U. S. Securities and Exchange Commission


Washington, D. C. 20549





FORM 10-Q





[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2010[  ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _____ to _____





Commission File No. 0-31193





EASTERN ENVIRONMENT SOLUTIONS, CORP.


(Name of Registrant in its Charter)




Nevada
16-1583162(State or Other Jurisdiction of
(I.R.S. Employer I.D. No.)incorporation or organization)





Harbin Dongdazhi Street 165, Harbin, P.R. China 150001


(Address of Principal Executive Offices)




Issuer's Telephone Number: 86-451-5394-8666





Indicate  by check mark  whether the  Registrant  (1) has filed all reports required to be filed by Sections 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 subjected to such filing requirements for the past 90 days.




YesX                  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  ___    No ___




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. (Check One)




Large accelerated filer ___   Accelerated filer ___  Non-accelerated filer ___  Small reporting companyX




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes ___  No X





APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:




August 16, 2010


Common Voting Stock: 14,970,186











EASTERN ENVIRONMENT SOLUTIONS, CORP.


QUARTERLY REPORT ON FORM 10Q





TABLE OF CONTENTS


Page NoPart I
Financial InformationItem 1.
Financial Statements:Condensed Consolidated Balance Sheet – June 30, 2010 (unaudited)and December 31, 2009
2Condensed Consolidated Statements of Income andComprehensive Income – for the Three and Six Months EndedJune 30, 2010 and 2009 (Unaudited)
3Condensed Consolidated Statements of Cash Flows – for the Six MonthsEnded June 30, 2010 and 2009 (Unaudited)
4Notes to Condensed Consolidated Financial Statements (Unaudited)
5Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20Item 3
Quantitative and Qualitative Disclosures about Market Risk
24Item 4T
Controls and Procedures
24Part II
Other InformationItem 1.
Legal Proceedings
25Items 1A.
Risk Factors
25Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25Item 3.
Defaults upon Senior Securities
25Item 4.
Submission of Matters to a Vote of Security Holders
25Item 5.
Other Information
25Item 6.
Exhibits
25Signatures










EASTERN ENVIRONMENT SOLUTIONS, CORP. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSJune 30,


December 31,2010


2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
851,877


$
428,052Accounts receivable


7,975,281



4,253,203Inventories


13,882



42,650Other receivables


783



440,208Loans to related parties


65,949



42,828Total Current Assets


8,907,772



5,206,941Property and equipment, net of accumulated depreciation of$1,450,323 and $1,312,131, respectively


6,312,971



6,319,005Other assets:Advance to suppliers


3,809,414



3,783,981Total Other Asset


3,809,414



3,783,981Total Assets

$
19,030,157


$
15,309,927LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Bank loan payable - current portion

$
966,592


$
966,592Accounts payable


815



810Taxes payable


665,887



174,375Accrued expenses and other payables


78,733



92,192Total Current Liabilities


1,712,027



1,233,969Long-term liabilities:Bank loan payable - net of current portion


604,120



1,087,416Total Liabilities


2,316,147



2,321,385Commitments and ContingenciesStockholders' EquityCommon stock, $0.0001 par value, 100,000,000 shares authorized;14,970,186 shares issued and outstanding as of June 30, 2010and December 31, 2009


1,497



1,497Additional paid-in-capital


4,021,929



3,836,165Accumulated other comprehensive income


1,964,023



1,945,261Statutory reserves


186,156



186,156Retained earnings - Unappropriated


10,540,405



7,019,463Total Stockholders' Equity


16,714,010



12,988,542Total Liabilities and Stockholders' Equity

$
19,030,157


$
15,309,927





2





EASTERN ENVIRONMENT SOLUTIONS, CORP. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(UNAUDITED)SIX MONTHS ENDED JUNE 30,


THREE MONTHS ENDED JUNE 30,2010


2009


2010


2009Revenues

$
6,831,506


$
890,019


$
5,243,752


$
447,670Cost of Revenues


2,507,747



185,630



2,297,916



82,401Gross Profit


4,323,759



704,389



2,945,836



365,269Selling, General and Administrative Expenses


294,925



282,026



149,007



144,397Income from operations


4,028,834



422,363



2,796,829



220,872Other Income (Expense)Interest income


23,547



8,215



321



714Other expense


(112
)


(50
)


8



-Total other income, net


23,435



8,165



329



714Income from Operations before Income Taxes


4,052,269



430,528



2,797,158



221,586Provision for Income Taxes


531,327



79,275



361,740



41,075Net Income


3,520,942



351,253



2,435,418



180,511Other Comprehensive Income (Loss) -Foreign currency translation Income (loss)


18,762



(26,999
)


67,337



795Comprehensive Income

$
3,539,704


$
324,254


$
2,502,754


$
181,306Basic & Diluted Income Per ShareBasic

$
0.29


$
0.03


$
0.20


$
0.02Diluted

$
0.24


$
0.02


$
0.16


$
0.01Weighted Average Number of Common Shares OutstandingBasic


12,078,791



11,210,717



12,186,074



11,318,660Diluted


14,970,186



14,970,186



14,970,186



14,970,186







3





EASTERN ENVIRONMENT SOLUTIONS, CORP. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)SIX MONTHS ENDED JUNE 30,2010


2009Cash Flows From Operating Activities:Net income

$
3,520,942


$
351,253Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization


128,533



122,590Amortization of stock-based compensation


185,764



191,376Changes in operating assets and liabilities:Accounts receivable


(3,722,078
)


(887,314
)Inventory


28,768



22,703Accounts payable


5



(77
)Taxes payable


491,512



79,281Accrued expenses and other payables


(13,459
)


35,114Net cash provided by (used in) operating activities


619,987



(85,074
)Cash Flows From Investing Activities:Purchase of property and equipment


(2,284
)


-Payment of capitalized interests for construction loan


(78,059
)


(187,204
)Payments on loans to unrelated party


-



(343,815
)Collections on loans to unrelated party


439,425



211,909Payments on loans to related party


(23,121
)


-Net cash provided by investing activities


335,961



(319,110
)Cash Flows From Financing ActivitiesRepayment of bank loan payable


(483,296
)


(48,330
)Net cash used in financing activities


(483,296
)


(48,330
)Effect of exchange rate changes on cash and cash equivalents


(48,827
)


(24,173
)Increase (decrease) in Cash and Cash Equivalents


423,825



(476,687
)Cash and Cash Equivalents - Beginning of period


428,052



1,112,487Cash and Cash Equivalents - End of period

$
851,877


$
635,800Supplemental Cash Flow Information:Cash paid during the periods:Interest expense

$
78,059


$
111,165Income taxes

$
174,362


$
-










4
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION




Eastern Environment Solutions, Corp. (“the Company” or “EESC”) was incorporated under the laws of the State of Nevada and formerly known as USIP.COM, Inc. (“USIP”).




The Company operates its business primarily through its wholly-owned subsidiary Harbin Yifeng Eco-Environment Co., Ltd. (“Harbin Yifeng”), a corporation organized and existing under the laws of the People’s Republic of China (“PRC”). Harbin Yifeng is an environmental engineering company in the PRC that specializes in providing non-hazardous municipal solid waste processing and disposal services in the northeast regions of China.




The Company’s condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). In the opinion of management, the accompanying condensed balance sheets and related interim statements of income and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).







NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Management estimates




The preparation of financial statements in conformity with generally accepted accounting principal requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.





Principles of consolidation





The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Harbin Yifeng and Harbin Yifeng’s wholly owned subsidiary, Harbin Yifeng Zhiye Management Co., Ltd. (“Yifeng Zhiye”). All significant inter-company transactions and balances have been eliminated in consolidation.




Cash and cash equivalents




For purposes of the statement of cash flow, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.




5
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Accounts receivables





Accounts receivables are stated at net realizable value. Any allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis. The Company’s receivables are primarily due from the municipal government of Harbin City and are considered by management to be fully collectible. Therefore, no allowance for doubtful accounts was deemed necessary for the six months ended June 30, 2010 and 2009.




Inventories





Inventories mainly consist of the raw materials and supplies to be used in the regular day-to-day operations. Inventories are valued at the lower of cost or market with cost determined on a first-in first-out basis.




Property and equipment




Property and equipment are stated at cost, net of accumulated depreciation.  Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of 5-10 years.




Advance to suppliers




Advance to suppliers represents payments made and recorded in advance for the purchase of materials and equipment related to the Company’s construction in progress. We expect to utilize the advances during the next two years.  In accordance with U. S. GAAP, we classify the cash flows related to advances to suppliers under investing activities when paid and will disclose as a non-cash investing activity when transferred to property and equipment.  The final phase of the construction is not completed.  As such, no amortization was made for the three and six months ended June 30, 2010 and 2009.




Revenue recognition




The Company recognizes revenue in accordance with ASC 360. ASC 360 states that revenue should not be recognized until it is realized or realizable and earned. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.




6
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





The Company’s revenues are primarily from its solid waste disposal operations and bottle recycling operations. For the solid waste disposal operations, the Company recognizes revenue upon the arrival of the solid waste at the landfill. For the bottle recycling operations, the Company engaged two external agents to process and resale to industry the polyethylene terephthalate (“PET”) bottles and the granules from the plastic bottles and bottle caps that the Company removes from the landfill. The Company recognizes sales upon shipment of the PET bottles and granules to industry.





Income taxes




The Company accounts   for income tax under the provisions of Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) No.740 "Income Taxes", which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns.  Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities.  Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.





Harbin Yifeng was granted the status of wholly foreign-owned entities (“WFOE”) in the fourth quarter of 2006 upon the reverse merger with USIP with a choice of starting the tax holiday immediately or the next calendar year. Harbin Yifeng elected for this tax holiday to commence in January 2007. Its two-year tax exemption period was from January 1, 2007 to December 31, 2008 and the three-year income tax reduction period will be from January 1, 2009 to December 31, 2011.





The Company does not have any long-term deferred tax assets or liabilities in China that will exist once the tax holiday expires. However, the Company has deferred tax assets that relate to its net operating loss in the U. S., which is not covered by the tax holiday.





Concentrations of credit risk





Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable and other receivables.  The Company does not require collateral or other security to support these receivables.  The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivable.




All of the Company's assets are located in The People's Republic of China. During the six months ended June 30, 2010, the Company operated in two business segments - landfill segment and plastic bottles sorting and recycling segment. The Company operated in one business segment for the three and six months ended June 30, 2009.




7
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Fair value of financial instruments




The Company adopted the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:





Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.





Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.





Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.





The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued expenses, taxes payable and notes payable approximate fair value due to the short-term nature of these items.  The Company uses Level 3 method to measure fair value of its bank loan. The carrying amount of bank loan approximates the fair value based on the Company's expected borrowing rate for debt with similar remaining maturities and comparable risk in market. The Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with ASC 820.





Foreign currency translation





The Company’s principal country of operations is the PRC. The financial position and results of operations of the Company are determined using the local currency (“RMB”) as the functional currency. The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, 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. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated Other Comprehensive Income”.




8
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic conditions, Any significant revaluation of RMB may materially affect the Company's financial condition in terms of US$ reporting.




Stock-based compensation




Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). For the three months ended June 30, 2010 and 2009, $90,076 and $95,688 stock based compensation expense was recorded in selling, general and administrative expenses. For the six months ended June 30, 2010 and 2009, $185,764 and $191,376 stock-based compensation expense was recorded in selling, general and administrative expenses.





Earnings and diluted earnings per share





Earnings per share are calculated in accordance with the ASC 260, “Earnings per share.” Basic net earnings per share are based upon the weighted average number of common shares outstanding, but excluding shares issued as compensation that have not yet vested. Diluted net earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised, and that all unvested shares have vested. Dilution is computed by applying the treasury stock method. Under this method, Stock-based compensation is assumed to be vested 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.





The following table sets forth the computation of basic and diluted earnings per share for the periods presented:




Three months ended June 30,


Six months ended June 30,2010


2009


2010


2009(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)Net income

$
2,435,418


$
180,511


$
3,520,942


$
351,253Shares (denominator):Weighted average common shares outstanding - basic


12,186,074



11,318,660



12,078,791



11,210,717Earnings per share - basic

$
0.20


$
0.02


$
0.29


$
0.03Plus: effect of  diluted securities - unvested compensation shares


2,784,112



3,651,526



2,891,395



3,759,469Weighted average common shares outstanding - diluted


14,970,186



14,970,186



14,970,186



14,970,186Earnings per share - diluted

$
0.16


$
0.01


$
0.24


$
0.02







9
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)







NOTE 3. PROPERTY AND EQUIPMENT, NET





Property and equipment consist of the following:




June 30, 2010


December 31, 2009(Unaudited)Machinery and equipment

$
884,792


$
883,523Vehicles


385,441



385,965Landfills


2,341,116



2,143,114Subtotal


3,611,349



3,412,602Less: accumulated depreciation


(1,450,323
)


(1,312,131
)Construction in progress


4,151,945



4,218,534Total property and equipment, net

$
6,312,971


$
6,319,005




Depreciation and amortization expense for the three months ended June 30, 2010 and 2009 was $ 66,130 and $61,324, respectively. Depreciation and amortization expense for the six months ended June 30, 2010 and 2009 was $128,533 and $122,590, respectively.





“Landfills” represents the capitalized expenses attributable to the construction of the portion of the Harbin landfill that is currently functional.  Landfill costs are amortized using a straight-line method over the contract term, commencing when the landfill is first put into use.  The Company has no obligations relating to capping, closure or other post-closure obligations; accordingly no reserve for post-closure activities has been established.




10
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








NOTE 3. PROPERTY AND EQUIPMENT, NET (Continued)





Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Company’s new operating site and equipments. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for its intended use. Commencing at that time, the capitalized expenses will be depreciated over the remaining term of the Build-Operate-Transfer (“BOT”) agreement. Interest expense in the amount of $37,290 and $ 52,147was capitalized for the three months ended June 30, 2010 and 2009 and $78,059 and $111,165 was capitalized for the six months ended June 30, 2010 and 2009.





The Harbin landfill is scheduled to have a capacity of 7.8 million tons, when completed, of which 3.27 million tons will be deposited in an underground sector developed by the Company.  As of  June 30, 2010, the capacity of the Harbin landfill was 1.6 million tons, of which 1,282,991 tons of capacity had been utilized.  As of December 31, 2009, the capacity of the Harbin landfill was 1.6 million tons, of which 880,000 tons of capacity had been utilized.   The following table sets forth management’s estimate of the costs and timing to complete the remaining underground portion of the Landfill:





Project
Additional Capacity (Tons)
Estimated Additional Cost to Complete
Estimated Date of CompletionPhase II
670,000
$3.66 million
October 2011Phase III
1,000,000
$5.57 million
October 2014





When the underground portion of the Landfill is complete, with 3.27 million tons capacity, the Company will be able to utilize an above ground capacity for 4.53 million tons of waste, for a total Landfill capacity of 7.8 million tons.








NOTE 4.   INVENTORY





Inventory consists of the following:





June 30, 2010


December 31, 2009(Unaudited)Raw material

$
9,006


$
36,837Low-value consumables


4,876



5,813Total

$
13,882


$
42,650


There was no allowance for inventory as of June 30, 2010 and December 31, 2009.




11
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 5. OTHER RECEIVABLES




As of December 31, 2009, other receivables primarily represent a third-party loan to Harbin Jiayi Import and Export Co., Ltd. (“Jiayi”) from the Company. The loan was unsecured and bore 5.31% annual interest and was repaid in March 2010.





NOTE 6. RELATED PARTY TRANSACTIONS




Loans to related parties consists the following:




June 30, 2010


December 31, 2009(Unaudited)Shibin Jiang

$
4,743


$
4,744Yan Feng


61,206



38,084Total loans to related parties

$
65,949


$
42,828


Ms. Yan Feng is the CEO of the Company and Mr. Shibin Jiang is the operating director of the company. Both Ms. Feng and Mr. Jiang are shareholders of the Company. The loans to shareholders are unsecured and interest free. These loans were repaid in full on August 13, 2010.








NOTE 7. MAJOR CUSTOMER





On September 1, 2003, the Company signed an exclusive 17-year agreement with Harbin Municipal Urban Administrative Bureau (“HMUAB”) to dispose of approximately one-third of the city’s solid waste disposal. The contract will expire on August 30, 2020. The revenue from HMUAB accounted for 100% of the gross revenues for the years ended December 31, 2009 and 2008.





In January 2010, the Company signed a PET bottle processing agreement and a consignment sales agreement with Harbin Dongxin Group (“Dongxin”). In accordance with the agreements, Dongxin shall be responsible for processing, packaging and selling the PET bottles sorted from the landfill or purchased by the Company. The Company shall pay a processing fee to Dongxin in return. Dongxin sells the processed PET bottles at an agreed price.





In March 2010, the Company signed a plastic bottle cap processing and consignment sales agreements with Harbin Bin County Welfare Plastic Products Co., Ltd (“HBC”). In accordance with the agreements, HBC will be responsible for processing the plastic bottle caps sorted from the landfill. The Company will pay a processing fee to HBC in return. The processed plastic granules will be sold by HBC at an agreed price.





The following table presents sales from major customers with individual sales over 10% of total net revenue for the three and six months ended June 30, 2010 and 2009:




12
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 7. MAJOR CUSTOMER (Continued)




Ended June 30, 2010 (Unaudited)

Ended June 30, 2009 (Unaudited)Six Months

Three Months

Six Months

Three MonthsSales


% of

Total Sales

Sales


% of

Total Sales

Sales


% of

Total Sales

Sales


% of

Total SalesHMUAB

$
2,309,528



34%

$
1,186,829



23%

$
890,019



100%

$
447,670



100%Consignment sales through Dongxin


3,816,055



56%


3,351,000



64%


-



0%


-



0%Consignment sales through HBC


705,923



10%


705,923



13%


-



0%


-



0%Total

$
6,831,506



100%

$
5,243,752



100%

$
890,019



100%

$
447,670



100%




Accounts receivable related to HMUAB, Dongxin and HBC are as follows:





June 30, 2010

December 31, 2009Accounts

Receivables


% of Accounts

Receivables

Accounts

Receivables


% of Accounts

Receivables(Unaudited)HMUAB

$
4,562,578



57%

$
4,253,203



100%Dongxin


2,816,764



35%


-



0%HBC


595,939



7%


-



0%Total

$
7,975,281



100%

$
4,253,203



100%


NOTE 8. SEGMENT INFORMATION





The Company identified two operating segments for the three and six months ended June 30, 2010; landfill operation and plastic bottle sorting and recycling. The landfill operating segment provides non-hazardous municipal solid waste processing and disposal services. The plastic  bottle recycling segment sorts the waste plastic bottles from the landfill the company is operating, outsources the processing function to Dongxin and HBC and sells the processed PET bottles and plastic granules on consignment basis through Dongxin and HBC.




All of the Company’s revenues are from customers in the PRC.




The measurement of segment income is determined as earnings before income taxes. Segment incomes are reported to the Company’s chief operating decision maker (“CODM”) using the same accounting policies as those used in the preparation of these condensed consolidated financial statements. Items that are not allocated to the Company’s operating segments are comprised primarily of interest income and expenses, other income and expenses and income taxes.




The segment information for the reportable segments for the three and six months ended June 30, 2010 and 2009 and the reconciliation of reportable segment net sales and net income to the consolidated total are as follows:




13
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 8. SEGMENT INFORMATION (Continued)




For the Three Months Ended June 30,Landfill


Plastic Bottles

Recycling


Consolidated

Total2010Revenues

$
1,186,829


$
4,056,923


$
5,243,752Income from operations


907,939



1,888,890



2,796,829Other income










329Income before income taxes










2,797,158Provision for income taxes










(361,740
)Net income









$
2,435,4182009Revenues

$
447,670


$
-


$
447,670Income from operations


220,872



-



220,872Other income










714Income before income taxes










221,586Provision for income taxes










(41,075
)Net income









$
180,511For the Six Months Ended June 30,Landfill


Plastic Bottles

Recycling


Consolidated

Total2010Revenues

$
2,309,528


$
4,521,978


$
6,831,506Income from operations


1,771,936



2,256,898



4,028,834Other income










23,435Income before income taxes










4,052,269Provision for income taxes










(531,327
)Net income









$
3,520,9422009Revenues

$
890,019


$
-


$
890,019Income from operations


422,363



-



422,363Other income










8,165Income before income taxes










430,528Provision for income taxes










(79,275
)Net income









$
351,253


14
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 9. BANK LOAN PAYABLE





On November 18, 2004, the Company received a long-term loan from Industrial and Commercial Bank of China, Harbin Branch in the amount of $4,832,960, secured by the Company’s building. The loan had a 5-year term, maturing November 15, 2009. Pursuant to the loan agreement, the interest rate for the first year was set at 7.605%. Starting from the second year and thereafter, the rates become adjustable based on the change of the official rates at the time. In addition to paying the quarterly interest, the Company is also required to make $241,648 pre-determined principal repayments every quarter.





Upon the suspension of the Company’s landfill operation as discussed in Note 13, the Company renegotiated with the Bank for a temporarily reduced quarterly principal repayment in the amount of RMB 200,000 ($29,278) each quarter, starting in the third quarter of 2007.





The Company recommenced the landfill operation in October 2009 and obtained an extension for the above loan on November 13, 2009. The extended loan has a fixed interest rate at 6.534% per annum and matures on December 25, 2011. In accordance with the loan extension agreement, the Company will be required to make the regular quarterly repayments as previously agreed. For the six months ended June 30, 2010, the Company repaid $589,849 to the lender. Interest expense incurred for the three and six months ended June 30, 2010 and 2009 amounted to $37,290 and $52,147 and $78,059 and $111,165, respectively, and was capitalized in construction in progress.





As of June 30, 2010 and December 31, 2009, the loan payable consists of the following:




June 30, 2010


December 31, 2009(Unaudited)Loan payable

$
1,570,712


$
2,054,008Less: current portion


966,592



966,592Loan payable - non-current portion

$
604,120


$
1,087,416






15
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 10.  INCOME TAXES




United States Tax




EESC is subject to United States of America tax law. No provision for income taxes in the United States or elsewhere has been made as EESC had no taxable income subject to U.S. taxes for the six months ended June 30, 2010 and 2009.





PRC Tax





Two of the Company’s operating subsidiaries, Harbin Yifeng and Yifeng Zhiye, are both registered and operate in Harbin, China. They are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are subject to tax at a statutory rate of 25%.




Upon the acquisition of Harbin Yifeng by AEEC, Harbin Yifeng has applied to be treated as a Wholly Foreign Owned Enterprise (“WFOE”). In accordance with the relevant income tax laws, the profits of WFOEs are fully exempted from income tax for two years, from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% income tax reduction for the immediate next three calendar years (“tax holiday”).




Harbin Yifeng was granted the status of WFOE in the fourth quarter of 2006 upon the reserve merger with USIP with a choice of starting the tax holiday immediately or the next calendar year. Harbin Yifeng elected for this tax holiday to commence in January 2007. Its two-year tax exemption period was from January 1, 2007 to December 31, 2008 and the three-year income tax reduction period will be from January 1, 2009 to December 31, 2011.




The estimated tax savings as a result of tax holidays for the six months ended June 30, 2010 and 2009 amounted to $531,327, and $79,275, respectively. The net effect on earnings per share had the income tax been applied would decrease basic earnings per share for the six months ended June 30, 2010 and 2009 from $0.29 to $0.25 and from $0.03 to $0.02, respectively.




On March 16, 2007, National People's Congress passed a new corporate income tax law (the “New CIT Law”), which became effective on January 1, 2008. This new corporate income tax unified the corporate income tax rate, cost deductions and tax incentive policies for both domestic and foreign-invested enterprises in China.  Under the new CIT law, the corporate income tax rate applicable to all Companies is 25%, replacing the previous tax rate of 33%. However, companies previously approved for any income tax holiday will not be subject to the new enacted tax rate until the holiday runs out. Accordingly, the applicable corporate income tax rate of our Chinese subsidiaries will incrementally decrease to 12.5% (50% of new applicable rate of 25%) for the three-year income tax reduction period.




16
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








NOTE 10.  INCOME TAXES (Continued)




The Company was incorporated in the United States.  It incurred net operating losses for U.S. income tax purposes for the three and six months ended June 30, 2010 and 2009. The net operating loss carry forwards, including amortization of share-based compensation, for United States income tax purposes amounted to $1,038,030 and $852,267 as of June 30, 2010 and December 31,2009, respectively, which may be available to reduce future periods' taxable income. These carry forwards will expire, if not utilized, beginning in 2028 through 2029. Management believes that the realization of the benefits arising from this loss appear to be uncertain due to Company's limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at June 30, 2010 for the temporary difference related to the loss carry-forwards. Management reviews this valuation allowance periodically and makes adjustments as warranted.




United States deferred tax assets and the related valuation allowance were as follows:




June 30, 2010


December 31, 2009(Unaudited)Deferred Tax Assets

$
352,930


$
289,771Less: Valuation Allowance


(352,930
)


(289,771
)Net Deferred Assets

$
-


$
-





Income tax returns for the years prior to 2006 are no longer subject to examination by tax authorities.








NOTE 11.   STOCK-BASED COMPENSATION




In May 2007, the Board of Directors of the Company adopted and approved the 2007 Employee Incentive Stock Option Plan (the “2007 Plan”), which authorized the issuance of up to 2,000,000 shares of common stock under the 2007 Plan. Subject to the terms and provisions of the 2007 Plan, the Board of Directors, at any time and from time to time, may grant shares of stock to eligible persons in such amounts and upon such terms and conditions as the Board of Directors shall determine.




The Company granted a total of 2,000,000 shares of its common stock to twenty two employees in 2007 under the 2007 Plan with a weighted average grant price of $0.49 and average vesting period of 3 years.




17
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 11.   STOCK-BASED COMPENSATION (Continued)





In April 2008, the Board of Directors of the Company adopted and approved the 2008 Employee Incentive Stock Option Plan (the “2008 Plan”), which authorized the issuance of up to 3,000,000 shares of common stock under the 2008 Plan. Subject to the terms and provisions of the 2008 Plan, the Board of Directors, at any time and from time to time, may grant shares of stock to eligible persons in such amounts and upon such terms and conditions as the Board of Directors shall determine.




The Company granted a total of 2,950,000 shares of its common stock to consultants and seven employees in 2008 under the Plan with a weighted average grant price of $0.45 and average vesting period of 10 years.




On June 9, 2010, the Company entered into Independent Directors Contracts with two new directors. The Company agreed to pay these directors a total cash fee of $60,000 per annum and to issue to them common stock valued at $54,000 on June 9, 2011, if they remain on the Board on that date.




A summary of the status of the Company’s non-vested shares as of June 30, 2010, and changes during the six months ended June 30, 2010, is presented below:







Non-vested Shares

Shares


Weighted-Average

Grant Date Fair ValueNon-vested at December 31, 2009


3,144,999


$
1,510,138Granted


-



-Vested


431,386



188,568Forfeited


-



-Non-vested at March 31, 2010 (unaudited)


2,713,613


$
1,321,570





A summary of the status of the Company’s deferred stock compensation under the Plan as of June 30, 2010, and changes for the three months ended June 30, 2010, is presented below:




Deferred stock compensation as of December 31, 2009

$
1,498,319Compensation expenses debited to statement of operationswith a credit to additional paid-in capital


(185,764
)Deferred stock compensation as of June 30, 2010 (unaudited)

$
1,312,555


18
 EASTERN ENVIRONMENT SOLUTIONS, CORP AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)








NOTE 12. SIGNIFICANT EVENTS




On June 13, 2007, the Company filed a Form 8-K with the SEC, announcing that in accordance with the PRC National Environment Protection Bureau’s request in relation to landfills and adjustments to their peripheral inhabitants’ well-being, the Harbin municipal government city administrative bureau was carrying out certain adjustments to the original landfill plans of our subsidiary, Harbin Yifeng Eco-environment Co. Ltd. (“Harbin Yifeng”).  Such adjustments resulted in the relocation of some peripheral inhabitants of the landfill and its waste water disposal plant. The costs of such adjustments will be borne by the Harbin municipal government city administrative bureau.  These measures disrupted Harbin Yifeng’s normal operations.  After careful consideration, our Board of Directors decided to temporarily suspend Harbin Yifeng’s operations while the measures were being carried out. However, Harbin Yifeng was still entitled to collect the minimum fixed fees for the Suspension Period as per the “Special Permission Operation Rights Contract”, which Harbin Yifeng had signed with the Harbin municipal government city administrative bureau on September 1, 2003. The bureau was required to compensate and pay Harbin Yifeng a sum equivalent to the fee for disposing 800 tons of waste per day during the Suspension Period.




On November 16, 2009, the Company issued a press release, announced that it has reopened its MSW landfill in Harbin. As notified by the Harbin Municipal Urban Administrative Bureau (HMUAB), the Company recommenced its operations at the landfill on October 30, 2009. Since then, the landfill has been in full production and returned to the level of operations it carried on prior to the landfill suspension in June 2007.




On January 20, 2010, the Company signed a supplementary agreement with HMUAB. According to the supplementary agreement, from January 1, 2010, the waste disposal subsidy was raised from RMB42 yuan per ton as set in the original franchise contract to RMB60 yuan per ton.




19





ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS





Forward-Looking Statements: No Assurances Intended




In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Eastern Environment Solutions, Corp.  Whether those beliefs become reality will depend on many factors that are not under Management’s control.  Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in  Section 1A of our Annual Report on Form 10-K for the year ended December 31, 2009 entitled “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.







Results of Operations




The growth of our business was delayed in June 2007, when the Harbin Municipal Urban Administrative Bureau (“HMUAB”), which was our only customer at that time, was mandated by the PRC National Environment Protection Bureau to carry out certain modifications to the development of its landfill for the protection of local residents.  The modifications involved the relocation of some of the neighboring residents, as well as the relocation of our wastewater disposal plant.  The cost of the modifications was borne entirely by the HMUAB.  Nevertheless, while the modifications are ongoing, we suspended our operations at the Landfill, which are currently our only source of revenue.  The suspension was lifted in November 2009, and we have now returned to full operations.  Our condensed consolidated financial statements for the first six months of 2009, however, reflect the results of suspended operations.





In the first quarter of 2010, our business prospects brightened considerably.  The most significant events that occurred in that quarter were:




·
In January 2010 we executed an agreement with the HMUAB that increased the fee payable to us for waste disposal from 42 RMB per ton to 60 RMB per ton.


·
In February 2010 the HMUAB increased the limits on our operations from 1,200 tons of waste per day to 1,500 tons per day.


·
In January 2010 we took the first major step towards implementing our plan to commercialize the resources available in the waste deposited in the landfill, as we engaged Harbin Dongxin Group as our agent to process and distribute the polyethylene terephthalate (“PET”) bottles that we remove from the landfill.


·
In March 2010 we signed a plastic bottle cap processing and consignment sales agreement with Harbin Bin County Welfare Plastic Products Co., Ltd., under which we engaged Harbin Bin County Welfare Plastic Products Co. as our agent to process the bottle caps that we remove from the landfill and resell the granules.





20





Our agreements with Harbin Dongxin Group and Harbin Bin County Welfare Plastic Products Co. mark the expansion of our business from waste storage toward the efficient recycling of waste into value-added products.  The use of PET by the bottling industry has increased dramatically in the past decade, as has the demand for recycled PET for a variety of industrial purposes, especially as a component of solar-heating installations.  With both supply and demand for PET established, the logic of positioning ourselves as middleman becomes evident.  Since January 2010, we have been removing the PET bottles from waste deposited in the Harbin landfill and delivering the bottles to Harbin Dongxin Group on a consignment basis.  We pay Harbin Dongxin Group a per-ton fee for processing the bottles into usable PET, and then we consign the resulting PET to Harbin Dongxin Group for resale to industry.  We fix a minimum resale price, which Harbin Dongxin Group must collect and remit to us upon sale of the recycled PET.  Harbin Dongxin Group is entitled to retain any revenue it obtains from the resale in excess of the fixed minimum price.





The terms of our agreement with Harbin Bin County Welfare Plastic Products Co. mimic the agreement with Harbin Dongxin Group.    Since we re-started operations at the Harbin landfill in November 2009, we have been removing plastic bottle caps from the waste deposited there.  In March 2010 we engaged Harbin Bin County Welfare Plastic Products Co. to accept the bottle caps on a consignment basis.  We pay Harbin Bin County Welfare Plastic Products Co. a per-ton fee for grinding the bottle caps into plastic granules, and then we consign the resulting granules to Harbin Bin County Welfare Plastic Products Co. for resale to industry.  We fix a minimum resale price, which Harbin Bin County Welfare Plastic Products Co. must collect and remit to us upon sale of the granules.  Harbin Bin County Welfare Plastic Products Co. is entitled to retain any revenue it obtains from the resale in excess of the fixed minimum price.





Already the sale of recovered PET bottles and bottle caps produced 66% of our revenue ($4,521,978) in the first six months of 2010 (77% in the second quarter).  With the $2,309,528 contributed by HMUAB reimbursements for our landfill operations, we increased revenue from $890,019 in the first six months of 2009 to $6,831,506 in the first six months of 2010, during which we accrued only the minimum fee guaranteed by HMUAB in our agreement.  In the second quarter, revenue increased from $447,670 to $5,243,752.  For the future we expect growth to continue.  Having now returned to operations, we will endeavor to expand our waste processing operations by (a) pursuing strategic acquisitions, (b) developing additional landfills, and (c) implementing additional recycling technologies that will provide additional revenue sources, such as the sale of methane to the electric power industry.  Given the overwhelming growth of China’s cities, we expect there to be plentiful market opportunities.





Although our revenues in the first six months of 2009 were achieved without any production on our part, we still realized $185,630 in cost of goods sold.  These costs were attributable to the fact that we retained our core employees on salary, even as we had no revenue producing work for them to perform.  Management determined that eliminating the Company’s employee base during the landfill suspension would make it very difficult to revive that operation when the suspension ended.  This decision proved advantageous as 2010 began, as we were able to return promptly to full-scale operation without significant start-up costs or inefficiencies.  During the six months ended June 30, 2010 the expenses attributable to our landfill operations increased by 277% while the revenue from those operations increased by 259%, a relative parity that evidenced our ability to ramp up operations without significant start-up inefficiencies.





21





The relative efficiency of our operations and the wisdom of retaining our employees on salary during the suspension of operations were demonstrated by the modest (4%) increase in selling, general and administrative expenses that we experienced in the first six months of 2010.  In both periods, the majority of our selling, general and administrative expenses were attributable to the expensing of stock compensation that we granted to employees and consultants in 2008 as incentives for future services:  $185,764 in the first six months of 2010 (out of $294,925 total S,G&A expense) and $191,376 in the first six months of 2009 (out of $282,026 total S,G&A expense).  The $1,312,555 in deferred stock compensation expense remaining at June 30, 2010 will be amortized as expense over the expected terms of service of the employees and consultants who received the shares.





The Company’s revenue less expenses resulted in a pre-tax income of $4,052,269 for the six months ended June 30, 2010 ($2,797,158  for the second quarter of 2010), compared to a pre-tax income of $430,528 during first six months of 2009 ($221,586 in the second quarter).  As a result of Chinese tax laws that reward foreign investment in China, Yifeng was entitled to exemption from income taxes during 2007 and 2008, followed by a 50% abatement of taxes from 2009 to 2011.  In the first six months of 2010, after accruing $531,327 for income taxes, our net income was $3,520,942, representing $0.29 (diluted $0.24) per share, compared to $351,253 in the first six months of 2009.  Net income for the second quarter of 2010 was $2,435,418, compared to $180,511 in the second quarter of 2009.





Our business operates entirely in Chinese Renminbi, but we report our results in our SEC filings in U.S. Dollars.  The conversion of our accounts from RMB to Dollars results in translation adjustments.  While our net income is included in the retained earnings on our balance sheet; the translation adjustments are included in a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business.  During the first six months of 2010, the effect of converting our financial results from RMB to U.S. Dollars was to increase our accumulated other comprehensive income by $18,762.  During the first six months of 2009, the effect of converting our financial results from RMB to U.S. Dollars was to reduce our accumulated other comprehensive income by $26,999.





Liquidity and Capital Resources




To date, we have financed our operation and met capital expenditure requirements primarily through bank loans and operating income. On November 18, 2004, the Company received a long-term loan from Industrial and Commercial Bank of China, Harbin Branch in the amount of $4,832,960, secured by the Company’s building. The loan was for a 5-year term, maturing November 15, 2009 with interest adjustable based on official rates. The loan agreement does not include any financial covenants with which the Company must comply.  In November 2009 the Bank extended the due date of the loan to December 25, 2011 and fixed the interest rate at 6.534% per annum.  In addition to paying the quarterly interest, the Company is also required to make $241,648 pre-determined principal repayments every quarter.





22





Our working capital at June 30, 2010 totaled $7,195,745, an increase of $3,222,773 from our working capital at December 31, 2009.  The increase was mainly attributable to our net income, as the $3,722,078 increase in our accounts receivable was partially offset by the repayment in March 2010 of the $440,000 loan we had made to Harbin Jiayi Import and Export Co., Ltd. in 2009.





The largest component of our working capital at June 30, 2010 consisted of $4,562,578 owed to us by HMUAB.  The receivable had grown over $4.0 million during the suspension of operations.  Although under the BOT agreement, payments were due thirty days after each month, during the suspension of Landfill operations between June 2007 and October 2009, HMUAB made few payments.  During 2009, HMUAB made no payments at all during the first ten months.  However, since the Landfill re-opened in November 2009, HMUAB has begun to pay both current accounts and portions of the past due account.  In February 2010 HMUAB also sent us a written acknowledgement of the $4,253,203 that it owed us at December 31, 2009, with a schedule of payments that will satisfy the receivable during 2010:  4 million RMB in the first quarter of 2010, 5 million RMB in the second quarter, 8 million RMB in the third quarter, and the balance of 12.037 million RMB in the fourth quarter.  To date HMUAB has met that schedule of payments.  Accordingly, we do not consider the receivable to be at risk, and have made no provision for doubtful accounts.





After property and equipment – primarily our investment in the Landfill – and accounts receivable, our largest asset category at June 30, 2010 was “advances to suppliers,” totaling $3,809,414, an increase of $25,433 since December 31, 2009.  These amounts primarily represent payments to contractors for work on Phase I and Phase II of the Landfill.  The asset will be reclassified as “property and equipment” when the related construction projects are completed.




Our operations during the six months ended June 30, 2010 provided $619,987 in net cash.  Net cash from operations was far less than net income for the period primarily due to a $3,722,078 increase in accounts receivable during the quarter.  Accounts receivable increased as a result of the revival of operations at the Landfill, and as a result of the initiation of sales of PET, both of which resulted in sales in the second quarter for which we will collect in the third quarter.  During the first six months of fiscal year 2009, by comparison, our operations used $428,889 in cash, as our landfill operations were suspended during that period and HMUAB was accruing but not paying the minimum contractual fee.





During the first six months of 2009, when our operations were suspended, we utilized our cash reserves by making loans to third parties, to achieve better interest rates than were offered by local banks.  We made a loan of $526,511 during that quarter to Harbin Jiayi Import and Export Co., Ltd., which agreed to pay us 5.31% annual interest.  During the same period we collected a loan of $234,518 that we had previously made to Harbin Binjiang Freight Co., Ltd., which was owned by our then-President.  Our investing activities during the first six months of 2009, therefore, used $319,110 in cash.  During the first quarter of 2010, on the other hand, we collected the remaining balance of the loan made a year earlier to Harbin Jiayi Import and Export Co., and so our investing activities for the six months ended June 30, 2010 provided $335,961 in cash.





23





The cash provided by investing activities in the first six months of 2010 was more than offset by $483,296 that we used during the first six months of 2010 to satisfy our bank loan obligations.  In the first six months of 2009, the bank had reduced our payment obligations due to the suspension of landfill operations, and we paid only $48,330 on account of our bank loan.  Now that the landfill is operating again, we will incur quarterly payment obligations to the bank of $241,648 plus interest.





Our operating subsidiary, Yifeng, has sufficient liquidity to fund its near-term operations and to fund the working capital demands of a modest expansion of its operations.  In order to complete Phase II and Phase III of the Landfill project within the next six years, it will be necessary that we obtain additional debt or equity financing.  In addition, if we are to achieve critical mass in our industry by developing new landfills, we will require substantial infusions of capital.  We do not know at this time whether we will be able to secure such financing, or on what terms it might be available.





Based upon the financial resources available to Yifeng, management believes that it has sufficient capital and liquidity to sustain operations for at least the next twelve months.





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.





ITEM 4T.  CONTROLS AND PROCEDURES





(a)           Evaluation of disclosure controls and procedures.




The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.





(b)           Changes in internal controls.




The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.





24





PART II   -   OTHER INFORMATION




Item 1.     Legal Proceedings.




None.





Item 1A. Risk Factors.




There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended December 31, 2009.





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




(a) Unregistered Sale of Equity Securities




None.




(c)   Repurchase of Equity Securities




The Company did not repurchase any shares of its common stock during the 2nd quarter of 2010.





Item 3.     Defaults Upon Senior Securities.




None.





Item 4.     Reserved.


Item 5.     Other Information.




None.




Item 6.     Exhibits




31.1
Rule 13a-14(a) Certification - CEO




31.2
Rule 13a-14(a) Certification - CFO




32
Rule 13a-14(b) Certifications





25





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.





EASTERN ENVIRONMENT SOLUTIONS, CORP.Date: August 16, 2010
By: /s/ Feng YanFeng Yan, Chief Executive Officer