Province in 2004, and is licensed to engage in the business of treatment and comprehensive utilization of waste.
In November 2009, Sino-Norway EEC was incorporated in Dalian as a joint venture with Dalian Huineng Science and Technology Co., Ltd. and the Dalian Enterprise Confederation. Sino-Norway EEC was formed to engage in the business of energy efficiency audit and consultation, and is sponsored under the Energy Efficiency Planning Program initiated by the Chinese and Norwegian governments. We expect this joint venture to generate business as the demand for advisory services increase.
2. Principles of consolidation and presentation
The accompanying unaudited consolidated financial statements include the accounts of the parent entity, its direct wholly owned subsidiary, Favour, along with its indirect wholly owned subsidiary, Full Treasure, its 90% indirect owned subsidiary, Dalian Dongtai, its 80% indirect owned subsidiary, Dongtai Water, its 70% indirect owned subsidiary, Zhuorui, its 75% indirect owned subsidiary, Dalian Lipp, its 100% indirect owned subsidiary, Yingkou Dongtai, its 65% indirect owned subsidiary
，
Hunan Hanyang, its 78% indirect owned subsidiary, Sino-Noway EEC, and its 52% indirect owned subsidiary, Dongtai Organic. All material inter-company accounts and transactions have been eliminated in the consolidation.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in PRC. All necessary adjustments have been made to present the financial statements in accordance with US GAAP.
3. Summary of significant accounting policies
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign currency translation
As of March 31, 2011 and 2010, the accounts of the Company were maintained, and the unaudited consolidated financial statements were expressed in Chinese Yuan Renminbi (“RMB”). Such unaudited consolidated financial statements were translated into U.S. dollars (“USD”) in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 830 Foreign Currency Matters with RMB as the functional currency. All assets and liabilities were translated at the exchange rate as of the balance sheet date; stockholders’ equity was translated at the exchange rates prevailing at the time of the transactions; revenues, costs, and expenses were translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220 Comprehensive Income.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and cash on deposit, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Restricted cash
In accordance with ASC Topic 210-10-45-4 Classification of Current Assets, cash which is restricted as to withdrawal is considered a non-current asset. As of March 31, 2011 and December 31, 2010, restricted cash consists of government subsidy of $1,515,940 and $1,697,427, which is to be used exclusively on facility construction and equipment procurement. It also consists of cash held as collateral for a guarantee letter for contract execution of $76,458 and $75,757, and pledged cash for safety production requested by local government of $15,447 and $15,326, respectively, which is to be used exclusively on safety production related affairs.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts and other receivables
Accounts and other receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Payment terms of sales vary from cash on delivery through a credit term of up to nine to twelve months.
Advances to suppliers
The Company makes advances to certain vendors for purchase of its material or equipment. The advances to suppliers are interest free and unsecured.
Inventory
Raw and auxiliary materials are stated at the lower of cost, as determined on a first in, first-out basis or market. Recycled commodities are stated at the lower of cost, as determined on weighted average basis or market. Management compares the cost of inventories with the net realizable value, and an allowance is made for writing down the inventories to their net realizable value, if lower. Net realizable value represents the anticipated selling price less estimated costs of completion and distribution.
Property, plant and equipment
Property, plant and equipment (“PP&E”) are stated at cost, less accumulated depreciation and impairment. Expenditures for maintenance and repairs, which are not considered improvements and do not extend the useful life of PP&E, are expensed as incurred; additions, renewals and betterments are capitalized. When PP&E are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in the statement of income.
Depreciation is provided to recognize the cost of PP&E in the results of operations. The Company calculates depreciation using the straight-line method with estimated useful life as follows:
|
|
|
Useful Life
|
|
Buildings
|
|
20 Years
|
|
Machinery
|
|
5-14 Years
|
|
Vehicles
|
|
3-8 Years
|
|
Office equipment
|
|
3-5 Years
|
PP&E has an estimated residual value of 3% to 10%.
Construction in progress consists of construction expenditure, equipment procurement, capitalized interest expense, relevant miscellaneous expenditures, and other costs.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2011, construction in progress is comprised of three principal components. The first component is the Centralized Hazardous Waste Treatment Center of Dalian located in Dagu Hill area (“Dagushan Expansion Project”). The Expansion Project consists of an incineration system that includes, among other things, an incinerator and its supporting facilities, warehouses, work plants and office buildings. The second component is the production equipment of Zhuorui, including plasma furnace, fuel gas cleansing system, and dust trapper, which are in the testing phase. The third component is the Hazardous Waste Treatment Center of Changsha, Hunan Province (“Hunan Project”), which is in the preparation phase for the commencement of construction. Construction in progress includes capitalized interest of $827,731 and $652,410 as of March 31, 2011 and December 31, 2010.
Landfills
Various costs that we incur to make a landfill ready to accept waste are capitalized. These costs generally include expenditures for land, permitting, excavation, liner material and installation and other capital infrastructure costs. The cost basis of our landfill assets also includes estimates of future costs associated with landfill final capping, closure and post-closure activities in accordance with ASC Topic 410 Asset Retirement and Environmental Obligations. Interest accretion on final capping, closure and post-closure liabilities is recorded using the effective interest method and is recorded as accretion expense, which is included in our Consolidated Statements of Income and Comprehensive Income.
Amortization is recorded on a units-of-consumption basis, applying cost as a rate per ton. The rate per ton is calculated by dividing each component of the amortizable basis of a landfill by the number of tons needed to fill the corresponding asset’s airspace.
Long-term equity investment
As of March 31, 2011 and December 31, 2010, long-term investment is comprised of investment in Xiangtan Luyi Dongtai Industrial Waste Treatment Co., Ltd. (“Xiangtan Dongtai”).
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Long-term equity investment-Xiangtan Dongtai
|
|
$
|
152,711
|
|
|
$
|
151,515
|
|
Xiangtan Dongtai, located in Xiangtan City, Hunan Province, was established on August 5, 2009, and primarily engaged in treatment and disposal of industrial waste, development and sales of recycled products. Dalian Dongtai owns a 12.5% equity interest in Xiangtan Dongtai, therefore, the Company applies the cost method to account for its investment.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Impairment of long-lived assets
In accordance with ASC Topic 360 “Accounting for the Impairment or Disposal of Long Lived Assets”, long-lived assets, including intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available for the long-lived assets. No impairment of long-lived assets and intangible assets was recognized for any of the periods presented.
Intangible assets
Intangible assets consist of land usage rights and Build-Operate-Transfer (
“
BOT
”
) franchise right.
Land usage rights represent the exclusive right to the use of land during a specific contractual term. Land usage rights are carried at cost and charged to expense on a straight-line basis over the respective periods of the rights or the remaining period of the rights upon acquisition.
The Company obtained a BOT franchise right in connection with its acquisition of Hunan Hanyang, which will be amortized using straight-line method over 25 years upon completion of the construction.
The following table identifies the material terms of the land use rights:
|
Effective
Date
|
|
Expiration
Date
|
|
Area
(Square Meter)
|
|
Address
|
|
Status
|
|
01-01-2003
|
|
01-01-2053
|
|
8,433
|
|
No.1, Huaihe West Road, Dalian Development Area
|
|
Mortgaged
|
|
01-01-2003
|
|
01-01-2053
|
|
6,784
|
|
No. 100, Tieshan West Road, Dalian Development Area
|
|
Mortgaged
|
|
04-14-2003
|
|
04-13-2053
|
|
1,841
|
|
No.1-1, Huaihe West Third Road, Dalian Development Area
|
|
Mortgaged
|
|
07-28-2003
|
|
07-27-2053
|
|
61,535
|
|
No. 85, Dagu Hill, Dalian Development Area
|
|
Mortgaged
|
|
06-06-2007
|
|
06-06-2057
|
|
56,397
|
|
Dalian Huayuankou Economic Zone
|
|
Mortgaged
|
|
03-24-2010
|
|
12-23-2056
|
|
25,000
|
|
Yingkou Coastal Industrial Base
|
|
Unencumbered
|
|
-
|
|
-
|
|
10,500
|
|
Haiqing Island, Dalian Development Area
|
|
Unencumbered
|
|
-
|
|
-
|
|
24,740
|
|
Xiajiahez Villiage, Ganjingzi District, Dalian
|
|
Unencumbered
|
|
-
|
|
-
|
|
29,572
|
|
Xiajiahez Villiage, Ganjingzi District, Dalian
|
|
Unencumbered
|
|
-
|
|
-
|
|
1,941
|
|
Xiajiahez Villiage, Ganjingzi District, Dalian
|
|
Unencumbered
|
Noncontrolling interest in consolidated financial statements
The Company establishes accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary in accordance with ASC Topic 805 Business Combinations. Noncontrolling interest represents the minority owners’ 10% equity interest in Dalian Dongtai, 20% equity interest in Dongtai Water, 48% equity interest in Dongtai Organic, 30% equity interest in Zhuorui, 25% equity interest in Dalian Lipp, 35% equity interest in Hunan Hanyang, and 22% equity interest in Sino-Norway EEC.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognition
The Company recognizes revenues in accordance with the guidance in the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104. Revenue is recognized when persuasive evidence of an arrangement exists, when the selling price is fixed or determinable, when delivery occurs and when collection is probable.
Revenues are generated from the fees charged for waste collection, transfer, treatment, disposal and recycling services and the sale of recycled commodities. The fees charged for services are generally defined in service agreements and vary based on contract specific terms such as frequency of service, weight, volume and the general market factors influencing industry’s rates. Recycled commodities are considered delivered at the point when the customers take ownership and assume risk of loss of the commodities.
Deferred sales consist of contracts for which the fees have been collected but revenue has not yet been recognized in accordance with the revenue recognition policy. As of March 31, 2011 and December 31, 2010, deferred sales amount to $798,500 and $394,862, respectively.
Government grants are received at a discretionary amount as determined by the local PRC government. The Company follows the guideline of the AICPA Issues Paper in accounting for grants as revenues:
|
i)
|
Grants related to revenue, such as certain export subsidies and price control subsidies, should be recognized in the period of the related events.
|
|
ii)
|
Grants to reimburse current expenditures, such as research and development costs, wages, training costs and transportation costs, should be treated as a reduction of current or future related expense, depending on when the related expense is recognized.
|
|
iii)
|
Grants related to developing property, such as timberlands, or mineral reserves, should be recognized over the useful lives of the assets.
|
Research and development costs
Research and development costs are expensed as incurred.
Stock-based compensation
The Company follows the guideline under ASC Topic 718 Compensation-Stock Compensation
for all stock based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. Stock compensation expenses are to be recorded using the fair value method.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments
ASC 820,
“Fair Value Measurements”
and ASC 825,
Financial Instruments,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash and cash equivalent, notes receivable, accounts receivable, inventories, advance to suppliers, accounts payable, short term loans, advance from customers, construction projects payable and accrued liabilities. The recorded values of the financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. The Company has long term debt with variable interest rate, and the variable interest rate reflect fair value.
Income taxes
The Company follows the guideline under ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company is subject to the taxes in the United States at tax rate of approximately 42.7%. No provision for the US federal income taxes has been made as the Company had no taxable income in this jurisdiction for the reporting periods.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company is subject to the PRC Enterprise Income Tax (“EIT”) at a rate of 25% on its net income. According to the PRC EIT Law, any joint venture with foreign investment will get EIT exemption treatment for the first two years and reduced tax rates of 9%, 10% and 11% for the third, fourth and fifth years, respectively. As a foreign investment enterprise, Dalian Dongtai is subject to EIT at 11% for the period ended March 31, 2010. Furthermore, Dalian Dongtai was granted a “High and New Technology Enterprise” by Chinese government, under which Dalian Dongtai was entitled to preferential tax rate of 15% for the period ended March 31, 2011.
The PRC EIT Law stipulates that enterprises that engage in municipal sewage and sludge treatment business are eligible for special EIT treatment. According to such rules, Dongtai Water and Dongtai Organic are entitled to a three-year EIT exemption beginning on the date they each first generated operation revenue, and an additional 50% discount on the normal rate for the next three years following the expiration of the exemption. For the period ended March 31, 2011 and 2010, Dongtai Water and Dongtai Organic have benefited from the EIT exemption preference.
Statement of cash flows
In accordance with ASC Topic 230 Statement of Cash Flows, cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
Reclassifications
Certain reclassifications have been made in the 2010 financial statements to conform to the 2011 presentation.
Recent accounting pronouncements
The Financial Accounting Standards Board (the “FASB”) has codified a single source of U.S. Generally Accepted Accounting Principles (GAAP), the Accounting Standards Codification™. Unless needed to clarify a point to readers, we will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes. There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Notes receivable
As of March 31, 2011 and December 31, 2010, notes receivable, with balances of $220,256 and $86,364, respectively, represents trade accounts receivable due from various customers where the customers’ banks have guaranteed the payment of the receivables. This amount is non-interest bearing and is normally paid within three to six months. The Company has the right to submit request for payment to the customer’s bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee when it submits the early payment request.
5. Accounts receivable
As of March 31, 2011 and December 31, 2010, the net balances of accounts receivable were $6,328,174 and $5,731,847, respectively. The following table shows the aging composition of the balance:
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Aging
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
1-3 months
|
|
$
|
3,367,891
|
|
|
$
|
3,464,368
|
|
|
4-6 months
|
|
|
1,631,489
|
|
|
|
484,177
|
|
|
7-12 months
|
|
|
660,747
|
|
|
|
1,198,449
|
|
|
1-2 years
|
|
|
788,531
|
|
|
|
723,107
|
|
|
over 2 years
|
|
|
74,445
|
|
|
|
12,736
|
|
|
Total
|
|
$
|
6,523,103
|
|
|
$
|
5,882,837
|
|
|
Allowance for doubtful accounts
|
|
|
(194,929
|
)
|
|
|
(150,990
|
)
|
|
Accounts receivable, net
|
|
$
|
6,328,174
|
|
|
$
|
5,731,847
|
|
The activity in the allowance for doubtful accounts for trade accounts receivable for the three months ended March 31, 2011 and for the year ended December 31, 2010 is as follows:
|
|
|
For the Three
|
|
|
|
|
|
|
|
Months Ended
|
|
|
For the year Ended
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Aging
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Beginning allowance for doubtful account
|
|
$
|
150,990
|
|
|
$
|
31,068
|
|
|
Additional charged to bad debt expense
|
|
|
42,548
|
|
|
|
118,858
|
|
|
Foreign currency translation adjustment
|
|
|
1,391
|
|
|
|
1,064
|
|
|
Ending allowance for doubtful accounts
|
|
$
|
194,929
|
|
|
$
|
150,990
|
|
The balances of $788,531 aging between one and two years are mainly related to two certain customers. Management’s judgment as to the collectability of these accounts receivable is based on reputation of the two customers and the fact that the Company maintains a continuing business relationship with them. Also as of March 31, 2011, we have a balance of $686,143 in accounts payable to these two customers. Management believes that the allowance for doubtful account of 20% of the balances between one and two years is adequate.
6. Inventories
Inventories as of March 31, 2011 and December 31, 2010 consist of raw materials and recycled commodities as follows:
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Raw materials
|
|
$
|
2,171,541
|
|
|
$
|
2,129,507
|
|
|
Recycled commodities
|
|
|
2,489,139
|
|
|
|
2,522,641
|
|
|
|
|
$
|
4,660,680
|
|
|
$
|
4,652,148
|
|
Raw materials are mainly comprised of waste catalyst purchased from oil refineries, chemicals served as agent in the waste treatment and recycling process, and packaging materials.
As of March 31, 2011 and December 31, 2010, the balances of waste catalyst amounted to $1,387,609 and $1,548,877, respectively. Waste catalyst purchased from oil refinery, is utilized by our subsidiary Zhuorui to produce ammonium metavanadate, molybdic acid and nickel slag. Metals contained in the waste catalyst are a scarce resource, and the demand for waste catalyst is much higher than the supply within area of our operation. As such the market value of waste catalyst is expected to remain higher than cost.
Recycled commodities are mainly comprised of metal alloys, aluminum and iron products and cupric sulfate that are produced from the treatment of industrial solid waste.
For the three months ended March 31, 2011 and for the year ended December 31, 2010, no allowance for obsolete inventories was recorded by the Company.
7. Property, plant and equipment
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Buildings
|
|
$
|
16,356,407
|
|
|
$
|
16,228,283
|
|
|
Machinery and equipment
|
|
|
20,236,166
|
|
|
|
20,045,833
|
|
|
Office equipment
|
|
|
785,794
|
|
|
|
749,715
|
|
|
Vehicles
|
|
|
1,768,252
|
|
|
|
1,734,613
|
|
|
|
|
|
39,146,619
|
|
|
|
38,758,444
|
|
|
Less accumulated depreciation
|
|
|
(6,988,628
|
)
|
|
|
(6,374,305
|
)
|
|
Total property and equipment, net
|
|
|
32,157,991
|
|
|
|
32,384,139
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
21,333,856
|
|
|
|
18,642,061
|
|
|
Total
|
|
$
|
53,491,847
|
|
|
$
|
51,026,200
|
|
Depreciation expenses for the three months ended March 31, 2011 and 2010, was $561,365 and $526,771, respectively.
As of March 31, 2011, certain buildings, with the net book value of $4,182,900, have been pledged as the collateral for loans from Shanghai Pudong Development Bank. Certain machinery and equipment, with the net book value of $12,818,448, have been pledged as the collateral for loans from China Merchants Bank.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Land usage right
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Land usage right
|
|
$
|
2,382,914
|
|
|
$
|
2,364,248
|
|
|
Accumulated amortization
|
|
|
(357,190
|
)
|
|
|
(341,864
|
)
|
|
Land usage right, net
|
|
$
|
2,025,724
|
|
|
$
|
2,022,384
|
|
As of March 31, 2011, net land usage rights were $2,025,724, of which $1,755,967 has been pledged as collaterals for the loans from Shanghai Pudong Development Bank.
The amortization expenses for the three months ended March 31, 2011 and 2010 were $12,568 and $15,837, respectively.
Future amortization of land use rights is as follows:
|
Year
|
|
Amount
|
|
|
2011
|
|
$
|
37,881
|
|
|
2012
|
|
|
50,508
|
|
|
2013
|
|
|
50,508
|
|
|
2014
|
|
|
50,508
|
|
|
2015
|
|
|
50,508
|
|
|
Thereafter
|
|
|
1,785,811
|
|
|
Total
|
|
$
|
2,025,724
|
|
9. Other assets
Other assets in the amount of $1,248,308 are primarily comprised of value added tax (“VAT”) credit of $1,243,131. VAT is a turnover tax levied on all units and individuals engaged in the sale of goods, the provision of processing, repair and replacement services (together referred to as "taxable labor services") and the importation of goods to the PRC.
10. Short-term loans
As of March 31, 2011 and December 31, 2010, the short-term loan balances represent loans that were borrowed from Shanghai Pudong Development Bank (“SPD Bank”). The following table sets forth the material terms of these loans:
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
Effective Date
|
|
Maturity
|
|
Type
|
|
(Per Annum)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
06-13-2010
|
|
06-10-2011
|
|
Secured
|
|
|
6.372
|
%
|
|
$
|
3,054,228
|
|
|
$
|
3,030,303
|
|
The loans are secured by certain properties and land use right of the Company, as fully described in Note 7 and 8.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. Long-term loans
As of March 31, 2011 and December 31, 2010, the following table sets forth the material terms of the long-term loans:
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Lending Bank
|
|
Effective
Date
|
|
Maturity
|
|
Interest Rate
(Per Annum)
|
|
Type
|
|
March 31, 2011
(Unaudited)
|
|
|
December 31, 2010
(Audited)
|
|
|
China Merchants Bank
|
|
01-08-2009
|
|
12-20-2016
|
|
|
6.72
|
%
|
Secured
|
|
$
|
10,888,322
|
|
|
$
|
11,030,303
|
|
|
China Merchants Bank
|
|
08-20-2009
|
|
08-20-2017
|
|
|
6.72
|
%
|
Secured
|
|
|
3,101,950
|
|
|
|
3,196,023
|
|
|
SPD Bank
|
|
04-27-2010
|
|
04-27-2012
|
|
|
6.435
|
%
|
Secured
|
|
|
1,527,114
|
|
|
|
1,515,152
|
|
|
SPD Bank
|
|
04-27-2010
|
|
04-27-2013
|
|
|
6.435
|
%
|
Secured
|
|
|
152,711
|
|
|
|
151,515
|
|
|
SPD Bank
|
|
10-14-2010
|
|
04-27-2013
|
|
|
6.435
|
%
|
Secured
|
|
|
4,428,630
|
|
|
|
4,393,939
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$
|
20,098,727
|
|
|
$
|
20,286,932
|
|
|
Current Portion
|
|
|
|
|
|
|
|
|
|
|
$
|
2,340,302
|
|
|
$
|
2,321,970
|
|
|
Non-current Portion
|
|
|
|
|
|
|
|
|
|
|
$
|
17,758,425
|
|
|
$
|
17,964,962
|
|
The interest rates for the two loans from China Merchants Bank are determined based on the interest rate of loans with terms over 5 years set by the People’s Bank of China plus 5% and are adjustable every six months. As of March 31, 2011, the benchmark interest rate of loans with terms over 5 years is 6.4%. The BOT franchise right of Dongtai Water and Dongtai Organic, and certain manufacturing machinery of the Company with net book value of $12,818,448 are pledged as collateral for the two loans from China Merchants Bank. Dalian Lida Environmental Engineering Co., Ltd, which holds 20% equity interest in Dongtai Water, acts as co-guarantor for the loan from China Merchants Bank in the principal amount of $3,101,950.
On April 20, 2010, the Company entered into a long-term loan agreement with Shanghai Pudong Development Bank. Pursuant to the loan agreement, the Company may borrow up to RMB 40 million (approximately $6 million) with a maturity date of April 27, 2013. As of December 31, 2010, the Company had drawn down on the full amount of the loan agreement. The interest rate for the loan is determined based on the interest rate of loans with terms between 1 to 3 years set by the People’s Bank of China plus 10% and is adjustable every 12 months. As of March 31, 2011, the benchmark interest rate of loans with terms between 1 to 3 years is 5.85%. The loan is to be used exclusively for the construction of Dagushan Expansion Project. The loan is secured by certain properties and land use right of the Company with net book value of $628,930 and $1,755,967, respectively.
The long term loans from China Merchants Bank and SPD Bank are scheduled to be repaid on installments. The following table shows the installments schedule:
|
Year
|
|
Amount
|
|
|
2011
|
|
$
|
1,755,226
|
|
|
2012
|
|
|
3,867,416
|
|
|
2013
|
|
|
6,921,644
|
|
|
2014
|
|
|
2,340,302
|
|
|
2015
|
|
|
2,340,302
|
|
|
Thereafter
|
|
|
2,873,837
|
|
|
Total
|
|
$
|
20,098,727
|
|
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2011, the installments amounting to $2,340,302 will be due within one year, and are classified in current liabilities.
12. Government subsidy
As of March 31, 2011 and December 31, 2010, the government subsidy consists of the followings:
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Dalian Dongtai
|
|
$
|
2,901,517
|
|
|
$
|
2,878,788
|
|
|
Zhuorui
|
|
|
1,297,525
|
|
|
|
1,287,360
|
|
|
Hunan Hanyang
|
|
|
3,206,939
|
|
|
|
3,181,818
|
|
|
Dongtai Organic
|
|
|
328,329
|
|
|
|
325,758
|
|
|
Total
|
|
$
|
7,734,310
|
|
|
$
|
7,673,724
|
|
Dalian Dongtai received a government subsidy from the central government of PRC of RMB9,000,000 (approximately $1,363,636) and RMB10,000,000 (approximately $1,465,008) in 2010 and 2009 respectively, to support the construction of Dagushan Expansion Project.
In 2007, Zhuorui received government subsidies of RMB7,036,000 (approximately $1,030,780), of which RMB6,000,000 (approximately $878,966) is to be used to purchase production machinery or pay construction expenditures, and the remaining balance in the amount of RMB1,036,000 (approximately $151,768) is granted as a reimbursement for the acquisition of land use right. In 2010, Zhuorui received government subsidies in the amount of RMB1,886,000 (approximately $285,758), which is to be used to purchase production machinery.
On January 27, 2010, Hunan Hanyang received a government subsidy in the amount of RMB21 million (approximately $3,181,818) from the central government of PRC, representing the first installment of a total expected government subsidy of RMB110 million (approximately $16.22 million) as a reimbursement of construction cost in the Hazardous Waste Treatment Center of Changsha City, Hunan Province.
In 2010, Dongtai Organic received government subsidies in the amount of RMB2,150,000 (approximately $325,758) which is to be used to purchase production machinery for sludge treatment.
The subsidies are initially recorded as deferred income. Upon the completion and acceptance of the government subsidized projects, subsidies are recognized as reductions to depreciation expense over the useful lives of the related assets.
13. Related parties balances and transactions
As of March 31, 2011 and December 31, 2010, the amounts due from (to) related parties were as follows:
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Due to Dalian Dongtai Investment Co., Ltd. (“Dongtai Investment”)
|
|
$
|
(397,049
|
)
|
|
$
|
(393,939
|
)
|
|
Due to Xiangtan Dongtai
|
|
|
(76,356
|
)
|
|
|
-
|
|
|
Due from Dalian Lida Environmental Engineering Co., Ltd. (“Dalian Lida”)
|
|
$
|
344,689
|
|
|
$
|
291,552
|
|
As of March 31, 2011, the balances with related parties are interest free, unsecured, payable or receivable on demand.
14. Earnings per share
Basic earnings per common share (“EPS”) are calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive securities, such as stock options and warrants, using the treasury stock method. The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table:
|
|
|
For the Three
months ended
March 31, 2011
|
|
|
For the Three
months ended
March 31, 2010
|
|
|
Net income attributable to the Company
|
|
$
|
1,226,345
|
|
|
$
|
608,855
|
|
|
Adjustments for diluted EPS calculation
|
|
|
-
|
|
|
|
-
|
|
|
Adjusted net income for calculating EPS-diluted
|
|
$
|
1,226,345
|
|
|
$
|
608,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares – Basic
|
|
|
15,336,535
|
|
|
|
15,327,507
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
-
|
|
|
|
20,000
|
|
|
Warrants
|
|
|
-
|
|
|
|
1,053,930
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
Weighted average number of common shares - Diluted
|
|
|
15,336,535
|
|
|
|
16,401,437
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
|
Diluted
|
|
$
|
0.08
|
|
|
$
|
0.04
|
|
15. Segment information
The company’s operations include two primary segments: Waste treatment and recycling and Sludge treatment equipment supply.
The Company’s two reportable segments are determined by the nature of products and services that each offer. The Waste treatment and recycling segment generates its revenues based on collecting, storing, treating, disposing and recycling industrial solid waste, treating municipal sewage and sludge and selling methane gas generated in the process of treating sludge. Sludge treatment equipment supply segment generates its revenues based on selling sludge treatment equipment and offering engineering services.
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
We evaluate segment performance and allocate resources based on profit or loss. There are no intersegment sales.
|
For the Three months ended
March 31, 2011 (Unaudited)
|
|
Waste treatment
and recycling
|
|
|
Sludge treatment
equipment supply
|
|
|
Other
|
|
|
Segment
totals
|
|
|
Revenues
|
|
$
|
6,065,628
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
6,065,628
|
|
|
Segment profit/(loss)
|
|
$
|
1,569,086
|
|
|
$
|
(64,074
|
)
|
|
$
|
(171,188
|
)
|
|
$
|
1,333,824
|
|
|
Segment assets
|
|
$
|
82,187,766
|
|
|
$
|
1,164,601
|
|
|
$
|
123,592
|
|
|
$
|
83,475,959
|
|
|
For the Three months ended
March 31, 2010 (Unaudited)
|
|
Waste treatment
and recycling
|
|
|
Sludge treatment
equipment supply
|
|
|
Other
|
|
|
Segment
totals
|
|
|
Revenues
|
|
$
|
4,094,841
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
4,094,841
|
|
|
Segment profit/(loss)
|
|
$
|
1,367,301
|
|
|
$
|
(35,208
|
)
|
|
$
|
(567,899
|
)
|
|
$
|
764,194
|
|
|
Segment assets
|
|
$
|
68,368,872
|
|
|
$
|
1,357,368
|
|
|
$
|
404,868
|
|
|
$
|
70,131,108
|
|
Geographical information
As all the Company’s revenues are generated in China and the Company’s long-lived assets are all located in China, no geographical segments are presented.
Information about major customers
The Company’s sales to customers which accounted for 10% or more of its total sales for the three months ended March 31, 2011 and 2010 are as follows:
|
|
|
For the Three months ended
|
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
Customer A
|
|
|
736,665
|
|
|
|
914,688
|
|
|
Customer B
|
|
|
265,294
|
|
|
|
413,504
|
|
|
|
|
|
1,001,959
|
|
|
|
1,328,192
|
|
The Company’s revenues by service and product are as follows:
|
|
|
For the Three months ended
|
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
Service Fees from
|
|
|
|
|
|
|
|
Solid waste
|
|
$
|
2,802,617
|
|
|
$
|
2,029,870
|
|
|
Sludge processing
|
|
|
728,203
|
|
|
|
585,394
|
|
|
Sewage processing
|
|
|
246,364
|
|
|
|
329,294
|
|
|
Total Service Fees
|
|
|
3,777,184
|
|
|
|
2,944,558
|
|
|
Sales of
|
|
|
|
|
|
|
|
|
|
Recycled materials
|
|
|
2,023,150
|
|
|
|
736,779
|
|
|
Methane gas
|
|
|
265,294
|
|
|
|
413,504
|
|
|
Total Sales of Recycled Commodities
|
|
|
2,288,444
|
|
|
|
1,150,283
|
|
|
Total Sales
|
|
$
|
6,065,628
|
|
|
$
|
4,094,841
|
|
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
16. Commitment and Contingency
Capital commitment
The Company has purchasing commitments that result from construction contracts and equipment procurement contracts signed for the development of Dagushan Expansion Project. As of March 31, 2011, the commitment information is as follows:
|
Construction
|
|
$
|
2,231,686
|
|
|
Equipment
|
|
|
1,028,506
|
|
|
Total
|
|
$
|
3,260,192
|
|
17. Subsequent events
In April 2011, in order to fund the construction of food waste treatment project, Dongtai Organic executed an amendment to agreement with China Merchants Bank pertaining to the loan borrowed in January 2009. The previous installment agreement described that the principal of RMB3.05 million (approximately $465,769) will be paid every quarterly until January 2017. The modified agreement depicted that the principal of RMB1.5 million (approximately $229,067) will be paid every quarterly in 2011 and 2012, and the principal of RMB3.08 million (approximately $470,451) will be paid every quarterly from 2013 to 2016.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion should be read in conjunction with the audited combined and consolidated financial statements of the Company and the notes thereto included in this report. This report contains forward-looking statements within the meaning of federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “may”, “will”, “should”, “anticipate,” “expect,” “intend,” “plan,” “believe,” or the negative of these words or other variations on these words or comparable terminology. The forward-looking statements are based on the current expectations of management and are subject to certain risks, uncertainties and assumptions, including those described under “Risk Factors” in the Company’s Annual Report for the year ended December 31, 2010. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. You should not place undue reliance on these forward-looking statements.
Any forward-looking statements speak only as of the date on which they are made and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Investors are advised to refer to the information in our filings with the Securities and Exchange Commission, in which we discuss in greater detail various important factors that could cause actual results to differ from expected or historic results. Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.
The “Company”, “we,” “us,” and “our” and similar words refer to China Industrial Waste Management, Inc., and its direct and indirect, wholly-owned and partially-owned subsidiaries. Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (iii) “RMB”, “Yuan” and “Renminbi” are to the currency of the PRC or China.
OVERVIEW
We are a leading provider of comprehensive environmental services and solutions in northeastern China. We currently have two primary areas of business. In our Industrial Solid Waste Treatment and Recycling business, we collect, store, treat, dispose and recycle industrial solid waste. In our Sludge and Sewage Treatment business, we are licensed to treat municipal sewage generated from a designated portion of Dalian, China, as well as treat the sludge resulting from the processing of sewage routed to us from 14 sewage treatment facilities located in Dalian and surrounding areas. In addition, we recently began to offer environmental equipment supply and engineering services, which are not yet a significant contributor to our revenues, but represent an important part of our growth strategy. We believe we are the largest and most technologically advanced provider of environmental services in our principal geographic market of Liaoning Province.
We are headquartered in Dalian, a city with a population of over 7 million located at the tip of the Liaodong Peninsula that serves as a large trading, industrial and financial center in northeastern China. As of March 31, 2011, we provided services to more than 800 customers located in Dalian, including Chinese and foreign companies, and the Dalian municipal government. In addition, under our Build-Operate-Transfer (BOT) contracts with the Dalian municipal government, we operate one of eight sewage treatment facilities currently operating in Dalian and the only sludge treatment facility in Dalian, which was the first BOT project to implement centralized municipal sludge treatment in China.
All of our sales for these periods were in the People’s Republic of China, or PRC.
To meet the growing demand for industrial solid waste disposal and treatment, we are constructing a new solid waste treatment facility in Dalian, which has been designated by the PRC National Development and Reform Commission, or NDRC, as one of 55 authorized hazardous waste treatment centers in China, and will be one of two such centers in Liaoning Province. The objective of the NDRC is for every province in China to have one or two such solid waste treatment facilities. Our new facility, which we call our Dagushan Expansion Project, is 90% complete and is expected to commence operations in the third quarter of 2011. Once this facility is operational, our solid waste treatment capacity is anticipated to increase to 114,000 tons annually, which is twice that of our existing capacity.
RECENT DEVELOPMENTS
Our 70%-owned subsidiary, Dalian Zhuorui Resource Recycling Co., Ltd. ("Zhuorui"), is engaged in the separation and purification of waste catalysts, which contain scarce metals, generated from the oil refinery process. As of the date of this report, Zhuorui has successfully completed trial operations and has commenced production of products including ammonium metavanadate, molybdic acid, and nickel powder. The Company expects a significant increase in the selling prices for certain products of Zhuorui and the Company may selectively sell some of its products depending on market conditions.
RESULTS OF OPERATIONS
Three months ended March 31, 2011 as compared to the three months ended March 31, 2010
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Revenues
|
|
$
|
6,065,628
|
|
|
$
|
4,094,841
|
|
|
Cost of revenues
|
|
|
2,981,405
|
|
|
|
1,416,951
|
|
|
Gross profit
|
|
|
3,084,223
|
|
|
|
2,677,890
|
|
|
Selling expenses, R&D,
General and administrative expenses
|
|
|
1,365,233
|
|
|
|
1,119,718
|
|
|
Income from operations
|
|
|
1,718,990
|
|
|
|
1,558,172
|
|
|
Net income before tax provision
|
|
|
1,603,420
|
|
|
|
897,195
|
|
|
Net income for the period
|
|
$
|
1,333,824
|
|
|
$
|
764,194
|
|
Revenues
We generate revenue primarily from two sources, (i) service fees paid by solid waste customers for solid waste collection, transfer, recycling and disposal services and service fees paid by the Dalian government for sludge and sewage treatment services, and (ii) sales of recycled commodities, cupric sulfate and sales of methane derived from anaerobic fermentation of sludge. All of our sales for periods covered by this report were in the People’s Republic of China, or PRC. Revenues from service fees accounted for 62% and 72% of revenues in the three months ended March 31, 2011 and 2010, respectively.
Total revenue for the three months ended March 31, 2011 was $6,065,628, an increase of $1,970,787, or 48%, as compared to $4,094,841 for the three months ended March 31, 2010. The increase in revenue was mainly attributable to (i) the increased demand for waste disposal services from our customers, (ii) more service fees generated by our sludge treatment as it processed more sludge in the first quarter of 2011, (iii) the increase in sales of waste iron and aluminum at favorable market price, and (iv) the addition of revenues generated from our discarded domestic appliance disposal operations commenced August 1, 2010 under a national program jointly sponsored by the PRC Ministries of Commerce, Finance and Environmental Protection.
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Service Fees
|
|
$
|
3,777,184
|
|
|
$
|
2,944,558
|
|
|
Sales of Recycled Commodities
|
|
|
2,288,444
|
|
|
|
1,150,283
|
|
|
Total Sales
|
|
$
|
6,065,628
|
|
|
$
|
4,094,841
|
|
Service fee revenue for the three months ended March 31, 2011 was $3,777,184, which accounted for 62% of total revenues, an increase of $832,626, or 28%, over service fees of $2,944,558 for the three months ended March 31, 2010. Service fees accounted for 72% of our total revenue for the three months ended March 31, 2010.
Sales of recycled commodities for the three months ended March 31, 2011 were $2,288,444, which accounted for 38% of our total revenues, an increase of $1,138,161, or 99%, from revenues of $1,150,283 for the three months ended March 31, 2010, which accounted for 28% of our revenues for such period. The sharp increase in sales of recycled commodities was due to the significantly higher sales volume and selling price.
Cost of Revenues
Cost of revenues is primarily comprised of labor expenses (salaries, insurance and other benefits), depreciation, materials, transportation costs, rent, repair costs and other sundry expenses. Cost of revenues increased by $1,564,454, from $1,416,951 for the three months ended March 31, 2010 to $ 2,981,405 for the three months ended March 31, 2011.
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Cost of Service Fees
|
|
$
|
1,689,096
|
|
|
$
|
1,028,493
|
|
|
Cost of Recycled Commodities
|
|
|
1,292,309
|
|
|
|
388,458
|
|
|
Total Cost
|
|
$
|
2,981,405
|
|
|
$
|
1,416,951
|
|
Costs related to providing solid waste, sewage and sludge treatment services increased by $660,603, from $1,028,493 for the three months ended March 31, 2010 to $1,689,096 for the three months ended March 31, 2011. This increase is attributed primarily to the increase in labor, transportation and repair cost associated with our industrial solid waste operations.
Costs related to producing recycled waste products increased by $903,851, from $388,458 for the three months ended March 31, 2010 to $1,292,309 for the three months ended March 31, 2011, representing an increase of 233%. The increase is mainly due to the increased volume of recycled commodities sold to customers and the costs incurred from higher unit-purchasing prices of recyclable materials.
Gross Profit Margin
The gross profit margin for the three months ended March 31, 2011 was 51% as compared to 65% for the same period in 2010. The primary reason for the decrease in the Company’s gross profit margin is a combination of (i) the significant increase of disposal service revenue generated from
our non-hazardous
waste treatment in current period, and a change in the service revenue mix between hazardous waste treatment and
non-hazardous
waste treatment. Hazardous waste service contributes a significant higher profit margin as compared to
non-hazardous
waste treatment and (ii) increased labor costs, transportation costs and raw materials costs related to producing recycled waste products.
Operating Expenses
Our selling, general and administrative expenses consist primarily of salaries, freight charges, labor cost, and labor protection expenses.
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Selling expenses
|
|
$
|
180,441
|
|
|
$
|
151,624
|
|
|
R&D expenses
|
|
|
94,608
|
|
|
|
71,486
|
|
|
General and administrative expenses
|
|
|
1,090,184
|
|
|
|
896,608
|
|
|
Total operating expenses
|
|
$
|
1,365,
233
|
|
|
$
|
1,119,718
|
|
Total operating expenses for the three months ended March 31, 2011 was $1,365,233 which represents an increase of $245,515, or 22%, from $1,119,718 for the three months ended March 31, 2010. General and administrative expenses (“G&A Expenses”) increased by $193,576, or 22%, for the three months ended March 31, 2011 as compared to G&A Expenses for the three months ended March 31, 2010. Selling expenses increased by $28,817, or 19%, to $180,441 for the three months ended March 31, 2011 as compared to $151,624 for the three months ended March 31, 2010. The increase in G&A Expenses was primarily due to the increase in labor cost.
Net Income
Net income for the three months ended March 31, 2011 was $1,333,824 representing an increase of $569,630, or 75%, as compared to net income of $764,194 for the three months ended March 31, 2010. The increase was mainly attributable to the significant increase in revenues as compared to the same period of last year.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations and met capital expenditure requirements primarily through cash generated by operating activities, bank borrowings, and capital from investors in private placements of equity securities.
As of March 31, 2011, we had a working capital surplus of $5,927,854 compared to a surplus of $6,747,904 as of December 31, 2010.
As of March 31, 2011, we had cash and cash equivalents of $5,865,833 compared to $8,163,880 as of December 31, 2010, representing a decrease of $2,298,047, or 28%. The decrease was mainly due to the payment of construction cost and procurement of equipment for our Dagushan Expansion Project and Zhuorui operations.
Cash Flow
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Net cash provided by operating activities
|
|
$
|
756,629
|
|
|
$
|
1,105,814
|
|
|
Net cash used in investing activities
|
|
$
|
(2,504,517
|
)
|
|
$
|
(835,125
|
)
|
|
Net cash used in financing activities
|
|
$
|
(665,315
|
)
|
|
$
|
(1,373,943
|
)
|
Net cash provided by operating activities was $756,629
for the three months ended March 31, 2011, compared to net cash provided by operating activities in the amount of $1,105,814 for the same period in 2010. The decrease was primarily contributed to the following reasons in the first quarter of 2011: (i) the Company had a decrease in accrued expenses in the amount of $751,448. (ii) an increase in other receivables in the amount of $372,164, which served as advances to home appliances stores as required to acquire discarded electronic appliances (iii) an increase in accounts receivable in the amount of $640,266, and (iv) a decrease in other payable in the amount of $457,682, due to payment to subcontractor.
Net cash used in investing activities for the three months ended March 31, 2011 was $2,504,517, compared to net cash used in investing activities in the amount of $835,125 for the same period of 2010. The increase was mainly due to our increased investment in Dagushan Expansion Project and Zhuorui operation in the three months ended March 31, 2011 compared to the same period of 2010.
Net cash used in financing activities for the first quarter of 2011 was $665,315 compared to net cash used in financing activities in the amount of $1,373,943 for the same period of 2010. The decrease was mainly due to the following reasons: (i) in the first quarter of 2011, the payment of construction project decreased by $234,070 compared to the first quarter of 2010 (ii) less payment on certain bank loans from China Merchants Bank than in the same period of 2010 (iii)offset by proceeds from related party loan of $79,466, and (iv) Restricted cash released from government subsidized project in the amount of $180,665.
We intend to use our available funds as working capital and to expand and develop our current business operations. We believe that our available funds will provide us with sufficient capital for at least the next twelve months; however, to the extent that we make acquisitions, we may require additional capital for the acquisition or to support the operations of the combined companies. We cannot provide any assurance that any required funding will be available on terms acceptable to us, if at all.
Off Balance Sheet Arrangements
As of March 31, 2011, we did not have any off-balance sheet arrangements.
Contractual Obligations
In April 2011, in order to fund the construction of food waste treatment project, Dongtai Organic executed an amendment to agreement with China Merchants Bank pertaining to the loan borrowed in January 2009. The previous installment agreement described that the principal of RMB3.05 million (approximately $465,769) will be paid every quarterly until January 2017. The modified agreement depicted that the principal of RMB1.5 million (approximately $229,067) will be paid every quarterly in 2011 and 2012, and the principal of RMB3.08 million (approximately $470,451) will be paid every quarterly from 2013 to 2016.
CRITICAL ESTIMATES AND ACCOUNTING POLICIES
We have disclosed in Note 3 to our financial statements those accounting policies that we consider to be significant in determining our results of operations and our financial position which are incorporated by reference herein.
The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates, including those related to bad debts, inventories and warranty obligations, on an ongoing basis. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. The actual results may differ from these estimates under different assumptions or conditions.
The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Revenue Recognition
Revenue is recognized in accordance with SAB104 when services are rendered to customers in accordance with a formal agreement, the price is fixed or determinable, the delivery or contractual service is completed, and no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as deferred sales.
Property, Plant and Equipment
Property, plant and equipment (“PP&E”) are stated at cost, less accumulated depreciation and impairment. Expenditures for maintenance and repairs, which are not considered improvements and do not extend the useful life of PP&E, are expensed as incurred; additions, renewals and betterments are capitalized. When PP&E is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in the statement of operations.
Accounts Receivable
The Company’s policy is to maintain specific reserves for potential credit losses on accounts receivable. Management periodically reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Payment terms of sales vary from cash on delivery through a credit term of up to nine to twelve months.
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
|
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
The exhibits required by this item are set forth in the Exhibit Index attached hereto.
SIGNATURES
Pursuant to the requirements 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.
|
|
CHINA INDUSTRIAL WASTE MANAGEMENT, INC.
|
|
|
|
|
|
Dated: May 13, 2011
|
By:
|
/s/ Jinqing Dong
|
|
|
|
Name: Jinqing Dong
|
|
|
|
Title: Chairman of the Board and Chief Executive
|
|
|
|
Officer
|
|
|
|
(principal executive officer)
|
|
|
|
|
|
Dated: May 13, 2011
|
By:
|
/s/ Xin Guo
|
|
|
|
Name: Xin Guo
|
|
|
|
Title: Chief Financial Officer
|
|
|
|
(principal financial officer and principal
|
|
|
|
accounting officer)
|
EXHIBIT INDEX
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
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