UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K




(Mark
One)





x ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the Fiscal Year Ended December 31,
      2008





or





o TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the transition period from ________________ to
      __________________







Commission
File Number 002-95836-NY





CHINA INDUSTRIAL WASTE
MANAGEMENT, INC.


(Exact
name of registrant as specified in its charter)




Nevada
            13-3250816(State
      or other jurisdiction of incorporation or
    organization)
            (I.R.S. Employer Identification
      No.)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)




Registrant’s
telephone number, including area code011-86-411-85811229




Securities
registered pursuant to Section 12(b) of the Act:





None





Securities
registered pursuant to Section 12(g) of the Act:





None




Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes  x  No





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





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. x Yes  o No





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:





Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
              (Do
      not check if smaller reporting company)
            o
            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). o Yes  x No





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the registrant's most recently completed second fiscal quarter.
$10,243,516.95 as of June 30, 2008.





Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date. 15,262,035 shares of common stock are
issued and outstanding as of March 31, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE





List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.  The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980).





None.










FORWARD-LOOKING
STATEMENTS AND ASSOCIATED RISK





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.





Investors 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. The Private Securities Litigation Reform Act of 1995, which provides a
“safe harbor” for similar statements by certain existing public companies, does
not apply to us because our stock is a “penny stock,” as defined under federal
securities laws.





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 (“US$” or “$”) at the rate quoted by the Federal Reserve System. 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
the Bank of China or other banks 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 or at all.





The
"Company," "we," "us," "our" and similar words refer to China Industrial Waste
Management, Inc, its direct wholly-owned subsidiaries DonTech Waste Services,
Inc. (“DonTech”) and Favour Group Ltd., (“Favour”), along with its indirect
wholly-owned subsidiary: Full Treasure Investments Ltd. (“Full Treasure”) and
its indirectly 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”) In
March 2009 DonTech merged with and into China Industrial Waste Management,
Inc.




All share
and per share information contained herein has been adjusted to reflect a 1 for
100 reverse stock split which occurred on May 12, 2006.









Page
      No.Forward
      Looking Statements and Associated RiskConventions
      and General MattersPart
      IItem
      1.
            
            Business.
            
            1Item
      1A.
            
            Risk
      Factors.
            
            12Item
      1B.
            
            Unresolved
      Staff Comments.
            
            19Item
      2.
            
            Properties.
            
            20Item
      3.
            
            Legal
      Proceedings.
            
            21Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders.
            
            21Part
      IIItem
      5.
            
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
            
            22Item
      6.
            
            Selected
      Financial Information.
            
            23Item
      7.
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            
            24Item
      7A.
            
            Quantitative
      and Qualitative Disclosure About Market Risk.
            
            30Item
      8.
            
            Financial
      Statements and Supplementary Data
            
            30Item
      9.
            
            Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.
            
            30Item
      9A.(T)
            
            Controls
      and Procedures.
            
            30Item
      9B.
            
            Other
      Information.
            
            31Part
      IIIItem
      10.
            
            Directors,
      Executive Officers and Corporate Governance.
            
            32Item
      11.
            
            Executive
      Compensation.
            
            34Item
      12.
            
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
            
            35Item
      13.
            
            Certain
      Relationships and Related Transactions, and Director
      Independence.
            
            36Item
      14.
            
            Principal
      Accountant Fees and Services.
            
            37Part
      IVItem
      15.
            
            Exhibits,
      Financial Statement Schedules.
            
            38











PART
I





ITEM
1. BUSINESS.





Overview





China
Industrial Waste Management, Inc., through its 90%-owned subsidiary Dalian
Dongtai Industrial Waste Treatment Co., Ltd. (“Dongtai”) and other indirect
subsidiaries, is engaged in the collection, treatment, disposal and recycling of
industrial wastes principally in Dalian, China and surrounding areas in Liaoning
Province, China. The Company provides waste disposal solutions to its more
than 650 customers from facilities located in the Economic and Technology
Development Zone, Dalian, PRC. Dongtai treats, disposes of and/or recycles many
types of industrial wastes. Recycled waste products are used by customers as raw
materials to produce chemical and metallurgy products. In addition, Dongtai and
its subsidiaries treat or dispose of industrial waste through incineration,
landfill or water treatment; as well as provide the following 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.





Industry Background and
Market Opportunities





Rapid
economic growth has resulted in China becoming the third largest economy in the
world, however, in the face of this economic surge, it is believed that economic
losses attributable to environmental pollution are causing a 10% offset to GDP
growth in China.





In order
to address the environmental issue, the State Environmental Protection
Administration (SEPA) was officially upgraded to Ministry of Environmental
Protection of China early in 2008, reflecting the growing emphasis the PRC
Government places on environmental protection. In recent years a series of new
laws and regulations related to environmental protection have been implemented
in China. In addition, long term plans for environmental protection have been
made by the government.





·
              During
      the Eleventh Five-year Plan (2006-2010), the PRC government has
      established the following three primary environmental protection
      goals:





·
              Reduce
      total pollutants by 10%;





·
              Decrease
      energy cost per unit of GDP by 20%;
and





·
              Decrease
      water cost per unit of industrial value by
30%.





Assuming
that these objectives are fulfilled, we estimate that the GDP of the
environmental protection industry in China would double. Currently, there are
approximately 30,000 companies engaged in environmental protection industry in
China employing at total of approximately 2 million people with a total
production value of approximately $100 billion. The industry has maintained a
25% annual growth rate in the past decade, and in spite of the global recession,
the environmental protection industry is an industry which has been minimally
impacted. As a component of the $586 billion economic stimulus package announced
by the Chinese government in November 2008 (the largest in China's history), the
government plans to enhance sewage and waste treatment facilities to prevent
water pollution, accelerate green belt and natural forest planting programs, and
increase energy conservation initiatives and pollution control
projects.




1




Management
believes that the environmental protection industry is taking shape in China,
and the industry has become a significant component of the overall economy.
Through the acquisition of operating subsidiaries, Dongtai has expanded its
operation into Municipal BOT projects such as waste water treatment, municipal
sludge treatment, and environmental engineering. At present, the environmental
protection industry in China is rapidly growing.  More centralized
waste treatment & disposal facilities, waste water treatment plants and
municipal sludge treatment facilities will be established throughout China.
Therefore, management believes that the Company is addressing a significant
potential market and is well-positioned to perform a pivotal role in the
implementation of the PRC’s economic stimulus plan in 2009 and the Eleventh
Five-year Plan in the long term.





Sources and Components of
Revenues




Dongtai
is licensed to conduct its industrial waste collection and disposal business by
Ministry of Environment Protection, which is an agency equivalent to the
Environmental Protection Agency in the United States. Companies without this
license are not permitted to conduct business related to industrial waste
disposal and collection. The grant of the license is based upon the professional
qualifications of the applicant’s staff and an evaluation of its management
processes. Dongtai is licensed to dispose of hazardous waste by the Province of
Liaoning.





Our
income is comprised of three components, i.e., solid waste treatment and
disposal service fees, sales of valuable waste material and products, and
municipal waste water treatment fees. Revenue from waste water treatment
contributes approximately $0.25 million per quarter and since commencing
operations the Company has received two quarterly payments from the local
government based on the amount of waste water treated by the facility, making up
a relatively small percentage of total revenue. The following chart depicts the
three main streams of revenue from 2006 through 2008.




revenuegraph




2




The
following chart illustrates the constituents of fees as relates to 2008 solid
waste treatment fees:





feespiechart





In fiscal
2008, we served approximately 685 customers. Our 10 core customers include
Cannon Office Machine (Dalian), Toshiba (Dalian), Capstone Building Material
(Dalian) and Bosch (Dalian). Core customers and major customers account for 7%
of all customers and 82% of total treatment fees, whereas 93% of all customers
only contribute 18% to our revenues generated from waste treatment
fees.





The
current expansion project of Dongtai, which is one of fifty-five hazardous waste
treatment centers sponsored by the National Development and Reform Commission
and one of two centers in Liaoning province, commenced construction at the end
of July, 2008. Construction of its incineration plant has been completed and
on-site construction will resume in mid-March 2009 after the winter break. The
Company expects the plant to be operational by second half of 2009. Management
believes that with the operation of the new centralized hazardous waste
treatment center, coupled with continued increase in international companies
relocating to Dalian, Dongtai is positioned to capitalize on this rapid
environmental development in Liaoning Province. We anticipate that revenues from
our waste treatment, sales of waste recovery and valuable material will continue
to grow in the next year, despite the economic recession. We anticipate that
revenue generated from waste water treatment, which is based on waste water
volume and guaranteed by local government, will grow steadily as the amount of
water which needs to be treated increases in the future. Dalian Zhuorui, a
catalyst recycling project, is expected to become meaningful contributors to
revenue growth in 2009.





Business
Activities





Solid waste collection and treatment:Dongtai collects solid
waste from customers, and charges processing fees based upon the weight of the
collected waste. Dongtai’s services include waste collection and transportation,
incineration, landfill, water treatment, packaging, analysis, storage, labor,
depreciation of facilities, maintenance, chemicals, energy, management and
taxes.





Sales of products:  Our subsidiary,
Dalian Dongtai, processes recovered products and converts them into cupric
sulfate and organic solvents in a form that is desirable for use by companies
engaged in chemical engineering, agriculture and mining. The sales price for
cupric sulfate is affected by the supply of raw materials, product life span,
product structure and production status. Organic solvent is generally used in
chemical engineering and in the electronic industry. At present the resources
are scattered and the volume is limited, but potential volume in the coming
three years is expected to grow.




3




Collection and
sales of valuable material: General waste is
processed to produce valuable materials, which refers to material that can be
reused after sorting or treatment, such as waste metal and waste plastic.
Dongtai sorts and treats the valuable material contained in industrial waste,
and resells them based upon prevailing market prices. The following chart shows
the volume of valuable materials sold during fiscal 2008.





Category
            
            Volume
      (tons)Plastic
            
            267Waste
      oil
            
            135Waste
      iron
            
            1,112Valuable
      Metals
            
            149Waste
      Drum (size variable)
            
            745Other
            
            3,242Total
            
            5,650





Municipal waste
water treatment: Inadequate investment has traditionally impeded the
progress of environmental protection efforts in China. In the past few years,
investment emphasis has increasingly transitioned from industrial waste water
treatment to municipal waste water and solid waste pollution prevention.
Municipal waste water treatment is highlighted as a critical component of
China’s $586 billion economic stimulus plan.





Dongtai
Water Recycling Co. Ltd. (“Dongtai Water”) was incorporated in July 2006, at
which time Dongtai acquired an 18% equity interest in Dongtai Water. On July 16,
2007 Dongtai purchased an additional 62% of the equity of Dongtai
Water. Dongtai Water is a Build-Operate-Transfer (BOT) project, designed to
process municipal waste water generated by the city of Dalian. The first stage
of construction of the plant has been completed and is operating to
specification and design parameters, with Class A discharging water and a
capacity of approximately 30,000 tons/day. Completion of construction of the
Xiajiahe plant is planned to execute in three stages. Phase Two is expected to
be completed in 2-3 years and will increase treatment capacity to 60,000
tons/day. Dongtai Water continues to evaluate necessary expansion capacity for
Phase Three. Dongtai Water also intends to continue its research and development
focused on the reuse of reclaimed water.





In a
typical BOT project, the municipal government will invite candidates to bid on
the project. The winner of the bid is generally the bidder which offers the best
combination of price and construction and operating model for the project. The
winning bidder then becomes eligible to contribute investment in construction of
the BOT facility and to operate the facility for 20-25 years after construction.
In connection with the project, the municipal government becomes responsible for
the payment ofservice fee to the operator of the facility.





Waste catalyst
treatment and comprehensive reuse: Dalian Zhuorui
Resource Recycling Co., Ltd. (“Zhuorui”) was incorporated in April 2006 and is
engaged in plasma arc melting, separation and purification of waste catalysts
treatment and comprehensive utilization of waste catalysts or similar material.
In August 2007, Dongtai acquired 70% of the equity of Zhuorui from a related
company controlled by Mr. Dong Jinqing, our CEO, for a purchase price of RMB 7
million (approximately US$958,300).





Zhuorui
completed on-site construction in the third quarter of 2008, and is in the
process of equipment testing, where several large-scale trials have been
completed to date. However, the continuity of the production process is not yet
stable and engineers are adjusting the production process to improve the
effective yield of the process to desired levels. Due to the impact of the
economic downturn the price of Zhuorui’s final products, which include chemical
compounds of valuable metals, has decreased dramatically since the end of 2008.
However, management believes that the economy in China will resume its growth in
2009 and Zhuorui is positioned to capitalize on a rapidly growing market for
catalyst treatment and sales of metallic compound.





Dalian is
the national strategic oil storage and refining base. There are two large scale
oil refining companies in Dalian, i.e., West Pacific Petrochemical Company
(with a 10 million ton capacity) and Dalian Petrochemical Corporation (with a 20
million ton capacity). The total amount of waste catalyst produced by the two
companies is approximately 3,000 tons annually. Additionally, other refining
plants in northeast China are reconstructing their facilities to address
high-sulfur content oil. Upon completion of the reconstruction projects, the
annual generation volume of spent catalyst is expected to reach 8,000-10,000
tons.




4





Design and
installation of environmental protection equipment and renewable energy
equipment:
On October 18, 2007, Dongtai entered into a Contract for Joint Venture Using
Foreign Investment with Roland Lipp, Karin Lipp-Mayer and Minghuan Shan to
establish a joint venture limited liability company in the People’s Republic of
China. The joint venture entity, known as Dalian Lipp Environmental Energy
Engineering & Technology Co., Ltd. (“Dalian Lipp”), will target organic
waste treatment and waste water treatment market, and be engaged in sales of its
proprietary fermentation reactor, sewage tank and post-sale technical service.
The Company plans to pursue localization of equipment design and manufacturing
during 2009.





The
agreement provides that the registered capital of Dalian Lipp will be
$1,095,200, of which Dongtai is to contribute $821,400 in return for a 75%
interest, and Roland Lipp, Karin Lipp-Mayer and Minghuan Shan are to contribute
$109,520, $109,520 and $54,760, respectively. As of March 31, 2009 a
business license was granted to Dalian Lipp upon contribution of the registered
capital.





Facilities
of Dongtai and its subsidiaries:


The following table describes the
capacity of the various facilities used by the Company, both currently and
following the completion of planned expansion:




Capacity*Nature
      of Service
              
              Type
      of Facility
              
              Description
              
              Existing
              
              Post-
                ExpansionSolid
      waste treatment and disposal
              
              Incinerator
                Landfill
                Effulent
      Treatment System
              
              Incineration
      Treatment
                Disposal
      of Waste by Landfill
                Handling
      of Various Industrial Effluent
              
              3,300
      t/a
                13,000
      t
                18,000
      t/a
              
              9,000
      t/a
                40,000
      t
                25,000
      t/aResource
      recovery
              
              Etchant
      Utilization System
                Waste
      Solvent Recovery System
                Valuable
      Metal Recovery System
              
              Generation
      of Cupric sulfate from Etchant
                Production
      of Industrial-Class Organic Solvent Products with Waste
      Solvent
                Yielding
      of Valuable Alloy or Metal Oxide Products
              
              2,000
      t/a
                1,000
      t/a
                5,000
      t/a
              
              ——
                3,000
      t/a
                10,000t/aCollection
      and Sales of Valuable Material
              
              Waste
      Sorting and Filtrating System
              
              ——
              
              10,000
      t/a
              
              ——Municipal
      Sewage, Municipal Sludge Treatment
              
              Sewage
      Treatment Plant Operation (BOT)
                Municipal
      Sludge Treatment Plant Operation (BOT Project)
              
              Municipal
      Sewage Treatment Plant Operation and Management
                Municipal
      Sludge Plant Operation and Management
              
              30,000
      t/d
                400
      t/d
              
              100,000
      t/d
                600
      t/dEnvironmental
                Protection
      Equipment Manufacturing
              
              Manufacturing
      and Sales of Lipp Tank
              
              Sludge
      Fermentation-Tank and Auxiliary
      Equipment  Manufacturing
              
              ——
              
              ——





* Key:
t = tons; t/d = tons per day; t/a = tons annually.





Waste
Treatment Systems





Dongtai
operates proprietary and non-proprietary systems for waste treatment, disposal
and recycling, including:




·
              Electric
      Garbage Dismantling System




·
              Organic
      Solvent Distillation Recycling
System




5




·
              Fluorescent
      Tube Treatment System




·
              Organic
      Macromolecular Waste Destructive Distillation Cracking
    System




·
              Waste
      Etchant Liquor Treatment
System




·
              Comprehensive
      Treatment System for Industrial Waste
Water




·
              Incineration
      System for Solid Waste




·
              Hazardous
      Waste Landfill




·
              Ordinary
      Industrial Solid Waste
Landfill





Electric Garbage
Dismantling System:  Following
classification and dismantling of photocopier ink cartridges and electric
components of certain household appliances, the system can recover metal and
plastics with high efficiency and limit the amount of unrecyclable residual
waste. The system also includes recycling metals from household electric
appliances such as TV picture tubes, and treating the hazardous residual
components such as phosphor and Freon so that such residual waste is rendered
innocuous. The system was built in 1997 and includes a large disintegrator,
electronic scale, oven, vacuum cleaner, decorticator and large goods
elevator.





Organic Solvent
Distillation Recycling System:  Dongtai
established the organic solvent distillation recycling system in 1992. This
system includes a raw material storage tank, a rectifying tower, and a flashing
tower. The system is capable of treating organic solvents including triclene,
acetone, ethyl acetate, isopropyl alcohol, propylene glycol monomethyl ether
methyl alcohol, methylbenzene, and cyclohexanone.




Since
2003 this system has been listed and promoted as a "national key environmental
project" by the State Environmental Protection Administration for three
consecutive years. As a result of employing this system Dongtai is also listed
as the technology supporting unit of the "National Technology Achievement
Promotion Project". This system won the second prize of Dalian Technology
Innovations in December 2000.




Dongtai
has established very strict procedures for the disposal or treatment of toxic
and hazardous chemical waste. No environmental pollution accident has occurred
since the establishment of Dongtai. Dongtai has established relationships with
over 40 enterprises in dealing with their toxic chemical waste.





Fluorescent Tube
Treatment System:  Dongtai has
developed a waste fluorescent tube treatment system. The system is able to
safely dispose of fluorescent lighting tubes which contain harmful substances
such as mercury. The system breaks the tubes under negative pressure, and
absorbs and washes the harmful components such as mercury. The glass fragments
and metal residue resulting from the treatment can then be
recycled.





Organic
Macromolecular Waste Destructive
Distillation Cracking System:  Canon Dalian
Business Machines Co. Ltd is an enterprise established in Dalian by Canon
(China) Co. Ltd. primarily to produce laser printer ink cartridges. Treatment of
the residual powdered ink in used cartridges was problematic, so Dongtai
developed a unique waste powdered ink destructive distillation pyrolysis
treatment technique for Canon. This system can transform the waste powdered ink
into fuel with a high calorific value. The residue can also be used to produce
cement. The system was built in 1995 and is composed of destructive distillation
cracking oven, heat exchange device and air storage tank. The system is able to
treat powdered ink from photocopier and printer, and organic macromolecular
materials such as polystyrene, polypropylene resin, polycarbonate, rubber
materials, and oil sludge.





Waste Etchant
Liquor Treatment System:This system includes a
material delivery device, reaction vessels, and press filters. The system can
process etchant containing waste copper element and generate cupric sulfate
through neutralization, acidification, and metathesis.





Industrial Waste
Comprehensive Treatment System:The system includes a
treatment tank, an oil removal tank, a reaction tank, a precipitation tank, a
neutralization tank, an absorption tank, filtering device. It is able to treat
the ablution resulting from removing oil from the surface of metal, and grinding
and cutting fluids resulting from machining.





Solid Waste
Incineration System:   The
inappropriate handling of hazardous chemicals can trigger serious environment
pollution. Dongtai has built an incineration system which includes a two-stage
incineration stove, a residual heat recovery system and a residual gas discharge
system which renders the gas innocuous. The major wastes that can be processed
through the system include: waste organic solvents, waste oil, waste glue
liquor, and combustible solid industrial garbage. The automatic operating system
meets PRC national standards.




6





Hazardous Waste
Landfill: The landfill has been
built in accordance with PRC national construction standards. It has a double
HDPE impermeable layer lining and percolating water collection system. After
stabilization and solidification, the toxic and hazardous waste to be deposited
in the landfill receives treatment rendering it innocuous. The system is able to
handle a wide variety of waste residue containing heavy metal and incinerate
residues. The project covers an area of 112,350 square feet.





Landfill for
Ordinary Industrial Solid
Waste:The landfill for ordinary
industrial solid waste has been built according to PRC national standards. It is
equipped with a single layer anti-seepage pretreatment system and a collection
system of percolating water. The landfill can process ordinary industrial Class
1 and Class 2 wastes.





Market





Industrial waste:Major sources of industrial waste in the Dalian area include industrial
enterprises, medical units, scientific research institutions and university
laboratories. Dongtai believes that the total amount of waste generated and
collected by in the greater Dalian area has grown significantly in recent years
- from approximately11,000 tons in 2001, to approximately 48,476 tons in 2008.
Approximately 61% of Dongtai’s revenue for the year ended December 31, 2008 was
for waste collection, treatment and disposal services, and the rest of Dongtai’s
revenue is related to recycling operations.





BOT:At
the present time, there are approximately 1,408 municipal waste water treatment
plants operating in China, with 1,004 plants under construction, and it is
estimated that 1,677 municipal waste water treatment plants will be constructed
during the period of the Eleventh Five Year Plan. Liaoning is one of the
country’s largest industrial centers and waste producers, and Dalian has the
largest economy in Liaoning Province. According to the economic stimulus plan
launched by the government of China, in 2009 Dalian will commence an investment
package of approximately $150 million to improve the environmental
infrastructure, including a plan to build six waste water treatment
plants.





Engineering:Sewage sludge is an end
product of the waste water treatment process. In the face of another surge of
waste water treatment plant construction triggered by the economic stimulus plan
in 2009, the increasing amount of sewage sludge will pose a threat to
environmental conservation in China. In order to cope with the issue, the
Ministry of Environmental Protection of China is now seeking advice from the
public for sewage sludge treatment policy, and guidance for treatment technology
and related regulation is supposed to be available in 2009, which means a huge
market of sewage sludge treatment is taking shape in China. Dalian Lipp,
targeting organic waste treatment market, is ready to seize the opportunities in
the field of sewage sludge treatment, and treatment of organic waste such as
kitchen waste and animal ejection.





Although
China was affected by the global economic crisis during the second half of 2008,
Management is still confident that the Company will benefit from the
opportunities which are emerging from the economic stimulus plan, and will gain
further growth based on the balanced business structure.





Customers





Dongtai
performs solid waste disposal services for more than 650 companies, including
multinational companies (or their PRC affiliates) such as Canon, Pfizer,
Toshiba, Toto, Posco-CFM Coated Steel, Fuji, Wepec, Ryobi, TDK, YKK, and
Panasonic. For the year ended December 31, 2008, Dongtai’s 10 largest waste
disposal customers accounted for approximately 46% of Dongtai’s waste processing
revenues. The three largest waste treatment customers during 2008 were China
National Petroleum Corporation (Dalian), Dalian Pacific Multi-layer PCB Co., and
Dalian Pacific electronics Co., Ltd. No customer accounted for 10% or more of
Dongtai’s revenues for waste treatment.





Dongtai’s
ten largest customers of recycled commodities accounted for approximately 38 %
of Dongtai’s sales of recycled commodities in 2008. Dongtai’s ten largest
customers for cupric sulfate accounted for approximately 99% of Dongtai’s sales
of cupric sulfate in 2008. Bofa Chemical Engineering Company and Dalian
Sandaaoke Chemistry Company accounted for approximately 34% and 24%,
respectively, of Dongtai’s sales of cupric sulfate in 2008.




7





Technology and Intellectual
Property





Dongtai
has established the Dongtai Industrial Waste Disposal Technology Center in
conjunction with the Dalian University Institute for Ecoplanning and
Development. The center currently has 22 professional engineers and 9 analysts.
In collaboration with experts from Canada and U.S. - based RPP International
Consulting Company, the Center is focused on research related to eco-planning
theory and policy, professional training, ecological efficiency evaluation and
simulation analysis.





Since its
establishment, Dongtai has closely cooperated with scientific research
communities and universities, such as Dalian Institute of Chemical
Physics, the Chinese Academy of Sciences (Beijing) Mechanics Institute,
Tsinghua University and Dalian University of Technology. Dongtai also
participated in compiling the National Waste Disposal Criteria along with over
50 international enterprises such as China Electronics Engineering Design
Institute, Intel (China) Co., Ltd., Motorola (China) Co., Ltd, and Dell (China)
Co., Ltd.





In
addition, Dongtai's research and development team specializes in environmental
engineering, chemical engineering, water supply and drainage systems, surface
treatment, biological engineering, metallurgy, machinery, electronics, and
computer science. The Company provides significant input into the research of
methods of industrial solid waste treatment and comprehensive waste utilization.
Dongtai’s recognition for its scientific achievements in business operations
includes the following:





·
              Dongtai
      was awarded second prize of Dalian Technology Innovation for its
      Comprehensive Utilization and Disposal of Waste Organic Solvents system.
      The system has been listed as the "National Key Practical Technology
      for Environmental Protection" by the Ministry of Science and Technology
      and the State Administration of Environmental Protection of the
      PRC;




·
              The
      Destructive Distillation Thermal Cracking of Powdered
  Ink;




·
              The
      Safety Landfill of Hazardous
Waste;




·
              Pyrolysis
      Incineration Stove;




·
              The
      Innocuous Treatment of
Cyanide;




·
              The
      Comprehensive Utilization of the Waste Etchant Liquor from PCB
      industry;




·
              The
      Comprehensive Utilization and Disposal of Waste Catalyst. This system won
      the third prize of Dalian Technology Innovation and has been listed as the
      "National Key Practical Technology for Environmental Protection" by the
      State Administration of Environmental Protection of the PRC. It was
      supported by the Innovation Funds for Small-and-Medium Sized Scientific
      and Technological Enterprises of the Ministry of Science and
      Technology;




·
              The
      Treatment of PCB Industry's Waste Liquid containing heavy
      metal;




·
              The
      Disposal of Medical Refuse;




·
              The
      Disposal of Waste Batteries;




·
              The
      Innocuous Treatment of Arsenic
Compound;




·
              The
      Wet Oxidation of High Concentration Organic
  Waste;




·
              The
      Disposal of Ordinary Industrial Waste;
and




·
              The
      Comprehensive Utilization and Innocuous Treatment of Electronic
      Waste.





Dongtai
has been granted five patents covering waste disposal systems and techniques by
the PRC Patent Office. The following table identifies and describes those
patents:





Status
            
            Description
            
            Patent
      Number
            
            Grant
      Date
            
            Expiry
      DateGranted
            
            The
      Disposal of Powdered Ink Waste from Copy Machines
            
            ZL
      01 1 27963.X
            
            7/7/04
            
            7/20/21Granted
            
            Consecutive
      Destructive Distillation Stove
            
            ZL
      200420069745.5
            
            7/13/05
            
            7/9/14Granted
            
            Plasma
      Fusion Pyrolysis Device
            
            ZL
      200420069742.1
            
            7/20/05
            
            7/9/14Granted
            
            The
      Disposal of Waste Catalyst
            
            ZL
      200410021093.2
            
            1/17/07
            
            1/20/24Granted
            
            Method
      and Equipment For High-Efficiency Solid-Liquid Separation Under High
      Pressure
            
            ZL
      200610046723.0
            
            11/12/08
            
            5/26/26




8




Operating
Strategy





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:





·
              Emphasizing
      the commercialization of solid waste
treatment;




·
              Expansion
      into municipal sewage and sludge treatment BOT
  projects;




·
              Managing
      our businesses locally with a strong operating focus and emphasis on
      customer service;




·
              Entering
      into new geographic markets in China;
and




·
              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.





Government
Regulation





The
industrial waste treatment business is still in its nascent stages in China.
There are only a few coastal cities and several major cities in industrialized
regions that have built or even plan to build industrial waste treatment
facilities.





The
industry has high barriers to entry due to the central government's strict
licensing requirements. Both Ministry of Environment Protection and local
bureaus of environmental protection license and regulate companies engaged in
waste disposal and treatment. The requirements for licensing have become more
stringent and applicants must demonstrate, among other things, that they have a
sufficient operating history and a sufficient number of professional
technicians, as well as compliance with national and local environmental
standards.





The State
has also adopted Measures for the Administration of Permit for Operation of
Dangerous Wastes (“Measures”). The Measures are intended to strengthen
supervision and administration of activities relating to the collection, storage
and disposal of dangerous wastes, and preventing dangerous wastes from polluting
the environment.





Dongtai
has been awarded an Environmental Protection Facility Operation License by
Ministry Of Environment Protection. In addition, pursuant to the Measures,
Dongtai has received a Permit for the Operation of Dangerous Wastes by the local
Bureau of Environmental Protection. In addition, Dongtai’s license provides that
it is exclusively responsible for the collection and processing of industrial
waste in Dalian and the surrounding areas of Liaoning Province.





The
Company believes that it currently complies with all licensing requirements
relating to its business operations. However, there is no assurance that the
central or local governments will not adopt new regulations or licensing
requirements that will make it more difficult for Dongtai to operate in the
environmental protection industry.





Competition





There are
several large companies in China that engage in providing solid waste recycling
services, the recovery and treatment of waste materials, the production and sale
of recycled products, the operation of environmental protection facilities (BOT)
and/or the manufacture of environmental protection equipment.  In
addition to Dongtai, these companies include Shenzhen Dongjiang Environmental
Co., Ltd., Tianjin Hejia Veolia Environmental Service Co., Ltd., Hangzhou Dadi
Environmental Protection Co., Ltd., and Shanghai Solid Waste Disposal Center.
Dongtai and Shenzen Dongjiang provide the full range of these services. Dongtai
believes it is the only company offering a full range of services in Dalian and
Liaoning Province.




9





Within
Liaoning Province, our principal competitors are Liaoning Zhen Xing, a
state-owned environmental concern, primarily serving Shenyang and the
surrounding area, and Liaoning Muchang Solid Waste Disposal Co., Ltd., a private
solid waste disposal company also serving Shenyang and the surrounding area.
Within Dalian, our principal competitor is Dalian Pingan Environmental
Protection, a smaller-capacity, private enterprise, primarily dealing with
limited categories of hazardous waste.





We
believe that we enjoy a competitive advantage over other companies engaged in
the environmental protection industry, including:





·
              Reputation–Dongtai has established
      itself as the leading environmental protection company in Liaoning
      Province, and an industry leader in all of China. Government officials
      consult Dongtai when drafting environmental protection legislation.
      Dongtai’s expanded facility has been included in the current national
      centralized hazardous waste disposal facility plan established by the
      National Development and Reform
Commission.





·
              Broad and
      Diversified Customer Base –Dongtai has a diverse
      customer base including some 650 companies engaged in private enterprises,
      municipal institutions and universities, including Canon, Pfizer, Toshiba
      and Panasonic (or their respective PRC affiliates). Management anticipates
      that as additional large multinational companies locate in Liaoning
      Province, Dongtai will be their first choice to provide environmental
      services. Dongtai holds both national and provincial operating
      permits.





·
              Long-term
      Stable Relationships–Dongtai has an 18-year operating history and is committed to
      maintaining its customers by providing high quality products and services.
      Some of Dongtai’s customers, including Canon, Goodyear and Pfizer, have
      established strategic partnership with Dongtai since it commenced
      operations in 1991.





·
              Comprehensive
      Services–
      Dongtai provides a comprehensive array of services including solid waste
      treatment, waste collection and transportation, environmental protection
      services, storage to landfill and on-site management. The broad range of
      services we offer allows us to customize a package of services to meet the
      needs of the large clients that we
service.





·
              Advanced
      Technologies–Dongtai designs and develops proprietary processes and technologies
      for use in providing its services. It has been awarded four patents in the
      PRC covering solid waste disposal and treatment processes, and two
      additional patent applications are pending. Dongtai, in conjunction with
      the Dalian University Institute for Eco-planning and Development, has
      established and operates the Dongtai Industrial Waste Disposal Technology
      Center. Dongtai also cooperates with experts in Canada and the United
      States to conduct research concerning eco-planning theory and policy,
      ecological efficiency evaluation and related activities, with the support
      of the Dalian University of
Technology.





·
              Experienced
      Management and Sound Management System –Dongtai’s senior
      management has extensive experience in environmental protection. Mr. Dong
      Jinqing, our Chief Executive Officer, founded Dongtai in 1991, and has
      over 17 years experience in the field of environmental protection. Dongtai
      was one of the first companies to be granted a permit for the operation of
      environmental protection equipment by the State Environmental Protection
      Administration, and license to operate hazardous waste treatment and
      disposal facilities by the Liaoning Environmental Protection
      Bureau.





In
addition to the competitive advantages we believe we enjoy, there are barriers
to entering the solid waste and environmental services market,
including:





·
              Substantial
      capital investment required;




·
              Retaining
      qualified management is
difficult;




10




·
              Difficulties
      in developing a customer
base;




·
              The
      need for government licenses and permits;
and




·
              Advanced
      technologies are difficult to
develop.


.


Notwithstanding
our competitive advantages and the barriers to entering the marketplace, there
is no assurance that we will remain a competitive force in our industry, or that
we will operate on a profitable basis.





Employees





As of
December 31, 2008 Dongtai and its subsidiaries have 400 registered employees.
The following table depicts the allocation of these employees.





Company
            
            Senior
      Management
            
            
            Technicians
      and Engineers
            
            
            No.
      of EmployeesDongtai
            
            
            4
            %
            
            
            7
            %
            
            
            272Dongtai
      Water
            
            
            21
            %
            
            
            7
            %
            
            
            14Zhuorui
            
            
            6
            %
            
            
            7
            %
            
            
            107Dalian
      Lipp
            
            
            29
            %
            
            
            57
            %
            
            
            7Total
            
            
            
            
            
            
            
            
            
            
            400





The
Company has not experienced any work stoppages and it considers relations with
its employees to be good. The Company anticipates hiring additional employees as
it expands industrial waste treatment and disposal, and initiate new
project.





Company
History





The
Company was originally incorporated as a Delaware corporation in 1987 under the
name of Egan Systems, Inc. In late 1987, the Company acquired ENVYR Corporation
as a wholly owned subsidiary and established its headquarters in Raleigh, North
Carolina. From 1987 to 2003, the Company was primarily engaged in the business
of developing, selling and supporting computer software products, particularly
products related to the COBOL computer language.





In
October 2003, the Company acquired a group of 35 mining claims from Goldtech
Mining Corporation, a Washington Corporation. In November, 2003, the Company
acquired the remaining mining claims of Goldtech Mining Corporation. In
connection with the acquisitions, the Company changed its name to Goldtech
Mining Corporation and re-domiciled to the State of Nevada.





Following
these acquisitions, the Company operated 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 and adopted a business
plan to focus exclusively on its mining exploration business. By September 2005,
the Company had ceased active mining operations as a result of its loss of
contractual mining rights in Spain.





In 2005
the board of directors of the Company decided to pursue other business
opportunities. In November 2005, the Company acquired a 90% indirect ownership
interest (through a wholly owned Delaware subsidiary of the Company known as
DonTech Waste Services Inc., which was originally known as Dalian Acquisition
Corp.) in Dongtai, in a reverse merger transaction. Dongtai had been founded on
January 9, 1991 as a limited liability company under the PRC laws, with a total
registered capital of $250,000.





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 capital of $2.3
million. The formation of the joint venture was approved by Dalian Industry and
Commerce Bureau, and the term of the joint venture is 12 years. A new
business license was issued to Dongtai on October 10, 2005, and the registered
capital has been fully paid as of April 2007.





On
September 18, 2008, the Company formed Favour as a British Virgin Islands
(“BVI”) corporation and a wholly-owned subsidiary of China Industrial Waste
Management, Inc. Simultaneously, the Company formed Full Treasure as a Hong Kong
corporation and wholly-owned subsidiary of Favour. Favour and Full Treasure were
established to facilitate the Company’s banking relationships.




11








ITEM
1A. RISK FACTORS





An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this Annual Report on Form 10-K before deciding to invest in our common
stock.





Risks Related to our
Business





Our
failure to compete effectively may adversely affect our ability to generate
revenue.





We
compete primarily on the basis of our ability to secure contracts with
industrial companies, and local government entities in Dalian, China and
surrounding areas for waste processing and disposal or for the purchase by us of
waste material which we recycle. There can be no assurance that such contracts
will be available to us in new areas as we attempt to expand or that our
competitors will negotiate more favorable arrangements with our current
customers. We expect that we will be required to continue to invest in building
waste treatment and disposal infrastructure. Our competitors may have better
resources and better strategies to raise capital which could have a material
adverse effect on our business, results of operations and financial
condition.





We
rely on our governmental permits rights to operate our business in Dalian, China
and the loss of the permits would have a material adverse impact on our
business.




Only
those companies who have been granted a special operating license issued by the
national and local governments are permitted to engage in the industrial waste
treatment and disposal business in China. Dongtai's expansion project has
been listed as one of the 55 items of the Hazardous Waste and
Medical Waste Treatment Facility Construction Program approved by State
Environmental Protection Administration. The national and local governments have
strict requirements regarding the technology which must be employed and the
qualifications and training of management of the licensee which must be
maintained. Either the national or local government could determine at any time
that we do not meet the strict requirements of technology or management and
revoke our permit to engage in the industrial waste business in China. The
termination of our licenses to operate would have a material adverse impact on
our revenue and business.





If
we fail to introduce new services or our existing services are not accepted by
potential customers we may not gain or may lose market share.





Our
continued growth is dependent upon our ability to generate more revenue from our
existing customers, obtain new customers and raise capital from outside sources.
We believe that in order to continue to capture additional market share and
generate additional revenue, we will have to raise more capital to fund the
construction and installation of additional facilities and to obtain additional
equipment to collect, process and dispose of industrial waste and recycle waste
for our existing and future customers. For example, our 90% owned subsidiary,
Dongtai, has entered into agreements with respect to the construction of two BOT
(Build-Operate-Transfer) Projects in Dalian, China – a municipal sewage
treatment facility and a sludge treatment and disposal facility. We estimate
that Dongtai’s aggregate investment in such projects will be RMB 36 million
(approximately $5.2 million) for an 80% interest in Dongtai Water Recycling
Company, which intends to operate a municipal sewage treatment plant, and RMB 60
million (approximately $8.72 million) for a 49% interest in Dongtai Organic
Waste Treatment Company, which intends to operate a municipal sludge treatment
and disposal facility. We anticipate that we will also require approximately RMB
120 million (approximately $16.4 million) in order to fund the expansion project
relating to upgrade of Dongtai’s existing waste processing facilities, as well
as approximately RMB 51 million (approximately $5.25 million) to satisfy its
investment needs required by in Dalian Zhuorui Resource Recycling Co., Ltd., in
which Dongtai own a 70% interest. We anticipate that the total funding include
expenditures mentioned above that we will require to finance the construction
and installation of additional facilities and to obtain additional equipment for
Dongtai to accommodate a sharp increase in demand for its waste management
services and more stringent regulatory criteria in environmental management, as
well as to strengthen our presence outside of Dalian, China, through investment
and/or acquisition is approximately RMB 267 million (approximately $36 million)
.. We anticipate that such funding will be provided through a variety of sources
including bank loans, equity financing and net cash flow generated from
operations.




12





The
Company also intends to submit a bid to participate in a BOT project relating to
the Dalian Siergou sewage treatment plant. If the Company’s bid is successful,
an additional 140 million RMB (approximately $20.1 million) will be needed to
finance the project.





It is
likely that we will also seek participation in additional projects, although no
such projects have been identified by us at this time. In the future we may be
unable to obtain the necessary financing for our capital requirements on a
timely basis and on acceptable terms, and our failure to do so may adversely
affect our financial position, competitive position, growth and profitability.
Our ability to obtain acceptable financing at any time may depend on a number of
factors, including: our financial condition and results of operations; the
condition of the PRC economy and the industrial waste treatment industry in PRC,
and conditions in relevant financial markets in the United States, PRC and
elsewhere in the world.





Our
inability to fund our capital expenditure requirements may adversely affect our
growth and profitability.





Our
continued growth is dependent upon our ability to generate more revenue from our
existing customers, obtain new customers and raise capital from outside sources.
We believe that in order to continue to capture additional market share and
generate additional revenue, we will have to raise more capital to fund the
construction and installation of additional facilities and to obtain additional
equipment to collect, process and dispose of industrial waste and recycle waste
for our existing and future customers. In the future we may be unable to obtain
the necessary financing on a timely basis and on acceptable terms, and our
failure to do so may adversely affect our financial position, competitive
position, growth and profitability. Our ability to obtain acceptable financing
at any time may depend on a number of factors, including: our financial
condition and results of operations, the condition of the PRC economy and the
industrial waste treatment industry in the PRC, and conditions in relevant
financial markets in the United States, the PRC and elsewhere in the
world.





We
may not be able to effectively control and manage our growth.





If our
business and markets grow and develop, it will be necessary for us to finance
and manage expansion in an orderly fashion. We may face challenges in managing
our industrial waste treatment and disposal business over an expanded
geographical area as well as managing a business offering expanded waste
treatment services. We may also encounter difficulties in integrating acquired
businesses with our own. Such eventualities will increase demands on our
existing management, workforce and facilities. Failure to satisfy such increased
demands could interrupt or adversely affect our operations and cause
administrative inefficiencies.





If
we are unable to successfully complete and integrate new operational locations
in a timely manner, our growth strategy could be adversely
impacted.





An
important element of our growth strategy is expected to be the development of
operational locations outside of Dalian, China. However, integrating businesses
involves a number of specific risks, including the possibility that management
may be distracted from regular business concerns by the need to integrate
operations, unforeseen difficulties in integrating operations and systems,
problems relating to assimilating and retaining the employees of acquired
businesses, accounting issues that arise in connection with acquisitions,
challenges in retaining customers, and potential adverse short-term effects on
operating results. In addition, we may incur debt to finance future operational
locations, and we may issue securities in connection with future operational
locations that may dilute the holdings of our current or future stockholders. If
we are unable to successfully complete and integrate new operational locations
in a timely manner, our business, growth strategy and financial results could be
materially and adversely impacted.




13





Our
waste treatment operations are risky and we may be subject to civil liabilities
as a result of hazards posed by such operations.





Our
operations are subject to potential hazards incident to the gathering,
processing and storage of industrial waste such as explosions, product spills,
leaks, emissions and fires. These hazards can cause personal injury and loss of
life, severe damage to and destruction of property and equipment, and pollution
or other environmental damage, and may result in curtailment or suspension of
operations at the affected facility. Consequently, we may face civil liabilities
in the ordinary course of our business. At present, we do not carry any
insurance to cover such liabilities in the ordinary course of our business,
except that our employees are insured for injuries occurring at work. Although
we have not faced any civil liabilities historically in the ordinary course of
our waste treatment operations, there is no assurance that we will not face such
liabilities in the future. If such liabilities occur in the future, they may
adversely and materially affect our operations and financial
condition.





Failure to retain services of key
personnel will affect our operations and results.





Our
success to date has been largely due to the contributions of our executive
officers. The continued success of our business is very much dependent on the
goodwill that they have developed in the industry over the past years. Our
continued success is dependent, to a large extent, on our ability to retain the
services of our executive officers. The loss of any of our executive officers’
services due to resignation, retirement, illness or otherwise without suitable
replacement or the inability to attract and retain qualified personnel would
affect our operations and may reduce our profitability and the return on your
investment. We do not currently maintain key man insurance covering our
executive officers.





We may not be able to protect our
processes, technologies and systems against claims by other
parties.





Although
we have four registered PRC patents and have applied for two other PRC patents
in respect of the processes, technologies and systems we use frequently in our
systems, we have not purchased or applied for any patents other than these as we
are of the view that it may not be cost-effective to do so. For such other
processes, technologies and systems for which we have not applied for or
purchased or been licensed to use patents, we may have no legal recourse to
protect our rights in the event that they are replicated by other parties. If
our competitors are able to replicate our processes, technologies and systems at
lower costs, we may lose our competitive edge and our profitability may be
reduced.





We may face claims for infringement
of third-party intellectual property rights.





We may
face claims from third parties in respect of the infringement of any
intellectual property rights owned by such third parties. There is no assurance
that third parties will not assert claims to our processes, technologies and
systems. In such an event, we may need to acquire licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. There can be
no assurance that any license acquired under such patents would be made
available to us on acceptable terms, if at all, or that we would prevail in any
such contest. In addition, we would incur substantial costs and spend
substantial amounts of time in defending ourselves in or contesting suits
brought against us for alleged infringement of another party’s patent rights. As
such, our operations and business may be adversely affected by such civil
actions. We rely on trade secrets, technology and know-how. There can be no
assurance that other parties may not obtain knowledge of our trade secrets and
processes, technology and systems. Should these events occur, our business would
be affected and our profitability reduced.





We are reliant on a few major
suppliers.





We are
dependent on our major suppliers for the timely delivery of waste materials that
we require for our recycling operations. Should our major suppliers fail to
deliver such materials on time, and if we are unable to source these materials
from alternative suppliers on a timely basis, our revenue and profitability
could be adversely affected.





We are subject to risks
relating to BOT
(Build-Operate-Transfer) projects in which we have started to
invest.





Our 90%
owned subsidiary, Dongtai, has begun to invest capital in BOT projects which
require high up-front capital expenditures. For example, Dongtai has entered
into agreements to invest in Dongtai Water Recycling Company, a municipal sewage
treatment facility in Dalian, China and Dongtai Organic Waste Treatment Company,
which is constructing and will operate a sludge treatment and disposal facility
in Dalian, China. We estimate that Dongtai’s aggregate investment in such
projects will be approximately 36 million RMB (approximately $5.2 million) for
an 80% interest in Dongtai Water Recycling Company, which intends to operate a
municipal sewage treatment plant, and 60 million RMB (approximately $8.72
million) for a 49% interest in Dongtai Organic Waste Treatment Company, which
intends to operate a municipal sludge treatment and disposal facility. Dongtai
Organic Waste Treatment Company has financed itself through bank
loan.




14





Our
returns from BOT projects are derived from fees paid by the PRC government and
we expect to benefit from these BOT projects which are designed to generate a
steady and recurring source of income for us over a sustained period of time -
typically between 20 and 25 years. However, our BOT projects are exposed to
risks such as the occurrence of natural disasters or the imposition of more
stringent government regulations, which may result in the disruption of our BOT
projects and, therefore, the projected revenue stream that they create. Our
investment returns from these BOT projects may thus be reduced should any of
such risks materialize. In addition, our lack of experience in administering BOT
projects may negatively impact our ability to successfully manage the projects
we have undertaken.





Risks Related to Doing
Business in the PRC





We
face the risk that changes in the policies of the PRC government could have a
significant impact upon the business we may be able to conduct in the PRC and
the profitability of such business.





The PRC’s
economy is in a transition from a planned economy to a market oriented economy
subject to five-year and annual plans adopted by the government that set
national economic development goals. Policies of the PRC government can have
significant effects on the economic conditions of the PRC. The PRC government
has confirmed that economic development will follow the model of a market
economy. Under this direction, we believe that the PRC will continue to
strengthen its economic and trading relationships with foreign countries and
business development in the PRC will follow market forces. While we believe that
this trend will continue, we cannot assure you that this will be the case. A
change in policies by the PRC government could adversely affect our interests
by, among other factors: changes in laws, regulations or the interpretation
thereof, confiscatory taxation, restrictions on currency conversion, imports or
sources of supplies, or the expropriation or nationalization of private
enterprises. Although the PRC government has been pursuing economic reform
policies for more than two decades, we cannot assure you that the government
will continue to pursue such policies or that such policies may not be
significantly altered, especially in the event of a change in leadership, social
or political disruption, or other circumstances affecting the PRC's political,
economic and social life.





Introduction of new laws or changes
to existing laws by the PRC government may adversely affect our business.





The PRC
legal system is a codified legal system made up of written laws, regulations,
circulars, administrative directives and internal guidelines. Unlike common law
jurisdictions like the U.S., decided cases (which may be taken as reference) do
not form part of the legal structure of the PRC and thus have no binding effect.
Furthermore, in line with its transformation from a centrally-planned economy to
a more free market-oriented economy, the PRC government is still in the process
of developing a comprehensive set of laws and regulations. As the legal system
in the PRC is still evolving, laws and regulations or the interpretation of the
same may be subject to further changes. For example, the PRC government may
impose restrictions on the amount of tariff that may be payable by municipal
governments to waste water treatment service providers like us. Also, more
stringent environmental regulations may also affect our ability to comply with,
or our costs to comply with, such regulations. Such changes, if implemented, may
adversely affect our business operations and may reduce our
profitability.





The
PRC laws and regulations governing our current business operations are sometimes
vague and uncertain. Any changes in such PRC laws and regulations may have a
material and adverse effect on our business.




There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing our business, or the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. We and any future subsidiaries are
considered foreign persons or foreign funded enterprises under PRC laws, and as
a result, we are required to comply with PRC laws and regulations. These laws
and regulations are sometimes vague and may be subject to future changes, and
their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New laws
and regulations that affect existing and proposed future businesses may also be
applied retroactively. We cannot predict what effect the interpretation of
existing or new PRC laws or regulations may have on our businesses.




15





A
slowdown or other adverse developments in the PRC economy or other major
economies all over the world may materially and adversely affect our customers,
demand for our services and our business.




We are a
holding company. All of our operations are conducted in the PRC and all of our
revenues are generated from sales in the PRC. Although the PRC economy has grown
significantly in recent years, we cannot assure you that such growth will
continue. Moreover, China enjoys an export-oriented economy and it relies on
external demand. The industrial waste treatment industry in the PRC is
relatively new and growing, but we do not know how sensitive we are to a
slowdown in economic growth or other adverse changes in the PRC economy which
may affect demand for our services. A slowdown in overall economic growth, an
economic downturn or recession or other adverse economic developments in the PRC
or other major economies all over the world may materially reduce the demand for
our services and the recycled materials we sell and materially and adversely
affect our business.





Inflation
in the PRC could negatively affect our profitability and growth.




While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for our products rise at a rate that is insufficient to
compensate for the rise in the costs of supplies, it may have an adverse effect
on profitability. In order to control inflation in the past, the PRC government
has imposed controls on bank credits, limits on loans for fixed assets and
restrictions on state bank lending. Such an austere policy can lead to a slowing
of economic growth.





Our
PRC subsidiaries are subject to restrictions on paying dividends and making
other payments to us.




We are a
holding company incorporated in the State of Nevada and do not have any assets
or conduct any business operations other than our investments in our
subsidiaries in China. As a result of our holding company structure, we rely
primarily on dividend payments from our subsidiaries. However, PRC regulations
currently permit payment of dividends only out of accumulated profits, as
determined in accordance with PRC accounting standards and regulations. Our
subsidiaries in China are also required to set aside a portion of their
after-tax profits according to PRC accounting standards and regulations to fund
certain reserve funds. The PRC government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies out
of China. We may experience difficulties in completing the administrative
procedures necessary to obtain and remit foreign currency. Furthermore, if our
subsidiaries in China incur debt on their own in the future, the instruments
governing the debt may restrict its ability to pay dividends or make other
payments. If we or our subsidiaries are unable to receive all of the revenues
from our operations through these contractual or dividend arrangements, we may
be unable to pay dividends on our common stock.





Governmental
control of currency conversion may affect the value of your
investment.




The PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC. We
receive substantially all of our revenues in Renminbi, which is currently not a
freely convertible currency. Shortages in the availability of foreign currency
may restrict our ability to remit sufficient foreign currency to pay dividends,
or otherwise satisfy foreign currency dominated obligations. Under existing PRC
foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate governmental authorities is
required where Renminbi is to be converted into foreign currency and remitted
out of the PRC to pay capital expenses such as the repayment of bank loans
denominated in foreign currencies.




16




The PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents us from obtaining sufficient foreign currency to satisfy our
currency demands, we may not be able to pay certain of our expenses as they come
due.




The
fluctuation of the Renminbi may materially and adversely affect your
investment.




The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in the PRC's political and economic
conditions. As we rely entirely on revenues earned in the PRC, any significant
revaluation of the Renminbi may materially and adversely affect our cash flows,
revenues and financial condition. For example, to the extent that we need to
convert U.S. dollars we receive from an offering of our securities into Renminbi
for our operations, appreciation of the Renminbi against the U.S. dollar could
have a material adverse effect on our business, financial condition and results
of operations. Conversely, if we decide to convert our Renminbi into U.S.
dollars for the purpose of making payments for dividends on our common shares or
for other business purposes and the U.S. dollar appreciates against the
Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be
reduced. In addition, the depreciation of significant U.S. dollar denominated
assets could result in a charge to our income statement and a reduction in the
value of these assets.





On July
21, 2005, the PRC government changed its decade-old policy pegging the value of
the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in an approximately 11.8%
appreciation of the RMB against the U.S. dollar. While the international
reaction to the RMB revaluation has generally been positive, there remains
significant international pressure on the PRC government to adopt an even more
flexible currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar.




Recent
PRC State Administration of Foreign Exchange (“SAFE”) Regulations regarding
offshore financing activities by PRC residents, have undertaken continuous
changes which may increase the administrative burden we face and create
regulatory uncertainties that could adversely affect the implementation of our
acquisition strategy, and a failure by our shareholders who are PRC residents to
make any required applications and filings pursuant to such regulations may
prevent us from being able to distribute profits and could expose us and our PRC
resident shareholders to liability under PRC law.





Recent
regulations promulgated by the PRC State Administration of Foreign Exchange, or
SAFE, regarding offshore financing activities by PRC residents have undergone a
number of changes which may increase the administrative burden we face. The
failure by our shareholders who are PRC residents to make any required
applications and filings pursuant to such regulations may prevent us from being
able to distribute profits and could expose us and our PRC resident shareholders
to liability under PRC law.





In 2005,
SAFE promulgated regulations in the form of public notices, which require
registrations with, and approval from, SAFE on direct or indirect offshore
investment activities by PRC resident individuals. The SAFE regulations require
that if an offshore company directly or indirectly formed by or controlled by
PRC resident individuals, known as “SPC,” intends to acquire a PRC company, such
acquisition will be subject to strict examination by the SAFE. Without
registration, the PRC entity cannot remit any of its profits out of the PRC as
dividends or otherwise.





Because
our principal assets are located outside of the United States and all of our
directors and all our officers reside outside of the United States, it may be
difficult for you to enforce your rights based on U.S. Federal Securities Laws
against us and our officers and directors or to enforce a judgment of a United
States court against us or our officers and directors in the
PRC.





All of
our directors and officers reside outside of the United States. In addition, our
operating subsidiary is located in the PRC and substantially all of our assets
are located outside of the United States. It may therefore be difficult for
investors in the United States to enforce their legal rights based on the civil
liability provisions of the U.S. Federal securities laws against us in the
courts of either the U.S. or the PRC and, even if civil judgments are obtained
in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear
if extradition treaties now in effect between the United States and the PRC
would permit effective enforcement against us or our officers and directors of
criminal penalties, under the U.S. Federal securities laws or
otherwise.




17





We
may face obstacles from the communist system in the PRC.





Foreign
companies conducting operations in PRC face significant political, economic and
legal risks. The Communist regime in the PRC, including a cumbersome
bureaucracy, may hinder Western investment.




We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.




The PRC
historically has not adopted a western style of management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in the PRC. As a result of
these factors, we may experience difficulty in establishing management, legal
and financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards.





We
have, in the past, identified a material weakness relating to our financial
statements from prior periods. While we believe that we have remediated our
material weakness, there is no assurance that we will not identify additional
material weaknesses in the future.





We have,
in the past, identified a material weakness relating to our financial statements
from prior periods. While we believe that we have remediated our material
weakness, there is no assurance that we will not identify additional material
weaknesses in the future. As disclosed elsewhere in this report under Item
9(A)(T) – Controls and Procedures, it will be necessary for us to monitor
certain aspects of our internal operations on a continuing basis in order to
provide for effective controls and procedures, There is no assurance that we
will be successful in these efforts.





Risks Related to Our Common
Stock





Our
officers, directors and affiliates control us through their positions and stock
ownership and their interests may differ from other stockholders.





Our
officers, directors and affiliates beneficially own approximately 68.6% of our
outstanding common stock of CIWT. Dong Jinqing, our Chairman, President and
Chief Executive Officer, beneficially owns 9,847,900 shares (approximately
64.5%) of our outstanding common stock. As a result, Mr. Dong is and will
continue to be able to influence the outcome of stockholder votes on various
matters, including the election of directors and extraordinary corporation
transactions including business combinations. Mr. Dong’s interests may differ
from other stockholders. Additional information relating to the beneficial
ownership of our securities is contained elsewhere in this report under
“Security Ownership of Certain Beneficial Owners and Management.”





We
are not likely to pay cash dividends in the foreseeable future.





We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future, but will review this policy as circumstances dictate. Should
we decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiary. In addition, our operating
subsidiary, from time to time, may be subject to restrictions on its ability to
make distributions to us, including as a result of restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions.




Our
common stock is illiquid and subject to price volatility unrelated to our
operations.





The
market price of our common stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.




18





If
our common stock becomes a “Penny Stock” under rules of the
SEC, transactions in our common stock will become cumbersome and may
reduce the value of an investment in our common stock.





The
Securities Exchange Act of 1934, as amended, includes rules relating to “penny
stock” which apply generally to companies whose common stock trades at less than
$5.00 per share, subject to certain limited exemptions. Such rules require,
among other things, that brokers who trade “penny stock” to persons other than
“established customers” complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to
trade “penny stock” because of the requirements of the “penny stock rules” and,
as a result, the number of broker-dealers willing to act as market makers in
such securities is limited.





We
believe that our common stock is currently covered by an exemption from the
“penny stock” rules based upon, among other things, the net tangible value of
our assets. However, in the event that we no longer qualify under the exemption
and our common stock is considered a “penny stock,” there may develop
an adverse impact on the market, if any, for our securities. In that event
investors will find it more difficult to dispose of our securities, in part,
because it may be more difficult: (i) to obtain accurate quotations,
(ii) to obtain coverage for significant news events because major wire
services, such as the Dow Jones News Service, generally do not publish press
releases about such companies, and (iii) to obtain needed
capital.





The
elimination of monetary liability against our directors, officers and employees
under our certificate of incorporation and the existence of indemnification
rights to our directors, officers and employees may result in substantial
expenditures by our Company and may discourage lawsuits against our directors,
officers and employees.





Our
certificate of incorporation contains provisions which eliminate the liability
of our directors for monetary damages to our Company and stockholders to the
maximum extent permitted under Nevada corporate law. Our By-laws also require us
to indemnify our directors to the maximum extent permitted by Nevada corporate
law. We may also have contractual indemnification obligations under our
agreements with our directors, officers and employees. The foregoing
indemnification obligations could result in our Company incurring substantial
expenditures to cover the cost of settlement or damage awards against directors,
officers and employees, which we may be unable to recoup. These provisions and
resultant costs may also discourage our Company from bringing a lawsuit against
directors, officers and employees for breaches of their fiduciary duties, and
may similarly discourage the filing of derivative litigation by our stockholders
against our directors, officers and employees even though such actions, if
successful, might otherwise benefit our Company and stockholders.





ITEM
1B. UNRESOLVED STAFF COMMENTS.





Not
applicable to smaller reporting companies.




19





ITEM
2. PROPERTIES.





The
following table describes improved properties used by the Company in connection
with its businesses operations in Dalian City, Liaoning Province, China. None of
the properties owned by the Company are subject to a mortgage.





Address
            
            Function
            
            Area
              (square
      meter)
            
            Nature
      of InterestNo.1,
      Huaihe West Road, ETD Zone
            
            Office
      building , electronic waste disposal workshop and
warehouse
            
            4,074
            
            OwnedNo.1-1,
      Huaihe West Third Road, ETD Zone
            
            Warehouse
      and workshop
            
            1,958
            
            OwnedNo.
      100, Tieshan West Road, ETD Zone
            
            Warehouse,
      Industrial effluent treatment station
            
            1,941
            
            OwnedNo.6,
      Haiqing Island, ETD Zone
            
            Office
      building, and hazardous waste landfill
            
            899
            
            OwnedNo.
      85, Dagu Hill, ETD Zone
            
            Project
      under construction
            
            N/A
            
            OwnedQianguan Village,
      Ganjingzi District
            
            Ordinary
      waste landfill
            
            N/A
            
            LeaseRoom
      1709, Rainbow Building, No.23, Renmin Road, Zhongshan
      District
            
            Office
      of CEO & CFO
            
            282
            
            (1)Room
      1509 & 1510, Rainbow Building, No.23, Renmin Road, Zhongshan
      District
            
            Office
      of Dalian Lipp
            
            284
            
            (1)No.23,
      Xiapo Road, Ganjingzi District
            
            Office
      building, and sewage processing plant
            
            2,542
            
            OwnedHuayuankou
      Industrial Zone
            
            Office
      building, and waste catalyst  recycling plant
            
            22,789
            
            Owned




(1) These
properties are owned by Dalian Lida Environmental Engineering Co., Ltd. or
Dalian Bofa Chemical Material Co., Ltd., both of which are related parties, and
their use is provided to the Company without charge.




20





The
following table describes land used by the Company in connection with its
business operations. The Company acquires land use right by two means, i.e.,
compensatory transfer and government assignment. A Compensatory transfer refers
to situations in which the local Government designates a specified area of State
owned land under stipulated terms and conditions (such as the duration of the
transfer period and the nature of usage of the land) for development and
operation by the transferee of the land use rights, for which the transferee is
required to pay a transfer fee for the right to use the land. In a Government
assignment, the local Government assigns a specified area of State owned land
under stipulated terms and conditions (such as the nature of usage of the land)
for development and operation by the transferee of the land use right, for which
the transferee is ot required to pay compensation, and in connection with which,
no transfer period is stipulated. In both compensatory transfers and government
assignments, ownership of the land remains vested in the People’s Republic of
China.





Address
            
            Area
              (square
      meter)
            
            Means
      of acquisition
            
            Starting
      Date
            
            Expiry
      DateNo.1,
      Huaihe West Road, ETD Zone
            
            8,433
            
            Compensatory
      transfer (1)
            
            01/01/2003
            
            01/01/2053No.
      100, Tieshan West Road, ETD Zone
            
            6,784
            
            Compensatory
      transfer
            
            01/01/2003
            
            01/01/2053No.1-1,
      Huaihe West Third Road, ETD Zone
            
            1,841
            
            Compensatory
      transfer
            
            04/14/2003
            
            04/13/2053No.6,
      Haiqing Island, ETD Zone
            
            10,500
            
            Government
      Assignment (2)
            
            N/A
            
            N/ANo.
      85, Dagu Hill, ETD Zone
            
            61,535
            
            Compensatory
      transfer
            
            07/28/2003
            
            07/27/2053Huayuankou
      Industrial Zone
            
            56,397
            
            Compensatory
      transfer
            
            06/06/2007
            
            06/06/2057No.23,
      Xiapo Road, Ganjingzi District
            
            24,740
            
            Government
      Assignment
            
            N/A
            
            N/A




ITEM
3. LEGAL PROCEEDINGS.





We are
not currently a party to any legal proceedings. However, from time to time, we
may become party to various lawsuits and legal proceedings which arise in the
ordinary course of business. Litigation is subject to inherent uncertainties,
and an adverse result may be detrimental to our operations, our financial
condition and/or our results of operations.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.





No
matters were submitted to a vote of stockholders during the fourth quarter of
fiscal 2008.




21





PART II





ITEM
5. M ARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES.





Market for Common Equity and
Related Stockholder Matters.





The
Company's common stock is currently quoted on the Over-the-Counter Bulletin
Board (“OTCBB”) under the trading symbol “CIWT.”





The
following table sets forth the high and low prices of the Company’s common
stock, as reported by the OTCBB for each quarter since January 1, 2007. All
information has been adjusted to reflect a 1 for 100 share reverse stock split
which occurred on May 12, 2006. The quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission, and may not represent actual
transactions.








Quarter
      Ended
            
            High
      Bid
            
            
            Low
      BidMarch
      31, 2007
            
            $
            9,00
            
            
            $
            1.50June
      30, 2007
            
            $
            2.95
            
            
            $
            1.48September
      30, 2007
            
            $
            4.00
            
            
            $
            1.95December
      31, 2007
            
            $
            4.50
            
            
            $
            2.15March
      31, 2008
            
            $
            3.05
            
            
            $
            1.30June
      30, 2008
            
            $
            6.50
            
            
            $
            1.70September
      30, 2008
            
            $
            5.00
            
            
            $
            3.00December
      31, 2008
            
            $
            3.45
            
            
            $
            1.30





As of
March 30, 2009, the last reported sale price of our common stock as reported on
the OTCBB was $1.30 per share. As of March 30, 2009 there were 15,262,035 shares
of our common stock issued and outstanding, and there were approximately 237
holders of record of our outstanding shares.





Dividend
Policy





The
payment of dividends, if any, is to be within the discretion of the Company’s
Board of Directors and will be contingent upon the Company’s revenues and
earnings, capital requirements, financial condition and the ability of Dongtai
to obtain approval to get monies out of the PRC. The Company presently intends
to retain all earnings, if any, for use in its business operations and
accordingly, the Board of Directors does not anticipate declaring any dividends
in the near future.





As
stipulated by the Company Law of the PRC as applicable to Chinese companies with
foreign ownership, net income after taxation can only be distributed as
dividends after appropriation has been made for the following:





Making up
cumulative prior years’ losses, if any; allocations to the “Statutory
surplus reserve” of at least 10% of income after tax, as determined under PRC
accounting rules and regulations, until the fund amounts to 50% of the Company’s
registered capital; allocations of 5 -10% of income after tax, as
determined under PRC accounting rules and regulations to the Company’s
“Statutory common welfare fund”, which is established for the purpose of
providing employee facilities and other collective benefits to the Company’s
employees; and allocations to the discretionary surplus reserve, if
approved in the shareholders’ general meeting.





Additionally,
the PRC’s national currency, the Yuan, is not a freely convertible currency.
Effective January 1, 1994, the PRC foreign exchange system underwent fundamental
changes. This reform was stated to be in line with the PRC’s commitment to
establish a socialist market economy and to lay the foundation for making the
yuan convertible in the future. The currency reform is designed to turn the dual
exchange rate system into a unified and managed floating exchange rate
system.




22





A China
Foreign Exchange Trading Centre was formed in April, 1994 to provide an
interbank foreign exchange trading market whose main function is to facilitate
the matching of long and short term foreign exchange positions of the
state-designated banks, and to provide clearing and settlement services. The
People’s Bank of China publishes the state managed exchange rate daily based on
the daily average rate from the previous day’s inter-bank trading market, after
considering fluctuations in the international foreign exchange markets. Based on
these floating exchange rates, the state-designated banks list their own
exchange rates within permitted margins, and purchase or sell foreign exchange
with their customers.





The State
Administration of Foreign Exchange of the PRC (“SAFE”) administers foreign
exchange dealings and requires that they be transacted through designated
financial institutions. All Foreign Investment Enterprises (“FIEs”) may buy and
sell foreign currency from designated financial institutions in connection with
current account transactions, including, but not limited to, profit
repatriation. With respect to foreign exchange needed for capital account
transactions, such as equity investments, all enterprises in the PRC (including
FIEs) are required to seek approval of the SAFE to exchange yuan into foreign
currency. When applying for approval, such enterprises will be subject to review
by the SAFE as to the source and nature of the yuan funds.





There can
be no assurance that the yuan relative to other currencies will not be volatile
or that there will be no devaluation of the yuan against other foreign
currencies, including the U.S. dollar.





Equity Compensation Plan
Information





The
following table gives information about our common stock that may be issued upon
the exercise of options, warrants and rights under our 2006 Equity Incentive
Plan which is our only equity compensation plan as of December 31,
2008.








Plan
      Category
            
            Number
      of Securities to be
              issued
      upon exercise of
              outstanding
      options, warrants
              and
      rights
            
            
            Weighted-average
      exercise
              price
      of outstanding options,
              warrant
      and rights
            
            
            Number
      of securities
              remaining
      available for future
              issuance
      under equity
              compensation
              plans
      (excluding securities
              reflected
      in column (a)Equity
      compensation plans approved
      by securityholders 2006
      Equity Incentive Plan
            
            
            0
            
            
            
            N/A
            
            
            
            5,144,168Equity
      compensation plans not approved by security holders
            
            
            0
            
            
            
            N/A
            
            
            
            0Total
            
            
            0
            
            
            
            N/A
            
            
            
            5,144,168







(a)
Securities available for future issue increase each year by 10% of our
outstanding common stock at the beginning of each year. The total amount of
common stock available under the plan cannot exceed 10 million shares. Inasmuch
as the number of outstanding shares as of January 1, 2009 was 15,262,035,
the number of shares covered by the 2006 Equity Incentive Plan increased by
1,526,204 shares to 6,670,372 shares as of such date.




ITEM
6. SELECTED FINANCIAL DATA.





Not
applicable to smaller reporting companies.




23






ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The
following discussion should be read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto included in this
report. Readers should also carefully review the risks and uncertainties
described elsewhere in this report under “Risk Factors.”




FORWARD-LOOKING
STATEMENTS




This
Annual 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 “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,”
“management believes” and similar language. The forward-looking statements are
based on the current expectations of management and are subject to certain
risks, uncertainties and assumptions, including those described elsewhere in
this report under “Risk Factors.” Actual results may differ materially from
results anticipated in these forward-looking statements. We base the
forward-looking statements on information currently available to us, and we
assume no obligation to update them. Investors are also 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. It is not possible to
foresee or identify all of the risks and uncertainties that could affect
us.




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 Appendix D of 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 650
customers, including large multinational corporations, from facilities located
in the Economic and Technological 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.




24




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 municipal sewage generated by Dalian. The
      project has entered into commercial operation since June 21, 2008. Dongtai
      owns 80% of the equity of this
project.




·
              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. As of December 31,
      2008, the project was in the facility commissioning
  stage.




·
              Dalian
      Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
      Lipp”), is a joint venture, and Dongtai owns 75% of the interest. 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 and municipal sewage treatment
  plant.




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. The expansion
project, which is one of the fifty-five hazardous waste treatment centers
sponsored by the National Development and Reform Commission and one of the two
centers in Liaoning Province, commenced construction at the end of July, 2008.
Construction of the incineration plant has been completed and on-site
construction will resume in mid-March 2009 after the winter break. The Company
expects the project to be operational by September 2009.




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.





CRITICAL 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.




25





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 when services are rendered to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, 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 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 operations.





Bad
Debts





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.





RESULTS OF
OPERATIONS





The
following discussion should be read in conjunction with the consolidated
financial statements and notes appearing elsewhere in this annual
report.





Revenues





We
generate revenue primarily from two sources, namely, fees charged to customers
for waste collection, transfer, recycling and disposal services and that from
the sale of recycled commodities. We consider our collection and disposal
operations and reclamation of reusable substances as our core
business.





Total
revenue for the year ended December 31, 2008, was $13,399,884, an increase of
$3,860,377 or 40.47% from $9,539,507 for the same period in 2007. The
increase in revenue is attributable to a broadened customer base and increased
demand from existing customers.






Years
      Ended December 31,2008
            
            
            2007Service
      fees
            
            $
            8,182,379
            
            
            $
            5,004,926Sales
      of cupric sulfate
            
            
            1,806,721
            
            
            
            1,817,861Sales
      of recycled commodities
            
            
            3,410,783
            
            
            
            2,716,720Total
            
            $
            13,399,884
            
            
            $
            9,539,507





Service
fee revenue for the year ended December 31, 2008 was $8,182,379 which was 61.06%
of total revenue for this year and an increase of $3,177,453 or 63.49% increase
over the $5,004,926 in service fee revenue we generated in the year ended
December 31, 2007. Service fee accounted for 52.47% of our total revenue for the
year ended December 31, 2007. Besides the positive influence of a broadened
customer base and increased demand from existing customers, Dongtai Water’s
commencement of commercial operation since June 2008 also contributed
approximately $ 447,630 to the increase of service fee.





Sales of
cupric sulfate for the year ended December 31, 2008 was $ 1,806,721 or 13.48% of
total revenue, which was a slight decrease over that of 2007. Due to the global
economic recession, the price of copper and copper compounds, such as cupric
sulfate, decreased sharply in 2008, which caused the sales
decrease.





Sales of
recycled products were $3,410,783 or 25.45% of total revenue for the year ended
December 31, 2008. Sales of recycled products in 2008 increased by $694,063 or
25.55% over the year ended December 31, 2007.





Cost of
Revenues





Costs of
revenues primarily include labor expenses (salaries, benefits, insurance and
other benefits), depreciation, materials, transportation costs, rent, repair
costs and other sundry expenses. Costs of revenue increased by $1,377,723 or
49.61% from $2,776,921 for the year ended December 31, 2007 to $4,154,644 for
the year ended December 31, 2008.









Years
      Ended December 31,2008
            
            
            2007Cost
      of service fees
            
            $
            1,547,677
            
            
            $
            1,251,049Cost
      of cupric sulfate
            
            
            740,881
            
            
            
            537,563Cost
      of other recycled commodities
            
            
            1,866,086
            
            
            
            988,309Total
            
            $
            4,154,644
            
            
            $
            2,776,921





Costs
related to providing services increased by $296,628 or 23.71% from $1,251,049
for the year ended December 31, 2007 to $1,547,677 for the year ended December
31, 2008. Costs related to producing recycled waste products (including cupric
sulfate and other recycled commodities) increased by $1,081,095 or 70.85% from
$1,525,872 for the year ended December 31, 2007 to $2,606,967 for the year ended
December 31, 2008.





Operating
Expenses





Total
operating expenses for the year ended December 31, 2008 was $ 3,544,022 which
represents a decrease of $58,806 or 9.4% from $3,602,828 for the year ended
December 31, 2007.





In 2007,
the Company settled certain legal proceedings in consideration for the payment
to the plaintiff of cash and shares of common stock of the Company. While the
cash and shares were delivered by a third party, in accordance with US GAAP, the
consideration for the settlement was accounted for as expenses, amounting to
$860,460




Excluding
the legal settlement in 2007, operating expense of 2008 in fact increased by $
801,654 compared to that of 2007. Together with the strong revenue growth
resulted from business expansions, extra expenses, such as personnel addition,
intensified marketing activities, were incurred accordingly. Besides that,
starting 2008, the Company obtained professional services in areas such as
investor relations, press release, and consultings, which resulted in the
increase of operating expenses.





Other
Income





In
December 2008, Dongtai received tax refund from the Local Taxation Bureau of ETD
Zone, Dalian, with the amount of RMB 4,504,974 (approximately $648,412). The
refund is to return business tax levied on waste treatment and disposal services
for the period of January 2006 to May 2008. Since June 2008, Dongtai is not
subject to business tax for waste treatment and disposal services any more.
Within the same month, Dongtai also received a subsidy from Dalian Municipal
Bureau of Finance, with the amount of RMB 355,000 (approximately $51,096), to
compensate the service rendered by Dongtai related with the treatment and
disposal of hazardous waste generated by public environment pollution
accident.




26





Income
Tax





The
Company pursues most of its business in PRC, and so is subject to the PRC
Enterprise Income Tax (“EIT”) at a rate of 25% on its net income.





According
to 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, Dongtai is subject to EIT at 9% for the year ended December 31,
2008, which amounted to $659,853.





Furthermore,
the Law stipulates that enterprises that engage in municipal waste water
treatment business are eligible for special EIT treatment. According to such
rules, Dongtai Water is entitled to a three-year EIT exemption treatment
starting whenever it receives the first operation revenue, and another 50%
off of the normal rate for the next three years. For the year ended December 31,
2008, Dongtai Water is in its first year of the tax holiday.


As of
December 31, 2008, Zhuorui and Dalian Lipp were in an accumulated loss status
with no EIT obligation.





LIQUIDITY AND CAPITAL
RESOURCES





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
As of December 31, 2008, we incurred a working capital deficiency of
$0.30 million as compared to a surplus of $2.35 million as of
December 31, 2007, resulting from the expansion project of Dongtai, the
construction and equipment procurement for the establishment of Dongtai Water
and Zhuorui in 2008.





On an
on-going basis, we take steps to identify and plan our needs for liquidity and
capital resources, to fund our planned ongoing construction and day to day
business operations. In addition to working capital to support our routine
activities, we will also require funds for the construction and upgrading
of crucial facilities, acquisition of assets and/or equity, and repayment
of debt.





We
anticipate that our various projects will require us to invest an aggregate of
approximately RMB 90 million (approximately $13 million) in 2009. We will fund
this investment through a combination of net cash flow from
operation funds, bank loans and sales of our securities. While we
anticipate that we will be able to secure necessary funding as and when needed,
there is no assurance that such will be the case. If we are unable to secure
funding as and when needed, our projects may be delayed which may, in turn,
cause delays in generating revenues from the affected projects, and may reduce
our profitability.





The
following table provides certain selected balance sheet comparisons between the
years ended December 31, 2008 and December 31, 2007.





December
      31,
            
            
            Increase(In
      000’s, except %)
            
            2008
            
            
            2007
            
            
            /(Decrease)
            
            
            PercentageWorking
      Capital
            
            $
            (297
            )
            
            
            2,345
            
            
            $
            (2,642
            )
            
            
            (113
            %)Cash
            
            
            5,714
            
            
            
            3,260
            
            
            
            2,454
            
            
            
            75
            %Accounts
      receivable, net
            
            
            2,414
            
            
            
            594
            
            
            
            1,820
            
            
            
            306
            %Inventory
            
            
            2,372
            
            
            
            1,332
            
            
            
            1,040
            
            
            
            78
            %Advances
      to suppliers
            
            
            551
            
            
            
            390
            
            
            
            161
            
            
            
            41
            %Other
      assets
            
            
            123
            
            
            
            66
            
            
            
            58
            
            
            
            88
            %Total
      current assets
            
            
            11,174
            
            
            
            5,642
            
            
            
            5,532
            
            
            
            98
            %Long
      term assets
            
            
            28,268
            
            
            
            14,887
            
            
            
            13,381
            
            
            
            90
            %Total
      assets
            
            $
            39,442
            
            
            
            20,529
            
            
            $
            18,913
            
            
            
            92
            %Loans
      – short term
            
            $
            3,371
            
            
            
            1,369
            
            
            $
            2,002
            
            
            
            146
            %Accounts
      payable
            
            
            781
            
            
            
            280
            
            
            
            501
            
            
            
            179
            %Other
      payables
            
            
            211
            
            
            
            343
            
            
            
            (132
            )
            
            
            (38
            %)Construction
      projects payable
            
            
            4,742
            
            
            
            -
            
            
            
            4,742
            
            
            NmDeferred
      sales
            
            
            972
            
            
            
            667
            
            
            
            305
            
            
            
            46
            %Other
      current liabilities
            
            
            1,394
            
            
            
            638
            
            
            
            756
            
            
            
            119
            %Total
      current liabilities
            
            
            11,471
            
            
            
            3,297
            
            
            
            8,174
            
            
            
            248
            %Asset
      retirement obligation liability
            
            
            503
            
            
            
            438
            
            
            
            64
            
            
            
            15
            %Other
      long-term liabilities
            
            
            1,028
            
            
            
            621
            
            
            
            407
            
            
            
            66
            %Total
      liabilities
            
            $
            13,002
            
            
            
            4,356
            
            
            $
            8,646
            
            
            
            198
            %




Nm
= Not meaningful




27





As of
December 31, 2008, approximately $ 3.4million of our cash reserves are
in the form of RMB held in bank accounts at financial institutions located in
the PRC. The value of cash on deposit in China at December 31, 2008 has
been translated based on the exchange rate as of December 31, 2008. In
1996, Chinese government introduced regulations which relaxed restrictions on
the conversion of the RMB; however restrictions still remain, including but not
limited to restrictions on foreign invested entities. Foreign invested entities
may only buy, sell or remit foreign currencies after providing valid commercial
documents at only those banks authorized to conduct foreign exchanges.
Furthermore, the conversion of RMB for capital account items, including direct
investments and loans, is subject to PRC government approval. Chinese entities
are required to establish and maintain separate foreign exchange accounts for
capital account items. We cannot be certain Chinese regulatory authorities will
not impose more stringent restrictions on the convertibility of the RMB,
especially with respect to foreign exchange transactions. Accordingly, cash on
deposit in banks in the PRC is not readily deployable by us for purposes outside
of China.





As of
December 31, 2008, we incurred a working capital deficiency of $
0.30 million as compared to a surplus of $2.35 million as of
December 31, 2007. This decrease in working capital is primarily
attributable to the sharp increase of construction projects payable by $ 4.7
million, which results from the unpaid part of constructions and equipments for
the establishment of Dongtai Water and Zhuorui. The increase of short-term loan,
approximately 2 million, also contributed to the decrease of working
capital.





Our
current assets as of December 31, 2008 increased by $5.53 million, or
approximately 98%, from December 31, 2007 and reflects increase in items
including cash and cash equivalents, account receivable, inventory. Our current
liabilities increased by approximately $8.17 million, or approximately
248%, as of December 31, 2008 from December 31, 2007. This reflects
increases in short-term loans, accounts payable, deferred sales, construction
projects payable, and other payables.





Our
accounts receivables, net of allowances for doubtful accounts, increased
approximately $1.82 million as of December 31, 2008 year over year.
This increase is directly attributed to the increase in revenue.





Inventories
increased approximately 78% as of December 31, 2008 from the prior period.
This resulted from an increase in recycled products and raw
materials.





As of
December 31, 2008, outstanding loans, which were secured, and will mature in
2009, amounted to RMB23, 000,000 ($3,371,198). The loans were acquired to fund
day to day business activities. Due to significantly increased capital spending
requirement, the Company acquired additional loans from banks.





During
2008, the Company completed construction of Dongtai Water facility, and
substantially completed Zhourui construction project.Over the course of the
construction, the Company accrued all costs associated with the projects and as
of December 31, 2008, the balance owed to these suppliers totaled RMB
32,947,133(US$4,742,164). The payment schedules for these suppliers are not
fixed and therefore the entire amount has been classified as construction
projects payable in current liabilities.





Cash
Flows





Year
      Ended December 31,2008
            
            
            2007Net
      cash provided by operating activities
            
            $
            4,873,863
            
            
            $
            4,619,605Net
      cash used in investing activities
            
            
            (8,531,402
            )
            
            
            (9,430,109
            )Net
      cash from financing activities
            
            
            4,797,255
            
            
            
            1,315,097




28




Net
cash provided by operating activities:Net cash provided by
operating activities in the year ended December 31, 2008 increased by $ 254,258
or 5.5% over the net cash provided by operating activities for the year ended
December 31, 2007.





Although
the net income for the year ended December 31, 2008 rose by $ 1,066,894, or 29%
comparing to that of 2007, the balance of account receivable as at December 31,
2008 rose by 306%, as compared to that of December 31, 2007, which led to a
sharp decrease of $ 1,821,570 to the net cash provided by operating activities.
Besides, the inventory balance also increased by 78%, which caused a decrease of
$ 1,039,865 to the net cash provided by operating activities. As the global
financial crisis brought down the prices for some of the Company’s
products.





In 2008,
Dalian Lipp signed an agreement with Shenzhen Dongjiang Environmental
Company Limited (“Shenzhen Dongjiang”), pursuant to which Dalian Lipp is to
purchases lipp anaerobic fermentation systems from Lipp GmbH. As of
December 31, 2008, Shenzhen Dongjiang has paid an aggregate of $512,938 to
Dalian Lipp, according to the payment schedule.





Net
cash used in investing activities:Net
cash used in investing activities for the year ended December 31, 2008 decreased
by $898,707 as compared to the same period in 2007.





In 2008,
Dongtai’s expansion project, Dongtai Water and Zhuorui’s facility construction
were continued. As of December 31, 2008, the expansion project of Dongtai was
still in progress; Dongtai Water had commenced operations since June 2008;
Zhuorui entered into the phase of commissioning. Cash outflows resulting from
capital spending on the three projects comprised the major part of the cash used
in investing activities.





The
increase in accounts receivable is attributable to the related party loans made
to Dongtai Organic by Dongtai.




Net
cash provided by financing activities:Net
cash provided by financing activities for the year ended December 31, 2008
increased by $3,482,158 as compared to the same period in 2007.





In 2008,
the Company accomplished three rounds of private placement, and raised
aggregately $ 3,545,057 as equity capital after deducting services fees paid to
lawyers, investment banks, etc. $750,000 of the capital raised was temporarily
frozen in an escrow account until specific terms in the investment agreement are
met.





In 2008,
the Company acquired additional loan from banks to fund day to day operating
activities. The cash inflow from bank loans increased by $ 687,101 comparing to
that of 2007.





On a
continuous basis, we emphasize on the management and forecast of our liquidity
and various capital resources, to fund our planned ongoing construction and day
to day business operations. On top of the cash needs for working capitals
fueling our routine activities, we also brace for the capital requirements for:
the construction and upgrading of crucial facilities; acquisitions of assets and
equities; repaying the loans, all of which are set to strengthen our position in
the industry in the long run.





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;




29




·
              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
December 31, 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 7A. Q UANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not
applicable to smaller reporting companies.





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
financial statements of the Company required by this Item 8 are set forth
beginning on page F-1 immediately following the signature page to this annual
report.




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





There
have been no disagreements with or changes in the Company’s independent auditors
within the past two fiscal years that have not been previously
reported.




ITEM9A(T). CONTROLS AND
PROCEDURES.





Our
management team, under the supervision and with the participation of our
principal executive officer and our principal financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last
day of the fiscal period covered by this report, December 31, 2008. The
term disclosure controls and procedures means our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to management, including our principal
executive and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures were effective as of December 31, 2008.




Our
principal executive officer and our principal financial officer, are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Management is required to base its assessment of the effectiveness of our
internal control over financial reporting on a suitable, recognized control
framework, such as the framework developed by the Committee of Sponsoring
Organizations (COSO). The COSO framework, published in Internal Control-Integrated
Framework, is known as the COSO Report. Our principal executive officer
and our principal financial officer have chosen the COSO framework on which
to base its assessment. Based on this evaluation, our management concluded that
our internal control over financial reporting was effective as of December 31,
2008.




This
annual report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only Management’s report in this
annual report on Form 10-K.




30





There
were no changes in our internal control over financial reporting that occurred
during the last quarter of 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.




LACK
OF INDEPENDENT BOARD OF DIRECTORS AND AUDIT COMMITTEE
 
 Management
is aware that an audit committee composed of the requisite number of independent
members along with a qualified financial expert has not yet been
established.  Considering the costs associated with procuring and
providing the infrastructure to support an independent audit committee and the
limited number of transactions, Management has concluded that the risks
associated with the lack of an independent audit committee are not
justified.  Management will periodically reevaluate this
situation.





LACK
OF SEGREGATION OF DUTIES





Management
is aware that there is a lack of segregation of duties at the Company due to the
small number of employees dealing with general administrative and financial
matters. However, at this time management has decided that considering the
abilities of the employees now involved and the control procedures in place, the
risks associated with such lack of segregation are low and the potential
benefits of adding employees to clearly segregate duties do not justify the
substantial expenses associated with such increases. Management will
periodically reevaluate this situation.





ITEM
9B.  OTHER INFORMATION.





None.




31





PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.





Officers and
Directors





The
following table sets forth information as of the date of this report with
respect to the directors and executive officers of the Company.




Name
            
            PositionDong
      Jinqing
            
            Chairman
      of the Board, Chief Executive Officer and DirectorLi
      Jun
            
            Chief
      Operating Officer and DirectorGuo
      Xin
            
            Chief
      Financial Officer and DirectorZhang
      Dazhi
            
            Corporate
      Secretary





Mr. Dong
Jinqing, age 52, was appointed the Company’s Chief Executive Officer, Chief
Financial Officer and Director in November 2005, and continues to serve the
Company as its Chairman of the Board and Chief Executive Officer. Mr. Dong has
been the President of Dalian Dongtai Industrial Waste Treatment Co., Ltd. since
he founded that company in 1991. Between 1982 and 1991, Mr. Dong worked for the
Dalian Environmental Science Academy, where he was primarily
engaged in research relating to the disposal of waste gas, waste water and
industrial residue and the evaluation of the environmental effects of industrial
projects. Mr. Dong graduated from Dalian University of Technology in 1982
with a bachelor’s degree in environmental engineering.





Mr. Li
Jun, age 48, was appointed the Company’s Chief Operating Officer in March 2008.
He has served on the Company’s board of directors since October
2006.  Mr. Li has also served as the Chief Operating Officer of Dalian
Dongtai since 1998. From 1982 to 1993, he was employed by Dalian Vacuum Flask
Factory and Dalian Yili International Chemical Co. Ltd as its Director of
Technology and Chief Production Manager. Mr. Li graduated from
Dalian University of Technology in 1982, majoring in environmental
engineering.





Ms. Guo
Xin, age 40, has served as the Company’s Chief Financial Officer and a member of
the board of directors since March 2008. Ms. Guo has served as our Chief
Accounting Officer since January 2007, as Chief Accounting Officer for Dalian
Dongtai since October 2003 and as a manager in Dalian Dongtai’s accounting
department from April 2002 to October 2003. Ms. Guo graduated from Beijing
University of Commerce in 1992 majoring in finance, and received her master's
degree in Public Administration from China's Northeastern University in
2002.





Mr. Zhang
Dazhi, age 32, has served as the Company’s Corporate Secretary since March 2008.
He has engaged in Investor Relations Management since he joined Dalian Dongtai
in 2004. Mr. Zhang was awarded a Master’s degree in International Banking and
Financial Studies from the University of Southampton (United Kingdom) in
2004.





Family
Relationship





There are
no family relationships among our directors or officers




32





Director
Compensation





We have
not established standard compensation arrangements for our directors and the
compensation payable to each individual for their service on our Board will be
determined from time to time by our Board of Directors. Directors did not
receive any compensation for their services as directors during fiscal 2008. The
following table provides information concerning the compensation of our
directors, for services as members of our Board of Directors for fiscal 2008.
The value attributable to any option awards is computed in accordance with SFAS
123(R).





Director
Compensation





Name
            
            Fees
      earned or
              paid
      in cash
              ($)
            
            
            Stock
      awards
              ($)
            
            
            Option
      awards
              ($)
            
            
            Non-equity
      incentive plan compensation
              ($)
            
            
            Nonqualified
      deferred compensation earnings
              ($)
            
            
            All
      other compensation
              ($)
            
            
            Total
              ($)(a)
            
            (b)
            
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (g)
            
            
            (h)Dong
      Jinqing
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Li
      Jun
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Guo
      Xin
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0





Committees of the
Board





Our Board
of Directors has not established any committees of the Board, including an Audit
Committee, a Compensation Committee or a Nominating Committee, or any committee
performing similar functions.  The functions of those committees are
currently performed by the Board of Directors as a whole. Our Board of Directors
intends to increase the size of the Board in the near term, and to add directors
who qualify as “independent” as that term is used in Item 3(d)(3)(iv) of
Schedule 14A under the Securities Exchange Act of 1934. At that time, the Board
is expected to consider establishing an audit committee and other committees of
the Board. In connection with a private placement of our securities, we agreed
to establish a board of directors, a majority of whose members will be
“independent” within the meaning of NASDAQ Marketplace Rule 4200(15). $650,000
from the proceeds of the placement remains in escrow pending satisfaction of
this commitment





Policy Regarding Shareholder
Recommendations for Directors





Our Board
of Directors has not yet adopted a policy for the consideration of director
nominees that may recommended by our shareholders. To date, we have not received
any shareholder recommendations for directors. At such time as our Board of
Directors includes independent directors, our Board expects to consider the
establishment of a nominating committee and that committee is expected to
consider policies relating to the consideration of director nominees recommended
by shareholders





Audit Committee Financial
Expert




In
general, an “audit committee financial expert” is an individual member of the
audit committee or Board of Directors who:




·
              Understands
      generally accepted accounting principles and financial
      statements,




·
              Is
      able to assess the general application of such principles in connection
      with accounting for estimates, accruals and
  reserves,




·
              Has
      experience preparing, auditing, analyzing or evaluating financial
      statements comparable to the breadth and complexity to our financial
      statements,




·
              Understands
      internal controls over financial reporting,
and




·
              Understands
      audit committee functions.





An “audit
committee financial expert” may acquire the foregoing attributes
through:





·
              Education
      and experience as a principal financial officer, principal accounting
      officer, controller, public accountant, auditor or person serving similar
      functions;




·
              Experience
      actively supervising a principal financial officer, principal accounting
      officer, controller, public accountant, auditor or person serving similar
      functions; experience overseeing or assessing the performance of companies
      or public accounts with respect to the preparation, auditing or evaluation
      of financial statements; or


·
              Other
      relevant experience.


33
  At the
present time, we believe that Mr. Dong, our CEO and a director, and Ms. Guo Xin,
our CFO and a director, are capable of analyzing and evaluating our financial
statements and understanding internal controls and procedures for financial
reporting. However, as we do not currently have an audit committee, we do not
currently have an “audit committee financial expert” as that term is defined
under Rule 407(d)(5) of Regulation S-K. Neither Mr. Dong nor Ms. Guo is
“independent” as that term is used in Item 3(d)(3)(iv) of Schedule 14A
under the Securities Exchange Act of 1934.





Section 16(a) Beneficial
Ownership Reporting Compliance





We are
not currently subject to Section 16(a) of the Securities Exchange Act of 1934,
and, therefore, our directors and executive officers, and persons who own more
than ten percent of our common stock are not required to file with the
Securities and Exchange Commission reports disclosing their initial beneficial
ownership and changes in their beneficial ownership of our common
stock.





Code of
Ethics





A Code of
Ethics is a written standard designed to deter wrongdoing and to
promote:





·
              Honest
      and ethical conduct,




·
              Full,
      fair, accurate, timely and understandable disclosure in regulatory filings
      and public statements,




·
              Compliance
      with applicable laws, rules and
regulations,




·
              The
      prompt reporting violation of the code,
and




·
              Accountability
      for adherence to the Code of
Ethics.





The
Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or person’s performing similar functions. A copy of our Code of
Ethics is filed as an exhibit to this annual report.





ITEM
11. EXECUTIVE COMPENSATION





The
following table summarizes all compensation recorded by us in each of the last
two completed fiscal years for our principal executive officer, each other
executive officer serving as such whose annual compensation exceeded $100,000
and up to two additional individuals for whom disclosure would have been made in
this table but for the fact that the individual was not serving as an executive
officer of our company at December 31, 2008. The value attributable to any
option awards is computed in accordance with SFAS 123(R).





Summary
Compensation Table





Name  and
      principal
              
              
              
              Salary
              
              
              Bonus
              
              
              Stock
      Awards
              
              
              Option
      Awards
              
              
              Non-Equity
      Incentive Plan Compensation
              
              
              Nonqualified
      Deferred Compensation Earnings
              
              
              All Other
      Compensation
              
              
              Totalposition
              
              Year
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)(a)
              
              (b)
              
              (c)
              
              
              (d)
              
              
              (e)
              
              
              (f)
              
              
              (g)
              
              
              (h)
              
              
              (i)
              
              
              (j)Dong
              
              2008
              
              
              15,175
              
              
              
              69,088
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              84,263Jinqing
                CEO
      (1)
              
              2007
              
              
              12,934
              
              
              
              60,558
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              73,492







(1) Mr.
Dong is provided with the use of a car and driver, the value of which is less
than $10,000.




34




The
executives of the Company and its subsidiaries are eligible to be granted awards
of stock options, stock appreciation rights, restricted stock, performance
shares, cash awards and other stock based awards under our 2006 Equity
Compensation Plan. As of December 31, 2008 no awards had been made to any
officer, director or employee of the Company under such plan.





Employment
Agreements





We are
not a party to any written employment agreements. The compensation paid to our
executive officers is currently determined by our Board of Directors, and the
Board of Directors may have a conflict of interest in that they have a direct
interest in the compensation to be paid. At the present time, we do not believe
that the amount of compensation paid, either individually or in the aggregate,
is material in relation to our revenues earnings or to our financial
condition.





Outstanding
Equity Awards at Fiscal Year End





The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding as of December 31, 2008:




OPTION
      AWARDS
                
                
                STOCK
      AWARDSName
                  (a)
                
                Number
      of securities underlying unexercised options
                  (#)
      exercisable
                  (b)
                
                
                Number
      of securities underlying unexercised options
                  (#)
      unexercisable
                  (c)
                
                
                Equity
      incentive plan awards: Number of securities underlying unexercised
      unearned options(#)
                  (d)
                
                
                Option
      exercise price($)
                  (e)
                
                
                Option
      expiration date
                  (f)
                
                
                Number
      of shares or units of stock that have not vested (#)
                  (g)
                
                
                Market
      value of shares or units of stock that have not vested ($)
                  (h)
                
                
                Equity
      incentive plan awards: Number of unearned shares, units or other rights
      that have not vested (#)
                  (i)
                
                
                Equity
      incentive plan awards: Market or payout value of unearned shares, units or
      other rights that have not vested (#)
                  (j)Dong
      Jinqing
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —


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




As of
March 31, 2009, there were 15,262,035 shares of our common stock (the only class
of our voting securities) issued and outstanding. The following table sets forth
as of March 31, 2009, certain information with respect to the beneficial
ownership of our voting securities by:





·
            Each
      person who is known by us to be the beneficial owner of more than five
      percent of ouroutstanding common
stock;




·
            Each
      director;




·
            Each
      “named executive officer” [as defined in Item 402(a) (3) of Regulation
      S-K]; and




·
            All
      executive officers and directors as a
group.





Unless
otherwise indicated, the business address of each person listed is c/o Dalian
Dongtai Industrial Waste Treatment Co., Ltd., No. 1 Huaihe West Road,
E-T-D Zone, Dalian, China. The percentages in the table have been
calculated on the basis of treating as outstanding for a particular person, all
shares of our common stock outstanding on that date and all shares of our common
stock issuable to that holder in the event of exercise of outstanding options,
warrants, rights or conversion privileges owned by that person at that date
which are exercisable within 60 days of that date. Except as otherwise
indicated, the persons listed below have sole voting and investment power with
respect to all shares of our common stock owned by them, except to the extent
that power may be shared with a spouse.




35





The table
does not give effect to the issuance of up to 9,399,803 shares of our common
stock consisting of (a) 2,629,431 shares issuable on the exercise of common
stock purchase warrants at exercise prices ranging from $2.45 per share to $5.00
per share with various expiration dates through August 27, 2013, (b)
6,670,372 shares available for issuance under our 2006 Equity Compensation
Plan and (c) 100,000 shares that we are legally obligated to issue but have not
as yet issued.





Name
      and Address of Beneficial Owner
            
            Number
      of Shares Beneficially Owned
            
            
            Percent
      of ClassDong
      Jinqing
            
            
            9,847,900
            (1)
            
            
            64.5
            %Li
      Jun
            
            
            343,900
            
            
            
            2.3
            %Guo
      Xin
            
            
            222,600
            
            
            
            1.5
            %Zhang
      Dazhi
            
            
            20,000
            
            
            
            *All
      Officers and Directors as a Group (6 persons)
            
            
            10,484,400
            (1)
            
            
            69.8
            %Ancora
      Greater China Fund LP
              2000
      Auburn Drive, #300
              Cleveland,
      OH 44122
            
            
            980,400
            (2)
            
            
            6.2
            %Trillion
      Growth China LP
              10th
      Floor, Bankers Hall West Tower
              888
      – 3rd
      Street SW
              Calgary,
      AB T2P 5C5
            
            
            941,184
            (3)
            
            
            6.0
            %







*   
Less than 1%.




(1)  Includes
103,500 shares owned by Dong Su, the son of Mr. Dong.




(2) Consists
of 490,200 outstanding shares and 490,200 shares issuable upon exercise of
outstanding warrants.




(3)
Consists of 470,592 outstanding shares and 470,592 shares issuable upon exercise
of outstanding warrants.





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





Dalian
Bofa Chemical Material Company Limited (“Bofa”), which is controlled by Mr. Dong
Jinqing, our Chief Executive Officer and principal shareholder, pursues the
business of warehousing, transportation and sales of virulent and hazardous
chemicals, metal surface treatment chemicals, water treatment chemicals, etc.
Bofa purchases products from Dongtai, most of which are cupric sulfate, and
amounted to $ 639,825 and $2,029,806 respectively for the year ended December
31, 2008 and 2007. Bofa rented part of Dongtai’s workplace, warehouse, and
vehicle for warehousing and transportation. Dongtai charged Bofa with the amount
of $27,774 and $ 48,622 respectively for the service rendered, for the year
ended December 31, 2008 and 2007. Dongtai also charged Bofa interest for the
loan lent to Bofa. The interest incurred amounted to $14,261 and $21,762
respectively for the year ended December 31, 2008 and 2007.





Dongtai
purchased organic solvent from Bofa, which amounted to $95,765 and $0 for the
year ended December 31, 2008 and 2007.





As of
December 31, 2008, no balance existed between Bofa and Dongtai.





Dalian
Lida Environmental Engineering Company Limited (“Lida”), which is also a company
controlled by Mr. Dong, is engaged in the business of industrial waste water
treatment engineering, waste gas engineering, and turn-key projects. Lida
provides equipment used in the facility construction of Dongtai Water. The
procurement made by Dongtai Water from Lida was $128,157 and $48,724
respectively, for the years ended December 31, 2008 and 2007. In 2008, Dongtai
sold organic solvent to Lida, with the amount of $52,895.




36





Dongtai
owns a 49% equity interest in Dongtai Organic. As of December 31, 2008, Dongtai
Organic was indebted to Dongtai in the amount of $1,256,598, primarily as a
result of loans by Dongtai. The following table provides information relating to
these loans:





Principal
            
            
            Interest
      Rate
              (per
      Annum)
            
            
            Effective
      Date
            
            
            Maturity
      Date$586,295
            
            
            
            4.5
            %
            
            
            04-25-2008
            
            
            
            04-24-2009$146,574
            
            
            
            4.5
            %
            
            
            07-29-2008
            
            
            
            07-28-2009$58,630
            
            
            
            8
            %
            
            
            10-28-2008
            
            
            
            10-28-2009$439,721
            
            
            
            8
            %
            
            
            11-13-2008
            
            
            
            11-12-2009$1,231,220





The
interest incurred resulting from above loans amounted to $24,921 for the year
ended December 31, 2008.




Dalian
Dongtai Investment Company Limited (“Dongtai Investment”), which is also
controlled by Mr. Dong, owns a 30% equity interest in our subsidiary, Zhuorui.
As of December 31, 2008, Zhuorui was indebted to Dongtai Investment in the
amount of $278,490 resulting from a 6% annual interest bearing loan, which
matured on October 14, 2008. Due to the inability of Zhuorui to make timely
repayment of the loan, Dongtai Investment has extended the maturity date and
waived the payment of accrued interest.





Except
for the foregoing, there have not been any transactions, or series of
similar transactions, since the inception of the Company, or any currently
proposed transaction, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party, in which the amount
involved exceeds $120,000 and in which any director or executive officer of the
Company, nominee for election as a director, any five percent security holder or
any member of the immediate family of any of the foregoing persons had, or will
have, a direct or indirect material interest.





Director
Independence





None of
our directors are and "independent" as that term is used in Item
7(d) (3) (iv) of Schedule 14A under the Securities Exchange Act of
1934. Our Board of Directors intends to increase the size of the Board in the
near term, and to add directors who qualify as “independent” within the meaning
of that Item. In connection with a private placement of our securities, we
agreed to establish a board of directors, a majority of whose members will be
“independent” within the meaning of NASDAQ Marketplace Rule 4200(15). $650,000
from the proceeds of the placement remains in escrow pending satisfaction of
this commitment





ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES





Audit and Non-Audit
Fees





Fiscal
      Year Ended
              December
      31,2008
            
            
            2007Audit
      Fees
            
            $
            98,000
            
            
            $
            92,700Audit
      Related Fees
            
            
            —
            
            
            
            —Tax
      Fees
            
            
            16,350
            
            
            
            —All
      Other Fees
            
            
            —
            
            
            
            —





Pre-Approval of Services by
the Independent Auditor





The Board
of Directors has established policies and procedures for the approval and
pre-approval of audit services and permitted non-audit services. The Board has
the responsibility to engage and terminate the Company’s independent registered
public accountants, to pre-approve their performance of audit services and
permitted non-audit services and to review with the Company’s independent
registered public accountants their fees and plans for all auditing services.
All services provided by and fees paid to Jewett, Schwartz, Wolfe&
Associates in 2008 were pre-approved by the Board of Directors.




37




PART
IV





ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





Exhibit
      Number
            
            Description3.1
            
            Articles
      of Incorporation of the Company (f/k/a Goldtech Mining Corporation) filed
      November 12, 2003. Incorporated by reference to Exhibit 3.1 to the
      Company’s Quarterly Report on Form 10-QSB for the quarter ended September
      30, 2003 (the “9/30/03 10-QSB”).3.2
            
            Certificate
      of Amendment to Articles of Incorporation filed with the Nevada Secretary
      of State on April 27, 2006. Incorporated by reference to Exhibit 3.2 to
      the Company’s Quarterly Report on Form 10-QSB for the quarter
      ended June 30, 2006.3.3
            
            By-laws
      of the Company. Incorporated by reference to Exhibit 3.2 to the Company’s
      Quarterly Report on Form 10-QSB for the quarter ended September 30,
      2003.10.1
            
            Agreement
      and Plan of Merger, dated November 11, 2005, by and among the Company,
      Dalian Acquisition Corp., China Industrial Waste Management Inc., and each
      of the CIWM Shareholders. Incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K filed by the Company on November 17,
      2005.10.2
            
            Contract
      for Joint Venture Using Foreign Investment dated October 18, 2007 among
      Dalian Dongtai Industrial Waste Treatment Co., Ltd., Ronald Lipp, Karin
      Lipp-Mayer and Minghuan Shan. Incorporated by reference to Exhibit 10.1 to
      the Current Report on Form 8-K filed by the Company on October 18,
      2007.10.3
            
            Agreement
      dated July 10, 2007 by and between Dalian Lida Environmental Engineering
      Co., Ltd. and Dalian Dongtai Industrial Waste Treatment Co.,
      Ltd.*10.4
            
            Agreement
      dated August 6, 2007 by and between Dalian Dongtai Investment Co., Ltd.
      and Dalian Dongtai Industrial Waste Treatment Co.,
Ltd.*10.5
            
            2006
      Equity Compensation Plan. Incorporated by reference to the Definitive
      Information Statement filed by the Company on March 31,
    200614
            
            Code
      of Ethics. Incorporated by reference to Exhibit 14 to the Quarterly Report
      on Form 10-Q filed by the Company on May 15, 2008.21.1
            
            List
      of Subsidiaries*31.1
            
            Certification
      of Jinqing Dong as the CEO of the Company pursuant to Exchange Act Rules
      13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*31.2
            
            Certification
      of Guo Xin Dong as the CFO of the Company pursuant to Exchange Act Rules
      13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.*32.1
            
            Certification
      of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002.*32.2
            
            Certification
      of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.*





* Filed
herewith.




38






SIGNATURES





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






Dated:  March
      31, 2009CHINA
      INDUSTRIAL WASTE MANAGEMENT, INC.sig_dongjinqingBy:
            /s/
      Dong JinqingDong
      Jinqing
              Chief
      Executive Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.






SIGNATURE
            
            TITLE
            
            DATEsig_dongjinqing
            
            Chairman
      of the Board, Chief Executive Officer and Director/s/
      Dong Jinqing
            
            principal
      executive officer
            
            March
      31, 2009Dong
      Jinqingsig_lijun/s/
      Li Jun
            
            Chief
      Operating Officer and Director
            
            March
      31, 2009Li
      Junsig_guoxin/s/
      Guo Xin
            
            Chief
      Financial Officer and Director, principal financial and accounting
      officer
            
            March
      31, 2009Guo
      Xin





39




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Shareholders of
 China
Industrial Waste Management, Inc.
 
 We have
audited the accompanying balance sheet of China Industrial Waste Management,
Inc.
 as of
December 31, 2008 and the related statements of operations, changes in
shareholders' equity, and cash flows for the year ended December 31,
2008.  These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.  TheCompany's
financial statements for the year ended December 31, 2007 was audited by other
auditors whose report dated March 19, 2008.  The other
auditors'  reports have been  furnished  to us,
and our  opinion,  insofar as it
relates  to  amounts  included  for such
prior  period,  is based  solely on the reports of
such other auditors.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Industrial Waste Management,
Inc. as of December 31, 2008 and the results of its operations and its cash flow
for the year then ended December 31, 2008 in conformity with accounting
principles generally
accepted  in  the  United  States  of  America.
 
 
 
 /s/
JEWETT, SCHWARTZ, WOLFE & ASSOCIATES
  
 Hollywood,
Florida
 March 30,
2009


F-1




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Shareholders of
 China
Industrial Waste Management, Inc.
 
 We have
audited the accompanying balance sheet of China Industrial Waste Management,
Inc.
 as of
December 31, 2008 and the related statements of operations, changes in
shareholders' equity, and cash flows for the year ended December 31,
2008.  These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.  TheCompany's
financial statements for the year ended December 31, 2007 was audited by other
auditors whose report dated March 19, 2008.  The other
auditors'  reports have been  furnished  to us,
and our  opinion,  insofar as it
relates  to  amounts  included  for such
prior  period,  is based  solely on the reports of
such other auditors.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Industrial Waste Management,
Inc. as of December 31, 2008 and the results of its operations and its cash flow
for the year then ended December 31, 2008 in conformity with accounting
principles generally
accepted  in  the  United  States  of  America.
 
 
 
 /s/
JEWETT, SCHWARTZ, WOLFE & ASSOCIATES
  
 Hollywood,
Florida
 March 30,
2009


F-2




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.


CONSOLIDATED
BALANCE SHEETS (AUDITED)




December
      31,
            
            
            December
      31,2008
            
            
            2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            5,714,001
            
            
            $
            3,260,307Trade
      accounts receivable, net
            
            
            2,414,257
            
            
            
            594,322Other
      receivables
            
            
            105,329
            
            
            
            22,453Inventory
            
            
            2,372,214
            
            
            
            1,332,349Advances
      to suppliers
            
            
            550,931
            
            
            
            390,159Prepaid
      expense
            
            
            17,589
            
            
            
            42,784Total
      current assets
            
            
            11,174,321
            
            
            
            5,642,374Investment
            
            
            2,794,248
            
            
            
            2,633,354Property,
      plant and equipment, net
            
            
            15,474,915
            
            
            
            2,642,037Construction
      in progress
            
            
            5,738,271
            
            
            
            7,410,255Land
      usage right, net of accumulated amortization
            
            
            1,817,427
            
            
            
            1,732,074Deposits
            
            
            14,798
            
            
            
            80,925Related
      party receivable
            
            
            1,256,599
            
            
            
            388,796Escrow
      account
            
            
            750,000
            
            
            
            —Certificate
      of deposit
            
            
            73,287
            
            
            
            —Other
      asset
            
            
            348,545
            
            
            
            —TOTAL
      ASSETS
            
            $
            39,442,411
            
            
            $
            20,529,815LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
            
            $
            780,458
            
            
            $
            279,600Short-term
      loan
            
            
            3,371,198
            
            
            
            1,369,000Tax
      payable
            
            
            215,240
            
            
            
            93,954Advance
      from customers
            
            
            539,013
            
            
            
            —Deferred
      sales
            
            
            972,143
            
            
            
            667,389Accrued
      expenses
            
            
            361,111
            
            
            
            7,236Construction
      projects payable
            
            
            4,742,164
            
            
            
            —Related
      party payable
            
            
            278,490
            
            
            
            536,362Other
      payable
            
            
            211,362
            
            
            
            343,207Total
      current liabilities
            
            
            11,471,179
            
            
            
            3,296,748Asset
      retirement obligation liability
            
            
            502,278
            
            
            
            437,619Government
      subsidy
            
            
            1,028,257
            
            
            
            620,979TOTAL
      LIABILITIES
            
            
            13,001,714
            
            
            
            4,355,346Minority
      interest in subsidiary
            
            
            2,823,126
            
            
            
            2,259,595Commitments
      and contingenciesStockholders'
      equityPreferred
      stock: par value $.001; 5,000,000shares
      authorized; none issued and outstanding
            
            
            —
            
            
            
            —Common
      stock: par value $.001; 95,000,000 shares authorized;15,262,035
      and 13,220,843 shares issued and outstanding at December 31,
      2008and
      2007 respectively
            
            
            15,262
            
            
            
            13,221Additional
      paid-in capital
            
            
            5,644,750
            
            
            
            1,968,634Other
      comprehensive income
            
            
            2,422,167
            
            
            
            1,153,728Retained
      earnings
            
            
            15,535,392
            
            
            
            10,779,291Total
      stockholders' equity
            
            
            23,617,571
            
            
            
            13,914,874TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            39,442,411
            
            
            $
            20,529,815




See notes
to Consolidated Financial Statements.




F-3




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (AUDITED)
  Years
      Ended December 31,2008
              
              
              2007RevenueService
      fees
              
              $
              8,182,379
              
              
              $
              5,004,926Sales
      of cupric sulfate
              
              
              1,806,721
              
              
              
              1,817,861Sales
      of recycled commodities
              
              
              3,410,784
              
              
              
              2,716,720Operating
      revenue
              
              
              13,399,884
              
              
              
              9,539,507Costs
      of revenuesCost
      of service fees
              
              
              1,547,677
              
              
              
              1,251,049Cost
      of cupric sulfate
              
              
              740,881
              
              
              
              537,563Cost
      of recycled commodities
              
              
              1,866,086
              
              
              
              988,309Costs
      of revenue
              
              
              4,154,644
              
              
              
              2,776,921Gross
      profit
              
              
              9,245,240
              
              
              
              6,762,586Operating
      expensesSelling
      expenses
              
              
              806,438
              
              
              
              1,159,069General
      and administrative expenses
              
              
              2,737,584
              
              
              
              2,443,759Total
      operating expenses
              
              
              3,544,022
              
              
              
              3,602,828Income
      from operations
              
              
              5,701,218
              
              
              
              3,159,758Other
      income (expense)Investment
      loss
              
              
              (24,733
              )
              
              
              (47,923
              )Interest
      income
              
              
              26,438
              
              
              
              88,499Other
      income
              
              
              725,030
              
              
              
              15,769Reimbursed
      legal costs
              
              
              —
              
              
              
              860,460Other
      expense
              
              
              (448,468
              )
              
              
              (19,060
              )Total
      other income
              
              
              278,267
              
              
              
              897,745Net
      income from continuing operations before minorityinterest,
      income tax provision and discontinued operations
              
              
              5,979,485
              
              
              
              4,057,503Income
      tax provision
              
              
              659,853
              
              
              
              —Income
      from continuing operations
              
              
              5,319,632
              
              
              
              4,057,503Discontinued
      operationLoss
      from operations of discontinued component
              
              
              —
              
              
              
              (6,465
              )Gain
      on disposal of discontinued component
              
              
              —
              
              
              
              1,205Loss
      on discontinued operations
              
              
              —
              
              
              
              (5,260
              )Net
      income before minority interest
              
              
              5,319,632
              
              
              
              4,052,243Minority
      interest
              
              
              563,531
              
              
              
              363,036Net
      income
              
              
              4,756,101
              
              
              
              3,689,207Foreign
      currency translation adjustment
              
              
              1,268,440
              
              
              
              774,007Comprehensive
      income
              
              $
              6,024,541
              
              
              $
              4,463,214Basic
      and diluted weighted average shares outstanding
              
              
              13,755,274
              
              
              
              13,220,843Basic
      and diluted net earnings per share
              
              $
              0.35
              
              
              $
              0.28


See notes
to Consolidated Financial Statements.




F-4




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC. CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (AUDITED)
  Common
      Stock
              
              
              Additional
      Paid In
              
              
              Other
      Comprehensive
              
              
              Retained
              
              
              Total
      Stockholders'Shares
              
              
              Par
      Value
              
              
              Capital
              
              
              Income
              
              
              Earnings
              
              
              EquityBalance
      December 31, 2006
              
              
              13,220,843
              
              
              $
              13,221
              
              
              $
              1,952,634
              
              
              $
              379,721
              
              
              $
              7,090,084
              
              
              $
              9,435,660Shares
      issued for services
              
              
              —
              
              
              
              —
              
              
              
              16,000
              
              
              
              —
              
              
              
              —
              
              
              
              16,000Change
      in foreign currency translation gain
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              774,007
              
              
              
              —
              
              
              
              774,007Net
      Income for the year ended December 31, 2007
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              3,689,207
              
              
              
              3,689,207Balance
      December 31, 2007
              
              
              13,220,843
              
              
              $
              13,221
              
              
              $
              1,968,634
              
              
              $
              1,153,728
              
              
              $
              10,779,291
              
              
              $
              13,914,874Shares
      issued for services
              
              
              50,000
              
              
              
              50
              
              
              
              133,050
              
              
              
              —
              
              
              
              —
              
              
              
              133,100Shares
      issued for private placement
              
              
              1,941,192
              
              
              
              1,941
              
              
              
              1,857,280
              
              
              
              —
              
              
              
              —
              
              
              
              1,859,221Warrants
      issued for private placement
              
              
              —
              
              
              
              —
              
              
              
              1,174,370
              
              
              
              —
              
              
              
              —
              
              
              
              1,174,370Stock
      issuance cost
              
              
              50,000
              
              
              
              50
              
              
              
              112,950
              
              
              
              —
              
              
              
              —
              
              
              
              113,000Stock
      issuance cost-Warrants
              
              
              —
              
              
              
              —
              
              
              
              398,466
              
              
              
              —
              
              
              
              —
              
              
              
              398,466Change
      in foreign currency translation gain
              
              
              —
              
              
              
              —
              
              
              
              -
              
              
              
              1,268,439
              
              
              
              —
              
              
              
              1,268,439Net
      Income for the year ended December 31, 2008
              
              
              —
              
              
              
              —
              
              
              
              -
              
              
              
              -
              
              
              
              4,756,101
              
              
              
              4,756,101Balance
      December 31, 2008
              
              
              15,262,035
              
              
              $
              15,262
              
              
              $
              5,644,750
              
              
              $
              2,422,167
              
              
              $
              15,535,392
              
              
              $
              23,617,571




See notes
to Consolidated Financial Statements.




F-5




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (AUDITED)
  Years
      ended December 31,2008
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              4,756,101
              
              
              $
              3,689,207Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Minority
      interest
              
              
              563,531
              
              
              
              363,036Depreciation
              
              
              644,901
              
              
              
              428,696Amortization
              
              
              25,578
              
              
              
              37,729Bad
      debt allowance
              
              
              1,635
              
              
              
              3,476Stock
      issued for services
              
              
              133,100
              
              
              
              16,000Accretion
      expenses
              
              
              64,659
              
              
              
              28,235Loss
      on disposal of subsidiary
              
              
              —
              
              
              
              5,260Loss
      on equity investment
              
              
              24,733
              
              
              
              47,923Subsidy
      received from government
              
              
              407,278
              
              
              
              596,528Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (1,821,570
              )
              
              
              (419,185
              )Inventory
              
              
              (1,039,865
              )
              
              
              (660,714
              )Other
      receivables
              
              
              (82,876
              )
              
              
              114,945Advance
      to suppliers
              
              
              (160,772
              )
              
              
              1,778Prepaid
      expense
              
              
              25,195
              
              
              
              (20,058
              )Certificate
      of deposit
              
              
              (73,287
              )
              
              
              —Deposits
              
              
              66,127
              
              
              
              (72,042
              )Other
      assets
              
              
              (348,545
              )
              
              
              —Accrued
      expense and deferred sales
              
              
              658,629
              
              
              
              163,225Accounts
      payable
              
              
              369,012
              
              
              
              211,828Advance
      from customers
              
              
              539,013
              
              
              
              —Tax
      payable
              
              
              121,286
              
              
              
              83,738Net
      cash provided by operating activities
              
              
              4,873,863
              
              
              
              4,619,605Cash
      flows from investing activiiesInvestment
      in subsidiary
              
              
              (185,627
              )
              
              
              (2,643,351
              )Purchase
      of property and equipment
              
              
              (5,281,145
              )
              
              
              (183,326
              )Construction
      contracts
              
              
              (1,938,955
              )
              
              
              (6,677,654
              )Payments
      from related party
              
              
              —
              
              
              
              11,092Proceeds
      to related party
              
              
              (867,803
              )
              
              
              —Payments
      to related party
              
              
              (257,872
              )
              
              
              28,932Proceeds
      on sale of subsidiary
              
              
              —
              
              
              
              34,198Net
      cash used in investing activities
              
              
              (8,531,402
              )
              
              
              (9,430,109
              )Cash
      flows from financing activitiesProceeds
      from short term loans
              
              
              3,371,198
              
              
              
              1,315,097.00Repayment
      of shor term  loans
              
              
              (1,369,000
              )
              
              
              —Proceeds
      from issuance of common stock, net of offering costs
              
              
              3,545,057
              
              
              
              —Escrow
      account
              
              
              (750,000
              )
              
              
              —Net
      cash provided by financing activities
              
              
              4,797,255
              
              
              
              1,315,097Effect
      of exchange rate on cash
              
              
              1,313,978
              
              
              
              276,736Net
      increase (decrease) in cash and cash equivalents
              
              
              2,453,694
              
              
              
              (3,218,671
              )Cash
      and cash equivalents, beginning of period
              
              
              3,260,307
              
              
              
              6,478,978Cash
      and cash equivalents, end of period
              
              $
              5,714,001
              
              
              $
              3,260,307Supplemental
      cash flow information:Cash
      paid during the year for:Interest
              
              $
              304,684
              
              
              $
              —Income
      taxes
              
              $
              441,170
              
              
              $
              —Non-cash
      financing activities:Completed
      construction projects
              
              $
              4,742,164
              
              
              $
              —Common
      stock issuance cost -warrants
              
              $
              398,466
              
              
              $
              —Common
      stock issuance cost-stock
              
              $
              113,000
              
              
              $
              —




See notes
to Consolidated Financial Statements.




F-6


CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
  1. Nature of
operations
 
 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 subsidiaries, DonTech Waste Services Inc., a
Delaware corporation (“DonTech”), and Favour Group Ltd., a British Virgin
Islands corporation (“Favour”), along with its indirectly majority owned
subsidiaries:
 
 ·
              Full
      Treasure Investments Ltd. (“Full
  Treasure”)
  ·
              Dalian
      Dongtai Industrial Waste Treatment Co. Ltd.
    (“Dongtai”)
  ·
              Dalian
      Dongtai Water Recycling Co. Ltd. (“Dongtai
  Water”)
  ·
              Dalian
      Zhuorui Resource Recycling Co., Ltd.
  (“Zhuorui”)
  ·
              Dalian
      Lipp Environmental Energy Engineering & Technology Co., Ltd Dalia. (“n
      Lipp”)
 
 On September
18, 2008, the Company registered Favour Group in British Virgin Islands (“BVI”).
Simultaneously, the Company set up Full Treasure in Hong Kong. Favour and Full
Treasure were established to facilitate the Company with certain financing
requirement.
 
 Dongtai
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 650 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
  ·
              Environmental
      pollution remediation
services
 
 Dongtai
Water, a build-operate-transfer project established to process municipal waste
water generated by Dalian. The project commenced commercial operation on June
21, 2008.
 
 Zhuorui
engages in recycling of waste catalysts by plasma arc melting and chemical
processing. This subsidiary is now in the stage of facility
commissioning.
 
 Dalian
Lipp is engaged in sales of anaerobic fermentation systems developed by Lipp
GmbH, and post-sales technical services.
 
 2. Basis of
Presentation
  The
accompanying consolidated financial statements include the accounts of the
parent entity, its directly wholly owned subsidiaries, DonTech, Favour, along
with its indirectly wholly owned subsidiaries, Full Treasure, its 90% indirectly
owned subsidiary Dongtai, its 80% indirectly owned subsidiary Dongtai Water, its
70% indirectly owned subsidiary Zhuorui, and its 75% indirectly owned subsidiary
Dalian Lipp. All material inter-company accounts and transactions have been
eliminated in the consolidation.
 
 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.
  F-7
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 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
December 31, 2008 and 2007, the accounts of the Company were maintained, and the
consolidated financial statements were expressed in 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 RMB as the functional
currency. According to the Statement, 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 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.
 
 Restricted
cash
 
 In
accordance with Accounting Review Board (ARB) No. 43, Chapter 3A “Current Assets
and Current Liabilities”, cash which is restricted as to withdrawal is
considered a non-current asset. Restricted cash consists of $750,000, which is
held in a separate escrow account as required by a group of investors, and
$73,287, a term deposit in Bank of Dalian, with maturity date on June 11,
2009.
 
 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 December 31, 2008 and December 31,
2007 is $12,132 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. Payment
terms of sales vary from cash on delivery through a credit term of up to nine to
twelve months.
 
 Concentration of credit
risks
 
 The
Company is subject to concentrations of credit risk primarily from cash and cash
equivalents. The Company maintains accounts with financial institutions, which
at times exceeds the insured Federal Deposit Insurance Corporation limit of
$250,000. The Company minimizes its credit risks associated with cash by
periodically evaluating the credit quality of its primary financial
institutions.
 
 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 for raw materials and auxiliary materials, and weighted average basis for
other categories, 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, 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 operations.
  F-8
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 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
      LifeBuildings
              
              20
      YearsMachinery
              
              10
      YearsVehicles
              
              5
      YearsOffice
      equipment
              
              5
      Years
 
 Construction
in progress consists of construction expenditure, equipment procurement,
capitalized interest expense, relevant miscellaneous expenditures, and other
costs.
 
 As of
December 31, 2008, construction in progress contains two principal components;
one is the costs incurred by Dongtai for the newly built incineration system
that is located in Dagu Hill, ETD Zone, Dalian, including designing and building
of the incinerator, construction of its supporting facilities, and miscellaneous
fees. The other component is payment for equipments for Zhuorui, including
plasma furnace, flue gas cleansing system, dust trapper, and other corollary
equipment, which are now in the installation and testing phase. Construction in
progress includes capitalized interest of $75,909 and $77,353 as of December 31,
2008 and 2007.
 
 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 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.
 
 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:
  December
      31,
                2008
              
              
              December
      31,
                2007Long-term
      Liability
              
              $
              502,278
              
              
              $
              437,619
 
 Long-term
investment
 
 Long-term
investments are recorded under the equity method. Dongtai Organic is
constructing and was organized to operate a municipal sludge treatment and
disposal facility in Dalian, PRC. The Company currently owns 49% of Dongtai
Organic.
 
 Impairment of long-lived
assets
  In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS No.144), certain assets 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 December 31, 2008 and 2007,
respectively.
  F-9
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 Intangible
assets
 
 Intangible
assets consist of “Rights to use land and build a plant” for 50 years and
intellectual property. The intangible assets are amortized using straight – line
method. 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.
 
 As of
December 31, 2008 and 2007, net land usage right was $1,817,427 and $1,732,074
respectively.
 
 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, treatment, 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 rendered 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 December 31, 2008 and 2007 deferred sales amounted to $972,143 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 years ended
December 31, 2008 and 2007 were immaterial.
 
 Stock-based
compensation
 
 In
December 2004, the Financial Accounting Standard Board (“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.
  F-10
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 Local PRC income
tax
 
 The
Company is subject to the PRC Enterprise Income Tax (“EIT”) at a rate of
25% on its net income. According to 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, Dongtai is subject to EIT at
9% for the year ended December 31, 2008. Furthermore, the Law stipulates that
enterprises that engage in municipal waste water treatment business are eligible
for special EIT treatment. According to such rules, Dongtai Water is entitled to
a three-year EIT exemption treatment starting whenever it receives the first
operation revenue, and another 50% off of the normal rate for the next three
years. For the year ended December 31, 2008, Dongtai Water is in its first year
of the tax exemption.
 
 Statement of cash
flows
 
 In
accordance with SFAS No. 95, “Statement of Cash Flows” cash flows from the
Company’s operations is 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.
 
 Reclassifications
 
 Certain
reclassifications have been made in the 2007 financial statements to conform to
the 2008 presentation.
 
 Recent accounting
pronouncements
 
 Employers’
Disclosures about Postretirement Benefit Plan Assets
 
 In
December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP
amends FASB Statement No. 132(R) (“SFAS No. 132(R)”), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits,” to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. FSP FAS No. 132(R)-1 also includes a technical amendment to
SFAS No. 132(R) that requires a nonpublic entity to disclose net periodic
benefit cost for each annual period for which a statement of income is
presented. The required disclosures about plan assets are effective for fiscal
years ending after December 15, 2009.  The technical amendment was
effective upon issuance of FSP FAS No. 132(R)-1. The Company is currently
assessing the impact of FSP FAS No. 132(R)-1 on its consolidated financial
position and results of operations.
 
 Effective
Date of FASB Interpretation No. 48 for Certain Nonpublic
Enterprises
 
 In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN No. 48-3
defers the effective date of FIN No. 48, “Accounting for Uncertainty in Income
Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109,
“Accounting for Income Taxes.” However, nonpublic consolidated entities of
public enterprises that apply U.S. generally accepted accounting principles
(“GAAP”) are not eligible for the deferral.FSP FIN No. 48-3 was
effective upon issuance. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.
  F-11
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities
 
 In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities.” This FSP amends SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” to require public entities to provide
additional disclosures about transfers of financials assets.  FSP FAS
No. 140-4 also amends FIN No. 46(R)-8, “Consolidation of Variable Interest
Entities,” to require public enterprises, including sponsors that have a
variable interest entity, to provide additional disclosures about their
involvement with a variable interest entity. FSP FAS No. 140-4 also requires
certain additional disclosures, in regards to variable interest entities, to
provide greater transparency to financial statement users. FSP FAS No. 140-4 is
effective for the first reporting period (interim or annual) ending after
December 15, 2008, with early application encouraged. The Company is currently
assessing the impact of FSP FAS No. 140-4 on its consolidated financial position
and results of operations.
 
 Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That is
Based on the Stock of an Entity’s Consolidated Subsidiary
 
 In
November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No.
08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement
Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary.” EITF
No. 08-8 clarifies whether a financial instrument for which the payoff to the
counterparty is based, in whole or in part, on the stock of an entity’s
consolidated subsidiary is indexed to the reporting entity’s own
stock.  EITF No. 08-8 also clarifies whether or not stock should be
precluded from qualifying for the scope exception of SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” or from being within the
scope of EITF No. 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF No. 08-8 is
effective for fiscal years beginning on or after December 15, 2008, and interim
periods within those fiscal years. The Company is currently assessing the impact
of EITF No. 08-8 on its consolidated financial position and results of
operations.
 
 Accounting
for Defensive Intangible Assets
 
 In
November 2008, the FASB issued EITF Issue No.08-7, “Accounting for Defensive
Intangible Assets.” EITF No. 08-7 clarifies how to account for defensive
intangible assets subsequent to initial measurement. EITF No. 08-7 applies to
all defensive intangible assets except for intangible assets that are used in
research and development activities. EITF No.08-7 is effective for intangible
assets acquired on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The Company is currently assessing the
impact of EITF No.08-7 on its consolidated financial position and results of
operations.
 
 Equity
Method Investment Accounting Considerations
 
 In
November 2008, the FASB issued EITF Issue No.08-6 (“EITF No.08-6”), “Equity
Method Investment Accounting Considerations.” EITF No. 08-6 clarifies accounting
for certain transactions and impairment considerations involving the equity
method.  Transactions and impairment dealt with are initial
measurement, decrease in investment value, and change in level of ownership or
degree of influence. EITF No.08-6 is effective on a prospective basis for fiscal
years beginning on or after December 15, 2008. The Company is currently
assessing the impact of EITF No.08-6 on its consolidated financial position and
results of operations.
 
 Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active
 
 In
October 2008, the FASB issued FSP FAS No.157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active.” This FSP
clarifies the application of SFAS No.157, “Fair Value Measurements,” in a market
that is not active.  The FSP also provides examples for determining
the fair value of a financial asset when the market for that financial asset is
not active. FSP FAS No.157-3 was effective upon issuance, including prior
periods for which financial statements have not been issued.  The
impact of adoption was not material to the Company’s consolidated financial
condition or results of operations.
 
 Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement
 
 In
September 2008, the FASB issued EITF Issue No.08-5 (“EITF No.08-5”), “Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement.” This FSP determines an issuer’s unit of accounting for a liability
issued with an inseparable third-party credit enhancement when it is measured or
disclosed at fair value on a recurring basis. FSP EITF No.08-5 is effective on a
prospective basis in the first reporting period beginning on or after December
15, 2008. The Company is currently assessing the impact of FSP EITF No.08-5 on
its consolidated financial position and results of operations.
  F-12
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161
 
 In
September 2008, the FASB issued FSP FAS No.133-1, “Disclosures about Credit
Derivatives and Certain Guarantees:An Amendment of FASB Statement No.133 and
FASB Interpretation No.45; and Clarification of the Effective Date of FASB
Statement No.161.” This FSP amends FASB Statement No.133, “Accounting for
Derivative Instruments and Hedging Activities,” to require disclosures by
sellers of credit derivatives, including credit derivatives embedded in a hybrid
instrument. The FSP also amends FASB Interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,” to require and additional disclosure
about the current status of the payment/performance risk of a
guarantee.  Finally, this FSP clarifies the Board’s intent about the
effective date of FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities.” FSP FAS No.133-1 is effective for fiscal
years ending after November 15, 2008. The Company is currently assessing the
impact of FSP FAS No.133-1 on its consolidated financial position and results of
operations.
 
 Endowments
of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an
Enacted Version of the Uniform Prudent Management of Institutional Funds Act,
and Enhanced Disclosures for all Endowment Funds
 
 In August
2008, the FASB issued FSP FAS No.117-1, “Endowments of Not-for-Profit
Organizations: Net Asset Classification of Funds Subject to an Enacted Version
of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and
Enhanced Disclosures for all Endowment Funds.” The intent of this FSP is to
provide guidance on the net asset classification of donor-restricted endowment
funds. The FSP also improves disclosures about an organization’s endowment
funds, both donor-restricted and board-designated, whether or not the
organization is subject to the UPMIFA. FSP FAS No.117-1 is effective for fiscal
years ending after December 31, 2008. Earlier application is permitted provided
that annual financial statements for that fiscal year have not been previously
issued. The Company is currently assessing the impact for FSP FAS No.117-1 on
its consolidated financial position and results of operations.
 
 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
 
 In
June 2008, the 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.
 
 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 separately 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" (SFAS No.162).  SFAS No.162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements. SFAS No.162 is effective 60
days following the Securities and Exchange Commission (“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.
  F-13
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 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 No.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.
  4.
Inventory
  Inventory
at December 31, 2008 and December 31, 2007 consists of raw materials and
recycled commodities as follows:
 
 December
      31,
                2008
              
              
              December
      31,
                2007Raw
      materials
              
              $
              1,130,109
              
              
              $
              786,427Recycled
      commodities
              
              
              1,242,105
              
              
              
              545,922$
              2,372,214
              
              
              $
              1,332,349
 
 5. Property, plant and
equipment
 
 December
      31,
                2008
              
              
              December
      31,
                2007Land
      and building
              
              $
              9,978,971
              
              
              $
              2,305,868Machinery
      and equipment
              
              
              6,898,868
              
              
              
              1,242,966Office
      equipment
              
              
              542,174
              
              
              
              375,433Vehicles
              
              
              911,540
              
              
              
              773,03818,331,553
              
              
              
              4,697,305Less
      accumulated depreciation
              
              
              (2,856,638
              )
              
              
              (2,055,268
              )Total
      property and equipment, net
              
              
              15,474,915
              
              
              
              2,642,037Construction
      in progress
              
              
              5,738,271
              
              
              
              7,410,255Total
              
              $
              21,213,186
              
              
              $
              10,052,292
 
 Depreciation
expenses amounted to $644,901 and $428,696 for fiscal year 2008 and 2007,
respectively.
 
 6. Other
assets
 
 Other
assets in the amount of $348,545 is comprised of intellectual property rights
and value added tax (“VAT”) debit balance, in the amounts of $10,993 and
$337,552 respectively. 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.
  F-14
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 7. Short-term
loan
 
 The
following table identifies the material terms of loans outstanding as of
December 31, 2008:
 
 Effective
      Date
              
              Mature
      Date
              
              Creditor
              
              Type
              
              Interest
      Rate
              
              Principal02-26-2008
              
              02-25-2009
              
              Rural
      Credit Cooperative Union of Dalian ETD Area
              
              Secured
              
              9.72%
              
              $1,172,59103-21-2008
              
              03-21-2009
              
              Shanghai
      Pudong Development Bank,Dalian
      Branch
              
              Secured
              
              8.217%
              
              732,86904-25-2008
              
              04-25-2009
              
              Shanghai
      Pudong Development Bank,Dalian
      Branch
              
              Secured
              
              8.217%
              
              1,465,738$3,371,198
 
 8. Construction projects
payable
 
 During
2008, the Company completed construction of the Dongtai Water facility, and
substantially completed the Zhourui construction project. An asset of RMB
32,947,133(US$4,742,164) has been recorded in fixed assets and will be
depreciated over the various useful lives of these assets. Several suppliers of
services and equipment were utilized for these projects. Over the course of the
construction, the Company accrued all costs associated with the projects and as
of December 31, 2008, the balance owed to these suppliers totaled RMB
32,947,133(US$4,742,164). The payment schedules for these suppliers are not
fixed and therefore the entire amount has been classified as construction
projects payable in current liabilities.
 
 9.
Government subsidies
 
 Government
subsidies, with the amount of $1,028,257 as of December 31, 2008, represents
subsidies that Zhuorui received from local government, as Zhuorui’s business
falls into the industry classifications encouraged by the local government’s
development strategy. The subsidy is to be used exclusively for facility
construction and equipment procurement to fulfill its business operations. The
subsidy is initially recorded as deferred revenue. Upon the completion and
acceptance of the government subsidized project, subsidies are recognized over
the useful lives of the related asset.
 
 10. Accumulated other
comprehensive income
 
 The
components of accumulated other comprehensive income was as follow:
 
 December
      31,
                2008
              
              
              December
      31,
                2007Cumulative
      translation adjustment of foreign currency statements
              
              $
              1,268,439
              
              
              $
              774,007
 
 11. Related
parties
 
 Related
      Parties
              
              Interest
      Rate
              
              
              Repayment
      Date
              
              
              Balance
      as of
                December
      31, 2008per
      annum
              
              
              
              
              
              Receivable
              
              
              PayableDongtai
      Investment
              
              
              —
              
              
              
              —
              
              
              $
              —
              
              
              $
              278,490Dongtai
      Organic
              
              
              4.5
              %
              
              
              04-24-2009
              
              
              
              586,295
              
              
              
              —Dongtai
      Organic
              
              
              4.5
              %
              
              
              07-28-2009
              
              
              
              146,574
              
              
              
              —Dongtai
      Organic
              
              
              8
              %
              
              
              10-28-2009
              
              
              
              58,630
              
              
              
              —Dongtai
      Organic
              
              
              8
              %
              
              
              11-12-2009
              
              
              
              439,722
              
              
              
              —Dongtai
      Organic
              
              
              
              
              
              
              
              
              
              
              25,378
              
              
              
              —Total
              
              
              
              
              
              
              
              
              
              $
              1,256,599
              
              
              $
              278,490
 
 12. Shareholder’s
equity
 
 On April
9, 2008, the Company issued 50,000 shares of common stock as compensation for
services to a consulting firm. The fair market value of the stock is
approximately $133,100.
  F-15
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 On
September 27, 2008, the Company issued warrants to purchase 150,000 shares of
our common stock to a placement agent as follows: 37,500 with a strike price of
$3.50 per share; 37,500 with a strike price of $4.00 per share; 37,500 with a
strike price of $4.50 per share; and 37,500 with a strike price of $5.00 per
share. The fair market value of each stock warrant was estimated on the date of
grant using the Black-Scholes option-pricing model in accordance with SFAS
No.123(R) using the following weighted-average assumptions: expected dividend
yield 0%; risk-free interest rate of 4.6%; volatility of 120% and an expected
term of 5 years. The Company recognized a stock issuance cost of
$398,466.
 
 In
October 2008, the Company accomplished a private placement of 66 units,
consisting of a total of 1,941,192 shares of common stock and common stock
purchase warrants to purchase an additional 1,941,192 shares at an aggregate
offering price of $3,960,000 to 16 institutional and accredited investors in a
private placement exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Regulation D and Section 4(2) of that act.
The price per unit was $60,000. Under the subscription agreements with the
investors, as amended, each unit consisted of 29,412 shares of common stock, one
Class A warrant to purchase 14,706 shares of common stock exercisable until
September 30, 2011 at $2.50 per share and one Class B warrant to purchase 14,706
shares of common stock exercisable until September 30, 2011 at $3.20 per share.
The Company issued another 50,000 shares of common stock to the placement agent
in connection with the private placement, which was recognized as stock issuance
cost in the amount of $113,000.
 
 As of
December 31, 2008, the total outstanding common share of the Company reached to
15,262,035.
 
 13. Statutory common welfare
fund
 
 As
stipulated by the Company Law of the PRC as applicable to Chinese companies with
foreign ownership, net income after taxation can only be distributed as
dividends after appropriation has been made for the following:
 
 a.           Making
up cumulative prior years’ losses, if any
  b.           Allocations
to the “Statutory surplus reserve” of at least 10% of income after tax, as
determined under PRC accounting rules and regulations, until the fund amounts to
50% of the Company’s registered capital;
  c.           Allocations
of 5 -10% of income after tax, as determined under PRC accounting rules and
regulations to the Company’s “Statutory common welfare fund”, which is
established for the purpose of providing employee facilities and other
collective benefits to the Company’s employees; and
  d.           Allocations
to the discretionary surplus reserve, if approved in the shareholders’ general
meeting.
 
 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:
 
 Years
      Ended December 31,2008
              
              
              2007Income
      available to common stockholders
              
              $
              4,756,101
              
              
              $
              3,689,207Diluted
      net income
              
              $
              4,756,101
              
              
              $
              3,689,207Weighted
      average basic common shares outstanding
              
              
              13,755,274
              
              
              
              13,220,843Basic
      net earnings per share
              
              $
              0.35
              
              
              $
              0.28Diluted
      net earnings per share
              
              $
              0.35
              
              
              $
              0.28
 
 15. Current vulnerability
due to certain concentrations
 
 The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC and by the general state
of the PRC economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversions and remittance abroad, and rates and methods of
taxation, among other things.
  F-16
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 16. Discontinued
operations
 
 Due to a
lack of progress of Liaoyang Dongtai in developing a local market for its
services, the Board of Directors of the Company decided to dissolve and
liquidate Liaoyang Dongtai in July 2007.
  Before
termination, Liaoyang Dongtai’s major asset was cash, in the amount of RMB
399,989 (USD$52,630). Since Liaoyang Dongtai never generated any revenue, there
was no tax incurred, and the expenses from its operations were accounted for as
sundry expenses.
 
 Dongtai
recovered RMB 260,000 (USD $34,198) from the disposal of the investment in
Liaoyang Dongtai. Dongtai’s book value in the investment was RMB 300,000 (USD
$39,458). Therefore, Dongtai incurred a total loss from the disposal of RMB
40,000 (USD $5,260).
 
 17. Commitment and
Contingency
 
 During
the year ended December 31, 2008, the Company completed a private placement, in
connection with which:
 
 ·
              The
      Company agreed to establish a board of directors, a majority of whose
      members will be “independent” within the meaning of NASDAQ Marketplace
      Rule 4200(15); and $650,000 from proceeds of the placement is being held
      in escrow until this requirement is
satisfied;
 
 ·
              The
      Company agreed to engage an accounting consultant to assist with the
      presentation and delivery of financial reports and related information;
      and $100,000 from proceeds of the placement is being held in escrow until
      this requirement is satisfied; and
 
 ·
              The
      Company agreed to file a registration statement covering resale of the
      1,941,192 shares of common stock sold to the investors; the registration
      statement was filed with the United States Securities and Exchange
      Commission on December 12, 2008.
 
 ·
              The
      Company is committed to issuing an additional 100,000 shares to the
      placement agent upon specific service being rendered. In addition, upon
      specific services being rendered, the Company agreed to issue to the
      placement agent or its designees, warrants to purchase an aggregate of 6.6
      units (10% of the number of units sold to investors) identical to the
      units issued to the investors. The 6.6 units consist of an aggregate of
      194,120 shares of common stock and warrants to purchase an aggregate of
      194,120 shares. The exercise price of the placement agent warrants is
      $72,000 per unit.
 
 The
Company has purchasing commitments that result from construction contracts and
equipment procurement contracts signed for the development and operation of
Dalian Dongtai's expansion project, Dongtai Water and Zhuorui. As of December
31, 2008, the commitment information is as follows:
 
 2009Construction
              
              $
              2,975,566Equipment
              
              
              2,982,285Total
              
              $
              5,957,851
 
 18. Subsequent
events
 
 On
January 8, 2009, Dongtai Organic entered into a long-term loan program with the
creditor, China Merchants Bank Co., Ltd. Dalian Peace Square Sub-branch (“CMB”).
Pursuant to the loan agreement, the principal amounts to RMB 85 million
(USD$12.46 million) and matures on January 7, 2017. Dongtai Organic is required
to repay the loan according to a schedule commencing on January 20, 2010 and
continuing thereafter until the maturity date. The loan is to be used
exclusively for the Dongtai Organic BOT Project. A floating interest rate is to
be applied to the loan at a rate that is 5% higher than that of the benchmark
interest rate promulgated by People’s Bank of China from time to time, and is
adjusted every six months. On January 8, 2009, the benchmark interest rate was
5.94% annually. The loan is secured with the assets and exclusive operating
right of the Dongtai Organic BOT Project. As of March 13, 2009, Dongtai Organic
had drawn down the first installment of the loan in the amount of RMB 34 million
(USD$4.98 million).
  On
February 13, 2008, pursuant to the Agreement and Plan of Merger signed by the
Company and DonTech, DonTech shall be merged into CIWT, which would be the
surviving corporation.
  F-17
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 On March
16, 2009 (“Effective Date”), the Company filed a Certificate of Ownership and
Merger with the State of Delaware and an Articles of Merger with the State of
Nevada. Since the Effective Date, all assets and obligations of DonTech shall be
transferred to the Company, including 90% interest in Dalian
Dongtai.
 
 On March
27, 2009, the registration statement originally filed by the Company on December
12, 2008 in connection with the private placement of 6.6 units was declared
effective by the Securities and Exchange Commission.
  F-18