China Industrial Waste Management (CIWT) 10-Q 2009 Q2 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 June 30, 2009

or

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

For The Transition Period From __________________ to __________________________

Commission File Number: 2-95836-NY

China Industrial Waste Management, Inc.

(Name of registrant as specified in its charter)

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

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

011-86-411-85811229

(Registrant's telephone number, including area code)

N/A

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

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

Yes x No ¨

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

Yes o No o

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

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

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

Yes ¨ No x

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

TABLE OF CONTENTS

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

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

CONVENTIONS AND GENERAL MATTERS

The official currency of the People’s Republic of China is the Chinese “Yuan” or “Renminbi” (“yuan,” “Renminbi” or “RMB”). For the convenience of the reader, amounts expressed in this report as RMB have been translated into United States dollars (“US$” or “$”) at the rate of USD$1.00 = RMB 6.8225 as of December 31, 2008; and at the rate of USD$1.00 = RMB 6.8302 as of June 30, 2009 quoted by the Federal Reserve System. The Renminbi is not freely convertible into foreign currencies and the quotation of exchange rates does not imply convertibility of Renminbi into U.S. Dollars or other currencies. All foreign exchange transactions take place through the Federal Reserve System. No representation is made that the Renminbi or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate or at all.

The "Company," "we," "us," "our" and similar words refer to China Industrial Waste Management, Inc, its direct wholly-owned subsidiaries Favour Group Ltd. (“Favour”), along with its indirect wholly-owned subsidiary, Full Treasure Investments Ltd. (“Full Treasure”), and its indirect majority and wholly owned subsidiaries: Dalian Dongtai Industrial Waste Treatment Co. Ltd. (“Dalian Dongtai”); Dongtai Water Recycling Co. Ltd. (“Dongtai Water”); Dalian Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”); Yingkou Dongtai Industrial Waste Treatment Co., Ltd.(“Yingkou Dongtai) and Dalian Lipp Environmental Energy Engineering & Technology Co., Ltd.(“Dalian Lipp”). In March 2009 DonTech, a previous direct wholly-owned subsidiary of China Industrial Waste Management, Inc., merged with and into China Industrial Waste Management, Inc. and the 90% shares of Dalian Dongtai  held by DonTech was transferred to Full Treasure.

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

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements.

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEETS

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

See notes to Consolidated Financial Statements.

1

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

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

See notes to Consolidated Financial Statements.

2

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

See notes to Consolidated Financial Statements.

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CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and the new scaled disclosure requirements in Article 8 of Regulation S-K of the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accounts of the Company and all of its subsidiaries are included in the consolidated financial statements. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2008.

1. Nature of operations

The accompanying unaudited consolidated financial statements are those of China Industrial Waste Management, Inc., a Nevada corporation (the “Company”) incorporated on November 12, 2003, its wholly owned subsidiary, Favour Group Ltd., a British Virgin Islands corporation (“Favour”), along with its indirectly wholly and majority owned subsidiaries:

• Full Treasure Investments Ltd. (“Full Treasure”)

• Dalian Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian Dongtai”)

• Dalian Dongtai Water Recycling Co., Ltd. (“Dongtai Water”)

• Dalian Zhuorui Resource Recycling Co., Ltd. (“Zhuorui”)

• Dalian Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian Lipp”)

• Yingkou Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou Dongtai”)

Dalian Dongtai was incorporated on January 9, 1991 in Dalian, PRC, and now is engaged in the collection, treatment, disposal, and recycling of industrial wastes, and sales of recycled products, principally in Dalian and surrounding areas in Liaoning Province, the People’s Republic of China (“PRC”). The Company provides waste disposal solutions to its more than 650 customers from facilities located in the Economic and Technological Development Zone, Dalian, China. In addition, the Company provides the following services to its clients:

• Environmental protection services

• Technology consultation

• Pollution treatment services

• Waste management design processing services

• Waste disposal solutions

• Waste transportation services

• Onsite waste management services

• Environmental pollution remediation services.

Dongtai Water, which was incorporated in July 2006, is a build-operate-transfer project established to process municipal waste water generated by Dalian City.

4

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Zhuorui was incorporated in April 2006 and is engaged in plasma arc melting, separation and purification of waste catalysts, treatment of industrial wastes and comprehensive utilization of waste catalysts or similar material. This subsidiary is now in the stage of trial production.

Dalian Lipp is a PRC joint venture established on December 22, 2007. Dalian Lipp designs, manufactures and installs environmental protection equipment and renewable energy equipment and provides related technical services. The project is based on the Lipp GmbH tank building technique which is dedicated to generating energy by organic waste anaerobic fermentation, industrial effluent treatment and municipal sewage plant.

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

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

2. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the parent entity, its directly wholly owned subsidiary, Favour, along with its indirectly wholly owned subsidiary, Full Treasure, its 90% indirectly owned subsidiary Dalian Dongtai, its 80% indirectly owned subsidiary Dongtai Water, its 70% indirectly owned subsidiary Zhuorui, its 75% indirectly owned subsidiary Dalian Lipp, and its 100% indirectly owned subsidiary Yingkou Dongtai. All material inter-company accounts and transactions have been eliminated in the consolidation.

The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in PRC. All necessary adjustments have been made to present the financial statements in accordance with US GAAP.

3. Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

5

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Foreign currency translation

As of June 30, 2009 and 2008, the accounts of the Company were maintained, and the unaudited consolidated financial statements were expressed in Chinese Yuan Renminbi (“RMB”). Such consolidated financial statements were translated into U.S. dollars (“USD”) in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation” with RMB as the functional currency. According to the Statement, all assets and liabilities were translated at the exchange rate as of the balance sheet date; stockholders’ equity was translated at the exchange rates prevailing at the time of the transactions; revenues, costs, and expenses were translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income”.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and cash on deposit, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Restricted cash

In accordance with Accounting Review Board (ARB) No. 43, Chapter 3A “Current Assets and Current Liabilities”, cash which is restricted as to withdrawal is considered a non-current asset. As of June 30, 2009, restricted cash consists of time deposit of $292,817 (RMB2, 000,000) as detailed below:

Effective Date	Maturity		Depository Bank	Annual Interest Rate		Principal
05-25-2009		05-25-2010	Bank of Dalian		2.25%	$	292,817
						$	292,817

Accounts and other receivables

Accounts and other receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.

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

Concentration of credit risks

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents. The Company maintains accounts with financial institutions, which at times exceeds the insured Federal Deposit Insurance Corporation limit of $250,000. The Company minimizes its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institutions. And by depositing its cash and cash equivalents among various financial institutions.

6

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Advances to suppliers

The Company makes advances to certain vendors for purchase of its material or equipment. The advances to suppliers are interest free and unsecured.

Inventory

Inventories are stated at the lower of cost, as determined on a first-in, first-out basis for raw materials and auxiliary materials, and weighted average basis for other categories, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower.

Property, plant and equipment

Property, plant and equipment (“PP&E”) are stated at cost, less accumulated depreciation and impairment. Expenditures for maintenance and repairs, which are not considered improvements and do not extend the useful life of PP&E, are expensed as incurred; additions, renewals and betterments are capitalized. When PP&E are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in the statement of operations.

Depreciation is provided to recognize the cost of PP&E in the results of operations. The Company calculates depreciation using the straight-line method with estimated useful life as follows:

	Useful Life
Buildings	20 Years
Machinery	10 Years
Vehicles	5 Years
Office equipment	5 Years

Construction in progress consists of construction expenditure, equipment procurement, capitalized interest expense, relevant miscellaneous expenditures, and other costs.

As of June 30, 2009, construction in progress is comprised of two principal components; one is the costs incurred by Dalian Dongtai for the expansion project which is located in Dagu Hill, ETD Zone, Dalian.

The expansion project consists of an incineration system that includes an incinerator, its supporting facilities, and warehouses, work plants and office buildings, etc. The other component is production equipment of Zhuorui, which is still in testing phase, including plasma furnace, flue gas cleansing system, dust trapper, and trial production cost incurred during the second quarter of 2009.

Landfills

Various costs that we incur to make a landfill ready to accept waste are capitalized. These costs generally include expenditures for land, permitting, excavation, liner material and installation and other capital infrastructure costs. The cost basis of our landfill assets also includes estimates of future costs associated with landfill final capping, closure and post-closure activities in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations and its Interpretations”.

Interest accretion on final capping, closure and post-closure liabilities is recorded using the effective interest method and is recorded as accretion expense, which is included our Consolidated Statements of Operations.

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CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

The amortizable basis of a landfill includes (i) amounts previously expended and capitalized; (ii) capitalized landfill final capping, closure and post-closure costs; (iii) projections of future purchase and development costs required to develop the landfill site to its remaining permitted and expansion capacity; and (iv) projected asset retirement costs related to landfill final capping, closure and post-closure activities.

Amortization is recorded on a units-of-consumption basis, applying cost as a rate per ton. The rate per ton is calculated by dividing each component of the amortizable basis of a landfill by the number of tons needed to fill the corresponding asset’s airspace.

Liabilities for landfill and environmental remediation costs are presented in the table below:

	June 30, 2009		December 31, 2008
Long-term Liability	$	519,773		$	502,278

Long-term investment

Long-term investment is recorded under the equity method. As of June 30, 2009, long-term investment is comprised of investment in Dalian Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai Organic”).

Dongtai Organic, which is now in the stage of trial production, was organized to operate a municipal sludge treatment and disposal facility in Dalian, PRC. The Company currently owns 49% of Dongtai Organic.

Impairment of long-lived assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets are tested for impairment annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no events or changes in circumstances that necessitated a review of impairment of long lived assets as of June 30, 2009 and December 31, 2008, respectively.

Intangible assets

Intangible assets consist of “Rights to use land and build a plant” for 50 years and intellectual property. The intangible assets are amortized using straight – line method. The Company also evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and, goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

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CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

As of June 30, 2009 and December 31, 2008, net land usage right was $1,790,195 and $1,817,427 respectively.

Non-controlling interest in consolidated financial statements

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements,” (“SFAS 160”). This Statement amends Accounting Research Bulletin 51 (“ARB 51”) to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for the Company beginning January 1, 2009.

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

Fair value of financial instruments

SFAS No.107, “Disclosures About Fair Value of Financial Instruments”, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Revenue recognition

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104. Our revenues are generated from the fees we charge for waste collection, transfer, treatment, disposal and recycling services and the sale of recycled commodities. The fees charged for services are generally defined in service agreements and vary based on contract specific terms such as frequency of service, weight, volume and the general market factors influencing industry’s rates. Revenue is generally recognized as services are rendered or products are delivered.

Deferred sales consist of contracts for which the fees have been collected but revenue has not yet been recognized in accordance with the revenue recognition policy. As of June 30, 2009 and December 31, 2008, deferred sales amounted to $ 963,531 and $ 972,143, respectively.

Advertising costs

The Company expenses the cost of advertising as incurred or, as appropriate, the first time the advertising takes place. Advertising costs for the period ended June 30, 2009 and 2008 were immaterial.

Stock-based compensation 

In December 2004, the Financial Accounting Standard Board (“FASB”) issued SFAS No.123(R), “Share-Based Payment”, which prescribes accounting and reporting standards for all stock based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123(R) requires compensation expense to be recorded using the fair value method.

9

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Income taxes

The Company utilizes SFAS No.109, “Accounting for Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Local PRC income tax

The Company is subject to the PRC Enterprise Income Tax (“EIT”) at a rate of 25% on its net income. According to PRC EIT Law, any joint venture with foreign investment will get EIT exemption treatment for the first two years and reduced tax rates of 9%, 10% and 11% for the third, fourth and fifth years, respectively. As a foreign investment enterprise, Dongtai is subject to EIT at 10% for the period ended June 30, 2009. Furthermore, the Law stipulates that enterprises that engage in municipal waste water treatment business are eligible for special EIT treatment. According to such rules, Dongtai Water is entitled to a three-year EIT exemption treatment starting whenever it receives the first operation revenue, and another 50% off of the normal rate for the next three years.

Statement of cash flows

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

Basic and diluted net earnings per share

Earnings per share is calculated in accordance with SFAS No. 128, “Earnings Per Share”. Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Reclassifications

Certain reclassifications have been made in the 2008 financial statements to conform to the 2009 presentation.

Recent accounting pronouncements

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

10

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the Financial Accounting Standards Board issued Statement “FASB” issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”).  SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature.  SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure.  Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections.  SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009.  This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing

In June 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Share lending arrangements that have been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity has not reached a final settlement as of the effective date are within the scope of this Issue. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. This Issue is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact of FSP EITF 09-1 on its financial position and results of operations.

Subsequent Events

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”) This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009.  The adoption of SFAS No. 165 is not expected to have a material impact on the Company’s financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively.  The implementation of FSP FAS No. 157-4 did not have a material on the Company’s financial position and results of operations.

11

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ". The objective of an other-than-temporary impairment analysis under existing U.S. generally accepted accounting principles (GAAP) is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted.  The implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the Company’s financial position and results of operations.

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies as well as in annualfinancial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The implementation of FSP FAS No. 107-1 did not have a material impact on the Company’s financial position and results of operations

Interim Disclosure about Fair Value of Financial Instruments

In April 2009, the FASB issued FASB Staff Position “FSP” No. SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”.  This FSP amends SFAS No. 107 to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements.  The FSP also amends Accounting Principles Board Opinions “APB Opinion” No. 28 to require those disclosures in summarized financial information at interim reporting periods.  This FSP becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The adoption of this FSP is not expected to have a material impact on our consolidated financial statements.

Amendments to the Impairment Guidance of EITF Issue No. 99-20

In January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than- temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. This Issue is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of FSP EITF 99-20-1 did not have a material effect on the Company’s consolidated financial statements

12

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

4. Accounts Receivable

Aging	June 30, 2009		December 31, 2008
1-3 months	$	1,485,010	$	1,505,796
4-6 months		411,004		437,667
7-12 months		425,689		469,264
1-2 years		442,330		1,909
More than 2 years		10,079		11,753
Total	$	2,774,112	$	2,426,389
Allowance for doubtful accounts		12,118		12,132
Net accounts receivable	$	2,761,994	$	2,414,257

5. Notes Receivable

As of June 30, 2009, the outstanding balance of notes receivable is comprised of four bank acceptance bills issued by Dalian Petrochemical Engineering Corporation. The balance of each note and maturity are as follows:

Maturity	Amount
July 9, 2009	$	73,204
July 9, 2009		73,204
July 9, 2009		123,172
September 10, 2009		88,242
	$	357,822

13

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

6. Inventory

Inventory as of June 30, 2009 and December 31, 2008 consists of raw materials and recycled commodities as follows:

	June 30, 2009		December 31, 2008
Raw materials	$	1,331,941	$	1,130,109
Recycled commodities		1,166,557		1,242,105
	$	2,498,498	$	2,372,214

7. Property, plant and equipment

	June 30,2009			December 31,2008
Land and building	$	10,027,751		$	9,978,971
Machinery and equipment		7,361,417			6,898,868
Office equipment		549,529			542,174
Vehicles		928,680			911,540
		18,867,377			18,331,553
Less accumulated depreciation		(3,440,126	)		(2,856,638	)
Total property and equipment, net		15,427,251			15,474,915
Construction in progress		6,329,944			5,738,271
Total	$	21,757,195		$	21,213,186

Depreciation expenses amounted to $583,488 and $356,842 for the period ended June 30, 2009 and 2008, respectively.

8. Short-term loan

As of June 30, 2009, the short-term loan balance represents loans borrowed from Shanghai Pudong Development Bank, Dalian Branch. The following table identifies the material terms of loans:

Effective Date	Maturity		Type	Annual Interest Rate		Principal
04-27-2009		04-27-2010	Secured		5.841%	$	3,806,623
05-18-2009		05-18-2010	Secured		5.841%		1,464,086
06-04-2009		06-04-2010	Secured		5.841%		1,464,086
						$	6,734,795

14

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

9. Government subsidies

Government subsidies, with the amount of $980,141 as of June 30, 2009, represents subsidies that Zhuorui received from local government, as Zhuorui’s business falls into the industry classifications encouraged by the local government’s development strategy. The subsidy is to be used exclusively for facility construction and equipment procurement to fulfill its business operations. The subsidy is initially recorded as deferred revenue. Upon the completion and acceptance of the government subsidized project, subsidies are recognized over the useful lives of the related asset.

10. Shareholder’s equity

On April 30, 2009, the Company issued 9,000 shares of common stock under an agreement with a consultant to provide the Company with investor relations services. The fair market value of the stock is approximately $15,600.

11. Accumulated other comprehensive income

	June 30,  2009			December 31,  2008
Cumulative translation adjustment of foreign currency statements	$	(201,132	)	$	1,268,439

12. Related parties

Related Parties	June 30, 2009
	Receivable		Payable
Dongtai Investment	$	-	$	378,600
Dongtai Organic		27,743		-
Total	$	27,743	$	378,600

13. Statutory common welfare fund

As stipulated by the Company Law of the PRC as applicable to Chinese companies with foreign ownership, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

a.  Making up cumulative prior years’ losses, if any

b. Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

c. Allocations of 5 -10% of income after tax, as determined under PRC accounting rules and regulations to the Company’s “Statutory common welfare fund”, which is established for the purpose of providing employee facilities and other collective benefits to the Company’s employees; and

d.  Allocations to the discretionary surplus reserve, if approved in the shareholders’ general meeting.

14. Current vulnerability due to certain concentrations

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions and remittance abroad, and rates and methods of taxation, among other things.

15

CHINA INDUSTRIAL WASTE MANAGEMENT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

15. Subsequent events

On July 23, 2009, Dalian Dongtai received a national subsidy from the PRC central government of RMB 10 million（approximately $1,464,129）to support the construction of a Centralized Hazardous Waste Treatment Facility (the “Expansion Project”) in Dalian, Liaoning Province.

16

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

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

OVERVIEW

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

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

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

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

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

17

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

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

		Capacity
Facility	Description	Existing	After expansion
Incinerator	Incineration System for Solid Waste	3,300 t/y	9,000 t/y
Hazardous Waste Landfill	Hazardous Waste Safe Landfill	13,000 t	40,000 t
Industrial Effluent Treatment System	Industrial Sewage Treatment	18,000 t/y	25,000 t/y
Organic Solvent Recycling System	Industrial Organic Solvent Product	1,000 t/y	3,000 t/y

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

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

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

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

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

18

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

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

CRITICAL ACCOUNTING POLICIES

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

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

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

Revenue Recognition

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

Property, Plant and Equipment

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

Bad Debts  

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

19

RESULTS OF OPERATIONS

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

Three Months and Six Months Ended June 30, 2009 Compared to the Three Months and Six Months Ended June 30, 2008.

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

Revenues

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

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

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

1. Service fees

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

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

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

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

20

2. Sales of recycled products

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

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

Cost of Revenues

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

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

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

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

Net Income

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

Liquidity and Capital Resources

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

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

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

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

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

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

Cash Flow

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

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

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

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

We intend to use our available funds as working capital and to expand and develop our current lines of business. We believe that our available funds will provide us with sufficient capital for at least the next twelve months; however, to the extent that we make acquisitions, we may require additional capital for the acquisition or to support the operations of the combined companies. We cannot provide any assurance that any required funding will be available on terms acceptable to us.

OFF-BALANCE SHEET ARRANGEMENTS

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

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Ø Any obligation under certain guarantee contracts;

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

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4T. Controls and Procedures

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

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

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

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

LACK OF SEGREGATION OF DUTIES

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

None.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

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

Item 6. Exhibits.

No.	Description
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
99.1	Charter of the Nominating, Governance and Compensation Committee of the Board of Directors

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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: August 14, 2009

By:	/s/ Guo Xin
	Guo Xin, Chief Financial Officer
Date: August 14, 2009

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