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,
2010


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 xNo 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 oNo 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 o
              (Do
      not check if smaller reporting company)
            
            Smaller
      reporting company x





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act)





Yes oNo x





Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 15,336,535 shares of common stock are issued and outstanding
as of November 12, 2010.










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.
            
            
            21Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk.
            
            
            28Item
      4T
            Controls
      and Procedures.
            
            
            28Item
      1.
            Legal
      Proceedings.
            
            
            29Item
      1A.
            Risk
      Factors.
            
            
            29Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds.
            
            
            29Item
      3.
            Defaults
      Upon Senior Securities.
            
            
            29Item
      4.
            Removed
      and Reserved.
            
            
            29Item
      5.
            Other
      Information.
            
            
            30Item
      6.
            Exhibits.
            
            
            30





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 6.8259 as of December 31,
2009; and at the rate of USD$1.00 = RMB6.6905 as of September 30, 2010 quoted by
the Federal Reserve System. The Renminbi is not freely convertible into foreign
currencies and the quotation of exchange rates does not imply convertibility of
Renminbi into U.S. Dollars or other currencies. All foreign exchange
transactions take place through the 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, and its direct and indirect, wholly-owned and partially-owned
subsidiaries.





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









PART
1 - FINANCIAL INFORMATION





Item
1. Financial Statements.


CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 COMBINED
AND CONSOLIDATED BALANCE SHEETS


September
      30,
                2010
              
              
              December
      31,
                2009(Unaudited)
              
              
              (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
              
              $
              4,575,185
              
              
              $
              11,419,129Notes
      receivable
              
              
              119,573
              
              
              
              335,780Accounts
      receivable, net
              
              
              4,684,976
              
              
              
              2,021,421Construction
      reimbursement receivable
              
              
              -
              
              
              
              846,270Other
      receivables
              
              
              88,241
              
              
              
              91,872Inventories
              
              
              2,454,894
              
              
              
              2,085,029Advances
      to suppliers
              
              
              2,184,101
              
              
              
              800,694Deferred
      expense
              
              
              14,703
              
              
              
              14,650Total
      current assets
              
              
              14,121,672
              
              
              
              17,614,845Long-term
      equity investment
              
              
              149,466
              
              
              
              87,900Property,
      plant and equipment, net
              
              
              31,943,427
              
              
              
              32,319,145Construction
      in progress
              
              
              14,562,102
              
              
              
              9,123,927Land
      usage right, net of accumulated amortization
              
              
              2,007,118
              
              
              
              1,994,394BOT
      franchise right
              
              
              4,185,038
              
              
              
              4,102,023Certificate
      of deposit
              
              
              -
              
              
              
              293,002Restricted
      cash
              
              
              3,393,503
              
              
              
              96,707Other
      asset
              
              
              1,172,509
              
              
              
              1,074,531Deferred
      tax asset
              
              
              324,408
              
              
              
              377,381Related
      party receivable
              
              
              239,145
              
              
              
              234,401TOTAL
      ASSETS
              
              $
              72,098,388
              
              
              $
              67,318,256LIABILITIESCurrent
      liabilitiesAccounts
      payable
              
              $
              1,488,264
              
              
              $
              418,435Short-term
      loan
              
              
              2,989,313
              
              
              
              6,739,038Tax
      payable
              
              
              475,296
              
              
              
              200,957Advance
      from customers
              
              
              733,518
              
              
              
              544,125Deferred
      sales
              
              
              300,565
              
              
              
              958,930Accrued
      expenses
              
              
              43,649
              
              
              
              301,531Construction
      projects payable
              
              
              2,660,852
              
              
              
              3,932,297Other
      payable
              
              
              148,280
              
              
              
              235,211Long-term
      loan-current portion
              
              
              2,259,825
              
              
              
              2,245,125Related
      party payable
              
              
              388,611
              
              
              
              380,902Total
      current liabilities
              
              
              11,488,173
              
              
              
              15,956,551Long-term
      loan
              
              
              14,446,700
              
              
              
              13,755,512Asset
      retirement obligation
              
              
              650,825
              
              
              
              610,445Government
      subsidy
              
              
              6,376,163
              
              
              
              2,464,079TOTAL
      LIABILITIES
              
              
              32,961,860
              
              
              
              32,786,587EQUITYStockholders'
      equity of the CompanyPreferred
      stock: par value $.001; 5,000,000shares
      authorized; none issued and outstanding
              
              
              -
              
              
              
              -Common
      stock: par value $.001; 95,000,000 shares authorized;15,336,535
      and 15,274,035 shares issued and outstanding as ofSeptember
      30, 2010 and December 31, 2009, respectively
              
              
              15,337
              
              
              
              15,274Additional
      paid-in capital
              
              
              7,602,625
              
              
              
              7,162,867Deferred
      stock-based compensation
              
              
              (711,155
              )
              
              
              (884,139
              )Accumulated
      other comprehensive income
              
              
              2,868,775
              
              
              
              2,326,292Retained
      earnings
              
              
              20,339,788
              
              
              
              17,490,919Total
      stockholders' equity of the Company
              
              
              30,115,369
              
              
              
              26,111,213Noncontrolling
      interest
              
              
              9,021,159
              
              
              
              8,420,456TOTAL
      EQUITY
              
              
              39,136,528
              
              
              
              34,531,669TOTAL
      LIABILITIES AND EQUITY
              
              $
              72,098,388
              
              
              $
              67,318,256
  See Notes
to Combined and Consolidated Financial Statements
  1




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 COMBINED
AND CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (UNAUDITED)




For
      the Three Months Ended
                September
      30,
              
              
              For
      the Nine Months Ended
                September
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009RevenuesService
      fees
              
              $
              2,722,643
              
              
              $
              2,039,002
              
              
              $
              8,894,125
              
              
              $
              4,879,448Sales
      of  recycled commodities
              
              
              1,884,577
              
              
              
              1,082,266
              
              
              
              4,732,517
              
              
              
              2,306,765Total
      revenues
              
              
              4,607,220
              
              
              
              3,121,268
              
              
              
              13,626,642
              
              
              
              7,186,213Cost
      of revenuesCost
      of service fees
              
              
              1,302,925
              
              
              
              612,036
              
              
              
              3,559,797
              
              
              
              1,452,911Cost
      of recycled commodities
              
              
              901,099
              
              
              
              571,015
              
              
              
              1,933,075
              
              
              
              1,336,227Total
      cost of revenues
              
              
              2,204,024
              
              
              
              1,183,051
              
              
              
              5,492,872
              
              
              
              2,789,138Gross
      profit
              
              
              2,403,196
              
              
              
              1,938,217
              
              
              
              8,133,770
              
              
              
              4,397,075Operating
      expensesSelling
      expenses
              
              
              181,815
              
              
              
              172,054
              
              
              
              502,119
              
              
              
              394,125General
      and administrative expenses
              
              
              880,308
              
              
              
              976,647
              
              
              
              2,893,165
              
              
              
              2,495,232Total
      operating expenses
              
              
              1,062,123
              
              
              
              1,148,701
              
              
              
              3,395,284
              
              
              
              2,889,357Income
      from operations
              
              
              1,341,073
              
              
              
              789,516
              
              
              
              4,738,486
              
              
              
              1,507,718Other
      income (expense)Other
      income
              
              
              120,574
              
              
              
              87,601
              
              
              
              208,167
              
              
              
              61,846Other
      expense
              
              
              (189,493
              )
              
              
              (49,122
              )
              
              
              (642,045
              )
              
              
              (41,039
              )Settlement
      expense
              
              
              -
              
              
              
              -
              
              
              
              (439,821
              )
              
              
              -Total
      other income (expense)
              
              
              (68,919
              )
              
              
              38,479
              
              
              
              (873,699
              )
              
              
              20,806Net
      income before tax provisionTax
      provision
              
              
              224,462
              
              
              
              110,472
              
              
              
              612,404
              
              
              
              215,750Net
      income
              
              
              1,047,692
              
              
              
              717,524
              
              
              
              3,252,383
              
              
              
              1,312,774Net
      income attributable to the noncontrolling interest
              
              
              12,870
              
              
              
              12,557
              
              
              
              403,515
              
              
              
              (20,844
              )Net
      income attributable to the Company
              
              $
              1,034,822
              
              
              $
              704,966
              
              
              $
              2,848,869
              
              
              $
              1,333,618Foreign
      currency translation adjustment
              
              
              357,498
              
              
              
              (133,238
              )
              
              
              542,483
              
              
              
              (141,241
              )Comprehensive
      income attributable to the Company
              
              
              1,392,319
              
              
              
              571,729
              
              
              
              3,391,351
              
              
              
              1,192,377Comprehensive
      income attributable to the noncontrolling interest
              
              
              12,870
              
              
              
              12,557
              
              
              
              403,515
              
              
              
              (20,844
              )Comprehensive
      income
              
              $
              1,405,190
              
              
              $
              584,286
              
              
              $
              3,794,866
              
              
              $
              1,171,533Basic
      and diluted weighted average shares outstandingBasic
              
              
              15,336,535
              
              
              
              15,265,085
              
              
              
              15,327,606
              
              
              
              15,267,387Diluted
              
              
              17,570,241
              
              
              
              15,265,085
              
              
              
              17,557,116
              
              
              
              15,267,387Basic
      and diluted net earnings per shareBasic
              
              $
              0.07
              
              
              $
              0.05
              
              
              $
              0.19
              
              
              $
              0.09Diluted
              
              $
              0.06
              
              
              $
              0.05
              
              
              $
              0.16
              
              
              $
              0.09




See
Notes to Combined and Consolidated Financial Statements
  2




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 COMBINED
AND CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)




For
      the Nine Months Ended
                September
      30,2010
              
              
              2009Cash
      flows from operating activities:Net
      income attributable to the Company
              
              $
              2,848,869
              
              
              $
              1,333,618Adjustments
      to reconcile net income to net cash provided by operating
      activities:
              
              
              -
              
              
              
              -Nontrolling
      interest
              
              
              403,515
              
              
              
              (20,844
              )Depreciation
              
              
              1,557,266
              
              
              
              943,487Amortization
              
              
              51,270
              
              
              
              51,310Amortization
      of deferred stock-based compensation
              
              
              172,983
              
              
              
              -Bad
      debt allowance
              
              
              113,808
              
              
              
              -Stock
      and  warrant issued for settlement
              
              
              439,821
              
              
              
              34,660Accretion
      expenses
              
              
              27,549
              
              
              
              27,086Government
      subsidy recognized as income
              
              
              (23,485
              )
              
              
              (46,944
              )Changes
      in operating assets and liabilities:Notes
      receivable
              
              
              219,212
              
              
              
              (14,637
              )Accounts
      receivable
              
              
              (2,584,834
              )
              
              
              (815,494
              )Construction
      reimbursement receivable
              
              
              741,683
              
              
              
              -Other
      receivables
              
              
              5,354
              
              
              
              (212,649
              )Inventories
              
              
              (322,098
              )
              
              
              76,715Advance
      to suppliers
              
              
              (1,344,098
              )
              
              
              (498,676
              )Deferred
      expense
              
              
              240
              
              
              
              2,196Other
      asset
              
              
              (86,057
              )
              
              
              (238,349
              )Deferred
      tax assets
              
              
              59,581
              
              
              
              -Accounts
      payable
              
              
              1,043,319
              
              
              
              5,448Tax
      payable
              
              
              265,678
              
              
              
              (36,809
              )Advance
      from customers
              
              
              175,349
              
              
              
              7,714Accrued
      expense
              
              
              (259,496
              )
              
              
              (335,402
              )Other
      payable
              
              
              (129,103
              )
              
              
              (98,627
              )Deferred
      income
              
              
              (666,251
              )
              
              
              (46,578
              )Net
      cash provided by operating activities
              
              
              2,710,074
              
              
              
              117,226Cash
      flows from investing activitiesInvestment
      in Xiangtan Dongtai
              
              
              (58,770
              )
              
              
              (87,823
              )Deposit
      for business acquisition
              
              
              -
              
              
              
              (1,463,722
              )Purchase
      of property and equipment
              
              
              (544,990
              )
              
              
              (335,573
              )Construction
      in progress
              
              
              (4,583,006
              )
              
              
              (7,581,652
              )Purchase
      of intangible assets
              
              
              (12,982
              )
              
              
              (23,830
              )Due
      from related party
              
              
              -
              
              
              
              (373,249
              )Certificate
      of deposit
              
              
              293,850
              
              
              
              (1,683,280
              )Cash
      received from a third party to acquire additional equity interest in
      Sino-Norway
              
              
              19,100
              
              
              
              -Net
      cash used in investing activities
              
              
              (4,886,798
              )
              
              
              (11,549,129
              )Cash
      flows from financing activitiesRepayment
      of construction project payable
              
              
              (1,328,059
              )
              
              
              (3,014,586
              )Proceeds
      from short-term loan
              
              
              2,938,497
              
              
              
              6,835,580Repayment
      of short-term loans
              
              
              (6,758,544
              )
              
              
              (3,366,560
              )Proceeds
      from long-term loan
              
              
              1,616,173
              
              
              
              16,100,938Repayment
      of long-term loans
              
              
              (1,240,597
              )
              
              
              -Cash
      released from escrow account
              
              
              -
              
              
              
              750,000Subsidy
      received from government
              
              
              -
              
              
              
              1,463,722Net
      cash (used in) provided by financing activities
              
              
              (4,772,530
              )
              
              
              18,769,094Effect
      of exchange rate on cash
              
              
              105,309
              
              
              
              (17,606
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              (6,843,944
              )
              
              
              7,319,585Cash
      and cash equivalents, beginning of period
              
              
              11,419,129
              
              
              
              5,709,129Cash
      and cash equivalents, end of period
              
              $
              4,575,185
              
              
              $
              13,028,714Supplemental
      cash flow information:
              
              
              
              
              
              
              -Cash
      paid during the year for:Interest
              
              $
              1,019,545
              
              
              $
              620,915Income
      taxes
              
              $
              485,458
              
              
              $
              329,537Supplemental
      disclosures of non cash activityReclassification
      of construction reimbursement receivables to fixed assets
              
              $
              107,426
              
              
              $
              -




See
Notes to Combined and Consolidated Financial Statements.
  3




CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
  The
accompanying unaudited combined and 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 combined and
consolidated financial statements. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated operating
results for the nine months ended September 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2010. For further information, refer to the audited combined and consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
for the year ended December 31, 2009.
 
 1. Nature of
operations
 
 The
accompanying unaudited combined and consolidated financial statement 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
      Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai
    Organic”)
  •
                Dalian
      Zhuorui Resource Recycling Co., Ltd.
(“Zhuorui”)
  •
                Dalian
      Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
      Lipp”)
  •
                Yingkou
      Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou
      Dongtai”)
  •
                Hunan
      Hanyang Environmental Protection Science & Technology Co., Ltd.
      (“Hunan Hanyang”)
  •
                Sino-Norway
      Dalian Energy Efficiency Center Co., Ltd. (“Sino-Norway
    EEC”)
 
 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
770 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 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 Dongtai
Water, which was incorporated in July 2006, is a build-operate-transfer (“BOT”)
project, with an operating period of 20 years, established to process municipal
sewage 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.
 
 Dongtai
Organic was incorporated in March 2007 as a joint venture, in which Dalian
Dongtai initially held an equity interest of 49%. In December 2009, Dalian
Dongtai acquired 3% equity interest in Dongtai Organic, thereby increasing its
ownership of Dongtai Organic to 52%. Dongtai Organic is the first sludge
treatment plant in China, with a designed production capacity of 600 tons/day,
which adopts anaerobic fermentation technology.
 
 Zhuorui
was incorporated in April 2006 and is engaged in plasma arc melting, separation
and purification of waste catalysts that generated during oil refinery process,
treatment of industrial wastes and comprehensive utilization of waste catalysts
or similar material.
 
 Dalian
Lipp is a Sino-German joint venture established in December 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, which operates in the Coastal Industrial Base (the “Base”) of Yingkou
City, Liaoning Province, was founded in May 2009. Yingkou Dongtai is engaged in
the recycling and disposal of industrial waste, and development and production
of recycling products. Yingkou Dongtai intends to build and complete waste
treatment facilities gradually in line with the development of the
Base.
 
 In
October 2009, Dalian Dongtai acquired 65% equity interest in Hunan Hanyang.
Hunan Hanyang was established in Hunan Province in 2004 and is engaged in the
business of treatment and comprehensive utilization of industrial waste. Hunan
Hanyang owns a franchise right (BOT) to construct and operate the Hazardous
Waste Treatment Center of Changsha City, Hunan Province for 25 years upon
completion of construction.
 
 Sino-Norway
EEC was incorporated as a joint venture in November 2009. Sino-Norway EEC is
engaged in the business of energy efficiency audit and consultation, and is
sponsored under the Energy Efficiency Planning Program initiated by Chinese and
Norwegian governments.
 
 2. Basis of
presentation
  The
accompanying unaudited combined and consolidated financial statement 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 52% indirect owned subsidiary, Dongtai Organic, its 70% indirect owned
subsidiary, Zhuorui, its 75% indirect owned subsidiary, Dalian Lipp, its 100%
indirect owned subsidiary, Yingkou Dongtai, its 65% indirect owned subsidiary,
Hunan Hanyang, and its 86% indirect owned subsidiary, Sino-Norway
EEC.
 
 In
December 2009, Dalian Dongtai acquired 3% additional equity interest in Dongtai
Organic, thereby increasing its ownership of Dongtai Organic to 52%. As a result
of equity exchange between entities under common control, the financial
statements and financial information presented for prior years during which the
entities were under common control, have been retrospectively adjusted to
furnish comparative information, adjusted financial statements and financial
summaries also includethe combined
revenues, expenses and cash flows of Dongtai Organic. All material inter-company
accounts and transactions have been eliminated in the
consolidation.
  5
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 The
accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”). This
basis differs from that used in the statutory accounts of the Company, which
were prepared in accordance with the accounting principles and relevant
financial regulations applicable to enterprises in PRC. All necessary
adjustments have been made to present the financial statements in accordance
with US GAAP.
 
 3. Summary of significant
accounting policies
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
 Foreign currency
translation
 
 As of
September 30, 2010 and 2009, the accounts of the Company were maintained, and
the unaudited combined and consolidated financial statements were expressed in
Chinese Yuan Renminbi (“RMB”). Such unaudited combined and 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, 2010 and December 31, 2009, restricted cash consists of government
subsides of $3,393,503 and $96,707, which is to be used exclusively on facility
construction and equipment procurement.
 
 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.
  6
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Payment terms of sales vary from cash on delivery
through a credit term of up to nine to twelve months.
 
 Advances to
suppliers
 
 The
Company makes advances to certain vendors for purchase of its material or
equipment. The advances to suppliers are interest free and
unsecured.
 
 Inventory
 
 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
                
                10-14
      YearsVehicles
                
                4
      YearsOffice
      equipment
                
                3-5
      Years
 
 Construction
in progress consists of construction expenditure, equipment procurement,
capitalized interest expense, relevant miscellaneous expenditures, and other
costs.
 
 As of
September 30, 2010, construction in progress is comprised of three principal
components. The first component is the Centralized Hazardous Waste Treatment
Center of Dalian City (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 second component is the production
equipments of Zhuorui, which are still in testing phase, including the plasma
furnace, flue gas cleansing system, dust trapper, etc. The third component is
the Hazardous Waste Treatment Center of Changsha City, Hunan Province, which is
in the phase of preparation for the commencement of construction.
  7
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 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 Combined and Consolidated Statements of
Operations and Comprehensive Income.
 
 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.
 
 Long-term equity
investment
 
 As of
September 30, 2010 and December 31, 2009, long-term investment is comprised of
investment in Xiangtan Luyi Dongtai Industrial Waste Treatment Co., Ltd.
(“Xiangtan Dongtai”).
 
 September
      30,
                  2010
                
                
                December
      31,
                  2009(Unaudited)
                
                
                (Audited)Xiangtan
      Dongtai
                
                $
                149,466
                
                
                $
                87,900
 
 Xiangtan
Dongtai, located in Xiangtan City, Hunan Province, was established on August 5,
2009, and primarily engaged in treatment and disposal of industrial waste,
development and sales of recycled products. As of September 30, 2010, Dalian
Dongtai owns a 12.5% equity interest in Xiangtan Dongtai, therefore, the Company
applies the cost method to account for its investment.
 
 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,
2010 and December 31, 2009, respectively.
  8
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 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. The following table
summarize the material terms of the land use rights:
 
 Effective
                  Date
                
                
                Expiration
                  Date
                
                
                Area
                  (Square
      Meter)
                
                Address
                
                Status01-01-2003
                
                
                
                01-01-2053
                
                
                
                8,433
                
                No.1,
      Huaihe West Road, Dalian Development Area
                
                Mortgaged01-01-2003
                
                
                
                01-01-2053
                
                
                
                6,784
                
                No.
      100, Tieshan West Road, Dalian Development Area
                
                Mortgaged04-14-2003
                
                
                
                04-13-2053
                
                
                
                1,841
                
                No.1-1,
      Huaihe West Third Road, Dalian Development Area
                
                Mortgaged07-28-2003
                
                
                
                07-27-2053
                
                
                
                61,535
                
                No.
      85, Dagu Hill, Dalian Development Area
                
                Mortgaged06-06-2007
                
                
                
                06-06-2057
                
                
                
                56,397
                
                Dalian
      Huayuankou Economic Zone
                
                Mortgaged03-24-2010
                
                
                
                12-23-2056
                
                
                
                25,000
                
                Yingkou
      Coastal Industrial Base
                
                Unencumbered-
                
                
                
                -
                
                
                
                10,500
                
                Haiqing
      Island, Dalian Development Area
                
                Unencumbered
 
 As of
September 30, 2010, net land use rights was $2,007,118, of which $1,746,652 has
been pledged as collaterals for the short-term loans from Shanghai Pudong
Development Bank.
 
 Noncontrolling interest in
unaudited combined and consolidated financial statement
 
 The
Company establishes accounting and reporting standards for the noncontrolling
(minority) interest in a subsidiary and for the deconsolidation of a
subsidiary in accordance with ASC Topic 805 Business Combinations.
Noncontrolling interest represents the minority owners’10% equity interest in
Dalian Dongtai, 20% equity interest in Dongtai Water, 48% equity interest in
Dongtai Organic, 30% equity interest in Zhuorui, 25% equity interest in Dalian
Lipp, 35% equity interest in Hunan Hanyang, and 14% equity interest in
Sino-Norway EEC.
 
 Revenue
recognition
 
 The
Company recognizes revenues in accordance with the guidance in the Securities
and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104.
Revenue is recognized when persuasive evidence of an arrangement exists, when
the selling price is fixed or determinable, when delivery occurs and when
collection is probable.
 
 Revenues
are generated from the fees charged for waste collection, transfer, treatment,
disposal and recycling services and the sale of recycled commodities. The fees
charged for services are generally defined in service agreements and vary based
on contract specific terms such as frequency of service, weight, volume and the
general market factors influencing industry’s rates. Recycled commodities are
considered delivered at the point when the customers take ownership and assume
risk of loss of the commodities.
  9
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 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, 2010 and December 31, 2009, deferred sales amounted to
$300,565 and $958,930, respectively.
 
 The AICPA
Issues Paper recommends that governmental grants be accounted for as
follows:
  i)
                  Grants
      related to revenue, such as certain export subsidies and price control
      subsidies, should be recognized in the period of the related
      events.
  ii)
                Grants
      to reimburse current expenditures, such as research and development costs,
      wages, training costs and transportation costs, should be treated as a
      reduction of current or future related expense, depending on when the
      related expense is recognized.
  iii)
                  Grants
      related to developing property, such as timberlands, or mineral reserves,
      should be recognized over the useful lives of the
  assets.
  Government
grants are received at a discretionary amount as determined by the local or
central PRC government. The Company follows the guideline of the AICPA Issues
Paper in accounting for grants as revenues. In general, government grants for
revenues and/or expenses should be recognized in income when the related revenue
or expense is recorded. Grants related to property or equipment should be
recognized over the useful lives of the related asset. Funds received before the
conditions of the grant are met should be recorded as deferred
revenue.
  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.
  Fair Value of Financial
Instruments
  The
Company estimates the fair value of its financial instruments based on current
interest rates, quoted market values or the current price of financial
instruments with similar terms. Unless otherwise disclosed herein, the carrying
value of financial instruments, especially those with current maturities such as
cash and cash equivalents, accounts receivable, and accounts payable, accrued
liabilities, construction projects payable, short term and long term
loan are considered to approximate their fair values.
  Fair
Value Measurements
  In April
2009, the FASB released ASC 820, Fair Value Measurements and
Disclosures,(formerly SFAS No. 157 “Fair Value Measurements”)
that defines fair value, establishes a framework for measuring fair value in
accordance with U.S. GAAP, and expands disclosures about fair value
measurements.
  According
to ASC 820, investment measured and reported at fair value are classified and
disclosed in one of the following hierarchy:
  Level 1
- Quoted prices are available in active markets for identical investments
as of the reporting date.  The type of investments included in Level 1
included listed equities and listed derivatives.
  Level 2
- Pricing inputs are other than quoted prices in active markets, which are
either directly or indirectly observable as of the reporting date, and fair
value is determined through the use of models or other valuation
methodologies.  Investments that are generally included in this
category include corporate bonds and loans, less liquid and restricted equity
securities and certain over-the-counter derivatives.
  Level 3
- Pricing inputs are unobservable for the investment and included
situations where there is little, if any, market activity for the
investment.  The inputs into the determination of fair value require
significant management judgment or estimation.
 Income
taxes
 
 The
Company follows the guideline under ASC Topic 740 Income Taxes. “Accounting for
Income Taxes” which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates, applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
 
 The
Company is subject to the taxes in the United States at tax rate of
approximately 42.7%.  No provision for the US federal income taxes has
been made as the Company had no taxable income in this jurisdiction for the
reporting periods.
 
 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 11% for the nine months ended September 30, 2010. Furthermore, the Law
stipulates that enterprises that engage in municipal sewage and sludge treatment
business are eligible for special EIT treatment. According to such rules,
Dongtai Water and Dongtai Organic is entitled to a three-year EIT exemption
treatment starting whenever it generates the first operation revenue, and
additional 50% discount on the normal rate for the next three years. For the
nine months ended September 30, 2010, Dongtai Water and Dongtai Organic have
benefited from the EIT exemption preference.
  10
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 Statement of cash
flows
 
 In
accordance with ASC Topic 230 Statement of Cash Flows, cash flows from the
Company’s operations are calculated based upon the local currencies. As a
result, amounts related to assets and liabilities reported on the statement of
cash flows will not necessarily agree with changes in the corresponding balances
on the balance sheet.
 
 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 2009 financial statements to conform to
the 2010 presentation.
 
 Recent accounting
pronouncements
 
 In August
2010, the FASB issued Accounting Standard Updates No. 2010-21 (ASU No. 2010-21)
“Accounting for Technical Amendments to Various SEC Rules and Schedules” and No.
2010-22 (ASU No. 2010-22) “Accounting for Various Topics – Technical Corrections
to SEC Paragraphs”.  ASU No 2010-21 amends various SEC paragraphs
pursuant to the issuance of Release no. 33-9026: Technical Amendments to Rules,
Forms, Schedules and Codification of Financial Reporting
Policies.  ASU No. 2010-22 amends various SEC paragraphs based on
external comments received and the issuance of SAB 112, which amends or rescinds
portions of certain SAB topics.  Both ASU No. 2010-21 and ASU No.
2010-22 are effective upon issuance.  The amendments in ASU No.
2010-21 and No. 2010-22 will not have a material impact on the Company’s
financial statements.
 
 In July
2010, the FASB issued Accounting Standard Update No. 2010-20 (ASU No. 2010-20)
“Receivables” (Topic 310).  ASU No. 2010-20 provides financial
statement users with greater transparency about an entity’s allowance for credit
losses and the credit quality of its financing receivables.  This
update is intended to provide additional information to assist financial
statement users in assessing an entity’s credit risk exposures and evaluating
the adequacy of its allowance for credit losses.  The amendments in
this update apply to both public and nonpublic entities with financing
receivables, excluding short-term trade accounts receivable or receivables
measured at fair value or lower of cost or fair value.  The objective
of the amendments in ASU No. 2010-20 is for an entity to provide disclosures
that facilitate financial statement users’ evaluation of (1) the nature of
credit risk inherent in the entity’s portfolio of financing receivables, (2) How
that risk is analyzed and assessed in arriving at the allowance for credit
losses and (3) The changes and reasons for those changes in the allowance for
credit losses.  The entity must provide disclosures about its
financing receivables on a disaggregated basis.  For public entities
ASU No. 2010-20 is effective for interim and annual reporting periods ending on
or after December 15, 2010.  For nonpublic entities ASU No. 2010-20
will become effective for annual reporting periods ending on or after December
15, 2011.  The Company is evaluating the impact ASU No. 2010-20 will
have on the financial statements.
  11
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 Stock
Compensation - amendments to clarify that an employee share-based payment
award
  In April
2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock
Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to
clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The amendments in this Update should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings. The
cumulative-effect adjustment should be calculated for all awards outstanding as
of the beginning of the fiscal year in which the amendments are initially
applied, as if the amendments had been applied consistently since the inception
of the award. The cumulative-effect adjustment should be presented separately.
Earlier application is permitted.
 
 Subsequent
Events – Amendments to Certain Recognition and Disclosure
Requirements
  In
February 2010, the Financial Accounting Standards Board (“FASB”) issued ASU
2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and
Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure
requirements within Subtopic 855-10. An entity that is an SEC filer is not
required to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between Subtopic 855-10
and the SEC's requirements. ASU 2010-9 is effective for interim and annual
periods ending after June 15, 2010. The Company does not expect the
adoption of ASU 2010-09 to have a material impact on its consolidated results of
operations or financial position.
 
 Technical
Corrections to Various Topics
  In
February 2010, the FASB issued ASC Update 2010-08, which contains technical
corrections to various Topics within the ASC. Those corrections are effective
for interim and annual periods beginning after February 2, 2010. The Company is
currently evaluating the potential effects of ASC Update 2010-08.
  Fair
Value Measurements and Disclosures – Improving Disclosures About Fair Value
Measurements
  In
February, 2010, the FASB issued FASB ASC Update 2010-06, “Fair Value
Measurements and Disclosures – Improving Disclosures About Fair Value
Measurements,” ASU Update 2010-06 adds new requirements for disclosures of
significant transfers into and out of Levels 1, 2 and 3 of the fair value
hierarchy, the reasons for the transfers and the policy for determining when
transfers are recognized. ASU 2010-06 also adds new requirements for disclosures
about purchases, sales, issuances and settlements on a gross rather than net
basis relating to the reconciliation of the beginning and ending balances of
Level 3 recurring fair value measurements. It also clarifies the level of
disaggregation to require disclosures by “class” rather than by “major category
of assets and liabilities” and clarifies that a description of inputs and
valuation techniques used to measure fair value is required for both recurring
and nonrecurring fair value measurements classified as Level 2 or 3. ASU
Update 2010-06 is effective January 1, 2010 except for the requirements to
provide the Level 3 activity of purchases, sales, issuances and settlements
on a gross basis which are effective January 1, 2011. The adoption of ASU
2010-06 is not expected to have a material impact on the Company’s results of
operations or financial position.
  12
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 Accounting
and Reporting for Decreases in Ownership of a Subsidiary- a Scope
Clarification
  In
January 2010, the FASB issued ASU 2010-2 Accounting and Reporting for
Decreases in Ownership of a Subsidiary- a Scope Clarification ("ASU
2010-2"). ASU 2010-2 addresses implementation issues related to the changes in
ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of
the FASB Accounting Standards Codification, originally issued as FASB
Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements. Subtopic 810-10 establishes the accounting and reporting guidance
for noncontrolling interests and changes in ownership interests of a subsidiary.
An entity is required to deconsolidate a subsidiary when the entity ceases to
have a controlling financial interest in the subsidiary. Upon deconsolidation of
a subsidiary, an entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. The gain or
loss includes any gain or loss associated with the difference between the fair
value of the retained investment in the subsidiary and its carrying amount at
the date the subsidiary is deconsolidated. In contrast, an entity is required to
account for a decrease in ownership interest of a subsidiary that does not
result in a change of control of the subsidiary as an equity transaction.
ASU 2010-2 is effective for the Company starting January 3, 2010. The
implementation of this issue did not have a material impact on the Company’s
financial position and results of operations.
  4.Notes
receivable
 
 As of
September 30, 2010 and December 31, 2009, notes receivable, with the balances of
$119,573 and $335,780, respectively, represents trade accounts receivable due
from various customers where the customers’ banks have guaranteed the payment of
the receivables.  This amount is non-interest bearing and is normally
paid within three to six months. The Company has the ability to submit request
for payment to the customer’s bank earlier than the scheduled payment date, but
will incur an interest charge and a processing fee when it submits the early
payment request.
 
 5. Accounts
receivable
 
 As of
September 30, 2010 and December 31, 2009, the net balances of accounts
receivablewere$4,684,976 and $2,021,421,
respectively. The following table shows the aging composition of the
balances:
 
 September
      30,
                  2010
                
                
                December
      31,
                  2009Aging
                
                (Unaudited)
                
                
                (Audited)1-3
      months
                
                
                1,807,395
                
                
                $
                1,098,0274-6
      months
                
                
                896,968
                
                
                
                450,9397-12
      months
                
                
                1,461,528
                
                
                
                381,9491-2
      years
                
                
                654,158
                
                
                
                118,875over
      2 years
                
                
                12,400
                
                
                
                2,699Total
                
                $
                4,832,449
                
                
                $
                2,052,489Allowance
      for doubtful accounts
                
                
                (147,473
                )
                
                
                (31,068
                )Accounts
      receivable, net
                
                $
                4,684,976
                
                
                $
                2,021,421
  13
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 The
activity in the allowance for doubtful accounts for accounts receivable for the
nine months ended September 30, 2010 and for the year ended December 31, 2009
are as follows:
  For
      the Nine
                  monthsEnded
                  September
      30,
                  2010
                  (Unaudited)
                
                
                For
      the
                  yearEnded
                  December
      31,
                  2009
                  (Audited)Beginning
      allowance for doubtful account
                
                $
                31,068
                
                
                $
                12,132Additional
      charged to bad debt expense
                
                
                113,486
                
                
                
                18,929Foreign
      currency translation adjustment
                
                
                2,919
                
                
                
                7Ending
      allowance for doubtful accounts
                
                $
                147,473
                
                
                $
                31,068
 
 6. Construction
reimbursement receivable
 
 Dongtai
Organic commenced trial production in March 2009, as the development of plans to
bring the integrated anaerobic fermentation system necessary for its intended
use. In fiscal year 2009, Dongtai Organic aggregately disposed 42,789 tons of
municipal sludge, and recorded a construction
reimbursement receivable of $846,270. Payments are to be processed by Dalian
Municipal Government per BOT contractual agreement as a reimbursement of current
related expense. Therefore, Dongtai Organic accounted the reimbursement as a
reduction of current period construction cost. As of June 30, 2010, the
remaining balance was approximately $107,426.
 
 Due to
different measuring standards and estimate applied by the Company and Dalian
Municipal Government, there is a variance of approximately 5,400 tons in the
estimate made by the management in volume of sludge being processed, which
corresponding to the remaining balance of $107,426.
 
 As
confirmed, Dalian Municipal Government will not reimburse the remaining balance
in the amount of $107,426 claimed by the Company. The management of Dongtai
Organic decided to write off the outstanding balance in September 2010. The
transaction was accounted for as an increase in construction cost, and
reclassification was made to corresponding fixed asset account.
 
 7.
Inventory
 
 As of
September 30, 2010 and December 31, 2009, inventory consists of raw materials
and recycled commodities as follows:
 
 September
      30,
                  2010
                
                
                December
      31,
                  2009(Unaudited)
                
                
                (Audited)Raw
      materials
                
                $
                1,107,408
                
                
                $
                719,948Recycled
      commodities
                
                
                1,347,486
                
                
                
                1,365,081$
                2,454,894
                
                
                $
                2,085,029
 
 Raw
materials are mainly comprised of waste catalyst, which is a scarce resource,
collected from oil refineries, chemicals used in the waste treatment and
recycling process, and packaging materials.
 
 As of
September 30, 2010 and December 31, 2009, the balances of waste catalyst
amounted to $473,515 and $422,547, respectively. Because of the impact of the
global economic crisis, the prices for the final products that produced from the
processing of waste catalyst, including chemical compounds of valuable metals
have decreased dramatically since the end of 2008. Management believes that the
holding of waste catalyst before the rise of market price complies with
shareholder’s interest.
  14
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 Recycled
commodities are mainly comprised of alloys and cupric sulfate that are produced
from waste collected, and aluminum and iron products recycled from waste
collected, etc.
 
 For the
nine months ended September 30, 2010 and twelve months ended December 31, 2009,
no allowance for obsolete inventories was recorded by the Company.
 
 8. Property, plant and
equipment
 
 September
      30,
                  2010
                
                
                December
      31,
                  2009(Unaudited)
                
                
                (Audited)Buildings
                
                
                15,528,178
                
                
                $
                14,761,998Machinery
      and equipment
                
                
                19,643,587
                
                
                
                19,510,334Office
      equipment
                
                
                698,360
                
                
                
                670,015Vehicles
                
                
                1,641,384
                
                
                
                1,281,65937,511,510
                
                
                
                36,226,006Less:
      accumulated depreciation
                
                
                (5,568,082
                )
                
                
                (3,904,861
                )Property,
      plant and equipment, net
                
                
                3,1943,428
                
                
                
                32,319,145Construction
      in progress
                
                
                14,562,102
                
                
                
                9,123,927Total
                
                $
                46,505,530
                
                
                $
                41,443,072
 
 Depreciation
expenses for the nine months ended September 30, 2010 and 2009 were $1,493,861
and $590,263, respectively.
 
 For the
nine months ended September 30, 2010 and 2009, capitalized interests amounted to
$220,715 and $231,056, respectively.
 
 As of
September 30, 2010, certain buildings, with the net book value of $4,194,156,
have been pledged as the collateral for loans from Shanghai Pudong Development
Bank. Certain machinery and equipments, with the net book value of $14,414,599,
have been pledged as the collateral for loans from China Merchants
Bank.
 
 9. Other
assets
 
 As of
September 30, 2010 and December 31, 2009, other asset in the amount of
$1,172,509 and $1,074,531 is primarily comprised of value added tax credit of
$1,164,430 and $1,055,523, respectively. VAT is a turnover tax levied on all
units and individuals engaged in the sale of goods, the provision of processing,
repair and replacement services (together referred to as "taxable labor
services") and the importation of goods to the PRC.
  15
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 10. Short-term
loan
 
 As of
September 30, 2010 and December 31, 2009, the short-term loan balance represents
a loan that borrowed from Shanghai Pudong Development Bank.
 
 The
following table identifies the material terms of short-term loans:
  PrincipalInterest
      Rate
                  (Per
      Annum)
                
                
                September
      30,
                  2010
                
                
                December
      31,
                  2009Effective
      Date
                
                
                Maturity
                
                Type
                
                (Unaudited)
                
                
                (Audited)06-13-2010
                
                
                
                06-10-2011
                
                Secured
                
                
                6.372
                %
                
                $
                2,989,313
                
                
                $
                -04-27-2009
                
                
                
                04-27-2010
                
                Secured
                
                
                5.841
                %
                
                
                -
                
                
                
                3,809,02205-18-2009
                
                
                
                05-18-2010
                
                Secured
                
                
                5.841
                %
                
                
                -
                
                
                
                1,465,00806-04-2009
                
                
                
                06-04-2010
                
                Secured
                
                
                5.841
                %
                
                
                -
                
                
                
                1,465,008$
                2,989,313
                
                
                $
                6,739,038
 
 Total
interest expense on short-term loans for the nine months ended September 30,
2010 and 2009 amounted to $174,238 and $65,698, respectively.
 
 The loan
is secured by certain properties and land use right of the Company.
 
 11. Long-term
loan
 
 As of
September 30, 2010 and December 31, 2009, the following table identifies the
material terms of the long-term loans:
 
 PrincipalInterest
      Rate
                
                
                
                September
      30,
                  2010
                
                
                December
      31,
                  2009Lending
      Bank
                
                Effective
      Date
                
                
                Maturity
                
                
                (Per
      Annum)
                
                Type
                
                (Unaudited)
                
                
                (Audited)China
      Merchants Bank
                
                
                01-08-2009
                
                
                
                01-07-2017
                
                
                
                6.237
                %
                Secured
                
                $
                12,792,841
                
                
                $
                12,452,570China
      Merchants Bank
                
                
                08-20-2009
                
                
                
                08-20-2017
                
                
                
                6.237
                %
                Secured
                
                
                3,269,561
                
                
                
                3,548,067Shanghai
      Pudong Development Bank
                
                
                04-27-2010
                
                
                
                04-27-2013
                
                
                
                5.94
                %
                Secured
                
                
                1,644,122
                
                
                
                -Total
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                16,706,524
                
                
                $
                16,000,637
 
 The
interest rates for the two loans that borrowed from China Merchants Bank are
determined based on the interest rate of loans above 5 years set by the People’s
Bank of China plus 5% and is adjustable every six months. As of September 30,
2010, the benchmark interest rate of loans over 5 years is 5.94%. The BOT
franchise right of Dongtai Water and Dongtai Organic, and certain manufacturing
machinery of the Company are pledged as collaterals for the two loans. Dalian
Lida Environmental Engineering Co., Ltd, which holds 20% equity interest in
Dongtai Water, acts as co-guarantor for the loan with the balance of
$3,736,642.
  16
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 On April
20, 2010, the Company entered into a long-term loan agreement with Shanghai
Pudong Development Bank. Pursuant to the loan agreement, the principal amounts
to RMB 40 million (approximately $5.90 million) and matures on April 27, 2013.
As of September 30, 2010, the Company had drawn down the first installment of
the loan in the amount of RMB 11 million (approximately $1.64 million). The loan
is to be used exclusively for the construction of the Centralized Hazardous
Waste Treatment Center of Dalian City.
  The long
term loans are scheduled to be repaid on installments. The following table shows
the installments schedule:
 
 Year
                
                Amount2010
                
                $
                1,129,9122011
                
                
                2,259,8252012
                
                
                3,734,4252013
                
                
                2,407,2852014
                
                
                2,259,825Thereafter
                
                
                4,915,252Total
                
                $
                16,706,524
 
 As of
September 30, 2010, the installments amounting to $2,259,825 will be due within
one year, and are classified in current liabilities.
  12. Government
subsidy
  As of
September 30, 2010 and December 31, 2009, the government subsidy consists of the
followings:
  September
      30,
                  2010
                
                
                December
      31,
                  2009(Unaudited)
                
                
                (Audited)Dalian
      Dongtai
                
                $
                2,241,985
                
                
                $
                1,465,008Zhuorui
                
                
                995,399
                
                
                
                999,071Hunan
      Hanyang
                
                
                3,138,779
                
                
                
                -$
                6,376,163
                
                
                $
                2,464,079
 
 Dalian
Dongtai received a government subsidy from the central government of PRC of
$747,300 (RMB5, 000,000) and $1,494,600(RMB 10, 000,000) in 2010 and 2009
respectively, to support the construction of the Centralized Hazardous Waste
Treatment Center of Dalian City, which is located in Dalian Development
Area.
 
 In 2007,
Zhuorui received government subsidies of RMB7, 036,000 (approximately
$1,051,640), of which RMB6, 000,000 (approximately $884,760) is to be used to
purchase production machinery or pay construction expenditures, and the other
RMB1, 036,000 (approximately $152,769) is granted as a reimbursement for the
acquisition of land use right.
 
 On
January 27, 2010, Hunan Hanyang received a government subsidy of RMB21 million
(approximately $3,096,660) from the central government of PRC, representing the
first installment of a total expected government subsidy of RMB110 million
(approximately $16.22 million) as a reimbursement of construction cost in the
Hazardous Waste Treatment Center of Changsha City, Hunan Province.
  17
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 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.
 
 13. Settlement
expense
 
 In
February, 2010, the Company and a consulting firm, which provides business
advisory and private placement services to the Company, signed a Settlement and
Release Agreement (the “Agreement”) to resolve all remaining issues between
them. Pursuant to the Agreement, the consulting firm received:
 
 i)
                62,500
      shares of free-trading, unrestricted common stock of the
      Company.
 ii)
                A
      Placement Agent Warrant (denominated as “Unit Purchase Option”) to
      purchase up to 5 units at 120% of the offering price of the Unit. The
      original offering price of a Unit was $60,000 at time of offering. Each
      unit consists of 29, 412 shares of restricted common stock of the Company,
      “A” warrants to purchase 14,706 common shares of the Company at an
      exercise price of $2.50 and “B” warrants to purchase 14,706 common shares
      of the Company at an exercise price of
$3.20.
 
 As
management has determined that the Units are issued in settlement of a dispute
between the parties, each Unit is to be valued at its fair value. Utilizing the
Black-Scholes option-pricing model resulted in an aggregate fair value of the
elements (stock, warrant A and warrant B) of each Unit to be $128,089 ($88,236,
$22,016 and $17,837, respectively) or $640,446 for all 5 Units. The following
significant assumptions were used in preparing the Black-Scholes calculation
assumptions: expected dividend yield 0%; risk-free interest rate of 2.48%;
volatility of 89.59% and an expected term of 5 years.
 
 The fair
market value of the 62,500 shares of free-trading, unrestricted common stock at
issuance date was approximately $159,375. The fair value of 5 Units is $640,446
and the cost of purchase is $360,000. The difference between fair value of all 5
Units and cost of purchase in the amount of $280,446 was charged to expense
account during current period. Therefore, the Company recognized a settlement
expense of $439,821.
 
 14. Related parties
transactions
 
 As of
September 30, 2010 and December 31, 2009, the amounts due from (to) related
parties were as follows:
 
 September
      30,
                  2010
                
                
                December
      31,
                  2009(Unaudited)
                
                
                (Audited)Due
      to Dalian Dongtai Investment Co., Ltd. (“Dongtai
    Investment”)
                
                $
                (388,611
                )
                
                $
                (380,902
                )Due
      from Dalian Lida Environmental Engineering Co., Ltd. (“Dalian
      Lida”)
                
                $
                239,145
                
                
                $
                234,401
 
 Payable
to Dongtai Investment consists of unsecured short term loans, amounting to
$388,611 (RMB 2.6 million), with interest rate of 6% per annum, repayable on
demand.
 
 Receivable
from Dalian Lida is an unsecured short term loan of $239,145 (RMB1.6 million)
with interest rate of 6% per annum, effective on August 1, 2009, and repayable
on demand.
  18
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 15. Earnings per
share
 
 Basic
earnings per common share (“EPS”) are calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
EPS is calculated by adjusting the weighted average outstanding shares, assuming
conversion of all potentially dilutive securities, such as stock options and
warrants, using the treasury stock method.
 
 The
following table demonstrates the calculations for earnings per share for the
nine months ended September 30, 2010 and 2009:
  2010
                
                
                2009Net
      income attributable to the Company
                
                $
                2,848,869
                
                
                $
                1,333,618Adjustments
      for diluted EPS calculation
                
                
                -
                
                
                
                -Adjusted
      net income for calculating EPS-diluted
                
                $
                2,848,869
                
                
                $
                1,333,618Weighted
      average number of common shares - Basic
                
                
                15,327,606
                
                
                
                15,267,387Effect
      of dilutive securities:Option
                
                
                19,927
                
                
                
                -Warrants
                
                
                2,209,583
                
                
                
                -Weighted
      average number of common shares - Diluted
                
                
                17,557,116
                
                
                
                15,267,387Earnings
      per shareBasic
                
                $
                0.19
                
                
                $
                0.09Diluted
                
                $
                0.16
                
                
                $
                0.09
 
 16. Change in reporting
entity
 
 Per
definitive agreement and amended article of incorporation, on September 8, 2010,
Dongtai contributed additional $59,800 (RMB 400,000) and a third party
contributed $19,400 (RMB 130,000) as additional paid-in capital in controlling
subsidiary Sino-Norway EEC. The percentage of Dongtai ownership interest in
Subsidiary changed to 86%, and noncontrolling interest are accounted for the
remaining 14%.
 
 Tentatively,
the third party agreed to contribute $100,150 (RMB 670,000) and Dongtai has
agreed to contribute another $59,800 (RMB400,000) by the end of June, 2011. By
that time, the Company will own 60% of Sino-Norway EEC, and noncontrolling
interest will be accounted for the remaining 40%.
 
 The
change in equity structure of Sino-Norway, and a change in reporting entity
during current period does not have a material effect in the financial
reporting.
  19
 CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2010 AND 2009
 17. Commitment and
Contingency
 
 Capital
commitment
 
 The
Company has purchasing commitments that result from construction contracts and
equipment procurement contracts signed for the development of the Centralized
Hazardous Waste Treatment Center of Dalian City. As of September 30, 2010, the
commitment information is as follows:
 
 Construction
                
                $
                2,717,756Equipment
                
                
                3,012,399Total
                
                $
                5,730,156
 
 Zhuorui
 
 In March
2009, Zhuorui commenced trial production. Due to the unfavorable market prices
for Zhuorui’s final products, including chemical compounds of valuable metals,
and imperfections detected in the trial production, the Company decided to
suspend the trial production in January 2010 to make improvement on the
technical flow prior to market recovery. With the improvement on the technical
flow, Zhuorui can generate an additional by-product, which strengthens its
profitability and qualifies upgraded emission standards.
 
 The
capital expenditure for the improvement is approximately $2.1 million
(approximately RMB 14 million), and it is estimated that a four to five months
period is necessary to accomplish this improvement. As of November 12, 2010,
Zhuorui has spent approximately $1,240,132(RMB 8.3 million) on rotary kiln, heat
exchanger; de-sulfate system, dust collector and sewage disposal system.
Preparation of the new equipment is in the stage of finalization. Zhuorui
expects the commencement of a pilot by the end of December 2010 as the local
government has imposed new regulations on issuance of permission for safety
reasons.
 
 Despite
the advantages brought by this proposed technical improvement, there are
possibilities of losses caused by unexpected events, take for example, it costs
additional time or fund to accomplish the improvement, the attempt to generate
additional by-product fails or the depressing market conditions last longer than
our expectation.
 
 18. Subsequent
events
 
 The Company
has evaluated all subsequent events through November 12, 2010, the date these
financial statements were issued, and determined that there were no subsequent
events or transactions that required recognition or disclosure in the financial
statements.
  20




Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.







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.





OVERVIEW




Business




China
Industrial Waste Management, Inc., which, through its indirect 90% owned
subsidiary, Dalian Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian
Dongtai”), has engaged in industrial solid waste treatment since 1991, is now
the largest industrial solid waste management enterprise in Northeast China. The
Company’s operations are conducted primarily in three areas:




·
            Industrial
      Solid Waste Treatment and Recycling: Dalian Dongtai
      provides services including the collection, storage, transportation,
      disposal and incineration of industrial waste, as well as the landfill of
      general and hazardous industrial
waste.




21




·
            Municipal
      Sewage Water Treatment:Dalian Dongtai’s 80%
      subsidiary, Dalian Dongtai Water Recycling Co. Ltd. (“Dongtai Water”),
      commenced operations in June 2008 to process domestic sewage generated
      from a portion of Dalian City.






·
            Municipal
      sludge treatment (sludge-to-energy):Dalian Dongtai’s
      52%-ownedsubsidiary, Dalian
      Dongtai Organic Waste Treatment Co. Ltd. (“Dongtai Organic”), which became
      operational in 2009, has implemented the centralized processing of
      wastewater sludge derived from all sewage treatment plants in urban Dalian
      City.






Business
Model




There
were three business units contributing to the Company’s revenue stream in fiscal
2010, i.e. (a) industrial solid waste treatment and recycling, (b) sludge
treatment and sales of biogas (methane) and (c) sewage treatment. They accounted
for 73.2%, 21% and 5.8%, respectively, of revenues for the nine months ended
September 30, 2010.




(a)
Industrial Solid Waste




Dalian
Dongtai generates revenues from its receipt of waste management service fees and
from sales of recycled commodities. Our diverse customer base includes companies
engaged in the electronic, chemical, petrochemical, mechanical treatment,
pharmacy, shipbuilding and automobile-making industries, and industrial solid
wastes include solvent, remnants of chemical, waste catalysts, grinding fluids,
cutting fluids, oily sludge, slag, foundry sand and industrial waste
water.





The
typical waste management contract with a client is renewable every year, and the
service fee charged to the customer is based on the volume of waste produced.
Most of our clients make payments on a monthly basis. For the nine months ended
September 30, 2010, the Company received approximately $ 6.3 million in solid
waste treatment service fees from its customers. Revenues from sales of recycled
commodities for the nine months were $3.68 million.




(b)
Sludge Treatment




Dongtai
Organic operates the first BOT (Build-Operate-Transfer) plant in the PRC to
implement centralized wastewater sludge processing. During the project’s 20-year
franchised period, this sludge-to-energy plant is expected to dispose of the
sludge derived from all sewage treatment plants located in urban Dalian City.
This plant has a designed capacity of 600 tons/day and is expected to generate
approximately 11,000 cubic meters of methane each day once it reaches its full
capacity. The project has generated revenues since January 2010 from service
fees paid by the local government and from sales of biogas (methane) to Dalian
Gas Company, which it uses for resale as cooking fuel in Dalian City. Dongtai
Organic’s revenues from both sludge processing fees and sales of biogas are
calculated on a volume basis. The payment of sludge processing fees is the
responsibility of the local government and is payable every quarter, while
payment for sales of biogas (methane) is made on a monthly basis. Dongtai
Organic received approximately $1.81 million from service fees and approximately
$1.05 million from sales of biogas (methane) during the nine months ended
September 30, 2010.




(c)
Sewage Treatment




Dongtai
Water, which is a BOT plant with a 20 year franchised right, commenced
operations in June 2008 to process domestic sewage generated from a portion of
Dalian City. The plant’s designed capacity is 30,000 tons/day and is currently
operating at full capacity. The payment of sewage treatment fees, which is based
on the volume of waste water processed, is paid by the local government on a
quarterly basis. Dongtai Water received approximately $0.79 million from service
fees for the nine months ended September 30, 2010.




22




Recent
Developments




(a) 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. The expansion project, which is one of fifty-five hazardous waste
treatment centers sponsored by the National Development and Reform Commission
and one of two such centers in Liaoning Province, commenced construction at the
end of July 2009. Dalian Dongtai received an additional national subsidy of
RMB 5 million (approximately $0.7 million) as funding to complete the capacity
expansion project for a centralized hazardous waste treatment facility (the
"Expansion Project") in Dalian, Liaoning Province, China. This subsidy is the
second installment of a series of subsidies expected to be disbursed by the
government as the Expansion Project progresses. It is now anticipated that
the project will be operational in the second quarter of
2011.




Further
information about the Expansion Project is as
follows:




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





(b)
Following China’s largest recorded oil spill that occurred off the coast of
Dalian City during offloading of an oil tanker on July 16, 2010, Dalian Dongtai
was approached by local government to lead the oil waste management operation.
The Company was asked to collect and treat oil waste generated by the clean-up
effort, including oil skimmed off the ocean surface and oil-saturated equipment,
and refuse such as used absorption felts to ensure the piles of oil-smeared sand
and pebbles and oily absorption felts pulled out of the water are treated
properly to avoid secondary contamination..





(c) In
August 2010, Dalian Dongtai signed a major waste management contract with a
national petrochemical firm located in Liaoning Province. Under the terms of the
contract, beginning on September 1, 2010, Dalian Dongtai will treat and dispose
of the industrial waste sludge and slag generated by the customer's production
over the next 30-months, which the customer estimates will total approximately
40,000 tons. Based on this expected volume, Dalian Dongtai anticipates it will
generate an additional $3.65 million in revenues from this customer over the
life of the 30-month contract.





Operating
Strategy





Our
business strategy is designed to increase revenues and earnings through
profitable growth and improving returns on invested capital. The components of
our strategy include:





·
            Maintaining
      commercialization of industrial solid waste treatment as our core business
      and maintaining a balanced business structure of the three business lines;
      ;


·
            Expansion
      into municipal sludge treatment BOT projects with the goal of 30-40% of
      our revenues being provided by sludge treatment;


·
            Promoting
      the installation of sludge treatment tanks in other cities to seize the
      market opportunity in the surge of sludge
  treatment;


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


·
            Expanding
      into new geographic markets in China;
and






23




·
              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 attempts 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 twelve months.





RESULTS OF
OPERATIONS





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





Three and
Nine Months Ended September 30, 2010 Compared to the Three and Nine Months Ended
September 30, 2009.




24




Revenues





Our
revenue can be divided into two categories, i.e., fees charged to customers for
waste collection, transfer, recycling and disposal services (including service
fees for sewage and sludge treatment), and sales of recycled commodities
(including sales of methane). We consider our collection and disposal operations
and reclamation of reusable substances as our core business. Revenues from
service fees accounted for 59% and 65%, and 65% and 68%, of revenues in the
three months and nine months ended September 30, 2010 and 2009,
respectively.





The
Company’s total revenues for the three months ended September 30, 2010 was
$4,607,220, an increase of $1,485,953 or 47.6%, over revenues of $3,121,267 for
the three months ended September 30, 2009. Total revenues for the nine months
ended September 30, 2010 was $13,626,642, which represents an increase of
$6,440,429 or 89.6%,
over revenues of $7,186,213 for the nine months ended September 30,
2009.





Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Service
      fees (1)
            
            $
            2,722,643
            
            
            $
            2,039,001
            
            
            $
            8,894,125
            
            
            $
            4,879,448Sales
      of recycled commodities (2)(3)
            
            
            1,884,577
            
            
            
            1,082,266
            
            
            
            4,732,517
            
            
            
            2,306,765Total
            
            $
            4,607,220
            
            
            $
            3,121,267
            
            
            $
            13,626,642
            
            
            $
            7,186,213







Notes:




(1)
            Consists
      of service fees generated from industrial solid waste treatment, sewage
      treatment and sludge treatment.




(2)
            Cupric
      sulfate, which is included in the sales of recycled commodities, was
      segmented previously because its sales account for more
      than10%
      of total revenue.




(3)
            Sales
      of biogas (methane), which is a new revenue source provided by Dongtai
      Organic, is included in sales of recycled
  commodities.





The
increase in revenues is mainly attributable to the additional revenue generated
by Dongtai Organic from municipal sludge treatment, as well as sales of Biogas
(methane), a byproduct derived from sludge fermentation.





1. Service
fees





Service
fees increased from $2,039,001 for the three months ended September 30, 2009 to
$2,722,644 for the same period of 2010, an increase of $683,643, or 33.5%. The
increase is mainly attributable to the addition of $647,949 generated from
sludge treatment fees, which account for 23.8% of service fees in total. Service
fees for the nine months ended September 30, 2010 were $8,894,124,an increase
of $4,014,676 or 82.3% from service fees of $4,879,448 for the nine months ended
September 30, 2009.





Since its
commencement of operations in late 2009, revenue production by Dongtai Organic
has been stable, other than a decrease in the volume of methane produced during
July and August 2010 which resulted from a reduction of organic substance
contained in sludge as a consequence of excessive rainfall during this period
which was abnormal compared with those in history. For the nine months ended
September 30, 2010, Dongtai Organic generated $2,859,434 in sludge treatment
fees and sales of methane. Dongtai Organic was not operational during the same
period in 2009.





2. Sales of recycled
commodities





Statistics
disclosed by the Chinese government confirm that China’s economy continued its
strong growth during the third quarter of 2010.  Market prices for
many raw materials, including for Dalian Dongtai’s main products, cupric sulfate
and other recycled commodities such as iron, plastic and nonferrous metal, which
increased during the first half of 2010, began to stabilizing during the third
quarter. For example, the average price for cupric sulfate has stabilized at
about $1,700/ton, while the average price for the same period of 2009 was
approximately $1,160/ton. Many of our customers have returned to their
pre-recession production levels and some of them have further expanded their
production scale. As a natural consequence of all these factors, the amount of
recycled commodities collected from our clients increased as well. Based on
management’s estimate of future market conditions, Dalian Dongtai has decided to
increase the sales volume of recycled commodities, including some commodities
that had been inventoried during 2009 due to their low sales prices. Dalian
Dongtai generated $1,665,541 and $3,684,239 for the three months and nine months
ended September 30, 2010, respectively, from sales of recycled commodities
(excluding sales of methane) which increased by $583,275 or 53.9% and $1,377,474
or 59.7%, respectively, from $1,082,266 and $2,306,769 for the same quarters in
2009.




25





For the
nine months ended September 30, 2010, Dongtai Organic generated $1,048,278 in
revenue from sales of biogas (methane), a by-product of the sludge treatment
process. There were no corresponding revenues during the nine months ended
September 30, 2009.





Cost of
Revenues





The
Company’s cost of revenues for the three and nine months ended September 30,
2010 were $2,204,024 and $5,492,872, respectively, compared with $1,183,051 and
$2,789,138 for the three and nine months ended September 30, 2009,
respectively.





Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Cost
      of service fees (1)
            
            $
            1,302,925
            
            
            $
            612,036
            
            
            $
            3,559,797
            
            
            $
            1,452,911Cost
      of recycled commodities (2)(3)
            
            
            901,099
            
            
            
            571,015
            
            
            
            1,933,075
            
            
            
            1,336,227Total
            
            $
            2,204,024
            
            
            $
            1,183,051
            
            
            $
            5,492,872
            
            
            $
            2,789,138







Notes:




(1)
            Consists
      of service fees generated from industrial solid waste treatment, sewage
      treatment and sludge treatment.




(2)
            Cupric
      sulfate, which is included in the sales of recycled commodities, was
      segmented previously because its sales account for more
      than10%
      of total revenue.




(3)
            Sales
      of biogas (methane), which is a new revenue source provided by Dongtai
      Organic, is included in sales of recycled
  commodities.





1. Cost of service
fees





Cost of
service fees increased by $690,890, or 112.9%, and $2,106,886 or 145% for the
three months and nine months ended September 30, 2010, respectively, compared to
those for three months and nine months ended September 30, 2009. The difference
is mainly attributable to the approximately $117,500 in manufacturing expenses
of Dongtai in the third quarter of 2010 that had been allocated to R&D
expenses for the corresponding period in 2009, which caused lower cost of
service fees in the third quarter of 2009.





2. Cost of sales of recycled
commodities





Cost of
recycled products (including cupric sulfate and other recycled commodities) for
the three months and nine months ended September 30, 2010 increased by $330,084
or 57.8%, and $596,848 or 44.7%, respectively, compared with the same periods of
2009.





Gross Profit
Margin




The gross
profit margins for the three months and nine months ended September 30 2010 were
52.1% and 59.7%, respectively, whereas those for the same periods in 2009 were
62.1% and 61.2%.




26




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.




Short-term
loan as of September 30, 2010 was $2,989,313 (RMB20, 000,000), whereas the
amount as of December 31, 2009 was $ 6,739,038 (RMB46, 000,000). The Company
repaid outstanding bank loans in the amount of $6.7 million (RMB46,000,000)
in 2010, and renewed a short term loan in the amount of $3 million
(RMB20,000,000), and entered into one new long term loan in the amount of $1.6
million (RMB11,000,000) from Shanghai Pudong Development Bank, the proceeds of
which are being used as working capital.





As of
September 30, 2010, the balance of long-term loan was $16,706,524
(RMB111,775,000), most of which took effect on August 2009, and will be repaid
by installment over the next 8 years. The loans were provided by China
Merchants Bank. During the current year, the Company borrowed $1.64 million (RMB
11 million) from Shanghai Pudong Development Bank. The current portion of
the loan was $ 2,259,825(RMB15,119,358) as of September 30, 2010.





In
September 2010, the Company received a subsidy from the central government of
the PRC of $747,328 (RMB5 million), which is designated exclusively for use on
the construction of the "Dalian Centralized Hazardous Waste Treatment Expansion
Project" located in Dalian Development Area.





The
current ratio and quick ratio as of September 30, 2010 are 1.23 and 1.01
respectively, compared to that of 1.1 and 0.97 respectively as of September 30,
2009. Cash generated from operating and financing activities fully supported the
needs of our working capital.




Cash
Flow
 
 For
      the Nine Months Ended September 30,2010
                  
                  
                  2009Net
      cash provided by operating activities
                  
                  $
                  2,710,075
                  
                  
                  $
                  117,226Net
      cash used in investing activities
                  
                  $
                  (4,886,798
                  )
                  
                  $
                  (11,549,129
                  )Net
      cash provided by (used in) financing activities
                  
                  $
                  (4,772,530
                  )
                  
                  $
                  18,769,094
 
 Net cash
provided by operating activities was $2,710,075for the nine
months ended September 30, 2010, compared to net cash provided by operating
activities in the amount of $117,226 for the same period in 2009. The
improvement is mainly attributable to the recovery of solid waste treatment
business, and the cash inflows generated from sludge treatment business since
the beginning of 2010.
 
 Net cash
used in investing activities for the nine months ended September 30, 2010 was
$4,886,798, compared to net cash used in investing activities in the amount of
$11,549,129 for the same period of 2009. The significant difference is mainly
attributable to
 (a)
approximately $1.5 million advance payment served as deposit in September 2009
to acquire 65% interest in Hunan Hanyang,
 (b) cash
was invested for both Dalian Dongtai’s expansion project and Dongtai Organic’s
facility construction in the nine months ended September 30, 2009, while cash
was only used in Dalian Dongtai’s expansion project for the same period in 2010,
and
 (c)
approximately 1.7 million invested in Certificate of Deposit in the nine months
ended September 30, 2009.
 
 Net cash
used in financing activities for the nine months ended September 30, 2010 was
$4,772,530 compared to net cash provided by financing activities in the amount
of $18,769,094 for the same period in 2009. For the nine months ended September
30, 2009, the Company raised long-term and short-term loans of approximately
$22,936,518 to facilitate the construction of Dongtai Organic and Dalian
Dongtai’s expansion project. Besides, the Company also received approximately
$1.5 million subsidy from government and $750,000 released from Escrow Account
in 2009. While in 2010, we paid off the short term loan due in the amount of
$6,758,544 and long term loan in the amount of $1,240,597. Therefore, in compare
with the same period in 2009, the net cash obtained from financing activities
was significantly reduced.




27





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
acceptable to us.





OFF-BALANCE SHEET
ARRANGEMENTS





As of
September 30, 2010, 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.





During
the evaluation of disclosure controls and procedures as of December 31, 2009
conducted during the preparation of the Company’s financial statements included
in its annual report on Form 10-K, a material weakness in internal controls was
identified.  As a result of this material weakness the Company’s Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2009 our disclosure controls and procedures were not effective.





A
material weakness is “a deficiency, or a combination of deficiencies (within the
meaning of PCAOB Auditing Standard No. 5), in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.” The Company’s management concluded
that, as of December 31, 2009, the following material weakness
existed:





·
            We
      had an insufficient familiarity with generally accepted accounting
      principles in the United States (“US
GAAP”)


·
            The
      Company was unable to ensure that all information required to be disclosed
      in our filings was accumulated and communicated to management to allow
      timely decisions regarding required disclosure.


·
            The
      Company lacks qualified resources to perform the internal audit functions
      properly; and the scope and effectiveness of the Company’s internal audit
      function are yet to be developed.




28




Since
January 2, 2010 we have engaged in substantial efforts to improve our internal
control over financial reporting and disclosure controls and procedures related
to many areas of our financial statements and disclosures. In order to remediate
the material weakness identified as of December 31, 2009, during the nine
months of 2010 we have:





·
            Continued
      the process by which we will become better informed about US
      GAAP


·
            Engaged
      an accountant with experience in the industry and continue our search for
      additional accounting and financial personnel with industry
      experience.





Notwithstanding
the remedial actions we have undertaken since December 31, 2009, because of the
scope of the material weakness that existed at December 31, 2009, our management
has concluded that our disclosure controls and procedures at September 30, 2010
were not effective. Our efforts to remediate our disclosure controls and
procedures and internal control over financial reporting are continuing and are
expected to continue throughout fiscal 2010. Until such time, however, as our
efforts to remediate this weakness, there remains a risk that we will fail to
identify weaknesses or adequately correct any identified weaknesses in our
disclosure controls and procedures and internal control over financial
reporting, both as they relate to the material weakness identified at December
31, 2009 and to other possible areas.





Notwithstanding
the existence of this material weakness in disclosure controls and procedures
and internal control over financial reporting at September 30, 2010, we believe
that the consolidated financial statements included elsewhere in this report
fairly present, in all material respects, our consolidated balance sheets as of
September 30, 2010 and 2009 and the related consolidated statements of
operations, stockholders’ equity, and cash flows for the quarters ended
September 30, 2010 and 2009 in conformity with US GAAP.




There
have been no changes in our internal control over financial reporting that
occurred during our fiscal quarter ended September 30, 2010, 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.





Not
required.





Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.





None.





Item
3. Defaults Upon Senior Securities.





None.





Item
4. (Removed and Reserved)




29




Item
5. Other Information.





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 principal financial and accounting
      officer32.1
            
            Section
      1350 Certification of Chief Executive Officer32.2
            
            Section
      1350 Certification of Chief Financial
Officer




30




SIGNATURES


Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
 
 CHINA INDUSTRIAL WASTE
      MANAGEMENT, INC.Date:
      November 12, 2010
                By:
                /s/ Dong JinqingDong
      Jinqing, Chief Executive Officer
  Date:
      November 12, 2010
                  By:
                  /s/ Guo XinGuo
      Xin, Chief Financial Officer
 31