China Industrial Waste Management (CIWT) 10-Q 2008 Q1 Quarterly report

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 March 31, 2008

or

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

For The Transition Period From __________________ to __________________________

Commission File Number: 2-95836-NY

China Industrial Waste Management, Inc.

(Name of registrant as specified in its charter)

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

c/o Dalian Dongtai Industrial Waste Treatment Co. No. 1 Huaihe West Road, E-T-D Zone, Dalian, China	11660
(Address of principal executive offices)	(Zip Code)

011-86-411-8581-1229

(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.

Yesx No o

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

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

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 13,270,843 shares of common stock are issued and outstanding as of May 15, 2008.

TABLE OF CONTENTS

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	28
Item 4T	Controls and Procedures.	28
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	30
Item 1A.	Risk Factors.	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	30
Item 3.	Defaults Upon Senior Securities.	31
Item 4.	Submission of Matters to a Vote of Security Holders.	31
Item 5.	Other Information.	31
Item 6.	Exhibits.	31

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 and the cost of attracting and retaining highly skilled personnel; our projected sales, profitability, and cash flows; our growth strategies; anticipated trends in our industries; our future financing plans; and our anticipated needs for working capital.

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

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, unless otherwise indicated, amounts expressed in this report as RMB have been translated into United States dollars (“USD$” or “$”) at the rate of USD$1.00 = RMB7.3046 quoted by The People’s Bank of China (“PBOC”) as of December 31, 2007; and at the rate of USD$1.00 = RMB7.0222 quoted by OANDA as of March 31, 2008. OANDA is a Delaware corporation providing internet foreign exchange rate at www.oanda.com. OANDA is also a foreign exchange market maker. Its internet foreign exchange rate is widely used by public which is including but not limited to major international audit firms.  The Renminbi is not freely convertible into foreign currencies and the quotation of exchange rates does not imply convertibility of Renminbi into U.S. Dollars or other currencies. All foreign exchange transactions take place either through PBOC or other banks or other market makers authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China. No representation is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate, OANDA rate or at all.

The "Company," "we," "us," "our" and similar words refer to China Industrial Waste Management, Inc, its direct, wholly-owned subsidiary DonTech Waste Services, Inc. (“DonTech”) and DonTech’s majority owned subsidiaries, Dalian Dongtai Industrial Waste Treatment Co. Ltd. (“Dongtai”), Dongtai Water Recycling Co. Ltd. (“Dongtai Water”), Dalian Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”), Dalian Lipp Environmental Energy Engineering & Technology Co., Ltd.(“Dalian Lipp”) and, prior to its dissolution in July 2007, Liaoyang Dongtai Industrial Waste Treatment Co., Ltd. (“Liaoyang Dongtai”). The Company is in the process of dissolving DonTech, which serves as a holding company for the shares of the Company’s operating subsidiaries.

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

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEETS

(In U.S. dollars)

	March 31,			December 31,
	2008			2007
	(Unaudited)			( Audited)
ASSETS
Current assets
Cash and cash equivalents	$	4,225,461		$	3,260,307
Trade accounts receivable, net		1,592,320			594,322
Other receivables		98,049			22,453
Inventory		1,550,024			1,332,349
Advances to suppliers		816,886			390,159
Deferred expense		19,225			42,784
Total current assets		8,301,965			5,642,374
Investment		2,730,017			2,633,354
Property, plant & equipment		4,946,526			4,697,305
Less: Accumulated depreciation		(2,254,850	)		(2,055,268	)

Net property, plant and equipment		2,691,676		2,642,037
Construction in progress		8,448,045		7,410,255
Land usage right, net of accumulated amortization		1,791,147		1,732,074
Deposits		576,228		80,925
Related party Receivable		638,669		388,796
Total assets	$	25,177,747	$	20,529,815
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,043,192	$	279,600
Short-term loan		2,563,299		1,369,000
Tax payable		138,816		93,954
Deferred Sales		703,221		667,389
Accrued expenses		33,246		7,236
Related party payable		598,103		536,362
Other payable		256,609		343,207
Total current liabilities		5,336,486		3,296,748
Asset retirement obligation liability		464,734		437,619
Other long-term liabilities		1,001,965		620,979
Total liabilities		6,803,185		4,355,346
Minority interest in subsidiary		2,494,117		2,259,595
Stockholders' equity
Common stock: par value $.001; 95,000,000 shares authorized; 13,220,843 shares issued and outstanding		13,221		13,221
Additional paid-in capital		1,968,634		1,968,634
Other comprehensive income		1,743,682		1,153,728
Retained earnings		12,154,908		10,779,291
Total stockholders' equity		15,880,445		13,914,874
Total liabilities and stockholders’ equity	$	25,177,747	$	20,529,815

See notes to Consolidated Financial Statements.

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CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In U.S. dollars)

(Unaudited)    

	For Three Months Ended March 31,
	2008		2007
			Restated
Service fees	$	1,819,552	$	837,063
Sales of cupric sulfate		708,843		388,333
Sales of recycled commodities	$	601,885	$	457,576
Operating revenue	$	3,130,280	$	1,682,972
Cost of service fees		371,035		228,619
Cost of cupric sulfate		286,526		97,295
Cost of recycled commodities	$	270,532	$	183,854
Costs of revenue (including depreciation)	$	928,093	$	509,768

Gross profit	2,202,187		1,173,204
Operating expenses
Selling expenses	228,081		204,241
General and administrative expenses	353,846		217,160
Total operating expenses	581,927		421,401
Income from operations	1,620,260		751,803
Other income(expense)
Investment income(expense)	(9,039	)	-
Interest income	6,298		2,804
Other income	5,880		368
Other expense	(2	)	(27	)
Total other income (expense)	3,137		3,145
Net income from continuing operations before minority interest and income tax	1,623,397		754,948
Income tax (benefit)	(107,230	)	-
Income from continuing operations	1,516,167		754,948

Income tax benefit		-		-
Loss on discontinued operations		-		-
Net income before minority interest		1,516,167		754,948
Minority interest		140,550		75,036
Net income	$	1,375,617	$	679,912
Foreign currency translation adjustment		589,954		58,768
Comprehensive income	$	1,965,571	$	738,680
Basic weighted average shares outstanding		13,220,843		13,220,843
Diluted weighted average shares outstanding		13,220,843		13,220,843
Basic and diluted net earnings per share	$	0.10	$	0.05

See notes to Consolidated Financial Statements.

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CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. dollars)

(Unaudited)

	For Three Months Ended March 31,
	2008			2007
				Restated
Cash flows from operating activities:
Net income	$	1,375,617		$	679,912
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		140,550			75,036
Depreciation		114,404			122,186
Amortization		4,148			-
Bad debt allowance		(3,534	)		-
Stock issued for services		-			4,000
Accretion expenses		9,311			6,916
Subsidy received from government		348,326			-
Changes in operating assets and liabilities:
Accounts receivable		(949,529	)		(105,857	)
Inventory		(160,551	)		(165,004	)
Other receivables		(314,010	)		23,175
Advance to suppliers		1,884			(1,843	)
Prepaid expense		24,734			(19,388	)
Deposits		(481,423	)		-
Accounts payable & other payables		637,869			(24,598	)
Accrued expense and deferred sales		33,961			1,565
Tax payable		40,196			(12,761	)
Net cash provided by operating activities		821,953			583,339

Cash flows from investing activities
Investment in subsidiary		9,039			(1,262,735	)
Purchase of property and equipment		(59,015	)		(21,019	)
Construction contracts		(1,121,648	)		(1,266,472	)
Due from related party		11,751			-
Due to related party		41,799			(128,851	)
Investment in subsidiary by minority holder		-			-
Proceeds on sale of equity investments		-			-
Net cash used in investing activities		(1,118,074	)		(2,679,077	)
Cash flows from financing activities
Proceeds from loans		1,114,462			-
Net cash provided by financing activities		1,114,462			-
Effect of exchange rate on cash		146,633			8,726
Net increase(decrease) in cash and cash equivalents		965,154			(2,087,012	)
Cash and cash equivalents, beginning of period		3,260,307			5,713,925
Cash and cash equivalents, end of period	$	4,225,461		$	3,626,913
Supplemental cash flow information:
Cash paid during the year for:
Interest	$	-		$	-
Income taxes		-			-

See notes to Consolidated Financial Statements.

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CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

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. 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 intercompany accounts and transactions have been eliminated in consolidation. The consolidated operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2007.

1. Nature of operations

The unaudited consolidated financial statements are those of China Industrial Waste Management, Inc., a Nevada corporation incorporated on November 12, 2003 and formerly known as Goldtech Mining Corporation  (the “Company”), its 100% owned subsidiary, DonTech Waste Services, a Delaware corporation incorporated in November 2005 (“DonTech”), and its indirect majority owned subsidiaries, Dalian Dongtai Industrial Waste Treatment Co. Ltd. (“Dongtai”), Dongtai Water Recycling Co. Ltd. (“Dongtai Water”), Dalian Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”) and Dalian Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian Lipp”). 

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China Industrial Waste Management, Inc., through its 90%-owned subsidiary Dalian Dongtai Industrial Waste Treatment Co., Ltd. (“Dongtai”) and other indirect subsidiaries, is engaged in the collection, treatment, disposal and recycling of industrial wastes principally in Dalian, China and surrounding areas in Liaoning Province, China. The Company provides waste disposal solutions to its more than 400 customers from facilities located in the Economic and Technology Development Zone, Dalian, PRC. Dongtai treats, disposes of and/or recycles many types of industrial wastes, and recycled waste products are used by customers as raw material to produce chemical and metallurgy products. In addition, Dongtai and its subsidiaries treat or dispose of industrial waste through incineration, burial or water treatment; as well as provide the following to its clients:

·   environmental protection services,

·   technology consultation,

·   pollution treatment services,

·   waste management design processing services,

·   waste disposal solutions,

·   waste transportation services,

·   onsite waste management services, and

·   environmental pollution remediation services.

Dongtai was incorporated on January 9,1991 in the PRC.

Liaoyang Dongtai was incorporated on March 22, 2006. Dongtai has a 60% interest in this subsidiary. Liaoyang Dongtai is located in Liaoyang, PRC and is engaged in the business of the collection, treatment, disposing and recycling of industrial wastes. On July 14, 2007, Liaoyang Dongtai was dissolved and liquidated. 

Dongtai Water was incorporated in July 2006 and Dongtai acquired 18% of the equity of such company in such month. On July 16, 2007 Dongtai acquired an additional 62% of the equity of Dongtai Water, which was accounted for as a reorganization of entities under common control. Dongtai Water is a Build-Operate-Transfer (BOT) project, designed to process polluted water generated by the city of Dalian.

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. In August 2007, Dongtai acquired 70% of the equity of Zhuorui from a related company, controlled by Mr. Dong Jinqing, CEO and CFO of the company, at the price of RMB 7 million (USD$_958,300), which was accounted for as a reorganization of entities under common control.

5

On March 2, 2007, the Company purchased 49% of the equity of Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai Organic”), a newly formed company which is also a BOT project, engaged in municipal sludge treatment in Dalian. Dongtai Organic will operate for a period of 20 years. The investment in Dongtai Organic is accounted for using the equity method.

Dalian Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian Lipp”), is a PRC joint venture established on December 22, 2007 and is owned 75% by Dongtai. Dalian Lipp designs, manufactures and installs environmental protection equipment and renewable energy equipment and provides related technical services. The project is based on the Lipp tank building technique, and is dedicated to generating energy by organic waste anaerobic fermentation, and industrial effluent treatment and municipal sewage plant.

2. Basis of Presentation

The accompanying consolidated financial statements include the accounts of China Industrial Waste Management, Inc., a Nevada corporation, its 100% owned subsidiary, DonTech Waste Services Inc., a Delaware corporation, its 90% indirectly owned subsidiary, Dalian Dongtai Industrial Waste Treatment Co., Ltd., a PRC company, its 80% indirectly owned subsidiary, Dongtai Water Recycling Co. Ltd., a PRC company, its 70% indirectly owned subsidiary, Dalian Zhuorui Resource Recycling Co., Ltd., a PRC company, and its 75% indirectly owned subsidiary, Dalian Lipp Enviromental Energy Engineering & Technology Co., Ltd., a PRC company. 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 the PRC. All necessary adjustments have been made to present the financial statements in accordance with US GAAP.

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3. Summary of Significant Accounting Policies

Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and markets in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.

Foreign currency translation

As of March 31, 2008 and 2007, the accounts of the Company were maintained, and the consolidated financial statements were expressed in the 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 the RMB as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate on the balance sheet date, stockholders’ equity was translated at the historical rates and the statement of operations items 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.”

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.

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.

Accounts and other receivables

Accounts and other receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. Allowance for uncollectible accounts as of March 31, 2008 and December 31, 2007 is $6,558 and $9,776, respectively. The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary from COD through a credit term of up to nine to twelve months. Reserves are recorded primarily on a specific identification basis.

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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, 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, equipment and construction in progress

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment 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 operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

Buildings	30 Years
Machinery	10 Years
Vehicles	8 Years
Office equipment	5 Years

Construction in progress consists of the design expenses, architect fee and cost of the equipment to treat waste.

8

Landfills

Cost Basis of Landfill Assets — We capitalize various costs that we incur to make a landfill ready to accept waste. 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 (“SFAS No. 143”) 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.

Amortization of Landfill Assets — 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:

	As of
	March 31, 2008		December  31, 2007
Long-term	$	464,734		437,619

Long-term investment

Invested company	Equity acquired			Balance as of  March 31, 2008		Balance as of December 31, 2007
Dongtai Organic		49	%		2,730,017		2,633,354
Total					2,730,017		2,633,354

Long-term investments are recorded under the equity method. Dongtai Organic is constructing and will operate a sludge treatment and disposal facility in Dalian, PRC, of which the investment is recorded under the equity method.

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Asset impairments

We monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Typical indicators that an asset may be impaired include:

• A significant decrease in the market price of an asset or asset group;

• A significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical condition;

• A significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset group, including an adverse action or assessment by a regulator;

• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;

• Current period operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or

• A current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

If any of these or other indicators occurs, the asset is reviewed to determine whether there has been an impairment. An impairment loss is recorded as the difference between the carrying amount and fair value of the asset. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify the projected cash flow. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value. Fair value is determined by either an internally developed discounted projected cash flow analysis of the asset or asset group or an actual third-party valuation. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs.

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Intangible assets

Intangible assets consist of “Rights to use land and build a plant” for fifty years. The intangible assets are amortized straight - line over fifty years. 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.

Net intangible assets on March 31, 2008 were USD$1,791,147(RMB12,577,791). Such assets consist entirely of a right to use land of USD$1,992,404(RMB13,991,057), less accumulated amortization of USD$201,257(RMB1,413,261).

Discontinued operations

Due to a lack of progress of Liaoyang Dongtai in developing a local market for its services, the Board of Directors of the company decided to dissolve and liquidate Liaoyang Dongtai in July 2007.

Before termination, Liaoyang Dongtai’s primary asset was cash in the amount of RMB 399,989 (USD $52,602). Since Liaoyang Dongtai never generated any revenue, there was no tax incurred, and the expenses from its operations were accounted for as sundry expenses.

Dongtai recovered RMB 260,000 (USD $34,198) from the disposal of the investment in Liaoyang Dongtai. Dongtai’s book value in the investment was RMB 300,000 (USD $39,458). Therefore, Dongtai incurred a total loss from the disposal of RMB 40,000 (USD $5,260).

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Minority interest

Minority interest represents the minority owners’ 10% equity interest in Dongtai, 20% equity interest in Dongtai Water, 30% equity interest in Zhuorui and 25% equity interest in Dalian Lipp.

Fair value of financial instruments

Statements of Financial Accounting Standards 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, disposal and recycling services and the sale of recycled commodities. The fees charged for our services are generally defined in our service agreements and vary based on contract specific terms such as frequency of service, weight, volume and the general market factors influencing industry’s rates. We generally recognize revenue as services are performed 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 March 31, 2008 and December 31, 2007 deferred sales amounted to $703,221 and $667,389, respectively.

Advertising costs

The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the three months ended March 31, 2008 and 2007 were immaterial.

Stock-based compensation

In December 2004, the FASB issued SFAS No.123(R) 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.

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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 at a rate of 30% on its net income. According to a PRC ruling, any joint venture with foreign investment will get special tax exempt treatment for the first two years, reduced tax rate for three years at 9%, 10% and 11% for the third, fourth and fifth year..

Statement of cash flows

In accordance with Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Basic and diluted net earnings per share

Earnings per share is calculated in accordance with Statement of Financial Accounting Standards No. 128 (“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.

13

Contingent liabilities

We estimate the amount of potential exposure we may have with respect to claims, assessments and litigation in accordance with SFAS No. 5. We are party to pending or threatened legal proceedings covering a wide range of matters in various jurisdictions. It is not always possible to predict the outcome of litigation, as it is subject to many uncertainties. Additionally, it is not always possible for management to make a meaningful estimate of the potential loss or range of loss associated with such litigation.

4. New accounting pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Integration No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold and second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. Fin 48 provides guidance on the presentation of such positions within a classified statement of financial position as well as on derecognition, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effectively for fiscal years beginning after December 15, 2006. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial condition.

FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006. The Company has not evaluated the impact of this pronouncement its financial statements.

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In May 2005, the FASB issued SFAS No. 154, entitled Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement defines retrospective application as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This Statement also redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The provisions of SFAS No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 did not impact the consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards(“SFAS”) No. 157, “Fair Value Measurements,” or SFAS 157, which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, where fair value is the relevant measurement attribute. The standard does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS 157 on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115,” or SFAS 159. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities. The requirements of SFAS 159 are effective for the Company’s fiscal year beginning on October 1, 2008. The Company’s management is in the process of evaluating this guidance and therefore has not yet determined the impact that SFAS 159 will have on its financial statements upon adoption.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”)No. 108, or SAB 108, which provides guidance on the process of quantifying financial statement misstatements. In SAB 108, the SEC staff establishes an approach that requires quantification of financial statement errors, under both the iron-curtain and the roll-over methods, based on the effects of the error on each of our financial statements and the related financial statement disclosures. SAB 108 is generally effective for annual financial statements in the first fiscal year ending after November 15, 2006. The transition provisions of SAB 108 permits existing public companies to record the cumulative effect in the first year ending after November 15, 2006 by recording correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. We do not expect that the adoption of SAB 108 would have a material effect on our consolidated financial statements.

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5. Restatements

During the preparation of the financial statements for three and six months ended June 30, 2007, the Company received a comment letter from the Office of the Chief Accountant of the Division of Corporation Finance of Securities and Exchange Commission regarding certain disclosures in the Company’s previously filed periodic reports. The Company determined that its asset retirement obligations (“ARO”) had not been properly accounted for and also that its  subsidiary, Liaoyang Dongtai, had not been consolidated while preparing the Company’s consolidated financial statements in accordance with GAAP contained in such reports. 

The amounts in the restated financial statements were translated at a rate of USD$1 = RMB 7.7342, USD$1 = RMB 7.8087 and USD$1 = RMB 8.0170, as quoted by People’s Bank of China as of March 31, 2007, December 31, 2006 and March 31, 2006 respectively 

The Company therefore restated its consolidated balance sheet as of March 31, 2007 and 2006, its consolidated statements of income for three months ended March 31, 2007 and March 31, 2006 and its consolidated statement of cash flows for three months ended March 31, 2007 and March 31, 2006. These restatements have previously been filed with the Securities and Exchange Commission. The effects of the restatements are shown in the following tables.

Balance Sheet

	Original			Restated
	March 31,
	2007			2007
ITEMS
Current assets
Cash and cash equivalents	$	3,626,913		$	3,626,913
Trade accounts receivable		258,823			258,823
Other receivables		13,091			13,091
Inventory		774,326			774,326
Advances to suppliers		3,901			3,901
Deferred expense		40,142			40,142
Tax receivable		6,398			6,398
Total current assets		4,723,594			4,723,594
Investment		1,592,925			1,592,925
Property, plant & equipment		3,986,672			4,250,965
Less: Accumulated depreciation		(1,607,983	)		(1,631,047	)
Net property, plant and equipment		2,378,689			2,619,918
Construction in progress		1,851,374			1,851,374
Land usage right, net of accumulated amortization		1,530,064			1,530,064
Related party Receivable		363,321			363,321
Total assets	$	12,439,967		$	12,681,196
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	236,455		$	236,455
Tax payable		-			-
Deferred Sales		459,936			459,936
Accrued expenses		17,490			17,490
Other payable		118,722			118,722
Total current liabilities		832,603			832,603
Long-term debt
Asset retirement obligation liability for landfills		-			392,492
Total liabilities		832,603			1,225,095
Minority interest in subsidiary		1,180,371			1,165,245
Stockholders' equity
Common stock: par value $.001; 90,000,000 shares authorized; 13,220,843 shares issued and outstanding		13,221			13,221
Additional paid-in capital		1,956,634			1,956,634
Other comprehensive income		426,322			440,347
Retained earnings		8,030,816			7,880,654
Total stockholders' equity		10,426,993			10,290,856
Total liabilities and stockholders' equity	$	12,439,967		$	12,681,196

As a result of the restatement of the consolidated balance sheet as of March 31, 2007, total assets as of March 31, 2007 increased from $12,439,967, as originally reported, to $12,681,196, an increase of $241,229. The increase in total assets was mostly a result of a $241,229 increase in net property, plant and equipment resulting from the change in accounting for ARO liabilities pertaining to the Company’s landfill. Stockholders' equity as of March 31, 2007 decreased from $10,426,993, as originally reported, to $10,290,856, a decrease of $136,137. Minority interest in subsidiary decreased by $15,126, from $1,180,371 to $1,165,245.

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Balance Sheet

	Original			Restated
ITEMS	December 31,
	2006			2006
Current assets
Cash and cash equivalents	$	5,660,698		$	5,713,925
Trade accounts receivable		151,144			151,144
Other receivables		50,789			35,999
Inventory		602,582			602,944
Advances to suppliers		374,046			374,046
Deferred expense		20,490			20,490
Total current assets		6,859,749			6,898,548
Investment		361,136			322,717
Property, plant & equipment		3,927,234			4,189,517
Less: Accumulated depreciation		(1,487,340	)		(1,502,899	)
Net property, plant and equipment		2,439,894			2,686,618
Construction in progress		202,974			202,974
Land usage right, net of accumulated amortization		1,524,319			1,524,319
Related party Receivable		231,793			231,793
Total assets	$	11,619,865		$	11,866,969
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	92,255		$	92,255
Tax payable		6,346			6,346
Deferred Sales		455,548			455,548
Accrued expenses		15,410			15,768
Other payable		181,136			283,981
Total current liabilities		750,695			853,898
Long-term debt
Asset retirement obligation liability		-			381,873
Total liabilities		750,695			1,235,771
Minority interest in subsidiary		1,086,917			1,083,022
Stockholders' equity
Common stock		13,221			13,221
Additional paid-in capital		1,952,634			1,952,634
Other comprehensive income		478,500			381,579
Retained earnings		7,337,898			7,200,742
Total stockholders' equity		9,782,253			9,548,176
Total liabilities and stockholders' equity	$	11,619,865		$	11,866,969

As a result of the restatement of the consolidated balance sheet as of December 31, 2006, total assets as of December 31, 2006 increased from $11,619,865, as originally reported, to $11,866,969, an increase of $247,104. The increase in total assets was mostly a result of a $246,724 increase in net property, plant and equipment resulting from the change in accounting for ARO liabilities pertaining to the Company’s landfill. Stockholders' equity as of December 31, 2006 decreased from $9,782,253, as originally reported, to $9,548,176, a decrease of $234,077. Minority interest in subsidiary decreased by $3,895, from $1,086,917 to $1,083,022.

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Income Statements

	Original			Restated
	For Three Months Ended March 31,
ITEMS	2007			2007
Revenue	$	1,682,972		$	1,682,972
Costs of revenue (including depreciation)		(495,317	)		(509,768	)
Gross profit		1,187,655			1,173,204
Operating expenses
Selling expenses		204,241			204,241
General and administrative expenses		217,160			217,160
Total operating expenses		421,401			421,401
Income from operations		766,254			751,803
Other income (expense)
Interest income		2,804			2,804
Other income		368			368
Other expense		(27	)		(27	)
Total other income (expense)		3,145			3,145
Net income before minority interest and income tax		769,399			754,948
Income tax (benefit)		-			-
Net income after income tax		769,399			754,948
Minority interest		76,481			75,036
Net income	$	692,918		$	679,912
Foreign currency translation adjustment		(52,178	)		58,768
Comprehensive income	$	640,740		$	738,680
Basic and diluted weighted average shares outstanding		13,220,843			13,220,843
Basic and diluted net earnings per share		0.05			0.05

As a result of the restatement, net income for the three months ended March 31, 2007 decreased from $692,918, as originally reported, to $679,912, a decrease of $13,006, comprised of a $14,451 increase of cost of goods and a $1,445 decrease in minority interest.

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Income Statements

	Original			Restated
	For Three Months Ended March 31,
ITEMS	2006			2006
Revenue	$	1,551,437		$	1,551,437
Costs of revenue (including depreciation)		438,778			440,888
Gross profit		1,112,659			1,110,549
Operating expenses
Selling expenses		153,479			153,479
General and administrative expenses		253,037			253,037
Total operating expenses		406,516			406,516
Income from operations		706,143			704,033
Other income (expense)
Other expense		(35	)		(35	)
Total other income (expense)		(35	)		(35	)
Net income before minority interest and income tax		706,108			703,998
Income tax (benefit)		-			-
Net income after income tax		706,108			703,998
Minority interest		70,611			70,400
Net income	$	635,497		$	633,598
Foreign currency translation adjustment		81,826			81,842
Comprehensive income	$	717,323		$	715,440
Basic and diluted weighted average shares outstanding		13,140,843			13,140,843
Basic and diluted net earnings per share		0.05			0.05

As a result of the restatement, net income for the three months ended March 31, 2006 decreased from $635,497, as originally reported, to $633,598, a decrease of $1,899, comprised of a $2,110 increase in cost of goods and a $211 decrease in minority interest.

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Statements of Cash Flows

	Original			Restated
	For three Months Ended March 31,
ITEMS	2007			2007
Cash flows from operating activities:
Net income	$	692,918		$	679,912
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		76,481			75,036
Depreciation & amortization		114,574			122,186
Bad debt allowance		14,881			-
Stock issued for services		4,000			4,000
Accretion expenses					6,916
Changes in operating assets and liabilities:
Accounts receivable		(105,857	)		(105,857	)
Inventory		(165,004	)		(165,004	)
Other receivables		(158,947	)		23,175
Advance to suppliers		(1,843	)		(1,843	)
Prepaid expense		(19,388	)		(19,388	)
Deferred sales		1,565			1,565
Accounts payable & other payables		(23,611	)		(24,598	)
Tax payables		(12,761	)		(12,761	)
Net cash provided by operating activities		417,008			583,339
Cash flows from investing activities
Equity investment		(1,210,634	)		(1,262,735	)
Purchase of property and equipment		(21,019	)		(21,019	)
Advances to related party		-			(128,851	)
Construction contracts		(1,266,472	)		(1,266,472	)
Net cash used in investing activities		(2,498,125	)		(2,679,077	)
Cash flows from financing activities
Net cash provided by financing activities		-			-
Effect of exchange rate on cash		47,332			8,726
Net increase in cash and cash equivalents		(2,033,785	)		(2,087,012	)
Cash and cash equivalents, beginning of period		5,660,698			5,713,925
Cash and cash equivalents, end of period	$	3,626,913		$	3,626,913

As a result of the restatement, net cash provided by operating activities for three months ended March 31, 2007 increased by $166,331 from $417,008 as originally reported, to $583,339; and net cash used in investing activities increased by $180,952 from $2,498,125, as originally reported, to $2,679,077.

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Statements of Cash Flows

	Original			Restated
	For three Months Ended March 31,
ITEMS	2006			2006
Cash flows from operating activities:
Net income	$	635,497		$	633,598
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest		70,611			70,400
Depreciation		86,113			81,993
Accretion expenses		-			6,225
Changes in operating assets and liabilities:
Accounts receivable		(157,389	)		(157,391	)
Inventory		(3,862	)		(3,862	)
Other receivables		209,517			62,157
Advance to suppliers		(138,935	)		(333	)
Prepaid expense		10,201			10,201
Deferred sales		(6,949	)		-
Accounts payable & other payables		(158,108	)		(158,110	)
Tax payables		60,643			53,695
Net cash provided by operating activities		607,339			598,573
Cash flows from investing activities
Equity investment		(37,297	)		(37,297	)
Purchase of property and equipment		(155,425	)		(155,427	)
Repayment of advances to related party		-			34,811
Construction contracts		(141,355	)		(279,960	)
Net cash used in investing activities		(334,077	)		(437,873	)
Cash flows from financing activities
Net cash provided by financing activities		-			-
Effect of exchange rate on cash		20,445			23,961
Net increase in cash and cash equivalents		293,707			184,661
Cash and cash equivalents, beginning of period		2,944,243			2,944,179
Cash and cash equivalents, end of period	$	3,237,950		$	3,128,840

As a result of the restatement, net cash provided by operating activities for three Months ended March 31, 2006 decreased by $8,766 from $607,339 as originally reported, to $598,573; and net cash used in investing activities increased by $103,796 from $334,077, as originally reported, to $437,873.

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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. (“Dongtai”) from the shareholders of Dongtai in a reverse merger transaction in which the Dongtai shareholders became the owner of all of the issued and outstanding shares of CIWM Delaware..As a result of the reverse merger, Dongtai became a joint venture with foreign investment under the laws of the PRC, with a total registered and paid-in capital of $2.3 million. The exchange of shares with the Dongtai shareholders was accounted for as a reorganization between entities under common control with CIWM Delaware as the receiving entity, as prescribed by SFAS 141. The accounts of both entities were combined at their historical cost basis, resulting in no gain, loss, or goodwill. The combination was essentially a recapitalization of Dongtai.

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

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Dongtai is engaged in the collection, treatment, disposal and recycling of industrial wastes principally in Dalian, China and surrounding areas in Liaoning Province, China. Dongtai provides waste disposal solutions to its more than 400 customers, including large multinational corporations, from facilities located in the Economic and Technology Development Zone, Dalian, PRC. Dongtai treats, disposes of and/or recycles many types of industrial wastes, and recycled waste products are sold to customers as raw material to produce chemical and metallurgy products. In addition, Dongtai treats or disposes of industrial waste through incineration, burial or water treatment; as well as provides a range of environmental protection services to its clients. Dongtai generates revenues from waste collection and disposal services, as well as from sales of valuable products and recycled commodities.

In addition to its waste collection and disposal operations, Dongtai participates in the operation of the following waste disposal and environmental protection projects, which are expected to contribute to revenues in future periods:

·   Dongtai Water Recycling Co. Ltd (“Dongtai Water”), a Build-Operate-Transfer (BOT) project established to process polluted water generated by the City of Dalian. Dongtai owns 80% of this project. The total investment in this project is approximately RMB 44 million (approximately $6 million). Construction of the sewage plant has been completed, and the project is currently in the stage of commissioning.

·   Dongtai Organic Waste Treatment Co. Ltd. (“Dongtai Organic”), which is also a BOT project, engaged in municipal sludge treatment in Dalian. Dongtai owns a 49% interest in Dongtai Organic, which is expected to operate for the next 20 years and provide a municipal sludge treatment capacity of 600 tons per day. The total investment in the project, which is in the installation stage, is approximately RMB 130 million (approximately $17.8 million).

·   Dalian Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”), which is 70% owned by Dongtai, engages in plasma arc melting, separation and purification of waste catalysts, treatment of industrial wastes and comprehensive utilization of waste catalysts or similar material. RMB 65 million (approximately $8.9 million). The project is now in the facility installation stage.

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

Our revenues generated in first quarter 2008 were primarily attributable to fees from waste treatment and disposal services. We expect to experience continued increases in waste treatment and disposal services in fiscal 2008 in large part due to continued growth in Dalian and Liaoyang Province and increasing government environmental regulation.

23

In order to provide sufficient infrastructure to meet the increasing demand for waste treatment and disposal, an expansion project is now underway to significantly increase Dongtai’s capacity for waste treatment and disposal. It is anticipated that the total investment in this expansion project will be approximately RMB 120 million (approximately USD$16.4 million). Groundbreaking, incinerator design and other facilities design for the expansion project have been completed, and an environmental impact assessment report has been submitted to and approved by the Ministry of Environmental Protection of China.

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.

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Property, Plant and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment 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 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 COD through a credit term of up to nine to twelve months. Reserves are recorded primarily on a specific identification basis.

RESULTS OF OPERATIONS

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

Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007

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

Revenues

The Company’s operating revenues for the three months ended March 31, 2008 was $3,130,280, increased by $1,447,308 or 86% compared with $1,682,972 for the three months ended March 31, 2007.

	Three Months Ended March 31,
	2008		2007
			Restated
Service fees	$	1,819,552	$	837,063
Sales of cupric sulfate		708,843		388,333
Sales of recycled commodities	$	601,885	$	457,576
Operating revenue	$	3,130,280	$	1,682,972

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The increase in revenues from service fees mainly result from broadened customer base during this period compared with the same period last year, as well as an increase in sales of cupric sulfate. We experienced a $320,510 or 83% increase during the three months ended March 31, 2008 in comparison with the same period in 2007 as both the unit price and volume of cupric sulfate sold increased.

Cost of Revenues

The Company’s cost of revenues for the three months ended March 31, 2008 was $928,093 compared with $509,768 for the three months ended March 31, 2007.

Cost of service fees	$	371,035	$	228,619
Cost of cupric sulfate	$	286,526	$	97,295
Cost of recycled commodities	$	270,532	$	183,854
Total	$	928,093	$	509,768

The cost of revenues increased by $418,325 or 82% for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 as the rapid expansion of our business caused the corresponding increase in costs.

The cost of reclaimed products (which includes cost of cupric sulfate and cost of other recycled commodities) for the three months ended March 31, 2008 increased by $275,909 or 98%, compared with the same period in 2007. Such increase is attributable to a sharp increase in the price of raw materials.

Operating Expenses

Total operating expenses for the three months ended March 31, 2008 increased by $160,526 to $581,927 from $421,401 for the three months ended March 31, 2007, an increase of 38%. The increase in operating expenses is principally attributable to relatively significant increased on General and administrative expenses as the Company incurred expenses in connection with the company’s expansion in operation. In comparison with the same periods in 2007, the general and administrative expenses for the three months ended March 31, 2008 increased by 63%.

Foreign Currency Translation

Foreign currency translation adjustments for the three months ended March 31, 2008 increased to $589,954 from $58,768 for the three months ended March 31, 2007. This fluctuation is attributable to the revaluation of the Chinese currency against the U.S. dollar. 

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Net Income

Net income for the three months ended March 31, 2008 increased by $695,705 or 102% to $1,375,617 from $679,912 for the three months ended March 31, 2007. This increase is primarily attributable to the increase in revenues for the Company in the 2008 quarter.  

Liquidity and Capital Resources

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

Accounts receivable increased by $997,998 or 168% from 594,322 as of December 31 2007 to $1,592,320. This is attributable to an increase in the number of customers during the 2008 three-month period. Short-term loan as of the three months ended March 31 2008 was $2,563,299 whereas the amount as of December 31 2007 was $1,369,000 as the Company made additional bank borrowings to accelerate our business expansion.

As of March 31, 2008, the Company had cash and cash equivalents of $4,225,461, compared to $3,260,307 at December 31, 2007. As of March 31, 2008, the Company had working capital of $2,965,479, compared to $2,345,626 as of December 31, 2007.

Cash Flow

	March 31, 2008			March 31, 2007
Net cash provided by operating activities	$	821,953		$	583,339
Net cash used in investing activities	$	(1,118,074	)	$	(2,679,077	)
Net cash provided by financing activities	$	1,114,642			-

Net cash provided by operating activities totaled $821,953 for the three months ended March 31, 2008, compared to cash provided by operations of $583,339 for the three months ended March 31, 2007; an increase of $238,614 or 41% over the same period in the previous year. The principal reason for the increase in 2008 was cash in-flow generated from sales experienced a 7% increase in the first quarter compared with the same period in 2007. Therefore cash spent on material procurement, payroll and tax payment increased.

Net cash used in investing activities for the three months ended March 31, 2008 decreased by $1,561,003 or 58% compared to the same period in 2007. This decrease is attributable to a decline in spending on fixed assets and other investing activities.

Net cash provided by financing activities for the three months ended March 31, 2008 increased by $1,114,642 compared to the same period in 2007 as we received an additional bank loan in the first quarter of 2008.

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.

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OFF-BALANCE SHEET ARRANGEMENTS

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

·   Any obligation under certain guarantee contracts;

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

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

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

As of March 31, 2008, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4T.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures [as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)] as of March 31, 2008. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

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In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

During the evaluation of disclosure controls and procedures as of December 31, 2007 conducted during the preparation of the Company’s financial statements included in its annual report on Form 10-K, a material weakness in internal controls was identified.  As a result of this material weakness the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2007, our disclosure controls and procedures were not completely effective.

A material weakness is “a deficiency, or a combination of deficiencies (within the meaning of PCAOB Auditing Standard No. 5), in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.” The Company’s management had concluded that, as of December 31, 2007, the following material weakness existed:

·   We had an insufficient familiarity with generally accepted accounting principles in the United States (“US GAAP”) causing us to improperly (a) account for landfill-related asset retirement obligations and consolidation of the results of operations of a subsidiary company, as a result of which we restated our financial statements as of December 31, 2006 and for the year then ended, and as of March 31, 2007 and for the quarter then ended and, (b) record and reconcile various financial statement entries including accounts receivable balances (including allowance for doubtful accounts), other current assets, construction in progress amounts, customer deposits, deferred revenues depreciation and amortization expenses, certain operating expenses and taxes payable, income and interest expense, a loss on investment, related party transactions; and subsidizing amounts; resulting in numerous audit adjustments.

Since January 2, 2008 we have engaged in substantial efforts to improve our internal control over financial reporting and disclosure controls and procedures related to many areas of our financial statements and disclosures. In order to remediate the material weakness identified as of December 31, 2007, during 2008 we have:

·   Appointed a full-time Chief Financial Officer which will now allow the CEO to devote his full-time and attention to the Company’s operations and permit a CFO with experience in accounting matters to devote her full time and attention to the functions of chief financial officer.

·   Added additional accounting and financial personnel with industry experience.

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

·   Began the process of sourcing a consultant experienced in the application of US GAAP, including internal controls over financial reporting, to augment our accounting staff.

Notwithstanding the remedial actions we have undertaken since December 31, 2007, because of the scope of the material weakness at December 31, 2007, our management concluded that our disclosure controls and procedures at March 31, 2008 were not completely ineffective. Our efforts to remediate our disclosure controls and procedures and internal control over financial reporting are continuing and are expected to continue throughout fiscal 2008. Until such time, however, as our efforts remediate this weakness, there remains a risk that we will fail to identify weaknesses or adequately correct any identified weaknesses in our disclosure controls and procedures and internal control over financial reporting, both as they relate to the material weakness identified at December 31, 2007 and to other possible areas.

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Notwithstanding the existence of this material weakness in disclosure controls and procedures and internal control over financial reporting at March 31, 2008, we believe that the consolidated financial statements included elsewhere in this report fairly present, in all material respects, our consolidated balance sheets as of March 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the quarters ended March 31, 2008 and 2007 in conformity with US GAAP.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2008 in connection with the remedial actions described earlier in this section we modified our internal control over financial reporting to incorporate additional internal controls required by US GAAP. Other than these changes, there have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

None.

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

On February 4, 2008, the Company entered into a Business Advisory Agreement with Newbridge Securities Corporation. Under the Agreement, which is for a term of one year (subject to renewal on mutual agreement of the parties), Newbridge provides the Company with business and financial advice and consulting services, and the Company pays Newbridge an annual fee equal to $60,000 (payable at the rate of $5,000 per month). The Company also agreed to issue Newbridge (a) 200,000 shares of common stock at $.0001 per share and (b) five-year warrants to purchase 300,000 shares, 75,000 of which are exercisable at $3.50, 75,000 at $4.00, 75,000 at $4.50 and 75,000 at $5.00. The shares are to be earned at the rate of 50,000 shares at the time of execution of the agreement, with an additional 50,000 being earned each 90 days thereafter. The Company will record an expense in an amount equal to the fair market value of the shares on each date on which the shares are to be issued. The warrants are to be earned in four equal tranches of 75,000 warrants each (consisting of warrants to purchase 18,750 shares at $3.50 per share, warrants to purchase 18,750 shares at $4.00 per share, warrants to purchase 18,750 shares at $4.50 per share and warrants to purchase 18,750 shares at $5.00 per share) commencing on execution of the Agreement and each 90 days thereafter. On April 9, 2008, we issued the initial 50,000 shares to Newbridge under the Agreement and delivered the initial installment of warrants to purchase 75,000 shares.

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Newbridge has such knowledge and experience in business and financial matters that it is able to evaluate the risks and merits of an investment in the Company and the certificates evidencing the shares and warrants issuable to Newbridge will bear a legend restricting their transferability absent registration or the existence of an available exemption from registration. The securities were issued to Newbridge in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5.Other Information.

On May 7 2008, the Company’s Board of Directors adopted a Code of Ethics. A copy of the Code of Ethics is filed as an exhibit to this report.

Item 6.Exhibits.

No.	Description
14	Code of Ethics
31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

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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 Jinqing
		Dong Jinqing, Chief Executive Officer
Date: May 15, 2008

By:	/s/	Guo Xin
		Guo Xin, Chief Financial Officer
Date: May 15, 2008

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