UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 (Mark
One)
 Form
10-Q
 x
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
      the quarterly period ended September 30,
2009
 
 or
 
 o
                TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For
      the transition period from __________________ to
      __________________________Commission
      File Number: 2-95836-NY
 
 China
      Industrial Waste Management, Inc.(Name of registrant as specified
      in its charter)
 
 Nevada
              13-3250816(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)
 
 c/o
      Dalian Dongtai Industrial Waste Treatment Co.
                No.
      1 Huaihe West Road, E-T-D Zone, Dalian, China
              116600(Address
      of principal executive offices)
              (Zip
      Code)
 
 011-86-411-85811229(Registrant's
      telephone number, including area
code)
 
 
 N/A(Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
 
 Yes x No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 
 Yes o No o
 
 Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act.
 
 
 Large
      accelerated filer
              o
              Accelerated
      filer
              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)
 
 Yes o No x
 
 Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 15,274,035 shares of common stock are issued and outstanding
as of November 12, 2009.
 
 TABLE
OF CONTENTS
 
 Page No.PART
      I. - FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements.
              1Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              2Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              8Item
      4T
              Controls
      and Procedures.
              8Item
      1.
              Legal
      Proceedings.
              9Item
      1A.
              Risk
      Factors.
              9Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds.
              9Item
      3.
              Defaults
      Upon Senior Securities.
              9Item
      4.
              Submission
      of Matters to a Vote of Security Holders.
              9Item
      5.
              Other
      Information.
              9Item
      6.
              Exhibits.
              10
 
 CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
 
 This
report includes "forward-looking statements." You can identify these statements
by the fact that they do not relate strictly to historical or current facts.
These statements contain such words as "may," "project," "might," "expect,"
"believe," "anticipate," "intend," "could," "would," "estimate," "continue," or
"pursue," or the negative or other variations thereof or comparable terminology.
In particular, they include statements relating to, among other things, future
actions, new projects, strategies, future performance, the outcomes of
contingencies and our future financial results. These forward-looking statements
are based on current expectations and projections about future
events.
 
 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; the cost of attracting and retaining highly skilled personnel; our
projected sales, profitability, and cash flows; our growth strategies;
anticipated trends in our industries; our future financing plans; and our
anticipated needs for working capital.
 Forward-looking
statements speak only as of the date on which they are made, and, except to the
extent required by federal securities laws, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which the statement is made or to reflect the occurrence of unanticipated
events.
 
 
 CONVENTIONS
AND GENERAL MATTERS
 
 The
official currency of the People’s Republic of China is the Chinese “Yuan” or
“Renminbi” (“yuan,” “Renminbi” or “RMB”). For the convenience of the reader,
amounts expressed in this report as RMB have been translated into United States
dollars (“US$” or “$”) at the rate of USD$1.00 = RMB 6.8225 as of December 31,
2008; and at the rate of USD$1.00 = RMB 6.8262 as of September 30, 2009 quoted
by the U.S. 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 through the U.S. Federal Reserve System. 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 subsidiary Favour Group Ltd.
(“Favour”), along with its indirect wholly-owned subsidiary, Full Treasure
Investments Ltd. (“Full Treasure”), and its indirect majority and wholly owned
subsidiaries: Dalian Dongtai Industrial Waste Treatment Co. Ltd. (“Dalian
Dongtai”); Dalian Dongtai Water Recycling Co. Ltd. (“Dongtai Water”); Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”); Yingkou Dongtai Industrial
Waste Treatment Co., Ltd. (“Yingkou Dongtai) and Dalian Lipp Environmental
Energy Engineering & Technology Co., Ltd.(“Dalian Lipp”). In March 2009
DonTech, a previous direct wholly-owned subsidiary of China Industrial Waste
Management, Inc., merged with and into China Industrial Waste Management, Inc.
and the shares of Dalian Dongtai  held by DonTech, evidencing 90% of
the outstanding capital stock of Dalian Dongtai, were transferred to Full
Treasure.
 
 All share
and per share information contained herein has been adjusted to reflect a 1 for
100 share reverse stock split which occurred on May 12, 2006.
  
  PART
1 - FINANCIAL INFORMATION
 
 Item
1. Financial Statements.
  CHINA
      INDUSTRIAL WASTE MANAGEMENT, INC.CONSOLIDATED
      BALANCE SHEETS
 September
      30,
                
                
                December
      31,2009
                
                
                2008(Unaudited)
                
                
                (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                8,730,483
                
                
                $
                5,714,001Notes
      receivable
                
                
                14,649
                
                
                
                -Accounts
      receivable, net
                
                
                3,229,123
                
                
                
                2,414,257Other
      receivables
                
                
                299,780
                
                
                
                105,329Inventory
                
                
                2,290,197
                
                
                
                2,372,214Advance
      to suppliers
                
                
                997,714
                
                
                
                550,931Deposit
      for business acquisition
                
                
                1,464,944
                
                
                
                -Prepaid  expense
                
                
                15,382
                
                
                
                17,589Total
      current assets
                
                
                17,042,272
                
                
                
                11,174,321Long-term
      equity investment
                
                
                2,790,874
                
                
                
                2,794,248Property,
      plant and equipment, net
                
                
                15,237,679
                
                
                
                15,474,915Construction
      in progress
                
                
                7,004,555
                
                
                
                5,738,271Land
      usage right, net of accumulated amortization
                
                
                1,779,482
                
                
                
                1,817,427Escrow
      account
                
                
                -
                
                
                
                750,000Certificate
      of deposit
                
                
                1,757,933
                
                
                
                73,287Other
      asset
                
                
                445,456
                
                
                
                363,343Related
      party receivable
                
                
                57,058
                
                
                
                1,256,599TOTAL
      ASSETS
                
                $
                46,115,309
                
                
                $
                39,442,411LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                
                $
                698,873
                
                
                $
                780,458Short-term
      loan
                
                
                6,738,742
                
                
                
                3,371,198Tax
      payable
                
                
                178,397
                
                
                
                215,240Advance
      from customers
                
                
                546,441
                
                
                
                539,013Deferred
      sales
                
                
                925,000
                
                
                
                972,143Accrued
      expenses
                
                
                8,202
                
                
                
                361,111Construction
      projects payable
                
                
                1,678,542
                
                
                
                4,742,164Other
      payable
                
                
                111,445
                
                
                
                211,362Long-term
      loan-current portion
                
                
                457,796
                
                
                
                -Related
      party payable
                
                
                380,885
                
                
                
                278,490Total
      current liabilities
                
                
                11,724,323
                
                
                
                11,471,179Long-term
      loan
                
                
                3,204,564
                
                
                
                -Asset
      retirement obligation
                
                
                529,114
                
                
                
                502,278Government
      subsidy
                
                
                2,445,659
                
                
                
                1,028,257TOTAL
      LIABILITIES
                
                
                17,903,660
                
                
                
                13,001,714Minority
      interest in subsidiary
                
                
                3,353,895
                
                
                
                2,823,126Stockholders'
      equityPreferred
      stock: par value $.001; 5,000,000shares
      authorized; none issued and outstanding
                
                
                -
                
                
                
                -Common
      stock: par value $.001; 95,000,000 shares authorized;
                  15,274,035
      and 15,262,035 shares issued and outstanding as of
                  Septermber
      30, 2009 and December 31, 2008 respectively
                
                
                15,274
                
                
                
                15,262Additional
      paid-in capital
                
                
                5,679,398
                
                
                
                5,644,750Other
      comprehensive income
                
                
                2,274,707
                
                
                
                2,422,167Retained
      earnings
                
                
                16,888,375
                
                
                
                15,535,392Total
      stockholders' equity
                
                
                24,857,754
                
                
                
                23,617,571TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                46,115,309
                
                
                $
                39,442,411
  See
      notes to Consolidated Financial
Statements.
  1
  CHINA
      INDUSTRIAL WASTE MANAGEMENT, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(Unaudited)
 Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30,
                
                
                September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Service
      fees
                
                $
                2,039,002
                
                
                
                1,656,080
                
                
                $
                4,879,448
                
                
                $
                5,430,145Sales
      of cupric sulfate
                
                
                440,816
                
                
                
                423,891
                
                
                
                879,347
                
                
                
                1,804,481Sales
      of  recycled commodities
                
                
                641,011
                
                
                
                1,115,150
                
                
                
                1,427,418
                
                
                
                2,671,634Operating
      revenue
                
                
                3,120,829
                
                
                
                3,195,121
                
                
                
                7,186,213
                
                
                
                9,906,260Cost
      of service fees
                
                
                541,971
                
                
                
                478,550
                
                
                
                1,452,911
                
                
                
                1,165,466Cost
      of cupric sulfate
                
                
                168,717
                
                
                
                212,132
                
                
                
                410,881
                
                
                
                737,235Cost
      of recycled commodities
                
                
                511,382
                
                
                
                639,923
                
                
                
                1,034,513
                
                
                
                1,447,399Costs
      of revenue
                
                
                1,222,070
                
                
                
                1,330,605
                
                
                
                2,898,305
                
                
                
                3,350,100Gross
      profit
                
                
                1,898,759
                
                
                
                1,864,516
                
                
                
                4,287,908
                
                
                
                6,556,160Operating
      expensesSelling
      expenses
                
                
                274,692
                
                
                
                233,783
                
                
                
                641,066
                
                
                
                648,886General
      and administrative expenses
                
                
                691,709
                
                
                
                439,021
                
                
                
                1,818,789
                
                
                
                1,356,797Total
      operating expenses
                
                
                966,401
                
                
                
                672,804
                
                
                
                2,459,855
                
                
                
                2,005,683Income
      from operations
                
                
                932,358
                
                
                
                1,191,712
                
                
                
                1,828,053
                
                
                
                4,550,477Other
      income(expense)Investment
      income (loss)
                
                
                (30,093
                )
                
                
                (5,494
                )
                
                
                (89,681
                )
                
                
                (15,946
                )Interest
      income
                
                
                9,319
                
                
                
                11,441
                
                
                
                5,431
                
                
                
                17,627Other
      income
                
                
                14,389
                
                
                
                1,934
                
                
                
                61,846
                
                
                
                8,388Other
      expense
                
                
                (99,361
                )
                
                
                (168,349
                )
                
                
                (139,872
                )
                
                
                (170,010
                )Total
      other income (expense)
                
                
                (105,746
                )
                
                
                (160,468
                )
                
                
                (162,276
                )
                
                
                (159,941
                )Net
      income from continuing operations before minority interest and income
      tax
                
                
                826,612
                
                
                
                1,031,244
                
                
                
                1,665,777
                
                
                
                4,390,536Income
      tax expense
                
                
                110,463
                
                
                
                103,499
                
                
                
                215,750
                
                
                
                437,945Income
      from continuing operations
                
                
                716,149
                
                
                
                927,745
                
                
                
                1,450,027
                
                
                
                3,952,591Minority
      interest
                
                
                44,184
                
                
                
                95,033
                
                
                
                97,044
                
                
                
                384,470Net
      income
                
                $
                671,965
                
                
                $
                832,712
                
                
                $
                1,352,983
                
                
                $
                3,568,121Foreign
      currency translation adjustment
                
                
                53,672
                
                
                
                202,900
                
                
                
                (147,460
                )
                
                
                948,408Comprehensive
      income
                
                $
                725,637
                
                
                $
                1,035,612
                
                
                $
                1,205,523
                
                
                $
                4,516,529Basic
      weighted average shares outstanding
                
                
                15,271,948
                
                
                
                13,902,510
                
                
                
                15,267,387
                
                
                
                13,392,040Diluted
      weighted average shares outstanding
                
                
                15,271,948
                
                
                
                13,902,510
                
                
                
                15,267,387
                
                
                
                13,392,040Basic
      and diluted net earnings per share
                
                $
                0.04
                
                
                $
                0.06
                
                
                $
                0.09
                
                
                $
                0.27
 See
      notes to Consolidated Financial
Statements.
  2
  CHINA
      INDUSTRIAL WASTE MANAGEMENT, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)
  For
      the Nine Months ended September 30,2009
                
                
                2008Cash
      flows from operating activities:Net
      income
                
                $
                1,352,983
                
                
                $
                3,568,121Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Minority
      interest
                
                
                97,044
                
                
                
                547,178Depreciation
                
                
                935,665
                
                
                
                491,426Amortization
                
                
                51,310
                
                
                
                28,296Bad
      debt allowance
                
                
                -
                
                
                
                7,782Stock
      and  options issued for services
                
                
                34,660
                
                
                
                117,100Accretion
      expenses
                
                
                27,086
                
                
                
                59,533Investment
      loss (income)
                
                
                89,681
                
                
                
                (156,393
                )Government
      subsidy recognized as income
                
                
                (46,944
                )
                
                
                -Changes
      in operating assets and liabilities:Notes
      receivable
                
                
                (14,637
                )
                
                
                -Accounts
      receivable
                
                
                (815,494
                )
                
                
                (1,780,297
                )Inventory
                
                
                80,664
                
                
                
                (534,458
                )Other
      receivables
                
                
                (179,182
                )
                
                
                (145,967
                )Advance
      to suppliers
                
                
                (446,709
                )
                
                
                120,626Prepaid
      expense
                
                
                2,196
                
                
                
                -Other
      asset
                
                
                (87,621
                )
                
                
                (298,283
                )Escrow
      account
                
                
                -
                
                
                
                (750,000
                )Accrued
      expense and deferred sales
                
                
                (398,997
                )
                
                
                (7,701
                )Accounts
      payable
                
                
                (125,006
                )
                
                
                680,002Other
      payable
                
                
                (99,899
                )
                
                
                -Advance
      from customers
                
                
                7,714
                
                
                
                -Tax
      payable
                
                
                (36,645
                )
                
                
                31,433Net
      cash provided by operating activities
                
                
                427,869
                
                
                
                1,978,398Cash
      flows from investing activiiesDeposit
      for business acquisition
                
                
                (1,463,722
                )
                
                
                -Long-term
      equity investment
                
                
                (87,823
                )
                
                
                -Purchase
      of property and equipment
                
                
                (238,158
                )
                
                
                (530,282
                )Construction
      contracts
                
                
                (1,433,045
                )
                
                
                (5,381,376
                )Purchase
      of intangible assets
                
                
                (23,830
                )
                
                
                -Repayment
      from related party
                
                
                1,197,860
                
                
                
                -Due
      from related party
                
                
                -
                
                
                
                (589,738
                )Due
      to related party
                
                
                -
                
                
                
                (242,284
                )Certificate
      of deposit
                
                
                (1,683,280
                )
                
                
                -Net
      cash used in investing activities
                
                
                (3,731,998
                )
                
                
                (6,743,680
                )Cash
      flows from financing activitiesRepayment
      of construct project payable
                
                
                (3,014,586
                )
                
                
                -Proceeds
      from short-term loans
                
                
                6,733,120
                
                
                
                3,433,235Repayment
      of short-term loans
                
                
                (3,366,560
                )
                
                
                (1,447,069
                )Proceeds
      from long-term loan
                
                
                3,659,304
                
                
                
                -Proceeds
      from related party loan
                
                
                102,461
                
                
                
                -Cash
      released from escrow account
                
                
                750,000Subsidy
      received from government
                
                
                1,463,722
                
                
                
                405,410Procceds
      from issuance of common stock
                
                
                -
                
                
                
                3,277,903Stock
      subscription
                
                
                -
                
                
                
                220,000Net
      cash provided by financing activities
                
                
                6,327,461
                
                
                
                5,889,479Effect
      of exchange rate on cash
                
                
                (6,850
                )
                
                
                948,430Net
      increase in cash and cash equivalents
                
                
                3,016,482
                
                
                
                2,072,627Cash
      and cash equivalents, beginning of period
                
                
                5,714,001
                
                
                
                3,260,307Cash
      and cash equivalents, end of period
                
                $
                8,730,483
                
                
                $
                5,332,934Supplemental
      cash flow information:Cash
      paid during the year for:Interest
                
                $
                245,523
                
                
                $
                163,140Income
      taxes
                
                $
                329,537
                
                
                $
                337,971Non-cash
      investing and financing activities:Common
      stock issuance cost
                
                $
                -
                
                
                $
                113,000Contributed
      anaerobic fermentation  equipment
                
                $
                (292,744
                )
                
                $
                -Transfer
      out of construction  in progress
                
                $
                166,761
                
                
                $
                -Transfer
      of construction in progress to property, plant and
    equipment
                
                $
                (166,761
                )
                
                $
                -Change
      in reporting entity
                
                $
                276,418
                
                
                $
                -
 See
      notes to Consolidated Financial
Statements.
  3
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and the new scaled disclosure requirements in Article 8 of Regulation S-K of the
SEC. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for annual financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The accounts of the Company and all of its
subsidiaries are included in the consolidated financial statements. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The consolidated operating results for the nine months ended
September 30, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2009. For further information, refer
to the audited consolidated financial statements and footnotes thereto included
in the Company's Form 10-K for the year ended December 31, 2008.
 
 1. Nature of
operations
 
 The
accompanying unaudited consolidated financial statements are those of China
Industrial Waste Management, Inc., a Nevada corporation (the “Company”)
incorporated on November 12, 2003, its wholly owned subsidiary, Favour Group
Ltd., a British Virgin Islands corporation (“Favour”), along with its indirect
wholly and majority owned subsidiaries:
 
 • Full
Treasure Investments Ltd. (“Full Treasure”)
 • Dalian
Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian Dongtai”)
 • Dalian
Dongtai Water Recycling Co., Ltd. (“Dongtai Water”)
 • Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”)
 • Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
Lipp”)
 • Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”)
 
 Dalian
Dongtai was incorporated on January 9, 1991 in Dalian City, Liaoning Province,
the People’s Republic of China (“PRC”), and now is engaged in the collection,
treatment, disposal, and recycling of industrial wastes, and sales of recycled
products, principally in Dalian and surrounding areas in Liaoning
Province. The Company provides waste disposal solutions to its more than
650 customers from facilities located in Dalian Development Area. In addition,
the Company provides the following services to its clients:
 
 •
Environmental protection services
 •
Technology consultation
 •
Pollution treatment services
 • Waste
management design processing services
 • Waste
disposal solutions
 • Waste
transportation services
 • Onsite
waste management services
 •
Environmental pollution remediation services.
 4
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Dongtai
Water, which was incorporated in July 2006, is a build-operate-transfer (“BOT”)
project established to process municipal waste water generated by Dalian City.
Phase I of Dongtai Water, whose designed production capacity is 30,000 tons per
day, commenced normal production in June 2008.
 
 Zhuorui
was incorporated in April 2006 and is engaged in plasma arc melting, separation
and purification of waste catalysts that generated during oil refinery process,
treatment of industrial wastes and comprehensive utilization of waste catalysts
or similar material. This subsidiary is now in the trial production
stage.
 
 Dalian
Lipp is a Sino-German joint venture established on December 22, 2007. 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 GmbH tank building technique which is dedicated to
generating energy by organic waste anaerobic fermentation, industrial effluent
treatment and municipal sewage plant.
 
 Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”), which operates
in the Coastal Industrial Base (the “Base”) of Yingkou City, Liaoning Province,
was founded on May 20th, 2009. On July 1, 2009, the State Council of the PRC
issued Development Planning of Coastal Economic Belt in Liaoning Province (the
“Planning”), which brought the development of the coastal cities of Liaoning
Province into its national strategy. The Base is considered a significant factor
in the Planning.
 
 Yingkou
Dongtai, which is 100% owned by Dalian Dongtai, is engaged in the recycling and
disposal of industrial waste, the development and production of recycling
products, the design and construction of environmental engineering, the
treatment of environmental pollution, the manufacturing of environmental
protection equipments, and the sales of chemical products (other than hazardous
chemicals). Yingkou Dongtai intends to build and complete waste treatment
facilities gradually, in line with the development of the Base. Currently,
Yingkou Dongtai is building warehouses and pursuing the business of collection,
classification, and storage of industrial waste.
 
 2. Basis of
presentation
  The
accompanying unaudited consolidated financial statements include the accounts of
the parent entity, its direct wholly owned subsidiary, Favour, along with its
indirect wholly owned subsidiary, Full Treasure, its 90% indirect owned
subsidiary Dalian Dongtai, its 80% indirect owned subsidiary Dongtai Water, its
70% indirect owned subsidiary Zhuorui, its 75% indirect owned subsidiary Dalian
Lipp, and its 100% indirect owned subsidiary Yingkou Dongtai. 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.
 
 3. Summary of significant
accounting policies
 
 Use of
estimates
 5
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 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
September 30, 2009 and 2008, the accounts of the Company were maintained, and
the unaudited consolidated financial statements were expressed in Chinese Yuan
Renminbi (“RMB”). Such consolidated financial statements were translated into
U.S. dollars (“USD”) in accordance with the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 830 Foreign
Currency Matters with RMB as the functional currency. All assets and liabilities
were translated at the exchange rate as of the balance sheet date; stockholders’
equity was translated at the exchange rates prevailing at the time of the
transactions; revenues, costs, and expenses were translated at the weighted
average exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with ASC Topic 220
Comprehensive Income.
 
 Cash and cash
equivalents
 
 Cash and
cash equivalents include cash on hand and cash on deposit, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.
 
 Restricted
cash
 
 In
accordance with ASC Topic 210-10-45-4 Classification of Current Assets, cash
which is restricted as to withdrawal is considered a non-current asset. As of
September 30, 2009, restricted cash consists of time deposit of $1,757,933
(RMB12, 000,000) as detailed below:
 Effective
      Date
                  
                  Maturity
                  
                  Depository
      Bank
                  
                  Annual
      Interest Rate
                  
                  
                  Principal05-25-2009
                  
                  
                  05-25-2010
                  
                  Bank
      of Dalian
                  
                  
                  2.25%
                  
                  
                  $
                  292,98908-19-2009
                  
                  
                  02-19-2010
                  
                  Gudong
      Development Bank
                  
                  
                  1.98%
                  
                  
                  
                  585,97808-20-2009
                  
                  
                  02-20-2010
                  
                  Shanghai
      Pudong Development Bank
                  
                  
                  1.98%
                  
                  
                  
                  732,47208-20-2009
                  
                  
                  02-20-2010
                  
                  Dalian
      Rural Credit Cooperative Union Bank
                  
                  
                  1.98%
                  
                  
                  
                  146,494$
                  1,757,933
 
 Accounts and other
receivables
 
 Accounts
and other receivables are recorded at net realizable value consisting of the
carrying amount less an allowance for uncollectible accounts, as
needed.
 
 The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Payment terms of sales vary from cash on delivery
through a credit term of up to nine to twelve months.
 6
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 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, and where practicable, by depositing its cash and cash equivalents
among various 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 an 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.
 
 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
                  4
      YearsOffice
      equipment
                  5
      Years
 
 Construction
in progress consists of construction expenditure, equipment procurement,
capitalized interest expense, relevant miscellaneous expenditures, and other
costs.
 
 As of
September 30, 2009, construction in progress is comprised of two principal
components; one is the costs incurred by Dalian Dongtai for the expansion
project which is located in Dagu Hill, Dalian Development Area. The expansion
project consists of an incineration system that includes an incinerator, its
supporting facilities, and warehouses, work plants and office buildings, etc.
The other component is production equipment of Zhuorui, which is still in
testing phase, including the plasma furnace, flue gas cleansing system, dust
trapper, and trial production cost incurred during the third quarter of
2009.
 7
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Landfills
 
 Various
costs that we incur to make a landfill ready to accept waste are capitalized.
These costs generally include expenditures for land, permitting,
excavation, liner material and installation and other capital infrastructure
costs. The cost basis of our landfill assets also includes estimates of future
costs associated with landfill final capping, closure and post-closure
activities in accordance with ASC Topic 410 Asset Retirement and Environmental
Obligations. Interest accretion on final capping, closure and post-closure
liabilities is recorded using the effective interest method and is recorded as
accretion expense, which is included 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:
 
 September
      30, 2009
                  
                  
                  December
      31, 2008Long-term
      liability
                  
                  $
                  529,114
                  
                  
                  $
                  502,278
 
 Long-term equity
investment
 
 As of
September 30, 2009, long-term investment is comprised of investment in Dalian
Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai Organic”) and Xiangtan Luyi
Dongtai Industrial Waste Treatment Co., Ltd. (“Xiangtan Dongtai”).
 September
      30, 2009Dongtai
      Organic
                  
                  $
                  2,702,977Xiangtan
      Dongtai
                  
                  
                  87,897$
                  2,790,874
 
 Long-term
investment in Dalian Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai
Organic”) is recorded under the equity method. Dongtai Organic was organized to
operate a municipal sludge treatment and disposal facility in Dalian, PRC. The
Company currently owns 49% of Dongtai Organic.
 
 Xiangtan
Dongtai, which is located in Xiangtan City, Hunan Province, PRC, was established
on August 5, 2009. Dalian Dongtai owns a 15% interests in Xiangtan Dongtai,
which mainly engages in treatment and disposal of industrial waste, development
and sales of recycled products. The registered capital is RMB8, 000,000
(approximately $1,171,955), and the paid-in capital is RMB4 million
(approximately $585,978). The Company applies cost method to account for
its investment in Xiangtan Dongtai.
 8
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Impairment of long-lived
assets
 
 In
accordance with ASC Topic 360 “Accounting for the Impairment or Disposal of Long
Lived Assets” , property, plant, and equipment 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 September 30,
2009 and December 31, 2008, respectively.
 
 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
September 30, 2009 and December 31, 2008, net land usage rights were $1,779,482
and $1,817,427, respectively. The following table identifies the material terms
of the land use rights:
 
 Effective
      Date
                  Expiration
      Date
                  Area
      (Square Meter)
                  Address01-01-2003
                  01-01-2053
                  8,433
                  No.1,
      Huaihe West Road, Dalian Development Zone01-01-2003
                  01-01-2053
                  6,784
                  No.
      100, Tieshan West Road, Dalian Development Zone04-14-2003
                  04-13-2053
                  1,841
                  No.1-1,
      Huaihe West Third Road, Dalian Development Zone07-28-2003
                  07-27-2053
                  61,535
                  No.
      85, Dagu Hill, Dalian Development Zone06-06-2007
                  06-06-2057
                  56,397
                  Huayuankou
      Industrial Zone, Dalian
 
 All above
land use rights has been pledged as collaterals for the short-term loans
borrowed from Shanghai Pudong Development Bank (“SPD Bank”).
 
 Non-controlling interest in
consolidated financial statements
 
 The
Company establishes accounting and reporting standards for the noncontrolling
(minority) interest in a subsidiary and for the deconsolidation of a
subsidiary in accordance with ASC Topic 805 Business Combinations.
Non-controlling interest represents the minority owners’10% equity interest in
Dalian Dongtai, 20% equity interest in Dongtai Water, 30% equity interest in
Zhuorui and 25% equity interest in Dalian Lipp.
 9
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Revenue
recognition
 
 The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. Revenues are generated from the fees charged for waste
collection, transfer, treatment, disposal and recycling services and the sale of
recycled commodities. The fees charged for services are generally defined in
service agreements and vary based on contract specific terms such as frequency
of service, weight, volume and the general market factors influencing industry’s
rates. Revenue is generally recognized 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 September 30, 2009 and December 31, 2008, deferred sales amounted to
$925,000 and $972,143, 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 period ended
September 30, 2009 and 2008 were immaterial.
 
 Stock-based
compensation
 
 The
Company follows the guideline under ASC Topic 718 Compensation-Stock
Compensationfor
all stock based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. Stock
compensation expenses are to be recorded using the fair value
method.
 
 Income
taxes
 
 The
Company follows the guideline under ASC Topic 740 Income Taxes. “Accounting for
Income Taxes” which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates, applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
  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, Dalian Dongtai is subject to
EIT at 10% for the period ended September 30, 2009. 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 period ended September 30, 2009,
Dongtai Water has enjoyed the EIT exemption preference.
 10
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Statement of cash
flows
 
 In
accordance with ASC Topic 230 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 ASC Topic 260 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 2008 financial statements to conform to
the 2009 presentation.
 
 Recent accounting
pronouncements
 
 In the
third quarter of 2009, The Company adopted the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 105 as the
single official source of authoritative, nongovernmental generally accepted
accounting principles in the United States. On the effective date, all
then-existing non-SEC accounting literature and reporting standards were
superseded and deemed nonauthoritative. The adoption of this pronouncement did
not have a material impact on our consolidated financial statements; however,
the ASC affected the way we reference authoritative guidance in our consolidated
financial statements.
 
 In August
2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10,
“Fair Value Measurements and Disclosures—Overall”. The update provides
clarification that in circumstances, in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the techniques provided for in this
update. The amendments in this ASU clarify that a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the liability and
also clarifies  that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair
value measurements. The guidance provided in this ASU is effective for the
first reporting period, including interim periods, beginning after
issuance.  The adoption of this standard did not have a material
impact on the Company’s consolidated financial position and results of
operations
 
 In
September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740),
”Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities”, which provides implementation
guidance on accounting for uncertainty in income taxes, as well as eliminates
certain disclosure requirements for nonpublic entities.  For entities
that are currently applying the standards for accounting for uncertainty in
income taxes, this update shall be effective for interim and annual periods
ending after September 15, 2009. For those entities that have deferred the
application of accounting for uncertainty in income taxes in accordance with
paragraph 740-10-65-1(e), this update shall be
effective upon adoption of those standards. The adoption of this standard is not
expected to have an impact on the Company’s consolidatedfinancial position and
results of operations since this accounting standard update provides only
implementation and disclosure amendments.
 11
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 In
September 2009, the FASB has published ASU 2009-12, “Fair Value Measurements and
Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10,
“Fair Value Measurements and Disclosures – Overall”, to permit a reporting
entity to measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). This ASU also
requires new disclosures, by major category of investments including the
attributes of investments within the scope of this amendment to the
Codification. The guidance in this update is effective for interim and annual
periods ending after December 15, 2009. Early application is permitted.The Company is in the
process of evaluating the impact of this standard on its consolidated financial
position and results of operations.
 
 In
October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic
605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit.
Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue
Recognition-Multiple-Element Arrangements”, for separating consideration in
multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or (c)
estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method and also
requires expanded disclosures. The guidance in this update is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
The adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.
 
 In
October 2009, the FASB has published ASU 2009-14, “Software (Topic 985)-Certain
Revenue Arrangements that Include Software Elements” and changes the accounting
model for revenue arrangements that include both tangible products and software
elements. Under this guidance, tangible products containing software components
and nonsoftware components that function together to deliver the tangible
product's essential functionality are excluded from the software revenue
guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition,
hardware components of a tangible product containing software components are
always excluded from the software revenue guidance.  The guidance in
this ASU is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted.  The adoption of this standard is not expected
to have any impact on the Company’s consolidated financial position and results
of operations.
 
 4. Accounts
receivable
 
 As of
September 30, 2009, the balance of accounts receivable was $3,229,123. The
following table shows the aging composition of the balance:
 12
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Aging
                  
                  September
      30, 2009
                  
                  
                  December
      31, 20081-3
      months
                  
                  $
                  1,599,698
                  
                  
                  $
                  1,505,7964-6
      months
                  
                  
                  576,734
                  
                  
                  
                  437,6677-12
      months
                  
                  
                  580,443
                  
                  
                  
                  469,2641-2
      years
                  
                  
                  482,032
                  
                  
                  
                  1,909Over
      2 years
                  
                  
                  2,341
                  
                  
                  
                  11,753Total
                  
                  $
                  3,241,248
                  
                  
                  $
                  2,426,389Allowance
      for doubtful accounts
                  
                  
                  (12,125
                  )
                  
                  
                  (12,132
                  )Accounts
      receivable, net
                  
                  $
                  3,229,123
                  
                  
                  $
                  2,414,257
 
 5.
Inventory
 
 Inventory
as of September 30, 2009 and December 31, 2008 consists of raw materials and
recycled commodities as follows:
 September
      30, 2009
                  
                  
                  December
      31, 2008Raw
      materials
                  
                  $
                  1,167,034
                  
                  
                  $
                  1,130,109Recycled
      commodities
                  
                  
                  1,123,163
                  
                  
                  
                  1,242,105$
                  2,290,197
                  
                  
                  $
                  2,372,214
 
 6. Deposit for business
acquisition
 September
      30, 2009Hunan
      Luyi Industrial Development Co., Ltd.
                  
                  $
                  1,037,180Ms.
      Song Wenling
                  
                  
                  427,764$
                  1,464,944
 
 On
September 18, 2009, Dalian Dongtai entered into a material definitive agreement
to purchase a sixty-five percent (65%) equity interest in Hunan Hanyang
Environmental Protection Science & Technology Co., Ltd. (“Hunan Hanyang”)
from Hunan Luyi Industrial Development Co., Ltd. (“Hunan Luyi”) and Ms.
Song Wenling (“Ms.Song”), the holders of 81% and 19% shares of Hunan Hanyang,
respectively.
 
 Under the
terms of the agreement, Dalian Dongtai will purchase 46% and 19% of the equity
interest in Hunan Hanyang from Hunan Luyi and Ms. Song, respectively, for a
total purchase price of RMB15,000,000 (approximately
$2,197,415)  Following the signing of the agreement, Dalian Dongtai
advanced RMB10,000,000 (approximately $1,464,944) to serve as a deposit for the
anticipated purchase price in the acquisition. The remaining balance of the
consideration will be due upon satisfaction of all conditions of the agreement,
and subject to completion of registration process.
 
 As of
September 30, 2009, legal and registration procedures required for the transfer
of the equity were submitted to the local governmental authorities for
approval.
 
 7. Property, plant and
equipment
 13
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 September
      30, 2009
                  
                  
                  December
      31, 2008Land
      and building
                  
                  $
                  10,033,628
                  
                  
                  $
                  9,978,971Machinery
      and equipment
                  
                  
                  7,366,583
                  
                  
                  
                  6,898,868Office
      equipment
                  
                  
                  554,961
                  
                  
                  
                  542,174Vehicles
                  
                  
                  1,074,044
                  
                  
                  
                  911,54019,029,216
                  
                  
                  
                  18,331,553Less
      accumulated depreciation
                  
                  
                  (3,791,537
                  )
                  
                  
                  (2,856,638
                  )Total
      property and equipment, net
                  
                  
                  15,237,679
                  
                  
                  
                  15,474,915Construction
      in progress
                  
                  
                  7,004,555
                  
                  
                  
                  5,738,271Total
                  
                  $
                  22,242,234
                  
                  
                  $
                  21,213,186
 
 Depreciation
expenses amounted to $934,899 and $491,426 for the period ended September 30,
2009 and 2008, respectively.
 
 8. Other
assets
 
 Other
assets in the amount of $445,456 is primarily contributed to value added tax
(“VAT”) credit., 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.
 
 9. Short-term
loan
 
 As of
September 30, 2009, the short-term loan balance represents loans, aggregately
RMB46,000,000 (approximately $6,738,742), which are borrowed from SPD Bank. The
following table identifies the material terms of loans:
 Effective
      Date
                  
                  Maturity
                  
                  Type
                  
                  Interest Rate
                  
                  
                  Principal04-27-2009
                  
                  
                  04-27-2010
                  
                  Secured
                  
                  
                  5.841%
                  
                  
                  $
                  3,808,85405-18-2009
                  
                  
                  05-18-2010
                  
                  Secured
                  
                  
                  5.841%
                  
                  
                  
                  1,464,94406-04-2009
                  
                  
                  06-04-2010
                  
                  Secured
                  
                  
                  5.841%
                  
                  
                  
                  1,464,944$
                  6,738,742
 
 10. Long-term
loan
 
 As of
September 30, 2009, the long-term loan balance represents a loan borrowed from
China Merchants Bank. The following table identifies the material terms of the
loan:
 Effective
      Date
                  
                  Maturity
                  
                  Type
                  
                  Principal08-20-2009
                  
                  
                  08-20-2017
                  
                  Secured
                  
                  $
                  3,662,360
 
 The loan
is exclusively used for Dongtai Water’s Phase I construction. The manufacturing
machinery and the BOT franchise right of Dongtai Water is pledged as collateral.
Dalian Dongtai and Dalian Lida Environmental Engineering Co., Ltd, who hold 80%
and 20% interest in Dongtai Water respectively, acted as guarantor for the loan.
The interest rate is determined based on the monthly rate of loans above 5 years
set by the People’s Bank of China at closing date plus 5% and is adjustable
every 6 months. The following table shows the installments
schedule:
 14
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 Year
                  
                  Amount2009
                  
                  $
                  114,4492010
                  
                  
                  457,7962011
                  
                  
                  457,7962012
                  
                  
                  457,7962013
                  
                  
                  457,7962014
                  
                  
                  457,7962015
                  
                  
                  457,7962016
                  
                  
                  457,7962017
                  
                  
                  343,339Total
                  
                  $
                  3,662,360
 
 As of
September 30, 2009, the installments amounting to $457,796 will be due within
one year, and are classified in current liabilities.
  11. Government
subsidy
   As of
September 30, 2009, the government subsidy consists of the
followings:
  September
      30, 2009Dalian
      Dongtai
                  
                  $
                  1,464,944Zhuorui
                  
                  
                  980,715$
                  2,445,659
 
 On July
23, 2009, Dalian Dongtai received a subsidy from the central government of PRC
of RMB10, 000,000 (approximately $1,464,944) to support the construction of the
"Dalian Centralized Hazardous Waste Treatment Expansion Project" (the "Expansion
Project") in Dalian Development Area.
 
 In 2007,
Zhuorui received RMB3,000,000 (approximately $439,483) and RMB4,036,000
(approximately $591,251), or an aggregate of RMB7, 036,000 (approximately
$1,030,734), from the central government of the PRC, and the government of
Dalian City, respectively. RMB6, 000,000 (approximately $878,966) of the total
subsidy is to be used to purchase production machinery or pay construction
expenditures, and the other RMB1,036,000 (approximately $151,768) consists of
the purchase price for the acquisition of land use right.
 
 The
subsidies are initially recorded as deferred income. Upon the completion and
acceptance of the government subsidized projects, subsidies are recognized over
the useful lives of the related assets.
 
 12. Shareholder’s
equity
 15
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 On March
20, 2009, the Company issued options to purchase 20,000 shares of our common
stock to a member of the Board of Directors as compensation for services with a
strike price of $2 per share. The fair market value of the issued options was
estimated on the date of grant using the Black-Scholes option-pricing model in
accordance with ASC Topic 718 Compensation-Stock Compensation using the
following weighted-average assumptions: expected dividend yield 0%; risk-free
interest rate of 1.23%; volatility of 124% and an expected term of 3 years. The
Company recognized an option issuance cost of $14,380.
 
 On April
22, 2009, the Company issued 9,000 shares of common stock under an agreement
with a consultant to provide the Company with investor relations services. The
fair market value of the stock was approximately $15,600.
 
 On
September 2, 2009, the Company issued 3,000 shares of common stock under an
agreement with a consultant to provide the Company with investor relations
services. The fair market value of the stock was approximately
$4,680.
 
  13. Accumulated other
comprehensive income
  September
      30,
                    2009
                  
                  
                  December
      31,
                    2008Cumulative
      translation adjustment of foreign currency statements
                  
                  $
                  (147,460
                  )
                  
                  $
                  1,268,439
 
 14. Related
parties
 
 Related
      Parties
                  
                  September
      30, 2009Receivable
                  
                  
                  PayableDalian
      Dongtai Investment Co., Ltd.
                  
                  $
                  27,759
                  
                  
                  $
                  -Dalian
      Lida Environmental Engineering Co., Ltd.
                  
                  
                  29,299
                  
                  
                  
                  -Dongtai
      Organic
                  
                  
                  -
                  
                  
                  
                  380,885Total
                  
                  $
                  57,058
                  
                  
                  $
                  380,885
 
 15. 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.
 
 16. Current vulnerability
due to certain concentrations
 16
  
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2009
 The
Company’s operations are carried out in 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.
 
 17. Subsequent
events
 
 On
October 10, 2009, Dalian Dongtai consummated the acquisition of a 65% equity
interest in Hunan Hanyang.
 
 On
October 27, 2009, Dalian Dongtai paid the remaining consideration for the equity
interest in Hunan Hanyang of RMB3, 540,000 (approximately $518,590) and RMB1,
460,000 (approximately $213,882) to Hunan Luyi and Ms. Song
respectively.
 
 In
November of 2009, Dalian Dongtai, together with the Enterprise Confederation of
Dalian Development Area and Dalian Zhongbao Business Consultation Co., Ltd., was
committed to incorporate Sino-Norway Energy Efficiency Dalian Center Co., Ltd.
(“Sino-Norway EEC”) in the Dalian Development Area. Sino-Norway EEC is sponsored
under the Energy Efficiency Planning Program initiated by Chinese and Norwegian
governments, and will be engaged in energy efficiency audit and consultation.
Dalian Dongtai will own a 60% equity interest in the new company.
 17
  Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations.
 
 FORWARD-LOOKING
INFORMATION - Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") includes forward-looking statements. All
statements, other than statements of historical facts, included in this MD&A
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. These   forward-looking statements
rely on a number of assumptions concerning future events and are subject to a
number of uncertainties and other factors, many of which are outside of the
Company's control that could cause actual results to materially differ from such
statements. While the Company believes that the assumptions concerning future
events are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, especially the timing and magnitude of
technological advances; the prospects for future acquisitions; 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.
 
 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. (“Dalian
Dongtai”) from the shareholders of Dalian Dongtai in a reverse merger
transaction in which the Dalian Dongtai shareholders became the owner of all of
the issued and outstanding shares of CIWM Delaware. As a result of the
reverse merger, Dalian 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 Dalian Dongtai shareholders was
accounted for as a reorganization between entities under common control with
CIWM Delaware as the receiving entity, as prescribed by the Financial Accounting
Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
805 Business Combinations. 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 Dalian 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 was merged with and into CIWM Nevada’s
wholly-owned Delaware subsidiary, DonTech Waste Services, Inc (“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 Dalian 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 Dalian Dongtai.
 
 In March
2009, DonTech was merged with and into the Company. Contemporaneously, (a)
Favour Group Limited (“Favour Group”), a British Virgin Islands corporation, was
formed as a wholly-owned subsidiary of the Company, (b) Full Treasure
Investments Limited (“Full Treasure”), a Hong Kong corporation, was formed as a
wholly-owned subsidiary of Favour Group and (c) the Company transferred all of
its right, title and interest in and to the shares of Dalian Dongtai, to Full
Treasure.
 
 Dalian
Dongtai is engaged in the collection, treatment, disposal and recycling of
industrial wastes, principally in Dalian, and surrounding areas in Liaoning
Province, China. Dalian Dongtai provides waste disposal solutions to its
more than 650 customers, including large multinational corporations, from
facilities located in Dalian Development Zone. Dalian Dongtai treats disposes of
and/or recycles many types of industrial wastes, and recycled waste products are
sold to customers as raw materials to produce chemical and metallurgical
products. In addition, Dalian 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. Dalian Dongtai generates
revenues from waste collection and disposal services, as well as from sales of
valuable products and recycled commodities.
  18
  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 Dalian Dongtai’s capacity for waste treatment and disposal.
Construction of the expansion project, which is one of the fifty-five hazardous
waste treatment centers being subsidized by the PRC’s National Development and
Reform Commission and one of two such centers in Liaoning Province,
commenced at the end of July, 2008.
  The
following chart provides additional information relating to the expansion
project:
  CapacityFacility
              
              Description
              
              Existing
              
              
              After
      expansionIncinerator
              
              Incineration
      System for Solid Waste
              
              
              3,300
      t/y
              
              
              
              9,000
      t/yHazardous
      Waste Landfill
              
              Hazardous
      Waste Safe Landfill
              
              
              13,000t
              
              
              
              40,000tIndustrial
      Effluent Treatment System
              
              Industrial
      Sewage Treatment
              
              
              18,000
      t/y
              
              
              
              25,000
      t/yOrganic
      Solvent Recycling System
              
              Industrial
      Organic Solvent Product
              
              
              1,000
      t/y
              
              
              
              3,000
      t/y
 
 Dongtai
Water Recycling Co. Ltd. (“Dongtai Water”), a Build-Operate-Transfer (BOT)
project established to process municipal sewage generated by Dalian City.
Phase I of the project, whose designed capacity is 30,000 tons per day,
commenced commercial operations on June 21, 2008. Dalian Dongtai owns 80%
of the equity of this project.
 
 Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”), which is 70% owned by Dalian
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. The designed production capacity is 5,000
tons/year. As of September 30, 2009, the project was in the trial production
stage.
  Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian Lipp”)
is a Sino-German joint venture, 75% of which is owned by Dalian
Dongtai. Dalian Lipp designs, manufactures and installs environmental
protection equipment and renewable energy equipment and provides related
technical services. The project is based on the Lipp GmbH tank building
technique, and is dedicated to generating energy by organic waste anaerobic
fermentation, and industrial effluent and municipal sewage treatment
plant.
  Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”), which operates
in the Coastal Industrial Base (the “Base”) of Yingkou City, Liaoning
Province, was founded on May 20th, 2009. On July 1, 2009, the State Council of
China issued the Development Planning of Coastal Economic Belt in
Liaoning Province (the “Planning”), which brought the development of the
coastal cities of Liaoning Province into its national strategy. The Base is
considered a significant factor in the Planning.
 
 Yingkou
Dongtai, which is 100% owned by Dalian Dongtai, is engaged in the recycling and
disposal of industrial waste, the development and production of recycling
products, the design and construction of environmental engineering, the
treatment of environmental pollution, the manufacturing of environmental
protection equipments, and the sales of chemical products (other
than  hazardous chemicals). Yingkou Dongtai intends to build and
complete waste treatment facilities gradually, in line with the development of
the Base. Currently, Yingkou Dongtai is building warehouses, and pursuing the
business of collection, classification, and storage of industrial
waste.
  19
 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.
  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 are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When PP&E are required 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. Terms of the sales vary from cash on delivery
through a credit term of up to nine to twelve months.
 
 RESULTS OF
OPERATIONS
 
 20
 The
following discussion should be read in conjunction with the consolidated
financial statements and notes appearing elsewhere in this quarterly
report.
 
 ThreeMonthsandNine MonthsEndedSeptember 30, 2009Compared to the Three
MonthsandNine
MonthsEndedSeptember 30, 2008.
 
 We
generate revenue primarily from three sources, namely, fees charged to customers
for waste collection, transfer, recycling and disposal services, fees charged to
Dalian Municipal Government for municipal sewage treatment service, and proceeds
received from sales of recycled materials. At this time, we consider our
collection and disposal operations and reclamation of reusable substances as our
core business at current stage.
 
 Revenues
 
 The
Company’s operating revenues for the three and nine months ended September 30,
2009 were $3,120,829 and $7,186,213, compared with $3,195,121 and $9,906,260 for
the three and nine months ended September 30, 2008, respectively.
  Three
      Months ended
                September
      30
              
              
              Nine
      Months ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Service
      fees
              
              $
              2,039,002
              
              
              $
              1,656,080
              
              
              $
              4,879,448
              
              
              $
              5,430,145Sales
      of cupric sulfate
              
              
              440,816
              
              
              
              423,891
              
              
              
              879,347
              
              
              
              1,804,481Sales
      of recycled commodities
              
              
              641,011
              
              
              
              1,115,150
              
              
              
              1,427,418
              
              
              
              2,671,634Total
              
              $
              3,120,829
              
              
              $
              3,195,121
              
              
              $
              7,186,213
              
              
              $
              9,906,260
 
 Due to
the adverse impacts of the global economic crisis, the Company’s operating
revenue dropped significantly in the first quarter of 2009, reflected by a sharp
decrease in waste collection volume and declining prices for recycled products.
However, with the collaborative efforts of many nations, various sectors of
industries appear to be reviving gradually. As a result, the
Company’s results for the third quarter period ended September 30, 2009
indicated strong signals of recovery from the downturn experienced in the first
quarter of 2009.
 
 1.
Service fees
 
 Service
fees consist of two components, waste treatment services provided by Dalian
Dongtai, and municipal sewage treatment services provided by Dongtai
Water.
 
 Dalian
Dongtai’s revenue from services increased by $127,652 or 7.7% for the three
months ended September 30, 2009 as compared with the three months ended
September 30, 2008. Revenue from services decreased by $1,389,046 or 25.6% for
the nine months ended September 30, 2009 as compared with the nine months ended
September 30, 2008.
 
 At the
beginning of 2009, the export business of China was significantly and adversely
affected by the global economic recession. Most of the Company’s customers,
which are located in Dalian Development Area, pursue export-oriented
manufacturing businesses. The recession has affected them so profoundly that
many were forced to cease operations or curtail production and reduced their
workforce. As a result, the volume of waste collection sharply decreased in the
first quarter.
 
 To cope
with the adverse effects of the economic crisis, Dalian Dongtai has devoted
additional resources to develop new clients, and simultaneously made significant
efforts to maintain stronger relationships with existing clients. In addition,
since the second quarter of 2009, Dalian Dongtai’s clients appear to be
gradually experiencing a recovery from the economic crisis.
 
 21
 In the
third quarter, most of Dalian Dongtai’s customers
approached  production levels consistent with the same period in 2008,
and some of them experienced increased  production capacity. As a
result, Dalian Dongtai’s service revenue for the quarter ended September 30,
2009 exceeds that of the same period in 2008.
 
 Since its
commencement of operations in June 2008, Dongtai Water has been functioning very
stably. For the nine months ended September 30, 2009, Dongtai Water generated
aggregate revenues of approximately $838,349 from the treatment of municipal
sewage.
 
 2. Sales
of recycled products
 
 Revenues
from sales of recycled products decreased by $457,214 or 29.7% for the three
months ended September 30, 2009 as compared to the three months ended September
30, 2008. Revenue from sales of recycled products decreased by $2,169,350 or
48.5% for the nine months ended September 30, 2009 as compared to the nine
months ended September 30, 2008.
 
 The
production output of recycled products decreased sharply for the period ended
September 30, 2009 due to a significant decrease in waste collection volume. The
economic crisis also caused a reduction in prices for recycled products, such as
cupric sulfate, and aluminum products. Although as economic conditions improve,
prices for metals or other raw materials appear to be rising, the prices for the
recycled products of Dalian Dongtai have not yet reached levels comparable to
those of the corresponding period in the prior year..
 
 Cost of
Revenues
 
 The
Company’s cost of revenues for the three and nine months ended September 30,
2009 were $1,222,070 and $2,898,305, compared with $1,330,605 and $3,350,100 for
the three and nine months ended September 30, 2008, respectively.
 
 Three
      Months ended
                September
      30,
              
              
              Nine
      Months ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Cost
      of service fees
              
              $
              541,971
              
              
              $
              478,550
              
              
              $
              1,452,911
              
              
              $
              1,165,466Cost
      of cupric sulfate
              
              
              168,717
              
              
              
              212,132
              
              
              
              410,881
              
              
              
              737,235Cost
      of recycled commodities
              
              
              511,382
              
              
              
              639,923
              
              
              
              1,034,513
              
              
              
              1,447,399Total
              
              $
              1,222,070
              
              
              $
              1,330,605
              
              
              $
              2,898,305
              
              
              $
              3,350,100
  Cost of
revenues decreased by $108,535 or 8.2% for the three months ended September 30,
2009 compared to the three months ended September 30, 2008. Cost of revenues
decreased by $451,795or 13.5% for the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008.
  Net
Income
 
 Net
income for the three months ended September 30, 2009 decreased by $160,207 or
19.2% to $671,965 from $832,172 for the three months ended September 30, 2008.
Net income for the nine months ended September 30, 2009 decreased by $2,215,138
or 62.1 % to $1,352,983 from $3,568,121 for the nine months ended September 30,
2008. The significant decline results primarily from the sharp decrease in
operating revenues, however, we believe that the improvement in net income for
the second and third quarter of 2009 signals a demonstrable and gradual recovery
from the difficulties encountered during the first quarter.
 
 Liquidity and Capital
Resources
  We have
historically financed our operations and met capital expenditure requirements
primarily through cash generated by operating activities, bank borrowings, and
capital from investors.
 
 22
 Short-term
loan as of September 30, 2009 was $6,738,742 (RMB46, 000,000), whereas the
amount as of December 31, 2008 was $3,371,198 (RMB23, 000,000). The Company
repaid the outstanding bank loans as of December 31, 2008, and entered into two
new loans from Shanghai Pudong Development Bank, the proceeds of which are being
used as working capital.
 
 As of
September 30, 2009, the balance of long-term loan was $3,662,360 (RMB25,
000,000), which took effect on August 20th, 2009, and will be repaid by
installment in the next 8 years. The loan was provided by China Merchants Bank,
and the current portion of the loan was $457,796 as of September 30,
2009.
 
 In July
2009, the Company received a subsidy from the central government of PRC of
$1,464,944 (RMB10 million), which should be exclusively used on the construction
of the "Dalian Centralized Hazardous Waste Treatment Expansion Project" that
located in Dalian Development Area.
 
 As of
September 30, 2009, the Company’s capital expenditure within one year is
expected to be RMB 60 million (approximately $8.79 million), of which RMB 28
million (approximately $4.10 million) will be subsidized by the central
government. The remaining balance will be provided by working
capital.
 
 Our
liquidity position remains sufficient, supported by approximately $8.7 million
cash and cash equivalents as of September 30, 2009, representing an increase of
52.8% as compared to $5.7 million as of December 31, 2008. The current ratio and
quick ratio as of September 30, 2009 are 1.45 and 1.05 respectively, compared to
that of 0.97 and 0.72 respectively as of December 31, 2008. Cash generated
from operating and financing activities fully supported the needs of our working
capital, and capital investments in 2009. We believe that our cash position is
adequate to meet future short-term and mid-term liquidity
requirements.
 
 Cash
Flow
 
 The
following table presents our net cash flows for the nine months ended September
30, 2009 and for the period ended September 30, 2008.
 
 Nine
      Months ended September 30,2009
              
              
              2008Net
      cash provided by operating activities
              
              $
              427,869
              
              
              $
              1,978,398Net
      cash used in investing activities
              
              
              (3,731,998
              )
              
              
              (6,743,680
              )Net
      cash provided by financing activities
              
              $
              6,327,461
              
              
              $
              5,889,479
 
 Net cash
provided by operating activities was $427,869 for the nine months ended
September 30, 2009, compared to net cash provided of $1,978,398 for the same
period in 2008, a decrease of $1,550,529 or 78.4%.
 
 In the
first quarter of 2009, most of the Company’s customers were adversely affected
by the global economic crisis, as a result of which the Company’s business
shrank significantly. Although the situation was mitigated in the second and
third quarters, net cash provided by operating activities for the nine months
ended September 30 decreased significantly from that of the same period in
2008.
 
 Net cash
used by investing activities for the nine months ended September 30, 2009 was
$3,731,998 compared to $6,743,680 for the same period in 2008, a decrease of
$3,011,682 or 44.7%.
 
 Cash used
in investing activities mainly includes: (a) Dalian Dongtai’s expansion project
and Zhuorui’s trial production. (b) the Company’s entry into a material
definitive agreement to purchase a 65% equity interest in Hunan Hanyang
Environmental Protection Science & Technology Co., Ltd. In September 2009,
the Company paid $1,463,722 (RMB10, 000,000) to the transferor as deposit for
the acquisition and (c) term deposits of $1,756,466 (RMB12,
000,000).
 
 23
 Cash
provided by investing activities primarily related to repayment of a loan from
Dongtai Organic in the amount of $1,229,526 (RMB8, 400,000).
 
 Net cash
provided by financing activities for the nine months ended September 30, 2009
was $6,327,461, compared to $5,889,479 for the same period of 2008, an increase
of $437,982 or 7.4%.
 
 Cash
provided by financing activities mainly includes: (a) proceeds from short-term
loan and long-term loans in the amount of $6,733,120 and $3,659,304
respectively, (b) the release of $750,000 of restricted cash held in an escrow
account and (c) the Company’s receipt in July 2009 of a subsidy from the central
government of PRC of RMB10 million (approximately $1,463,722) to support the
expansion project of Dalian Dongtai.
 
 Cash used
by financing activities mainly includes: (a) the payment of construction payable
in the amount of $3,014,586, and (b) the repayment of banks loans in the amount
of $3,366,560 (RMB23, 000,000).
 
 We intend
to use our available funds as working capital and to expand and develop our
current lines of business. We believe that our available funds will provide us
with sufficient capital for at least the next twelve months; however, to the
extent that we make acquisitions, we may require additional capital for the
acquisition or to support the operations of the combined companies. We cannot
provide any assurance that any required funding will be available on terms
favorable to us.
 
 OFF-BALANCE SHEET
ARRANGEMENTS
 
 Under SEC
regulations, we are required to disclose our off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. An off-balance sheet arrangement means a transaction,
agreement or contractual arrangement to which any entity that is not
consolidated with us is a party, under which we have:
 Ø
              Any
      obligation under certain guarantee
contracts;
 
 Ø
              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;
 
 Ø
              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
 
 Ø
              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
September 30, 2009, the Company has no off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
 
 
 Item
3. Quantitative and Qualitative Disclosures About Market Risk
 
 Not
Applicable
 
 Item
4T.Controls and Procedures
 
 We maintain disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act
of 1934, or the "Exchange Act") that are designed to ensure that information
required to be disclosed in Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the rules and
forms of the SEC and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. Any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives.
 
 24
 Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of September 30, 2009. Based upon
that evaluation and subject to the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective to accomplish their objectives.
 
 Our Chief
Executive Officer and Chief Financial Officer do not expect that our disclosure
controls or our internal controls will prevent all error and all
fraud.  The design of a control system must reflect the fact that
there are resource constraints and the benefit of controls must be considered
relative to their cost.  Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
we have detected all of our control issues and all instances of fraud, if any.
The design of any system of controls also is based partly on certain assumptions
about the likelihood of future events and there can be no assurance that any
design will succeed in achieving our stated goals under all potential future
conditions.
 
 There
have been no changes in our internal control over financial reporting that
occurred during our fiscal quarter ended September 30, 2009, that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
 
 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.
 
 
 PART
II - OTHER INFORMATION
 
 Item
1.  Legal Proceedings.
 
 None.
 
 Item
1A.Risk Factors.
 
 None.
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.
 
 On
September 2, 2009, the Company issued 3,000 shares of common stock under an
agreement with a consultant to provide the Company with investor relations
services.
 
 Item
3.  Defaults Upon Senior Securities.
 
 None.
 
 Item
4.  Submission of Matters to a Vote of Security Holders.
 
 None.
 Item
5.  Other Information.
  25
  None.
 
 
 
 Item
6.  Exhibits.
 
 No.
              Description31.1
              Rule
      13a-14(a)/ 15d-14(a) Certification of Chief Executive
    Officer31.2
              Rule
      13a-14(a)/ 15d-14(a) Certification of Chief Financial
    Officer32.1
              Section
      1350 Certification of Chief Executive Officer32.2
              Section
      1350 Certification of Chief Financial
Officer
 
 SIGNATURES
 Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
  CHINA INDUSTRIAL WASTE
      MANAGEMENT, INC.By:
                  /s/ Dong
      JinqingDong
      Jinqing, Chief Executive OfficerDate:
      November 12, 2009
  By:
                    /s/ Guo
      XinGuo
      Xin, Chief Financial OfficerDate:
      November 12, 2009
 26