UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





(Mark
One)


Form
10-Q





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





For
      The Quarterly Period Ended June 30,
2009





or





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For The
Transition Period From __________________ to
__________________________





Commission
File Number: 2-95836-NY





China Industrial Waste Management,
      Inc.(Name of registrant as specified
      in its charter)





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





c/o Dalian Dongtai Industrial Waste Treatment
      Co.
              No. 1 Huaihe West Road, E-T-D Zone, Dalian,
      China
            116600(Address
      of principal executive offices)
            (Zip
      Code)





011-86-411-85811229(Registrant's
      telephone number, including area
code)





N/A(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.





Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





Yes o No o





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of "large
accelerated filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act.





Large
      accelerated filer
                 ̈
                Accelerated
      filer
                 ̈Non-accelerated
      filer
                  (Do
      not check if smaller reporting company)
                 ̈
                Smaller
      reporting company
                þ





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





Yes  ̈ No x





Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 15,271,035 shares of common stock are issued and outstanding
as of August 14, 2009.








TABLE
OF CONTENTS





Page
                  No.PART
      I. - FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements.
                1Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                17Item
      3.
                Quantative
      and Qualitative Disclosures About Market Risk.
                23Item
      4T
                Controls
      and Procedures.
                23Item
      1.
                Legal
      Proceedings.
                24Item
      1A.
                Risk
      Factors.
                24Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds.
                24Item
      3.
                Defaults
      Upon Senior Securities.
                24Item
      4.
                Submission
      of Matters to a Vote of Security Holders.
                24Item
      5.
                Other
      Information.
                24Item
      6.
                Exhibits.
                24





CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION





This
report includes "forward-looking statements." You can identify these statements
by the fact that they do not relate strictly to historical or current facts.
These statements contain such words as "may," "project," "might," "expect,"
"believe," "anticipate," "intend," "could," "would," "estimate," "continue," or
"pursue," or the negative or other variations thereof or comparable terminology.
In particular, they include statements relating to, among other things, future
actions, new projects, strategies, future performance, the outcomes of
contingencies and our future financial results. These forward-looking statements
are based on current expectations and projections about future
events.





Investors
are cautioned that forward-looking statements are not guarantees of future
performance or results and involve risks and uncertainties that cannot be
predicted or quantified and, consequently, our actual performance may differ
materially from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, but are not limited to, the following
factors, as well as other factors described from time to time in our reports
filed with the Securities and Exchange Commission (including the sections
entitled "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained therein): the timing and
magnitude of technological advances; the prospects for future acquisitions; the
effects of political, economic and social uncertainties regarding the
governmental, economic and political circumstances in the People’s Republic of
China; the possibility that a current customer could be acquired or otherwise be
affected by a future event that would diminish their waste management
requirements; the competition in the waste management industry and the impact of
such competition on pricing, revenues and margins; uncertainties surrounding
budget reductions or changes in funding priorities of existing government
programs; the cost of attracting and retaining highly skilled personnel; our
projected sales, profitability, and cash flows; our growth strategies;
anticipated trends in our industries; our future financing plans; and our
anticipated needs for working capital.


Forward-looking
statements speak only as of the date on which they are made, and, except to the
extent required by federal securities laws, we undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which the statement is made or to reflect the occurrence of unanticipated
events.





CONVENTIONS
AND GENERAL MATTERS





The
official currency of the People’s Republic of China is the Chinese “Yuan” or
“Renminbi” (“yuan,” “Renminbi” or “RMB”). For the convenience of the reader,
amounts expressed in this report as RMB have been translated into United States
dollars (“US$” or “$”) at the rate of USD$1.00 = RMB 6.8225 as of December 31,
2008; and at the rate of USD$1.00 = RMB 6.8302 as of June 30, 2009 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, its direct wholly-owned subsidiaries Favour Group Ltd.
(“Favour”), along with its indirect wholly-owned subsidiary, Full Treasure
Investments Ltd. (“Full Treasure”), and its indirect majority and wholly owned
subsidiaries: Dalian Dongtai Industrial Waste Treatment Co. Ltd. (“Dalian
Dongtai”); Dongtai Water Recycling Co. Ltd. (“Dongtai Water”); Dalian Zhuorui
Resource Recycling Co., Ltd. (“Zhuorui”); Yingkou Dongtai Industrial Waste
Treatment Co., Ltd.(“Yingkou Dongtai) and Dalian Lipp Environmental Energy
Engineering & Technology Co., Ltd.(“Dalian Lipp”). In March 2009 DonTech, a
previous direct wholly-owned subsidiary of China Industrial Waste Management,
Inc., merged with and into China Industrial Waste Management, Inc. and the 90%
shares of Dalian Dongtai  held by DonTech was transferred to Full
Treasure.





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





PART
1 - FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements.





CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.


CONSOLIDATED
BALANCE SHEETS





June 30,
                              
                              
                              December 31,2009
                              
                              
                              2008(Unaudited)
                              
                              
                              (Audited)ASSETSCurrent
      assetsCash
      and cash equivalents
                              
                              $
                              7,950,100
                              
                              
                              $
                              5,714,001Notes
      receivable
                              
                              
                              357,822
                              
                              
                              
                              -Accounts
      receivable, net
                              
                              
                              2,761,994
                              
                              
                              
                              2,414,257Other
      receivables
                              
                              
                              207,979
                              
                              
                              
                              105,329Inventory
                              
                              
                              2,498,498
                              
                              
                              
                              2,372,214Advances
      to suppliers
                              
                              
                              746,297
                              
                              
                              
                              550,931Deferred
      expense
                              
                              
                              16,105
                              
                              
                              
                              17,589Total
      current assets
                              
                              
                              14,538,795
                              
                              
                              
                              11,174,321Investment
                              
                              
                              2,731,477
                              
                              
                              
                              2,794,248Property,
      plant and equipment, net
                              
                              
                              15,427,251
                              
                              
                              
                              15,474,915Construction
      in progress
                              
                              
                              6,329,944
                              
                              
                              
                              5,738,271Land
      usage right, net of accumulated amortization
                              
                              
                              1,790,195
                              
                              
                              
                              1,817,427Escrow
      account
                              
                              
                              -
                              
                              
                              
                              750,000Certificate
      of deposit
                              
                              
                              292,817
                              
                              
                              
                              73,287Other
      asset
                              
                              
                              418,187
                              
                              
                              
                              363,343Related
      party receivable
                              
                              
                              27,743
                              
                              
                              
                              1,256,599TOTAL
      ASSETS
                              
                              $
                              41,556,409
                              
                              
                              $
                              39,442,411LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                              
                              $
                              784,666
                              
                              
                              $
                              780,458Short-term
      loan
                              
                              
                              6,734,795
                              
                              
                              
                              3,371,198Tax
      payable
                              
                              
                              58,556
                              
                              
                              
                              215,240Advance
      from customers
                              
                              
                              556,397
                              
                              
                              
                              539,013Deferred
      sales
                              
                              
                              963,531
                              
                              
                              
                              972,143Accrued
      expenses
                              
                              
                              11,203
                              
                              
                              
                              361,111Construction
      projects payable
                              
                              
                              3,026,140
                              
                              
                              
                              4,742,164Other
      payable
                              
                              
                              121,829
                              
                              
                              
                              211,362Related
      party payable
                              
                              
                              378,600
                              
                              
                              
                              278,490Total
      current liabilities
                              
                              
                              12,635,717
                              
                              
                              
                              11,471,179Asset
      retirement obligation
                              
                              
                              519,773
                              
                              
                              
                              502,278Government
      subsidy
                              
                              
                              980,141
                              
                              
                              
                              1,028,257TOTAL
      LIABILITIES
                              
                              
                              14,135,631
                              
                              
                              
                              13,001,714Minority
      interest in subsidiary
                              
                              
                              3,307,719
                              
                              
                              
                              2,823,126Stockholders'
      equityPreferred
      stock: par value $.001; 5,000,000shares
      authorized; none issued and outstanding
                              
                              
                              -
                              
                              
                              
                              -Common
      stock: par value $.001; 95,000,000 shares authorized;15,271,035
      and 15,262,035 shares issued and outstandingat
      June 30, 2009 and December 31, 2008 respectively
                              
                              
                              15,271
                              
                              
                              
                              15,262Additional
      paid-in capital
                              
                              
                              5,660,341
                              
                              
                              
                              5,644,750Other
      comprehensive income
                              
                              
                              2,221,035
                              
                              
                              
                              2,422,167Retained
      earnings
                              
                              
                              16,216,412
                              
                              
                              
                              15,535,392Total
      stockholders' equity
                              
                              
                              24,113,059
                              
                              
                              
                              23,617,571TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                              
                              $
                              41,556,409
                              
                              
                              $
                              39,442,411





See notes
to Consolidated Financial Statements.


1





CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


(Unaudited)





Three
      Months Ended
                  
                  
                  Six
      Months EndedJune
      30,
                  
                  
                  June
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Service
      fees
                  
                  $
                  1,642,748
                  
                  
                  $
                  1,954,513
                  
                  
                  $
                  2,840,447
                  
                  
                  $
                  3,774,065Sales
      of cupric sulfate
                  
                  
                  347,400
                  
                  
                  
                  671,747
                  
                  
                  
                  438,530
                  
                  
                  
                  1,380,590Sales
      of  recycled commodities
                  
                  
                  463,286
                  
                  
                  
                  964,599
                  
                  
                  
                  786,407
                  
                  
                  
                  1,566,484Operating
      revenue
                  
                  
                  2,453,434
                  
                  
                  
                  3,590,859
                  
                  
                  
                  4,065,384
                  
                  
                  
                  6,721,139Cost
      of service fees
                  
                  
                  370,713
                  
                  
                  
                  315,881
                  
                  
                  
                  840,876
                  
                  
                  
                  686,916Cost
      of cupric sulfate
                  
                  
                  154,187
                  
                  
                  
                  238,577
                  
                  
                  
                  242,164
                  
                  
                  
                  525,103Cost
      of recycled commodities
                  
                  
                  353,420
                  
                  
                  
                  536,944
                  
                  
                  
                  523,131
                  
                  
                  
                  807,476Costs
      of revenue
                  
                  
                  878,320
                  
                  
                  
                  1,091,402
                  
                  
                  
                  1,606,171
                  
                  
                  
                  2,019,495Gross
      profit
                  
                  
                  1,575,114
                  
                  
                  
                  2,499,457
                  
                  
                  
                  2,459,213
                  
                  
                  
                  4,701,644Operating
      expensesSelling
      expenses
                  
                  
                  44,691
                  
                  
                  
                  187,022
                  
                  
                  
                  222,008
                  
                  
                  
                  415,103General
      and administrative expenses
                  
                  
                  894,786
                  
                  
                  
                  563,930
                  
                  
                  
                  1,341,507
                  
                  
                  
                  917,776Total
      operating expenses
                  
                  
                  939,477
                  
                  
                  
                  750,952
                  
                  
                  
                  1,563,515
                  
                  
                  
                  1,332,879Income
      from operations
                  
                  
                  635,637
                  
                  
                  
                  1,748,505
                  
                  
                  
                  895,698
                  
                  
                  
                  3,368,765Other
      income(expense)Investment
      income (loss)
                  
                  
                  (18,640
                  )
                  
                  
                  (1,413
                  )
                  
                  
                  (59,589
                  )
                  
                  
                  (10,452
                  )Interest
      income
                  
                  
                  (5,159
                  )
                  
                  
                  (112
                  )
                  
                  
                  (3,888
                  )
                  
                  
                  6,186Other
      income
                  
                  
                  47,410
                  
                  
                  
                  574
                  
                  
                  
                  47,457
                  
                  
                  
                  6,454Other
      expense
                  
                  
                  23,049
                  
                  
                  
                  (1,659
                  )
                  
                  
                  (40,511
                  )
                  
                  
                  (1,661
                  )Total
      other income (expense)
                  
                  
                  46,660
                  
                  
                  
                  (2,610
                  )
                  
                  
                  (56,531
                  )
                  
                  
                  527Net
      income from continuing operations before minority interest and income
      tax
                  
                  
                  682,297
                  
                  
                  
                  1,745,895
                  
                  
                  
                  839,167
                  
                  
                  
                  3,369,292Income
      tax expense
                  
                  
                  60,257
                  
                  
                  
                  227,216
                  
                  
                  
                  105,287
                  
                  
                  
                  334,446Income
      from continuing operations
                  
                  
                  622,040
                  
                  
                  
                  1,518,679
                  
                  
                  
                  733,880
                  
                  
                  
                  3,034,846Minority
      interest
                  
                  
                  48,536
                  
                  
                  
                  148,887
                  
                  
                  
                  52,860
                  
                  
                  
                  289,437Net
      income
                  
                  $
                  573,504
                  
                  
                  $
                  1,369,792
                  
                  
                  $
                  681,020
                  
                  
                  $
                  2,745,409Foreign
      currency translation adjustment
                  
                  
                  (181,925
                  )
                  
                  
                  155,554
                  
                  
                  
                  (201,132
                  )
                  
                  
                  745,508Comprehensive
      income
                  
                  $
                  391,579
                  
                  
                  $
                  1,525,346
                  
                  
                  $
                  479,888
                  
                  
                  $
                  3,490,917Basic
      weighted average shares outstanding
                  
                  
                  15,268,068
                  
                  
                  
                  13,234,434
                  
                  
                  
                  15,265,085
                  
                  
                  
                  13,234,434Diluted
      weighted average shares outstanding
                  
                  
                  15,268,068
                  
                  
                  
                  13,234,434
                  
                  
                  
                  15,265,085
                  
                  
                  
                  13,234,434Basic
      and diluted net earnings per share
                  
                  $
                  0.04
                  
                  
                  $
                  0.10
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.21





See notes
to Consolidated Financial Statements.


2





CHINA
      INDUSTRIAL WASTE MANAGEMENT, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)





For the Six Months Ended June
      30,2009
                  
                  
                  2008Cash
      flows from operating activities:Net
      income
                  
                  $
                  681,020
                  
                  
                  $
                  2,745,409Adjustments
      to reconcile net income to net cash provided by operating
      activities:Minority
      interest
                  
                  
                  52,860
                  
                  
                  
                  1,219,099Depreciation
      & Amortization
                  
                  
                  615,399
                  
                  
                  
                  375,706Bad
      debt allowance
                  
                  
                  -
                  
                  
                  
                  6,701Stock
      issued for services
                  
                  
                  15,600
                  
                  
                  
                  117,100Accretion
      expenses
                  
                  
                  18,055
                  
                  
                  
                  39,722Loss
      on equity investment
                  
                  
                  62,771
                  
                  
                  
                  (111,440
                  )Government
      subsidy
                  
                  
                  (48,116
                  )
                  
                  
                  402,916Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (347,737
                  )
                  
                  
                  (1,495,466
                  )Note
      receivable
                  
                  
                  (357,822
                  )
                  
                  
                  -Inventory
                  
                  
                  (126,284
                  )
                  
                  
                  (436,565
                  )Other
      receivables
                  
                  
                  (102,650
                  )
                  
                  
                  (95,489
                  )Advance
      to suppliers
                  
                  
                  (195,366
                  )
                  
                  
                  (1,007,316
                  )Accrued
      expense and deferred sales
                  
                  
                  (358,521
                  )
                  
                  
                  109,736Accounts
      payable
                  
                  
                  4,208
                  
                  
                  
                  714,043Tax
      payable
                  
                  
                  (156,684
                  )
                  
                  
                  (39,446
                  )Others
                  
                  
                  (105,372
                  )
                  
                  
                  -Net
      cash provided by (used in) operating activities
                  
                  
                  (348,639
                  )
                  
                  
                  2,544,710Cash
      flows from investing activitiesPurchase
      of property and equipment
                  
                  
                  (65,563
                  )
                  
                  
                  (523,265
                  )Construction
      contracts
                  
                  
                  (830,143
                  )
                  
                  
                  (3,156,825
                  )Purchase
      of software
                  
                  
                  (20,137
                  )
                  
                  
                  -Due
      from related party
                  
                  
                  1,228,856
                  
                  
                  
                  (309,335
                  )Due
      to related party
                  
                  
                  100,110
                  
                  
                  
                  (201,661
                  )Certificate
      of deposit
                  
                  
                  (219,530
                  )
                  
                  
                  (491,861
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  193,593
                  
                  
                  
                  (4,682,947
                  )Cash
      flows from financing activitiesRepayment
      of construction projects payable
                  
                  
                  (1,716,024
                  )
                  
                  
                  -Proceeds
      from loans
                  
                  
                  6,732,430
                  
                  
                  
                  3,433,235Repayment
      of short term loan
                  
                  
                  (3,366,215
                  )
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  1,650,191
                  
                  
                  
                  3,433,235Cash
      released from escrow account
                  
                  
                  750,000
                  
                  
                  
                  -Effect
      of exchange rate on cash
                  
                  
                  (9,046
                  )
                  
                  
                  629,020Net
      increase in cash and cash equivalents
                  
                  
                  2,236,099
                  
                  
                  
                  1,924,018Cash
      and cash equivalents, beginning of period
                  
                  
                  5,714,001
                  
                  
                  
                  3,260,307Cash
      and cash equivalents, end of period
                  
                  $
                  7,950,100
                  
                  
                  $
                  5,184,325Supplemental
      cash flow information:Cash
      paid during the year for:Interest
                  
                  $
                  106,911
                  
                  
                  $
                  89,107Income
      taxes
                  
                  $
                  60,258
                  
                  
                  $
                  -Non-cash
      investing and  financing activities:Contributed
      anaerobic fermentation  equipment
                  
                  $
                  (292,701
                  )
                  
                  $
                  -Transfer
      out of construction  in progress
                  
                  $
                  288,536
                  
                  
                  $
                  -Transfer
      of construction in progress to property, plant and
    equipment
                  
                  $
                  (288,536
                  )
                  
                  $
                  -Change
      in reporting entity
                  
                  $
                  276,253
                  
                  
                  $
                  -





See notes
to Consolidated Financial Statements.


3


CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
 NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and the new scaled disclosure requirements in Article 8 of Regulation S-K of the
SEC. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for annual financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The accounts of the Company and all of its
subsidiaries are included in the consolidated financial statements. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The consolidated operating results for the six months ended June
30, 2009 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2009. For further information, refer to the audited
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 2008.
 
 1. Nature of
operations
 
 The
accompanying unaudited consolidated financial statements are those of China
Industrial Waste Management, Inc., a Nevada corporation (the “Company”)
incorporated on November 12, 2003, its wholly owned subsidiary, Favour Group
Ltd., a British Virgin Islands corporation (“Favour”), along with its indirectly
wholly and majority owned subsidiaries:
 
 • Full
Treasure Investments Ltd. (“Full Treasure”)
 • Dalian
Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian Dongtai”)
 • Dalian
Dongtai Water Recycling Co., Ltd. (“Dongtai Water”)
 • Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”)
 • Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
Lipp”)
 • Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”)
 
 Dalian
Dongtai was incorporated on January 9, 1991 in Dalian, 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 People’s Republic of China (“PRC”). The Company
provides waste disposal solutions to its more than 650 customers from facilities
located in the Economic and Technological Development Zone, Dalian, China. In
addition, the Company provides the following services to its
clients:
 
 •
Environmental protection services
 •
Technology consultation
 •
Pollution treatment services
 • Waste
management design processing services
 • Waste
disposal solutions
 • Waste
transportation services
 • Onsite
waste management services
 •
Environmental pollution remediation services.
  Dongtai
Water, which was incorporated in July 2006, is a build-operate-transfer project
established to process municipal waste water generated by Dalian
City.
  4
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 Zhuorui
was incorporated in April 2006 and is engaged in plasma arc melting, separation
and purification of waste catalysts, treatment of industrial wastes and
comprehensive utilization of waste catalysts or similar material. This
subsidiary is now in the stage of trial production.
 
 Dalian
Lipp is a PRC joint venture established on December 22, 2007. Dalian Lipp
designs, manufactures and installs environmental protection equipment and
renewable energy equipment and provides related technical services. The project
is based on the Lipp GmbH tank building technique which is dedicated to
generating energy by organic waste anaerobic fermentation, industrial effluent
treatment and municipal sewage plant.
 
 Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”), which operates
in the Coastal Industrial Base (the “Base”) of Yingkou City, Liaoning Province,
was founded on May 20th, 2009. On July 1, 2009, the State Council of the PRC
issued Development Planning of Coastal Economic Belt in Liaoning Province (the
“Planning”), which brought the development of the coastal cities of Liaoning
Province into its national strategy. The Base is considered a significant factor
in the Planning.
 
 Yingkou
Dongtai, which is 100% owned by Dalian Dongtai, is engaged in the recycling and
disposal of industrial waste, the development and production of recycling
products, the design and construction of environmental engineering, the
treatment of environmental pollution, the manufacturing of environmental
protection equipments, and the sales of chemical products (other than hazardous
chemicals). Yingkou Dongtai intends to build and complete waste treatment
facilities gradually, in line with the development of the Base. Currently,
Yingkou Dongtai is building warehouses, and pursuing the business of collection,
classification, and storage of industrial waste.
 
 2. Basis of
Presentation
  The
accompanying unaudited consolidated financial statements include the accounts of
the parent entity, its directly wholly owned subsidiary, Favour, along with its
indirectly wholly owned subsidiary, Full Treasure, its 90% indirectly owned
subsidiary Dalian Dongtai, its 80% indirectly owned subsidiary Dongtai Water,
its 70% indirectly owned subsidiary Zhuorui, its 75% indirectly owned subsidiary
Dalian Lipp, and its 100% indirectly owned subsidiary Yingkou Dongtai. All
material inter-company accounts and transactions have been eliminated in the
consolidation.
 
 The
accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”). This
basis differs from that used in the statutory accounts of the Company, which
were prepared in accordance with the accounting principles and relevant
financial regulations applicable to enterprises in PRC. All necessary
adjustments have been made to present the financial statements in accordance
with US GAAP.
 
 3. Summary of Significant
Accounting Policies
 
 Use of
estimates
 
 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.
  5
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 Foreign currency
translation
 
 As of
June 30, 2009 and 2008, the accounts of the Company were maintained, and the
unaudited consolidated financial statements were expressed in Chinese Yuan
Renminbi (“RMB”). Such consolidated financial statements were translated into
U.S. dollars (“USD”) in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 52, “Foreign Currency Translation” with RMB as the
functional currency. According to the Statement, all assets and liabilities were
translated at the exchange rate as of the balance sheet date; stockholders’
equity was translated at the exchange rates prevailing at the time of the
transactions; revenues, costs, and expenses were translated at the weighted
average exchange rate for the period. The resulting translation adjustments are
reported under other comprehensive income in accordance with SFAS No. 130,
“Reporting Comprehensive Income”.
 
 Cash and cash
equivalents
 
 Cash and
cash equivalents include cash on hand and cash on deposit, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.
 
 Restricted
cash
 
 In
accordance with Accounting Review Board (ARB) No. 43, Chapter 3A “Current Assets
and Current Liabilities”, cash which is restricted as to withdrawal is
considered a non-current asset. As of June 30, 2009, restricted cash consists of
time deposit of $292,817 (RMB2, 000,000) as detailed below:
 
 Effective Date
                      
                      Maturity
                      
                      Depository Bank
                      
                      Annual Interest Rate
                      
                      
                      Principal05-25-2009
                      
                      
                      05-25-2010
                      
                      Bank
      of Dalian
                      
                      
                      2.25%
                      
                      
                      $
                      292,817$
                      292,817
 
 Accounts and other
receivables
 
 Accounts
and other receivables are recorded at net realizable value consisting of the
carrying amount less an allowance for uncollectible accounts, as
needed.
 
 The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Payment terms of sales vary from cash on delivery
through a credit term of up to nine to twelve months.
 
 Concentration of credit
risks
 
 The
Company is subject to concentrations of credit risk primarily from cash and cash
equivalents. The Company maintains accounts with financial institutions, which
at times exceeds the insured Federal Deposit Insurance Corporation limit of
$250,000. The Company minimizes its credit risks associated with cash by
periodically evaluating the credit quality of its primary financial
institutions. And by depositing its cash and cash equivalents among various
financial institutions.
  6
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 Advances to
suppliers
 
 The
Company makes advances to certain vendors for purchase of its material or
equipment. The advances to suppliers are interest free and
unsecured.
 
 Inventory
 
 Inventories
are stated at the lower of cost, as determined on a first-in, first-out basis
for raw materials and auxiliary materials, and weighted average basis for other
categories, or market. Management compares the cost of inventories with the
market value, and allowance is made for writing down the inventories to their
market value, if lower.
 
 Property, plant and
equipment
 
 Property,
plant and equipment (“PP&E”) are stated at cost, less accumulated
depreciation and impairment. Expenditures for maintenance and repairs, which are
not considered improvements and do not extend the useful life of PP&E, are
expensed as incurred; additions, renewals and betterments are capitalized. When
PP&E are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
included in the statement of operations.
 
 Depreciation
is provided to recognize the cost of PP&E in the results of operations. The
Company calculates depreciation using the straight-line method with estimated
useful life as follows:
 
 Useful
      LifeBuildings
                20
      YearsMachinery
                10
      YearsVehicles
                5
      YearsOffice
      equipment
                5
      Years
 
 Construction
in progress consists of construction expenditure, equipment procurement,
capitalized interest expense, relevant miscellaneous expenditures, and other
costs.
 
 As of
June 30, 2009, construction in progress is comprised of two principal
components; one is the costs incurred by Dalian Dongtai for the expansion
project which is located in Dagu Hill, ETD Zone, Dalian.
 The
expansion project consists of an incineration system that includes an
incinerator, its supporting facilities, and warehouses, work plants and office
buildings, etc. The other component is production equipment of Zhuorui, which is
still in testing phase, including plasma furnace, flue gas cleansing system,
dust trapper, and trial production cost incurred during the second quarter of
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 SFAS No. 143, “Accounting for Asset Retirement
Obligations and its Interpretations”.
 
 Interest
accretion on final capping, closure and post-closure liabilities is recorded
using the effective interest method and is recorded as accretion expense, which
is included our Consolidated Statements of Operations.
  7
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 The
amortizable basis of a landfill includes (i) amounts previously expended and
capitalized; (ii) capitalized landfill final capping, closure and post-closure
costs; (iii) projections of future purchase and development costs required to
develop the landfill site to its remaining permitted and expansion capacity; and
(iv) projected asset retirement costs related to landfill final capping, closure
and post-closure activities.
 
 Amortization
is recorded on a units-of-consumption basis, applying cost as a rate per ton.
The rate per ton is calculated by dividing each component of the amortizable
basis of a landfill by the number of tons needed to fill the corresponding
asset’s airspace.
 
 Liabilities
for landfill and environmental remediation costs are presented in the table
below:
 
 June 30, 2009
                    
                    December 31, 2008Long-term
      Liability
                    
                    $
                    519,773
                    
                    
                    $
                    502,278
 
 Long-term
investment
 
 Long-term
investment is recorded under the equity method. As of June 30, 2009, long-term
investment is comprised of investment in Dalian Dongtai Organic Waste Treatment
Co., Ltd. (“Dongtai Organic”).
 
 Dongtai
Organic, which is now in the stage of trial production, was organized to operate
a municipal sludge treatment and disposal facility in Dalian, PRC. The Company
currently owns 49% of Dongtai Organic.
 
 Impairment of long-lived
assets
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS 144), such as property, plant, and equipment, and
purchased intangibles, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Intangible assets are tested for impairment annually.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
There were no events or changes in circumstances that necessitated a review of
impairment of long lived assets as of June 30, 2009 and December 31, 2008,
respectively.
 
 Intangible
assets
 
 Intangible
assets consist of “Rights to use land and build a plant” for 50 years and
intellectual property. The intangible assets are amortized using straight – line
method. The Company also evaluates intangible assets for impairment, at least on
an annual basis and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors, including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss.
  8
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 As of
June 30, 2009 and December 31, 2008, net land usage right was $1,790,195 and
$1,817,427 respectively.
  Non-controlling interest in
consolidated financial statements
 
 In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements,” (“SFAS 160”). This Statement amends
Accounting Research Bulletin 51 (“ARB 51”) to establish accounting and reporting
standards for the noncontrolling (minority) interest in a subsidiary and
for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. SFAS
160 is effective for the Company beginning January 1, 2009.
 
 Non-controlling
interest represents the minority owners’10% equity interest in Dalian Dongtai,
20% equity interest in Dongtai Water, 30% equity interest in Zhuorui and
25% equity interest in Dalian Lipp.
 
 Fair value of financial
instruments
 
 SFAS
No.107, “Disclosures About Fair Value of Financial Instruments”, requires that
the Company discloses estimated fair values of financial instruments. The
carrying amounts reported in the statements of financial position for current
assets and current liabilities qualifying as financial instruments are a
reasonable estimate of fair value.
 
 Revenue
recognition
 
 The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. Our revenues are generated from the fees we charge for
waste collection, transfer, treatment, disposal and recycling services and the
sale of recycled commodities. The fees charged for services are generally
defined in service agreements and vary based on contract specific terms such as
frequency of service, weight, volume and the general market factors influencing
industry’s rates. Revenue is generally recognized as services are rendered or
products are delivered.
 
 Deferred
sales consist of contracts for which the fees have been collected but revenue
has not yet been recognized in accordance with the revenue recognition policy.
As of June 30, 2009 and December 31, 2008, deferred sales amounted to $ 963,531
and $ 972,143, respectively.
 
 Advertising
costs
 
 The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the period ended
June 30, 2009 and 2008 were immaterial.
 
 Stock-based
compensation
 
 In
December 2004, the Financial Accounting Standard Board (“FASB”) issued SFAS
No.123(R), “Share-Based Payment”, which prescribes accounting and reporting
standards for all stock based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123(R) requires compensation expense to be recorded using the
fair value method.
  9
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 Income
taxes
 
 The
Company utilizes SFAS No.109, “Accounting for Income Taxes” which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates, applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
  Local PRC income
tax
 
 The
Company is subject to the PRC Enterprise Income Tax (“EIT”) at a rate of 25% on
its net income. According to PRC EIT Law, any joint venture with foreign
investment will get EIT exemption treatment for the first two years and reduced
tax rates of 9%, 10% and 11% for the third, fourth and fifth years,
respectively. As a foreign investment enterprise, Dongtai is subject to EIT at
10% for the period ended June 30, 2009. Furthermore, the Law stipulates that
enterprises that engage in municipal waste water treatment business are eligible
for special EIT treatment. According to such rules, Dongtai Water is entitled to
a three-year EIT exemption treatment starting whenever it receives the first
operation revenue, and another 50% off of the normal rate for the next three
years.
 
 Statement of cash
flows
 
 In
accordance with SFAS No. 95, “Statement of Cash Flows” cash flows from the
Company’s operations is calculated based upon the local currencies. As a result,
amounts related to assets and liabilities reported on the statement of cash
flows will not necessarily agree with changes in the corresponding balances on
the balance sheet.
 
 Basic and diluted net
earnings per share
 
 Earnings
per share is calculated in accordance with SFAS No. 128, “Earnings Per Share”.
Basic earnings per share is based upon the weighted average number of common
shares outstanding. Diluted earnings per share is based on the assumption that
all dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
 
 Reclassifications
 
 Certain
reclassifications have been made in the 2008 financial statements to conform to
the 2009 presentation.
 
 Recent accounting
pronouncements
 
 Recent
accounting pronouncements that the Company has adopted or that will be required
to adopt in the future are summarized below.
  10
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting
Principles
 
 In June
2009, the Financial Accounting Standards Board issued Statement “FASB” issued
Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles” (“SFAS No. 168”).  SFAS
No. 168 will become the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (“GAAP”), superseding existing FASB,
American Institute of Certified Public Accountants (“AICPA”), Emerging Issues
Task Force (“EITF”), and related accounting literature.  SFAS No. 168
reorganizes the thousands of GAAP pronouncements into roughly 90 accounting
topics and displays them using a consistent structure.  Also included
is relevant Securities and Exchange Commission guidance organized using the same
topical structure in separate sections.  SFAS No. 168 will be
effective for financial statements issued for reporting periods that end after
September 15, 2009.  This statement will have an impact on the
Company’s financial statements since all future references to authoritative
accounting literature will be references in accordance with SFAS No.
168.
 
 Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing
 
 In June
2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1,
“Accounting for Own-Share Lending Arrangements in Contemplation of Convertible
Debt Issuance or Other Financing”. This Issue is effective for fiscal years
beginning on or after December 15, 2009, and interim periods within those fiscal
years for arrangements outstanding as of the beginning of those fiscal years.
Share lending arrangements that have been terminated as a result of counterparty
default prior to the effective date of this Issue but for which the entity has
not reached a final settlement as of the effective date are within the scope of
this Issue. This Issue requires retrospective application for all arrangements
outstanding as of the beginning of fiscal years beginning on or after December
15, 2009. This Issue is effective for arrangements entered into on or after the
beginning of the first reporting period that begins on or after June 15, 2009.
Early adoption is not permitted. The Company is currently assessing the impact
of FSP EITF 09-1 on its financial position and results of
operations.
 
 Subsequent
Events
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”)
This Statement establishes general standards of accounting for and disclosures
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued.  It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date and is effective for interim and annual periods
ending after June 15, 2009.  The adoption of SFAS No. 165 is not
expected to have a material impact on the Company’s financial
statements.
 
 Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly
 
 In April
2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly". This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. FSP FAS
No. 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively.  The implementation
of FSP FAS No. 157-4 did not have a material on the Company’s financial position
and results of operations.
  11
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 Recognition
and Presentation of Other-Than-Temporary Impairments
 
 In April
2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments ". The objective of an
other-than-temporary impairment analysis under existing U.S. generally accepted
accounting principles (GAAP) is to determine whether the holder of an investment
in a debt or equity security for which changes in fair value are not regularly
recognized in earnings (such as securities classified as held-to-maturity or
available-for-sale) should recognize a loss in earnings when the investment is
impaired. An investment is impaired if the fair value of the investment is less
than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective
for interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. Earlier adoption for
periods ending before March 15, 2009, is not permitted.  The
implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material
impact on the Company’s financial position and results of
operations.
 
 Interim
Disclosures about Fair Value of Financial Instruments
  In April
2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments,to require disclosures about fair value of
financialinstruments for interim
reporting periods of publicly traded companies as well as in annualfinancial statements.
This FSP also amends APB Opinion No. 28, Interim Financial Reporting,to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009.  The implementation of FSP FAS No. 107-1
did not have a material impact on the Company’s financial position and results
of operations
 
 Interim
Disclosure about Fair Value of Financial Instruments
 
 In April
2009, the FASB issued FASB Staff Position “FSP” No. SFAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments”.  This
FSP amends SFAS No. 107 to require disclosures about fair values of financial
instruments for interim reporting periods as well as in annual financial
statements.  The FSP also amends Accounting Principles Board Opinions
“APB Opinion” No. 28 to require those disclosures in summarized financial
information at interim reporting periods.  This FSP becomes effective
for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  The adoption of
this FSP is not expected to have a material impact on our consolidated financial
statements.
 
 Amendments
to the Impairment Guidance of EITF Issue No. 99-20
 
 In
January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No.
99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This
FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to Be Held by a Transferor in Securitized Financial
Assets,” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The FSP also retains and
emphasizes the objective of an other-than- temporary impairment assessment and
the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities,and other related guidance. This Issue is
effective for interim and annual reporting periods ending after December 15,
2008, and shall be applied prospectively. Retrospective application to a prior
interim or annual reporting period is not permitted. The adoption of FSP EITF
99-20-1 did not have a material effect on the Company’s consolidated financial
statements
  12
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 4. Accounts
Receivable
 
 Aging
                  
                  June 30, 2009
                  
                  
                  December 31, 20081-3
      months
                  
                  $
                  1,485,010
                  
                  
                  $
                  1,505,7964-6
      months
                  
                  
                  411,004
                  
                  
                  
                  437,6677-12
      months
                  
                  
                  425,689
                  
                  
                  
                  469,2641-2
      years
                  
                  
                  442,330
                  
                  
                  
                  1,909More
      than 2 years
                  
                  
                  10,079
                  
                  
                  
                  11,753Total
                  
                  $
                  2,774,112
                  
                  
                  $
                  2,426,389Allowance
      for doubtful accounts
                  
                  
                  12,118
                  
                  
                  
                  12,132Net
      accounts receivable
                  
                  $
                  2,761,994
                  
                  
                  $
                  2,414,257
 
 5. Notes
Receivable
 
 As of
June 30, 2009, the outstanding balance of notes receivable is comprised of four
bank acceptance bills issued by Dalian Petrochemical Engineering Corporation.
The balance of each note and maturity are as follows:
 
 Maturity
                    
                    AmountJuly
      9, 2009
                    
                    $
                    73,204July
      9, 2009
                    
                    
                    73,204July
      9, 2009
                    
                    
                    123,172September
      10, 2009
                    
                    
                    88,242$
                    357,822
  13
 
 
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 6.
Inventory
 
 Inventory
as of June 30, 2009 and December 31, 2008 consists of raw materials and recycled
commodities as follows:
 
 June
      30, 2009
                  
                  
                  December
      31, 2008Raw
      materials
                  
                  $
                  1,331,941
                  
                  
                  $
                  1,130,109Recycled
      commodities
                  
                  
                  1,166,557
                  
                  
                  
                  1,242,105$
                  2,498,498
                  
                  
                  $
                  2,372,214
 
 7. Property, plant and
equipment
 June
      30,2009
                  
                  
                  December
      31,2008Land
      and building
                  
                  $
                  10,027,751
                  
                  
                  $
                  9,978,971Machinery
      and equipment
                  
                  
                  7,361,417
                  
                  
                  
                  6,898,868Office
      equipment
                  
                  
                  549,529
                  
                  
                  
                  542,174Vehicles
                  
                  
                  928,680
                  
                  
                  
                  911,54018,867,377
                  
                  
                  
                  18,331,553Less
      accumulated depreciation
                  
                  
                  (3,440,126
                  )
                  
                  
                  (2,856,638
                  )Total
      property and equipment, net
                  
                  
                  15,427,251
                  
                  
                  
                  15,474,915Construction
      in progress
                  
                  
                  6,329,944
                  
                  
                  
                  5,738,271Total
                  
                  $
                  21,757,195
                  
                  
                  $
                  21,213,186
 
 Depreciation
expenses amounted to $583,488 and $356,842 for the period ended June 30, 2009
and 2008, respectively.
 
 8. Short-term
loan
 
 As of
June 30, 2009, the short-term loan balance represents loans borrowed from
Shanghai Pudong Development Bank, Dalian Branch. The following table identifies
the material terms of loans:
 
 Effective
      Date
                              
                              Maturity
                              
                              Type
                              
                              Annual
                                Interest Rate
                              
                              
                              Principal04-27-2009
                              
                              
                              04-27-2010
                              
                              Secured
                              
                              
                              5.841%
                              
                              
                              $
                              3,806,62305-18-2009
                              
                              
                              05-18-2010
                              
                              Secured
                              
                              
                              5.841%
                              
                              
                              
                              1,464,08606-04-2009
                              
                              
                              06-04-2010
                              
                              Secured
                              
                              
                              5.841%
                              
                              
                              
                              1,464,086$
                              6,734,795
  14
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 9. Government
subsidies
 
 Government
subsidies, with the amount of $980,141 as of June 30, 2009, represents subsidies
that Zhuorui received from local government, as Zhuorui’s business falls into
the industry classifications encouraged by the local government’s development
strategy. The subsidy is to be used exclusively for facility construction and
equipment procurement to fulfill its business operations. The subsidy is
initially recorded as deferred revenue. Upon the completion and acceptance of
the government subsidized project, subsidies are recognized over the useful
lives of the related asset.
 
 10. Shareholder’s
equity
 
 On April
30, 2009, the Company issued 9,000 shares of common stock under an agreement
with a consultant to provide the Company with investor relations services. The
fair market value of the stock is approximately $15,600.
 
  11. Accumulated other
comprehensive income
  June 30,
                      2009
                    
                    
                    December 31,
                      2008Cumulative
      translation adjustment of foreign currency statements
                    
                    $
                    (201,132
                    )
                    
                    $
                    1,268,439
 
 12. Related
parties
 
 Related Parties
                    
                    June 30, 2009Receivable
                    
                    
                    PayableDongtai
      Investment
                    
                    $
                    -
                    
                    
                    $
                    378,600Dongtai
      Organic
                    
                    
                    27,743
                    
                    
                    
                    -Total
                    
                    $
                    27,743
                    
                    
                    $
                    378,600
 
 13. Statutory common welfare
fund
 
 As
stipulated by the Company Law of the PRC as applicable to Chinese companies with
foreign ownership, net income after taxation can only be distributed as
dividends after appropriation has been made for the following:
 
 a.
              Making
      up cumulative prior years’ losses, if
any
 b.
              Allocations
      to the “Statutory surplus reserve” of at least 10% of income after tax, as
      determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company’s registered
  capital;
 c.
              Allocations
      of 5 -10% of income after tax, as determined under PRC accounting rules
      and regulations to the Company’s “Statutory common welfare fund”, which is
      established for the purpose of providing employee facilities and other
      collective benefits to the Company’s employees;
  and
 d.
              Allocations
      to the discretionary surplus reserve, if approved in the shareholders’
      general meeting.
 
 14. Current vulnerability
due to certain concentrations
 
 The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC and by the general state
of the PRC economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversions and remittance abroad, and rates and methods of
taxation, among other things.
  15
  
   NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2009
  
 15. Subsequent
events
 
 On July
23, 2009, Dalian Dongtai received a national subsidy from the PRC central
government of RMB 10 million(approximately
$1,464,129)to
support the construction of a Centralized Hazardous Waste Treatment Facility
(the “Expansion Project”) in Dalian, Liaoning Province.
  16




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





FORWARD-LOOKING
INFORMATION - Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") includes forward-looking statements. All
statements, other than statements of historical facts, included in this MD&A
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties and other factors, many of which are outside of the Company's
control that could cause actual results to materially differ from such
statements. While the Company believes that the assumptions concerning future
events are reasonable, it cautions that there are inherent difficulties in
predicting certain important factors, especially the timing and magnitude of
technological advances; the prospects for future acquisitions; the possibility
that a current customer could be acquired or otherwise be affected by a future
event that would diminish their waste management requirements; the competition
in the waste management industry and the impact of such competition on pricing,
revenues and margins; uncertainties surrounding budget reductions or changes in
funding priorities of existing government programs and the cost of attracting
and retaining highly skilled personnel.





OVERVIEW





Historically,
the Company engaged in two lines of business: (a) the exploration and
development of potential mining properties, and (b) the development, marketing
and support of computer software products and services. In September 2004, the
Company sold its computer business. Since September 2005, the Company has no
longer been in the mining business due to its loss of all its contractual rights
in certain mining properties in Spain.





In
November 2005, a Delaware corporation known as China Industrial Waste
Management, Inc. (“CIWM Delaware”) acquired 90% of the issued and outstanding
capital stock of Dalian Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian
Dongtai”) from the shareholders of Dalian Dongtai in a reverse merger
transaction in which the Dalian Dongtai shareholders became the owner of all of
the issued and outstanding shares of CIWM Delaware. As a result of the
reverse merger, Dalian Dongtai became a joint venture with foreign investment
under the laws of the PRC, with a total registered and paid-in capital of $2.3
million. The exchange of shares with the Dalian Dongtai shareholders was
accounted for as a reorganization between entities under common control with
CIWM Delaware as the receiving entity, as prescribed by Appendix D of SFAS 141.
The accounts of both entities were combined at their historical cost basis,
resulting in no gain, loss, or goodwill. The combination was essentially a
recapitalization of Dalian Dongtai.





On
November 11, 2005, China Industrial Waste Management, Inc., a Nevada corporation
(f/k/a Goldtech Mining Corporation) (“CIWM Nevada”) entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with CIWM Delaware and the
shareholders of CIWM Delaware. Pursuant to the Merger Agreement, which closed on
November 11, 2005, CIWM Delaware was merged with and into CIWM Nevada’s
wholly-owned Delaware subsidiary, DonTech Waste Services, Inc (“DonTech”).
Pursuant to the Merger Agreement, after the merger, CIWM Delaware ceased to
exist and DonTech was the surviving company (and the owner of 90% of the issued
and outstanding capital stock of Dalian Dongtai). The merger of CIWM Delaware
into DonTech was accounted for as a reverse acquisition under the purchase
method of accounting since the shareholders of CIWM Delaware obtained control of
CIWM Nevada (the Company) by virtue of the merger. Accordingly, the merger was
recorded as a recapitalization of CIWM Delaware, with DonTech being treated as
the continuing entity. CIWM Nevada (the Company) currently owns all of the
issued and outstanding capital stock of DonTech, which in turn, owns 90% of the
issued and outstanding capital stock of Dalian Dongtai.





In March
2009, DonTech was merged with and into the Company. Contemporaneously, (a)
Favour Group Limited (“Favour Group”), a British Virgin Islands corporation, was
formed as a wholly-owned subsidiary of the Company, (b) Full Treasure
Investments Limited (“Full Treasure”), a Hong Kong corporation, was formed as a
wholly-owned subsidiary of Favour Group and (c) the Company transferred all of
its right, title and interest in and to the shares of Dalian Dongtai, to Full
Treasure.





Dalian
Dongtai is engaged in the collection, treatment, disposal and recycling of
industrial wastes, principally in Dalian, and surrounding areas in Liaoning
Province, China. Dalian Dongtai provides waste disposal solutions to its
more than 650 customers, including large multinational corporations, from
facilities located in the Economic and Technological Development Zone, Dalian,
PRC. Dalian Dongtai treats disposes of and/or recycles many types of industrial
wastes, and recycled waste products are sold to customers as raw materials to
produce chemical and metallurgy products. In addition, Dalian Dongtai treats or
disposes of industrial waste through incineration, burial or water treatment; as
well as provides a range of environmental protection services to its clients.
Dalian Dongtai generates revenues from waste collection and disposal services,
as well as from sales of valuable products and recycled
commodities.


17





In order
to provide sufficient infrastructure to meet the increasing demand for waste
treatment and disposal, an expansion project is now underway to significantly
increase Dalian Dongtai’s capacity for waste treatment and disposal.
Construction of the expansion project, which is one of the fifty-five hazardous
waste treatment centers being subsidized by the PRC’s National Development and
Reform Commission and one of two such centers in Liaoning Province, commenced at
the end of July, 2008.




The
following chart provides additional  information relating to the
expansion project:




CapacityFacility
                            
                            Description
                            
                            Existing
                            
                            After expansionIncinerator
                            
                            Incineration
      System for Solid Waste
                            
                            3,300
      t/y
                            
                            9,000
      t/yHazardous
      Waste Landfill
                            
                            Hazardous
      Waste Safe Landfill
                            
                            13,000
      t
                            
                            40,000
      tIndustrial
      Effluent Treatment System
                            
                            Industrial
      Sewage Treatment
                            
                            18,000
      t/y
                            
                            25,000
      t/yOrganic
      Solvent Recycling System
                            
                            Industrial
      Organic Solvent Product
                            
                            1,000
      t/y
                            
                            3,000
      t/y





Dongtai
Water Recycling Co. Ltd. (“Dongtai Water”), a Build-Operate-Transfer (BOT)
project established to process municipal sewage generated by Dalian City. Phase
I, whose designed capacity is 30,000 tons per day, of the project has entered
into commercial operation since June 21, 2008. Dalian Dongtai owns 80% of
the equity of this project.





Dalian
Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”), which is 70% owned by Dalian
Dongtai, engages in plasma arc melting, separation and purification of waste
catalysts, treatment of industrial wastes and comprehensive utilization of waste
catalysts or similar material. The designed production capacity is 5,000
tons/year. As of June 30, 2009, the project was in the stage of trial
production.




Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
Lipp”), is a Sino-German joint venture, and Dalian Dongtai owns 75% of the
interest. Dalian Lipp designs, manufactures and installs environmental
protection equipment and renewable energy equipment and provides related
technical services. The project is based on the Lipp GmbH tank building
technique, and is dedicated to generating energy by organic waste anaerobic
fermentation, and industrial effluent and municipal sewage treatment
plant.




Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”), which operates
in the Coastal Industrial Base ( the “Base”) of Yingkou City, Liaoning Province,
was founded on May 20th, 2009. On July 1, 2009, the State Council of the PRC
issued Development Planning of Coastal Economic Belt in Liaoning Province (the
“Planning”), which brought the development of the coastal cities of Liaoning
Province into its national strategy. The Base is considered a significant factor
in the Planning.





Yingkou
Dongtai, which is 100% owned by Dalian Dongtai, is engaged in the recycling and
disposal of industrial waste, the development and production of recycling
products, the design and construction of environmental engineering, the
treatment of environmental pollution, the manufacturing of environmental
protection equipments, and the sales of chemical products (other
than  hazardous chemicals). Yingkou Dongtai intends to build and
complete waste treatment facilities gradually, in line with the development of
the Base. Currently, Yingkou Dongtai is building warehouses, and pursuing the
business of collection, classification, and storage of industrial
waste.


18




Our
business strategy is aimed at increasing revenue and earnings through profitable
growth and improving returns on invested capital. The components of our strategy
include: (1) placing emphasis on the commercialization of solid waste
treatment; (2) our expansion into municipal sewage and sludge treatment BOT
projects; (3) managing our businesses locally with a strong operations focus on
customer service; (4) entering into new geographic markets in China; and
(5) maintaining our financial capacity and effective administrative systems
and controls to support on-going operations and future growth. We are evaluating
growth in our solid waste treatment operations through opportunities to
cooperate with prominent domestic or overseas partners and attempt to integrate
customer groups (for example, the refinery industry), to realize resource
optimization.




We also
plan to seek new BOT projects and acquire interests in existing projects, as we
believe they can provide us with stable revenues and cash inflows. Furthermore,
we believe that a well-operated BOT project will gain attention and social
recognition from the local government and business community, which may, in
turn, provide additional business opportunities in the Dalian metropolitan
area.





CRITICAL ACCOUNTING
POLICIES





We have
disclosed in Note 3 to our financial statements those accounting policies that
we consider to be significant in determining our results of operations and our
financial position which are incorporated by reference herein.





The
preparation of financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses.
We evaluate our estimates, including those related to bad debts, inventories and
warranty obligations, on an ongoing basis. We base our estimates on historical
experience and on various assumptions that we believe to be reasonable under the
circumstances. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the periods presented. The actual results
may differ from these estimates under different assumptions or
conditions.




The
significant accounting policies which we believe are the most critical to aid in
fully understanding and evaluating our reported financial results include the
following:





Revenue
Recognition





Revenue
is recognized when services are rendered to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability is reasonably
assured. Payments received before all of the relevant criteria for revenue
recognition are satisfied are recorded as deferred sales.





Property, Plant and
Equipment





Property,
plant and equipment (“PP&E”) are stated at cost, less accumulated
depreciation and impairment. Expenditures for maintenance and repairs are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When PP&E are required or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective accounts, and
any gain or loss is included in the statement of operations.





Bad
Debts





The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Terms of the sales vary from cash on delivery
through a credit term of up to nine to twelve months.


19





RESULTS OF
OPERATIONS





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





ThreeMonthsand Six MonthsEndedJune 30, 2009Compared to the Three
Monthsand Six
MonthsEndedJune30, 2008.





We
generate revenue primarily from three sources, namely, fees charged to customers
for waste collection, transfer, recycling and disposal services, fees charged to
Dalian Municipal Government for municipal sewage treatment service, proceeds
received from the sales of recycled materials. At this time, we consider our
collection and disposal operations and reclamation of reusable substances as our
core business at current stage.





Revenues





The
Company’s operating revenues for the three and six months ended June 30, 2009
were $2,453,434 and $4,065,384, compared with $3,590,859 and $6,721,139 for the
three and six months ended June 30, 2008, respectively.




Three months ended
                    June 30,
                  
                  
                  Six months ended
                    June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Service
      fees
                  
                  $
                  1,642,748
                  
                  
                  $
                  1,954,513
                  
                  
                  $
                  2,840,447
                  
                  
                  $
                  3,774,065Sales
      of cupric sulfate
                  
                  
                  347,400
                  
                  
                  
                  671,747
                  
                  
                  
                  438,530
                  
                  
                  
                  1,380,590Sales
      of recycled commodities
                  
                  
                  463,286
                  
                  
                  
                  964,599
                  
                  
                  
                  786,407
                  
                  
                  
                  1,566,484Total
                  
                  $
                  2,453,434
                  
                  
                  $
                  3,590,859
                  
                  
                  $
                  4,065,384
                  
                  
                  $
                  6,721,139





Due to
the adverse impacts of the global economic crisis, the Company’s operating
revenue dropped significantly in the first quarter of 2009, reflected by a sharp
decrease in waste collection volume and declining  prices for recycled
products. However, as more fully discussed below, as economic stimulus
activities undertaken by many nations gradually took effect in the second
quarter, particularly  China’s economic stimulus package of RMB 4
trillion (USD 586 billion) which has injected significant liquidity into the
marketplace, the world’s economy has begun to see signs of  revival.
As a result, the Company’s businesses have also experienced a recovery from
the downturn seen in the first quarter.





1.
Service fees





Service
fees consist of two parts, waste treatment services provided by Dalian Dongtai,
and municipal sewage treatment services provided by Dongtai Water.





Dalian
Dongtai’s revenue from services decreased by $566,629 or 29% for the three
months ended June 30, 2009 as compared with the three months ended June 30,
2008. Revenue from services decreased by $1,508,482 or 40% for the six months
ended June 30, 2009 as compared with the six months ended June 30,
2008.





To cope
with the adverse effects of  the economic crisis, Dalian Dongtai has
devoted additional resources to develop new clients, and simultaneously made
significant efforts to maintain stronger relationships with existing clients. In
addition,, during the second quarter of 2009, Dalian Dongtai’s clients appear to
be gradually experiencing a recovery from the economic crisis. We believe that
some of them are approaching historic production levels, and in some cases,
appear to be expanding their production capacity.





Since its
commencement of operations in June 2008, Dongtai Water has been functioning
stably. For the six months ended June 30, 2009, Dongtai Water generated
aggregate revenues of approximately $574,864.


20





2. Sales
of recycled products





Revenues
from sales of recycled products decreased by $825,659 or 51% for the three
months ended June 30, 2009 as compared to the three moths ended June 30, 2008.
Revenue from sales of recycled products decreased by $1,722,136 or 58% for the
six months ended June 30, 2009 as compared to the six months ended June 30,
2008.





The
production output of recycled products decreased sharply in 2009 due to a
significant decrease in waste collection volume. The economic crisis also caused
a reduction in prices for recycled products, such as cupric sulfate, and
aluminum products. However, as economic conditions improve, prices appear to be
rising.





Cost of
Revenues





The
Company’s cost of revenues for the three and six months ended June 30, 2009
were $878,320 and $1,606,171, compared with $1,091,402 and $2,019,495 for the
three and six months ended June 30, 2008, respectively.





Three months ended
                  June 30,
                
                
                Six months ended
                  June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Cost
      of service fees
                
                $
                370,713
                
                
                $
                315,881
                
                
                $
                840,876
                
                
                $
                686,916Cost
      of cupric sulfate
                
                
                154,187
                
                
                
                238,577
                
                
                
                242,164
                
                
                
                525,103Cost
      of recycled commodities
                
                
                353,420
                
                
                
                536,944
                
                
                
                523,131
                
                
                
                807,476Total
                
                $
                878,320
                
                
                $
                1,091,402
                
                
                $
                1,606,171
                
                
                $
                2,019,495




Cost of
revenues decreased by $213,082 or 20% for the three months ended June 30, 2009
compared to the three months ended June 30, 2008. Cost of revenues decreased by
$413,324 or 20% for the six months ended June 30, 2009 compared to the six
months ended June 30, 2008.





Cost of
service fees increased by $153,860, or 22% for the six months ended June 30,
2009 compared to the six months ended June 30, 2008, which mainly resulted from
the costs incurred by Dongtai Water in the amount of $231,557. For the six
months ended June 30, 2008, Dongtai Water had not yet commenced
operations.




Net
Income





Net
income for the three months ended June 30, 2009 decreased by $796,288 or 58% to
$573,504 from $1,369,792. Net income for the six months ended June 30, 2009
decreased by $2,064,389 or 75% to $681,020 from $2,745,409. The significant
decline results primarily from the sharp decrease in operating revenues,
however, we believe that  the improvement in net income
for  the second quarter of 2009 signals a gradual recovery from the
difficulties encountered during the first quarter.





Liquidity and Capital
Resources




We have
financed our operations and met capital expenditure requirements primarily
through cash generated by operating activities, trade credit and bank
loans.




Accounts
receivable (including notes receivable) increased by $705,559 or 29% from
$2,414,257 as of December 31, 2008 to $3,119,816 as of June 30, 2009. The
increase is primarily attributable to the operations of Dalian Dongtai and
Dongtai Water. Most of the receivables are aged less than one year (see Note 4
for an aging analysis). For notes receivable with a balance of $357,822 as of
June 30, 2009, please see Note 5 for detailed information.





As of
June 30, 2009, the Dalian Municipal Government has not yet paid Dongtai Water
for the sewage treatment services in the amount of $254,827 rendered in the
second quarter of 2009. Dongtai Water received the payment in early July
2009.


21


Short-term
loan as of June 30, 2009 was $6,734,795 (RMB 46,000,000), whereas the amount as
of December 31, 2008 was $3,371,198 (RMB 23,000,000). The Company repaid the
outstanding bank loans as at December 31, 2008, and entered into two new loans
from Shanghai Pudong Development Bank Dalian Branch, the proceeds of which are
being used as working capital.





As of
June 30, 2009, the Company had cash and cash equivalents of $7,950,100, compared
to $5,714,001 as of December 31, 2008, an increase of $2,236,099 or 39%. The
increase arises mainly because: (1) bank loans increased by $3,363,597 (RMB
23,000,000); (2) Dongtai Organic repaid loans from Dalian Dongtai in the amount
of $1,228,856 (RMB 8,400,000); and (3) $750,000 of restricted cash being held in
an escrow account was released.





As of
June 30, 2009, the Company had working capital of $1,930,822, compared to
$959,741 as of December 31, 2008, an increase of  $971,081 or 101%.
The increase mainly results from payments incurred during the six months ended
June 30, 2009 that are in connection with  construction projects in
the amount of $1,716,024 and accrued employee bonus in the amount of
$349,909.





Cash
Flow





Six Months Ended June 30,2009
                
                
                2008Net
      cash provided by (used in) operating activities
                
                $
                (348,639
                )
                
                $
                2,544,710Net
      cash provided by (used in) investing activities
                
                
                193,593
                
                
                
                (4,682,947
                )Net
      cash provided by financing activities
                
                $
                1,650,191
                
                
                $
                3,433,235





Net cash
used in operating activities was $348,639 for the six months ended June 30,
2009, compared to net cash provided of $2,544,710 for the same period in 2008, a
decrease of $2,893,349 or 114%. The sharp decrease was mainly attributable to
the decrease in operating revenue.





Net cash
provided by investing activities for the six months ended June 30, 2009 was
$193,593 compared to a deficit of $4,682,947 for the same period of 2008.
Dongtai Water’s construction was completed in 2008, and most of Zhuorui’s
construction was completed in 2008. Most of cash used in investing activities in
2009 was incurred in connection with  Dalian Dongtai’s expansion
project and Zhuorui’s trial production. In addition, Dongtai Organic repaid a
loan from Dalian Dongtai in the amount of RMB 8,400,000 (approximately
$1,228,856).





Net cash
provided by financing activities for the six months ended June 30, 2009 was
$1,650,191, compared to $3,433,235 for the same period of 2008. The Company
borrowed additional funds to finance working capital in amounts exceeding
that  of the same period in 2008. However, the Company also repaid
short term loan in the amount of $3,366,215 and construction projects payable in
the amount of $1,716,024 during the period.





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





Under SEC
regulations, we are required to disclose our off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. An off-balance sheet arrangement means a transaction,
agreement or contractual arrangement to which any entity that is not
consolidated with us is a party, under which we have:


22





Ø
            Any
      obligation under certain guarantee
contracts;





Ø
            Any
      retained or contingent interest in assets transferred to an unconsolidated
      entity or similar arrangement that serves as credit, liquidity or market
      risk support to that entity for such
assets;





Ø
            Any
      obligation under a contract that would be accounted for as a derivative
      instrument, except that it is both indexed to our stock and classified in
      stockholder’s equity in our statement of financial position;
      and





Ø
            Any
      obligation arising out of a material variable interest held by us in an
      unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support to us, or engages in leasing, hedging or research and
      development services with us.





As of
June 30, 2009, the Company has no off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.








Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk





Not
Applicable





Item
      4T.
            Controls
      and Procedures





We
maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, or the
"Exchange Act") that are designed to ensure that information required to be
disclosed in Exchange Act reports is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the SEC and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control
objectives.





Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of June 30, 2009. Based upon that
evaluation and subject to the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective to accomplish their objectives.





Our Chief
Executive Officer and Chief Financial Officer do not expect that our disclosure
controls or our internal controls will prevent all error and all
fraud.  The design of a control system must reflect the fact that
there are resource constraints and the benefit of controls must be considered
relative to their cost.  Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
we have detected all of our control issues and all instances of fraud, if any.
The design of any system of controls also is based partly on certain assumptions
about the likelihood of future events and there can be no assurance that any
design will succeed in achieving our stated goals under all potential future
conditions.





There
have been no changes in our internal control over financial reporting that
occurred during our fiscal quarter ended June 30, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





LACK
OF SEGREGATION OF DUTIES





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


23





PART
II - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.





None.





Item
      1A.
            Risk
      Factors.





None.





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





None.





Item
      3.
            Defaults
      Upon Senior Securities.





None.





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders.





None.





Item
      5.
            Other
      Information.





On June
30 2009, the Board of Directors established an Nominating, Governance, and
Compensation Committee consisting of three directors, Mr. Francis Leong, Mr.
Henry Wong and Mr. Zhang Long. Each member of the Audit Committee is
“independent” within the meaning of Nasdaq Marketplace Rule 4200(a) (15). Mr.
Francis has been appointed to serve as Chairman of the Committee. The Board of
Directors also adopted a Nominating, Governance, and Compensation Committee
Charter to govern the activities of the Nominating, Governance, and Compensation
Committee. A copy of the Nominating, Governance, and Compensation Committee
Charter is filed as an exhibit to this Report.





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 Officer99.1
              
              Charter
      of the Nominating, Governance and Compensation Committee of the Board of
      Directors


24


SIGNATURES


Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.


CHINA
      INDUSTRIAL WASTE MANAGEMENT, INC.By:
                  /s/ Dong JinqingDong
      Jinqing, Chief Executive OfficerDate:
      August 14, 2009





By:
              /s/ Guo XinGuo
      Xin, Chief Financial OfficerDate:
      August 14, 2009


25