UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
(
MARK
ONE
)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(
d
)
OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
The Quarterly Period Ended June 30,
2008
|
or
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(
d
)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For
The Transition Period From __________________ to __________________
|
|
|
|
Commission
File Number: 2-95836-NY
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
|
|
(
Name
of registrant as specified in its charter
)
|
|
|
|
13-3250816
|
|
(
State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
C/O
DALIAN DONGTAI INDUSTRIAL WASTE TREATMENT CO.
NO.
1 HUAIHE WEST ROAD, E-T-D ZONE, DALIAN,
CHINA
|
116600
|
|
(
Address
of principal executive offices)
|
(Zip
Code)
|
|
011-86-411-82595339
|
|
(Registrant's
telephone number, including area
code)
|
|
N/A
|
|
(
Former
name, former address and former fiscal year, if changed since last
report)
|
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
|
Accelerated
filer
o
|
|
|
Non-accelerated
filer
o
(Do
not check if smaller reporting company)
|
|
Smaller
reporting company
x
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes
o
No
x
Indicated
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 13,270,843 shares of common stock
are
issued and outstanding as of August 14, 2008.
TABLE
OF CONTENTS
|
|
|
|
|
Page
No.
|
|
PART
I. - FINANCIAL INFORMATION
|
|
Item
1.
|
|
Financial
Statements.
|
|
1
|
|
Item
2.
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
11
|
|
Item
3.
|
|
Quantative
and Qualitative Disclosures About Market Risk.
|
|
16
|
|
Item
4T
|
|
Controls
and Procedures.
|
|
16
|
|
|
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
Item
1.
|
|
Legal
Proceedings.
|
|
18
|
|
Item
1A.
|
|
Risk
Factors.
|
|
18
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
|
18
|
|
Item
3.
|
|
Defaults
Upon Senior Securities.
|
|
18
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders.
|
|
18
|
|
Item
5.
|
|
Other
Information.
|
|
18
|
|
Item
6.
|
|
Exhibits.
|
|
18
|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This
report includes "forward-looking statements." You can identify these statements
by the fact that they do not relate strictly to historical or current facts.
These statements contain such words as "may," "project," "might," "expect,"
"believe," "anticipate," "intend," "could," "would," "estimate," "continue,"
or
"pursue," or the negative or other variations thereof or comparable terminology.
In particular, they include statements relating to, among other things, future
actions, new projects, strategies, future performance, the outcomes of
contingencies and our future financial results. These forward-looking statements
are based on current expectations and projections about future events.
Readers
are cautioned that forward-looking statements are not guarantees of future
performance or results and involve risks and uncertainties that cannot be
predicted or quantified and, consequently, our actual performance may differ
materially from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, but are not limited to, the following
factors, as well as other factors described from time to time in our reports
filed with the Securities and Exchange Commission (including the sections
entitled "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained therein): the timing and
magnitude of technological advances; the prospects for future acquisitions;
the
effects of political, economic and social uncertainties regarding the
governmental, economic and political circumstances in the People’s Republic of
China, the possibility that a current customer could be acquired or otherwise
be
affected by a future event that would diminish their waste management
requirements; the competition in the waste management industry and the impact
of
such competition on pricing, revenues and margins; uncertainties surrounding
budget reductions or changes in funding priorities of existing government
programs and the cost of attracting and retaining highly skilled personnel;
our
projected sales, profitability, and cash flows; our growth strategies;
anticipated trends in our industries; our future financing plans; and our
anticipated needs for working capital.
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 statement to reflect events or circumstances after the
date
on which the statement is made or to reflect the occurrence of unanticipated
events.
CONVENTIONS
AND GENERAL MATTERS
The
official currency of the People’s Republic of China is the Chinese “Yuan” or
“Renminbi” (“yuan,” “Renminbi” or “RMB”). For the convenience of the reader,
amounts expressed in this report as RMB have been translated into United States
dollars (“USD$” or “$”) at the rate of USD$1.00 = RMB7.3046 quoted by The
People’s Bank of China (“POBC”) as of December 31, 2007; and at the rate of
USD$1.00 = RMB6.871 quoted by OANDA as of June 30, 2008. OANDA is a Delaware
corporation providing internet foreign exchange rate at
www.oanda.com
.
OANDA
is also a foreign exchange market maker. Its internet foreign exchange rate
is
widely used by public which is including but not limited to major international
audit firms.
The
Renminbi is not freely convertible into foreign currencies and the quotation
of
exchange rates does not imply convertibility of Renminbi into U.S. Dollars
or
other currencies. All foreign exchange transactions take place either through
PBOC or other banks or other market makers authorized to buy and sell foreign
currencies at the exchange rates quoted by the People's Bank of China. No
representation is made that the Renminbi or U.S. Dollar amounts referred to
herein could have been or could be converted into U.S. Dollars or Renminbi,
as
the case may be, at the PBOC Rate, OANDA rate or at all.
The
"Company," "we," "us," "our" and similar words refer to China Industrial Waste
Management, Inc, its direct, wholly-owned subsidiary DonTech Waste Services,
Inc. (“DonTech”)
and
DonTech’s majority owned subsidiaries, Dalian Dongtai Industrial Waste Treatment
Co. Ltd. (“Dongtai”), Dongtai Water Recycling Co. Ltd. (“Dongtai Water”), Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”), Dalian Lipp Environmental
Energy Engineering & Technology Co., Ltd.(“Dalian Lipp”) and
,
prior
to its dissolution in July 2007,
Liaoyang
Dongtai Industrial Waste Treatment Co., Ltd. (“Liaoyang Dongtai”).
The
Company is in the process of dissolving DonTech, which serves as a holding
company for the shares of the Company’s operating subsidiaries.
All
share
and per share information contained herein has been adjusted to reflect a 1
for
100 share reverse stock split which occurred on May 12, 2006.
PART
1 - FINANCIAL INFORMATION
Item
1.
Financial
Statements.
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(Stated
in U.S. dollars)
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,184,325
|
|
$
|
3,260,307
|
|
|
Trade
accounts receivable, net
|
|
|
2,083,087
|
|
|
594,322
|
|
|
Other
receivables
|
|
|
117,942
|
|
|
22,453
|
|
|
Inventory
|
|
|
1,768,914
|
|
|
1,332,349
|
|
|
Advances
to suppliers
|
|
|
1,397,475
|
|
|
390,159
|
|
|
Deferred
expense
|
|
|
18,918
|
|
|
42,784
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
10,570,661
|
|
|
5,642,374
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
2,744,794
|
|
|
2,633,354
|
|
|
Property,
plant & equipment
|
|
|
5,220,570
|
|
|
4,697,305
|
|
|
Less:
accumulated depreciation
|
|
|
(2,412,110
|
)
|
|
(2,055,268
|
)
|
|
Net
property, plant and equipment
|
|
|
2,808,460
|
|
|
2,642,037
|
|
|
Construction
in progress
|
|
|
10,567,080
|
|
|
7,410,255
|
|
|
Land
usage right, net of accumulated amortization
|
|
|
1,713,210
|
|
|
1,732,074
|
|
|
Deposits
|
|
|
572,786
|
|
|
80,925
|
|
|
Related
party receivable
|
|
|
698,131
|
|
|
388,796
|
|
|
TOTAL
ASSETS
|
|
$
|
29,675,122
|
|
$
|
20,529,815
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,121,256
|
|
$
|
279,600
|
|
|
Short-term
loan
|
|
|
4,802,235
|
|
|
1,369,000
|
|
|
Tax
payable
|
|
|
54,508
|
|
|
93,954
|
|
|
Deferred
sales
|
|
|
728,610
|
|
|
667,389
|
|
|
Accrued
expenses
|
|
|
15,342
|
|
|
7,236
|
|
|
Accrued
employees benefits
|
|
|
16,543
|
|
|
-
|
|
|
Related
party payable
|
|
|
334,701
|
|
|
536,362
|
|
|
Other
payable
|
|
|
215,594
|
|
|
343,207
|
|
|
Total
current liabilities
|
|
|
7,288,789
|
|
|
3,296,748
|
|
|
|
|
|
|
|
|
|
|
|
Asset
retirement obligation liability
|
|
|
477,341
|
|
|
437,619
|
|
|
Other
long-term liabilities
|
|
|
1,023,895
|
|
|
620,979
|
|
|
TOTAL
LIABILITIES
|
|
|
8,790,025
|
|
|
4,355,346
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in subsidiary
|
|
|
3,478,694
|
|
|
2,259,595
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
Preferred
stock: par value $.001; 5,000,000 shares authorized; none issued
and
outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock: par value $.001; 95,000,000 shares authorized; 13,270,843
shares
issued and outstanding
|
|
|
13,271
|
|
|
13,221
|
|
|
Additional
paid-in capital
|
|
|
2,085,684
|
|
|
1,968,634
|
|
|
Other
comprehensive income
|
|
|
1,782,748
|
|
|
1,153,728
|
|
|
Retained
earnings
|
|
|
13,524,700
|
|
|
10,779,291
|
|
|
Total
stockholders' equity
|
|
|
17,406,403
|
|
|
13,914,874
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
29,675,122
|
|
$
|
20,529,815
|
|
See
notes
to Consolidated Financial Statements
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
|
|
(Stated
in U.S. dollars)
|
|
(Unaudited)
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
fees
|
|
$
|
1,954,513
|
|
$
|
1,031,021
|
|
$
|
3,774,065
|
|
$
|
1,868,084
|
|
|
Sales
of cupric sulfate
|
|
|
671,747
|
|
|
561,859
|
|
|
1,380,590
|
|
|
950,192
|
|
|
Sales
of recycled commodities
|
|
|
964,599
|
|
|
871,383
|
|
|
1,566,484
|
|
|
1,328,959
|
|
|
Operating
revenue
|
|
|
3,590,859
|
|
|
2,464,263
|
|
|
6,721,139
|
|
|
4,147,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of service fees
|
|
|
315,881
|
|
|
354,530
|
|
|
686,916
|
|
|
583,148
|
|
|
Cost
of cupric sulfate
|
|
|
238,577
|
|
|
168,454
|
|
|
525,103
|
|
|
265,751
|
|
|
Cost
of recycled commodities
|
|
|
536,944
|
|
|
330,693
|
|
|
807,476
|
|
|
514,546
|
|
|
Costs
of revenue (including depreciation)
|
|
|
1,091,402
|
|
|
853,677
|
|
|
2,019,495
|
|
|
1,363,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,499,457
|
|
|
1,610,586
|
|
|
4,701,644
|
|
|
2,783,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
187,022
|
|
|
277,783
|
|
|
415,103
|
|
|
482,024
|
|
|
General
and administrative expenses
|
|
|
563,930
|
|
|
579,847
|
|
|
917,776
|
|
|
797,007
|
|
|
Total
operating expenses
|
|
|
750,952
|
|
|
857,630
|
|
|
1,332,879
|
|
|
1,279,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,748,505
|
|
|
752,956
|
|
|
3,368,765
|
|
|
1,504,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income (loss)
|
|
|
(1,413
|
)
|
|
-
|
|
|
(10,452
|
)
|
|
-
|
|
|
Interest
income
|
|
|
(112
|
)
|
|
9,085
|
|
|
6,186
|
|
|
11,889
|
|
|
Other
income
|
|
|
574
|
|
|
1,118
|
|
|
6,454
|
|
|
1,486
|
|
|
Other
expense
|
|
|
(1,659
|
)
|
|
(26
|
)
|
|
(1,661
|
)
|
|
(53
|
)
|
|
Total
other income (expense)
|
|
|
(2,610
|
)
|
|
10,177
|
|
|
527
|
|
|
13,322
|
|
|
Net
income from continuing operations before minority interest and income
tax
|
|
|
1,745,895
|
|
|
763,133
|
|
|
3,369,292
|
|
|
1,518,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
(227,216
|
)
|
|
-
|
|
|
(334,446
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
1,518,679
|
|
|
763,133
|
|
|
3,034,846
|
|
|
1,518,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
148,887
|
|
|
76,141
|
|
|
289,437
|
|
|
151,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,
369,792
|
|
$
|
686,992
|
|
$
|
2,745,409
|
|
$
|
1,366,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
155,554
|
|
|
165,373
|
|
|
745,508
|
|
|
224,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
1,525,346
|
|
$
|
852,365
|
|
$
|
3,490,917
|
|
$
|
1,591,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
13,234,434
|
|
|
13,220,843
|
|
|
13,234,434
|
|
|
13,220,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
13,234,434
|
|
|
13,220,843
|
|
|
13,234,434
|
|
|
13,220,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net earnings per share
|
|
$
|
0.10
|
|
$
|
0.05
|
|
$
|
0.21
|
|
$
|
0.10
|
|
|
See
notes to Consolidated Financial
Statements.
|
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Stated
in U.S. dollars)
|
|
(Unaudited)
|
|
|
|
For
the Six Months Ended
June
30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,745,409
|
|
$
|
1,366,904
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
1,219,099
|
|
|
151,177
|
|
|
Depreciation
|
|
|
356,842
|
|
|
218,250
|
|
|
Amortization
|
|
|
18,864
|
|
|
17,915
|
|
|
Bad
debt allowance
|
|
|
6,701
|
|
|
-
|
|
|
Stock
issued for services
|
|
|
117,100
|
|
|
8,000
|
|
|
Accretion
expenses
|
|
|
39,722
|
|
|
13,910
|
|
|
Loss
on equity investment
|
|
|
(111,440
|
)
|
|
-
|
|
|
Subsidy
received from government
|
|
|
402,916
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,495,466
|
)
|
|
(36,476
|
)
|
|
Inventory
|
|
|
(436,565
|
)
|
|
(272,455
|
)
|
|
Other
receivables
|
|
|
(95,489
|
)
|
|
(148,646
|
)
|
|
Advance
to suppliers
|
|
|
(1,007,316
|
)
|
|
(9,138
|
)
|
|
Prepaid
expense
|
|
|
-
|
|
|
(22,349
|
)
|
|
Deposits
|
|
|
(491,861
|
)
|
|
-
|
|
|
Accrued
expense and deferred sales
|
|
|
109,736
|
|
|
471,927
|
|
|
Accounts
payable
|
|
|
714,043
|
|
|
111,217
|
|
|
Tax
payable
|
|
|
(39,446
|
)
|
|
(1,354
|
)
|
|
Net
cash provided by operating activities
|
|
|
2,052,849
|
|
|
1,868,882
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Investment
in subsidiary
|
|
|
-
|
|
|
(1,269,825
|
)
|
|
Purchase
of property and equipment
|
|
|
(523,265
|
)
|
|
(74,472
|
)
|
|
Construction
contracts
|
|
|
(3,156,825
|
)
|
|
(1,297,834
|
)
|
|
Due
from related party
|
|
|
(309,335
|
)
|
|
(239,625
|
)
|
|
Due
to related party
|
|
|
(201,661
|
)
|
|
-
|
|
|
Net
cash used in investing activities
|
|
|
(4,191,086
|
)
|
|
(2,881,756
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from loans
|
|
|
3,433,235
|
|
|
-
|
|
|
Net
cash provided by financing activities
|
|
|
3,433,235
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate on cash
|
|
|
629,020
|
|
|
132,640
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,924,018
|
|
|
(880,234
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
3,260,307
|
|
|
5,713,925
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
5,184,325
|
|
$
|
4,833,691
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
89,107
|
|
$
|
-
|
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
|
See
notes to Consolidated Financial
Statements.
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and with the instructions to Form
10-Q
and the new scaled disclosure requirements in Article 8 of Regulation S-K.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America
for
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The accounts of the Company and all of its
subsidiaries are included in the consolidated financial statements. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated operating results for the three and six months
ended June 30, 2008 are not necessarily indicative of the results that may
be
expected for the year ending December 31, 2008. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the
Company's Form 10-K for the year ended December 31, 2007.
1.
Nature of operations
The
accompanying unaudited consolidated financial statements include China
Industrial Waste Management, Inc., a Nevada corporation (the “Company”)
incorporated on November 12, 2003, its wholly owned subsidiary, DonTech Waste
Services, a Delaware corporation (“DonTech”), and its indirect majority owned
subsidiaries:
|
|
·
|
Dongtai
Industrial Waste Treatment Co. Ltd. (“Dongtai”)
|
|
|
·
|
Dongtai Water Recycling Co. Ltd.
(“Dongtai
Water”)
|
|
|
·
|
Dalian Zhuorui Resource Recycling
Co., Ltd.
(“Zhuorui”)
|
|
|
·
|
Dalian Lipp Environmental Energy
Engineering
& Technology Co., Ltd. (“Dalian
Lipp”)
|
The
Company is engaged in the collection, treatment, disposal, and recycling of
industrial wastes principally in Dalian and surrounding areas in Liaoning
Province, the People’s Republic of China (“PRC). The Company provides waste
disposal solutions to its more than 400 customers from facilities located in
the
Economic and Technology Development Zone, Dalian, China. 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,
and
|
|
|
·
|
Environmental pollution remediation
services.
|
The
Company is currently participating in the operation of the following waste
disposal and environmental protection projects:
·
Dongtai Water, a build-operate-transfer
project established to process polluted water generated by the city of Dalian.
Construction of the sewage plant has been completed, and the project is
currently in the stage of commissioning.
·
Zhuorui engages in the project of plasma
arc melting, separation and purification of waste catalysts, treatment of
industrial wastes and comprehensive utilization of waste catalysts or similar
material. The project is now in the facility installation stage.
·
Dalian Lipp is currently conducting a
project based on the Lipp tank building technique to generate energy by organic
waste anaerobic fermentation, and industrial effluent treatment and municipal
sewage plant.
·
Dongtai Organic Waste Treatment
project,
engaged in municipal sludge treatment in Dalian. The project is now in the
installation stage.
2.
Basis of Presentation
The
accompanying consolidated financial statements include the accounts of the
parent entity, its wholly owned subsidiary, DonTech Waste Services Inc, its
90%
owned subsidiary, Dalian Dongtai Industrial Waste Treatment Co., Ltd, its 80%
owned subsidiary, Dongtai Water Recycling Co. Ltd, its 70% owned subsidiary,
Dalian Zhuorui Resource Recycling Co., Ltd, and its 75% owned subsidiary, Dalian
Lipp Enviromental Energy Engineering & Technology Co., Ltd.. All material
inter-company accounts and transactions have been eliminated in the
consolidation.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
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 the 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
June 30, 2008 and 2007, the accounts of the Company were maintained, and the
consolidated financial statements were expressed in the Chinese Yuan Renminbi
(“RMB”). Such consolidated financial statements were translated into U.S.
dollars (“USD”) in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 52, “Foreign Currency Translation,” with the RMB as the functional
currency. According to the Statement, all assets and liabilities were translated
at the exchange rate on the balance sheet date; stockholders’ equity was
translated at the historical rates and the statement of operations items were
translated at the weighted average exchange rate for the period. The resulting
translation adjustments are reported under other comprehensive income in
accordance with SFAS No. 130, “Reporting 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.
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.
Allowance for uncollectible accounts as of June 30, 2008 and December 31, 2007
is $6,701 and $9,776, respectively. 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. Terms of the sales
vary from COD through a credit term of up to nine to twelve months. Reserves
are
recorded primarily on a specific identification basis.
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
Inventories
are stated at the lower of cost, as determined on a first-in, first-out basis,
or market. Management compares the cost of inventories with the market value,
and allowance is made for writing down the inventories to their market value,
if
lower.
Property,
equipment and construction in progress
Property
and equipment are stated at cost. Expenditures for maintenance and repairs
are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment 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 operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives as follows:
|
Buildings
|
30
Years
|
|
Machinery
|
10
Years
|
|
Vehicles
|
8
Years
|
|
Office
equipment
|
5
Years
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
Construction
in progress consists of the design expenses, architect fee and cost of the
equipment to treat waste.
Construction
in progress includes capitalized interest of $116,029
and
$77,353 as of June 30, 2008 and December 31, 2007 respectively.
Landfills
Cost
Basis of Landfill Assets — we capitalize various costs that we incur to make a
landfill ready to accept waste. 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 SFAS No. 143, “Accounting
for Asset Retirement Obligations and its Interpretations.”
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 our Consolidated Statements of Operations.
Amortization
of Landfill Assets — The amortizable basis of a landfill includes (i) amounts
previously expended and capitalized; (ii) capitalized landfill final capping,
closure and post-closure costs; (iii) projections of future purchase and
development costs required to develop the landfill site to its remaining
permitted and expansion capacity; and (iv) projected asset retirement costs
related to landfill final capping, closure and post-closure
activities.
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.
Liabilities
for landfill and environmental remediation costs are presented in the table
below:
|
|
|
June
30,
2008
|
|
December
31,
2007
|
|
|
Long-term
|
|
$
|
477,341
|
|
|
437,619
|
|
Long-term
investment
|
Invested
company
|
|
Equity
acquired
|
|
Balance
as of
June
30,
2008
|
|
Balance
as of
December
31,
2007
|
|
|
Dongtai
Organic
|
|
|
49
|
%
|
|
2,744,794
|
|
|
2,633,354
|
|
|
Total
|
|
|
|
|
|
2,744,794
|
|
|
2,633,354
|
|
Long-term
investments are recorded under the equity method. Dongtai Organic is
constructing and will operate a sludge treatment and disposal facility in
Dalian, PRC, of which the investment is recorded under the equity
method.
Impairment
of long-lived assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS 144), such as property, plant, and equipment, and
purchased intangibles, are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Intangible assets are tested for impairment annually.
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.
There were no events or changes in circumstances that necessitated a review
of
impairment of long lived assets as of June 30, 2008 and 2007,
respectively.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
Intangible
assets
Intangible
assets consist of “Rights to use land and build a plant” for fifty years. The
intangible assets are amortized straight - line over fifty years. The Company
also evaluates intangible assets for impairment, at least on an annual basis
and
whenever events or changes in circumstances indicate that the carrying value
may
not be recoverable from its estimated future cash flows. Recoverability of
intangible assets, other long-lived assets and, goodwill is measured by
comparing their net book value to the related projected undiscounted cash flows
from these assets, considering a number of factors, including past operating
results, budgets, economic projections, market trends and product development
cycles. If the net book value of the asset exceeds the related undiscounted
cash
flows, the asset is considered impaired, and a second test is performed to
measure the amount of impairment loss.
Net
intangible assets at June 30, 2008 and December 31, 2007 were $1,713,210 and
$1,732,074 respectively. Such assets consist entirely of a right to use land
of
$1,921,474, less accumulated amortization of $208,246 and $189,400.
Minority
interest
Minority
interest represents the minority owners’ 10% equity interest in Dongtai, 20%
equity interest in Dongtai Water, 30% equity interest in Zhuorui and 25%
equity interest in Dalian Lipp.
Fair
value of financial instruments
SFAS
No.
107, “Disclosures About Fair Value of Financial Instruments”, requires that the
Company discloses estimated fair values of financial instruments. The carrying
amounts reported in the statements of financial position for current assets
and
current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
Revenue
recognition
The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (SAB) 104. Our revenues are generated from the fees we charge for
waste
collection, transfer, disposal and recycling services and the sale of recycled
commodities. The fees charged for our services are generally defined in our
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. We generally recognize revenue as services are performed or products
are
delivered.
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 June 30, 2008 and December 31, 2007 deferred sales amounted to $728,610
and $667,389, respectively.
Advertising
costs
The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the three and
six
months ended June 30, 2008 and 2007 were immaterial.
Stock-based
compensation
In
December 2004, the FASB issued SFAS No.123(R), “Share-Based Payment”, which
prescribes accounting and reporting standards for all stock based compensation
plans, including employee stock options, restricted stock, employee stock
purchase plans and stock appreciation rights. SFAS No. 123(R) requires
compensation expense to be recorded using the fair value method.
Income
taxes
The
Company utilizes SFAS No. 109, “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.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
Local
PRC income tax
The
Company is subject to the PRC Enterprise Income Tax at a rate of 30% on its
net
income. According to a PRC ruling, any joint venture with foreign investment
will get special tax exempt treatment for the first two years, reduced tax
rate
for three years at 9%, 10% and 11% for the third, fourth and fifth
year..
Statement
of cash flows
In
accordance with SFAS No. 95, “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.
Basic
and diluted net earnings per share
Earnings
per share is calculated in accordance with SFAS No. 128, “Earnings Per Share”.
Basic earnings per share is based upon the weighted average number of common
shares outstanding. Diluted earnings per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
Contingent
liabilities
We
estimate the amount of potential exposure we may have with respect to claims,
assessments and litigation in accordance with SFAS No. 5, “Accounting for
Contingencies”. We are party to pending or threatened legal proceedings covering
a wide range of matters in various jurisdictions. It is not always possible
to
predict the outcome of litigation, as it is subject to many uncertainties.
Additionally, it is not always possible for management to make a meaningful
estimate of the potential loss or range of loss associated with such
litigation.
Recent
accounting pronouncements
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
In
June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP
Emerging Issues Task Force (“EITF”) Issue No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” The FSP addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share under the two-class method. The FSP affects entities that accrue
dividends on share-based payment awards during the awards’ service period when
the dividends do not need to be returned if the employees forfeit the award.
This FSP is effective for fiscal years beginning after December 15, 2008.
The Company is currently assessing the impact of FSP EITF 03-6-1 on its
consolidated financial position and results of operations.
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own
Stock
In
June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF 07-5).
EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The Company is currently assessing the impact of EITF
07-5 on its consolidated financial position and results of
operations.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(
Including Partial Cash Settlement)
In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled
in
cash (including partial cash settlement) upon conversion. The FSP requires
issuers to account seperately for the liability and equity components of certain
convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations. The FSP requires retrospective application
to the terms of instruments as they existed for all periods presented. The
FSP
is effective for us as of January 1, 2009 and early adoption is not permitted.
The Company is currently evaluating the potential impact of FSP APB 14-1 upon
its consolidated financial statements.
The
Hierarchy of Generally Accepted Accounting Principles
In
May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (FAS No.162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in
the
preparation of financial statements. SFAS No. 162 is effective 60 days following
the SEC's approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles". The implementation of this standard will not
have a material impact on the Company's consolidated financial position and
results of operations.
Determination
of the Useful Life of Intangible Assets
In
April
2008, FASB issued FASB Staff Position on Financial Accounting Standard (“FSP
FAS”) No. 142-3, “Determination of the Useful Life of Intangible Assets”, which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of intangible assets under
SFAS No. 142 “Goodwill and Other Intangible Assets”. The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of the expected cash flows
used to measure the fair value of the asset under SFAS No. 141 (revised 2007)
“Business Combinations” and other U.S. generally accepted accounting
principles. The Company is currently evaluating the potential
impact of FSP FAS No. 142-3 on its consolidated financial
statements.
Disclosure
about Derivative Instruments and Hedging Activities
In
March
2008, the FASB issued SFAS No. 161,
“
Disclosure
about Derivative Instruments and Hedging Activities
,
an
amendment of SFAS No. 133”, (SFAS 161). This statement requires that objectives
for using derivative instruments be disclosed in terms of underlying risk and
accounting designation. The Company is required to adopt SFAS No. 161 on January
1, 2009. The Company is currently evaluating the potential impact of SFAS No.
161 on the Company’s consolidated financial statements.
Delay
in Effective Date
In
February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.
3.
Inventory
Inventory
at June 30, 2008 and December, 31, 2007 consists of raw materials and recycled
commodities as Follow:
|
|
|
June
30,
2008
|
|
December
31,
2007
|
|
|
Raw
materials
|
|
$
|
391,796
|
|
$
|
786,427
|
|
|
Recycled
commodities
|
|
|
1,377,118
|
|
|
545,922
|
|
|
Total
|
|
$
|
1,768,914
|
|
$
|
1,332,349
|
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES
TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008
4.
Property and equipment
|
|
|
June
30,
2008
|
|
December
31,
2007
|
|
|
Land
and building
|
|
$
|
2,536,429
|
|
$
|
2,305,868
|
|
|
Machinery
and equipment
|
|
|
1,284,611
|
|
|
1,242,966
|
|
|
Office
equipment
|
|
|
562,575
|
|
|
375,433
|
|
|
Vehicles
|
|
|
836,955
|
|
|
773,038
|
|
|
|
|
|
5,220,570
|
|
|
4,697,305
|
|
|
Less
accumulated depreciation
|
|
|
(2,412,110
|
)
|
|
(2,055,268
|
)
|
|
Total
property and equipment, net
|
|
$
|
2,808,460
|
|
$
|
2,642,037
|
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
10,567,080
|
|
|
7,410,255
|
|
|
Total
|
|
$
|
13,375,540
|
|
$
|
10,052,292
|
|
5.
Short-term loan
The
Company entered into multiple one-year loans with accredited lenders. The
interest rate varies from 8.748 % to 9.720%. As of June 30, 2008, the remaining
balance was $4,802,235.
6.
Other long-term liabilities
Other
long term liabilities include special fund for environmental protection in
the
amount of $ 873,134, and obligation to pay for land usage right in the amount
of
$ 150,761.
7.
Accumulated other comprehensive income
The
components of accumulated other comprehensive income was as follow:
|
|
|
June
30,
2008
|
|
December
31,
2007
|
|
|
Cumulative
translation adjustment of foreign currency statements
|
|
$
|
745,508
|
|
$
|
774,007
|
|
8.
Equity
During
current period, the Company issued 50,000 shares of common stock as compensation
for services to an investment consulting firm. The fair market value of the
stock is approximately $117,000.
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
FORWARD-LOOKING
INFORMATION
Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") includes forward-looking statements. Readers
are
cautioned that forward-looking statements are not guarantees of future
performance or results and involve risks and uncertainties that cannot be
predicted or quantified and, consequently, our actual performance may differ
materially from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, but are not limited to, the following
factors, as well as other factors described from time to time in our reports
filed with the Securities and Exchange Commission (including the sections
entitled "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained therein): the timing and
magnitude of technological advances; the prospects for future acquisitions;
the
effects of political, economic and social uncertainties regarding the
governmental, economic and political circumstances in the People’s Republic of
China, the possibility that a current customer could be acquired or otherwise
be
affected by a future event that would diminish their waste management
requirements; the competition in the waste management industry and the impact
of
such competition on pricing, revenues and margins; uncertainties surrounding
budget reductions or changes in funding priorities of existing government
programs and the cost of attracting and retaining highly skilled personnel;
our
projected sales, profitability, and cash flows; our growth strategies;
anticipated trends in our industries; our future financing plans; and our
anticipated needs for working capital.
OVERVIEW
Historically,
the Company engaged in two lines of business: (a) the exploration and
development of potential mining properties, and (b) the development, marketing
and support of computer software products and services. In September 2004,
the
Company sold its computer business. Since September 2005, the Company has no
longer been in the mining business due to its loss of all its contractual rights
in certain mining properties in Spain.
In
November 2005, a Delaware corporation known as China Industrial Waste
Management, Inc. (“CIWM Delaware”) acquired 90% of the issued and outstanding
capital stock of Dalian Dongtai Industrial Waste Treatment Co., Ltd. (“Dongtai”)
from the shareholders of Dongtai in a reverse merger transaction in which the
Dongtai shareholders became the owner of all of the issued and outstanding
shares of CIWM Delaware. As a result of the reverse merger, Dongtai
became a
joint venture with foreign investment under the laws of the PRC, with a total
registered and paid-in capital of $2.3 million. The exchange of shares with
the
Dongtai shareholders was accounted for as a reorganization between entities
under common control with CIWM Delaware as the receiving entity, as prescribed
by SFAS 141. The accounts of both entities were combined at their historical
cost basis, resulting in no gain, loss, or goodwill. The combination was
essentially a recapitalization of Dongtai.
On
November 11, 2005, China Industrial Waste Management, Inc., a Nevada corporation
(f/k/a Goldtech Mining Corporation) (“CIWM Nevada”) entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with CIWM Delaware and the
shareholders of CIWM Delaware. Pursuant to the Merger Agreement, which closed
on
November 11, 2005, CIWM Delaware merged with and into CIWM Nevada’s wholly-owned
Delaware subsidiary, DonTech. Pursuant to the Merger Agreement, after the
merger, CIWM Delaware ceased to exist and DonTech was the surviving company
(and
the owner of 90% of the issued and outstanding capital stock of Dongtai). The
merger of CIWM Delaware into DonTech was accounted for as a reverse acquisition
under the purchase method of accounting since the shareholders of CIWM Delaware
obtained control of CIWM Nevada (the Company) by virtue of the merger.
Accordingly, the merger was recorded as a recapitalization of CIWM Delaware,
with DonTech being treated as the continuing entity. CIWM Nevada (the Company)
currently owns all of the issued and outstanding capital stock of DonTech,
which
in turn, owns 90% of the issued and outstanding capital stock of
Dongtai.
Dongtai
is engaged in the collection, treatment, disposal and recycling of industrial
wastes principally in Dalian, China and surrounding areas in Liaoning Province,
China. Dongtai provides waste disposal solutions to its more than 400
customers, including large multinational corporations, from facilities located
in the Economic and Technology Development Zone, Dalian, PRC. Dongtai treats,
disposes of and/or recycles many types of industrial wastes, and recycled waste
products are sold to customers as raw material to produce chemical and
metallurgy products. In addition, Dongtai treats or disposes of industrial
waste
through incineration, burial or water treatment; as well as provides a range
of
environmental protection services to its clients. Dongtai generates revenues
from waste collection and disposal services, as well as from sales of valuable
products and recycled commodities.
In
addition to its waste collection and disposal operations, Dongtai participates
in the operation of the following waste disposal and environmental protection
projects, which are expected to contribute to revenues in future
periods:
|
·
|
Dongtai
Water Recycling Co. Ltd (“Dongtai Water”), a Build-Operate-Transfer (BOT)
project established to process polluted water generated by the City
of
Dalian. Dongtai owns 80% of this project. The total investment in
this
project is approximately RMB 44 million (approximately $6 million).
Construction of the sewage plant has been completed, and the project
is
currently in the stage of
commissioning.
|
|
·
|
Dongtai
Organic Waste Treatment Co. Ltd. (“Dongtai Organic”), which is also a BOT
project, engaged in municipal sludge treatment in Dalian. Dongtai
owns a
49% interest in Dongtai Organic, which is expected to operate for
the next
20 years and provide a municipal sludge treatment capacity of 600
tons per
day. The total investment in the project, which is in the installation
stage, is approximately RMB 130 million (approximately $17.8
million).
|
|
·
|
Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”), which is 70% owned by
Dongtai, engages in plasma arc melting, separation and purification
of
waste catalysts, treatment of industrial wastes and comprehensive
utilization of waste catalysts or similar material. RMB 65 million
(approximately $8.9 million). The project is now in the facility
installation stage.
|
|
·
|
Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
Lipp”), is a PRC joint venture owned 75% by Dongtai. Dalian Lipp designs,
manufactures and installs environmental protection equipment and
renewable
energy equipment and provides related technical services. The project
is
based on the Lipp tank building technique, and is dedicated to generating
energy by organic waste anaerobic fermentation, and industrial effluent
treatment and municipal sewage plant.
|
Our
revenues generated in first quarter 2008 were primarily attributable to fees
from waste treatment and disposal services. We expect to experience continued
increases in waste treatment and disposal services in fiscal 2008 in large
part
due to continued growth in Dalian and Liaoyang Province and increasing
government environmental regulation.
In
order
to provide sufficient infrastructure to meet the increasing demand for waste
treatment and disposal, an expansion project is now underway to significantly
increase Dongtai’s capacity for waste treatment and disposal. It is anticipated
that the total investment in this expansion project will be approximately RMB
120 million (approximately USD$16.4 million). Groundbreaking, incinerator design
and other facilities design for the expansion project have been completed,
and
an environmental impact assessment report has been submitted to and approved
by
the Ministry of Environmental Protection of China.
Our
business strategy is aimed at increasing revenue and earnings through profitable
growth and improving returns on invested capital. The components of our strategy
include: (1) placing emphasis on the commercialization of solid waste
treatment; (2) our expansion into municipal sewage and sludge treatment BOT
projects; (3) managing our businesses locally with a strong operations focus
on
customer service; (4) entering into new geographic markets in China; and
(5) maintaining our financial capacity and effective administrative systems
and controls to support on-going operations and future growth. We are evaluating
growth in our solid waste treatment operations through opportunities to
cooperate with prominent domestic or overseas partners and attempt to integrate
customer groups (for example, the refinery industry), to realize resource
optimization.
We
also
plan to seek new BOT projects and acquire interests in existing projects, as
we
believe
they can provide us with stable revenues and cash inflows. Furthermore, we
believe that a well-operated BOT project will gain attention and social
recognition from the local government and business community, which may, in
turn, provide additional business opportunities in the Dalian metropolitan
area.
RESULTS
OF OPERATIONS
The
following discussion should be read in conjunction with the consolidated
financial statements and notes appear elsewhere in this quarterly report.
Three
Months and Six Months Ended June 30, 2008 Compared to the Three Months and
Six
Months Ended June 30, 2007
We
generate revenue primarily from two sources: (a) Services provided to customers
for waste collection, transfer, recycling and disposal; and (b) Sale of recycled
materials. We consider our collection and disposal operations, and reclamation
of recycled materials as our core business.
Revenues
.
The
Company’s operating revenues for the three and six months ended June 30,
2008 were $3,590,859 and $6,721,139, compared with $2,464,263 and $4,147,235
for
the three and six months ended June 30, 2007, respectively.
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Service
fees
|
|
|
1,954,513
|
|
|
1,031,021
|
|
|
3,774,065
|
|
|
1,868,084
|
|
|
Sales
of cupric sulfate
|
|
|
671,747
|
|
|
561,859
|
|
|
1,380,590
|
|
|
950,192
|
|
|
Sales
of other recycled commodities
|
|
|
964,599
|
|
|
871,383
|
|
|
1,566,484
|
|
|
1,328,959
|
|
|
Total
|
|
|
3,590,859
|
|
|
2,464,263
|
|
|
6,721,139
|
|
|
4,147,235
|
|
Revenues
from service fees increased by $1,905,981 or 102% for the six months ended
June 30, 2008 as compared to the six months ended June 30,
2007. Revenues from service fees for the three months ended June 30,
2008 increased by $923,492 or 89.6% over the comparable period in 2007. The
increases in revenues from service fees during the three and six months
ended June 30, 2008 over the comparable periods in 2007 resulted from an
increase in the number of our customers for waste processing services, and
increased demand for our services from existing customers.
Cost
of Revenues
.
The
Company’s cost of revenues for the three and six months ended June 30, 2008
were $1,091,402 and $2,019,495, compared with $853,677 and $1,363,445 for the
three and six months ended June 30, 2007, respectively.
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Cost
of service fees
|
|
|
315,881
|
|
|
354,530
|
|
|
686,916
|
|
|
583,148
|
|
|
Cost
of cupric sulfate
|
|
|
238,577
|
|
|
168,454
|
|
|
525,103
|
|
|
265,751
|
|
|
Cost
of other recycled commodities
|
|
|
536,944
|
|
|
330,693
|
|
|
807,476
|
|
|
514,546
|
|
|
Total
|
|
|
1,091,402
|
|
|
853,677
|
|
|
2,019,495
|
|
|
1,363,445
|
|
The
cost
of service fees for the six months ended June 30, 2008 increased by $103,768
or
17.8% compared to the six months ended June 30, 2007 due to increase in cost
of
raw materials.
The
cost
of reclaimed products (which includes cost of cupric sulfate and cost of other
recycled commodities) for both the three and six months ended June 30, 2008
increased by 55.4% and 70.8%, respectively, compared with the same periods
in
2007. Such increase is attributable to a sharp increase in the cost of raw
materials.
Selling
Expenses
.
Total
selling expenses for the three months ended June 30, 2008 decreased by 32.7%
over such expenses for the three months ended June 30, 2007 and decreased by
13.9% for the six months ended June 30, 2008 compared with the same period
in
2007. The decreases in selling expenses were principally attributable to
improved control over cost and expenses.
General
and Administrative Expenses
.
In
comparison with the same period in 2007, the general and administrative expenses
for the six months ended June 30, 2008 increased by 15.2%, principally as a
result of expanded business.
Net
Income.
Net
income for the three months ended June 30, 2008 increased by $682,800 or 99.4%
to $1,369,792 from $696,992 for the three months ended June 30, 2007. Net income
for the six months ended June 30 2008 increased by $1,378,505 or 100.8% to
$2,745,409 from $1,366,904 for the six months ended June 30, 2007. This increase
is primarily attributable to the increase in both service fees and sales of
recycled commodities (including sales of cupric sulfate), which is generated
from widened customer base of the Company and improved gross profit margin
in
the first quarters of 2008.
LIQUIDITY
AND CAPITAL RESOURCES
We
have
financed our operations and met capital expenditure requirements primarily
through cash provided by operating activities, and bank loans.
Short-term
loan for the six months ended June 30, 2008 was $4,802,235 compared to
$1,369,000 at December 31, 2007 due to additional bank borrowings to accelerate
business expansion.
As
of
June 30, 2008, cash and cash equivalents of the Company increased $1,924,018
or
59% from $3,260,307 to $5,184,325 compared with that of December 31, 2007.
This
is attributable to increase in net cash provided by operating activities, and
proceeds from bank loans. As of June 30, 2008, the Company had working capital
of $3,281,872, compared to $2,345,626 as of December 31, 2007.
Cash
Flow
.
|
|
|
June
30,
2008
|
|
June
30,
2007
|
|
|
Net
cash provided by operating activities
|
|
$
|
2,052,849
|
|
$
|
1,868,882
|
|
|
Net
cash used in investing activities
|
|
$
|
(4,191,086
|
)
|
$
|
(2,881,756
|
)
|
|
Net
cash provided by financing activities
|
|
$
|
3,433,235
|
|
|
-
|
|
Net
cash
provided by operating activities totaled $ 2,052,849 for the six months ended
June 30, 2008, compared to cash provided by operations of $ 1,868,882 for the
six months ended June 30, 2007; an increase of $183,967 or 9.8% over the same
period in the previous year.
Net
cash
used in investing activities for the six months ended June 30, 2008 increased
by
$1,309,330 or 45.4% compared to the same period in 2007. This increase is
attributable to purchasing of property and equipment, and construction in
progress.
Net
cash
provided by financing activities for the six months ended June 30, 2008
increased by $3,433,235 compared to the same period in 2007, due to short term
borrowing.
We
intend
to use our available funds as working capital and to expand and develop our
current lines of business. 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
favorable to us.
OFF-BALANCE
SHEET ARRANGEMENTS
Under
SEC
regulations, we are required to disclose our off-balance sheet arrangements
that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources
that
are material to investors. An off-balance sheet arrangement means a transaction,
agreement or contractual arrangement to which any entity that is not
consolidated with us is a party, under which we have:
|
·
|
Any
obligation under certain guarantee contracts;
|
|
·
|
Any
retained or contingent interest in assets transferred to an unconsolidated
entity or similar arrangement that serves as credit, liquidity or
market
risk support to that entity for such assets;
|
|
·
|
Any
obligation under a contract that would be accounted for as a derivative
instrument, except that it is both indexed to our stock and classified
in
stockholder’s equity in our statement of financial position;
and
|
|
·
|
Any
obligation arising out of a material variable interest held by us
in an
unconsolidated entity that provides financing, liquidity, market
risk or
credit risk support to us, or engages in leasing, hedging or research
and
development services with us.
|
As
of
June 30, 2008, the Company has no off-balance sheet arrangements that have
or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Not
Applicable
|
Item
4T.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
In
connection with the preparation of this quarterly report on Form 10-Q, an
evaluation was carried out by the Company’s management, with the participation
of the Company’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures [as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange
Act”)] as of June 30, 2008. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms and that such information
is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosures.
In
designing and evaluating its disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met. Additionally,
in
designing disclosure controls and procedures, management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship
of
possible disclosure controls and procedures. The design of any disclosure
controls and procedures also 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.
During
the evaluation of disclosure controls and procedures as of December 31, 2007
conducted during the preparation of the Company’s financial statements included
in its annual report on Form 10-K, a material weakness in internal controls
was
identified. As a result of this material weakness the Company’s Chief
Executive Officer and Chief Financial Officer concluded that, as of December
31,
2007, our disclosure controls and procedures were not completely effective.
A
material weakness is “a deficiency, or a combination of deficiencies (within the
meaning of PCAOB Auditing Standard No. 5), in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.” The Company’s management had concluded
that, as of December 31, 2007, the following material weakness
existed:
|
·
|
We
had an insufficient familiarity with generally accepted accounting
principles in the United States (“US GAAP”) causing us to improperly (a)
account for landfill-related asset retirement obligations and
consolidation of the results of operations of a subsidiary company,
as a
result of which we restated our
financial
statements as of December 31, 2006 and for the year then ended, and
as of
March 31, 2007 and for the quarter then ended
and, (b)
record
and reconcile various financial statement entries including accounts
receivable balances (including allowance for doubtful accounts),
other
current assets, construction in progress amounts, customer deposits,
deferred revenues depreciation and amortization expenses, certain
operating expenses and taxes payable, income and interest expense,
a loss
on investment, related party transactions; and subsidizing amounts;
resulting in numerous audit
adjustments.
|
Since
January 2, 2008 we have engaged in substantial efforts to improve our internal
control over financial reporting and disclosure controls and procedures related
to many areas of our financial statements and disclosures. In order to remediate
the material weakness identified as of December 31, 2007, during 2008 we
have:
|
·
|
Appointed
a full-time Chief Financial Officer which will now allow the CEO
to devote
his full-time and attention to the Company’s operations and permit a CFO
with experience in accounting matters to devote her full time and
attention to the functions of chief financial
officer.
|
|
·
|
Added
additional accounting and financial personnel with industry
experience.
|
|
·
|
Commenced
the process by which we will become better informed about US
GAAP.
|
|
·
|
Continued
the process of sourcing a consultant experienced in the application
of US
GAAP, including internal controls over financial reporting, to augment
our
accounting staff.
|
Notwithstanding
the remedial actions we have undertaken since December 31, 2007, because of
the
scope of the material weakness at December 31, 2007, our management concluded
that our disclosure controls and procedures at June 30, 2008 were not completely
effective. Our efforts to remediate our disclosure controls and procedures
and
internal control over financial reporting are continuing and are expected to
continue throughout fiscal 2008. Until such time, however, as our efforts
remediate this weakness, there remains a risk that we will fail to identify
weaknesses or adequately correct any identified weaknesses in our disclosure
controls and procedures and internal control over financial reporting, both
as
they relate to the material weakness identified at December 31, 2007 and to
other possible areas.
Notwithstanding
the existence of this material weakness in disclosure controls and procedures
and internal control over financial reporting at June 30, 2008, we believe
that
the consolidated financial statements included elsewhere in this report fairly
present, in all material respects, our consolidated balance sheets as of June
30, 2008 and 2007 and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the quarters ended
June 30, 2008 and 2007 in conformity with US GAAP.
Changes
in Internal Control over Financial Reporting
During
the three months ended June 30, 2008 in connection with the remedial actions
described earlier in this section we modified our internal control over
financial reporting to incorporate additional internal controls required by
US
GAAP. Other than these changes, there have been no changes in our internal
control over financial reporting during our last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting
.
PART
II - OTHER INFORMATION
Item
1.
Legal
Proceedings.
None.
Item
1A.
Risk
Factors.
Not
Applicable.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds.
None.
Item
3.
Defaults
Upon Senior Securities.
None.
Item
4.
Submission
of Matters to a Vote of Security Holders.
None.
Item
5.
Other
Information.
None.
Item
6.
Exhibits.
|
Exhibit
No.
|
|
Description
|
|
31.1
|
|
Rule
13a-14(a)/ 15d-14(a) Certification
of
Chief Executive Officer
|
|
|
|
|
|
31.2
|
|
Rule
13a-14(a)/ 15d-14(a) Certification
of
Chief Financial Officer
|
|
|
|
|
|
32.1
|
|
Section
1350 Certification of Chief Executive Officer
|
|
|
|
|
|
32.2
|
|
Section
1350 Certification of Chief Financial
Officer
|
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.
|
|
|
|
|
Date:
August 14, 2008
|
By:
|
/s/
Dong
Jinqing
|
|
|
Dong
Jinqing, Chief Executive Officer
|
|
|
|
|
|
Date:
August 14, 2008
|
By:
|
/s/
Guo
Xin
|
|
|
Guo
Xin, Chief Financial Officer
|
China Industrial Waste M... (CE) (USOTC:CIWT)
Graphique Historique de l'Action
De Juin 2024 à Juil 2024
China Industrial Waste M... (CE) (USOTC:CIWT)
Graphique Historique de l'Action
De Juil 2023 à Juil 2024
